<PAGE>   1
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                                 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 [NO FEE REQUIRED]

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

                                       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: 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)                      

                         1331 LAMAR STREET, SUITE 1065
                              HOUSTON, TEXAS 77010
                             (ADDRESS OF PRINCIPAL
                               EXECUTIVE OFFICES
                                 AND ZIP CODE)
                                 (713) 652-2847
                         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 _____ No _____

        As of April 30, 1997, 23,332,763 shares of Common Stock, $.01 per
share, were outstanding.



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


<PAGE>   2



                        THE HOUSTON EXPLORATION COMPANY

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                            <C>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS....................................2

PART I.  FINANCIAL INFORMATION

Item 1.       Financial Statements (unaudited)

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

              Combined Statements of Operations -- Three-Month Periods
                  Ended March 31, 1997 and 1996.................................4

              Combined Statements of Cash Flows -- Three Month Periods
                  Ended March 31, 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.................................12

SIGNATURES.....................................................................15
</TABLE>



                                      -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>
                                                                MARCH 31,   DECEMBER 31,
                                                                  1997         1996
                                                                ---------    ---------
                                                               (UNAUDITED)
<S>                                                             <C>          <C>      
ASSETS:
   Cash and cash equivalents ................................   $   8,219    $   2,851
   Accounts receivable ......................................      25,552       35,845
   Accounts receivable--Affiliate ...........................         562         --
   Inventories ..............................................       1,309          992
   Prepayments and other ....................................       1,424          924
                                                                ---------    ---------
        Total current assets ................................      37,066       40,612
                                                                ---------    ---------
   Natural gas and oil properties, full cost method
        Unevaluated properties ..............................      71,223       60,258
        Properties subject to amortization ..................     482,343      468,062
   Other property and equipment .............................       7,403        7,308
                                                                ---------    ---------
                                                                  560,969      535,628
   Less: Accumulated depreciation, depletion and amortization    (187,923)    (176,504)
                                                                ---------    ---------
                                                                  373,046      359,124
   Other assets .............................................       1,173        1,549
                                                                ---------    ---------
        TOTAL ASSETS ........................................   $ 411,285    $ 401,285
                                                                =========    =========

LIABILITIES:
   Accounts payable and accrued expenses ....................   $  35,690    $  36,650
     Accounts payable-Affiliate                                      --          1,010
                                                                ---------    ---------
         Total current liabilities
                                                                   35,690       37,660
   Long-term debt ...........................................      77,500       65,000
   Deferred federal income tax ..............................      59,586       56,475
   Other deferred liabilities ...............................         185        8,850
                                                                ---------    ---------
        TOTAL LIABILITIES ...................................     172,961      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 ...............................     221,602      222,271
   Retained earnings ........................................      16,489       10,796
                                                                ---------    ---------
        TOTAL STOCKHOLDERS' EQUITY ..........................     238,324      233,300
                                                                ---------    ---------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..........   $ 411,285    $ 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
                                                     MARCH 31,
                                              -----------------------
                                                 1997         1996
                                              ----------   ----------
<S>                                           <C>          <C>       
REVENUES
   Natural gas and oil revenues ...........   $   25,014   $    9,980
   Other ..................................          314          233
                                              ----------   ----------
      Total revenues ......................       25,328       10,213
                                              ----------   ----------

OPERATING COSTS AND EXPENSES
   Lease operating ........................        4,249        1,828
   Depreciation, depletion and amortization       11,382        5,674
   General and administrative, net ........        1,410        1,492
                                              ----------   ----------
      Total operating expenses ............       17,041        8,994
                                                           

INCOME FROM OPERATIONS ....................        8,287        1,219
Interest expense, net .....................          143          461
                                              ----------   ----------
Income before income taxes ................        8,144          758
Provision (benefit) for federal
      income taxes ........................        2,451         (218)
                                              ----------   ----------

NET INCOME ................................   $    5,693   $      976
                                              ==========   ==========

Net income per share ......................   $     0.24   $     0.06
                                              ==========   ==========

Weighted average shares outstanding .......       23,333       15,295
</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>
                                                                     THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                  ------------------------
                                                                     1997          1996
                                                                  ----------    ----------
<S>                                                               <C>           <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................   $    5,693    $      976
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation, depletion and amortization ...................       11,382         5,674
   Deferred income tax expense ................................        2,451         3,926
Changes in operating assets and liabilities:
   Decrease (increase) in accounts receivable .................        9,731        (1,956)
   Increase in inventories ....................................         (500)          (16)
   Increase in prepayments and other ..........................         (317)         (287)
   Decrease in other assets and liabilities ...................          536         1,362
   Increase (decrease) in accounts payable and accrued expenses      (10,795)          800
                                                                  ----------    ----------
Net cash provided by operating activities .....................       18,181        10,479

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment ..........................      (26,876)      (18,915)
Dispositions and other ........................................        1,572         1,513
                                                                  ----------    ----------
Net cash used in investing activities .........................      (25,304)      (17,402)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ............................       21,500         3,102
Paydowns on long-term borrowings ..............................       (9,000)         -- 
Common stock issuance costs ...................................           (9)         --
Capital contributions from Brooklyn Union .....................         --           6,072
                                                                  ----------    ----------
Net cash provided by financing activities .....................       12,491         9,174

Increase in cash and cash equivalents .........................        5,368         2,251

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

Cash and cash equivalents, end of period ......................   $    8,219    $    2,849
                                                                  ==========    ==========

Cash paid for interest ........................................   $    1,443    $    1,212
                                                                  ==========    ==========
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"). 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 March 31, 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.


         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


                                      -6-

<PAGE>   8




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
overallotment option on September 30, 1996. The closing of the overallotment,
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 March
31, 1997, the Company had 2,333,276 options authorized of which 1,258,638 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
were antidilutive for the three months ended March 31, 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
ended March 31, 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
                                            MARCH 31, 1996
                                           ---------------
<S>                                          <C>       
REVENUES

  Natural gas and oil revenues ...........   $   19,999

  Other ..................................          233
                                             ----------

     Total revenues ......................       20,232

OPERATING COSTS AND EXPENSES

  Lease operating expense ................        3,608

  Depreciation, depletion and amortization       10,037

  General and administrative, net ........        1,537
                                             ----------

     Total operating expenses ............       15,182

INCOME FROM OPERATIONS ...................        5,050

Interest expense, net ....................          315
                                             ----------

Income before income taxes ...............        4,735

Provision for federal income taxes .......        1,174
                                             ----------

NET INCOME ...............................   $    3,561
                                             ==========

Net Income per share .....................   $     0.15
                                             ==========

Weighted average shares outstanding ......       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 cerrtain 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 will acquire an economic
interest in wells that are qualified for the tax credits and in exchange, the
Company will (i) retain a volumetric production payment and a net profits
interest of 100% in the properties, (ii) receive a cash down payment of $1.6
million and (iii) 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 March
31, 1997, the balance sheet effect of this transaction was a $1.6 million
reduction to the full cost pool for the down payment. The income statement
effect for the three months ended March 31, 1997 was a reduction to income tax
expense of $0.4 million.




                                      -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 ended March 31, 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"). 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.

         Natural gas prices declined substantially during the first quarter of
1997 from prices in effect at December 31, 1996. However, as of March 31, 1997,
using prices in effect as of such date, the ceiling limitation imposed under
full cost accounting rules on total capitalized natural gas and oil property
cost exceeded actual capitalized costs. Depending upon natural gas prices and
the results of the Company's drilling programs during



                                      -10-

<PAGE>   12



the second quarter of 1997, the Company may be required to write down the
carrying value of its natural gas and oil properties.

         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 53,000 Mmbtu per day
(51,000 Mcf/d) for April 1997 through October 1997 at a weighted average price
of $1.98 per Mmbtu and contracts covering an average of approximately 19,000
Mmbtu per day (18,000 Mcf/d) for November 1997 through March 1998 at a weighted
average price of $2.02 per Mmbtu, in each case before transaction and
transportation costs. During March 1997, net production from the Company's
properties averaged approximately 123,000 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
                                                   MARCH 31,
                                    ---------------------------------------
                                                                  PRO FORMA
                                       1997         1996            1996(1)
                                    ----------   ----------       ---------
<S>                                 <C>          <C>             <C>       
Production:
  Natural gas (Mmcf) ............       10,571        5,739          10,421
  Oil (Mbbls) ...................           33           25              31
  Total (Mmcfe) .................       10,769        5,889          10,607
Average sales prices:
  Natural gas (per Mcf)(2) ......   $     2.30   $     1.67      $     1.87
  Oil (per Bbl) .................        21.09        15.00           15.10
Expenses (per Mcfe):
  Lease operating ...............   $     0.39   $     0.31      $     0.34
  Depreciation, depletion and
     amortization ...............         1.06         0.96            0.95
  General and administrative, net         0.13         0.25            0.14
</TABLE>


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


(1)  The pro forma production information for the period ended March 31, 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 $2.77, $2.28 and $2.21 per Mcf
     for the three months ended March 31, 1997, 1996 and pro forma 1996,
     respectively.

RECENT FINANCIAL AND OPERATING RESULTS

         COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1997

         General. Houston Exploration's production increased 83% from 5,889
Mmcfe for the three months ended March 31, 1996 to 10,769 Mmcfe for the three
months ended March 31, 1997. The increase in production was attributable to
added production from both the TransTexas and the Soxco Acquisitions completed
during the second half of 1996; combined with newly developed offshore
production brought on line during the latter portion of the first and second
quarters of 1996 and the successful development drilling and workover programs


                                    -11-
<PAGE>   13


begun in the latter half of 1996 and continuing through the first quarter of
1997 on the Charco Field properties acquired in the TransTexas Acquisition.

         Natural Gas and Oil Revenues. Natural gas and oil revenues increased
150% from $10.0 million for the three months ended March 31, 1996 to $25.0
million for the three months ended March 31, 1997 as a result of the 83%
increase in production combined with a 38% increase in average realized natural
gas prices from $1.67 per Mcf in the three months ended March 31, 1996 to $2.30
per Mcf in the three months ended March 31, 1997.

         As a result of hedging activities, the Company realized an average gas
price of $2.30 per Mcf for the three months ended March 31, 1997, compared to
an average price of $2.77 per Mcf that otherwise would have been received,
resulting in a $5.0 million decrease in natural gas revenues for the three
month period. For the three months ended March 31, 1996; the average realized
gas price was $1.67 per Mcf compared to an unhedged average gas price of $2.28,
resulting in an decrease to natural gas revenues of $3.5 million for the three
month period.

         Lease Operating Expenses. Lease operating expenses increased from $1.8
million for the three months ended March 31, 1996 to $4.2 million for the three
months ended March 31, 1997. On an Mcfe basis, lease operating expenses
increased 26% from $0.31 for the three months ended March 31, 1996 to $0.39 for
the three months ended March 31, 1997. The increase in lease operating expense
for the first quarter of 1997 is primarily attributable to properties acquired
in the TransTexas Acquisition combined with the effects of an industry-wide
increase in drilling and operating costs.

         Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense increased from $5.7 million for the three months ended
March 31, 1996 to $11.4 million for the three months ended March 31, 1997.
Depreciation, depletion and amortization expense per Mcfe increased from $0.96
for the three months ended March 31, 1996 to $1.06 for the three months ended
March 31, 1997. The increase in expense was a result of the increased
production from the Company's two key acquisitions during 1996 combined with an
increased depletion rate. The increase in the depletion rate is attributable to
exploratory drilling in 1996 which did not add significant new reserves.

         General and Administrative Expenses. General and administrative
expenses, net of overhead reimbursements received from other working interest
owners of $0.3 million for each of the three months ended March 31, 1996 and
1997, respectively, decreased from $1.5 million for the three months ended
March 31, 1996 to $1.4 million for the three months ended March 31, 1997. The
Company capitalized general and administrative expenses directly related to oil
and gas exploration and development activities of $1.2 million and $1.8
million, respectively, for the three months ended March 31, 1996 and 1997.
While net general and administrative expense has decreased slightly from the
first quarter of 1996, the increase in gross and capitalized general and
administrative expense reflects the overall growth and expansion of the
Company's operations during the second half of 1996 and continuing through the
first quarter of 1997. On an Mcfe basis, general and administrative expenses
decreased from $0.25 for the three months ended March 31, 1996 to $0.13 for the
three months ended March 31, 1997. The higher rate per Mcfe during the first
three months of 1996 reflects certain one-time expenses incurred in conjunction
with the combination of onshore and offshore operations pursuant to the
February 1996 reorganization. The lower rate for the first three months ended
1997 corresponds to the absence of the one-time expenses and the increase in
production during the current period.

         Income Tax Provision. The provision for income taxes increased from a
benefit of $0.2 million for the first three months of 1996 to an expense of
$2.5 million for the first three months due to the increase in pretax income.




                                     -12-
<PAGE>   14

         Net Income. Operating income increased to $8.3 million for the three
months ended March 31, 1997, an increase of $7.1 million compared to $1.2
million for the same period of 1996. Net income increased $4.7 million from
$1.0 million for the three months ended March 31, 1996, to $5.7 million for the
three months ended March 31, 1997. The significant increase in operating income
and net income was attributable 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.

         The Company had $1.4 million in working capital and $70.9 million
available borrowing base under its Credit Facility as of March 31, 1997. Net
cash provided by operating activities for the first three months of 1997 was
$18.2 million compared to $10.5 million for the same period of 1996. The
Company's cash position was increased during the period by borrowings of $21.5
million under the Company's Credit Facility. Funds used in investing and
financing activities consisted of $25.3 million for investments in property and
equipment and principal payments of $9.0 million on long-term borrowing under
the Credit Facility. As a result of these activities, cash and cash equivalents
increased $5.4 million from $2.8 million at December 31, 1996 to $8.2 million
at March 31, 1997.

         The Company's capital expenditure budget of $75 million for 1997
includes $39 million and $36 million, respectively, for exploration and
development. 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 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. On March 31, 1997, the
borrowing base was $150 million, $77.5 million of which 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 contains covenants of the Company, including
certain restrictions on liens and financial covenants which require the Company
to, among other things, maintain (i) a minimum tangible net worth ($184.2
million as of March 31, 1997) and (ii) a total debt to capitalization ratio of
less than 55%. 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. 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.




                                      -13-

<PAGE>   15



PART II. OTHER INFORMATION

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits

EXHIBIT NO.       DESCRIPTION

  27.1              --Financial Data Schedule

                  (b)      Reports on Form 8-K:

                           None.




                                      -14-

<PAGE>   16



                                   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:   April 30, 1997              By: /s/ James G. Floyd
                                       -----------------------------------------
                                        President and Chief Executive Officer



Date:   April 30, 1997              By: /s/ James F. Westmoreland
                                       -----------------------------------------
                                       Vice President, Chief Accounting Officer,
                                                 Comptroller and Secretary




                                      -15-

<PAGE>   17
                              INDEX TO EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
-------                  -----------
<S>           <C>
  27.1        -  Financial Data Schedule
</TABLE>