================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1999

                                       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)

       TEXAS                                                  74-1764876
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)

                1001 FANNIN, SUITE 1600, HOUSTON,TEXAS 77002-6714
               (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  10, 1999,  166,872,955  shares of Common  Stock,  par value
$0.10 per share, were outstanding.

================================================================================


<PAGE>


                               OCEAN ENERGY, INC.


                                     INDEX

<TABLE>
                                                                                                   PAGE
                                                                                                   NUMBER
<S>                                                                                                <C>

PART I.  FINANCIAL INFORMATION

    Item 1.   Unaudited Consolidated Financial Statements

                  Consolidated Statements of Operations for the Three Months and

                  Nine Months Ended September 30, 1999 and 1998......................................    1

                  Consolidated Balance Sheets - September 30, 1999

                  and December 31, 1998..............................................................    2

                  Consolidated Statements of Cash Flows for the Nine Months

                  Ended September 30, 1999 and 1998..................................................    3

                  Consolidated Statements of Comprehensive Income for the Three

                  Months and Nine Months Ended September 30, 1999 and 1998 ..........................    4

                  Notes to Consolidated Financial Statements.........................................    5

    Item 2.   Management's Discussion and Analysis of Financial

              Condition and Results of Operations....................................................   16

    Item 3.   Quantitative and Qualitative Disclosures about Market Risks............................   30

PART II.  OTHER INFORMATION..........................................................................   30
</TABLE>



    ON MARCH 30, 1999, OCEAN ENERGY, INC., A DELAWARE  CORPORATION,  MERGED WITH
AND INTO SEAGULL  ENERGY  CORPORATION,  A TEXAS  CORPORATION,  AND THE RESULTING
COMPANY WAS RENAMED  OCEAN  ENERGY,  INC. THE MERGER WAS TREATED FOR  ACCOUNTING
PURPOSES  AS  AN  ACQUISITION  OF  SEAGULL  BY  OCEAN  IN  A  PURCHASE  BUSINESS
TRANSACTION.  AS SUCH, THE FINANCIAL  RESULTS PRESENTED HERE ARE PRIMARILY THOSE
OF OCEAN ENERGY,  INC. ON A STAND-ALONE  BASIS FOR THE FIRST QUARTER OF 1999 AND
OF THE COMBINED  COMPANY FOR THE SECOND AND THIRD QUARTERS OF 1999,  COMPARED TO
OCEAN'S RESULTS IN THE FIRST, SECOND AND THIRD QUARTERS OF 1998 ON A STAND-ALONE
BASIS.

                                     (i)

<PAGE>


ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               OCEAN ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in Thousands, Except Per Share Data)
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                     Three Months Ended                    Nine Months Ended
                                                                        September 30,                        September 30,
                                                                 --------------------------------- ---------------------------------
                                                                      1999             1998             1999             1998
                                                                 ---------------   --------------  --------------- -----------------

<S>                                                                <C>               <C>             <C>              <C>
Oil and Gas Sales.............................................     $  214,393        $  123,369      $  516,293       $   397,334

Costs of Operations:
   Operating expenses.........................................         54,672            50,048         165,278           135,460
   Depreciation, depletion and amortization...................         85,615            70,221         233,732           217,719
   Loss on sale of canadian assets............................              -                 -          28,500                 -
   Write-down of oil and gas properties.......................              -                 -               -           218,392
   General and administrative.................................          4,955             4,628          18,038            13,646
                                                                 ---------------   --------------  --------------- -----------------
                                                                      145,242           124,897         445,548           585,217
                                                                 ---------------   --------------  --------------- -----------------

Operating Profit (Loss).......................................         69,151            (1,528)         70,745          (187,883)

Other (Income) Expense:
   Interest expense...........................................         30,410            18,621          86,601            40,562
   Merger expense.............................................          3,176                 -          43,828            39,000
   Interest income and other..................................           (269)           (1,286)           (383)           (2,094)
                                                                 ---------------   --------------  --------------- -----------------

Income (Loss) Before Income Taxes.............................         35,834           (18,863)        (59,301)         (265,351)

Income Tax Expense (Benefit)..................................          6,404            (4,446)         (9,269)          (87,955)
                                                                 ---------------   --------------  --------------- -----------------

Income (Loss) From Continuing Operations......................         29,430           (14,417)        (50,032)         (177,396)
Loss From Discontinued Operations, Net of
   Income Taxes...............................................           (625)                -             (78)                -
                                                                 ---------------   --------------  --------------- -----------------

Net Income (Loss).............................................         28,805           (14,417)        (50,110)         (177,396)
Preferred Stock Dividend......................................            819                 -           2,456                 -
                                                                 ---------------   --------------  --------------- -----------------

Net Income (Loss) Available to Common Shareholders............     $   27,986        $  (14,417)     $  (52,566)      $  (177,396)
                                                                 ===============   ==============  =============== =================

Basic Earnings (Loss) Per Common Share:
     Income (Loss) From Continuing Operations.................      $    0.17         $    (0.14)     $    (0.36)     $     (1.76)
     Discontinued Operations..................................             -                  -               -                 -
                                                                 ---------------   --------------  --------------- -----------------
     Net Income (Loss)........................................      $    0.17         $    (0.14)     $    (0.36)     $     (1.76)
                                                                 ===============   ==============  =============== =================
Diluted Earnings (Loss) Per Common Share:
     Income (Loss) From Continuing Operations.................     $     0.16        $     (0.14)    $     (0.36)     $     (1.76)
     Discontinued Operations..................................             -                  -               -                -
                                                                 ---------------   --------------  --------------- -----------------
     Net Income (Loss)........................................     $     0.16        $     (0.14)    $     (0.36)     $     (1.76)
                                                                 ===============   ==============  =============== =================

Weighted Average Number of Common Shares
   Outstanding:
     Basic....................................................        166,680           100,924         145,670           100,544
                                                                 ===============   ==============  =============== =================
     Diluted..................................................        170,629           100,924         145,670           100,544
                                                                 ===============   ==============  =============== =================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       1

<PAGE>


                               OCEAN ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,         December 31,
                                                                                           1999                 1998
                                                                                     -----------------    ------------------
                                                                                       (UNAUDITED)

                                                          ASSETS

Current Assets:
<S>                                                                                    <C>                  <C>
   Cash and cash equivalents....................................................       $      53,877        $      10,706
   Accounts receivable, net.....................................................             147,007              111,829
   Inventories..................................................................              27,127               16,802
   Prepaid expenses and other...................................................              23,805               14,444
                                                                                     -----------------    ------------------
     Total Current Assets.......................................................             251,816              153,781

Property, Plant and Equipment, at cost, full cost method for oil and gas properties:
   Evaluated oil and gas properties.............................................           3,501,039            2,759,686
   Unevaluated oil and gas properties excluded from amortization................             560,731              488,689
   Other........................................................................              76,650               44,960
                                                                                     -----------------    ------------------
                                                                                           4,138,420            3,293,335
Accumulated Depreciation, Depletion and Amortization............................           1,973,788            1,711,696
                                                                                     -----------------    ------------------
                                                                                           2,164,632            1,581,639

Deferred Income Taxes...........................................................             206,045              217,824
Noncurrent Assets of Discontinued Operations, Net...............................             222,112                    -
Other Assets....................................................................              61,716               53,716
                                                                                     -----------------    ------------------
Total Assets....................................................................       $   2,906,321        $   2,006,960
                                                                                     =================    ==================

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts and notes payable...................................................       $     163,982        $     184,828
   Accrued interest payable.....................................................              34,024               36,206
   Accrued liabilities..........................................................              89,354               15,312
   Current maturities of long-term debt.........................................                 846                  836
                                                                                     -----------------    ------------------
     Total Current Liabilities..................................................             288,206              237,182

Long-term Debt..................................................................           1,538,697            1,371,890
Other Noncurrent Liabilities....................................................             140,949               20,945
Commitments and Contingencies...................................................                   -                    -

Shareholders' Equity:
   Preferred stock, $1.00 and $0.01 par  value, respectively; authorized
       10,000,000 Shares; issued 50,000 shares..................................                   1                    1
   Common stock, $.10 And $.01 Par value, respectively; authorized 230,000,000 and
     250,000,000 shares respectively; issued 166,859,714 and 101,753,646 shares,
     respectively...............................................................              16,687                1,018
   Additional paid-in capital...................................................           1,483,015              892,339
   Accumulated deficit..........................................................            (552,680)            (500,114)
   Other .......................................................................              (8,554)             (16,301)
                                                                                     -----------------    ------------------
     Total Shareholders' Equity.................................................             938,469              376,943
                                                                                     -----------------    ------------------
Total Liabilities and Shareholders' Equity......................................       $   2,906,321        $   2,006,960
                                                                                     =================    ==================
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.

                                       2

<PAGE>


                               OCEAN ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                              ---------------------------------------
                                                                                    1999                 1998
                                                                              -----------------    ------------------
 OPERATING ACTIVITIES:
<S>                                                                             <C>                  <C>
   Net loss...............................................................      $     (50,110)       $   (177,396)
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
     Loss from discontinued operations....................................                 78                   -
     Depreciation, depletion and amortization.............................            233,732             217,719
     Loss on sale of canadian assets......................................             28,500                   -
     Write-down of oil and gas properties.................................                  -             218,392
     Deferred income taxes................................................            (24,702)            (91,253)
     Noncash merger expenses..............................................             21,047                   -
     Other................................................................              6,180               5,294
                                                                              -----------------    ------------------
                                                                                      214,725             172,756
     Changes in operating assets and liabilities, net of acquisitions:
       Decrease in accounts receivable....................................             23,926               6,039
       (Increase) decrease in inventories, prepaid expenses and other.....             22,695             (11,929)
       Decrease in accounts and notes payable.............................           (112,004)            (24,408)
       Increase in accrued expenses and other.............................             47,064               5,871
                                                                              -----------------    ------------------
     Net Cash Provided by Continuing Operations...........................            196,406             148,329
     Net Cash Provided by Discontinued Operations.........................             14,377                   -
                                                                              -----------------    ------------------
     Net Cash Provided by Operating Activities............................            210,783             148,329
                                                                              -----------------    ------------------

 INVESTING ACTIVITIES:
   Capital expenditures of continuing operations..........................           (231,976)           (669,798)
   Capital expenditures of discontinued operations........................             (5,040)                  -
   Acquisition costs, net of cash acquired................................             (5,623)                  -
   Proceeds from sales of property, plant and equipment...................            390,512               1,097
                                                                              -----------------    ------------------
     Net Cash Provided by (Used In) Investing Activities..................            147,873            (668,701)
                                                                              -----------------    ------------------

 FINANCING ACTIVITIES:
   Proceeds from debt.....................................................            989,999           1,424,438
   Principal payments on debt ............................................         (1,400,823)           (893,356)
   Proceeds from deferred revenue.........................................            100,000                   -
   Proceeds from sales of common stock....................................              2,572               7,583
   Deferred debt issue costs..............................................             (6,406)            (15,433)
   Dividends paid.........................................................               (827)                  -
                                                                              -----------------    ------------------
     Net Cash Provided by (Used In) Financing Activities..................           (315,485)            523,232
                                                                              -----------------    ------------------

 Increase in Cash and Cash Equivalents....................................             43,171               2,860

 Cash and Cash Equivalents At Beginning of Period.........................             10,706              11,689
                                                                              -----------------    ------------------

 Cash and Cash Equivalents At End of Period...............................      $      53,877        $     14,549
                                                                              =================    ==================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       3
<PAGE>


                               OCEAN ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (Amounts in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                             Three Months Ended                Nine Months Ended
                                                               September 30,                      September 30,
                                                      --------------------------------- ---------------------------------
                                                            1999             1998            1999             1998
                                                      ----------------- --------------- ---------------- ----------------

<S>                                                      <C>               <C>             <C>              <C>
Net income (loss)....................................    $   28,805        $(14,417)       $  (50,110)      $(177,396)

Other comprehensive income (loss), net of tax:
   Foreign currency translation adjustment...........             -          (1,282)           10,720          (1,866)
                                                      ----------------- --------------- ---------------- ----------------

Comprehensive income (loss) .........................    $   28,805        $(15,699)       $  (39,390)      $(179,262)
                                                      ================= =============== ================ ================
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.





























                                       4
<PAGE>


                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.       PRESENTATION OF FINANCIAL INFORMATION

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

     Effective March 30, 1999, Ocean Energy,  Inc. ("Old Ocean") was merged (the
"Merger")  with and into Seagull  Energy  Corporation  ("Seagull").  Seagull was
engaged  primarily  in  exploration  and  development  activities  in the United
States, Egypt, Cote d'Ivoire,  Indonesia and the Russian Republic of Tartarstan.
At the time of the Merger,  Seagull  amended its  Articles of  Incorporation  to
change its name to Ocean Energy,  Inc., and each outstanding  share of Old Ocean
common  stock  was  converted  into  one  share of  Seagull  common  stock.  The
stockholders of Old Ocean received approximately 61.5% of the outstanding common
stock of the Company in the Merger, and the shareholders of Seagull received the
remaining  38.5%.  Certain  reclassifications  have been made to the  historical
results of the Company to conform the presentation used by the companies.

     Effective March 27, 1998,  United Meridian  Corporation  ("UMC") was merged
into  Old  Ocean  (the  "UMC  Merger").  As a  result  of the UMC  Merger,  each
outstanding share of UMC common stock was converted into 1.3 shares of Old Ocean
common stock with  approximately 46 million shares issued to the shareholders of
UMC, representing  approximately 46% of all of the issued and outstanding shares
of Old Ocean. Old Ocean's shareholders  received 2.34 shares of Old Ocean shares
for each share outstanding  immediately  preceding the UMC Merger,  representing
approximately  54% of all of the then  issued and  outstanding  shares.  The UMC
Merger  was  accounted  for  as  a  pooling  of  interests.   Accordingly,   the
consolidated  financial  statements  for  periods  prior to the UMC Merger  were
restated to conform  accounting  policies and combine the historical  results of
Old  Ocean and UMC.  Merger  costs of $39  million  relating  to the UMC  Merger
consisted  primarily of investment banking and other transaction fees,  employee
severance and  relocation  costs as well as the write-off of deferred  financing
costs.

     The accompanying consolidated financial statements of the Company should be
read in conjunction with the consolidated financial statements and notes thereto
of Old Ocean and Seagull for the year ended December 31, 1998.

     PROPERTY,  PLANT AND EQUIPMENT - The Company  capitalizes  interest expense
and certain employee-related costs that are directly attributable to oil and gas
operations.  For the three months ended September 30, 1999 and 1998, the Company
capitalized  interest  expense  in the  amount  of $8  million  and $7  million,
respectively,  and certain  employee-related  costs in the amount of $11 million
and $8 million,  respectively.  For the nine months ended September 30, 1999 and
1998, the Company capitalized  interest expense in the amount of $28 million and
$22 million,  respectively,  and certain employee-related costs in the amount of
$26 million and $19 million, respectively.

                                       5
<PAGE>
                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     EARNINGS PER SHARE - Options to purchase a weighted  average of  19,517,000
and  12,141,000  shares of common stock for the nine months ended  September 30,
1999 and 1998, respectively, and 13,280,000 for the three months ended September
30, 1998, at prices ranging from $2.11 to $36.54 per share were  outstanding but
were not  included in the  computation  of diluted  loss per share  because such
options would have an antidilutive effect on the computation of diluted loss per
share.  These options  expire at various dates from 1999 to 2009.  The preferred
stock  conversion  was  also  excluded  from  the  computation  because  of  its
antidilutive  effect.  For the three months ended September 30, 1999, the amount
of diluted  weighted  average shares has been  increased by 3,949,000  shares to
reflect  the assumed  effect of the  exercise  of stock  options.  For this same
period options to purchase 10,800,000 shares of common stock at $10.19 to $36.54
per share and expiring at various dates from 1999 to 2009 were  outstanding  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.

     TREASURY STOCK - The Company  follows the average cost method of accounting
for treasury stock transactions.

     DISCONTINUED  OPERATIONS  - The  Company has  operated in Alaska  through a
division of the Company and a wholly-owned subsidiary  (collectively referred to
herein  as  "ENSTAR").  ENSTAR  is  subject  to  regulation  by  the  Regulatory
Commission  of Alaska  ("the  RCA")  which has  jurisdiction  over,  among other
things, rates,  accounting procedures and standards of service. In July 1999 the
Company  committed  to a plan to dispose of ENSTAR,  and on November 1, 1999 the
Company  completed  the  sale.  See Note 2.  Prior to the  sale the  results  of
operations  and net  assets  of  ENSTAR  have  been  reflected  as  discontinued
operations.

     ACCOUNTING   PRONOUNCEMENTS  -  In  June  1998,  the  Financial  Accounting
Standards  Board ("FASB")  issued  STATEMENT OF FINANCIAL  ACCOUNTING  STANDARDS
("SFAS") NO. 133, ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES.
This  statement  establishes  standards of  accounting  for and  disclosures  of
derivative  instruments and hedging activities.  This statement,  as amended, is
effective for fiscal years  beginning  after June 15, 2000.  The Company has not
yet determined the impact of this statement on the Company's financial condition
or results of operations.

NOTE 2.       ACQUISITION AND DISPOSITION OF ASSETS

     MERGER - On March 30,  1999,  the  shareholders  approved  the Merger.  The
Merger has been accounted for as a purchase under generally accepted  accounting
principles.  Because Old Ocean  stockholders  own a majority of the  outstanding
shares of common stock of the merged  company,  the accounting  treatment of the
Merger reflects Old Ocean acquiring Seagull in a "reverse  purchase." Under this
method of accounting,  the merged company's historical results for periods prior
to the Merger are the same as Old Ocean's historical results. At the date of the
Merger, assets

                                       6
<PAGE>
                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

and  liabilities of Old Ocean were recorded based upon their  historical  costs,
and the assets and  liabilities of Seagull were recorded at their estimated fair
market values.

     The following is a calculation of purchase price:

<TABLE>
<S>                                                                                   <C>
     CALCULATION OF PURCHASE PRICE (IN THOUSANDS, EXCEPT PER SHARE DATA):
       Shares of common stock  issued..............................................              64,630
       Average of OEI stock price three days before and after the
          Merger announcement......................................................     $          9.09
                                                                                      ----------------------
       Fair value of stock issued..................................................     $        587,484
       Add: Capitalized Merger costs...............................................               64,054
                                                                                      ----------------------
       Purchase Price..............................................................     $        651,538
                                                                                      ======================
</TABLE>

     Capitalized merger costs consisted  primarily of severance costs of Seagull
($22 million),  value of Seagull stock options  maintained by OEI ($17 million),
investment   banking  fees  ($10  million),   and  other  transaction  fees  and
professional  expenses ($15 million).  In addition,  merger costs of $44 million
were expensed through September 30, 1999. These costs consisted primarily of Old
Ocean's  severance costs ($24 million),  the write-off of certain costs relating
to Old Ocean's  information  technology  system ($14  million) and  compensation
expense related to the vesting of Old Ocean's restricted stock ($6 million).  As
of September 30, 1999,  substantially  all of Old Ocean's  severance  costs have
been paid.

     The  allocation of purchase  price to specific  assets and  liabilities  is
based on certain  estimates  of fair  values and costs which will be adjusted as
actual amounts are determined. Such adjustments are not expected to be material.

     DISPOSITION  OF  CANADIAN  SUBSIDIARY  - On April  15,  1999,  the  Company
completed a sale of its Canadian oil and gas subsidiary,  realizing net proceeds
of $63 million which were used to repay existing long-term debt. A loss of $28.5
million on the sale was provided for at March 31,  1999.  The Canadian  disposed
assets  contributed  revenue of $7 million  and $13  million for the nine months
ended September 30, 1999 and 1998, respectively,  and had operating profit of $2
million  (excluding  the  provision  for  loss  on the  sale)  and  $3  million,
respectively.

     DISPOSITION OF ENSTAR - On July 15, 1999, the Company signed a purchase and
sale agreement to sell ENSTAR.  On November 1, 1999 the Company closed the sale,
receiving  net  proceeds of $285  million,  a portion of which was used to repay
existing long-term debt. ENSTAR contributed  revenue of $30 million for the nine
months ended September 30, 1999 and operating profit of $3 million. ENSTAR's net
loss was $78,000,  net of income tax expense of  $462,000,  for the same period.
The net  assets  disposed  of  comprised  net  current  assets of $0.4  million,
property,  plant and equipment of $273 million, and other long-term assets of $6
million, before liabilities assumed of $57 million.

                                       7
<PAGE>
                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     DISPOSITION  OF GULF OF MEXICO AND ARKOMA ASSETS - DURING August 1999,  the
Company  divested its working  interest in three shelf Gulf of Mexico fields for
proceeds of $66 million.  During September 1999, the Company  finalized the sale
of certain Arkoma Basin assets for cash proceeds of $231 million.  Proceeds from
the sales  were  used to reduce  outstanding  indebtedness  under the  revolving
credit  facility.  On a proforma  basis,  the Gulf of Mexico  and Arkoma  assets
contributed  revenue of $36 million  and $53  million for the nine months  ended
September  30,  1999 and 1998,  respectively,  and had  operating  profit of $15
million and $21 million, respectively.

     UNAUDITED  PRO  FORMA  INFORMATION  -  The  following  table  presents  the
unaudited pro forma results (in thousands, except per share data) of the Company
determined as follows:

  -  the Seagull-OEI Merger is assumed to have occurred as of January 1, 1998;

  -  certain costs that Seagull had expensed under the successful efforts method
     of accounting are capitalized under the full cost method of accounting;

  -  depreciation,  depletion and amortization  expense of Seagull is calculated
     in  accordance  with the full cost  method  of  accounting  applied  to the
     adjusted  basis of the  properties  acquired  using the purchase  method of
     accounting;

  -  a decrease in interest expense results from the revaluation of Seagull debt
     under the purchase  method of  accounting,  including  the  elimination  of
     amortization of historical debt issuance costs;

  -  the sales of the Canadian subsidiary, the Gulf of Mexico and Arkoma oil and
     gas assets, and ENSTAR are assumed to have occurred as of January 1, 1998;

  -  the proceeds  from the asset sales were used to pay down debt at January 1,
     1998; and,

  -  the related income tax effects of these  adjustments  are recorded based on
     the applicable statutory tax rate.

                         UNAUDITED PRO FORMA INFORMATION

<TABLE>
                                                                              Nine Months Ended September 30,
                                                                        --------------------------------------------
                                                                                 1999                   1998
                                                                        -----------------------   ------------------
<S>                                                                      <C>                        <C>
Revenues..........................................................       $      530,188             $     578,519
Net income (loss) available to common shareholders................       $       17,910             $    (169,100)
Basic earnings (loss) per share...................................       $         0.11             $       (1.03)
Diluted earnings (loss) per share.................................       $         0.11             $       (1.03)
</TABLE>

                                       8

<PAGE>
                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3.       SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                                   -------------------- ------ ----------------------
                                                                          1999                         1998
                                                                   --------------------        ----------------------
                                                                                (amounts in thousands)

Cash paid during the period for:
<S>                                                                   <C>                           <C>
  Interest..................................................          $    84,429                   $      34,315
  Income taxes..............................................          $    11,607                   $       1,895
</TABLE>

     As  discussed in Note 2, the Merger was  completed  through the issuance of
common stock. Therefore,  the Merger increased property,  plant and equipment by
$1.3  billion,  debt by $563 million,  other  liabilities  by $207 million,  and
equity by $595 million through a non-cash  transaction that was not reflected in
the  statement  of cash  flows.  However,  $1.8  million of the $5.6  million of
acquisition  costs reflected in "investing  activities" in the statement of cash
flows represents the cash expenses paid in connection with the Merger,  less the
cash of Seagull on the date of the Merger.

NOTE 4.       FINANCIAL INSTRUMENTS

     From time to time,  the  Company  has  utilized  and expects to continue to
utilize  hedging  transactions  with  respect  to a  portion  of its oil and gas
production  to achieve a more  predictable  cash flow,  as well as to reduce its
exposure  to price  fluctuations.  Oil and gas  revenues  have been  (decreased)
increased by ($31) million and $17.5 million for the nine months ended September
30, 1999 and 1998, respectively, as a result of derivative contracts.

     At September 30, 1999,  collars were in place for portions of the Company's
oil  production  for the  remainder of 1999 with floors of $12.00 and $15.00 and
ceilings of $15.00,  $18.85 and $19.00 per barrel.  Contracted  volumes  totaled
60,000  barrels  of oil  per day at  September  30,  1999.  The  $15.00  ceiling
associated  with one of the collars was offset in October  with the  purchase of
call options that have a strike price of $15.00.

      Additional  collars were in place at September  30,  1999,  at  contracted
volumes  of  15,000  barrels  of oil per day for the  period  January  1 through
December  31, 2000 with  floors of $19.00 and $20.00 and  ceilings of $21.90 and
$22.20,  respectively.  The Company also has in place an oil swap  agreement for
5,000  barrels  per day at $20.08  per barrel  for the  period  January  through
December 2000.

     As of September 30, 1999 the Company had no natural gas hedges in place.

                                       9

<PAGE>
                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     While derivative financial instruments are intended to reduce the Company's
exposure  to declines  in the market  price of natural gas and crude oil,  these
derivative  financial  instruments will limit the Company's realized revenues if
NYMEX  prices  exceed the  contracted  ceiling  price and limit  losses if NYMEX
prices fall below the contracted  floor price. As a result,  gains and losses on
derivative financial  instruments are generally offset by similar changes in the
realized  price of  natural  gas and crude  oil.  Gains and  losses  from  these
financial instruments are recognized in revenues during the periods to which the
derivative financial instruments relate.

NOTE 5.        DEBT

         Long-term  debt  consisted of the  following at September  30, 1999 and
December 31, 1998 (in thousands):

<TABLE>
                                                                      SEPTEMBER 30, 1999            December 31, 1998
                                                                   --------------------------     -----------------------
<S>                                                                <C>                            <C>
Credit Facility (average interest rate of 6.5%), Due 2004......          $    240,000                   $          -
Oei credit facility (average interest rate of 7.0%)............                     -                        357,000
Public notes of old ocean......................................             1,009,376                      1,009,274
Public notes assumed in the Merger:
   7 7/8% senior notes, due 2003...............................                98,452                              -
   7 1/2% senior notes, due 2027...............................               124,948                              -
   8 5/8% senior subordinated notes, due 2005..................                99,539                              -
Other..........................................................                24,428                          6,452
                                                                   --------------------------     -----------------------
                                                                            1,596,743                      1,372,726
Less:    current maturities....................................                  (846)                          (836)
Debt of discontinued operations to be assumed..................               (57,200)                             -
                                                                   --------------------------     -----------------------
                                                                         $  1,538,697                   $  1,371,890
                                                                   ==========================     =======================
</TABLE>

     Concurrently  with the closing of the Merger on March 30, 1999, the Company
entered into an $800 million  credit  facility  (the  "Credit  Facility")  which
replaced  the  existing  credit  facilities  of both Old Ocean and  Seagull.  At
September 30, 1999, the Credit  Facility  consisted of a $500 million  five-year
revolving facility and a renewable $300 million 364-day facility with a one-year
term loan option.  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.  Financing  fees of  approximately  $6 million were incurred
related to the Credit Facility. As of September 30, 1999, borrowings outstanding
against the Credit  Facility  totaled $240 million and Letters of Credit totaled
$44 million,  leaving $516 million of available credit. As of November 10, 1999,
the Company had repaid all  outstanding  balances under the Credit Facility with
the proceeds of the asset sales discussed in Note 2, and, under the terms of the
agreement,  reduced the $300  million  364-day  facility to zero.  Currently  no
amounts are outstanding under the $500 million revolving credit facility.

     On November 9, 1999,  the Company  announced a tender  offer to  repurchase
$150 million of 10 3/8% senior subordinated Notes due 2005 and $160 million of 9
3/4%  senior  subordinated  Notes  due 2006.  The  Company  intends  to fund the
repurchase of these Notes with available cash balances and borrowings  under the
existing  Credit  Facility.  If all of the outstanding  Notes are tendered,  the
total cost of the  repurchase  would be  approximately  $340 million,  excluding
accrued  and  unpaid  interest,  and  the  Company  would  record  an  after-tax
extraordinary  loss of approximately $24 million during the fourth quarter.  The
tender  offer is subject  to certain  conditions  as  described  in the Offer to
Purchase  and will expire on  December  8, 1999  unless  extended by the Company
according to the terms of the Offer. While the Company believes the tender offer
wil be completed  during the fourth quarter,  there can be no assurance that any
of the Notes will be tendered.

     In  addition,  in November  the  Company  entered  into a new $200  million
364-day  facility with  substantially  the same terms as the Company's  existing
Credit  Facility.  The  availability  of  this  facility  is  contingent  on the
consummation  of the tender offer.  Currently no amounts are  outstanding  under
this new 364-day facility.

     The Credit Facility contains certain  covenants and restrictive  provisions
including  limitations  on the  incurrence  of  additional  debt and  payment of
dividends  and the  maintenance  of  certain  financial  ratios.  Under the most
restrictive of these provisions, approximately $574 million was

                                       10
<PAGE>

                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

available for payment of cash dividends on common stock or to repurchase  common
stock as of September 30, 1999.

     As a result of the Merger,  the  liabilities  of both Seagull and Old Ocean
became the liabilities of the Company.  Accordingly, the financial statements of
the Company  include an aggregate of  approximately  $563 million of outstanding
Seagull debt assumed at March 30, 1999. As discussed above,  Seagull's  existing
revolving  credit  facility was replaced by the Credit  Facility.  The remaining
Seagull debt was recorded at a discount as follows: the 7 1/2% Senior Notes at a
discount of $26  million,  the 7 7/8% Senior  Notes at a discount of $2 million,
and the 8 5/8% Senior Subordinated Notes at a discount of $1 million.

NOTE 6.       OTHER NONCURRENT LIABILITIES

     In 1999,  the Company  entered into a prepaid  crude oil sales  contract to
deliver  approximately  5,600 barrels of crude oil per day beginning in February
2000 through May 2003. In exchange for the crude oil to be provided, the Company
received an advance  payment of  approximately  $100  million in June 1999.  The
Company has the option to satisfy contract delivery  requirements with crude oil
purchased from third parties or from oil it produces.  The obligation associated
with the future delivery of the crude oil has been recorded as deferred revenue,
included  in  other  accrued  and  other  noncurrent  liabilities,  and  will be
amortized into revenue as scheduled deliveries of crude oil are made.

NOTE 7.       SUPPLEMENTAL GUARANTOR INFORMATION

     Ocean Energy, Inc., a Louisiana corporation and wholly-owned  subsidiary of
the Company ("Ocean  Louisiana"),  has  unconditionally  guaranteed the full and
prompt  performance of the Company's  obligations under certain of the notes and
related  indentures,  including the payment of  principal,  premium (if any) and
interest. None of the referenced indentures place significant  restrictions on a
wholly-owned  subsidiary's ability to make distributions TO THE PARENT. IN ORDER
TO PROVIDE  MEANINGFUL  FINANCIAL  DATA RELATING TO THE GUARANTOR  (I.E.,  Ocean
Louisiana on an unconsolidated  basis),  the following  condensed  consolidating
financial information has been provided following the policies set forth below:

1)   Investments  in  subsidiaries  are accounted for by the Company on the cost
     basis.  Earnings or losses of  subsidiaries  are therefore not reflected in
     the related investment accounts.

2)   Certain  reclassifications  were  made  to  conform  all of  the  financial
     information  to the financial  presentation  on a consolidated  basis.  The
     principal  eliminating  entries  eliminate  investments in subsidiaries and
     intercompany balances.

                                       11
<PAGE>

                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                    Unconsolidated
                                     --------------------------------------------------------------
                                                               Guarantor            Non-Guarantor
1999                                        OEI               Subsidiary             Subsidiaries      Consolidated OEI
----                                  ------------------   --------------------  -------------------  ------------------
<S>                                    <C>                  <C>                   <C>                  <C>
Revenues...........................    $           -        $      70,860         $     143,533        $     214,393
Costs of Operations:
   Operating expenses..............                -               26,705                27,967               54,672
   Depreciation, depletion and
     amortization..................            4,971               26,726                53,918               85,615
   General and administrative......            6,407               (1,452)                    -                4,955
                                     ------------------   --------------------  -------------------  ------------------
Operating Profit (Loss)............          (11,378)              18,881                61,648               69,151
Interest Expense...................           25,870                    -                 4,540               30,410
Merger Expense.....................                -                3,176                     -                3,176
Interest Income and Other..........           (1,624)              (4,545)                5,900                 (269)
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) Before Taxes.........          (35,624)              20,250                51,208               35,834
Income Tax Provision (Benefit).....          (13,002)               7,391                12,015                6,404
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) from Continuing
   Operations......................          (22,622)              12,859                39,193               29,430
Income from Discontinued
   Operations, net of income taxes.                -                    -                  (625)                (625)
                                     ------------------   --------------------  -------------------  ------------------

Net Income (Loss)..................    $     (22,622)       $      12,859         $      38,568        $      28,805
                                     ==================   ====================  ===================  ==================

1998
----
Revenues...........................    $           -        $      70,476         $      52,893        $     123,369
Costs of Operations:
   Operating expenses..............                -               30,798                19,250               50,048
   Depreciation, depletion and
     amortization..................                -               31,435                38,786               70,221
   General and administrative......                -                4,452                   176                4,628
                                     ------------------   --------------------  -------------------  ------------------
Operating Profit (Loss)............                -                3,791                (5,319)              (1,528)
Interest Expense (Income)..........           13,897               10,736                (6,012)              18,621
Interest Income and Other..........                -                 (183)               (1,103)              (1,286)
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) Before Taxes.........          (13,897)              (6,762)                1,796              (18,863)
Income Tax Expense (Benefit).......           (2,091)              (2,680)                  325               (4,446)
                                     ------------------   --------------------  -------------------  ------------------
Net Income (Loss)..................    $     (11,806)       $      (4,082)        $       1,471        $     (14,417)
                                     ==================   ====================  ===================  ==================
</TABLE>

                                       12

<PAGE>

                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                       Unconsolidated
                                     --------------------------------------------------------------
                                                               Guarantor           Non-Guarantor
1999                                        OEI               Subsidiary            Subsidiaries      Consolidated OEI
----                                  ------------------   --------------------  -------------------  ------------------
<S>                                    <C>                  <C>                   <C>                  <C>
Revenues...........................    $           -        $     185,210         $     331,083        $     516,293
Costs of Operations:
   Operating expenses..............                -               77,395                87,883              165,278
   Depreciation, depletion and
     amortization..................            6,032               84,056               143,644              233,732
   Loss on sale of Canadian assets.                -                    -                28,500               28,500
   General and administrative......           10,770                7,268                     -               18,038
                                     ------------------   --------------------  -------------------  ------------------
Operating Profit (Loss)............          (16,802)              16,491                71,056               70,745
Interest Expense...................           70,841               13,126                 2,634               86,601
Merger Expense.....................                -               43,828                     -               43,828
Interest Income and Other..........           (3,168)              (2,783)                5,568                 (383)
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) Before Taxes.........          (84,475)             (37,680)               62,854              (59,301)
Income Tax Provision (Benefit).....          (30,833)             (13,753)               35,317               (9,269)
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) from
   Continuing Operations...........          (53,642)             (23,927)               27,537              (50,032)
Loss from Discontinued
   Operations, net of income taxes.                -                    -                   (78)                 (78)
                                     ------------------   --------------------  -------------------  ------------------
Net Income (Loss)..................    $     (53,642)       $     (23,927)        $      27,459        $     (50,110)
                                     ==================   ====================  ===================  ==================

1998
----
Revenues...........................    $           -        $     238,161         $     159,173        $     397,334
Costs of Operations:
   Operating expenses..............                -               83,862                51,598              135,460
   Depreciation, depletion and
     amortization..................                -              112,569               105,150              217,719
   Write-down of oil and gas
       PROPERTIES..................                -              218,392                     -              218,392
   General and administrative......               60               12,994                   592               13,646
                                     ------------------   --------------------  -------------------  ------------------
Operating Profit (Loss)............              (60)            (189,656)                1,833             (187,883)
Interest Expense (Income)..........           21,954               30,209               (11,601)              40,562
Merger Expense.....................                -               39,000                     -               39,000
Interest Income and Other..........                -                  255                (2,349)              (2,094)
                                     ------------------   --------------------  -------------------  ------------------
Income (Loss) Before Taxes.........          (22,014)            (259,120)               15,783             (265,351)
Income Tax Benefit.................          (23,991)             (60,432)               (3,532)             (87,955)
                                     ------------------   --------------------  -------------------  ------------------
Net Income (Loss)..................    $       1,977        $    (198,688)        $      19,315        $    (177,396)
                                     ==================   ====================  ===================  ==================
</TABLE>

                                       13
<PAGE>

                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

               SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
                   AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                 Unconsolidated
                                --------------------------------------------------
                                                   Guarantor       Non-Guarantor     Eliminating       Consolidated
SEPTEMBER 30, 1999                   OEI           Subsidiary       Subsidiaries       Entries             OEI
------------------              --------------   ---------------   ---------------  ---------------   ---------------
ASSETS
<S>                               <C>              <C>               <C>              <C>               <C>
Current Assets................    $     2,359      $    54,701       $   194,756      $         -       $   251,816
Intercompany Investments......      2,665,044         (172,061)          (41,168)      (2,451,815)                -
Property, Plant and Equipment,
   Net........................         21,820          582,902         1,559,910                -         2,164,632
Other Assets..................         79,197          201,146           209,530                -           489,873
                                --------------   ---------------   ---------------  ---------------   ---------------
Total Assets..................    $ 2,768,420      $   666,688       $ 1,923,028      $(2,451,815)      $ 2,906,321
                                ==============   ===============   ===============  ===============   ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities...........    $    66,134      $   109,668       $   112,404      $         -       $   288,206
Long-Term Debt................      1,530,604                -             8,093                -         1,538,697
Other Liabilities.............         98,250           11,390            31,309                -           140,949
Shareholders' Equity..........      1,073,432          545,630         1,771,222       (2,451,815)          938,469
                                --------------   ---------------   ---------------  ---------------   ---------------
Total Liabilities and
   Shareholders' Equity.......    $ 2,768,420      $   666,688       $ 1,923,028      $(2,451,815)      $ 2,906,321
                                ==============   ===============   ===============  ===============   ===============

DECEMBER 31, 1998
-----------------
ASSETS
Current Assets................    $         -      $    49,680       $   104,101      $         -       $   153,781
Intercompany Investments......      1,645,933          174,608          (410,255)      (1,410,286)                -
Property, Plant and Equipment,
   Net........................              -          674,598           907,041                -         1,581,639
Other Assets..................         24,686          214,868            31,986                -           271,540
                                --------------   ---------------   ---------------  ---------------   ---------------
Total Assets..................    $ 1,670,619      $ 1,113,754       $   632,873      $(1,410,286)      $ 2,006,960
                                ==============   ===============   ===============  ===============   ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities...........    $    31,271      $   187,878       $    18,033      $         -       $   237,182
Long-Term Debt................      1,009,274          357,000             5,616                -         1,371,890
Other Liabilities.............              -              981            19,964                -            20,945
Shareholders' Equity..........        630,074          567,895           589,260       (1,410,286)          376,943
                                --------------   ---------------   ---------------  ---------------   ---------------
Total Liabilities and
   Shareholders' Equity.......    $ 1,670,619      $ 1,113,754       $   632,873      $(1,410,286)      $ 2,006,960
                                ==============   ===============   ===============  ===============   ===============
</TABLE>

                                       14
<PAGE>


                               OCEAN ENERGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

          SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                          Unconsolidated
                                     ----------------------------------------------------------
                                                             Guarantor         Non-Guarantor
1999                                        OEI              Subsidiary         Subsidiaries      Consolidated OEI
----                                 ------------------   -----------------   -----------------   ------------------
Cash Flows from Operating
   Activities:
<S>                                    <C>                  <C>                 <C>                 <C>
   Net Income (Loss)...............    $     (53,642)       $     (23,927)      $      27,459       $     (50,110)
   Adjustments to reconcile net
     loss to net cash from
     operating activities..........          (22,153)              26,954             260,034             264,835
   Changes in assets and liabilities          48,094              380,669            (447,082)            (18,319)
                                     ------------------   -----------------   -----------------   ------------------
Net Cash Provided by (Used In)
   Continuing Operations...........          (27,701)             383,696            (159,589)            196,406
Net Cash Provided by Discontinued
   Operations......................                -                    -              14,377              14,377
                                     ------------------   -----------------   -----------------   ------------------
Net Cash Provided By (Used In)
   Operating Activities............          (27,701)             383,696            (145,212)            210,783
Cash Flows Provided by (Used In)
   Investing Activities............          (17,704)             (20,326)            185,903             147,873
Cash Flows Provided by (Used In)
   Financing Activities............           45,405             (363,370)              2,480            (315,485)
                                     ------------------   -----------------   -----------------   ------------------
Net Increase in Cash and Cash
   Equivalents.....................                -                    -              43,171              43,171
Cash and Cash Equivalents:
   Beginning of Period.............                -                    -              10,706              10,706
                                     ------------------   -----------------   -----------------   ------------------
   End of Period...................    $           -        $           -       $      53,877       $      53,877
                                     ==================   =================   =================   ==================

1998
----
Cash Flows from Operating
   Activities:
   Net Income (Loss)...............    $       1,977        $    (198,688)      $      19,315       $    (177,396)
   Adjustments to reconcile net
     income (loss) to net cash from
     operating activities..........          (22,749)             284,217              88,684             350,152
   Changes in assets and liabilities           1,814              (51,133)             24,892             (24,427)
                                     ------------------   -----------------   -----------------   ------------------
Net Cash Provided By (Used In)
   Operating Activities............          (18,958)              34,396             132,891             148,329
Cash Flows Used in Investing
   Activities......................                -             (374,357)           (294,344)           (668,701)
Cash Flows Provided By Financing
   Activities......................           18,956              341,607             162,669             523,232
                                     ------------------   -----------------   -----------------   ------------------
Net Increase (Decrease) in Cash and
   Cash Equivalents................               (2)               1,646               1,216               2,860
Cash and Cash Equivalents:
   Beginning of Period.............                2                2,653               9,034              11,689
                                     ------------------   -----------------   -----------------   ------------------
   End of Period...................    $           -        $       4,299       $      10,250       $      14,549
                                     ==================   =================   =================   ==================
</TABLE>

                                       15
<PAGE>

                               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.

     As discussed in Note 1, on March 30, 1999,  Ocean Energy,  Inc., a Delaware
corporation,   merged  with  and  into  Seagull  Energy  Corporation,   a  Texas
corporation, and the resulting company was renamed Ocean Energy, Inc. The merger
was treated for  accounting  purposes as an acquisition of Seagull by Ocean in a
purchase business transaction. As such, the financial results presented here are
primarily  those of Ocean  Energy,  Inc.  on a  stand-alone  basis for the first
quarter of 1999 and of the combined company for the second and third quarters of
1999,  compared to Ocean's  results in the first,  second and third  quarters of
1998 on a stand-alone basis.

     The Company's  accompanying unaudited consolidated financial statements and
the notes thereto and the  consolidated  financial  statements and notes thereto
included in the Annual Reports on Form 10-K for the year ended December 31, 1998
of Old Ocean and Seagull contain detailed information that should be referred to
in conjunction with the following discussion.

                              RESULTS OF OPERATIONS
                             (Amounts in Thousands)

<TABLE>
                                                         Three Months Ended                  Nine Months Ended
                                                           September 30,                       September 30,
                                                  ---------------------------------    -------------------------------
                                                      1999               1998              1999              1998
                                                  --------------     --------------    --------------    -------------
OIL AND GAS OPERATIONS:
   Revenues:
<S>                                                <C>               <C>               <C>                 <C>
     Natural gas............................       $  101,908        $    51,599       $   236,914         $ 167,533
     Oil and ngls...........................          112,485             71,770           279,379           229,801
                                                  --------------     --------------    --------------    -------------
                                                      214,393            123,369           516,293           397,334
                                                  --------------     --------------    --------------    -------------

   Operating expenses.......................           54,672             50,048           165,278           135,460
   Depreciation, depletion and amortization.           83,323             69,229           227,623           214,739
   Loss on sale of canadian assets..........                -                  -            28,500                 -
   Write-down of oil and gas properties.....                -                  -                 -           218,392
                                                 --------------     --------------    --------------    -------------
    Operating profit (loss).................           76,398              4,092            94,892          (171,257)
CORPORATE...................................           (7,247)            (5,620)          (24,147)          (16,626)
                                                 --------------     --------------    --------------    -------------
   Total operating profit (loss)............       $   69,151         $   (1,528)       $   70,745         $(187,883)
                                                 ==============     ==============    ==============    =============
</TABLE>

      The Company's $71 million  improvement  in operating  profit for the three
month period  ending  September  30, 1999 compared to the same period in 1998 is
primarily  due to the  recovery  of  world  crude  oil and  natural  gas  prices
experienced  during the third quarter of 1999 as well as to increases in oil and
gas  production and to significant  declines in operating  expense  incurred per
unit of production.  The Company's $259 million  improvement in operating profit
for the nine month period ending  September 30, 1999 compared to the same period
in 1998 is due to the  absence  of the $218  million  write-down  of oil and gas
properties  that  was  recorded  in  the  second  quarter  of  1998  and  to the
improvement in realized gas prices.  Other factors  affecting the Company's 1999
operations included the Merger and the loss on the sale of Canadian assets.

                                       16
<PAGE>


                               OCEAN ENERGY, INC.
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS


     REVENUES - Natural gas  revenues  increased  $69  million,  or 41%, to $237
million for the nine months ended  September 30, 1999, from $168 million for the
nine months ended  September 30, 1998.  Gas revenues  increased $50 million,  or
96%, to $102  million  for the third  quarter of 1999 as compared to $52 million
for the third quarter of 1998.  These  increases are primarily due to production
from properties acquired in the Merger and to higher average gas prices realized
during the period.  The average  realized  price for natural gas increased 4% to
$2.00 per Mcf in the first nine months of 1999 as compared to $1.92 in the first
nine  months of 1998 and  increased  31% to $2.34 for the third  quarter of 1999
compared to $1.78 for the third quarter of 1998.  Daily  natural gas  production
for the first nine  months of 1999 was 431 MMcf,  an  increase  of 35% over 1998
volumes due also to the acquisition of producing properties in the Merger. Daily
natural gas production  increased 50% over 1998 volumes for the third quarter of
1999 to 470 MMcf.

     Oil revenues  increased  $49 million,  or 21%, to $279 million for the nine
months ended  September  30,  1999,  from $230 million for the nine months ended
September 30, 1998.  For the third quarter of 1999,  oil revenues  increased $40
million,  or 56%, to $112 million for 1999 compared to $72 million for the third
quarter of 1998.  These  increases are the result of production  from properties
acquired in the Merger, and to an increase in the average realized price for oil
during the nine months ended September 30, 1999. The average  realized price for
oil increased 21% to $15.47 for the first nine months of 1999 compared to $12.78
for the same period in 1998.  In addition,  the average  realized  price for oil
increased 64% to $19.58 for the third quarter of 1999 compared to $11.93 for the
third quarter of 1998. Daily oil production increased to 73,965 Bbl in the first
nine months of 1999 as  compared to 60,968 Bbl for the same period in 1998.  For
the third  quarter  of 1999,  daily oil  production  increased  to 77,674 Bbl as
compared to 59,894 Bbl for the third quarter of 1998.  The  production  increase
was also due to the acquisition of producing properties in the Merger.

     For the nine months ended September 30, 1999 and 1998, oil and gas revenues
have  been   (decreased)   increased  by  $(31)   million  and  $17.5   million,
respectively,  as a result of  derivative  contracts.  Weighted  average oil and
natural gas prices including  hedging were $13.84 and $2.01,  respectively,  for
the nine months ended  September 30, 1999,  and $13.81 and $1.92,  respectively,
for the nine months ended September 30, 1998.

                                       17
<PAGE>


                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

                    EXPLORATION AND PRODUCTION OPERATING DATA

<TABLE>
<CAPTION>
                                                        Three Months Ended                    Nine Months Ended
                                                           September 30,                        September 30,
                                                  --------------------------------    ----------------------------------
                                                       1999             1998               1999              1998
                                                  ---------------  ---------------    ---------------   ----------------
<S>                                               <C>              <C>                <C>               <C>
   Net Daily Natural Gas Production (MMcf):
     Domestic (1)..............................          427.5            267.8              382.0               273.0
     Canada (2)................................            -               24.9               14.0                25.7
     Cote d'ivoire (1).........................           33.9             20.7               29.8                20.2
     Egypt (1).................................            0.9               -                 0.7                   -
     Indonesia (1).............................            7.6               -                 4.4                   -
                                                  ---------------  ---------------    ---------------   ----------------
     Total.....................................          469.9            313.4              430.9               318.9
                                                  ===============  ===============    ===============   ================

   Average Natural Gas Prices ($ per Mcf) :
     Domestic (1)..............................     $     2.38       $     1.84         $     2.03             $ 2.00
     Canada (2)................................     $     -          $     1.23         $     1.54             $ 1.27
     Cote d'Ivoire (1).........................     $     1.77       $     1.64         $     1.73             $ 1.67
     Egypt (1).................................     $     3.94       $        -         $     3.32             $    -
     Indonesia (1).............................     $     2.26       $        -         $     2.14             $    -
     Weighted average..........................     $     2.34       $     1.78         $     2.00             $ 1.92
   Average Natural Gas Prices Including Hedging
     Activities ($ PER MCF)....................     $     2.36       $     1.79         $     2.01             $ 1.92

   Net Daily Oil and NGL Production (Bbl):
     Domestic (1)..............................         36,522           36,942             38,340             40,419
     Canada (2)................................              -            1,326                469              1,243
     Cote d'Ivoire (1).........................          5,046            3,487              4,839              2,613
     Equatorial Guinea.........................         20,774           18,139             19,902             16,693
     Egypt (1).................................         10,729                -              7,447                  -
     Russia (1)................................          4,492                -              2,896                  -
     Indonesia (1).............................            111                -                 72                  -
                                                  ---------------  ---------------    ---------------   ----------------
     Total.....................................         77,674           59,894             73,965             60,968
                                                  ===============  ===============    ===============   ================

   Average Oil and NGL Prices ($ per Bbl) :
     Domestic (1)..............................     $   18.99        $   12.07          $   15.07              $ 12.93
     Canada (2)................................     $    -           $   12.08          $   11.27              $ 12.05
     Cote d'ivoire (1).........................     $   20.24        $   11.52          $   16.56              $ 13.33
     Equatorial Guinea.........................     $   21.69        $   11.70          $   16.11              $ 12.38
     Egypt (1).................................     $   20.06        $       -          $   17.70              $     -
     Russia (1)................................     $   12.82        $       -          $    9.54              $     -
     Indonesia (1).............................     $   16.87        $       -          $   14.88              $     -
     Weighted average..........................     $   19.58        $   11.93          $   15.47              $ 12.78
   Average Oil and NGL Prices Including Hedging
     Activities ($ per Bbl)....................     $   15.74        $   13.02          $   13.84              $ 13.81
</TABLE>

(1)  The Company's Egyptian, Russian and Indonesian operations, and a portion of
     its domestic and Cote  d'Ivoirian  operations  were acquired as a result of
     the merger on March 31, 1999.

(2) The Company's Canadian operations were sold on April 15, 1999.

                                       18
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


     OPERATING  EXPENSES - Total operating  expenses  increased $30 million,  or
22%,  to $165  million for the nine months  ended  September  30, 1999 from $135
million for the comparable 1998 period. Operating expenses for the third quarter
of 1999  increased $5 million,  or 10%, to $55 million for the third  quarter of
1999  compared  to $50 million for the third  quarter of 1998.  These  increases
primarily result from the acquisition of additional  producing properties in the
Merger,  as well as from  fluctuations in normal operating  expenses,  including
operating expenses associated with increased  production from new facilities and
timing of workovers.  Operating  expenses  decreased 5% to $4.15 per BOE for the
nine  months  ended  September  30,  1999,  compared  to  $4.35  per  BOE in the
comparable 1998 period.  Operating  expenses  decreased 21% to $3.81 per BOE for
the third  quarter of 1999  compared  to $4.85 per BOE for the third  quarter of
1998.

     DEPRECIATION,  DEPLETION AND AMORTIZATION EXPENSE - Depreciation, depletion
and amortization  (DD&A) expense related to oil and gas operations  increased 6%
to $228 million for the nine months ended  September  30, 1999  compared to $215
million for the same period in 1998.  DD&A expense was $83 million for the third
quarter of 1999 compared to $69 million for the third quarter of 1998.  For both
the third quarter and nine months of 1999 versus 1998,  additional  DD&A expense
related to  properties  acquired  in the Merger was offset by the effects of the
non-cash  impairments  of oil and gas  properties  recognized  by the Company in
1998. DD&A for oil and gas operations per BOE decreased  $1.17, or 17%, to $5.72
per BOE for the nine months ended September 30, 1999, from $6.89 per BOE for the
comparable 1998 period. This variance is primarily attributable to the effect of
the non-cash impairments of oil and gas properties  recognized by the Company in
1998.

     LOSS ON SALE OF  CANADIAN  SUBSIDIARY  - On April  15,  1999,  the  Company
completed a sale of its Canadian oil and gas subsidiary,  realizing net proceeds
of $63 million which were used to repay existing long-term debt. A loss of $28.5
million on the sale was recorded during the first quarter of 1999.

     WRITE-DOWN  OF OIL AND GAS  PROPERTIES  - At June  30,  1998,  the  Company
recognized  a non-cash  impairment  of oil and gas  properties  in the amount of
$218.4  million  pursuant  to the ceiling  limitation  required by the full cost
method of accounting  for oil and gas  properties.  The write-down was primarily
the  result of the  precipitous  decline in world  crude oil prices  experienced
during the second quarter of 1998.

     GENERAL AND ADMINISTRATIVE  EXPENSES - General and  administrative  expense
increased $4 million or 29% to $18 million for the nine months  ended  September
30,  1999  compared  to $14  million  for the same  period in 1998.  General and
administrative expense remained constant at $5 million for the third quarters of
both 1999 and 1998. As a result of the Merger,  the combined  Company expects to
realize a decline in proforma general and administrative expense as cost savings
related to  personnel  reduction,  office  consolidations  and reduced  combined
expenses for professional fees and other expense items are realized.

                                       19
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

                                      OTHER

     INTEREST  EXPENSE - Interest  increased  $46 million to $87 million for the
nine months ended  September  30, 1999 from $41 million in the  comparable  1998
period.  Interest expense for the third quarter of 1999 increased $11 million to
$30 million from $19 million for 1998.  This increase is primarily the result of
an increase in debt levels in 1999 resulting  from the higher  capital  spending
program in place  throughout  1998.  Interest  expense for the remainder of 1999
will  continue  to be  higher  than  1998  levels  due to the  inclusion  of the
outstanding  debt of  Seagull of  approximately  $563  million in the  Company's
financial statements.  However, the use of proceeds from the various asset sales
discussed  in Note 2 to repay  existing  long-term  debt  will  serve to  reduce
interest expense for the remainder of 1999.

     MERGER EXPENSE - Merger expenses of $44 million  associated with the Merger
between  Old Ocean and Seagull  have been  recorded  for the nine  months  ended
September 30, 1999.  Merger  expenses of $39 million  associated  with the March
1998  merger  between Old Ocean and UMC were  recorded  in the first  quarter of
1998.

     INCOME TAX BENEFIT - An income tax benefit of $9 million was recognized for
the nine months ended  September 30, 1999,  compared to a benefit of $88 million
for the nine months ended September 30, 1998. The effective tax rate change from
33% for the nine months  ended  September  30, 1998 to 16% for 1999 is primarily
the result of three factors:  (i) significant  improvement in operating results;
(ii)  changes in the nature of deferred  tax assets and  liabilities  due to the
Merger  and  subsequent  asset  sales;  and  (iii)  the  relative  magnitude  of
international  operating results and international  taxes to the Company's total
results. The Company currently believes that it is more likely than not that the
net deferred tax asset will be realized.

                          UNAUDITED PRO FORMA CONDENSED
                      COMBINED FINANCIAL AND OPERATING DATA

     The  following  table  sets forth  summary  unaudited  pro forma  condensed
combined  financial and operating data which are presented to give effect to the
Merger and to the sales of ENSTAR and of the Canadian, Gulf of Mexico and Arkoma
assets as if they had occurred as of January 1, 1998. The  information  does not
purport to be indicative of actual results, if the Merger had been in effect for
the periods indicated, or of future results.

The information was prepared based on the following assumptions:

-    The Seagull-OEI Merger is assumed to have occurred as of January 1, 1998;

-    certain costs that Seagull had expensed under the successful efforts method
     of accounting are capitalized under the full cost method of accounting;

                                       20
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


-    depreciation,  depletion and amortization  expense of Seagull is calculated
     in  accordance  with the full cost  method  of  accounting  applied  to the
     adjusted  basis of the  properties  acquired  using the purchase  method of
     accounting;

-    a decrease in interest expense results from the revaluation of Seagull debt
     under the purchase  method of  accounting,  including  the  elimination  of
     amortization of historical debt issuance costs;

-    the sales of the Canadian subsidiary, the Gulf of Mexico and Arkoma oil and
     gas assets, and ENSTAR are assumed to have occurred as of January 1, 1998;

-    the proceeds  from the asset sales were used to pay down debt at January 1,
     1998; and,

-    the related income tax effects of these  adjustments  are recorded based on
     the applicable statutory tax rate.

                                       21
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


                         UNAUDITED PRO FORMA INFORMATION
                  (Amounts in Thousands, Except Per Unit Data)

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                            -------------------------------------------
                                                                                   1999                    1998
                                                                            -------------------     -------------------
<S>                                                                         <C>                     <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME:
Oil and Gas Sales......................................................       $    530,188            $    578,519

Cost of Operations:
   Operating expenses..................................................            175,888                 211,570
   Depreciation, depletion and amortization............................            247,925                 290,930
   Write-down of oil and gas properties................................                  -                 222,590
   General and administrative..........................................             22,329                  29,430
                                                                            -------------------     -------------------
                                                                                   446,142                 754,520
                                                                            -------------------     -------------------
Operating Profit (Loss)................................................             84,046                (176,001)

Other (Income) Expense:
   Interest expense....................................................             67,458                  32,289
   Merger expense (1)..................................................                  -                  39,000
   Interest income and other...........................................             (5,196)                 (4,339)
                                                                            -------------------     -------------------

Income (Loss) Before Income Taxes and Extraordinary Item...............             21,784                (242,951)
Income Tax Expense (Benefit)...........................................              1,418                 (74,882)
                                                                            -------------------     -------------------

Net Income (Loss) Before Extraordinary Item............................             20,366                (168,069)
Extraordinary Item (Loss On Repurchase of Debt)........................                  -                  (1,031)
                                                                            -------------------     -------------------

Net Income (Loss)......................................................             20,366                (169,100)
Preferred Stock Dividend...............................................              2,456                       -
                                                                            -------------------     -------------------

Net Income (Loss) Available to Common Shareholders.....................       $     17,910            $   (169,100)
                                                                            ===================     ===================

Income (Loss) Per Common Share:
   Basic...............................................................       $       0.11            $      (1.03)
                                                                            ===================     ===================
   Diluted.............................................................       $       0.11            $      (1.03)
                                                                            ===================     ===================

Weighted Average Number of Common Shares Outstanding:
   Basic...............................................................            166,503                 163,616
                                                                            ===================     ===================
   Diluted.............................................................            170,452                 163,616
                                                                            ===================     ===================

CAPITAL EXPENDITURES:
   Oil and Gas Operations..............................................       $    244,844            $    794,613
   Corporate...........................................................             12,783                  14,458
                                                                            -------------------     -------------------
   Total (2)...........................................................       $    257,627            $    809,071
                                                                            ===================     ===================
</TABLE>

(1)  Excludes  approximately  $44 million of merger  expenses  recorded in 1999.
     During 1998, the Company recorded $39 million in merger expenses related to
     the UMC Merger, which was accounted for as a pooling transaction.

(2)  Includes   capitalized   interest  of  $29  million  and  $27  million  and
     capitalized   employee-related  costs  of  $27  million  and  $25  million,
     respectively.

                                       22

<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


                  UNAUDITED PRO FORMA PRODUCTION OPERATING DATA

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                            -------------------------------------------
                                                                                   1999                    1998
                                                                            -------------------     -------------------
<S>                                                                         <C>                     <C>
OPERATIONS DATA:
   Net daily natural gas production (MMcf):
     Domestic..........................................................              405.5                   488.5
     Cote d'Ivoire.....................................................               33.1                    29.1
     Other international...............................................                7.8                     9.9
                                                                            -------------------     -------------------
           Total.......................................................              446.4                   527.5
                                                                            ===================     ===================

   Average natural gas prices ($ per Mcf) (1):
     Domestic..........................................................       $       2.00            $       2.03
     Cote d'Ivoire.....................................................       $       1.71            $       1.64
     Other international...............................................       $       2.29            $       2.23
     Weighted average..................................................       $       1.98            $       2.01

   Net daily oil and NGL production (Bbl):
     Domestic..........................................................             37,477                  42,664
     Egypt.............................................................             10,787                  10,555
     Cote D'ivoire.....................................................              5,164                   3,609
     Russia............................................................              4,277                   4,060
     Equatorial Guinea.................................................             19,902                  16,692
     Other international...............................................                 90                     180
                                                                            -------------------     -------------------
        Total..........................................................             77,697                  77,760
                                                                            ===================     ===================

   Average oil and NGL prices ($ per Bbl) (1):
     Domestic..........................................................       $      15.77            $      12.79
     Egypt.............................................................       $      15.60            $      12.67
     Cote d'Ivoire.....................................................       $      16.18            $      12.65
     Russia............................................................       $       8.60            $       8.57
     Equatorial Guinea.................................................       $      16.10            $      12.38
     Other international...............................................       $      14.76            $      15.84
         Weighted average..............................................       $      15.46            $      12.46

   Net daily production (MBOE):........................................              152.1                   165.7

Average costs ($ per BOE):
   Operating expenses..................................................       $       4.24            $       4.68
   General and administrative..........................................                .54                     .65
   Interest expense....................................................               1.62                     .71
                                                                            -------------------     -------------------
         Cash costs....................................................               6.40                    6.04
   Depletion, depreciation and amortizaton.............................               5.97                    6.43
                                                                            -------------------     -------------------
          All-in costs.................................................       $      12.37            $      12.47
                                                                            ===================     ===================
</TABLE>


(1)  Prices exclude the effects of hedging  activities.  Weighted average prices
     including  hedging  were  $13.90 and $13.08 for oil and $1.99 and $2.01 for
     gas for 1999 and 1998, respectively.

                                       23
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

                         LIQUIDITY AND CAPITAL RESOURCES

     LIQUIDITY - Concurrently  with the closing of the Merger on March 30, 1999,
the Company entered into an $800 million credit facility (the "Credit Facility")
which replaced the existing credit facilities of both Old Ocean and Seagull.  At
September 30, 1999, the Credit  Facility  consisted of a $500 million  five-year
revolving facility and a renewable $300 million 364-day facility with a one-year
term loan option.  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.  Financing  fees of  approximately  $6 million were incurred
related to the Credit Facility. As of September 30, 1999, borrowings outstanding
against the Credit  Facility  totaled $240 million and Letters of Credit totaled
$44 million,  leaving $516 million of available credit. As of November 10, 1999,
the Company had repaid all  outstanding  balances under the Credit Facility with
the proceeds of the asset sales discussed in Note 2, and, under the terms of the
agreement,  reduced the $300  million  364-day  facility to zero.  Currently  no
amounts are outstanding under the $500 million revolving credit facility.

     On November 9, 1999,  the Company  announced a tender  offer to  repurchase
$150 million of 10 3/8% senior subordinated Notes due 2005 and $160 million of 9
3/4%  senior  subordinated  Notes  due 2006.  The  Company  intends  to fund the
repurchase of these Notes with available cash balances and borrowings  under the
existing  Credit  Facility.  If all of the outstanding  Notes are tendered,  the
total cost of the  repurchase  would be  approximately  $340 million,  excluding
accrued  and  unpaid  interest,  and  the  Company  would  record  an  after-tax
extraordinary  loss of approximately $24 million during the fourth quarter.  The
tender  offer is subject  to certain  conditions  as  described  in the Offer to
Purchase  and will expire on  December  8, 1999  unless  extended by the Company
according to the terms of the Offer. While the Company believes the tender offer
wil be completed  during the fourth quarter,  there can be no assurance that any
of the Notes will be tendered.

     In  addition,  in November  the  Company  entered  into a new $200  million
364-day  facility with  substantially  the same terms as the Company's  existing
Credit  Facility.  The  availability  of  this  facility  is  contingent  on the
consummation  of the tender offer.  Currently no amounts are  outstanding  under
this new 364-day facility.

     The Company's  debt to total  capitalization  ratio has decreased to 62% at
September 30, 1999, from 78% at December 31, 1998.  During the first nine months
of 1999,  the Company  has used  proceeds  from asset sales to pay down  amounts
outstanding  under the Credit  Facility.  Subsequent to September 30, 1999,  the
Company used the proceeds from the sale of ENSTAR to make additional  repayments
of existing long-term debt.  Assuming the sale of ENSTAR had closed on September
30, 1999 and the proceeds used to repay existing  long-term  debt, the pro forma
debt to total capitalization ratio would have been reduced to 58% at such date.

     The  ability of the  Company to satisfy its  obligations  and fund  planned
capital expenditures will be dependent upon its future performance.  Such future
performance is subject to many conditions that are beyond the Company's control,
particularly oil and gas prices,  and the Company's ability to obtain additional
debt and equity financing, if necessary.  The Company currently expects that its
cash flow from  operations and  availability  under the Credit  Facility will be
adequate to execute its 1999 business plan.  However,  no assurance can be given
that the Company will not experience  liquidity problems from time to time or on
a long-term  basis. If the Company's cash flow from operations and  availability
under the Credit  Facility are not sufficient to satisfy its cash  requirements,
there can be no  assurance  that  additional  debt or equity  financing  will be
available to meet its requirements.

     EFFECTS  OF  LEVERAGE  -  The  Company  has  outstanding   indebtedness  of
approximately  $1.5 billion as of September  30, 1999.  The  Company's  level of
indebtedness has several important effects on its future  operations,  including
(i) a substantial  portion of the Company's  cash flow from  operations  must be
dedicated  to the  payment  of  interest  on its  indebtedness  and  will not be
available  for other  purposes,  (ii) the  covenants  contained  in the  various
indentures  require the Company to meet  certain  financial  tests,  and contain
other  restrictions  that limit the Company's ability to borrow additional funds
or to dispose of assets and may affect the  Company's  flexibility  in  planning
for, and reacting to, changes in its business,  including  possible  acquisition
activities and (iii) the Company's ability to obtain additional financing in the
future for working capital,

                                       24
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

expenditures, acquisitions, general corporate or other purposes may be impaired.
None  of  the  indentures  place  significant  restrictions  on  a  wholly-owned
subsidiary's ability to make distributions to the parent company.

     The Company  believes it is  currently  in  compliance  with all  covenants
contained in the respective indentures.

                              CAPITAL EXPENDITURES
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                    Three Months Ended                     Nine Months Ended
                                                       September 30,                         September 30,
                                             ---------------------------------     ----------------------------------
                                                 1999               1998                1999               1998
                                             --------------     --------------     ---------------     --------------
<S>                                          <C>                <C>                <C>                 <C>
Oil and Gas Operations:
  Leasehold acquisitions..............         $   4,336          $  40,441          $   16,907         $    75,906
  Exploration costs...................            34,375            134,856              84,220             281,950
  Development costs...................            42,913             63,032             119,126             302,461
                                             --------------     --------------     ---------------     --------------
                                                  81,624            238,329             220,253             660,317
Corporate.............................             6,270              3,848              11,723               9,481
                                             --------------     --------------     ---------------     --------------
Total continuing operations...........            87,894            242,177             231,976             669,798
Discontinued operations...............             2,869                  -               5,040                   -
                                             --------------     --------------     ---------------     --------------
                                               $  90,763          $ 242,177          $  237,016         $   669,798
                                             ==============     ==============     ===============     ==============
</TABLE>

     The  Company's  capital  expenditure  budget  for  1999 is  expected  to be
approximately  $350 million  (excluding  proved property  acquisitions).  Actual
capital spending may vary from the capital  expenditure budget. The Company will
evaluate its level of capital  spending  throughout the year based upon drilling
results, commodity prices, cash flows from operations and property acquisitions.

     The  Company  makes,  and  will  continue  to  make,   substantial  capital
expenditures  for the  acquisition,  exploration,  development,  production  and
abandonment  of its oil and natural gas reserves.  The Company has  historically
funded  its  expenditures  from  cash  flows  from  operating  activities,  bank
borrowings,  sales of equity and debt securities, sales of non-strategic oil and
natural gas properties,  sales of partial  interests in exploration  concessions
and project  finance  borrowings.  The Company  intends to finance  1999 capital
expenditures primarily with funds provided by operations.

                            ACCOUNTING PRONOUNCEMENTS

     In June 1998,  the FASB  issued  SFAS No. 133,  Accounting  for  Derivative
Instruments  and Hedging  Activities.  This statement  establishes  standards of
accounting for and disclosures of derivative instruments and hedging activities.
This statement,  as amended,  is effective for fiscal years beginning after June
15, 2000. The Company has not yet determined the impact of this statement on the
Company's financial condition or results of operations.

                                       25
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


                                  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 its capital  expenditures,
earnings and competitive position.

                                    YEAR 2000

     Historically,  most computer systems  (including  microprocessors  embedded
into field equipment and other  machinery)  utilized  software that recognized a
calendar year by its last two digits.  Beginning in the year 2000, these systems
will  require  modification  to  distinguish  twenty-first  century  dates  from
twentieth century dates ("Year 2000 issues").

     Accordingly,  the Company has initiated a comprehensive plan to address the
Year 2000 issues  associated  with its  operations  and business (the "Year 2000
plan").  The  Company's  Board of Directors has been briefed about the Year 2000
problem  generally  and as it may affect the  Company.  The Board has  created a
committee consisting of senior executives and a representative from the Board to
oversee the adoption and  implementation  of the Year 2000 plan  covering all of
the Company's  business  units.  The plan has been developed with an aim towards
taking reasonable steps to prevent the Company's mission-critical functions from
being impaired due to the Year 2000 problem.

     The plan includes  several  phases - (i) assessment of all of the Company's
systems and technology;  (ii)  implementation and testing of modifications to or
replacements of existing systems and technology, both financial and operational;
(iii)  communication  with key business partners regarding Year 2000 issues; and
(iv) contingency planning.

     In planning and developing the project, the Company has considered both its
information  technology  ("IT")  and its  non-IT  systems.  The  term  "computer
equipment  and  software"  includes  systems that are commonly  thought of as IT
systems,  including  accounting,  data processing,  telephone systems,  scanning
equipment,  and  other  miscellaneous  systems.  Non-IT  systems  include  alarm
systems,  fax machines,  monitors for field operations,  and other miscellaneous
systems.  Both IT and non-IT  systems may  contain  embedded  technology,  which
complicates the Company's Year 2000 identification, assessment, remediation, and
testing efforts.  In those cases where the Company has identified  equipment and
software that was not Year 2000 ready, the Company has replaced or upgraded such
items so they will calculate dates correctly in the new century. Furthermore, as
new equipment and software are purchased in the ordinary course of business, the
Company ensures that such purchases are Year 2000 ready.

                                       26
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


     During 1997, the Company  utilized both internal and external  resources to
test,  reprogram  or replace  many of its IT systems,  primarily  financial  and
operational software, for necessary  modifications  identified in its assessment
of Year 2000 issues. Work on the Company's Year 2000 plan related to these IT is
essentially  complete.  During  September  1998,  the  Company  began  utilizing
internal and  external  resources  to evaluate  its  vulnerability  to Year 2000
issues related to its non-IT systems,  primarily field  operational  systems and
equipment.  With  this  evaluation  now  complete,  the  Company  has  found  no
significant Year 2000 issues related to its non-IT systems.

     The  Company  has  employed  outside  engineering  firms to  inventory  and
evaluate  embedded  chips in control,  metering  and  monitoring  devices on the
Company's  producing  properties.  Such devices are extensively used in offshore
operations. While some remedial work has been required, it was not extensive and
is essentially complete.

     The Company has also initiated  formal  communications  with all of its key
business  partners to determine the extent to which the Company is vulnerable to
those third parties'  potential failure to remediate their own Year 2000 issues.
Key business partners were identified in four categories of companies including:
(a) major vendors and contractors  (including banks and other financial  service
companies);  (b) major  customers;  (c) utility  companies;  and (d) third party
operators  of major  oil and gas  properties.  Questionnaires  were  sent to the
Company's  key  business  partners  to confirm  their Year 2000  activities  and
follow-up letters,  telephone calls, and meetings were used, as appropriate,  to
obtain additional information.

     During the fourth quarter of 1998, the Company began developing contingency
plans for its financial and operational systems. The Company's contingency plans
were designed to minimize the  disruptions  or other adverse  effects  resulting
from Year 2000 incompatibilities  regarding these systems, and to facilitate the
early  identification  and remediation of Year 2000 problems that first manifest
themselves after January 1, 2000.

     The  failure  to  correct a material  Year 2000  issue  could  result in an
interruption in, or a failure of, certain normal business activities,  resulting
in a material, adverse affect on the Company's results of operations,  liquidity
and financial position. The Company's remediation efforts are expected to reduce
significantly  the Company's level of uncertainty about Year 2000 compliance and
the possibility of interruptions of normal operations.  However, there can be no
guarantee that other companies'  systems,  on which the Company's  systems rely,
will be timely converted,  or that a failure to convert by another company, or a
conversion that is  incompatible  with the Company's  systems,  would not have a
material  adverse  effect  on the  Company.  Disruptions  to  the  oil  and  gas
transportation  networks  controlled  by  third-party  carriers  could result in
reduced production volumes delivered to market.

     In addition, risks associated with foreign operations may increase with the
uncertainty of Year 2000 compliance by foreign  governments and their supporting
infrastructures.  The Company's  Year 2000 task force members have been asked to
investigate the compliance activities of certain

                                       27
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

third  parties and foreign  governments  to determine  the risks to the Company.
This investigation is essentially complete.

     In a recent Securities and Exchange  Commission release regarding Year 2000
disclosures, the Securities and Exchange Commission stated that public companies
must disclose the most reasonably likely worst case Year 2000 scenario. Analysis
of the most  reasonably  likely worst case Year 2000  scenarios  the Company may
face  leads  to  contemplation  of the  following  possibilities  which,  though
unlikely in some or many cases,  must be included in any  consideration of worst
cases: widespread failure of electrical,  gas, and similar supplies by utilities
serving the Company domestically and internationally;  widespread  disruption of
the services of communications common carriers domestically and internationally;
similar  disruption to means and modes of transportation for the Company and its
employees, contractors,  suppliers, and customers; significant disruption to the
Company's ability to gain access to, and remain working in, office buildings and
other  facilities;   the  failure  of  substantial   numbers  of  the  Company's
mission-critical information (computer) hardware and software systems, including
both internal  business  systems and systems (such as those with embedded chips)
controlling  operational  facilities  such as onshore and  offshore  oil and gas
rigs, oil and gas pipelines and gas plants domestically and internationally, the
effects of which would have a cumulative material adverse impact on the Company.
Among other things,  the Company could face  substantial  claims by customers or
loss of revenues due to service interruptions,  inability to fulfill contractual
obligations, inability to account for certain revenues or obligations or to bill
customers  accurately and on a timely basis, and increased  expenses  associated
with  litigation,   stabilization  of  operations   following   mission-critical
failures,  and the  execution  of  contingency  plans.  The  Company  could also
experience  an inability by customers,  traders,  and others to pay, on a timely
basis or at all, obligations owed to the Company. Under these circumstances, the
adverse  effect on the Company,  and the  diminution of the Company's  revenues,
would be  material,  although  not  quantifiable  at this time.  Further in this
scenario,  the  cumulative  effect of these  failures  could have a  substantial
adverse effect on the economy,  domestically  and  internationally.  The adverse
effect on the Company,  and the  diminution  of the Company's  revenues,  from a
domestic  or global  recession  or  depression  is also  likely to be  material,
although not quantifiable at this time.

     The total costs for the Year 2000 compliance review, evaluation, assessment
and  remediation  efforts  are not  expected  to be in excess  of $1.0  million.
Approximately $570,000 of costs had been incurred as of September 30, 1999.

                                  DEFINED TERMS

     Natural gas is stated herein in billion  cubic feet ("Bcf"),  million cubic
feet ("MMcf") or thousand  cubic feet ("Mcf").  Oil,  condensate and natural gas
liquids  ("NGL")  are stated in barrels  ("Bbl") or thousand  barrels  ("MBbl").
MMcfe and Mcfe  represent the  equivalent of one million and one thousand  cubic
feet of natural gas, respectively.  Oil, condensate and NGL are converted to gas
at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy
content.

                                       28
<PAGE>

                               OCEAN ENERGY, INC.
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

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.

                 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

     This document  includes  forward-looking  statements  within the meaning of
Section  27A of  the  Securities  Act of  1933,  Section  21E of the  Securities
Exchange Act of 1934 and the Private  Securities  Litigation Reform Act of 1995.
All  statements  other than  statements  of  historical  fact  included  in this
document,  including,  without  limitation,  statements  regarding the financial
position,  business strategy,  production and reserve growth and other plans and
objectives  for  the  future  operations  of  the  Company  are  forward-looking
statements.

     Although the Company  believes  that such  forward-looking  statements  are
based on reasonable assumptions,  it can give no assurance that its expectations
will in fact  occur.  Important  factors  could cause  actual  results to differ
materially  from  those  in  the  forward-looking  statements.   Forward-looking
statements  are  subject  to risks and  uncertainties  and  include  information
concerning  cost savings from the Merger,  integration  of the businesses of Old
Ocean and Seagull,  general  economic  conditions and possible or assumed future
results of operations of the Company,  estimates of oil and gas  production  and
reserves,  drilling plans, future cash flows,  anticipated capital expenditures,
the  Company's  realization  of its  deferred  tax  assets,  the level of future
expenditures for  environmental  costs, and management's  strategies,  plans and
objectives as set forth herein.

     When used in this document, the words "believes," "expects," "anticipates,"
"intends" or similar  expressions are intended to identify such  forward-looking
statements.  The following  important  factors,  in addition to those  discussed
elsewhere  in this  document  could  affect  the  future  results  of the energy
industry  in general and could cause  those  results to differ  materially  from
those expressed in such forward-looking statements:

-    Risks incident to the drilling and operation of oil and gas wells;
-    Future production and development costs;
-    The effect of existing and future laws and regulatory actions;
-    The political and economic  climate in the foreign  jurisdictions  in which
     the Company conducts oil and gas operations;
-    The  effect  of  changes  in  commodity  prices,   hedging  activities  and
     conditions in the capital  markets;  and
-    Competition from others in the energy industry.

                                       29
<PAGE>


                               OCEAN ENERGY, INC.

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

     The Company has entered into various derivative  financial  instruments for
its oil and gas production for the years 1999-2000.  See Note 4 to the Company's
financial  statements  for a discussion of hedging  activities  during the third
quarter of 1999. It is estimated based upon quoted prices at September 30, 1999,
the potential  effect of the derivative  contracts  during the fourth quarter of
1999  is  an  approximate  $17  million  net  decrease  in  revenues  and  is an
approximate $3 million net decrease in revenues during the year 2000. Assuming a
10%  increase in oil and gas prices,  the  potential  loss from the  derivatives
contracts  would be increased $6 million for the fourth  quarter of 1999 and $12
million for the year 2000.  Assuming a 10% decrease in oil and gas prices,  this
potential effect of the derivatives contracts would be reduced by $6 million for
the fourth  quarter of 1999 and would  result in an  increase  in revenues of $3
million for the year 2000.

     In 1999,  the Company  entered into a prepaid  crude oil sales  contract to
deliver  approximately  5,600 barrels of crude oil per day beginning in February
2000 through May 2003. In exchange for the crude oil to be provided, the Company
received an advance  payment of  approximately  $100  million in June 1999.  The
Company has the option to satisfy contract delivery  requirements with crude oil
purchased from third parties or from oil it produces.  The obligation associated
with the future delivery of the crude oil has been recorded as deferred  revenue
and will be  amortized  into revenue as  scheduled  deliveries  of crude oil are
made.  The  obligation  is  included  in  other  accrued  and  other  noncurrent
liabilities and deferred revenue on the consolidated balance sheet.

     The Company also evaluated the potential  effect that  reasonably  possible
near term changes in interest rates may have on the Company's  Credit  Facility.
The Credit Facility represents  approximately 15% of the Company's total debt as
of  September  30,  1999 and is the  only  floating  rate  debt.  Based  upon an
analysis, utilizing the actual interest rates in effect and balances outstanding
as of  September  30, 1999 and  assuming a 10%  increase or decrease in interest
rates,  the potential  effect on annual  interest  expense is  approximately  $2
million.  As of November 10, 1999, there were no amounts  outstanding  under the
Credit Facility.

                           PART II. OTHER INFORMATION

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

         None.

                                       30
<PAGE>


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

*#10.1             Agreement between Ocean Energy, Inc., (the "Company") a Texas
                   corporation formerly known as Seagull Energy Corporation, and
                   John D. Schiller ("Executive") dated September 27, 1999.

* 27.1            Financial Data Schedule.

*        Filed herewith.

#        Identifies management contracts and compensatory plans or arrangements.

(b)  Reports on form 8-K:  On  November  8, 1999,  the  Company  filed a Current
     Report on Form 8-K dated September 16, 1999 containing the Press Release of
     the Company,  dated  November 2, 1999,  in which the Company  announced the
     sale of ENSTAR  Natural Gas Company and the Alaska  Pipeline  Company;  the
     Press  Release of the  Company  dated  October  20,  1999,  containing  the
     Company's  financial  results for the quarter ended September 30, 1999; and
     the Press  Release of the  Company  dated  September  16, 1999 in which the
     Company  reported  the sale of  certain  Arkoma  Basin  assets.  The  items
     reported  in such  Current  Report  were Item 5 (Other  Events)  and Item 7
     (Financial Statements and Exhibits).

                                   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, 1999

                                         By:   /S/Gordon L. Mcconnell

                                               Gordon L. McConnell
                                               Vice President and Controller
                                               (Principal Accounting Officer)

                                         Date:      November 12, 1999

                                       31
<PAGE>
                               OCEAN ENERGY, INC.
                               INDEX TO EXHIBITS


  EXHIBIT
    NO.            DESCRIPTION

  *#10.1           Schiller Severance Agreement.

   *27.1           Financial Data Schedule.

*  Filed herewith.
#  Identifies management contracts and compensatory plans or arrangements.














                                       32