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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
   ACT OF 1934

  for the fiscal year ended December 31, 2001
                                      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 1-12905

                               ----------------
                                EEX CORPORATION
            (Exact name of registrant as specified in its charter)

                               ----------------

                Texas                                  75-2421863
   (State or other jurisdiction of                  (I.R.S. Employer
   incorporation or organization)                  Identification No.)


         2500 CityWest Blvd.                              77042
             Suite 1400                                (Zip Code)
           Houston, Texas
   (Address of principal executive
               office)

                                (713) 243-3100
             (Registrant's telephone number, including area code)

                               ----------------

          Securities registered pursuant to Section 12(b) of the Act:

    Common Stock ($.01 Par Value)                New York Stock Exchange
        (Title of Each Class)                    (Name of Each Exchange
                                                   on Which Registered)

          Securities registered pursuant to Section 12(g) of the Act:

                                     None

   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 [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   Aggregate market value of the outstanding shares of Common Stock of the
Registrant, based upon the closing price of the shares on the New York Stock
Exchange on such date, held by nonaffiliates of the Registrant as of March 31,
2002: $85,908,569.

   Shares of the Registrant's Common Stock outstanding as of March 31, 2002:
42,487,395 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

   The information required by Part III (Items 10, 11, 12 and 13) is
incorporated by reference to the Registrant's definitive proxy statement for
the 2002 annual meeting of shareholders.

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<PAGE>

                                   FORM 10-K

                                 ANNUAL REPORT
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                               TABLE OF CONTENTS

                               ----------------

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----

                                     PART I

 <C>      <S>                                                              <C>
 ITEM 1.  Business......................................................     3
            General.....................................................     3
            History.....................................................     3
            Strategy....................................................     3
            U.S. Exploration and Development--Onshore...................     5
            U.S. Exploration and Development--Offshore..................     6
            International Exploration and Development...................     7
            Plant Operations Business...................................     8
            Sales of Natural Gas and Crude Oil..........................     8
            Competition.................................................     8
            Government Regulation.......................................     8
            Employees...................................................    10
            Offices.....................................................    11
 ITEM 2.  Properties....................................................    11
 ITEM 3.  Legal Proceedings.............................................    13
 ITEM 4.  Submission of Matters to a Vote of Security Holders...........    13

                                    PART II

 ITEM 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters......................................................    14
 ITEM 6.  Selected Financial and Operating Data.........................    15
 ITEM 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................    17
            Risks, Uncertainties and Critical Accounting Policies and
             Estimates..................................................    17
            Results of Operations.......................................    21
            Liquidity and Capital Resources.............................    24
            Other Matters...............................................    26
 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk....    27
 ITEM 8.  Financial Statements and Supplementary Data...................    29
 ITEM 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.....................................    60

                                    PART III

 ITEM 10. Directors and Executive Officers of the Registrant............    61
 ITEM 11. Executive Compensation........................................    61
 ITEM 12. Security Ownership of Certain Beneficial Owners and
           Management...................................................    61
 ITEM 13. Certain Relationships and Related Transactions................    61

                                    PART IV

 ITEM 14. Exhibits, Financial Statement Schedules and Reports on
          Form 8-K......................................................    62
</TABLE>

                                       2
<PAGE>

                                    PART I

Item 1. Business

General

   EEX Corporation ("EEX" or the "Company") and its predecessors have been
engaged in the exploration for and the development, production and sale of
natural gas and crude oil since 1918. Its activities are currently
concentrated in Texas, the Gulf of Mexico and Indonesia. EEX also provides
operation and maintenance services, under contract, to two cogeneration plants
("Plant Operations Business").

   EEX is exposed to a number of risks and uncertainties, including risks
associated with significant estimates, that are described under "Management's
Discussion and Analysis of Financial Condition--Risks, Uncertainties and
Critical Accounting Policies and Estimates" in Item 7.

History

   Until August 1997, the oil and gas exploration and production business of
EEX was conducted through subsidiary and affiliate entities of ENSERCH
Corporation ("ENSERCH"). From 1985 to 1994, the business was conducted through
Enserch Exploration Partners, Ltd. ("EP"), a limited partnership. At yearend
1994, EP and its affiliates were reorganized into a Texas corporation, Enserch
Exploration, Inc. ("Old EEI"), of which ENSERCH owned approximately 99%. The
publicly-owned interest in Old EEI increased to approximately 17% in September
1995.

   EEX was organized in the State of Texas in 1992 as a wholly-owned
subsidiary of ENSERCH. It conducted the Plant Operations Business of ENSERCH
under the name of Lone Star Energy Plant Operations, Inc. ("LSEPO"). In 1997,
pursuant to a merger agreement between Texas Utilities Company and ENSERCH,
Old EEI was merged into LSEPO, with LSEPO being the surviving company
("Merger"). In the Merger, LSEPO changed its name to Enserch Exploration, Inc.
("EEI"). ENSERCH then distributed its entire 83% ownership interest in EEI pro
rata to ENSERCH's shareholders in a tax-free distribution ("Distribution").
The Merger and the Distribution were each effective on August 5, 1997. On
December 19, 1997, EEI changed its name to EEX Corporation.

Strategy

   The Company's strategy is to grow its onshore U.S. oil and gas reserves and
production, realize value from its undeveloped leases in the Gulf of Mexico
and sell or otherwise use its currently inactive Floating Production System
("FPS") and two associated pipelines and other supporting facilities
("Pipelines").

   EEX's liquidity is impaired and the independent auditors have issued an
audit report with a report modification for a going concern uncertainty. This
report modification will result in a default under the current credit
facility. If the current revolving credit agreement is not replaced with
another borrowing facility, EEX would be required to repay the amount
outstanding under the revolving credit agreement on June 27, 2002, or earlier
if EEX is in default under the agreement and the lenders accelerate the
maturity. EEX is exploring various other options including the raising of
additional capital, the sale or merger of the Company or a sale of a
significant portion of its assets to repay the loan. In the event these
efforts are unsuccessful, EEX may seek protection from its creditors and
reorganization under the Federal bankruptcy laws. The following paragraphs
describing EEX's strategy assume that EEX is successful in concluding the
extension or replacement of existing borrowings or the raising of additional
capital. No assurances can be given that EEX will be successful in completing
an acceptable financing plan or a sale or merger of the Company.

   At the end of 1999, the Company acquired the domestic exploration and
production operations of Tesoro Petroleum Corporation. This acquisition
supplemented existing production, lengthened average reserve life, provided
reinvestment opportunities in faster payback projects and resulted in a
stronger foundation from which

                                       3
<PAGE>

to pursue exploration potential in the Gulf of Mexico. The Company's strategy
is intended to provide reserve and production growth and improve investment
and operating efficiency. The major elements of this strategy are:

   Grow the Onshore U.S. Business--During 2000 and 2001, the Company
successfully invested a large portion of its capital program in its onshore
properties with very favorable results. The Company's 2001 drilling program
was successful in 55 out of 65 wells drilled. EEX's estimate of total proved
reserve additions and revisions (including minority interest) from the onshore
program is approximately 98 billion cubic feet equivalent of natural gas
("Bcfe"), or 213%, of the 46 Bcfe produced during 2001. All reserve additions
were achieved through the drilling program. Adjusted for production and asset
sales, onshore reserves (including minority interest) increased by
approximately 12%. These reserve additions and revisions were achieved at a
favorable economic finding and development cost of approximately $1.11 per
thousand cubic feet equivalent of natural gas ("Mcfe"). The Company intends to
invest a significant portion of its 2002 capital budget in the onshore
business through exploration, development, acquisition of producing
properties, and/or investments in new leaseholds. The level of investment in
2002, however, is expected to be approximately $40 million, significantly
lower than 2001 as a result of lower gas prices and limitations in funds
available for investment. This reduction in capital spending could have an
adverse impact on production levels during the year and reserves reported at
yearend 2002.

   Realize Value from the FPS and Pipelines--The Company owns a 60% interest
in the FPS and Pipelines. The FPS is a combination Deepwater drilling rig and
processing facility capable of simultaneous drilling and production
operations. The facility is capable of processing up to approximately 40,000
barrels of oil and 100 million cubic feet of gas daily for transport into a
pipeline system. The Pipelines are each approximately 53 miles long and have
estimated daily throughput capacity of 70,000 barrels of oil and 140 million
cubic feet of gas. A processing facility located at the terminus of the
pipelines in shallow water is also 60% owned by EEX. These assets are not
currently in service following the abandonment of the Cooper Field. The
Pipelines are located approximately six miles from the Llano discovery well
and may have utility as support infrastructure for anticipated developments at
Llano and the greater Llano complex. The FPS and Pipelines are unique assets
constructed for a particular purpose. The possible uses for these assets will
affect their ultimate value. The Company is presently evaluating options to
realize the value of the FPS following notification from the Llano Field
operator in February 2002 that the FPS was no longer being considered for use
in a Llano development. The Pipelines remain under consideration as a
transportation alternative for the Llano Field. See U.S. Exploration and
Development--Offshore--Deepwater Gulf of Mexico Exploration and FPS and
Pipelines.

   Explore the Deep Potential of EEX's Gulf of Mexico Lease Portfolio--The
Company believes that potential reserves under its leasehold interests in the
Gulf of Mexico in water depths greater than 600 feet ("Deepwater") may provide
the basis for significant long-term production growth. EEX currently holds 68
Deepwater leases, a majority of which are located in water depths between
1,500 and 3,500 feet. To reduce the financial risk associated with dry holes
and to accelerate a drilling program, a joint venture was formed with
Enterprise Oil PLC ("Enterprise") in 1997. This joint venture provided that
Enterprise would fund a portion of EEX's share of exploratory well costs and
certain appraisal and development costs in return for one-half of EEX's
working interest in 78 Deepwater leases. The exploratory and appraisal well
funds due under this agreement were fully paid as of December 31, 2000.
Development funds under this agreement are contingent on approval of
development plans. EEX has no Deepwater proved reserves in its yearend reserve
determination.

   In late 1998, the Company began geologic and geophysical studies to
identify reserve potential in formations deeper than that conventionally
pursued on the Gulf of Mexico in water depths of less than 600 feet ("Deep
Shelf"). The Company believes it is economically more attractive to explore
this potential than to explore in and around existing mature fields (the
"Conventional Shelf"). The Company sold its producing fields and a substantial
portion of its undeveloped leasehold in the Conventional Shelf and intends to
focus technical resources on defining this deeper exploration potential. The
Company may in the future change the composition and size of its leasehold
position in the Shelf through participation in lease sales, asset trades or
sales, acquisition of producing properties and/or permitting some leases to
expire.

                                       4
<PAGE>

   EEX plans to realize the value of its Deepwater and Deep Shelf lease
portfolio through additional joint venture or farmout arrangements as a non-
operator to reduce its financial risk. These arrangements will likely result
in a substantial dilution of the Company's ownership interest in any affected
leases. At yearend 2001, EEX had no such arrangements approved other than the
joint venture agreement for the Devil's Island well currently drilling at
Garden Banks Block 344.

   EEX and another offshore operator entered into an Agreement that resulted
in the parties being successful bidders on six federal offshore lease blocks
at OCS Lease Sale No. 182 held March 20, 2002. The parties are presently
awaiting awarding of the leases covering these six blocks.

U.S. Exploration and Development--Onshore

   Onshore operations are located in four oil and gas producing trends: Gulf
Coast of Texas and Louisiana, the Val Verde Basin in southwest Texas, the East
Texas Basin and the Texas Panhandle. EEX pursues a strategy of "growth through
the drillbit" by extending the proved producing trends both laterally and to
deeper horizons through its exploration expertise and drilling program. EEX
builds its onshore drilling inventory through leasing, farmouts and targeted
producing property acquisitions.

   During 2001, EEX, through its subsidiaries, invested approximately $109
million in capital and cash exploration expense to increase production and add
reserves in their onshore producing assets. This investment program focused
primarily on the Val Verde Basin area, Dinn Ranch, Provident City and the
Vaquillas Ranch Fields. For the year 2001, production averaged approximately
126 million cubic feet equivalent of natural gas ("MMcfe") per day.

   Approximately 68% (282 Bcfe) of the Company's onshore net proved reserve
volume is located in 29 producing fields in the Texas Gulf Coast. Highlights
from the year 2001 activity regarding the major Gulf Coast producing assets
follow:

   Dinn Ranch Field. Dinn Ranch Field is located in Duval County, Texas in the
Wilcox trend. In 2001, a significant discovery was made in the deep portion of
the field and net proved reserve additions of 33 Bcfe were achieved from
activity on two wells which were in the process of completion at yearend.
These two wells began producing in late February 2002 at a combined rate of
approximately 34 MMcfe gross (9 MMcfe net) per day. Net production for the
year for the field averaged approximately 2 MMcfe per day. As of the end of
the first quarter of 2002, two additional development wells are in process of
completion and are expected to be producing to sales in the third quarter of
2002. Discussions are underway with the Company's co-owner to determine
development plans for 2002 beyond the two completing wells. The Company owns
working interest in the field ranging from 35% to 50%.

   Bob West Field. The Bob West Field was discovered in 1990. It is located in
the southern part of the Wilcox trend in Starr and Zapata Counties, Texas. In
2001, 3 wells were completed and placed on production. The field's production
for the year averaged approximately 24 MMcfe per day (net). The Company owns
non-operated working interests in the field that range from 33% to 70%. In
addition, the Company owns a non-operated 70% interest in the field's central
gas processing facility, which has a gross capacity of 350 million cubic feet
of natural gas ("MMcf") per day and a 50% interest in the Starr-Zapata
Pipeline, a 26-mile, 20-inch pipeline through which gas from the field area is
transported to market. The Company also owns a non-operated 25% interest in
the field's central compression facility.

   Vaquillas Ranch Field. Vaquillas Ranch Field (EEX 100% interest) is
operated by EEX and located in Webb County, Texas in the southern part of the
Wilcox trend. In 2001, the Company continued the redevelopment program begun
in the fourth quarter of 1999 by drilling and completing 8 wells. The drilling
program resulted in an additional 9 Bcfe of proved reserves. Net production
for the year averaged approximately 13 MMcfe per day.

                                       5
<PAGE>

   Fashing Field. Fashing Field is located in Atascosa County, Texas and
produces from the Edwards formation. In 2000, the Company completed a field
study that indicated the potential for additional reserves. As a result of the
study, 3 wells were drilled and turned to sales in 2001. Net production for
the year averaged approximately 8 MMcfe per day. Discussions are underway with
the Company's co-owner to determine additional development plans for 2002. The
Company owns working interests in the field that range from 47% to 100%.

   Provident City Fields. The Provident City Fields are located in Lavaca
County, Texas in the Wilcox trend. In 2001, 4 wells were completed to sales
and 4 workovers of existing wells were performed resulting in an addition of
12 Bcfe to proved reserves. By yearend, net production increased approximately
255% from the beginning of the year. Net production for the year averaged
approximately 3 MMcfe per day with December 2001 net production averaging 8
MMcfe per day. The Company owns working interest in the field ranging from 16%
to 100%.

   The Val Verde Basin in Texas contains approximately 20% (82 Bcfe) of the
Company's onshore net proved reserve volume. The two major EEX fields in this
Basin are Vinegarone East and Langtry.

   Vinegarone East Field. The Vinegarone East Field (EEX 75% interest),
located in Edwards County, Texas, is operated by EEX and produces from
Pennsylvanian-aged sands. During the year, 7 wells were drilled resulting in 6
producing wells. Net production for the year averaged 17 MMcfe per day.
Production from the field is carried to sales through an 11-mile, 6-inch
pipeline owned (75% interest) and operated by the Company.

   Langtry Field. The Langtry Field (EEX 45% interest) is located in Val Verde
County, Texas and was the Company's most significant onshore exploration
discovery in 2000. During 2001, 13 wells were drilled and completed. The field
was turned to sales in May 2001 when a 23-mile, 8-inch pipeline was completed.
The pipeline is owned (45% interest) and operated by the Company. Net
production for the year averaged approximately 10 MMcfe per day. Two
additional development wells will be drilled in the second quarter of 2002.

   EEX also owns onshore properties located in East Texas and the Texas
Panhandle.

U.S. Exploration and Development--Offshore

   Deepwater Gulf of Mexico Exploration--In December 2000, EEX announced that
the Garden Banks Block 344 No. 3, an exploratory well on the Jason Prospect,
had encountered hydrocarbon-bearing sands. The well was drilled to a total
depth of approximately 21,000 feet and encountered hydrocarbon-bearing
intervals totaling approximately 100 net feet of pay. Early evaluation of the
information gathered by well logs, bottom hole pressure tests, fluid samples
and side-wall cores indicated the Jason discovery warrants appraisal. The
Company is actively seeking joint venturers to appraise this discovery through
a sidetrack from the existing well bore or another well at a drilling location
elsewhere on the block. EEX owns a 100% working interest and approximately 80%
net revenue interest. The Jason discovery may provide an opportunity to
utilize EEX's FPS and Pipeline infrastructure. No assurances can be given that
an agreement will be reached with potential joint-venturers regarding
appraisal of the Jason discovery or that future development of the Jason
Prospect will employ the FPS and/or Pipelines.

   In May 2001, EEX relinquished operatorship of the Llano Field in Garden
Banks Blocks 385 and 386. EEX remained operator of Garden Banks Blocks 344,
387, 388 and the western half of Block 345, where the Jason discovery and the
Travis and Devil's Island prospects are located. The Llano owners also agreed
to normalize their interests over the Llano Field (Garden Banks Blocks 385 and
386) with EEX holding a 27.5% interest (previously EEX held a 30% interest on
Block 386 and a 25% interest on Block 385). In September 2001, EEX sold its
27.5% interest in the Llano Field for $50 million cash plus an overriding
royalty interest of 1/2 of 1% for the first 100 million barrels of oil
equivalent total production from the Llano Field and 1% on all production
thereafter. The effective date of the sale was June 1, 2001 and the purchaser
reimbursed all of EEX's costs associated with the Llano No. 4 well that was
drilling at that time. The sale resulted in a pre-tax gain for EEX of
approximately $27 million ($17 million after-tax) recorded during the third
quarter of 2001.

                                       6
<PAGE>

   EEX currently has one Deepwater rig under contract. The Global Marine semi-
submersible rig, the Arctic I, was delivered to EEX in July 1999, to begin a
three-year contract which has a current operating rate of approximately
$140,000 per day. This rig was stacked at the conclusion of the Jason well
and, in early February 2001, was assigned to another operator at a rate of
$55,000 per day until June 2001. EEX incurred approximately $15 million
recorded as exploration expense in stacking and subsidy costs during 2001 for
the Arctic I rig. The Llano owners used the rig to drill the Llano No. 4
appraisal well and returned the rig to EEX in November 2001.

   The rig was moved to EEX's Devil's Island Prospect at Garden Banks Block
344 in the greater Llano area. EEX entered into a joint venture agreement with
Amerada Hess Corporation for the drilling of an exploration well on this
prospect, utilizing the Arctic I drilling rig at its full day rate. Under the
joint venture agreement, Amerada Hess will operate and earn an 80% interest in
Garden Banks Block 344 (E/2) and Garden Banks Block 345 by participating with
EEX in drilling the well. EEX will retain a 20% working interest after the
well is drilled and pay 30% of the costs of the well up to the AFE
(Authorization for Expenditure) amount, 20% thereafter. The well began
drilling operations in December 2001 and is expected to reach targeted depth
in the second quarter of 2002.

   The Arctic I rig contract expires in early July 2002. If drilling
operations conclude prior to the end of the contract period, EEX will seek an
assignment of the rig to another operator at a subsidized rate or decide to
"stack" the rig at a total cost of approximately $150,000 per day for the
remainder of the contract term.

   FPS and Pipelines--During 2001, EEX continued its efforts to place into
service the FPS and the Pipelines, both of which are currently not in use. In
November 2001, EEX and the co-owner of the FPS and Pipelines submitted a
proposal to the Llano owners for their use in support of a Llano Field
development. This proposal was subsequently modified to compete with
alternative processing and transportation options for the Llano area. In the
fourth quarter, the $152 million carrying value of the FPS and Pipelines was
impaired to a fair market valuation of $70 million to reflect these modified
proposals and values management believes could be received in an orderly sale
of the assets. In February 2002, the Llano Field operator notified EEX that
the FPS is no longer being considered for use in a Llano development. The
Pipelines remain under consideration as a transportation alternative for the
Llano Field.

   No assurances can be given that the Pipelines will ultimately be used in a
Llano Field development or other potential development in the Llano area, or
that management's estimated fair market value of the FPS and Pipelines will be
realized in the market.

   Gulf of Mexico Deep Shelf--In 2001, EEX further developed its geologic
interpretation of deeper exploration potential under the Gulf of Mexico Shelf.
The Company began marketing efforts to form a joint venture or farmout
arrangement with third parties to reduce the financial risk of exploring these
leases. No agreements were finalized in 2001 to fund this program.

   EEX and another offshore operator entered into an Agreement that resulted
in the parties being successful bidders on six federal offshore lease blocks
at OCS Lease Sale No. 182 held March 20, 2002. The parties are presently
awaiting awarding of the leases covering these six blocks.

   Gulf of Mexico Conventional Shelf--In December 2000, EEX sold its interests
in approximately 100 Gulf of Mexico Shelf blocks to W&T Offshore, Inc.,
substantially all of EEX's Shelf production. As part of this sale, EEX
retained the rights to deeper, non-producing horizons in ten of these blocks
where the Company believes there is deep exploration potential.

International Exploration and Development

   The Company plans to exit its portfolio of international assets in 2002.

   Indonesia (Onshore Java) Tuban Block--EEX owns a 50% interest in the
production-sharing contract relating to the Tuban Block, which includes the
Mudi Field. In December 2001, EEX received an acceptable bid for the purchase
of the Tuban Block and in March 2002, signed a purchase and sale agreement
with an

                                       7
<PAGE>

Indonesian company. A $16 million impairment on the Indonesian assets was
incurred in the fourth quarter of 2001 to reflect the difference between the
agreed sales price and book value at closing, currently estimated to occur in
the second quarter of 2002. The impairment also includes a discount
incorporated in the sales price associated with certain receivables.

   Indonesia (Offshore Sumatra) Asahan Block--In 1997, EEX acquired a 60%
interest in 4,200 square kilometers in the Asahan Block. In 2001, EEX was
carried for a 15% interest in an exploration well that encountered
hydrocarbons drilled by the farmout operator. These assets are expected to be
sold in the second quarter of 2002 along with the Tuban Block as described
above.

   New Zealand--The Company will relinquish its remaining concession in New
Zealand in the second quarter of 2002.

Plant Operations Business

   EEX Power Systems Company ("EEXPS"), a division of EEX, provides operation
and maintenance services under contract to two cogeneration plants located in
Sweetwater, Texas and Bellingham, Washington. EEXPS operates and maintains the
facilities under the terms of operation and maintenance contracts that provide
EEXPS periodic fees and reimbursement of certain costs. During 2001, EEX
attempted to sell its Plant Operations Business but was unable to conclude a
sale. Currently, there are no ongoing efforts to sell the Plant Operations
Business.

Sales of Natural Gas and Crude Oil

   EEX sells its natural gas under both long- and short-term contracts. EEX
markets most of its gas through third-party marketing organizations. EEX sells
its crude oil under contracts that are for periods of one year or less. Crude
oil prices are based upon field posted prices plus bonuses. EEX makes no sales
of natural gas and/or crude oil to any customer where the loss of such
customer would have a material adverse effect on EEX.

   Sales data are set forth under "Selected Operating Data" included as part
of Item 6.

   EEX utilizes financial instruments to reduce exposure of its oil and gas
production to price volatility. See Item 7A, "Quantitative and Qualitative
Disclosures about Market Risk," Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Oil and Gas Marketing," and
Note 16 to Consolidated Financial Statements in Item 8 for additional
information on hedging activities.

Competition

   All phases of the oil and gas industry are highly competitive. EEX competes
in the acquisition of properties, the search for and development of reserves,
the production and sale of oil and gas and the securing of the labor,
equipment, and capital required to conduct operations. EEX's competitors
include major oil and gas companies, independent oil and gas concerns and
individual producers and operators. Many of these competitors have financial
and other resources that are substantially greater than those available to
EEX. Oil and gas producers also compete with other industries that supply
energy and fuel.

Government Regulation

   The oil and gas industry is extensively regulated by federal, state and
local authorities and by governmental agencies of foreign countries.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion. Numerous departments and agencies, federal, state and
foreign, have issued rules and

                                       8
<PAGE>

regulations binding on the oil and gas industry and its individual members,
some of which carry substantial penalties for the failure to comply. Because
these laws and regulations are frequently amended, reinterpreted or expanded,
EEX is unable to predict the future cost or impact of complying with such laws
and regulations.

   Regulation of Onshore Operations--EEX's production of oil and gas in Texas
is regulated by the Texas Railroad Commission, and in Louisiana, by the
Louisiana Department of Natural Resources. Similar types of regulations are in
effect in Indonesia and other foreign countries. Such regulations include
requiring permits for the drilling of wells, maintaining bonding requirements
in order to drill or operate wells, and regulating the location of wells, the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilling and the plugging and abandonment of
wells. EEX's operations are also subject to various conservation laws and
regulations. These include the regulation of the size of drilling and spacing
units or proration units and the density of wells which may be drilled and
unitization or pooling of oil and gas properties. In addition, conservation
laws establish maximum rates of production requirements regarding the
ratability of production.

   Regulation of Offshore Operations--Lessees must obtain the approval of the
Minerals Management Service ("MMS"), a federal agency, and various other
federal and state agencies for exploration, development and production plans
prior to the commencement of offshore operations. Similarly, the MMS has
promulgated regulations governing the plugging and abandoning of wells located
offshore and the removal of all production facilities. The MMS also issues
rules on calculation of royalty payments and valuation of production for
royalty purposes.

   Environmental Matters--EEX's U.S. oil and gas operations are subject to
extensive federal, state and local laws and regulations dealing with
environmental protection. These laws include the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), also known as
"Superfund," and similar state statutes. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil, or criminal
penalties.

   With respect to offshore leases in U.S. waters, EEX's operations are
subject to interruption or termination by governmental authorities on account
of environmental contamination and other considerations. The Outer Continental
Shelf Lands Act ("OCSLA") provides the federal government with broad
discretion in regulating the release or continued use of offshore resources
for oil and gas production. If the government were to exercise its authority
under OCSLA to restrict the availability of offshore oil and gas leases (for
example, due to a serious incident of pollution), such an action could have a
material adverse effect on EEX's operations.

   The Oil Pollution Act of 1990 ("OPA") and regulations thereunder impose a
variety of regulations related to the prevention of oil spills and liability
for damages resulting from such spills in the United States waters. The OPA
assigns liability to each responsible party for oil removal and cleanup costs,
and a variety of public and private damages including natural resource
damages. In addition, OPA imposes ongoing requirements on responsible parties,
including preparation of spill response plans and proof of financial
responsibility to cover at least some costs in a potential spill. EEX
maintains insurance against costs of cleanup operations, but is not fully
insured against all such risks. The Coastal Zone Management Act authorizes
state implementation and development of programs containing management
measures for the control of nonpoint source pollution to restore and protect
coastal waters.

   EEX's U.S. onshore operations are subject to numerous laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment. These laws and regulations,
among other things, may impose absolute liability on the lessee under a lease
for the cost of clean-up of pollution resulting from a lessee's operations,
subject the lessee to liability for pollution damages, require suspension or
cessation of operations in affected areas and impose restrictions on the
injection of liquids into subsurface aquifers that may contaminate
groundwater. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
remediation and clean-up costs and for damages to natural resources.

                                       9
<PAGE>

   The operations of EEX are also subject to the Clean Water Act and the Clean
Air Act, as amended, and comparable state statutes. EEX may be required to
incur certain capital expenditures over the next five to ten years for
pollution control equipment. The Company's operations may generate or
transport both hazardous and nonhazardous solid wastes that are subject to the
requirements of the Resource Conservation and Recovery Act ("RCRA") and
comparable state laws and regulations. In addition, EEX currently owns or
leases, and has in the past owned or leased, properties that have been used
for oil and gas operations for many years. Although EEX has utilized operating
and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by EEX or on or under other locations where
such wastes have been taken for disposal. Many of these properties have been
operated by third parties whose operations were not under EEX's control. These
properties and the wastes disposed thereon may be subject to CERCLA, RCRA, and
analogous state laws, and EEX could be required to remove or remediate
previously disposed wastes or property contamination or perform remedial
plugging operations to prevent future contamination.

   EEX's foreign operations are potentially subject to similar governmental
controls and restrictions relating to the environment. Requirements of these
foreign governmental bodies may include, among other things, controls over the
discharge of materials in the environment, standards for removal and cleanup
of spills, and restrictions on the handling and disposal of waste materials.

   Regulation of Natural Gas Marketing and Transportation--All price and
nonprice controls for all sales of natural gas have been removed by federal
statute. EEX may sell its natural gas currently at market prices, subject to
applicable contract provisions.

   The Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of natural gas produced by EEX, as well as the revenues received by
EEX for sales of such natural gas. Since the latter part of 1985, the FERC has
endeavored to make interstate natural gas transportation more accessible to
gas buyers and sellers on an open and nondiscriminatory basis. The FERC's
efforts have significantly altered the marketing and pricing of natural gas,
most notably from Order Nos. 636, 636-A, 636-B, 636-C and 637.

   The FERC issued Order No. 639 on April 10, 2000, to promote the open and
nondiscriminatory pipeline access mandates of the OCSLA. The Order applies to
gas transportation service providers on the Outer Continental Shelf that are
not subject to FERC jurisdiction under the Natural Gas Act. Order No. 639
imposes certain reporting requirements and provides a mechanism for complaints
of discriminatory and anticompetitive shipping practices.

   Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. EEX cannot predict when or if any such
proposals might become effective, or their effect, if any, on EEX's
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future. State regulation of gathering facilities generally includes
various transportation, safety, environmental, nondiscriminatory purchase and
transport requirements, but does not currently entail rate regulation. Growing
competitive pressures in marketing natural gas may cause states to regulate
gathering facilities more stringently in the future.

   In the aggregate, compliance with federal and state rules and regulations
is not expected to have a material adverse effect on EEX's operations.

Employees

   At January 1, 2002, EEX had 139 full-time employees, 100 of which were
involved principally with oil and gas operations. The remaining employees were
involved with the Plant Operations Business.

                                      10
<PAGE>

Offices

   The principal offices of EEX are located at 2500 CityWest Blvd., Suite
1400, Houston, Texas 77042, and its telephone number is (713) 243-3100. An
onshore office is located at 1020 N.E. Loop 410, Suite 700, San Antonio, Texas
78209, and its telephone number is (210) 829-3500. Plant operation offices are
maintained in Sweetwater, Texas and Bellingham, Washington.

Item 2. Properties

   In December 2000, EEX sold its interests in substantially all of its Gulf
of Mexico Shelf production. As part of this sale, EEX retained the rights to
deeper, non-producing horizons in ten of the blocks sold.

   In 2001, EEX's operations were located in three regions: (i) the Gulf of
Mexico--Deepwater, (ii) Onshore and (iii) International, primarily Indonesia.
The following table sets forth estimated net proved reserves of EEX by region,
as audited by Netherland, Sewell & Associates, Inc.:

<TABLE>
<CAPTION>
                                               Proved Reserves at December 31,
                                                             2001
                                              ----------------------------------
                                                          Oil and Gas
                                              Natural Gas   Liquids     Total
                                               (MMcf)(1)  (MBbls)(2)  (MMcfe)(3)
                                              ----------- ----------- ----------
   <S>                                        <C>         <C>         <C>
   Gulf of Mexico--Deepwater.................       --         --          --
   Onshore...................................   394,987      3,704     417,211
   International.............................       --      10,856      65,136
                                                -------     ------     -------
     Total...................................   394,987     14,560     482,347
                                                =======     ======     =======
   Minority Interest (4).....................   135,959        659     139,913
                                                =======     ======     =======
</TABLE>
--------
(1) Million cubic feet.
(2) Thousand barrels.
(3) Million cubic feet of gas equivalent with one barrel of liquid converted
    to six Mcf of gas.
(4) Included in Onshore above. See Note 14 to Consolidated Financial
    Statements in Item 8 for additional information on Minority Interest.

   See Note 24 to Consolidated Financial Statements in Item 8 for additional
information on oil and gas reserves.

   During 2001, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 2000. Such reserve estimates were not
materially different from the 2000 reserve estimates reported in Note 24 to
Consolidated Financial Statements in Item 8.

   Developed and undeveloped lease acreage as of December 31, 2001 is set
forth below:

<TABLE>
<CAPTION>
                                   Developed              Undeveloped
                                 -----------------    ----------------------
                                  Gross     Net(1)      Gross       Net(1)
                                 -------    ------    ---------    ---------
   <S>                           <C>        <C>       <C>          <C>
   Gulf of Mexico--Deepwater....  17,280    10,944      364,007      131,460
   Onshore......................  82,016    46,248      352,379(2)   236,289(2)
                                 -------    ------    ---------    ---------
     Total Domestic.............  99,296(3) 57,192(3)   716,386      367,749
   International................   5,000     1,250(4) 2,847,066    1,626,209(4)
                                 -------    ------    ---------    ---------
     Total...................... 104,296    58,442    3,563,452    1,993,958
                                 =======    ======    =========    =========
   Minority Interest (5)........  28,393    13,996       89,407       50,778
                                 =======    ======    =========    =========
</TABLE>
--------
(1) Represents the proportionate interest of EEX in the gross acres under
    lease.
(2) Includes 120,678 gross and 101,008 net acres--Gulf of Mexico Shelf.

                                      11
<PAGE>

(3) Does not include 23,040 gross/6,884 net acres (developed deep) or 25,000
    gross/7,563 net acres (developed Shelf) wherein EEX only owns rights below
    the deepest producing reservoir.
(4) EEX owns 25% interest by virtue of the Production Sharing Contract.
(5) Included in Onshore above. See Note 14 to Consolidated Financial
    Statements in Item 8 for additional information on Minority Interest.

   EEX purchased approximately 30,928 gross/26,608 net acres in 6 offshore
blocks (5 Shelf, 1 Deepwater) at Federal OCS Lease Sale 178, Part 1 held March
28, 2001. Additionally, EEX acquired 10,080 net acres in the fourth quarter of
2001 in deepwater blocks in which it already owned an undivided interest. The
total number of blocks in which EEX had an interest at yearend was 97 (not
including 3 blocks in which EEX has only an overriding royalty interest), with
an average working interest of 48.13%. EEX operates 47 of these blocks.

   During 2001, EEX relinquished its interest in 18 Gulf of Mexico blocks and
sold its interest in one.

   The primary terms during which the undeveloped acreage can be retained by
payment of delay rentals, or by drilling operations, without the establishment
of oil and gas reserves, expire as follows:

<TABLE>
<CAPTION>
                                     Undeveloped Acres Expiring
                         ------------------------------------------------------
                             Gulf of
                            Mexico--
                            Deepwater        Onshore           International
                         --------------- ---------------    -------------------
                          Gross    Net    Gross    Net        Gross      Net
                         ------- ------- ------- -------    --------- ---------
<S>                      <C>     <C>     <C>     <C>        <C>       <C>
2002....................  28,800   8,352 101,368  53,832(1) 1,357,635 1,357,635
2003....................  46,632  16,825  56,286  25,848           --        --
2004 and later.......... 276,480 103,161 169,697 142,441(2) 1,494,431   269,824
                         ------- ------- ------- -------    --------- ---------
  Total................. 351,912 128,338 327,351 222,121    2,852,066 1,627,459
                         ======= ======= ======= =======    ========= =========
</TABLE>
--------
(1) Includes 9,704 gross and 1,941 net Gulf of Mexico Shelf acres.
(2) Includes 107,824 gross and 99,060 net Gulf of Mexico Shelf acres.

   The Company may allow drilling rights with regard to a portion of the
undeveloped acreage to expire before the expiration of primary terms specified
in this schedule by non-payment of delay rentals.

   Drilling activity during the three years ended December 31 is set forth
below:

<TABLE>
<CAPTION>
                                                    2001       2000      1999
                                                 ---------- ---------- ---------
                                                 Gross Net  Gross Net  Gross Net
                                                 ----- ---- ----- ---- ----- ---
   <S>                                           <C>   <C>  <C>   <C>  <C>   <C>
   Exploratory Wells:
     Productive.................................  5.0   2.5  6.0   2.2  2.0  1.5
     Dry........................................  4.0   2.4  8.0   2.2  7.0  3.6
                                                 ----  ---- ----  ----  ---  ---
       Total....................................  9.0   4.9 14.0   4.4  9.0  5.1
                                                 ====  ==== ====  ====  ===  ===
   Development Wells:
     Productive................................. 54.0  33.1 44.0  28.7  2.0  0.8
     Dry........................................  7.0   4.3  8.0   4.9   --   --
                                                 ----  ---- ----  ----  ---  ---
       Total.................................... 61.0  37.4 52.0  33.6  2.0  0.8
                                                 ====  ==== ====  ====  ===  ===
</TABLE>

   Productive wells are either producing wells or wells capable of commercial
production, although currently shut-in. The term "gross" refers to the wells
in which a working interest is owned, and the term "net" refers to gross wells
multiplied by the percentage of EEX's working interest owned therein.

   At December 31, 2001, EEX was participating in 9 wells (4.4 net), which
were either being drilled, or in some stage of completion.


                                      12
<PAGE>

   The number of wells drilled is not a significant measure or indicator of
the relative success or value of a drilling program because the significance
of the reserves and economic potential may vary widely for each project. It is
also important to recognize that reported completions may not necessarily
correspond to capital expenditures, since Securities and Exchange Commission
guidelines do not allow a well to be reported as completed until it is ready
for production. In the case of offshore wells, this may be several years
following initial drilling because of the timing of construction of platforms,
pipelines and other necessary facilities.

   The Company owned interest in productive gas and oil wells at December 31,
2001 as follows:

<TABLE>
<CAPTION>
                                                              Gas        Oil
                                                          ----------- ----------
                                                          Gross  Net  Gross Net
                                                          ----- ----- ----- ----
   <S>                                                    <C>   <C>   <C>   <C>
   Onshore............................................... 408.0 250.2 14.0   8.5
   International.........................................    --    -- 18.0   8.5
                                                          ----- ----- ----  ----
     Total............................................... 408.0 250.2 32.0  17.0
                                                          ===== ===== ====  ====

   The Company has ownership in wells with dual completions in single
boreholes at December 31, 2001 as follows:

<CAPTION>
                                                              Gas        Oil
                                                          ----------- ----------
                                                          Gross  Net  Gross Net
                                                          ----- ----- ----- ----
   <S>                                                    <C>   <C>   <C>   <C>
   Onshore...............................................  21.0  14.2   --    --
   International.........................................    --    --   --    --
                                                          ----- ----- ----  ----
     Total...............................................  21.0  14.2   --    --
                                                          ===== ===== ====  ====
</TABLE>

   Additional information relating to the oil and gas activities of EEX is set
forth in Note 24 to Consolidated Financial Statements in Item 8 and in
"Selected Financial and Operating Data" in Item 6.

   EEX leases approximately 49,000 square feet of office space for its office
in Houston, Texas, expiring in January 2003. EEX leases approximately 19,000
square feet of office space for its office in San Antonio, Texas, expiring in
December 2005.

Item 3. Legal Proceedings

   EEX is involved in a number of legal and administrative proceedings
incident to the ordinary course of its business. In the opinion of management,
based on the advice of counsel and current assessment, any liability to EEX
relative to these ordinary course proceedings will not have a material adverse
effect on EEX's operations or financial condition.

   The operations and financial position of EEX continue to be affected from
time to time in varying degrees by domestic and foreign political developments
as well as legislation and regulations pertaining to restrictions on oil and
gas production, imports and exports, natural gas regulation, tax increases,
environmental regulations and cancellation of contract rights. Both the
likelihood and overall effect of such occurrences on EEX vary greatly and are
not predictable.

   EEX has taken and will continue to take into account uncertainties and
potential exposures in legal and administrative proceedings in periodically
establishing accounting reserves.

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

   None.

                                      13
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

   The Company's common stock is traded principally on the New York Stock
Exchange under the ticker symbol "EEX." The following table shows the high and
low sales prices per share of the common stock as reported in the New York
Stock Exchange--Composite Transactions report for the periods shown.

<TABLE>
<CAPTION>
                                                         2001          2000
                                                     ------------- -------------
                                                      High   Low    High   Low
                                                     ------ ------ ------ ------
   <S>                                               <C>    <C>    <C>    <C>
   First Quarter.................................... $5.063 $3.370 $4.313 $2.250
   Second Quarter...................................  5.000  2.700  6.250  2.125
   Third Quarter....................................  3.350  1.100  6.875  4.500
   Fourth Quarter...................................  2.000  1.120  5.813  3.000
</TABLE>

   At March 31, 2002, EEX had 42,487,395 outstanding shares of common stock
held by 9,942 shareholders of record.

   There were no dividends declared on the Company's common stock in 2001 or
2000. The declaration of future dividends will be dependent upon business
conditions, earnings, cash requirements and other relevant factors as
determined by the Company's Board of Directors. Under the terms of the
Company's Series B 8% Cumulative Perpetual Preferred Stock (the "Series B
Preferred Stock"), the Company may not declare or pay any dividend or make any
other distribution on its common stock, unless all dividends due upon the
Series B Preferred Stock have been paid or provided for.

                                      14
<PAGE>

Item 6. Selected Financial and Operating Data

                                EEX CORPORATION

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                               As of or for the Year Ended December 31
                            --------------------------------------------------
                              2001       2000      1999      1998      1997
                            ---------  --------  --------  --------  ---------
                               (In thousands, except per share amounts)
<S>                         <C>        <C>       <C>       <C>       <C>
INCOME STATEMENT DATA
  Revenues................. $ 206,884  $262,412  $177,374  $219,052  $ 314,213
                            =========  ========  ========  ========  =========
  Income (Loss) Before
   Extraordinary Item...... $(149,574) $  2,946  $(87,797) $(40,926) $(216,103)
  Extraordinary Item--Debt
   Extinguishment Gain, Net
   of Tax..................    (3,593)      --        --        --         --
                            ---------  --------  --------  --------  ---------
  Net Income (Loss)........  (145,981)    2,946   (87,797)  (40,926)  (216,103)
  Preferred Stock
   Dividends...............    14,465    13,364    12,117       --         --
                            ---------  --------  --------  --------  ---------
  Net (Loss) Applicable to
   Common Shareholders..... $(160,446) $(10,418) $(99,914) $(40,926) $(216,103)
                            =========  ========  ========  ========  =========
  Net (Loss) Per Common
   Share, Basic and
   Diluted(a)
    Before Extraordinary
     Item.................. $   (3.94) $  (0.25) $  (2.37) $  (0.97) $   (5.12)
    Extraordinary Item--
     Debt Extinguishment
     Gain, Net of Tax......      0.09       --        --        --         --
                            ---------  --------  --------  --------  ---------
    Per Common Share....... $   (3.85) $  (0.25) $  (2.37) $  (0.97) $   (5.12)
                            =========  ========  ========  ========  =========
BALANCE SHEET DATA
    Total Assets........... $ 750,118  $764,068  $780,784  $565,070  $ 807,789
                            =========  ========  ========  ========  =========
CAPITAL STRUCTURE
  Short-term borrowings.... $     --   $    --   $    --   $    --   $   5,000
  Capital lease
   obligations.............       --    205,634   222,444   233,318    241,735
  Secured notes payable....   114,343       --        --        --         --
  Bank revolving credit
   agreement...............   325,000    75,000       --        --      25,000
  Gas sales obligation.....    59,937    83,490   105,000       --         --
  Minority interest in
   preferred stock of
   subsidiary..............       --        --        --        --     100,000
  Minority interest third
   party...................     5,000     5,000     3,050       --         --
  Shareholders' equity.....   180,788   289,601   294,863   234,300    274,663
                            ---------  --------  --------  --------  ---------
    Total.................. $ 685,068  $658,725  $625,357  $467,618  $ 646,398
                            =========  ========  ========  ========  =========
</TABLE>
--------
(a) The per share amounts for periods prior to 1998 have been restated to
    reflect the reduction in weighted average shares outstanding due to the
    one-for-three reverse stock split effective on December 8, 1998.

                                       15
<PAGE>

                                EEX CORPORATION

                            SELECTED OPERATING DATA

<TABLE>
<CAPTION>
                                           As of or for the Year Ended December
                                                            31
                                           ------------------------------------
                                            2001    2000    1999   1998   1997
                                           ------ -------- ------ ------ ------
<S>                                        <C>    <C>      <C>    <C>    <C>
Sales volume
  Natural gas (Bcf)(a)....................   43.0     55.1   41.0   57.9   84.5
  Oil, condensate and natural gas liquids
   (MMBbls)(e)............................    2.6      2.8    4.6    5.8    5.4
    Total volumes (Bcfe)(a)...............   58.6     71.9   68.5   92.7  116.9

Average sales price(b)(c)
  Natural gas (per Mcf)................... $ 3.22 $   3.14 $ 2.28 $ 2.21 $ 2.36
  Oil, condensate and natural gas liquids
   (per Bbl)..............................  23.17    28.26  16.45  13.15  18.53
    Total (per Mcfe)......................   3.39     3.51   2.46   2.20   2.57

Average costs and expenses (per Mcfe)(c)
  Production and operating(b)............. $ 0.63 $   0.55 $ 0.57 $ 0.51 $ 0.42
  Exploration(d)..........................   0.59     0.47   0.62   0.49   0.60
  Depletion, depreciation and
   amortization...........................   1.17     1.31   1.01   1.09   1.24
  General, administrative and other.......   0.32     0.27   0.41   0.26   0.24
  Taxes, other than income................   0.25     0.15   0.07   0.12   0.15

Net Wells Drilled
  Total...................................     42       38      6     24     57
  Productive..............................     36       31      2     19     44

Proved Reserve Data (at yearend)
  Natural gas (Bcf)(a)....................  395.0    382.6  362.8  203.6  460.2
  Oil, condensate and natural gas liquids
   (MMBbls)(e)............................   14.6     25.1   17.5   26.2   23.8
    Total (Bcfe)(a).......................  482.3    533.3  468.1  360.6  603.2

Standardized Measure of Discounted
 Future Net Cash Flows (in millions)...... $389.2 $1,283.3 $436.3 $275.9 $619.1
</TABLE>
--------
(a) Billion cubic feet or billion cubic feet equivalent, as applicable. Ratio
    of six Mcf of natural gas to one barrel of crude oil, condensate or
    natural gas liquids.
(b) Before related production, severance and ad valorem taxes.
(c) One thousand cubic feet or one thousand cubic feet equivalent, as
    applicable. Ratio of six Mcf of natural gas to one barrel of crude oil,
    condensate or natural gas liquids. Average sales prices reflect results
    net of hedged transactions.
(d) The year 2001 excludes approximately $15 million of costs associated with
    stacking of the Arctic I rig and recognition of the net costs associated
    with the assignment of the Arctic I contract through May 2001.
    The year 1999 excludes approximately $44 million of dry hole costs
    associated with the George and Mackerel prospects.
(e) One million barrels of crude oil or other liquid hydrocarbons.

                                      16
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

   The following discussion should be read in conjunction with EEX
Corporation's ("EEX" or the "Company") Consolidated Financial Statements and
notes thereto included under Item 8.

   Certain statements in this report, including statements of EEX and
management's expectations, intentions, plans and beliefs, are "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and are subject to certain events, risks and
uncertainties that may be outside EEX's control. Actual results and
developments could differ materially from those expressed in or implied by
such statements due to a number of factors, including, without limitation,
those described in the context of such forward-looking statements, the risks,
uncertainties and critical accounting policies and estimates set forth below
and described from time to time in EEX's other documents and reports filed
with the Securities and Exchange Commission ("SEC").

Risks, Uncertainties and Critical Accounting Policies and Estimates

   Liquidity--Management is continuing to negotiate for a new credit agreement
to replace its current revolving credit agreement that matures on June 27,
2002. EEX has a waiver until April 30, 2002 for exceeding the debt to capital
ratio under this agreement. The independent auditors have issued an audit
report with a report modification for a going concern uncertainty. This report
modification will result in a default under the current credit facility. If
the current revolving credit agreement is not replaced with another borrowing
facility, EEX would be required to repay the amount outstanding under the
revolving credit agreement on June 27, 2002, or earlier if EEX is in default
under the agreement and the lenders accelerate the maturity. EEX is exploring
various other options including the raising of additional capital, the sale or
merger of the Company or a sale of a significant portion of its assets to
repay the loan. In the event these efforts are unsuccessful, EEX may seek
protection from its creditors and reorganization under the Federal bankruptcy
laws. Also, the New York Stock Exchange ("Exchange") may delist EEX's common
stock, which could result in decreased liquidity for the common shareholders.
EEX currently exceeds the minimum quantitative criteria of the Exchange for
continued listing, however, no assurances can be given that the Company will
continue to meet these criteria or that the Exchange will not use other
criteria or information in considering whether to institute delisting
proceedings. A liquidation of assets to retire debt and preferred securities
may result in little to no funds remaining for the common shareholders. No
assurances can be given that EEX will be successful in completing an
acceptable financing plan or a sale or merger of the Company.

   A new credit agreement would include financial maintenance covenants.
Management believes that EEX would be able to maintain such covenants.
However, in the event that EEX's business plan is adversely impacted by the
risks, uncertainties and significant estimates described below, EEX could
default under its new credit agreement, which would allow the lenders to
enforce their security interest in EEX's oil and gas and other assets.

   EEX's access to trade credit may become limited because of EEX's financial
condition. This would adversely affect working capital. In addition, EEX may
not be able to obtain credit to hedge future gas production or may be required
to maintain margins for hedges.

   Natural Gas Prices--EEX's revenues, operating results, financial condition
and ability to borrow funds or obtain additional capital depend substantially
on current market expectations of future prices for natural gas in the United
States. Lower prices in the future would have a serious adverse impact on the
Company's future financial results, the Company's ability to meet debt
covenants expected as part of the Company's refinancing plan, and the
Company's ability to access equity and debt markets on favorable terms.
Management has taken steps to mitigate a portion of this risk through the use
of financial instruments to hedge the price of natural gas during the year
2002 and 2003. Conversely, a rise in natural gas prices above hedge levels
during this period would result in the Company not realizing the benefit of
this increase on the hedged volumes. These hedges represent only a small
portion of EEX's total proved reserves, its principal asset. Lower gas prices
would seriously reduce the value of EEX's proved reserves and could impact the
Company's annual assessment of

                                      17
<PAGE>

impairment required under Statement of Financial Accounting Standards No. 144
("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets" effective January 1, 2002. Although management believes that long-term
natural gas prices will be in excess of five-year historical average gas
prices of approximately $3.00 per MMBtu (Henry Hub), there can be no
assurances that high natural gas prices will, in fact, prevail.

   Estimated Value of the FPS and Pipelines--Management assessed the fair
value of the FPS and Pipelines to be $70 million at yearend. This value was
based upon proposals made by EEX to the Llano Field operator, competition from
processing and transportation alternatives, and general estimates of the
market for these assets in a third party sale. The FPS and Pipelines are
unique assets. The possible uses for these assets will affect their ultimate
value. There is no established third party market for these assets; it is very
difficult to accurately estimate what a sale would bring. In addition, the
carrying value of the assets assumes an orderly disposition of the assets,
which may take a significant amount of time. An immediate sale or a sale under
distressed circumstances might realize much less than the carrying value of
the assets. The value of the Pipelines depends on their use to transport
production from the greater Llano or other areas in proximity to the
Pipelines. If all producers choose other transportation alternatives, the
value of the Pipelines would be seriously reduced. You should not assume that
management's estimate of current fair value is a definitive view of the market
for these assets. The asset value could be higher or lower than this estimate
depending on actual third party markets for the FPS and ultimate utility of
the Pipelines. These factors are generally beyond the control of EEX.

   Oil and Gas Reserve Estimates--The process of estimating quantities of
proved reserves is inherently uncertain, and the reserve data included in this
document are only estimates prepared by the Company. Reserve engineering is a
subjective process of estimating underground accumulations of hydrocarbons
that cannot be measured in an exact manner. The process relies on
interpretation of available geologic, geophysical, engineering and production
data. The extent, quality and reliability of this data can vary. The process
also requires certain economic assumptions regarding drilling and operating
expense, capital expenditures, taxes and availability of funds. The SEC
mandates some of these assumptions, such as oil and gas prices and the present
value discount rate.

   Proved reserve estimates prepared by others may be substantially higher or
lower than the Company's estimates. Because these estimates depend on many
assumptions, all of which may differ from actual results, reserve quantities
actually recovered may be significantly different than estimated. Material
revisions to reserve estimates may be made depending on the results of
drilling, testing, and rates of production.

   You should not assume that the present value of future net cash flows is
the current market value of our estimated proved reserves. In accordance with
SEC requirements, the Company based the estimated discounted future net cash
flows from proved reserves on prices and costs on the date of the estimate.

   The Company's rate of recording depreciation, depletion and amortization
expense for proved properties is dependent on the Company's estimate of proved
reserves. If these reserve estimates decline, the rate at which the Company
records these expenses will increase.

   Lower prices could make it uneconomic to drill and produce proved
undeveloped reserves.

   Estimated Value of EEX's Leasehold and Investment in the Llano Area--
Management believes that this area contains substantial quantities of oil and
natural gas, none of which is currently classified as proved reserves. EEX's
investment in this area includes a royalty interest in the Llano Field with a
carrying value of $12 million, the Jason discovery well with a carrying value
of $24 million and the cost of the currently drilling Devil's Island
exploration well expected to be approximately $15 million net to EEX. In
addition, the Pipelines previously discussed derive their principal value from
their utility as transportation for potential yet to be proved reserves in
this area. Development of the Llano Field and a possible Devil's Island
discovery are outside the control of EEX. Development of the Jason Field
depends, in part, on the initial success of other development in the area, of
which there are none currently active or approved by their owners. Some
factors that may limit future development are

                                      18
<PAGE>

lower commodity prices, low estimates of future recoverable reserves,
unfavorable investment economics, availability of capital, and approval by co-
owners. To the extent these developments do not ultimately occur, EEX may be
required to impair the value of its assets in this area.

   Asset Sales--EEX has assumed that it will close the sale of its Indonesian
assets during the second quarter of 2002 pursuant to the stock purchase
agreements signed as of March 11, 2002. If this sale does not close, EEX's
debt would be higher than planned, which may adversely affect EEX's ability to
obtain a new credit facility on satisfactory terms.

   Successful Efforts Accounting--The successful efforts method of accounting
is used for oil and gas operations. Under this method, acquisition costs for
proved and unproved properties are capitalized when incurred. Exploration
costs, including seismic purchases and processing, exploratory dry hole
drilling costs and cost of carrying and retaining unproved properties are
expensed as incurred. EEX incurred significant dry hole expense in the past as
part of its Gulf of Mexico exploration program. Management believes it can
limit Gulf of Mexico offshore exploration risk in the future through farmout
of its leasehold interests. In addition, EEX's onshore program is also exposed
to risk for drilling exploratory dry holes. EEX is also exposed to potential
impairments if the book value of a field or field area exceeds its expected
future net cash flows. This may occur if discoveries are less than
anticipated, reserves are revised downward, commodity prices fall or costs
increase. This determination is made either through recognition of an adverse
change or as part of the annual review of all fields. The impairment of
unamortized capital costs for a field or field area is reduced to an estimated
fair value if it is determined that the sum of expected future net cash flows
is less than the net carrying value.

   Leasehold costs of producing properties are depleted using the unit of
production method based on estimated proved oil and gas reserves quantified on
the basis of their equivalent energy content. Amortization of drilling and
equipment costs is based on the unit of production method using estimated
proved developed oil and gas reserves quantified on the basis of their
equivalent energy content. The current undiscounted cost of estimated future
site restoration, dismantlement and abandonment, net of salvage, is included
in the cost of productive oil and gas properties and a corresponding liability
is recorded. The recorded cost is amortized on the unit of production method.
Actual costs incurred for these activities are charged to the recorded
liability. The sale of the Gulf of Mexico Shelf properties in December 2000
eliminated substantially all of EEX's accrued abandonment liabilities.

   Depreciation of other property, plant and equipment is provided principally
by the straight line method over the estimated service lives of the related
assets as follows: FPS and Pipelines-20 years, leasehold improvements-
remaining term of the lease, computer hardware and software- 3 to 5 years, and
furniture, fixtures and other-3 to 7 years. Major improvements are
capitalized, maintenance and repairs are charged to expense as incurred.

   Derivative Instruments--Effective January 1, 2001, EEX adopted Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," as amended, which requires
that all derivative instruments be reported on the balance sheet at fair value
and that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge criteria are met. Fair value is determined
based on current market contracts with the same terms and conditions. For
derivatives designated as cash flow hedges, the effective portions of changes
in the fair value of the derivative are recorded in other comprehensive income
(loss) and are recognized in the Consolidated Statement of Operations when the
hedged item affects earnings. Ineffective portions of changes in the fair
value of cash flow hedges are recognized as a charge or credit to earnings.
The Company uses derivative instruments to manage exposures to commodity price
risks. Hedging transactions are subject to the Company's risk management
policy, which does not permit speculative positions. The Company documents
relationships between hedging instruments and hedged items, and assesses and
documents, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows associated with the hedged
items. None of EEX's current hedges contain requirements to maintain margins.
The Company may from time to time settle early derivative transactions. Gains
or losses are included in other comprehensive income until they are recognized
in revenues to match the underlying sales transaction being hedged. See
Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."

                                      19
<PAGE>

   Revenue Recognition and Gas Imbalances--The Company follows the sales
method of accounting for revenue recognition and gas imbalances, which
recognizes over and under lifts of gas when sold, to the extent sufficient gas
reserves or balancing agreements are in place. Gas sales volumes are not
significantly different from the Company's share of production.

   Income Taxes--Under Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes," deferred income taxes are
recognized at each yearend for the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts based on tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce the deferred tax asset to
the amount expected to be realized. The Company's deferred tax asset is fully
reserved as of December 31, 2001.

   Arctic I Rig Commitment--The majority of the remaining commitment
associated with the Arctic I rig (See Note 19 to Consolidated Financial
Statements in Item 8 and the discussion under "U.S. Exploration and
Development--Offshore, Deepwater Gulf of Mexico Exploration" in Item 1) will
be used for the Devil's Island well which is currently being drilled, and in
which EEX pays 30% of the costs of the well up to the AFE amount, 20%
thereafter. If the Arctic I is returned to EEX after the drilling of this well
and before the end of the contract period, EEX intends to pursue subsidized
contract assignments or stack the rig. If EEX cannot find other parties
willing to use the rig for the remainder of the contract term, EEX will incur
approximately $150,000 per day in expense to stack the rig.

   Impairment of Assets--EEX accounts for oil and gas properties using the
successful efforts method of accounting, which requires EEX to comply with the
requirements of SFAS No. 121. The process by which the Company assesses its
oil and gas properties under SFAS No. 121 starts with a comparison of the
carrying value of an asset to its estimated future undiscounted net cash flow
("Future Value"). These net cash flows are prepared by the Company. The
reserves are audited by its independent petroleum consultant, Netherland,
Sewell & Associates, Inc. This analysis uses a multi-year market-based
commodity price forecast in effect at yearend 2001. The initial prices used in
this analysis for 2002 annual cash flows were $21.00 per barrel of oil and
$2.742 per million British Thermal Units of gas ("MMBtu"). This analysis is
generally prepared at a field level or field-group level. The fields or groups
reflect the lowest level for which cash flows are reasonably and separately
identifiable and for which the assets possess common operational
infrastructure and geographic proximity. Where insufficient Future Value is
projected to recover the carrying value of an asset, a determination of fair
value is made. Fair value is estimated for most oil and gas properties by
discounting the annual net cash flows at a rate of 10% per annum. The carrying
value of the asset is reduced to its estimated fair value.

   Exploration Risk--Exploration for oil and gas in the Deepwater Gulf of
Mexico and unexplored frontier areas has inherent and historically high risk
of economic failure. Onshore U.S. exploration also has inherent risk of
economic failure. EEX is focusing on exploration opportunities in onshore and
Gulf of Mexico. Future reserve increases and production will be dependent on
EEX's success in these exploration efforts and no assurances can be given of
such success. Exploration may involve unprofitable efforts, not only with
respect to dry wells, but also with respect to wells that are productive but
do not produce sufficient net revenues to return a profit after drilling,
operating and other costs.

   Operational Risks and Hazards--EEX's operations are subject to the risks
and uncertainties associated with finding, acquiring and developing oil and
gas properties, and producing, transporting and selling oil and gas.
Operations may be materially curtailed, delayed or canceled as a result of
numerous factors, such as accidents, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of
equipment. Operating hazards such as fires, explosions, blow-outs, equipment
failures, abnormally pressured formations and environmental accidents may have
a material adverse effect on EEX's operations or financial condition. EEX's
ability to sell its oil and gas production is dependent on the availability
and capacity of gathering systems, pipelines and other forms of
transportation.

                                      20
<PAGE>

   Offshore Risks--EEX's Gulf of Mexico oil and gas exploration prospects
include properties located in water depths greater than 2,000 feet where
operations are by their nature more difficult than drilling operations
conducted on land in established producing areas. Deepwater drilling and
operations require the application of more advanced technologies that involve
a higher risk of mechanical failure and can result in significantly higher
drilling and operating costs which, in turn, can require greater capital
investment than anticipated and materially change the expected future value of
offshore development projects. The size of oil and gas reserves determined
through exploration and confirmation drilling operations must ultimately be
significant enough to justify the additional capital required to construct and
install production and transportation systems and drill development wells.
Development of any discoveries made pursuant to EEX's Deepwater exploration
program may not return any profit to it and could result in an economic loss.
Furthermore, offshore operations require a significant amount of time between
the discovery and the time the gas or oil is actually marketed, increasing the
market risk involved with such operations.

   Government Regulation--EEX's business is subject to certain federal, state
and local laws and regulations relating to the drilling for and the production
of oil and gas, as well as environmental and safety matters. Enforcement of or
changes to these regulations, which EEX is unable to predict, could have a
material impact on EEX's operations, financial condition and results of
operations.

Results of Operations

   EEX reported a 2001 net loss of $160 million ($3.85 per share), a net loss
of $10 million ($0.25 per share) in 2000 and a net loss of $100 million ($2.37
per share) in 1999.

   In 2001, results of operations were impacted by several major items:

  .  $127 million pre-tax charge for impairments required by Statement of
     Financial Accounting Standards No. 121, "Accounting for the Impairment
     of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
     ("SFAS No. 121") incurred during the fourth quarter of 2001. The FPS and
     Pipelines were impaired $82 million to a fair market valuation based on
     competitive factors for processing and transportation facilities in the
     Llano area and the values management believes could be received in an
     orderly sale of assets. The onshore U.S properties were impaired $29
     million, of which $23 million was attributable to the production payment
     related to the Encogen obligation. The Indonesian assets were impaired
     $16 million to reflect the agreed price of the potential purchaser of
     these assets. See Note 9 to Consolidated Financial Statements in Item 8.

  .  $11 million reduction in the net realizable value of the deferred tax
     asset in accordance with Statement of Financial Accounting Standards No.
     109, "Accounting for Income Taxes, " ("SFAS No. 109"). The deferred tax
     asset of approximately $168 million is fully impaired.

  .  $4 million extraordinary post-tax gain from the repurchase of a portion
     of the notes related to the FPS and Pipelines. See Note 7 to
     Consolidated Financial Statements in Item 8.

  .  $17 million post-tax gain from the sale of the Llano Field in September
     2001 offset by an $18 million pre-tax loss from the exercise by a third
     party of an option to repurchase a portion of the production payment
     related to Encogen obligation. In addition, a $4 million pre-tax gain
     from the sale of the Sheridan Field in September 2001.

   In 2000, results of operations were impacted by two major items:

  .  $12 million pre-tax charge for impairment of producing oil and gas
     properties required by SFAS No. 121.

  .  $7 million pre-tax loss on sales of property, plant and equipment.

   In 1999, results of operations were impacted by three major items:

  .  $26 million pre-tax charge for impairment of producing oil and gas
     properties required by SFAS No. 121.

                                      21
<PAGE>

  .  $15 million pre-tax gain on sales of property, plant and equipment.

  .  $44 million pre-tax deepwater dry hole costs associated with the George
     and Mackerel prospects.

   In the following comparisons of results of operations, 2001, 2000 and 1999
results have been adjusted to exclude the items described above.

2001 Results of Operations Compared With 2000

   Revenues for 2001 were $207 million, 21% lower than the $262 million
reported for the year 2000. Natural gas revenues for the year 2001 were 20%
lower than 2000. This decrease was due to a 22% decrease in production, offset
slightly by a 3% increase in average natural gas sales prices. The average
natural gas sales price per thousand cubic feet (Mcf) was $3.22 for the year
2001, compared with $3.14 in the year 2000. The average natural gas sales
price for the year 2001 includes hedging losses of $0.2 million and 21,707
billion British Thermal Units ("BBtu") delivered under fixed-price physical
delivery contracts and the Gas Sales Obligation at an average price of $2.601
per MMBtu. The average natural gas sales price of $3.14 per Mcf for the year
2000 includes hedging losses of $20 million and 12,811 BBtu delivered under
the Gas Sales Obligation at an average price of $2.519 per MMBtu. Natural gas
production for the year 2001 was 43 billion cubic feet (Bcf), compared with 55
Bcf for the year 2000. The decrease in production is primarily due to the sale
of the offshore shelf properties. Oil revenues decreased 24% due to an 18%
decline in average prices and a 7% decline in production primarily due to the
sale of the offshore shelf properties. The average oil price during the year
2001 decreased to $23.47 from $28.54.

   Costs and expenses, excluding the unusual items described above, were $193
million, compared with $204 million for the year 2000. Operating expenses
(production and operating, general, administrative and other, and taxes other
than income) were $70 million in the year 2001, unchanged from 2000.
Production and operating and general, administrative and other costs were
lower, offset by increased taxes, other than income. Production and operating
costs decreased primarily as a result of the sale of the offshore shelf
properties, offset by an increase in workover expense. Excluding a bad debt
expense of approximately $3 million related to the bankruptcy of Enron Corp.,
general, administrative and other were down approximately 18% for the year.
Exploration expense for the year 2001 increased to $49 million, compared to
$34 million for the same period of 2000. Exploration expense includes
approximately $15 million in costs associated with the stacking of the Arctic
I rig and recognition of the net costs associated with the assignment of the
Arctic I contract through May 2001. Also included in exploration expense for
2001 was a $4 million write-off of an offshore lease due to a contract
forfeiture. Depletion, depreciation and amortization for the year 2001 was $68
million, $26 million lower than the same period of 2000, primarily due to the
sale of the offshore shelf properties and a lower rate on the Mudi Field.

   Total interest and other financing costs for the year 2001, including
interest income, preferred stock dividends and other income, were $43 million,
a $3 million decrease from the same period of 2000, primarily due to lower
interest expense related to the debt associated with the FPS and Pipelines and
the Gas Sales Obligation, offset by higher interest expense associated with
increased borrowings under the revolving credit agreement.

2000 Results of Operations Compared With 1999

   Revenues for 2000 were $262 million, $85 million (48%) higher than 1999.
Natural gas revenues, 85% higher than 1999, were impacted by a 34% increase in
production primarily due to the acquisition of the Tesoro onshore properties
in December 1999 and an increase in the unhedged average price of 53%, offset
by production decline on properties located in the Gulf of Mexico Shelf. The
average unhedged natural gas sales price per Mcf was $3.51 in 2000, compared
with $2.29 in 1999. The unhedged gas price includes the effects of the Gas
Sales Obligation representing approximately 13 Bcf of gas delivered in 2000 at
an average realized price of $2.51 per Mcf. The average natural gas sales
price per Mcf (after hedging losses of $20.2 million) was $3.14 in 2000,

                                      22
<PAGE>

compared to $2.28 in 1999, an increase of 38%. Natural gas production for 2000
was 55 Bcf, compared with 41 Bcf in 1999. Oil revenues increased 4% due to
higher average oil prices, offset by lower production. A 70% increase in the
unhedged average oil price was offset by a $0.1 million oil hedging loss for
the year 2000, compared to a $1.3 million oil hedging loss for the year 1999.
Crude oil production decreased 40% to 2,726 thousand barrels ("MBbls") in 2000
from 4,528 MBbls in 1999.

   Costs and expenses, excluding the unusual items described above, were $204
million in 2000, compared to $192 million in 1999, a 7% increase. Operating
expenses (production and operating, general and administrative and taxes other
than income) were $70 million in 2000, 4% lower than 1999, resulting from
property sales and the favorable impact from restructuring measures
implemented over the last year, specifically lower general and administrative
cost, offset by higher taxes, other than income, associated with increased gas
production from the onshore operations. Exploration expense for 2000 include
$4 million for dry hole costs, compared to $51 million in 1999. Depletion,
depreciation and amortization was $94 million in 2000, $25 million higher than
1999 due to higher production volumes resulting from the Tesoro onshore
property acquisition and increased rates at the Mudi Field, offset by asset
sales and production decline primarily on properties located in the Gulf of
Mexico Shelf.

   Total interest and other financing costs, including interest income,
preferred stock dividends, minority interest and other income, were $47
million, a $24 million increase from 1999, resulting primarily from an
increase in interest expense due to amounts outstanding under the revolving
credit agreement and the Gas Sales Obligation, and by a decrease in interest
income due to lower cash balances during 2000.

Oil and Gas Marketing

   Results of operations are largely dependent upon the difference between the
prices received for oil and gas produced and the costs of finding and
producing such resources. On an energy-equivalent basis, U.S. gas reserves at
January 1, 2002 constituted approximately 95% of total U.S. reserves (82% of
total Company reserves), and U.S. gas production accounted for approximately
94% of total U.S. production (73% of total Company production) for 2001.
Accordingly, variations in gas prices have a more significant impact on
operations than variations in oil prices.

   A portion of the risk associated with fluctuations in the price of oil and
natural gas is managed through the use of hedging techniques such as oil and
gas swaps and collars. EEX fixed the price on 2001 gas production volumes of
approximately 14 Bcf of natural gas (32% of natural gas production), including
approximately 5 Bcf of natural gas swaps and 9 Bcf of natural gas collars, but
excluding the Gas Sales Obligation and fixed-price delivery contracts. None of
EEX's current hedges contain requirements to maintain margins. The average
swap price was $3.95 per MMBtu and the average collar strike prices were $2.97
and $4.41 per MMBtu. In total, oil and gas price hedging activities decreased
2001 revenues by $0.2 million, 2000 revenues by $20.3 million and 1999
revenues by $1.9 million. See Item 7A-Quantitative and Qualitative Disclosures
About Market Risk and Note 16 to the Consolidated Financial Statements in Item
8.

   The Company may from time to time settle early derivative transactions.
Gains or losses are included in other comprehensive income until they are
recognized in revenues to match the underlying sales transaction being hedged.
During the fourth quarter of 2001, the Company settled early a derivative
transaction for the year 2002 for approximately $6 million and a derivative
transaction for the year 2003 for approximately $2 million which will be
recognized in earnings in the respective periods.

                                      23
<PAGE>

Liquidity and Capital Resources

Cash and Cash Equivalents

   The following summary table reflects the Company's cash flows (in
thousands):

<TABLE>
<CAPTION>
                                                        Year Ended   Year Ended
                                                       December 31, December 31,
                                                           2001         2000
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Net cash provided by operating activities..........     $ 74         $ 85
   Net cash used in investing activities..............      106          116
   Net cash provided by financing activities..........      148           35
</TABLE>

   As of December 31, 2001, the cash and cash equivalents balance was $137
million.

   Operating Activities--Net cash flows provided by operating activities for
the year ended December 31, 2001 were $74 million, a decrease of $11 million
over the year 2000. This decrease was primarily due to the sale of the
offshore shelf properties in December 2000 and the expenses associated with
stacking the Arctic I rig and the assignment of the Arctic I rig contract
during the year. This was partially offset by a decrease in receivables.

   Net cash flows provided by operating activities for the year ended December
31, 2000 were $85 million, a decrease of $9 million compared to the same
period of 1999. Increased receivables and decreased advances from partners
were partially offset by higher revenues.

   Investing Activities--Net cash flows used in investing activities for the
year ended December 31, 2001 were $106 million, a $10 million decrease from
cash flows used in investing activities for the same period of 2000. The
decrease in investing activities was primarily due to lower capital
expenditures and slightly higher proceeds from sales of properties in 2001.

   Net cash flows used in investing activities for the year ended December 31,
2000 were $116 million, a $227 million decrease from cash flows used in
investing activities for the same period of 1999. The decrease in investing
activities was primarily due to the acquisition of the Tesoro onshore
properties in 1999 of $212 million. Capital spending increased during the
year, offset by higher proceeds from disposition of properties. The increased
capital spending related primarily to the onshore operations.

   Financing Activities--Net cash flows provided by financing activities for
the year ended December 31, 2001 were $148 million, compared to $35 million
for the same period of 2000. Increased borrowings under the existing revolving
credit facility and proceeds from early derivative settlements were partially
offset by the purchase of the lessor's equity interest in the FPS capital
lease. As of December 31, 2001, EEX had $325 million outstanding under the
existing revolving credit agreement.

   Net cash flows provided by financing activities for the year ended December
31, 2000 were $35 million, compared to $247 million for the same period of
1999. As of December 31, 2000, EEX had $75 million outstanding under the
existing revolving credit agreement. During the first quarter of 1999, EEX
received $150 million from the issuance of preferred stock and warrants. In
December 1999, EEX received $105 million for the Gas Sales Obligation.

Financing Activities

   Revolving Credit Facility--EEX has a $325 million revolving credit facility
with a group of banks that matures on June 27, 2002, of which $325 million was
outstanding at December 31, 2001, all of which is classified as a current
liability. The credit available was reduced from $350 million by amendment in
February 2002. The interest rate ranges from the London Inter-Bank Offered
Rate, or LIBOR, plus 0.55% to 1.30% per annum, plus a facility fee of 0.20% to
0.45% per annum, depending upon the debt to capital ratio. The revolving

                                      24
<PAGE>

credit agreement limits, at all times, total debt, as defined in the
agreement, to the lesser of 60% of capitalization, as defined, or $1 billion,
and prohibits liens on property except under certain circumstances. As of
December 31, 2001, the debt-to-capital ratio under the revolving credit
agreement was approximately 71%. EEX obtained a waiver of this default from
the lenders which expires April 30, 2002. The opinion of the independent
auditors on the financial statements in this annual report contains a report
modification for a going concern uncertainty. The report modification will
cause a breach of another covenant.

   EEX is continuing to negotiate with its lenders to replace its current
revolving credit facility. In late March 2002, EEX was negotiating for a new
facility that would mature in June 2003 and require the Company to provide a
first mortgage security interest in all of EEX's U.S. reserves and other
assets. In order to provide first liens on the properties of EEX E&P Company,
L.P ("EEX E&P"), EEX would have to prepay the Gas Sales Obligation (described
below). Due to increasing gas prices, the mark-to-market obligation required
for a prepayment increased during March 2002 to an extent that prepaying the
Gas Sales Obligation would have resulted in limited or no liquidity under the
proposed terms of the new credit agreement. Also, the amount of the mark-to-
market obligation would not have been fixed until the prepayment of the Gas
Sales Obligation was approved as necessary in the Enron Corp. bankruptcy
proceedings.

   Therefore, EEX is currently negotiating a modification of the proposed
terms of a new credit agreement. Under the currently proposed terms, the new
facility would mature in March 2003 and be secured by security interest in
EEX's U.S. reserves and other assets. However, the security interest of the
new credit agreement in the properties of EEX E&P would be subordinate to the
existing security interest until the Gas Sales Obligation can be prepaid under
acceptable terms. There can be no assurance that EEX will be able to conclude
the negotiations to replace its current credit facility with a new credit
facility upon terms acceptable to it.

   If the current revolving credit agreement is not replaced with another
borrowing facility, EEX would be required to repay the amount outstanding
under the revolving credit agreement on June 27, 2002, or earlier if EEX is in
default under the agreement and the lenders accelerate the maturity. After a
default, amounts outstanding would bear interest at the rate of LIBOR plus 2%.
EEX is exploring various other options including the raising of additional
capital, the sale or merger of the Company or a sale of a significant portion
of its assets to repay the loan. In the event these efforts are unsuccessful,
EEX may seek protection from its creditors and reorganization under the
Federal bankruptcy laws. No assurances can be given that EEX will be
successful in completing an acceptable financing plan or a sale or merger of
the Company.

   Secured Notes--In December 1996, EEX refinanced the FPS and Pipelines with
a group of financial institutions through two leveraged leases. During the
second quarter of 2001, EEX purchased the lessor's equity interest, terminated
the leases and assumed directly the debt secured by the FPS and Pipelines. The
purchase price of the undivided interest in the FPS was $69 million. EEX
borrowed the $69 million under the revolving credit agreement and assumed the
debt of the capital lease obligation. In December 2001, EEX purchased
approximately $23 million principal amount of the certificates representing
the debt for $17 million, a discount of 25%. At December 31, 2001, the
principal amount outstanding was approximately $114 million.

   At December 31, 2001, approximately $339 million is due during the year
2002 under the current revolving credit facility and the secured notes.

   Gas Sales Obligation--In December 1999, EEX E&P entered into a prepaid
forward sale of natural gas. Under the agreement, EEX E&P agreed to deliver
approximately 50 Bcfe of production to an affiliate of Enron Corp. from
January 2000 through December 2004 in exchange for prepayment of $105 million
in December 1999. EEX E&P acts as the Enron affiliate's agent to market the
committed production. The Enron affiliate receives an adjusted index price
monthly for the committed volume.

   EEX has no "off-balance sheet" financing arrangements.

                                      25
<PAGE>

Future Capital Requirements

   Planned 2002 capital expenditures are estimated to be approximately $50
million, compared to actual expenditures of $170 million and $181 million in
2001 and 2000, respectively. The 2002 capital program assumes that a new
credit agreement is executed. If a new credit agreement is not obtained, the
capital budget could be curtailed. The significant reduction in planned
capital spending is attributable to:

  .  the completion of the Encogen obligation--EEX will no longer be required
     to purchase gas reserves to meet this obligation;

  .  the sale of the Llano Field;

  .  termination of the Arctic I drilling contract in early July 2002;

  .  anticipated sale of Indonesian assets; and

  .  reduced spending on onshore U.S. opportunities due to capital
     constraints.

   Offshore capital expenditures are expected to be approximately $10 million.
EEX will continue to seek co-venturers to explore its offshore prospects under
agreements that provide EEX with a carried interest or limit EEX's capital
investment.

   In addition to the above-described capital expenditures, a principal and
interest payment of approximately $18 million is due January 2, 2003 on the
Secured Notes. There can be no assurance that the Company will have sufficient
liquidity even if it completes a new credit agreement to make this payment.

   Sources of Capital and Liquidity--Until EEX is able to secure a new credit
agreement (of which no assurances can be given), raise additional capital,
sell or merge the Company, or sell a significant portion of its assets, it
will have no sources of funds except cash and cash equivalents on hand,
operating cash flows and proceeds of asset sales to fund capital and operating
expenses.

   In January 2002, EEX received $11 million from the sale of a part of the
production payment associated with the Encogen obligation. Estimated cash and
cash equivalents at March 31, 2002 is approximately $108 million.

   The closing of the sale of the Indonesian assets is expected to occur in
the second quarter of 2002. EEX estimates that if the sales had closed on
March 31, 2002, EEX would have received approximately $27 million in cash, the
difference between the agreed purchase price less the net cash flows received
by EEX after the effective date. The actual cash received by EEX will depend
on the closing date of the sale. The sale is subject to certain material
contingencies and no assurances can be given that the sale will close.

   EEX's access to public or private equity or debt markets may be limited by
general market conditions in or volatility of the markets, general conditions
affecting the oil and gas industry, or by EEX's financial condition. No
assurances can be given that EEX will be able to secure funds in these markets
when necessary, or that such funds will be obtained on terms favorable to it.

   If EEX is required to sell assets to repay the revolving credit agreement,
operating cash flows will be significantly reduced and may be insufficient to
meet current expenses. If such a sale is conducted under distressed
conditions, EEX may not receive the same amount for the assets that would be
obtained in an orderly sale.

   The Company does not expect to pay cash dividends in the foreseeable
future.

Other Matters

Recently Issued Accounting Pronouncements

   In 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141") and No. 142, "Goodwill and Other Intangible

                                      26
<PAGE>

Assets" ("SFAS No. 142"). SFAS No. 141 requires the use of the purchase method
of accounting for all business combinations initiated after June 30, 2001. The
adoption of this statement had no impact on the Company's consolidated results
of operations and financial position. Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. The Company will adopt the
statement effective January 1, 2002. The adoption of this standard has no
impact on the Company's consolidated results of operations and financial
position.

   In 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No.
143 addresses accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The statement is effective for fiscal years beginning after June 15,
2002. The Company is currently assessing the impact, if any, of this standard.

   In 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). This statement is effective for fiscal years beginning after
December 15, 2001 and replaces SFAS No. 121. The Company will adopt this
statement for long-lived assets and asset disposals, whether previously held
and used or newly acquired on January 1, 2002. SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or discontinued
operations. Discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. This statement expands the definition of a discontinued operation
from a segment of business to a component of an entity that has been disposed
of or is classified as held for sale and can be clearly distinguished,
operationally and for reporting purposes, from the rest of the entity. The
results of operations of a component classified as held for sale shall be
reported in discontinued operations in the period incurred. The Company has
not yet determined what the effect of adoption, if any, will be on its
consolidated results of operations and financial position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

   Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities", as amended. The effect of adopting this
standard was a decrease to shareholders' equity of approximately $20 million,
all of which would have been reclassified into earnings during the next twelve
months. Due to significant price declines during the year 2001, the net loss
related to oil and gas financial hedging activities that was reclassified to
revenues to match the underlying sales transaction being hedged was only $0.2
million for the year ended December 31, 2001.

   The Company may from time to time settle early derivative transactions.
Gains or losses are included in other comprehensive income until they are
recognized in revenues to match the underlying sales transaction being hedged.
During the fourth quarter of 2001, the Company settled early a derivative
transaction for the year 2002 for approximately $6 million and a derivative
transaction for the year 2003 for approximately $2 million which will be
recognized in earnings in the respective periods.

   The Company is exposed to commodity price risk in the normal course of
business. Significant changes in commodity prices will have a corresponding
change in reported revenues. A portion of the risk associated with
fluctuations in the price of natural gas is managed through the use of hedging
techniques such as gas swaps and collars. The tables below provide information
about EEX's hedging instruments as of December 31, 2001. Since essentially all
of the hedging done by EEX utilized either "swap" or "collar" instruments, the
tables have been separated to show the volumes hedged utilizing each
instrument. The Notional Amount is equal to the volumetric hedge position of
EEX during the periods. The fair values of the hedging instruments, which have
been recorded in other comprehensive income, are based on the difference
between the applicable strike price and the New York Mercantile Exchange
future prices for the applicable trading months.

                                      27
<PAGE>

   The Company enters into the majority of its hedging transactions with one
counterparty and a netting agreement is in place with that counterparty. The
Company does not obtain collateral to support the agreements but monitors the
financial viability of counterparties and believes its credit risk is minimal
on these transactions.

<TABLE>
<CAPTION>
                                               Average
                                             Strike Price
                                 Notional  (Per MMBtu) (2)    Fair Value at
                                  Amount   ---------------- December 31, 2001
                                 (BBtu)(1)  Floor  Ceiling   (In thousands)
                                 --------- ------- -------- -----------------
   <S>                           <C>       <C>     <C>      <C>
   Natural Gas Collars:
     January 2002--March 2002..    1,350   $ 3.854 $ 6.138       $ 1,637
     April 2002--June 2002.....    1,365     3.374   5.658         1,026
                                  ------                         -------
       Total...................    2,715                         $ 2,663
                                  ======                         =======
<CAPTION>
                                 Notional      Average        Fair Value at
                                  Amount      Swap Price    December 31, 2001
                                 (BBtu)(1)  (Per MMBtu)(2)   (In thousands)
                                 --------- ---------------- -----------------
   <S>                           <C>       <C>     <C>      <C>
   Natural Gas Swaps:
     January 2002--March 2002..    4,360        $ 4.02           $ 5,978
     April 2002--June 2002.....    4,095          3.77             4,704
     July 2002--September
      2002.....................    4,140          3.86             4,541
     October 2002--December
      2002.....................    4,140          4.04             4,239
     January 2003--March 2003..    3,600          3.66             1,469
     April 2003--June 2003.....    3,640          3.39             1,254
     July 2003--September
      2003.....................    3,680          3.47             1,248
     October 2003--December
      2003.....................    3,680          3.65             1,191
                                  ------                         -------
       Total...................   31,335                         $24,624
                                  ======                         =======
</TABLE>
--------
(1) Billions of British Thermal Units.
(2) Millions of British Thermal Units.

   Interest Rate Risk--The Company has no open interest rate swap or interest
rate lock agreements. At December 31, 2001, the Company's only outstanding
debt consisted of secured notes with fixed interest rates. The following table
presents principal amounts and related average interest rates by year of
maturity for the Company's secured notes at December 31, 2001:

<TABLE>
<CAPTION>
                                                      Principal       Average
                                                    (In thousands) Interest Rate
                                                    -------------- -------------
   <S>                                              <C>            <C>
   2002............................................    $ 13,579        7.54%
   2003............................................      14,642        7.54%
   2004............................................      15,789        7.54%
   2005............................................      14,840        7.54%
   2006............................................         --         7.54%
   Thereafter......................................      55,493        7.54%
                                                       --------
   Total...........................................    $114,343
                                                       ========
   Fair Value......................................    $114,343
                                                       ========
</TABLE>

   The Company's exposure to interest rate risk is primarily related to future
use of its revolving credit facility and to market conditions, as they may
exist, should new financings be undertaken. These exposures may be managed
through the use of swap or other derivatives as appropriate.

   Certain other market risks are disclosed in Item 7--Management's Discussion
and Analysis of Financial Condition and Results of Operations.

                                      28
<PAGE>

Item. 8. Financial Statements and Supplementary Data

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
EEX Corporation

   We have audited the accompanying consolidated balance sheets of EEX
Corporation and subsidiaries (the "Company"), as of December 31, 2001 and
2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EEX
Corporation and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

   The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2,
the Company has incurred recurring net losses and has a substantial working
capital deficiency as of December 31, 2001. In addition, the Company has not
complied with certain covenants of loan agreements with banks. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

                                          Ernst & Young LLP

Houston, Texas
February 20, 2002, except for Note 25
as to which the date is March 11, 2002

                                      29
<PAGE>

                                EEX CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                  Year Ended December 31
                                                -----------------------------
                                                  2001       2000      1999
                                                ---------  --------  --------
                                                 (In thousands, except per
                                                      share amounts)
<S>                                             <C>        <C>       <C>
Revenues:
  Natural gas.................................. $ 138,573  $173,195  $ 93,512
  Oil, condensate and natural gas liquids......    60,261    78,829    75,189
  Cogeneration operations......................     6,247     8,389     8,878
  Other........................................     1,803     1,999      (205)
                                                ---------  --------  --------
    Total......................................   206,884   262,412   177,374
                                                ---------  --------  --------
Costs and Expenses:
  Production and operating.....................    36,697    39,212    39,338
  Exploration..................................    49,373    33,780    86,369
  Depletion, depreciation and amortization.....    68,313    93,965    68,978
  Impairment of FPS and Pipelines..............    82,286       --        --
  Impairment of producing oil and gas
   properties..................................    44,744    12,200    26,424
  (Gain) Loss on sales of property, plant and
   equipment...................................   (12,263)    7,230   (15,483)
  Cogeneration operations......................     5,254     6,960     8,043
  General, administrative and other............    18,739    19,538    28,355
  Taxes, other than income.....................    14,731    10,906     4,744
                                                ---------  --------  --------
    Total......................................   307,874   223,791   246,768
                                                ---------  --------  --------
Operating Income (Loss)........................  (100,990)   38,621   (69,394)
Other Income--Net..............................       101       365        95
Interest Income................................     1,169     1,082     6,129
Interest and Other Financing Costs.............   (29,736)  (33,586)  (17,686)
                                                ---------  --------  --------
Income (Loss) Before Income Taxes, Minority
 Interest and Extraordinary Item...............  (129,456)    6,482   (80,856)
Income Taxes (Benefit).........................    20,118     1,586     6,891
                                                ---------  --------  --------
Income (Loss) Before Minority Interest and
 Extraordinary Item............................  (149,574)    4,896   (87,747)
Minority Interest Third Party..................       --      1,950        50
                                                ---------  --------  --------
Income (Loss) Before Extraordinary Item........  (149,574)    2,946   (87,797)
Extraordinary Item--Debt Extinguishment Gain,
 Net of Tax....................................    (3,593)      --        --
                                                ---------  --------  --------
Net Income (Loss)..............................  (145,981)    2,946   (87,797)
Preferred Stock Dividends......................    14,465    13,364    12,117
                                                ---------  --------  --------
Net (Loss) Applicable to Common Shareholders... $(160,446) $(10,418) $(99,914)
                                                =========  ========  ========
Net (Loss) Per Common Share, Basic and Diluted
  Before Extraordinary Item.................... $   (3.94) $  (0.25) $  (2.37)
  Extraordinary Item--Debt Extinguishment Gain,
   Net of Tax..................................      0.09       --        --
                                                ---------  --------  --------
  Per Common Share............................. $   (3.85) $  (0.25) $  (2.37)
                                                =========  ========  ========
Weighted Average Shares Outstanding, Basic and
 Diluted.......................................    41,724    41,949    42,200
                                                =========  ========  ========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       30
<PAGE>

                                EEX CORPORATION

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                 December 31
                                                              -----------------
                                                                2001     2000
                                                              -------- --------
                                                               (In thousands)
                           ASSETS
                           ------
<S>                                                           <C>      <C>
Current Assets:
  Cash and cash equivalents.................................. $136,638 $ 19,791
  Accounts receivable--trade (net of allowance of $4,430 and
   $2,270)...................................................   34,468   57,539
  Natural gas hedging derivatives............................   23,203      --
  Other......................................................   10,208   22,478
                                                              -------- --------
    Total current assets.....................................  204,517   99,808
                                                              -------- --------
Property, Plant and Equipment (at cost):
  Oil and gas properties (successful efforts method).........  975,007  955,263
  Other......................................................    8,668    8,160
                                                              -------- --------
    Total....................................................  983,675  963,423
                                                              -------- --------
  Less accumulated depletion, depreciation and amortization..  446,020  323,875
                                                              -------- --------
    Net property, plant and equipment........................  537,655  639,548
                                                              -------- --------
Deferred Income Tax Assets...................................      --    19,846
Other Assets.................................................    7,946    4,866
                                                              -------- --------
    Total.................................................... $750,118 $764,068
                                                              ======== ========

<CAPTION>
            LIABILITIES AND SHAREHOLDERS' EQUITY
            ------------------------------------
<S>                                                           <C>      <C>
Current Liabilities:
  Accounts payable--trade.................................... $ 48,575 $ 76,999
  Bank revolving credit agreement............................  325,000      --
  Capital lease obligations..................................      --    13,351
  Secured notes payable......................................   13,579      --
  Other......................................................    7,118    5,993
                                                              -------- --------
    Total current liabilities................................  394,272   96,343
                                                              -------- --------
Bank Revolving Credit Agreement..............................      --    75,000
Capital Lease Obligations....................................      --   192,283
Secured Notes Payable........................................  100,764      --
Gas Sales Obligation.........................................   59,937   83,490
Other Liabilities............................................    9,357   22,351
Minority Interest Third Party................................    5,000    5,000
Shareholders' Equity.........................................  180,788  289,601
                                                              -------- --------
    Total.................................................... $750,118 $764,068
                                                              ======== ========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       31
<PAGE>

                                EEX CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                               -------------------------------
                                                 2001       2000       1999
                                               ---------  ---------  ---------
                                                      (In thousands)
<S>                                            <C>        <C>        <C>
OPERATING ACTIVITIES
  Net Income (Loss)........................... $(145,981) $   2,946  $ (87,797)
  Impairment of FPS and pipelines.............    82,286        --         --
  Impairment of producing oil and gas
   properties.................................    44,744     12,200     26,424
  Impairment of undeveloped leasehold.........    12,395      7,606      2,907
  Dry hole cost...............................     4,834      3,872     50,770
  Depletion, depreciation and amortization....    68,313     93,965     68,978
  Deferred income taxes (benefit).............    20,118      1,586      6,988
  Gain on early extinguishment of debt, net of
   tax........................................    (3,593)       --         --
  (Gain) Loss on sales of property, plant and
   equipment..................................   (12,263)     7,230    (15,483)
  Other.......................................     1,902    (13,001)    16,513
  Changes in current operating assets and
   liabilities:
    Accounts receivable.......................    21,421    (29,291)    21,031
    Other current assets......................     2,714     (8,364)       785
    Restricted cash...........................       --         --      (5,000)
    Accounts payable..........................   (23,843)     3,229     11,235
    Other current liabilities.................     1,125      3,413     (2,610)
                                               ---------  ---------  ---------
      Net cash flows provided by operating
       activities.............................    74,172     85,391     94,741
                                               ---------  ---------  ---------
INVESTING ACTIVITIES
  Additions of property, plant and equipment..  (170,362)  (181,220)  (169,061)
  Tesoro acquisition, net.....................       --         --    (212,086)
  Proceeds from dispositions of property,
   plant and equipment........................    69,384     64,420     19,081
  Other (changes in accruals).................    (4,581)     1,252     19,614
                                               ---------  ---------  ---------
      Net cash flows used in investing
       activities.............................  (105,559)  (115,548)  (342,452)
                                               ---------  ---------  ---------
FINANCING ACTIVITIES
  Issuance of preferred stock and common stock
   warrants...................................       --         --     150,000
  Borrowings under bank revolving credit
   agreement..................................   330,000    214,000    235,000
  Repayment of borrowings under bank revolving
   credit agreement...........................   (80,000)  (139,000)  (235,000)
  Borrowings under short-term financing
   agreement..................................       --      45,000      2,000
  Repayment of borrowings under short-term
   financing agreement........................       --     (45,000)    (2,000)
  Deliveries under the Gas Sales Obligation...   (23,553)   (21,510)   105,000
  Proceeds from hedge settlements.............     7,590        --         --
  Minority interest third party...............       --       1,950      3,050
  Payments of capital lease obligations.......    (7,805)   (16,810)   (10,874)
  Purchase of treasury stock..................       (40)    (3,735)       --
  Purchase of secured notes payable...........   (17,202)       --         --
  Purchase of lessor's equity interest in
   capital lease..............................   (54,416)       --         --
  Payments of secured notes payable...........    (6,340)       --         --
                                               ---------  ---------  ---------
      Net cash flows provided by financing
       activities.............................   148,234     34,895    247,176
                                               ---------  ---------  ---------
Net Increase (Decrease) in Cash and Cash
 Equivalents..................................   116,847      4,738       (535)
Cash and Cash Equivalents at Beginning of
 Year.........................................    19,791     15,053     15,588
                                               ---------  ---------  ---------
Cash and Cash Equivalents at End of Year...... $ 136,638  $  19,791  $  15,053
                                               =========  =========  =========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       32
<PAGE>

                                EEX CORPORATION

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                -------------------------------
                                                  2001       2000       1999
                                                ---------  ---------  ---------
                                                       (In thousands)
<S>                                             <C>        <C>        <C>
Common Stock, authorized 150 million shares:
  Balance at beginning of year................  $     429  $     424  $     424
  Issued for stock plans (276 and 558
   shares)....................................          3          5        --
                                                ---------  ---------  ---------
  Balance at end of year (Outstanding shares:
   42,496, 42,256, and 42,483)................        432        429        424
                                                ---------  ---------  ---------
Preferred Stock, authorized 10 million shares:
  Balance at beginning of year................         18         16        --
  Issued 1.5 million shares, $0.01 par value..        --         --          15
  Dividend payment............................          1          2          1
                                                ---------  ---------  ---------
  Balance at end of year (1.9, 1.8, and 1.6
   million shares)............................         19         18         16
                                                ---------  ---------  ---------
Paid in Capital:
  Balance at beginning of year................    744,782    729,925    569,268
  Market valuation adjustments of restricted
   stock......................................      1,183      1,531        302
  Issuance of preferred stock.................        --         --     149,985
  Dividends on preferred stock................     14,465     13,362     12,117
  Stock issue costs...........................        --         (36)    (1,747)
  Stock options exercised.....................         54        --         --
                                                ---------  ---------  ---------
  Balance at end of year......................    760,484    744,782    729,925
                                                ---------  ---------  ---------
Retained Earnings (Deficit):
  Balance at beginning of year................   (445,166)  (434,748)  (334,698)
  Termination of phantom stock plan...........        --         --        (129)
  Issue common stock from treasury stock......        --         --          (7)
  Net (Loss) Applicable to common
   shareholders...............................   (160,446)   (10,418)   (99,914)
                                                ---------  ---------  ---------
  Balance at end of year......................   (605,612)  (445,166)  (434,748)
                                                ---------  ---------  ---------
Unamortized Restricted Stock Compensation:
  Balance at beginning of year................     (1,067)      (443)      (206)
  Grants (303, 670, and 98 shares)............     (1,389)    (1,963)      (597)
  Cancellations (26, 112, and 18 shares)......         16        169         21
  Amortization................................      1,037      1,170        143
  Market value adjustments....................        --         --         196
                                                ---------  ---------  ---------
  Balance at end of year......................     (1,403)    (1,067)      (443)
                                                ---------  ---------  ---------
Unearned Compensation:
  Balance at beginning of year................       (349)       --         --
  Replacement awards from options settled and
   restricted stock issued....................        349       (349)       --
                                                ---------  ---------  ---------
  Balance at end of year......................        --        (349)       --
                                                ---------  ---------  ---------
Other Comprehensive Income:
  Balance at beginning of year................        --         --         --
  Net change in fair value of derivative
   financial instruments......................     27,287        --         --
  Deferred settlements on canceled hedges.....      8,667        --         --
                                                ---------  ---------  ---------
  Balance at end of year......................     35,954        --         --
                                                ---------  ---------  ---------
Treasury Stock:
  Balance at beginning of year................     (9,046)      (311)      (488)
  Termination of phantom stock plan; issued
   common stock (8 shares)....................        --         --         170
  Issue common stock from treasury stock......        --         --           7
  Purchase of shares--forward purchase
   facilities (797 shares)....................        --      (8,723)       --
  Purchase of restricted stock shares for
   payroll taxes (9 and 3 shares).............        (40)       (12)       --
                                                ---------  ---------  ---------
  Balance at end of year (817, 808, and 14
   shares)....................................     (9,086)    (9,046)      (311)
                                                ---------  ---------  ---------
Shareholders' Equity..........................  $ 180,788  $ 289,601  $ 294,863
                                                =========  =========  =========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       33
<PAGE>

                                EEX CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

   EEX Corporation ("EEX" or the "Company") is an energy exploration company
involved in both domestic and international (primarily Indonesia) oil and gas
exploration and production. EEX also provides operation and maintenance
services, under contract, to two cogeneration plants. Prior to August 5, 1997,
Enserch Exploration, Inc. ("Old EEI"), EEX's predecessor, was approximately
83% owned by ENSERCH Corporation ("ENSERCH").

   On August 5, 1997, the merger of ENSERCH and Texas Utilities Company and
the related merger of Old EEI and Lone Star Energy Plant Operations, Inc.
("LSEPO") were completed. Under the terms of the Old EEI/LSEPO merger, LSEPO
changed its name to "Enserch Exploration, Inc." ("EEI"), shares of Old EEI
were automatically converted into shares of EEI on a one-for-one basis in a
tax-free transaction, EEI issued 691,631 shares of common stock to ENSERCH in
exchange for outstanding LSEPO common stock and ENSERCH distributed to its
shareholders, on a pro rata basis, all of the shares of EEI common stock it
owned.

   On December 19, 1997, at a special meeting, the shareholders approved a
change of the name of the Company to EEX Corporation.

2. GOING CONCERN

   The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The Company
has incurred recurring net losses and has a substantial working capital
deficiency as of December 31, 2001. In addition, there are uncertainties
relating to the Company's ability to meet all expenditure and cash flow
requirements through fiscal year 2002 and early 2003, which could result in a
default under the Company's revolving credit agreement. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of these uncertainties.

   The Company is seeking to alleviate these conditions by renegotiating its
current revolving credit agreement that matures on June 27, 2002, raising
additional capital, or through the sale or merger of the Company. The Company
has a waiver until April 30, 2002 for exceeding the debt to capital ratio
under this agreement. The independent auditors' modification of their opinion
as to the uncertainty regarding EEX's ability to continue as a going concern
is a covenant breach under the current revolving credit agreement.

   One or more defaults will allow the lenders to accelerate the maturity and
declare all borrowings under the current revolving credit agreement
immediately payable. EEX is exploring various other options including the
raising of additional capital, the sale or merger of the Company or a sale of
a significant portion of its assets to repay the loan. No assurances can be
provided, however, that the Company will be able to conclude a new credit
agreement, obtain additional waivers of covenant breaches, raise additional
capital, or sell or merge the Company. In the event these efforts are
unsuccessful, EEX may seek protection from its creditors and reorganization
under the Federal bankruptcy laws. In either case, EEX may not be able to
continue its business as presently constituted and planned. The New York Stock
Exchange may delist EEX's common stock, which could result in decreased
liquidity for the common shareholders. EEX currently exceeds the minimum
quantitative criteria of the Exchange for continued listing, however, no
assurances can be given that the Company will continue to meet these criteria,
or that the Exchange will not use other criteria or information in considering
whether to institute delisting proceedings. A liquidation of assets to retire
debt and preferred securities, may result in minimal to no funds remaining for
the common shareholders.

                                      34
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation--The consolidated financial statements are
presented in accordance with generally accepted accounting principles in the
United States. The consolidated financial statements include the accounts of
EEX and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.

   Critical Accounting Policies and Estimates--The preparation of consolidated
financial statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions by management, many
of which may significantly affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported revenues and expenses
during the reporting period. Future outcomes could differ from those estimates
and assumptions and materially affect reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities.

   The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:

   Oil and Gas Reserve Estimates--The process of estimating quantities of
proved reserves is inherently uncertain, and the reserve data included in this
document are only estimates prepared by the Company. Reserve engineering is a
subjective process of estimating underground accumulations of hydrocarbons
than cannot be measured in an exact manner. The process relies on
interpretation of available geologic, geophysical, engineering and production
data. The extent, quality and reliability of this data can vary. The process
also requires certain economic assumptions regarding drilling and operating
expense, capital expenditures, taxes and availability of funds. The SEC
mandates some of these assumptions such as oil and gas prices and the present
value discount rate.

   Proved reserve estimates prepared by others may be substantially higher or
lower than the Company's estimates. Because these estimates depend on many
assumptions, all of which may differ from actual results, reserve quantities
actually recovered may be significantly different than estimated. Material
revisions to reserve estimates may be made depending on the results of
drilling, testing, and rates of production.

   You should not assume that the present value of future net cash flows is
the current market value of the Company's estimated proved reserves. In
accordance with SEC requirements, the Company based the estimated discounted
future net cash flows from proved reserve on prices and costs on the date of
the estimate.

   The Company's rate of recording depreciation, depletion and amortization
expense for proved properties is dependent on the Company's estimate of proved
reserves. If these reserve estimates decline, the rate at which the Company
records these expenses will increase.

   Lower prices could make it uneconomic to drill and produce proved
undeveloped reserves.

   Estimated Value of the FPS and Pipelines--Management assessed the fair
value of the FPS and Pipelines to be $70 million at yearend. This value was
based upon proposals made by EEX to the Llano Field operator, competition from
processing and transportation alternatives, and general estimates of the
market for these assets in a third party sale. There is no established third
party market for these unique assets; it is very difficult to accurately
estimate what a sale would bring. In addition, the carrying value of the
assets assumes an orderly disposition of the assets, which may take a
significant amount of time. An immediate sale or a sale under distressed
circumstances might realize much less than the carrying value of the assets.
The value of the Pipelines depends on their use to transport production from
the greater Llano or other areas in proximity to the Pipelines.

                                      35
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

If all producers choose other transportation alternatives, the value of the
Pipelines would be seriously reduced. You should not assume that management's
estimate of current fair value is a definitive view of the market for these
assets. The asset value could be higher or lower than this estimate depending
on actual third party markets for the FPS and ultimate utility of the
Pipelines. These factors are generally beyond the control of EEX.

   Estimated Value of EEX's Leasehold and Investment in the Llano Area--
Management believes that this area contains substantial quantities of oil and
natural gas, none of which is currently classified as proved reserves. EEX's
investment in this area includes a royalty interest in the Llano Field with a
carrying value of $12 million, the Jason discovery well with a carrying value
of $24 million and the cost of the currently drilling Devil's Island
exploration well expected to be approximately $15 million net to EEX. In
addition, the Pipelines previously discussed derive their principal value from
their utility as transportation for potential yet to be proved reserves in
this area. Development of the Llano Field and a possible Devil's Island
discovery are outside the control of EEX. Development of the Jason Field
depends, in part, on the initial success of other development in the area, of
which there are none currently active or approved by their owners. Some
factors that may limit future development are lower commodity prices, low
estimates of future recoverable reserves, unfavorable investment economics,
availability of capital, and approval by co-owners. To the extent these
developments do not ultimately occur, EEX may be required to impair the value
of its assets in this area.

   Successful Efforts Accounting--The successful efforts method of accounting
is used for the Company's oil and gas operations. Under this method,
acquisition costs for proved and unproved properties are capitalized when
incurred. Exploration costs, including seismic purchases and processing,
exploratory dry hole drilling costs and cost of carrying and retaining
unproved properties are expensed as incurred. EEX is exposed to potential
impairments if the book value of a field or field area exceeds its expected
future net cash flows. This may occur if discoveries are less than
anticipated, reserves are revised downward, commodity prices fall or costs
increase. This determination is made either through recognition of an adverse
change or a part of the annual review of all fields. The impairment of
unamortized capital costs for a field or field area is reduced to an estimated
fair value if it is determined that the sum of expected future net cash flows
is less than the net carrying value. See Note 9.

   Leasehold costs of producing properties are depleted using the unit of
production method based on estimated proved oil and gas reserves quantified on
the basis of their equivalent energy content. Amortization of drilling and
equipment costs is based on the unit of production method using estimated
proved developed oil and gas reserves quantified on the basis of their
equivalent energy content. The current undiscounted cost of estimated future
site restoration, dismantlement and abandonment, net of salvage, is included
in the cost of productive oil and gas properties and a corresponding liability
is recorded. The recorded cost is amortized on the unit of production method.
Actual costs incurred for these activities are charged to the recorded
liability. The sale of the Gulf of Mexico Shelf properties in December 2000
eliminated substantially all of EEX's accrued abandonment liabilities.

   Depreciation of other property, plant and equipment is provided principally
by the straight line method over the estimated service lives of the related
assets as follows: FPS and Pipelines-20 years, leasehold improvements-
remaining term of the lease, computer hardware and software- 3 to 5 years, and
furniture, fixtures and other-3 to 7 years. Major improvements are
capitalized, maintenance and repairs are charged to expense as incurred.

   Reclassifications--Certain items in prior periods have been reclassified to
be consistent with the current presentation.

   Net Income (Loss) Applicable to Common Shareholders Per Share--Basic net
income (loss) per share is based on the weighted average number of common
shares outstanding during the period. Diluted net income (loss) per common
share is based on the weighted average number of common shares and all
dilutive potential common shares outstanding during the period.

                                      36
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Derivative Instruments--Effective January 1, 2001, EEX adopted Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," as amended, which requires
that all derivative instruments be reported on the balance sheet at fair value
and that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge criteria are met. Fair value is determined
based on current market contracts with the same terms and conditions. For
derivatives designated as cash flow hedges, the effective portions of changes
in the fair value of the derivative are recorded in other comprehensive income
(loss) and are recognized in the Consolidated Statement of Operations when the
hedged item affects earnings. Ineffective portions of changes in the fair
value of cash flow hedges are recognized as a charge or credit to earnings.
The Company uses derivative instruments to manage exposures to commodity price
risks. Hedging transactions are subject to the Company's risk management
policy, which does not permit speculative positions. The Company documents
relationships between hedging instruments and hedged items, and assesses and
documents, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows associated with the hedged
items. The Company may from time to time settle early derivative transactions.
Gains or losses are included in other comprehensive income until they are
recognized in revenues to match the underlying sales transaction being hedged.
See Note 16 for additional information regarding derivative instruments.

   Concentration of Credit Risk--Derivative contracts subject the Company to
concentration of credit risk. The Company transacts the majority of its
derivative contracts with one counterparty.

   The Company had in place financial hedges and physical contracts with Enron
North America Corp. at the time it filed for bankruptcy in December 2001 and
recorded a reserve of approximately $3 million related to these transactions.

   Stock Based Employee Compensation--The Company follows the intrinsic method
of accounting for stock based compensation plans as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and related interpretations.

   Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
investments with maturities of three months or less when purchased. In
addition, during 1999 and early 2000, EEX classified as restricted cash, the
collateral deposit required by contractual commitment under a forward purchase
facility (See Note 5).

   Revenue Recognition and Gas Imbalances--The Company follows the sales
method of accounting for revenue recognition and gas imbalances, which
recognizes over and under lifts of gas when sold, to the extent sufficient gas
reserves or balancing agreements are in place. Gas sales volumes are not
significantly different from the Company's share of production.

   Income Taxes--Under Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes", deferred income taxes are
recognized at each yearend for the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts based on tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce the deferred tax asset to
the amount expected to be realized. The Company's deferred tax asset is fully
reserved as of December 31, 2001.

   Impact of New Accounting Standards--On January 1, 2001, the Company adopted
SFAS No. 133. This statement, as amended, requires that all derivative
instruments be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in a
derivatives fair value be realized currently in earnings unless specific hedge
criteria are met. The Company utilizes cash flow hedges to reduce risk of
price volatility for future natural gas production. The Company's hedges
qualify for hedge accounting under SFAS 133. Accounting for qualifying hedges
allows derivative gains and losses to offset related results on

                                      37
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the hedged item in the statement of operations. See Note 16 for additional
information regarding derivative instruments.

   In 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 142"). SFAS No. 141 requires the use of the purchase method of accounting
for all business combinations initiated after June 30, 2001. The adoption of
this statement had no impact on the Company's consolidated results of
operations and financial position. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company will adopt the statement
effective January 1, 2002. The adoption of this standard has no impact on the
Company's consolidated results of operations and financial position.

   In 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. The statement is effective for
fiscal years beginning after June 15, 2002. The Company is currently assessing
the impact, if any, of this standard.


   In 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). This statement is effective for fiscal years beginning after
December 15, 2001 and replaces SFAS No. 121. The Company will adopt this
statement for long-lived assets and asset disposals, whether previously held
and used or newly acquired on January 1, 2002. SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or discontinued
operations. Discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. This statement expands the definition of a discontinued operation
from a segment of business to a component of an entity that has been disposed
of or is classified as held for sale and can be clearly distinguished,
operationally and for reporting purposes, from the rest of the entity. The
results of operations of a component classified as held for sale shall be
reported in discontinued operations in the period incurred. The Company has
not yet determined what the effect of adoption, if any, will be on its
consolidated results of operations and financial position.

4. MAJOR CUSTOMERS

   The Company sold oil and gas production representing more than 10% of its
oil and gas revenues for the year ended December 31, 2001 to El Paso
Industrial Energy (25%), Shell Oil Company (13%), KN Energy (12%) and KN
Midcon Texas Pipeline Operator, Inc. (11%); for the year ended December 31,
2000, to Shell Oil Company (15%) and PG&E Texas Industrial Energy L.P. (11%);
and for the year ended December 31, 1999, to Shell Oil Company (30%). El Paso
Industrial Energy, KN Energy, KN Midcon Texas Pipeline Operator, Inc. and PG&E
Texas Industrial Energy L.P. purchase production from properties in the
Onshore segment. Shell Oil Company purchases oil production from the Mudi
Field in the International segment. Because alternative purchasers of oil and
gas are readily available, the Company believes that the loss of any of its
purchasers would not have a material adverse effect on the financial results
of the Company.

5. COMMON STOCK TRANSACTIONS

   Under the terms of the Company's Series B 8% Cumulative Perpetual Preferred
Stock, the Company may not declare or pay any dividend or make any other
distribution on its common stock, unless all dividends due upon the Series B
Preferred Stock have been paid or provided for.

                                      38
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Early in 1998, EEX entered into two forward purchase facilities to
repurchase shares of its common stock. EEX initiated several transactions
under these facilities, which allow for settlement, at EEX's option, by paying
cash in exchange for physical delivery of the shares to EEX, or on a net basis
in either shares of EEX common stock or in cash. As of the end of August 2000,
EEX settled these two transactions by paying $8.7 million, of which $7.6
million ($5 million in 1999 and $2.6 million in 2000) was previously deposited
and classified as restricted cash, for physical delivery of 796,532 shares to
EEX. These shares are recorded as treasury shares in the Consolidated Balance
Sheet.

6. PREFERRED STOCK TRANSACTION

   On December 22, 1998, EEX entered into a Purchase Agreement ("Agreement")
which provides that the Company would receive $150 million and issue to the
Purchaser 1,500,000 shares of Series B 8% Cumulative Perpetual Preferred Stock
and Warrants to acquire 21 million shares of the Company's Common Stock. On
January 8, 1999, the transaction was closed and EEX issued the Preferred Stock
and Warrants in exchange for $150 million.

   Each share of Preferred Stock has a stated value of $100 and a current
dividend rate of 8% per year, payable quarterly. The 8% dividend rate will be
adjusted to a market rate, not to exceed 18%, after seven years or earlier
occurrence of certain events including a Change of Control (as defined in the
Agreement). Prior to any adjustment of the dividend rate, the Company may, at
the Company's option, accrue dividends or pay them in cash, shares of
Preferred Stock or shares of Common Stock. After any adjustment of the
dividend rate, dividends must be paid in cash. The Preferred Stock is entitled
to a liquidation preference of $100 per share plus accrued and unpaid
dividends. The Preferred Stock may be redeemed, in whole but not in part, by
the Company at any time for cash at the stated value plus accrued and unpaid
dividends. Until any adjustment of the dividend rate, holders of the Preferred
Stock will be entitled to cast an aggregate of eight million votes on matters
voted upon by the Common Stock holders, and to a separate class vote on
certain matters affecting the Preferred Stock. EEX has entered into a
Registration Rights Agreement to register under the Securities Act of 1933,
and maintain the effectiveness of the registration of the resale of the
Preferred Shares, the Warrants and any Common Stock acquired by Purchaser
pursuant to the Warrants. Under the terms of the Agreement, the Purchaser has
the right to add a member to the Company's Board of Directors and did so in
January 1999. The Purchaser may continue the membership on the Company's Board
of Directors if certain conditions are maintained. In the event of a Change of
Control occurring prior to the sixth anniversary of the closing of the
transaction, the Purchaser has the right to exchange all or part of the
Preferred Stock and Warrants proportionally for EEX Common Stock at the rate
of 18.6047 shares of Common Stock for each share of Preferred Stock (and
proportionate number of Warrants), provided that the Company may, under
certain circumstances, pay a portion of the exchange in cash. The exercise
price of the Warrants and the exchange formula related to a Change in Control
may be adjusted upon the occurrence of certain events described in the anti-
dilution provisions of the Warrants.

   The Warrants were issued in three series, each exercisable for $12 per
share of Common Stock: (a) Series A Warrants to acquire 10.5 million shares,
exercisable for 10 years; (b) Series B Warrants to acquire 2.5 million shares,
exercisable for 7 years, and (c) Series C Warrants to acquire 8 million
shares, exercisable for 7 years. The Series A and Series B Warrants are
exercisable for cash or by utilizing shares of Preferred Stock at the stated
value on a gross or net basis. The Series C Warrants are exercisable only as a
stock appreciation right (entitled to receive the cash difference between the
exercise price and the market price of the Common Stock on the trading day
prior to the date of exercise), unless the Company, prior to July 30, 2002,
elects to allow the Series C Warrants to be exercised for cash or by utilizing
shares of Preferred Stock at the stated value on a gross or net basis.

                                      39
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The purchasers agreed to standstill provisions for 10 years that restrict
their purchases of additional shares of Common Stock, prohibit sales by the
purchasers of Common Stock or Warrants to any person or group that would
beneficially own more than 10% (5% in the case of a competitor of the Company)
of the outstanding Common Stock after the sale, prohibits the purchasers from
proposing business combinations involving the Company or soliciting proxies,
and limits the purchasers' aggregate voting rights to one vote less than 20%
of the aggregate number of votes entitled to be cast on any matter by holders
of Common Stock or any other class of capital stock.

   EEX paid in-kind dividends and the Liquidation Preference on the Preferred
Stock is as follows:

<TABLE>
<CAPTION>
                                         Amount of     Number of    Liquidation
                                         Dividends     Preferred    Preference
   Year                                (In millions) Shares Issued (In millions)
   ----                                ------------- ------------- -------------
   <S>                                 <C>           <C>           <C>
   2001...............................     $14.5        144,652       $189.9
   2000...............................     $13.4        133,636       $175.5
   1999...............................     $12.1        121,173       $162.1
</TABLE>

7. EXTRAORDINARY ITEM

   In December 2001, the Company recorded an extraordinary gain of
approximately $6 million pre-tax ($4 million after-tax) relating to the
purchase at a discount of approximately $23 million principal amount of notes
that are secured by the FPS and related infrastructure. The funds used to
purchase the notes were borrowed under the Company's revolving credit
facility.

   The Company may consider repurchasing notes in the future at a discount but
currently does not have the funds to accomplish this repurchase.

8. TESORO ACQUISITION

   In December 1999, the Company acquired certain oil and gas properties and
pipeline assets by purchasing stock and membership interests in corporations
and limited liability companies. The Company acquired (i) all of the member
interests in four limited liability companies which, together, owned all of
the partnership interests of EEX E&P Company, L.P., "E&P L.P.", owner of the
oil and gas assets ("Oil and Gas Interests"), and (ii) all of the issued and
outstanding stock of two corporations which, together, owned all of the
partnership interests in EEX Pipeline Company, L.P., which owns partnership
interests in pipeline and gathering systems ("Pipeline Interests"). EEX closed
the acquisition at a net cost of $219 million.

   EEX Operating LLC ("EEX Operating") acquired the Pipeline Interests. The
Oil and Gas Interests were acquired by EEX Reserves Funding LLC ("ERF"), a
limited liability company half-owned by subsidiaries of the Company, EEX
Operating (49%) and EEX Capital, Inc. (1%), and half-owned by an affiliate of
Enron Corp. The Company has fully consolidated ERF, the limited liability
companies owning E&P L.P. partnership interests, E&P L.P., EEX Natural Gas
Company, EEX Gathering Company and EEX Pipeline Company, L.P. The affiliate of
Enron Corp.'s 50% equity interest in ERF is reflected in the balance sheet as
Minority Interest.

   The Company entered into a call option to purchase the affiliate of Enron
Corp.'s equity interest in ERF for the lesser of $5 million or the fair market
value of the third party's interest, provided that the fair market value shall
not exceed the equity percentage represented by the affiliate of Enron Corp.'s
interest in the oil and gas reserves of E&P L.P. This call option is payable
in either cash or common stock of EEX Corporation, or a combination of cash
and EEX Corporation common stock, at the Company's option. The call option
becomes exercisable when the forward sale described below terminates, and
expires five years after it becomes exercisable.

                                      40
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   E&P L.P. entered into a $105 million forward sale agreement with an
affiliate of Enron Corp. for approximately 50 billion cubic feet equivalent of
production from E&P L.P. through December 2004 that was prepaid upon the close
of the purchase transaction (See Note 12).

   At December 31, 2001, the Company has loaned approximately $150 million to
ERF. The loan is in the form of a subordinated convertible note that at the
Company's option is convertible into ERF units. The note does not require or
permit any cash principal payment or any cash interest payment until all of
E&P L.P.'s obligations under the Gas Sales Obligation have been satisfied in
full. The convertible note will accrete in value at a rate of 11.5% per annum,
compounded quarterly, commencing on March 31, 2000. Beginning January 1, 2005,
interest will accrue at a rate of 14.5% per annum and will be payable in cash
quarterly commencing on March 1, 2005 until the principal amount is paid or
made available for payment.

   The transaction described above has been accounted for using the purchase
method of accounting and has been included in the EEX Consolidated Financial
Statements since December 17, 1999.

9. ASSET IMPAIRMENTS

   Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
("SFAS No. 121") provides for the recognition of losses when events or changes
in circumstances indicate that the carrying value of long-lived assets may not
be realized. When there is evidence that the cost of such assets may not be
realized based upon such events, changed circumstances or periodic evaluation,
SFAS No. 121 requires the carrying value of the subject long-lived asset to be
reduced to its fair value.

   The process by which the Company assesses its oil and gas properties under
SFAS No. 121 starts with a comparison of the carrying value of an asset to its
estimated future undiscounted net cash flow ("Future Value"). These net cash
flows are prepared by the Company. The reserves are audited by its independent
petroleum consultant, Netherland, Sewell & Associates, Inc. This analysis uses
a multi-year market based commodity price forecast in effect at yearend 2001.
The initial prices used in this analysis for 2002 annual cash flows were
$21.00 per barrel of oil and $2.742 per million British Thermal Units of gas.
This analysis is generally prepared at a field level or field-group level. The
fields or groups reflect the lowest level for which cash flows are reasonably
and separately identifiable and for which the assets possess common
operational infrastructure and geographic proximity.

   Where insufficient Future Value is projected to recover the carrying value
of an asset, a determination of fair value is made. Fair value is estimated
for most oil and gas properties by discounting the annual net cash flows at a
rate of 10% per annum. The carrying value of the asset is reduced to its
estimated fair value.

   Assets held for sale are carried at the lower of cost or estimated net
realizable value.

   At the end of the third quarter of 2001, EEX compared the carrying value of
the FPS and Pipelines to the estimated returns generated from a proposal that
EEX submitted to lease these assets to a third party. No impairment was
indicated based upon that proposal. This original proposal was subsequently
modified in the first quarter of 2002 to compete with alternative processing
and transportation options available to the prospective lessees. This modified
proposal significantly reduced the expected returns to EEX and generated an
impairment indicator for the asset. The $152 million carrying value of the FPS
and Pipelines was impaired to a fair market value of $70 million to reflect
these modified proposals and values management believes could be received in
an orderly sale of the assets.

                                      41
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   On December 31, 2001, EEX impaired two significant onshore U.S. properties
and EEX recorded a pre-tax charge of $29 million, of which $23 million was
attributable to the production payment resulting from the Encogen obligation,
due to lower gas prices in effect at yearend than those experienced during the
prior year.

   Also on December 31, 2001, EEX impaired the value of its Tuban Block assets
by $16 million (pre-tax). EEX received an acceptable bid for its Indonesian
subsidiaries in December 2001. This impairment reflects the difference between
the agreed sales price and book value at closing, currently estimated to occur
in the second quarter of 2002. The impairment also includes a discount
incorporated in the sales price associated with certain receivables.

   Based upon the resulting fair value at June 30, 2000, the carrying value of
the Mudi Field was reduced and a pre-tax charge of $12 million for impairment
was recorded for oil and gas properties located in the International business
segment, primarily due to a decrease in planned production rates and the
impact of higher commodity prices under the production sharing agreement.

   Based upon the resulting fair values at December 31, 1999, the carrying
value of long-lived assets was reduced and a pre-tax charge of $26 million for
impairment was recorded for oil and gas properties located in the
Onshore/Shelf business segment, primarily due to downward reserve revisions
and higher abandonment cost estimates.

10. SUPPLEMENTAL CASH FLOW INFORMATION

   Cash paid for interest, net of amounts capitalized, was $31 million in
2001, $33 million in 2000 and $12 million in 1999. There were no cash income
taxes or refunds in 2001 and 2000. In 1999, there were refunds of $0.1
million.

   The Statement of Cash Flows for the year ended December 31, 2001 reflects
the termination of the capital lease and assumption of the secured notes as a
non-cash transaction. The Statement of Cash Flows for the year ended December
31, 2001 also reflects the impact of the adoption of SFAS No. 133, which
resulted in approximately a $27 million non-cash increase to shareholders'
equity.

   During 2000, EEX settled two forward purchase facilities to repurchase
shares of its common stock by paying $8.7 million, of which $7.6 million ($5
million in 1999 and $2.6 million in 2000) was previously deposited and
classified as restricted cash, for physical delivery of 796,532 shares to EEX.
The Statement of Cash Flows for the year ended December 31, 2000 reflects the
$5 million paid in 1999 as a non-cash transaction in 2000 when the transaction
settled.

   On December 17, 1999, EEX closed the Tesoro acquisition at a net cost of
$215 million. The purchase price was adjusted for estimated working capital
changes between the effective date and the closing date. The timing of these
working capital balances resulted in an adjusted cash purchase price of $212
million as of December 31, 1999. This amount is reflected in the Consolidated
Statement of Cash Flows as the Tesoro acquisition, net. In 2000, the Company
made final settlement of the purchase price with Tesoro.


11. BORROWINGS AND CREDIT AGREEMENTS

   EEX has a $325 million revolving credit facility with a group of banks that
matures on June 27, 2002, of which $325 million was outstanding at December
31, 2001, all of which is classified as a current liability. The credit
available was reduced from $350 million by amendment in February 2002. The
revolving credit agreement limits, at all times, total debt, as defined, to
the lesser of 60% of capitalization, as defined, or $1 billion, and prohibits
liens on property except under certain circumstances. At yearend, EEX's debt
to capital ratio is greater

                                      42
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

than the limit of 60%. The lenders have agreed to amend the loan agreement to
increase the ratio to 72% and waive the covenant breach. The amendment and
waiver will expire April 30, 2002. The opinion of the independent auditors on
the financial statements in this annual report contains a report modification
for a going concern uncertainty. The report modification will cause a breach
of another covenant. The interest rate ranges from the London Inter-Bank
Offered Rate (LIBOR) plus 0.55% to 1.30% per annum, plus a facility fee of
0.20% to 0.45% per annum, depending upon the capitalization ratio. A portion
of the funds available under the revolving credit line may be borrowed on a
short-term basis at current money market rates.

   The principal payments under the secured notes are payable in annual
installments due January 2 of each year (except 2006) with the final
installment due in 2009. Prepayment of the notes prior to 2006 may require the
Company to pay make-whole premiums. The annual interest rate on the secured
notes is 7.54%.

   The following is a summary of the principal amounts by year of maturity
under the revolving credit agreement and the secured notes at December 31,
2001:

<TABLE>
<CAPTION>
                                                                    Principal
                                                                  (In thousands)
                                                                  --------------
   <S>                                                            <C>
   2002..........................................................    $338,579
   2003..........................................................      14,642
   2004..........................................................      15,789
   2005..........................................................      14,840
   2006..........................................................         --
   Thereafter....................................................      55,493
                                                                     --------
     Total.......................................................    $439,343
                                                                     ========
</TABLE>

   The following is a summary of interest and other financing costs (in
thousands):

<TABLE>
<CAPTION>
                                                         2001    2000    1999
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   Interest costs incurred............................. $29,736 $33,586 $17,686
   Interest capitalized................................     --      --      --
                                                        ------- ------- -------
   Interest charged to expense......................... $29,736 $33,586 $17,686
                                                        ======= ======= =======
</TABLE>

12. GAS SALES OBLIGATION

   In December 1999, E&P L.P. entered into a $105 million forward sale
agreement with an affiliate of Enron Corp. for approximately 50 billion cubic
feet equivalent of production from E&P L.P. through December 2004 that was
prepaid upon the close of the purchase transaction. The affiliate of Enron
Corp. receives an adjusted index price monthly for the committed volume. In
the event production is not delivered, the obligation will be settled with a
cash payment from E&P L.P. The affiliate of Enron Corp. also has a lien on the
E&P L.P. oil and gas properties as security in the event the committed volumes
are not delivered or cash payment is not made. The forward sale agreement also
enables E&P L.P. to act as the Enron affiliate's agent to market the committed
production. E&P L.P., at its discretion, may terminate the prepayment
obligation by paying the affiliate of Enron Corp. a predetermined amount plus
make-whole of the hedges assumed by the purchaser in the agreement. The
prepayment has been recorded as a Gas Sales Obligation in the Consolidated
Balance Sheet. Payments under this obligation will be amortized on the
interest method through final pay out using an interest rate of 9.5%.

<TABLE>
<CAPTION>
                                                                     Average
                                           Payments       Bcf    Realized Price/
   Year                                  (In millions) Delivered      MMBtu
   ----                                  ------------- --------- ---------------
   <S>                                   <C>           <C>       <C>
   2001.................................     $23.6         14         $2.45
   2000.................................     $21.5         13         $2.51
</TABLE>


                                      43
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. LEASE COMMITMENTS

   During the second quarter 2001, the Company purchased the lessor's equity
interest in the capital lease related to the FPS and Pipelines. The lease was
terminated and EEX assumed the lessor's debt secured by the FPS and Pipelines.
Refer to Note 11 concerning the debt assumed.

   Amortization of assets recorded under the capital leases is included in
depletion, depreciation and amortization expense.

   EEX also leases buildings and office space under noncancellable operating
leases that expire at various dates through December 2005.

   Estimated future minimum payments under noncancellable operating leases
with initial or remaining terms of one year or more at December 31, 2001 are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       Operating
                                                                        Leases
                                                                       ---------
   <S>                                                                 <C>
   2001...............................................................  $3,801
   2002...............................................................   2,316
   2003...............................................................     716
   2004...............................................................     408
                                                                        ------
     Total............................................................  $7,241
                                                                        ======
</TABLE>

   Rental expenses incurred under all operating leases totaled $3.5 million,
$2.7 million, and $1.8 million, in 2001, 2000, and 1999, respectively.

14. MINORITY INTERESTS

   As described in Note 8, the affiliate of Enron Corp.'s 50% equity interest
in ERF is reflected in the Consolidated Balance Sheet as Minority Interest.

   In December 1999, the Company entered into a call option to purchase the
affiliate of Enron Corp.'s equity interest in ERF for the lesser of $5 million
or the fair market value of the affiliate of Enron Corp.'s interest, provided
that the fair market value shall not exceed the equity percentage represented
by the affiliate of Enron Corp.'s interest in the oil and gas reserves of E&P
L.P. Because of this call option, the affiliate of Enron Corp.'s equity
interest will not exceed $5 million, an amount reached during the third
quarter of 2000. The call option is payable in either cash or common stock of
EEX Corporation, or a combination of cash and EEX Corporation common stock, at
the Company's option and is exercisable at any time after the termination of
the forward sale between the affiliate of Enron Corp. and E&P L.P., but
terminates five years after the date after the termination of the forward sale
contract.

15. STOCK PLANS

   The Company's Revised and Amended 1996 Stock Incentive Plan (the "1996
SIP"), provides for awards to officers, directors and key employees of
restricted stock, stock options to purchase shares of common stock of EEX, or
a combination of both. EEX has reserved a total of 1.3 million shares of its
common stock for issuance under the 1996 SIP. Options granted under the 1996
SIP have an exercise price of not less than the fair market value of the
common stock on the grant date. Options granted under the 1996 SIP become
exercisable over three to seven years and expire after ten years. The terms
for the release of restrictions on awards of restricted stock may be
performance based, time based, or a combination of both, and each award may
have different restrictions and conditions.

                                      44
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following is a summary of stock option activity under the 1996 SIP:

<TABLE>
<CAPTION>
                                                          Weighted     Weighted
                                            Number of     Average      Average
                                             Shares    Exercise Price Fair Value
                                            ---------  -------------- ----------
   <S>                                      <C>        <C>            <C>
   Options outstanding
     December 31, 1998..................... 1,020,666      $31.02
     Granted...............................    85,910      $ 6.56       $4.51
     Canceled..............................  (374,914)     $30.20
                                            ---------      ------
   Options outstanding
     December 31, 1999.....................   731,662      $28.58
     Granted...............................   718,600      $ 3.69       $2.70
     Canceled..............................  (682,468)     $27.91
                                            ---------      ------
   Options outstanding
     December 31, 2000.....................   767,794      $ 5.88
     Granted...............................       --          --          --
     Exercised.............................   (15,602)     $ 3.53
     Canceled..............................   (58,898)     $ 3.53
                                            ---------      ------
   Options outstanding
     December 31, 2001.....................   693,294      $ 6.13
                                            =========      ======
</TABLE>

   The following is a summary of 1996 SIP stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                                 Range of Exercise Prices
                                            ----------------------------------
                                            $3.53-$6.56 $29.25-$43.50  Total
                                            ----------- ------------- --------
   <S>                                      <C>         <C>           <C>
   Options outstanding.....................   644,210       49,084     693,294
   Weighted average remaining contractual
    life, in years.........................         9            5           9
   Weighted average exercise price.........  $   4.11      $ 32.65    $   6.13
   Number exercisable......................   272,025       49,084     321,109
   Weighted average exercise price.........  $   4.63      $ 32.65    $   8.91
</TABLE>

   A summary of restricted stock award activity follows:

<TABLE>
<CAPTION>
                                                         Number of Shares
                                                     --------------------------
                                                      2001      2000     1999
                                                     -------  --------  -------
   <S>                                               <C>      <C>       <C>
   Outstanding--Beginning of year................... 328,674   551,419  168,667
     Awarded........................................  95,801    10,900  399,343
     Restrictions lifted............................ (66,270) (146,911)  (5,022)
     Canceled....................................... (27,075)  (86,734) (11,569)
                                                     -------  --------  -------
   Outstanding--End of year......................... 331,130   328,674  551,419
                                                     =======  ========  =======
</TABLE>

   The weighted average grant date fair value per share of restricted stock
awarded during 2001, 2000 and 1999 was $4.59, $5.15 and $3.60, respectively.
Fair value is equal to the common stock fair market value on the grant date.

   In 1998, the Company adopted the 1998 Stock Incentive Plan ("1998 SIP") for
directors, officers and eligible full-time employees. The 1998 SIP provides
for awards of restricted stock, stock options and stock appreciation rights,
and 2.5 million shares of common stock are reserved for issuance. Option terms
and

                                      45
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

restrictions on restricted stock may be set by the Compensation Committee of
the Board of Directors (the "Committee"), but the exercise price may be no
less than the fair market value on the date of the grant. Options granted
under the 1998 SIP become exercisable over three years and expire after ten
years.

   The following is a summary of basic stock option activity under the 1998
SIP:

<TABLE>
<CAPTION>
                                                          Weighted     Weighted
                                            Number of     Average      Average
                                             Shares    Exercise Price Fair Value
                                            ---------  -------------- ----------
   <S>                                      <C>        <C>            <C>
   Options outstanding
     December 31, 1998.....................   325,733      $12.27
     Granted............................... 1,376,867      $ 5.97       $4.11
     Canceled..............................  (205,823)     $ 7.37
                                            ---------      ------
   Options outstanding
     December 31, 1999..................... 1,496,777      $ 7.15
     Granted...............................   142,244      $ 2.87       $2.10
     Canceled..............................  (282,987)     $ 7.27
                                            ---------      ------
   Options outstanding
     December 31, 2000..................... 1,356,034      $ 6.67
     Granted...............................    99,600      $ 4.59       $3.36
     Canceled..............................  (149,269)     $ 7.47
                                            ---------      ------
   Options outstanding
     December 31, 2001..................... 1,306,365      $ 6.42
                                            =========      ======
</TABLE>

   The following is a summary of 1998 SIP stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                                 Range of Exercise Prices
                                           ------------------------------------
                                           $2.81-$6.00 $11.16-$15.47   Total
                                           ----------- ------------- ----------
   <S>                                     <C>         <C>           <C>
   Options outstanding...................   1,135,341     171,024     1,306,365
   Weighted average remaining contractual
    life, in years.......................           8           8             8
   Weighted average exercise price.......  $     5.44    $  12.92    $     6.42
   Number exercisable....................     837,192     171,024     1,008,216
   Weighted average exercise price.......  $     5.26    $  12.92    $     6.56
</TABLE>

   A summary of restricted stock award activity follows:

<TABLE>
<CAPTION>
                                                           Number of Shares
                                                        ------------------------
                                                         2001     2000     1999
                                                        -------  -------  ------
   <S>                                                  <C>      <C>      <C>
   Outstanding--Beginning of year...................... 250,169   68,400     --
     Awarded...........................................  27,000  238,568  68,400
     Restrictions lifted............................... (67,200) (26,099)    --
     Canceled..........................................     --   (30,700)    --
                                                        -------  -------  ------
   Outstanding--End of year............................ 209,969  250,169  68,400
                                                        =======  =======  ======
</TABLE>

   The weighted average grant date fair value per share of restricted stock
awarded during 2001, 2000 and 1999 was $4.55, $2.75, and $2.81, respectively.
Fair value is equal to the common stock fair market value on the grant date.

                                      46
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In 1997, the Company adopted the 1997 Non-Officer Stock Option Plan ("1997
SOP") for eligible employees who are not directors or officers and non-
employees. In December 1999, the 1997 SOP was amended to include restricted
stock grants. The Committee may set option terms and restrictions on
restricted stock, but the exercise price may be no less than the fair market
value of the common stock on the grant date. EEX has reserved a total of 0.5
million shares for issuance under the 1997 SOP. Options become exercisable
over three years and expire after ten years.

   A summary of stock option activity under the 1997 SOP follows:

<TABLE>
<CAPTION>
                                                           Weighted     Weighted
                                             Number of     Average      Average
                                              Shares    Exercise Price Fair Value
                                             ---------  -------------- ----------
   <S>                                       <C>        <C>            <C>
   Options outstanding
     December 31, 1998......................  145,333       $27.15
     Granted................................  248,200       $ 2.86       $1.96
     Canceled............................... (129,199)      $26.99
                                             --------       ------
   Options outstanding
     December 31, 1999......................  264,334       $ 4.39
     Granted................................    8,500       $ 3.35       $2.45
     Canceled...............................  (10,967)      $10.75
                                             --------       ------
   Options outstanding
     December 31, 2000......................  261,867       $ 4.11
     Granted................................      --           --          --
     Canceled...............................      --           --
                                             --------       ------
   Options outstanding
     December 31, 2001......................  261,867       $ 4.11
                                             ========       ======
</TABLE>


   The following is a summary of 1997 SOP stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                                    Range of Exercise Prices
                                                  ----------------------------
                                                  $2.72-$6.44 $32.25   Total
                                                  ----------- ------- --------
   <S>                                            <C>         <C>     <C>
   Options outstanding...........................   250,200    11,667  261,867
   Weighted average remaining contractual life,
    in years.....................................         9         6        9
   Weighted average exercise price...............  $   2.80   $ 32.25 $   4.11
   Number exercisable............................   161,815    11,667  173,482
   Weighted average exercise price...............  $   2.78   $ 32.25 $   4.76
</TABLE>

   A summary of restricted stock award activity follows:

<TABLE>
<CAPTION>
                                                            Number of Shares
                                                          ----------------------
                                                           2001     2000    1999
                                                          -------  -------  ----
   <S>                                                    <C>      <C>      <C>
   Outstanding--Beginning of year........................  25,000      --    --
     Awarded............................................. 180,000   50,000   --
     Restrictions lifted................................. (25,000) (25,000)  --
     Canceled............................................     --       --    --
                                                          -------  -------  ---
   Outstanding--End of year.............................. 180,000   25,000   --
                                                          =======  =======  ===
</TABLE>

   The weighted average grant date fair value per share of restricted stock
awarded during 2001 and 2000 was $4.59 and $2.81, respectively. Fair value is
equal to the common stock fair market value on the grant date.

                                      47
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In 1996, the Company adopted the 1996 Employee Stock Option Plan ("1996
SOP"). Stock options were granted to eligible employees who were not officers
or directors to purchase shares of EEX common stock that have an exercise
price of not less than the fair market value of the common stock on the grant
date. The shares were granted in accordance with a formula based upon salary
to current employees and newly hired employees. The Plan was amended in
December 1997 to allow the grant of options upon terms set by the Committee.
EEX reserved a total of 0.5 million shares for issuance under this plan.
Options become exercisable over three to seven years and expire after ten
years. The ability to grant new options under the 1996 SOP expired December
31, 1998.

   A summary of stock option activity under the 1996 SOP follows:

<TABLE>
<CAPTION>
                                                           Weighted     Weighted
                                             Number of     Average      Average
                                              Shares    Exercise Price Fair Value
                                             ---------  -------------- ----------
   <S>                                       <C>        <C>            <C>
   Options outstanding
     December 31, 1998......................  420,976       $27.63
     Granted................................      --           --         --
     Canceled............................... (368,938)      $27.42
                                             --------       ------
   Options outstanding
     December 31, 1999......................   52,038       $28.37
     Granted................................      --           --         --
     Canceled...............................  (28,575)      $26.64
                                             --------       ------
   Options outstanding
     December 31, 2000......................   23,463       $30.48
     Granted................................      --           --         --
     Canceled...............................   (7,117)      $27.56
                                             --------       ------
   Options outstanding
     December 31, 2001......................   16,346       $31.75
                                             ========       ======
</TABLE>

   The following is a summary of stock options outstanding under the 1996 SOP
at December 31, 2001:

<TABLE>
<CAPTION>
                                                 Range of Exercise Prices
                                            ----------------------------------
                                            $9.19-$10.31 $32.06-$33.00  Total
                                            ------------ ------------- -------
   <S>                                      <C>          <C>           <C>
   Options outstanding.....................      850         15,496     16,346
   Weighted average remaining contractual
    life, in years.........................        8              6          6
   Weighted average exercise price.........    $9.87        $ 32.96    $ 31.75
   Number exercisable......................      850         15,496     16,346
   Weighted average exercise price.........    $9.87        $ 32.96    $ 31.75
</TABLE>

   On December 7, 1999, the Committee initiated an offer to certain holders of
stock options with exercise prices greater than $20.00 under the 1996 SIP, the
1996 SOP and the 1997 SOP. If accepted by the holder, the offer provided that,
effective December 7, 1999, the designated options would be exchanged for
restricted stock granted under the 1996 SIP and the 1998 SIP. The amount of
the restricted stock was computed using the Black Scholes options pricing
model. The forfeiture restrictions on the restricted stock lapse as to one-
third of the grant annually beginning December 7, 2000. The effect of this
exchange is shown in the tables above. The restricted stock under the exchange
was not issued at December 31, 1999.

   Total compensation cost recognized in income for 2001, 2000 and 1999 for
stock based employee compensation awards was immaterial. Had compensation cost
for the Company's plans been determined based

                                      48
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

on the fair value at the grant dates consistent with the method of SFAS 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                 2001       2000      1999
                                               ---------  --------  ---------
   <S>                                         <C>        <C>       <C>
   Net (Loss) Applicable to Common
    Shareholders
     As reported, after extraordinary item.... $(160,446) $(10,418) $ (99,914)
     Pro forma, after extraordinary item...... $(162,453) $(12,676) $(104,555)
   Basic and Diluted Net (Loss) Per Common
    Share
     As reported, after extraordinary item.... $   (3.85) $  (0.25) $   (2.37)
     Pro forma, after extraordinary item...... $   (3.89) $  (0.30) $   (2.48)
</TABLE>

   The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts as additional awards in future years are
anticipated.

   Fair value of options was calculated by using the Black Scholes options
pricing model using the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                               2001  2000  1999
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Risk free interest rate.................................... 6.00% 6.25% 6.10%
   Expected volatility........................................   61%   56%   49%
   Expected dividend yield.................................... None  None  None
</TABLE>

16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

   The Company's operations involve managing market risks related to changes
in commodity prices and interest rates. Derivative financial instruments,
specifically swaps, futures, options and other contracts, are used to reduce
and manage those risks.

   Commodity Hedging Activities--The Company addresses market risk by
selecting instruments whose value fluctuations correlate strongly with the
underlying commodity being hedged. The Company enters into swaps, options,
collars and other derivative contracts to hedge the price risks associated
with a portion of anticipated future oil and gas production. While the use of
hedging arrangements limits the downside risk of adverse price movements, it
may also limit future gains from favorable movements. Under these agreements,
payments are received or made based on the differential between a fixed and a
variable product price. These agreements are settled in cash at expiration or
exchanged for physical delivery contracts. The Company enters into the
majority of its hedging transactions with one counterparty and a netting
agreement is in place with that counterparty. The Company does not obtain
collateral to support the agreements but monitors the financial viability of
counter-parties and believes its credit risk is minimal on these transactions.
In the event of nonperformance, the Company would be exposed to price risk.
The Company has some risk of accounting loss since the price received for the
product at the actual physical delivery point may differ from the prevailing
price at the delivery point required for settlement of the hedging
transaction.

   Effective January 1, 2001, the Company adopted SFAS No. 133. The cumulative
effect of adopting this standard was a decrease to stockholders' equity of
approximately $20 million, all of which would be reclassified into earnings
during the next twelve months. Due to significant price declines during the
year 2001, the net loss related to oil and gas financial hedging activities
that was reclassified to revenues to match the underlying sales transaction
being hedged was only $0.2 million for the year ended December 31, 2001. For
the years ended December 31, 2000 and 1999, net losses related to oil and gas
financial hedging activities of $20.3 million and $1.9 million, respectively,
were reclassified to revenues to match the underlying sales transactions being
hedged.

                                      49
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   At December 31, 2001, EEX had outstanding natural gas swaps that were
entered into as hedges extending through December 31, 2003 to exchange
payments on 31,335 BBtu of natural gas. At December 31, 2001, the weighted
average strike price and market price per MMBtu of natural gas was $3.746 and
$2.960, respectively. At December 31, 2001, the Company estimated, using a
NYMEX price strip as of that date, that the fair market value represented a
net current asset of approximately $19.4 million and a net noncurrent asset of
approximately $5.2 million and accumulated other comprehensive income of
approximately $24.6 million. The Company estimates that approximately $19.4
million will be reclassified into earnings during the next twelve months and
approximately $5.2 million during the year 2003. The Company recognized no
ineffectiveness in 2001.

   At December 31, 2001, EEX had outstanding natural gas collars that were
entered into as hedges extending through June 30, 2002 to exchange payments on
approximately 3 Bcf of natural gas. At December 31, 2001, the weighted average
floor and ceiling strike price and market price per MMBtu of natural gas was
$3.613, $5.896 and $2.631, respectively. At December 31, 2001, the Company
estimated, using a NYMEX price strip as of that date, that the fair market
value represented a net current asset and accumulated other comprehensive
income of approximately $2.7 million. The Company estimates this amount will
be reclassified into earnings during the next six months. The Company
recognized no ineffectiveness in 2001.

   As of December 31, 2001, the Company was not a party to any hedging
contracts with respect to its current or future crude oil production.

17. INCOME TAXES

Provision (Benefit) for Income Taxes (in thousands):

<TABLE>
<CAPTION>
                                                  2001      2000      1999
                                                ---------  -------  ---------
<S>                                             <C>        <C>      <C>
Current:
  Federal...................................... $     --   $   --   $     --
  Foreign......................................       --       --        (317)
  State........................................       --       --         220
                                                ---------  -------  ---------
    Total......................................       --       --         (97)
Deferred--Federal..............................    20,118    1,586      6,988
                                                ---------  -------  ---------
    Total provision (benefit).................. $  20,118  $ 1,586  $   6,891
                                                =========  =======  =========

   Reconciliation of Income Taxes (Benefit) computed at the Federal Statutory
Rate to Provision for Income Taxes (Benefit):

Income (Loss) before income taxes:
  Domestic..................................... $(126,839) $ 8,570  $(100,998)
  Foreign......................................    (2,617)  (4,039)    20,092
                                                ---------  -------  ---------
    Total...................................... $(129,456) $ 4,531  $ (80,906)
                                                =========  =======  =========
Income taxes (benefit) computed at the federal
 statutory rate of 35%......................... $ (45,310) $ 1,586  $ (28,317)
  Percentage depletion.........................       --       --         --
  Foreign taxes................................       --       --        (317)
  State taxes..................................       --       --         220
  Valuation allowance on deferred tax asset....    65,388      (88)    35,294
  Other--net...................................        40       88         11
                                                ---------  -------  ---------
    Provision for income taxes (benefit)....... $  20,118  $ 1,586  $   6,891
                                                =========  =======  =========
</TABLE>

                                      50
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 2001 and 2000
is as follows (in thousands):

<TABLE>
<CAPTION>
                                     2001                           2000
                         -----------------------------  -----------------------------
                           Total    Current Noncurrent    Total    Current Noncurrent
                         ---------  ------- ----------  ---------  ------- ----------
<S>                      <C>        <C>     <C>         <C>        <C>     <C>
Deferred Tax Assets
 (Liabilities):
  Property, plant and
   equipment............ $  37,134  $  --   $  37,134   $  14,667  $  --   $  14,667
  Employee benefit
   obligations..........      (172)    --        (172)      1,399     --       1,399
  Accruals and
   allowances...........     2,176   1,665        511       3,071   2,206        865
  Foreign corporations..     1,325     --       1,325         409     --         409
  Net operating loss....   127,061     --     127,061     104,592     --     104,592
  Valuation allowance...  (167,524)    --    (167,524)   (102,086)    --    (102,086)
                         ---------  ------  ---------   ---------  ------  ---------
    Net deferred tax
     asset.............. $     --   $1,665  $  (1,665)  $  22,052  $2,206  $  19,846
                         =========  ======  =========   =========  ======  =========
</TABLE>
--------
Note: The current portion is included in other current assets in the
consolidated balance sheets.

   The Company maintains a valuation allowance to reduce the calculated
deferred tax asset to net realizable value in accordance with SFAS No. 109. In
2001, EEX reduced the deferred tax asset to zero due to the uncertainty
regarding the Company's liquidity and ability to replace its revolving credit
facility. The anticipated earnings benefit from further realization of the
additional tax basis has not been fully recognized at this time and is
included in the valuation allowance of $168 million at December 31, 2001 for
the Company's deferred tax asset.

   As of December 31, 2001, the Company had approximately $363 million of U.S.
net operating loss carryforwards ("NOLs"). The NOLs have expiration dates
ranging from 2003 through 2021.

18. EMPLOYEE BENEFIT PLANS

   Most of the Company's employees participate in a noncontributory defined
benefit pension plan. Accrued retirement costs are funded based upon
applicable requirements of federal law and deductibility for federal income
tax purposes. Employees hired prior to July 1, 1989 are eligible for certain
medical benefits when they retire. Medical benefits are not funded in advance.

   Prior to ENSERCH's August 5, 1997 spin-off (see Note 1), EEX's cost for
pension and retiree medical benefits was based on allocations from ENSERCH
plans. An agreement providing for the spin-off of the pension assets to an EEX
plan became the subject to a dispute between ENSERCH's successor and EEX. The
dispute was resolved in January 2001. While the dispute was pending and up to
June 2001, the assets remained in trust with ENSERCH's successor. Therefore,
in 2000, EEX's costs for these benefit plans were based on EEX's allocated
pension plan assets, employees and retirees based upon information provided by
ENSERCH's successor and the pension plan assets and liabilities for accrued
benefits were estimated by EEX based upon such information. In June 2001, the
allocated pension plan assets were transferred to EEX's plan that was adopted
effective as of January 1, 1999 and provides substantially the same benefits
as provided by the ENSERCH plan. The assets are held in a trust account with
investments consisting primarily of domestic equity and fixed income funds.
For pension benefits, the "benefit obligation" is the projected benefit
obligation. For post-retirement benefits, the "benefit obligation" is the
accumulated post-retirement benefit obligation.

                                      51
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Employee Benefit Plan Disclosures (in thousands):

<TABLE>
<CAPTION>
                                                              Post-Retirement
                                          Pension Benefits       Benefits
                                          ------------------  ----------------
                                            2001      2000     2001     2000
                                          --------  --------  -------  -------
<S>                                       <C>       <C>       <C>      <C>
Assumptions as of December 31:
  Discount rate used in determining
   benefit obligation....................     7.25%     7.75%    7.25%    7.75%
  Expected return on Plan assets.........     9.00%     9.00%
  Rate of compensation increases.........     4.00%     4.00%

Changes in Benefit Obligation:
  Benefit obligation as of beginning of
   period................................ $(21,334) $(19,487) $(6,431) $(7,003)
  Service cost...........................     (478)     (486)      (3)      (3)
  Interest cost..........................   (1,562)   (1,521)    (491)    (500)
  Actuarial liability gain (loss)........     (972)     (668)    (648)     277
  Participants contribution..............      --        --      (147)    (166)
  Benefits paid..........................      892       828    1,061      964
                                          --------  --------  -------  -------
    Benefit obligation as of December
     31.................................. $(23,454) $(21,334) $(6,659) $(6,431)
                                          ========  ========  =======  =======
Change in Plan Assets:
  Fair value of Plan assets as of
   beginning of period................... $ 17,360  $ 17,698
  Actual return on assets................     (817)      368
  Employer contributions.................    4,876       --
  Benefits paid..........................     (770)     (706)
                                          --------  --------
    Fair value of Plan assets as of
     December 31......................... $ 20,649  $ 17,360
                                          ========  ========
Reconciliation of Funded Status:
  Funded status.......................... $ (2,805) $ (3,973) $(6,659) $(6,431)
  Unrecognized net obligation............      --        --     2,936    3,209
  Unrecognized actuarial (gain)..........    3,005      (195)     270     (379)
                                          --------  --------  -------  -------
    Accrued benefit cost as of December
     31.................................. $    200  $ (4,168) $(3,453) $(3,601)
                                          ========  ========  =======  =======
Components of Net Periodic Benefit Cost:
  Service cost--benefits earned during
   the period............................ $    478  $    486  $     3  $     3
  Interest cost on projected benefit
   obligation............................    1,562     1,521      491      500
  Expected return on assets..............   (1,419)   (1,581)     --       --
  Amortization--net obligation...........      --        --       273      273
  Amortization--unrecognized loss........        7         4      --       --
                                          --------  --------  -------  -------
    Net periodic benefit cost............ $    628  $    430  $   767  $   776
                                          ========  ========  =======  =======
</TABLE>

   For measurement purposes, a 5.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001. The rate is assumed
to remain at that level thereafter.

   Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects (in
thousands):

<TABLE>
<CAPTION>
                                                     1-Percentage 1-Percentage
                                                        Point        Point
                                                       Increase     Decrease
                                                     ------------ ------------
   <S>                                               <C>          <C>
   Effect on total of service and interest cost for
    2001............................................     $ 40        $ (35)
   Effect on yearend 2001 post-retirement benefit
    obligation......................................     $601        $(516)
</TABLE>


                                      52
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Investment Plan--At December 31, 2001, EEX provided a defined contribution
pension plan, which permits pre-tax employee contributions and was available
to substantially all employees of the Company. The Company's share of costs
under the plan was $0.1 million, $0.2 million, and $0.2 million in 2001, 2000
and 1999, respectively. The Company matches up to 60% of the first 6% of
employee contributions.

19. COMMITMENTS AND CONTINGENCIES

   EEX is involved in a number of legal and administrative proceedings
incident to the ordinary course of its business. In the opinion of management,
based on the advice of counsel and current assessment, any liability to EEX
relative to these ordinary course proceedings will not have a material adverse
effect on EEX's operations or financial condition.

   The operations and financial position of EEX continue to be affected from
time to time in varying degrees by domestic and foreign political developments
as well as legislation and regulations pertaining to restrictions on oil and
gas production, imports and exports, natural gas regulation, tax increases,
environmental regulations and cancellation of contract rights. Both the
likelihood and overall effect of such occurrences on the Company vary greatly
and are not predictable.

   EEX has taken and will continue to take into account uncertainties and
potential exposures in legal and administrative proceedings and in other areas
when periodically establishing accounting reserves.

   In the fourth quarter of 1998, EEX signed a contract with a major drilling
company to provide and operate an offshore drilling rig for use in Deepwater
drilling activities. The contract covers a basic period of three years at an
average operating day rate of approximately $135,000 and commenced in July
1999. In November 2001, EEX entered into a joint venture agreement with a
third party to drill the Devil's Island well, utilizing the rig at its full
day rate. Upon completion of the Devil's Island well, if the rig is not used
to sidetrack the Devil's Island well and EEX is not able to farmout the rig,
the Company will stack the rig for the remainder of the contract. Assuming the
rig is returned to EEX April 30, 2002, there will be approximately 60 days
remaining under the contract at a total cost of approximately $9 million.

20. FIXED-PRICE PHYSICAL DELIVERIES

   In January 2001, EEX adopted SFAS No. 133. This accounting standard
requires that EEX mark to market its hedge positions and report the result as
an adjustment to shareholders' equity as other comprehensive income. To
mitigate the result of implementation of SFAS No. 133, in December 2000, EEX
converted a portion of its existing swaps and collars into fixed-price
physical delivery contracts.

   During 2001, EEX delivered approximately 8 Bcf of natural gas at an average
price of $2.85 per MMBtu.

   Effective December 3, 2001, EEX terminated all remaining fixed-price
delivery contracts due to the declaration of bankruptcy by the counterparty.

21. SUPPLEMENTARY BALANCE SHEET INFORMATION

   Major accounts in certain line items of the Consolidated Balance Sheets are
(in thousands):

<TABLE>
<CAPTION>
                                                                2001    2000
                                                               ------- -------
   <S>                                                         <C>     <C>
   Other current assets:
     Prepaid costs related to Mudi Field (net of 2001
      impairment)............................................. $ 6,195 $ 9,030
     Deferred hedging.........................................     --    6,394
     Other....................................................   4,013   7,054
                                                               ------- -------
       Total.................................................. $10,208 $22,478
                                                               ======= =======
</TABLE>

                                      53
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


22. NEW ACCOUNTING STANDARDS

   In 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 142"). SFAS No. 141 requires the use of the purchase method of accounting
for all business combinations initiated after June 30, 2001. The adoption of
this statement had no impact on the Company's consolidated results of
operations and financial position. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company will adopt the statement
effective January 1, 2002. The adoption of this standard has no impact on the
Company's consolidated results of operations and financial position.

   In 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No.
143 addresses accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The statement is effective for fiscal years beginning after June 15,
2002. The Company is currently assessing the impact, if any, of this standard.

   In 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). This statement is effective for fiscal years beginning after
December 15, 2001 and replaces SFAS No. 121. The Company will adopt this
statement for long-lived assets and asset disposals, whether previously held
and used or newly acquired on January 1, 2002. SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or discontinued
operations. Discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. This statement expands the definition of a discontinued operation
from a segment of business to a component of an entity that has been disposed
of or is classified as held for sale and can be clearly distinguished,
operationally and for reporting purposes, from the rest of the entity. The
results of operations of a component classified as held for sale shall be
reported in discontinued operations in the period incurred. The Company has
not yet determined what the effect of adoption, if any, will be on its
consolidated results of operations and financial position.

                                      54
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


23. SEGMENT INFORMATION

   Segment information has been prepared in accordance with Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. EEX has determined that its reportable
segments are those that are based on the Company's method of internal
reporting. EEX has four reportable segments, which are primarily in the
business of natural gas and crude oil exploration and production: Onshore,
Deepwater Operations, Deepwater FPS/Pipelines, and International. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. EEX's reportable segments are
managed separately because of their geographic locations. Financial
information by operating segment is presented below (in thousands):

<TABLE>
<CAPTION>
                                              Deepwater
                                       ------------------------
                          Onshore(a)   Operations FPS/Pipelines International Other(b)    Total
                          ----------   ---------- ------------- ------------- --------  ---------
<S>                       <C>          <C>        <C>           <C>           <C>       <C>
2001:
Total Revenues..........   $151,976     $    --     $     --       $49,360    $  5,548  $ 206,884
Production and operating
 costs..................     21,870          --           932       13,895         --      36,697
Exploration costs.......     27,550       19,623          --         2,200         --      49,373
Depletion, depreciation
 and amortization (c)...     68,760          --        89,708       35,019       1,856    195,343
Other costs.............     14,831(d)       --             9          --       11,621     26,461
                           --------     --------    ---------      -------    --------  ---------
Operating Income
 (Loss).................     18,965      (19,623)     (90,649)      (1,754)     (7,929)  (100,990)
Interest Income.........        --           --           --           --        1,270      1,270
Interest and other
 financing costs........     (6,988)         --       (12,010)         --      (10,738)   (29,736)
                           --------     --------    ---------      -------    --------  ---------
Income (Loss) before
 income taxes...........   $ 11,977     $(19,623)   $(102,659)     $(1,754)   $(17,397) $(129,456)
                           ========     ========    =========      =======    ========  =========
Long-Lived Assets.......   $379,934     $ 66,447    $  70,055      $18,154    $  3,065  $ 537,655
                           ========     ========    =========      =======    ========  =========
Additions to Long-Lived
 Assets.................   $138,036     $  9,597    $  13,561      $ 8,651    $    517  $ 170,362
                           ========     ========    =========      =======    ========  =========
2000:
Total Revenues..........   $220,621     $    --     $     --       $53,958    $(12,167) $ 262,412
Production and operating
 costs..................     24,312          --         1,245       13,655         --      39,212
Exploration costs.......     23,667        7,788          --         2,325         --      33,780
Depletion, depreciation
 and amortization (c)...     60,639          --         4,510       39,304       1,712    106,165
Other costs.............     11,696(d)       --             1          --       32,937     44,634
                           --------     --------    ---------      -------    --------  ---------
Operating Income
 (Loss).................    100,307       (7,788)      (5,756)      (1,326)    (46,816)    38,621
Interest Income.........        --           --           --           --        1,447      1,447
Interest and other
 financing costs........    (10,103)         --       (14,129)         --       (9,354)   (33,586)
                           --------     --------    ---------      -------    --------  ---------
Income (Loss) before
 income taxes...........   $ 90,204     $ (7,788)   $ (19,885)     $(1,326)   $(54,723) $   6,482
                           ========     ========    =========      =======    ========  =========
Long-Lived Assets.......   $363,804     $ 89,504    $ 146,092      $35,691    $  4,457  $ 639,548
                           ========     ========    =========      =======    ========  =========
Additions to Long-Lived
 Assets.................   $118,048     $ 41,208    $   6,450      $14,432    $  1,082  $ 181,220
                           ========     ========    =========      =======    ========  =========
1999:
Total Revenues..........   $116,118     $    --     $     --       $54,601    $  6,655  $ 177,374
Production and operating
 costs..................     23,241          --           --        16,097         --      39,338
Exploration costs.......     12,034       70,386          --         3,949         --      86,369
Depletion, depreciation
 and amortization (c)...     78,531          --         5,400       10,148       1,323     95,402
Other costs.............      5,366(d)       --           --           --       20,293     25,659
                           --------     --------    ---------      -------    --------  ---------
Operating Income
 (Loss).................     (3,054)     (70,386)      (5,400)      24,407     (14,961)   (69,394)
Interest Income.........        --           --           --           --        6,224      6,224
Interest and other
 financing costs........       (765)         --       (14,361)         --       (2,560)   (17,686)
                           --------     --------    ---------      -------    --------  ---------
Income (Loss) before
 income taxes...........   $ (3,819)    $(70,386)   $ (19,761)     $24,407    $(11,297) $ (80,856)
                           ========     ========    =========      =======    ========  =========
Long-Lived Assets.......   $432,015     $ 47,782    $ 144,150      $60,638    $  5,912  $ 690,497
                           ========     ========    =========      =======    ========  =========
Additions to Long-Lived
 Assets.................   $304,018     $ 52,595    $  15,533      $14,797    $  1,331  $ 388,274
                           ========     ========    =========      =======    ========  =========
</TABLE>
--------
(a) In December 2000, the Company sold its interests in substantially all of
    its Gulf of Mexico Shelf production. As part of this sale, the Company
    retained the rights to deeper, non-producing horizons in ten of the blocks
    sold. All activities prior to sale date related to the Gulf of Mexico
    Shelf properties are included in the Onshore segment.
(b) Includes primarily Cogeneration Plant Operations, General and
    Administrative, gains/loss on hedging and sale of assets.
(c) Depletion, depreciation and amortization includes asset impairments of
    $127 million, $12 million and $26 million in 2001, 2000 and 1999,
    respectively (see Note 9).
(d) Includes taxes other than income.

                                      55
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


24. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

   Oil and Gas Producing Activities--The following tables set forth information
relating to oil and gas producing activities of EEX. Reserve data for natural
gas liquids attributable to leasehold interests owned by the Company are
included in oil and condensate.

<TABLE>
<CAPTION>
                                                             2001       2000
                                                           ---------  ---------
<S>                                                        <C>        <C>
Capitalized Costs:
  Proved oil and gas properties........................... $ 658,610  $ 646,934
  Floating Production System and Pipelines................   258,081    242,817
  Unproved oil and gas properties.........................    58,316     65,512
  Accumulated depletion, depreciation and amortization....  (440,417)  (320,173)
                                                           ---------  ---------
    Total net capitalized cost............................ $ 534,590  $ 635,090
                                                           =========  =========
</TABLE>

<TABLE>
<CAPTION>
                                   2001              2000             1999
                             ----------------- ---------------- ----------------
                                                         Non-             Non-
                               U.S.   Non-U.S.   U.S.    U.S.     U.S.    U.S.
                             -------- -------- -------- ------- -------- -------
<S>                          <C>      <C>      <C>      <C>     <C>      <C>
Costs Incurred:
Property acquisition costs:
  Proved...................  $ 33,949  $  --   $ 28,688 $   --  $238,749 $ 4,523
  Unproved.................     4,403      12     6,421      53    4,767     --
Exploration costs..........    40,043   1,257    60,901   2,325   79,618   4,143
Development costs..........   113,685   8,639    83,125  14,380   79,091  10,069
                             --------  ------  -------- ------- -------- -------
    Total..................  $192,080  $9,908  $179,135 $16,758 $402,225 $18,735
                             ========  ======  ======== ======= ======== =======
</TABLE>

   The following information is required and defined by the Financial
Accounting Standards Board. The disclosure does not represent the results of
operations based on historical financial statements. The disclosure excludes
interest expense, corporate overhead and gains and losses from hedging (in
thousands).

<TABLE>
<CAPTION>
                               2001                2000              1999
                         ------------------  ----------------  -----------------
                                                       Non-               Non-
                           U.S.    Non-U.S.    U.S.    U.S.      U.S.     U.S.
                         --------  --------  -------- -------  --------  -------
<S>                      <C>       <C>       <C>      <C>      <C>       <C>
Revenues................ $151,546  $49,360   $218,486 $53,958  $116,118  $54,601
Less:
  Production costs (a)..   37,629   13,895     36,742  13,655    28,607   16,097
  Exploration costs.....   47,173    2,200     31,455   2,325    82,420    3,949
  Depletion,
   depreciation and
   amortization(b)......  158,468   35,019     64,389  39,304    83,931   10,148
  Income tax effects
   (c)..................      --       --      30,065     --        --     1,807
                         --------  -------   -------- -------  --------  -------
    Results of
     operations......... $(91,724) $(1,754)  $ 55,835 $(1,326) $(78,840) $22,600
                         ========  =======   ======== =======  ========  =======
</TABLE>
--------
(a) Includes severance, ad valorem and production taxes.
(b) Includes pre-tax property impairments of $127 million, $12 million and $26
    million in 2001, 2000 and 1999, respectively.
(c) Amount includes $35.3 million for valuation allowance on deferred tax asset
    for 1999.

                                       56
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Oil and Gas Reserves--The following table of estimated proved and proved
developed reserves of oil and gas has been prepared utilizing estimates of
yearend reserve quantities audited by Netherland, Sewell & Associates, Inc.,
independent petroleum consultants, for December 31, 2001, 2000 and 1999.
Reserve estimates are inherently imprecise and estimates of new discoveries
are more imprecise than those of producing oil and gas properties.
Accordingly, the reserve estimates are expected to change as additional
performance data becomes available.

<TABLE>
<CAPTION>
                                  Gas (MMcf)              Oil (MBbls) (a)
                            -------------------------  -----------------------
                             2001     2000     1999     2001     2000    1999
                            -------  -------  -------  -------  ------  ------
<S>                         <C>      <C>      <C>      <C>      <C>     <C>
U.S. Reserves:
  At January 1............  382,609  362,813  203,551   14,437   5,702   6,431
  Revisions of previous
   estimates..............  (16,303)  31,699  (10,658)     337    (212) (1,116)
  Extensions, discoveries
   and additions..........  107,685  115,931   11,804      501  11,760      40
  Purchases of minerals in
   place..................      --       --   206,002      --      --    2,305
  Sales of minerals in
   place..................  (36,001) (72,689)  (6,883) (11,083) (1,936)   (619)
  Production..............  (43,003) (55,145) (41,003)    (488)   (877) (1,339)
                            -------  -------  -------  -------  ------  ------
  At December 31..........  394,987  382,609  362,813    3,704  14,437   5,702
                            =======  =======  =======  =======  ======  ======

Proved Developed Reserves:
  At January 1............  306,760  309,424  191,985    2,795   4,592   6,299
  At December 31..........  310,884  306,760  309,424    3,080   2,795   4,592

Minority interest at 12/31
 total proved (b).........  135,959  102,301   86,319      659     599   1,043
Minority interest at 12/31
 proved developed (b).....  100,414   89,222   65,073      599     535     584
</TABLE>
--------
(a) Includes natural gas liquids of 574 MBbls for 2001, 416 MBbls for 2000,
    and 427 MBbls for 1999.
(b) Minority Interest amounts are included in the table above. See Note 8.

<TABLE>
<CAPTION>
                                                             Oil (MBbls)
                                                         ----------------------
                                                          2001    2000    1999
                                                         ------  ------  ------
<S>                                                      <C>     <C>     <C>
Non-U.S. Reserves:
  At January 1.......................................... 10,680  11,840  19,728
  Revisions of previous estimates.......................  2,309     752  (4,657)
  Extensions, discoveries and additions.................    --      --      --
  Purchases of minerals in place........................    --      --      --
  Sales of minerals in place............................    --      --      --
  Production............................................ (2,133) (1,912) (3,231)
                                                         ------  ------  ------
  At December 31........................................ 10,856  10,680  11,840
                                                         ======  ======  ======

Proved Developed Reserves:
  At January 1..........................................  8,423   9,896  15,831
  At December 31........................................  6,644   8,423   9,896
</TABLE>

   Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserve Quantities--The following table has been prepared using
estimated future production rates and associated production and development
costs. Continuation of economic conditions existing at the balance sheet date
was assumed. Accordingly, estimated future net cash flows were computed by
applying prices and contracts in effect in December to estimated future
production of proved oil and gas reserves, estimating future expenditures to
develop proved reserves and estimating costs to produce the proved reserves
based on average costs for the year. Prices used in the computations were: Gas
(per Mcf) $2.61 in 2001, $9.52 in 2000 and $2.08 in 1999; Oil (per barrel)
$19.84 in 2001, $26.80 in 2000 and $23.41 in 1999, except for contractually
committed volumes.

                                      57
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Because reserve estimates are imprecise and changes in the other variables
are unpredictable, the standardized measure should be interpreted as indicative
of the order of magnitude only and not as precise amounts.

<TABLE>
<CAPTION>
                                                        United
                                              Total     States    International
                                            ---------  ---------  -------------
<S>                                         <C>        <C>        <C>
Standardized Measure (in millions):
  2001
    Future cash inflows.................... $ 1,227.2  $ 1,032.8     $ 194.4
    Future production and development
     costs.................................    (553.0)    (390.4)     (162.6)
    Future income tax expense..............      (4.3)       --         (4.3)
                                            ---------  ---------     -------
    Future net cash flows..................     669.9      642.4        27.5
    10% annual discount....................    (280.7)    (275.2)       (5.5)
                                            ---------  ---------     -------
    Standardized measure of discounted
     future net cash flows................. $   389.2  $   367.2     $  22.0
                                            =========  =========     =======
    Minority interest (a).................. $   121.8  $   121.8     $   --
                                            =========  =========     =======

  2000
    Future cash inflows.................... $ 4,231.6  $ 3,967.8     $ 263.8
    Future production and development
     costs.................................  (1,130.0)    (935.2)     (194.8)
    Future income tax expense..............    (729.4)    (716.0)      (13.4)
                                            ---------  ---------     -------
    Future net cash flows..................   2,372.2    2,316.6        55.6
    10% annual discount....................  (1,088.9)  (1,079.8)       (9.1)
                                            ---------  ---------     -------
    Standardized measure of discounted
     future net cash flows................. $ 1,283.3  $ 1,236.8     $  46.5
                                            =========  =========     =======
    Minority interest (a).................. $   304.0  $   304.0     $   --
                                            =========  =========     =======

  1999
    Future cash inflows.................... $ 1,166.5  $   886.2     $ 280.3
    Future production and development
     costs.................................    (524.7)    (314.8)     (209.9)
    Future income tax expense..............       --         --          --
                                            ---------  ---------     -------
    Future net cash flows..................     641.8      571.4        70.4
    10% annual discount....................    (205.5)    (197.9)       (7.6)
                                            ---------  ---------     -------
    Standardized measure of discounted
     future net cash flows................. $   436.3  $   373.5     $  62.8
                                            =========  =========     =======
    Minority interest (a).................. $    79.0  $    79.0     $   --
                                            =========  =========     =======
--------
(a) Minority Interest amounts are included in the table above. See Note 8.

<CAPTION>
                                              2001       2000         1999
                                            ---------  ---------  -------------
<S>                                         <C>        <C>        <C>
Changes in Standardized Measure (in
 millions):
  Sales and transfers of oil and gas
   produced, net of production costs....... $  (148.1) $  (222.7)    $(126.0)
  Changes in prices, net of production and
   future development costs................  (1,192.7)   1,358.5        68.0
  Extensions, discoveries and improved
   recovery, less related costs............      86.6      447.7        16.4
  Purchases of minerals in place...........       --         --        181.6
  Revisions of previous quantity
   estimates...............................     (47.2)      99.0        (1.0)
  Sales of minerals in place...............     (98.4)    (498.4)       (6.9)
  Accretion of discount....................     128.3       43.6        27.6
  Net change in income taxes...............     377.4     (380.7)        --
  Other....................................       --         --          0.7
                                            ---------  ---------     -------
    Total.................................. $  (894.1) $   847.0     $ 160.4
                                            =========  =========     =======
</TABLE>

                                       58
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


25. SUBSEQUENT EVENTS

   Sale of Indonesian Assets--On March 11, 2002, EEX signed stock purchase
agreements to sell all of the shares of two companies that own a 25% interest
in the Tuban Block, onshore Java (includes Mudi Field), and a 15% interest in
the Asahan Block, offshore Sumatra. These interests constitute all of EEX's
assets in Indonesia. The agreements provide that the sale will be effective as
of September 30, 2001 and that the purchase price of $34.5 million will be
adjusted for the net cash flows received by EEX after the effective date.

   The agreements are subject to customary closing conditions and regulatory
approvals of Indonesian authorities. EEX anticipates that the closing will
take place in the second quarter of 2002.

                                      59
<PAGE>

                         QUARTERLY RESULTS (UNAUDITED)

   The results of operations of the Company by quarters are summarized below
(in thousands, except per share data). In the opinion of the Company's
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation have been made.

<TABLE>
<CAPTION>
                                                   Quarter Ended
                                     -------------------------------------------
                                     March 31  June 30  September 30 December 31
                                     --------  -------  ------------ -----------
<S>                                  <C>       <C>      <C>          <C>
2001:
  Revenues.......................... $59,262   $52,157    $48,490     $  46,975
  (Loss) Gain on Property Sales.....    (302)      (33)    29,176       (16,578)
  Impairment of Assets..............     --        --         --        127,030
  Operating Income (Loss)(a)........   3,154     9,884     36,576      (150,604)
  Income (Loss) Before Extraordinary
   Item.............................  (4,249)    2,382     19,978      (167,685)
  Net Income (Loss) Applicable to
   Common Shareholders..............  (7,759)   (1,197)    16,326      (167,816)
  Net Income (Loss) Per Common
   Share--Basic
    Before Extraordinary Item....... $ (0.19)  $ (0.03)   $  0.39     $   (4.11)
    Extraordinary Item..............     --        --         --           0.09
                                     -------   -------    -------     ---------
    Per Common Share................ $ (0.19)  $ (0.03)   $  0.39     $   (4.02)
                                     =======   =======    =======     =========
  Net Income (Loss) Per Common
   Share--Diluted
    Before Extraordinary Item....... $ (0.19)  $ (0.03)   $  0.29     $   (4.11)
    Extraordinary Item..............     --        --         --           0.09
                                     -------   -------    -------     ---------
    Per Common Share................ $ (0.19)  $ (0.03)   $  0.29     $   (4.02)
                                     =======   =======    =======     =========

2000:
  Revenues.......................... $60,868   $62,279    $65,983     $  73,282
  (Loss) on Property Sales..........    (560)   (1,729)    (1,389)       (3,552)
  Impairment of Assets..............     --     12,200        --            --
  Operating Income (Loss)(a)........  14,743    (4,209)    12,575        15,512
  Net Income (Loss) Applicable to
   Common Shareholders..............     987   (16,187)    (1,702)        6,484
  Basic and Diluted Net Income
   (Loss) Per Common Share.......... $  0.02   $ (0.38)   $ (0.04)    $    0.16
</TABLE>
--------
(a) Operating Income (Loss) excluding interest and taxes.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     None

                                      60
<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

   The information required in this Item is incorporated by reference from
EEX's definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after yearend.

Item 11. Executive Compensation

   The information required in this Item is incorporated by reference from
EEX's definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after yearend.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required in this Item is incorporated by reference from
EEX's definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after yearend.

Item 13. Certain Relationships and Related Transactions

   The information required in this Item is incorporated by reference from
EEX's definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after yearend.

                                      61
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a)-1 Financial Statements

   The information required hereunder is set forth under "Report of Independent
Auditors," "Consolidated Statement of Operations," "Consolidated Statement of
Cash Flows," "Consolidated Balance Sheet," "Consolidated Statement of
Shareholders' Equity," "Notes to Consolidated Financial Statements" and
"Quarterly Results" included in Item 8.

   (a)-2 Financial Statement Schedules

   The consolidated financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or notes
thereto.

   (a)-3 Exhibits

<TABLE>
   <C>  <S>
    3.1 Restated Articles of Incorporation of the Registrant, as amended. (1)

    3.2 Bylaws of the Registrant, as amended. (1)

    4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit
        4.1 to Registrant's Form 10-K for the year ended December 31, 1998.
        (2)

    4.2 Form of Preferred Stock Certificate, incorporated by reference to
        Exhibit 4.2 to Registrant's Form 10-K for the year ended December 31,
        1998. (2)

    4.3 Rights Agreement dated as of September 10, 1996, between the Registrant
        and Harris Trust Company of New York as Rights Agent, incorporated by
        reference to Exhibit 10.21 to Registrant's Registration Statement on
        Form S-4 (No. 333-13241). (2)

    4.4 First Amendment to Rights Agreement dated December 21, 1998, between
        the Registrant and Harris Trust Company of New York, as Rights Agent,
        incorporated by reference to Exhibit 4.4 to Registrant's Form 10-K for
        the year ended December 31, 1998. (2)

    4.5 Statement of Resolution of Series B 8% Cumulative Perpetual Preferred
        Stock of the Registrant filed with the Secretary of State of Texas on
        January 7, 1999, incorporated by reference to Exhibit 4.5 to
        Registrant's Form 10-K for the year ended December 31, 1998. (2)

    4.6 Form of Series A Warrant issued to Warburg, Pincus Equity Partners,
        L.P., and affiliates on January 7, 1999, incorporated by reference to
        Exhibit 4.6 to Registrant's Form 10-K for the year ended December 31,
        1998. (2)

    4.7 Form of Series B Warrant issued to Warburg, Pincus Equity Partners,
        L.P., and affiliates on January 7,1999, incorporated by reference to
        Exhibit 4.7 to Registrant's Form 10-K for the year ended December 31,
        1998. (2)

    4.8 Form of Series C Warrant issued to Warburg, Pincus Equity Partners,
        L.P., and affiliates on January 7, 1999, incorporated by reference to
        Exhibit 4.8 to Registrant's Form 10-K for the year ended December 31,
        1998. (2)

   10.1 Trust Indenture, Mortgage, Assignment of Lease and Security Agreement
        dated as of November 15, 1996, among Wilmington Trust Company, as
        Corporate Grantor Trustee, Thomas P. Laskaris, as Individual Grantor
        Trustee, The Bank of New York, as Corporate Indenture Trustee,
        Frederick W. Clark, as Individual Indenture Trustee, without exhibits
        and schedules. (1)
</TABLE>

                                       62
<PAGE>


<TABLE>
   <C>   <S>
   10.2  Pass Through Trust Agreement dated as of November 16, 1996, between
         Registrant and The bank of New York, as Trustee, without exhibits and
         schedules. (1)

   10.3  Relevant Amendment dated August 2, 2001 among Registrant, Cooper
         Project, L.L.C., Wilmington Trust Company, as Corporate Grantor
         Trustee, John M. Beeson, Jr., as Individual Grantor Trustee, The Bank
         of New York, as Corporate Indenture Trustee, and Van Brown, as
         Individual Indenture Trustee, and The Bank of New York, as Pass
         Through Trustee under the Pass Through Trust Agreement. (1)

   10.4  Amendment to Relevant Amendment dated August 24, 2001 among The Bank
         of New York, as Corporate Indenture Trustee, and Van Brown, solely as
         Individual Indenture Trustee. (1)

   10.5  Credit Agreement, dated as of May 1, 1995, among Registrant as
         Borrower, Texas Commerce Bank National Association, as Administrative
         Agent, The Chase Manhattan Bank, N.A., as Syndication Agent, Chemical
         Bank, as Auction Agent, and the Lenders now or hereafter parties
         thereto, amended by First Amendment dated September 16, 1996, Second
         Amendment dated June 27, 1997, Third Amendment dated September 25,
         1997, and Fourth Amendment dated December 15, 1997. Incorporated by
         reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended
         December 31, 1997. (2)

   10.6  Fifth Amendment dated March 31, 1999 to Credit Agreement, dated as of
         May 1, 1995, among Registrant as Borrower, Texas Commerce Bank
         National Association, as Administrative Agent, The Chase Manhattan
         Bank, N.A., as Syndication Agent and Book Runner and the Lenders now
         or thereafter parties thereto, incorporated by reference to Exhibit
         10.5 to Registrant's Form 10-K for the year ended December 31, 1999.
         (2)

   10.7  Sixth Amendment dated February 20, 2002 to Credit Agreement dated as
         of May 1, 1995 among Registrant as Borrower, each of the Lenders (as
         defined in the Credit Agreement), JPMorgan Chase Bank, as
         Administrative Agent, Auction Agent and as Book Runner for the
         Lenders, Bank One, NA as Syndication Agent, Citibank, N.A., as a
         Documentation Agent, Canadian Imperial Bank of Commerce, as a
         Documentation Agent and The Bank of New York, The Bank of Nova Scotia,
         Bankers Trust Company, Bank of America, N.A. and Royal Bank of Canada
         as
         co-agents. (1)

   10.8  Tax Sharing Agreement, dated as of January 1, 1995, between ENSERCH
         and Enserch Exploration, Inc., incorporated by reference to Exhibit
         10.21 to the Registration Statement of Enserch Exploration, Inc. on
         Form S-2 (No. 33-60461). (2)

   10.9  Tax Allocation Agreement among ENSERCH, the Registrant and Texas
         Utilities Company, incorporated by reference to Annex A-3 to the
         Agreement and Plan of Merger filed as Exhibit 2 to the Registrant's
         Registration Statement on Form S-4 (No. 333-13241). (2)

   10.10 1998 Amended and Restated Stock Incentive Plan, incorporated by
         reference to Exhibit A to Registrant's Proxy Statement dated April 19,
         1999. (2)

   10.11 Enserch Exploration, Inc. Revised and Amended 1996 Stock Incentive
         Plan, incorporated by reference to Annex A-2 to the Agreement and Plan
         of Merger filed as Exhibit 2 to the Company's Registration Statement
         on Form S-4 (No. 333-13241). (2)

   10.12 Registrant's Deferred Compensation Plan effective as of July 1, 1997,
         incorporated by reference to Exhibit 10.12 to Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1997. (2)

   10.13 First Amendment to Registrant's Deferred Compensation Plan dated as of
         November 1, 1998, incorporated by reference to Exhibit 10.11 to
         Registrant's Form 10-K for the year ended December 31, 1998. (2)
</TABLE>

                                       63
<PAGE>


<TABLE>
   <C>   <S>
   10.14 Second Amendment to Registrant's Deferred Compensation Plan dated
         December 8, 1998, incorporated by reference to Exhibit 10.12 to
         Registrant's Form 10-K for the year ended December 31, 1998. (2)

   10.15 Deferred Compensation Plan for Directors, effective January 1, 1996,
         as amended February 11, 1997, incorporated by reference to Exhibit
         10.14 to Registrant's Form 10-K for the year ended December 31, 1998.
         (2)

   10.16 Form of Change of Control Agreement executed by certain executive
         officers of the Registrant, filed as Exhibit 10.20 to the Annual
         Report on Form 10-K for the year ended December 31, 1996 of Enserch
         Exploration, Inc. (2)

   10.17 Form of Amendment to Change of Control Agreement executed by certain
         executive officers of the Company, incorporated by reference to
         Exhibit 10.16 to Registrant's Form 10-K for the year ended
         December 31, 1998. (2)

   10.18 Form of Employment Agreement executed by certain executive officers of
         the Registrant, incorporated by reference to Exhibit 10.20 to the
         Annual Report on Form 10-K for the year ended December 31, 1996 of
         Enserch Exploration, Inc. (2)

   10.19 Form of Amendment to Employment Agreement effective July 27, 1998
         between Registrant and certain executive officers, incorporated by
         reference to Exhibit 10.18 to Registrant's Form 10-K for the year
         ended December 31, 1998. (2)

   10.20 Second Amendment to Employment Agreement effective July 27, 1998,
         between Registrant and Thomas M Hamilton, incorporated by reference to
         Exhibit 10.19 to Registrant's Form 10-K for the year ended
         December 31, 1998. (2)

   10.21 Form of Amendment to Restricted Stock Agreement effective July 27,
         1998, between Registrant and certain executive officers, incorporated
         by reference to Exhibit 10.20 to Registrant's Form 10-K for the year
         ended December 31, 1998. (2)

   10.22 Settlement Agreement, dated June 26, 2000, between EEX Corporation and
         Janice Hartrick, incorporated by reference to Exhibit 10.3 to
         Registrant's Quarterly Report on Form 10-Q for the quarter ended
         June 30, 2000. (2)

   10.23 Employment Agreement, dated July 3, 2000, between EEX Corporation and
         Richard L. Edmonson, incorporated by reference to Exhibit 10.4 to
         Registrant's Quarterly Report on Form 10-Q for the quarter ended June
         30, 2000. (2)

   10.24 Floating Drilling Rig Requirement Offshore Drilling Contract dated
         October 15, 1998, between the Registrant and Global Marine Drilling
         Company for the "Glomar Arctic I" floating drilling unit, without
         appendices, incorporated by reference to Exhibit 10.21 to Registrant's
         Form 10-K for the year ended December 31, 1998. (2)

   10.25 Purchase Agreement, dated as of December 22, 1998, by and among
         Registrant and Warburg, Pincus Equity Partners, L.P., a Delaware
         limited partnership, Warburg, Pincus Netherlands Equity Partners I,
         C.V., a Dutch limited partnership, Warburg, Pincus Netherlands Equity
         Partners II, C.V., a Dutch limited partnership and Warburg, Pincus
         Netherlands Equity Partners III, C.V., a Dutch limited partnership,
         incorporated by reference to Exhibit 99.1 to Registrant's Form 8-K
         dated December 22, 1998. (2)

   10.26 Registration Rights Agreement dated January 8, 1999, by and among
         Registrant and Warburg, Pincus Equity Partners, L.P., and affiliates,
         incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K
         for the year ended December 31, 1998. (2)

   10.27 Natural Gas Prepaid Forward Sale Contract dated December 17, 1999
         between EEX E&P Company, L.P. and Bob West Treasure L.L.C.,
         incorporated by reference to Exhibit 99.5 to Registrant's Form 8-K
         dated December 17, 1999. (2)
</TABLE>

                                       64
<PAGE>


<TABLE>
   <C>   <S>
   10.28 First Amendment to Natural Gas Prepaid Forward Sale Contract,
         effective May 16, 2000, between EEX E&P Company, L.P. and Bob West
         Treasure L.L.C., incorporated by reference to Exhibit 10.1 to
         Registrant's Quarterly Report on Form 10-Q for the quarter ended
         June 30, 2000. (2)

   10.29 Amended and Restated Call Agreement, dated May 16, 2000, between EEX
         Capital, Inc. and Bob West Treasure, L.L.C., incorporated by reference
         to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
         quarter ended June 30, 2000. (2)

   10.30 Subordinated Convertible Note dated December 17, 1999, from EEX
         Reserves Funding LLC to EEX Corporation, incorporated by reference to
         Exhibit 99.7 to Registrant's Form 8-K dated December 17, 1999. (2)

   10.31 EEX Corporation Undertaking dated December 17, 1999, incorporated by
         reference to Exhibit 99.8 to Registrant's Form 8-K dated December 17,
         1999. (2)

   10.32 Purchase and Sale Agreement dated August 30, 2001, between Registrant
         and Amerada Hess Corporation, without exhibits and schedules
         incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 2001. (2)

   10.33 Stock Purchase Agreement dated March 11, 2002 by and among PT Medco
         Energi Internasional Tbk., EEX International, Inc., and Enserch Far
         East Ltd., without exhibits and schedules. (1)

   21    Subsidiaries of the Registrant. (1)

   23.1  Consent of Ernst & Young LLP. (1)

   23.2  Consent of Netherland, Sewell & Associates, Inc. (1)
</TABLE>
--------
(1) Filed herewith.
(2) Incorporated by reference.

(b) Reports on Form 8-K

   None

                                       65
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) 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:

                                          EEX Corporation

                                                   /s/ T. M Hamilton
                                          By: _________________________________
                                                       T. M Hamilton
                                               Chairman and President, Chief
                                                     Executive Officer

April 12, 2002

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        /s/ T. M Hamilton              Chairman and President,      April 12, 2002
______________________________________  Chief Executive Officer
            T. M Hamilton

        /s/ R. S. Langdon              Executive Vice President,    April 12, 2002
______________________________________  Finance and
            R. S. Langdon               Administration, Chief
                                        Financial Officer

         /s/ J. T. Leary               Vice President, Finance      April 12, 2002
______________________________________  and Treasurer
             J. T. Leary

         /s/ T. E. Coats               Vice President, Planning     April 12, 2002
______________________________________  and Controller (Principal
             T. E. Coats                Accounting Officer)

          /s/ F. S. Addy               Director                     April 12, 2002
______________________________________
              F. S. Addy

    /s/ B. A. Bridgewater, Jr.         Director                     April 12, 2002
______________________________________
        B. A. Bridgewater, Jr.

        /s/ F. M. Lowther              Director                     April 12, 2002
______________________________________
            F. M. Lowther

        /s/ M. P. Mallardi             Director                     April 12, 2002
______________________________________
            M. P. Mallardi

         /s/ H. H. Newman              Director                     April 12, 2002
______________________________________
             H. H. Newman
</TABLE>

                                      66