<PAGE>   1
===============================================================================

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

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


                                    FORM 10-Q

(MARK ONE)

         |X|QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       OR

            OTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

          FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                        COMMISSION FILE NUMBER: 001-11899

                         THE HOUSTON EXPLORATION COMPANY
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


              DELAWARE                                      22-2674487
  (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYEE 
   INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

                           1100 LOUISIANA, SUITE 2000
                            HOUSTON, TEXAS 77002-5219
                              (ADDRESS OF PRINCIPAL
                                EXECUTIVE OFFICES
                                  AND ZIP CODE)
                                 (713) 830-6800
                         REGISTRANT'S TELEPHONE NUMBER,
                              INCLUDING AREA CODE)

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


        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
                                                           Yes _X_   No ___

        As of October 31, 1997, 23,337,363 shares of Common Stock, $.01 per
share, were outstanding.



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



<PAGE>   2



                         THE HOUSTON EXPLORATION COMPANY

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----
FACTORS AFFECTING FORWARD LOOKING STATEMENTS.................................2

PART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements (unaudited)

             Combined Balance Sheets --September 30, 1997 and
                 December 31, 1996...........................................3

             Combined Statements of Operations -- Three-Month Periods and 
                 the Nine-Month Periods Ended September 30, 1997 and 1996....4

             Combined Statements of Cash Flows -- Nine Month Periods
                 Ended September 30, 1997 and 1996...........................5

             Notes to the Combined Financial Statements......................6

Item 2.      Management's Discussion and Analysis of Financial Condition 
                 and Results of Operations..................................10

PART II.     OTHER INFORMATION

Item 6.      Exhibits and Reports on Form 8-K...............................17

SIGNATURES..................................................................18



                                       -1-

<PAGE>   3



                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "anticipate," "believe," "expect," "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Without
limiting the foregoing, all statements under the caption "Item 2--Management's
Discussion and Analysis of Financial Condition and Results of Operations"
relating to the Company's anticipated capital expenditures, future cash flows
and borrowings, pursuit of potential future acquisition opportunities and
sources of funding for exploration and development are forward-looking
statements. Such statements are subject to certain risks and uncertainties, such
as the volatility of natural gas and oil prices, uncertainty of reserve
information and future net revenue estimates, reserve replacement risks,
drilling risks, operating risks of natural gas and oil operations, acquisition
risks, substantial capital requirements, government regulation, environmental
matters and competition. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, expected, estimated or
projected. For additional discussion of such risks, uncertainties and
assumptions, see "Items 1 and 2. Business and Properties" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report on Form 10-K filed under the
Securities Act of 1934, as amended.




                                       -2-

<PAGE>   4



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
                                      THE HOUSTON EXPLORATION COMPANY

                                          COMBINED BALANCE SHEETS
                                              (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                SEPTEMBER 30,          DECEMBER 31,
                                                                                    1997                   1996
                                                                               ---------------        ---------------
                                                                                  (UNAUDITED)
<S>                                                                            <C>                   <C>
ASSETS:
    Cash and cash equivalents................................................. $         3,354        $         2,851
    Accounts receivable.......................................................          32,893                 35,845
    Accounts receivable--Affiliate.............................................          1,305                     --
    Inventories...............................................................           1,622                    992
    Prepayments and other.....................................................           1,766                    924
                                                                               ---------------        ---------------
        Total current assets..................................................          40,940                 40,612
    Natural gas and oil properties, full cost method
        Unevaluated properties................................................         103,569                 60,258
        Properties subject to amortization....................................         521,046                468,062
    Other property and equipment..............................................           8,251                  7,308
                                                                               ---------------        ---------------
                                                                                       632,866                535,628
    Less: Accumulated depreciation, depletion and amortization................        (216,044)              (176,504)
                                                                               ---------------        --------------- 
                                                                                       416,822                359,124
    Other assets..............................................................             729                  1,549
                                                                               ---------------        ---------------
        TOTAL ASSETS.......................................................... $       458,491        $       401,285
                                                                               ===============        ===============

LIABILITIES:
    Accounts payable and accrued expenses..................................... $        38,269        $        36,650
     Accounts payable-affiliate...............................................              --                  1,010
     Deferred stock obligation................................................           8,825                     --
                                                                                --------------        ---------------
         Total current liabilities............................................          47,094                 37,660
    Long-term debt............................................................          98,000                 65,000
    Deferred federal income tax...............................................          66,103                 56,475
    Other deferred liabilities................................................             135                  8,850
                                                                               ---------------        ---------------
        TOTAL LIABILITIES.....................................................         211,332                167,985

COMMITMENTS AND CONTINGENCIES (NOTE 4)

STOCKHOLDERS' EQUITY:
    Common Stock, $.01 par value, 50,000 shares authorized,
        23,333 shares issued and outstanding .................................             233                    233
    Additional paid-in capital................................................         221,470                222,271
    Retained earnings.........................................................          25,456                 10,796
                                                                               ---------------        ---------------
        TOTAL STOCKHOLDERS' EQUITY............................................         247,159                233,300
                                                                               ---------------        ---------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $       458,491        $       401,285
                                                                               ===============        ===============
</TABLE>

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




                                       -3-

<PAGE>   5



                         THE HOUSTON EXPLORATION COMPANY

                        COMBINED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED            NINE MONTHS ENDED
                                                             SEPTEMBER 30,                 SEPTEMBER 30,
                                                        ------------------------     ------------------------
                                                          1997            1996         1997            1996
                                                          ----            ----         ----            ----
<S>                                                    <C>            <C>           <C>             <C>
REVENUES
   Natural gas and oil revenues..................       $29,065          $18,922       $76,129        $40,174
    Other........................................           247              249           731            784
                                                        -------          -------       -------        -------
     Total revenues..............................        29,312           19,171        76,860         40,958

OPERATING COSTS AND EXPENSES
   Lease operating...............................         4,345            3,603        12,358          7,237
   Depreciation, depletion and amortization......        15,517           10,744        39,472         22,315
   General and administrative, net...............         1,385            2,084         4,341          4,786
                                                        -------          -------       -------        -------
     Total operating expenses....................        21,247           16,431        56,171         34,338

INCOME FROM OPERATIONS...........................         8,065            2,740        20,689          6,620
Interest expense, net............................            65            1,488           494          2,606
                                                        -------          -------       -------        -------
Income before income taxes.......................         8,000            1,252        20,195          4,014
Provision (benefit) for federal
     income taxes................................         2,475              (15)        5,535            (42)
                                                        -------          -------       -------        -------

NET INCOME ......................................      $   5,525       $   1,267    $   14,660      $   4,056
                                                       =========       =========    ==========      =========

Net income per share.............................      $    0.24       $    0.08    $     0.63      $    0.26
                                                       =========       =========    ==========      =========

Weighted average shares outstanding..............        23,333           16,155        23,333         15,584
</TABLE>


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


                                       -4-

<PAGE>   6




                         THE HOUSTON EXPLORATION COMPANY

                        COMBINED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                            NINE  MONTHS ENDED
                                                                                SEPTEMBER 30,
                                                                           1997             1996
                                                                       -------------     ------------
<S>                                                                    <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..........................................................  $      14,660     $      4,056
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation, depletion and amortization..........................         39,472           22,315
   Deferred income tax expense.......................................          8,963            9,692
Changes in operating assets and liabilities:
   Decrease (increase) in accounts receivable........................          1,647           (3,828)
   Increase in inventories...........................................           (630)             (28)
   Increase in prepayments and other.................................           (842)             (78)
   Decrease in other assets and liabilities .........................            935              942
   Increase in accounts payable and accrued expenses.................            609            8,710
                                                                       -------------     ------------
Net cash provided by operating activities............................         64,814           41,781

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment ................................        (98,530)        (134,711)
Dispositions and other...............................................          1,360            1,571
                                                                       -------------     ------------
Net cash used in investing activities................................        (97,170)        (133,140)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ..................................         47,000           71,138
Paydowns on long-term borrowings.....................................        (14,000)         (78,000)
Common stock issuance proceeds (costs)...............................           (141)         101,178
Capital contributions from Brooklyn Union............................             --            6,342
                                                                       -------------     ------------

Net cash provided by financing activities............................         32,859          100,658

Increase in cash and cash equivalents ...............................            503            9,299

Cash and cash equivalents, beginning of period.......................          2,851              598
                                                                       -------------     ------------

Cash and cash equivalents, end of period.............................  $       3,354     $      9,897
                                                                       =============     ============

Cash paid for interest...............................................  $       4,021     $      4,283
                                                                       =============     ============
Cash paid for income taxes...........................................  $          --     $         --
                                                                       =============     ============
</TABLE>


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


                                       -5-

<PAGE>   7



                         THE HOUSTON EXPLORATION COMPANY

                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1  --  BASIS OF PRESENTATION

         Organization

         The Houston Exploration Company ("Houston Exploration" or the
"Company"), a Delaware corporation, was incorporated in December 1985 and began
operations in January 1986 for the purpose of conducting certain natural gas and
oil exploration and development activities for The Brooklyn Union Gas Company
("Brooklyn Union"). Effective September 29, 1997, Brooklyn Union became a
wholly-owned subsidiary of KeySpan Energry Corporation ("KeySpan"). Prior to its
initial public offering in September 1996 (the "IPO"), the Company was an
indirect wholly-owned subsidiary of Brooklyn Union. The Company's operations
focus on the exploration, development and acquisition of domestic natural gas
and oil properties offshore in the Gulf of Mexico and onshore in South Texas,
the Arkoma Basin, East Texas and West Virginia.

         Effective February 29, 1996 Brooklyn Union implemented a reorganization
of its exploration and production assets and liabilities by transferring to
Houston Exploration certain onshore producing properties and acreage formerly
owned by Fuel Resources, Inc. ("FRI"), a wholly owned subsidiary of Brooklyn
Union. These combined financial statements have been prepared giving effect to
the transfer of these assets and liabilities from the time of the acquisition of
such assets and liabilities by Brooklyn Union. The transfer of assets and
liabilities has been accounted for at historical cost as a reorganization of
companies under common control in a manner similar to a pooling-of-interests and
the financial statements reflect the combined historical results of Houston
Exploration and the assets and liabilities transferred by Brooklyn Union for all
of the periods presented.

         Interim Financial Statements

         The balance sheet of the Company at September 30, 1997 and the
statements of operations and cash flows for the periods indicated herein have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, although the Company believes that the disclosures contained herein are
adequate to make the information presented not misleading. The balance sheet at
December 31, 1996 is derived from the December 31, 1996 audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The Interim Financial Statements should be read in
conjunction with the Combined Financial Statements and Notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.

         In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary to present fairly the information in the
accompanying financial statements have been included. The results of operations
for such interim periods are not necessary indicative of the results for the
full year.


                                       -6-

<PAGE>   8



         New Accounting Pronouncements

         In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This statement supersedes APB Opinion No. 15, "Earnings per Share" and
simplifies the computation of earnings per share ("EPS"). Primary EPS is
replaced with a presentation of basic EPS. Basic EPS includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Fully
diluted EPS is replaced with diluted EPS. Diluted EPS reflects the potential
dilution if certain securities are converted. SFAS No. 128 requires dual
presentation of basic and diluted EPS by entities that issue any securities
other than ordinary common stock. SFAS No. 128 will be effective for financial
statements for both interim and annual periods ending after December 15, 1997,
and requires retroactive restatement of all EPS data presented. The Company
plans to adopt the statement on December 31, 1997. The Company does not expect
the effect of adopting SFAS No. 128 to have a material impact on its EPS
calculations, and, if adopted currently, SFAS No. 128 would not have a material
impact on the Company's reported EPS.

NOTE 2  -- ACQUISITIONS

         TransTexas

         On July 2, 1996, the Company acquired certain natural gas and oil
properties and associated gathering pipelines and equipment located in Zapata
County, Texas (the "TransTexas Acquisition") from TransTexas Gas Corporation and
TransTexas Transmission Corporation (together, "TransTexas"). The Company
acquired a 100% working interest (95% after the exercise by James G. Floyd, the
Company's President and Chief Executive Officer, of his right to purchase a 5%
working interest) in the approximately 142 wells on such properties. The
purchase price of $62.2 million ($59.1 million after giving effect to the
exercise of Mr. Floyd's purchase option) for the TransTexas Acquisition was
reduced by $3.1 million for production revenues and expenses related to the
assets between the May 1, 1996 effective date and July 2, 1996. The purchase
price of the TransTexas Acquisition was paid in cash, financed with borrowings
under the Company's Credit Facility.

         Soxco

         On September 25, 1996, the Company acquired substantially all of the
natural gas and oil properties and related assets (the "Soxco Acquisition") of
Smith Offshore Exploration Company ("Soxco"). The natural gas and oil properties
acquired in the Soxco Acquisition consisted solely of working interests in
properties located in the Gulf of Mexico that were already operated by the
Company or in which the Company also had a working interest. Pursuant to the
Soxco Acquisition, the Company paid Soxco cash in the aggregate amount of $20.3
million (net of $3.4 million for certain purchase price adjustments), and issued
to Soxco 762,387 shares of common stock. The cash portion of the purchase price
was funded with the proceeds of the Company's initial public offering. In
addition to the foregoing, the Company will pay Soxco a deferred purchase price
of up to $17.6 million payable on January 31, 1998. The amount of the deferred
purchase price will be determined by the probable reserves of Soxco as of
December 31, 1995 (approximately 17.6 Bcfe) that are produced prior to or
classified as proved as of December 31, 1997, provided that Soxco is entitled to
receive a minimum deferred purchase price of approximately $8.8 million. The
Company has accrued and classified as current the $8.8 million minimum deferred
purchase price. The amounts so determined will be paid in shares of common stock
based on the fair market value of such stock at the time of issuance.



                                       -7-

<PAGE>   9



NOTE 3  -- STOCKHOLDERS' EQUITY

         On September 19, 1996, the Company entered into an underwriting
agreement with respect to the initial public offering of its common stock at a
price of $15.50 per share (the "IPO"). The initial closing of the IPO, in which
the Company issued 6,200,000 shares of common stock, was completed on September
25, 1996. The underwriters delivered notice of the exercise of their over
allotment option on September 30, 1996. The closing of the over allotment, in
which the Company issued an additional 930,000 shares of common stock, was
completed on October 3, 1996. The Company received net proceeds of approximately
$101.0 million from the total of 7,130,000 shares sold in the IPO.

         Concurrently with the completion of the IPO, the Company's President
exchanged certain of his after program-payout working interests valued at $2.3
million for 145,161 shares of common stock. In addition, concurrently with the
completion of the public offering, the Company issued 762,387 shares of common
stock valued at $11.8 million to Soxco in connection with the Soxco Acquisition.
See Note 2--Acquisitions.

         In connection with the IPO, the Company's certificate of incorporation
was amended to effect an increase in the authorized capital stock of the Company
to 50,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.01 per share. Additionally, the Company
effected a forward stock split, effective prior to the completion of the public
offering, increasing the number of shares of common stock issued and outstanding
to 15,295,215. The financial statements reflect, retroactively, the conversion
and reclassification of the Company's common stock pursuant to the split.

         Net income per share for each period presented was determined by
dividing net income by the weighted average number of common shares outstanding,
after giving effect to the split referred to above. As of September 30, 1997,
the Company had 2,333,276 options authorized of which 1,670,238 had been
granted. The options and the estimated number of shares issuable to Soxco
pursuant to the $8.8 million minimum deferred purchase price (see Note 2 -
Acquisitions) were not reflected in the earnings per share calculation as they
are considered antidutive because the dilutive effect was not greater than 3%
for the three months and the nine months ended September 30, 1997.

NOTE 4  -- COMMITMENTS AND CONTINGENCIES

         The Company is involved from time to time in various claims and
lawsuits incidental to its business. In the opinion of management, the ultimate
liability thereunder, if any, will not have a material adverse affect on the
financial position or results of operations of the Company.

NOTE 5  -- PRO FORMA COMBINED FINANCIAL INFORMATION

         The unaudited combined pro forma information for the three months and
the nine months ended September 30, 1996 gives effect to the TransTexas
Acquisition, the Soxco Acquisition and the application of the net proceeds from
the IPO as if such transactions had been completed as of January 1, 1996. See
Note 2--Acquisitions and Note 3--Stockholders' Equity.

         The historical results of operations have been adjusted to reflect (i)
an increase in natural gas and oil revenues, lease operating expense, general
and administrative expense and depreciation, depletion and amortization
attributed to the acquired properties, (ii) a reduction in interest expense
giving effect to the use of proceeds from the IPO to pay down long-term debt and
(iii) a net increase in income taxes as a result of the above.



                                       -8-

<PAGE>   10




           The pro forma combined financial information does not purport to be
indicative of the results of operations of the Company had such transactions
occurred on the date assumed, nor is the pro forma combined information
necessarily indicative of the future results of operations of the Company. The
pro forma combined financial information should be read together with the
Combined Financial Statements of the Company, including the Notes thereto.


<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED     NINE MONTHS ENDED
                                                     SEPTEMBER 30, 1996     SEPTEMBER 30, 1996
                                                     ------------------     ------------------
<S>                                                     <C>                  <C>
REVENUES
  Natural gas and oil revenues....................         $  21,860              $ 62,915
  Other...........................................               249                   784
                                                         -----------          ------------
     Total revenues...............................            22,109                63,699
OPERATING COSTS AND EXPENSES......................
  Lease operating expense.........................             4,053
                                                                                    11,089
  Depreciation, depletion and amortization........            12,162                32,486
  General and administrative, net.................             2,131                 4,927
                                                         -----------          ------------
     Total operating expenses.....................            18,346                48,502

INCOME FROM OPERATIONS............................             3,763                15,197
Interest expense, net.............................               504                 1,294
                                                         -----------         -------------
Income before income taxes........................             3,259
                                                                                    13,903
Provision for federal income taxes................               687                 3,419
                                                         -----------          ------------
NET INCOME........................................       $     2,572           $    10,484
                                                         ===========           ===========
Net income per share..............................       $      0.11           $      0.45
                                                         ===========           ===========
Weighted average shares outstanding...............            23,333                23,333
</TABLE>
         


NOTE 6 -- RELATED PARTY TRANSACTIONS


       Effective January 1, 1997, the Company entered into an agreement to sell
to a subsidiary of Brooklyn Union certain interests in onshore producing wells
of the Company that produce from formations that qualify for tax credits under
Section 29 of the Internal Revenue Code ("Section 29"). Section 29 provides for
a tax credit from non-conventional fuel sources such as oil produced from shale
and tar sands and natural gas produced from geopressured brine, Devonian shale,
coal seams and tight sands formations. Brooklyn Union acquired an economic
interest in wells that are qualified for the tax credits and in exchange, the
Company (i) retained a volumetric production payment and a net profits interest
of 100% in the properties, (ii) received a cash down payment of $1.4 million and
(iii) will receive a quarterly payment of $0.75 for every dollar of tax credit
utilized. The Company will manage and administer the daily operations of the
properties in exchange for an annual management fee of $100,000. At September
30, 1997, the balance sheet effect of this transaction was a $1.4 million
reduction to the full cost pool for the down payment. The income statement
effect for the three months ended and the nine months ended September 30, 1997
was a reduction to income tax expense of $0.3 million and $1.2 million,
respectively, representing benefits received from the Section 29 tax credits.


                                       -9-

<PAGE>   11



ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
            RESULTS OF OPERATIONS

            The following discussion is intended to assist in an understanding
of the historical financial position and results of operations of The Houston
Exploration Company (the "Company") for the three months and the nine months
ended September 30, 1996 and 1997. The Company's historical combined financial
statements and notes thereto included elsewhere in this report contain detailed
information that should be referred to in conjunction with the following
discussion.

GENERAL

            The Company was incorporated in December 1985 to conduct certain of
the natural gas and oil exploration and development activities of The Brooklyn
Union Gas Company ("Brooklyn Union"). Effective September 29, 1997, Brooklyn
Union became a wholly-owned subsidiary of KeySpan Energy Corporation
("KeySpan"). The Company initially focused on the exploration and development of
high potential prospects in the Gulf of Mexico. Effective February 29, 1996,
Brooklyn Union implemented a reorganization of its exploration and production
assets by transferring to the Company certain onshore producing properties and
related developed and undeveloped acreage. Subsequent to the reorganization, the
Company has expanded its focus to include low risk exploitation and development
drilling on the onshore properties transferred, in addition to seeking
opportunistic acquisitions both onshore and offshore. On July 2, 1996, the
Company acquired certain natural gas and oil properties and associated pipelines
located in Zapata County, Texas (the "TransTexas Acquisition") from TransTexas
Gas Corporation and TransTexas Transmission Corporation. In September 1996, the
Company completed an initial public offering (the "IPO") of 7,130,000 shares of
its common stock at $15.50 per share, resulting in net cash proceeds of
approximately $101.0 million. Concurrently with the completion of the IPO, the
Company completed the acquisition of the natural gas and oil properties and
related assets of Smith Offshore Exploration Company (the "Soxco Acquisition").
As of December 31, 1996, THEC Holdings Corp., a wholly-owned subsidiary of
Brooklyn Union, owned approximately 66% of the outstanding shares of Common
Stock. At December 31, 1996, the Company had net proved reserves of 327 Bcfe,
98% of which were natural gas and 74% of which were classified as proved
developed.

            The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate, which are dependent upon numerous factors beyond the Company's
control, such as economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically been highly
volatile, and future decreases in natural gas and oil prices could have a
material adverse effect on the Company's financial position, results of
operations, quantities of natural gas and oil reserves that may be economically
produced, and access to capital.

            The Company uses the full cost method of accounting for its
investment in natural gas and oil properties. Under the full cost method of
accounting, all costs of acquisition, exploration and development of natural gas
and oil reserves are capitalized into a "full cost pool" as incurred, and
properties in the pool are depleted and charged to operations using the
unit-of-production method based on the ratio of current production to total
proved natural gas and oil reserves. To the extent that such capitalized costs
(net of accumulated depreciation, depletion and amortization) less deferred
taxes exceed the present value (using a 10% discount rate) of estimated future
net cash flows from proved natural gas and oil reserves and the lower of cost or
fair value of unproved properties, such excess costs are charged to operations.
If a writedown is required, it would result in a charge to earnings but would
not have an impact on cash flows from operating activities.




                                      -10-

<PAGE>   12



            The Company utilizes natural gas fixed-floating price swaps for a
portion of its natural gas production to achieve a more predictable cash flow,
as well as to reduce its exposure to adverse price fluctuations of natural gas.
The swap agreements call for the Company to receive or make payment based upon
the differential between a fixed and a variable commodity price specified in the
contracts. The Company accounts for these transactions as hedging activities
and, accordingly, gains or losses are included in natural gas and oil revenues
in the period of the hedged production. The Company has entered into contracts
covering an average of approximately 76,300 Mmbtu per day (73,300 Mcf/d) for
October 1997 through December 1997 at a weighted average price of $2.56 per
Mmbtu and contracts covering an average of approximately 30,400 Mmbtu per day
(29,300 Mcf/d) for November 1997 through March 1998 at a weighted average price
of $2.60 per Mmbtu, in each case before transaction and transportation costs.
During September 1997, net production from the Company's properties averaged
approximately 166,000 Mcfe per day.

RESULTS OF OPERATIONS

         The following table sets forth the Company's historical and pro forma
natural gas and oil production data during the periods indicated:

<TABLE>
<CAPTION>

                                                             THREE MONTHS ENDED                       NINE MONTHS ENDED
                                                                 SEPTEMBER 30,                          SEPTEMBER  30,
                                                   -------------------------------------    ------------------------------------
                                                                                PROFORMA                               PRO FORMA
                                                    1997           1996          1996(1)       1997         1996         1996(1)
                                                   -------       -------         -------     --------     --------      --------
<S>                                                <C>           <C>             <C>         <C>          <C>           <C>
Production:
  Natural gas (Mmcf)........................        13,330         9,511          10,650       35,147       21,009        31,606
  Oil (Mbbls)...............................            39            35              47          111           76            98
  Total (Mmcfe).............................        13,564         9,721          10,932       35,813       21,465        32,194
Average sales prices:
  Natural gas (per Mcf)(2)..................        $ 2.13       $  1.91         $  1.96      $  2.11      $  1.84       $  1.93
  Oil (per Bbl).............................         17.79         21.83           21.70        18.71        20.26         20.13
Expenses (per Mcfe):
  Lease operating...........................       $  0.32       $  0.37         $  0.37      $  0.34      $  0.34       $  0.34
  Depreciation, depletion and
     amortization...........................          1.14          1.11            1.11         1.10         1.04          1.01
  General and administrative, net...........          0.10          0.21            0.19         0.12         0.22          0.15
</TABLE>

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


(1)  THE PRO FORMA PRODUCTION INFORMATION FOR THE THREE MONTH AND THE NINE MONTH
     PERIODS ENDED SEPTEMBER 30, 1996 GIVES EFFECT TO THE TRANSTEXAS ACQUISITION
     AND THE SOXCO ACQUISITION AS IF SUCH TRANSACTIONS HAD BEEN COMPLETED AS OF
     JANUARY 1, 1996.
(2)  REFLECTS THE EFFECTS OF HEDGING. ABSENT THE EFFECTS OF HEDGING, AVERAGE
     REALIZED NATURAL GAS PRICES WOULD HAVE BEEN $2.25, $2.06 AND $2.09 PER MCF
     FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997, 1996 AND PRO FORMA 1996,
     RESPECTIVELY; AND $2.31, $2.19 AND $2.16 PER MCF FOR THE NINE MONTHS ENDED
     SEPTEMBER 30, 1997,1996 AND PRO FORMA 1996.



                                      -11-

<PAGE>   13



RECENT FINANCIAL AND OPERATING RESULTS

         COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997

         General. Houston Exploration's production increased 40% from 9,721
Mmcfe for the three months ended September 30, 1996 to 13,564 Mmcfe for the
three months ended September 30, 1997. The primary source of this production
increase is the Charco Field which the Company acquired July 1, 1996 in the
TransTexas Acquisition. Beginning in the fourth quarter of 1996 the Company
initiated a development drilling and work over program that as of September 30,
1997 has resulted in the successful completion of 16 new Charco wells. Since the
end of September 1997, the Company brought on line four additional Charco wells
and was in the process of drilling two more at October 31, 1997. Adding to the
production increase for the three months ended September 30, 1997 was new
offshore production at East Cameron 82/83, Mustang Island 807, Galveston Island
272 and West Cameron 60.

         Natural Gas and Oil Revenues. Natural gas and oil revenues increased
54% from $18.9 million for the three months ended September 30, 1996 to $29.1
million for the three months ended September 30, 1997 as a result of the 40%
increase in production combined with a 12% increase in average realized natural
gas prices from $1.91 per Mcf for the three months ended September 30, 1996 to
$2.13 per Mcf for the three months ended September 30, 1997.

         As a result of hedging activities, the Company realized an average gas
price of $2.13 per Mcf for the three months ended September 30, 1997, compared
to an average price of $2.25 per Mcf that otherwise would have been received,
resulting in a $1.6 million decrease in natural gas revenues for the three month
period. For the three months ended September 30, 1996, the average realized gas
price was $1.91 per Mcf compared to an unhedged average gas price of $2.06 per
Mcf, resulting in a decrease to natural gas revenues of $1.4 million for the
three month period.

         Lease Operating Expenses. Lease operating expenses increased 19% from
$3.6 million for the three months ended September 30, 1996 to $4.3 million for
the three months ended September 30, 1997. On an Mcfe basis, lease operating
expenses decreased 14% from $0.37 for the three months ended September 30, 1996
to $0.32 for the comparable period of 1997. The increase in lease operating
expense is attributable to expansion of the Company's operations at the Charco
Field, the start-up of operations at Mustang Island 807 in early June 1997,
combined with a general increase in costs in the oil service industry. The
decline in the rate per Mcfe reflects the 40% growth in production during the
current three month period combined with the Company's efforts to control costs.
Included as a component of lease operating expense is severance tax which
increased from $0.5 million, or $0.05 per Mcfe, for the three months ended
September 30, 1996 to $0.9 million, or $0.07 per Mcfe, for the corresponding
period of 1997. The increase in severance tax is due to the increase in
production from the onshore Charo Field properties combined with an increase in
gas prices.

         Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense increased 45% from $10.7 million for the three months ended
September 30, 1996 to $15.5 million for the three months ended September 30,
1997. Depreciation, depletion and amortization expense per Mcfe increased 3%
from $1.11 for the three months ended September 30, 1996 to $1.14 for the three
months ended September 30, 1997. The increase in expense was a result of the
production increases from properties acquired in the TransTexas and Soxco
Acquisitions as well as newly developed properties combined with an increase in
the depletion rate. The increase in the depletion rate is attributable to the
expansion of the Company's exploration and development drilling program and
reflects the industry-wide increase in the costs of drilling goods and services,
platform and facilities construction.



                                      -12-

<PAGE>   14



         General and Administrative Expenses. General and administrative
expenses, net of overhead reimbursements received from other working interest
owners of $0.3 million and $0.2 million for the three months ended September 30,
1996 and 1997, respectively, decreased 33% from $2.1 million for the three
months ended September 30, 1996 to $1.4 million for the three months ended
September 30, 1997. However, general and administrative expense for the three
months ended September 30, 1996 includes an $0.8 million charge taken in
conjunction with the IPO for the buyout and termination of stock options granted
to certain officers and directors of Brooklyn Union under the Company's 1994
Incentive Plan. After excluding this one-time charge of $0.8 million taken in
September 1996, general and administrative expense has increased 8% from $1.3
million for the three months ended September 30,1996 to $1.4 million for the
three months ended September 30, 1997 and reflects the overall growth and
expansion of the Company and its operations since the second half of 1996 and
continuing through the first nine months of 1997. The Company capitalized
general and administrative expenses directly related to oil and gas exploration
and development activities of $1.1 million and $1.8 million, respectively, for
the three months ended September 30, 1996 and 1997. The increase in capitalized
general and administrative expense directly corresponds with the growth of the
Company's technical workforce and the implementation of an incentive
compensation plan. On an Mcfe basis, general and administrative expenses
decreased 52% from $0.21 for the three months ended September 30, 1996 to $0.10
for the three months ended September 30, 1997. The lower rate per Mcfe for the
three months ended September 30, 1997 is directly attributable to the
significant increase in production for the three months ended September 30, 1997
as compared to the same period of 1996.

         Income Tax Provision. The provision for income taxes increased from a
benefit of $0.02 million for the three months ended September 30, 1996 to an
expense of $2.5 million for the three months ended September 30, 1997 due to the
increase in pretax income offset by the benefit received from Section 29 tax
credits.

         Net Income. Operating income increased 200% to $8.1 million for the
three months ended September 30, 1997, an increase of $5.4 million compared to
$2.7 million for the same period of 1996. Net income increased 323%, or $4.2
million, from $1.3 million for the three months ended September 30, 1996 to $5.5
million for the three months ended September 30, 1997. The increase in operating
income and net income was attributable primarily to higher production volumes
combined with higher realized natural gas prices.


         COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997

         General. Houston Exploration's production increased 67% from 21,465
Mmcfe for the nine months ended September 30, 1996 to 35,813 Mmcfe for the nine
months ended September 30, 1997. The increase in production was attributable to
added production from both the TransTexas and the Soxco Acquisitions, which were
completed during the second half of 1996, combined with newly developed offshore
production brought on line during the the second and third quarters of 1997 and
the successful development drilling and workover programs begun in the latter
half of 1996 and continuing through the third quarter of 1997 on the Charco
Field properties acquired in the TransTexas Acquisition.

         Natural Gas and Oil Revenues. Natural gas and oil revenues increased
89% from $40.2 million for the nine months ended September 30, 1996 to $76.1
million for the nine months ended September 30, 1997 as a result of the 67%
increase in production combined with a 15% increase in average realized natural
gas prices, from $1.84 per Mcf in the nine months ended September 30, 1996 to
$2.11 per Mcf in the nine months ended September 30, 1997.

         As a result of hedging activities, the Company realized an average gas
price of $2.11 per Mcf for the nine months ended September 30, 1997, compared to
an average price of $2.31 per Mcf that otherwise would have been received,
resulting in a $7.3 million decrease in natural gas revenues for the nine month


                                      -13-

<PAGE>   15



period. For the nine months ended September 30, 1996, the average realized gas
price was $1.84 per Mcf compared to an unhedged average gas price of $2.19,
resulting in a decrease to natural gas revenues of $7.5 million for the nine
month period.

         Lease Operating Expenses. Lease operating expenses increased 72% from
$7.2 million for the nine months ended September 30, 1996 to $12.4 million for
the nine months ended September 30, 1997. On an Mcfe basis, lease operating
expenses remained unchanged at $0.34 for both the nine month periods ended
September 30, 1996 and 1997. The increase in lease operating expense for the
first nine months of 1997 is primarily attributable to properties acquired in
the TransTexas Acquisition and the significant expansion of operations in the
Charco Field combined with the effects of an industry-wide increase in drilling
and operating costs. Included as a component of lease operating expense is
severance tax which increased from $0.8 million, or $0.04 per Mcfe, for the nine
months ended September 30, 1996 to $2.6 million, or $0.07 per Mcfe, for the
corresponding period of 1997. The increase in severance tax is due to the
onshore Charco Field properties acquired and the increase in production from
these properties during 1997 combined with an increase in gas prices.

         Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense increased 77% from $22.3 million for the nine months ended
September 30, 1996 to $39.5 million for the nine months ended September 30,
1997. Depreciation, depletion and amortization expense per Mcfe increased 6%
from $1.04 for the nine months ended September 30, 1996 to $1.10 for the nine
months ended September 30, 1997. The increase in expense was a result of the
increased production from acquired as well as newly developed properties
combined with an increased depletion rate. The increase in the depletion rate is
attributable to exploratory drilling in 1996 and 1997 which did not add
significant new reserves combined with an industry wide increase in costs of
drilling goods and services, platform and facilities construction.

         General and Administrative Expenses. General and administrative
expenses, net of overhead reimbursements received from other working interest
owners of $0.7 million for each the nine month periods ended September 30, 1996
and 1997, decreased 10% from $4.8 million for the nine months ended September
30, 1996 to $4.3 million for the nine months ended September 30, 1997. After
excluding the one-time charge of $0.8 million taken in September 1996, in
conjunction with the IPO, for the buyout and termination of stock options
granted to certain officers and directors of Brooklyn Union, general and
administrative expense increased 8% from $4.0 million for the nine months ended
September 30, 1996 to $4.3 million for the corresponding period of 1997. The
increase in general and administrative expense reflects the overall growth and
expansion of the Company and its operations since the second half of 1996 and
continuing through the first nine months of 1997. The Company capitalized
general and administrative expenses directly related to oil and gas exploration
and development activities of $3.5 million and $5.2 million, respectively, for
the nine months ended September 30, 1996 and 1997. The increase in capitalized
general and administrative expense directly corresponds with the growth of the
Company's technical workforce and the implementation of an incentive
compensation plan. On an Mcfe basis, general and administrative expenses
decreased 45% from $0.22 for the nine months ended September 30, 1996 to $0.12
for the nine months ended September 30, 1997. The lower rate per Mcfe during the
first nine months of 1997 reflects the increase in the Company's production
during the first nine months of 1997.

         Income Tax Provision. The provision for income taxes increased from a
benefit of $0.04 million for the first nine months of 1996 to an expense of $5.5
million for the first nine months of 1997 due to the increase in pretax income
offset by the benefit received from Section 29 tax credits.

         Net Income. Operating income increased 213% to $20.7 million for the
nine months ended September 30, 1997, an increase of $14.1 million compared to
$6.6 million for the same period of 1996. Net income increased 259%, or $10.6
million, from $4.1 million for the nine months ended September 30, 1996 to $14.7
million for the nine months ended September 30, 1997. The significant increase
in operating income


                                      -14-

<PAGE>   16



and net income was attributable primarily to higher production volumes and
higher net realized natural gas prices.


LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically funded its operations, acquisitions,
capital expenditures and working capital requirements from cash flows from
operations, bank borrowings and capital contributions from Brooklyn Union.
Subsequent to the IPO, the Company has not received and does not anticipate
receiving capital contributions from Brooklyn Union.

         As of September 30, 1997, the Company had a working capital deficit of
$6.2 million (which includes the accrued liability of $8.8 million for the Soxco
deferred purchase price which is payable in shares of common stock during the
first quarter of 1998) and $30.4 million of available borrowing base under its
Credit Facility. Net cash provided by operating activities for the first nine
months of 1997 was $64.8 million compared to $41.8 million for the same period
of 1996. The Company's cash position was increased during the period by
borrowings of $47.0 million under the Company's Credit Facility. Funds used in
investing and financing activities consisted of $98.5 million for investments in
property and equipment and principal payments of $14.0 million on long-term
borrowing under the Credit Facility. As a result of these activities, cash and
cash equivalents increased $0.5 million from $2.8 million at December 31, 1996
to $3.3 million at September 30, 1997.

         During the nine months ended September 30, 1997, the Company spent
approximately $98.5 million on exploration and development. As a result of the
Company's continued development drilling program in the Charco Field and the
acceleration of offshore exploratory drilling during the second half of 1997,
the Company's Board of Directors has approved an increase of $45 million to the
initial capital expenditure budget of $75 million for 1997. These amounts
include development costs associated with recently acquired properties and
amounts that are contingent upon drilling success. The Company will continue to
evaluate its capital spending plans through the remainder of the year. No
significant abandonment or dismantlement costs are anticipated through 1997.
Actual levels of capital expenditures may vary significantly due to a variety of
factors, including drilling results, natural gas and oil prices, industry
conditions and outlook and future acquisitions of properties. The Company
believes cash flows from operations and borrowings under its credit facility
will be sufficient to fund these expenditures. The Company will continue to
selectively seek acquisition opportunities for proved reserves with substantial
exploration and development potential both offshore and onshore. The size and
timing of capital requirements for acquisitions is inherently unpredictable. The
Company expects to fund exploration and development through a combination of
cash flow from operations, borrowings under its credit facility, additional
borrowing facilities or the issuance of equity or debt securities.

         The Company has entered into a credit facility (the "Credit Facility")
with a syndicate of lenders led by Texas Commerce Bank National Association
("TCB") which provides a maximum loan amount of $150 million, subject to
borrowing base limitations, on a revolving basis. Effective August 4, 1997, the
borrowing base was redetermined to be $130 million. The previous borrowing base
of $150 million was established July 2, 1996 in order to facilitate the
TransTexas and Soxco Acquisitions. At September 30, 1997, $98 million was
borrowed and $1.6 million was committed under outstanding letter of credit
obligations. The Credit Facility matures on July 1, 2000. Advances under the
Credit Facility bear interest, at the Company's election at (i) a fluctuating
rate ("Base Rate") equal to the higher of the Federal Funds Rate plus 0.5% or
TCB's prime rate or (ii) a fixed rate ("Fixed Rate") equal to a quoted LIBOR
rate plus a margin between 0.5% and 1.125% depending on the amount outstanding
under the Credit Facility. Interest is due at calendar quarters for Base Rate
loans and at the earlier of maturity or three months from the date of the loan
for Fixed Rate loans. The Credit Facility, as amended August 4, 1997, contains
covenants of the Company, including certain restrictions on liens and financial
covenants which require the Company to, among other things, maintain


                                      -15-

<PAGE>   17



(i) an interest coverage ratio of 2.5 to 1.00 of cash interest to earnings
before interest, taxes and depreciation and (ii) a total debt to capitalization
ratio of less than 60%. The Credit Facility also restricts the Company's ability
to purchase or redeem its capital stock or to pledge its oil and gas properties
or other assets. As of September 30, 1997 the Company was in compliance with all
Credit Facility covenants. The borrowing base under the Credit Facility is
determined by TCB in its discretion in accordance with TCB's then current
standards and practices for similar oil and gas loans taking into account such
factors as TCB deems appropriate.



                                      -16-

<PAGE>   18



PART II.         OTHER INFORMATION


ITEM 6.                  EXHIBITS AND REPORTS ON FORM 8-K

                 (a)     Exhibits

         EXHIBIT NO.             DESCRIPTION


         10.1    __     Second Amendment to Credit Agreement among The Houston
                        Exploration Company and Texas Commerce Bank National 
                        Association

         27.1    __     Financial Data Schedule

                 (b)     Reports on Form 8-K:
                         None.


                                      -17-

<PAGE>   19




                                   SIGNATURES

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


                         THE HOUSTON EXPLORATION COMPANY



Date: October 31, 1997               By: /s/    James G. Floyd
                                         ---------------------
                                          James G. Floyd
                                          President and Chief Executive Officer



Date: October 31, 1997               By: /s/    James F. Westmoreland
                                         ----------------------------
                                          James F. Westmoreland
                                          Vice President, Chief Accounting 
                                          Officer, Comptroller and Secretary



                                                   -18-

<PAGE>   20

                                 EXHIBIT INDEX

         EXHIBIT NO.             DESCRIPTION


         10.1    __     Second Amendment to Credit Agreement among The Houston
                        Exploration Company and Texas Commerce Bank National 
                        Association

         27.1    __     Financial Data Schedule