================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K/A
                                Amendment No. 1
(Mark One)
            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       OR
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                          Commission File Number 1-8094
                           SEAGULL ENERGY CORPORATION
             (Exact name of registrant as specified in its charter)
          Texas                                       74-1764876
(State or other jurisdiction 
of incorporation or organization)         (I.R.S. Employer Identification No.)
    1001 Fannin, Suite 1700
        Houston, Texas                                 77002-6714
(Address of principal executive offices)               (Zip Code)

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

           Securities registered pursuant to Section 12(b) of the Act:
                                                    Name of each exchange on
        Title of each class                              which registered
Common Stock, par value $.10 per share              New York Stock Exchange
   Preferred Stock Purchase Rights                  New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:
                                      None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing  requirements  for the past 90 days.  YES X NO  
     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
     As of February  9, 1999,  the  aggregate  market  value of the  outstanding
shares of  Common  Stock of the  Company  held by  non-affiliates  (based on the
closing price of these shares on the New York Stock Exchange) was  approximately
$362,502,000.
     As of February 9, 1999,  64,158,444 shares of Common Stock, par value $0.10
per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                Document                               Part of Form 10-K
    Proxy Statement for Annual Meeting                     PART III
 of Shareholders to be held in June 1999
================================================================================


<PAGE>


                           SEAGULL ENERGY CORPORATION


This Amendment No. 1 relates only to Part II, Item 7 -- Management's  Discussion
and Analysis of Financial Condition and Results of Operations.


                                      Index

<TABLE>
                                                                                  Page
<CAPTION>
                                     Part II
<S>                                                                               <C>
Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.........................................     23
                                     Part IV
Signatures......................................................................     85
</TABLE>






                                       (i)
<PAGE>


                           SEAGULL ENERGY CORPORATION


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

     The following  discussion is intended to assist in an  understanding of the
financial  position and results of operations of Seagull for each of the periods
indicated.  The accompanying  Consolidated Financial Statements contain detailed
information  that  should  be  referred  to in  conjunction  with the  following
discussion.

<TABLE>
<CAPTION>
                             CONSOLIDATED HIGHLIGHTS
                              (Amounts in Thousands)

                                                                              Year Ended December 31,
                                                                -----------------------------------------------------
                                                                     1998               1997               1996
                                                                ---------------    ---------------    ---------------
<S>                                                             <C>                <C>                <C>
Revenues:
   Oil and gas operations...................................     $  332,579          $  453,648         $  419,595
   Alaska transmission and distribution.....................         93,592              95,719             97,616
                                                                ---------------    ---------------    ---------------
                                                                 $  426,171          $  549,367         $  517,211
                                                                ===============    ===============    ===============
Operating profit (loss):
   Oil and gas operations...................................     $  (99,544)         $  106,983         $   97,192
   Alaska transmission and distribution.....................         23,143              22,588             25,781
   Corporate................................................        (21,803)            (19,095)           (19,530)
                                                                ---------------    ---------------    ---------------
                                                                 $  (98,204)         $  110,476         $  103,443
                                                                ===============    ===============    ===============
Net income (loss)...........................................     $  (96,696)         $   49,130         $   28,961

Net cash provided by operating activities before changes in                                                          
   operating assets and liabilities.........................     $  147,184          $  249,587         $  220,543
Net cash provided by operating activities...................     $  148,718          $  262,749         $  258,439
</TABLE>


     During 1998,  the oil prices  realized by Seagull  dropped 37%, from 1997's
$17.34 per barrel to $10.93 per barrel.  These low oil prices in 1998  represent
the  lowest  oil  prices  received  in a  number  of  years  and  were  a  major
contributing  factor to the $46 million,  or 35%,  decrease in oil revenues from
1997 to $85 million for the year ended December 31, 1998. Additionally, domestic
natural gas prices decreased 12% from $2.34 per Mcf in 1997 to $2.05 per Mcf for
1998.  This gas price  decrease  and a 6% decrease in  domestic  gas  production
combined to create a $46 million decrease in domestic natural gas revenues.

     These decreases in oil and gas prices in combination with other key factors
led to significant  decreases in revenues,  operating profit, net income and net
cash provided by operating  activities as compared to 1997.  The other key items
affecting 1998 results include the following:

o    Seagull  recorded  noncash  charges of $78 million in the third  quarter of
     1998  related to the  impairment  of the  Company's  oil and gas assets and
     nonstrategic pipeline assets;
o    Oil and gas reserves decreased from 217 MMBOE to 204 MMBOE at December 31, 
     1997 and 1998, respectively;


                                       23
<PAGE>
                           SEAGULL ENERGY CORPORATION



o    Substantial  increases in  exploration  charges for 1998 versus 1997 due to
     increases in dry hole expenses and leasehold impairments;
o The sale of the Company's  Canadian oil and gas  operations in October 1997; o
One-time compensation costs of approximately $6 million associated with the
     retirement of Barry J. Galt and the  appointment of James T. Hackett as the
     Company's Chief Executive Officer; and
o    Income tax  benefit of 29% of the loss  before  taxes for 1998,  reflecting
     primarily  the tax  benefits of the  impairment  of  long-lived  assets and
     one-time compensation matters, versus 1997's tax expense of 43% of earnings
     before taxes.

     During 1997, as a result of the addition of Seagull's  Egyptian  properties
and an increase in domestic  gas prices,  Seagull's  net income  improved by $20
million to $49 million in 1997 versus 1996 and cash flow  provided by  operating
activities  before  changes in  operating  assets and  liabilities  improved $29
million to $250  million for 1997.  The increase in net income and cash flow was
concentrated in the O&G segment.


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

                                                                            Year Ended December 31,
                                                            ---------------------------------------------------------
                                                                 1998                1997                 1996
                                                            ---------------     ----------------     ----------------
<S>                                                         <C>                 <C>                  <C>
Revenues:
     Natural gas.....................................        $    225,055         $   298,223          $   298,235
     Oil and NGL.....................................              84,866             131,096               90,779
     Pipeline and marketing..........................              22,658              24,329               30,581
                                                            ---------------     ----------------     ----------------
                                                                  332,579             453,648              419,595
                                                            ---------------     ----------------     ----------------

Production expenses..................................             110,426             115,713              102,158
Pipeline and marketing expenses......................              27,178              28,670               24,091
Exploration charges..................................              59,787              42,085               50,772
Depreciation, depletion and amortization.............             156,905             160,197              145,382
Impairment of long-lived assets......................              77,827                   -                    -
                                                            ---------------     ----------------     ----------------
Operating profit (loss)..............................        $    (99,544)        $   106,983          $    97,192
                                                            ===============     ================     ================
</TABLE>


         Exploration and Production  Revenue -- The decline in commodity  prices
was the  significant  factor in the 27% decrease in revenues for the O&G segment
to $333  million  for 1998.  The 12% gas price  decrease  and a 6%  decrease  in
domestic gas  production  combined to create a $46 million  decrease in domestic
natural gas revenues.  While the declining oil prices mentioned  previously were
the primary factor for the decrease in oil revenues, this was slightly offset by
a 13%  increase  in oil and NGL  production  in the U.S.  and Egypt  combined as
Seagull realized  additional  contributions  from several new domestic wells and
three Egyptian concessions Qarun, where additional facilities became operational
during mid-1997; East Beni


                                       24
<PAGE>

                           SEAGULL ENERGY CORPORATION

Suef,  where  production  began in mid-1998;  and West Abu  Gharadig,  which was
purchased in late 1997.

     In 1997, the O&G segment showed a $34 million  increase in revenues to $454
million and a $10 million increase in operating profit to $107 million.  This 8%
increase in O&G revenues was principally  due to stronger  natural gas prices in
nearly  all  areas of the  Company's  production  operations  and  increases  in
international oil and gas production, excluding Canada which was sold in October
1997. The effect of stronger gas prices and international liquids production was
partially  offset by a decline in oil prices in all areas other than  Tatarstan,
particularly  Egypt  where the  price  decreased  15% from  1996 to 1997,  and a
decrease in pipeline and marketing revenues.

     In October  1997,  the Company sold its  Canadian  oil and gas  operations,
which had  revenues  of  approximately  $26  million  and $34 million and income
(loss) before income taxes of  approximately $6 million and $(5) million for the
years ended December 31, 1997 and 1996, respectively.

     Pipeline and  Marketing -- Pipeline and  marketing  revenues  declined $1.7
million  for the year  ended 1998 as  compared  to 1997 due  primarily  to lower
revenues related to the Company's gas gathering and processing facilities caused
by the lower  natural gas prices in 1998 as compared to 1997.  This  decrease in
revenues was partially offset by an increase in marketing revenues due to higher
margins  realized and by a decrease in the related  cost of gas,  resulting in a
constant operating margin from 1997 to 1998.

     Pipeline and  marketing  revenues  declined from $31 million in 1996 to $24
million in 1997 with the  absence of the higher  margins  created  from the high
volatility in the natural gas markets during early 1996,  partially offset by an
increase in revenues  related to the  Company's  gas  gathering  and  processing
facilities.   This  increase  in  gas  gathering  and  processing  revenues  was
substantially offset by an increase in the related cost of gas.

     A decision to dispose of the pipeline assets was made in September 1998. At
that time,  the Company also  announced its  intentions to exit its  third-party
marketing  business  and  to  explore  alternatives  for  marketing  its  equity
production, including outsourcing.  Subsequent to year-end, Seagull entered into
an  agreement  with a  third-party  to buy  substantially  all of the  Company's
domestic  production.  With  the  elimination  of  the  pipeline  and  marketing
function,  Seagull was able to reduce staff by  approximately  25 employees  and
effectively  closed all  derivative  financial  positions  prior to December 31,
1998.

     Income and costs related to the Company's commodity hedging activities were
recognized  in oil and gas revenues  when the  commodities  were  produced.  The
Company  recorded $1 million,  $10  million,  and $9 million for 1998,  1997 and
1996,  respectively,  in costs related to equity hedging  activities,  including
costs related to the monetary  production  payment  hedges of  approximately  $1
million, $3 million and $4 million in 1998, 1997 and 1996,



                                       25
<PAGE>

                           SEAGULL ENERGY CORPORATION

respectively.  The Company also recorded  hedging  costs related to  third-party
marketing  activities  of $5  million  in costs,  $3  million  in costs and $0.5
million in income for 1998, 1997 and 1996, respectively.


<TABLE>
<CAPTION>
                        PRODUCTION AND UNIT PRICE BY AREA

                                         Net Daily Production                              Unit Price
                               -----------------------------------------    -----------------------------------------
                                       Year Ended December 31,                      Year Ended December 31,
                               -----------------------------------------    -----------------------------------------
                                  1998           1997           1996           1998            1997          1996
                               -----------     ----------    -----------    -----------     -----------    ----------
<S>                            <C>             <C>           <C>            <C>             <C>            <C>
Gas Sales(*):
     Domestic...............       285             303            318          $2.05         $ 2.34         $ 2.17
     Canada (sold in 1997)..         -              37             58              -           1.63           1.32
     Cote d'Ivoire..........         9               6              4           1.59           1.93           1.77
     Indonesia and other....         8              11             12           2.23           3.18           3.36
                               -----------     ----------    -----------    -----------     -----------    ----------
                                   302             357            392          $2.04         $ 2.29         $ 2.08
                               ===========     ==========    ===========    ===========     ===========    ==========
Oil and NGL Sales(*):
      Domestic..............     5,025           4,830          4,264         $11.41         $17.60         $19.03
      Canada (sold in 1997).         -             665            985              -          16.46          16.77
      Egypt.................    10,965           9,268          3,565          11.92          18.26          21.56
      Cote d'Ivoire.........       986           1,653          1,395          10.51          19.34          20.04
      Tatarstan.............     4,099           4,143          3,053           7.67          14.26          13.98
      Indonesia and other...      196              152            147          13.38          19.31          19.58
                               -----------     ----------    -----------    -----------    ------------    ----------
                                21,271          20,711         13,409         $10.93         $17.34         $18.50
                               ===========     ==========    ===========    ===========    ============    ==========
</TABLE>

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


     Production  Expenses -- Production  expenses for 1998  decreased $5 million
from 1997's $116 million,  primarily  due to the sale of the Company's  Canadian
operations in October 1997, partially offset by increases in production expenses
in Egypt. Production expenses increased to $4.22 per BOE for 1998 from $3.95 per
BOE for 1997.

     Production expenses for 1997 increased approximately $14 million over 1996,
primarily due to the increased production associated with the Company's Egyptian
operations  and  increased  domestic  operating   expenses.   This  increase  in
production  expenses  associated with the Company's domestic  operations was the
primary  reason  for the  $0.40  per BOE  increase  in  production  expense  per
equivalent  unit of  production  to $3.95 per BOE for 1997 over 1996.  Increased
production  taxes as  natural  gas  prices  increased,  a  change  in the mix of
producing  properties and an increase in transportation  expenses were the major
contributing factors to the increase in domestic operating expenses during 1997.

     Exploration Charges -- In comparison to 1997,  exploration charges for 1998
were approximately $18 million higher for the year primarily due to increases in
dry hole expense and impairment of leaseholds,  both domestically and on certain
of the Company's Egyptian concessions.



                                       26
<PAGE>

                           SEAGULL ENERGY CORPORATION


     Exploration  charges  declined  $8.7  million  for the year  ended  1997 as
compared to 1996 due to decreases in dry hole costs, domestically and in Canada,
and in G&G expense, primarily in Cote d'Ivoire.

     Depreciation,  Depletion and  Amortization -- The decrease in depreciation,
depletion and  amortization  ("DD&A") expense to $157 million for 1998 from $160
million for the prior year is  primarily  due to the  decrease  in domestic  gas
production and the sale of the Company's Canadian  operations,  partially offset
by  increased  oil  production  in Egypt and an increase in the DD&A expense per
equivalent unit of production related to the Company's Egyptian operations.  The
downward revision of reserves in the Egyptian  concessions  previously discussed
and the sale of  Canadian  properties,  which had an  average  DD&A  expense  of
approximately  $3.00 per BOE,  combined to increase DD&A expense per  equivalent
unit of production  for oil and gas  producing  activities to $5.93 per BOE from
$5.42 per BOE for 1998 and 1997, respectively.

     DD&A expense per equivalent  unit of production  increased to $5.42 per BOE
in 1997 from $4.98 per BOE in 1996 and  combined  with the  increase in Egyptian
production  to produce a 10%  increase in DD&A  expense for the O&G  segment.  A
change  in the mix of the  properties  being  produced  internationally  was the
primary factor for the increase,  partially offset by a decrease in DD&A expense
related to Canadian oil and gas properties.

     Noncash  Impairments  -- During  the third  quarter  of 1998,  the  Company
recorded  noncash  impairment  charges of $74 million related to its oil and gas
assets  located  in  Egypt.  The  impairments  of the oil and  gas  assets  were
primarily a result of disappointing well performance, much lower oil and natural
gas prices and a lack of any perceived  significant near-term improvement in oil
prices  that led to a  reduction  in  reserves  at  Seagull's  East Zeit,  South
Hurghada and East Beni Suef concessions.

     The oil and gas  impairment  tests were based upon estimates of future cash
flows  using an  initial  crude  oil  price  of  approximately  $11 per  barrel,
escalated by quoted forward market prices when available and moderate escalation
thereafter.  There  are no  future  cash  flows  from  gas,  as  there is no gas
production from these assets. Future cash flows at September 30, 1998 were based
upon the  Company's  estimate  of proved  reserves.  No  probable  and  possible
reserves were taken into consideration in this particular  circumstance  because
they were not justified by economic conditions, actual or planned drilling.

     During this  quarter,  the Company also decided to dispose of  nonstrategic
pipeline  assets,  which  resulted in an  additional  noncash  impairment  of $4
million related to those assets. The impairment reflected the difference between
the recorded  book value of the  pipeline  assets and the net  realizable  value
expected to be received upon disposal of the assets.



                                       27
<PAGE>

                           SEAGULL ENERGY CORPORATION


CAPITAL SPENDING AND OIL AND GAS RESERVES

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

                                                                           Year Ended December 31,
                                                          ----------------------------------------------------------
                                                                1998                1997                 1996
                                                          ------------------  ------------------   -----------------
<S>                                                       <C>                 <C>                  <C>
  Capital Expenditures:
     Lease acquisitions................................      $     40,718        $     23,141        $    12,986
     Exploration.......................................            83,526              95,681             77,774
     Development.......................................           132,331             137,806            108,763
                                                          ------------------  ------------------   -----------------
                                                                  256,575             256,628            199,523
     Other oil and gas operations......................               788                 885                228
                                                          ------------------  ------------------   -----------------
     Total oil and gas operations......................      $    257,363        $    257,513        $   199,751
                                                          ==================  ==================   =================

  Acquisitions of oil and gas properties...............      $    126,895        $     17,665        $    90,867
                                                          ==================  ==================   =================
</TABLE>

     Capital  expenditures in 1998, excluding  acquisitions,  remained unchanged
from  1997.  The  absence  of  the  Company's  Canadian  operations,  which  had
expenditures  of  $13  million  in  1997,  and a  decline  in  Egyptian  capital
expenditures  were offset by  increased  expenditures  related to the  Company's
domestic operations. Spending outside North America in 1998 totaled $87 million,
of which $28 million was for  exploration,  $48 million for exploitation and $11
million for leasehold  acquisitions.  Seagull participated in the drilling of 38
exploratory  wells  during  1998,  of  which  12  were  successful.  Another  10
exploratory wells were in progress at year-end. Of the successes,  seven were in
the U.S., four in Egypt and one in Cote d'Ivoire.

     O&G capital  expenditures  increased to $257  million in 1997,  up 29% from
$200 million in 1996.  Spending  outside North America totaled $103 million,  of
which $43 million was for exploration and $60 million for exploitation.

     On June 1, 1998,  the Company  completed  the  purchase of the stock of BRG
Petroleum,  Inc. and its related partnership interests for $103 million in cash,
net of cash acquired of $2 million and noncash  deferred tax  liabilities of $25
million.  The assets  acquired  include proved oil and gas reserves of 102 Bcfe.
BRG operated  approximately  70 percent of its 600 oil and gas wells  located in
approximately 140 fields. At year-end 1998, daily production from these acquired
properties  averaged  approximately  20 MMcf of gas and 450  barrels  of oil and
natural gas liquids.  The most  significant of these assets are  concentrated in
East Texas, primarily in Freestone, Upshur, Rusk and Nacogdoches counties.

     During the fourth quarter of 1998,  Seagull sold some of its less strategic
E&P  properties  and various  nonstrategic  pipeline  assets.  The sale of these
assets, and the additional pipeline asset sales expected to occur in early 1999,
were steps  taken to reduce  debt and focus the  Company's  attention  on assets
within core areas.  Prior to the sales, daily production from the E&P properties
sold  averaged  approximately  18 MMcf of gas and 480 barrels of oil and natural
gas liquids.  The total  reserves  sold  associated  with these  properties  was
approximately 10 MMBOE. The pipeline


                                       28
<PAGE>

                           SEAGULL ENERGY CORPORATION

assets  contributed  $3 million,  $5 million and $4 million in revenues  for the
years ended December 31, 1998, 1997 and 1996,  respectively,  but did not have a
material effect on operating profit for any of these periods.

     Through drilling and proved property acquisitions, the Company replaced 90%
of its production during 1998,  including  downward  revisions of 11 MMBOE, at a
cost of $16.32  per BOE and 158% of its  production  over the  five-year  period
ended December 31, 1998 at a cost of $6.86 per BOE. Seagull's proved oil and gas
reserves  decreased from 217 MMBOE at year-end 1997 to 204 MMBOE at December 31,
1998,  because of reserve declines due to lower commodity prices,  disappointing
well performance in certain Egyptian  concessions and the nonstrategic  property
sales, partially offset by the 17 MMBOE purchased from BRG Petroleum.

     The standardized  measure of discounted  future net cash flows before taxes
for Seagull's  proved oil and gas reserves,  calculated  based on Securities and
Exchange  Commission  criteria,  decreased  to $776 million at December 31, 1998
compared  with $1.2 billion at the end of 1997.  This decrease was primarily the
result of  significantly  lower year-end  commodity  prices at December 31, 1998
compared to December 31, 1997. Year-end  calculations were made using an average
price of $9.06  and  $15.41  per Bbl for oil,  condensate  and NGL and $2.03 and
$2.42 per Mcf for gas for 1998 and 1997,  respectively.  The  Company's  average
realized  prices for the year ended  December  31,  1998 were $10.93 per Bbl for
oil,  condensate  and NGL and  $2.04  per Mcf for  gas.  The  Company's  average
realized prices for the month ended January 31, 1999 were $9.63 per Bbl for oil,
condensate  and  NGL  and  $1.79  per  Mcf  for  gas.   Because  the  disclosure
requirements  for discounted  future net cash flows are standardized by the SEC,
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 17 to Consolidated Financial Statements.

OUTLOOK

     As the O&G segment  represents  the majority of the  Company's  operations,
continued depressed commodity prices will have a significant  negative impact on
the Company's  total  operating  results.  Oil prices in particular have reached
multi-year  lows in some markets in recent months and gas prices for the current
winter season have been lower than in recent winters.

     Faced with continued  depressed oil prices, if the OEI merger is completed,
Seagull and New Ocean plan to spend  significantly less on capital  expenditures
in 1999. Capital expenditures will focus on contractually obligated expenditures
and drilling  results that will yield  immediate cash flow  opportunities.  With
this  decrease in capital  expenditures,  the Company may not be able to replace
reserves or maintain production at current levels.


                                       29
<PAGE>

                           SEAGULL ENERGY CORPORATION


<TABLE>
<CAPTION>
                      ALASKA TRANSMISSION AND DISTRIBUTION
                    (Amounts in Thousands Except Degree Days)

                                                                             Year Ended December 31,
                                                             --------------------------------------------------------
                                                                  1998                 1997                1996
                                                             ----------------     ---------------     ---------------
<S>                                                          <C>                  <C>                 <C>       
Revenues.............................................          $   93,592          $   95,719           $   97,616
Cost of gas sold.....................................              41,232              43,684               42,600
                                                             ----------------     ---------------     ---------------
Gross margin.........................................              52,360              52,035               55,016
Operations and maintenance expense...................              20,688              21,079               21,045
Depreciation, depletion and amortization.............               8,529               8,368                8,190
                                                             ----------------     ---------------     ---------------
Operating profit.....................................          $   23,143          $   22,588           $   25,781
                                                             ================     ===============     ===============
Operating Data:
   Degree days (*)...................................              10,026               9,727               10,975
</TABLE>

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

     Operating profit of the Alaska transmission and distribution segment of the
Company 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 relationship between operating
profit and degree  days held true in 1998 and 1997 as the  percentage  change in
operating  profit (2%  increase  in 1998  versus  1997 and 12%  decrease in 1997
versus 1996) was approximately equal to the percentage change in degree days (3%
increase in 1998 and 11% decrease in 1997).

OUTLOOK

     Even though its  activities  may be somewhat  different  from the Company's
other  O&G-oriented  activities,  management expects ENSTAR Alaska's stable cash
flows and activities to continue to contribute to Seagull's  goals and financial
stability.

     Future  operating  profit for this  segment  will be  affected  by weather,
regulatory  action and customer growth in ENSTAR Alaska's service area. The 1998
degree days were 3% under the previous  30-year average degree days. The Company
expects  customer growth to continue at a modest 2% to 3% rate.  During the 1998
summer construction season, approximately 67 miles of new distribution pipelines
were  installed to connect some 3,000 new  customers (a 3% increase in customers
over 1997).

     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 fluctuations in commodity prices due to worldwide political events and
changing market conditions.

     Currently,  ENSTAR  Alaska's  supply  source is  confined to the Cook Inlet
area.  During  1997,  two of the Cook Inlet  area's  major  suppliers  filed for
regulatory  approval to export certain  quantities of gas to overseas  liquified
natural  gas  markets.  ENSTAR  Alaska  has  filed  as an  intervenor  in  these
proceedings and is actively  working with regulatory  authorities to ensure that
the future gas supply needs of its customers are met.


                                       30
<PAGE>

                           SEAGULL ENERGY CORPORATION

                                      OTHER

     General and  administrative  ("G&A") expense  increased from $16 million to
$18 million for 1998  primarily  due to the $6 million in one-time  compensation
charges,  partially offset by decreases in G&A expense from  compensation  plans
that are tied  directly  to the market  price of  Seagull's  common  stock.  The
closing  price of  Seagull's  common  stock was $6.31 and $20.63 at December 31,
1998 and 1997, respectively.

     After  excluding the effects of provisions for litigation  ($4.5 million in
1997 for a proposed  settlement  and $3 million in 1996  covering  several minor
settlements),  general and administrative  expenses decreased from $14.4 million
in 1996 to $11.6  million in 1997.  This  decrease in G&A expenses  from 1996 to
1997 was primarily due to efficiencies realized as a result of the Global merger
and a decline  in  expenses  associated  with  compensation  plans that are tied
directly to the market price of Seagull's  common stock.  In November  1997, the
Company,  NorAm Gas Transmission Company and Arkansas Western Gas Company signed
a settlement  proposal  regarding certain  litigation.  The final settlement was
signed  in 1998  and  was  substantially  the  same  as the  initial  settlement
proposal.  The payments to NorAm and other parties  settled  complex  litigation
over contract  terms,  conditions  and conduct for the period October 1, 1994 to
the date of the settlement.

     Interest  expense  increased  only  slightly from $38.5 million for 1997 to
$39.2 million for 1998. Despite the increase in outstanding  long-term debt from
$469 million at December 31, 1997 to $583 million at December 31, 1998,  average
debt outstanding, and therefore interest expense, was approximately the same for
each of the years.

     Interest  expense declined from $45 million in 1996 to $39 million for 1997
through  utilization  of the proceeds  from the sale of the  Company's  Canadian
operations  in late  1997 to  repay  amounts  outstanding  under  the  Company's
existing credit  facilities.  Interest cost  capitalized as property,  plant and
equipment  amounted to  approximately  $7 million,  $7 million and $3 million in
1998, 1997 and 1996, respectively.

     The  Company  and Global  Natural  Resources,  Inc.  completed  a merger in
October 1996, which was accounted for as a pooling-of-interests.  As a result of
the  merger,  expenses of $10 million  ($9  million  after  taxes)  representing
investment banking fees, legal, accounting and other expenses were recorded.


                                       31
<PAGE>

                           SEAGULL ENERGY CORPORATION


     Gain on sales of assets in 1997 is primarily  comprised of pre-tax gains of
approximately $12 million related to the sale of the Company's  Canadian oil and
gas operations.

     Seagull's tax expense  changed from  approximately  43% of earnings  before
taxes for the year ended  December  31, 1997 to an  approximate  29% benefit for
1998,  reflecting  primarily  the tax benefits of the  impairment  of long-lived
assets and one-time compensation matters.

     Seagull's  effective tax rate for 1997 of 43% decreased  from the effective
tax rate of 47% for 1996 primarily due to an income tax benefit  associated with
the gain on the sale of the Company's Canadian operations.

OUTLOOK

     In  the  current  low  commodity  price  environment,   Seagull  has  begun
implementing cost cutting measures,  such as the elimination of the pipeline and
marketing  function and an additional  reduction of approximately 100 employees,
approximately  11%  of  total  employees,   in  January  1999.  These  personnel
reductions  are  expected  to generate an annual  savings of  approximately  $14
million, excluding severance costs of $6 million.

     In  addition,  Seagull  and OEI are  developing  plans to  integrate  their
operations  immediately  after the merger to take full advantage of the benefits
and synergies  the merger will create.  Seagull and OEI believe that New Ocean's
organizational  structure  will  allow for  substantial  overhead  cost  savings
through the consolidation of duplicative corporate and field offices and staff.


                         LIQUIDITY AND CAPITAL RESOURCES

     Seagull's  capital  resources  primarily  consist  of  a  revolving  credit
facility (the "Revolving  Credit  Facility")  with a maximum  commitment of $500
million, $350 million of senior, unsecured debt and money market facilities with
three U.S. banks with a combined maximum  commitment of $110 million.  The major
changes in these obligations are as follows:

o    The  repurchase of $50 million of senior debt in the third quarter of 1998,
     financed through additional borrowings under the Revolving Credit Facility;
o    The purchase of the BRG  properties  for $103 million in the second quarter
     of 1998, financed through additional  borrowings under the Revolving Credit
     Facility; and
o The issuance of $150 million of senior notes, due 2027, in September 1997.

     At December 31, 1998,  there was $175 million  borrowed under the Revolving
Credit  Facility  and $307  million of the  unused  commitment  was  immediately
available.   The  Revolving  Credit  Facility  contains  certain  covenants  and
restrictive  provisions,  including  limitations on the incurrence of additional
debt or liens, the declaration or payment of dividends and the repurchase


                                       32
<PAGE>

                           SEAGULL ENERGY CORPORATION


or redemption of capital stock and the maintenance of certain  financial ratios.
Under the most restrictive of these provisions,  approximately  $130 million was
available for payment of cash dividends on common stock or to repurchase  common
stock as of December 31, 1998.

     During the third quarter of 1998,  the Company  repurchased  in open market
transactions  approximately  $50 million in aggregate  principal amount of its 8
5/8% Senior  Subordinated  Notes due 2005.  These  purchases  were funded  using
borrowings  under the Credit Facility.  In connection with this repurchase,  the
Company  recorded an after-tax  extraordinary  loss of $1 million,  or $0.02 per
basic and diluted share.  At current  interest rates under the Revolving  Credit
Facility,  the  Company  expects to save  approximately  $1.6  million in annual
interest  expense by refinancing  the $50 million of Senior  Subordinated  Notes
under the Revolving Credit Facility.

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

     On  September  30, 1997,  Seagull  issued $150 million of senior notes (the
"1997 Senior Notes") at a public  offering  price of 99.544% of face value.  The
1997 Senior Notes have a coupon of 7 1/2% and mature  September  15,  2027.  The
1997 Senior  Notes are not  redeemable  prior to maturity and are not subject to
any sinking fund.  The net proceeds of  approximately  $146 million were used to
repay existing debt and for general  corporate  purposes.  The 1997 Senior Notes
represent  unsecured  obligations  of the  Company  and rank pari passu with all
other unsecured, unsubordinated obligations of the Company.

     The  Company  has money  market  facilities  with three  U.S.  banks with a
combined maximum commitment of $110 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.  There was $48 million  outstanding under
these money market  facilities  at December  31, 1998,  included in accounts and
notes payable.


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

                                                                           Year Ended December 31,
                                                          ----------------------------------------------------------
                                                                1998                1997                 1996
                                                          ------------------  ------------------   -----------------
<S>                                                       <C>                 <C>                  <C>
  Capital Expenditures:
     Oil and gas operations............................      $    257,363        $    257,513        $   199,751
     Alaska transmission and distribution..............             9,626               9,607              9,287
     Corporate.........................................             8,308           4,  8,488              4,424
                                                          ------------------  ------------------   -----------------
                                                             $    275,297        $    275,608        $   213,462
                                                          ==================  ==================   =================

  Acquisitions.........................................      $    129,276        $     17,665        $   104,420
                                                          ==================  ==================   =================
</TABLE>


                                       33
<PAGE>

                           SEAGULL ENERGY CORPORATION


     Combined with the Company's long-term goal to grow its reserve base through
its drilling efforts and complementary strategic acquisitions,  a strong balance
sheet is also a specific  objective of management.  In its present low commodity
price  environment,  Seagull began a series of nonstrategic  properties sales in
late 1998.  In 1997,  Seagull also reduced its  borrowings  under  existing bank
facilities  by $133 million with a portion of the proceeds  from the sale of the
Company's Canadian operations.

     During the fourth quarter of 1998,  Seagull sold some of its less strategic
E&P  properties  located  away from its various  core  assets.  During the third
quarter of 1998, the Company also decided to liquidate its nonstrategic pipeline
assets. As of December 31, 1998,  approximately 25% of these pipeline assets had
been sold. The E&P and pipeline sales generated approximately $53 million in net
proceeds.  Seagull is in final  negotiations  to sell the  remaining  75% of the
pipeline assets.


OUTLOOK

     After the merger with OEI,  New Ocean will have  higher  levels of debt and
interest expense than Seagull on a stand-alone  basis. This increased debt level
will  require the use of a  substantial  portion of New Ocean's cash flow to pay
interest  and  principal on New Ocean's  debt.  Within the low  commodity  price
environment,  New Ocean anticipates  substantially  reduced capital expenditures
and  expects  to keep  capital  expenditures  at a level  below  cash  flow from
operations.

     New Ocean will have higher levels of debt and interest expense than Seagull
on a  stand-alone  basis.  The  following  table  compares debt and leverage for
Seagull and New Ocean, based on December 31, 1998 information,  giving pro forma
effect to the merger in the case of New Ocean:

<TABLE>
<CAPTION>
                                                                                  Seagull             New Ocean
                                                                             ------------------   ------------------
<S>                                                                          <C>                  <C>           
Total Debt..............................................................       $590 million         $1,939 million
Debt/capitalization ratio...............................................                 52%                  67%
</TABLE>


     The increase in total  indebtedness  and  leverage of the combined  company
after the merger may have a negative  impact on New  Ocean's  ability to realize
the  expected  benefits of the merger,  including  a possible  downgrade  in the
credit  rating of the combined  company.  In this regard,  Standard & Poor's has
announced that,  because of the higher leverage of the combined  company and the
current uncertain commodity price environment, upon completion of the merger, it
will reduce  Seagull's  corporate  credit and senior unsecured debt ratings from
"BBB-" to "BB+," with a stable outlook.


                                       34
<PAGE>

                           SEAGULL ENERGY CORPORATION


FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

     This document  includes  forward-looking  statements  within the meaning of
Section  27A of  the  Securities  Act of  1933,  Section  21E of the  Securities
Exchange Act of 1934 and the Private  Securities  Litigation Reform Act of 1995.
All  statements  other than  statements  of  historical  fact  included  in this
document,  including,  without  limitation,  statements  regarding the financial
position,  business strategy,  production and reserve growth and other plans and
objectives for the future operations of Seagull or New Ocean are forward-looking
statements.

     Although Seagull believes that such forward-looking statements are based on
reasonable  assumptions,  it can give no assurance that its expectations will in
fact occur.  Important  factors could cause actual results to differ  materially
from those in the  forward-looking  statements.  Forward-looking  statements are
subject to risks and  uncertainties  and include  whether the merger with OEI is
actually  completed,  information  concerning  cost  savings  from  the  merger,
integration of the businesses of OEI and Seagull,  general  economic  conditions
and possible or assumed  future  results of  operations of Seagull or New Ocean,
estimates of oil and gas production and reserves,  drilling  plans,  future cash
flows, anticipated capital expenditures and management's  strategies,  plans and
objectives as set forth herein.

     When used in this document, the words "believes," "expects," "anticipates,"
"intends" or similar  expressions are intended to identify such  forward-looking
statements.  The following  important  factors,  in addition to those  discussed
elsewhere  in this  document  could  affect  the  future  results  of the energy
industry  in  general,  and  Seagull  and/or  New  Ocean  after  the  merger  in
particular,  and could  cause  those  results  to differ  materially  from those
expressed in such forward-looking statements:

o Risks  incident to the drilling and  operation of oil and gas wells;  o Future
production and  development  costs; o The effect of existing and future laws and
regulatory  actions;  o The  political  and  economic  climate  in  the  foreign
jurisdictions in which
      Seagull conducts oil and gas operations;  
o     The effect of changes in commodity prices, hedging activities and 
      conditions in the capital markets;  
o     A significant delay in the expected closing of the merger (or a failure to
      consummate the merger); and
o     Competition from others in the energy industry.

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


                                       35
<PAGE>

                           SEAGULL ENERGY CORPORATION


to predict  the impact  that  compliance  with  future  regulations  may have on
capital expenditures, earnings and competitive position.

YEAR 2000

     Historically,  most computer systems  (including  microprocessors  embedded
into field equipment and other  machinery)  utilized  software that recognized a
calendar year by its last two digits.  Beginning in the year 2000, these systems
will  require  modification  to  distinguish  twenty-first  century  dates  from
twentieth century dates ("Year 2000 issues").

     Accordingly,  the Company has initiated a comprehensive plan to address the
Year 2000 issues  associated  with its  operations  and business (the "Year 2000
plan").  Seagull's  Board of  Directors  has been  briefed  about  the Year 2000
problem  generally  and as it may  affect  Seagull.  The  Board  has  created  a
committee consisting of senior executives and a representative from the Board to
oversee the adoption and  implementation  of the Year 2000 plan  covering all of
Seagull's business units. The plan has been developed with an aim towards taking
reasonable  steps to prevent  Seagull's  mission-critical  functions  from being
impaired due to the Year 2000 problem.

     The plan includes  several  phases - (i) assessment of all of the Company's
systems and technology;  (ii)  implementation and testing of modifications to or
replacements of existing systems and technology, both financial and operational;
(iii)  communication  with key business partners regarding Year 2000 issues; and
(iv) contingency planning.

     In planning and  developing the project,  Seagull has  considered  both its
information  technology  ("IT")  and its  non-IT  systems.  The  term  "computer
equipment  and  software"  includes  systems that are commonly  thought of as IT
systems,  including  accounting,  data processing,  telephone systems,  scanning
equipment,  and  other  miscellaneous  systems.  Non-IT  systems  include  alarm
systems,  fax machines,  monitors for field operations,  and other miscellaneous
systems.  Both IT and non-IT  systems may  contain  embedded  technology,  which
complicates  Seagull's Year 2000 identification,  assessment,  remediation,  and
testing efforts.  Based upon its  identification and assessment efforts to date,
Seagull is in the process of replacing  the computer  equipment  and software it
currently  uses to become Year 2000  compliant.  In  addition,  in the  ordinary
course of replacing  computer  equipment and  software,  Seagull plans to obtain
replacements that are Year 2000 compliant.

     During 1997, the Company  utilized both internal and external  resources to
test,  reprogram  or replace  many of its IT systems,  primarily  financial  and
operational software, for necessary  modifications  identified in its assessment
of Year 2000 issues.  As of the date of this filing,  the Company estimates that
approximately  80% of its Year 2000 plan  related to these IT  systems  has been
implemented  and  anticipates  that the  remainder  of the plan,  including  any
necessary remedial action,  will be completed by June 30, 1999. During September
1998,


                                       36
<PAGE>

                           SEAGULL ENERGY CORPORATION


the Company  began  utilizing  internal and  external  resources to evaluate its
vulnerability to Year 2000 issues related to its non-IT systems, primarily field
operational systems and equipment.

     The Company is working with Stone & Webster to identify embedded chips that
may need to be  replaced  or  avoided.  Stone &  Webster  is an  internationally
recognized  engineering  firm that has  developed  and  maintains  a database of
systems that are  susceptible  to Year 2000 problems.  The database  comparisons
that have been completed to date have not revealed any material  problems.  This
effort should be completed by the end of the first  quarter of 1999.  Areas that
will  require  contingency  plans will be  determined  as part of these  efforts
relative  to  embedded  chips  and  microcontrollers  and  as a  result  of  our
correspondence  and meetings with key business  partners.  This effort should be
completed by the end of the second quarter of 1999.

     The Company has also initiated  formal  communications  with all of its key
business  partners to determine the extent to which the Company is vulnerable to
those third parties'  potential failure to remediate their own Year 2000 issues.
Key business partners were identified in four categories of companies including:
(a) major vendors and contractors  (including banks and other financial  service
companies);  (b) major  customers;  (c) utility  companies;  and (d) third party
operators  of major  oil and gas  properties.  Questionnaires  were  sent to the
Company's  key  business  partners  to confirm  their Year 2000  activities  and
follow-up letters, telephone calls, and meetings are being used, as appropriate,
to obtain additional information.

     During the fourth quarter of 1998, the Company began developing contingency
plans for its financial and operational systems. Seagull's contingency plans are
being designed to minimize the  disruptions or other adverse  effects  resulting
from Year 2000 incompatibilities  regarding these systems, and to facilitate the
early  identification  and remediation of Year 2000 problems that first manifest
themselves after January 1, 2000.

     The  failure  to  correct a material  Year 2000  issue  could  result in an
interruption in, or a failure of, certain normal business activities,  resulting
in a material, adverse affect on the Company's results of operations,  liquidity
and financial position. The Company's remediation efforts are expected to reduce
significantly  the Company's level of uncertainty about Year 2000 compliance and
the possibility of interruptions of normal operations.  However, there can be no
guarantee that other companies'  systems,  on which the Company's  systems rely,
will be timely converted,  or that a failure to convert by another company, or a
conversion that is  incompatible  with the Company's  systems,  would not have a
material  adverse  effect  on the  Company.  Disruptions  to  the  oil  and  gas
transportation  networks  controlled  by  third-party  carriers  could result in
reduced production volumes delivered to market.

     In addition, risks associated with foreign operations may increase with the
uncertainty of Year 2000 compliance by foreign  governments and their supporting
infrastructures.  The Company's  Year 2000 task force members have been asked to
investigate  the  compliance  activities  of certain  third  parties and foreign
governments  to determine  the risks to the Company.  This  investigation  is in
progress.


                                       37
<PAGE>

                           SEAGULL ENERGY CORPORATION


     In a recent Securities and Exchange  Commission release regarding Year 2000
disclosures, the Securities and Exchange Commission stated that public companies
must disclose the most reasonably likely worst case Year 2000 scenario. Analysis
of the most  reasonably  likely worst case Year 2000 scenarios  Seagull may face
leads to contemplation of the following  possibilities which, though unlikely in
some or many  cases,  must be  included  in any  consideration  of worst  cases:
widespread failure of electrical, gas, and similar supplies by utilities serving
Seagull domestically and internationally;  widespread disruption of the services
of  communications  common carriers  domestically and  internationally;  similar
disruption to means and modes of  transportation  for Seagull and its employees,
contractors,  suppliers,  and  customers;  significant  disruption  to Seagull's
ability to gain access to, and remain  working in,  office  buildings  and other
facilities;  the failure of  substantial  numbers of Seagull's  mission-critical
information  (computer)  hardware and software systems,  including both internal
business  systems and systems  (such as those with embedded  chips)  controlling
operational  facilities  such as onshore and offshore oil and gas rigs,  oil and
gas pipelines and gas plants  domestically and  internationally,  the effects of
which would have a cumulative  material  adverse impact on Seagull.  Among other
things,  Seagull could face substantial  claims by customers or loss of revenues
due to service  interruptions,  inability  to fulfill  contractual  obligations,
inability to account for certain  revenues or  obligations  or to bill customers
accurately  and on a  timely  basis,  and  increased  expenses  associated  with
litigation, stabilization of operations following mission-critical failures, and
the execution of contingency  plans.  Seagull could also experience an inability
by  customers,  traders,  and  others  to  pay,  on a  timely  basis  or at all,
obligations owed to Seagull.  Under these  circumstances,  the adverse effect on
Seagull, and the diminution of Seagull's revenues,  would be material,  although
not quantifiable at this time.  Further in this scenario,  the cumulative effect
of these  failures  could  have a  substantial  adverse  effect on the  economy,
domestically  and  internationally.  The  adverse  effect  on  Seagull,  and the
diminution  of  Seagull's  revenues,  from a  domestic  or global  recession  or
depression  is also likely to be  material,  although not  quantifiable  at this
time.

     The total costs for the Year 2000 compliance review, evaluation, assessment
and remediation  efforts are not expected to be in excess of $1 million. Of this
amount, approximately $0.3 million had been incurred as of December 31, 1998.


ACCOUNTING PRONOUNCEMENTS

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  This statement  establishes  standards of
accounting for and disclosures of derivative instruments and hedging activities.
This statement is effective for fiscal years  beginning after June 15, 1999. The
Company has not yet  determined  the impact of this  statement on the  Company's
financial condition or results of operations.


                                       38
<PAGE>

                           SEAGULL ENERGY CORPORATION


                        SELECTED QUARTERLY FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                     Quarter Ended
                                     -------------------------------------------------------------------------------
                                         March 31            June 30           September 30          December 31
                                     ------------------ ------------------  -------------------   ------------------
<S>                                  <C>                <C>                 <C>                   <C>
1998:
  Revenues.........................      $  122,325         $   103,529         $    93,099          $     107,218
  Operating Profit (Loss) (2)......      $   14,201         $     5,575         $  (108,817)         $      (9,163)
  Net Income (Loss) Before                                                                                          
     Extraordinary Item(2).........      $    3,155         $    (1,051)        $   (86,607)         $     (11,162)
  Earnings (Loss) per Share                                                                                         
    Before Extraordinary Item:                                                                                      
    Basic..........................      $     0.05         $     (0.02)        $     (1.37)         $       (0.18)
    Diluted(1).....................      $     0.05         $     (0.02)        $     (1.37)         $       (0.18)
  Net Income (Loss) (2)............      $    3,155         $    (1,051)        $   (87,638)         $     (11,162)
  Earnings (Loss) per Share:
    Basic..........................      $     0.05         $      (0.02)       $      (1.39)        $       (0.18)
    Diluted(1).....................      $     0.05         $      (0.02)       $      (1.39)        $       (0.18)

1997:
  Revenues.........................      $  159,573         $    122,180        $    120,655         $     146,959
  Operating Profit.................      $   46,606         $     17,811        $     13,456         $      32,603
  Net Income(3)....................      $   17,254         $      2,621        $      3,202         $      26,053
  Earnings per Share:
    Basic..........................      $     0.27         $       0.04        $       0.05         $        0.41
    Diluted(1).....................      $     0.27         $       0.04        $       0.05         $        0.41

<FN>
(1)      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.

(2)      Includes $78 million  pre-tax noncash  impairment of long-lived  assets
         and $6 million one-time pre-tax compensation charges during the quarter
         ended September 30, 1998.

(3)      Includes  $12  million  pre-tax  gain on sale of  Canadian  oil and gas
         operations during the quarter ended December 31, 1997.
</FN>
</TABLE>


                                       39
<PAGE>
                           SEAGULL ENERGY CORPORATION


                                   SIGNATURES

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


By:  /s/ William L. Transier
     William L. Transier, Executive Vice     
     President and Chief Financial Officer   
    (Principal Financial Officer)            
Date:  March 1, 1999
                                             
By:  /s/ Gordon L. McConnell                 
     Gordon L. McConnell, Vice President
     and Controller (Principal Accounting    
     Officer)                                
Date:  March 1, 1999

                                       85