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

(Mark One)

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

For the quarterly period ended      September 30, 1996
                               -------------------------------------------------


                                       OR

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

For the transition period from ______________________  to ______________________

Commission file number    1-8094
                        ________________________________________________________

                           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     .
                                             ---      ---
                      
                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                CLASS                            OUTSTANDING AT OCTOBER 31, 1996
                ------                           -------------------------------
     Common Stock, $.10 par value                            62,743,687


<PAGE>



                                                     
                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

                                      INDEX


                                                                            PAGE
 Part I.  Financial Information                                           NUMBER

  Presentation of Financial Information...............................       3

  Consolidated Statements of Earnings - Three Months
    Ended September 30, 1996 and 1995 (Unaudited).....................       4

  Consolidated Statements of Earnings - Nine Months
    Ended September 30, 1996 and 1995 (Unaudited).....................       5

  Consolidated Balance Sheets - September 30, 1996
    and December 31, 1995 (Unaudited).................................       6

  Consolidated Statements of Cash Flows - Nine Months
    Ended September 30, 1996 and 1995 (Unaudited).....................       7

  Notes to Consolidated Financial Statements (Unaudited)..............       8

  Management's Discussion and Analysis of Financial Condition
     and Results of Operations (Unaudited)............................      14

Part II.  Other Information...........................................      28

Signatures............................................................      30

                                      -2-
<PAGE>


                          PART I. FINANCIAL INFORMATION

                      PRESENTATION OF FINANCIAL INFORMATION

          In the opinion of  management,  the following  unaudited  consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial position of Seagull Energy Corporation and Subsidiaries  ("Seagull" or
the  "Company") as of September 30, 1996,  and the results of its operations for
the three and nine month  periods ended  September  30, 1996 and 1995,  and cash
flows for the nine month  periods  then  ended.  As  discussed  in Note 1 to the
Company's  Unaudited  Consolidated  Financial  Statements,  the  shareholders of
Seagull and Global  Natural  Resources  Inc.  ("Global")  approved a merger of a
wholly  owned  subsidiary  of  Seagull  into  Global  on  October  3,  1996 (the
"Merger").  Accordingly,  the unaudited  financial  statements  presented herein
include  the  results of Seagull  (the  "Primary  Financial  Information")  and,
supplementally, the combined operations of Seagull and Global (the "Supplemental
Financial Information" or the "Combined Company"). Certain adjustments were made
to the Supplemental Financial Information to conform the accounting policies and
presentation used by Seagull and Global. The Supplemental  Financial Information
does not  include  estimated  transaction  costs of the Merger of  approximately
$8-10 million (before tax). The estimated  transaction costs will be expensed in
the fourth quarter of 1996, the period in which the Merger was  consummated.  As
discussed  in  Note  2  to  the  Company's  Unaudited   Consolidated   Financial
Statements,  Seagull purchased all of the stock of Esso Suez Inc. and certain of
the assets of Esso Egypt Limited  effective  September  10, 1996.  The Unaudited
Consolidated  Financial  Statements  included  herein  include  the  results  of
operations  of Esso Suez Inc.  and of the certain  assets of Esso Egypt  Limited
since September 10, 1996. All other adjustments made are of a normal,  recurring
nature.  The results of operations for the three and nine months ended September
30, 1996 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
Seagull's  Annual  Report on Form 10-K for the year ended  December 31, 1995 and
Global's Annual Report on Form 10-K for the year ended December 31, 1995.

          Item 2 of this document includes forward looking statements within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the  Securities  Exchange  Act of  1934,  as  amended.  Although  Seagull
believes that its expectations are based on reasonable assumptions,  it can give
no assurance  that its  expectations  will be achieved.  Important  factors that
could  cause  actual  results to differ  materially  from  those in the  forward
looking statements include 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  discovering,  developing and producing
or acquiring  oil and gas  reserves,  and  conditions  of the capital and equity
markets during the periods covered by the forward looking statements.

                                      -3-
<PAGE>

                  SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                          Item 1. FINANCIAL STATEMENTS
                      CONSOLIDATED STATEMENTS OF EARNINGS
                (Dollars in Thousands Except Per Share Amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                      Primary Financial                  Supplemental Financial
                                                                         Information                           Information
                                                             --------------------------------     ----------------------------------
                                                                     Three Months Ended                     Three Months Ended
                                                                        September 30,                          September 30,
                                                             --------------------------------     ----------------------------------
                                                                     1996              1995               1996               1995
                                                             ---------------    -------------     ---------------     --------------
<S>                                                          <C>                <C>               <C>                 <C>


Revenues:
  Gas and oil operations...................                         $72,594         $ 55,732            $ 98,175           $ 73,026
  Alaska transmission and distribution.....                          12,611           12,355              12,611             12,355
                                                             ---------------    -------------     ---------------     --------------
                                                                     85,205           68,087             110,786             85,381
Costs of Operations:
  Alaska transmission and distribution
    cost of gas sold.......................                           4,517            4,779               4,517              4,779
  Operations and maintenance...............                          25,575           25,487              35,323             33,058
  Exploration charges......................                           9,597            7,733              10,654              9,750
  Depreciation, depletion and amortization.                          30,629           29,633              36,533             35,668
                                                             ---------------    -------------     ---------------     --------------
                                                                     70,318           67,632              87,027             83,255
                                                             ---------------    -------------     ---------------     --------------

Operating Profit...........................                          14,887              455              23,759              2,126

Other (Income) Expense:
  General and administrative...............                           2,244            2,876               3,643              3,601
  Interest expense.........................                          10,781           13,568              10,795             13,605
  Gain on sales of property,
    plant and equipment, net...............                          (1,839)         (82,028)             (2,330)           (81,963)
  Interest income and other................                            (262)             224              (1,986)            (1,665)
                                                             ---------------    -------------     ---------------     --------------
                                                                     10,924          (65,360)             10,122            (66,422)
                                                             ---------------    -------------     ---------------     --------------

Earnings Before Income Taxes...............                           3,963           65,815              13,637             68,548

Income Tax Expense.........................                           2,330           24,265               6,179             24,856
                                                             ---------------    -------------     ---------------     --------------

Net Earnings...............................                         $ 1,633         $ 41,550            $  7,458           $ 43,692
                                                             ===============    =============     ===============     ==============

Earnings Per Share.........................                         $  0.04         $   1.13            $   0.12           $   0.70
                                                             ===============    =============     ===============     ==============

Weighted Average Number of Common Shares
  Outstanding (in thousands)...............                          37,011           36,768              63,934             62,752
                                                             ===============    =============     ===============     ==============

</TABLE>


See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                      -4-
<PAGE>

                  SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                          Item 1. FINANCIAL STATEMENTS
                      CONSOLIDATED STATEMENTS OF EARNINGS
                (Dollars in Thousands Except Per Share Amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                       Primary Financial                  Supplemental Financial
                                                                          Information                           Information
                                                              ---------------------------------    ---------------------------------
                                                                       Nine Months Ended                     Nine Months Ended 
                                                                         September 30,                          September 30,
                                                              ---------------------------------    ---------------------------------
                                                                     1996               1995              1996               1995
                                                              --------------    ---------------    --------------     --------------
<S>                                                           <C>               <C>                <C>                <C>        

Revenues:
  Gas and oil operations...................                        $217,896           $178,219          $296,319           $230,198
  Alaska transmission and distribution.....                          63,744             66,205            63,744             66,205
                                                              --------------    ---------------    --------------     --------------
                                                                    281,640            244,424           360,063            296,403
Costs of Operations:
  Alaska transmission and distribution
    cost of gas sold.......................                          26,974             31,267            26,974             31,267
  Operations and maintenance...............                          76,588             82,229           104,843            104,244
  Exploration charges......................                          24,438             21,752            30,839             30,239
  Depreciation, depletion and amortization.                          92,949             96,217           111,731            114,386
  Impairment of long-lived assets..........                               -             44,376                 -             48,842
                                                              --------------    ---------------    --------------     --------------
                                                                    220,949            275,841           274,387            328,978
                                                              --------------    ---------------    --------------     --------------

Operating Profit (Loss)....................                          60,691            (31,417)           85,676            (32,575)

Other (Income) Expense:
  General and administrative...............                          10,177             15,377            14,033             18,483
  Interest expense.........................                          33,435             41,499            33,478             41,613
  Gain on sales of property,
    plant and equipment, net...............                          (2,223)           (82,365)           (2,711)           (82,316)
  Interest income and other................                            (730)              (188)           (2,988)            (2,899)
                                                              --------------    ---------------    --------------     --------------
                                                                     40,659            (25,677)           41,812            (25,119)
                                                              --------------    ---------------    --------------     --------------

Earnings (Loss) Before Income Taxes........                          20,032             (5,740)           43,864             (7,456)

Income Tax Expense (Benefit)...............                           9,460             (1,615)           21,028              1,681
                                                              --------------    ---------------    --------------     --------------

Net Earnings (Loss)........................                        $ 10,572           $ (4,125)         $ 22,836           $ (9,137)
                                                              ==============    ===============    ==============     ==============

Earnings (Loss) Per Share..................                        $   0.29           $  (0.11)         $   0.36           $  (0.15)
                                                              ==============    ===============    ==============     ==============

Weighted Average Number of Common Shares
  Outstanding (in thousands)...............                          37,046             36,128            63,828              62,071
                                                              ==============    ===============    ==============     ==============

</TABLE>

See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                      -5-
<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                          Item 1. FINANCIAL STATEMENTS
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                         Primary                              Supplemental
                                                                  Financial Information                  Financial Information 
                                                          -----------------------------------   ------------------------------------
                                                             September 30,      December 31,      September 30,        December 31,
                                                                 1996               1995              1996                 1995
                                                          ----------------   ----------------   -----------------   ----------------
<S>                                                       <C>                <C>                <C>                 <C>        

 ASSETS
   Current Assets:
     Cash and cash equivalents.........................      $   17,828         $   11,205           $   32,937          $   21,477
     Short-term liquid investments.....................               -                  -                    -               5,004
     Accounts receivable, net..........................          94,763            119,898              107,232             131,709
     Inventories.......................................          12,577              4,947               14,080               6,969
     Prepaid expenses and other........................           8,989             11,331               11,106              16,272
                                                          ----------------   ----------------   -----------------   ----------------
       Total Current Assets............................         134,157            147,381              165,355             181,431

   Property, Plant and Equipment - at cost (successful
     efforts method for gas and oil properties)........       1,740,875          1,581,002            1,973,664           1,783,163
   Accumulated Depreciation, Depletion and Amortization         656,801            569,587              751,857             652,985
                                                          ----------------   ----------------   -----------------   ----------------
                                                              1,084,074          1,011,415            1,221,807           1,130,178

   Other Assets........................................          39,891             40,000               45,221              47,516
                                                          ----------------   ----------------   -----------------   ----------------

   Total Assets........................................      $1,258,122         $1,198,796           $1,432,383          $1,359,125
                                                          ================   ================   =================   ================

 LIABILITIES AND SHAREHOLDERS' EQUITY
   Current Liabilities:
     Accounts payable..................................      $   75,426         $   83,111           $   84,945          $   94,318
     Accrued expenses..................................          25,758             33,080               39,334              50,224
     Current maturities of long-term debt..............           7,227              1,214                8,914               1,650
                                                          ----------------   ----------------   -----------------   ----------------
       Total Current Liabilities.......................         108,411            117,405              133,193             146,192

   Long-Term Debt......................................         589,395            545,343              604,583             557,107
   Other Noncurrent Liabilities........................          52,948             52,276               53,620              53,237
   Deferred Income Taxes...............................          45,802             36,104               40,665              29,586

   Redeemable Bearer Shares............................               -                  -               16,103              16,591

   Shareholders' Equity:
     Common Stock, $.10 par value; authorized
      100,000,000 shares; Primary - issued
      36,776,878 shares and 36,561,290 shares,
      respectively, and Supplemental - 62,980,843
      shares and 62,562,187, respectively..............           3,678              3,656                6,298               6,256
     Additional paid-in capital........................         329,942            326,918              481,667             477,018
     Retained earnings.................................         135,163            124,591              103,471              80,635
     Foreign currency translation adjustment...........             669                389                  669                 389
     Less - note receivable from employee stock
       ownership plan..................................          (4,922)            (4,922)              (4,922)             (4,922)
     Less - 308,812 shares of Common
       Stock held in Treasury, at cost.................          (2,964)            (2,964)              (2,964)             (2,964)
                                                          ----------------   ----------------   -----------------   ----------------

       Total Shareholders' Equity......................         461,566            447,668              584,219             556,412

   Commitments and Contingencies.......................
                                                          ----------------   ----------------   -----------------   ----------------

   Total Liabilities and Shareholders' Equity..........      $1,258,122         $1,198,796           $1,432,383          $1,359,125
                                                          ================   ================   =================   ================

</TABLE>

See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                      -6-

<PAGE>

                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
                          Item 1. FINANCIAL STATEMENTS
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)

    
<TABLE>
<CAPTION>
                                                                                Primary Financial           Supplemental Financial
                                                                                   Information                    Information
                                                                          ---------------------------    ---------------------------
                                                                                Nine Months Ended              Nine Months Ended
                                                                                   September 30,                  September 30,
                                                                          ---------------------------    ---------------------------
                                                                               1996           1995            1996             1995
                                                                          -----------      ----------    -----------      ----------
<S>                                                                       <C>              <C>           <C>              <C>       

 Operating Activities:
   Net earnings (loss)..........................................           $  10,572       $  (4,125)      $  22,836      $  (9,137)
   Adjustments to reconcile net earnings (loss) to net cash
    provided by operating activities:
     Depreciation, depletion and amortization...................              95,478          98,624         114,260        116,793
     Impairment of gas and oil properties.......................                   -          44,376               -         48,842
     Amortization of deferred financing costs...................               2,362           2,570           2,362          2,570
     Deferred income taxes......................................               9,639          (7,506)         11,020        (10,459)
     Dry hole expense...........................................              13,551          11,407          14,137         16,425
     Gain on sales of property, plant and equipment, net........              (2,223)        (82,365)         (2,711)       (82,316)
     Other......................................................                 174            (395)            197           (439)
                                                                          -------------    ------------   -----------    -----------
                                                                             129,553          62,586         162,101         82,279
     Changes in operating assets and
      liabilities, net of acquisitions:
       Decrease in short-term liquid investments................                   -               -           5,010         22,084
       Decrease in accounts receivable..........................              32,138          26,705          31,480         27,967
       Decrease in inventories, prepaid expenses and other......               1,122           7,911           4,742          8,378
       Decrease in accounts payable.............................              (9,271)        (35,939)        (10,959)       (38,963)
       Decrease in accrued expenses and other...................              (5,451)        (12,910)         (9,359)       (15,763)
                                                                          -------------    ------------   -----------    -----------

          Net Cash Provided By Operating Activities.............             148,091          48,353         183,015         85,982

 Investing Activities:
   Capital expenditures.........................................             (95,124)        (57,208)       (135,946)       (94,195)
   Acquisitions, net of cash acquired...........................            (100,153)              -        (100,153)             -
   Proceeds from sales of property, plant and equipment.........               2,861         102,865           5,879        103,301
   Other........................................................                   -               -           1,897           (577)
                                                                          -------------    ------------   -----------    -----------

          Net Cash Provided By (Used In) Investing Activities...            (192,416)         45,657        (228,323)         8,529

 Financing Activities:
   Proceeds from revolving lines of credit and other borrowings.             267,259         550,296         272,559        557,996
   Principal payments on revolving lines of credit and
    other borrowings............................................            (210,393)       (683,569)       (211,018)      (684,844)
   Proceeds from monetary production payment....................                   -          46,242               -         46,242
   Principal payments on monetary production payment liability..              (7,088)              -          (7,088)             -
   Proceeds from sales of common stock..........................               2,391             764           4,000          1,462
   Other........................................................              (1,213)         (1,493)         (1,677)        (2,583)
                                                                          -------------    ------------   -----------    -----------

          Net Cash Provided by (Used in) Financing Activities...              50,956         (87,760)         56,776        (81,727)

 Effect of Exchange Rate Changes on Cash........................                  (8)           (220)             (8)          (220)
                                                                          -------------    ------------   -----------    -----------

          Increase In Cash And Cash Equivalents.................               6,623           6,030          11,460         12,564

 Cash And Cash Equivalents At Beginning Of Period...............              11,205           6,432          21,477         10,313
                                                                          -------------    ------------   -----------    -----------

 Cash And Cash Equivalents At End Of Period.....................           $  17,828       $  12,462       $  32,937      $  22,877
                                                                          =============    ============   ===========    ===========
</TABLE>


See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                      -7-
<PAGE>


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



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

          On October 3, 1996, the  shareholders  of Seagull  Energy  Corporation
("Seagull") and Global Natural Resources Inc.  ("Global") approved a merger of a
wholly owned  subsidiary of Seagull into Global (the "Merger").  Pursuant to the
Merger,  each share of Global  common  stock was  converted  into 0.88 shares of
Seagull  common  stock.  The  Merger  will  be  accounted  for as a  pooling  of
interests.  Accordingly,  the unaudited  financial  statements  presented herein
include  the  results of Seagull  (the  "Primary  Financial  Information")  and,
supplementally, the combined operations of Seagull and Global (the "Supplemental
Financial  Information" or the "Combined Company").  The Supplemental  Financial
Information  does not  include  estimated  transaction  costs of the  Merger  of
approximately $8-10 million (before tax). The estimated transaction costs of the
Merger will be expensed in the fourth  quarter of 1996,  the period in which the
Merger was consummated.

Changes in Financial Presentations.

          Certain  reclassifications  have  been  made  in  the  1995  unaudited
financial statements to conform to the presentation used in 1996.



Supplemental Disclosures of Cash Flow Information.

<TABLE>
<CAPTION> 

(Dollars in Thousands)
--------------------------------------------------------------------------------                                          
                                                        Nine Months Ended 
                                                           September 30,
                                                   -----------------------------
                                                            Primary
                                                      Financial Information
                                                   -----------------------------
                                                      1996             1995
<S>                                                <C>                 <C>    
                                                   ------------     ------------
Cash paid during the period for:
  Interest (net of amount capitalized).........     $37,975            $46,436
  Income taxes.................................     $ 3,142            $   833
================================================================================
</TABLE>

Gas and Oil Properties.

          Effective March 31, 1995, the Company  adopted  Statement of Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets  and for  Long-Lived  Assets  to Be  Disposed  Of." This SFAS
requires that an impairment  loss be recognized  when the carrying  amount of an
asset exceeds the sum of the estimated future cash flows  (undiscounted)  of the
asset.  Under SFAS No. 121, the Company  reviewed the  impairment of gas and oil
properties on a depletable unit basis. 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 was  recognized.  Fair  value,  on a
depletable unit basis,  was estimated to be the present value of expected future
cash  flows  computed  by  applying  estimated  future  gas and oil  prices,  as
determined by management, to estimated future production of gas and oil reserves
over the economic lives of the reserves. As a result of the adoption of SFAS No.
121, 
                                      -8-

<PAGE>

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

the Company  recognized a non-cash  pre-tax charge against  earnings during
the first quarter of 1995 of $44.4 million.

Earnings Per Share.

          The weighted  average number of common shares  outstanding used in the
computation of earnings per share for the three months ended  September 30, 1996
and 1995 and nine months  ended  September  30, 1996 gives effect to the assumed
exercise of dilutive stock options as of the beginning of the period. The effect
of the assumed  exercise of stock  options as of the beginning of the period has
an anti-dilutive effect on the computation of loss per share for the nine months
ended  September  30, 1995 and has  therefore  not been included in the weighted
average number of common shares outstanding.


NOTE 2.  ACQUISITIONS

          On September 10, 1996,  Seagull  purchased the stock of Esso Suez Inc.
("ESI") and certain  assets of Esso Egypt  Limited (the "EEL  Assets") for a net
purchase   price  of   approximately   $74  million  in  cash  (the  "Esso  Suez
Acquisition")  financed through additional  borrowings under Seagull's revolving
credit  facilities (the "Credit  Facilities").  ESI holds a 100% interest in the
East Zeit oil producing  concession  in the offshore  Gulf of Suez,  and the EEL
Assets consist of the entire working  interest in the South Hurghada  concession
located  onshore  on the  coast  of the  Gulf of Suez  approximately  250  miles
southeast of Cairo.  As of September 10, 1996, the ESI concession area contained
approximately  17 million net barrels of proved oil  reserves.  The  63,000-acre
South Hurghada concession  contains a number of currently drillable  exploratory
prospects, plus two existing oil discoveries.

                                      -9-
<PAGE>

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

                
          The  following  table  presents the unaudited pro forma results of the
combined  operations  of  Seagull,  Global,  ESI and the EEL Assets for the nine
months  ended  September  30,  1996 and 1995 as though  the Merger and Esso Suez
Acquisition had occurred on January 1, 1995. The Pro Forma Combined  information
does not  include  estimated  transaction  costs of the Merger of  approximately
$8-10 million (before tax). The estimated  transaction costs will be expensed in
the fourth quarter of 1996, the period in which the Merger was consummated.

<TABLE>
<CAPTION>

(Dollars in Thousands Except Per Share Amounts)
---------------------------------------------------------------------------------------------------------------------
                                                     Nine Months Ended September 30, 1996
                          -------------------------------------------------------------------------------------------
                            Primary       Esso
                           Financial      Suez                   Seagull/                                Pro Forma
                          Information      (*)     Adjustments  Esso Suez      Global     Adjustments     Combined
                          -------------------------------------------------------------------------------------------
<S>                       <C>            <C>          <C>         <C>          <C>           <C>           <C>
Revenues................      $281,640   $34,314      $     -     $315,954     $82,525       $(4,102)      $394,377

Operating expenses......       220,949    22,864       (5,636)     238,177      61,396        (7,958)       291,615
---------------------------------------------------------------------------------------------------------------------
Operating profit........        60,691    11,450        5,636       77,777      21,129         3,856        102,762
Other (income) expense..        40,659       (56)       3,105       43,708      (2,703)        3,856         44,861
---------------------------------------------------------------------------------------------------------------------
Earnings before
 income taxes...........        20,032    11,506        2,531       34,069      23,832             -         57,901
Income tax expense......         9,460     7,055       (1,087)      15,428      10,187         1,381         26,996
---------------------------------------------------------------------------------------------------------------------
Net earnings............      $ 10,572   $ 4,451      $ 3,618     $ 18,641     $13,645       $(1,381)      $ 30,905
=====================================================================================================================
Earnings per share......      $   0.29                            $   0.50                                 $   0.48
=====================================================================================================================
</TABLE>

(*)    Represents  the results of  operations  of ESI for the period  January 1,
       1995 through the date of the Esso Suez  Acquisition,  September 10, 1996.
       The results of  operations of ESI  subsequent to the date of  acquisition
       are included in the Primary Financial Information.

<TABLE>
<CAPTION>
  
                                                       Nine Months Ended September 30, 1995
                            -----------------------------------------------------------------------------------------
                              Primary
                             Financial       Esso                   Seagull/                                Pro Forma
                            Information      Suez     Adjustments  Esso Suez     Global      Adjustments     Combined
                            -----------------------------------------------------------------------------------------
<S>                            <C>         <C>          <C>        <C>           <C>            <C>          <C>
Revenues..................     $244,424    $58,213      $     -    $302,637      $55,252        $(3,273)     $354,616
Operating expenses........      275,841     27,180       (2,326)    300,695       55,050         (1,913)      353,832
---------------------------------------------------------------------------------------------------------------------
Operating profit (loss)...      (31,417)    31,033        2,326       1,942          202         (1,360)          784
Other (income) expense....      (25,677)       (34)       3,360     (22,351)      (2,548)         3,106       (21,793)
---------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
 income taxes.............       (5,740)    31,067       (1,034)     24,293        2,750         (4,466)       22,577
Income tax
 expense (benefit)........       (1,615)    18,397       (1,176)     15,606        6,249         (2,953)       18,902
---------------------------------------------------------------------------------------------------------------------
Net earnings (loss).......     $ (4,125)   $12,670      $   142    $  8,687      $(3,499)       $(1,513)     $  3,675
=====================================================================================================================
Earnings (loss) per share.     $  (0.11)                           $   0.24                                  $   0.06
=====================================================================================================================
</TABLE>

                                      -10-
<PAGE>

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


          The  following  table sets forth the  combining  supplemental  balance
sheet  information  of  Seagull  and Global as though  the  Merger  occurred  on
September 30, 1996.

<TABLE>
<CAPTION>

(Dollars in Thousands)
---------------------------------------------------------------------------------------------------------------------
                                                                       September 30, 1996 
                                             ------------------------------------------------------------------------
                                                 Primary                                                 Supplemental
                                                 Financial                                                 Financial
                                                Information          Global         Adjustments           Information
                                             ------------------------------------------------------------------------
<S>                                              <C>                <C>                <C>                <C>
Current Assets..........................         $  134,157         $ 31,198           $     -            $  165,355
Property, Plant and Equipment, net......          1,084,074          137,733                 -             1,221,807
Other Assets............................             39,891            5,330                 -                45,221
---------------------------------------------------------------------------------------------------------------------
Total Assets............................         $1,258,122         $174,261           $     -            $1,432,383
=====================================================================================================================
Current Liabilities.....................         $  108,411         $ 24,782           $     -            $  133,193
Long-term Debt..........................            589,395           15,188                 -               604,583
Other Noncurrent Liabilities............             52,948              672                 -                53,620
Deferred Income Taxes...................             45,802                -            (5,137)               40,665
Redeemable Bearer Shares................                  -           16,103                 -                16,103
Shareholders' Equity....................            461,566          117,516             5,137               584,219
---------------------------------------------------------------------------------------------------------------------
Total Liabilities and
  Shareholders' Equity..................         $1,258,122         $174,261           $     -            $1,432,383
=====================================================================================================================
</TABLE>

          The unaudited pro forma  information does not purport to be indicative
of actual results if the Merger and the Esso Suez Acquisition had been in effect
for the periods indicated, or of future results.


NOTE 3.  LONG-TERM DEBT

          On May 28,  1996,  the Credit  Facilities  were  amended to extend the
maturity  date two years and reduce stated  interest  rate  margins.  The Credit
Facilities have a maximum commitment of $750 million. Under the new terms of the
Credit Facilities, the commitments thereunder begin to decline on March 31, 1999
in equal quarterly reductions of approximately $46 million and a final reduction
of  approximately  $56 million on December 31, 2002. The Credit  Facilities bear
interest,  at  Seagull's  option,  at  various  market-sensitive  rates  plus an
applicable margin or competitive bid rate.

          The amount of senior indebtedness available to Seagull is subject to a
borrowing  base (the  "Borrowing  Base"),  based  upon the  proved  reserves  of
Seagull's  Gas and Oil  Operations  segment  and the  financial  performance  of
Seagull's  other business  segment.  The Borrowing Base is generally  determined
annually but may be redetermined one additional time each year, at the option of
either Seagull or the banks. With the Esso Suez  Acquisition,  Seagull requested
and  received a $50 million  increase in the  Borrowing  Base to $550 million on
October 1, 1996.


NOTE 4.  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 

                                      -11-
<PAGE>

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

or other  proceedings against  the Company cannot  be predicted  with certainty,
management  believes  that the effect on its  financial condition and results of
operations, if any, will not be material.

NOTE 5.  SUPPLEMENTAL FINANCIAL INFORMATION

Changes in Financial Presentations.

          Certain  adjustments  have  been  made to the  Supplemental  Financial
Information  to conform  the  accounting  principles  and  presentation  used by
Seagull and Global.

Supplemental Disclosures of Cash Flow Information.

<TABLE>
<CAPTION>

(Dollars in Thousands)
--------------------------------------------------------------------------------------------------------------------
                                                                                   Nine Months Ended September 30,
                                                                                   ---------------------------------
                                                                                             Supplemental
                                                                                        Financial Information
                                                                                   ---------------------------------
                                                                                        1996               1995
                                                                                   ---------------     -------------
<S>                                                                                    <C>                <C>    
Cash paid during the period for:
  Interest (net of amount capitalized).....................................            $38,660            $46,493
  Income taxes.............................................................            $13,247            $ 6,607
====================================================================================================================

</TABLE>

Gas and Oil Properties.

          Global originally adopted SFAS No. 121 effective December 31, 1995 and
recorded a pre-tax  non-cash  charge  against  earnings of $1.7  million for the
impairment  of proved  oil and gas  properties  determined  on the same basis as
Seagull's impairment described above.  Global's impairment has been reclassified
to the first  quarter of 1995 to conform to  Seagull's  date of adoption of SFAS
No. 121.

Other Property and Equipment.

          Under SFAS No. 121,  Global  grouped and evaluated  other property and
equipment for  impairment  based on the ability to identify  separate cash flows
generated  therefrom.  As a result,  Global recognized a pre-tax non-cash charge
against earnings of $2.8 million for impairment of other property and equipment.
Global's  impairment  has been  reclassified  to the  first  quarter  of 1995 to
conform to the Seagull date of adoption of SFAS No. 121.

Earnings Per Share.

          The weighted  average number of common shares  outstanding used in the
computation  of earnings per share for the  Supplemental  Financial  Information
assumed  Global  common stock was  converted at a ratio of .88 shares of Seagull
common stock for each share of Global common stock and common stock equivalent.

                                      -12-
<PAGE>

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

Long-Term Debt.

          On July 16, 1996, the credit agreement dated May 19, 1995 (the "Global
Credit Agreement") was amended to extend the maturity date one year and increase
the maximum commitment.  The Global Credit Agreement has a maximum commitment of
$41.6  million,  subject  to a  borrowing  base.  The bank has  agreed to extend
letters  of credit  not  exceeding  the  lesser of (i) $20  million  or (ii) the
Aggregate  Commitments  (as defined in the Global  Credit  Agreement)  minus the
aggregate principal amount of all loans then outstanding under the Global Credit
Agreement. As of September 30, 1996 and December 31, 1995, under this agreement,
there were no loans  outstanding  and  approximately  $18  million in letters of
credit had been issued.  These letters of credit are primarily  associated  with
the Redeemable Bearer Shares (see below).  Subsequent to the Merger,  the Global
Credit  Agreement has been canceled and the letters of credit reissued under the
Credit Facilities.

Redeemable Bearer Shares.

          In August 1993, Global received $19.2 million from the Hambros Channel
Islands Trust Corporation Limited in the form of an interest-free loan. The loan
is  repayable  on demand only to the extent  necessary  to redeem  bearer  share
warrants  presented  for exchange  until July 2008.  Each bearer  share  warrant
presented  during this period will be redeemed for $6.66.  As of  September  30,
1996,  there were  2,480,740  outstanding  bearer  share  warrants.  The loan is
secured by a letter of credit which is issued under the Global Credit Agreement.
During 1996 and 1995 there were no drawings under the letter of credit.  In July
2008,  the  obligation  of the Company to holders of bearer share  warrants will
cease, the interest-free loan will terminate, and any remaining cash will revert
to the Company and will be accounted  for as an increase in  additional  paid-in
capital.
                                      -13-

<PAGE>



               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)


                                     GENERAL

          On October 3, 1996, the  shareholders  of Seagull  Energy  Corporation
("Seagull"  or the  "Company")  and Global  Natural  Resources  Inc.  ("Global")
approved a merger of a wholly owned  subsidiary into Global (the "Merger").  The
Merger  will be  accounted  for as a  pooling  of  interests.  Accordingly,  the
unaudited financial  statements  presented herein include the results of Seagull
(the  "Primary  Financial  Information")  and,   supplementally,   the  combined
operations of Seagull and Global (the  "Supplemental  Financial  Information" or
the "Combined  Company").  The following  discussion is intended to assist in an
understanding  of both the Primary  Financial  Information and the  Supplemental
Financial  Information  for each of the periods  indicated.  See the  discussion
immediately below regarding the Primary Financial Information and see page 22 of
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations for the discussion regarding the Supplemental  Financial Information.
The accompanying  unaudited financial  statements and the notes thereto, and the
consolidated  financial statements and notes included in Seagull's Annual Report
on Form 10-K for the year ended December 31, 1995 and Global's  Annual Report on
Form 10-K for the year ended December 31, 1995 contain detailed information that
should be referred to in conjunction with the following discussion.

              RESULTS OF OPERATIONS - PRIMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>

  CONSOLIDATED HIGHLIGHTS
  ------------------------------------------------------------------------------------------------------------------
  (Dollars in Thousands Except Per Share Amounts)
                                        Three Months Ended                       Nine Months Ended
                                           September 30,                            September 30,          
                                     --------------------------   Percent    -------------------------- Percent
                                         1996         1995        Change        1996         1995        Change
                                     -------------------------------------------------------------------------------
<S>                                    <C>           <C>          <C>         <C>         <C>             <C>
  Revenues:
    Gas and oil operations (*)......   $72,594       $55,732      +   30      $217,896     $178,219       + 22
    Alaska transmission and
        distribution................    12,611        12,355      +    2        63,744       66,205       -  4
  ------------------------------------------------------------------------------------------------------------------
                                       $85,205       $68,087      +   25      $281,640     $244,424       + 15
  ==================================================================================================================

  Operating Profit (Loss):
    Gas and oil operations (*)......   $13,602       $  (452)     +3,109      $ 45,516     $(45,252)      +201
    Alaska transmission and
        distribution................     1,285           907      +   42        15,175       13,835       + 10
  ------------------------------------------------------------------------------------------------------------------
                                       $14,887       $   455      +3,172      $ 60,691     $(31,417)      +293
  ==================================================================================================================

  Net Earnings (Loss)...............   $ 1,633       $41,550      -   96      $ 10,572     $ (4,125)      +356
  Earnings (Loss) Per Share.........   $  0.04       $  1.13      -   96      $   0.29     $  (0.11)      +364
  Net Cash Provided by Operating
      Activities Before Changes in
      Operating Assets and
      Liabilities...................   $42,351       $15,767      +  169      $129,553     $ 62,586       +107
  Net Cash Provided by Operating
      Activities....................   $45,208       $12,123      +  273      $148,091     $ 48,353       +206
  Weighted Average Number of Common
      Shares Outstanding (in
      thousands)....................    37,011        36,768      +    1        37,046       36,128       +  3
  ==================================================================================================================
</TABLE>

(*)      The Company  restated its results of operations  for the three and nine
         months ended September 30, 1995, to combine the former  Exploration and
         Production  segment and Pipeline and Marketing segment into Gas and Oil
         Operations.  Substantially  all of the Company's gas processing and gas
         gathering  assets were sold in September 1995. These assets disposed of
         contributed $5.2 million and $17.6 million in revenues and $2.1 million
         and $6.2  million in  operating  profit  for the three and nine  months
         ended September 30, 1995, respectively.

                                      -14-
<PAGE>

               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

PRIMARY FINANCIAL INFORMATION
CONSOLIDATED HIGHLIGHTS, Continued

          The increase in net earnings for the nine months ended  September  30,
1996 was due to the  increase in operating  profit and  decreases in general and
administrative ("G&A") expense and interest expense, which were partially offset
by the  absence of the  pre-tax  gain on sale of certain  pipeline  assets  (the
"Pipeline  Assets") of $82 million and an increase in income taxes. The decrease
in net earnings for the 1996 third quarter versus the 1995 third quarter was due
to the absence of the pre-tax gain on sale of the Pipeline Assets of $82 million
partially  offset by an  increase in  operating  profit and a decrease in income
taxes.  Revenues and operating  profit are discussed in the  respective  segment
sections.  G&A  expense and  interest  expense  are  discussed  under the "Other
(Income)  Expense"  section,  and income taxes are  discussed  under the "Income
Taxes" section.

          Net cash provided by operating  activities before and after changes in
operating assets and liabilities  increased for the three and nine month periods
of 1996 versus 1995  primarily due to increases in  exploration  and  production
("E&P") revenues which were due to increases in natural gas prices.

          On September 25, 1995,  Seagull and three other sellers  completed the
sale of their disparate  interests in 19 natural gas gathering systems and a gas
processing  plant. Net proceeds after payment of transaction  costs were used to
reduce  Seagull's  borrowings under Seagull's  revolving credit  facilities (the
"Credit  Facilities").  For the three and nine months ended  September 30, 1995,
the Pipeline Assets contributed $5.2 million and $17.6 million,  respectively in
revenues  and $2.1  million and $6.2  million,  respectively,  to the  operating
profit  of the Gas and Oil  Operations  segment.  With the sale of the  Pipeline
Assets, Seagull's former Exploration and Production segment and the Pipeline and
Marketing segment have been combined into Gas and Oil Operations.

          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").  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. MBOE and
BOE  represent  the  equivalent  of one thousand  barrels and one barrel of oil,
respectively, on the same basis described above.


                                      -15-
<PAGE>



               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

PRIMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>

GAS AND OIL OPERATIONS (*)
-------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
                                                Three Months Ended                  Nine Months Ended
                                                   September 30,                       September 30,       
                                              ------------------------ Percent    ----------------------- Percent
                                                  1996        1995      Change       1996        1995      Change
                                              ---------------------------------------------------------------------
<S>                                             <C>         <C>         <C>         <C>         <C>         <C>
Revenues:
   Gas .....................................    $59,845     $41,754     +   43      $180,973    $134,512    + 35
   Oil and NGL..............................      9,558       5,509     +   73        22,607      17,396    + 30
   Other....................................      3,191       8,469     -   62        14,316      26,311    - 46
-------------------------------------------------------------------------------------------------------------------
   Total Revenues...........................     72,594      55,732     +   30       217,896     178,219    + 22
Direct Operating Expense....................     17,404      18,001     -    3        52,388      55,955    -  6
General Operating Expense...................      3,338       2,811     +   19         8,540      11,107    - 23
Exploration Charges.........................      9,597       7,734     +   24        24,438      21,753    + 12
Depreciation, Depletion and Amortization....     28,653      27,638     +    4        87,014      90,280    -  4
Impairment of long-lived assets.............          -           -          -             -      44,376    -100
-------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss).....................    $13,602     $  (452)    +3,109      $ 45,516    $(45,252)   +201
===================================================================================================================
</TABLE>

(*)      The Company  restated its results of operations  for the three and nine
         months ended  September 30, 1995 to combine the former  Exploration and
         Production  segment and Pipeline and Marketing segment into Gas and Oil
         Operations.  Substantially  all of the Company's gas processing and gas
         gathering  assets were sold in September 1995. These assets disposed of
         contributed $5.2 million and $17.6 million in revenues and $2.1 million
         and $6.2  million in  operating  profit  for the three and nine  months
         ended September 30, 1995, respectively.


          The increase in  operating  profit for the three and nine months ended
September 30, 1996 was primarily due to the Gas and Oil Operations segment's 35%
and 32%, respectively, increase in domestic natural gas prices. Operating profit
for the nine months ended  September 30, 1996 also benefited from the absence of
the pre-tax non-cash  impairment of long-lived  assets of $44.4 million recorded
in the first quarter of 1995.

                                      -16-
<PAGE>


               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

PRIMARY FINANCIAL INFORMATION
GAS AND OIL OPERATIONS, continued

<TABLE>
<CAPTION>

EXPLORATION AND PRODUCTION REVENUE DATA
--------------------------------------------------------------------------------------------------------------------
                                                 Three Months Ended                  Nine Months Ended
                                                   September 30,                       September 30,       
                                              ------------------------ Percent    -----------------------Percent
                                                   1996        1995     Change        1996       1995     Change
                                              ---------------------------------------------------------------------
<S>                                                <C>         <C>       <C>          <C>       <C>        <C>
DOMESTIC:
Natural Gas Sales:
  Net Daily Production (MMcf)...............       276.3      250.1      +10          286.0     274.4      + 4
  Average Sales Price ($ per Mcf)...........        2.14       1.59      +35           2.08      1.58      +32
Oil and NGL Sales:
  Net Daily Production (Bbl)................       3,393      3,025      +12          3,334     3,109      + 7
  Average Sales Price ($ per Bbl)...........       18.74      15.06      +24          17.76     15.82      +12
-------------------------------------------------------------------------------------------------------------------
CANADA:
Natural Gas Sales:
  Net Daily Production (MMcf)...............        57.5       58.3      - 1           56.1      59.2      - 5
  Average Sales Price ($ per Mcf)...........        1.05       0.96      + 9           1.18      0.98      +20
Oil and NGL Sales:
  Net Daily Production (Bbl)................       1,011      1,372      -26            991     1,158      -14
  Average Sales Price ($ per Bbl)...........       15.51      10.45      +48          15.16     12.57      +21
-------------------------------------------------------------------------------------------------------------------
EGYPT:
Oil Sales:
  Net Daily Production (Bbl)(*).............       1,174          -       NA            394         -       NA
  Average Sales Price ($ per Bbl)...........       20.97          -       NA          20.97         -       NA
===================================================================================================================
</TABLE>

(*)      Oil production in Egypt reflects the Esso Suez  Acquisition (see below)
         on  September  10,  1996.  Net  daily oil and NGL  production presented
         above reflects the Company's production  divided by the number  of days
         in the  appropriate  period.  Net  daily  oil production  based  on the
         number of days the  Egyptian assets were owned by Seagull (September 10
         through September 30, 1996) would be 5,413 Bbl.


          The increase in revenues for the three and nine months ended September
30, 1996 as compared to 1995 was  primarily  the net result of two factors - (i)
increases  in the  Company's  average  realized  price  of  natural  gas for its
domestic E&P activities;  and (ii) decreases in revenues  related to the sale of
the Pipeline Assets. While the Company had voluntary curtailments during 1995 as
a result of the low natural gas price environment,  there have been no voluntary
curtailments in the U.S. since October 1995. The resulting  increases in natural
gas and oil production were partially  offset by normal declines in domestic and
Canadian  production  from  developed  properties  combined  with the  impact of
substantially  lower levels of development  expenditures in late 1994 and all of
1995,  which was also a result of the low  natural  gas price  environment.  Oil
production in Egypt reflects the Company's  purchase,  on September 10, 1996, of
the stock of Esso Suez Inc.  ("ESI")  and certain  assets of Esso Egypt  Limited
(the "EEL Assets") (the "Esso Suez Acquisition").

          In late 1995,  Seagull initiated an active risk management program for
both  its  own  E&P  production  and  third  party  activities,  utilizing  such
derivative  financial  instruments as futures contracts,  options and swaps. The
primary  objective of the risk management  program is to help ensure more stable
cash flow.  The risk  management  program is also an important part of Seagull's
third-party  marketing  efforts,   allowing  Seagull  to  convert  a  customer's
requested price to a price  structure that is consistent with Seagull's  overall
pricing  strategy.  Seagull accounts for its commodity  derivative  contracts as
hedging  activities  and,  accordingly,  the  effect of  hedging  activities  is
included  in  revenues when the commodities are produced.  Seagull's outstanding

                                      -17-
<PAGE>

               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

PRIMARY FINANCIAL INFORMATION
GAS AND OIL OPERATIONS, continued

contracts  for  commodity  hedging  activities  at  September  30,  1996 are not
expected to have a material  impact on the results of  operations  or  financial
condition of Seagull.

         Direct operating expenses decreased for the nine months ended September
30, 1996 primarily due to the absence of the operations  and  maintenance  costs
attributable  to the Pipeline  Assets sold in September  1995.  This decrease in
direct operating expense was partially offset by an increase in direct operating
expenses for the Company's E&P activities; however direct operating expenses per
equivalent unit of production were essentially unchanged from the prior year.

         Effective  March 31, 1995, the Company  adopted  Statement of Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of." As a result of
the  adoption  of SFAS No.  121,  the  Company  recognized  a  pre-tax  non-cash
impairment  of $44.4  million  during the first  quarter of 1995.  The Company's
average  domestic   depreciation,   depletion  and  amortization  ("DD&A")  rate
decreased  for both the three and nine months  ended  September  30, 1996 versus
1995 primarily as the result of the  cumulative  effect of several small changes
in the  components  of DD&A  expense,  including  an upward  revision  of proved
reserves for certain properties. Results for the nine months ended September 30,
1996 also  benefited  from a  reduction  in the DD&A rate due to the  impairment
charge recorded in the first quarter of 1995.

                                      -18-


<PAGE>

               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)


PRIMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
ALASKA TRANSMISSION AND DISTRIBUTION
-------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
                                                   Three Months Ended                Nine Months Ended
                                                      September 30,                    September 30,      
                                                 -----------------------  Percent  ---------------------- Percent
                                                    1996        1995      Change     1996       1995      Change
                                                 ------------------------------------------------------------------
<S>                                                <C>        <C>          <C>      <C>        <C>          <C>
Revenues.......................................... $12,611    $12,355      + 2      $63,744    $66,205      - 4
Cost of Gas Sold..................................   4,517      4,779      - 5       26,974     31,267      -14
-------------------------------------------------------------------------------------------------------------------
Gross Margin......................................   8,094      7,576      + 7       36,770     34,938      + 5
Operations and Maintenance Expense................   4,833      4,674      + 3       15,660     15,166      + 3
Depreciation, Depletion and Amortization..........   1,976      1,995      - 1        5,935      5,937        -
-------------------------------------------------------------------------------------------------------------------
Operating Profit.................................. $ 1,285    $   907      +42      $15,175    $13,835      +10
===================================================================================================================

OPERATING DATA:
Degree Days (*)...................................     948        732      +30        6,771      6,417      + 6
Volumes (Bcf):
  Gas Sold........................................     2.9        2.7      + 7         17.2       17.7      - 3
  Gas Transported.................................     5.3        5.5      - 4         15.3       13.2      +16
  Combined........................................     8.2        8.2        -         32.5       30.9      + 5
Margins ($ per Mcf):
  Gas Sold........................................    2.06       2.03      + 1         1.73       1.67      + 4
  Gas Transported.................................    0.41       0.38      + 8         0.45       0.40      +13
  Combined........................................    0.99       0.93      + 6         1.13       1.13        -
Customers (end of period).........................  93,176     91,174      + 2       93,176     91,174      + 2
===================================================================================================================
</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
(ENSTAR  Natural Gas  Company,  a division of the Company,  and Alaska  Pipeline
Company, a wholly owned subsidiary,  (collectively referred to herein as "ENSTAR
Alaska"))  for the nine month period ended  September 30, 1996 improved from the
1995  period  primarily  as a result of  slightly  higher  volumes due to colder
weather and an increased number of customers.

          This  segment's  business is seasonal  with  approximately  65% of its
sales made in the first and fourth quarters of each year.

<TABLE>
<CAPTION>
OTHER (INCOME) EXPENSE
--------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
                                             Three Months Ended                    Nine Months Ended
                                                September 30,                         September 30,        
                                           -------------------------  Percent    ------------------------ Percent
                                               1996         1995       Change       1996         1995      Change
                                           ------------- ----------- ----------- ------------ ----------- ----------
<S>                                          <C>         <C>            <C>       <C>         <C>           <C>
 General and Administrative................. $ 2,244     $  2,876       - 22      $10,177     $ 15,377      - 34
 Interest Expense ..........................  10,781       13,568       - 21       33,435       41,499      - 19
 Gains on Sale of Property, Plant and
   Equipment, net...........................  (1,839)     (82,028)      - 98       (2,223)     (82,365)     - 97
 Interest Income and Other..................    (262)         224       -217         (730)        (188)     +288
--------------------------------------------------------------------------------------------------------------------
                                             $10,924     $(65,360)      +117      $40,659     $(25,677)     +258
====================================================================================================================
</TABLE>

          G&A expenses decreased for the nine months ended September 30, 1996 in
comparison to 1995 primarily due to the absence of one-time  pre-tax  charges of
$8 million  recorded  during the second  quarter of 1995 to account for expenses
involved in the Company's workforce reduction and consolidation and decreases in
costs associated with compensation plans that are

                                      -19-
<PAGE>


               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)


PRIMARY FINANCIAL INFORMATION
OTHER (INCOME) EXPENSE, Continued

tied  directly  to the price of  Seagull  Common  Stock,  partially  offsett  by
increases in accrued incentive compensation expense. G&A expenses also decreased
for the three ended  September 30, 1996 in  comparison to 1995  primarily due to
decreases in costs associated with compensation  plans that are tied directly to
the price of Seagull  Common  Stock,  partially  offset by  increases in accrued
incentive  compensation  expense.  The  closing  price of Seagull  Common  Stock
decreased  12% for the nine  months  ended  September  30,  1996 from  $22.25 at
December 31, 1995 to $19.625 on September 30, 1996, compared to a 6% increase in
the 1995 period.  The closing price of Seagull Common Stock decreased 22% in the
third  quarter of 1996 from $25.00 at June 30, 1996 to $19.625 on September  30,
1996 compared to a 23% increase in the 1995 period.

          Decreases  in interest  expense  for the three and nine  months  ended
September 30, 1996 over 1995 were a result of both lower average debt levels and
lower average  interest rates on the Credit  Facilities.  With the proceeds from
the sale of the Pipeline  Assets in September 1995, the Company repaid a portion
of  the  balances  outstanding  under  the  Credit  Facilities.  The  Esso  Suez
Acquisition  net cash purchase price of  approximately  $74 million was financed
through additional borrowings under the Credit Facilities.  The average interest
rates on the  Credit  Facilities  were 6.1% and 7.2% for the nine  months  ended
September  30,  1996 and  1995,  respectively,  and 5.8% and 7.1% for the  three
months ended September 30, 1996 and 1995, respectively.

          The decrease in the gain on sale of property,  plant and equipment for
both the three and nine month  periods  ended  September 30, 1996 as compared to
the comparable  1995 periods is primarily due to the $82 million pre-tax gain on
sale of the Pipeline Assets recorded in the third quarter of 1995.


INCOME TAXES

          The increase in income taxes for the nine months ended  September  30,
1996 was  primarily  the net result of the  increase in earnings  before  income
taxes for the period and the absence of  Internal  Revenue  Code  Section 29 Tax
Credits  ("Section 29 Credits")  which reduced  Seagull's 1995 projected  annual
effective  tax rate.  The decrease in income taxes for the third quarter of 1996
versus the third  quarter of 1995 was  primarily due to the decrease in earnings
before income taxes for the period partially offset by the absence of Section 29
Credits.

                                      -20-


<PAGE>


               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

PRIMARY FINANCIAL INFORMATION

                        LIQUIDITY AND CAPITAL RESOURCES -
                          PRIMARY FINANCIAL INFORMATION

          On May 28,  1996,  the Credit  Facilities  were  amended to extend the
maturity  date two years and reduce stated  interest  rate  margins.  The Credit
Facilities have a maximum commitment of $750 million. Under the new terms of the
Credit Facilities, the commitments thereunder begin to decline on March 31, 1999
in equal quarterly reductions of approximately $46 million and a final reduction
of  approximately  $56 million on December 31, 2002. The Credit  Facilities bear
interest,  at the Company's  option, at various  market-sensitive  rates (LIBOR,
Banker's  Acceptance  or the prime rate of the agent  bank) plus the  applicable
margin or a competitive bid rate.

          The amount of senior indebtedness  available to the Company is subject
to a borrowing base (the  "Borrowing  Base"),  based upon the proved reserves of
the Company's Gas and Oil  Operations  segment and the financial  performance of
the Company's other business segment. The Borrowing Base is generally determined
annually but may be redetermined one additional time each year, at the option of
either the Company or the banks, and upon the sale of certain assets included in
the  Borrowing  Base.  With the Esso Suez  Acquisition,  Seagull  requested  and
received a $50 million increase in the Borrowing Base to $550 million on October
1, 1996.

          Currently,  the available  commitment  under the Credit  Facilities is
subject to a $550 million  Borrowing Base and is determined after  consideration
of outstanding  borrowings under the Company's other senior debt facilities.  As
of November 7, 1996,  borrowings  outstanding  under the Credit  Facilities were
$251 million,  leaving immediately available unused commitments of approximately
$151  million,  net of  outstanding  letters  of credit of $20  million,  $100.0
million of  borrowings  outstanding  under the  Company's  senior  notes and $28
million in borrowings under other debt agreements.

          On September 10, 1996,  Seagull  consummated the Esso Suez Acquisition
for a net purchase price of  approximately  $74 million in cash financed through
additional borrowings under the Credit Facilities.  ESI holds a 100% interest in
the East Zeit oil producing concession in the offshore Gulf of Suez, and the EEL
Assets consist of the entire working  interest in the South Hurghada  concession
located onshore on the coast of the Gulf of Suez  approximately  250 miles south
of Cairo. On September 10, 1996, the ESI concession area contained approximately
17 million net barrels of proved oil reserves.  The  63,000-acre  South Hurghada
concession contains a number of currently drillable exploratory prospects,  plus
two existing oil discoveries.

          In addition to the facilities  discussed  above, the Company has money
market facilities with two major U. S. banks with a combined maximum  commitment
of $70 million.  These lines of credit bear interest at rates made  available by
the banks at their discretion and may be canceled at either the Company's or the
banks' discretion. The lines are subject to annual renewal.

                                      -21-
<PAGE>


               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

                             RESULTS OF OPERATIONS -
                       SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
  CONSOLIDATED HIGHLIGHTS (1)
  ------------------------------------------------------------------------------------------------------------------
  (Dollars in Thousands Except Per Share Amounts)     
                                        Three Months Ended                       Nine Months Ended
                                           September 30,                           September 30,          
                                     --------------------------  Percent     -------------------------   Percent
                                         1996         1995        Change         1996         1995        Change
                                     -------------------------------------------------------------------------------
<S>                                    <C>          <C>           <C>          <C>          <C>            <C>
  Revenues:
    Gas and oil operations (2)........ $ 98,175     $73,026       +   34       $296,319     $230,198       + 29
    Alaska transmission and
        distribution..................   12,611      12,355       +    2         63,744       66,205       -  4
  ------------------------------------------------------------------------------------------------------------------
                                       $110,786     $85,381       +   30       $360,063     $296,403       + 21
  ==================================================================================================================

  Operating Profit (Loss):
    Gas and oil operations (2)........ $ 22,474     $ 1,219       +1,744       $ 70,501     $(46,410)      +252
    Alaska transmission and
        distribution..................    1,285         907       +   42         15,175       13,835       + 10
  ------------------------------------------------------------------------------------------------------------------
                                       $ 23,759     $ 2,126       +1,018       $ 85,676     $(32,575)      +363
  ==================================================================================================================

  Net Earnings (Loss)................. $ 7,458      $43,692       -   83       $ 22,836     $ (9,137)      +350
  Earnings (Loss) Per Share........... $  0.12      $  0.70       -   83       $   0.36     $  (0.15)      +340
  Net Cash Provided by Operating
      Activities Before Changes in
      Operating Assets and
      Liabilities..................... $ 53,354     $19,748       +  170       $162,101     $ 82,279       + 97
  Net Cash Provided by Operating
      Activities...................... $ 58,934     $17,493       +  237       $183,015     $ 85,982       +113
  Weighted Average Number of Common
      Shares Outstanding (in
      thousands)......................   63,934      62,752       +    2         63,828       62,071       +  3
  ==================================================================================================================
</TABLE>

(1)      The  Supplemental  Financial  Information  does not  include  estimated
         transaction costs of the Merger of approximately  $8-10 million (before
         tax).  The estimated  transaction  costs will be expensed in the fourth
         quarter of 1996, the period in which the Merger was consummated.
(2)      The Company  restated its results of operations  for the three and nine
         months ended September 30, 1995, to combine the former  Exploration and
         Production  segment and Pipeline and Marketing segment into Gas and Oil
         Operations.  Substantially  all of the Company's gas processing and gas
         gathering  assets were sold in September 1995. These assets disposed of
         contributed $5.2 million and $17.6 million in revenues and $2.1 million
         and $6.2  million in  operating  profit  for the three and nine  months
         ended September 30, 1995, respectively.

          The increase in net earnings for the nine months ended  September  30,
1996 was due to the  increase in operating  profit and  decreases in G&A expense
and interest expense,  which were partially offset by the absence of the pre-tax
gain on sale of the  Pipeline  Assets of $82  million  and an increase in income
taxes. Net earnings for the three months ended September 30, 1996 decreased from
the third  quarter of 1995  primarily  due to the absence of the pre-tax gain on
the sale of the Pipeline  Assets,  but  benefited  from an increase in operating
profit and a decrease in income tax expense.  The  increase in operating  profit
for the three and nine months ended  September 30, 1996 was primarily due to the
Gas  and  Oil  Operations   segment's   increases  in  natural  gas  prices  and
international  production.  Revenues and  operating  profit are discussed in the
respective segment sections.


                                      -22-
<PAGE>



               Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
GAS AND OIL OPERATIONS (*)
--------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
                                                Three Months Ended                    Nine Months Ended
                                                   September 30,                         September 30,       
                                              ------------------------  Percent  -------------------------  Percent
                                                  1996        1995       Change       1996         1995      Change
                                              ---------------------------------------------------------------------
<S>                                             <C>         <C>         <C>         <C>         <C>          <C>
Revenues:
   Gas .....................................    $71,196     $48,745     +   46      $216,482    $158,679     + 36
   Oil and NGL..............................     20,259      12,342     +   64        54,705      34,834     + 57
   Other....................................      6,720      11,939     -   44        25,132      36,685     - 31
-------------------------------------------------------------------------------------------------------------------
   Total Revenues...........................     98,175      73,026     +   34       296,319     230,198     + 29
Direct Operating Expense....................     25,271      24,090     +    5        75,637      74,105     +  2
General Operating Expense...................      5,219       4,293     +   22        13,546      14,972     - 10
Exploration Charges.........................     10,654       9,701     +   10        30,839      30,240     +  2
Depreciation, Depletion and Amortization....     34,557      33,723     +    2       105,796     108,449     -  2
Impairment of Long-Lived Assets.............          -           -          -             -      48,842     -100
-------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss).....................    $22,474     $ 1,219     +1,744      $ 70,501    $(46,410)    +252
===================================================================================================================
</TABLE>

(*)      The Company  restated its results of operations  for the three and nine
         months ended September 30, 1995, to combine the former  Exploration and
         Production  segment and Pipeline and Marketing segment into Gas and Oil
         Operations.  Substantially  all of the Company's gas processing and gas
         gathering  assets were sold in  September  1995.  The  Pipeline  Assets
         contributed $5.2 million and $17.6 million in revenues and $2.1 million
         and $6.2  million in  operating  profit  for the three and nine  months
         ended September 30, 1995, respectively.

          The increase in operating profit of the Gas and Oil Operations segment
for the three and nine months ended  September  30, 1996 as compared to the 1995
periods was primarily due to a 34% and 29% increase,  respectively,  in revenues
due to increases in domestic natural gas prices and international production. In
addition,  the nine month period of 1996  benefited  from the absence of a $48.8
million  pre-tax  non-cash  charge for impairment of long-lived  assets recorded
during 1995.

<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION REVENUE BY AREA
--------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)            
                                                 Three Months Ended                 Nine Months Ended
                                                    September 30,                     September 30,       
                                              ------------------------ Percent   -----------------------  Percent
                                                  1996        1995      Change       1996        1995      Change
                                              ---------------------------------------------------------------------
<S>                                              <C>         <C>         <C>       <C>         <C>         <C>
Gas Revenues:
   Domestic.................................     $61,370     $40,998     + 50      $185,298    $133,967    + 38
   Canada...................................       5,547       5,173     +  7        18,192      15,811    + 15
   Cote d'Ivoire............................         581           -       NA         1,996           -      NA
   Indonesia................................       3,698       2,574     + 44        10,996       8,901    + 24
-------------------------------------------------------------------------------------------------------------------
                                                 $71,196     $48,745     + 46      $216,482    $158,679    + 36
===================================================================================================================

Oil and NGL Revenues:
   Domestic.................................     $ 7,290     $ 5,100     + 43      $ 21,505    $ 16,549    + 30
   Canada...................................       1,443       1,318     +  9         4,113       3,973    +  4
   Egypt....................................       5,223           -       NA        10,182           -      NA
   Cote d'Ivoire............................       2,273       1,574     + 44         7,334       2,256    +225
   Russia...................................       3,529       4,121     - 14        10,595      11,374    -  7
   Indonesia................................         501         229     +119           976         682    + 43
-------------------------------------------------------------------------------------------------------------------
                                                 $20,259     $12,342     + 64      $ 54,705    $ 34,834    + 57
===================================================================================================================
</TABLE>

                                      -23-

<PAGE>

              Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

SUPPLEMENTAL FINANCIAL INFORMATION
GAS AND OIL OPERATIONS, Continued

<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION REVENUE DATA
--------------------------------------------------------------------------------------------------------------------
                                                 Three Months Ended                 Nine Months Ended
                                                    September 30,                      September 30,       
                                              ------------------------ Percent   ----------------------- Percent
                                                 1996        1995       Change       1996       1995      Change
                                              ---------------------------------------------------------------------
<S>                                                <C>        <C>        <C>          <C>       <C>        <C>
DOMESTIC:
Natural Gas Sales:
  Net Daily Production (MMcf)...............       312.6      284.3      +10          323.3     312.8      +  3
  Average Sales Price ($ per Mcf)...........        2.13       1.57      +36           2.09      1.57      + 33
Oil and NGL Sales:
  Net Daily Production (Bbl)................       4,163      3,622      +15          4,351     3,772      + 15
  Average Sales Price ($ per Bbl)...........       19.04      15.30      +24          18.04     16.07      + 12
-------------------------------------------------------------------------------------------------------------------
CANADA:
Natural Gas Sales:
  Net Daily Production (MMcf)...............        57.5       58.3      - 1           56.1      59.2      -  5
  Average Sales Price ($ per Mcf)...........        1.05       0.96      + 9           1.18      0.98      + 20
Oil and NGL Sales:
  Net Daily Production (Bbl)................       1,011      1,372      -26            991     1,158      - 14
  Average Sales Price ($ per Bbl)...........       15.51      10.45      +48          15.16     12.57      + 21
-------------------------------------------------------------------------------------------------------------------
EGYPT:
Oil and NGL Sales:
  Net Daily Production (Bbl)................       2,680          -       NA          1,851         -        NA
  Average Sales Price ($ per Bbl)...........       21.19          -       NA          20.07         -        NA
-------------------------------------------------------------------------------------------------------------------
COTE D'IVOIRE:
Natural Gas Sales:
  Net Daily Production (MMcf)...............         3.5          -       NA            4.2         -        NA
  Average Sales Price ($ per Mcf)...........        1.79          -       NA           1.74         -        NA
Oil and NGL Sales:
  Net Daily Production (Bbl)................       1,258      1,118      +13          1,421       543      +162
  Average Sales Price ($ per Bbl)...........       19.64      15.30      +28          18.83     15.22      + 24
-------------------------------------------------------------------------------------------------------------------
RUSSIA:
Oil and NGL Sales:
  Net Daily Production (Bbl)................       3,102      3,216      - 4          2,898     2,792      +  4
  Average Sales Price ($ per Bbl)...........       12.37      13.93      -11          13.34     14.92      - 11
===================================================================================================================
</TABLE>

          In addition to the factors affecting revenues discussed in the Primary
Financial  Information  section  of  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations,  oil and NGL revenues  increased
for the three and nine  months  ended  September  30,  1996  compared to 1995 as
production  in Cote  d'Ivoire and Egypt began in April 1995 and  November  1995,
respectively.

          Indonesian  liquid  natural gas ("LNG")  liftings  for the nine months
ended September 30, 1996 and 1995 totaled 358 and 314, respectively.  Indonesian
LNG liftings for the three months ended  September 30, 1996 and 1995 totaled 116
and 96,  respectively.  The Company has not been advised as to specific price or
production changes which would affect Indonesian oil and gas revenues.

                                      -24-

<PAGE>

              Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

SUPPLEMENTAL FINANCIAL INFORMATION
GAS AND OIL OPERATIONS, Continued

<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION LIFTING COSTS (*)
--------------------------------------------------------------------------------------------------------------------
                                                Three Months Ended                  Nine Months Ended
                                                   September 30,                      September 30,       
                                              ------------------------ Percent  -----------------------  Percent
                                                  1996       1995       Change        1996      1995      Change
                                              ---------------------------------------------------------------------
<S>                                               <C>        <C>        <C>           <C>       <C>        <C>
$ PER MCFE:
   Domestic.................................      0.45       0.44       + 2           0.46      0.44       + 5
   Canada...................................      0.52       0.52         -           0.52      0.45       +16
   Egypt....................................      0.62         -         NA           0.59         -        NA
   Cote d'Ivoire............................      0.58       0.53       + 9           0.59      0.54       + 9
   Russia...................................      1.27       0.92       +38           1.24      0.95       +31
--------------------------------------------------------------------------------------------------------------------
                                                  0.51       0.48       + 6           0.51      0.46       +11
====================================================================================================================

$ PER BOE:
   Domestic.................................      2.72       2.64       + 2           2.79      2.63       + 5
   Canada...................................      3.12       3.12         -           3.12      2.73       +16
   Egypt....................................      3.70         -         NA           3.54         -        NA
   Cote d'Ivoire............................      3.48       3.20       + 9           3.53      3.25       + 9
   Russia...................................      7.60       5.51       +38           7.45      5.72       +31
--------------------------------------------------------------------------------------------------------------------
                                                  3.03       2.87       + 6           3.05      2.78       +11
====================================================================================================================
</TABLE>

(*)      Lifting costs  represent  costs  incurred to operate and maintain wells
         and related equipment and facilities.  These costs include, among other
         things, repairs and maintenance,  labor, materials,  supplies, property
         taxes, insurance, severance taxes and transportation costs.

     In addition to the factors affecting direct operating expenses discussed in
the  Primary  Financial  Information  section  of  Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations,  direct  operating
expenses also increased for the three and nine months ended  September 1996 over
1995 due to the loss of the 1995 Russian export tariff exemption and an increase
in excise tax rate.  Because  the  Company has not  received  its export  tariff
exemption  for 1996, it does not have  priority  access to export  pipelines and
must compete with Russian production  associations for limited pipeline capacity
to export  markets.  The first quarter of 1996 was the first period during which
the  Company did not export all of its Russian  production.  The Company  cannot
predict what  percentage  of its future  production  will be sold on the Russian
domestic market.

          Exploration  charges increased  slightly for the three and nine months
ended September 30, 1996 due to increases in domestic  seismic costs,  partially
offset by decreases in dry hole costs over the  comparable  prior year  periods.
Dry hole costs decreased to $14.1 million from $16.4 million for the nine months
ended September 30, 1996 and 1995,  respectively,  and to $4.8 million from $6.7
million for the three months ended September 30, 1996 and 1995, respectively.

                                      -25-

<PAGE>

              Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

SUPPLEMENTAL FINANCIAL INFORMATION
GAS AND OIL OPERATIONS, Continued

<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION DEPRECIATION, DEPLETION
AND AMORTIZATION RATE
--------------------------------------------------------------------------------------------------------------------
                                                Three Months Ended                 Nine Months Ended
                                                   September 30,                    September 30,       
                                              ------------------------ Percent  ----------------------- Percent
                                                  1996        1995      Change     1996       1995      Change
                                              ---------------------------------------------------------------------
<S>                                               <C>         <C>       <C>        <C>        <C>        <C>
$ PER MCFE:
   Domestic.................................      0.87        0.94      - 7        0.87       0.97       -10
   Canada...................................      0.72        0.78      - 8        0.73       0.74       - 1
   Egypt....................................      0.67          -        NA        0.84           -       NA
   Cote d'Ivoire............................      0.91        1.64      -45        0.92       1.54       -40
   Russia...................................      0.40        0.34      +18        0.42       0.32       +31
===================================================================================================================
                                                  0.83        0.90      - 8        0.84       0.92       - 9
===================================================================================================================

$ PER BOE:
   Domestic.................................      5.23        5.67      - 7        5.23       5.66       -10
   Canada...................................      4.31        4.70      - 8        4.40       4.46       - 1
   Egypt....................................      4.03          -        NA        5.04          -        NA
   Cote d'Ivoire............................      5.48        9.81      -45        5.54       9.24       -40
   Russia...................................      2.40        2.02      +18        2.51       1.92       +31
===================================================================================================================
                                                  4.97        5.42      - 8        5.05       5.52       - 9
===================================================================================================================
</TABLE>


         Effective March 31, 1995, the Combined Company adopted SFAS No. 121 and
recognized a non-cash  pre-tax  charge  against  earnings  during the 1995 first
quarter of $48.8 million.

              

      LIQUIDITY AND CAPITAL RESOURCES - SUPPLEMENTAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES AND ACQUISITIONS
-------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)  
                                                 Three months ended                  Nine months ended
                                                    September 30,                      September 30,       
                                               -----------------------  Percent    ---------------------   Percent
                                                  1996        1995       Change       1996       1995       Change
                                               --------------------------------------------------------------------
<S>                                             <C>          <C>          <C>       <C>          <C>         <C>
  
 Capital Expenditures:
   Exploration and Production:
     Lease acquisitions.....................    $ 4,420      $ 3,602      + 23      $  9,767     $ 8,041     +21
     Exploration costs......................     18,535        8,479      +119        48,790      31,180     +56
     Development costs......................     33,118       20,746      + 60        68,137      48,443     +41
 ------------------------------------------------------------------------------------------------------------------
                                                 56,073       32,827      + 71       126,694      87,664     +45
   Alaska Transmission and Distribution.....      3,458        2,178      + 59         6,805       4,992     +36
   Other....................................      1,147          518      +121         2,447       1,539     +59
 ------------------------------------------------------------------------------------------------------------------
   Total Capital Expenditures...............    $60,678      $35,523      + 71      $135,946     $94,195     +44
 ==================================================================================================================
 Acquisitions...............................    $74,484            -        NA      $100,153           -      NA
 ==================================================================================================================
</TABLE>

         Current plans for 1996 call for capital  expenditures of  approximately
$209 million,  including about $196 million in exploration  and  production,  of
which about $74 million is exploration.

                                      -26-

<PAGE>

             Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (Unaudited)

SUPPLEMENTAL FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES, Continued

          For   additional   discussion  of  Seagull's   liquidity  and  capital
resources,  see  "Liquidity  and Capital  Resources"  in the  Primary  Financial
Information  section  of  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations.

          On July 16, 1996, the credit agreement dated May 19, 1995 (the "Global
Credit Agreement") was amended to extend the maturity date one year and increase
the maximum commitment.  The Global Credit Agreement has a maximum commitment of
$41.6 million. In addition,  the bank has agreed to extend letters of credit not
exceeding  the lesser of (i) $20 million or (ii) the Aggregate  Commitments  (as
defined in the Global Credit Agreement) minus the aggregate  principal amount of
all loans then outstanding  under the Global Credit  Agreement.  As of September
30,  1996 and  December  31,  1995,  under this  agreement,  there were no loans
outstanding and  approximately $18 million in letters of credit had been issued.
These  letters of credit are primarily  associated  with the  Redeemable  Bearer
Shares.  Subsequent to the Merger, the Global Credit Agreement has been canceled
and the letters of credit reissued under the Credit Facilities.

                                      -27-

<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

                           PART II. OTHER INFORMATION

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

          At a Special Meeting of Shareholders of the Company held on October 3,
1996, the shareholders  voted to approve the issuance of up to 27,580,486 shares
of common stock pursuant to the Merger and elect three new directors.

<TABLE>
<CAPTION>
                                                                                                          Broker
                                                             For           Against       Abstained       Non-Vote
                                                         -------------- -------------  -------------- ----------------
<S>                                                        <C>            <C>              <C>            <C>

Approval of the Issuance of Shares of Common Stock
      Pursuant to the Merger........................       26,086,919     2,178,915        68,357         83,160
Election  of R.A.  Walker as a Director of the Company
      (to  serve  until  the 1997  Annual  Meeting  of
      Shareholders).................................       25,617,313     2,800,038             -              -
Election  of Sidney R.  Petersen  as a Director of the
      Company (to serve until the 1998 Annual  Meeting
      of Shareholders)..............................       25,617,379     2,799,972             -              -
Election  of  Robert  F.  Vagt  as a  Director  of the
      Company (to serve until the 1999 Annual  Meeting
      of Shareholders)..............................       25,568,179     2,849,172             -              -

</TABLE>

          Subsequent  to  the  Special  Meeting  of   Shareholders,   the  class
designations  of various  directors  were modified by a unanimous  action of the
Board of  Directors.  Accordingly,  the  Board of  Directors  is  classified  as
follows:

Class I (term expires at the 1999 Annual Meeting of Shareholders):

John W. Elias
Peter J. Fluor
Sam F. Segnar
Robert F. Vagt

Class II (term expires at the 1997 Annual Meeting of Shareholders):

J. Evans Attwell
Richard J. Burgess
Barry J. Galt
Dee S. Osborne
Sidney R. Petersen

Class III (term expires at the 1998 Annual Meeting of Shareholders):

Thomas H. Cruikshank
William R. Grant
Dean P. Guerin
Richard M. Morrow
R. A. Walker

                                      -28-

<PAGE>


                   SEAGULL ENERGY CORPORATION AND SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K

(a)        Exhibits:

*#10.1     Seagull Energy Corporation Executive Supplemental Retirement Plan, as
           amended.

*#10.2     Executive Supplemental Retirement Plan Membership  Agreement  between
           the  Company  and Barry J. Galt  dated  as  of  February  3, 1986, as
           amended.

*#10.3     Seagull Thrift Plan, as  amended and  restated effective September 1,
           1996.

* 27.1     Financial Data Schedule.




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

(b)       Reports on Form 8-K:

          The  Company  filed a current  report on Form 8-K dated July 22,  1996
with respect to Seagull's  acquisition  of all the  outstanding  common stock of
Esso Suez Inc. and certain assets of Esso Egypt  Limited.  The items reported in
such current report were Item 5 (Other Events) and Item 7 (Financial  Statements
and Exhibits). The following financial statements were included in this report:

          (a)  Financial statements of business acquired.

                           The  financial  statements  of Esso Suez Inc. For the
                           years ended December 31, 1995,  1994 and 1993 and the
                           six months ended June 30, 1996 and 1995.

          The Company  filed a current  report on Form 8-K dated  September  10,
1996 with respect to Seagull's  acquisition of all the outstanding  common stock
of Esso Suez Inc. and certain assets of Esso Egypt  Limited.  The items reported
in such current  report were Item 2  (Acquisition  or Disposition of Assets) and
Item 7 (Financial  Statements and Exhibits).  The following financial statements
were included in this report:

          (a)  Financial statements of business acquired.

                           The  financial  statements  of Esso Suez Inc. For the
                           years ended December 31, 1995,  1994 and 1993 and the
                           six months ended June 30, 1996 and 1995 (incorporated
                           by reference to Exhibit 99.1 of the Company's Current
                           Report  on Form 8-K  filed  with the  Securities  and
                           Exchange Commission on August 28, 1996).

                                      -29-

<PAGE>

                  SEAGULL ENERGY CORPORATION AND SUBSIDIARIES


                                   SIGNATURES

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

                          SEAGULL ENERGY CORPORATION



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

                          Date:       November 13, 1996

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

                          Date:       November 13, 1996




                                      -30-

<PAGE>





                                  EXHIBIT INDEX



EXHIBIT                                                                     PAGE
NUMBER                        DESCRIPTION                                 NUMBER

*#10.1          Seagull Energy Corporation Executive Supplemental 
                Retirement Plan, as amended.

*#10.2          Executive Supplemental Retirement Plan Membership  
                Agreement between the  Company  and Barry J. Galt 
                dated as of February 3, 1986, as amended.

*#10.3          Seagull  Thrift  Plan,  as  amended  and restated 
                effective September 1, 1996.

* 27.1          Financial Data Schedule.






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