EXHIBIT 13


                       CONSOLIDATED FINANCIAL STATEMENTS

                                   CONTENTS


<TABLE>
<CAPTION>

                                                                            PAGE
<S>                                                                         <C>


Selected Financial Data ...................................................   21

Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................   22

Report of Management to Shareholders ......................................   32

Independent Auditors' Report ..............................................   33

Consolidated Statements of Operations .....................................   34

Consolidated Balance Sheets ...............................................   35

Consolidated Statements of Cash Flows .....................................   36

Consolidated Statements of Shareholders' Equity ...........................   37

Notes to Consolidated Financial Statements ................................   38

</TABLE>

                            SELECTED FINANCIAL DATA
                 (Amounts in Thousands Except Per Share Data)


<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                         1996          1995          1994           1993           1992
==========================================================================================================================
                                                                     Restated       Restated       Restated      Restated

<S>                                                  <C>           <C>            <C>            <C>           <C>

Revenues .........................................   $   518,578   $   408,426    $   470,486    $   452,232   $   296,335
Net income (loss)(3)(4) ..........................        28,961        (1,738)        (4,405)        34,095         3,842
Earnings (loss) per share(3)(4) ..................          0.45         (0.03)         (0.07)          0.56          0.08
Net cash provided by operating
   activities before changes in
   operating assets and liabilities ..............       220,543       124,822        182,413        174,697        92,928
Net cash provided by
   operating activities ..........................       256,419       118,034        209,114        139,292        78,900
Total assets .....................................     1,515,063     1,359,125      1,454,050      1,286,391     1,233,828
Long-term portion of debt ........................       573,455       557,107        622,080        459,787       608,066
Redeemable bearer shares(5) ......................        16,059        16,591         17,467         18,375          --
Shareholders' equity .............................       597,730       562,621        557,646        567,943       358,326
Capital expenditures .............................       213,462       144,101        202,553        137,894        51,524
Acquisitions, net of cash acquired ...............       104,420          --          193,859         29,470       401,888
Standardized measure of discounted
   future net cash flows
   before taxes ..................................     2,137,870     1,103,962        865,047      1,022,140       955,960

</TABLE>


(1)Reference is made to the Consolidated  Financial Statements of Seagull Energy
   Corporation and Subsidiaries and Notes thereto, appearing on pages 33 through
   64 of  this  Annual  Report.  As  discussed  in  Note 1 to  the  Consolidated
   Financial  Statements,  all periods have been  restated to reflect  Seagull's
   merger  with Global  Natural  Resources  Inc.  on October 3, 1996,  which was
   accounted for as a pooling of interests.

(2)Includes Seagull Mid-South Inc. since December 31, 1992, Seagull Energy
   Canada Ltd. since January 4, 1994 and two Egyptian concessions since
   September 10, 1996.

(3)1992 includes the cumulative  effect of two changes in accounting  principles
   related to income taxes and postretirement  benefits representing an increase
   in earnings of approximately $2.3 million, or $0.09 per share.

(4)1995  includes a pre-tax,  non-cash  charge for the  impairment of long-lived
   assets of $48.8 million.

(5)See  Note  9 to the  Consolidated  Financial  Statements  for  discussion  of
   redeemable bearer shares.

                                                                              21

<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS



GENERAL

   On October 3, 1996, the shareholders of Seagull Energy Corporation ("Seagull"
or the "Company") and Global Natural Resources Inc. ("Global") approved a merger
of a wholly  owned  subsidiary  of Seagull  into Global (the  "Global  Merger").
Pursuant to the Global  Merger,  each share of Global common stock was converted
into 0.88 shares of Seagull common stock. The Global Merger was accounted for as
a pooling of interests.  Accordingly,  the financial information for all periods
have been  restated  to  combine  the  results of Seagull  and  Global.  Certain
adjustments  were made to the  results  of Seagull  and  Global to  conform  the
accounting policies and presentation used by Seagull and Global.

   Information  presented herein includes forward looking  statements within the
meaning of Section  27A of the  Securities  Act of 1993 and  Section  21E of the
Securities Exchange Act of 1934. Although Seagull believes that its expectations
are based on  reasonable  assumptions,  it can give no assurance  that its goals
will be achieved.  Important  factors that could cause actual  results to differ
materially  from  those in the  forward  looking  statements  include  political
developments in foreign  countries,  federal and state regulatory  developments,
the timing and extent of changes in commodity  prices,  the timing and extent of
success in  discovering,  developing  and  producing  or  acquiring  oil and gas
reserves,  and  conditions of the capital and equity  markets during the periods
covered by the forward looking statements.


                             RESULTS OF OPERATIONS
                            CONSOLIDATED HIGHLIGHTS
                 (Amounts in Thousands Except Per Share Data)

<TABLE>
<CAPTION>


                                                                                     1996            1995            1994
                                                                                 -------------   -------------    ------------

Revenues:                                                                                          Restated         Restated
<S>                                                                               <C>             <C>             <C>    

  Oil and gas operations(*) ...................................................   $    420,962    $    310,656    $    364,888
  Alaska transmission and distribution ........................................         97,616          97,770         105,598
                                                                                 -------------   -------------    ------------
                                                                                  $    518,578    $    408,426    $    470,486
                                                                                 =============   =============    ============
Operating profit (loss):
  Oil and gas operations(*) ...................................................   $    100,529    $    (33,721)   $     41,374
  Alaska transmission and distribution ........................................         26,026          23,141          21,865
  General and administrative expenses .........................................        (21,500)        (23,798)        (14,603)
                                                                                 -------------   -------------    ------------
                                                                                  $    105,055    $    (34,378)   $     48,636
                                                                                 =============   =============    ============
Net income (loss) .............................................................   $     28,961    $     (1,738)   $     (4,405)
Earnings (loss) per share .....................................................   $       0.45    $      (0.03)   $      (0.07)
Weighted average number of common shares outstanding ..........................         64,073          62,674          63,006
Net cash provided by operating activities before changes in operating assets
  and liabilities .............................................................   $    220,543    $    124,822    $    182,413
Net cash provided by operating activities .....................................   $    256,419    $    118,034    $    209,114

</TABLE>


(*)The  Company  reclassified  its  results of  operations  for 1995 and 1994 to
   combine  the former  Exploration  and  Production  segment and  Pipeline  and
   Marketing  segment  into  Oil and Gas  Operations.  Substantially  all of the
   Company's  gas  processing  and gas  gathering  assets were sold in September
   1995. The assets sold contributed $17.6 million and $26.4 million in revenues
   and $6.2  million  and $6.7  million in  operating  profit for 1995 and 1994,
   respectively.


                                                                              22

<PAGE>

   Seagull's  $31 million and $138  million  improvement  in net income and cash
flow provided by operating activities, respectively, for 1996 is principally due
to two factors that substantially impacted the Oil and Gas Operations segment --
higher  domestic  gas  prices  and  increasing   levels  of  international   oil
production.

   Conversely,  the  Company's  results  of  operations  for 1995  were  greatly
influenced by lower domestic gas prices and three unusual items discussed below.
See the "Oil and Gas Operations," section below for a further discussion of that
segment's operating profit.

   The Company's  results of operations  were impacted by the following  unusual
items in the last two years:

   Merger  expenses of $10.0 million ($9.0 million after taxes) were recorded in
the  fourth  quarter  of  1996  representing  investment  banking  fees,  legal,
accounting and other expenses related to the Global Merger.

   On September 25, 1995,  Seagull and three other sellers completed the sale of
their  disparate  interests  in  19  natural  gas  gathering  systems  and a gas
processing plant (the "Pipeline Assets"). The Company recorded a pre-tax gain on
the  sale  of $82  million  ($54  million  after  taxes).  The  Pipeline  Assets
contributed  $17.6  million and $26.4  million in revenues  and $6.2 million and
$6.7 million in operating profit for 1995 and 1994, respectively.  With the sale
of the Pipeline Assets,  Seagull's former Exploration and Production segment and
the  Pipeline and  Marketing  segment  have been  reclassified  into Oil and Gas
Operations.

   Effective  March  31,  1995,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of." As a result of
the adoption of this standard, the Company recognized a pre-tax, non-cash charge
against  earnings  during 1995 of $48.8  million ($32 million  after taxes) (the
"Long-Lived Asset Impairment").

   Seagull  recorded  one-time  pre-tax  charges of $8  million  in general  and
administrative  expenses  resulting from the Company's  workforce  reduction and
consolidation  implemented  during the second  quarter of 1995. The savings from
the workforce  reduction  and  consolidation  are  primarily  reflected in lower
operating expenses.

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




                                                                              23
<PAGE>


                            OIL AND GAS OPERATIONS
                            (Amounts in Thousands)

<TABLE>
<CAPTION>


                                                      1996         1995           1994
                                                   ----------    ----------    ----------
                                                                  
<S>                                                <C>           <C>           <C>
Revenues:                                                         Restated      Restated
  Natural gas ..................................   $  297,149    $  218,039    $  264,764
  Oil and NGL ..................................       90,779        48,725        42,557
  Other E&P ....................................         (971)          991           156
  Pipeline and marketing .......................       34,005        42,901        57,411
                                                   ----------    ----------    ----------
   Total revenues ..............................      420,962       310,656       364,888
                                                   ----------    ----------    ----------
Costs of Operations:
  E&P direct operating expense .................       87,255        71,632        75,192
  E&P general operating expense ................       14,419        13,393        15,378
  Pipeline and marketing expenses ..............       23,578        30,674        39,949
  Exploration charges ..........................       50,227        40,223        43,813
  Depreciation, depletion and amortization .....      144,954       139,613       149,182
  Impairment of long-lived assets ..............         --          48,842          --
                                                   ----------    ----------    ----------
   Total operating costs .......................      320,433       344,377       323,514
                                                   ----------    ----------    ----------
Operating profit (loss) ........................   $  100,529    $  (33,721)   $   41,374
                                                   ==========    ==========    ==========
</TABLE>


   The $110  million  increase  in  revenues  for 1996 as  compared  to 1995 was
primarily the net result of two factors - (i) increases in the Company's average
realized price of natural gas for its domestic E&P activities and (ii) increases
in oil production and oil  and gas price  internationally.  The domestic natural
gas  prices  increase  from  $1.62  per Mcf for 1995 to  $2.17  per Mcf for 1996
accounted  for  approximately  $63 million of the overall  increase in revenues.
International  production  increased  over 1995 as  production in Egypt began in
November 1995 and the Company  purchased  interests in two  additional  Egyptian
concessions  on  September  10,  1996  (the  "Esso  Suez  Acquisition").   Also,
production  increased  steadily during 1996 from Cote d'Ivoire where  production
began in April 1995.  The  increases in  production  in Cote  d'Ivoire and Egypt
contributed  approximately  $35  million of the overall  increase  in  revenues.
Domestic gas production also  increased  slightly,  providing  approximately  $6
million of the overall increase in revenues.

   Revenues  decreased $54 million from 1994 to 1995  primarily as the result of
substantial declines in the domestic and Canadian average natural gas prices and
a 5% decline in domestic  natural gas  production.  The  domestic  and  Canadian
natural gas price per Mcf  decline  from $1.88 to $1.62 and from $1.55 to $1.02,
respectively,  was responsible for  approximately $41 million of the decrease in
revenues and the 5% decline in domestic  natural gas production was  responsible
for an additional $9 million.  The decrease in domestic production was primarily
due to  voluntary  curtailments  coupled with lower  sustainable  deliverability
resulting from natural  production  declines and a substantially  lower level of
development  expenditures  in late 1994 and all of 1995. Both the lower level of
development expenditures and voluntary curtailments were directly related to the
low natural gas price. The Company has had no voluntary curtailments in the U.S.
since October 1995.

   In late 1995,  Seagull  initiated  an active  risk  management  program for a
portion of its own E&P production  and  third-party  activities,  utilizing such
derivative  financial  instruments as futures contracts,  options and swaps. The
primary  objective of the risk management  program is to help ensure more stable
cash flow.  The risk  management  program is also an important part of Seagull's
third-party marketing efforts, allowing the Company to convert a customer's

<PAGE>


                                                                              24

requested  price to a price  structure  that is  consistent  with the  Company's
overall  pricing  strategy.   Seagull  accounts  for  its  commodity  derivative
contracts  as hedging  activities  and,  accordingly,  the effect is included in
revenues when the commodities are produced.

   The Company recorded costs related  to commodity  hedging  activities of $9.0
million, $0.5 million and none for 1996,  1995  and  1994,  respectively.  These
costs  had  the effect of reducing average gas prices by $0.06 mcfe for 1996 and
$0.004 mcfe for 1995.

   In mid 1996, Seagull put price "collars" in  place  with  respect  to about a
third of its  domestic  gas  deliverability  for the first quarter of 1997 only.
These "collars" assured a minimum realization above $2.00  per  Mcf  in exchange
for  a  $2.50  per  Mcf  ceiling  on  that  component  of  Seagull's production.
Additionally,  the  Company  has  commodity hedges in place for approximately 12
MMcf  per  day  through December 1998 on properties associated with the Monetary
Production Payment (see Note 6  to the Consolidated Financial Statements). These
hedge positions will reduce first quarter 1997 E&P revenues.  At  December   31,
1996, there was $8.2 million of realized cost  on  commodity  hedging activities
which was deferred and will reduce  revenues  in  the  month  that  the   hedged
production  occurred  (January 1997).  On the other hand, because of the drop in
commodity prices after January 1997, the Company expects actual net realizations
of above "collars" for February and March, 1997 to be slightly positive. Also at
December 31, 1996, there are $2.0 million of  net  unrealized  and  unrecognized
hedging cost  related  to  the commodity hedges  associated  with  the  Monetary
Production Payment based on the difference  between  the  strike  price  and the
futures price for the respective trading months at year end.  Again as a  result
of the intervening drop in commodity prices, the net unrealized and unrecognized
hedging cost would be substantially lower if current strike and  futures  prices
were used.   Essentially  all  other  hedging  activities were realized prior to
year-end.  The Company has no commodity hedges  in  place for  equity production
after  March  1997  other  than  those  associated  with the Monetary Production
Payment.


                  EXPLORATION AND PRODUCTION REVENUE BY AREA
                            (Amounts in Thousands)


<TABLE>
<CAPTION>

                                         1996         1995         1994
                                      ----------   ----------   ----------
                                                    Restated     Restated
<S>                                   <C>          <C>          <C>

Gas Revenues:
  Domestic ........................   $  252,806   $  183,478   $  223,110
  Canada ..........................       26,869       22,591       30,695
  Cote d'Ivoire ...................        2,563          328         --
  Indonesia .......................       14,911       11,642       10,959
                                      ----------   ----------   ----------
                                      $  297,149   $  218,039   $  264,764
                                      ==========   ==========   ==========

Oil and NGL Revenues:
  Domestic ........................   $   29,706   $   22,228   $   24,879
  Canada ..........................        6,048        5,186        4,940
  Cote d'Ivoire ...................       10,235        4,050         --
  Egypt ...........................       28,126          442         --
  Russia ..........................       15,626       16,037       11,956
  Indonesia .......................        1,038          782          782
                                      ----------   ----------   ----------
                                      $   90,779   $   48,725   $   42,557
                                      ==========   ==========   ==========


</TABLE>



                                                                              25

<PAGE>

                   EXPLORATION AND PRODUCTION OPERATING DATA

<TABLE>
<CAPTION>


                                                 Net Daily Production               Unit Price
                                             1996        1995        1994        1996        1995        1994
                                           ---------   ---------   ---------   ---------   ---------   ---------
                                                        Restated    Restated                Restated    Restated
<S>                                        <C>         <C>         <C>         <C>         <C>         <C>

 Gas Sales(1):
    Domestic ...........................       317.6       310.7       325.5   $    2.17   $    1.62   $    1.88
    Canada .............................        57.9        60.5        54.1        1.27        1.02        1.55
    Cote d'Ivoire ......................         3.9         0.6        --          1.77        1.61        --
    Indonesia ..........................        12.1        10.8        12.3        3.36        2.96        2.45
                                           ---------   ---------   ---------   ---------   ---------   ---------
    Total ..............................       391.5       382.6       391.9   $    2.07   $    1.56   $    1.85
                                           =========   =========   =========   =========   =========   =========

 Oil and NGL Sales(2):
    Domestic ...........................       4,264       3,845       4,520   $   19.03   $   15.84   $   15.08
    Canada .............................         985       1,092       1,170       16.77       13.01       11.57
    Cote d'Ivoire ......................       1,395         715        --         20.04       15.51        --
    Egypt ..............................       3,565          67        --         21.56       17.97        --
    Indonesia ..........................         147         125         129       19.58       17.18       16.58
    Russia .............................       3,053       2,909       2,307       13.98       15.11       14.21
                                           ---------   ---------   ---------   ---------   ---------   ---------
    Total ..............................      13,409       8,753       8,126   $   18.50   $   15.53   $   14.35
                                           =========   =========   =========   =========   =========   =========
</TABLE>



(1) Volume in MMcf per day; Price in $ per Mcf.

(2) Volume in Bbl per day; Price in $ per Bbl.


   The increase in E&P direct  operating  expenses of $15.6 million from 1995 to
1996 is  principally a result of the  increased  production in the United States
and Egypt.  However,  direct operating expense per equivalent unit of production
for the Company's E&P activities  increased from $0.45 per Mcfe in 1995 to $0.51
per Mcfe in 1996  primarily due to increased  domestic  transportation  expense.
Direct  operating  costs per  equivalent  unit of  production  are  expected  to
increase slightly during 1997 as the Company's international  operations and oil
production (with higher associated  direct operating costs) become  increasingly
significant to the Company's total E&P operations.

   Direct operating expense for the Company's E&P activities  declined from 1994
to 1995 primarily due to the decline in domestic production and decreased export
taxes in Russia  attributable  to a one-year  exemption  from  export tax in the
Company's Russian  operations in 1995. Direct operating  expenses per equivalent
unit  of  production  declined from $0.47 per Mcfe in 1994 to $0.45 per Mcfe  in
1995.

   Oil and Gas  Operations  depreciation,  depletion and  amortization  ("DD&A")
expense  increased  from  $139.6  million  in 1995  to  $145.0  million  in 1996
primarily due to increased  production  discussed  above,  partially offset by a
decrease in the average DD&A rate per equivalent  unit of production  from $0.86
per Mcfe in 1995 to $0.83 per Mcfe in 1996.

   DD&A expense for Oil and Gas  Operations  decreased $6.6 million from 1994 to
1995 principally as a result of the decline in domestic  production coupled with
a decrease in the average  DD&A rate.  Due to the  Long-Lived  Asset  Impairment
discussed  previously and a change in the mix of properties being produced,  the
Company's  average DD&A rate  decreased from $0.89 per Mcfe in 1994 to $0.86 per
Mcfe in 1995.

OUTLOOK

   At year-end 1996, the Company was producing about 375 MMcf per day of




                                                                              26
<PAGE>

natural gas and 18,500 Bbl per day of crude oil,  condensate  and NGL worldwide.
In the United  States,  Seagull  expects to maintain  its level of domestic  gas
production of about 300 MMcf per day throughout  1997. U.S.  liquids  production
will increase when initial shipments begin from a recent  discovery in the first
half of 1997.

   In Canada, Seagull expects 1997 production to compare closely  with  year-end
1996   levels  of between 50 and 55 MMcf per day of gas and 1,000 Bbl per day of
oil, condensate and NGL.

   Internationally,  production  increases are  anticipated in Egypt,  where the
Company expects oil output for 1997 to average approximately 10,000 Bbl per day.
Elsewhere,  Seagull  expects  production  levels to grow more  modestly  in Cote
d'Ivoire and to be essentially unchanged in Indonesia and Russia.

   The future results of the Oil and Gas Operations  segment will be affected by
the market prices of oil and natural gas and the Company's degree of exploration
success.  The  availability  of a ready  market for oil,  natural gas and liquid
products in the future will depend on numerous factors beyond the control of the
Company,  including  weather,  production  of other  crude oil,  natural gas and
liquid products, imports, marketing of competitive fuels, proximity and capacity
of oil and gas pipelines and other transportation  facilities, any oversupply or
undersupply of oil, gas and liquid  products,  the regulatory  environment,  and
other  international,  regional  and  political  events,  none of  which  can be
predicted with certainty.

                     ALASKA TRANSMISSION AND DISTRIBUTION
                  (Dollars in Thousands Except Per Unit Data)



<TABLE>
<CAPTION>
                                                    1996         1995         1994
                                                 ----------   ----------   ----------
<S>                                              <C>          <C>          <C>


Revenues .....................................   $   97,616   $   97,770   $  105,598
Cost of gas sold .............................       42,600       46,328       54,465
                                                 ----------   ----------   ----------
   Gross margin...............................       55,016       51,442       51,133
Operations and maintenance expense ...........       21,045       20,504       21,516
Depreciation, depletion and amortization .....        7,945        7,797        7,752
                                                 ----------   ----------   ----------
   Operating profit...........................   $   26,026   $   23,141   $   21,865
                                                 ==========   ==========   ==========
OPERATING DATA:
Degree days(*) ...............................       10,975        9,997       10,291
Volumes (Bcf):
  Gas sold ...................................         26.8         26.4         31.3
  Gas transported ............................         21.0         17.9         12.8
  Combined ...................................         47.8         44.3         44.1
Margins (per Mcf):
  Gas sold ...................................   $     1.70   $     1.66   $     1.49
  Gas transported ............................   $     0.46   $     0.43   $     0.35
  Combined ...................................   $     1.15   $     1.16   $     1.16
Year-end customers ...........................       94,100       92,100       90,100


</TABLE>


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




                                                                              27
<PAGE>


   Operating profit of the Alaska transmission and distribution  segment (ENSTAR
Natural Gas Company,  a division of the Company,  and Alaska Pipeline Company, a
wholly owned subsidiary, (collectively referred to herein as "ENSTAR Alaska") is
primarily  a function of the  weather in the  Anchorage,  Alaska area during the
winter heating  season.  Cold weather  equates to higher gas volumes  delivered,
resulting  in  increased  profits.  This proved to be the case in 1996 as degree
days for the ENSTAR Alaska  service area  increased 10% to 10,975  compared with
1995, resulting in a 12% increase in operating profit.

   Although degree days were down slightly in 1995,  operating  profit of ENSTAR
Alaska  improved  from  1994  primarily  as a  result  of lower  operations  and
maintenance expense due to lower permit fees paid.

   In the first quarter of 1995, two large military power plants that previously
purchased  gas  from  ENSTAR  Alaska  began  purchasing  gas  directly  from gas
producers.  However,  ENSTAR  Alaska  has been  approved  by the  Alaska  Public
Utilities  Commission to transport the customers' gas supplies for a fee that is
essentially comparable to the margin (revenues net of the associated cost of gas
sold) it previously earned. Accordingly, overall operating profit for the Alaska
transmission and distribution segment was basically unaffected by this change.

OUTLOOK

   ENSTAR Alaska will continue to play a significant  role in Seagull's  future.
Even  though it may not fit  precisely  into the  Company's  other  E&P-oriented
activities,  management  expects  it to be  maintained  as a  major  part of the
Company.

   Future  operating  profit  for this  segment  will be  affected  by  weather,
regulatory  action and customer  growth in ENSTAR  Alaska's  service  area.  The
Company expects customer growth to continue to be relatively modest.  During the
1996 summer  construction  season,  approximately  56 miles of new  distribution
pipeline were installed to connect some 2,000 new customers.  In September 1995,
ENSTAR  Alaska  entered  into a 33-year  agreement  to lease a  60-mile,  8-inch
diameter  pipeline  between  Anchorage,  Alaska and  Whittier,  Alaska.  The new
pipeline  is  expected  to add  close to 1,500 new  customers  over the next few
years.

   ENSTAR Alaska  purchases all of its natural gas under long-term  contracts in
which  the  price is  indexed  to  changes  in the  price of crude  oil  futures
contracts. However, because ENSTAR Alaska's sales prices are adjusted to include
the  projected  cost of its  natural  gas,  there has been and is expected to be
little or no impact on  margins  derived  from  ENSTAR  Alaska's  gas sales as a
result of  fluctuation  in oil  prices  due to  worldwide  political  events and
changing market conditions.

                                     OTHER

   General and  administrative  expenses,  excluding  the $8 million  charge for
workforce   reduction  and   consolidation   discussed   previously,   increased
approximately  $5.7 million to $21.5  million in 1996 as a result of an increase
in incentive  compensation  expenses and the Company's  expanding  international
operations.  Interest  expense  declined  from  $53.0  million  in 1995 to $44.8
million  for  1996  through  utilization  of the  proceeds  from the sale of the
Pipeline  Assets in late 1995 to repay amounts  outstanding  under the Company's
existing credit facilities.





                                                                              28
<PAGE>


                        LIQUIDITY AND CAPITAL RESOURCES

                             CAPITAL EXPENDITURES
                            (Amounts in Thousands)

<TABLE>
<CAPTION>


                                                   1996         1995         1994
                                                ----------   ----------   ----------
                                                              Restated     Restated
<S>                                             <C>          <C>          <C>

Exploration and production:
   Leasehold ................................   $   12,986   $   18,000   $   18,573
   Exploration ..............................       77,774       46,575       67,135
   Development ..............................      108,763       69,260      100,763
                                                ----------   ----------   ----------
                                                   199,523      133,835      186,471
Pipeline and marketing ......................          228          441        2,503
                                                ----------   ----------   ----------
Oil and gas operations ......................      199,751      134,276      188,974
Alaska transmission and distribution ........        9,287        7,611        7,626
Corporate ...................................        4,424        2,214        5,953
                                                ----------   ----------   ----------
                                                $  213,462   $  144,101   $  202,553
                                                ==========   ==========   ==========

</TABLE>


                 E&P CAPITAL EXPENDITURES BY GEOGRAPHIC REGION
                              (AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>


                         Data for 1996 Actuals Chart
                         <S>                      <C>

                         Domestic ............... $139.7
                         Canada ................. $ 15.2
                         Egypt .................. $ 33.0
                         Cote d'Ivoire .......... $  6.9
                         Other .................. $  4.7


                         Data for 1997 Plan Chart

                         Domestic  .............. $114.2
                         Canada ................. $ 15.4
                         Egypt .................. $ 79.0
                         Cote d'Ivoire .......... $ 18.1
                         Other .................. $  8.3

</TABLE>

                 
   E&P is the Company's primary growth area. Historically,  that growth has been
achieved  primarily  through  acquisitions  of  proved  oil and gas  properties.
However,  acquisitions  are  expected to play a much  smaller  role in Seagull's
near-term future growth.  

   In 1997, the Company's  capital program is designed to hold domestic reserves
and deliverability to approximately year-end 1996 levels, while greater focus is
placed on Seagull's international drilling efforts.

   E&P capital  expenditures  in 1996 totaled $199.5 million,  up  substantially
from $133.8 million in 1995. Spending outside the U.S. totaled $59.8 million, of
which $13.2  million was for  exploration  and $43.5  million for  exploitation.

   Seagull  participated  in the drilling of 46  exploratory  wells during 1996,
of  which 23 were successful.  Another 15 wells were in progress at year-end. Of
the successes, 14  were  in  the  U.S., 2  in Egypt, 2 in Cote d'Ivoire and 5 in
Canada.  In  addition,  domestic  exploitation activities picked up considerably
after being severely curtailed in 1995 due to the depressed U.S. gas prices.

   On September 10, 1996,  Seagull  consummated the Esso Suez  Acquisition for a
net  purchase  price of  approximately  $74  million  in cash  financed  through
additional  borrowings under Seagull's  revolving credit (the "Revolving  Credit
Facilities").  The assets purchased in the Esso Suez Acquisition  include a 100%
interest in the East Zeit oil producing  concession in the offshore Gulf of Suez
and the entire working interest in the South Hurghada concession located onshore
on the coast of the Gulf of Suez approximately 250 miles south of Cairo.




                                                                              29
<PAGE>


   On September 10, 1996, the East Zeit concession area contained  approximately
17 million net barrels of proved oil reserves.  The  63,000-acre  South Hurghada
concession contained several currently drillable exploratory prospects, plus two
existing oil discoveries.

   In addition,  Seagull's new program of relatively  small  domestic  producing
property  acquisitions  initiated in 1996  resulted in the addition of 37.3 Bcfe
for a cost of $29.1 million.

   Seagull's  proved oil and gas reserves at December  31, 1996 totaled  257,957
MBOE compared with 243,152 MBOE at year-end  1995.  Through  drilling and proved
property  acquisitions,  the Company replaced 159% of its production during 1996
at a  finding  and  development  ("F&D")  cost of $6.36  per BOE and 177% of its
production  over the three year period 1994  through 1996 at a F&D cost of $5.76
per BOE.

   The higher reserve volumes and the improved price environment that existed at
year-end 1996 combined to substantially increase the present value of future net
cash flows from the Company's  proved reserves.  Specifically,  the standardized
measure of discounted  future net cash flows before taxes from Seagull's  proved
oil and gas reserves,  calculated  based on Securities  and Exchange  Commission
criteria,  increased  to $2.1 billion at December  31, 1996  compared  with $1.1
billion at the end of 1995. Year-end 1996 calculations were made using prices of
$3.27  per Mcf for gas and  $20.99  per Bbl for oil,  condensate  and  NGL.  The
Company's average realized price for the year ended December 31, 1996 were $2.07
per Mcf for gas and  $18.50 per Bbl for oil,  condensate  and NGL.  Because  the
disclosure requirements are standardized, significant changes can occur in these
estimates  based  upon oil and gas  prices  in  effect  at  year-end.  The above
estimates  should not be viewed as an estimate of fair market value. See Note 15
of Notes  to  Consolidated  Financial  Statements  beginning  on page 38 of this
Annual Report for additional information.

   Plans for 1997 call for capital  expenditures of approximately  $250 million,
including about $235 million in E&P. Seagull anticipates spending  approximately
$140 million for development,  $10 million for leasehold and $85 million will be
devoted to  exploration.  Of this  total,  about $105  million is expected to be
spent outside  North  America.  The 1997 capital  program  anticipates  35 to 40
exploratory  wells in the U.S. and Canada and over 25 exploratory  wells outside
of North America.

LIQUIDITY

   The growth in the Oil and Gas  Operations  segment  over the past eight years
has been accomplished  primarily through acquisitions financed initially by bank
borrowings; however, since August 1990, the Company has utilized $520 million in
net proceeds from three separate  Common Stock  offerings and the July 1993 sale
of Senior and Senior  Subordinated  Notes, all in underwritten public offerings,
to reduce  borrowings under its existing bank facilities.  In addition,  Seagull
reduced its borrowings  under  existing bank  facilities in 1995 by $143 million
with the proceeds from the sale of the Pipeline Assets and the Internal  Revenue
Code Section 29 Tax Credit-bearing gas properties.

   In 1993,  the Company  entered into the Revolving  Credit  Facilities  with a
group of major U. S. and  international  banks (the  "Banks").  During 1996, the
terms of the Revolving  Credit  Facilities were amended and currently  provide a
maximum  commitment  of $650 million.  Under the terms of the  Revolving  Credit
Facilities,  the  commitments  thereunder  begin to decline  in equal  quarterly
amounts of $40 million  commencing on March 31, 1999,  with a final reduction of
$50 million on December 31, 2002. The amount of senior indebtedness available to
the Company under the provisions of the Revolving  Credit  Facilities is subject
to a borrowing base (the "Borrowing Base"),  based upon certain of the Company's
proved oil and gas reserves and the financial  performance of ENSTAR Alaska. The
Borrowing  Base is generally  determined  annually but may be  redetermined  one
additional  time each year,  at the option of either  Seagull or the Banks,  and
upon the sale of certain assets included in the Borrowing




                                                                              30
<PAGE>

Base.  With the Esso Suez  Acquisition,  Seagull  requested  and  received a $50
million  increase to the Borrowing  Base to $550 million on October 1, 1996. See
Notes 4 and 6 of Notes to Consolidated Financial Statements beginning on page 38
of this Annual Report for additional  information  relating to acquisitions  and
debt.

   As of December 31, 1996,  borrowings  outstanding  under the Revolving Credit
Facilities were $237 million,  leaving immediately  available unused commitments
of  approximately  $176  million,  net of  outstanding  letters of credit of $20
million, $100 million of borrowings  outstanding under the Senior Notes, and $17
million in borrowings outstanding under the Company's money market facilities.

   The money  market  facilities  are with two U.S.  banks  and have a  combined
maximum commitment of $70 million.  These lines of credit bear interest at rates
made  available  by the  banks at their  option  and may be  canceled  at either
Seagull's or the banks' option.

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

ENVIRONMENTAL

   To date,  compliance with applicable  environmental and safety regulations by
the Company has not required any significant capital  expenditures or materially
affected  its business or earnings.  The Company  believes it is in  substantial
compliance with  environmental  and safety  regulations and foresees no material
expenditures in the future; however, the Company is unable to predict the impact
that  compliance  with  future  regulations  may have on  capital  expenditures,
earnings and competitive position.

                       SELECTED QUARTERLY FINANCIAL DATA

Summarized  quarterly  financial  data  (stated  in  thousands  except per share
amounts) is as follows:

<TABLE>
<CAPTION>


                                                             Quarter Ended(1)
                                           -----------------------------------------------------------
                                            March 31         June 30        September 30   December 31
                                           ----------       ----------      ------------   -----------
<S>                                        <C>              <C>             <C>            <C>

1996:
  Revenues .............................   $  136,840       $  112,437       $  110,786    $  158,515
  Operating Profit .....................   $   37,701       $   13,826       $   20,116    $   33,412
  Net Income (Loss) ....................   $   18,312       $   (2,934)      $    7,458    $    6,125(6)
  Earnings (Loss) per Share(2) .........   $     0.29       $    (0.05)      $     0.12    $     0.10

1995:
  Revenues .............................   $  112,427       $   98,595       $   85,381    $  112,023
  Operating Profit (Loss) ..............   $  (47,469)(3)   $   (2,114)(4)   $   (1,475)   $   16,680
  Net Income (Loss) ....................   $  (42,766)(3)   $  (10,063)(4)   $   43,692(5) $    7,399
  Earnings (Loss) per Share(2) .........   $    (0.69)      $    (0.16)      $     0.70    $     0.12


</TABLE>

(1)As discussed in Note 1 to the Consolidated Financial Statements,  all periods
   have been restated to reflect the Global Merger on October 3, 1996.

(2)Quarterly earnings (loss) per common share may not total to the full year per
   share amount,  as the weighted average number of shares  outstanding for each
   quarter fluctuated as a result of the assumed exercise of stock options.

(3)Includes $48.8 million pre-tax  non-cash charge relating to the impairment of
   long-lived assets.

(4)Includes  one-time pre-tax charges of $8 million for expenses involved in the
   workforce reduction and consolidation.

(5)Includes $82 million pre-tax gain on the sale of the Pipeline Assets.

(6)Includes $10 million pre-tax merger expenses relating to the Global Merger.



                                                                              31
<PAGE>
      
                      REPORT OF MANAGEMENT TO SHAREHOLDERS


   The  management  of  Seagull  Energy   Corporation  is  responsible  for  the
preparation  and  integrity  of  financial  statements  and related data in this
Annual  Report,  whether  audited or unaudited.  The financial  statements  were
prepared in conformity with generally accepted accounting principles and are not
misstated  due to material  fraud or error.  The  financial  statements  include
certain  estimates and judgments which management  believes are reasonable under
the circumstances. The other information in the Annual Report is consistent with
that in the financial statements.

   Management is responsible  for and maintains a system of internal  accounting
controls  that is  sufficient to provide  reasonable  assurance  that assets are
safeguarded  against loss or  unauthorized  use and that  financial  records are
reliable for preparing  financial  statements,  as well as to prevent and detect
fraudulent  financial  reporting.  The internal  control  system is supported by
written  policies  and  procedures  and the  employment  of  trained,  qualified
personnel. The Company has an internal auditing staff which reviews the adequacy
of the internal  accounting  controls and compliance  with them.  Management has
considered  the  recommendations  of the internal  auditing  staff and KPMG Peat
Marwick  LLP  concerning  the  Company's  system of  internal  controls  and has
responded appropriately to those recommendations.

   The  accompanying   consolidated   financial  statements  of  Seagull  Energy
Corporation  and  Subsidiaries as of December 31, 1996 have been audited by KPMG
Peat Marwick LLP,  independent  certified public accountants.  Their audits were
made in accordance  with generally  accepted  auditing  standards and included a
review of the system of internal controls to the extent considered  necessary to
determine  the  audit  procedures  required  to  support  their  opinion  on the
consolidated financial statements. The Auditors' Report appears on page 33.

   The Board of Directors,  through its Audit Committee composed  exclusively of
outside directors,  meets periodically with  representatives of management,  the
internal auditing staff and the independent  auditors to ensure the existence of
effective internal accounting controls and to ensure that financial  information
is reported accurately and timely with all appropriate disclosures included. The
independent  auditors and the internal  auditing staff have full and free access
to, and meet with, the Audit Committee, with and without management present.


/s/ BARRY J. GALT

Barry J. Galt
Chairman and
Chief Executive Officer


/s/ WILLIAM L. TRANSIER

William L. Transier
Senior Vice President and
Chief Financial Officer


/s/ GORDON L. MCCONNELL

Gordon L. McConnell
Vice President and Controller
January 27, 1997




                                                                              32

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Seagull Energy Corporation:

   We have  audited  the  accompanying  consolidated  balance  sheets of Seagull
Energy  Corporation  and  Subsidiaries as of December 31, 1996 and 1995, and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows for each of the years in the  three-year  period ended  December 31, 1996.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

   We  conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  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  consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Seagull
Energy  Corporation  and  Subsidiaries as of December 31, 1996 and 1995, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally  accepted
accounting principles.

   As discussed in Note 2 in 1995, the Company  changed its method of accounting
for the impairment of long-lived assets and for long-lived assets to be disposed
of to  adopt  the  provisions  of the  Financial  Accounting  Standards  Board's
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."

/s/  KPMG Peat Marwick LLP

Houston, Texas
January 27, 1997




                                                                              33
<PAGE>

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amount in Thousands Except Per Share Data)



<TABLE>
<CAPTION>


                                                                      Year Ended December 31,
                                                               --------------------------------------
                                                                  1996          1995          1994
                                                               ----------    ----------    ----------
                                                                             Restated      Restated
<S>                                                            <C>           <C>           <C> 
Revenues:
  Oil and gas operations ...................................   $  420,962    $  310,656    $  364,888
  Alaska transmission and distribution .....................       97,616        97,770       105,598
                                                               ----------    ----------    ----------
                                                                  518,578       408,426       470,486

Costs of Operations:
  Operations and maintenance ...............................      146,297       136,203       152,035
  Alaska transmission and distribution cost of gas sold ....       42,600        46,328        54,465
  Exploration charges ......................................       50,227        40,223        43,813
  Depreciation, depletion and amortization .................      152,899       147,410       156,934
  Impairment of long-lived assets ..........................         --          48,842          --
  General and administrative ...............................       21,500        23,798        14,603
                                                               ----------    ----------    ----------
                                                                  413,523       442,804       421,850
                                                               ----------    ----------    ----------

Operating Profit (Loss) ....................................      105,055       (34,378)       48,636

Other (Income) Expense:
  Merger expense ...........................................        9,982          --            --
  Interest expense .........................................       44,842        52,978        51,674
  Gain on sales of property, plant and equipment, net ......       (1,088)      (83,388)         (405)
  Interest income and other ................................       (3,537)       (5,012)       (1,968)
                                                               ----------    ----------    ----------
                                                                   50,199       (35,422)       49,301
                                                               ----------    ----------    ----------

Income (Loss) Before Income Taxes ..........................       54,856         1,044          (665)

Income Tax Expense .........................................       25,895         2,782         3,740
                                                               ----------    ----------    ----------

Net Income (Loss) ..........................................   $   28,961    $   (1,738)   $   (4,405)
                                                               ==========    ==========    ==========

Earnings (Loss) Per Share ..................................   $     0.45    $    (0.03)   $    (0.07)
                                                               ==========    ==========    ==========

Weighted Average Number of Common
  Shares Outstanding .......................................       64,073        62,674        63,006
                                                               ==========    ==========    ==========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.



                                                                              34
<PAGE>


                          CONSOLIDATED BALANCE SHEETS
             (Amount in Thousands Except Share and Per Share Data)

<TABLE>
<CAPTION>


                                                                                             December 31,
                                                                                       --------------------------
                                                                                          1996           1995
                                                                                       -----------    -----------
                                                                                                      Restated
<S>                                                                                    <C>            <C>

ASSETS
  Current Assets:
   Cash and cash equivalents .......................................................   $    15,284    $    21,477
   Short-term investments ..........................................................          --            5,004
   Accounts receivable, net ........................................................       193,659        133,190
   Inventories .....................................................................        12,285          5,488
   Prepaid expenses and other ......................................................         6,389         16,272
                                                                                       -----------    -----------
     Total Current Assets ..........................................................       227,617        181,431

  Property, Plant and Equipment:
   Oil and gas properties (successful efforts method) ..............................     1,750,784      1,494,773
   Utility plant ...................................................................       238,091        229,883
   Other ...........................................................................        60,481         58,507
                                                                                       -----------    -----------
                                                                                         2,049,356      1,783,163
  Accumulated Depreciation, Depletion and Amortization .............................       804,715        652,985
                                                                                       -----------    -----------
                                                                                         1,244,641      1,130,178
  Other Assets .....................................................................        42,805         47,516
                                                                                       -----------    -----------

  Total Assets .....................................................................   $ 1,515,063    $ 1,359,125
                                                                                       ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
   Accounts and note payable .......................................................   $   166,775    $    94,318
   Accrued expenses ................................................................        57,368         50,224
   Current maturities of long-term debt ............................................         7,227          1,650
                                                                                       -----------    -----------
     Total Current Liabilities .....................................................       231,370        146,192

  Long-Term Debt ...................................................................       573,455        557,107
  Other Noncurrent Liabilities .....................................................        65,428         53,237
  Deferred Income Taxes ............................................................        31,021         23,377

  Redeemable Bearer Shares .........................................................        16,059         16,591

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

  Shareholders' Equity:
   Common Stock, $.10 par value; authorized 100,000,000 shares;
     issued 63,073,287 in 1996 and 65,983,199 in 1995 ..............................         6,307          6,598
   Additional paid-in capital ......................................................       483,118        496,377
   Retained earnings ...............................................................       115,805         86,844
   Foreign currency translation adjustment .........................................            51            389
   Less:  note receivable from employee stock ownership plan .......................        (4,284)        (4,922)
   Less:  treasury stock, at cost; 361,314 shares in 1996 and 3,729,823 in 1995 ....        (3,267)       (22,665)
                                                                                       -----------    -----------
     Total Shareholders' Equity ....................................................       597,730        562,621
                                                                                       -----------    -----------

   Total Liabilities and Shareholders' Equity ......................................   $ 1,515,063    $ 1,359,125
                                                                                       ===========    ===========

</TABLE>


See accompanying Notes to Consolidated Financial Statements.




                                                                              35

<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Amounts in Thousands)


<TABLE>
<CAPTION>


                                                                                                 Year Ended December 31,
                                                                                       -----------------------------------------
                                                                                          1996           1995           1994
                                                                                       -----------    -----------    -----------
Operating Activities:                                                                                   Restated       Restated

<S>                                                                                    <C>            <C>            <C> 

  Net income (loss) ................................................................   $    28,961    $    (1,738)   $    (4,405)
  Adjustments to reconcile net income (loss) to net cash provided by operating
   activities:
     Depreciation, depletion and amortization ......................................       156,319        151,761        159,950
     Impairment of long-lived assets ...............................................          --           48,842           --
     Amortization of deferred financing costs ......................................         2,969          3,429          3,841
     Deferred income taxes .........................................................         8,701        (16,292)        (6,291)
     Dry hole expense ..............................................................        23,671         22,153         27,166
     Gains on sales of property, plant and equipment, net ..........................        (1,088)       (83,388)          (405)
     Other .........................................................................         1,010             55          2,557
                                                                                       -----------    -----------    -----------
                                                                                           220,543        124,822        182,413

     Changes in operating assets and liabilities, net of acquisitions:
        Decrease in short-term investments .........................................         5,014         28,538         16,210
        Decrease (increase) in accounts receivable .................................       (53,531)       (21,721)        12,408
        Decrease in inventories, prepaid expenses and other ........................         9,731          1,793          3,046
        Increase (decrease) in accounts payable ....................................        53,281        (15,551)         3,093
        Increase (decrease) in accrued expenses and other ..........................        21,381            153         (8,056)
                                                                                       -----------    -----------    -----------
         Net Cash Provided By Operating Activities .................................       256,419        118,034        209,114

Investing Activities:
  Capital expenditures .............................................................      (213,462)      (144,101)      (202,553)
  Acquisitions of oil and gas properties ...........................................       (90,867)          --         (222,780)
  Acquisitions of other assets and liabilities, net of cash acquired ...............       (13,553)          --           28,921
  Proceeds from sales of property, plant and equipment .............................        10,557        107,960          7,605
  Other ............................................................................         2,020           (307)        (1,775)
                                                                                       -----------    -----------    -----------
        Net Cash Used In Investing Activities ......................................      (305,305)       (36,448)      (390,582)

Financing Activities:
  Proceeds from debt ...............................................................       407,738        668,815        754,413
  Principal payments on debt .......................................................      (368,754)      (737,473)      (582,827)
  Proceeds from sale of common stock ...............................................         4,401          2,241          1,291
  Acquisitions of treasury stock ...................................................          --             --           (5,289)
  Other ............................................................................        (1,051)        (3,957)           624
                                                                                       -----------    -----------    -----------
        Net Cash Provided by (Used In) Financing Activities ........................        42,334        (70,374)       168,212

Effect of exchange rate changes on cash ............................................           359            (48)         1,641
                                                                                       -----------    -----------    -----------

         Increase (Decrease) In Cash And Cash Equivalents ..........................        (6,193)        11,164        (11,615)
Cash And Cash Equivalents At Beginning Of Period ...................................        21,477         10,313         21,928
                                                                                       -----------    -----------    -----------

Cash And Cash Equivalents At End Of Period .........................................   $    15,284    $    21,477    $    10,313
                                                                                       ===========    ===========    ===========

</TABLE>


See accompanying Notes to Consolidated Financial Statements.



                                                                              36
<PAGE>

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            (Amounts in Thousands)

<TABLE>
<CAPTION>


                                                                                    Foreign       Note
                                                        Additional                 Currency     Receivable   Treasury
                                             Common       Paid-in      Retained   Translation     from        Stock,
                                              Stock       Capital      Earnings    Adjustment      ESOP       at Cost       Total
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                         <C>         <C>           <C>         <C>           <C>          <C>          <C>

January 1, 1994 - Restated ..............   $   6,559    $ 492,110    $  92,987    $    --      $  (6,029)   $ (17,683)   $ 567,944
   Net loss for the period ..............        --           --         (4,405)        --           --           --         (4,405)
   Acquisition of treasury stock ........        --           --           --           --           --         (5,289)      (5,289)
   Exercise of employee
     stock options ......................          18        1,273         --           --           --           --          1,291
   Foreign currency
     translation adjustment .............        --           --           --         (2,684)        --           --         (2,684)
   Repayment of note
     receivable by ESOP .................        --           --           --           --            527         --            527
   Other ................................        --            195         --           --           --             70          265
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------

December 31, 1994 - Restated ............       6,577      493,578       88,582       (2,684)      (5,502)     (22,902)     557,649
   Net loss for the period ..............        --           --         (1,738)        --           --           --         (1,738)
   Exercise of employee stock options ...          21        2,220         --           --           --           --          2,241
   Treasury stock issued as executive
     incentive compensation .............        --            164         --           --           --            171          335
   Foreign currency
     translation adjustment .............        --           --           --          3,073         --           --          3,073
   Repayment of note
     receivable by ESOP .................        --           --           --           --            580         --            580
   Other ................................        --            415         --           --           --             66          481
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------

December 31, 1995 - Restated ............       6,598      496,377       86,844          389       (4,922)     (22,665)     562,621
   Net income for the period ............        --           --         28,961         --           --           --         28,961
   Retirement of treasury stock
     pursuant to the Global Merger ......        (335)     (19,021)        --           --           --         19,356         --
   Exercise of employee stock options ...          44        4,357         --           --           --           --          4,401
   Foreign currency
     translation adjustment .............        --           --           --           (338)        --           --           (338)
   Repayment of note
     receivable by ESOP .................        --           --           --           --            638         --            638
   Other ................................        --          1,405         --           --           --             42        1,447
                                            ---------    ---------    ---------    ---------    ---------    ---------    ---------

December 31, 1996 .......................   $   6,307    $ 483,118    $ 115,805    $      51    $  (4,284)   $  (3,267)   $ 597,730
                                            =========    =========    =========    =========    =========    =========    =========

</TABLE>




See accompanying Notes to Consolidated Financial Statements.




                                                                              37

<PAGE>

                   NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

INDEX



                                                                            PAGE
<S>     <C>                                                                 <C>

 1.     Organization......................................................    38
 2.     Summary of Significant Accounting Policies........................    39
 3.     Supplemental Disclosures of Cash Flow Information.................    43
 4.     Acquisition and Disposition of Assets.............................    43
 5.     Other Noncurrent Assets...........................................    44
 6.     Debt..............................................................    45
 7.     Other Noncurrent Liabilities......................................    48
 8.     Fair Value of Financial Instruments...............................    48
 9.     Redeemable Bearer Shares..........................................    49
10.     Shareholders' Equity..............................................    50
11.     Benefit Plans.....................................................    51
12.     Income Taxes......................................................    55
13.     Business Segments.................................................    57
14.     Commitments and Contingencies.....................................    58
15.     Supplemental Oil and Gas Information (Unaudited)..................    59

</TABLE>



1.  ORGANIZATION

   Seagull is an  international  oil and gas company  engaged in exploration and
development  activities in the United  States,  Egypt,  Cote  d'Ivoire,  Canada,
Indonesia and the Russian Republic of Tatarstan. It also transports, distributes
and markets natural gas,  liquids  products and  petrochemicals  in the U.S. and
Canada.

   MERGER  WITH  GLOBAL  NATURAL  RESOURCES  INC.  - On  October  3,  1996,  the
shareholders  of Seagull  Energy  Corporation  (the  "Company" or "Seagull") and
Global  Natural  Resources Inc.  ("Global")  approved a merger of a wholly owned
subsidiary of Seagull into Global (the "Global Merger").  Pursuant to the Global
Merger,  each share of Global  common  stock was  converted  into 0.88 shares of
Seagull  common  stock with  approximately  26.3  million  shares  issued to the
shareholders  of Global.  The Global  Merger was  accounted  for as a pooling of
interests. Accordingly, the financial statements for periods prior to the Global
Merger have been  restated  to combine  the  results of Seagull and Global.  Net
income for the year ended  December 31, 1996 includes the effect of  transaction
costs of the Global Merger of approximately $10 million ($9 million after tax).

   The results of operations  previously  reported by the separate companies and
the  combined  amounts  presented  in the  accompanying  consolidated  financial
statements are summarized below. Certain adjustments were made to the results of
Seagull and Global to conform




                                                                              38
<PAGE>

the  accounting  policies  and  presentation  used by Seagull  and  Global.  The
increase (decrease) in net income of these adjustments was $(1.4) million,  $3.9
million and $0.6  million for the nine months ended  September  30, 1996 and the
years ended December 31, 1995 and 1994,  respectively.  These  adjustments  were
primarily  to  reflect  the  change in the  valuation  allowance  related to the
deferred tax assets  associated  with book to tax basis  differences on domestic
property,  plant and equipment  generated during the applicable  periods.  These
deferred tax assets were not  utilized by Global,  but more likely than not will
be utilized by the combined company.


================================================================================
(Amounts In Thousands)


<TABLE>
<CAPTION>

                                           Nine Months Ended     Year Ended December 31,
                                           September 30, 1996       1995          1994
                                           ------------------    ----------    ----------
                                               (Unaudited)
<S>                                        <C>                   <C>           <C>

Revenues:
  Seagull ..............................   $          281,640    $  336,273    $  408,104
  Global ...............................               82,525        78,457        62,943
  Conforming adjustments ...............               (4,102)       (6,304)         (561)
                                           ------------------    ----------    ----------
  Combined .............................   $          360,063    $  408,426    $  470,486
                                           ==================    ==========    ==========
Net income (loss):
  Seagull ..............................   $           10,572    $      632    $    3,246
  Global ...............................               13,645        (6,307)       (8,253)
  Conforming adjustments ...............               (1,381)        3,937           602
                                           ------------------    ----------    ----------
  Combined .............................   $           22,836    $   (1,738)   $   (4,405)
                                           ==================    ==========    ==========


</TABLE>

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   GENERAL - The accompanying  consolidated financial statements of Seagull have
been prepared according to generally accepted accounting principles and pursuant
to the rules and  regulations of the Securities and Exchange  Commission.  These
accounting  principles  require the use of estimates,  judgments and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
financial  statements  and revenues and expenses  during the  reporting  period.
Actual results could differ from those estimates. Certain reclassifications have
been  made  in  the  1995  and  1994  financial  statements  to  conform  to the
presentation used in 1996.

   CONSOLIDATION - The accompanying  consolidated  financial  statements include
the accounts of Seagull Energy Corporation and its majority-owned  entities. All
significant intercompany transactions have been eliminated.

   REGULATION - The Company operates in Alaska through a division of the Company
and a wholly  owned  subsidiary  (collectively  referred  to herein  as  "ENSTAR
Alaska").  ENSTAR Alaska is subject to regulation by the Alaska Public Utilities
Commission  ("APUC"),  which has jurisdiction  over, among other things,  rates,
accounting procedures and standards of service.

   CASH EQUIVALENTS - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

   SHORT-TERM   INVESTMENTS  -  Short-term  investments  include  highly  liquid
investments having a maturity at the date of purchase of more than three months.
As of December  31,  1995,  short-term  investments  consisted  entirely of U.S.
government securities.




                                                                              39
<PAGE>


   INVENTORIES  - Materials and supplies are valued at the lower of average cost
or market value (net realizable value).

   OIL AND GAS  PROPERTIES - The Company uses the  successful  efforts method of
accounting  for its  oil  and  gas  operations  whereby  acquisition  costs  and
exploratory  drilling costs related to properties  with proved  reserves and all
development  costs  including   development  dry  holes  are  capitalized.   The
acquisition costs of unproved  leaseholds are capitalized pending the results of
exploration efforts.  Unproved leaseholds with significant acquisition costs are
assessed periodically, on a property-by-property basis, and a loss is recognized
to the extent, if any, that the cost of the property has been impaired. Unproved
leaseholds  whose  acquisition  costs  are  not  individually   significant  are
aggregated,  and the  portion  of  such  costs  estimated  to  ultimately  prove
nonproductive, based on experience, is amortized over an average holding period.
As unproved  leaseholds are  determined to be productive,  the related costs are
transferred  to proved  leaseholds.  Exploratory  dry holes and  geological  and
geophysical  charges are  expensed as incurred.  Capitalized  costs are depleted
using the  unit-of-production  method based upon estimates of proved oil and gas
reserves on a depletable  unit basis.  Estimated costs (net of salvage value) of
dismantling and abandoning oil and gas production facilities are computed by the
Company's  engineers and included when  calculating  depreciation  and depletion
using the  unit-of-production  method. The total estimated future  dismantlement
and abandonment  cost being amortized as of December 31, 1996 was  approximately
$26.6 million.

   The Company performs a review for impairment of proved oil and gas properties
on a  depletable  unit  basis  when  circumstances  suggest  the need for such a
review.  For each depletable unit determined to be impaired,  an impairment loss
equal to the  difference  between the  carrying  value and the fair value of the
depletable  unit will be recognized.  Fair value, on a depletable unit basis, is
estimated to be the present value of expected  future net cash flows computed by
applying  estimated future oil and gas prices,  as determined by management,  to
estimated  future  production of oil and gas reserves over the economic lives of
the reserves.  As a result of the adoption of Statement of Financial  Accounting
Standards  ("SFAS") No. 121,  effective March 31, 1995, the Company recognized a
non-cash  pre-tax charge against income of $46.1 million  related to oil and gas
properties.

   Prior to March 31, 1995, the Company  determined the impairment of proved oil
and gas properties on a world-wide basis. Using the world-wide basis, if the net
capitalized costs exceeded the estimated future undiscounted  after-tax net cash
flows from proved oil and gas reserves  using  period-end  pricing,  such excess
costs would be charged to expense.

   Interest  cost  capitalized  as  property,  plant and  equipment  amounted to
approximately  $2.6  million,  $1.2 million and $0.7  million in 1996,  1995 and
1994, respectively.

   OTHER PROPERTY,  PLANT AND EQUIPMENT - Depreciation of the utility plant, gas
gathering  pipeline  facilities,  gas  processing  plants and other  property is
computed  principally using the straight-line method over their estimated useful
lives, which vary from 3 to 33 years.

   Utility  plant  facilities  are  subject  to APUC  regulation.  When  utility
properties  are  disposed of or  otherwise  retired,  the  original  cost of the
property, plus cost of retirement, less salvage value, is charged to accumulated
depreciation.

   The Company  groups and  evaluates  other  property,  plant and equipment for
impairment  based on the  ability to  identify  separate  cash  flows  generated
therefrom.  As a result of the  adoption  of SFAS No. 121,  effective  March 31,
1995, the Company  recognized a pre-tax  non-cash  charge against income of $2.7
million for impairment of other property, plant and equipment.

   Maintenance,  repairs and renewals are charged to operations and  maintenance
expense  except  that  renewals  which  extend  the  life  of the  property  are
capitalized.

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




                                                                              40
<PAGE>

   REVENUE  RECOGNITION  - The  Company  records  oil and  natural  gas  revenue
following the  entitlement  method of accounting for production  imbalances,  in
which any  excess  amount  received  above the  Company's  share is treated as a
liability.   If  less  than  the   Company's   entitlement   is  received,   the
underproduction is recorded as an asset.

   ENSTAR Alaska's  operating revenues are based on rates authorized by the APUC
which are  applied to  customers'  consumption  of natural  gas.  ENSTAR  Alaska
records unbilled  revenue,  including amounts to be billed under a purchased gas
adjustment clause, at the end of each accounting period.

   DERIVATIVE  FINANCIAL  INSTRUMENTS  - The  Company  enters  into a variety of
commodity derivative contracts for non-trading purposes as a hedging strategy to
manage  commodity  prices  associated  with oil and gas sales and to reduce  the
impact of price  fluctuations.  The Company  primarily  uses futures  contracts,
price  swaps and  options  when it  determines  it is  appropriate  to hedge its
commodity prices. While derivative financial  instruments are intended to reduce
the  Company's  exposure to declines in the market price of oil and natural gas,
the derivative financial instruments may limit the Company's gain from increases
in the market  price of oil and natural gas.  Income and costs  related to these
hedging  activities are recognized in oil and gas revenues when the  commodities
are  produced.  Any  realized  income and costs that are deferred at the balance
sheet date and any margin  accounts  for futures  contracts  are included as net
current  assets.  For the years ended  December  31,  1996,  1995 and 1994,  the
Company  recorded $9.0 million,  $0.5 million and none,  respectively,  in costs
from commodity hedging activities.  At December 31, 1996, there was $8.2 million
of realized costs on commodity  hedging  activities which were deferred and will
be  applied  as a  reduction  in  revenues  in the  month  of  physical  sale of
production.  Of this  amount,  $1.0 million is related to the  commodity  hedges
required in the sale of the Section 29 properties.  In addition,  there was $2.5
million of unrealized and  unrecognized  costs associated with open contracts at
December 31, 1996.

   The Company recorded costs related  to commodity  hedging  activities of $9.0
million, $0.5 million and none for 1996,  1995  and  1994,  respectively.  These
costs  had  the effect of reducing average gas prices by $0.06 mcfe for 1996 and
$0.004 mcfe for 1995.

   In mid 1996, Seagull put price "collars" in  place  with  respect  to about a
third of its  domestic  gas  deliverability  for the first quarter of 1997 only.
These "collars" assured a minimum realization above $2.00  per  Mcf  in exchange
for  a  $2.50  per  Mcf  ceiling  on  that  component  of  Seagull's production.
Additionally,  the  Company  has  commodity hedges in place for approximately 12
MMcf  per  day  through December 1998 on properties associated with the Monetary
Production Payment (see Note 6). These hedge positions will reduce first quarter
1997 E&P revenues.  At  December   31,  1996, there was $8.2 million of realized
cost  on  commodity  hedging activities  which  was  deferred  and  will  reduce
revenues  in  the month  that  the  hedged production  occurred  (January 1997).
On the other hand, because of the drop in commodity prices after  January  1997,
the Company expects actual net realizations  of above "collars" for February and
March, 1997 to be slightly positive. Also at  December  31, 1996, there are $2.0
million of  net  unrealized  and   unrecognized  hedging  cost  related  to  the
commodity hedges  associated  with  the Monetary Production Payment based on the
difference  between  the  strike  price and the futures price for the respective
trading months at year end.  Again as a  result  of  the  intervening  drop   in
commodity prices, the net  unrealized  and  unrecognized  hedging  cost would be
substantially lower if current strike and  futures prices were used. Essentially
all  other  hedging  activities were realized prior to year-end. The Company has
no commodity hedges  in  place for  equity production  after  March  1997  other
than  those  associated  with the Monetary Production Payment.

   The Company has entered  into  interest  rate swap  agreements  to manage the
impact of changes in interest  rates.  The  differential  interest to be paid or
received is accrued as interest rates change and is recognized  over the life of
the agreements as a component of interest expense.

   GENERAL  AND  ADMINISTRATIVE  EXPENSE - General and  administrative  expenses
represent various overhead costs of corporate departments. All overhead expenses
directly  related to the  operations  of the  Company's  business  segments  are
included in operations and maintenance expenses and exploration charges.

   INCOME TAXES - The Company uses the liability method of accounting for income
taxes under which  deferred tax assets and  liabilities  are  recognized for the
estimated  future tax  consequences  attributable  to  differences  between  the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax  rates  in  effect  for the year in  which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is  recognized  as part of the
provision for income taxes in the period that includes the enactment date.

   FOREIGN  CURRENCY  TRANSLATION  - The  functional  currency for the Company's
Canadian operations is the applicable local currency.  Translation from Canadian
dollars to U. S. dollars is performed for balance sheet  accounts using exchange
rates in effect at the balance  sheet date and for revenue and expense  accounts
using primarily a weighted average exchange rate during the period.  Adjustments
resulting  from  such  translation  are  included  as a  separate  component  of
shareholders'   equity.   Deferred  income  taxes  have  not  been  provided  on
translation  adjustments  because any unremitted  income from Seagull's  foreign
operations is considered to be permanently invested.

   The U.S. dollar is the functional currency for the Company's operations in
Russia. Monetary assets and liabilities denominated in rubles are translated
into U.S. dollars using the market rate, as set by the Central Bank of the
Russian Federation. Non-monetary assets and liabilities denominated in rubles
are translated at historical rates. Exchange gains




                                                                              41
<PAGE>

or  losses  arising  from  the  translation  of  ruble  denominated  assets  and
liabilities into U.S. dollars are included in net income.

   The ruble is not a convertible  currency outside the territory of Russia.  In
addition,  the  economy  in Russia  has  experienced  hyperinflation,  which has
resulted in a significant devaluation of the ruble. If hyperinflation continues,
additional  devaluation  of the ruble may occur.  As of December 31,  1996,  the
Company's  consolidated  financial  statements  include  ruble  denominated  net
monetary  liabilities  of  approximately  4.6  billion  rubles,  which have been
translated into approximately $0.8 million.

   The U.S. dollar is the functional  currency for all other foreign operations,
as predominantly all transactions in those operations are denominated in U.S.
dollars.

   STOCK-BASED  COMPENSATION - Effective  January 1, 1996,  the Company  adopted
SFAS No. 123,  "Accounting  for  Stock-Based  Compensation."  This SFAS allows a
Company to adopt a fair  value  based  method of  accounting  for a  stock-based
employee  compensation  plan or to  continue  to use the  intrinsic  value based
method of accounting  prescribed by Accounting  Principles Board Opinion No. 25,
"Accounting  for Stock Issued to Employees."  The Company has chosen to continue
to account for stock-based  compensation under the intrinsic value method. Under
this  method,  the Company  records no  compensation  expense for stock  options
granted when the exercise  price of options  granted is equal to the fair market
value of Seagull's common stock on the day of grant.

   EARNINGS PER SHARE - The weighted average number of common shares outstanding
for the computation of earnings per share for the years ended December 31, 1996,
1995 and 1994 gives  effect to the assumed  exercise of stock  options as of the
beginning of the year.

   CONCENTRATIONS  OF RISK - The future  results  of the oil and gas  operations
segment  will be  affected  by the market  prices of oil and  natural  gas.  The
availability  of a ready market for natural gas, oil and liquid  products in the
future  will  depend on  numerous  factors  beyond the  control of the  Company,
including  weather,  production  of other  natural  gas,  crude  oil and  liquid
products, imports, marketing of competitive fuels, proximity and capacity of oil
and gas  pipelines  and  other  transportation  facilities,  any  oversupply  or
undersupply of gas, oil and liquid  products,  the regulatory  environment,  and
other  regional  and  political  events,  none of which  can be  predicted  with
certainty.

   The Company  operates in various phases of the oil and natural gas industries
with  sales to  resellers  such as  pipeline  companies  and local  distribution
companies  as well as to end-users  such as  commercial  businesses,  industrial
concerns and residential  consumers.  The Company's  receivables include amounts
due from purchasers of oil and gas production and amounts due from joint venture
partners for their respective  portions of operating expense and exploration and
development costs. The Company believes that no single customer or joint venture
partner exposes the Company to significant  credit risk.  While certain of these
customers and joint venture  partners are affected by periodic  downturns in the
economy in  general  or in their  specific  segment  of the  natural  gas or oil
industry,  the Company believes that its level of  credit-related  losses due to
such  economic  fluctuations  has  been  immaterial  and  will  continue  to  be
immaterial  to the  Company's  results of  operations  in the long  term.  Trade
receivables  are generally not  collateralized;  however,  the Company  analyzes
customers' and joint venture  partners'  historical  credit  positions  prior to
extending credit.

   The Company has a significant portion of its operations in various geographic
areas of the world.  The Company's  activities in these areas are subject to the
usual risks associated with foreign operations, including political and economic
uncertainties,  risks of cancellation or unilateral  modification of agreements,
operating  restrictions,  currency  repatriation  restrictions,   expropriation,
export  restrictions,  the  imposition of new taxes and the increase of existing
taxes,  inflation,  foreign exchange fluctuations and other risks arising out of
foreign government sovereignty over areas in which the operations are conducted.
The Company has endeavored to protect




                                                                              42
<PAGE>

itself  against  political and commercial  risks  inherent in these  operations.
There is no certainty that the steps taken by the Company will provide  adequate
protection.

   Derivative financial  instruments that hedge the price of oil and natural gas
and interest  rates are generally  executed with major  financial or commodities
trading institutions which expose the Company to acceptable levels of market and
credit risks and may at times be  concentrated  with certain  counterparties  or
groups of  counterparties.  Although  notional  amounts  are used to express the
volume of these contracts,  the amounts  potentially  subject to credit risk, in
the event of non-performance by the counterparties,  are substantially  smaller.
The  creditworthiness of counterparties is subject to continuing review and full
performance is anticipated.

3.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Supplemental  disclosures of cash flow information  (stated in thousands) are as
follows:

================================================================================
<TABLE>
<CAPTION>



                             Year Ended December 31,
                                                  1996        1995        1994
                                                ---------   ---------   --------
<S>                                             <C>         <C>         <C>

Cash paid during the year for:
 Interest, net of amount capitalized ........   $  44,033   $  46,804   $ 44,946
 Income taxes ...............................   $  12,046   $  14,074   $  8,198

</TABLE>

4.  ACQUISITION AND DISPOSITION OF ASSETS

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


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

<TABLE>
<CAPTION>
(Unaudited)

                                           Year Ended December 31,
                                             1996        1995
                                           ---------   ---------
<S>                                        <C>         <C>

Revenues ...............................   $ 552,892   $ 466,639
Net income .............................   $  37,030   $  11,074
Earnings per share .....................   $    0.58   $    0.18

</TABLE>

   The table on page 43 (stated in thousands except per share data) presents the
unaudited pro forma results of the combined  operations of Seagull,  ESI and the
EEL Assets as though the Esso Suez  Acquisition had occurred on January 1, 1995.
The unaudited pro forma  information does not purport to be indicative of actual
results  if the  Esso  Suez  Acquisition  had  been in  effect  for the  periods
indicated.


                                                                              43
<PAGE>


   On September 25, 1995, the Company and three other sellers completed the sale
of their  disparate  interests  in 19 natural  gas  gathering  systems and a gas
processing  plant  (the  "Pipeline  Assets").  From its  share of the  proceeds,
Seagull realized a one-time,  pre-tax gain of approximately $82 million recorded
in  the  third  quarter of 1995. For the years ended December 31, 1995 and 1994,
the Pipeline Assets  contributed $17.6 million and $26.4 million,  respectively,
to the  revenues  and  $6.2  million  and  $6.7  million,  respectively,  to the
operating profit (loss) of the oil and gas operations segment.

   In September 1995, the Company sold certain  Internal Revenue Code Section 29
Tax Credit-bearing gas properties (the "Section 29 Properties") to an investment
group which  includes a Seagull  subsidiary  and two  financial  investors.  For
accounting purposes, the Company has treated the sale as a non-recourse monetary
production  payment  reflected in long-term  debt on the balance sheet (see Note
6).

5.  OTHER NONCURRENT ASSETS

Other noncurrent assets include the following (stated in thousands):

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

<TABLE>
<CAPTION>


                                                December 31,
                                              1996        1995
                                           ---------   ---------
<S>                                        <C>         <C>

Oil and gas imbalances .................   $  24,673   $  24,382
Deferred financing costs ...............      10,255      12,979
Other ..................................       7,877      10,155
                                           ---------   ---------
                                           $  42,805   $  47,516
                                           =========   =========

</TABLE>

   OIL AND GAS IMBALANCES - As discussed in Note 2, the Company  records oil and
gas revenues  following  the  entitlement  method of accounting  for  production
imbalances. The Company records revenue from gas marketing sales net of the cost
of  gas  and  third-party  delivery  fees,  with  any  resulting  transportation
imbalances recorded as a current receivable or payable.

The Company's oil, gas and transportation  imbalance assets and liabilities were
as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                       December 31,

                                               1996                     1995
                                      ---------------------   ---------------------
                                         AMOUNT      VOLUME     Amount       Volume
                                       (THOUSANDS)   (BCFE)   (Thousands)    (Bcfe)
                                      ------------   ------   ------------   ------
<S>                                   <C>            <C>      <C>            <C>

ASSETS:
  Current .........................   $     17,650      9.8   $     12,693      8.2
  Noncurrent ......................         24,673     15.9         24,382     16.1
                                      ------------   ------   ------------   ------
                                      $     42,323     25.7   $     37,075     24.3
                                      ============   ======   ============   ======
LIABILITIES:
  Current .........................   $     12,060      6.5   $     11,219      7.6
  Noncurrent ......................         20,047     13.4         20,439     13.8
                                      ------------   ------   ------------   ------
                                      $     32,107     19.9   $     31,658     21.4
                                      ============   ======   ============   ======


</TABLE>



                                                                              44
<PAGE>


   DEFERRED FINANCING COSTS - Deferred financing costs represent financing costs
incurred in connection with the execution of various  facilities entered into or
securities  issued by the Company.  These costs are capitalized and amortized to
interest  expense over the life of the related debt. As discussed in Note 6, the
Company  has a $650  million  revolving  credit  line  which  matures  in  2002.
Financing costs initially  incurred in 1992 of approximately  $16.7 million were
capitalized in connection  with this facility and will be amortized over periods
ending December 31, 2002. Approximately $5.0 million in financing costs incurred
in connection  with the  Company's  July 1993 issuance of $250 million in senior
and senior subordinated notes was capitalized and will be amortized over periods
ending August 1, 2005 (see Note 6).

6.  DEBT

   MONEY MARKET  FACILITIES - Seagull has money market  facilities with two U.S.
banks with a combined maximum  commitment of $70 million.  These lines of credit
bear interest at rates made available by the banks at their discretion (7.5% and
6.6% at December 31, 1996 and 1995,  respectively) and may be canceled at either
Seagull's or the banks'  discretion.  At December 31,  1996,  the total  amounts
outstanding  under the money market facilities of $17 million were classified as
a current  liability  and  included in  accounts  and note  payable  since it is
Seagull's  intent to repay these  amounts in 1997.  At December  31,  1995,  all
amounts  outstanding  under the money market  facilities of approximately  $27.5
million were  classified  as  long-term  debt since it was  Seagull's  intent to
refinance  these  amounts on a long-term  basis with proceeds from its revolving
credit facilities.

Long-term debt for 1996 and 1995 (stated in thousands) was as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                      December 31,
                                                     1996       1995
                                                   --------   --------
<S>                                                <C>        <C>

Revolving credit ...............................   $236,620   $164,396
Senior notes ...................................    100,000    100,000
Senior subordinated notes ......................    150,000    150,000
Monetary production payment ....................     34,378     43,856
Money market facilities ........................       --       27,527
International Finance Corporation loan .........       --       12,200
ENSTAR Alaska:
  Unsecured industrial development bonds .......     10,230     11,140
  Other unsecured notes ........................     50,450     50,750
  Other debt ...................................         10         14
                                                   --------   --------
                                                    581,688    559,883
Less:  Current maturities ......................      7,227      1,650
       Unamortized debt discount ...............      1,006      1,126
                                                   --------   --------
                                                   $573,455   $557,107
                                                   ========   ========

</TABLE>




                                                                              45
<PAGE>


   REVOLVING  CREDIT  -  During  1996,  the  terms  of the  Company's  unsecured
revolving credit agreements (the "Revolving Credit Facilities") were amended and
currently provide a maximum  commitment of $650 million.  Under the terms of the
Revolving  Credit  Facilities,  the commitments  thereunder  begin to decline on
March 31, 1999 in equal quarterly  reductions of approximately $40 million and a
final  reduction  of $50 million on December  31,  2002.  The  Revolving  Credit
Facilities bear interest, at Seagull's option, at various market-sensitive rates
plus an applicable  margin or competitive bid rate. These rates varied from 3.7%
to 6.3% and 6.2% to 6.9% at December 31, 1996 and 1995, respectively.

   The Revolving  Credit  Facilities  contain certain  covenants and restrictive
provisions  among which are  limitations on the incurrence of additional debt or
liens,  the declaration or payment of dividends and the repurchase or redemption
of capital stock and the maintenance of certain financial ratios. Under the most
restrictive of these  provisions,  approximately  $133 million was available for
payment of cash  dividends on Common Stock or to  repurchase  Common Stock as of
December 31, 1996.

   Under provisions  included in the Revolving Credit Facilities,  the amount of
senior indebtedness available to the Company is subject to a borrowing base (the
"Borrowing  Base")  based  upon  certain  of the  Company's  proved  oil and gas
reserves  and  the  financial   performance  of  the  Alaska   transmission  and
distribution  segment. The Borrowing Base is generally determined annually,  but
may be  redetermined,  at the  option  of  either  Seagull  or  the  banks,  one
additional  time each year,  and will be  redetermined  upon the sale of certain
assets included in the Borrowing Base. With the Esso Suez  Acquisition,  Seagull
requested  and  received a $50 million  increase to the  Borrowing  Base to $550
million on October 1, 1996.  If the  Borrowing  Base is  redetermined  in such a
manner  that the  amount  outstanding  under  the  Revolving  Credit  Facilities
(together  with any  other  permitted  senior  debt  facility)  exceeds  the new
Borrowing Base, then the Company must repay the Revolving  Credit  Facilities or
such other  indebtedness in an amount necessary to cure the deficiency.  If such
deficiency has not been cured within 30 days,  such  deficiency must be cured in
three equal quarterly installments.

   During 1995,  Global  executed a $35 million  credit  agreement  (the "Global
Credit  Agreement")  with a bank.  At December 31, 1995,  under this  agreement,
there were no loans  outstanding  and  approximately  $18  million in letters of
credit had been issued.  These letters of credit are primarily  associated  with
the Redeemable  Bearer Shares (see Note 9). During 1995,  Global also executed a
$17.5 million financing agreement with the International Finance Corporation,  a
subsidiary  of the World Bank,  (the "IFC Loan").  As of December 31, 1995,  the
weighted  average  interest  rate was 8.4% for the IFC Loan.  Subsequent  to the
Merger,  the IFC  Loan was  repaid  with  proceeds  from  the  Revolving  Credit
Facilities and both the Global Credit  Agreement and the IFC Loan were canceled.
The letters of credit associated with the Redeemable Bearer Shares were reissued
under the Revolving Credit Facilities.

   As of December 31, 1996,  borrowings  outstanding  under the Revolving Credit
Facilities were approximately $237 million, leaving immediately available unused
commitments of approximately $176 million,  net of outstanding letters of credit
of $20 million,  $100 million of borrowings  outstanding  under the Senior Notes
(defined  below),  and $17  million in  borrowings  outstanding  under the money
market facilities.

   SENIOR  AND  SENIOR  SUBORDINATED  NOTES - In July  1993,  Seagull  sold $100
million  of  senior  notes  (the  "Senior  Notes")  and $150  million  of senior
subordinated notes (the "Senior Subordinated Notes")  (collectively the "Notes")
in an underwritten public offering. The Senior Notes bear interest at 7 7/8% per
annum,  are not redeemable  prior to maturity or subject to any sinking fund and
mature on August 1, 2003. The Senior  Subordinated Notes bear interest at 8 5/8%
per annum, are not




                                                                              46
<PAGE>

subject to any sinking fund and mature on August 1, 2005.  On or after August 1,
2000, the Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part,  at  redemption  prices  declining  from 102.59% in 2000 to
100.00% in 2003 and thereafter  (expressed as a percentage of principal amount),
plus accrued  interest to the redemption  date. The Notes were issued at par and
interest is paid semiannually.

   The Notes represent  unsecured  obligations of the Company.  The Senior Notes
rank pari  passu  with  senior  indebtedness  of the  Company  while the  Senior
Subordinated  Notes are  subordinate  in right of  payment to all  existing  and
future senior  indebtedness  of the Company.  The Notes contain  conditions  and
restrictive provisions including, among other things, restrictions on additional
indebtedness  by the  Company  and by its  subsidiaries,  the right of each note
holder to have the notes  repurchased  by the  Company at 101% of the  principal
amount upon a change in control,  as well as  restrictions  on the incurrence of
secured debt and entering into sale and leaseback transactions.

   MONETARY  PRODUCTION  PAYMENT - On  September  1, 1995,  the Company sold the
Section 29 Properties  for $46.3 million in net proceeds.  The  transaction  was
recorded as a monetary production payment for accounting purposes. The investors
receive the operating  cash flow from the  properties,  less funds  required for
working capital purposes, and are expected to recoup their investment plus their
required after-tax rate of return by 2002.  Seagull's pre-tax effective interest
rate is currently estimated to be approximately 4%.

   ENSTAR  ALASKA - All  long-term  debt of ENSTAR  Alaska is issued by a wholly
owned  subsidiary  of  Seagull  in the form of  senior  unsecured  notes.  These
unsecured notes bear interest at various fixed rates ranging from 7.75% to 12.8%
with principal repayments due 1997 through 2009. These senior unsecured notes of
the subsidiary provide for restrictions on dividends,  additional borrowings and
purchases,  redemptions or retirements of shares of capital stock, other than in
stock  of the  subsidiary.  Under  the  most  restrictive  provisions  of  these
financing arrangements,  ENSTAR Alaska had approximately $16.1 million available
for  the  making  of  restricted  investments,  restricted  stock  payments  and
restricted subordinated debt payments as of December 31, 1996.

   INTEREST  RATE SWAP  AGREEMENTS - The Company  enters into interest rate swap
agreements  to manage the impact of changes in interest  rates.  At December 31,
1996, the Company had outstanding  interest rate swaps with a notional amount of
$100 million  whereby the Company pays a floating  interest  rate and receives a
fixed interest rate ranging from 5.43% to 5.635%. These interest rate swaps will
expire on January 31, 1997 and are not expected to have a material impact on the
Company's results of operations or cash flow for 1997.

   While  notional  amounts are used to express the volume of the interest  rate
swap  transactions  discussed  above, the amount  potentially  subject to credit
risk,  in  the  event  of   nonperformance  by  Seagull's   counterparties,   is
significantly  smaller.  For the years ended  December31,  1996,  1995 and 1994,
interest  expense  included  approximately  $1.7 million,  $0.6 million and $2.3
million, respectively, relating to these agreements.

   ANNUAL  MATURITIES - At  December 31, 1996,  the Company's  aggregate  annual
maturities of long-term debt are $7.2 million, $7.1 million, $7.1 million, $27.8
million  and  $34.2  million  for the years  1997,  1998,  1999,  2000 and 2001,
respectively.




                                                                              47
<PAGE>


7.  OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities (stated in thousands) include the following:
===============================================================================

<TABLE>
<CAPTION>


                                                         December 31,
                                                        1996        1995
                                                     ---------   ---------
<S>                                                  <C>         <C>


Oil and gas imbalances (see Note 5) ..............   $  20,047   $  20,439
Refundable customer advances for construction ....      11,567      11,037
Other ............................................      33,814      21,761
                                                     ---------   ---------
                                                     $  65,428   $  53,237
                                                     =========   =========
</TABLE>


   Refundable  customer  advances for construction  represent  customer deposits
received by ENSTAR Alaska for construction of main extensions  refundable either
wholly or in part over a period not to exceed 10 years.

8.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated  fair values of the  Company's  financial  instruments  (stated in
thousands) are summarized as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                                    December 31,
                                                   -------------------------------------------------
                                                           1996                      1995
                                                   ----------------------    -----------------------
                                                   Carrying     Estimated    Carrying     Estimated
                                                    Amount     Fair Value     Amount      Fair Value
                                                   ---------   ----------    ---------    ----------
<S>                                                <C>         <C>           <C>          <C>

Assets:
  Cash and cash equivalents ....................   $  15,284    $  15,284    $  21,477    $  21,477
  Short-term investments .......................        --           --          5,004        5,004

Liabilities:
  Refundable customer advances and deposits ....     (14,075)     (11,405)     (14,866)     (11,986)
  Long-term debt ...............................    (580,682)    (589,815)    (558,757)    (558,197)
Redeemable bearer shares .......................     (16,059)          NA      (16,591)          NA
Derivative transactions:
  Interest rate swap agreements:
     In a receivable position ..................        --           --           --            440
     In a payable position .....................        --           (107)        --         (1,604)
  Commodity hedging instruments:
     In a receivable position ..................         (42)         247         --            981
     In a payable position .....................        (291)     (10,798)        (105)      (3,688)

</TABLE>

   CASH AND CASH  EQUIVALENTS  - The  carrying  amount  approximates  fair value
because of the short maturity of these instruments.

   SHORT-TERM INVESTMENTS - The carrying amount approximates fair value which is
estimated based upon quoted market prices.

   REFUNDABLE  CUSTOMER  ADVANCES  AND  DEPOSITS  - The  fair  value is based on
discounted  cash flow  analyses  utilizing a discount rate of 8.25% and 8.75% at
December 31, 1996 and 1995, respectively, with monthly payments ratably over the
estimated period of deposit or advance refunding.

   LONG-TERM  DEBT - The fair value of the  Senior  Notes,  Senior  Subordinated
Notes and ENSTAR Alaska debt is estimated  based on quoted market prices for the
same or similar  issues.  The fair value of the monetary  production  payment is
estimated using discounted cash flow analyses utilizing a discount rate of




                                                                              48
<PAGE>


approximately  3.8% at  December 31, 1996 and 1995.  The carrying  amount of all
other debt  approximates  fair value because these  instruments bear interest at
rates tied to current market rates.

   REDEEMABLE  BEARER  SHARES  - The  fair  value  is not  determinable  because
reductions in the outstanding balance are on demand only to the extent necessary
to  redeem  bearer  shares  presented  for  exchange  until  July  2008 with any
remaining balance reverting to the Company. The Company is not able to determine
when the bearer shares will be presented and how many will not be redeemed.

   INTEREST  RATE  SWAP  AGREEMENTS  - The fair  values  are  obtained  from the
financial institutions that are counterparties to the transactions. These values
represent the estimated amount the Company would pay or receive to terminate the
agreements,  taking into  consideration  current  interest rates and the current
creditworthiness of the counterparties.  Seagull's interest rate swap agreements
are off balance sheet  transactions  and,  accordingly,  no respective  carrying
amounts for these  transactions  are included in the  accompanying  consolidated
balance sheets as of December 31, 1996 and 1995.

   COMMODITY RELATED  TRANSACTIONS -- The fair value of the Company's  commodity
hedging  instruments is the estimated amount the Company would receive or pay to
settle the applicable commodity hedging instrument at the reporting date, taking
into  account the  difference  between New York  Mercantile  Exchange  ("NYMEX")
prices or index  prices at  year-end  and the  contract  price of the  commodity
hedging instrument.

   The estimated  fair value  amounts have been  determined by the Company using
available  market  information  and  valuation  methodologies  described  above.
Considerable  judgment is required  in  interpreting  market data to develop the
estimates of fair value.  The use of different  market  assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.

9.  REDEEMABLE BEARER SHARES

   The Company  through its merger with Global  became the  successor  issuer to
Global Natural Resources PLC, a United Kingdom company ("U.K. Company"). On July
26, 1983 pursuant to the terms of a Scheme of  Arrangement  (the  "Arrangement")
under Section 206 of the English  Companies  Act,  the  domicile  of  the parent
company was moved to the United  States from the United Kingdom.

   Under the terms of the Arrangement,  24,270,876  registered  common shares of
Global were registered in the name of Hambros Trust ("Trust Shares").  The Trust
Shares  were held for the  owners of bearer  share  warrants  issued by the U.K.
Company.  Holders of bearer  shares were  entitled to receive at their  election
either cash or Global shares on a  share-for-share  basis until July 1993. After
July 1993,  holders of bearer  shares are  entitled  to receive  only cash.  The
Arrangement  provided  that Trust  Shares not  claimed by July 26, 1988 could be
sold by the Trust and the proceeds from such sale together with earned  interest
be used to satisfy future claims by the holders of share warrants to bearer.

   In August 1993, Global received $19.2 million, the remaining cash held by the
Trust,  in the form of an  interest-free  loan.  The loan is repayable on demand
only to the extent  necessary to redeem  bearer  share  warrants  presented  for
exchange until July 2008. Each bearer share warrant presented during this period
will be  redeemed  for  $6.66.  As of  December  31,  1996 and 1995,  there were
2,463,008 and 2,575,947  outstanding  bearer share warrants,  respectively.  The
loan is secured by a letter of credit which is issued under the Revolving Credit
Facilities.  During  1996 and 1995  there were no  drawings  under the letter of
credit.  In July 2008,  the obligation of the Company to holders of bearer share
warrants will cease, the




                                                                              49

<PAGE>

interest-free  loan will  terminate,  and any remaining  cash will revert to the
Company and will be accounted for as an increase in additional paid-in capital.

10. SHAREHOLDERS' EQUITY

   The following  table reflects the activity in shares of the Company's  Common
Stock and Treasury Stock during the three years ended December 31, 1996.
===============================================================================
<TABLE>
<CAPTION>



                                                                            1996           1995           1994
                                                                         -----------    -----------    -----------
<S>                                                                      <C>            <C>            <C>    

Common Stock Issued
   Shares at beginning of year .......................................    65,983,199     65,767,743     65,586,112
   Exercise of employee stock options ................................       449,256        215,104        181,631
   Executive compensation ............................................         3,000           --             --
   Retirement of treasury stock pursuant to the Global Merger ........    (3,361,185)          --             --
   Other .............................................................          (983)           352           --
                                                                         -----------    -----------    -----------
   Shares at end of year .............................................    63,073,287     65,983,199     65,767,743
                                                                         ===========    ===========    ===========
Treasury Stock
   Shares at beginning of year .......................................     3,729,823      3,759,425      3,130,782
   Acquisition of treasury stock .....................................          --             --          641,134
   Issuance of treasury stock to 401(k) plan .........................        (7,324)       (11,602)       (12,491)
   Executive incentive compensation ..................................          --          (18,000)          --
   Retirement of treasury stock pursuant to the Global Merger ........    (3,361,185)          --             --
                                                                         -----------    -----------    -----------

   Shares at end of year .............................................       361,314      3,729,823      3,759,425
                                                                         ===========    ===========    ===========

</TABLE>


   TREASURY STOCK - Pursuant to the terms of the Global Merger, 3,819,525 shares
of Global Common Stock  (equivalent to 3,361,185  shares of Seagull Common Stock
on an as-converted basis) were retired.

   PREFERRED  STOCK - The Company is  authorized  to issue  5,000,000  shares of
preferred stock, par value $1.00 per share, in one or more series. There were no
shares issued or outstanding as of December 31, 1996 and 1995.

   PREFERRED SHARE PURCHASE  RIGHTS - In 1989,  Seagull adopted a Share Purchase
Rights  Plan to protect  the  Company's  shareholders  from  coercive  or unfair
takeover  tactics.  Under the Plan,  each  outstanding  share and each  share of
Common Stock  subsequently  issued has attached to it one Right,  exercisable at
$32.75,  subject to  certain  adjustments.  Generally,  in the event a person or
group acquires 20% or more of the  outstanding  Common Stock other than pursuant
to a cash tender  offer for all shares of such Common Stock  (provided  that the
tender offer increases the acquiring  person's or group's  ownership to at least
85% of the outstanding Common Stock), or in the event the Company is acquired in
a  merger  or  other  business  combination  or 50%  or  more  of the  Company's
consolidated  assets or earning power is sold, each Right entitles the holder to
purchase  shares of Common  Stock of the  Company or of the  acquiring  company,
having  a  value  of  twice  the  exercise  price.  The  Rights,  under  certain
circumstances, are redeemable at the option of Seagull's Board of Directors at a
price of $0.01 per Right,  within 10 days (subject to  extension)  following the
day on which the acquiring person or group exceeds the 20% threshold. The Rights
expire on March 22, 1999.




                                                                              50

<PAGE>

11.  BENEFIT PLANS

   STOCK OPTION  PLANS - The Company currently  has various  stock option plans.
The stock  options  become  exercisable  over a three to six year period and all
options expire 10 years  after  the  date  of  grant.  The majority of Seagull's
options may be granted at the fair market value of  Seagull's  Common  Stock  on
the New York Stock Exchange on the date of grant.  The remaining  stock  options
may have an exercise price not less than  50%  of  the  fair  market  value   of
Seagull's Common Stock on the date of grant. All outstanding options, other than
44,000  granted  by Global in 1993,  were  issued  at the fair  market  value of
Seagull's  Common  Stock.  Accordingly  as discussed in Note 2, no  compensation
expense  relating to these options is  recognized  in the  Company's  results of
operations.  At December 31, 1996, approximately 1.5 million shares of Common
stock were available for grant.

Information relating to stock options is summarized as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                  1996                            1995                            1994
                                    ------------------------------   ------------------------------  ------------------------------
                                                    EXERCISE PRICE                  Exercise Price                   Exercise Price
                                       SHARES          PER SHARE        Shares         Per Share         Shares         Per Share
                                    -----------    ---------------   ------------   ---------------  ------------   ---------------
<S>                                 <C>            <C>               <C>            <C>              <C>            <C>

Balance outstanding -
  Beginning of year..............     4,501,920    $  5.89 - 26.38      4,065,084   $  5.89 - 26.38     3,627,600    $ 5.89 - 26.38
   Granted.......................       844,000    $ 10.69 - 24.50        766,640   $  8.81 - 18.88       665,900    $ 8.17 - 25.50
   Exercised.....................      (449,256)   $  6.31 - 14.88       (215,104)  $  5.89 - 17.38      (183,164)   $ 5.89 - 14.88
   Canceled......................      (149,872)                         (114,700)                        (45,252)
                                    -----------    ---------------   ------------   ---------------  ------------   ---------------
Balance outstanding -
  End of year....................     4,746,792    $  5.89 - 26.38      4,501,920   $  5.89 - 26.38     4,065,084    $ 5.89 - 26.38
                                    ===========    ===============   ============   ===============  ============   ===============
Options exercisable -
  End of year....................     2,417,492                         2,265,809                       2,009,062
                                    ===========                      ============                    ============

</TABLE>


   The weighted  average fair value of stock options  granted during 1996,  1995
and 1994 was $10.77, $8.36 and $12.95 per share, respectively. The fair value of
each option  grant is  estimated  on the date of grant  using the  Black-Scholes
options-pricing  model.  The model assumed  expected  volatility of 43%, 41% and
38%,  weighted  average  risk-free  interest  rates of 6.5%,  6.1% and 7.0%, for
grants in 1996, 1995 and 1994, respectively, and an expected life of three years
after the vesting term. As Seagull has not declared  dividends since it became a
public entity,  no dividend yield was used.  Actual value  realized,  if any, is
dependent on the future  performance  of Seagull  Common Stock and overall stock
market conditions.  There is no assurance the value realized by an optionee will
be at or near the value estimated by the Black-Scholes model.




                                                                              51
<PAGE>


Information  relating  to stock  options  outstanding  at  December  31, 1996 is
summarized as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                   Options Outstanding                                Options Exercisable
                                --------------------------------------------------------    -------------------------------------
                                      Number        Weighted Average          Weighted       Number Exercisable       Weighted
           Range of               Outstanding at        Remaining              Average        at December 31,          Average
        Exercise Prices          December 31, 1996  Contractual Life       Exercise Price          1996            Exercise Price
        --------------          ------------------  -----------------       ------------     ------------------     -------------
<S>                             <C>                 <C>                    <C>               <C>                   <C>

    $   5.89  --  $   8.44             966,540           3 years             $   7.13              934,068             $    7.12
    $   8.45  --  $  12.00           1,071,988           6 years             $  10.34              893,540             $   10.23
    $  12.01  --  $  19.00             992,264           7 years             $  16.05              370,884             $   14.87
    $  19.01  --  $  26.00           1,214,000           9 years             $  24.32               26,200             $   25.27
    $  26.01  --  $  26.38             502,000           6 years             $  26.38              192,800             $   26.38
                                    ----------           -------             ---------           ---------             ---------
    $   5.89  --  $  26.38           4,746,792           6 years             $  16.15            2,417,492             $   11.19
                                    ==========           =======             =========           =========             =========

</TABLE>

   As discussed  above, no compensation  expense has been recorded in 1996, 1995
or 1994 for the Company's stock options. Had compensation cost for the Company's
stock  option plans been  determined  based on the fair value at the grant dates
for awards made after  December 31, 1994 under those plans,  the  Company's  net
income  (loss)  (stated in thousands)  and earnings  (loss) per share would have
been reduced to the pro forma amounts indicated below:

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

<TABLE>
<CAPTION>


                                                                                              Year Ended December 31,
                                                                                               1996             1995
                                                                                            ----------        ----------
<S>                                 <C>                                                     <C>               <C>

Net income (loss)                   As reported...................................          $   28,961         $ (1,738)
                                    Pro forma.....................................          $   26,429         $ (2,443)

Earnings (loss) per share           As reported...................................          $     0.45         $  (0.03)
                                    Pro forma.....................................          $     0.41         $  (0.04)
</TABLE>


   Under the provisions of SFAS No. 123, the pro forma disclosures above include
only the effects of stock options granted by Seagull  subsequent to December 31,
1994. During this initial phase-in period, the pro forma disclosures as required
by SFAS No. 123 are not representative of the effects on reported net income for
future  years as  options  vest over  several  years and  additional  awards are
generally made each year.

   PROFIT  SHARING PLANS - ENSTAR Alaska has trusteed  profit  sharing plans for
salaried employees and union employees.  Annual  contributions for each plan are
determined  by the  Company's  Board of  Directors  pursuant to  formulae  which
contain   minimum   contribution   requirements.   Profit  sharing  expense  was
approximately $0.4 million for 1996 and $0.3 million for both 1995 and 1994, and
is included in operations and maintenance expenses.

   THRIFT PLANS - The  Company  has  various  thrift  plans  which are qualified
employee  savings plans in accordance  with the  provisions of Section 401(k) of
the Internal  Revenue Code of 1986, as amended,  or the provisions of the Income
Tax  Act  of  Canada,  as  applicable.  Company  contributions  to  these  plans
(collectively,  the "Thrift Plans") were  approximately $1.8 million for each of
the  years  1996,  1995 and 1994.  The  Thrift  Plans'  costs  are  included  in
operations and maintenance expenses and general and administrative expenses.

   One of the Thrift Plans,  the Employees  401(k)  Savings Plan ("ESP"),  was a
defined  contribution  plan which  covered  substantially  all of Global's  U.S.
employees.  Employees'  contributions  were matched by the Company with treasury
shares of common  stock.  The Company  recorded  expense of  approximately  $0.1
million in each of the years 1996,  1995 and 1994 relating to its  contributions
of 7,324,  11,602, and 12,491 shares,  respectively,  of Seagull Common Stock to
the ESP. Subsequent to December 31, 1996, contributions to




                                                                              52
<PAGE>

the ESP will be suspended and those employees  eligible to contribute to the ESP
prior to the Merger will be eligible to contribute to the Seagull Thrift Plan.

   DEFINED  BENEFIT  PLANS - The Company has an unfunded  retirement  plan which
provides for supplemental benefits to certain officers and key employees.  As of
December 31, 1996,  only one person was  designated to participate in such plan.
Total  expenses of the plan were  approximately  $0.2  million for both 1996 and
1995 and $0.3  million for 1994.  The  retirement  plan's  costs are included in
general and administrative expenses.

   ENSTAR Alaska has two defined benefit  retirement  plans which cover salaried
employees and operating  employees.  Determination  of benefits for the salaried
employees  is based upon a  combination  of years of service  and final  monthly
compensation.  Benefits  for  operating  employees  are based solely on years of
service. ENSTAR Alaska's policy is to fund the minimum contributions required by
applicable  regulations.  The net pension costs are included in  operations  and
maintenance expenses.

   Global  sponsored a defined benefit pension plan which covered  substantially
all of  Global's  U.S.  employees.  The  plan  provides  benefits  based  on the
employee's  years of  service  and  compensation  during  the years  immediately
preceding  retirement.  Global made annual  contributions  to the plan to comply
with the minimum funding  provisions of the Employee  Retirement Income Security
Act. The plan investments  consist primarily of common equities and fixed income
securities.  The Company has terminated  this defined  benefit  pension plan and
intends  to pay  participants  the  present  value  of their  accrued  benefits.
Settlement  of this plan is not expected to have a material  effect on Seagull's
financial position or results of operations.

   The following  table (stated in thousands)  details the components of pension
income and expense, the funded status of the Company's plans, amounts recognized
in the  Company's  consolidated  balance  sheets and major  assumptions  used to
determine these projected benefit obligations.  Certain assumptions are based on
factors,  such as interest rates and long-term  rates of return on  investments,
which are subject to change due to forces beyond the Company's control.  Changes
in the  various  assumptions  utilized  could have a  significant  effect on the
amounts reported.




                                                                              53
<PAGE>



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

<TABLE>
<CAPTION>


                                                                                         1996          1995
                                                                                      ---------     ---------
<S>                                                                                  <C>           <C>          

Actuarial present value of benefit obligations:
  Vested benefit obligation .......................................................   $ (16,242)    $ (14,678)
                                                                                      =========     =========
  Accumulated benefit obligation ..................................................   $ (16,278)    $ (15,053)
                                                                                      =========     =========
Projected benefit obligation for services rendered to date ........................   $ (17,740)    $ (18,043)
Plan assets at fair value, primarily listed stocks and corporate and U. S. bonds ..      15,520        13,376
                                                                                      ---------     ---------
Plan assets at fair value less than projected benefit obligation ..................      (2,220)       (4,667)
Unrecognized prior service cost ...................................................          91           274
Unrecognized net loss .............................................................         753         2,843
Unrecognized net obligation arising out of the initial application of
  SFAS No. 87, amortized over 15 years to 18 years ................................         394           533
Additional minimum liability ......................................................        --          (1,321)
                                                                                      ---------     ---------
Accrued pension cost ..............................................................   $    (982)    $  (2,338)
                                                                                      =========     =========
Net pension cost includes the following components:
  Service cost - benefits earned during the period ................................   $   1,025     $     812
  Interest cost on projected benefit obligation ...................................       1,212         1,054
  Actual return on plan assets ....................................................      (2,605)       (3,094)
  Net amortization and deferral ...................................................       1,835         2,464
                                                                                      ---------     ---------
Net periodic pension cost .........................................................   $   1,467     $   1,236
                                                                                      =========     =========
Assumptions:
  Discount rate ...................................................................           7%            7%
  Rate of increase in future compensation .........................................           2%            4%
  Expected long-term rate of return on plan assets ................................           8%            8%

</TABLE>

   EMPLOYEE STOCK  OWNERSHIP PLAN - On November 15, 1989, the Company formed the
Seagull  Employee  Stock  Ownership  Plan (the  "ESOP")  for the  benefit of the
non-Alaskan  employees of the Company.  The ESOP  borrowed from the Company $7.7
million at an interest rate of 10 percent per annum to be repaid in twelve equal
annual installments of principal and interest.  The ESOP used the borrowed funds
and the 1989 contributions from the Company to purchase 948,150 shares of Common
Stock at $8.438 per share from Seagull's treasury.  The purchase price was based
upon the closing price of the Common Stock on the New York Stock Exchange on the
date the ESOP was formed.

   The  promissory  note has been and will be funded  entirely by  contributions
from Seagull.  Company  contributions of approximately $0.6 million in both 1996
and 1995 and $0.5 million in 1994 are  included in  operations  and  maintenance
expenses and general and administrative expenses.

   POSTRETIREMENT MEDICAL PLAN - ENSTAR Alaska has a postretirement medical plan
which covers all of its salaried  employees.  Determination of benefits is based
upon the  combined  age of the retiree and years of service at  retirement.  The
Company accrues for such benefits during the years the plan participants  render
service. Expenses related to the postretirement medical plan of $0.3 in 1996 and
$0.2 million in both 1995 and 1994 are included in  operations  and  maintenance
expenses.




                                                                              54
<PAGE>


12.  INCOME TAXES

   The income (loss) before income taxes and the components of income tax
expense  (stated in  thousands)  for each of the years ended  December 31, 1996,
1995 and 1994 were as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                                1996         1995         1994
                                                             ---------    ---------    ---------
<S>                                                          <C>          <C>          <C>

Income (loss) before income taxes:
  Domestic ...............................................   $  38,200    $   6,841    $   2,886
  Foreign ................................................      16,656       (5,797)      (3,551)
                                                             ---------    ---------    ---------
                                                             $  54,856    $   1,044    $    (665)
                                                             =========    =========    =========

Current income tax expense:
  Federal ................................................   $    (643)   $   6,236    $   1,675
  Foreign ................................................      17,737        9,376        7,031
  State ..................................................         100        3,462        1,325
                                                             ---------    ---------    ---------
   Total current .........................................      17,194       19,074       10,031
                                                             ---------    ---------    ---------
Deferred income tax expense (benefit):
  Federal ................................................       7,605      (13,570)      (7,257)
  Foreign ................................................         815       (1,935)       1,256
  State ..................................................         281         (787)        (290)
                                                             ---------    ---------    ---------
   Total deferred ........................................       8,701      (16,292)      (6,291)
                                                             ---------    ---------    ---------
Income tax expense .......................................      25,895        2,782        3,740
Additional paid-in capital for compensation expense for
  tax purposes in excess of amounts recognized for
  financial reporting purposes ...........................      (1,244)        (374)        (160)
                                                             ---------    ---------    ---------
                                                             $  24,651    $   2,408    $   3,580
                                                             =========    =========    =========

</TABLE>




   The provision for income taxes for each of the years ended December 31, 1996,
1995 and 1994 was different than the amount computed using the federal statutory
rate (35%) for the following reasons (stated in thousands):
===============================================================================

<TABLE>
<CAPTION>


                                                                              1996         1995         1994
                                                                            ---------    ---------    ---------
<S>                                                                         <C>          <C>          <C>

Amount computed using the statutory rate ................................   $  19,200    $     365    $    (233)
Increase (Reduction) in taxes resulting from:
  Utilization of Internal Revenue Code
   Section 29 (Tight Sands) credits .....................................        (171)      (3,096)      (5,534)
  State income taxes, net of federal income tax benefits ................         248        1,739          673
  Taxation of foreign operations, net of federal income tax benefits ....      13,613        8,494        7,272
  Decrease in deferred tax asset valuation allowance ....................      (8,430)      (6,194)        (982)
  Adjustments to beginning-of-the-year tax bases
   per the 1994 tax returns and effects of IRS exam .....................        --         (1,385)        --
  Other .................................................................       1,435        2,859        2,544
                                                                            ---------    ---------    ---------
Income tax expense ......................................................   $  25,895    $   2,782    $   3,740
                                                                            =========    =========    =========

</TABLE>





                                                                              55
<PAGE>


   The net decrease in the valuation  allowance for the year ended  December 31,
1996  of  approximately  $8.4  million  included  $6.2  million  related  to the
utilization in 1996 of net operating  losses.  The remaining change for 1996 and
the changes for 1995 and 1994 are related to  management's  belief that,  due to
events  occurring  in the year of change,  it is more  likely than not that such
deferred  tax  assets,  for which a  valuation  allowance  had  previously  been
established, will be realized.

   The  significant   components  of  deferred  income  tax  expense   (benefit)
attributable to income from  continuing  operations for the years ended December
31, 1996, 1995 and 1994 (stated in thousands) were as follows:
===============================================================================

<TABLE>
<CAPTION>


                                                                 1996         1995         1994
                                                               ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>

Deferred tax expense (benefit) (exclusive of the effects
  of other components listed below) ........................   $  17,131    $ (10,098)   $  (5,309)
Decrease in deferred tax asset valuation allowance .........      (8,430)      (6,194)        (982)
                                                               ---------    ---------    ---------
                                                               $   8,701    $ (16,292)   $  (6,291)
                                                               =========    =========    =========

</TABLE>

   The tax  effects  of  temporary  differences  that gave  rise to  significant
portions of the deferred tax  liabilities and deferred tax assets as of December
31, 1996, 1995 and 1994 (stated in thousands) were as follows:
===============================================================================


<TABLE>
<CAPTION>

                                                                        1996         1995         1994
                                                                     ---------    ---------    ---------
<S>                                                                  <C>          <C>          <C>

Deferred tax liabilities:
  Property, plant and equipment, due to
   differences in depreciation, depletion and amortization .......   $  66,242    $  50,783    $  60,723
  Other ..........................................................         583          197        1,077
                                                                     ---------    ---------    ---------
Deferred tax liabilities .........................................      66,825       50,980       61,800
                                                                     ---------    ---------    ---------
Deferred tax assets:
  Minimum tax credit carryforwards ...............................     (15,972)     (18,950)     (15,301)
  Investment tax credit carryforwards ............................      (1,851)      (1,682)      (3,466)
  Net operating loss carryforwards ...............................      (1,727)      (7,129)     (10,267)
  Foreign tax credit carryforwards ...............................        --           --         (1,545)
  Deferred compensation/retirement related
   items accrued for financial reporting purposes ................      (5,464)      (4,349)      (3,965)
  Contingent consideration related to acquisitions/dispositions ..      (5,018)        (651)      (1,052)
  Notes receivable ...............................................      (6,209)      (5,333)      (5,248)
  Other ..........................................................      (3,636)      (3,178)      (1,774)
                                                                     ---------    ---------    ---------
Deferred tax assets ..............................................     (39,877)     (41,272)     (42,618)
Less - valuation allowance .......................................        --          8,430       14,624
                                                                     ---------    ---------    ---------
Net deferred tax assets ..........................................     (39,877)     (32,842)     (27,994)
Less - reclassification to current deferred tax assets ...........       4,073        5,239        4,118
                                                                     ---------    ---------    ---------
Non-current deferred tax assets ..................................     (35,804)     (27,603)     (23,876)
                                                                     ---------    ---------    ---------
Net non-current deferred tax liabilities .........................   $  31,021    $  23,377    $  37,924
                                                                     =========    =========    =========

</TABLE>

   For federal  income tax  purposes,  as of December 31, 1996,  the Company has
unused investment tax credits of approximately $1.9 million which will expire in
the years 1999 and 2000,  unused  operating loss  carryforwards of approximately
$4.9 million which will expire in the years 1997 through 1999 and unused minimum
tax  credits  of  approximately  $16.0  million  which  are  available  over  an
indefinite period.



                                                                              56

<PAGE>

13.  BUSINESS SEGMENTS


   Information  on the  Company's  operations  by  business  segment  (stated in
thousands) is summarized as follows for the years ended December 31:
===============================================================================

<TABLE>
<CAPTION>


                                                         1996           1995           1994
                                                     -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>

REVENUES:
  Oil and gas operations .........................   $   420,962    $   310,656    $   364,888
  Alaska transmission and distribution ...........        97,616         97,770        105,598
                                                     -----------    -----------    -----------
                                                     $   518,578    $   408,426    $   470,486
                                                     ===========    ===========    ===========
OPERATING PROFIT (LOSS):
  Oil and gas operations(1) ......................   $   100,529    $   (33,721)   $    41,374
  Alaska transmission and distribution ...........        26,026         23,141         21,865
  General and administrative expense .............       (21,500)       (23,798)       (14,603)
                                                     -----------    -----------    -----------
                                                     $   105,055    $   (34,378)   $    48,636
                                                     ===========    ===========    ===========
DEPRECIATION, DEPLETION AND AMORTIZATION:
  Oil and gas operations(1) ......................   $   144,954    $   188,455    $   149,182
  Alaska transmission and distribution ...........         7,945          7,797          7,752
  Corporate ......................................         3,420          4,351          3,016
                                                     -----------    -----------    -----------
                                                     $   156,319    $   200,603    $   159,950
                                                     ===========    ===========    ===========
IDENTIFIABLE ASSETS:
  Oil and gas operations .........................   $ 1,267,481    $ 1,118,216    $ 1,188,341
  Alaska transmission and distribution ...........       189,867        189,081        190,087
  Corporate ......................................        57,715         51,828         75,622
                                                     -----------    -----------    -----------
                                                     $ 1,515,063    $ 1,359,125    $ 1,454,050
                                                     ===========    ===========    ===========
CAPITAL EXPENDITURES:
  Exploration and production:
   Leasehold .....................................   $    12,986    $    18,000    $    18,573
   Exploration ...................................        77,774         46,575         67,135
   Development ...................................       108,763         69,260        100,763
                                                     -----------    -----------    -----------
                                                         199,523        133,835        186,471
  Pipeline and marketing .........................           228            441          2,503
                                                     -----------    -----------    -----------
  Oil and gas operations .........................       199,751        134,276        188,974
  Alaska transmission and distribution ...........         9,287          7,611          7,626
  Corporate ......................................         4,424          2,214          5,953
                                                     -----------    -----------    -----------
                                                     $   213,462    $   144,101    $   202,553
                                                     ===========    ===========    ===========
ACQUISITIONS, NET OF CASH ACQUIRED:
Acquisitions of oil and gas properties ...........   $    90,867    $      --      $   222,780
Acquisitions of other assets and liabilities .....        13,553           --          (28,921)
                                                     -----------    -----------    -----------
                                                     $   104,420    $      --      $   193,859
                                                     ===========    ===========    ===========

</TABLE>

(1) Includes $48.8 million  relating to the impairment of long-lived  assets for
    the year ended December 31, 1995.

<PAGE>

Identifiable  assets by geographic area is stated in thousands and summarized as
follows:

<TABLE>
<CAPTION>


                                         1996         1995         1994
                                      ----------   ----------   ----------
<S>                                   <C>          <C>          <C>

United States .....................   $1,138,619   $1,074,787   $1,185,890
Canada ............................      200,352      211,040      224,656
Cote d'Ivoire .....................       28,854       33,167       10,949
Egypt .............................      119,680       11,003        2,772
Indonesia .........................        3,487        4,237        4,535
Russia ............................       21,152       21,120       19,228
Other(2) ..........................        2,919        3,771        6,020
                                      ----------   ----------   ----------
                                      $1,515,063   $1,359,125   $1,454,050
                                      ==========   ==========   ==========

</TABLE>


(2)Other includes Malaysia, the United Kingdom and Vietnam.



                                                                              57
<PAGE>


14.  COMMITMENTS AND CONTINGENCIES

   LEASE  COMMITMENTS - The Company  leases  certain  office space and equipment
under operating lease  arrangements which contain renewal options and escalation
clauses.  Future minimum  rental  payments under these leases range between $2.1
million and $2.9 million in each of the years 1997-2001, and total $10.4 million
for all subsequent  years.  Total rental expense under operating leases for each
of the years 1996, 1995 and 1994 was approximately $3.2 million.

   LITIGATION  - The  Company  is a party to  ongoing  litigation  in the normal
course of  business  or other  litigation  with  respect to which the Company is
indemnified  pursuant  to  various  purchase  agreements  or  other  contractual
arrangements.   Management   regularly  analyzes  current  information  and,  as
necessary,   provides   accruals  for  probable   liabilities  on  the  eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
any adverse effect on the Company's financial  condition,  results of operations
or cash flows will not be material.





                                                                              58
<PAGE>


15.      SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (AMOUNTS IN
THOUSANDS)
===============================================================================

<TABLE>
<CAPTION>


                                       United                   Cote
                                       States       Canada     d'Ivoire     Egypt     Indonesia     Russia       Other      Total
                                     ----------   ----------   --------   ----------  ---------   ----------   --------   ---------
<S>                                  <C>          <C>          <C>        <C>         <C>         <C>          <C>        <C>

At December 31, 1996:
   Proved ........................   $1,312,448   $  239,323   $ 32,648   $   98,407   $  3,962   $   17,056   $   --     $1,703,844
   Unproved ......................       33,959        2,525        664        5,584       --           --        4,208       46,940
                                     ----------   ----------   --------   ----------   --------   ----------   --------   ----------
                                      1,346,407      241,848     33,312      103,991      3,962       17,056      4,208    1,750,784
   Accumulated depreciation,
    depletion and amortization ...      620,602       49,561      6,245        7,442      2,911        4,979      1,441      693,181
                                     ----------   ----------   --------   ----------   --------   ----------   --------   ----------
                                     $  725,805   $  192,287   $ 27,067   $   96,549   $  1,051   $   12,077   $  2,767   $1,057,603
                                     ==========   ==========   ========   ==========   ========   ==========   ========   ==========
At December 31, 1995:
   Proved ........................   $1,168,219   $  234,437   $ 27,146   $    9,331   $  3,962   $   13,103   $    134   $1,456,332
   Unproved ......................       30,278        2,722        118          897       --           --        4,426       38,441
                                     ----------   ----------   --------   ----------   --------   ----------   --------   ----------
                                      1,198,497      237,159     27,264       10,228      3,962       13,103      4,560    1,494,773
   Accumulated depreciation,
    depletion and amortization ...      511,174       34,015      2,100          134      2,779        2,635        815      553,652
                                     ----------   ----------   --------   ----------   --------   ----------   --------   ----------
                                     $  687,323   $  203,144   $ 25,164   $   10,094   $  1,183   $   10,468   $  3,745   $  941,121
                                     ==========   ==========   ========   ==========   ========   ==========   ========   ==========

</TABLE>


COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES (AMOUNTS IN THOUSANDS)
===============================================================================

<TABLE>
<CAPTION>


                                      United                  Cote
                                      States       Canada    d'Ivoire       Egypt     Indonesia    Russia       Other       Total
                                     ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
<S>                                  <C>         <C>         <C>          <C>        <C>         <C>          <C>         <C>

Year Ended December 31, 1996:
 Acquisition costs:
   Proved ........................   $  29,102   $   1,000   $    --      $  56,051   $    --     $    --     $    --     $  86,153
   Unproved ......................      10,371         862         782        5,584        --          --           101      17,700
 Exploration costs ...............      64,066       3,332       2,823        6,934        --          --           619      77,774
 Development costs ...............      65,309      10,992       3,255       25,176        --         4,031        --       108,763
                                     ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
                                     $ 168,848   $  16,186   $   6,860    $  93,745   $    --     $   4,031   $     720   $ 290,390
                                     =========   =========   =========    =========   =========   =========   =========   =========
Year Ended December 31, 1995:
 Acquisition costs:
   Proved ........................   $   3,193   $     553   $    --      $    --     $    --     $    --     $    --     $   3,746
   Unproved ......................      13,036         873         126           13        --          --           206      14,254
 Exploration costs ...............      38,762         764         (29)       3,412        --           312       3,354      46,575
 Development costs ...............      39,669       2,507      18,359        4,792        --         3,933        --        69,260
                                     ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
                                     $  94,660   $   4,697   $  18,456    $   8,217   $    --     $   4,245   $   3,560   $ 133,835
                                     =========   =========   =========    =========   =========   =========   =========   =========
Year Ended December 31, 1994:
 Acquisition costs:
   Proved ........................   $   7,934   $ 218,871   $    --      $    --     $    --     $    --     $    --     $ 226,805
   Unproved ......................       8,021       3,216        --            885        --          --         2,426      14,548
 Exploration costs ...............      54,604         801       3,032        2,022        --           496       6,180      67,135
 Development costs ...............      73,782      18,830       2,624         --          --         5,527        --       100,763
                                     ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
                                     $ 144,341   $ 241,718   $   5,656    $   2,907   $    --     $   6,023   $   8,606   $ 409,251
                                     =========   =========   =========    =========   =========   =========   =========   =========

</TABLE>



                                                                              59
<PAGE>


RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (AMOUNTS IN
THOUSANDS)
===============================================================================

<TABLE>
<CAPTION>


                                            United                      Cote
                                            States        Canada       d'Ivoire        Egypt
                                          ----------    ----------    ----------    ----------
<S>                                       <C>           <C>           <C>           <C>

Year Ended December 31, 1996:

 Revenues .............................   $  280,540    $   33,911    $   12,798    $   28,126
 Direct operating expense(1) ..........       61,206        11,849         2,454         3,851
 General operating expense(1)..........        6,610         2,169           215         1,945
 Exploration charges ..................       35,629         4,295         5,401         2,725
 DD&A(2) ..............................      110,691        16,985         4,151         7,416
 Income tax expense(3) ................       23,047         1,375         2,158         5,579
                                          ----------    ----------    ----------    ----------
 Results of activities ................   $   43,357    $   (2,762)   $   (1,581)   $    6,610
                                          ==========    ==========    ==========    ==========

Year Ended December 31, 1995:
 Revenues .............................   $  205,596    $   28,837    $    4,377    $      442
 Direct operating expense(1) ..........       53,298        11,078         1,010            56
 General operating expense(1)..........        8,486         1,856           390          --
 Exploration charges ..................       26,156         2,866           471         2,086
 DD&A(2) ..............................      113,430        18,046         2,106           136
 Impairment of oil and gas properties .       46,122          --            --            --
 Income tax expense (benefit)(3) ......      (20,776)       (2,233)          832          --
                                          ----------    ----------    ----------    ----------
 Results of activities ................   $  (21,120)   $   (2,776)   $     (432)   $   (1,836)
                                          ==========    ==========    ==========    ==========

Year Ended December 31, 1994:
 Revenues .............................   $  246,491    $   37,068    $     --      $     --
 Direct operating expense(1) ..........       55,918        11,440          --            --
 General operating expense(1)..........       11,356         1,574          --            --
 Exploration charges ..................       34,926         2,308          --            --
 DD&A(2) ..............................      124,179        16,558          --            --
 Income tax expense (benefit)(3) ......       (2,405)        2,300          --            --
                                          ----------    ----------    ----------    ----------
 Results of activities ................   $   22,517    $    2,888    $     --      $     --
                                          ==========    ==========    ==========    ==========

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                          Indonesia     Russia         Other         Total
                                          ----------   ----------    ----------    ----------
<S>                                       <C>          <C>           <C>           <C>
Year Ended December 31, 1996:
 Revenues .............................   $   15,892   $   15,633    $       57    $  386,957
 Direct operating expense(1) ..........         --          7,895          --          87,255
 General operating expense(1)..........         --          3,467            13        14,419
 Exploration charges ..................         --           (133)        2,310        50,227
 DD&A(2) ..............................          131        2,830           877       143,081
 Income tax expense(3) ................        8,899          541          --          41,599
                                          ----------   ----------    ----------    ----------
 Results of activities ................   $    6,862   $    1,033    $   (3,143)   $   50,376
                                          ==========   ==========    ==========    ==========

Year Ended December 31, 1995:
 Revenues .............................   $   12,418   $   16,078    $        7    $  267,755
 Direct operating expense(1) ..........         --          6,190          --          71,632
 General operating expense(1)..........         --          2,682           (21)       13,393
 Exploration charges ..................         --            367         8,277        40,223
 DD&A(2) ..............................          131        2,111           536       136,496
 Impairment of oil and gas properties .         --           --            --          46,122
 Income tax expense (benefit)(3) ......        6,953        1,066          --         (14,158)
                                          ----------   ----------    ----------    ----------
 Results of activities ................   $    5,334   $    3,662    $   (8,785)   $  (25,953)
                                          ==========   ==========    ==========    ==========

Year Ended December 31, 1994:
 Revenues .............................   $   11,738   $   12,170    $       10    $  307,477
 Direct operating expense(1) ..........         --          7,834          --          75,192
 General operating expense(1)..........         --          2,335           113        15,378
 Exploration charges ..................         --            498         6,081        43,813
 DD&A(2) ..............................          131        1,555           630       143,053
 Income tax expense (benefit)(3) ......        6,577           55          --           6,527
                                          ----------   ----------    ----------    ----------
 Results of activities ................   $    5,030   $     (107)   $   (6,814)   $   23,514
                                          ==========   ==========    ==========    ==========

</TABLE>


(1)Direct  operating  expense  represents costs incurred to operate and maintain
   wells and related equipment and facilities.  These costs include, among other
   things, repairs and maintenance,  labor, materials, supplies, property taxes,
   insurance,  severance  taxes  and  transportation  costs.  General  operating
   expense  represents  all  overhead  expenses  directly related to oil and gas
   producing activities.

(2)"DD&A" represents depreciation, depletion and amortization.

(3)Income tax expense  (benefit) is  calculated by applying the  applicable  tax
   rate to operating  profit for that country and, in the U.S.,  also  providing
   the benefit of any Internal Revenue Code Section 29 Tax Credits.




                                                                              60
<PAGE>


RESERVE QUANTITY INFORMATION - THOUSAND EQUIVALENT BARRELS OF OIL (MBOE)
===============================================================================


<TABLE>
<CAPTION>

                                          United                     Cote
                                          States       Canada      d'Ivoire      Egypt       Indonesia     Russia         Total
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>

Proved reserves:
   January 1, 1996 ...................     153,794       45,816        6,521        8,151       13,300       15,570      243,152
   Revisions of previous estimates ...       4,021       (2,713)        (900)         386         (518)         651          927
   Extensions and discoveries ........      12,769        5,261          263        1,798         --          1,234       21,325
   Purchases of reserves in place ....       6,217          288         --         16,935         --           --         23,440
   Sales of reserves in place ........         (20)      (2,075)        --           --           --           --         (2,095)
   Production ........................     (20,934)      (3,895)        (752)      (1,305)        (789)      (1,117)     (28,792)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1996(1) ..............     155,847       42,682        5,132       25,965       11,993       16,338      257,957
                                         =========    =========    =========    =========    =========    =========    =========

   January 1, 1995 ...................     158,848       48,714        5,282        3,520       14,397       13,157      243,918
   Revisions of previous estimates ...       3,515          363          118        4,656         (396)       1,497        9,753
   Extensions and discoveries ........      11,242        1,054        1,416         --           --          1,978       15,690
   Purchases of reserves in place ....       1,254          323         --           --           --           --          1,577
   Sales of reserves in place ........        (748)        (563)        --           --           --           --         (1,311)
   Production ........................     (20,317)      (4,075)        (295)         (25)        (701)      (1,062)     (26,475)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1995(1) ..............     153,794       45,816        6,521        8,151       13,300       15,570      243,152
                                         =========    =========    =========    =========    =========    =========    =========

   January 1, 1994 ...................     179,437         --           --           --         14,289        7,297      201,023
   Revisions of previous estimates ...     (10,225)         760         --           --            901        2,109       (6,455)
   Extensions and discoveries ........      11,198        5,580        5,282        3,520         --          4,593       30,173
   Purchases of reserves in place ....       1,623       46,554         --           --           --           --         48,177
   Sales of reserves in place ........      (1,734)        (460)        --           --           --           --         (2,194)
   Production ........................     (21,451)      (3,720)        --           --           (793)        (842)     (26,806)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1994 .................     158,848       48,714        5,282        3,520       14,397       13,157      243,918
                                         =========    =========    =========    =========    =========    =========    =========

Proved developed reserves:
   December 31, 1996 .................     127,871       37,150        3,092       14,502        9,528       10,806      202,949
   December 31, 1995 .................     122,918       40,787        3,623          265       10,652        9,176      187,421
   December 31, 1994 .................     125,520       44,094         --           --         11,707        8,866      190,187

</TABLE>


(1)At December 31, 1996 and 1995, includes  approximately 14,072 MBOE and 14,733
   MBOE,  respectively,  of oil equivalents dedicated to the monetary production
   payment (see Note 4).


   The reserve volumes  presented are estimates only and should not be construed
as being exact  quantities.  These  reserves may or may not be recovered and may
increase or decrease as a result of future operations of the Company and changes
in economic conditions.




                                                                              61
<PAGE>


RESERVE QUANTITY INFORMATION - OIL (MBBL)
===============================================================================


<TABLE>
<CAPTION>

                                          United                     Cote
                                          States       Canada      d'Ivoire       Egypt      Indonesia     Russia       Total
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>

Proved reserves:
   January 1, 1996 ...................      20,163        3,667        3,010        7,918        1,153       15,570       51,481
   Revisions of previous estimates ...        (800)         (47)      (1,038)         384           23          651         (827)
   Extensions and discoveries ........       1,656          916           64        1,792         --          1,234        5,662
   Purchases of reserves in place ....         429           21         --         16,935         --           --         17,385
   Sales of reserves in place ........          (2)        (471)        --           --           --           --           (473)
   Production ........................      (1,561)        (361)        (511)      (1,305)         (51)      (1,117)      (4,906)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1996(1) ..............      19,885        3,725        1,525       25,724        1,125       16,338       68,322
                                         =========    =========    =========    =========    =========    =========    =========

   January 1, 1995 ...................      15,481        4,051        2,210        3,520        1,066       13,157       39,485
   Revisions of previous estimates ...       4,000         (164)          72        4,423          132        1,497        9,960
   Extensions and discoveries ........       1,382          258          989         --           --          1,978        4,607
   Purchases of reserves in place ....         781           74         --           --           --           --            855
   Sales of reserves in place ........         (78)        (153)        --           --           --           --           (231)
   Production ........................      (1,403)        (399)        (261)         (25)         (45)      (1,062)      (3,195)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1995(1) ..............      20,163        3,667        3,010        7,918        1,153       15,570       51,481
                                         =========    =========    =========    =========    =========    =========    =========

   January 1, 1994 ...................      16,249         --           --           --          1,005        7,297       24,551
   Revisions of previous estimates ...        (210)         685         --           --            108        2,109        2,692
   Extensions and discoveries ........       1,123          878        2,210        3,520         --          4,593       12,324
   Purchases of reserves in place ....          82        2,923         --           --           --           --          3,005
   Sales of reserves in place ........        (113)          (8)        --           --           --           --           (121)
   Production ........................      (1,650)        (427)        --           --            (47)        (842)      (2,966)
                                         ---------    ---------    ---------    ---------    ---------    ---------    ---------
   December 31, 1994 .................      15,481        4,051        2,210        3,520        1,066       13,157       39,485
                                         =========    =========    =========    =========    =========    =========    =========

Proved developed reserves:
   December 31, 1996 .................      12,855        2,913        1,035       14,336          936       10,806       42,881
   December 31, 1995 .................      11,205        3,196        1,720          265        1,022        9,176       26,584
   December 31, 1994 .................       8,967        3,587         --           --            870        8,866       22,290


</TABLE>

(1) At December 31, 1996 and 1995,  includes  approximately 2,248 Mbbl and 2,281
    Mbbl, respectively, of oil dedicated to the monetary production payment (see
    Note 4).





                                                                              62
<PAGE>

RESERVE QUANTITY INFORMATION - GAS (MMCF)
===============================================================================
<TABLE>
<CAPTION>



                                           United                      Cote
                                           States        Canada       d'Ivoire       Egypt      Indonesia        Total
                                         ----------    ----------    ----------    ----------   ----------    ----------
<S>                                      <C>           <C>           <C>           <C>          <C>           <C>

Proved reserves:
   January 1, 1996 ...................      801,797       252,892        21,066         1,399       72,892     1,150,046
   Revisions of previous estimates ...       28,925       (15,994)          828            13       (3,246)       10,526
   Extensions and discoveries ........       66,678        26,071         1,195            35         --          93,979
   Purchases of reserves in place ....       34,729         1,603          --            --           --          36,332
   Sales of reserves in place ........         (110)       (9,625)         --            --           --          (9,735)
   Production ........................     (116,238)      (21,203)       (1,445)         --         (4,429)     (143,315)
                                         ----------    ----------    ----------    ----------   ----------    ----------
   December 31, 1996(1) ..............      815,781       233,744        21,644         1,447       65,217     1,137,833
                                         ==========    ==========    ==========    ==========   ==========    ==========

   January 1, 1995 ...................      860,209       267,980        18,432          --         79,990     1,226,611
   Revisions of previous estimates ...       (2,908)        3,159           278         1,399       (3,165)       (1,237)
   Extensions and discoveries ........       59,157         4,773          --            --           --          63,930
   Purchases of reserves in place ....        2,840         1,494         2,559          --           --           6,893
   Sales of reserves in place ........       (4,019)       (2,457)         --            --           --          (6,476)
   Production ........................     (113,482)      (22,057)         (203)         --         (3,933)     (139,675)
                                         ----------    ----------    ----------    ----------   ----------    ----------
   December 31, 1995(1) ..............      801,797       252,892        21,066         1,399       72,892     1,150,046
                                         ==========    ==========    ==========    ==========   ==========    ==========

   January 1, 1994 ...................      979,128          --            --            --         79,706     1,058,834
   Revisions of previous estimates ...      (60,087)          449          --            --          4,757       (54,881)
   Extensions and discoveries ........       60,451        28,212        18,432          --           --         107,095
   Purchases of reserves in place ....        9,247       261,785          --            --           --         271,032
   Sales of reserves in place ........       (9,726)       (2,711)         --            --           --         (12,437)
   Production ........................     (118,804)      (19,755)         --            --         (4,473)     (143,032)
                                         ----------    ----------    ----------    ----------   ----------    ----------
   December 31, 1994 .................      860,209       267,980        18,432          --         79,990     1,226,611
                                         ==========    ==========    ==========    ==========   ==========    ==========

   Proved developed reserves:
   December 31, 1996 .................      690,095       205,422        12,344           993       51,554       960,408
   December 31, 1995 .................      670,277       225,544        11,415          --         57,777       965,013
   December 31, 1994 .................      699,317       243,042          --            --         65,021     1,007,380

</TABLE>



(1)At December 31, 1996 and 1995, includes  approximately 70,914 MMcf and 74,713
   MMcf, respectively,  of gas dedicated to the monetary production payment (see
   Note 4).


   The Company's  standardized measure of discounted future net cash flows as of
December 31, 1996 and 1995 and changes  therein for each of the years 1996, 1995
and 1994 are provided  based on the present  value of future net  revenues  from
proved oil and gas reserves  estimated  by  independent  petroleum  engineers in
accordance   with   guidelines   established  by  the  Securities  and  Exchange
Commission.  These  estimates  were  computed by applying  appropriate  year-end
prices  for oil and gas to  estimated  future  production  of proved oil and gas
reserves over the economic  lives of the reserves and assuming  continuation  of
existing economic conditions.  Year-end 1996 calculations were made using prices
of $3.27 per Mcf and $20.99 per Bbl for gas and oil, respectively. The Company's
average  realized prices for the year ended December 31, 1996 were $2.07 per Mcf
and  $18.50  per Bbl  for gas and  oil,  respectively.  Because  the  disclosure
requirements are standardized,  significant changes can occur in these estimates
based upon oil and gas prices in effect at  year-end.  The  following  estimates
should not be viewed as an  estimate  of fair  market  value.  Income  taxes are
computed by applying the statutory  income tax rate in the  jurisdiction  to the
net cash inflows  relating to proved oil and gas reserves  less the tax bases of
the  properties  involved and giving effect to  appropriate  net operating  loss
carryforwards, tax credits and allowances relating to such properties.



                                                                              63
<PAGE>


STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (AMOUNTS IN THOUSANDS)
===============================================================================

<TABLE>
<CAPTION>


                                                   United                         Cote
                                                   States          Canada        d'Ivoire        Egypt
                                                 -----------    -----------    -----------    -----------
<S>                                              <C>            <C>            <C>            <C>

December 31, 1996:
 Future cash inflows .........................   $ 3,489,097    $   481,159    $    80,526    $   604,613
 Future development costs ....................      (169,240)       (20,487)       (15,529)      (115,639)
 Future production costs .....................      (712,881)      (129,313)       (17,700)      (122,697)
                                                 -----------    -----------    -----------    -----------
 Future net cash flows before income taxes ...     2,606,976        331,359         47,297        366,277
 10% annual discount .........................    (1,086,947)      (153,161)       (11,121)      (114,772)
                                                 -----------    -----------    -----------    -----------
 Discounted future net cash flows
   before income taxes .......................     1,520,029        178,198         36,176        251,505
 Discounted income taxes .....................      (383,032)       (63,079)        (5,072)       (75,306)
                                                 -----------    -----------    -----------    -----------
 Standardized measure of discounted future
    net cash flows ...........................   $ 1,136,997    $   115,119    $    31,104    $   176,199
                                                 ===========    ===========    ===========    ===========

December 31, 1995:
 Future cash inflows .........................   $ 1,985,934    $   345,380    $   103,820    $   144,528
 Future development costs ....................      (180,175)       (20,297)       (16,971)       (43,459)
 Future production costs .....................      (515,802)      (113,917)       (18,993)       (34,972)
                                                 -----------    -----------    -----------    -----------
 Future net cash flows before income taxes ...     1,289,957        211,166         67,856         66,097
 10% annual discount .........................      (522,907)       (98,399)       (18,973)       (21,867)
                                                 -----------    -----------    -----------    -----------
 Discounted future net cash flows
   before income taxes .......................       767,050        112,767         48,883         44,230
 Discounted income taxes .....................      (123,479)       (33,286)       (11,851)       (19,181)
                                                 -----------    -----------    -----------    -----------
 Standardized measure of discounted future
    net cash flows ...........................   $   643,571    $    79,481    $    37,032    $    25,049
                                                 ===========    ===========    ===========    ===========

</TABLE>

<TABLE>
<CAPTION>


                                                  Indonesia        Russia         Total
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>

December 31, 1996:
 Future cash inflows .........................   $   229,497    $   266,304    $ 5,151,196
 Future development costs ....................          --          (30,896)      (351,791)
 Future production costs .....................       (41,640)      (121,137)    (1,145,368)
                                                 -----------    -----------    -----------
 Future net cash flows before income taxes ...       187,857        114,271      3,654,037
 10% annual discount .........................       (95,995)       (54,171)    (1,516,167)
                                                 -----------    -----------    -----------
 Discounted future net cash flows
   before income taxes .......................        91,862         60,100      2,137,870
 Discounted income taxes .....................       (48,623)       (18,236)      (593,348)
                                                 -----------    -----------    -----------
 Standardized measure of discounted future
    net cash flows ...........................   $    43,239    $    41,864    $ 1,544,522
                                                 ===========    ===========    ===========

December 31, 1995:
 Future cash inflows .........................   $   179,534    $   261,880    $ 3,021,076
 Future development costs ....................          --          (29,422)      (290,324)
 Future production costs .....................       (36,305)      (118,768)      (838,757)
                                                 -----------    -----------    -----------
 Future net cash flows before income taxes ...       143,229        113,690      1,891,995
 10% annual discount .........................       (71,042)       (54,846)      (788,034)
                                                 -----------    -----------    -----------
 Discounted future net cash flows
   before income taxes .......................        72,187         58,844      1,103,961
 Discounted income taxes .....................       (35,479)       (19,334)      (242,610)
                                                 -----------    -----------    -----------
 Standardized measure of discounted future
    net cash flows ...........................   $    36,708    $    39,510    $   861,351
                                                 ===========    ===========    ===========


</TABLE>

PRINCIPAL SOURCES OF CHANGE IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS (AMOUNTS IN THOUSANDS)
===============================================================================

<TABLE>
<CAPTION>


                                                                            Year Ended December 31,
                                                                        1996           1995           1994
                                                                     -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>

Beginning of year ................................................   $   861,351    $   728,303    $   836,850
   Revisions of previous quantity estimates less related costs ...         3,825         54,287        (36,088)
   Extensions and discoveries less related costs .................       209,860        163,131         99,909
   Purchases of reserves in place ................................       219,510         11,967        197,301
   Sales of reserves in place ....................................        (6,593)        (5,238)       (12,047)
   Net changes in prices and production costs ....................       785,928        166,325       (366,431)
   Change in development costs during the period .................       108,763         69,260        100,763
   Sales of oil and gas produced, net of lifting costs ...........      (299,702)      (196,123)      (232,285)
   Accretion of discount .........................................       110,396         86,151        103,740
   Net change in income taxes ....................................      (350,738)      (105,655)        66,378
   Changes in production, timing and other .......................       (98,078)      (111,057)       (29,787)
                                                                     -----------    -----------    -----------
                                                                         683,171        133,048       (108,547)
                                                                     -----------    -----------    -----------
End of year ......................................................   $ 1,544,522    $   861,351    $   728,303
                                                                     ===========    ===========    ===========


</TABLE>


                                                                              64