<PAGE>
 
--------------------------------------------------------------------------------


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

          [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                      OR
        [  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ___________to ___________

                       COMMISSION FILE NUMBER:   0-22076

                              ZYDECO ENERGY, INC.
            (Exact name of registrant as specified in its charter)
                                   DELAWARE
        (State or other jurisdiction of incorporation or organization)

                                  76-0404904
                     (I.R.S. Employer Identification No.)

                             1710 TWO ALLEN CENTER
                               1200 SMITH STREET
                                HOUSTON, TEXAS
                   (Address of principal executive offices)

                                  77002-4312
                                  (Zip Code)

                                (713) 659-2222
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                             Yes X           No ____
                                ----        

As of September  30, 1996, there were 6,593,651 shares of Zydeco Energy, Inc.
Common Stock, $.001 par value, issued and outstanding.

--------------------------------------------------------------------------------
<PAGE>
 
                                   FORM 10-Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
<S>                                                                       <C>
     PART I.  FINANCIAL INFORMATION

              Item 1.  Consolidated Financial Statements
 
              Consolidated Balance Sheets.................................... 3
 
              Consolidated Statements of Operations.......................... 4
 
              Consolidated Statements of Stockholders' Equity................ 5
 
              Consolidated Statements of Cash Flows.......................... 6
 
              Notes to Consolidated Financial Statements..................... 7
 
              Item 2.  Management's Discussion and Analysis of Financial 
                       Condition and Results of Operations................... 14
 
     PART II. OTHER INFORMATION.............................................. 17


     SIGNATURES.............................................................. 18
</TABLE> 

                                 Page 2 of 18
<PAGE>
 
                      ZYDECO ENERGY, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                                   SEPTEMBER 30, 1996      DECEMBER 31, 1995      
                                                                                  --------------------    --------------------  
                                   ASSETS                                            (Unaudited)
<S>                                                                               <C>                     <C> 
CURRENT ASSETS 
     Cash and equivalents                                                          $       6,353,431       $         517,781      
     Marketable Securities                                                                 1,788,557              10,938,674    
     Oil and gas revenue receivable                                                          357,478                  67,024  
     Other receivable                                                                        282,518                  46,546       
     Prepaid expenses                                                                         38,065                       - 
                                                                                  --------------------    --------------------  
          TOTAL CURRENT ASSETS                                                             8,820,049              11,570,025        
                                                                                  --------------------    --------------------  
Oil & gas propertics, using successful efforts method of accounting
     Proved properties                                                                       300,784                 309,110  
     Unproved properties                                                                     496,332                       -  
Equipment and sothware, at cost                                                            1,551,551                 789,710
                                                                                  --------------------    --------------------  
                                                                                           2,384,667               1,098,820       
Less: Accumulated depreciation, depletion and amortization                                  (843,032)               (399,541)
                                                                                  --------------------    --------------------  
                                                                                           1,505,635                 699,279    
Operation bond and other assets                                                              358,358                 313,101
                                                                                  --------------------    --------------------  

TOTAL ASSETS                                                                       $      10,684,042       $      12,582,405 
                                                                                  ====================    ====================  

            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                              $         122,759       $         284,219
     Accrued liabilities                                                                     244,650                 355,833   
     Exploration obligations                                                               3,405,847               3,210,477
     Short-term bridge financing notes payable                                                     -                 225,028
     Capital lease obligation-current portion                                                183,601                 160,693  
                                                                                  --------------------    --------------------  
          TOTAL CURRENT LIABILITIES                                                        3,956,857               4,236,250   
                                                                                  --------------------    --------------------  

CAPITAL LEASE OBLIGATION                                                                      16,824                 157,537   
                                                                                  --------------------    --------------------  

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
     Convertible preferred stock, par value $.001 per share; 1,000,000
     shares authorized; 781,255 shares issued and outstanding
     at December 31, 1995                                                                          -                     781
     Common stock, par value $.001 per share; 50,000,000 shares       
     authorized; 7,374,906 and 6,562,530 shares issued; 6,593,651
     and 5,781,275 shares outstanding, respectively                                            7,375                   6,563 
     Additional paid-in capital                                                            9,503,943               9,495,053
     Accumulated deficit                                                                  (2,793,705)             (1,306,527    
     Less-Treasury stock, at cost; 781,255 shares                                             (7,252)                 (7,252)   
                                                                                  --------------------    -------------------- 
          TOTAL STOCKHOLDERS' EQUITY                                                       6,710,361               8,188,618     
                                                                                  --------------------    --------------------  
                                                                                   
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $      10,684,042       $      12,582,405
                                                                                  ====================    ====================   
</TABLE> 

  The accompanying notes are an integral part of these financial statements. 

                                 Page 3 of 18

<PAGE>
                      ZYDECO ENERGY, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


<TABLE> 
<CAPTION> 
                                           Three Months Ended September 30,  Nine Months Ended September 30,        
                                           --------------------------------  -------------------------------        
                                                1996         1995               1996            1995                
                                           --------------- ----------------  --------------- ---------------        
<S>                                        <C>             <C>               <C>             <C> 
REVENUES
  Oil and gas production                   $       461,038 $         31,735  $     1,017,784 $        88,204
  Gain on sales of unproved leases                       -                -           16,319         117,517        
  Seismic services                                       -                -           31,500         300,000        
  Interest income                                   58,869           10,354          227,978          38,365        
    TOTAL REVENUES                                 519,907           42,089        1,293,581         544,086        

EXPENSES
  Lease operating expenses                           6,073           11,492           17,306          16,860      
  Exploration and dry hole costs                   681,218                -          719,690         259,368      
  Seismic service costs                                  -                -                -         200,000      
  General and administrative expenses              535,318          227,125        1,564,400         638,503      
  Depreciation, depletion and amortization         181,763           94,770          443,492         276,202      
  Interest expenses                                 10,200           16,878           35,871          54,090   
                                           --------------- ----------------  --------------- --------------- 
    TOTAL EXPENSES                               1,414,572          350,265        2,780,759       1,445,023      
                                                                                                                  

NET LOSS                                   $      (894,665)$       (308,176) $    (1,487,178)$      (900,937)     
                                           =============== ================  =============== ===============
 
PER COMMON SHARE AND SHARE EQUIVALENT --
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 
 AND COMMON SHARE EQUIVALENTS OUTSTANDING        6,472,122        3,906,280        6,027,182       3,733,011
                                           =============== ================  =============== ===============
LOSS PER COMMON EQUIVALENT SHARE           $         (0.14)$          (0.08) $         (0.25)$         (0.24)
                                           =============== ================  =============== ===============
</TABLE> 

The accompanying notes are an integral part of these financial statements.


                                 Page 4 of 18

<PAGE>

                      ZYDECO ENERGY, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                Convertible
                                                              Preferred Stock              Common Stock           Additional
                                                        --------------------------  -------------------------       Paid-in
                                                           Shares        Amount        Shares       Amount          Capital
                                                        --------------------------  -------------------------  ----------------
<S>                                                     <C>             <C>          <C>          <C>           <C> 
Balance at December 31, 1994                               781,255      $    781     4,468,777    $   4,469     $   2,195,278
                                               
(Unaudited):                                   
Acquisition of treasury stock                                    -             -      (781,255)
Net Loss                                                         -             -             -            -                 -
Private issuance of Common Stock                                 -             -       218,753          219              (175)
                                                        -----------------------------------------------------------------------
                                               
Balance at September 30, 1995                              781,255      $    781     3,906,275    $   4,688     $   2,195,103
                                                       ============    ==========   ===========  ===========   ================
                                               
Balance at December 31, 1995                               781,255      $    781     5,781,275    $   6,363     $   9,495,053
                                               
(Unaudited):                                   
Net Loss                                                         -             -             -            -                 -
Options and warrants exercised for Common Stock                  -             -        31,154           31             8,890
Adjustment for fractional shares paid in cash                    -             -           (33)           -                 -
Conversion of Preferred Stock to Common Stock             (781,255)         (781)      781,255          781                 -
                                                       ------------------------------------------------------------------------
Balance at September 30, 1996                                    -      $      -     6,593,651     $  7,375       $ 9,503,943
                                                       ============    ==========   ===========  ===========   ================
</TABLE>

<TABLE> 
<CAPTION>
                                                                                                             Total
                                                        Accumulated                Teasury               Stockholders'
                                                          Deficit                   Stock                    Equity
                                                        ------------              ---------             ---------------
<S>                                                     <C>                        <C>                   <C>
Balance at December 31, 1994                            $   (132,881)              $      -              $   2,067,647

(Unaudited):
Acquisition of treasury stock                                      -                 (7,252)             $      (7,252)
Net Loss                                                    (900,937)                     -              $    (900.937)
Private issuance of Common Stock                                   -                      -              $          44
                                                        ---------------------------------------------------------------
Balance at September 30, 1995                           $ (1,033,818)              $ (7,252)             $   1,159,502
                                                        =============             ===========           ===============

Balance at December 31, 1995                            $ (1,306,527               $ (7,252)             $   8,188,618

(Unaudited):
Net Loss                                                  (1,487,178)                     -                 (1,487,178)
Options and warrants exercised for Common Stock                    -                      -                      8,921
Adjustment for fractional shares paid in cash                      -                      -                          -
Conversion of Preferred Stock to Common Stock                      -                      -                          -
                                                        ---------------------------------------------------------------
Balance at September 30, 1996                           $ (2,793,705)              $ (7,252)             $   6,710,361
                                                        =============             ===========           ===============
</TABLE>


The accompanying notes are an integral part of these financial statements.

                                 Page 5 of 18

<PAGE>
 
                      ZYDECO ENERGY, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                              NINE MONTHS ENDED SEPTEMBER 30,  
                                                            -----------------------------------
                                                                1996                   1995    
                                                            ------------           ------------  
<S>                                                         <C>                    <C>         
CASH FLOWS FROM OPERATING ACTIVITIES                                                           
Net loss                                                    $(1,487,178)           $  (900,937) 
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: 
  Depreciation, depletion, and amortization                     443,492                276,202
  Gain on sales of unproved leases                              (16,319)              (117,517)
  Exploration and dry hole costs                                719,690                259,368
  Changes in operating assets and liabilities
    (Increase) in oil & gas revenue receivable                 (290,454)               (23,215)
    (Increase) in other current assets                         (274,037)                (5,385)
    (Decrease) in accounts payable                             (161,460)               (81,068)
    Increase (Decrease) in accrued liabilities                 (111,183)               117,036
                                                            ------------           ------------   
  NET CASH (USED IN) OPERATING ACTIVITIES                    (1,177,449)              (475,516)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition and exploration of oil and gas properties     $(1,209,459)           $  (421,622)
  Proceeds from the sale of unproved leases                      16,319                150,000
  Cost recovery on exploration agreement                              -                698,675
  Net advance on exploration obligation                       5,000,000              4,000,000
  Expenditures against exploration obligation                (4,805,644)            (1,257,819) 
  Purchase of equipment and software                           (761,841)              (325,025) 
  Other capital expenditures                                    (42,450)                     -
  Proceeds from sale of marketable securities                 9,150,117                      -
                                                            ------------           ------------   
  NET CASH PROVIDED BY INVESTING ACTIVITIES                   7,347,042              2,844,209

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal repayments of short-term Bridge Financing       $  (225,028)           $         -
  Principal payments of capital lease obligations              (117,805)                     -
  Common stock proceeds                                           8,890                     44
                                                            ------------           ------------    
  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES          (333,943)                    44
                                                            ------------           ------------   

NET INCREASE IN CASH AND CASH EQUIVALENTS                   $ 5,835,650            $ 2,368,737

Cash and cash equivalents at beginning of period                517,781                875,927
                                                            ------------           ------------   

CASH AND CASH EQUIVALENT AT END OF PERIOD                   $ 6,353,431            $ 3,244,664
                                                            ============           ============
</TABLE> 

The accompanying notes are an integral part of these financial statements.

                                 Page 6 of 18

<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)

1.   PREPARATION OF INTERIM FINANCIAL STATEMENTS.

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with instructions to Form 10-Q and, therefore, do
     not include all disclosures required by generally accepted accounting
     principles.  However, in the opinion of management, these statements
     include all adjustments, which are of a normal recurring nature, necessary
     to present fairly the financial position at September 30, 1996, and
     September 30, 1995, and the results of operations and changes in cash flows
     for the nine months ended September 30, 1996, and 1995, respectively.
     These financial statements should be read in conjunction with the
     consolidated financial statements and notes to consolidated financial
     statements included in the Company's annual report on Form 10-K for the
     year ended December 31, 1995.

2.   ORGANIZATION AND BUSINESS OPERATIONS.

     Zydeco Energy, Inc. was incorporated in Delaware in June 1993 as a special
     purpose acquisition corporation under the name TN Energy Services
     Acquisition Corp. (TN Energy), for the purpose of raising funds and
     acquiring an operating business engaged in the energy services industry.
     Other than its efforts to acquire an energy services business, TN Energy
     did not engage in any business activities prior to December 1995.  On
     December 20, 1995, the Company acquired all the outstanding common stock
     and preferred stock of Zydeco Exploration, Inc. (Zydeco) pursuant to a
     merger and changed its name to Zydeco Energy, Inc.  As used herein, unless
     the context indicates otherwise, the term Company refers to Zydeco Energy,
     Inc. and Zydeco, its wholly-owned subsidiary.

     For accounting purposes the acquisition has been treated as a
     recapitalization of Zydeco with Zydeco as the acquiror (reverse
     acquisition).  Accordingly, the historical financial statements prior to
     December 20, 1995 are those of Zydeco.  No pro forma information giving
     earlier effect to the transaction has been presented since the transaction
     is accounted for as a recapitalization.  The consolidated financial
     statements at December 31, 1995 and for all periods and dates subsequent to
     such date include the accounts of the Company and Zydeco Exploration, Inc.,
     the wholly-owned subsidiary of the Company.  All significant intercompany
     transactions have been eliminated in consolidation.

     The Company is engaged in acquiring leases, drilling, and producing
     reserves from those properties utilizing focused geologic concepts and
     advanced 3D seismic technology.  In addition to utilizing advanced 3D
     seismic technology to evaluate and analyze prospects for the Company, the
     Company performs advanced geophysical seismic analysis services for third
     parties. The Companys current focus is to explore for oil and gas in the
     Louisiana Transition Zone, the region of land and shallow waters within a
     few miles of the shoreline.

     The Companys future operations are dependent upon a variety of factors,
     including, but not limited to, successful application of 3D seismic
     evaluation and interpretation expertise in developing oil and gas
     prospects, profitable exploitation of future prospects, and the Companys
     ability to access capital sources necessary for continued growth.

     Use of Estimates.  The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements and the reported amounts of revenues and
     expenses during the reporting period.  Actual results could differ from
     those estimates.  Significant estimates with regard to these financial
     statements include the estimate of proved oil and gas reserve volumes and
     the related discounted future net cash flows therefrom.

                                 Page 7 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)

3.   PROPERTY ADDITIONS.

     In February 1996, the Company purchased an exclusive seismic option permit
     from the state of Louisiana covering approximately 51,000 acres of state
     waters in western Cameron Parish, Louisiana.  The Company paid $783,754 for
     the seismic permit.  Under the Agreement with the state of Louisiana, the
     Company is obligated to deliver within 18 months a 3D seismic survey over
     the state acreage included in the permit or pay a penalty equivalent to the
     initial payment for the permit and/or unspecified damages.  In August, the
     Company commenced operations for a 3D survey project (the "West Cameron
     Seismic Project") which includes the area covered by the permit and
     additional contiguous land acreage.

     In February 1996, the Company entered into a technology agreement with an
     individual to develop, test and evaluate certain proprietary technology
     related to 3D seismic processing and imaging.  The Company committed to
     providing the test environment including personnel, computing hardware,
     software and certain data in exchange for an option to receive a license to
     use the resulting technology in certain exclusive areas of the Gulf of
     Mexico.  The Company completed its testing in April 1996 and exercised its
     option in May 1996 and paid the first year's royalty fee of $40,000.  The
     Company is utilizing the processing technology in the West Cameron Seismic
     Project.  The license provides for annual royalty payments, at the option
     of the Company.

     In June 1996, the Company purchased all the working interest in certain
     unproved properties consisting of five non-producing offshore oil and gas
     leases from the Myers Affiliates (see "Note 7 ---Related Party
     Transactions") for $302,464.  In May 1996, the Company purchased certain
     proprietary geologic and geophysical data and computer equipment from a
     Myers Affiliate for $145,490.

     In August 1996, the Company purchased non-producing leasehold interests and
     agreed to participate in the drilling of an exploratory well located in
     Timbalier Bay in state waters offshore Louisiana.  The Company paid
     $187,500 for a 37.5% working interest in the drilling prospect and advanced
     estimated dry-hole drilling and completion costs of $924,242 to an
     affiliate of the Company's Chief Executive Officer (see "Note 7 - Related
     Party Transactions").  Drilling of the well commenced in August 1996 and
     was abandoned in September 1996 for mechanical reasons without testing the
     well's primary objectives. The Company charged $657,385 to exploration
     expense in September in connection with the drilling and abandonment of the
     well.

4.   EXPLORATION AGREEMENTS.

     Fortune Exploration Agreement-  In February 1995, Zydeco entered into an
     Exploration Agreement (the "Fortune Agreement) with a predecessor of
     Fortune Petroleum Corporation (Fortune).  Under the Fortune Agreement,
     Fortune advanced $4.8 million in a series of payments to purchase a 50%
     interest in certain potential prospects (Prospects) owned by the Company
     and fund the initial development of the potential Prospects.  Pursuant to
     the Fortune Agreement, $628,547 represented a reimbursement of certain of
     the costs previously incurred by the Company on the potential Prospects.
     The remaining $4,171,453 is designated to fund all third-party costs of
     preparing the potential Prospects for evaluation, including lease
     acquisition, lease maintenance, and the acquisition, processing and
     interpretation of seismic data.  Thereafter, the Fortune Agreement provides
     that the parties shall bear any additional costs equally.  At September 30,
     1996, and December 31, 1995, the portion not yet expended is recorded as an
     exploration obligation and classified as a current liability.  Future
     expenditures incurred on Prospect leads will be charged against the
     obligation.  No expenditures incurred pursuant to the Fortune Agreement
     will be capitalized by the Company until the parties begin sharing equally
     in such costs, if any.  At September 30, 1996, inception to date
     expenditures under the Fortune Agreement aggregated approximately
     $2,020,037, net of undistributed interest earned of $134,526.

     Cheniere Exploration Agreement-  In April 1996, the Company executed an
     Exploration Agreement (the "Cheniere Agreement") with Cheniere Energy
     Operating Co., Inc. ("Cheniere") covering an area of land 

                                 Page 8 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)


     and waters in western Cameron Parish, Louisiana, including the area covered
     by the seismic option permit described above ("West Cameron Seismic
     Project"). The Cheniere Agreement, as amended, provides that Cheniere may
     receive up to a 50% interest in the West Cameron Seismic Project, based on
     Cheniere completing its funding of the entire $13.5 million. The Cheniere
     Agreement provides that Cheniere may discontinue funding at any time and
     its interest would then be reduced pro rata based on the West Cameron
     Seismic Project's total cost. The Company began onshore leasing and seismic
     permitting in February and commenced seismic operations in August 1996. At
     September 30, 1996, the Company had incurred costs of approximately
     $4,374,116 in connection with the West Cameron Seismic Project net of
     interest earned on the unused project funds ($24,028). The Chemiere
     Agreement provides for aggregate payments to Zydeco of $13.5 million to
     fund the estimated costs of seismic acquisition, including the purchase of
     seismic rights or lease options on the related onshore acreage of the West
     Cameron Seismic Project, and to complete data acquisition and processing of
     a 3D seismic survey of the onshore and offshore areas. Effective October
     31, 1996, the Company and Cheniere amended the Cheniere Agreement to delay
     the timing of the remaining payments required to be paid by Cheniere
     consistent with the Company's current expectations of the timing of costs
     to be incurred on the Project. At September 30, 1996, Cheniere had advanced
     $5 million under the Cheniere Agreement, as amended, with the remaining
     payments due as follows:

<TABLE>
<CAPTION>
          <S>                  <C>            <C>                  <C>
          October 31, 1996     $1,000,000*    February 28, 1997    $1,000,000
          November 30, 1996    $2,000,000     March 31, 1997       $1,000,000
          January 31, 1997     $2,000,000     April 30, 1997       $1,500,000
</TABLE> 
 
     _______________________________ 
      *Received October 31, 1996

5.   INDEBTEDNESS.

     Long-term Obligations.  Balances of the Companys long-term obligations at
     September 30, 1996, and December 31, 1995, consist of the following:

<TABLE>
<CAPTION>
                                            September 30, 1996               December 31, 1995
                                      -----------------------------     ----------------------------
                                         Current       Long-term          Current        Long-term
                                      -----------    --------------     -----------    -------------
<S>                                   <C>            <C>                <C>            <C> 
Capital Lease -
  Computer Hardware & Software         $  183,601         $  16,824      $  160,693       $  157,537
</TABLE>

     Bridge Financing.  In connection with the Merger, TN Energy entered into a
     financing arrangement (Bridge Financing) and ultimately borrowed $225,028
     from three investors (Bridge Lenders) to finance TN Energys share of legal,
     accounting and printing costs of the Merger.  The notes, including accrued
     interest at 10%, were repaid in January 1996.  In December 1995, in
     connection with arranging the Bridge Financing, the Company issued to the
     Bridge Lenders, five-year warrants to purchase, at a purchase price of
     $5.33 per share, 225,028 shares of Common Stock.

     Also, in connection with the Bridge Financing, options to purchase 225,000
     outstanding shares of the Company were granted in December 1995 by certain
     stockholders of the Company from shares owned by them.  Options for 150,000
     shares were granted by the stockholders to the Bridge Lenders as an
     inducement to make the Bridge Financing, and options for 75,000 shares were
     granted by certain stockholders to other principals in connection with
     discussions with TN Energy that resulted in the introduction of Zydeco.
     The aggregate exercise price for all the options granted was approximately
     $30.  The cost of such options was reflected as a financing expense and
     capital contribution by the Company prior to the Merger.

                                 Page 9 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)

6.   CONVERTIBLE PREFERRED STOCK AND COMMON STOCK.

     During the nine month period ended September 30, 1995, the Company issued
     218,753 common shares for nominal consideration.  In connection with the
     Merger, 1,875,000 shares of Common Stock were effectively issued to the
     shareholders of TN Energy with entries to common stock and additional paid-
     in capital for $7,971,525, the net assets of TN Energy on the date of the
     Merger (comprised primarily of cash and marketable securities).  The
     outstanding shares of convertible preferred stock were issued in a
     $2,500,000 private placement offering completed by Zydeco in December 1994.

     Conversion of Preferred Stock. Shares of Convertible Preferred Stock, par
     value $.001, were subject to conversion at a rate of one share of Common
     Stock for each share of Convertible Preferred Stock upon, either, (i) the
     occurrence of a successful public offering or (ii) in the event the closing
     price for the Common Stock equaled or exceeded $6.50 for a period of 30
     consecutive trading days. The price of the Common Stock exceeded the
     minimum price for the required period in June 1996, and, accordingly, the
     Company exercised its option to convert all shares of Convertible Preferred
     Stock to Common Stock effective July 15, 1996.

     Warrants.  In connection with the original private placement offering and
     subject to certain terms and conditions, Zydeco issued or is obligated to
     issue up to 72,268 Common Stock purchase warrants to the underwriters
     ("Underwriter Warrants"), each of which entitles the holder to purchase one
     share of Common Stock at an exercise price of $1.60 per share at any time
     during the five-year period commencing from the Closing Date, December 2,
     1994.  The initial value of such warrants issued in connection with the
     private placement was immaterial.  During the nine months ended September
     30, 1996, warrants were exercised for 29,592 shares of Common Stock, net of
     9,575 warrant shares tendered upon exercise leaving 33,101 Underwriter
     Warrants outstanding.

     On December 21, 1993, the Company sold 1,500,000 units (Units) in its
     initial public offering (Public Offering).  Each Unit consists of one share
     of the Companys Common Stock, $.001 par value, and two Redeemable Common
     Stock Purchase Warrants (Public Warrants).  Each Public Warrant entitles
     the holder to purchase, during the period commencing on the later of the
     consummation by the Company of a Business Combination or one year from the
     effective date of the Public Offering and ending seven years from the
     effective date of the Public Offering, from the Company one share of Common
     Stock at an exercise price of $5.50.  The Public Warrants will be
     redeemable at a price of $.01 per warrant upon 30 days notice at any time,
     only in the event that the last sale price of the Common Stock is at least
     $10.00 per share for 20 consecutive trading days ending on the third day
     prior to date on which notice of redemption is given.

     The Company also issued, in connection with the Public Offering, an
     aggregate of $150,000 of promissory notes to certain accredited investors.
     These notes bore interest at the rate of 10% per annum and were repaid on
     the consummation of the Public Offering with accrued interest thereon.  In
     addition, the investors were issued 300,000 warrants (valued at a nominal
     amount) which are identical to the Public Warrants discussed above.

     On December 21, 1993, the Company sold to the underwriters in the Public
     Offering and their designees, for nominal consideration, the right to
     purchase up to 150,000 units (Unit Purchase Option).  The underwriters
     units issuable upon the exercise of the Unit Purchase Option are identical
     to the Units discussed above except that the Public Warrants contained
     therein expire five years from the effective date of the Public Offering
     and cannot be redeemed.  At June 30, 1996, no Public Warrants or Unit
     Purchase Options had been exercised.

     Treasury Stock.  Treasury stock is recorded at cost and represents the
     value of 781,255 common shares purchased in January 1995 from an officer of
     the Company in consideration for an overriding royalty 

                                 Page 10 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)


     interest in certain properties in which the Company had an interest at the
     time of the treasury stock purchase.

     The Company had no proved reserves at the time of the transaction.  The
     cost of treasury stock of $7,252 was determined on the basis of a pro-rata
     allocation of the Companys accumulated cost in unproved properties at the
     time of the transaction in comparison to the net revenue interest
     transferred.

7.   RELATED-PARTY TRANSACTIONS.

     In June 1996, the Company, with the approval of the Board of Directors (Mr.
     Sam B. Myers, Jr. abstaining), purchased all the working interest in
     certain unproved properties consisting of five non-producing offshore oil
     and gas leases from entities beneficially owned or controlled by affiliates
     (the "Myers Affiliates") of the Company's Chief Executive Officer, Mr. Sam
     B. Myers, Jr.  The Company paid $302,464 (represented by the Myers
     Affiliate as its accumulated cost in the property interests) for the leases
     which are located in Bay Marchand Blocks #4 and #5 in state waters offshore
     Louisiana.  The leases are subject to 7.5% back-in after payout by the
     Myers Affiliates.  The Myers Affiliates also own an aggregate of between 4%
     and 8% overriding royalty interest in these leases, which interests were
     owned by the Myers Affiliates prior to this transaction with the Company.
     In addition, two Vice Presidents and an employee of the Company own
     overriding royalty interests aggregating approximately 2.2% net revenue
     interest under the leases. In May 1996, the Company purchased certain
     proprietary geologic and geophysical data and computer equipment which was
     being utilized by the Company from a Myers Affiliate for $145,490.

     In August 1996, the Company, with the approval of the Board of Directors
     (Mr. Sam B. Myers, Jr. abstaining), purchased non-producing leasehold
     interests and agreed to participate in the drilling of an exploratory well
     owned by a Myers Affiliate located in Timbalier Bay in state waters
     offshore Louisiana.  The Company paid $187,500 for a 37.5% working interest
     in the drilling prospect and advanced estimated dry-hole drilling and
     completion costs of $924,242.  The Myers Affiliate owns an aggregate of
     between 33.1% and 37.25 % net revenue interest in the prospect leases and
     Mr. Myers owns an approximate 1.6% net revenue interest under portions of
     the leases. The Myers Affiliates participated in the well with a working
     interest of 41.2% and paid their proportionate share of the estimated cost
     of drilling and abandonment costs of the well. The Myers Affiliates can
     also back-in for 25% of Zydeco's working interest after payout. Two
     of the Company's Vice Presidents also own approximately 2.2% net revenue
     interest in the prospect leases. Drilling of the well commenced in August
     1996 and was abandoned in September 1996 for mechanical reasons without
     testing the well's primary objectives. The Company and its partners are
     continuing to evaluate the exploration alternatives of this prospect. The
     Company charged $657,385 to exploration expense in September in connection
     with the drilling and abandonment of the well and at September 30, 1996,
     had a receivable due from the Myers Affiliate of $266,857, subject to a
     final accounting of the well's actual expenses.

     In September 1995, the Company engaged the services of a law firm,
     including the services of a partner in the firm who is a relative of an
     officer and director of the Company.  The Company incurred expenses of
     approximately $56,550 and $113,676 to this firm during the nine months
     ended September 30, 1996, and 1995, respectively.

     Zydeco entered into an exchange agreement, dated January 1, 1995, with an
     entity where certain officers and/or directors are officers and/or
     directors of the Company, and agreed to provide 3D seismic analysis
     services in exchange for a license to such data.  The value of this
     exchange was determined by the parties to be $200,000.  As this exchange
     agreement represents an exchange of dissimilar goods, income and expense
     reflects the gross value of seismic service revenues and related data costs
     associated with this transaction for the nine months ended September 30,
     1995.

     Effective January 1, 1995, Zydeco assumed an obligation for office
     facilities under an operating lease agreement, expiring in March 1997, from
     a Myers Affiliate where certain officers of the Company were, at 

                                 Page 11 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)

     the time, also officers and/or directors of the Myers Affiliate. The lease
     agreement required base monthly payments of $3,122. In connection with the
     relocation of the Company's offices in June 1996, the Company bought out
     the remaining nine month term under this lease for $24,615. Rental expense
     related to this lease was $20,273 and $40,585 which is included in general
     and administrative expenses for the nine months ended September 30, 1996,
     and 1995, respectively.

8.   STOCK OPTION PLANS.

     Common Stock was issued in the amount of 1,562 shares during the nine
     months ended September 30, 1996, in connection with stock options exercised
     under the Company's 1995 Employee Stock Option Plan.  Shares exercisable
     under this Plan aggregated 501,564 shares and 251,564 shares at September
     30, 1996, and 1995, respectively, with an exercise price of $1.60 per
     share.

     On January 4, 1996 the Board of Directors approved and adopted the Zydeco
     Energy, Inc. 1996 Equity Incentive Plan.  The Plan authorizes the grant of
     various stock and stock-related awards to key management and other
     personnel on the basis of individual and corporate performance.  The Plan
     provides for the granting of stock options to purchase an aggregate of
     350,000 shares of Common Stock, which are reserved for such purpose.
     During the nine months ended September 30, 1996, options to purchase
     175,000 shares were granted to employees at exercise prices ranging between
     $6 and $7 per share.  At September 30, 1996, no options had been exercised
     or were exercisable under this Plan.  Such options are non-compensatory,
     vest over a four-year period and terminate no later than ten years after
     the date of grant unless otherwise determined by the Compensation
     Committee.

     Also on January 4, 1996, the Board of Directors adopted the 1996 Non-
     employee Director Stock Option Plan and granted an aggregate of 45,000
     shares of Common Stock to three non-employee directors.  The options
     granted become exercisable, one third on April 1, 1997 and one third each
     of the next two succeeding years.  The options were granted at $7, the
     average of the high and low sales price of the Company's Common Stock on
     the date of grant.  At September 30, 1996, no options had been exercised or
     were exercisable under the Plan.  The options terminate no later than ten
     years after the date of grant.  Both of the above plans were approved by
     the Company's shareholders at the Annual Meeting on July 9, 1996.

     In October 1995, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards (SFAS) No. 123, a new standard for
     accounting for stock-based compensation.  This standard established a fair-
     value based method of accounting for stock options awarded after December
     31, 1995 and encourages companies to adopt SFAS No. 123 in place of the
     existing accounting method, which requires expense recognition only in
     situations where stock compensation plans award intrinsic value to
     recipients at the date of grant.  Companies that do not follow SFAS No. 123
     for accounting purposes must make annual pro forma disclosures of its
     effects.  Adoption of the standard is required in 1996, although earlier
     implementation is permitted.  The Company does not intend to adopt SFAS No.
     123 for accounting purposes; however, it will make annual pro forma
     disclosures of its effects commencing in 1996.

9.   SUBSEQUENT EVENTS.

     Effective October 31, 1996, the Company and Cheniere amended the Cheniere
     Agreement to delay the timing of the remaining payments required to be paid
     by Cheniere consistent with the Company's current expectations of the
     timing of costs to be incurred on the Project (see "Note 4 -- Exploration
     Agreements").  Also on October 31, 1996, Cheniere paid the $1 million
     payment due for such date under the revised payment schedule.

     In October 1996, the Company granted options to purchase 220,000 shares of
     Common Stock at $5 per share under the 1996 Equity Incentive Plan to two
     employees, including the Company's new President.  The grants are 45,000
     shares in excess of the 175,000 shares authorized and available for grant,
     and, 

                                 Page 12 of 18
<PAGE>
 
                    ZYDECO ENERGY, INC. AND SUBSIDIARY     
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)

     accordingly, the excess grants are subject to shareholder approval of
     an increase in the total authorized for the 1996 Equity Incentive Plan.

                                 Page 13 of 18
<PAGE>
 
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

GENERAL.

     The Company was incorporated in June 1993 as a special purpose acquisition
corporation for the purpose of raising funds and acquiring an operating business
engaged in the energy services industry. In December 1995 the Company acquired
Zydeco Exploration, Inc. ("Zydeco") by merger (the "Merger"). Other than its
efforts to acquire an energy services business, the Company did not engage in
any business activities prior to December 1995. The Company, through its
operating subsidiary, Zydeco, is now active as an independent oil and gas
exploration company. The Companys operations are subject to a variety of
factors, including successful application of 3D seismic evaluation and
interpretation expertise to develop potential drilling prospects, profitable
exploration and exploitation of such prospects, the ability to joint venture
with third parties utilizing the Company's 3D seismic analysis experience and
the Companys ability to access capital sources necessary for continued growth.
The Companys revenues, profitability and future rate of growth will be
substantially dependent upon prevailing prices for natural gas, oil and
condensate, which are dependent upon numerous factors beyond the Companys
control.

     The Company has been acquiring, and will continue to acquire, oil and gas
leases in the Louisiana Transition Zone and the Timbalier Trench. From such
lease positions, the Company is developing and intends to develop 3D seismic
survey programs or obtain existing non-exclusive 3D seismic data for analysis.
The Company intends to analyze such data with the goal of developing a number of
drilling prospects. Prior to drilling such prospects, the Company will likely
seek participation in such prospects from industry partners or by including as
drilling participants oil and gas companies owning working interests in
adjoining or nearby acreage. There is no assurance, however, that the Company
will be able to generate any particular number of drilling prospects, or that
the Company will achieve a particular success rate in finding paying quantities
of oil and gas. The Company also intends to offer its technical expertise in 3D
seismic analysis and interpretation to other oil and gas companies in
negotiating joint venture or property interests.

     On December 20, 1995, TN Energy Acquisition, the Companys wholly-owned
subsidiary, merged with and into Zydeco.  For accounting purposes, the Merger
was treated as a recapitalization of Zydeco with Zydeco as the acquiror, or a
reverse acquisition, based upon Zydecos officers and directors assuming
management control of the resulting entity and Zydeco Exploration's stockholders
receiving value and ownership interest exceeding that received by the TN Energy
stockholders.  Under this accounting treatment, the historical financial
statements of Zydeco prior to the Merger have become those of the Company.

     On February 7, 1996, the Company entered into a technology agreement with
an individual to develop, test and evaluate certain proprietary technology
related to 3D seismic processing and imaging ("Technology License Agreement").
The Company committed to providing the test environment including personnel,
computing hardware, software and certain data in exchange for an option to
receive a license to use the resulting technology worldwide and exclusively in
certain coastal areas of the Gulf of Mexico. The Company completed its testing
in April 1996 and exercised its option in May 1996 and paid a royalty fee of
$40,000. The Technology License Agreement provides for annual royalty payments
in fixed amounts, except that the Company may elect to terminate the license at
any time.

     On February 14, 1996, the Company purchased an exclusive seismic option
permit from the state of Louisiana covering approximately 51,000 acres of state
waters in western Cameron Parish, Louisiana. The Company paid $783,754 for the
seismic permit and is required to provide a 3D survey over the area within 18
months. On April 4, 1996, the Company executed an Exploration Agreement (the
"Cheniere Agreement") with Cheniere Energy Operating Co., Inc. ("Cheniere")
covering an area of land and waters in western Cameron Parish, Louisiana,
including the area covered by the seismic option permit described above ("West
Cameron Seismic Project"). Cheniere's interest of up to 50% in the West Cameron
Seismic Project is conditioned upon payment of an aggregate of $13.5 million to
fund the estimated costs of seismic acquisition. Such costs include the purchase
of seismic rights or lease options on the related onshore acreage of the West
Cameron Seismic Project, and data acquisition and processing of a 3D seismic
survey of the onshore and offshore areas. Cheniere may elect to discontinue
funding of the Project at any time, in which case its interest would be reduced
pro rata in relation to total project costs. As of November 12, 1996, Cheniere
has made payments of $6,000,000 under the Cheniere

                                 Page 14 of 18
<PAGE>
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


Agreement. The Company and Cheniere have amended to the Cheniere Agreement to
delay the scheduled advance by Cheniere (see "Liquidity and Capital Resources"
below). The Company began onshore leasing and permitting in February and
commenced seismic operations in August 1996.

RESULTS OF OPERATIONS-THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995.

     During 1996 and 1995, the Company's primary operations consisted of the
acquisition of federal and state oil and gas leases, the acquisition of 3D
seismic analysis hardware and software, and the purchase of an interest in a gas
well which commenced production in January 1995, the farmout of two leases (one
of which resulted in commercial production commencing in December 1995) and a
one-eighth participation in the drilling of an exploratory well, which resulted
in a dry-hole.  Due to its limited operations and because Zydeco had completed
only one full fiscal year prior to 1996, analysis of comparable interim periods
prior to 1995 is not meaningful.

     For the three months ended September 30, 1996, operations resulted in a net
loss of $894,665 ($.14 per share) compared to a net loss of $308,176 ($.08 per
share) for the comparable period in 1995.  The increase in net loss of $586,489
is comprised of increased revenue of $477,818 and increased expenses of
$1,064,307.  Oil and gas sales in third quarter 1996 increased $429,303 compared
to third quarter 1995 primarily due to the commencement of new production in
December 1995 from a well completed by Bois d' Arc Resources in which the
Company has an overriding royalty interest of 7.33% after payout (4.33% before
payout).  Payout on this well occurred during the second quarter of 1996.  In
third quarter 1996, the Company's oil and gas revenue represented production
from two wells of 7,966 barrels of oil and 119,359 mcf of natural gas which was
sold for prices averaging approximately $21.34 per barrel and $2.44 per mcf,
respectively.  This compared to third quarter 1995 production from one well of
190 barrels and 21,084 mcf at prices averaging $17.00 per barrel and $1.46 per
mcf, respectively.  Interest income increased $48,515 as a result of the
increase in available cash resulting from the Merger in December 1995.
Exploration costs increased $681,218 in 1996 primarily as a result of the
drilling and abandonment of an exploratory well in Timbalier Bay, Louisiana
($657,385).  General and administrative expense increased $308,193 primarily as
a result of increases in (i) office expenses related to the company's office
relocation in June 1996 ($97,660), (ii) the increase in employees and related
personnel costs ($110,077), and (iii) increases in public company expenses
($82,186).  Depletion, depreciation and amortization increased $86,993 primarily
due to increased oil and gas production and additions of computer hardware and
software used in connection with the Company's seismic processing activities.

RESULTS OF OPERATIONS-FIRST NINE MONTHS 1996 COMPARED TO FIRST NINE MONTHS 1995.

     For the first nine months of 1996, operations resulted in a net loss of
$1,487,178 ($.25 per share) compared to a net loss of $900,937 ($.24 per share)
for the comparable period in 1995.  This represented increased revenue of
$749,495 and increased expenses of $1,335,736.  The loss per share was also
affected by the increase in weighted average shares outstanding as a result of
the additional dilution from shares issued in the Merger.  Oil and gas sales in
1996 increased $929,580 primarily due to new production from the well discussed
above.  In the first nine months 1996, the Company's oil and gas revenue
represented production from two wells of 15,970 barrels of oil and 267,379 mcf
of natural gas which was sold for prices averaging approximately $21.42 per
barrel and $2.53 per mcf, respectively.  This compared to first nine months 1995
production from one well of approximately 477 barrels and 52,612 mcf at prices
averaging $17.72 per barrel and $1.54 per mcf, respectively.  Offsetting the
increased oil and gas production were decreases in revenue from seismic services
($268,500) and sales of unproved property interests ($101,198) as compared to
the first nine months of 1995.  Interest income increased $189,613 as a result
of the increase in available cash resulting from the Merger in December 1995.
Exploration costs increased $460,322 in the first nine months of 1996 primarily
as a result of the drilling and abandonment of the exploratory well discussed
above.  Also during the first nine months of 1995, the Company incurred dry hole
costs of $259,368 related to the plugging and abandonment of a well drilled by
North Central Oil Corporation in which Zydeco participated.  General and
administrative expense increased $925,897 primarily as a result of increases in
(i) office expenses related to the company's office relocation in June 1996
($142,563), (ii) the increase in employees and related personnel costs
($387,952), and (iii) increases in public company expenses ($350,565).
Depletion, depreciation and amortization increased $167,290 primarily due to
increased oil and gas production and additions of computer hardware and software
used in connection with the Company's seismic processing activities.

                                 Page 15 of 18
<PAGE>
 
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


LIQUIDITY AND CAPITAL RESOURCES.

     The Company has generated funds from a public offering, private equity
offering, company operations and cash payments under the Fortune and Cheniere
Agreements.  The Company may use its cash for any general corporate purposes,
except for the funds advanced by Fortune and Cheniere which are committed to the
project operations for which they were intended.  Sources of funds include the
December 1993 public offering of the Companys Common Stock and Warrants which
raised net proceeds, after offering costs, of approximately $7.9 million; the
December 1994 offering of the convertible preferred stock by Zydeco with
proceeds to the Company, after offering costs, of approximately $2.2 million,
and cash payments of $4.8 million advanced in 1995 under the Fortune Agreement.
The Cheniere Agreement executed in April 1996, provides for funding of $13.5
million of project expenditures of which $6,000,000 had been advanced through
October 31, 1996.  The parties have amended the Cheniere Agreement effective
October 31, 1996, to delay the timing of the remaining payments required to be
paid by Cheniere consistent with the Company's current expectations of the
timing of the costs to be incurred on the Project.  The Company currently
anticipates that the survey contractor will not complete the seismic survey
until late in the first quarter of 1997.  The Company has consistently paid for
all project costs as incurred under the Cheniere Agreement, including the
prepayment of long-term leases of computer hardware and software to be utilized
in the processing of the seismic data.  At September 30, 1996, the Company had
prepaid hardware and software leases aggregating $960,575 to secure more
attractive pricing, discounts and terms from its vendors.

     The Company does not maintain any credit facilities.  The Company may in
the future explore the possibility of obtaining such a facility in the event the
Company increases oil and gas production through the successful completion of
oil and gas wells drilled by the Company or as it increases its seismic
activities.

     The Company expects that capital needs for 1996 will be satisfied through
cash on hand (including cash available from liquidation of cash equivalents and
marketable securities)and  cash available under the Fortune Agreement and the
Cheniere Agreement.  Although Cheniere may elect to discontinue its funding at
any time, the Company believes that it has adequate internal cash reserves to
meet its obligations in connection with the West Cameron Seismic Project.  The
Company has the ability to reduce the size of the survey area under its contract
with the survey contractor and thereby limit certain costs of the West Cameron
Seismic Project.  Additional capital needs may be met through additional
issuance of equity securities, including the exercise of outstanding warrants
and options of the Company, securing additional project partners or the sale of
prospects, if any, identified by the projects.  There can be no assurance that
the Company will be successful in securing such partners or funds.

     The Company currently estimates only limited capital expenditures for the
remainder of 1996, excluding the costs of the Fortune and Cheniere projects.  At
September 30, 1996, the Company had incurred capital expenditures (excluding
exploration joint venture expenditures) aggregating $2,013,749.  In connection
with the West Cameron Seismic Project, the Company currently estimates costs to
complete the two-year project at approximately $15 million.  Other significant
additional capital expenditures may include the acquisition of additional oil
and gas leases, the drilling of prospects identified on the Companys current
portfolio of oil and gas leases, the acquisition of interests in producing wells
and other corporate investment opportunities determined by the board to be in
the interest of the Company.  The amount and timing of these expenditures will
be dependent upon numerous factors, including the availability of seismic data,
the number and type of drilling prospects identified as a result of the Companys
3D seismic analysis, the terms under which industry partners may participate in
the Company prospects and the cost of drilling and completion of wells in the
Louisiana Transition Zone and the Timbalier Trench.

     The Company currently maintains a required $300,000 bond in order to hold
its present federal oil and gas leases.  This bond is collateralized by a United
States Treasury Note.  In the event the Company determines to act as operator on
federal offshore lease or is otherwise required to increase its bonding by
federal or state authorities, such additional bonding may require significant
amounts of capital as collateral.

                                 Page 16 of 18
<PAGE>
 
PART II- OTHER INFORMATION

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

              (a)  The Company held its 1996 Annual Meeting of Stockholders on
                   July 9, 1996. At the meeting, the Board of Directors was re-
                   elected in its entirety.

              (b)  Other matters voted upon at the meeting:
 
                   1.  an amendment to the Company's Certificate of
                       Incorporation to eliminate classes of directors was
                       approved by the stockholders by a vote of 4,025,356 for
                       and 7,812 against;

                   2.  the Company's 1996 Equity Incentive Plan was approved by
                       the stockholders by a vote of 4,033,168 for and no votes
                       against; and

                   3.  the Company's 1996 Non-employee Director Stock Option
                       Plan was approved by the stockholders by a vote of
                       4,033,168 for and no votes against.

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

              (A)    EXHIBITS.
                       Exhibit 
                       -------
                       Number                          Description             
                       ------                          -----------
                         
                       10.11     Master Geophysical Data Acquisition Agreement
                                 dated June 12, 1996, (executed August 5, 1996)
                                 between Zydeco Exploration, Inc. and Grant
                                 Geophysical, Inc.

                       10.12     Second Amendment to the Exploration Agreement
                                 between Zydeco Exploration, Inc. and Cheniere
                                 Energy Operating Co., Inc. (formerly FX Energy,
                                 Inc.) dated August 5, 1996
                               
                       10.13     Third Amendment to the Exploration Agreement
                                 between Zydeco Exploration, Inc. and Cheniere
                                 Energy Operating Co., Inc. (formerly FX Energy,
                                 Inc.) dated October 31, 1996
                               
                       27        Financial Data Schedule

              (B)    REPORTS ON FORM 8-K.

                     None

                                 Page 17 of 18
<PAGE>
 
                                  SIGNATURES



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

                                        ZYDECO ENERGY, INC.


                                          /s/ Sam B. Myers, Jr.
                                        ----------------------------------------
                                          Sam B. Myers, Jr., Chief Executive
                                          Officer
                                          (Principal Executive Officer)
 
 
                                          /s/ W. Kyle Willis
                                        ----------------------------------------
                                          W. Kyle Willis, Vice President and
                                          Treasurer
                                          (Principal Financial Officer)

Dated:  November 14, 1996

                                Page 18 of 18