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

                       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, 1998

                                       OR

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

                         SECURITIES EXCHANGE ACT OF 1934

                         Commission file number: 1-8094

                           Seagull Energy Corporation
             (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 1700, Houston, Texas     77002-6714
               (Address of principal executive offices)     (Zip code) 


                                 (713) 951-4700
              (Registrant's telephone number, including area code)

                                      None

              (Former name, former address and former fiscal year,
                          if changed since last report)

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

As of November 6, 1998,  63,393,735  shares of Common Stock, par value $0.10 per
share, were outstanding.

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<PAGE>





                                      INDEX
<TABLE>
<CAPTION>

                                                                                              PAGE
                                                                                             NUMBER
<S>                                                                                          <C> 
Part I.  Financial Information

    Item 1.   Unaudited Consolidated Financial Statements

                 Consolidated Statements of Operations for the Three and
                 Nine Months Ended September 30, 1998 and 1997..................               1

                 Consolidated Balance Sheets - September 30, 1998
                 and December 31, 1997..........................................               2

                 Consolidated Statements of Cash Flows for the Nine Months
                 Ended September 30, 1998 and 1997..............................               3

                 Consolidated Statements of Comprehensive Income for the
                 Three and Nine Months Ended September 30, 1998 and 1997........               4

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

   Item 2.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.........................................              10

Part II.  Other Information

   Item 6.    Exhibits and Reports on Form 8-K..................................              19

Signatures......................................................................              20
</TABLE>
                                       i

<PAGE>


   Item 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in Thousands Except Per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended               Nine Months Ended
                                                                         September 30,                   September 30,
                                                                 ------------------------------  ------------------------------
                                                                     1998             1997           1998             1997
                                                                 --------------   -------------  --------------   -------------
<S>                                                              <C>              <C>            <C>              <C>    
Revenues:

   Oil and gas operations...................................       $   79,862      $  108,543     $  256,415       $  338,953
   Alaska transmission and distribution.....................           13,237          12,112         62,538           63,455
                                                                 --------------   -------------  --------------   -------------
                                                                       93,099         120,655        318,953          402,408
Costs of Operations:
   Operations and maintenance...............................           40,702          39,744        119,083          123,620
   Alaska transmission and distribution cost of gas sold....            5,021           4,557         27,127           28,523
   Exploration charges......................................           22,032          15,217         40,328           31,516
   Depreciation, depletion and amortization.................           46,990          42,787        127,845          130,559
   Impairment of long-lived assets..........................           77,827               -         77,827                -
   General and administrative...............................            9,344           4,894         15,784           10,317
                                                                 --------------   -------------  --------------   -------------
                                                                      201,916         107,199        407,994          324,535
                                                                 --------------   -------------  --------------   -------------

Operating Profit (Loss).....................................         (108,817)         13,456        (89,041)          77,873

Other (Income) Expense:
   Interest expense.........................................           10,638           9,990         28,490           29,985
   Interest income and other................................              174            (626)        (2,027)          (1,539)
                                                                 --------------   -------------  --------------   -------------
                                                                       10,812           9,364         26,463           28,446
                                                                 --------------   -------------  --------------   -------------

Income (Loss) Before Income Taxes and Extraordinary Item....         (119,629)          4,092       (115,504)          49,427
Income Tax Expense (Benefit)................................          (33,022)            890        (31,001)          26,350
                                                                 --------------   -------------  --------------   -------------

Net Income (Loss) Before Extraordinary Item.................          (86,607)          3,202        (84,503)          23,077
Extraordinary Item..........................................           (1,031)              -         (1,031)               -
                                                                 --------------   -------------  --------------   -------------

Net Income (Loss)...........................................       $  (87,638)     $    3,202     $  (85,534)      $   23,077
                                                                 ==============   =============  ==============   =============

Earnings (Loss) Before Extraordinary Item Per Share:              
   Basic....................................................       $    (1.37)     $     0.05     $    (1.34)      $     0.37
                                                                 ==============   =============  ==============   =============
   Diluted..................................................       $    (1.37)     $     0.05     $    (1.34)      $     0.36
                                                                 ==============   =============  ==============   =============

Earnings (Loss) Per Share:                                        
   Basic....................................................       $    (1.39)     $     0.05     $    (1.36)      $     0.37
                                                                 ==============   =============  ==============   =============
   Diluted..................................................       $    (1.39)     $     0.05     $    (1.36)      $     0.36
                                                                 ==============   =============  ==============   =============

Weighted Average Number of Common Shares Outstanding:
   Basic....................................................           63,141          63,160         63,072           62,986
                                                                 ==============   =============  ==============   =============
   Diluted..................................................           63,141          63,933         63,072           63,746
                                                                 ==============   =============  ==============   =============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                       1
<PAGE>




                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in Thousands Except Share Data)

<TABLE>
<CAPTION>

                                                                                September 30,         December 31,
                                                                                    1998                 1997
                                                                               --------------         ------------
                                                                                 (Unaudited)

<S>                                                                            <C>                    <C>
ASSETS:
   Current Assets:
     Cash and cash equivalents.........................................         $      13,884         $     45,654
     Accounts receivable, net..........................................               109,078              147,442
     Inventories.......................................................                18,840               13,635
     Prepaid expenses and other........................................                17,385               16,240
                                                                               --------------         ------------
       Total Current Assets............................................               159,187              222,971

   Property, Plant and Equipment - at cost.............................             2,341,234            2,053,683
   Accumulated Depreciation, Depletion and Amortization................             1,105,398              908,849
                                                                               --------------         ------------
                                                                                    1,235,836            1,144,834

   Other Assets........................................................                46,440               43,261
                                                                               --------------         ------------

   Total Assets........................................................         $   1,441,463         $  1,411,066
                                                                               ==============         ============

LIABILITIES AND SHAREHOLDERS' EQUITY:
   Current Liabilities:
     Accounts and note payable.........................................         $     145,807        $     159,138
     Accrued expenses..................................................                30,245               47,625
     Current maturities of long-term debt..............................                 6,967                7,097
                                                                               --------------         ------------
       Total Current Liabilities.......................................               183,019              213,860

   Long-Term Debt......................................................               622,314              469,017
   Other Noncurrent Liabilities........................................                58,121               51,168
   Deferred Income Taxes...............................................                     -               14,126
   Redeemable Bearer Shares............................................                15,542               15,691
   Commitments and Contingencies.......................................                     -                    -

   Shareholders' Equity:
     Common Stock, $.10 par value; authorized 100,000,000 shares;
       issued  64,255,017 shares (1998) and 63,877,442 shares (1997)...                 6,426                6,388
     Additional paid-in capital........................................               497,413              493,829
     Retained earnings.................................................                79,401              164,935
     Less - note receivable from employee stock ownership plan.........                (2,990)              (2,990)
     Less - 861,282 shares (1998) and 861,314 shares (1997) of
       Common Stock held in Treasury, at cost..........................               (14,958)             (14,958)
     Less - note receivable for stock..................................                (1,212)                   -
     Less - deferred compensation......................................                (1,613)                   -
                                                                               --------------         ------------
       Total Shareholders' Equity......................................               562,467              647,204
                                                                               --------------         ------------

    Total Liabilities and Shareholders' Equity.........................         $   1,441,463         $  1,411,066
                                                                               ==============         ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                       2
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                              ------------------------------------
                                                                                    1998                 1997
                                                                              -----------------    ---------------
<S>                                                                           <C>                  <C>
Operating Activities:
   Net income (loss)......................................................         $  (85,534)         $   23,077
   Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation, depletion and amortization.............................            127,845             130,559
     Impairment of long-lived assets......................................             77,827                   -
     Amortization of deferred financing costs.............................              1,460               1,629
     Deferred income taxes................................................            (38,149)              2,914
     Dry hole expense.....................................................             21,537              13,844
     Extraordinary item...................................................              1,031                   -
     Other................................................................                507                 549
                                                                              -----------------    ---------------
                                                                                      106,524             172,572
     Changes in operating assets and liabilities, net of acquisitions:
       Decrease in accounts receivable....................................             41,296              47,596
       Increase in inventories, prepaid expenses and other................            (11,572)            (16,706)
       Decrease in accounts and notes payable.............................            (27,928)            (12,151)
       Decrease in accrued expenses and other.............................            (12,178)            (15,378)
                                                                              -----------------    ---------------
   Net Cash Provided By Operating Activities..............................             96,142             175,933

 Investing Activities:
   Capital expenditures...................................................           (193,079)           (205,564)
   Acquisitions of oil and gas properties, net of cash acquired...........           (101,731)             (7,421)
   Acquisitions of other assets and liabilities, net of cash acquired.....             (1,833)                 -
   Proceeds from sales of property, plant and equipment...................                760               1,191
                                                                              -----------------    ---------------
   Net Cash Used In Investing Activities..................................           (295,883)           (211,794)

 Financing Activities:
   Proceeds from debt.....................................................            393,254             695,297
   Principal payments on debt ............................................           (225,738)           (656,858)
   Proceeds from sales of common stock....................................                599               5,586
   Purchase of treasury stock.............................................                  -              (5,667)
   Premiums paid on debt purchased........................................               (934)                  -
   Other..................................................................                790              (1,998)
                                                                              -----------------    ---------------
   Net Cash Provided By Financing Activities..............................            167,971              36,360

 Effect of exchange rate changes on cash..................................                 -                  (28)
                                                                              -----------------    ---------------

   Increase (Decrease) In Cash And Cash Equivalents.......................            (31,770)                471

 Cash And Cash Equivalents At Beginning Of Period.........................             45,654              15,284
                                                                              -----------------    ---------------

 Cash And Cash Equivalents At End Of Period...............................         $   13,884          $   15,755
                                                                              =================    ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                       3
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (Amounts in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                Three Months Ended            Nine Months Ended
                                                                  September 30,                  September 30,
                                                           -----------------------------  ---------------------------
                                                                1998           1997           1998           1997
                                                           -------------   -------------  -------------  ------------
<S>                                                        <C>             <C>            <C>            <C>
Net income (loss)....................................        $ (87,638)       $ 3,202      $  (85,534)    $  23,077

Other comprehensive income, net of tax:
   Foreign currency translation adjustment...........                -             35             -            (820)
                                                           -------------   -------------  -------------  ------------
Comprehensive income (loss)..........................        $ (87,638)       $ 3,237      $  (85,534)    $  22,257
                                                           =============   =============  =============  ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                       4
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Presentation of Financial Information

         In the opinion of  management,  the  unaudited  consolidated  financial
statements presented herein contain all adjustments  necessary to present fairly
the financial  position of Seagull  Energy  Corporation  and  Subsidiaries  (the
"Company"  or  "Seagull")  as of  September  30,  1998,  and the  results of its
operations and cash flows for the three and nine months ended September 30, 1998
and 1997. All adjustments  made, other than the impairment  charges and one-time
compensation charges discussed in Note 2 and the extraordinary item discussed in
Note 5, are of a normal,  recurring  nature.  The results of operations  for the
three and nine months  ended  September  30,  1998 and 1997 are not  necessarily
indicative of the results to be expected for the full year.

         The  financial   information   presented   herein  should  be  read  in
conjunction with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.

         Comprehensive  Income -- Effective January 1, 1998, the Company adopted
Financial  Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard  ("SFAS") No. 130,  "Reporting  Comprehensive  Income." This  statement
established  standards for reporting and display of comprehensive income and its
components in the Company's financial statements.  Comprehensive income includes
all changes in the Company's  equity except those resulting from  investments by
and distributions to owners.

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

<TABLE>
<CAPTION>
                                                                                Weighted Average          Earnings (Loss)
                                                                                  Common Shares              Per-Share
                                                       Net Income (Loss)           Outstanding                Amount
                                                      --------------------    ----------------------    --------------------
<S>                                                   <C>                     <C>                       <C> 
Quarter Ended September 30, 1998:
     Basic.....................................            $  (87,638)                  63,141                 $ (1.39)
     Effect of dilutive stock options..........                     -                        -
                                                      --------------------    ----------------------
     Diluted...................................            $  (87,638)                  63,141                 $ (1.39)
                                                      ====================    ======================

Quarter Ended September 30, 1997:
     Basic.....................................            $    3,202                   63,160                 $ 0.05
     Effect of dilutive stock options..........                     -                      773
                                                      -------------------     ----------------------
     Diluted...................................            $    3,202                   63,933                 $ 0.05
                                                      ====================    ======================
</TABLE>

                                       5
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                Weighted Average          Earnings (Loss)
                                                                                  Common Shares              Per-Share
                                                       Net Income (Loss)           Outstanding                Amount
                                                      --------------------    ----------------------    --------------------
<S>                                                   <C>                     <C>                       <C> 
Nine Months Ended September 30, 1998:
     Basic.....................................            $  (85,534)                  63,072                 $ (1.36) 
     Effect of dilutive stock options..........                     -                        -
                                                      --------------------    ----------------------
     Diluted...................................            $  (85,534)                  63,072                 $ (1.36)
                                                      ====================    ======================

Nine Months Ended September 30, 1997:
     Basic.....................................            $   23,077                   62,986                 $ 0.37
     Effect of dilutive stock options..........                     -                      760
                                                      --------------------    ----------------------
     Diluted...................................            $   23,077                   63,746                 $ 0.36
                                                      ====================    ======================
</TABLE>

         The effects of the assumed exercise of stock options for the first nine
months of 1998 and the third quarter of 1998 have an anti-dilutive effect on the
computation  of loss per diluted share for these  periods.  Therefore,  weighted
average  options to purchase  4,621,507 and 4,859,702  shares of common stock at
$5.89 to $26.38 per share have not been included in the weighted  average number
of common  shares  outstanding  for the first nine  months of 1998 and the third
quarter of 1998, respectively. Weighted average options to purchase 1,748,523 at
$20.00 to $26.38  per share and  1,636,272  shares of common  stock at $23.50 to
$26.38 per share were  outstanding  during the first nine months of 1997 and the
third quarter of 1997, respectively, but were not included in the computation of
earnings per diluted  share  because the options'  exercise  prices were greater
than  the average market price of the common shares.  Outstanding options expire
at various dates from 2003 to 2008.

         Derivative  Financial  Instruments  -- From time to time,  the  Company
enters into a variety of commodity  derivative financial  instruments  (futures,
swaps and options  contracts) for  non-trading  purposes.  In 1998 and 1997, the
Company made limited use of these derivative financial  instruments as a hedging
strategy to manage  commodity  prices  associated  with oil and gas sales and to
reduce the impact of commodity price  fluctuations.  While commodity  derivative
financial  instruments are intended to reduce the Company's exposure to declines
in the market price of oil and natural gas, the commodity  derivative  financial
instruments  may also limit the  Company's  gain from  increases in those market
prices.

         The Company uses the hedge or deferral  method of accounting  for these
instruments and, as a result, gains and losses on commodity derivative financial
instruments  are generally  offset by similar  changes in the realized prices of
the commodities.  To qualify as hedges,  these instruments must highly correlate
to anticipated  future production and prices such that the Company's exposure to
the  effects of price  changes  is  reduced.  Income and costs  related to these
hedging  activities are recognized in oil and gas revenues when the  commodities
are produced.  Income and costs on commodity  derivative  financial  instruments
that are closed before the hedged  production occurs are also deferred until the
production  month  originally  hedged.  In the  event  of a loss of  correlation
between  changes in oil and gas  reference  prices under a commodity  derivative
financial  instrument  and  actual  oil and gas  prices,  income  or  costs  are
recognized  currently  to the extent  the  financial  instrument  has not offset
changes in actual oil and gas  prices.  Any  realized  income and costs that are
deferred at the balance sheet date and any margin accounts for futures contracts
are included as net current assets.

                                       6
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

         The Company  recorded costs of $0.6 million and $8 million for the nine
months  ended  September  30,  1998 and 1997,  respectively,  related  to equity
hedging  activities,  including costs related to the monetary production payment
hedges  of  approximately  $0.6  million  and  $2  million  in  1998  and  1997,
respectively.  By the end of the first  quarter of 1997,  the  Company's  equity
hedging  activities  had  been  substantially  reduced,  leaving  primarily  the
commodity  hedges of  approximately 11 MMcf per day through December 1998, which
were required by the monetary  production  payment  (related to the 1995 sale of
the Company's Section 29 tax credit-bearing  properties).  For the third quarter
of 1998 and 1997, all of the Company's  equity hedging costs of $0.1 million and
$0.6 million,  respectively,  related to the monetary production payment hedges.
The  Company  also  recorded  hedging  costs  related to  third-party  marketing
activities of $3.8 million and $0.8 million for the nine months ended  September
30, 1998 and 1997, respectively, and $2.3 million and $0.6 million for the third
quarter of 1998 and 1997, respectively.

         At September 30, 1998, the Company had open natural gas futures,  swaps
and option  contracts  related to its equity and third-party  marketing  hedging
activities  totaling 20 Bcf related to purchases and 25 Bcf related to sales for
the period from October 1998 through July 1999. At September 30, 1998,  the fair
value related to the Company's  commodity hedging activities was $0.6 million of
costs related to open contracts.

         Accounting  Pronouncements  -- In June 1997,  the FASB  issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement  establishes  standards  for  reporting  information  about  operating
segments in annual financial  statements and requires selected information about
operating  segments be included in interim  reports issued to  shareholders.  In
February  1998,  the FASB  issued SFAS No. 132,  "Employers'  Disclosures  about
Pensions  and  Other  Postretirement   Benefits."  This  statement   establishes
standards  for  disclosure  for  pensions and other  postretirement  benefits in
annual  financial  statements.  These  statements  are  effective  for financial
statements for periods  beginning after December 15, 1997. As both SFAS Nos. 131
and 132 establish  standards  for  reporting  and display,  the Company does not
expect  the  adoption  of these  statements  to have a  material  impact  on its
financial condition or results of operations.

         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 is effective for fiscal years  beginning after June 15, 1999. The
Company has not yet  determined  the impact of this  statement on its  financial
condition or results of operations.


Note 2.       Special Charges

         Impairment  of Long-Lived  Assets -- The Company  performs a review for
impairment  of proved oil and gas  properties  on a  depletable  unit basis when
circumstances  suggest  there is a need for such a review.  For each  depletable
unit  determined  to be impaired,  an  impairment  loss equal to the  difference
between the  carrying  value and the fair value of the  depletable  unit will be
recognized.  Fair value,  on a  

                                       7

<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

depletable  unit basis,  is estimated to be the present value of expected future
cash  flows  computed  by  applying  estimated  future  oil and gas  prices,  as
determined by management, to estimated future production of oil and gas reserves
over the  economic  lives of the  reserves.  In the third  quarter of 1998,  the
Company  recorded  impairment  charges of $74 million related to its oil and gas
properties  and  approximately  $4 million  related  to certain of its  pipeline
assets.  The  oil and gas  asset  impairment  charges  resulted  primarily  from
disappointing well performance, much lower oil and natural gas prices and a lack
of any perceived significant near-term improvement in oil prices that has led to
a reduction  in  reserves  at certain of  Seagull's  Egyptian  concessions.  The
impairment  of the  pipeline  assets is a result of the  Company's  decision  to
dispose of these assets. No impairment charges were recorded during 1997.

         One-Time  Compensation  Charges  -- During  the third  quarter of 1998,
Seagull recorded  approximately $6 million in compensation  expenses included in
general and administrative  expense,  related to the retirement of Barry J. Galt
and the  appointment  of James  T.  Hackett  as the  Company's  Chief  Executive
Officer.


Note 3.       Acquisitions and Dispositions

         Acquisition  of Oil and Gas  Assets  -- On June 1,  1998,  the  Company
completed the purchase of the stock of BRG Petroleum,  Inc.  ("BRG"),  a closely
held private company,  and the assets of BRG's limited partnerships and programs
for $103  million in cash,  excluding  cash  acquired  of $2 million and noncash
deferred tax  liabilities of $25 million.  The Company  funded this  acquisition
through existing credit facilities.

         The following table presents the unaudited pro forma results of Seagull
as though the  acquisition  of the  acquired  assets had  occurred on January 1,
1998:

<TABLE>
<CAPTION>
                              PRO FORMA INFORMATION
                  (Amounts in Thousands Except Per Share Data)

                                                                                                         Nine Months Ended
                                                                                                        September 30, 1998
                                                                                                     --------------------------
<S>                                                                                                  <C>              
Revenues.................................................................................                       $327,624
Net loss.................................................................................                        (87,001)
Basic loss per share.....................................................................                          (1.38)
Diluted loss per share...................................................................                          (1.38)
</TABLE>

         The unaudited pro forma  information  does not purport to be indicative
of actual  results,  if the acquisition of the BRG assets had been in effect for
the period indicated, or of future results.

         Relinquishment   of  Darag   Concession  --  The   Company's   Egyptian
concessions  include a 50%,  non-operated  working  interest in the Darag block,
which is located in the northern  portion of the Gulf of Suez.  Future plans for
this  concession  have been  uncertain  as the working  interest  owners and the
Egyptian  national oil company ("EGPC") have been unable to secure the necessary
drilling  permits from 

                                       8
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

marine  authorities.  In the third quarter of 1998, the working  interest owners
agreed to relinquish  the  concession to EGPC in exchange for  reimbursement  of
substantially  all of their costs  incurred in connection  with the  concession.
Seagull's share of the reimbursement is expected to be approximately $6 million.
The effect of this reimbursement is not expected to be material to the Company's
results of operations.

         Disposition of Pipeline Assets -- During the third quarter of 1998, the
Company  decided to liquidate its  nonstrategic  pipeline assets in late 1998 or
early  1999.  As a result  of this  decision,  the  Company  recorded  a noncash
impairment  of  pipeline  assets of  approximately  $4 million  during the third
quarter of 1998 to reduce the asset carrying value to net realizable  value. The
pipeline  assets to be  disposed  of  contributed  $3 million  and $4 million in
revenues for the three months ended  September 30, 1998 and 1997,  respectively,
and $9 million and $11 million in revenues for the nine months  ended  September
30, 1998 and 1997, respectively, but did not have a material effect on operating
profit  for any of these  periods.  These  assets  have a net book  value  after
impairment of approximately $3 million at September 30, 1998.


Note 4.       Supplemental Disclosures of Cash Flow Information

<TABLE>
<CAPTION>
                             (Amounts in Thousands)

                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                   1998                  1997
                                                 ---------             ---------
<S>                                              <C>                   <C> 
Cash paid during the period for:
  Interest, net of amount capitalized...          $36,143               $35,801
  Income taxes..........................          $ 8,277               $20,305
</TABLE>


Note 5.       Long-term Debt

         During  the  third  quarter  of  1998,   the  Company   repurchased  in
open-market transactions approximately $50 million in aggregate principal amount
of its 8 5/8% Senior  Subordinated  Notes due 2005.  These purchases were funded
using borrowings under Seagull's  revolving credit facility.  In connection with
this  repurchase,  the Company  recorded an after-tax  extraordinary  loss of $1
million,  or $0.02 per basic and diluted share during the third quarter of 1998.
The extraordinary item includes a tax benefit of approximately $0.6 million.


Note 6.       Commitments and Contingencies

         The Company is a party to ongoing  litigation  in the normal  course of
business.  Management  regularly analyzes current information and, as necessary,
provides accruals for probable  liabilities on the eventual disposition of these
matters.  While the outcome of lawsuits or other proceedings against the Company
cannot be predicted with certainty,  management  believes that the effect on its
financial  condition,  results of operations and cash flows, if any, will not be
material.


                                       9
<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

         The following  discussion is intended to assist in an  understanding of
the financial  position and results of operations of Seagull Energy  Corporation
("Seagull" or the  "Company") for each of the periods  indicated.  The Company's
accompanying  unaudited  financial  statements  and the  notes  thereto  and the
consolidated  financial  statements and notes  included in the Company's  Annual
Report  on Form 10-K for the year  ended  December  31,  1997  contain  detailed
information  that  should  be  referred  to in  conjunction  with the  following
discussion.

                              RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                             CONSOLIDATED HIGHLIGHTS
                             (Amounts in Thousands)

                                                         Three Months Ended                    Nine Months Ended
                                                           September 30,                         September 30,
                                                   -------------------------------     ------------------------------------
                                                        1998             1997               1998                1997
                                                   ---------------   -------------     ---------------    -----------------
<S>                                                <C>               <C>               <C>                <C>   
Revenues:
  Oil and gas operations.......................     $    79,862       $  108,543         $  256,415          $  338,953
  Alaska transmission and distribution.........          13,237           12,112             62,538              63,455
                                                   ---------------   -------------     ---------------    -----------------
                                                    $    93,099       $  120,655         $  318,953          $  402,408
                                                   ===============   =============     ===============    =================

Operating Profit (Loss):
  Oil and gas operations.......................     $   (99,574)      $   18,603         $  (83,808)         $   77,363
  Alaska transmission and distribution.........           1,146              548             13,436              12,985
  Corporate....................................         (10,389)          (5,695)           (18,669)            (12,475)
                                                   ---------------   -------------     ---------------    -----------------
                                                    $  (108,817)      $   13,456         $  (89,041)         $   77,873
                                                   ===============   =============     ===============    =================

Net income (loss)..............................     $   (87,638)      $    3,202         $  (85,534)         $   23,077
Net cash provided by operating activities before
  changes in operating assets and liabilities..     $    21,683       $   48,623         $  106,524          $  172,572
Net cash provided by operating activities......     $    31,901       $   49,939         $   96,142          $  175,933
</TABLE>


         For both the three and nine months ended  September  30, 1998,  Seagull
experienced  decreases in revenues,  operating  profit,  net income and net cash
provided  by  operating  activities  versus  the same  periods  in  1997.  These
decreases can be primarily attributed to the following key items:

-        A noncash impairment charge of $78 million in the third quarter of 1998
         related to the impairment of the Company's oil and gas and pipeline
         assets;

-        Substantial decreases in worldwide oil prices and moderate decreases in
         domestic gas prices from the 1997 periods;

-        Substantial increases in exploration charges for the quarter and nine
         months of 1998 versus the equivalent 1997 periods;


                                       10
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

-        The absence of contributions from the Company's Canadian oil and gas
         operations which were sold in October 1997;

-        One-time compensation costs of approximately $6 million associated with
         the retirement of Barry J. Galt and the appointment of James T. Hackett
         as the Company's Chief Executive Officer; and

-        A change in the Company's tax expense from approximately 53% of 
         earnings before taxes for the nine months ended September 30, 1997 to
         an approximate 27% benefit for the first nine months of 1998,
         reflecting primarily the tax benefits of the impairment of long-lived
         assets and one-time compensation matters.

<TABLE>
<CAPTION>
                             OIL AND GAS OPERATIONS
                             (Amounts in Thousands)

                                                           Three Months Ended                  Nine Months Ended
                                                              September 30,                          September 30,
                                                 ----------------------------------    ---------------------------------      
                                                       1998                1997             1998               1997
                                                 ---------------      -------------    --------------     --------------
<S>                                              <C>                  <C>              <C>                <C>           
Revenues:
  Natural gas...............................      $    54,970           $ 70,374        $  173,287          $ 224,093
  Oil and NGL...............................           19,583             32,986            66,258             96,220
  Pipeline and marketing....................            5,309              5,183            16,870             18,640          
                                                 ---------------      -------------    --------------     --------------
                                                       79,862            108,543           256,415            338,953          
                                                 ---------------      -------------    --------------     --------------

Production operating expenses...............           28,651             27,967            82,961             87,091
Pipeline and marketing expenses.............            7,109              6,860            20,524             20,840
Exploration charges.........................           22,032             15,217            40,328             31,516
Depreciation, depletion and amortization....           43,817             39,896           118,583            122,143       
Impairment of long-lived assets.............           77,827                  -            77,827                  -          
                                                 ---------------      -------------    --------------     --------------
  Operating profit..........................      $   (99,574)          $ 18,603        $  (83,808)         $  77,363          
                                                 ===============      =============    ==============     ==============
</TABLE>


         The decline in commodity  prices was the significant  factor in the 26%
and 24% decreases in revenues for the Oil and Gas Operations  ("O&G") segment to
$80 million and $256 million for the three and nine months ended  September  30,
1998,  respectively.  Domestic  natural  gas  prices  realized  by  the  Company
decreased  9% from $2.28 per Mcf in the first  nine  months of 1997 to $2.07 per
Mcf for the same  period in 1998.  This  price  decrease  and a 5%  decrease  in
domestic gas  production  combined to create a $26 million  decrease in domestic
natural gas  revenues.  Worldwide  oil prices  realized by the Company  showed a
decrease of 33%,  from $17.40 per Bbl in 1997's  first nine months to $11.62 per
Bbl in 1998. While declining oil prices were the primary factor for the decrease
in oil  revenues,  this  was  partially  offset  by an  increase  in oil and NGL
production in the U.S. and Egypt as Seagull  realized  additional  contributions
from several new domestic  wells and three Egyptian  concessions - Qarun,  where
additional facilities became operational during mid-1997,  East Beni Suef, where
production began in mid-1998, and West Abu Gharadig, which was purchased in late
1997.  For the third quarter of 1998,  the Company's oil and gas  production was
essentially  unchanged  from  the  third  quarter  of 1997,  excluding


                                       11
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

Canadian  production.  However,  worldwide  oil and gas prices  realized  by the
Company during the third quarter of 1998 reflected the similar  downward  trends
expressed during the first nine months of 1998 versus the same period in 1997.

         Seagull sold its Canadian oil and gas operations in October 1997. These
Canadian  operations  contributed  approximately  $8 million  and $26 million in
revenues  and $4 million  and $8 million in  operating  profit for the three and
nine months ended September 30, 1997, respectively.


<TABLE>
<CAPTION>
                    EXPLORATION AND PRODUCTION OPERATING DATA

                                         Three Months Ended                                  Nine Months Ended
                                           September 30,                                        September 30,
                          ------------------------------------------------- -----------------------------------------------------
                            Net Daily Production          Unit Price           Net Daily Production            Unit Price
                             1998         1997         1998        1997         1998          1997         1998         1997
                          ----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
<S>                       <C>         <C>           <C>         <C>         <C>           <C>           <C>         <C>           
Gas Sales(1):
   Domestic.............        293          299      $  1.94     $  2.19         289          304        $  2.07     $    2.28
   Canada(2) ...........          -           49           -         1.38           -           49           -             1.63
   Cote d'Ivoire........          7            7         1.59        1.77           9            6           1.57          1.81
   Indonesia............          8            8         1.97        3.58           9           11           2.32          3.54
   Other................          1            -         1.40        1.07           1            -           1.36          1.02     
                          ----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
                                309          363      $  1.94     $  2.11         308          370        $  2.06     $    2.22
                          =========== ============= =========== =========== ============= ============= =========== =============

Oil and NGL Sales(1):
   Domestic.............      5,151        5,292      $ 10.79     $ 16.52       5,094        4,689        $ 11.88     $   18.03
   Canada(2)............          -          932            -       15.37           -          889              -         16.46
   Egypt................     10,085        9,838        12.07       18.02      10,555        8,987          12.67         18.30
   Cote d'Ivoire........        782        1,146         7.34       17.44         993        1,285          10.90         19.06
   Tatarstan............      4,201        4,113         6.74       13.94       4,060        4,224           8.57         14.34
   Indonesia............        115           94        12.84       22.01         172          166          16.09         20.99
   Other................          9            9         7.33       15.49           8           15          10.78         17.18
                          ----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
                             20,343       21,424      $ 10.46     $ 16.74      20,882       20,255        $ 11.62     $   17.40
                          =========== ============= =========== =========== ============= ============= =========== =============
</TABLE>

(1) Natural gas is stated in MMcf and $ per Mcf.  Oil and NGLs are stated in Bbl
    and $ per Bbl. 

(2) All of the Company's  Canadian oil and gas  operations  were sold in October
    1997.

         Income and costs related to the Company's  commodity hedging activities
are recognized in oil and gas revenues when the  commodities  are produced.  The
Company  recorded costs of $0.6 million and $8 million for the nine months ended
September 30, 1998 and 1997, respectively, related to equity hedging activities,
including   costs  related  to  the  monetary   production   payment  hedges  of
approximately $0.6 million and $2 million in 1998 and 1997, respectively. By the
end of the first quarter of 1997, the Company's  equity  hedging  activities had
been   substantially   reduced,   leaving  primarily  the  commodity  hedges  of
approximately  11 MMcf per day through December 1998, which were required by the
monetary  production  payment (related to the 1995 sale of the Company's Section
29 tax credit-bearing


                                       12
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

properties). For the third quarter of 1998 and 1997, all of the Company's equity
hedging  costs of $0.1 million and $0.6  million,  respectively,  related to the
monetary  production  payment  hedges.  The Company also recorded  hedging costs
related to third-party marketing activities of $3.8 million and $0.8 million for
the nine  months  ended  September  30,  1998 and 1997,  respectively,  and $2.3
million and $0.6 million for the third quarter of 1998 and 1997, respectively.

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  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 is effective for fiscal years  beginning after June 15, 1999. The
Company  has not yet  determined  the impact of this  statement on its financial
condition or results of operations.

         In comparison to 1997,  exploration charges for 1998 were approximately
$7  million  and $9  million  higher  for the  third  quarter  and nine  months,
respectively,  primarily due to increases in dry hole expense and  impairment of
leaseholds on certain of the Company's Egyptian concessions.

         The  decrease in  depreciation,  depletion  and  amortization  ("DD&A")
expense to $119 million for the nine months ended  September  30, 1998 from $122
million for the prior year is  primarily  due to the  decrease  in domestic  gas
production and the sale of the Company's Canadian  operations,  partially offset
by  increased  oil  production  in Egypt and an increase in the DD&A expense per
equivalent unit of production related to the Company's Egyptian operations.  The
DD&A  expense  per  equivalent  unit of  production  for  oil and gas  producing
activities  increased  to $5.95 per Boe from  $5.41  per Boe for the first  nine
months  of 1998 and 1997,  respectively.  For the third  quarter,  DD&A  expense
increased  nearly $4 million from 1997's $40 million also due to the increase in
the DD&A expense per  equivalent  unit of  production  related to the  Company's
Egyptian operations.

         During  the third  quarter  of 1998,  the  Company  recorded  a noncash
impairment  charge  of $74  million  related  to its  oil and  gas  assets.  The
impairments of the oil and gas assets were  primarily a result of  disappointing
well  performance,  much  lower oil and  natural  gas  prices  and a lack of any
perceived  significant  near-term  improvement  in oil prices  that has led to a
reduction in reserves at certain of Seagull's Egyptian concessions.  During this
quarter,  the Company  also decided to liquidate  nonstrategic  pipeline  assets
which resulted in an additional noncash impairment of $4 million.

         Even  if  worldwide  oil  and  gas  prices  improve  materially  in the
remainder of 1998,  O&G operating  results will be  substantially  lower in 1998
versus  the prior  year.  As the O&G  segment  represents  the  majority  of the
Company's operations,  a substantial decrease in O&G operating results will have
a significant impact on the Company's total operating results.


                                       13
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                      ALASKA TRANSMISSION AND DISTRIBUTION
                   (Amounts in Thousand Except Operating Data)

                                                      Three Months Ended                          Nine Months Ended
                                                        September 30,                               September 30,
                                               ---------------------------------        --------------------------------------
                                                   1998               1997                   1998                  1997
                                               --------------      -------------        ----------------     -----------------
<S>                                            <C>                 <C>                  <C>                  <C>    
Revenues..................................      $  13,237            $ 12,112              $ 62,538            $   63,455
Cost of gas sold..........................          5,021               4,557                27,127                28,523
                                               --------------      -------------        ----------------     -----------------
  Gross margin............................          8,216               7,555                35,411                34,932
Operations and maintenance expense........          4,942               4,917                15,598                15,689
Depreciation, depletion and amortization..          2,128               2,090                 6,377                 6,258
                                               --------------      -------------        ----------------     -----------------
  Operating profit........................      $   1,146            $    548              $ 13,436            $   12,985
                                               ==============      =============        ================     =================

OPERATING DATA:
  Degree days (*).........................          1,050                 762                 6,332                 6,053
  Sales and transport volumes (MMcf)......          7,280               7,543                29,544                31,362
  Sales and transport margin per MMcf.....      $    1.13            $   1.00              $   1.20            $     1.11
</TABLE>

 (*) A  measure  of  weather   severity   calculated  by  subtracting  the  mean
     temperature  for each day from 65  degrees  Fahrenheit.  More  degree  days
     equate to colder weather.

         Operating profit of the Alaska  transmission  and distribution  segment
for the third  quarter of 1998  increased  from the 1997 period  primarily  as a
result of cooler  temperatures,  increased  customer  count and increased  gross
margin  due to a change in the mix of  customers.  This  segment's  business  is
seasonal  with  approximately  65%-70% of its sales made in the first and fourth
quarters of each year.

                                      OTHER

         During the third quarter of 1998,  Seagull  recorded  approximately  $6
million in compensation expenses, related to the retirement of Barry J. Galt and
the appointment of James T. Hackett as the Company's  Chief  Executive  Officer,
included in general and administrative ("G&A") expense.  Additional compensation
costs  related to Mr.  Galt's  retirement  of  approximately  $1 million will be
recorded in G&A expense  throughout  the remainder of 1998 and the first half of
1999.


                                       14
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

                         LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
                      CAPITAL EXPENDITURES AND ACQUISITIONS
                             (Amounts in Thousands)

                                                     Three Months Ended                        Nine Months Ended
                                                        September 30,                            September 30,
                                              ----------------------------------     ---------------------------------------
                                                  1998               1997                 1998                   1997
                                              --------------     --------------      ----------------      -----------------
<S>                                           <C>                <C>                 <C>                   <C>    
Capital expenditures:
   Exploration and production:
     Leasehold...........................      $   13,988          $   3,634           $   18,412             $   17,893
     Exploration.........................          27,361             28,456               59,695                 73,089
     Development.........................          34,805             30,359              101,715                101,109
                                              --------------     --------------      ----------------      -----------------
                                                   76,154             62,449              179,822                192,091
   Pipeline and marketing................              85                162                1,302                    207
                                              --------------     --------------      ----------------      -----------------
     Oil and gas operations..............          76,239             62,611              181,124                192,298
   Alaska transmission and distribution..           2,974              3,081                6,978                  6,532
   Corporate.............................           1,261              2,524                4,977                  6,734
                                              --------------     --------------      ----------------      -----------------
                                               $   80,474          $  68,216           $  193,079             $  205,564
                                              ==============     ==============      ================      =================
Acquisitions.............................      $      673          $   6,600           $  128,142             $    7,421
                                              ==============     ==============      ================      =================
</TABLE>


         Seagull's  capital  expenditure  program is  designed  to  fulfill  the
Company's  goals of growing its reserve base and  production  capacity.  Capital
expenditures,  excluding  acquisitions,  decreased  by $12 million for the first
nine  months  of 1998  versus  1997  due to the sale of the  Company's  Canadian
operations,  which had  expenditures  of $13 million in the first nine months of
1997,  and a decline  in  domestic  capital  expenditures,  partially  offset by
increased expenditures related to the Company's Egyptian operations.

         The Company has a revolving  credit  facility  (the "Credit  Facility")
with a maximum commitment of $500 million. At September 30, 1998, there was $205
million  borrowed  under the  Credit  Facility  and $277  million  of the unused
commitment was  immediately  available.  The Credit  Facility  contains  certain
covenants and restrictive provisions, including limitations on the incurrence of
additional  debt or liens,  the  declaration  or  payment of  dividends  and the
repurchase  or  redemption  of  capital  stock and the  maintenance  of  certain
financial ratios. Under the most restrictive of these provisions,  approximately
$143 million was available  for payment of cash  dividends on common stock or to
repurchase common stock as of September 30, 1998.

         During  the  third  quarter  of  1998,   the  Company   repurchased  in
open-market transactions approximately $50 million in aggregate principal amount
of its 8 5/8% Senior  Subordinated  Notes due 2005.  These purchases were funded
using borrowings under the Credit Facility.  In connection with this repurchase,
the Company recorded an extraordinary loss of $1 million, or $0.02 per basic and


                                       15
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

diluted share. At current interest rates under the Credit Facility,  the Company
expects  to save  approximately  $1.6  million  in annual  interest  expense  by
refinancing  the $50  million  of Senior  Subordinated  Notes  under the  Credit
Facility.

         On June 1, 1998, the Company completed the purchase of the stock of BRG
Petroleum, Inc. and its related partnership  interests for $103 million in cash,
excluding cash acquired of $2 million and noncash  deferred tax  liabilities  of
$25 million.  The Company  funded  this  acquisition through its existing credit
facility.

         The assets acquired  include proved oil and gas reserves of 102 billion
cubic feet of natural gas equivalents  ("Bcfe").  BRG operated  approximately 70
percent  of 600  currently  producing  oil and gas  wells in  approximately  140
fields.  Daily  production from the properties net to the combined BRG interests
averaged  approximately  18 million cubic feet of gas and 400 barrels of oil and
natural  gas  liquids  in  1997.  The  most  significant  of  these  assets  are
concentrated in East Texas, primarily in Freestone, Upshur, Rusk and Nacogdoches
counties.

         Management believes the Company's  internally  generated funds and bank
borrowing  capabilities  will be  sufficient to finance  current and  forecasted
operations, including capital expenditures.

         In  March  1998,  Seagull  announced  it may  include  some of its less
strategic E&P  properties  located away from its various core assets in packages
of properties to be liquidated in the fourth  quarter of 1998.  During the third
quarter of 1998, the Company also decided to liquidate its nonstrategic pipeline
assets in late 1998 or early 1999.  The Company also announced its intentions to
exit  its  third-party  marketing  business  and  to  explore  alternatives  for
marketing its equity production, including outsourcing.

                                YEAR 2000 ISSUES

         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.  Seagull's
Board of Directors has been briefed about the Year 2000 problem generally and as
it may affect  Seagull.  The Board has created a committee  consisting of senior
executives  and a  representative  from the Board to oversee  the  adoption  and
implementation of a Year 2000 plan covering all of Seagull's business units. The
plan has been developed,  and the aim of the plan is to take reasonable steps to
prevent Seagull's mission-critical functions from being impaired due to the Year
2000 problem.


                                       16
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

         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;  and
(iv) contingency planning.

         In planning and developing the project, Seagull 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.  Those  items not  considered  IT
technology include alarm systems,  fax machines,  monitors for field operations,
or other miscellaneous  systems. Both IT and non-IT systems may contain embedded
technology,  which complicates  Seagull's Year 2000 identification,  assessment,
remediation,  and testing efforts.  Based upon its identification and assessment
efforts to date,  Seagull is in the process of replacing the computer  equipment
and software it currently uses to become Year 2000  compliant.  In addition,  in
the ordinary course of replacing computer equipment and software,  Seagull plans
to obtain replacements that are in compliance with Year 2000.

         During 1997, the Company utilized both internal and external  resources
to reprogram,  or replace, and test much of its IT systems,  primarily financial
and  operational  software,  for  necessary  modifications   identified  in  its
assessment  of Year 2000  issues.  As of the date of this  filing,  the  Company
estimates that  approximately 80% of its Year 2000 plan for these IT systems has
been implemented and anticipates  that the remainder of the plan,  including any
necessary remedial action, will be completed by March 31, 1999. 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.  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. While the evaluation of non-IT systems and
communications  with  key  business  partners  is just  beginning,  the  Company
estimates that the remainder of the Year 2000 plan  concerning  these areas will
be complete by March 31, 1999.

         During  the  fourth  quarter  of 1998,  the  Company  plans to  develop
contingency  plans  for  both  financial  and  operational  systems.   Seagull's
contingency  plans are being  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,  thereby
having a  material,  adverse  affect on the  Company's  results  of  operations,
liquidity and financial position. The Company's remediation efforts are expected
to  significantly  reduce 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 the  systems of other  companies,  on which the
Company's systems rely, will be timely  converted,  or that a failure to convert


                                       17
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

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

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  total  costs  for the Year  2000  compliance  review,  evaluation,
assessment  and  remediation  efforts  are  not  expected  to  be in  excess  of
$1,000,000.  Of this  amount,  approximately  $300,000  had been  incurred as of
September 30, 1998.

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. 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

         Item 2 of this document includes forward-looking  statements within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities Exchange Act of 1934, as amended. Although Seagull believes that such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will in fact occur. Important factors that could
cause  actual  results to differ  materially  from those in the  forward-looking
statements  include,  but are not limited to, political  developments in foreign
countries,  federal and state regulatory developments,  the timing and extent of
changes in commodity  prices,  the timing and extent of success in  discovering,
developing and producing or acquiring oil and gas reserves,  the availability of
skilled personnel,  materials and equipment,  operating hazards attendant to the
industry,  and  conditions of the capital and equity  markets during the periods
covered  by  the  forward-looking  statements,  as  well  as the  other  factors
discussed in Seagull's  Annual  Report on Form 10-K for the year ended  December
31, 1997.

                                       18
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

                           PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:

#*10.1   Employment  and  Consulting  Agreement by  and between the Company and 
         Barry J. Galt.

#*10.2   Severance  Agreement, including  Amendment  and  Second  Amendment  to 
         Severance Agreement, between the Company and Barry J. Galt.

#*10.3   Form of Severance  Agreement,  including Form of Amendment and Second  
         Amendment to Severance  Agreement,  between the Company and Richard F. 
         Barnes, John N. Goodpasture, and William L. Transier.

#*10.4   Second and  Third Amendments  to Seagull Energy Corporation Management 
         Stability Plan.

#*10.5   Third Amendment to the Outside Directors' Deferred Fee Plan.

#*10.6   Employment Agreement by and between the Company and James T. Hackett.

#*10.7   Executive  Supplemental  Retirement  Plan  Membership Agreement by and 
         between the Company and James T. Hackett.

#*10.8   Severance Agreement between the Company and James T. Hackett.

#*10.9   Severance Agreement, including Amendment and Second Amendment to 
         Severance Agreement, between the Company and Gerald R. Colley.

#*10.10  Severance Agreement, including Amendment and Second Amendment, between
         the Company and Carl B. King.

#*10.11  Third Amendment to the Company's Executive Supplemental Retirement 
         Plan.

#*10.12  Third Amendment to Supplemental Benefit Plan.

#*27.1   Financial Data Schedule.


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

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the three months ended  September
30, 1998.


                                       19
<PAGE>



                                   SIGNATURES

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

                                 SEAGULL ENERGY CORPORATION

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

                                 Date: November 16, 1998

                                 By:   /s/ Gordon L. McConnell                 
                                       Gordon L. McConnell, Vice President and
                                       Controller (Principal Accounting Officer)

                                 Date: November 16, 1998

<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<S>                 <C>                                                                               <C>
    EXHIBIT                                                                                               PAGE
     NUMBER                                          DESCRIPTION                                         NUMBER
-----------------   -------------------------------------------------------------------------------   -------------
#*10.1              Employment  and  Consulting  Agreement by  and between the Company and 
                    Barry J. Galt.

#*10.2              Severance  Agreement, including  Amendment  and  Second  Amendment  to 
                    Severance Agreement, between the Company and Barry J. Galt.

#*10.3              Form of Severance  Agreement,  including Form of Amendment and Second  
                    Amendment to Severance  Agreement,  between the Company and Richard F. 
                    Barnes, John N. Goodpasture, and William L. Transier.

#*10.4              Second and  Third Amendments  to Seagull Energy Corporation Management 
                    Stability Plan.

#*10.5              Third Amendment to the Outside Directors' Deferred Fee Plan.

#*10.6              Employment Agreement by and between the Company and James T. Hackett.

#*10.7              Executive  Supplemental  Retirement  Plan  Membership Agreement by and 
                    between the Company and James T. Hackett.

#*10.8              Severance Agreement between the Company and James T. Hackett.

#*10.9              Severance Agreement, including Amendment and Second Amendment to 
                    Severance Agreement, between the Company and Gerald R. Colley.

#*10.10             Severance Agreement, including Amendment and Second Amendment, between
                    the Company and Carl B. King.

#*10.11             Third Amendment to the Company's Executive Supplemental Retirement 
                    Plan.

#*10.12             Third Amendment to Supplemental Benefit Plan.

#*27.1              Financial Data Schedule.
</TABLE>
----------------
* Filed herewith.

# Identifies management contracts and compensatory plans or arrangements.