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

                                   FORM 10-K

(Mark One)

[X]Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
   Act of 1934 (fee required) for the fiscal year ended December 31, 1999 or

[_]Transition report pursuant to Section 13 or 15(d) of the Securities
   Exchange Act of 1934 (no fee required) for the transition period from
   to

                        Commission file number 1-12905

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

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

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

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


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

                                (713) 243-3100
             (Registrant's Telephone Number, Including Area Code)

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

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

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

                                     NONE

  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

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

  Aggregate market value of the outstanding shares of Common Stock of the
Registrant, based upon the closing price of the shares on the New York Stock
Exchange on such date, held by nonaffiliates of the Registrant as of March 1,
2000: $99,970,174.

  Shares of the Registrant's Common Stock outstanding as of March 1, 2000:
42,755,871 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

  The information required by Part III (Items 10, 11, 12 and 13) is
incorporated by reference to the Registrant's definitive proxy statement for
the 2000 annual meeting of shareholders.

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                                   FORM 10-K

                                 ANNUAL REPORT
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
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<S>       <C>                                                                                     <C>
                                                  PART I
ITEM 1.   Business...............................................................................   3
            General..............................................................................   3
            History..............................................................................   3
            Strategy.............................................................................   3
            U.S. Exploration and Development--Offshore...........................................   4
            U.S. Exploration and Development--Onshore............................................   6
            International Exploration and Development............................................   6
            Plant Operations Business............................................................   6
            Sales of Natural Gas and Crude Oil...................................................   7
            Competition..........................................................................   7
            Government Regulation................................................................   7
            Employees............................................................................   9
            Offices..............................................................................   9
            Forward-Looking Statements--Uncertainties and Risks..................................  10
ITEM 2.   Properties.............................................................................  12
ITEM 3.   Legal Proceedings......................................................................  14
ITEM 4.   Submission of Matters to a Vote of Security Holders....................................  15

                                                  PART II

ITEM 5.   Market for Registrant's Common Equity and Related Stockholder Matters..................  15
ITEM 6.   Selected Financial and Operating Data..................................................  16
ITEM 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations..  18
            Results of Operations................................................................  18
            Liquidity and Capital Resources......................................................  20
            Other Matters........................................................................  22
ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk.............................  24
ITEM 8.   Financial Statements and Supplementary Data............................................  27
ITEM 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...  56

                                                 PART III

ITEM 10.  Directors and Executive Officers of the Registrant.....................................  56
ITEM 11.  Executive Compensation.................................................................  56
ITEM 12.  Security Ownership of Certain Beneficial Owners and Management.........................  56
ITEM 13.  Certain Relationships and Related Transactions.........................................  56

                                                  PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................  56
</TABLE>

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                                    PART I

Item 1. Business

General

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

History

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

  The current corporate entity that is EEX was organized in the State of Texas
in 1992 as a wholly-owned subsidiary of ENSERCH. It conducted the Plant
Operations Business of ENSERCH under the name of Lone Star Energy Plant
Operations, Inc. ("LSEPO").

  In 1997, pursuant to a merger agreement between Texas Utilities Company and
ENSERCH, Old EEI was first merged into LSEPO, with LSEPO being the surviving
company ("Merger"). In the Merger, LSEPO changed its name to Enserch
Exploration, Inc. ("EEI"). ENSERCH then distributed its entire 83% ownership
interest in EEI pro rata to its shareholders in a tax-free distribution
("Distribution"). The Merger and the Distribution were each effective on
August 5, 1997. On December 19, 1997, EEI changed its name to EEX Corporation.

Strategy

  The transition to independent status in 1997, coupled with the engagement of
a new senior management team, resulted in a significant restructuring of the
Company's assets, operations and strategy in 1997 and 1998. In 1999, the
Company acquired the domestic exploration and production operations of Tesoro
Petroleum Corporation. This acquisition supplements existing production,
lengthens average reserve life, provides reinvestment opportunities in faster
payback projects and results in a stronger foundation to pursue exploration
potential in the Deepwater Gulf of Mexico. The Company's strategy is intended
to provide reserve and production growth and improved investment and operating
efficiency. The major elements of this strategy are:

  Explore EEX's Deepwater Gulf of Mexico Lease Portfolio--EEX separates its
Gulf of Mexico activities into two major areas: the Continental Shelf
("Shelf") for water depths up to 600 feet and the deepwater Gulf of Mexico
("Deepwater") for water depths typically in excess of 600 feet (a majority of
the Deepwater blocks held by EEX fall in water depths between 1,500 and 3,500
feet). Areas where water depths are in excess of 5,000 feet are often referred
to as "Ultra-deep." During early 1997, the EEX focus in the Deepwater Gulf of
Mexico shifted from the shallower Pleistocene play to the deeper Pliocene and
Miocene plays where significant reserve potential has been confirmed by
industry activity. Through application of geologic and geophysical models, the
Company believes that potential reserves under its current leasehold interests
may provide the basis for significant long-term production growth. To reduce
the financial risk associated with dry holes and to accelerate the drilling
program, a joint venture was formed with Enterprise Oil PLC ("Enterprise") in
1997. This joint venture provides that Enterprise will fund a portion of EEX's
share of exploratory well costs and certain appraisal and development costs in
return for one-half of EEX's working interest in 78 Deepwater leases. EEX
plans to pursue additional joint venture arrangements in the future to reduce
its financial risk and may acquire additional leases as part of its Deepwater
strategy. The Company has experienced significantly higher cost than planned
to drill exploration and appraisal wells and is focused on improving drilling
efficiency. To date, the Company has not demonstrated the economic viability
of its sole announced Deepwater discovery, Llano, nor does it have any proved
reserves associated with its Deepwater exploration program.

                                       3
<PAGE>

  Realize Value from the Cooper Floating Production System ("FPS") and
Pipelines--The Company owns a 60% interest in the FPS and two associated
pipelines and other supporting facilities ("Pipelines"). The FPS is a
combination Deepwater drilling rig and processing facility capable of
simultaneous drilling and production operations. The facility is capable of
processing approximately 40,000 barrels of oil and 100 million cubic feet of
gas daily for transport into a pipeline system. The Pipelines are each
approximately 53 miles long and have estimated daily throughput capacity of
100,000 barrels of oil and 200 million cubic feet of gas. A processing
facility located at the terminus of the pipelines in shallow water is also 60%
owned by EEX. These assets are not currently in service following the
abandonment of the Cooper field. The Pipelines are located approximately six
miles from the Llano discovery well and may have utility as support
infrastructure for anticipated development at Llano and the greater Llano
area. The Company is presently evaluating options to realize the value of the
FPS.

  Explore Deep Potential in EEX's Gulf of Mexico Shelf Lease Portfolio--In
late 1998, the Company began geologic and geophysical studies to identify
reserve potential in formations deeper than that conventionally pursued in the
Gulf of Mexico Shelf ("Deep Shelf"). The Company believes it may be
economically more attractive to explore this potential than to continue an
exploitation program in and around existing mature fields. The Company has
substantially limited its investment in conventional Shelf exploration and
exploitation and intends to focus technical and financial resources on deeper
exploration potential. The Company is considering the sale of all or a portion
of its Shelf producing properties. The Company may change the composition and
size of its leasehold position in the Shelf through participation in lease
sales, asset trades or sales, acquisition of producing properties, and/or
permitting some leases to expire.

  Grow the Onshore U.S. Business--During 1998, the Company sold substantially
all of its assets in East Texas, Oklahoma and North Texas. In addition, the
Company traded its West Texas assets and most of its producing properties in
Louisiana for Gulf of Mexico Shelf producing properties. The Company's
remaining onshore U.S. assets, located principally in Texas, are generally of
higher quality than the assets divested. During 1999, the Company concluded
that a combination of the remaining assets with those acquired from Tesoro
Petroleum Corporation would provide a more stable cash flow base and
reinvestment opportunities for near-term reserve and production growth. A
substantial portion of the projected year 2000 capital program has been
allocated for re-investment into these combined properties. The Company
intends to grow this onshore business through exploration, acquisition of
producing properties and/or investment in new leaseholds.

  Realize Value from International Assets--The Company plans to continue
limited exploration and development activities in the Tuban Block in Indonesia
and is considering the sale of this asset to finance growth in its U.S.
operations. In addition, the Company plans to focus efforts on realizing value
from its other concessions in Indonesia and New Zealand in a manner that
limits near-term investment and that provides options to expand operations if
prospectivity and economic conditions warrant.

U.S. Exploration and Development--Offshore

  Deepwater Gulf of Mexico Exploration--In 1997, the first exploratory well
(Llano, EEX 30% interest) drilled in the Deepwater program, at Garden Banks
Block 386, encountered hydrocarbon intervals between 23,000 and 25,000 feet.

  During 1998, EEX deepened the Llano discovery well, drilled two exploration
wells in untested areas of the Deepwater and participated in a third
exploration well that tested a prospect in Ultra-deep waters. The Llano well
was deepened to 27,864 feet into Miocene age sands and encountered
hydrocarbons. Well logs indicated the presence of approximately 200 feet of
net pay. An initial exploration well in Green Canyon Block 341 (Sheba, EEX
36.25% interest) was drilled into the eastern edge of a large untested
structure. This well encountered sand development in the primary target, but
was not hydrocarbon bearing and, consequently, was not successful. The second
Deepwater exploratory well in 1998 was drilled at Mississippi Canyon Block 580
(Elvis, EEX 23% interest) and was unsuccessful due to the absence of
sufficient sand development. EEX participated in a third exploratory well
drilled by another operator (Gamera, EEX 12.5% interest) in a water depth in
excess of 7,700 feet on Atwater Valley Blocks 118/119. This well was also
unsuccessful. Also in 1998, EEX participated in an

                                       4
<PAGE>

exploration well located on Viosca Knoll Block 737 (EEX 12.5% interest)
operated by another company to test a shallower Miocene-aged structure on the
Flex Trend in the Gulf of Mexico. The well encountered gas sands; however, the
reserve size was insufficient to justify commercial development. The well was
plugged and abandoned.

  During 1999, EEX drilled an unsuccessful exploration well on its George
prospect in Mississippi Canyon Block 442 to a depth of 22,000 feet. The well
encountered hydrocarbons in non-commercial quantities and was plugged and
abandoned. Also, in September 1999 EEX temporarily suspended drilling
operations at its Mackerel prospect in Mississippi Canyon Block 620 at a depth
of 11,000 feet. In January 2000, the Company decided to abandon the Mackerel
well following the analysis of additional seismic and geological data, which
indicated that hydrocarbons encountered in the well were not commercial and
that deeper prospects could not be adequately tested from that location. These
two wells were drilled outside of the Enterprise joint venture agreement and
resulted in a net EEX 1999 charge against earnings of approximately $44
million.

  EEX participated in the Minerals Management Service sponsored Outer
Continental Shelf lease sale number 172, adding 2 Deepwater blocks to the
leasehold inventory at a net cost of approximately $3 million. At year-end,
EEX held interests in 95 blocks in the Deepwater Gulf of Mexico, 61 of which
were operated by EEX.

  At the end of 1999, EEX had two Deepwater rigs under contract. The Global
Marine semi-submersible rig, Arctic I, was delivered to EEX in July 1999, to
begin a three-year contract at an average rate of $130,000 per day. This rig
is currently drilling the second appraisal well for the Llano discovery (EEX
30% interest). The Company believes this rig will be used to drill, appraise
and develop its Deepwater program during the remaining contract period with
EEX bearing approximately 30% of the rig cost, and its joint venture partners
bearing the remainder. The Company has not, however, received approval from
partners to employ the Arctic I rig on any wells beyond the Llano appraisal
well that is currently drilling.

  The second rig contract, for the R&B Falcon C. Kirk Rhein, Jr., had
approximately 260 drilling days remaining at a total cost of approximately
$90,000 per day ($45,000 net to EEX). In December 1999, EEX entered into an
agreement with the owners of this rig for early termination of the contract at
a net cost to EEX of $4 million, which was paid in January 2000.

  Deepwater Gulf of Mexico Appraisal and Development--In the third quarter of
1998, drilling began on the first appraisal well in Garden Banks Block 386 to
follow-up on the Llano discovery. In early 1999, this well, Llano #2, was
drilled to a total measured depth in excess of 22,000 feet and confirmed the
presence of hydrocarbons in eastern flank sands correlative to the Llano #1
well. The well, originally planned to a depth of 25,000 feet, was suspended
before all target objectives could be tested due to increasing formation
pressure. In October 1999, EEX began drilling the second Llano appraisal well
(Llano #3) to test the north-western flank of the reservoir. The well is
currently drilling in a difficult geologic and mechanical environment and no
assurances can be given that the well will reach its target objective. During
1999, EEX continued feasibility studies to explore early production options
for the Llano field. The Llano working interest owners have not yet approved
any early production or development plans for the Llano field. EEX reported no
proved reserves at year-end 1999 attributable to the Llano discovery.

  Deepwater Gulf of Mexico, Cooper Field--The Cooper Field (Garden Banks Block
388), developed in the shallower depths of Pleistocene sands, began to produce
oil and gas in 1995 and declined rapidly. In 1999, well abandonment operations
began and at year-end 1999, the FPS was undergoing major refurbishment at a
shipyard facility in Galveston, Texas. EEX is assessing alternative uses for
the FPS and the Pipelines previously serving the Cooper Field. EEX has entered
into preliminary discussions with a third party to purchase the FPS. The
Company is also studying the use of the Pipelines for possible production from
the discovery at Llano or other current and future discoveries in the Llano
area.

  Gulf of Mexico Shelf (Including Texas State Waters)--EEX participated in
eight wells on the Shelf, four of which were successful, and none of which
were Deep Shelf wells.

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<PAGE>

  EEX abandonment activity in the Shelf is increasing as EEX limits
reinvestment into its Shelf properties except for investment associated with
deep exploration potential. Downward revision of reserve estimates for many of
its Shelf properties also has contributed to shorter field lives, in some
instances. Five platforms were de-commissioned in 1999: Vermilion 266,
Vermilion 359, Vermilion 37, East Cameron 234 and West Cameron 406. Cost
savings were realized as two platforms were sold and one was transferred to
South Timbalier 235 for re-deployment. Abandonment cost estimates were
reviewed for all well and platforms in which EEX participates. EEX exposure
for abandonment (net of salvage) was estimated to be $43 million at the end of
1999, an increase from the $25 million estimated at the end of 1998. Upward
revisions are primarily due to the re-estimate of exposure on non-operated
properties, platform and facilities' age and likelihood of salvage and sale.
The Company intends to fix a portion of its abandonment liability exposure
through the sale of mature properties.

U.S. Exploration and Development--Onshore

  In December 1998, EEX agreed to exchange its operated oil and gas producing
properties in Louisiana plus cash compensation for interests in the East
Cameron Block 349/350 field. This exchange was completed on January 21, 1999.

  During 1999, the focus of onshore activity was on the Vaquillas Ranch field
in South Texas. EEX acquired all of the outstanding interest at Vaquillas
Ranch in August and subsequently began an exploitation program. The initial
focus of this program was preparation of numerous wellbores for recompletion,
re-stimulation or sidetrack. By year-end, 12 wells had been successfully re-
entered and two additional re-entries were in progress.

  In October 1999, EEX entered into an agreement to acquire Tesoro Petroleum
Corporation's domestic exploration and production operations in a stock
purchase transaction. The acquired properties, primarily natural gas fields in
South Texas and the Gulf Coast, are currently producing approximately 76 MMcfe
per day from proved reserves of 185 Bcfe as of December 31, 1999. EEX has
established an office in San Antonio, Texas, staffed largely by former Tesoro
employees. The acquisition supplemented EEX's existing Gulf Coast and South
Texas production, lengthened its average reserve life, and provided a better
balance between producing properties and exploration prospects. In addition to
the natural gas fields in South Texas and the Gulf Coast, certain gathering
and pipeline assets, primarily associated with the Bob West field in South
Texas, were also included in the transaction. In December 1999, EEX closed the
acquisition at a net cost of $215 million.

International Exploration and Development

  Indonesia (Onshore Java) Tuban Block--EEX owns a 50% interest in the
production sharing contract relating to the Tuban block, which includes the
Mudi Field. During the fourth quarter of 1999, the operator of the Mudi Field
indicated that production from the field would be reduced from approximately
20,000 gross barrels per day, to approximately 10,000 gross barrels per day
(5,000 barrels per day EEX net), due to increased water production. The
operator has developed a plan to increase water handling and drill additional
production wells to restore production. That plan has not yet received full
approval by EEX or Pertamina, the Indonesian state oil company.

  Indonesia (Offshore Sumatra) Asahan Block--In 1997, EEX acquired a 60%
interest in 4,200 square kilometers in the Asahan block. During 1998, seismic
data over the block was acquired and processed. During 1999, EEX obtained a
partner to contribute all or a portion of the cost for an exploratory well to
earn an interest in the block. In the event a well is not drilled, EEX has
negotiated a performance guarantee that will require the farmee to pay EEX
compensation equal to the costs previously incurred in the block.

Plant Operations Business

  EEX Power Systems Company ("EEXPS"), a division of EEX, provides operation
and maintenance services under contract to two cogeneration plants: (i)
"Encogen One," a 255 MW cogeneration facility located

                                       6
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in Sweetwater, Texas and (ii) "Encogen Northwest," a 160 MW cogeneration
facility located in Bellingham, Washington. EEXPS operates and maintains the
facilities under terms of operation and maintenance agreements that provide
EEXPS periodic fees and reimbursement of certain costs. Until November 1998,
EEXPS also operated a third cogeneration facility in Buffalo, New York.
However, as a result of the termination of the facility's power purchase
agreement, the owners exercised buy-out provisions and terminated the
operation and maintenance agreement.

Sales of Natural Gas and Crude Oil

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

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

  EEX utilizes financial instruments to reduce exposure of its oil and gas
production to price volatility. See Item 7A, "Quantitative and Qualitative
Disclosures about Market Risk," Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Oil and Gas Marketing," and
Note 15 to Consolidated Financial Statements in Item 8 for additional
information on hedging activities.

Competition

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

  The Company believes that it has a significant inventory of exploratory
prospects, relative to its size; however, EEX will require capital investments
greater than EEX's current resources to explore, appraise and develop these
prospects. The Company's success in discovering reserves will depend on its
ability to identify and exploit suitable prospects in today's competitive
market and on its ability to find appropriate partners to reduce the financial
risk of exploration and development.

Government Regulation

  The oil and gas industry is extensively regulated by federal, state and
local authorities and by governmental agencies of foreign countries.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion. Numerous departments and agencies, federal, state and
foreign, have issued rules and regulations binding on the oil and gas industry
and its individual members, some of which carry substantial penalties for the
failure to comply. Because these laws and regulations are frequently amended,
reinterpreted or expanded, EEX is unable to predict the future cost or impact
of complying with such laws and regulations.

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

                                       7
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proration units and the density of wells which may be drilled and unitization
or pooling of oil and gas properties. In addition, conservation laws establish
maximum rates of production requirements regarding the ratability of
production.

  Regulation of Offshore Operations--Lessees must obtain the approval of the
Minerals Management Service ("MMS"), a federal agency, and various other
federal and state agencies for exploration, development and production plans
prior to the commencement of offshore operations. Similarly, the MMS has
promulgated regulations governing the plugging and abandoning of wells located
offshore and the removal of all production facilities. The MMS also issues
rules on calculation of royalty payments and valuation of production for
royalty purposes. Under certain circumstances, including, but not limited to,
conditions deemed to be a threat or harm to the environment, the MMS may also
require any EEX operation on federal leases to be suspended or terminated in
the affected area.

  Environmental Matters--EEX's U.S. oil and gas operations are subject to
extensive federal, state and local laws and regulations dealing with
environmental protection, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known
as "Superfund," and similar state statutes. Failure to comply with these laws
and regulations may result in the assessment of administrative, civil, or
criminal penalties.

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

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

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

  The operations of EEX are also subject to the Clean Water Act and the Clean
Air Act, as amended, and comparable state statutes. EEX may be required to
incur certain capital expenditures over the next five to ten years for
pollution control equipment. The Company's operations may generate or
transport both hazardous and nonhazardous solid wastes that are subject to the
requirements of the Resource Conservation and Recovery Act ("RCRA") and
comparable state laws and regulations. In addition, EEX currently owns or
leases, and has in the past owned or leased, properties that have been used
for oil and gas operations for many years. Although EEX has utilized operating
and disposal practices that were standard in the industry at the time,
hydrocarbons or other

                                       8
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wastes may have been disposed of or released on or under the properties owned
or leased by EEX or on or under other locations where such wastes have been
taken for disposal. Many of these properties have been operated by third
parties whose operations were not under EEX's control. These properties and
the wastes disposed thereon may be subject to CERCLA, RCRA, and analogous
state laws, and EEX could be required to remove or remediate previously
disposed wastes or property contamination or perform remedial plugging
operations to prevent future contamination.

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

  Regulation of Natural Gas Marketing and Transportation--Although maximum
selling prices of natural gas were formerly regulated, the Natural Gas
Wellhead Decontrol Act of 1989 ("Decontrol Act") terminated wellhead price
controls on all domestic natural gas on January 1, 1993, and amended the
Natural Gas Policy Act of 1978 to remove completely by January 1, 1993 price
and nonprice controls for all "first sales" of natural gas, which includes all
sales by EEX of its own production. Consequently, sales of EEX's natural gas
currently may be made at market prices, subject to applicable contract
provisions. The jurisdiction of the Federal Energy Regulatory Commission
("FERC") over natural gas transportation was unaffected by the Decontrol Act.

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

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

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

Employees

  At January 1, 2000, EEX had 204 full-time employees, 162 of which were
involved principally with oil and gas operations. The remaining employees were
involved with Plant Operations Business.

Offices

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

                                       9
<PAGE>

Forward-Looking Statements--Uncertainties and Risks

  Certain statements in this report, including statements of EEX's and
management's expectations, intentions, plans and beliefs, are "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and are subject to certain events, risks and
uncertainties that may be outside EEX's control. These forward-looking
statements include statements of management's plans and objectives for EEX's
future operations and statements of future economic performance; information
regarding drilling schedules, expected or planned production, future
production levels of international and domestic fields, EEX's capital budget
and future capital requirements, EEX's meeting its future capital needs, the
level of future expenditures for environmental costs and the outcome of
regulatory and litigation matters; and the assumptions underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a
number of factors, including, without limitation, those described in the
context of such forward-looking statements and the risk factors set forth
below and described from time to time in EEX's other documents and reports
filed with the Securities and Exchange Commission.

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

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

  Offshore Risks--EEX's Gulf of Mexico oil and gas reserves and exploration
prospects include properties located in water depths of 20 to greater than
7,000 feet where operations are by their nature more difficult than drilling
operations conducted on land in established producing areas. Deepwater
drilling and operations require the application of more advanced technologies
that involve a higher risk of mechanical failure and can result in
significantly higher drilling and operating costs which, in turn, can require
greater capital investment than anticipated and materially change the expected
future value of offshore development projects. The size of oil and gas
reserves determined through exploration and confirmation drilling operations
must ultimately be significant enough to justify the additional capital
required to construct and install production and transportation systems and
drill development wells. Development of any discoveries made pursuant to EEX's
Deepwater exploration program may not return any profit to the Company and
could result in an economic loss. Furthermore, offshore operations require a
significant amount of time between the discovery and the time the gas or oil
is actually marketed, increasing the market risk involved with such
operations.

  Capital Funding and Liquidity--EEX's access to public or private equity or
debt markets may be limited by general conditions in or volatility of the
markets, general conditions affecting the oil and gas industry, or by EEX's
financial condition. No assurances can be given that the Company will be able
to secure funds in these markets when necessary, or that such funds will be
obtained on terms favorable to the Company. If the Company is unable to secure
funds when required for its activities, its liquidity and ability to make
capital investments may become impaired. See the additional discussion in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."


                                      10
<PAGE>

  FPS and Pipeline Marketing Risk--The FPS and Pipelines have a carrying value
of $144 million net to EEX at December 31, 1999 and currently do not generate
any cash returns to the Company. The FPS is a unique asset. A successful
marketing program for this asset will require finding a prospective purchaser
with the need for such a facility, successfully negotiating a transaction and
obtaining agreement from EEX's partner in the facility. The utility of the
Pipelines depend primarily on the future reserve potential of the Llano area
or other discoveries not yet made which would require use of these Pipelines.
Until such reserves are proved or other discoveries are made, the risk to a
prospective pipeline purchaser will likely be reflected in its assessment of
value. While management believes that it can realize the value of the FPS and
Pipelines, there can be no assurance that it can do so in the near term or on
favorable financial terms.

  Volatility of Oil and Gas Markets--EEX's operations are highly dependent
upon the prices of, and demand for, oil and gas. These prices have been, and
are likely to continue to be, volatile. Prices are subject to fluctuations in
response to a variety of factors that are beyond the control of EEX, such as
worldwide economic and political conditions as they affect actions of OPEC and
Middle East and other producing countries, and the price and availability of
alternative fuels. EEX's hedging activities with respect to some of its
projected oil and gas production, which are designed to protect against price
declines, may prevent EEX from realizing the benefits of price increases above
the levels of the hedges.

  Estimating Reserves and Future Net Cash Flows--Uncertainties are inherent in
estimating quantities and values of reserves and in projecting rates of
production, net revenues and the timing of development expenditures. Reserve
data represent estimates only of the recovery of hydrocarbons from underground
accumulations and are often different from the quantities ultimately
recovered. Downward adjustment in reserve estimates could adversely affect
EEX. Also, any substantial decline in projected net revenues resulting from
production of reserves could have a material adverse effect on the Company's
financial position and results of operations.

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

  International Operations--EEX's interests in properties in countries outside
the United States are subject to the various risks inherent in foreign
operations. These risks may include, among other things, property and
equipment as a result of expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and governmental royalties,
renegotiations of contracts with governmental entities, changes in laws and
policies governing operations of foreign-based companies and other
uncertainties arising out of foreign government sovereignty over the Company's
international operations. The Company's international operations may also be
adversely affected by laws and policies of the United States affecting foreign
trade, taxation and investment. In addition, in the event of a dispute arising
from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign
persons to the jurisdiction of the courts of the United States.

                                      11
<PAGE>

Item 2. Properties

  In 1999, EEX's operations were located in three regions: (i) the Gulf of
Mexico--Deepwater, (ii) Onshore and Gulf of Mexico Shelf and (iii)
International, primarily Indonesia. The following table sets forth estimated
net proved reserves of EEX by region, as audited by Netherland, Sewell &
Associates, Inc., at December 31, 1999:

<TABLE>
<CAPTION>
                                                       Proved Reserves at
                                                       December 31, 1999
                                                --------------------------------
                                                 Natural  Oil and Gas
                                                   Gas      Liquids     Total
                                                (MMcf)(1) (MBbls)(2)  (MMcfe)(3)
                                                --------- ----------- ----------
   <S>                                          <C>       <C>         <C>
   Gulf of Mexico--Deepwater...................       --        --          --
   Onshore and Gulf of Mexico Shelf............  362,813     5,702     397,025
                                                 -------    ------     -------
     Total Domestic............................  362,813     5,702     397,025
   International...............................       --    11,840      71,038
                                                 -------    ------     -------
     Total.....................................  362,813    17,542     468,063
                                                 =======    ======     =======
   Minority Interest(4)........................   86,319     1,043      92,574
                                                 =======    ======     =======
</TABLE>
--------
(1)  Million cubic feet.
(2)  Thousand barrels.
(3)  Million cubic feet of gas equivalent with one barrel of liquid converted
     to six Mcf of gas.
(4)  Included in Onshore and Gulf of Mexico Shelf above. See Note 13 to
     Consolidated Financial Statements in Item 8 for additional information on
     Minority Interest.

  See Note 23 to Consolidated Financial Statements in Item 8 for additional
information on oil and gas reserves.

  During 1999, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 1998. Such reserve estimates were not
materially different from the 1998 reserve estimates reported in Note 23 to
Consolidated Financial Statements in Item 8.

  Developed and undeveloped lease acreage as of December 31, 1999 is set forth
below:

<TABLE>
<CAPTION>
                                            Developed Acres  Undeveloped Acres
                                            --------------- -------------------
                                             Gross   Net(1)   Gross     Net(1)
                                            ------- ------- --------- ---------
   <S>                                      <C>     <C>     <C>       <C>
   Gulf of Mexico--Deepwater...............  42,625  18,720   494,324   179,468
   Onshore and Gulf of Mexico Shelf........ 375,613 116,656   703,005   302,784
                                            ------- ------- --------- ---------
     Total Domestic........................ 418,238 135,376 1,197,329   482,252
   International...........................   5,000   5,000 3,576,056 2,426,924
                                            ------- ------- --------- ---------
     Total................................. 423,238 140,376 4,773,385 2,909,176
                                            ======= ======= ========= =========
   Minority Interest(2)....................  26,872  13,016   142,093    76,642
                                            ======= ======= ========= =========
</TABLE>
--------
(1)  Represents the proportionate interest of EEX in the gross acres under
     lease.
(2)  Included in Onshore and Gulf of Mexico Shelf above. See Note 13 to
     Consolidated Financial Statements in Item 8 for additional information on
     Minority Interest.

  EEX purchased approximately 17,100 net acres in 4 offshore blocks (2
Deepwater and 2 Shelf) at Federal OCS Lease Sale 172 held March 14, 1999.
Additionally, EEX acquired 25,592 net acres in 1999 through a like-kind
exchange transaction completed in the first quarter. The total number of
blocks in which EEX had an interest at year-end was 286, with an average
working interest of 38%. EEX operates 123 of these blocks.

                                      12
<PAGE>

  During 1999, EEX cancelled or allowed to expire 57 Gulf of Mexico blocks and
sold its interest in another 8 blocks that had already been condemned through
either geological or geophysical findings or by drilling.

  EEX plans further drilling on undeveloped acreage, but at this time cannot
specify the extent of the drilling or predict how successful it will be in
establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms during which the undeveloped acreage can be
retained by the payment of delay rentals without the establishment of oil and
gas reserves expire as follows:

<TABLE>
<CAPTION>
                                        Undeveloped Acres Expiring
                            ---------------------------------------------------
                                Gulf of
                               Mexico--       Onshore and
                               Deepwater       GOM Shelf       International
                            --------------- --------------- -------------------
                             Gross    Net    Gross    Net     Gross      Net
                            ------- ------- ------- ------- --------- ---------
   <S>                      <C>     <C>     <C>     <C>     <C>       <C>
   2000....................  69,120  25,344 249,337 104,332 1,037,568   155,635
   2001....................  64,077  20,072 162,126  58,831 2,182,222 2,182,222
   2002 and later.......... 361,127 134,052 291,542 139,621   356,266    89,067
                            ------- ------- ------- ------- --------- ---------
     Total................. 494,324 179,468 703,005 302,784 3,576,056 2,426,924
                            ======= ======= ======= ======= ========= =========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                   1999       1998       1997
                                                 --------- ---------- ----------
                                                 Gross Net Gross Net  Gross Net
                                                 ----- --- ----- ---- ----- ----
   <S>                                           <C>   <C> <C>   <C>  <C>   <C>
   Exploratory Wells:
     Productive.................................  2.0  1.5  5.0   2.3   32  11.3
     Dry........................................  7.0  3.6  9.0   3.4   19   8.7
                                                  ---  --- ----  ----  ---  ----
       Total....................................  9.0  5.1 14.0   5.7   51  20.0
                                                  ===  === ====  ====  ===  ====
   Development Wells:
     Productive.................................  2.0  0.8 35.0  17.1   75  33.2
     Dry........................................   --   --  3.0   1.2    9   3.8
                                                  ---  --- ----  ----  ---  ----
       Total....................................  2.0  0.8 38.0  18.3   84  37.0
                                                  ===  === ====  ====  ===  ====
</TABLE>

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

  At December 31, 1999, EEX was participating in 10 wells (5.1 net) which were
either being drilled or in some stage of completion.

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

                                      13
<PAGE>

  The Company owned interest in productive gas and oil wells at December 31,
1999 as follows:

<TABLE>
<CAPTION>
                                                              Gas        Oil
                                                          ----------- ----------
                                                          Gross  Net  Gross Net
                                                          ----- ----- ----- ----
   <S>                                                    <C>   <C>   <C>   <C>
   Gulf of Mexico--Deepwater.............................    --    --    --   --
   Onshore and Gulf of Mexico Shelf...................... 644.0 311.5 121.0 50.2
                                                          ----- ----- ----- ----
     Total Domestic...................................... 644.0 311.5 121.0 50.2
   International.........................................    --    --  13.0  6.5
                                                          ----- ----- ----- ----
     Total............................................... 644.0 311.5 134.0 56.7
                                                          ===== ===== ===== ====
</TABLE>

  The Company has ownership in wells with dual completions in single boreholes
at December 31, 1999 as follows:

<TABLE>
<CAPTION>
                                                               Gas        Oil
                                                            ---------- ---------
                                                            Gross Net  Gross Net
                                                            ----- ---- ----- ---
   <S>                                                      <C>   <C>  <C>   <C>
   Gulf of Mexico--Deepwater...............................   --    --   --   --
   Onshore and Gulf of Mexico Shelf........................ 72.0  42.4  3.0  2.0
                                                            ----  ----  ---  ---
     Total Domestic........................................ 72.0  42.4  3.0  2.0
   International...........................................   --    --   --   --
                                                            ----  ----  ---  ---
     Total................................................. 72.0  42.4  3.0  2.0
                                                            ====  ====  ===  ===
</TABLE>

  Additional information relating to the oil and gas activities of EEX is set
forth in Note 23 to Consolidated Financial Statements in Item 8 and in
"Selected Financial and Operating Data" in Item 6.

  EEX leases approximately 78,000 square feet of office space for its office
in Houston, Texas, expiring in September 2002. EEX subleases approximately
19,000 square feet of office space for its office in San Antonio, Texas,
expiring in December 2002.

Item 3. Legal Proceedings

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

  In addition, EEX is a defendant in Gracy Fund L.P. v. EEX Corporation, et
al., ("Gracy Fund"), a class action in Federal District Court for the Northern
District of Texas. Gracy Fund is a consolidated case combining two actions
filed against EEX in August 1998. In January 1999, plaintiffs in Gracy Fund
filed an amended class action complaint against EEX, several of its current
and/or former officers and directors and another company, ENSERCH Corporation
(the "Consolidated Complaint"). The Consolidated Complaint alleges violations
of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and violations
of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934
against various defendants. The Consolidated Complaint also alleges Section
10(b), 15 and 20(a) claims on behalf of a class of plaintiffs who acquired
EEX's stock pursuant to an October 1996 Registration Statement and
Proxy/Prospectus ("EEX Subclass").

  Plaintiffs allege that during the class period, defendants made materially
false and misleading statements, and failed to disclose material facts,
regarding the value and volume of EEX's proved reserves from its East Texas
operations. According to plaintiffs, these purported misrepresentations
artificially inflated the price of EEX's common stock throughout the class
period, induced the EEX Subclass to approve the merger that spun EEX off from
ENSERCH Corporation and induced the EEX Subclass to acquire stock pursuant to
the Registration Statement and Proxy/Prospectus issued regarding this merger.

                                      14
<PAGE>

  The Company is vigorously contesting this action and filed a motion to
dismiss the Consolidated Complaint on March 8, 1999. The motion has been fully
briefed and under submission to the court since June 23, 1999. All discovery
is stayed pending the determination of the motion to dismiss. Since it has not
yet been determined whether, or to what extent, the plaintiffs have pled a
viable complaint, the Company cannot predict the outcome of this matter at
this time.

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

  None.

                                    PART II

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

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

<TABLE>
<CAPTION>
                                             1999               1998
                                           -------------      --------------
                                           High      Low      High      Low
                                           ----      ---      ----      ----
   <S>                                     <C>       <C>      <C>       <C>
   First Quarter.......................... $7 11/16  $4 5/8   $30 3/8   $22 11/16
   Second Quarter.........................  7 11/16   4 7/8    31 7/8    24 9/16
   Third Quarter..........................  7 1/8     2 15/16  28 11/16  11 5/8
   Fourth Quarter.........................  4 1/16    2 1/2    15         5 1/16
</TABLE>

  At March 1, 2000, EEX had 42,755,871 outstanding shares of common stock held
by 11,584 shareholders of record.

  There were no dividends declared on the Company's common stock in 1999 or
1998. The declaration of future dividends will be dependent upon business
conditions, earnings, cash requirements and other relevant factors as
determined by the Company's Board of Directors. Under the terms of the
Company's Series B 8% Cumulative Perpetual Preferred Stock (the "Series B
Preferred Stock"), the Company may not declare or pay any dividend or make any
other distribution on its common stock, unless all dividends due upon the
Series B Preferred Stock have been paid or provided for.

                                      15
<PAGE>

Item 6. Selected Financial and Operating Data

                                EEX CORPORATION
                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                              As of or for the Year Ended December 31
                         -----------------------------------------------------
                           1999      1998      1997        1996        1995
                         --------  --------  ---------  ----------  ----------
                             (In thousands, except per share amounts)
<S>                      <C>       <C>       <C>        <C>         <C>
INCOME STATEMENT DATA
  Revenues.............. $177,374  $219,052  $ 314,213  $  338,146  $  237,358
                         ========  ========  =========  ==========  ==========
  Net (Loss) Applicable
   to Common
   Shareholders......... $(99,914) $(40,926) $(216,103) $  (36,801) $  (42,585)
                         ========  ========  =========  ==========  ==========
  Basic and Diluted Net
   (Loss) per Share(a).. $  (2.37) $  (0.97) $   (5.12) $    (0.87) $    (1.14)
                         ========  ========  =========  ==========  ==========
BALANCE SHEET DATA
  Total Assets.......... $780,784  $565,070  $ 807,789  $1,195,454  $1,180,238
                         ========  ========  =========  ==========  ==========
CAPITAL STRUCTURE
  Short-term
   borrowings........... $     --  $     --  $   5,000  $       --  $       --
  Capital lease
   obligations..........  222,444   233,318    241,735     244,985      98,043
  Long-term debt........       --        --     25,000     115,000     160,000
  Gas sales obligation..  105,000        --         --          --          --
  Company-obligated
   mandatorily
   redeemable preferred
   securities of
   subsidiary...........       --        --         --     150,000     150,000
  Minority interest in
   preferred stock of
   subsidiary...........       --        --    100,000          --          --
  Minority interest
   third party..........    3,050        --         --          --          --
  Shareholders' equity..  294,863   234,300    274,663     490,406     525,992
                         --------  --------  ---------  ----------  ----------
    Total............... $625,357  $467,618  $ 646,398  $1,000,391  $  934,035
                         ========  ========  =========  ==========  ==========
</TABLE>
--------
(a) The per share amounts for periods prior to 1998 have been restated to
    reflect the reduction in weighted average shares outstanding due to the
    one-for-three reverse stock split effective on December 8, 1998.

                                       16
<PAGE>

                                EEX CORPORATION
                            SELECTED OPERATING DATA

<TABLE>
<CAPTION>
                                         As of or for the Year Ended December
                                                          31
                                        --------------------------------------
                                         1999   1998   1997    1996     1995
                                        ------ ------ ------ -------- --------
<S>                                     <C>    <C>    <C>    <C>      <C>
Sales volume
  Natural gas (Bcf)(a).................   41.0   57.9   84.5    100.5     90.2
  Oil, condensate and natural gas
   liquids (MMBbls)(e).................    4.6    5.8    5.4      5.7      3.9
    Total volumes (Bcfe)(a)............   68.5   92.7  116.9    135.0    113.4

Average sales price(b)
  Natural gas (per Mcf)(c)............. $ 2.28 $ 2.21 $ 2.36 $   2.17 $   1.74
  Oil, condensate and natural gas
   liquids (per Bbl)...................  16.45  13.15  18.53    18.65    15.86
    Total (per Mcfe)(c)................   2.46   2.20   2.57     2.40     1.93

Average costs and expenses (per
 Mcfe)(c)
  Production and operating(b).......... $ 0.57 $ 0.51 $ 0.42 $   0.52 $   0.44
  Exploration(d).......................   0.62   0.49   0.60     0.69     0.68
  Depreciation and amortization........   1.01   1.09   1.24     1.26     0.99
  General, administrative and other....   0.41   0.26   0.24     0.26     0.26
  Taxes, other than income.............   0.07   0.12   0.15     0.16     0.17

Net Wells Drilled
  Total................................      6     24     57      109       81
  Productive...........................      2     19     44       84       51

Proved Reserve Data (at year end)
  Natural Gas (Bcf)(a).................  362.8  203.6  460.2  1,216.2  1,362.8
  Oil, condensate and natural gas
   liquids (MMBbls)(e).................   17.5   26.2   23.8     59.2     71.5
    Total (Bcfe)(a)....................  468.1  360.6  603.2  1,571.5  1,791.8

Standardized Measure of Discounted
 Future Net Cash Flows (in millions)... $436.3 $275.9 $619.1 $1,715.1 $1,227.4
</TABLE>
--------
(a) Billion cubic feet or billion cubic feet equivalent, as applicable. Ratio
    of six Mcf of natural gas to one barrel of crude oil, condensate or
    natural gas liquids.
(b) Before related production, severance and ad valorem taxes.
(c) One thousand cubic feet or one thousand cubic feet equivalent, as
    applicable. Ratio of six Mcf of natural gas to one barrel of crude oil,
    condensate or natural gas liquids.
(d) Excludes unusual and non-recurring expenses.
(e) One million barrels of crude oil or other liquid hydrocarbons.

                                      17
<PAGE>

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

  The following discussion should be read in conjunction with EEX's
Consolidated Financial Statements and notes thereto included under Item 8.

  In 1997, EEX became a separate company, wholly independent of its former
majority owner, ENSERCH Corporation, a public utility. This transition to
independent status, coupled with the engagement of a new management team,
resulted in a restructuring of the Company's assets, operations and strategy.
Refer to Item 1 for a discussion of the development of EEX's business and
strategy.

  Certain statements in this report, including statements of EEX Corporation's
("EEX" or the "Company") and management's expectations, intentions, plans and
beliefs, are "forward-looking statements," within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, that are subject to
certain events, risks and uncertainties that may be outside EEX's control. See
"Forward-Looking Statements--Uncertainties and Risks" in Item 1.

Results of Operations

  On December 8, 1998, the shareholders approved a one-for-three reverse split
of EEX common stock. All references to the number of common shares and per
share amounts for prior period financial statements have been restated to
reflect this event. See "Capital Structure" below.

  EEX reported a 1999 net loss of $100 million ($2.37 per share), versus a net
loss of $41 million ($0.97 per share) in 1998 and a net loss of $216 million
($5.12 per share) in 1997.

  In 1999, results of operations were impacted by three major items. The first
item was a $26 million pre-tax charge for impairment of producing oil and gas
properties required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The second major item was a gain on sales of property,
plant and equipment of $15 million pre-tax. The third major item was the write
off of deepwater dry hole costs of $44 million associated with the George and
Mackerel prospects.

  In the following comparisons of results of operations, 1999 results have
been adjusted to exclude the items described above. Results for 1998 were
adjusted to exclude gains on sale of assets of $9 million pre-tax and FAS 121
impairment of $10 million pre-tax. Results for 1997 were adjusted to exclude
gains on sales of assets of $53 million pre-tax, FAS 121 impairment of $260
million pre-tax and reorganization expense of $27 million pre-tax.

  The reorganization expense in 1997 was classified as general, administrative
and other expense in the Consolidated Statement of Operations. Cash
requirements for these charges totaled $14 million in 1997, $11 million in
1998 and the remainder in 1999.

1999 Results of Operations Compared With 1998

  Revenues for 1999 were $177 million, $42 million (19%) lower than 1998.
Natural gas revenues, 27% lower than 1998, were impacted by a 29% decrease in
production primarily due to production decline on properties located in the
Shelf, offset by a slight increase in the average price of 3%. The average
natural gas sales price per thousand cubic feet (Mcf) was $2.28 in 1999,
compared with $2.21 in 1998. Natural gas production for 1999 was 41 billion
cubic feet (Bcf), compared with 58 Bcf in 1998. Oil revenues remained constant
with 1998. A 35% increase in unhedged average oil prices was offset by a $1.3
million oil hedging loss for the year 1999, compared to a $4.3 million oil
hedging gain for the year 1998. Crude oil production decreased 19% to 4,528
thousand barrels (MBbls) in 1999 from 5,612 MBbls in 1998.

  Costs and expenses, excluding the unusual items described above, were $192
million in 1999, compared to $239 million in 1998, a 20% decrease. Operating
expenses (production and operating, general and administrative

                                      18
<PAGE>

and taxes other than income) were $72 million in 1999, 12% lower than 1998,
resulting from property sales and the favorable impact from restructuring
measures implemented over the last year. Exploration expenses for 1999 include
$51 million for dry hole costs compared to $18 million in 1998. Depreciation
and amortization was $69 million in 1999, $32 million lower than 1998 due to
lower production volumes resulting from asset sales and production decline
primarily on properties located in the Gulf of Mexico Shelf. In July 1999,
depreciation of approximately $0.9 million per quarter was suspended on the
Pipelines following abandonment of the Cooper Field pending future utilization
in the Llano area.

  Total interest and other financing costs, including interest income,
preferred stock dividends, minority interest and other income, were $24
million, a $1 million reduction from 1998, resulting from an increase in
interest income, offset by preferred stock dividends in 1999 due to the
issuance of 1.5 million shares of cumulative perpetual preferred stock on
January 8, 1999.

1998 Results of Operations Compared With 1997

  Revenues for 1998 were $219 million, $95 million (30%) lower than 1997.
Natural gas revenues, 36% lower than 1997, were impacted by a 6% decrease in
average prices, and a 31% decrease in production, primarily due to property
sales. The average natural gas sales price per thousand cubic feet (Mcf) was
$2.21 in 1998, compared with $2.36 in 1997. Natural gas production for 1998
was 58 billion cubic feet (Bcf), compared with 84 Bcf in 1997. Oil revenues
decreased $17 million (18%), reflecting a 31% decrease in the average sales
price per barrel to $13.24, which was partially offset by an 18% increase in
production primarily attributable to start up of the Mudi Field in Indonesia.
Crude oil production was 5,612 thousand barrels (MBbls), compared with 4,743
MBbls in 1997. Production from the Mudi Field was 2,364 MBbls.

  Costs and expenses, excluding the unusual items described above, were $239
million in 1998, compared to $320 million in 1997, a 25% decrease. Operating
expenses (production and operating, general and administrative and taxes other
than income) were $82 million in 1998, 14% lower than 1997, resulting from
property sales and the favorable impact from restructuring measures
implemented over the last year. Production and operating costs for 1998
includes $11 million for oil production from the Mudi Field. Exploration
expenses for 1998 decreased 36% from 1997 due to curtailment of the onshore
exploration program and the impact of the offshore exploration joint ventures
with Enterprise and others. Exploration expense for 1998 includes $18 million
for dry holes in both domestic and international drilling activities.
Depreciation and amortization was $101 million in 1998, $43 million lower than
1997 due to lower production volumes resulting from asset sales and the
impairment to producing oil and gas properties recognized in 1997, which was
partially offset by amortization recorded from oil production from the Mudi
Field. Taxes, other than income, decreased 37% from 1997, primarily due to
property sales and lower commodity prices.

  Total interest and other financing costs, including minority interest, were
$26 million, a $10 million reduction from 1997, resulting from a lower overall
debt level in 1998 and redemption of the minority interest in the second
quarter of 1998.

Oil and Gas Marketing

  Results of operations are largely dependent upon the difference between the
prices received for oil and gas produced and the costs of finding and
producing such resources. On an energy-equivalent basis, gas reserves at
January 1, 2000 constituted approximately 78% of total reserves, and gas
production accounted for approximately 60% of total production for 1999.
Accordingly, variations in gas prices have a more significant impact on
operations than variations in oil prices.

  A portion of the risk associated with fluctuations in the price of oil and
natural gas is managed through the use of hedging techniques such as oil and
gas swaps and collars. EEX fixed the price on 1999 production volumes of
approximately 21 Bcf of natural gas (50% of production) at an average price of
$2.22 per Mcf, excluding Encogen hedges, and 660 MBbls of oil (15% of
production) at an average price of $14.23 per Bbl. In total, oil and gas price
hedging activities decreased 1999 revenues by $1.9 million and 1997 revenues
by $11 million, and increased 1998 revenues by $7.5 million.

                                      19
<PAGE>

Impairment of Assets

  EEX accounts for oil and gas properties using the successful efforts method
which requires EEX to comply with the requirements of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," ("SFAS 121"). See Note 7
to Consolidated Financial Statements in Item 8. In the fourth quarter of 1999,
the Company's independent petroleum consultant completed its annual review and
audit of the Company's proved oil and gas reserves and their commercial
feasibility. EEX recorded a $26 million pre-tax charge for impairment in 1999.
This impairment was primarily associated with the Company's Gulf of Mexico
Shelf properties and generally results from downward revisions to proved
reserves and an increase in the estimated abandonment cost for these assets.

  The Company reviewed the estimated value of the production payment due EEX
as a result of the sale of its East Texas properties together with the
estimated future gas delivery obligation to Encogen One Partners, Ltd.
("Encogen") and determined that a provision for possible future losses was not
appropriate. The production payment is recorded as oil and gas properties, net
of a provision for future gas deliveries arising from past gas "overtakes."
This review included estimates of the cost of EEX's future gas delivery
obligations to Encogen and estimated receipts from the production payment on
an undiscounted cash flow basis. The analysis also included assumptions about
future gas delivery schedules, gas prices and the likelihood that the obligor
will exercise annual options to repurchase portions of the production payment.
The obligor did not exercise its option in 1998 or 1999. As of December 31,
1999, the Company had a future volumetric delivery obligation of approximately
16 Bcf of natural gas to Encogen; the total production payment due EEX is
approximately 30 Bcf net of royalty.

  The Company again reviewed the estimated future value of the Cooper Floating
Production System, Pipelines and other related facilities. In 1997, the
Company impaired the assets by approximately $83 million. The Company
determined that, if placed in service as an early production and pipeline
system for future oil and gas developments in the Llano area, the estimated
future cash flows from the assets would exceed the carrying value of
approximately $144 million. Further, the Company continues to evaluate other
potential uses for these facilities. Based on these analyses and an indication
of market value, no additional impairment was considered appropriate in 1999.

  As of December 31, 1999, the Company had a deferred tax asset of
approximately $126 million. A valuation allowance of $102 million has been
applied to result in a net realizable value of $24 million. The plan to
realize the value of the net deferred tax asset is based on expected future
earnings and tax planning strategies that include, primarily, planned sales of
assets with fair market values in excess of book basis. The Company does not
expect to tax-effect any future operating losses until the value of the net
deferred tax asset has been realized.

  Although management believes that the estimates and assumptions underlying
the analyses described above are appropriate, no assurances can be given that
events in the future will be consistent with those estimates and assumptions.

Liquidity and Capital Resources

Cash Flows

  During 1999, EEX generated sufficient cash flows from operations, property
sales and financing activities to fund its capital requirements, including the
purchase of certain oil and gas properties and pipeline assets of Tesoro
Petroleum Corporation. Despite a reduction in revenues of $42 million, net
cash flows provided by operating activities were $95 million, an increase of
$71 million over 1998, largely due to changes in current operating assets and
liabilities. Net cash flows used in investing activities in 1999 were $342
million, a $469 million decrease from cash flows of $127 million provided by
investing activities in 1998. The reduction in investing activities is
primarily due to the purchase of the Tesoro oil and gas properties and
pipeline assets in 1999 of $212 million and proceeds from asset sales in 1998
of $298 million.

                                      20
<PAGE>

Capital Budget

  Planned 2000 capital expenditures are approximately $140 million, compared
with actual expenditures of $388 million in 1999 (including $215 million for
the acquisition of Tesoro oil and gas properties and pipelines) and $166
million in 1998. Planned 2000 capital expenditures exclude approximately $14
million of carried working interest expenses resulting from joint venture
arrangements and any significant costs which may be incurred for the
acquisition of producing properties. The Company expects to fund these capital
expenditures by operating cash flows, proceeds from property sales, investment
costs carried under joint venture arrangements and increased borrowings under
the revolving credit agreement. In addition, the Company may seek additional
funds from public and private equity and debt markets.

Liquidity

  EEX has a $350 million revolving credit line with a group of banks that
matures on June 27, 2002, of which none was outstanding at December 31, 1999.
The revolving credit agreement limits, at all times, total debt, as defined,
to the lesser of 60% of capitalization, as defined, or $1 billion, and
prohibits liens on property except under certain circumstances. As of December
31, 1999, the debt to capital ratio under the revolving credit agreement was
44%. The interest rate ranges from the London Inter-Bank Offered Rate (LIBOR)
plus 0.55% to 1.30% per annum, plus a facility fee of 0.20% to 0.45% per
annum, depending upon the debt to capital ratio. As of March 1, 2000, the
Company had $75 million outstanding under the revolving credit agreement. See
Note 10 to the Consolidated Financial Statements in Item 8.

  In December 1999, EEX E&P L.P., a limited partnership indirectly half-owned
by EEX ("E&P L.P."), entered into a $105 million prepaid forward sale
agreement, the gas sales obligation, for approximately 50 billion cubic feet
equivalent of production from E&P L.P. to be delivered from January 2000
through December 2004. In the event production is not delivered, the
obligation will be settled with a cash payment. The proceeds of the gas sales
obligation were used to fund a portion of the purchase price of the Tesoro oil
and gas properties and pipelines. See Notes 6 and 11 to the Consolidated
Financial Statements in Item 8. Because of the structure of the transaction,
the gas sales obligation is not included in the definition of debt for
purposes of determining the debt to capital ratio under the bank revolving
credit agreement.

  The Company's ability to fund its capital budget and its liquidity can be
affected by any of the following:

  . The value of EEX's investment in the Llano area, the Pipelines and a
    portion of its plan to realize the value of its deferred tax asset is
    dependent upon successful appraisal and development of its Llano
    discovery or other exploration success on its Llano area leases. A
    reduction in value of these assets due to adverse drilling results,
    limited development plans, or an adverse economic assessment would
    decrease the amount of funds available to the Company to borrow under its
    revolving credit agreement through a reduction in the capitalization used
    in computing the debt to capital ratio.

  . Sale of the FPS and/or Pipeline assets would result in a significant
    change in EEX's debt structure due to the termination of the capital
    lease obligation associated with those assets. The Company would also
    incur substantial early termination costs. A disposition of the capital
    lease would reduce the debt used in computing the debt to capital ratio
    and increase the amount of funds available to the Company to borrow under
    its revolving credit agreement. There can be no assurance that such debt
    structure changes can be accomplished on favorable terms.

  . The majority of the commitment associated with the Arctic I rig (See Note
    19 to the Consolidated Financial Statements in Item 8) has been assumed,
    for budget purposes, to be funded by EEX's joint venture partners in its
    Deepwater Exploration program. If the joint venture partners elect not to
    participate in these projects, and EEX cannot find other participants to
    share the costs of drilling, EEX would incur expenditures greater than
    forecast which could result in increased exploration expense.

  . Any decreases in capitalization through losses incurred from dry hole
    expense or other reasons, or increases in debt as defined in the
    revolving credit agreement will increase the debt to capital ratio and
    further limit available borrowings.

                                      21
<PAGE>

Capital Structure

  In January 1999, EEX recorded $150 million of equity from the issuance of
1.5 million of shares of Series B 8% Cumulative Perpetual Preferred Stock
("Preferred Stock") and Warrants to acquire 21 million shares of common stock
to Warburg Pincus Equity Partners, L.P. and its affiliates. Each share of
Preferred Stock has a stated value of $100 and a current dividend rate of 8%
per year, payable quarterly. The 8% dividend rate will be adjusted to a market
rate, not to exceed 18%, after seven years or the earlier occurrence of
certain events including a change of control as defined in the agreements.
Prior to any adjustment of the dividend rate, the Company may, at its option,
accrue dividends or pay them in cash, shares of Preferred Stock or shares of
common stock. After any adjustment of the dividend rate, dividends must be
paid in cash. Prior to any adjustment in the dividend rate, holders of the
Preferred Stock will be entitled to cast an aggregate of eight million votes
on matters voted on by the holders of common stock and to a separate class
vote on certain matters affecting the Preferred Stock. The purchasers agreed
to standstill provisions for ten years that restrict their purchases of
additional shares of common stock, prohibit sales by the purchasers of common
stock or Warrants to any person or group that would beneficially own more than
10% (5% in the case of a competitor of the Company) of the outstanding common
stock after the sale, prohibit the purchasers from proposing business
combinations involving the Company or soliciting proxies, and limit the
purchasers' aggregate voting rights to one vote less than 20% of the aggregate
number of votes entitled to be cast on any matter by holders of common stock
or any other class of capital stock. In the event of a change of control
occurring prior to the sixth anniversary of the closing of issuance of the
Preferred Stock, the purchasers of the Preferred Stock will have the right to
exchange all or part of their Preferred Stock and Warrants proportionately for
shares of common stock at the rate of 18.6047 shares of common stock for each
share of Preferred Stock (and proportionate number of Warrants), subject to
adjustment under certain circumstances and to the Company's right under
certain circumstances to pay a portion of the exchange in cash. For additional
information, see Note 5 to Consolidated Financial Statements in Item 8.

  In the second quarter of 1998, EEX redeemed, at par value, all the
outstanding preferred securities of a subsidiary. The dividend rate on these
preferred securities was based on LIBOR plus a spread of 4% for the quarter
ended March 31, 1998, 5% for the quarter ended June 30, 1998 and was to
increase by 1% quarterly through December 31, 1998.

  At a special meeting held on December 8, 1998, the Company's shareholders
approved a one-for-three reverse split of the Company's issued and outstanding
common stock and a reduction of the Company's authorized common stock from 400
million shares to 150 million shares.

  EEX does not anticipate paying cash dividends on its common stock in the
foreseeable future.

Other Matters

New Accounting Standard

  In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," which is effective for fiscal years
beginning after June 15, 2000, with earlier adoption encouraged. FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. EEX
has not yet determined what the effect, if any, of SFAS No. 133 will be on
results of operations and financial position. EEX will adopt this accounting
standard as required by January 1, 2001.

Year 2000 Issue

  The Year 2000 Readiness Program (the "Readiness Program") initiated by EEX
in 1998 was completed during the fourth quarter of 1999 at a cost of
approximately $1.3 million. The Readiness Program evaluated

                                      22
<PAGE>

potential impacts of the Year 2000 issue on Company Information Technology
("IT") systems, non-IT systems, and on third parties with whom the Company has
a significant business relationship. As a result of the Readiness Program,
certain mission critical systems were upgraded or replaced to prevent or
minimize the potential for failures.

  EEX suffered no malfunctions or disruptions at the century rollover and the
Company believes that the risk of significant adverse affects resulting from
the rollover to future Year 2000 related dates is minimal.

                                      23
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

  Hedging activity in 1999 resulted in a gain of $1.1 million for natural gas
and a loss of $1.3 million for crude oil that totals to a combined loss of
$0.2 million. The total net hedging gain for natural gas includes a gain of
$1.7 million related to hedging activities associated with the contractual
requirement to purchase gas for delivery to a co-generation plant in Texas.
This gain is recorded as oil and gas properties. The tables below provide
information about EEX's hedging instruments as of December 31, 1999. Since
essentially all of the hedging done by EEX utilized either "swap" or "collar"
instruments, the tables have been separated to show the volumes hedged
utilizing each instrument. The Notional Amount is equal to the net volumetric
hedge position of EEX during the periods. The fair values of the hedging
instruments are based on the difference between the applicable strike price
and the New York Mercantile Exchange future prices for the applicable trading
months. EEX follows hedge accounting for these positions and accordingly, the
fair values presented below, which represent unrealized gains (losses), have
not been recognized in the financial statements.

<TABLE>
<CAPTION>
                                                                  Fair Value at
                                         Notional  Average Strike  December 31,
                                          Amount       Price           1999
                                         (BBtu)(1) (Per MMBtu)(2) (In thousands)
                                         --------- -------------- --------------
<S>                                      <C>       <C>            <C>
Natural Gas Swaps:
  January 2000-March 2000...............   1,128       $2.85          $  586
  April 2000-June 2000..................   1,040        2.53             190
  July 2000-September 2000..............   1,041        2.55             157
  October 2000-December 2000............     994        2.70             115
  January 2001-March 2001...............     383        2.75              52
  April 2001-June 2001..................     398        2.48              38
  July 2001-September 2001..............     414        2.49              35
  October 2001-December 2001............     391        2.69              43
  January 2002-March 2002...............     439        2.74              47
  April 2002-June 2002..................     445        2.51              42
  July 2002-September 2002..............     455        2.51              38
  October 2002-December 2002............     426        2.69              40
  January 2003-March 2003...............     290        2.76              28
  April 2003-June 2003..................     315        2.54              26
  July 2003-September 2003..............     311        2.54              22
  October 2003-December 2003............     303        2.72              24
  January 2004-March 2004...............     315        2.80              27
  April 2004-June 2004..................     310        2.58              22
  July 2004-September 2004..............     335        2.57              20
  October 2004-December 2004............     319        2.76              22
                                          ------                      ------
    Total...............................  10,052                      $1,574
                                          ======                      ======
</TABLE>
--------
(1) Billions of British Thermal Units.
(2) Millions of British Thermal Units.

                                      24
<PAGE>

<TABLE>
<CAPTION>
                                                   Average Strike
                                                       Price      Fair Value at
                                         Notional  (Per MMBtu)(2)  December 31,
                                          Amount   --------------      1999
                                         (BBtu)(1) Floor  Ceiling (In thousands)
                                         --------- ------ ------- --------------
<S>                                      <C>       <C>    <C>     <C>
Natural Gas Collars:
  January 2000-March 2000...............   3,640   $2.781 $3.137      $1,634
  April 2000-June 2000..................   4,550    2.364  2.682         109
  July 2000-September 2000..............   3,680    2.318  2.648          --
  October 2000-December 2000............   3,680    2.506  2.835          --
  January 2001-March 2001...............     900    2.584  2.889          --
  April 2001-June 2001..................     910    2.320  2.625          --
  July 2001-September 2001..............     920    2.315  2.620          --
  October 2001-December 2001............     920    2.495  2.800          --
                                          ------                      ------
    Total...............................  19,200                      $1,743
                                          ======                      ======
</TABLE>
Note: Includes the cost of "puts" which was included in the averages
calculated for this table.
--------
(1) Billions of British Thermal Units.
(2) Millions of British Thermal Units.

  In connection with the Tesoro acquisition, EEX assigned approximately 50 Bcf
of gas hedge positions outstanding at the end of the third quarter of 1999 to
the purchaser of the gas sales obligation. See Note 6 to the Consolidated
Financial Statements in Item 8.

  EEX has a contractual requirement to purchase gas for delivery to a co-
generation plant in Texas. These volumes are not included in the above natural
gas hedging table. The Notional Amount is equal to the net volumetric position
of EEX during the period. The fair values of the hedging instruments are based
on the difference between the strike price and the New York Mercantile
Exchange future prices for the applicable trading month. EEX follows hedge
accounting for these positions and accordingly, the fair values presented
below, which represent unrealized gains (losses), have not been recognized in
the financial statements. When recognized, the gains (losses) are recorded as
oil and gas properties.

<TABLE>
<CAPTION>
                                                                  Fair Value at
                                         Notional  Average Strike  December 31,
                                          Amount       Price           1999
                                         (BBtu)(1) (Per MMBtu)(2) (In thousands)
                                         --------- -------------- --------------
<S>                                      <C>       <C>            <C>
Natural Gas:
  January 2000-March 2000...............   1,365       $2.31           $ 27
  April 2000-June 2000..................   1,365        2.14            278
  July 2000-September 2000..............   1,380        2.16            331
  October 2000-December 2000............   1,380        2.32            336
                                           -----                       ----
    Total...............................   5,490                       $972
                                           =====                       ====
</TABLE>
--------
(1) Billions of British Thermal Units.
(2) Millions of British Thermal Units.

                                      25
<PAGE>

  Interest Rate Risk--The Company has no open interest rate swap or interest
rate lock agreements. At December 31, 1999, the Company's only outstanding
debt consisted of capital leases with fixed interest rates. The following
table presents principal amounts and related average interest rates by year of
maturity for the Company's capital leases at December 31, 1999:

<TABLE>
<CAPTION>
                                                                      Average
                                                      Principal    Interest Rate
                                                    -------------- -------------
                                                    (In thousands)
      <S>                                           <C>            <C>
      2000.........................................    $ 16,810        6.46%
      2001.........................................      13,351        6.46%
      2002.........................................      15,419        6.46%
      2003.........................................      15,573        6.46%
      2004.........................................      16,601        6.46%
      Thereafter...................................     144,690        6.46%
                                                       --------
      Total........................................    $222,444
                                                       ========
      Fair Value...................................    $222,444
                                                       ========
</TABLE>

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

                                      26
<PAGE>

Item. 8. Financial Statements and Supplementary Data

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
EEX Corporation

  We have audited the accompanying consolidated balance sheet of EEX
Corporation and subsidiaries (the "Company"), as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EEX
Corporation and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

                                          ERNST & YOUNG LLP

Houston, Texas
February 11, 2000

                                      27
<PAGE>

                                EEX CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                            Year Ended December 31
                                  --------------------------------------------
                                      1999           1998            1997
                                  -------------  -------------  --------------
                                   (In thousands, except per share amounts)
<S>                               <C>            <C>            <C>
Revenues:
  Natural gas.................... $      93,512  $     128,061  $      199,754
  Oil, condensate and natural gas
   liquids.......................        75,189         76,328         100,190
  Cogeneration operations........         8,878         13,794          13,297
  Other..........................          (205)           869             972
                                  -------------  -------------  --------------
    Total........................       177,374        219,052         314,213
                                  -------------  -------------  --------------
Costs and Expenses:
  Production and operating.......        39,338         46,861          48,960
  Exploration....................        86,369         45,144          70,599
  Depletion, depreciation and
   amortization..................        68,978        101,051         144,485
  Impairment of producing oil and
   gas properties................        26,424         10,439         260,112
  (Gain) on sales of property,
   plant and equipment...........       (15,483)        (9,085)        (52,917)
  Cogeneration operations........         8,043         10,564          10,381
  General, administrative and
   other.........................        28,355         24,058          55,590
  Taxes, other than income.......         4,744         11,017          17,356
                                  -------------  -------------  --------------
    Total........................       246,768        240,049         554,566
                                  -------------  -------------  --------------
Operating (Loss).................       (69,394)       (20,997)       (240,353)
Other Income--Net................            95             81             301
Interest Income..................         6,129            512             574
Interest and Other Financing
 Costs...........................       (17,686)       (18,987)        (30,645)
                                  -------------  -------------  --------------
(Loss) Before Income Taxes.......       (80,856)       (39,391)       (270,123)
Income Taxes (Benefit)...........         6,891         (4,997)        (58,945)
Minority Interest Third Party....            50          6,532           4,925
                                  -------------  -------------  --------------
Net (Loss).......................       (87,797)       (40,926)       (216,103)
Preferred Stock Dividends........        12,117             --              --
                                  -------------  -------------  --------------
Net (Loss) Applicable to Common
 Shareholders.................... $     (99,914) $     (40,926) $     (216,103)
                                  =============  =============  ==============
Basic and Diluted Net (Loss) Per
 Share........................... $       (2.37) $       (0.97) $        (5.12)
                                  =============  =============  ==============
Weighted Average Shares
 Outstanding.....................        42,200         42,208          42,214
                                  =============  =============  ==============
</TABLE>


                See Notes to Consolidated Financial Statements.

                                       28
<PAGE>

                                EEX CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                -------------------------------
                                                  1999       1998       1997
                                                ---------  ---------  ---------
                                                       (In thousands)
<S>                                             <C>        <C>        <C>
OPERATING ACTIVITIES
  Net (Loss)................................... $ (87,797) $ (40,926) $(216,103)
  Impairment of producing oil and gas
   properties..................................    26,424     10,439    260,112
  Impairment of undeveloped leasehold..........     2,907      1,936     40,866
  Dry hole cost................................    50,770     18,326      8,224
  Depletion, depreciation and amortization.....    68,978    101,051    144,485
  Deferred income taxes (benefit)..............     6,988     (9,397)   (55,461)
  (Gain) on sales of property, plant and
   equipment...................................   (15,483)    (9,085)   (52,917)
  Other........................................    16,513        547     10,332
  Changes in current operating assets and
   liabilities:
    Accounts receivable........................    21,031     15,395     24,550
    Other current assets.......................       785     (2,695)     6,721
    Restricted cash............................    (5,000)        --         --
    Accounts payable...........................    11,235    (57,187)    18,392
    Other current liabilities..................    (2,610)    (4,841)    (1,812)
                                                ---------  ---------  ---------
      Net cash flows provided by operating
       activities..............................    94,741     23,563    187,389
                                                ---------  ---------  ---------
INVESTING ACTIVITIES
  Additions of property, plant and equipment...  (169,061)  (165,820)  (180,147)
  Tesoro acquisition, net......................  (212,086)        --         --
  Proceeds from dispositions of property, plant
   and equipment...............................    19,081    298,373    133,426
  Other (changes in accruals)..................    19,614     (5,901)    (7,859)
                                                ---------  ---------  ---------
      Net cash flows provided by (used in)
       investing activities....................  (342,452)   126,652    (54,580)
                                                ---------  ---------  ---------
FINANCING ACTIVITIES
  Issuance of preferred stock and common stock
   warrants....................................   150,000         --         --
  Borrowings under bank revolving credit
   agreement...................................   235,000    175,000    170,000
  Repayment of borrowings under bank revolving
   credit agreement............................  (235,000)  (200,000)  (260,000)
  Borrowings under short-term financing
   agreement...................................     2,000    171,264    172,900
  Repayment of borrowings under short-term
   financing agreement.........................    (2,000)  (176,264)  (167,900)
  Gas sales obligation.........................   105,000         --         --
  Minority interest third party................     3,050         --         --
  Redemption of company-obligated mandatorily
   redeemable preferred securities of
   subsidiary..................................        --         --   (150,000)
  Issuance of minority interests in preferred
   securities of subsidiary....................        --         --    150,000
  Redemption of minority interests in preferred
   securities of subsidiary....................        --   (100,000)   (50,000)
  Changes in temporary advances with affiliated
   companies...................................        --         --     13,328
  Payments of capital lease obligations........   (10,874)    (8,417)    (3,250)
  Change in advances under leasing
   arrangements--net...........................        --         --     (5,457)
  Issuance of common stock.....................        --         --          2
                                                ---------  ---------  ---------
      Net cash flows provided by (used in)
       financing activities....................   247,176   (138,417)  (130,377)
                                                ---------  ---------  ---------
Net Increase (Decrease) in Cash and Cash
 Equivalents...................................      (535)    11,798      2,432
Cash and Cash Equivalents at Beginning of
 Year..........................................    15,588      3,790      1,358
                                                ---------  ---------  ---------
Cash and Cash Equivalents at End of Year....... $  15,053  $  15,588  $   3,790
                                                =========  =========  =========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       29
<PAGE>

                                EEX CORPORATION

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                              December 31
                                                         ---------------------
                                                            1999       1998
                                                         ---------- ----------
                                                            (In thousands)
                         ASSETS
                         ------
<S>                                                      <C>        <C>
Current Assets:
  Cash and cash equivalents............................. $   15,053 $   15,588
  Restricted cash.......................................      5,000         --
  Accounts receivable--trade (net of allowance of $1,791
   and $2,504)..........................................     28,248     42,530
  Other.................................................     12,737     14,240
                                                         ---------- ----------
    Total current assets................................     61,038     72,358
                                                         ---------- ----------
Property, Plant and Equipment (at cost):
  Oil and gas properties (successful efforts method)....  1,259,364  1,106,274
  Other.................................................      8,047     19,998
                                                         ---------- ----------
    Total...............................................  1,267,411  1,126,272
                                                         ---------- ----------
  Less accumulated depletion, depreciation and
   amortization.........................................    576,914    674,887
                                                         ---------- ----------
    Net property, plant and equipment...................    690,497    451,385
                                                         ---------- ----------
Deferred Income Tax Assets..............................     22,809     28,826
Other Assets............................................      6,440     12,501
                                                         ---------- ----------
    Total............................................... $  780,784 $  565,070
                                                         ========== ==========

<CAPTION>
          LIABILITIES AND SHAREHOLDERS' EQUITY
          ------------------------------------
<S>                                                      <C>        <C>
Current Liabilities:
  Accounts payable--trade............................... $   72,518 $   45,528
  Short-term borrowings.................................         --         --
  Current portion of capital lease obligations..........     16,810     10,874
  Other.................................................      2,580      5,190
                                                         ---------- ----------
    Total current liabilities...........................     91,908     61,592
                                                         ---------- ----------
Bank Revolving Credit Agreement.........................         --         --
                                                         ---------- ----------
Capital Lease Obligations...............................    205,634    222,444
                                                         ---------- ----------
Gas Sales Obligation....................................    105,000         --
                                                         ---------- ----------
Other Liabilities.......................................     80,329     46,734
                                                         ---------- ----------
Minority Interest Third Party...........................      3,050         --
                                                         ---------- ----------
Shareholders' Equity (Consolidated Statement of
 Shareholders' Equity)..................................    294,863    234,300
                                                         ---------- ----------
    Total............................................... $  780,784 $  565,070
                                                         ========== ==========
</TABLE>


                See Notes to Consolidated Financial Statements.

                                       30
<PAGE>

                                EEX CORPORATION

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                -------------------------------
                                                  1999       1998       1997
                                                ---------  ---------  ---------
                                                       (In thousands)
<S>                                             <C>        <C>        <C>
Common Stock, authorized 150 million shares:
  Balance at beginning of year................  $     424  $   1,271  $ 126,736
  Issued for stock plans (103 and 323
   shares)....................................         --          1        185
  Change in par value to $0.01 from $1.00.....         --         --   (125,650)
  One-for-three reverse split at par value
   (84,775 share reduction)...................         --       (848)        --
                                                ---------  ---------  ---------
  Balance at end of year (Outstanding shares:
   42,483, 42,387, and 127,059)...............        424        424      1,271
                                                ---------  ---------  ---------
Preferred Stock, authorized 10 million shares:
  Balance at beginning of year................         --         --         --
  Issued 1.5 million shares, $0.01 par value..         15         --         --
  Dividend payment............................          1         --         --
                                                ---------  ---------  ---------
  Balance at end of year (1.6 million
   shares)....................................         16         --         --
                                                ---------  ---------  ---------
Paid in Capital:
  Balance at beginning of year................    569,268    570,493    442,246
  Excess of proceeds over par value of common
   stock issued for stock plans...............         --        871      3,075
  Market valuation adjustments of restricted
   stock......................................        302     (2,944)      (478)
  Change in par value of common stock.........         --         --    125,650
  One-for-three reverse common stock split....         --        848         --
  Issuance of preferred stock.................    149,985         --         --
  Dividends on preferred stock................     12,117         --         --
  Stock issue costs...........................     (1,747)        --         --
                                                ---------  ---------  ---------
  Balance at end of year......................    729,925    569,268    570,493
                                                ---------  ---------  ---------
Retained Earnings (Deficit):
  Balance at beginning of year................   (334,698)  (293,772)   (77,669)
  Termination of phantom stock plan...........       (129)        --         --
  Issue common stock from treasury stock......         (7)        --         --
  Net (Loss) applicable to common
   shareholders...............................    (99,914)   (40,926)  (216,103)
                                                ---------  ---------  ---------
  Balance at end of year......................   (434,748)  (334,698)  (293,772)
                                                ---------  ---------  ---------
Unamortized Restricted Stock Compensation:
  Balance at beginning of year................       (206)    (2,877)      (677)
  Grants (98, 50, and 387 shares).............       (597)    (1,195)    (3,874)
  Cancellations (18, 10, and 90 shares).......         21          4        715
  Amortization................................        143      1,032        515
  Market value adjustments....................        196      2,830        444
                                                ---------  ---------  ---------
  Balance at end of year......................       (443)      (206)    (2,877)
                                                ---------  ---------  ---------
Treasury Stock:
  Balance at beginning of year................       (488)      (452)      (230)
  Issuance of shares for restricted stock
   awards (47 and 67 shares)..................         --        452        625
  Cancellations of restricted stock grants (10
   and 90 shares).............................         --        (90)      (847)
  Termination of phantom stock plan; issued
   common stock
   (8 shares).................................        170         --         --
  Issue common stock from treasury stock......          7         --         --
  Repurchase of outstanding shares (55
   shares)....................................         --       (398)        --
                                                ---------  ---------  ---------
  Balance at end of year (14, 22, and 47
   shares)....................................       (311)      (488)      (452)
                                                ---------  ---------  ---------
Shareholders' Equity..........................  $ 294,863  $ 234,300  $ 274,663
                                                =========  =========  =========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       31
<PAGE>

                                EEX CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

  On December 19, 1997, a special meeting of shareholders was held at which
time the name of the Company was changed to EEX Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The consolidated financial statements include the accounts of EEX and its
subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation. The preparation of financial statements requires the use of
estimates and assumptions by management, many of which may significantly
affect financial results. Future outcomes could differ from those estimates
and assumptions and materially affect reported financial results. Certain
items in prior periods have been reclassified to be consistent with the
current presentation.

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

  Oil and Gas Properties--The successful efforts method of accounting is used
for oil and gas operations. Under the successful efforts method of accounting,
lease acquisition costs are capitalized when incurred. Significant unproved
properties are reviewed periodically on a property-by-property basis to
determine if there has been an impairment in value, with such impairment
charged to expense. All other unproved properties are aggregated and a portion
of the costs estimated to be non-productive, based on historical experience,
is amortized over the average life of the leases. Geological and geophysical
costs and the costs of carrying and retaining undeveloped properties are
expensed as incurred. Exploratory drilling costs are initially capitalized
when incurred, but charged to expense if the well is deemed commercially
unsuccessful.

  Leasehold costs of producing properties are depleted using the unit of
production method based on estimated proved oil and gas reserves quantified on
the basis of their equivalent energy content. Amortization of drilling and
equipment costs is based on the unit of production method using estimated
proved developed oil and gas reserves quantified on the basis of their
equivalent energy content. Depreciation of other property, plant and equipment
is provided principally by the straight line method over the estimated service
lives of the related assets. The current undiscounted cost of estimated future
site restoration, dismantlement and abandonment, net of salvage, is included
in the cost of productive oil and gas properties and a corresponding liability
recorded. The recorded cost is amortized on the unit of production method.
Actual costs incurred for these activities are charged to the recorded
liability.


                                      32
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Derivative Instruments--The Company enters into swaps, options, collars and
other derivative contracts to hedge the price risks associated with a portion
of anticipated future oil and gas production. Realized gains and losses on
settled derivative contracts are deferred and recognized as adjustments to oil
and gas revenues in the applicable period(s) hedged. In applying hedge
accounting, the Company periodically monitors the correlation of changes in
the value of its derivative contracts with that of the prices the Company
realizes for its production. In the event of a lack of significant
correlation, as might occur in the event of a major market disturbance,
certain of the Company's derivative contracts no longer may qualify for hedge
accounting, and would be marked to market accordingly. If the instruments are
terminated prior to maturity, resulting gains and losses continue to be
deferred until the hedged item is recognized in revenue. The Company may also
enter into interest rate swaps to manage risk associated with interest rates
and reduce the Company's exposure to interest rate fluctuations. Interest rate
swaps are valued on a periodic basis, with resulting differences recognized as
an adjustment to interest and other financing costs over the term of the
agreement. The Company does not enter into derivative contracts for trading
purposes.

  Stock Based Employee Compensation--Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," (SFAS 123)
encourages, but does not require companies to record compensation cost for
stock based employee compensation plans at fair value. In accordance with the
SFAS 123, EEX has elected to continue to account for stock based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of EEX's stock at the date
of the grant over the amount an employee must pay to acquire the stock.
Compensation cost for restricted stock awards is based on the quoted market
price of EEX's stock on the date the award becomes vested (See Note 14).

  Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
investments with maturities of three months or less when purchased. In
addition, EEX classified as restricted cash, the collateral deposit required
by contractual commitment under a forward purchase facility (See Note 4).

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

3. MAJOR CUSTOMERS

  The Company sold oil and gas production representing more than 10% of its
oil and gas revenues for the year ended December 31, 1999, to Shell Oil
Company (30%); for the year ended December 31, 1998, to Shell Oil Company
(13%); and for the year ended December 31, 1997, to Enserch Energy Services,
Inc. (12%). Because alternative purchasers of oil and gas are readily
available, the Company believes that the loss of any of its purchasers would
not have a material adverse effect on the financial results of the Company.

4. COMMON STOCK TRANSACTIONS

  At a special meeting held on December 8, 1998, the Company's shareholders
approved a one-for-three reverse split of the issued and outstanding common
stock and a decrease in the number of authorized shares of common stock from
400,000,000 shares to 150,000,000 shares. In the Consolidated Statement of
Shareholders' Equity, all activity prior to 1998 has not been restated. All
references to the number of common shares and per share amounts elsewhere in
the consolidated financial statements and related footnotes have been restated
as appropriate to reflect the effect of the split for all periods presented.

  Early in 1998, EEX entered into two forward purchase facilities to
repurchase shares of its common stock. EEX initiated several transactions
under these facilities, which allow for settlement, at EEX's option, by
physical

                                      33
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

delivery of the shares to EEX in exchange for cash or on a net basis in either
shares of EEX common stock or in cash. For a net basis settlement, to the
extent that the market price of EEX's common stock on a settlement date is
higher (lower) than the forward purchase price, the net differential is
received (paid) by EEX. As of December 31, 1999, transactions under these
facilities covered approximately $9.0 million or 796,533 shares of EEX's
common stock, with an average forward purchase price of $11.25 per share. If
the agreements were settled on a net basis on the December 31, 1999 market
price of EEX's common stock ($2.9375 per share), EEX would be obligated to pay
approximately $6.6 million in cash, or deliver approximately 2,254,974 shares.
Under the terms of one of the facilities, EEX deposited in a cash collateral
account the amount of $5 million as of December 31, 1999, and may be required
to settle the transactions under one of the above-described options prior to
the expiration dates of August and September 2000.

5. PREFERRED STOCK TRANSACTION

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

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

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

                                      34
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

C Warrants to be exercised for cash or by utilizing shares of Preferred Stock
at the stated value on a gross or net basis.

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

  EEX paid in-kind dividends during 1999 on the Preferred Stock as follows:

<TABLE>
<CAPTION>
                                                             Amount of Number of
                                                             Dividends Preferred
                                                                (In     Shares
   Date                                                      millions)  Issued
   ----                                                      --------- ---------
   <S>                                                       <C>       <C>
   December 31, 1999........................................   $3.2     31,788
   September 30, 1999.......................................   $3.1     31,164
   June 30, 1999............................................   $3.0     30,554
   March 31, 1999...........................................   $2.8     27,667
</TABLE>

6. TESORO ACQUISITION

  On December 17, 1999, the Company closed a stock purchase of certain oil and
gas properties and pipeline assets of Tesoro. A Stock Purchase Agreement dated
as of October 8, 1999, between EEX Operating LLC ("EEX Operating") and Tesoro
and Tesoro Gas Resources Company, Inc. was amended on December 16, 1999, and
three corollary purchase agreements were entered into on December 17, 1999.
Collectively, the purchase agreements provided for the purchase of (i) all of
the member interests in four limited liability companies which, together, own
all of the partnership interests of Tesoro E&P Company, L.P. (whose name was
changed after closing to EEX E&P Company, L.P., "E&P L.P."), owner of the oil
and gas assets ("Oil and Gas Interests"), and (ii) all of the issued and
outstanding stock of Tesoro Natural Gas Company (whose name was changed after
closing to EEX Natural Gas Company) and Tesoro Gathering Company (whose name
was changed after closing to EEX Gathering Company), which, together, own all
of the partnership interests in Tesoro Pipeline Company, L.P. (whose name was
changed after closing to EEX Pipeline Company, L.P.), which owns partnership
interests in pipeline and gathering systems ("Pipeline Interests"). The
adjusted purchase price for the Oil and Gas Interests was $209.1 million and
for the Pipeline Interests, $5.7 million.

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

  E&P L.P. owns U.S. domestic properties located principally in South Texas
and the Gulf Coast. The properties are primarily natural gas fields that
currently produce approximately 76 million cubic feet of gas equivalent per
day with an estimated net total proved reserves of 185 billion cubic feet
equivalent.

  The Company has also entered into a call option to purchase the third
party's equity interest in ERF for the lessor of $5 million or the fair market
value of the third party's interest, provided that the fair market value shall

                                      35
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

not exceed the equity percentage represented by the third party's interest in
the oil and gas reserves of E&P L.P. This call option is payable in either
cash or common stock of EEX Corporation, or a combination of cash and EEX
Corporation common stock, at the Company's option. This call option is at any
time after the termination of the forward sale between the third party and E&P
L.P., but terminates five years after the date after the termination of the
forward sale contract.

  E&P L.P. entered into a $105 million forward sale agreement with a third
party for approximately 50 billion cubic feet equivalent of production from
E&P L.P. through December 2004 that was prepaid upon the close of the purchase
transaction (See Note 11).

  The Company also loaned $101 million to ERF. The loan is in the form of a
subordinated convertible note that at the Company's option is convertible into
ERF units. The convertible note will accrete in value at a rate of 11.5 % per
annum, compounded quarterly, commencing on March 31, 2000. Beginning January
1, 2005, interest will accrue at a rate of 14.5% per annum and will be payable
in cash quarterly commencing on March 1, 2005 until the principal amount is
paid or made available for payment.

  The transaction described above has been accounted for using the purchase
method of accounting and has been included in the EEX Consolidated Financial
Statements for the period December 17, 1999 through December 31, 1999.

  The following table sets forth certain financial information for the
Company, on an unaudited pro forma basis, assuming the acquisition occurred
January 1, 1999 and January 1, 1998. The pro forma data is based on numerous
assumptions and is not necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
                                                              (Unaudited)
                                                             Pro Forma For
                                                            the Year Ended
                                                       -------------------------
                                                       December 31, December 31,
                                                           1999         1998
                                                       ------------ ------------
                                                             (In millions,
                                                        except per share data)
<S>                                                    <C>          <C>
Revenues..............................................    $  237       $  291
Operating Income (Loss)...............................       (62)           1
Net (Loss) Applicable to Common Shareholders..........      (102)         (39)
Basic and Diluted Net (Loss) per Share................    $(2.42)      $(0.92)
</TABLE>

7. IMPAIRMENT OF PRODUCING OIL AND GAS PROPERTIES

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

  The process by which the Company assesses its assets under SFAS 121 starts
with a comparison of the carrying value of an asset to its estimated future
undiscounted net cash flow ("Future Value"). These net cash flows are prepared
by the Company or its independent petroleum consultant, Netherland, Sewell &
Associates, Inc. This analysis uses a multi-year market based commodity price
forecast in effect at year-end 1999. The base prices used in this analysis for
2000 annual cash flows were $22.75 per barrel of oil and $2.17 per million
British Thermal Units of gas. This analysis is generally prepared at a field
level or field-group level. The fields or groups reflect the lowest level for
which cash flows are reasonably and separately identifiable and for which the
assets possess common operational infrastructure and geographic proximity.

                                      36
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

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

8. UNUSUAL CHARGES

  In December 1999, EEX entered into an agreement for early termination of the
R&B Falcon C. Kirk Rhein, Jr. rig at a net cost to EEX of $4 million. This is
reflected in the Consolidated Statement of Operations as exploration expense
as of December 31, 1999.

  In early 1997, EEX management initiated a plan to sell or trade non-core
assets, reduce operating costs and focus exploration activities in the
offshore U.S. Gulf of Mexico and International areas. Unusual charges include
costs incurred in connection with restructuring operations, relocating the
Corporate headquarters and severance. In the third quarter of 1997, as an
integral part of this restructuring plan, EEX relocated its Corporate
headquarters to Houston, Texas, committed to the severance of approximately
375 Dallas-based employees and authorized the closure of its Dallas, Texas
administrative office.

  The Company incurred approximately $27 million of restructure costs in 1997,
which are classified as general, administrative and other expense in the
Consolidated Statement of Operations. Cash requirements for these charges
totaled $14 million in 1997, $11 million in 1998 and the remainder in 1999.

9. SUPPLEMENTAL CASH FLOW INFORMATION

  Cash paid for interest, net of amounts capitalized, was $12 million in 1999,
$19 million in 1998 and $25 million in 1997. Net cash income taxes were $2.4
million in 1998 and refunds of $0.1 million in 1999 and $5.6 million in 1997.

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

  In October 1998, EEX exchanged substantially all of its properties located
in West Texas for properties in the Gulf of Mexico Shelf plus $9 million in
cash consideration. The effective date for this exchange was January 1, 1998.
The Company accounted for the exchange of interests as a nonmonetary
transaction whereby the basis in the exchanged properties became the new basis
in the properties received as reduced by the cash consideration. No gain or
loss was recognized as a result of the exchange of interests in accordance
with Statement of Financial Accounting Standards No. 19, "Financial Accounting
and Reporting by Oil and Gas Producing Companies."

  In December 1998, EEX agreed to exchange its operated oil and gas producing
properties in Louisiana plus compensation of approximately $7 million for
interests in the East Cameron Block 349/350 field. This exchange was completed
on January 21, 1999. No gain or loss was recognized as a result of the
exchange of interests in accordance with Statement of Financial Accounting
Standards No. 19, "Financial Accounting and Reporting by Oil and Gas Producing
Companies."

                                      37
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


10. BORROWINGS AND CREDIT AGREEMENTS

  EEX has a $350 million revolving credit line with a group of banks that
matures on June 27, 2002, of which none was outstanding at December 31, 1999.
The revolving credit agreement limits, at all times, total debt, as defined,
to the lesser of 60% of capitalization, as defined, or $1 billion, and
prohibits liens on property except under certain circumstances. The interest
rate ranges from the London Inter-Bank Offered Rate (LIBOR) plus 0.55% to
1.30% per annum, plus a facility fee of 0.20% to 0.45% per annum, depending
upon the capitalization ratio. A portion of the funds available under the
revolving credit line may be borrowed on a short-term basis at current money
market rates.

  The following is a calculation of the debt to capital ratio as defined in
the revolving credit agreement (in thousands):

<TABLE>
<CAPTION>
                                                                Year Ended
                                                                December 31
                                                             ------------------
                                                               1999      1998
                                                             --------  --------
   <S>                                                       <C>       <C>
   Bank revolving credit agreement.......................... $     --  $     --
   Short-term borrowings ...................................       --        --
   Capital lease obligations................................  222,444   233,318
   Operating lease obligations..............................    5,388     6,857
                                                             --------  --------
     Total Consolidated Debt................................ $227,832  $240,175
   Consolidated Net Worth...................................  294,863   234,300
                                                             --------  --------
     Total Consolidated Debt and Net Worth.................. $522,695  $474,475
                                                             ========  ========
     Maximum permitted Debt to Capital Ratio................       60%       60%
     Debt to Capital Ratio..................................       44%       51%
</TABLE>

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

<TABLE>
<CAPTION>
                                                         1999    1998    1997
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   Interest costs incurred............................. $17,686 $18,987 $30,645
   Interest capitalized................................      --      --      --
                                                        ------- ------- -------
   Interest charged to expense......................... $17,686 $18,987 $30,645
                                                        ======= ======= =======
</TABLE>

11. GAS SALES OBLIGATION

  E&P L.P. entered into a $105 million forward sale agreement with a third
party for approximately 50 billion cubic feet equivalent of production from
E&P L.P. through December 2004 that was prepaid upon the close of the purchase
transaction. The third party receives an adjusted index price monthly for the
committed volume. In the event production is not delivered, the obligation
will be settled with a cash payment from E&P L.P. The third party also has a
lien on the E&P L.P. oil and gas properties as security in the event the
committed volumes are not delivered or cash payment is not made. The forward
sale agreement also enables E&P L.P. to act as the third party's marketing
agent to market the committed production. E&P L.P., at its discretion, may
terminate the prepayment obligation by paying the third party a predetermined
amount. The prepayment has been recorded as a gas sales obligation in the
Consolidated Balance Sheet. Payments under this obligation will be amortized
on the interest method through final pay out. This obligation is not debt for
purposes of determining the debt to capital ratio under the bank revolving
credit agreement described in Note 10 above.

12. LEASE COMMITMENTS

  In December 1996, the Cooper Project equipment and facilities were
refinanced through certain financial institutions. EEX simultaneously entered
into two leases of the facilities extending through December 30, 2010, with
the option to renew the leases, with the consent of the lessors, for up to
five years. For accounting purposes, these leases are classified as capital
leases. The Company has the option to purchase the facilities for fair market

                                      38
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

value on any renewal date, or for fixed amounts or fair market value at the
end of the initial lease term. The leases also contain two early buy-out
options in January 2003 and 2006, on which the Company may purchase the
facilities for $185 million and $133 million, respectively, and other fixed
purchase options. The first purchase option occurs July 2001, at the greater
of $205 million or fair market value. A termination of the lease at times
other than those fixed for early buy-out or purchase options requires the
payment of a termination payment computed under the lease, including potential
make-whole penalties. Interest on the leases was fixed at
6.43%. The equipment and facilities may not be removed from U.S. waters under
the lease provisions. At December 31, 1999, EEX was required to maintain a $65
million four-year letter of credit in support of the equity owners of the
leased facilities. The commitment fee incurred associated with the letter of
credit totaled $0.8 million, $0.2 million and $0.5 million in 1999, 1998 and
1997, respectively. As of January 31, 2000, the letter of credit increased to
$70 million.

  The equipment and facilities used in developing and producing reserves in
the Mississippi Canyon Block 441 are leased through certain financial
institutions for a term extending through October 2001. For accounting
purposes, this lease is classified as a capital lease. EEX has an option to
purchase the facilities for a fixed amount at the early buy-out date of July
22, 2000, or for fair market value at the end of the lease term. There are no
renewal options. Interest on the lease was fixed at 7.06%.

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

  EEX also leases buildings and office space under noncancellable operating
leases that expire at various dates through 2002.

  Estimated future minimum payments under noncancellable operating and capital
leases with initial or remaining terms of one year or more at December 31,
1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                             Operating Capital
                                                              Leases    Leases
                                                             --------- --------
<S>                                                          <C>       <C>
2000........................................................  $2,075   $ 30,948
2001........................................................   2,204     25,998
2002........................................................   2,004     26,000
2003........................................................     255     25,999
Thereafter..................................................      --    184,706
                                                              ------   --------
  Total.....................................................  $6,538    293,651
                                                              ======
  Less interest factor......................................             71,207
                                                                       --------
  Capital lease obligations.................................           $222,444
                                                                       ========
</TABLE>

  Assets recorded under capital leases, excluding any investment since lease
inception, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            --------  --------
<S>                                                         <C>       <C>
Property and equipment..................................... $249,699  $249,699
Accumulated depreciation................................... (112,802) (106,399)
                                                            --------  --------
  Total.................................................... $136,897  $143,300
                                                            ========  ========
</TABLE>

  Rental expenses incurred under all operating leases totaled $1.8 million,
$2.4 million, and $3.6 million in 1999, 1998 and 1997, respectively.

                                      39
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. MINORITY INTERESTS

  As described in Note 6, the third party's 50% equity interest in ERF is
reflected in the Consolidated Balance Sheet as Minority Interest.


  In late 1997, EEX concluded several transactions which resulted in
redemption of all of the outstanding mandatorily redeemable preferred
securities of a subsidiary at the stated value of $150 million, funded by
private sales of new issues of preferred stock by EEX Capital, Inc. ("EEXC"),
wholly-owned by EEX. EEXC has no operations independent of EEX. The dividend
rate for EEXC's new securities was based on LIBOR (reset quarterly) plus a
spread beginning at 3.0% for the period ending December 31, 1997, and
increasing by 1.0% quarterly. The new securities were redeemable, in whole or
in part, at the option of EEXC on the quarterly dividend payment dates and $50
million was redeemed in the fourth quarter of 1997 and the remaining $100
million in the second quarter of 1998.

14. STOCK PLANS

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

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

<TABLE>
<CAPTION>
                                                               Weighted Weighted
                                                               Average  Average
                                                    Number of  Exercise   Fair
                                                     Shares     Price    Value
                                                    ---------  -------- --------
<S>                                                 <C>        <C>      <C>
Options outstanding
  December 31, 1996................................   320,500   $28.68
  Granted..........................................   942,750   $31.71   $12.84
  Exercised........................................        --       --
  Canceled.........................................  (312,917)  $28.68
                                                    ---------   ------
Options outstanding
  December 31, 1997................................   950,333   $31.59
  Granted..........................................   130,000   $25.14   $10.02
  Exercised........................................        --       --
  Canceled.........................................   (59,667)  $28.50
                                                    ---------   ------
Options outstanding
  December 31, 1998................................ 1,020,666   $31.02
  Granted..........................................    85,910   $ 6.56   $ 4.51
  Canceled.........................................  (374,914)  $30.20
                                                    ---------   ------
Options outstanding
  December 31, 1999................................   731,662   $28.58
                                                    =========   ======
</TABLE>

                                      40
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following is a summary of 1996 SIP stock options outstanding at December
31, 1999:

<TABLE>
<CAPTION>
                                                    Range of Exercise Prices
                                                  ----------------------------
                                                  $6.56  $23.16-$43.50  Total
                                                  ------ ------------- -------
   <S>                                            <C>    <C>           <C>
   Options outstanding........................... 85,910    645,752    731,662
   Weighted average remaining contractual life,
    in years.....................................      9          7          8
   Weighted average exercise price............... $ 6.56    $ 31.50    $ 28.58
   Number exercisable............................ 85,910     49,084    134,994
   Weighted average exercise price............... $ 6.56    $ 32.65    $ 16.05
</TABLE>

  A summary of restricted stock award activity follows:

<TABLE>
<CAPTION>
                                                         Number of Shares
                                                      -------------------------
                                                       1999     1998     1997
                                                      -------  -------  -------
   <S>                                                <C>      <C>      <C>
   Outstanding--Beginning of year.................... 168,667  123,477   23,333
     Awarded......................................... 399,343   53,000  130,144
     Restrictions lifted.............................  (5,022)  (4,477)      --
     Canceled........................................ (11,569)  (3,333) (30,000)
                                                      -------  -------  -------
   Outstanding--End of year.......................... 551,419  168,667  123,477
                                                      =======  =======  =======
</TABLE>

  The weighted average grant date fair value per share of restricted stock
awarded during 1999, 1998 and 1997 was $3.60, $23.76 and $30.06, respectively.
Fair value is equal to the common stock fair market value on the grant date.

  In 1998, the Company adopted the 1998 Stock Incentive Plan ("1998 SIP") for
directors, officers and eligible full-time employees. The 1998 SIP provides
for awards of restricted stock, stock options and stock appreciation rights,
and 2.5 million shares of common stock are reserved for issuance. Option terms
and restrictions on restricted stock may be set by the Compensation Committee
of the Board of Directors (the "Committee"), but the exercise price may be no
less than the fair market value on the date of the grant. In September and
October 1998, the Committee made grants of options totaling 519,775 shares
under the "Performance Option Program." Performance grants will become
exercisable, in part or whole, only if EEX stock achieves designated
performance goals over a three-year period ending 2001, and have not been
included in the table below. Options granted under the 1998 SIP become
exercisable over three years and expire after ten years.

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

<TABLE>
<CAPTION>
                                                          Weighted     Weighted
                                            Number of     Average      Average
                                             Shares    Exercise Price Fair Value
                                            ---------  -------------- ----------
   <S>                                      <C>        <C>            <C>
   Options outstanding
     December 31, 1997.....................        --          --
     Granted...............................   329,850      $12.24       $4.83
     Canceled..............................    (4,117)     $11.16
                                            ---------      ------
   Options outstanding
     December 31, 1998.....................   325,733      $12.27
     Granted............................... 1,376,867      $ 5.97       $4.11
     Canceled..............................  (205,823)     $ 7.37
                                            ---------      ------
   Options outstanding
     December 31, 1999..................... 1,496,777      $ 7.15
                                            =========      ======
</TABLE>

                                      41
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following is a summary of 1998 SIP stock options outstanding at December
31, 1999:

<TABLE>
<CAPTION>
                                                 Range of Exercise Prices
                                             ---------------------------------
                                              $4.00-
                                               $6.00   $11.16-$15.47   Total
                                             --------- ------------- ---------
   <S>                                       <C>       <C>           <C>
   Options outstanding...................... 1,225,704    271,073    1,496,777
   Weighted average remaining contractual
    life, in years..........................         9          9            9
   Weighted average exercise price.......... $    5.97    $ 12.48    $    7.15
   Number exercisable.......................     1,433     91,630       93,063
   Weighted average exercise price.......... $    6.00    $ 12.46    $   12.36
</TABLE>

  A summary of restricted stock award activity follows:

<TABLE>
<CAPTION>
                                                                Number of Shares
                                                                ----------------
                                                                 1999  1998 1997
                                                                ------ ---- ----
   <S>                                                          <C>    <C>  <C>
   Outstanding--Beginning of year..............................     --  --   --
     Awarded................................................... 68,400  --   --
     Restrictions lifted.......................................     --  --   --
     Canceled..................................................     --  --   --
                                                                ------ ---  ---
   Outstanding--End of year.................................... 68,400  --   --
                                                                ====== ===  ===
</TABLE>

  The weighted average grant date fair value per share of restricted stock
awarded during 1999 was $2.81. Fair value is equal to the common stock fair
market value on the grant date.

  In 1997, the Company adopted the 1997 Non-Officer Stock Option Plan ("1997
SOP") for eligible employees and non-employees. Stock options granted to
purchase shares of EEX common stock have an exercise price of not less than
the fair market value of the common stock on the grant date. EEX has reserved
a total of 0.5 million shares for issuance under the 1997 SOP. Options become
exercisable over three years and expire after ten years.

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

<TABLE>
<CAPTION>
                                              Number      Weighted     Weighted
                                                of        Average      Average
                                              Shares   Exercise Price Fair Value
                                             --------  -------------- ----------
   <S>                                       <C>       <C>            <C>
   Options outstanding
     December 31, 1996......................       --          --
     Granted................................  126,667      $30.51       $11.61
     Exercised..............................       --          --
     Canceled...............................   (5,000)     $32.25
                                             --------      ------
   Options outstanding
     December 31, 1997......................  121,667      $30.48
     Granted................................   25,333      $11.37       $ 4.44
     Canceled...............................   (1,667)     $32.25
                                             --------      ------
   Options outstanding
     December 31, 1998......................  145,333      $27.15
     Granted................................  248,200      $ 2.86       $ 1.96
     Canceled............................... (129,199)     $26.99
                                             --------      ------
   Options outstanding
     December 31, 1999......................  264,334      $ 4.39
                                             ========      ======
</TABLE>

                                      42
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following is a summary of 1997 SOP stock options outstanding at December
31, 1999:

<TABLE>
<CAPTION>
                                                     Range of Exercise Prices
                                                    --------------------------
                                                    $2.72-$7.97 $32.25  Total
                                                    ----------- ------ -------
   <S>                                              <C>         <C>    <C>
   Options outstanding.............................   251,000   13,334 264,334
   Weighted average remaining contractual life, in
    years..........................................        10        7      10
   Weighted average exercise price.................   $  2.91   $32.25 $  4.39
   Number exercisable..............................     2,800   12,778  15,578
   Weighted average exercise price.................   $  7.97   $32.25 $ 27.89
</TABLE>

  In 1996, the Company adopted the 1996 Employee Stock Option Plan ("1996
SOP"). Stock options granted to purchase shares of EEX common stock have an
exercise price of not less than the fair market value of the common stock on
the grant date. EEX reserved a total of 0.5 million shares for issuance under
this plan. Options become exercisable over three to seven years and expire
after ten years. The ability to grant new options under the 1996 SOP expired
December 31, 1998.

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

<TABLE>
<CAPTION>
                                              Number      Weighted     Weighted
                                                of        Average      Average
                                              Shares   Exercise Price Fair Value
                                             --------  -------------- ----------
   <S>                                       <C>       <C>            <C>
   Options outstanding
     December 31, 1996......................  363,317      $33.00
     Granted................................  137,733      $26.91       $12.84
     Canceled............................... (176,457)     $32.88
                                             --------      ------
   Options outstanding
     December 31, 1997......................  324,593      $30.48
     Granted................................  207,033      $25.62       $10.20
     Canceled............................... (110,650)     $32.19
                                             --------      ------
   Options outstanding
     December 31, 1998......................  420,976      $27.63
     Granted................................       --          --           --
     Canceled............................... (368,938)     $27.42
                                             --------      ------
   Options outstanding
     December 31, 1999......................   52,038      $28.37
                                             ========      ======
</TABLE>

  The following is a summary of stock options outstanding under the 1996 SOP
at December 31, 1999:

<TABLE>
<CAPTION>
                                                 Range of Exercise Prices
                                             ---------------------------------
                                             $9.19-$19.41 $23.53-$33.00 Total
                                             ------------ ------------- ------
   <S>                                       <C>          <C>           <C>
   Options outstanding......................     2,816       49,222     52,038
   Weighted average remaining contractual
    life, in years..........................         9            7          8
   Weighted average exercise price..........    $13.63       $29.22     $28.37
   Number exercisable.......................        --       26,308     26,308
   Weighted average exercise price..........    $   --       $32.46     $32.46
</TABLE>

                                      43
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

  Total compensation cost recognized in income for 1999, 1998 and 1997 for
stock based employee compensation awards was immaterial. Had compensation cost
for the Company's plans been determined based on the fair value at the grant
dates consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                1999       1998      1997
                                              ---------  --------  ---------
   <S>                                        <C>        <C>       <C>
   Net (Loss) Applicable to Common
    Shareholders
     As reported............................. $ (99,914) $(40,926) $(216,103)
     Pro forma............................... $(104,555) $(44,252) $(218,663)
   Basic and Diluted Net (Loss) Per Share
     As reported............................. $   (2.37) $  (0.97) $   (5.12)
     Pro forma............................... $   (2.48) $  (1.05) $   (5.18)
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                               1999  1998  1997
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Risk free interest rate.................................... 6.10% 5.36% 6.26%
   Expected volatility........................................   49%   42%   37%
   Expected dividend yield.................................... None  None  None
</TABLE>

15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

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

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

                                      44
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Oil and gas hedging activities decreased 1999 revenues by $1.9 million and
1997 revenues by $11.0 million and increased 1998 revenues by $7.5 million.

  At December 31, 1999, EEX had outstanding natural gas swaps that were
entered into as hedges extending through December 31, 2004 to exchange
payments on 10 Bcf of natural gas. At December 31, 1999, the weighted average
strike price and market price per Mcf of natural gas was $2.71 and $2.58,
respectively. At December 31, 1999 there were $1.6 million of net unrealized
and unrecognized hedging gains based on the difference between the average
strike price and the New York Mercantile Exchange futures price for the
applicable trading month.

  At December 31, 1999, EEX had outstanding natural gas collars that were
entered into as hedges extending through December 31, 2001 to exchange
payments on 19 Bcf of natural gas. At December 31, 1999, the weighted average
floor and ceiling strike price and market price per Mcf of natural gas was
$2.54, $2.87 and $2.51, respectively. At December 31, 1999, there were $1.7
million of net unrealized and unrecognized hedging gains based on the
difference between the strike price and the New York Mercantile Exchange
futures price for the applicable trading month.

  At December 31, 1999, EEX had outstanding hedging transactions extending
through December 31, 2000 to exchange payments on 6 Bcf of natural gas with an
average strike price of $2.23. At December 31, 1999, there were $1 million of
net unrealized and unrecognized hedging gains based on the difference between
the strike price and the New York Mercantile Exchange futures price for the
applicable trading month.

  Fair Value of Financial Instruments--At December 31, 1999, the estimated
proceeds the Company would have received to terminate or otherwise settle all
open gas hedging activities was $4.3 million, which represented their
estimated fair value.

16. INCOME TAXES

  Prior to August 5, 1997, EEX's operations were included in ENSERCH's
consolidated federal income tax return. Pursuant to a tax sharing agreement,
EEX and ENSERCH made or received payments determined as though EEX and its
subsidiaries filed a separate consolidated federal income tax return. On
August 5, 1997, EEX became a separate taxable entity (See Note 1).

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

<TABLE>
<CAPTION>
                                                      1999    1998      1997
                                                     ------  -------  --------
   <S>                                               <C>     <C>      <C>
   Current:
     Federal........................................ $   --  $   741  $ (3,945)
     Foreign........................................   (317)   2,432        --
     State..........................................    220    1,227       461
                                                     ------  -------  --------
       Total........................................    (97)   4,400    (3,484)
   Deferred--Federal................................  6,988   (9,397)  (55,461)
                                                     ------  -------  --------
     Total provision (benefit)...................... $6,891  $(4,997) $(58,945)
                                                     ======  =======  ========
</TABLE>

                                      45
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
   <S>                                          <C>        <C>       <C>
   (Loss) before income taxes:
     Domestic.................................. $(100,998) $(35,135) $(269,081)
     Foreign...................................    20,092    (4,256)    (1,042)
                                                ---------  --------  ---------
       Total................................... $ (80,906) $(39,391) $(270,123)
                                                =========  ========  =========
   Income taxes (benefit) computed at the
    federal statutory rate
    of 35%..................................... $ (28,317) $(13,787) $ (94,543)
     Percentage depletion......................        --        --       (193)
     Foreign taxes.............................      (317)    2,432         --
     State taxes...............................       220     1,227         --
     Valuation allowance on deferred tax
      asset....................................    35,294     5,410     35,254
     Other--net................................        11      (279)       537
                                                ---------  --------  ---------
       Provision for income taxes (benefit).... $   6,891  $ (4,997) $ (58,945)
                                                =========  ========  =========
</TABLE>

  The deferred tax effect of the difference in financial accounting basis and
income tax basis of EEX's assets and liabilities at December 31, 1999 and 1998
was as follows (in thousands):

<TABLE>
<CAPTION>
                                     1999                          1998
                         -----------------------------  ----------------------------
                           Total    Current Noncurrent   Total    Current Noncurrent
                         ---------  ------- ----------  --------  ------- ----------
<S>                      <C>        <C>     <C>         <C>       <C>     <C>
Deferred Tax Assets
 (Liabilities):
  Property, plant and
   equipment............ $  61,306   $ --   $  61,306   $ 64,498  $   --   $ 64,498
  Employee benefit
   obligations..........     1,388     --       1,388      2,824      --      2,824
  Accruals and
   allowances...........     2,276    829       1,447      3,246   1,800      1,446
  Foreign corporations..    (1,005)    --      (1,005)     9,230      --      9,230
  Net operating loss....    61,847     --      61,847     17,708      --     17,708
  Valuation allowance...  (102,174)    --    (102,174)   (66,880)     --    (66,880)
                         ---------   ----   ---------   --------  ------   --------
    Net deferred tax
     asset.............. $  23,638   $829   $  22,809   $ 30,626  $1,800   $ 28,826
                         =========   ====   =========   ========  ======   ========
</TABLE>

Note: The current portion is included in other current assets in the
consolidated balance sheets.

  The Company maintains a valuation allowance to reduce the calculated
deferred tax asset to net realizable value in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109). In 1999, EEX decreased the
deferred tax asset by $7 million due to the utilization of past foreign net
operating losses to shelter the current year foreign earnings of $20 million.
The realization of the remaining deferred tax asset is based on expected
future earnings and tax planning strategies which include potential sales of
assets with fair market values in excess of book and tax cost bases, including
the Llano prospect, utilization of excess capacity or sale of the Cooper
floating production facility and pipeline, and acceleration of income from the
favorable impact from restructuring measures over the last two years. Although
the Company has incurred net taxable losses for book purposes in recent years,
management believes it is more likely than not that the Company will generate
taxable income sufficient to realize a portion of the tax benefits associated
with assets which have a tax basis in excess of net cost recorded under the
successful efforts method of accounting used for financial reporting purposes.
Such assets are primarily represented by seismic costs capitalized for tax
purposes but expensed under successful efforts accounting and assets impaired
under the provisions of SFAS 121 for which no tax deduction is immediately
available. Due to the uncertainty of future income estimates, the additional
anticipated earnings

                                      46
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

benefit from further realization of the additional tax basis has not been
fully recognized at this time and is included in the valuation allowance of
$102 million at December 31, 1999 for the Company's deferred tax asset.

  As of December 31, 1999, the Company had approximately $177 million of U.S.
net operating loss carryforwards ("NOLs"). The NOLs have expiration dates
ranging from 2003 through 2019. Due to the uncertainty of the realization of
this tax carryforward, EEX has included in its valuation allowance the full
carryforward benefit of $62 million.

17. EMPLOYEE BENEFIT PLANS

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

  In 1998, the Company recognized a curtailment gain of approximately $2.5
million in connection with the termination of a significant number of
employees announced in 1997 pursuant to the provisions of Statement of
Financial Accounting Standards No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits" (SFAS 88).

  Prior to ENSERCH's August 5, 1997 distribution of EEI stock to ENSERCH
shareholders (see Note 1), EEX's cost for pension and retiree medical benefits
was based on allocations from ENSERCH plans. From August 5, 1997 through
December 31, 1999, EEX's costs for these benefits were based on EEX's
allocated pension plan assets, employees and retirees based upon information
provided by ENSERCH. EEX's share of the ENSERCH pension plan assets and
liabilities for accrued benefits have been estimated by EEX based upon
information supplied by ENSERCH. After resolving a dispute over the definition
of those employees and retirees who are included in the EEX plan, it is
expected that these assets will be transferred to EEX's plan providing
substantially the same benefits as provided by the ENSERCH plan. The assets
are held in a trust account with investments consisting primarily of domestic
equities and fixed income funds. For pension benefits, the "benefit
obligation" is the projected benefit obligation. For post-retirement benefits,
the "benefit obligation" is the accumulated post-retirement benefit
obligation.

                                      47
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Employee Benefit Plan Disclosures (in thousands):

<TABLE>
<CAPTION>
                                                              Post-Retirement
                                          Pension Benefits       Benefits
                                          ------------------  ----------------
                                            1999      1998     1999     1998
                                          --------  --------  -------  -------
<S>                                       <C>       <C>       <C>      <C>
Assumptions as of December 31:
  Discount rate used in determining
   benefit obligation....................     7.75%     7.00%    7.75%    7.00%
  Expected return on Plan assets.........     9.00%     9.00%
  Rate of compensation increases.........     4.00%     4.00%

Changes in Benefit Obligation:
  Benefit obligation as of beginning of
   period................................ $(19,173) $(23,396) $(8,949) $(8,366)
  Service cost...........................     (634)     (720)      (7)     (22)
  Interest cost..........................   (1,426)   (1,411)    (496)    (584)
  Actuarial liability gain (loss)........      832     3,179    2,220     (117)
  Effect of curtailment..................       --     2,378       --       98
  Participants contribution..............       --        --     (165)    (151)
  Benefits paid..........................      914       797      394      193
                                          --------  --------  -------  -------
    Benefit obligation as of December
     31.................................. $(19,487) $(19,173) $(7,003) $(8,949)
                                          ========  ========  =======  =======
Change in Plan Assets:
  Fair value of Plan assets as of
   beginning of period................... $ 11,820  $ 11,420
  Actual return on assets................      894     1,065
  Employer contributions.................    5,770        --
  Benefits paid..........................     (786)     (665)
                                          --------  --------
Fair value of Plan assets as of December
 31...................................... $ 17,698  $ 11,820
                                          ========  ========
Reconciliation of Funded Status:
  Funded status.......................... $ (1,788) $ (7,353) $(7,003) $(8,949)
  Unrecognized net obligation (asset)....       --        --    3,482    3,755
  Unrecognized actuarial (gain) loss.....   (2,071)   (1,516)    (102)   2,117
                                          --------  --------  -------  -------
    Accrued benefit cost as of December
     31.................................. $ (3,859) $ (8,869) $(3,623) $(3,077)
                                          ========  ========  =======  =======
Components of Net Periodic Benefit Cost:
  Allocations from ENSERCH............... $     --  $     --  $    --  $    --
  Service cost--benefits earned during
   the period............................      634       720        7       22
  Interest cost on projected benefit
   obligation............................    1,426     1,411      496      584
  Expected return on assets..............   (1,181)     (993)      --       --
  Effect of curtailment..................       --    (2,378)      --      (98)
  Amortization--net obligation...........       --        --      273      273
  Amortization--unrecognized (gain)
   loss..................................       11        (1)      --       80
                                          --------  --------  -------  -------
    Net periodic benefit cost............ $    890  $ (1,241) $   776  $   861
                                          ========  ========  =======  =======
</TABLE>

  For measurement purposes, a 5.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999 and remains at that
level thereafter.

                                       48
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                     1-Percentage 1-Percentage
                                                        Point        Point
                                                       Increase     Decrease
                                                     ------------ ------------
   <S>                                               <C>          <C>
   Effect on total of service and interest cost for
    1999............................................     $ 41        $ (36)
   Effect on year-end 1999 post-retirement benefit
    obligation......................................     $543        $(475)
</TABLE>

  Investment Plan--At December 31, 1999, EEX provided a defined contribution
pension plan which permits pre-tax employee contributions and was available to
substantially all employees of the Company. The Company's share of costs under
the plan was $0.2 million, $0.3 million, and $0.3 million in 1999, 1998, and
1997, respectively. The Company matches up to 60% of the first 6% of employee
contributions.

18. RELATED PARTY TRANSACTIONS

  As described in Note 1, on August 5, 1997, ENSERCH distributed to its
shareholders all the shares of EEI common stock it owned and EEI ceased being
a subsidiary of ENSERCH. In preparation for this distribution, on January 1,
1997, responsibility for all management and administrative functions for oil
and gas activities previously performed by ENSERCH, along with selected
ENSERCH employees, were transferred to Old EEI and cost allocations from
ENSERCH for these functions were discontinued.

  The Company had sales to certain ENSERCH companies (Enserch Energy Services,
Inc., Lone Star Gas Company and Enserch Processing Company) that totaled $26
million in 1997.

19. COMMITMENTS AND CONTINGENCIES

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

  In addition, EEX is a defendant in Gracy Fund L.P. v. EEX Corporation, et
al., ("Gracy Fund"), a class action in Federal District Court for the Northern
District of Texas. Gracy Fund is a consolidated case combining two actions
filed against EEX in August 1998. In January 1999, plaintiffs in Gracy Fund
filed an amended class action complaint against EEX, several of its current
and/or former officers and directors and another company, ENSERCH Corporation
(the "Consolidated Complaint"). The Consolidated Complaint alleges violations
of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and violations
of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934
against various defendants. The Consolidated Complaint also alleges Section
10(b), 15 and 20(a) claims on behalf of a class of plaintiffs who acquired
EEX's stock pursuant to an October 1996 Registration Statement and
Proxy/Prospectus ("EEX Subclass").

  Plaintiffs allege that during the class period, defendants made materially
false and misleading statements, and failed to disclose material facts,
regarding the value and volume of EEX's proved reserves from its East Texas
operations. According to plaintiffs, these purported misrepresentations
artificially inflated the price of EEX's common stock throughout the class
period, induced the EEX Subclass to approve the merger that spun EEX off from
ENSERCH Corporation and induced the EEX Subclass to acquire stock pursuant to
the Registration Statement and Proxy/Prospectus issued regarding this merger.

                                      49
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company intends to contest this action vigorously and filed motion to
dismiss the Consolidated Complaint on March 8, 1999. The motion has been fully
briefed and under submission to the court since June 23, 1999. All discovery
is stayed pending the determination of the motion to dismiss. Since it has not
yet been determined whether, or to what extent, the plaintiffs have pled a
viable complaint, the Company cannot predict the outcome of this matter at
this time.

  The operations and financial position of EEX continues to be affected from
time to time in varying degrees by domestic and foreign political developments
as well as legislation and regulations pertaining to restrictions on oil and
gas production, imports and exports, natural gas regulation, tax increases,
environmental regulations and cancellation of contract rights. Both the
likelihood of such occurrences and their overall effect on the Company vary
greatly and are not predictable. These uncertainties are part of a number of
items that EEX has taken and will continue to take into account in
periodically establishing accounting reserves.

  In the fourth quarter of 1998, EEX signed a contract with a major drilling
company to provide and operate an offshore drilling rig for use in Deepwater
drilling activities. The contract covers a basic period of three years at an
approximate average day rate of $130,000 commencing in July 1999. As of
January 1, 2000, approximately 913 days remained under the contract at a cost
of $122 million.

  As of December 31, 1999, the Company has a future volumetric delivery
obligation of approximately 16 billion cubic feet of natural gas to Encogen
One Partners, Ltd.

20. OTHER INFORMATION

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

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Other current assets prepaid costs related to Mudi Field...  $ 5,941 $ 5,784
                                                                ======= =======
   Other non-current liabilities
     Accrued liabilities for restoration, dismantlement and
      abandonment costs.......................................  $42,756 $25,157
                                                                ======= =======
     Advances from partners...................................  $20,604 $ 7,046
                                                                ======= =======
</TABLE>

21. NEW ACCOUNTING STANDARD

  In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," which is effective for fiscal years
beginning after June 15, 2000, with earlier adoption encouraged. FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. EEX
has not yet determined what the effect, if any, of SFAS No. 133 will be on
results of operations and financial position. EEX will adopt this accounting
standard as required by January 1, 2001.

                                      50
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
                                   Deepwater
                         ------------------------------
                         Operations(a) FPS/Pipelines(b) Onshore/Shelf   International Other(c)    Total
                         ------------- ---------------- -------------   ------------- --------  ---------
<S>                      <C>           <C>              <C>             <C>           <C>       <C>
1999:
  Total Revenues........   $     --        $     --       $ 116,118        $54,601    $  6,655  $ 177,374
  Production and
   operating costs......         --              --          23,241         16,097          --     39,338
  Exploration costs.....     70,386              --          12,034          3,949          --     86,369
  Depletion,
   depreciation and
   amortization.........         --           5,400          78,531         10,148       1,323     95,402
  Other costs...........         --              --           5,366 (d)         --      20,293     25,659
                           --------        --------       ---------        -------    --------  ---------
  Operating Income
   (Loss)...............    (70,386)         (5,400)         (3,054)        24,407     (14,961)   (69,394)
  Interest Income.......         --              --              --             --       6,224      6,224
  Interest and other
   financing costs......         --         (14,361)           (765)            --      (2,560)   (17,686)
                           --------        --------       ---------        -------    --------  ---------
  Income (Loss) before
   income taxes.........   $(70,386)       $(19,761)      $  (3,819)       $24,407    $(11,297) $ (80,856)
                           ========        ========       =========        =======    ========  =========
  Long-Lived Assets.....   $ 47,782        $144,150       $ 432,015        $60,638    $  5,912  $ 690,497
                           ========        ========       =========        =======    ========  =========
  Additions to Long-
   Lived Assets.........   $ 52,595        $ 15,533       $ 304,018        $14,797    $  1,331  $ 388,274
                           ========        ========       =========        =======    ========  =========
1998:
  Total Revenues........   $     --        $     --       $ 167,668        $29,270    $ 22,114  $ 219,052
  Production and
   operating costs......         --              --          36,002         10,859          --     46,861
  Exploration costs.....     19,581              --          13,542         12,021          --     45,144
  Depletion,
   depreciation and
   amortization.........         --              --         101,925          8,421       1,144    111,490
  Other costs...........         --              --          10,121 (d)         --      26,433     36,554
                           --------        --------       ---------        -------    --------  ---------
  Operating Income
   (Loss)...............    (19,581)             --           6,078         (2,031)     (5,463)   (20,997)
  Interest Income.......         --              --              --             --         593        593
  Interest and other
   financing costs......         --              --         (15,222)            --      (3,765)   (18,987)
                           --------        --------       ---------        -------    --------  ---------
  (Loss) before income
   taxes................   $(19,581)       $     --        $ (9,144)       $(2,031)   $ (8,635) $ (39,391)
                           ========        ========       =========        =======    ========  =========
  Long-Lived Assets.....   $ 42,236        $     --       $ 346,975        $55,800    $  6,374  $ 451,385
                           ========        ========       =========        =======    ========  =========
  Additions to Long-
   Lived Assets.........   $ 20,552        $     --       $  88,940        $54,000    $  2,328  $ 165,820
                           ========        ========       =========        =======    ========  =========
1997:
  Total Revenues........   $     --        $     --       $ 310,643        $    --    $  3,570  $ 314,213
  Production and
   operating costs......         --              --          48,960             --          --     48,960
  Exploration costs.....         --              --          69,717            882          --     70,599
  Depletion,
   depreciation and
   amortization.........         --              --         401,538             --       3,059    404,597
  Other costs...........         --              --          16,421 (d)         --      13,989     30,410
                           --------        --------       ---------        -------    --------  ---------
  Operating (Loss)......         --              --        (225,993)          (882)    (13,478)  (240,353)
  Interest Income.......         --              --              --             --         875        875
  Interest and other
   financing costs......         --              --         (16,141)            --     (14,504)   (30,645)
                           --------        --------       ---------        -------    --------  ---------
  (Loss) before income
   taxes................   $     --        $     --       $(242,134)       $  (882)   $(27,107) $(270,123)
                           ========        ========       =========        =======    ========  =========
  Long-Lived Assets.....   $     --        $     --       $ 684,739        $18,419    $  5,829  $ 708,987
                           ========        ========       =========        =======    ========  =========
  Additions to Long-
   Lived Assets.........   $     --        $     --       $ 161,499        $13,140    $  5,508  $ 180,147
                           ========        ========       =========        =======    ========  =========
</TABLE>
-------
(a) In connection with the transition to independent status in 1997, the
    Company began managing its Gulf of Mexico activities in two major areas:
    Deepwater and Onshore/Shelf. The Company did not track this activity
    separately until 1998 when operations in this segment became significant.
    Prior to 1998, Deepwater activities were included in the Onshore/Shelf
    segment.
(b) In connection with the abandonment of the Cooper Field in 1999, the
    Company began managing the FPS/Pipelines separately. Prior to 1999, the
    operations of the FPS/Pipelines were considered assets committed to the
    Cooper Field and were included in the Onshore/Shelf segment.
(c) Includes primarily Cogeneration Plant Operations, General and
    Administrative and gains/loss on hedging and sale of assets.
(d) Includes taxes other than income.

                                      51
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


23. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                           1999       1998
                                                         ---------  ---------
   <S>                                                   <C>        <C>
   Capitalized Costs:
     Proved oil and gas properties...................... $ 935,360  $ 799,948
     Floating Production System and Pipelines...........   232,908    228,844
     Unproved oil and gas properties....................    91,097     77,482
     Accumulated depletion, depreciation and
      amortization......................................  (574,778)  (668,512)
                                                         ---------  ---------
       Total net capitalized cost....................... $ 684,587  $ 437,762
                                                         =========  =========
</TABLE>

<TABLE>
<CAPTION>
                                   1999             1998             1997
                             ---------------- ---------------- ----------------
                                       Non-             Non-             Non-
                               U.S.    U.S.     U.S.    U.S.     U.S.    U.S.
                             -------- ------- -------- ------- -------- -------
   <S>                       <C>      <C>     <C>      <C>     <C>      <C>
   Costs Incurred:
   Property acquisition
    costs:
     Proved................. $238,749 $ 4,523 $  7,990 $35,555 $     -- $    --
     Unproved...............    4,767      --   14,168     473   24,970     200
   Exploration costs........   79,618   4,143   59,729   6,501   50,220   1,428
   Development costs........   79,091  10,069   44,845   8,142  112,457  12,396
                             -------- ------- -------- ------- -------- -------
       Total................ $402,225 $18,735 $126,732 $50,671 $187,647 $14,024
                             ======== ======= ======== ======= ======== =======
</TABLE>

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

<TABLE>
<CAPTION>
                               1999              1998              1997
                         ----------------- -----------------  ----------------
                                    Non-              Non-               Non-
                           U.S.     U.S.     U.S.     U.S.      U.S.     U.S.
                         --------  ------- --------  -------  ---------  -----
<S>                      <C>       <C>     <C>       <C>      <C>        <C>
Results of Operations:
Revenues................ $116,118  $54,601 $167,668  $29,270  $ 310,643  $  --
Less:
  Production costs(a)...   28,607   16,097   46,117   10,859     65,366     --
  Exploration costs.....   82,420    3,949   33,129   12,021     69,732    882
  Depletion,
   depreciation and
   amortization(b)......   83,931   10,148  101,925    8,421    401,538     --
  Income tax
   effects(c)...........       --    1,807      477       --    (44,037)  (309)
                         --------  ------- --------  -------  ---------  -----
    Net producing
     activities......... $(78,840) $22,600 $(13,980) $(2,031) $(181,956) $(573)
                         ========  ======= ========  =======  =========  =====
</TABLE>
--------
(a) Includes severance, ad valorem and production taxes.
(b) Includes pre-tax property impairment of $26 million, $10 million and $260
    million in 1999, 1998 and 1997, respectively.
(c) Amount includes $35.3 million, $5.4 million and $61.5 million for
    valuation allowance on deferred tax asset for 1999, 1998 and 1997,
    respectively.

  Oil and Gas Reserves--The following table of estimated proved and proved
developed reserves of oil and gas has been prepared utilizing estimates of
year end reserve quantities provided and audited by Netherland, Sewell &
Associates, Inc., independent petroleum consultants, for December 31, 1999,
1998 and 1997 reserves.

                                      52
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reserve estimates are inherently imprecise and estimates of new discoveries
are more imprecise than those of producing oil and gas properties.
Accordingly, the reserve estimates are expected to change as additional
performance data becomes available.

<TABLE>
<CAPTION>
                                  Gas (MMcf)                Oil (MBbls)(a)
                          ----------------------------  ------------------------
                           1999      1998      1997      1999    1998     1997
                          -------  --------  ---------  ------  -------  -------
<S>                       <C>      <C>       <C>        <C>     <C>      <C>
U.S. Reserves:
  At January 1..........  203,551   460,158  1,215,624   6,431   18,100   53,209
  Revisions of previous
   estimates............  (10,658)  (13,129)  (622,640) (1,116)     847  (15,710)
  Extensions,
   discoveries and
   additions............   11,804    38,458     40,254      40    1,145    3,062
  Purchases of minerals
   in place(b)..........  206,002    33,143         --   2,305    1,118       --
  Sales of minerals in
   place(c).............   (6,883) (257,169)   (88,611)   (619) (11,340) (17,054)
  Production............  (41,003)  (57,910)   (84,469) (1,339)  (3,439)  (5,407)
                          -------  --------  ---------  ------  -------  -------
At December 31..........  362,813   203,551    460,158   5,702    6,431   18,100
                          =======  ========  =========  ======  =======  =======
Proved Developed
 Reserves:
  At January 1..........  191,985   425,773    859,094   6,299   16,882   27,938
  At December 31........  309,424   191,985    425,773   4,592    6,299   16,882
Minority interest at
 12/31 total proved(d)..   86,319        --         --   1,043       --       --
Minority interest at
 12/31 proved
 developed(d)...........   65,073        --         --     584       --       --
</TABLE>
--------
(a) Includes condensate and natural gas liquids of 427 MBbls for 1999, 561
    MBbls for 1998 and 825 MBbls for 1997.
(b) Includes reserves acquired through property exchanges of 1,118 MBbls and
    33,143 MMcf for 1998.
(c) Includes reserves disposed of through property exchanges of 6,497 MBbls
    and 24,102 MMcf for 1998.
(d) Minority Interest amounts are included in the table above.

<TABLE>
<CAPTION>
                                                   Gas
                                                  (MMcf)      Oil (MBbls)
                                                  ------ ----------------------
                                                   1997   1999    1998    1997
                                                  ------ ------  ------  ------
<S>                                               <C>    <C>     <C>     <C>
Non-U.S. Reserves:
  At January 1...................................   618  19,728   5,741   6,008
  Revisions of previous estimates................    --  (4,657)  5,877     778
  Extensions, discoveries and additions..........    --      --   4,733      --
  Purchases of minerals in place.................    --      --   5,741      --
  Sales of minerals in place.....................  (618)     --      --  (1,045)
  Production.....................................    --  (3,231) (2,364)     --
                                                   ----  ------  ------  ------
At December 31...................................    --  11,840  19,728   5,741
                                                   ====  ======  ======  ======
Proved Developed Reserves:
  At January 1...................................    --  15,831   4,767      --
  At December 31.................................    --   9,896  15,831   4,767
</TABLE>

  Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserve Quantities--The following table has been prepared using
estimated future production rates and associated production and development
costs. Continuation of economic conditions existing at the balance sheet date
was assumed. Accordingly, estimated future net cash flows were computed by
applying prices and contracts in effect in December to estimated future
production of proved oil and gas reserves, estimating future expenditures to
develop proved reserves and estimating costs to produce the proved reserves
based on average costs for the year. Prices used in the computations were: Gas
(per Mcf) $2.08 in 1999, $2.19 in 1998 and $2.51 in 1997; Oil (per barrel)
$23.41 in 1999, $9.50 in 1998 and $15.71 in 1997.

                                      53
<PAGE>

                                EEX CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                         United
                                               Total     States   International
                                              --------  --------  -------------
<S>                                           <C>       <C>       <C>
Standardized Measure (in millions):
  1999
    Future cash inflows...................... $1,166.5  $  886.2     $ 280.3
    Future production and development costs..   (524.7)   (314.8)     (209.9)
    Future income tax expense................       --        --          --
                                              --------  --------     -------
    Future net cash flows....................    641.8     571.4        70.4
    10% annual discount......................   (205.5)   (197.9)       (7.6)
                                              --------  --------     -------
    Standardized measure of discounted future
     net cash flows.......................... $  436.3  $  373.5     $  62.8
                                              ========  ========     =======
    Minority interest (a).................... $   79.0  $   79.0     $    --
                                              ========  ========     =======
  1998
    Future cash inflows...................... $  706.1  $  498.0     $ 208.1
    Future production and development costs..   (325.1)   (191.3)     (133.8)
    Future income tax expense................       --        --          --
                                              --------  --------     -------
    Future net cash flows....................    381.0     306.7        74.3
    10% annual discount......................   (105.1)    (88.4)      (16.7)
                                              --------  --------     -------
    Standardized measure of discounted future
     net cash flows.......................... $  275.9  $  218.3     $  57.6
                                              ========  ========     =======
  1997
    Future cash inflows...................... $1,529.0  $1,440.3     $  88.7
    Future production and development costs..   (540.1)   (509.7)      (30.4)
    Future income tax expense................    (26.8)    (18.5)       (8.3)
                                              --------  --------     -------
    Future net cash flows....................    962.1     912.1        50.0
    10% annual discount......................   (343.0)   (334.7)       (8.3)
                                              --------  --------     -------
    Standardized measure of discounted future
     net cash flows.......................... $  619.1  $  577.4     $  41.7
                                              ========  ========     =======
</TABLE>
--------
(a) Minority Interest amounts are included in the table above.

<TABLE>
<CAPTION>
                                                    1999     1998      1997
                                                   -------  -------  ---------
<S>                                                <C>      <C>      <C>
Changes in Standardized Measure (in millions):
  Sales and transfers of oil and gas produced, net
   of production costs............................ $(126.0) $(139.9) $  (245.6)
  Changes in prices, net of production and future
   development costs..............................    68.0   (149.3)    (761.8)
  Extensions, discoveries and improved recovery,
   less related costs.............................    16.4     58.3       92.5
  Purchases of minerals in place..................   181.6     70.2         --
  Revisions of previous quantity estimates........    (1.0)    (4.9)    (806.8)
  Sales of minerals in place......................    (6.9)  (258.7)    (231.6)
  Accretion of discount...........................    27.6     61.9      234.3
  Net change in income taxes......................      --     26.9      622.3
  Other...........................................     0.7     (7.7)       0.7
                                                   -------  -------  ---------
    Total......................................... $ 160.4  $(343.2) $(1,096.0)
                                                   =======  =======  =========
</TABLE>


                                      54
<PAGE>

                         QUARTERLY RESULTS (UNAUDITED)

  The results of operations of the Company by quarters are summarized below
(in thousands, except per share data). In the opinion of the Company's
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation have been made. The first three quarters of
1998 per share amounts have been restated to reflect the reduction in weighted
average shares outstanding due to the one-for-three reverse stock split
approved by shareholders on December 8, 1998.

<TABLE>
<CAPTION>
                                                 Quarter Ended
                                   --------------------------------------------
                                   March 31  June 30   September 30 December 31
                                   --------  --------  ------------ -----------
<S>                                <C>       <C>       <C>          <C>
1999:
  Revenues........................ $ 39,555  $ 43,983    $50,087     $ 43,749
  Gain on Property Sales..........        4       507        747       14,225
  Impairment of Assets............       --        --         --      (26,424)
  Operating Income (Loss)(a)......  (12,007)  (26,985)     5,423      (35,825)
  Net (Loss) Applicable to Common
   Shareholders...................  (18,280)  (33,123)    (1,657)     (46,854)
  Basic and Diluted Net (Loss) Per
   Share.......................... $  (0.43) $  (0.79)   $ (0.04)    $  (1.11)
1998:
  Revenues........................ $ 64,513  $ 58,561    $46,323     $ 49,655
  Gains (Losses) on Property
   Sales..........................   (6,027)    1,761      3,000       10,351
  Impairment of Assets............       --        --         --      (10,439)
  Operating (Loss)(a).............   (9,169)   (2,484)    (7,098)      (2,246)
  Net (Loss) Applicable to Common
   Shareholders...................  (19,027)  (10,406)    (5,452)      (6,041)
  Basic and Diluted Net (Loss) Per
   Share.......................... $  (0.45) $  (0.25)   $ (0.13)    $  (0.14)
</TABLE>
--------
(a) Net Income excluding interest and taxes.

                                      55
<PAGE>

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

  None

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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

                                    PART IV

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

(a)-1 Financial Statements

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

(a)-2 Financial Statement Schedules

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

(a)-3 Exhibits

<TABLE>
 <C> <S>
 3.1 Restated Articles of Incorporation of the Registrant, as amended.(1)
 3.2 Bylaws of the Registrant, as amended.(1)
 4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1
     to Registrant's Form 10-K for the year ended December 31, 1998.(2)
 4.2 Form of Preferred Stock Certificate, incorporated by reference to Exhibit
     4.2 to Registrant's Form 10-K for the year ended December 31, 1998.(2)
 4.3 Rights Agreement dated as of September 10, 1996, between the Registrant
     and Harris Trust Company of New York as Rights Agent, incorporated by
     reference to Exhibit 10.21 to the Registrant's Registration Statement on
     Form S-4 (No. 333-13241).(2)
</TABLE>

                                      56
<PAGE>

<TABLE>
 <C>  <S>
  4.4 First Amendment to Rights Agreement dated December 21, 1998, between the
      Registrant and Harris Trust Company of New York, as Rights Agent,
      incorporated by reference to Exhibit 4.4 to Registrant's Form 10-K for
      the year ended December 31, 1998.(2)
  4.5 Statement of Resolution of Series B 8% Cumulative Perpetual Preferred
      Stock of the Registrant filed with the Secretary of State of Texas on
      January 7, 1999, incorporated by reference to Exhibit 4.5 to Registrant's
      Form 10-K for the year ended December 31, 1998.(2)
  4.6 Form of Series A Warrant issued to Warburg, Pincus Equity Partners, L.P.,
      and affiliates on January 7, 1999, incorporated by reference to Exhibit
      4.6 to Registrant's Form 10-K for the year ended December 31, 1998.(2)
  4.7 Form of Series B Warrant issued to Warburg, Pincus Equity Partners, L.P.,
      and affiliates on January 7,1999, incorporated by reference to Exhibit
      4.7 to Registrant's Form 10-K for the year ended December 31, 1998.(2)
  4.8 Form of Series C Warrant issued to Warburg, Pincus Equity Partners, L.P.,
      and affiliates on January 7, 1999, incorporated by reference to Exhibit
      4.7 to Registrant's Form 10-K for the year ended December 31, 1998.(2)
 10.1 PRODUCTION SYSTEM LEASE AGREEMENT (1996-A) dated as of November 15, 1996
      among WILMINGTON TRUST COMPANY, not in its individual capacity but solely
      as Corporate Grantor Trustee under the Trust Agreement, and THOMAS P.
      LASKARIS, not in his individual capacity but solely as Individual Grantor
      Trustee under the Trust Agreement, Lessor and ENSERCH EXPLORATION, INC.,
      Lessee, incorporated by reference to Exhibit 10.1 to Registrant's Form
      10-K for the year ended December 31, 1997.(2)
 10.2 PRODUCTION SYSTEM LEASE AGREEMENT (1996-B) dated as of November 15, 1996
      among WILMINGTON TRUST COMPANY, not in its individual capacity but solely
      as Corporate Grantor Trustee under the Trust Agreement, and THOMAS P.
      LASKARIS, not in his individual capacity but solely as Individual Grantor
      Trustee under the Trust Agreement, Lessor and ENSERCH EXPLORATION, INC.,
      Lessee, incorporated by reference to Exhibit 10.2 to Registrant's Form
      10-K for the year ended December 31, 1997.(2)
 10.3 Participation Agreement between EP Operating Limited Partnership and
      Mobil Producing Texas and New Mexico Inc., incorporated by reference to
      Exhibit 10.6 to the Registration Statement of Enserch Exploration, Inc.
      on Form S-4 (No. 33-56791).(2)
 10.4 Credit Agreement, dated as of May 1, 1995, among Registrant as Borrower,
      Texas Commerce Bank National Association, as Administrative Agent, The
      Chase Manhattan Bank, N.A., as Syndication Agent, Chemical Bank, as
      Auction Agent, and the Lenders now or hereafter Parties hereto, amended
      by First Amendment dated September 16, 1996, Second Amendment dated June
      27, 1997, Third Amendment, dated September 25, 1997, and Fourth Amendment
      dated December 15, 1997. Incorporated by reference to Exhibit 10.5 to
      Registrant's Form 10-K for the year ended December 31, 1997.(2)
 10.5 Fifth Amendment dated March 31, 1999 to Credit Agreement, dated as of May
      1, 1995, among Registrant as Borrower, Texas Commerce Bank National
      Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as
      Syndication Agent, and Book Runner and the Lenders now or hereafter
      Parties hereto.(1)
 10.6 Tax Sharing Agreement, dated as of January 1, 1995, between ENSERCH and
      Enserch Exploration, Inc., incorporated by reference to Exhibit 10.21 to
      the Registration Statement of Enserch Exploration, Inc. on Form S-2 (No.
      33-60461).(2)
 10.7 Tax Allocation Agreement among ENSERCH, the Registrant and Texas
      Utilities Company, incorporated by reference to Annex A-3 to the
      Agreement and Plan of Merger filed as Exhibit 2 to the Registrant's
      Registration Statement on Form S-4 (No. 333-13241).(2)
 10.8 Tax Assurance Agreement between ENSERCH and the Registrant incorporated
      by reference to Annex A-4 to the Agreement and Plan of Merger filed as
      Exhibit 2 to the Registrant's Registration Statement on Form S-4 (No.
      333-13241).(2)
</TABLE>

                                       57
<PAGE>

<TABLE>
 <C>   <S>
 10.9  Exploration and Participation Agreement, dated June 20, 1997, by and
       between Enserch Exploration, Inc. and Enterprise Oil Gulf of Mexico,
       Inc., incorporated by reference to Exhibit 10.10 to Registrant's Form
       10-K for the year ended December 31, 1997.(2)
 10.10 Enserch Exploration, Inc. Revised and Amended 1996 Stock Incentive Plan
       incorporated by reference to Annex A-2 to the Agreement and Plan of
       Merger filed as Exhibit 2 to the Company's Registration Statement on
       Form S-4 (No. 333-13241). (2)
 10.11 Registrant's Deferred Compensation Plan effective as of July 1, 1997,
       incorporated by reference to Exhibit 10.12 to Registrant's Quarterly
       Report on Form 10-Q for the quarter ended September 30, 1997.(2)
 10.12 First Amendment to Registrant's Deferred Compensation Plan dated as of
       November 1, 1998, incorporated by reference to Exhibit 10.11 to
       Registrant's Form 10-K for the year ended December 31, 1998.(2)
 10.13 Second Amendment to Registrant's Deferred Compensation Plan dated
       December 8, 1998, incorporated by reference to Exhibit 10.12 to
       Registrant's Form 10-K for the year ended December 31, 1998.(2)
 10.14 Deferred Compensation Plan for Directors, effective January 1, 1996, as
       amended February 11, 1997, incorporated by reference to Exhibit 10.14 to
       Registrant's Form 10-K for the year ended December 31, 1998.(2)
 10.15 Form of Change of Control Agreement executed by certain executive
       officers of the Registrant, filed as Exhibit 10.20 to the Annual Report
       on Form 10-K for the year ended December 31, 1996 of Enserch
       Exploration, Inc.(2)
 10.16 Form of Amendment to Change of Control Agreement executed by certain
       executive officers of the Company, incorporated by reference to Exhibit
       10.16 to Registrant's Form 10-K for the year ended December 31, 1998.(2)
 10.17 Form of Employment Agreement executed by certain executive officers of
       the Registrant, incorporated by reference to Exhibit 10.20 to the Annual
       Report on Form 10-K for the year ended December 31, 1996 of Enserch
       Exploration, Inc.(2)
 10.18 Form of Amendment to Employment Agreement effective July 27, 1998
       between Registrant and certain executive officers, incorporated by
       reference to Exhibit 10.18 to Registrant's Form 10-K for the year ended
       December 31, 1998.(2)
 10.19 Second Amendment to Employment Agreement effective July 27, 1998,
       between Registrant and Thomas M Hamilton, incorporated by reference to
       Exhibit 10.19 to Registrant's Form 10-K for the year ended December 31,
       1998.(2)
 10.20 Form of Amendment to Restricted Stock Agreement effective July 27, 1998,
       between Registrant and certain executive officers, incorporated by
       reference to Exhibit 10.20 to Registrant's Form 10-K for the year ended
       December 31, 1998.(2)
 10.21 Floating Drilling Rig Requirement Offshore Drilling Contract dated
       October 15, 1998, between the Registrant and Global Marine Drilling
       Company for the "Glomar Arctic I" floating drilling unit, without
       appendices, incorporated by reference to Exhibit 10.21 to Registrant's
       Form 10-K for the year ended December 31, 1998.(2)
 10.22 Purchase Agreement, dated as of December 22, 1998, by and among
       Registrant and Warburg, Pincus Equity Partners, L.P., a Delaware limited
       partnership, Warburg, Pincus Netherlands Equity Partners I, C.V., a
       Dutch limited partnership, Warburg, Pincus Netherlands Equity Partners
       II, C.V. a Dutch limited partnership and Warburg, Pincus Netherlands
       Equity Partners III, C.V., a Dutch limited partnership, incorporated by
       reference to Exhibit 99.1 to Registrant's Form 8-K dated December 22,
       1998.(2)
 10.23 Registration Rights Agreement dated January 8, 1999, by and among
       Registrant and Warburg, Pincus Equity Partners, L.P., and affiliates,
       incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K for
       the year ended December 31, 1998.(2)
 10.24 Stock Purchase Agreement dated as of October 8, 1999 by and between
       Tesoro Petroleum Corporation and Tesoro Gas Resources Company, Inc., as
       Seller, and EEX Operating LLC, as Buyer, incorporated by reference to
       Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
       quarter ended September 30, 1999.(2)
</TABLE>

                                       58
<PAGE>

<TABLE>
 <C>   <S>
 10.25 First Amendment to Stock Purchase Agreement dated December 16, 1999,
       effective October 8, 1999, among Tesoro Petroleum Corporation, Tesoro
       Gas Resources Company, Inc., EEX Operating LLC and EEX Corporation,
       incorporated by reference to Exhibit 99.1 to Registrant's Form 8-K dated
       December 17, 1999.(2)
 10.27 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum
       Corporation and Tesoro Gas Resources Company, Inc. and EEX Operating LLC
       (sale of membership interests in Tesoro Reserves, LLC), incorporated by
       reference to Exhibit 99.3 to Registrant's Form 8-K dated December 17,
       1999.(2)
 10.28 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum
       Corporation and Tesoro Gas Resources Company, Inc. and EEX Operating LLC
       (sale of membership interests in Tesoro Southeast LLC), incorporated by
       reference to Exhibit 99.4 to Registrant's Form 8-K dated December 17,
       1999.(2)
 10.29 Natural Gas Prepaid Forward Sale Contract dated December 17, 1999
       between EEX E&P Company, L.P. and Bob West Treasure L.L.C., incorporated
       by reference to Exhibit 99.5 to Registrant's Form 8-K dated December 17,
       1999.(2)
 10.30 Call Agreement dated December 17, 1999, between EEX Capital, Inc. and
       Bob West Treasure L.L.C., incorporated by reference to Exhibit 99.6 to
       Registrant's Form 8-K dated December 17, 1999.(2)
 10.31 Subordinated Convertible Note dated December 17, 1999, from EEX Reserves
       Funding LLC to EEX Corporation, incorporated by reference to Exhibit
       99.7 to Registrant's Form 8-K dated December 17, 1999.(2)
 10.32 EEX Corporation Undertaking dated December 17, 1999, incorporated by
       reference to Exhibit 99.8 to Registrant's Form 8-K dated December 17,
       1999.(2)
 21    Subsidiaries of the Registrant.(1)
 23.1  Consent of Ernst & Young LLP.(1)
 23.2  Consent of Netherland, Sewell & Associates, Inc.(1)
 27    Financial Data Schedule--December 31, 1999.(1)
</TABLE>
--------
(1) Filed herewith.
(2) Incorporated by reference.

(b) Reports on Form 8-K

  Current Report on Form 8-K dated December 17, 1999. (Acquisition of
properties from Tesoro.)

                                       59
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized:

                                          EEX Corporation

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

March 14, 2000

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


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

<S>                                    <C>                        <C>
        /s/ T. M Hamilton              Chairman and President,      March 14, 2000
______________________________________  Chief Executive Officer
            T. M Hamilton

        /s/ R. S. Langdon              Executive Vice President,    March 14, 2000
______________________________________  Finance and
            R. S. Langdon               Administration, Chief
                                        Financial Officer

         /s/ J. T. Leary               Vice President, Finance      March 14, 2000
______________________________________  and Treasurer
             J. T. Leary

         /s/ T. E. Coats               Vice President, Planning     March 14, 2000
______________________________________  and Controller (Principal
             T. E. Coats                Accounting Officer)

          /s/ F. S. Addy               Director                     March 14, 2000
______________________________________
              F. S. Addy

    /s/ B. A. Bridgewater, Jr.         Director                     March 14, 2000
______________________________________
        B. A. Bridgewater, Jr.

        /s/ F. M. Lowther              Director                     March 14, 2000
______________________________________
            F. M. Lowther

        /s/ M. P. Mallardi             Director                     March 14, 2000
______________________________________
            M. P. Mallardi

         /s/ H. H. Newman              Director                     March 14, 2000
______________________________________
           Howard H. Newman
</TABLE>

                                      60
<PAGE>

                                 EXHIBIT INDEX
                                 -------------

Exhibit Number            Description
--------------            -----------

3.1                Restated Articles of Incorporation of the Registrant, as
                   amended. (1)

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

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

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

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

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

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

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

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

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

10.1               PRODUCTION SYSTEM LEASE AGREEMENT (1996-A) dated as of
                   November 15, 1996 among WILMINGTON TRUST COMPANY, not in its
                   individual capacity but solely as Corporate Grantor Trustee
                   under the Trust Agreement, and THOMAS P. LASKARIS, not in his
                   individual capacity but solely as Individual Grantor Trustee
                   under the Trust Agreement, Lessor and ENSERCH EXPLORATION,
                   INC., Lessee, incorporated by reference to Exhibit 10.1 to
                   Registrant's Form 10-K for the year ended December 31, 1997.
                   (2)

10.2               PRODUCTION SYSTEM LEASE AGREEMENT (1996-B) dated as of
                   November 15, 1996 among WILMINGTON TRUST COMPANY, not in its
                   individual capacity but solely as Corporate Grantor Trustee
                   under the Trust Agreement, and THOMAS P. LASKARIS, not in his
                   individual capacity but solely as Individual Grantor Trustee
                   under the Trust Agreement, Lessor and ENSERCH EXPLORATION,
                   INC., Lessee, incorporated by reference to Exhibit 10.2 to
                   Registrant's Form 10-K for the year ended December 31, 1997.
                   (2)
<PAGE>

10.3               Participation Agreement between EP Operating Limited
                   Partnership and Mobil Producing Texas and New Mexico Inc.,
                   incorporated by reference to Exhibit 10.6 to the Registration
                   Statement of Enserch Exploration, Inc. on Form S-4
                   (No. 33-56792). (2)

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

10.5               Fifth Amendment dated March 31, 1999 to Credit Agreement,
                   dated as of May 1, 1995, among Registrant as Borrower, Texas
                   Commerce Bank National Association, as Administrative Agent,
                   The Chase Manhattan Bank, N.A., as Syndication Agent, and
                   Book Runner and the Lenders now or hereafter Parties hereto.
                   (1)

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

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

10.8               Tax Assurance Agreement between ENSERCH and the Registrant
                   incorporated by reference to Annex A-4 to the Agreement and
                   Plan of Merger filed as Exhibit 2 to the Registrant's
                   Registration Statement on Form S-4 (No. 333-13241). (2)

10.9               Exploration and Participation Agreement, dated June 20, 1997,
                   by and between Enserch Exploration, Inc. and Enterprise Oil
                   Gulf of Mexico, Inc., incorporated by reference to Exhibit
                   10.10 to Registrant's Form 10-K for the year ended
                   December 31, 1997. (2)

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

10.24              Stock Purchase Agreement dated as of October 8, 1999 by and
                   between Tesoro Petroleum Corporation and Tesoro Gas Resources
                   Company, Inc., as Seller, and EEX Operating LLC, as Buyer,
                   incorporated by reference to Exhibit 10.1 to Registrant's
                   Quarterly Report on Form 10-Q for the quarter ended
                   September 30, 1999. (2)

10.25              First Amendment to Stock Purchase Agreement dated
                   December 16, 1999, effective October 8, 1999, among Tesoro
                   Petroleum Corporation, Tesoro Gas Resources Company, Inc.,
                   EEX Operating LLC and EEX Corporation, incorporated by
                   reference to Exhibit 99.1 to Registrant's Form 8-K dated
                   December 17, 1999. (2)

10.27              Purchase Agreement dated December 17, 1999 between Tesoro
                   Petroleum Corporation and Tesoro Gas Resources Company, Inc.
                   and EEX Operating LLC (sale of membership interests in Tesoro
                   Reserves, LLC), incorporated by reference to Exhibit 99.3 to
                   Registrant's Form 8-K dated December 17, 1999. (2)

10.28              Purchase Agreement dated December 17, 1999 between Tesoro
                   Petroleum Corporation and Tesoro Gas Resources Company, Inc.
                   and EEX Operating LLC (sale of membership interests in Tesoro
                   Southeast LLC), incorporated by reference to Exhibit 99.4 to
                   Registrant's Form 8-K dated December 17, 1999. (2)
<PAGE>

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

10.30              Call Agreement dated December 17, 1999, between EEX Capital,
                   Inc. and Bob West Treasure L.L.C., incorporated by reference
                   to Exhibit 99.6 to Registrant's Form 8-K dated December 17,
                   1999. (2)

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

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

21                 Subsidiaries of the Registrant. (1)

23.1               Consent of Ernst & Young LLP. (1)

23.2               Consent of Netherland, Sewell & Associates, Inc. (1)

27                 Financial Data Schedule-December 31, 1999. (1)
----------------------------
(1)  Filed herewith.
(2)  Incorporated by reference.