TITAN EXPLORATION INC, S-4, 1997-11-14

TITAN EXPLORATION INC
S-4, 1997-11-14
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997

REGISTRATION NO. 333-

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

TITAN EXPLORATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 1311 75-2671582
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION NO.)
ORGANIZATION)

500 WEST TEXAS, SUITE 500 JACK D. HIGHTOWER
MIDLAND, TEXAS 79701 500 WEST TEXAS, SUITE 500
(915) 498-8600 MIDLAND, TEXAS 79701
(ADDRESS, INCLUDING ZIP CODE, AND (915) 498-8600
TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE,
AREA CODE, OF REGISTRANT'S PRINCIPAL AND TELEPHONE
EXECUTIVE OFFICES) NUMBER, INCLUDING AREA CODE, OF AGENT
FOR SERVICE)

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

COPIES TO:
JOE DANNENMAIER CHARLES H. STILL, JR.
THOMPSON & KNIGHT, P.C. BRACEWELL & PATTERSON, L.L.P.
1700 PACIFIC AVENUE, SUITE 3300 711 LOUISIANA STREET, SUITE 2900
DALLAS, TEXAS 75201 HOUSTON, TEXAS 77002

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon the
effective date of the Merger described in this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

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

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 5,573,011(1) $12.1032(2) $67,451,131.25(2) $20,440
- -----------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share........ 8,000,000(3) $12.3125(4) $98,500,000(4) $29,849
- -----------------------------------------------------------------------------------------
Total................... 13,573,011 -- $165,951,131.25 $50,289(5)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Consists of (a) 5,482,187 shares of Titan Common Stock issuable upon the
conversion pursuant to the Merger of shares of OEDC Common Stock and (b)
90,824 shares of Titan Common Stock issuable upon the conversion of shares
held in OEDC's 401(k) plan or upon conversion pursuant to the Merger of
shares of OEDC Common Stock that may be issued prior to the consummation
of the Merger pursuant to the exercise of currently outstanding OEDC
options.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(e) and (f), based on the average of the high and low
sales prices for OEDC's Common Stock on the Nasdaq National Market on
November 12, 1997.
(3) Consists of shares of Titan Common Stock that may be offered and issued in
future acquisitions of other businesses, in business combination
transactions in accordance with Rule 415(a)(1)(viii) of Regulation C under
the Securities Act of 1933 or otherwise permitted under the Securities Act
of 1933.
(4) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c), based on the average of high and low sales prices
for Titan's Common Stock on the Nasdaq National Market on November 12,
1997.
(5) $14,244 of such fee was previously paid in connection with the related
preliminary proxy materials filed with the Securities and Exchange
Commission on October 9, 1997.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

EXPLANATORY NOTE

This registration statement contains two forms of prospectuses: one to be
used in connection with the proposed merger of a subsidiary of the registrant
with Offshore Energy Development Corporation and one to be used in connection
with future acquisitions of other businesses, in business combination
transactions in accordance with Rule 415(a)(1)(viii) of Regulation C under the
Securities Act of 1933, as amended. The financial statements included in the
"F" pages of the former are also to be included in the latter, but, to save
space in this filing, have not been duplicated.
<PAGE>

TITAN EXPLORATION, INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701

November 14, 1997

To Our Stockholders:

You are cordially invited to attend a Special Meeting of Stockholders of
Titan Exploration, Inc. ("Titan") to be held at 10:00 a.m., local time, on
December 12, 1997, at the Midland Room, Tower Two, Fasken Center, 550 West
Texas, Midland, Texas.

At the Special Meeting, stockholders will be asked to approve a merger
proposal (the "Merger Proposal"). The Merger Proposal includes approval of a
merger agreement pursuant to which a newly formed, wholly owned subsidiary of
Titan would merge with and into Offshore Energy Development Corporation
("OEDC"). The merger agreement provides that, upon consummation of the merger,
each issued and outstanding share of Common Stock of OEDC would be converted
into the right to receive 0.630 of a share of Common Stock of Titan. The
Merger Proposal is described more fully in the accompanying Joint Proxy
Statement/Prospectus.

Titan's Board of Directors believes that the Merger Proposal is fair to and
in the best interests of the stockholders of Titan and recommends that you
vote FOR the Merger Proposal. Approval of the Merger Proposal requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of Titan present and entitled to vote thereon at the Special
Meeting. Approval of the Merger Proposal will constitute approval of the
merger agreement and the issuance of shares of Common Stock of Titan pursuant
to the merger.

You are urged to read carefully the Joint Proxy Statement/Prospectus and the
Appendices thereto in their entirety for a complete description of the Merger
Proposal. Whether or not you plan to be at the Special Meeting, please be sure
to sign, date and return the enclosed proxy or voting instruction card in the
enclosed envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes.
Your vote is important regardless of the number of shares you own.

Sincerely,

Jack D. Hightower
Chairman, President and Chief
Executive Officer
<PAGE>

TITAN EXPLORATION, INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997

To the Stockholders of
Titan Exploration, Inc.:

A special meeting of stockholders of Titan Exploration, Inc., a Delaware
corporation ("Titan"), will be held at 10:00 a.m., local time, on December 12,
1997, at the Midland Room, Tower Two, Fasken Center, 550 West Texas, Midland,
Texas, for the following purposes:

1. To consider and vote upon, as a single proposal, (a) the approval of
the Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") attached as Appendix I to the accompanying Joint Proxy
Statement/Prospectus, pursuant to which, among other things, (i) a newly
formed, wholly owned subsidiary of Titan would merge with and into Offshore
Energy Development Corporation ("OEDC") (the "Merger") and (ii) each issued
and outstanding share of Common Stock of OEDC would be converted in the
Merger into the right to receive 0.630 of a share of Common Stock of Titan,
subject to and in accordance with the terms and conditions of the Merger
Agreement, and (b) the approval of the issuance of shares of Common Stock
of Titan pursuant to the Merger Agreement; and

2. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on October 24, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record
of shares of Common Stock of Titan at the close of business on the record date
are entitled to notice of and to vote at the meeting. A complete list of such
stockholders will be available for examination at the offices of Titan in
Midland, Texas during normal business hours by any Titan stockholder, for any
purpose germane to the special meeting, for a period of 10 days prior to the
meeting. Stockholders of Titan are not entitled to any appraisal or
dissenter's rights under the Delaware General Corporation Law in respect of
the Merger.

STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED. If a stockholder who has returned a proxy
attends the meeting in person, such stockholder may revoke the proxy and vote
in person on all matters submitted at the meeting.

By Order of the Board of Directors

Susan D. Rowland
Secretary

Midland, Texas
November 14, 1997
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION
1400 WOODLOCH FOREST DRIVE
SUITE 200
THE WOODLANDS, TEXAS 77380

November 14, 1997

Dear OEDC Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders of
Offshore Energy Development Corporation ("OEDC") at 10:00 a.m., local time, on
December 12, 1997, at The Woodlands Executive Conference Center, 2301 North
Millbend, The Woodlands, Texas.

At the Special Meeting, you will be asked to consider and vote upon a
proposal to authorize, approve and adopt an Amended and Restated Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger (the
"Merger") of a wholly owned subsidiary of Titan Exploration, Inc. ("Titan")
with and into OEDC. Under the terms of the Merger Agreement, each outstanding
share of Common Stock of OEDC, $.01 par value per share ("OEDC Common Stock"),
will be converted into the right to receive 0.630 of a share of Common Stock
of Titan, $.01 par value per share.

OEDC's Board of Directors believes that the terms of the Merger are fair to
and in the best interests of the stockholders of OEDC and recommends that you
vote FOR adoption and approval of the Merger Agreement and the Merger.

The Board of Directors of OEDC has retained the investment banking firm of
Raymond James & Associates, Inc. ("Raymond James") to advise it with respect
to the fairness of the consideration to be received by the stockholders of
OEDC in the Merger. Raymond James has advised the Board that, in its opinion,
the consideration to be received by the holders of OEDC Common Stock pursuant
to the Merger Agreement is fair to such holders from a financial point of
view. A copy of the opinion of Raymond James is included in the enclosed Joint
Proxy Statement/Prospectus as Appendix II thereto.

YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF 66 2/3% OF
THE OUTSTANDING SHARES OF OEDC COMMON STOCK IS REQUIRED TO ADOPT AND APPROVE
THE MERGER AGREEMENT AND THE MERGER. FURTHER, THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF OEDC COMMON STOCK (I) HELD
BY PERSONS OTHER THAN MEMBERS OF OEDC'S BOARD OF DIRECTORS AND THEIR
AFFILIATES AND (II) VOTED THEREON AT THE SPECIAL MEETING IS A CONDITION TO THE
OBLIGATIONS OF EACH OF TITAN AND OEDC TO COMPLETE THE MERGER. FAILURE TO VOTE,
THEREFORE, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AND THE
MERGER AGREEMENT. ACCORDINGLY, WE URGE YOU TO COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON IF YOU WISH TO DO SO.

You are urged to read carefully the Joint Proxy Statement/Prospectus and the
Appendices thereto in their entirety for a complete description of the Merger
and the Merger Agreement. Whether or not you plan to be at the Special
Meeting, please be sure to sign, date and return the enclosed proxy or voting
instruction card in the enclosed envelope as promptly as possible so that your
shares may be represented at the Special Meeting and voted in accordance with
your wishes. Your vote is important regardless of the number of shares you
own.

Sincerely,

David B. Strassner
President
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION
1400 WOODLOCH FOREST DRIVE
SUITE 200
THE WOODLANDS, TEXAS 77380

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997

To the Stockholders of
Offshore Energy Development Corporation:

A special meeting of stockholders of Offshore Energy Development
Corporation, a Delaware corporation ("OEDC"), will be held at 10:00 a.m.,
local time, on December 12, 1997, at The Woodlands Executive Conference
Center, 2301 North Millbend, The Woodlands, Texas, for the following purposes:

1. To consider and vote upon a proposal to authorize, approve and adopt
an Amended and Restated Agreement and Plan of Merger, dated as of November
6, 1997 (the "Merger Agreement"), relating to the merger (the "Merger") of
a wholly owned subsidiary of Titan Exploration, Inc. ("Titan") with and
into OEDC, pursuant to which each outstanding share of Common Stock of
OEDC, $.01 par value per share, will be converted into the right to receive
0.630 of a share of Common Stock of Titan, $.01 par value per share, all as
more fully set forth in the accompanying Joint Proxy Statement/Prospectus
and in the Merger Agreement, a copy of which is included as Appendix I
thereto; and

2. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on October 24, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record
of shares of common stock of OEDC at the close of business on the record date
are entitled to notice of and to vote at the meeting. A complete list of such
stockholders will be available for examination at the offices of OEDC in The
Woodlands, Texas during normal business hours by any OEDC stockholder, for any
purpose germane to the special meeting, for a period of 10 days prior to the
meeting. Stockholders of OEDC are not entitled to any appraisal or dissenter's
rights under the Delaware General Corporation Law in respect of the Merger.

Your vote is important. The affirmative vote of the holders of 66 2/3% of
the outstanding shares of Common Stock of OEDC is required for approval of the
Merger Agreement. Further, the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock of OEDC (i) held by persons other
than members of OEDC's Board of Directors and their affiliates and (ii) voted
thereon at the Special Meeting is a condition to the obligations of each of
Titan and OEDC to complete the Merger.

By Order of the Board of Directors,

David B. Strassner
President

The Woodlands, Texas
November 14, 1997
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 14, 1997

TITAN EXPLORATION, INC.

OFFSHORE ENERGY DEVELOPMENT CORPORATION

JOINT PROXY STATEMENT/PROSPECTUS

-----------

This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Titan Offshore, Inc. ("Titan Sub"), a Delaware corporation and a
wholly owned subsidiary of Titan Exploration, Inc. ("Titan"), a Delaware
corporation, with and into Offshore Energy Development Corporation ("OEDC"), a
Delaware corporation, pursuant to an Amended and Restated Agreement and Plan of
Merger among Titan, Titan Sub and OEDC dated November 6, 1997 (the "Merger
Agreement"). As a result of the Merger, (i) the separate corporate existence of
Titan Sub will cease and all of the properties, rights, privileges, powers and
franchises of Titan Sub will vest in OEDC, which will be the surviving
corporation in the Merger and become a wholly owned subsidiary of Titan and
(ii) each share of the Common Stock of OEDC, par value $.01 per share ("OEDC
Common Stock"), outstanding immediately prior to the effective time of the
Merger will be converted into the right to receive 0.630 of a share of the
Common Stock of Titan, par value $.01 per share ("Titan Common Stock").

This Joint Proxy Statement/Prospectus is being furnished to holders of Titan
Common Stock and holders of OEDC Common Stock in connection with the
solicitation of proxies by the respective Boards of Directors of Titan and OEDC
for use at the special meetings of the stockholders of each company to be held
on December 12, 1997. This Joint Proxy Statement/Prospectus and the
accompanying forms of proxy are first being mailed to stockholders of Titan and
OEDC on or about November 17, 1997.

At the Titan special meeting, holders of Titan Common Stock will be asked to
vote on a proposal to approve the Merger Agreement and the issuance of shares
of Titan Common Stock pursuant thereto (the "Merger Proposal"). At the OEDC
special meeting, the holders of OEDC Common Stock will be asked to authorize,
approve and adopt the Merger Agreement.

This Joint Proxy Statement/Prospectus also constitutes a prospectus of Titan
with respect to (i) up to 5,482,187 shares of Titan Common Stock to be issued
pursuant to the Merger in exchange for OEDC Common Stock and (ii) up to 90,824
shares of Titan Common Stock issuable upon the conversion pursuant to the
Merger of shares of OEDC Common Stock held in OEDC's 401(k) plan or shares of
OEDC Common Stock that may be issued prior to the consummation of the Merger
pursuant to the exercise of currently outstanding OEDC options. It is a
condition to consummation of the Merger that the shares of Titan Common Stock
to be issued pursuant to the Merger be approved for listing on the Nasdaq
National Market.

Titan Common Stock is quoted on the Nasdaq National Market under the symbol
"TEXP." On November 13, 1997, the last reported sale price of Titan Common
Stock on the Nasdaq National Market was $11.938 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS REGARDING THE BUSINESS
AND OPERATIONS OF TITAN AND OEDC THAT SHOULD BE EVALUATED BEFORE VOTING ON THE
PROPOSALS HEREIN AT THE TITAN SPECIAL MEETING OR THE OEDC SPECIAL MEETING.

-----------

THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATE HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOVEMBER , 1997.
<PAGE>

NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TITAN OR
OEDC. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF TITAN OR OEDC SINCE THE DATE HEREOF OR THAT THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.

AVAILABLE INFORMATION

Titan and OEDC are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements, information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and
other information may be inspected and copied or obtained by mail upon the
payment of the Commission's prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549, and at the following Regional
Offices of the Commission: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048. In addition,
reports, proxy statements, information statements and other information filed
by Titan and OEDC can be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006 or
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).

Titan has filed with the Commission a registration statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Titan Common Stock to be
issued pursuant to the Merger Agreement, as well as the Titan Common Stock
subject to issuance upon the consummation of future acquisitions. Except as
provided in the Merger Agreement, the information contained herein with
respect to Titan and its subsidiaries, including Titan Sub, has been provided
by Titan and the information with respect to OEDC and its subsidiaries has
been provided by OEDC. This Joint Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Joint Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above or electronically by means of the Commission's home page on
the Internet (http://www.sec.gov).
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY..................................................................... 1
General................................................................... 1
The Companies............................................................. 1
The Meetings.............................................................. 1
The Merger and the Merger Agreement....................................... 3
Recent Developments--Additional Titan Acquisitions........................ 9
Forward Looking Statements or Information................................. 9
Risk Factors.............................................................. 10
Selected Historical Financial Data........................................ 11
Summary Selected Historical Operating Data................................ 13
Summary Historical Oil and Gas Reserve Information........................ 13
Selected Unaudited Pro Forma Combined Financial Data...................... 14
Comparative Per Share Data................................................ 16
RISK FACTORS................................................................ 17
Risks Relating to the Merger.............................................. 17
Integration of Operations............................................... 17
Failure to Achieve Beneficial Synergies................................. 17
Dependence on Retention and Integration of Key Employees................ 17
Risks Associated with Fixed Exchange Ratio.............................. 17
Legal Proceedings....................................................... 18
Substantial Expenses Resulting from the Merger.......................... 18
Risks Relating to the Business of Titan and OEDC.......................... 18
Volatility of Oil and Gas Prices........................................ 18
Uncertainty of Reserve Information and Future Net Revenue Estimates..... 19
Limited Operating History; Rapid Growth................................. 19
Substantial Capital Requirements........................................ 20
Reserve Replacement Risk................................................ 20
Drilling and Operating Risks............................................ 20
Acquisition Risks....................................................... 20
Risk of Hedging Activities.............................................. 21
Marketability of Production............................................. 21
Compliance with Environmental Regulations............................... 21
Dependance on Key Personnel............................................. 21
Control by Existing Stockholders........................................ 22
Competition............................................................. 22
Future Sales of Common Stock............................................ 22
Cumulative Voting; Blank Check Preferred Stock.......................... 22
Absence of Dividends on Common Stock.................................... 22
THE MEETINGS................................................................ 22
Matters to be Considered at the Meetings.................................. 22
Recommendations of the Boards of Directors................................ 23
Voting at Meetings; Record Dates.......................................... 23
Security Ownership of Management and Certain Other Persons................ 24
Proxies................................................................... 24
Solicitation of Proxies................................................... 25
THE MERGER.................................................................. 25
Effects of the Merger..................................................... 25
Background of the Merger.................................................. 26
Reasons for the Merger--Titan............................................. 32
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
Reasons For The Merger--OEDC............................................. 34
Opinion of Financial Advisor to OEDC..................................... 35
Interests of Certain Persons in the Merger............................... 37
Certain Federal Income Tax Consequences.................................. 39
Limitation on Use of Net Operating Loss Carryforwards.................... 40
Anticipated Accounting Treatment......................................... 40
Regulatory Approvals..................................................... 41
Limitations on Resales; Registration Rights.............................. 41
Listing on Nasdaq National Market........................................ 42
No Appraisal Rights...................................................... 42
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................. 42
General.................................................................. 42
Effective Time of the Merger; Closing.................................... 42
Conversion of Shares; Procedure for Exchange of Certificates; Fractional
Shares.................................................................. 43
Representations and Warranties........................................... 44
Conduct of Business Prior to Effective Time.............................. 44
Solicitation of Third Party Offers....................................... 44
OEDC Options............................................................. 45
Nasdaq National Market Listing........................................... 45
Indemnification.......................................................... 45
OEDC Employee Benefits................................................... 45
Certain Conditions to Consummation of the Merger......................... 45
Termination of the Merger Agreement...................................... 46
Termination Fees and Reimbursement of Expenses........................... 47
INFORMATION CONCERNING TITAN............................................... 48
Business and Properties of Titan......................................... 48
Oil and Natural Gas Reserves........................................... 49
Productive Wells and Acreage........................................... 50
Drilling Activities.................................................... 50
Net Production, Unit Prices and Costs.................................. 51
Acquisitions........................................................... 51
Oil and Gas Marketing and Major Customers.............................. 51
Competition............................................................ 52
Operating Hazards and Uninsured Risks.................................. 52
Employees.............................................................. 53
Other Facilities....................................................... 53
Title to Properties.................................................... 53
Governmental Regulation................................................ 53
Environmental Matters.................................................. 54
Abandonment Costs...................................................... 55
Selected Historical Financial Data....................................... 56
Management's Discussion and Analysis of Titan's Financial Condition and
Results of Operations................................................... 57
General................................................................ 57
Results of Operations.................................................. 57
Liquidity and Capital Resources........................................ 59
Other Matters.......................................................... 60
Price Range of Common Stock and Dividend Policy.......................... 63
Management............................................................... 63
Executive Compensation and Other Matters................................. 65
Certain Transactions..................................................... 68
</TABLE>

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<PAGE>

<TABLE>
<S> <C>
INFORMATION CONCERNING OEDC............................................... 71
Business and Properties................................................. 71
Exploration and Development........................................... 71
Natural Gas Reserves.................................................. 75
Productive Wells and Acreage.......................................... 76
Drilling Activities................................................... 77
Net Production, Unit Prices and Costs................................. 77
Natural Gas Gathering................................................. 80
Natural Gas Processing................................................ 82
Other Facilities...................................................... 83
Employees............................................................. 83
Government Regulation................................................. 83
Legal Proceedings..................................................... 88
Selected Financial Data of OEDC......................................... 90
Management's Discussion and Analysis of OEDC's Financial Condition and
Results of Operations.................................................. 91
Overview.............................................................. 91
Results of Operations................................................. 91
Liquidity and Capital Resources....................................... 96
Hedging Activities.................................................... 98
Price Range of Common Stock and Dividend Policy......................... 99
Management.............................................................. 100
Executive Compensation and Other Matters................................ 101
Certain Transactions.................................................... 104
BENEFICIAL OWNERSHIP OF TITAN, OEDC AND TITAN POST MERGER................. 106
DESCRIPTION OF TITAN CAPITAL STOCK........................................ 109
Common Stock............................................................ 109
Preferred Stock......................................................... 109
Delaware Law Provisions................................................. 109
Registration Rights..................................................... 110
Transfer Agent and Registrar............................................ 110
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 111
General................................................................. 111
Authorized Capital...................................................... 111
Removal of Directors.................................................... 111
LEGAL MATTERS............................................................. 111
EXPERTS................................................................... 111
STOCKHOLDER PROPOSALS..................................................... 112
GLOSSARY OF OIL AND GAS TERMS............................................. 112
INDEX TO FINANCIAL STATEMENTS............................................. F1-1
APPENDIX I--Amended and Restated Agreement and Plan of Merger dated
November 6, 1997......................................................... I-1
APPENDIX II--Opinion of Raymond James & Associates, Inc................... II-1
</TABLE>

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SUMMARY

The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Joint Proxy Statement/Prospectus and the Appendices hereto. Stockholders are
urged to carefully read this Joint Proxy Statement/Prospectus and the
Appendices hereto in their entirety. As used in this Joint Proxy
Statement/Prospectus, unless otherwise required by the context, the term
"Titan" means Titan Exploration, Inc. and its consolidated subsidiaries, the
term Titan Sub means Titan Offshore, Inc., a newly-formed and wholly-owned
subsidiary of Titan, and the term "OEDC" means Offshore Energy Development
Corporation and its consolidated subsidiaries.

GENERAL

At the Titan Special Meeting and the OEDC Special Meeting, holders of Titan
Common Stock and OEDC Common Stock will be asked to act upon proposals related
to the merger of Titan Sub with and into OEDC pursuant to the terms of the
Merger Agreement which are more particularly described herein. If the Merger
and the related proposals are approved by the requisite votes of such
stockholders and certain other conditions are satisfied, Titan Sub, a wholly-
owned subsidiary of Titan, will be merged into OEDC, the separate existence of
Titan Sub will cease and OEDC, which will succeed to all of the assets, rights,
liabilities and obligations of Titan Sub, will become a wholly-owned subsidiary
of Titan. If the Merger and related proposals are not approved by the requisite
votes of such stockholders, Titan and OEDC intend to continue to operate
independently.

THE COMPANIES

Titan and Titan Sub. Titan is an independent energy company engaged in the
exploration, development and acquisition of oil and gas properties. Titan Sub
is a wholly-owned subsidiary of Titan incorporated in Delaware on September 4,
1997 for the sole purpose of effecting the Merger pursuant to the Merger
Agreement. The principal executive offices of Titan are located at 500 West
Texas, Suite 500, Midland, Texas 79701, and Titan's telephone number at such
offices is (915) 498-8600.

OEDC. OEDC is an independent energy company that focuses on the acquisition,
exploration, development and production of natural gas in the Gulf of Mexico
and on natural gas gathering, processing and marketing activities. The
principal executive offices of OEDC are located at 1400 Woodloch Forest Drive,
Suite 200, The Woodlands, Texas 77380, and OEDC's telephone number at such
offices is (281) 364-0033.

For additional information concerning Titan and OEDC, see "Information
Concerning Titan" and "Information Concerning OEDC."

THE MEETINGS

DATE, TIME AND PLACE

Titan. The Special Meeting of Stockholders of Titan (the "Titan Special
Meeting") will be held at 10:00 a.m., local time, on Friday, December 12, 1997,
at the Midland Room, Tower Two, Fasken Center, 550 West Texas, Midland, Texas.

OEDC. The Special Meeting of Stockholders of OEDC (the "OEDC Special
Meeting") will be held at 10:00 a.m., local time, on Friday, December 12, 1997,
at The Woodlands Executive Conference Center, 2301 North Millbend, The
Woodlands, Texas.

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PURPOSES OF THE MEETINGS

Titan. The purpose of the Titan Special Meeting is to consider and vote upon
(i) the Merger Proposal, which includes the approval of the Merger Agreement
and the approval of the issuance of shares of Titan Common Stock pursuant to
the Merger Agreement and (ii) such other matters as may properly be brought
before the Titan Special Meeting.

OEDC. The purpose of the OEDC Special Meeting is to consider and vote upon
(i) a proposal to authorize, approve and adopt the Merger Agreement and (ii)
such other matters as may properly be brought before the OEDC Special Meeting.

RECORD DATES; SHARES ENTITLED TO VOTE

Titan. Only holders of record of shares of Titan Common Stock at the close of
business on October 24, 1997 are entitled to notice of and to vote at the Titan
Special Meeting. On such date, there were 33,945,798 shares of Titan Common
Stock outstanding, each of which will be entitled to one vote on each matter to
be acted upon at the Titan Special Meeting.

OEDC. Only holders of record of shares of OEDC Common Stock at the close of
business on October 24, 1997 are entitled to notice of and to vote at the OEDC
Special Meeting. On such date, there were 8,701,885 shares of OEDC Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the OEDC Special Meeting.

QUORUM; VOTE REQUIRED

Titan. The presence, in person or by proxy, at the Titan Special Meeting of
the holders of a majority of the shares of Titan Common Stock outstanding and
entitled to vote at the Titan Special Meeting is necessary to constitute a
quorum at the meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Titan Common Stock present and entitled to vote thereon
at the Titan Special Meeting is required to approve the Merger Proposal.

OEDC. The presence, in person or by proxy, at the OEDC Special Meeting of the
holders of a majority of the shares of OEDC Common Stock outstanding and
entitled to vote at the OEDC Special Meeting is necessary to constitute a
quorum at the meeting. The affirmative vote of the holders of 66% of the shares
of OEDC Common Stock outstanding and entitled to vote at the meeting is
required to authorize, approve and adopt the Merger Agreement. The Merger
Agreement further provides that the affirmative vote of the holders of a
majority of the outstanding shares of OEDC Common Stock (i) held by persons
other than OEDC's Board of Directors and their affiliates and (ii) voted
thereon at the Special Meeting is a condition to the obligations of each of
Titan and OEDC to complete the Merger.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER PERSONS

Titan. As of the record date for the Titan Special Meeting, Natural Gas
Partners, L.P. ("NGP"), Natural Gas Partners II, L.P. ("NGP II") and the
directors of Titan owned beneficially an aggregate of 14,899,250 shares (42.0%)
of the outstanding Titan Common Stock.

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<PAGE>

of 3,824,130 shares (43.9%) of the outstanding OEDC Common Stock--in favor of
approval and adoption of the Merger Agreement. In the event the Merger
Agreement terminates, the Voting Agreements will also terminate.

THE MERGER AND THE MERGER AGREEMENT

EFFECTS OF THE MERGER

Subject to the terms and conditions of the Merger Agreement, at the effective
time of the Merger, Titan Sub will merge with and into OEDC, with OEDC being
the surviving corporation and becoming a wholly-owned subsidiary of Titan. By
virtue of the Merger, each share of OEDC Common Stock outstanding immediately
prior to the effective time of the Merger will be converted into the right to
receive 0.630 of a share of Titan Common Stock. Based on the capitalization of
Titan and OEDC as of September 30, 1997, pursuant to the Merger Agreement
approximately 5,482,187 shares of Titan Common Stock will be issued pursuant to
the Merger, or approximately 13.9% of the number of shares of Titan Common
Stock that will be outstanding after giving effect to the conversion and
exchange of shares of OEDC Common Stock for shares of Titan Common Stock,
assuming that no OEDC employee stock options are exercised prior to the Merger.
See "The Merger--Effects of the Merger."

EFFECTIVE TIME OF THE MERGER

It is anticipated that the Merger will become effective (the "Effective
Time") as promptly as practicable after the requisite stockholder approvals
have been obtained and all other conditions to the Merger have been satisfied
or waived. See "Certain Provisions of the Merger Agreement--Effective Time of
the Merger; Closing."

PROCEDURE FOR EXCHANGE OF CERTIFICATES

As soon as practicable after the Effective Time, each holder of a certificate
that prior thereto represented shares of OEDC Common Stock will be entitled,
upon surrender of such certificate to Titan's transfer agent, First Union
National Bank, to receive in exchange therefor, as applicable, a certificate(s)
representing the number of whole shares of Titan Common Stock into which such
shares of OEDC Common Stock were converted pursuant to the Merger, in such
denominations and registered in such names as the holder may request. OEDC
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. Following
the Effective Time, Titan's transfer agent will mail to each former holder of
OEDC Common Stock a letter describing how certificates representing OEDC Common
Stock should be presented for exchange.

No fractional shares of Titan Common Stock will be issued in the Merger;
instead, cash will be paid in lieu thereof based on the market price of a share
of Titan Common Stock as of the last trading day prior to the Effective Time.
See "Certain Provisions of the Merger Agreement--Conversion of Shares;
Procedures for Exchange of Certificates; Fractional Shares."

REASONS FOR THE MERGER

Titan. The Titan Board believes that the Merger is desirable for a number of
reasons:

(a) OEDC provides Titan with an additional core area of operations, the
prolific Gulf Coast region;

(b) OEDC's Gulf of Mexico oil and gas properties add reserve growth
potential;

(c) the reserve life of OEDC's properties complements the longer reserve
life of Titan's properties in west Texas and southeastern New Mexico;

(d) OEDC's gas gathering and processing facilities in the rapidly
developing Main Pass and deep water Viosca Knoll region of the eastern Gulf
provide diversification of Titan's assets and offer relatively stable cash
flows;

3
<PAGE>

(e) OEDC's employees include a geotechnical group with Gulf Coast
expertise and gas marketing specialists who will add to Titan's marketing
and midstream asset expertise; and

(f) on a pro forma combined basis as of September 30, 1997, Titan and
OEDC had approximately $23.5 million of net debt outstanding on a net book
capital base of approximately $272 million and $155 million of unused bank
credit availability for subsequent acquisitions and development, $55
million of which Titan anticipates using in a recently contracted
acquisition. See "--Recent Developments--Additional Titan Acquisitions."

OEDC. The OEDC Board believes that the Merger Agreement and the Merger are
desirable for a number of reasons:

(a) The Merger provides the best available opportunity for OEDC's
stockholders to maintain significant participation in the upside potential
of OEDC's drilling and development program while reducing relative exposure
to the risks of OEDC's business.

(b) Based on market prices in effect at the time of and shortly before
the initial announcement of a transaction with Titan, the exchange ratio in
the Merger offers OEDC's stockholders a substantial premium in terms of the
market value of their shares. In addition, the exchange ratio will result
in a transaction that is not materially dilutive for the OEDC stockholders
on a net asset value basis and, in the opinion of OEDC's financial
advisors, is fair to the stockholders of OEDC from a financial point of
view.

(c) Titan's substantial borrowing capacity and stable, long-life reserve
base should provide adequate capital to allow Titan to pursue OEDC's and
its own exploration and development programs simultaneously.

(d) Titan's inventory of projects and the experience and record of
success of Titan's management may offer upside potential to OEDC's
stockholders.

(e) Titan views favorably OEDC's existing drilling and development
program and OEDC's desire to expand its operations into the onshore Gulf
Coast area, and has indicated a willingness to continue the program and
support the onshore expansion.

(f) The nonfinancial terms and conditions of the Merger Agreement,
including the structuring of the Merger as a tax free exchange, are
favorable to OEDC and its stockholders.

(g) The Merger is expected to provide OEDC stockholders with enhanced
liquidity with respect to their investment because the number of shares
outstanding and trading volume of Titan Common Stock following the Merger
will be significantly larger than the number of shares outstanding and
trading volume of OEDC Common Stock.

(h) The combination of OEDC and Titan will provide advantageous
synergies, including the application to Titan's operations of OEDC's
midstream and downstream expertise, and offers the opportunity to create a
company with greater financial resources, competitive strengths and
business opportunities than would be possible for OEDC alone.

RECOMMENDATIONS OF THE BOARDS OF DIRECTORS

Titan. The Titan Board believes that the Merger Proposal is fair to, and in
the best interests of, Titan and its stockholders. Accordingly, the Titan Board
has approved, and recommends that the stockholders of Titan vote FOR, the
Merger Proposal.

OEDC. The OEDC Board believes that the terms of the Merger are fair to, and
in the best interests of, OEDC and its stockholders. Accordingly, the OEDC
Board has approved the Merger Agreement and the Merger and recommends that
stockholders of OEDC vote FOR adoption and approval of the Merger Agreement and
the Merger.

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<PAGE>

See "The Meetings--Recommendations of the Boards of Directors," "The Merger--
Background of the Merger," "--Reasons for the Merger" and "--Interests of
Certain Persons in the Merger."

OPINION OF FINANCIAL ADVISOR

Raymond James & Associates, Inc. ("Raymond James") has delivered its written
opinion dated November 6, 1997 to the Board of Directors of OEDC that, as of
that date, the consideration to be received by the holders of OEDC Common Stock
in the Merger was fair from a financial point of view to such stockholders.

For information regarding the opinion of Raymond James, including the
assumptions made, matters considered and limits of such opinion, see "The
Merger--Opinion of Financial Advisor." OEDC stockholders are urged to read in
its entirety the opinion of Raymond James, attached as Appendix II to this
Joint Proxy Statement/Prospectus.

CERTAIN CONDITIONS TO THE CONSUMMATION OF THE MERGER

The respective obligations of Titan and OEDC to consummate the Merger are
subject to the satisfaction of certain conditions, including the following: (i)
approval of the Merger Proposal by the stockholders of Titan and approval of
the Merger Agreement by the stockholders of OEDC (including approval of the
holders of a majority of the outstanding shares of OEDC Common Stock (A) held
by persons other than OEDC's Board of Directors and their affiliates and (B)
voted thereon at the Special Meeting); (ii) the continuing accuracy in all
material respects of the representations and warranties and the performance in
all material respects of all covenants of Titan and OEDC under the Merger
Agreement; (iii) the absence of any material order restraining or preventing
consummation of the Merger or any action, suit or proceeding pending or
threatened in writing to prohibit, delay or rescind the Merger or obtain an
award of damages; (iv) receipt of all material required consents to
consummation of the Merger; (v) approval of the Nasdaq National Market for
listing of the shares of Titan Common Stock to be issued in connection with the
Merger; and (vi) the continued effectiveness of the fairness opinion of OEDC's
financial advisor.

Titan and OEDC anticipate that substantially all of the above conditions
(other than obtaining the required approvals of the stockholders of Titan and
OEDC) will be satisfied prior to the Titan Special Meeting and the OEDC Special
Meeting. Either Titan or OEDC may extend the time for performance of any of the
obligations of the other party or may waive compliance with those obligations
at their discretion. See "Certain Provisions of the Merger Agreement--Certain
Conditions to Consummation of the Merger."

GOVERNMENTAL APPROVALS

Titan and OEDC received notification of early termination of the relevant
waiting period under the HSR Act from the Federal Trade Commission on November
3, 1997. See "The Merger--Regulatory Approvals." Neither Titan nor OEDC is
aware of any other governmental or regulatory approval required for
consummation of the Merger, other than compliance with applicable securities
laws.

NO SOLICITATION

The Merger Agreement provides that OEDC will not, directly or indirectly,
solicit or knowingly encourage the initiation of any inquiries or proposals
regarding any merger, tender offer, sale of shares of capital stock or similar
business combination transaction involving OEDC or any sale of all or
substantially all the assets of OEDC (any of the foregoing transactions being
referred to herein as an "OEDC Acquisition Proposal"). In the event that OEDC
receives an OEDC Acquisition Proposal, OEDC must immediately advise Titan of
the identity of the party making it and its terms and conditions. In the event
that the OEDC Board determines in good faith that its fiduciary duties to its
stockholders under applicable law require it to respond to, communicate with or

5
<PAGE>

provide information to any party making an inquiry or proposal (as determined
by the OEDC Board after consultation with and based upon advice of counsel and
its financial advisor), OEDC must notify Titan of such determination prior to
the time that OEDC provides any information or enters into any discussions with
the party. OEDC must continue to keep Titan informed with respect to any
actions that OEDC may take, including any discussions, with respect to each
OEDC Acquisition Proposal.

MATERIAL ADVERSE EFFECT

In the Merger Agreement, "Material Adverse Effect" means any change,
development or effect (individually or in the aggregate) that is, or is
reasonably likely to be, materially adverse (i) to the business, assets,
results of operations, condition (financial or otherwise) or prospects of OEDC
or Titan, as applicable, considered as a whole, or (ii) to the ability of OEDC
or Titan, as applicable, to perform on a timely basis any material obligation
of OEDC or Titan, respectively, under the Merger Agreement or any agreement,
instrument or document entered into or delivered in connection with it.

TERMINATION OF THE MERGER AGREEMENT

By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of Titan and OEDC or (ii) by either party
if (A) the Merger has not been effected on or before February 28, 1998, (B) any
court or governmental entity shall have prohibited consummation of the Merger
or the transactions contemplated in connection therewith or (C) the required
approvals of the stockholders of Titan or OEDC are not received at the
applicable stockholders' meeting.

By Titan. Titan may terminate the Merger Agreement if (i) since the date of
the Merger Agreement there has been a Material Adverse Effect pertaining to
OEDC, (ii) there has been a material breach of any representation, warranty or
covenant set forth in the Merger Agreement by OEDC and such breach has not been
cured within five business days following receipt by OEDC of notice thereof,
(iii) the Board of Directors of OEDC in the exercise of its fiduciary duties to
OEDC stockholders determines not to recommend, or otherwise withdraws its
recommendation of, approval of the Merger Agreement or fails to convene a
meeting of OEDC stockholders or (iv) the Merger shall not have been approved by
a majority of the shares of OEDC Common Stock (A) held by persons other than
members of the OEDC Board and their affiliates and (B) voted at the OEDC
Special Meeting.

By OEDC. OEDC may terminate the Merger Agreement if (i) the fairness opinion
of Raymond James is withdrawn, (ii) since the date of the Merger Agreement
there has been a Material Adverse Effect pertaining to Titan, (iii) there has
been a material breach of any representation, warranty or covenant set forth in
the Merger Agreement by Titan and such breach has not been cured within five
business days following receipt by Titan of notice thereof or (iv) the Merger
shall not have been approved by a majority of the shares of OEDC Common Stock
(A) held by persons other than members of the OEDC Board and their affiliates
and (B) voted at the OEDC Special Meeting. Further, OEDC may terminate the
Merger Agreement if it determines in good faith that its fiduciary duties to
its stockholders under applicable law require it to respond to, communicate
with or provide information to any party making an inquiry or proposal;
provided that (i) Titan receives one week's notice of OEDC's intention to
terminate, (ii) during such week OEDC considers adjustments to the Merger
Agreement that Titan may propose and (iii) OEDC pays Titan $3,000,000
concurrently with the termination.

TERMINATION FEES AND REIMBURSEMENT OF EXPENSES

If OEDC terminates the Merger Agreement because its Board determines in good
faith that its fiduciary duties require it to respond, communicate with or
provide information to any party making an inquiry or proposal, then OEDC shall
promptly pay Titan $3,000,000.

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<PAGE>

If either Titan or OEDC terminates the Merger Agreement for certain of the
reasons described above in "Termination of the Merger Agreement" and (i) either
the Merger Agreement has not been submitted to the stockholders of OEDC or the
stockholders of OEDC have declined to approve the Merger Agreement by the
requisite vote, (ii) after the date of the Merger Agreement but prior to the
time the Merger Agreement is terminated there shall have been an OEDC
Acquisition Proposal in writing to OEDC and (iii) any OEDC Acquisition Proposal
(whether the same or different from the one referenced in clause (ii)) is
consummated within any time within one year after the date of the Merger
Agreement, then OEDC will be required to pay Titan $3,000,000 upon the
consummation of any such OEDC Acquisition Proposal.

In addition, if either Titan or OEDC terminates the Merger Agreement because
of the failure of the stockholders of the other to approve the Merger, then the
party whose stockholders have failed to approve the Merger will be required to
pay to the other party $500,000 as reimbursement for an agreed upon estimate of
the terminating party's out-of-pocket fees and expenses incurred in connection
with the Merger; provided, however, that if OEDC is obligated to pay to Titan
the $3,000,000 termination fee described in the preceding two paragraphs, then
OEDC may offset from the amount of such termination fee any amount paid to
Titan as a reimbursement for out-of-pocket fees and expenses incurred in
connection with the Merger.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Thompson & Knight, P.C., counsel to Titan, the Merger will
qualify as a reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended, and, therefore, holders of OEDC Common Stock will
recognize no gain or loss upon the exchange of such stock in the Merger solely
for Titan Common Stock, except to the extent of cash received, if any, in lieu
of fractional shares of Titan Common Stock. For a discussion of these and other
federal income tax considerations in connection with the Merger, see "The
Merger--Certain Federal Income Tax Consequences."

ACCOUNTING TREATMENT

The Merger will be accounted for as a purchase of OEDC by Titan for
accounting and financial reporting purposes. See "The Merger--Anticipated
Accounting Treatment."

NO APPRAISAL RIGHTS

Under Delaware law, neither Titan's nor OEDC's stockholders will be entitled
to any appraisal or dissenter's rights in connection with the Merger. See "The
Merger--No Appraisal Rights."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

As of September 30, 1997, NGP owned 4,767,407 shares (14.0%) of the
outstanding Titan Common Stock and 2,209,460 shares (25.4%) of the outstanding
OEDC Common Stock. R. Gamble Baldwin, a director of OEDC, is the general
partner of G.F.W. Energy, L.P. ("GFW"), the general partner of NGP. David R.
Albin, a director of Titan and OEDC, and Kenneth A. Hersh, a director of Titan,
own limited partnership interests in GFW. Messrs. Albin, Baldwin and Hersh are
three of the four managing members of the general partner of NGP II and also
own limited partnership interests in NGP II's general partner. As of September
30, 1997, NGP II owned 5,000,777 shares (14.7%) of the outstanding Titan Common
Stock. In addition to the shares of Titan Common Stock and OEDC Common Stock
owned by NGP, Mr. Baldwin directly owns 9,100 shares and 35,041 shares of Titan
and OEDC, respectively. Messrs. Albin and Hersh, who disclaim beneficial
ownership of Titan Common Stock owned by NGP II, beneficially own 115,772
shares and 67,381 shares, respectively, of Titan Common Stock and 52,596 shares
and 49,012 shares, respectively, of OEDC Common Stock. Although OEDC informed
Messrs. Albin and Baldwin from time to time on a limited basis of the general
status of negotiations with Titan and, likewise, Titan informed Mr. Hersh of
the general status of negotiations with OEDC, none of these individuals
participated in such negotiations or the deliberations of the board of either
company in reviewing and approving the Merger.

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<PAGE>

David B. Strassner, Douglas H. Kiesewetter and R. Keith Anderson are
executive officers and directors of OEDC who have recommended the Merger to
OEDC stockholders. The Merger Agreement provides that after the Effective Time
it is expected that Titan may, in its sole discretion, offer employment to the
employees of OEDC, including these three individuals; provided, however, that
Titan shall have no obligation to retain any of the employees of OEDC. Titan
shall provide the retained employees with the same benefits that accrue to
employees of Titan and will assume their OEDC employee options, which, by the
terms of OEDC's option plan, will vest fully as a result of the Merger.

See "The Merger--Interests of Certain Persons in the Merger."

OEDC OPTIONS

At the Effective Time, Titan will assume each OEDC employee option that
remains unexercised and substitute shares of Titan Common Stock as purchasable
under each assumed option. By the terms of OEDC's option plans, the assumed
options will vest fully as a result of the Merger and will otherwise have the
same terms and conditions as the OEDC employee options. The number of shares of
Titan Common Stock purchasable under an assumed option will be equal to the
number of shares of Titan Common Stock that the holder of the OEDC employee
option being assumed would have received upon consummation of the Merger had
such OEDC employee option been fully vested and exercised in full immediately
prior to consummation of the Merger. The per share exercise price of each
assumed option will be an amount equal to the per share exercise price of the
OEDC employee option being assumed divided by 0.630.

Pursuant to Titan's assumption of the OEDC employee options, each of Messrs.
Strassner, Kiesewetter and Anderson will have options to purchase 75,600 shares
of Titan Common Stock at an exercise price of $19.05 per share. The other OEDC
employees will have options to purchase an aggregate of 231,576 shares of Titan
Common Stock, consisting of 113,400 shares at an exercise price of $19.05 per
share and 118,176 shares at an exercise price of $5.73 per share. See "Certain
Provisions of the Merger Agreement--OEDC Options."

LISTING OF SHARES; MARKET AND MARKET PRICES

Titan Common Stock is traded on the Nasdaq National Market under the symbol
"TEXP." OEDC Common Stock is traded on the Nasdaq National Market under the
symbol "OEDC."

The following table sets forth the closing sales price per share of Titan
Common Stock and OEDC Common Stock as reported on the Nasdaq National Market
and the equivalent per share price (as explained below) of OEDC Common Stock,
in each case on September 8, 1997, the last full trading date prior to the
public announcement of the signing of a merger agreement by Titan and OEDC, and
on November 13, 1997, the last full trading day for which prices were available
prior to the date of this Joint Proxy Statement/Prospectus.

<TABLE>
<CAPTION>
TITAN COMMON STOCK OEDC COMMON STOCK OEDC EQUIVALENT
------------------ ----------------- ---------------
<S> <C> <C> <C>
September 8, 1997....... $10.875 $ 6.00 $6.851
November 13, 1997....... $11.938 $7.313 $7.521
</TABLE>

The equivalent per share price of a share of OEDC Common Stock represents the
closing sales price of a share of Titan Common Stock on such date multiplied by
the exchange ratio of 0.630.

Stockholders are advised to obtain current market quotations for Titan Common
Stock and OEDC Common Stock. No assurance can be given as to the market price
of Titan Common Stock or OEDC Common Stock at, or in the case of Titan Common
Stock after, the Effective Time.

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<PAGE>

RECENT DEVELOPMENTS--ADDITIONAL TITAN ACQUISITIONS

On November 7, 1997, Titan and Pioneer Natural Resources USA, Inc., a wholly-
owned subsidiary of Pioneer Natural Resources Company ("Pioneer"), entered into
an agreement by which Titan will acquire certain producing properties from
Pioneer (the "Pioneer Acquisition"). The properties, 87% of which are operated,
are located in 46 fields in the Permian Basin of West Texas and Southeastern
New Mexico and currently produce approximately 2,500 BOEs per day. Of the
reserves, 81% are oil. Titan will pay approximately $55 million, subject to
adjustments, and anticipates closing the transaction, subject to various
conditions, in mid-December 1997. Titan will fund the acquisition with its
existing credit facilities. Titan was one of several companies submitting bids
for the properties. As of September 30, 1997, NGP II owned an approximate 6.0%
limited partnership interest in DNR-MESA Holdings, L.P. ("DNR"), a Texas
limited partnership that currently owns approximately 15.3% of the outstanding
common stock of Pioneer. Natural Gas Partners III, L.P., a fund that is under
common management with NGP II and in which Messrs. Albin, Baldwin and Hersh own
indirect partnership interests, also owns an approximate 8% limited partnership
interest in DNR. Mr. Hersh, a director of Titan, is also a director of Pioneer
and currently owns 4,480 shares of the common stock of Pioneer. Mr. Hersh did
not participate in any of the negotiations of the terms of the acquisition
agreement between Titan and Pioneer or in any of the deliberations of the
Boards of either Titan or Pioneer concerning the acquisition.

Titan and Carrollton Resources, L.L.C., a Louisiana limited liability company
("Carrollton"), have entered into an agreement by which Titan will acquire all
the outstanding membership interests of Carrollton. Carrollton is a small
independent energy company engaged in the exploration, development and
acquisition of onshore oil and gas properties located primarily in the Gulf
Coast region, which management believes fits well with OEDC's area of
operations. Based on estimates of Carrollton's outside engineers, Carrollton's
total proved reserves were 2.8 million BOE at June 30, 1997. Titan will issue
approximately 900,000 shares of Titan Common Stock equal to 2.6% of the total
Titan Common Stock currently outstanding. NGP-Louisiana Partners, L.P. ("NGP-
Louisiana"), an affiliate of NGP, owns 39.7207% of Carrollton's outstanding
membership units. NGP is the sole limited partner of NGP-Louisiana, and owns a
95.07% economic interest in NGP-Louisiana. A corporation serves as the general
partner and owns the remaining 4.93% of NGP-Louisiana. Messrs. Albin, Baldwin
and Hersh collectively own a majority of the common stock of the corporate
general partner. These individuals were only informed from time to time on a
limited basis of the general status of negotiations between Titan and
Carrollton and did not participate in negotiation of the terms of the
acquisition agreement or in the deliberations concerning the agreement of the
Titan Board or the Carrollton management committee.

FORWARD LOOKING STATEMENTS OR INFORMATION

Certain statements contained in this Joint Party Statement/Prospectus are
forward looking statements regarding estimated future net revenues from oil and
natural gas reserves and the present value thereof, planned capital
expenditures (including the amount and nature thereof), increases in oil and
gas production, and Titan's financial position, business strategy and other
plans and objectives for future operations. Although Titan believes that the
expectations reflected in these forward looking statements are reasonable,
there can be no assurance that the actual results or developments anticipated
by Titan will be realized or, even if substantially realized, that they will
have the expected effects on its business or operations. Among the factors that
could cause actual results to differ materially from Titan's expectations are
general economic conditions, inherent uncertainties in interpreting engineering
data, operating hazards, delays or cancellations of drilling operations for a
variety of reasons, competition, fluctuations in oil and gas prices, the
ability of Titan to successfully integrate the business and operations of OEDC,
government regulations and other factors described in "Risk Factors" or in the
description of Titan's and OEDC's business. All subsequent oral and written
forward looking statements attributable to Titan or persons acting on its
behalf are expressly qualified in their entirety by these factors. Titan
assumes no obligation to update any of these statements.

9
<PAGE>

RISK FACTORS

See "Risk Factors" beginning on page 17 for a discussion of certain factors
with respect to the business and operations of Titan and OEDC that should be
evaluated by an investor before determining how to vote at the respective
special meetings.

10
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The following tables set forth selected historical financial data for Titan
for the period from March 31, 1995 (date of inception) through December 31,
1995, the year ended December 31, 1996 and for the nine months ended September
30, 1996 and 1997 and for OEDC for each of the five years in the period ended
December 31, 1996 and for the nine months ended September 30, 1996 and 1997.
The data presented below have been derived from and should be read in
conjunction with the consolidated financial statements of Titan and OEDC and
the related notes thereto appearing elsewhere in this Joint Proxy
Statement/Prospectus. Selected unaudited financial data for the nine months
ended September 30, 1996 and 1997 for Titan and OEDC include all adjustments
(consisting only of normally recurring accruals) that Titan and OEDC each
consider necessary for a fair presentation of their respective consolidated
operating results for such interim periods. Results for the interim periods are
not necessarily indicative of results for the full year.

TITAN EXPLORATION, INC.

<TABLE>
<CAPTION>
PERIOD
MARCH 31,
1995 (DATE OF
INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1995 1996 1996 1997
------------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Operating revenues............. $ 743 $ 23,824 $ 10,237 $ 52,011
Other revenues................. 242 144 140 99
------- -------- -------- --------
Total revenues............... 985 23,968 10,377 52,110
------- -------- -------- --------
Expenses:
Oil and gas production......... 304 9,199 4,339 16,627
General and administrative..... 1,546 2,270 1,452 3,637
Amortization of stock option
awards........................ 576 1,839 576 3,790
Exploration and abandonment.... 490 184 110 1,342
Depletion, depreciation and
amortization.................. 299 5,789 2,269 15,927
Interest....................... 97 2,965 1,179 825
Other.......................... (796) (359) (336) (134)
------- -------- -------- --------
Total expenses............... 2,516 21,887 9,589 42,014
------- -------- -------- --------
Net income (loss) before
income taxes.................. (1,531) 2,081 788 10,096
Income tax expense............. -- 3,484 2,998 3,534
------- -------- -------- --------
Net income (loss).............. $(1,531) $ (1,403) $ (2,210) $ 6,562
Net income (loss) per share.... $ (.11) $ (.07) $ (.10) $ .18
Weighted average shares
outstanding................... 14,066 20,140 21,780 35,714
CONSOLIDATED STATEMENT OF CASH
FLOWS DATA:
Net cash provided by (used in):
Operating activities........... $(1,805) $ 7,710 $ 5,643 $ 30,556
Investing activities........... (47,522) (144,998) (12,753) (43,907)
Financing activities........... 55,540 137,365 11,700 8,207
Net cash provided by (used in)
operating activities
before working capital
adjustments.................... (466) 9,795 3,654 29,813
OTHER CONSOLIDATED FINANCIAL
DATA:
Capital expenditures............ 43,669 149,901 17,590 43,089
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents...... 6,213 6,290 10,803 1,146
Working capital................ 11,946 8,124 8,760 2,270
Oil and gas assets, net........ 42,861 190,062 60,168 217,512
Total assets................... 57,487 207,179 74,824 231,038
Total debt..................... 20,000 6,500 28,000 14,700
Stockholders' equity and
predecessor capital........... 34,585 187,186 37,951 197,560
</TABLE>

11
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Exploration and
production............ $ 2,116 $ 1,744 $ 5,513 $ 6,169 $ 9,835 $ 7,214 $ 7,033
Pipeline operating and
marketing............. 886 358 358 166 1,014 718 823
Equity in earnings
(loss) of equity
investments........... -- (255) (3) 497 53 43 83
Gain on sales of oil
and gas properties or
partnership
investments, net...... -- -- 13,655 -- 10,661 10,661 61
------- ------- ------- ------- ------- ------- -------
Total revenues....... 3,002 1,847 19,523 6,832 21,563 18,636 8,000
------- ------- ------- ------- ------- ------- -------
Expenses:
Operations and
maintenance........... 745 570 1,410 2,210 1,972 1,521 1,650
Exploration charges.... 36 32 2,231 405 2,297 919 5,157
Depreciation,
depletion and
amortization.......... 1,941 355 2,112 5,501 4,898 3,876 4,042
Abandonment expense.... -- 59 2,735 84 1,301 216 577
General and
administrative........ 785 1,725 2,359 2,192 2,325 1,623 2,483
------- ------- ------- ------- ------- ------- -------
Total expenses....... 3,507 2,741 10,847 10,392 12,793 8,155 13,909
------- ------- ------- ------- ------- ------- -------
Interest income
(expense) and other:
Interest expense....... (975) (228) (590) (1,651) (783) (709) (153)
Preferential payments
by subsidiaries....... -- -- (1,431) -- -- -- --
Interest income and
other................. (63) (226) 317 123 (94) (41) 1,046
------- ------- ------- ------- ------- ------- -------
Total interest income
(expense) and
other............... (1,038) (454) (1,704) (1,528) (877) (750) 893
------- ------- ------- ------- ------- ------- -------
Net income (loss) before
income taxes........... (1,543) (1,348) 6,972 (5,088) 7,893 9,731 (5,016)
Net income (loss)....... (1,543) (1,348) 6,945 (5,067) 6,450 9,726 (3,572)
------- ------- ------- ------- ------- ------- -------
Preference unit payments
and accretion of
discount............... -- (731) (585) (1,142) (2,617) (1,333) --
------- ------- ------- ------- ------- ------- -------
Income (loss) available
to common unitholders
and stockholders....... $(1,543) $(2,079) $ 6,360 $(6,209) $ 3,833 $ 8,393 $(3,572)
Net income (loss) per
share.................. $ (0.31) $ (0.41) $ 1.26 $ (1.23) $ 0.68 $ 1.66 $ (0.41)
Weighted average shares
outstanding............ 5,052 5,052 5,052 5,052 5,602 5,052 8,702
CONSOLIDATED STATEMENT
OF CASH FLOWS DATA:
Net cash provided by
(used in):
Operating activities... 1,666 (1,546) 2,833 (383) 2,011 3,745 9,979
Investing activities... (3,425) (10,017) 21,133 (16,626) 1,334 7,066 (35,723)
Financing activities... 2,826 14,381 (19,550) 9,305 14,352 (10,639) 9,360
OTHER CONSOLIDATED
FINANCIAL DATA:
Capital expenditures.... 3,700 10,993 18,418 15,965 9,997 4,492 34,222
CONSOLIDATED BALANCE
SHEET DATA (AT PERIOD
END):
Cash and cash
equivalents............ $ 1,080 $ 3,997 $ 8,414 $ 710 $18,408 $ 882 $ 2,024
Working capital
(deficiency)........... (6,875) 1,036 4,807 (12,834) 15,654 (635) (2,027)
Property, plant and
equipment, net......... 14,146 23,626 9,599 20,108 25,703 18,618 45,452
Total assets............ 16,828 30,952 20,035 25,170 50,941 24,518 57,288
Total long term debt
(less current
portion)............... -- 20,238 5,969 -- -- 2,500 8,800
Capital lease payable-
noncurrent............. -- 474 309 832 462 741 366
Redeemable preference
units, net of
discount............... 6,500 6,500 6,500 10,294 -- 10,824 --
Stockholders' equity
(deficit).............. 971 (1,091) 2,192 (2,117) 41,571 6,277 37,999
</TABLE>

12
<PAGE>

SUMMARY SELECTED HISTORICAL OPERATING DATA

The following table sets forth summary information with respect to Titan's
and OEDC's operations for the periods indicated:

<TABLE>
<CAPTION>
TITAN OEDC
---------------------------------------- -------------------------------------
PERIOD
MARCH 31,
1995 (DATE OF NINE MONTHS NINE MONTHS
INCEPTION) ENDED ENDED
THROUGH YEAR ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------- ----------------------- -------------
1995 1996 1996 1997 1994 1995 1996 1996 1997
------------- ------------ ------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)............ 30 714 388 1,396 -- -- -- -- 1
Gas (MMcf)............. 245 5,787 2,725 15,938 3,686 3,668 4,756 3,630 3,430
Total (MBOE)........... 71 1,679 842 4,052 614 611 793 605 572
Average Sales Prices Per
Unit (1):
Oil (per Bbl).......... $16.80 $19.16 $17.25 $18.64 $ -- $ -- $ -- $ -- $20.03
Gas (per Mcf).......... .97 1.75 1.30 1.63 1.50 1.68 2.07 1.99 2.05
BOE.................... 10.46 14.19 12.16 12.84 9.00 10.08 12.42 11.92 12.30
Expenses per BOE:
Production costs,
including production
taxes (2)............. $ 4.28 $ 5.48 $ 5.15 $ 4.10 $ 2.28 $ 3.06 $ 2.49 $ 2.51 $ 2.88
General and
administrative........ 21.77 1.35 1.72 .90 2.94 2.70 2.25 1.95 3.36
Depletion, depreciation
and amortization...... 4.21 3.45 2.69 3.93 3.42 9.00 6.18 6.41 7.07
</TABLE>
- --------
(1) Reflects results of hedging activities for Titan and OEDC.
(2) Includes approximately $1.31, $.77 and $.69 per BOE of production costs
primarily attributable to necessary rework operations on the 1995
Acquisition properties and the 1996 Acquisition properties for Titan for
the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997, respectively.

SUMMARY HISTORICAL OIL AND GAS RESERVE INFORMATION

The following table sets forth summary information with respect to Titan's
and OEDC's proved oil and gas reserves as of December 31, 1996.

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS OIL EQUIVALENT
(MBBLS) (MMCF) (MBOE)
--------- ----------- --------------
<S> <C> <C> <C>
NET PROVED RESERVES:
Titan:
Developed................................ 16,024 180,161 46,051
Undeveloped.............................. 3,432 121,217 23,635
------ ------- ------
Total.................................. 19,456 301,378 69,686
====== ======= ======
OEDC:
Developed................................ 5 21,411 3,574
Undeveloped.............................. 1 11,751 1,959
------ ------- ------
Total.................................. 6 33,162 5,533
====== ======= ======
</TABLE>

13
<PAGE>

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following selected unaudited pro forma combined financial data assume,
effective as of January 1, 1996, the consummation of the Merger. The Merger is
accounted for as a purchase of OEDC by Titan. The following selected pro forma
combined financial data are derived from the unaudited pro forma combined
financial statements and notes thereto appearing elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such information
and notes.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Oil and gas sales......... $ 69,663 $ 59,044
Pipeline operating and
marketing................ 1,014 823
Other..................... 10,859 244
------------------ -------------------
Total revenues.......... 81,536 60,111
Expenses:
Oil and gas production.... 21,687 18,277
General and
administrative........... 6,705 6,120
Amortization of stock
option awards............ 1,839 3,790
Exploration and
abandonment.............. 3,782 7,076
Depletion, depreciation,
and amortization......... 23,018 21,203
Interest expense.......... 3,748 978
Other..................... (265) (1,180)
------------------ -------------------
Total expenses.......... 60,514 56,264
------------------ -------------------
Net income before income
taxes.................... 21,022 3,847
Income tax expense........ 7,358 1,346
------------------ -------------------
Net income................ $ 13,664 $ 2,501
Net income per share...... $ 0.58 $ 0.06
Weighted average shares
outstanding.............. 23,669 41,196
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents.............. $ 3,170
Working capital........... 243
Oil and gas properties,
net...................... 258,812
Other property and
equipment, net........... 68,108
Total assets.............. 351,781
Long-term debt............ 23,500
Stockholders' equity...... 271,887
</TABLE>

14
<PAGE>

Pro Forma Reserves. The following table provides information regarding
Titan's pro forma reserves as of December 31, 1996, assuming consummation of
the Merger.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
PRO FORMA PROVED RESERVES:
Oil (MBbls)...................................... 19,456
Natural gas (MMcf)............................... 334,577
Equivalent barrels (Mboe)........................ 75,219
PV-10(1)......................................... $604,257
Standardized Measure of Discounted Future Net
Cash Flows(2)................................... $439,029
</TABLE>
- --------
(1) The present value of future net revenue attributable to Titan's reserves
was prepared using prices in effect at the end of the respective periods
presented, discounted at 10% per annum on a pre-tax basis. These amounts
reflect the effects of Titan's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
Titan represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of Titan's
hedging activities.

Pro Forma Wells and Acreage. On a pro forma basis (assuming consummation of
the Merger), Titan's properties at December 31, 1996 include interests in 1,351
productive oil wells (444 net wells) and 290 productive gas wells (83 net
wells). Such properties include approximately 94,072 total net developed
mineral acres.

1997 Capital Expenditure Budget. Titan's capital expenditure budget for 1997
is anticipated to be approximately $91.3 million. This budget will be funded
primarily by internally-generated cash flow, bank borrowings, dispositions of
non-strategic assets and joint venture financings. The following table outlines
Titan's estimated capital expenditure budget for 1997 (assuming consummation of
the Merger).

<TABLE>
<CAPTION>
PRO FORMA BUDGET FOR 1997
-------------------------
(IN THOUSANDS)
<S> <C>
Titan properties................................... $ 52,200
OEDC properties.................................... 39,100
--------
Total............................................ $ 91,300
========
</TABLE>

Management of Titan continually reevaluates capital expenditures in light of
market conditions, opportunities presented (including acquisition
opportunities) and other factors, and may increase or decrease capital
spending, or reallocate amounts between areas or projects, if deemed necessary
or desirable, including in the event the Merger is not consummated.

15
<PAGE>

COMPARATIVE PER SHARE DATA

The following tables present comparative per share information (a) for each
of Titan and OEDC on a historical basis, and (b) for Titan and OEDC on a pro
forma combined basis assuming the Merger had been effective during the periods
presented. The pro forma information has been prepared giving effect to the
Merger as a purchase of OEDC by Titan. Equivalent pro forma information for
OEDC Common Stock has been calculated by multiplying the pro forma per share
amounts shown for Titan Common Stock by the Merger exchange ratio of 0.630 of a
share of Titan Common Stock for each share of OEDC Common Stock.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
TITAN--HISTORICAL
Book value.............................. $5.51 $5.82
Cash dividends declared................. -- --
Income (loss) from continuing
operations............................. (.07) .18
OEDC--HISTORICAL
Book value.............................. $4.78 $4.37
Cash dividends declared................. -- --
Income (loss) from continuing
operations............................. 0.68 (.41)
TITAN AND OEDC--PRO FORMA COMBINED
Book value.............................. n/a $6.90
Cash dividends declared................. n/a --
Income from continuing operations....... n/a .06
OEDC--EQUIVALENT PRO FORMA
Book value.............................. n/a $4.35
Cash dividends declared................. n/a --
Income from continuing operations....... n/a .04
</TABLE>

16
<PAGE>

RISK FACTORS

The following matters should be considered carefully in connection with
evaluating the proposals to be considered at the Titan Special Meeting and the
OEDC Special Meeting:

RISKS RELATING TO THE MERGER

Integration of Operations. Achieving the anticipated benefits of the Merger
will depend in part upon whether the integration of Titan's and OEDC's
businesses is accomplished in an efficient and effective manner, and there can
be no assurance as to the extent that this will occur, if at all. The
combination of the two companies will require, among other things, integration
of Titan's and OEDC's management information systems and key personnel and the
coordination of their exploration and development efforts. There can be no
assurance that such integration will be accomplished smoothly or successfully,
if at all. The difficulties of integrating Titan and OEDC may be increased by
the necessity of coordinating organizations with distinct cultures and widely
dispersed operations. The integration of operations following the Merger will
require the dedication of management and other personnel which may distract
their attention from the day-to-day business of the combined company, the
development or acquisition of new properties and the pursuit of other business
acquisition opportunities. Failure to successfully accomplish the integration
and development of Titan's and OEDC's operations and technologies would likely
have a material adverse effect on Titan's business, financial condition and
results of operations.

Failure to Achieve Beneficial Synergies. The managements of Titan and OEDC
have entered into the Merger Agreement with the expectation that the Merger
will result in beneficial synergies. See "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors." Achieving these anticipated
synergies will depend on a number of factors including, without limitation,
the successful integration of Titan's and OEDC's operations and general and
industry-specific economic factors. Even if Titan and OEDC are able to
integrate their operations and economic conditions remain stable, there can be
no assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.

Dependence on Retention and Integration of Key Employees. The success of the
Merger is dependent on Titan's retention and integration of the key
management, engineering and other technical employees of OEDC. Stock options,
which generally become exercisable only over a period of several years of
employment, serve as an important incentive for retaining key employees. In
accordance with their original terms, certain stock options held by several
key OEDC optionees will be fully exercisable or the vesting thereof will
accelerate upon the consummation of the Merger, thus potentially reducing the
retention incentive provided by such options. While it is anticipated that
Titan will implement retention arrangements for its key employees, there can
be no assurance that key employees will remain. The loss of services of any of
the key employees of OEDC could materially and adversely affect Titan's
business, financial condition and results of operation.

Risks Associated with Fixed Exchange Ratio. As a result of the Merger, each
outstanding share of OEDC Common Stock will be converted into the right to
receive 0.630 of a share of Titan Common Stock. Because the Exchange Ratio is
fixed, it will not increase or decrease due to fluctuations in the market
price of either Titan Common Stock or OEDC Common Stock. The specific dollar
value of the consideration to be received by OEDC stockholders in the Merger
will depend on the market price of Titan Common Stock at the Effective Time.
In the event that the market price of Titan Common Stock decreases or
increases prior to the Effective Time, the market value at the Effective Time
of the Titan Common Stock to be received by OEDC stockholders in the Merger
would correspondingly decrease or increase. The market prices of Titan Common
Stock and OEDC Common Stock as of a recent date are set forth herein under
"Summary--Listing of Shares; Market Price and Market Information." Titan and
OEDC stockholders are advised to obtain recent market quotations for Titan
Common Stock and OEDC Common Stock. Titan Common Stock and OEDC Common Stock
historically have been subject to substantial price volatility. No assurance
can be given as to the market prices of Titan Common

17
<PAGE>

Stock or OEDC Common Stock at any time before the Effective Time or as to the
market price of Titan Common Stock at any time thereafter. See "Summary--
Listing of Shares; Market Price and Market Information."

Legal Proceedings. OEDC, David B. Strassner (OEDC's President and a
director), Douglas H. Kiesewetter (OEDC's Executive Vice President and a
director) and David R. Albin (a director), as well as NGP (OEDC's largest
stockholder), the managing underwriters of OEDC's initial public offering and
an analyst from each of the managing underwriters, have been named as
defendants in a suit styled Eric Barron and Edward C. Allen, On Behalf of
Themselves and all Others Similarly Situated, v. David B. Strassner, Douglas
H. Kiesewetter, David R. Albin, Natural Gas Partners, L.P., David Garcia, John
J. Myers, Offshore Energy Development Corporation, Morgan Keegan & Company,
Inc. and Principal Securities, Inc., which was filed October 20, 1997, in the
Texas State District Court of Harris County, Texas, 270th Judicial District.
The suit seeks class certification on behalf of certain holders of OEDC Common
Stock, excluding the defendants and holders related to or affiliated with the
defendants. The suit alleges generally that the defendants wrongfully made
false or misleading statements or omissions relating to OEDC's business and
prospects in the course of OEDC's initial public offering and subsequent
thereto. The suit seeks rescission of sales of OEDC common stock and
unspecified monetary damages, including punitive damages. Assurance cannot be
given that the outcome of the suit will not materially adversely affect the
results of operations or financial condition of Titan subsequent to the
Merger.

Substantial Expenses Resulting from the Merger. Titan and OEDC estimate they
will incur direct transaction costs relating primarily to regulatory filing
costs, and the fees of financial advisors, attorneys, accountants, financial
printers and proxy solicitors of approximately $1.5 million associated with
the Merger. Titan and OEDC expect to incur an additional significant charge to
operations, which is not currently reasonably estimable, in the quarter in
which the Merger is consummated, to reflect costs associated with integrating
the two companies. There can be no assurance that Titan will not incur
additional material charges in subsequent quarters to reflect additional costs
associated with the Merger.

RISKS RELATING TO THE BUSINESS OF TITAN AND OEDC

Volatility of Oil and Gas Prices. Both companies' revenues, operating
results and future rate of growth are highly dependent upon the prices
received for oil and gas. Historically, the markets for oil and gas have been
volatile and may continue to be volatile in the future. Revenues generated
from the oil and gas operations of both companies will be highly dependent on
the future prices of oil and gas. Various factors beyond their control will
affect prices of oil and gas, including but not limited to the worldwide and
domestic supplies of oil and gas, the ability of the members of the
Organization of Petroleum Exporting Countries to agree to and maintain oil
price and production controls, political instability or armed conflict in oil-
producing regions, the price and level of foreign imports, the level of
consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity, weather conditions, domestic and foreign
governmental regulations and taxes and the overall economic environment. On
September 30, 1997, the posted price for West Texas Intermediate Crude was
$19.00 per Bbl, as posted by Titan's major purchaser. On December 31, 1996,
the posted price for West Texas Intermediate Crude was $23.39 per Bbl, as
posted by Titan's major purchaser. Titan is unable to predict the long- term
effects of these and other conditions on the prices of oil. Moreover, it is
possible that prices for any oil Titan produces will be lower than current
prices received by Titan. Historically, the market for natural gas has been
volatile and is likely to continue to be volatile in the future. Prices for
natural gas are subject to wide fluctuation in response to market uncertainty,
changes in supply and demand and a variety of additional factors, all of which
are beyond Titan's control. On September 30, 1997, estimated natural gas
prices received by Titan and OEDC at the wellhead averaged $1.76 and $2.17 per
Mcf, respectively. On December 31, 1996, natural gas prices received by Titan
and OEDC at the wellhead averaged $2.83 and $3.41 per Mcf, respectively. Lower
oil and gas prices may reduce the amount of oil and gas that the companies can
produce economically. Although Titan and OEDC have used energy swap
arrangements and financial futures to reduce their sensitivity to oil and gas
price volatility, these arrangements cannot eliminate the adverse effect of
lower oil and gas prices. Any significant decline in the price of oil or gas
would adversely affect the companies' revenues and operating income and may
require a reduction in the carrying value of the companies' oil and gas
properties.

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Uncertainty of Reserve Information and Future Net Revenue Estimates. There
are numerous uncertainties inherent in estimating quantities of proved
reserves and their values, including many factors beyond the control of Titan
and OEDC. The reserve information set forth in this report represents
estimates only. Although Titan and OEDC believe such estimates to be
reasonable, reserve estimates are imprecise and should be expected to change
as additional information becomes available.

Estimates of oil and gas reserves, by necessity, are projections based on
engineering data, and there are uncertainties inherent in the interpretation
of such data as well as the projection of future rates of production and the
timing of development expenditures. Reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that are
difficult to measure. The accuracy of any reserve estimate is a function of
the quality of available data, engineering and geological interpretation and
judgment. Estimates of economically recoverable oil and gas reserves and of
future net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development costs and
workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of
the future net cash flows expected therefrom may vary substantially. Moreover,
there can be no assurance that Titan's or OEDC's reserves will ultimately be
produced or that Titan's or OEDC's proved undeveloped reserves will be
developed within the periods anticipated. Any significant variance in the
assumptions could materially affect the estimated quantity and value of
Titan's and OEDC's reserves. Actual production, revenues and expenditures with
respect to Titan's and OEDC's reserves will likely vary from estimates, and
such variances may be material.

The PV-10 referred to in this report should not be construed as the current
market value of the estimated oil and gas reserves attributable to Titan's and
OEDC's properties. In accordance with applicable requirements, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. Actual future net cash flows also
will be affected by factors such as the amount and timing of actual
production, supply and demand for oil and gas, curtailments or increases in
consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
thus their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required to be used to calculate discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
Titan, OEDC or the oil and gas industry in general.

Limited Operating History; Rapid Growth. Titan, which began operations in
March 1995, has a brief operating history upon which OEDC's stockholders may
base their evaluation of Titan's performance. As a result of its brief
operating history and rapid growth, the operating results from Titan's
historical periods are not readily comparable and may not be indicative of
future results. There can be no assurance that Titan will continue to
experience growth in, or maintain its current level of, revenues, oil and gas
reserves or production.

Titan's rapid growth has placed significant demands on its administrative,
operational and financial resources. Any future growth of Titan's oil and gas
reserves, production and operations would place significant further demands on
Titan's financial, operational and administrative resources. Titan's future
performance and profitability will depend in part on its ability to
successfully integrate the administrative and financial functions of acquired
properties and companies, like OEDC, into Titan's operations, to hire
additional personnel and to implement necessary enhancements to its management
systems to respond to changes in its business. There can be no assurance that
Titan will be successful in these efforts. The inability of Titan to integrate
acquired properties and companies, to hire additional personnel or to enhance
its management systems could have a material adverse effect on Titan's results
of operations.

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Substantial Capital Requirements. Titan and OEDC each make, and will
continue to make, substantial capital expenditures for the exploration,
development, acquisition and production of reserves. Titan intends to finance
its capital expenditures primarily with funds provided by operations and
borrowings under its $250 million Credit Agreement, which currently has a
borrowing base of $165 million, against which $11.5 million had been drawn as
of September 30, 1997, and the anticipated $55 million purchase price for the
Pioneer Acquisition will be drawn. OEDC intends to finance its capital
expenditures primarily with funds provided by operations and borrowings under
its $30 million credit facility, which had a borrowing base of $11 million,
against which $9.5 million had been drawn as of September 30, 1997. If
revenues for either company decrease as a result of lower oil or gas prices or
otherwise, such company may have limited ability to expend the capital
necessary to replace its reserves or to maintain production at current levels,
resulting in a decrease in production over time. If Titan's or OEDC's cash
flow from operations and availability under existing credit facilities are not
sufficient to satisfy capital expenditure requirements, there can be no
assurance that additional debt or equity financing will be available to meet
these requirements.

Reserve Replacement Risk. Titan's future success depends upon its ability to
find, develop or acquire additional oil and gas reserves that are economically
recoverable. The proved reserves of the companies will generally decline as
reserves are depleted, except to the extent that the companies conduct
successful exploration or development activities or acquires properties
containing proved reserves, or both. In order to increase reserves and
production, the companies must continue their development and exploration
drilling and recompletion programs or undertake other replacement activities.
Titan's current strategy includes increasing its reserve base through
acquisitions of producing properties, continued exploitation of its existing
properties and exploration of new and existing properties. OEDC's strategy
includes increasing its reserve base through exploitation of its existing
properties and exploration of existing properties. There can be no assurance,
however, that Titan's or OEDC's planned development and exploration projects
and acquisition activities will result in significant additional reserves or
that Titan or OEDC will have continuing success drilling productive wells at
low finding and development costs. Furthermore, while Titan's and OEDC's
revenues may increase if prevailing oil and gas prices increase significantly,
Titan's OEDC's finding costs for additional reserves could also increase.

Drilling and Operating Risks. Drilling activities are subject to many risks,
including well blowouts, cratering, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to Titan and OEDC. OEDC's offshore operations are
also subject to the additional hazards of marine operations such as severe
weather, capsizing and collision. In addition, both companies incur the risk
that no commercially productive reservoirs will be encountered through their
drilling operations. There can be no assurance that new wells drilled by
either company will be productive or that either company will recover all or
any portion of its investment in wells drilled. Drilling for oil and gas may
involve unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net reserves to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Both companies' drilling operations may be
curtailed, delayed or canceled as a results of numerous factors, many of which
are beyond their control, including economic conditions, mechanical problems,
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services.

Acquisition Risks. Titan's rapid growth since its inception in March 1995
has been largely the result of acquisitions of producing properties. Titan
expects to continue to evaluate and pursue acquisition opportunities available
on terms management considers favorable to Titan. The successful acquisition
of producing properties involves an assessment of recoverable reserves, future
oil and gas prices, operating costs, potential environmental and other
liabilities and other factors beyond Titan's control. This assessment is
necessarily inexact and its accuracy is inherently uncertain. In connection
with such an assessment, Titan performs a review of the subject properties it
believes to be generally consistent with industry practices. This review,
however, will not reveal all existing or potential problems, nor will it
permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and capabilities. Inspections may not be performed on
every well, and structural

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and environmental problems are not necessarily observable even when an
inspection is undertaken. Titan generally assumes preclosing liabilities,
including environmental liabilities, and generally acquires interests in the
properties on an "as is" basis. With respect to its acquisitions to date,
Titan has no material commitments for capital expenditures to comply with
existing environmental requirements. There can be no assurance that Titan's
acquisitions will be successful. Any unsuccessful acquisition could have a
material adverse effect on Titan.

Risk of Hedging Activities. Titan's and OEDC's use of energy swap
arrangements and financial futures to reduce their sensitivity to oil and gas
price volatility is subject to a number of risks. If the companies' reserves
are not produced at the rates estimated by the companies due to inaccuracies
in the reserve estimation process, operational difficulties or regulatory
limitations, the companies would be required to satisfy obligations it may
have under fixed price sales and hedging contracts on potentially unfavorable
terms without the ability to hedge that risk through sales of comparable
quantities of its own production. Further, the terms under which the companies
enter into fixed price sales and hedging contracts are based on assumptions
and estimates of numerous factors such as cost of production and pipeline and
other transportation costs to delivery points. Substantial variations between
the assumptions and estimates used and actual results experienced could
materially adversely affect anticipated profit margins and the companies
ability to manage the risk associated with fluctuations in oil and gas prices.
Additionally, fixed price sales and hedging contracts limit the benefits Titan
and OEDC will realize if actual prices rise above the contract prices. In
addition, fixed price sales and hedging contracts are subject to the risk that
the counter-party may prove unable or unwilling to perform its obligations
under such contracts. Any significant nonperformance could have a material
adverse financial effect on Titan and OEDC.

Marketability of Production. The marketability of Titan's and OEDC's
production depends in part upon the availability, proximity and capacity of
natural gas gathering systems, pipelines and processing facilities. Most of
Titan's and OEDC's natural gas is delivered through gas gathering systems and
gas pipelines that are not owned by Titan or OEDC. Federal and state
regulation of oil and gas production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions all
could adversely affect Titan's and OEDC's ability to produce and market its
oil and gas. Any dramatic change in market factors could have a material
adverse effect on Titan and OEDC.

Compliance with Environmental Regulations. Titan's and OEDC's operations are
subject to complex and constantly changing environmental laws and regulations
adopted by federal, state and local governmental authorities. The
implementation of new, or the modification of existing, laws or regulations
could have a material adverse effect on the companies. Discharge of oil, gas
or other pollutants into the air, soil or water may give rise to significant
liabilities on the part of the companies to the government and third parties
and may require the companies to incur substantial costs of remediation.
Moreover, Titan has agreed to indemnify sellers of producing properties
purchased by Titan in the 1995 Acquisition, the 1996 Acquisition and the
Pioneer Acquisition against environmental claims associated with such
properties. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or reinterpreted in the future, or
future laws or regulations will not materially adversely affect the results of
operations or financial condition of the companies or that material indemnity
claims will not arise against Titan with respect to properties acquired by
Titan. See "Information Concerning Titan--Business and Properties of Titan--
Environmental Matters" and "Information Concerning OEDC--Business and
Properties of OEDC--Environmental Matters."

Dependance on Key Personnel. Titan's success has been and will continue to
be highly dependent on Jack Hightower, its Chairman of the Board and Chief
Executive Officer, and a limited number of senior management personnel. The
success of OEDC has been and will continue to be highly dependent on David B.
Strassner, Douglas H. Kieswetter, R. Keith Anderson and other senior
management personnel. Loss of the services of any of these individuals could
have a material adverse effect on both companies' operations. Titan maintains
a $3.0 million key man life insurance policy on the life of Mr. Hightower, but
no other senior management personnel. OEDC does not maintain key man life
insurance on any of its personnel. In addition, as a result of the 1996
Acquisition and since December 31, 1996, Titan has employed 24 additional
employees and plans to employ

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more and will face competition for such personnel from other companies. There
can be no assurance that Titan or OEDC will be successful in hiring or
retaining key personnel. Titan's or OEDC's failure to hire additional
personnel or retain its key personnel could have a material adverse effect on
such company's results of operations.

Control by Existing Stockholders. Upon completion of the Merger, directors,
executive officers and principal stockholders of Titan, and certain of their
affiliates, will beneficially own approximately 54.18% of Titan's outstanding
Common Stock. Accordingly, these stockholders, as a group, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in Titan's
Certificate of Incorporation or Bylaws and the approval of mergers and other
significant corporate transactions. See "Description of Capital Stock--Titan
Common Stock." The existence of these levels of ownership concentrated in a
few persons makes it unlikely that any other holder of Titan Common Stock will
be able to affect the management or direction of Titan. These factors may also
have the effect of delaying or preventing a change in the management or voting
control of Titan, including transactions that otherwise could involve payment
of a premium over prevailing market prices to holders of Titan Common Stock.
See "Beneficial Ownership of Titan, OEDC and Titan Post Merger."

Competition. Titan operates in the highly competitive areas of oil and gas
exploration, development, acquisition and production with other companies,
many of which have substantially larger financial resources, staffs and
facilities. In seeking to acquire desirable producing properties or new leases
for future exploration and in marketing its oil and gas production, Titan
faces intense competition from both major and independent oil and gas
companies. Many of these competitors have financial and other resources
substantially in excess of those available to Titan. This highly competitive
environment could have a material adverse effect on Titan.

Future Sales of Common Stock. Sales of a substantial number of shares of
Common Stock, including shares issued in conjunction with future business
combinations, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of Common Stock.

Cumulative Voting; Blank Check Preferred Stock. Titan's Certificate of
Incorporation (i) provides for cumulative voting for the election of directors
and (ii) authorizes the Board of Directors of the Company to issue up to
10,000,000 shares of preferred stock without stockholder approval and to set
the rights, preferences and other designations, including voting rights, of
those shares as the Board of Directors may determine. These provisions, alone
or in combination with each other and with the matters described in "Risk
Factors--Control by Existing Stockholders," may discourage transactions
involving actual or potential changes of control of Titan, including
transactions that otherwise could involve payment of a premium over prevailing
market prices to holders of Common Stock. Titan also is subject to provisions
of the Delaware General Corporation Law that may make some business
combinations more difficult. See "Description of Capital Stock--Delaware Law
Provisions."

Absence of Dividends on Common Stock. Titan does not currently intend to pay
regular cash dividends on the Common Stock. In addition, the Credit Agreement
prohibits the payment of cash dividends. See "Information concerning Titan--
Price Range of Common Stock and Dividend Policy."

THE MEETINGS

MATTERS TO BE CONSIDERED AT THE MEETINGS

Titan Special Meeting. At the Titan Special Meeting, holders of Titan Common
Stock will be asked to consider and vote upon:

(1) The Merger Proposal, which includes, as a single proposal, (a) the
approval of the Merger Agreement, pursuant to which, among other things,
(i) Titan Sub would merge with and into OEDC and (ii)

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<PAGE>

each issued and outstanding share of OEDC Common Stock would be converted
in the Merger into the right to receive 0.630 of a share of Titan Common
Stock, subject to and in accordance with the terms and conditions of the
Merger Agreement, and (b) the approval of the issuance of shares of Titan
Common Stock pursuant to the Merger Agreement; and

(2) Such other matters as may properly be brought before the Titan
Special Meeting.

OEDC Special Meeting. At the OEDC Special Meeting, holders of OEDC Common
Stock will be asked to consider and vote upon the authorization, approval and
adoption of the Merger Agreement and such other matters as may properly be
brought before the OEDC Special Meeting.

RECOMMENDATIONS OF THE BOARDS OF DIRECTORS

Titan. The Titan Board believes that the Merger Proposal is fair to, and in
the best interests of, Titan and its stockholders. Accordingly, the Titan
Board has approved, and recommends that the stockholders of Titan vote FOR,
the Merger Proposal.

VOTING AT MEETINGS; RECORD DATES

Titan. Titan has established October 24, 1997, as the record date for the
determination of stockholders entitled to notice of and to vote at the Titan
Special Meeting. Only holders of record of Titan Common Stock at the close of
business on such date are entitled to notice of and to vote at the Titan
Special Meeting. On October 24, 1997, there were 33,945,798 shares of Titan
Common Stock outstanding and entitled to be voted at the Titan Special
Meeting. A majority of such shares, present in person or represented by proxy,
is necessary to constitute a quorum at the Titan Special Meeting. Each share
of Titan Common Stock is entitled to one vote with respect to the approval of
the Merger Proposal.

The affirmative vote of the holders of a majority of the outstanding shares
of Titan Common Stock present and entitled to vote thereon at the Titan
Special Meeting is required to approve the Merger Proposal. Approval of the
Merger Proposal will constitute approval of each aspect of the Merger
Proposal. Approval of the Merger Proposal by the holders of Titan Common Stock
is required by the rules of the National Association of Securities Dealers,
Inc. for companies, like Titan, with securities listed in the Nasdaq National
Market and is a condition to the consummation of the Merger because the Merger
involves the issuance of shares of Titan Common Stock in connection with the
acquisition of an entity in which a substantial stockholder of Titan owns
greater than a 5% interest. See "--Interests of Certain Persons in the
Merger."

The respective obligations of Titan and OEDC to consummate the Merger are
subject to, among other conditions, the approval and adoption by the
stockholders of Titan of the Merger Proposal.

OEDC. OEDC has established October 24, 1997, as the record date for the
determination of stockholders entitled to notice of and to vote at the OEDC
Special Meeting. Except as provided by the Merger Agreement, only holders of
record of OEDC Common Stock at the close of business on such date are entitled
to notice of and to vote at the OEDC Special Meeting. On October 24, 1997,
there were 8,701,885 shares of OEDC Common Stock outstanding and entitled to
be voted at the OEDC Special Meeting. A majority of such shares, present in
person or represented by proxy, is necessary to constitute a quorum at the
OEDC Special Meeting. Each share of OEDC Common Stock is entitled to one vote
with respect to the approval and adoption of the Merger Agreement. Under
OEDC's Certificate of Incorporation, the affirmative vote of the holders of
66% of the shares of OEDC Common Stock outstanding and entitled to vote at the
meeting is required to authorize, approve and adopt the Merger Agreement. In
addition, the Merger Agreement provides that it is a condition to the
obligations of Titan

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<PAGE>

and OEDC to consummate the Merger that the Merger Agreement is approved by a
majority of the shares of OEDC Common Stock (i) held by persons other than
members of OEDC's Board of Directors and their affiliates and (ii) voted
thereon at the OEDC Special Meeting.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER PERSONS

Titan. As of the record date for the Titan Special Meeting, NGP, NGP II and
the directors of Titan owned beneficially an aggregate of 14,899,250 shares
(42.0%) of the outstanding Titan Common Stock.

OEDC. As of the record date for the OEDC Special Meeting, NGP and the
directors of OEDC owned beneficially an aggregate of 3,983,767 shares (45.4%)
of the outstanding OEDC Common Stock. Each of NGP and the three executive
officers of OEDC who are also directors of OEDC has entered into a Voting
Agreement pursuant to which each has agreed to vote its or his shares--an
aggregate of 3,824,130 shares (43.9%) of the outstanding OEDC Common Stock--in
favor of approval and adoption of the Merger Agreement. In the event the
Merger Agreement terminates, the Voting Agreements will also terminate.

PROXIES

Titan. Shares of Titan Common Stock represented by a proxy in the form
enclosed, duly executed and returned to Titan prior to or at the Titan Special
Meeting, and not revoked, will be voted at the Titan Special Meeting in
accordance with the voting instructions contained therein. Shares of Titan
Common Stock represented by proxies for which no voting instructions are given
will be voted FOR approval and adoption of the Merger Proposal.

Holders of Titan Common Stock are requested to complete, sign, date and
return promptly the enclosed proxy card in the postage paid envelope provided
for this purpose in order to ensure that their shares are voted at the Titan
Special Meeting. A proxy may be revoked at any time prior to the exercise of
the authority granted thereunder. Revocation may be accomplished by (i) the
execution and delivery of a later-dated proxy with respect to the same shares,
(ii) giving notice thereof in writing to the Secretary of Titan at any time
prior to the vote on the matters to be considered at the Titan Special Meeting
or (iii) attending the Titan Special Meeting and voting in person. Attendance
at the Titan Special Meeting by a stockholder who signed a proxy will not in
itself revoke the proxy.

If a holder of Titan Common Stock does not return a signed proxy card (and
does not vote in person at the Titan Special Meeting), his or her shares will
not be voted at the Titan Special Meeting. Abstentions and broker non-votes
with respect to shares of Titan Common Stock will have the effect of a vote
against the Merger.

The Board of Directors of Titan knows of no matters to be presented at the
Titan Special Meeting other than those described in this Joint Proxy
Statement/Prospectus. If other matters are properly brought before the Titan
Special Meeting, it is the intention of the persons named as proxies to vote
with respect to such matters in accordance with their judgment.

OEDC. Shares of OEDC Common Stock represented by a proxy in the form
enclosed, duly executed and returned to OEDC prior to or at the OEDC Special
Meeting, and not revoked, will be voted at the OEDC Special Meeting in
accordance with the voting instructions contained therein. Shares of OEDC
Common Stock represented by proxies for which no voting instructions are given
will be voted FOR approval and adoption of the Merger Agreement.

Holders of OEDC Common Stock are requested to complete, sign, date and
return promptly the enclosed proxy card in the postage paid envelope provided
for this purpose in order to ensure that their shares are voted at the OEDC
Special Meeting. A proxy may be revoked at any time prior to the exercise of
the authority granted thereunder. Revocation may be accomplished by (i) the
execution and delivery of a later dated proxy with respect to the same shares,
(ii) giving notice thereof in writing to the Secretary of OEDC at any time
prior to the vote on

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<PAGE>

the matters to be considered at the OEDC Special Meeting or (iii) attending
the OEDC Special Meeting and voting in person. Attendance at the OEDC Special
Meeting by a stockholder who signed a proxy will not in itself revoke the
proxy.

If a holder of OEDC Common Stock does not return a signed proxy card (and
does not vote in person at the OEDC Special Meeting), his or her shares will
not be voted at the OEDC Special Meeting. Such failure to vote will have the
effect of a vote against the approval and adoption of the Merger Agreement.
Abstentions and broker non-votes with respect to shares of OEDC Common Stock
will also have the effect of a vote against the approval and adoption of the
Merger Agreement.

The Board of Directors of OEDC knows of no matters to be presented at the
OEDC Special Meeting other than the matter described in this Joint Proxy
Statement/Prospectus. If other matters are properly brought before the OEDC
Special Meeting, it is the intention of the persons named as proxies to vote
with respect to such matters in accordance with their judgment.

SOLICITATION OF PROXIES

Solicitation of proxies for use at the Titan Special Meeting and the OEDC
Special Meeting may be made in person or by mail, telephone, telecopy or
telegram. Titan and OEDC will each bear the cost of the solicitation of
proxies from their respective stockholders, except that Titan and OEDC will
share equally the expenses incurred in connection with printing and mailing
this Joint Proxy Statement/Prospectus. Titan has employed Morrow & Company to
solicit proxies on behalf of Titan for use at the Titan Special Meeting for a
fee of $7,000 plus certain out-of-pocket expenses. OEDC has retained Corporate
Investor Communications, Inc. to solicit proxies on behalf of OEDC for use at
the OEDC Special Meeting for a fee of $4,500 plus certain out-of-pocket
expenses. In addition, officers and employees of Titan and OEDC, who will
receive no compensation in excess of their regular salaries for their
services, may solicit proxies from the stockholders of Titan and OEDC,
respectively, in person or by mail, telephone, telecopy or telegram. Titan and
OEDC have requested banking institutions, brokerage firms, custodians,
trustees, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of Titan Common Stock and OEDC Common Stock held of record
by such entities, and Titan and OEDC will, upon the request of such record
holders, reimburse reasonable forwarding expenses.

THE MERGER

EFFECTS OF THE MERGER

Pursuant to the Merger Agreement, at the Effective Time, Titan Sub will
merge with and into OEDC and each share of capital stock of OEDC issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive 0.630 of a share of Titan Common Stock.

As a result of the Merger, the separate corporate existence of Titan Sub
will cease and OEDC will be the surviving corporation in the Merger and will
become a wholly-owned subsidiary of Titan.

No fraction of a share of Titan Common Stock will be issued in connection
with the conversion of OEDC Common Stock pursuant to the Merger, and cash will
be paid in lieu of any fractional shares. See "Certain Provisions of the
Merger Agreement--Conversion of Shares; Procedure for Exchange of
Certificates; Fractional Shares."

Assuming no change in the number of shares of OEDC Common Stock outstanding
at the Effective Time from the number outstanding on the record date for the
OEDC Special Meeting, the number of shares of Titan Common Stock subject to
issuance in the Merger in exchange for shares of OEDC Common Stock is
approximately 5,482,187.

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<PAGE>

Based on the capitalization of Titan and OEDC as of September 30, 1997,
immediately after the Effective Time, the former holders of OEDC Common Stock
will hold approximately 13.9% of the then outstanding Titan Common Stock.
Titan does not own any shares of OEDC Common Stock.

BACKGROUND OF THE MERGER

Following OEDC's initial public offering in November 1996, OEDC's management
believed that the net proceeds of the offering, bank borrowings and funds
generated from operations would be sufficient to fund its growth strategy
through 1997. During the first six months following the offering, OEDC
experienced operating difficulties that, cumulatively, were unprecedented in
OEDC's history. These included a dry hole on its Viosca Knoll 80 well,
premature loss of production on its South Timbalier B-8 well, unsuccessful
attempts to restore production on its South Timbalier B-6 well and delays in
obtaining production permits on five Viosca Knoll wells. The permitting delays
postponed evaluation of the productivity of the five Viosca Knoll wells.
Although OEDC's management did not believe that these operating difficulties
would adversely affect its long-term growth strategy or cause OEDC to curtail
its 1997 drilling program, which has not occurred, the difficulties reduced
OEDC's ability to respond to new opportunities that could augment its growth
strategy. These opportunities included drilling prospects identified by OEDC
on acreage available in a federal lease sale, exploratory proposals from other
industry participants, expansion into an attractive onshore project, and new
prospects on OEDC's existing properties, including a deep prospect on Viosca
Knoll block 24. Management recognized that pursuit of these opportunities
would require additional capital and, beginning in January 1997, began
examining alternatives for additional financing, including debt and project
financing. This examination produced no alternatives that OEDC management and
the OEDC Board determined to have acceptable risk/reward relationships.

In January 1997, OEDC's management was contacted by a large utility that was
considering alternatives to publicly offering part of its oil and gas
exploration and production subsidiary. The utility had identified as one of
its alternatives a strategic merger with an existing publicly held exploration
and production company. OEDC management had contacts with the utility in
February and early March about a potential combination. Management and the
Board discussed this matter informally and did not see an opportunity for a
favorable transaction with the utility, and the contacts did not develop into
a discussion of specific transaction terms.

In January 1997, OEDC's management was also contacted by M2 Capital
Ventures, LLC, now known as M2 Capital Partners ("M2"), inquiring whether M2
could provide financial advisory services to OEDC. In subsequent months,
management and M2 had contacts regarding alternatives for OEDC, including a
contact on April 4, 1997 when M2 suggested the possibility of a combination
with a large independent energy company. Shortly thereafter and before this
possibility could be pursued, the potential partner entered into a merger
transaction with another company.

On April 11 and April 16, 1997, OEDC's Board discussed OEDC's projected
capital resources and allocations for the remainder of 1997. Management
presented analysis of its exploration and development portfolio. Management
expressed its growing concern that, as a result of the cumulative effect of
the operating difficulties experienced by OEDC since the initial public
offering, it might not have sufficient capital to fully exploit its growing
project inventory. Management recommended that the Board engage M2 as a
financial advisor for the purpose of identifying and evaluating potential
transactions to access capital to exploit OEDC's project inventory.

On April 16, 1997, the OEDC Board approved the engagement of M2, and, on
April 17, 1997, OEDC and M2 entered into an engagement letter pursuant to
which M2 would identify and evaluate financing alternatives in exchange for a
success fee of .5% of the transaction value upon consummation of the
transaction. In addition, M2 would receive a monthly retainer of $10,000 and
reimbursement of its out-of-pocket expenses.

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<PAGE>

On April 18, 1997, OEDC issued a press release stating that its 1997 results
of operations would be adversely affected by the cumulative effect of the
operating difficulties encountered by the company since the start of 1997 and
announcing the engagement of M2 as follows:

OEDC has engaged a financial advisor for the purpose of identifying
potential industry or financial partners or sources of exploration and
development capital to exploit the Company's increasing inventory of what
the Company believes to be high quality exploration and development
prospects. While the Company's primary objective is to accelerate the
growth of the Company's value, it will evaluate a possible sale or other
disposition of the capital stock or assets of the Company by merger, other
business combination or otherwise, under the appropriate circumstances.

Immediately following the press release, two analysts downgraded their
recommendations with respect to OEDC, and the market price of OEDC stock
declined substantially.

The OEDC Board and M2 believed that OEDC's objectives could be achieved
through a variety of transactions, including joint ventures, partnerships,
property swaps and debt or equity financings. Although they continued to
explore all strategic alternatives, they believed that a strategic combination
could be the best means of enhancing stockholder value while reducing exposure
to OEDC's business risks, which had been highlighted by the recent operating
difficulties. In the weeks following M2's engagement, OEDC's representatives
and M2 identified companies with the capital resources necessary to fully
develop OEDC's exploration and development portfolio and the potential to
offer favorable consideration to OEDC's stockholders. M2 also prepared
summaries of information about OEDC to provide potential combination partners.
M2 began contacting potential purchasers and a form of confidentiality
agreement (containing a standstill provision) was prepared.

From April 21, 1997 to June 10, 1997, M2 contacted five publicly traded
energy companies identified by M2 and OEDC management as potential merger
candidates. All five expressed interest in discussing a transaction and M2
mailed a confidentiality agreement to each. M2 also delivered to these
companies copies of the company summary that it had prepared. Four of the
companies signed and returned the confidentiality agreement. In addition to
the five companies contacted by M2, M2 or OEDC management received unsolicited
contacts from eleven companies regarding a potential transaction. The initial
contacts with these companies resulted in mailing of a confidentiality
agreement to two companies, both of which signed and returned the agreements.

The Board of OEDC met on May 14, May 20 and June 17 to receive updates from
management regarding the results of the engagement of M2. At the May 20
meeting the Board approved expanding the scope of M2's engagement to include
advising OEDC with respect to all alternatives, regardless of whether M2 was
the source of the alternative, and to increase the fee payable to M2 to .75%
of the transaction value. On May 28, 1997, OEDC and M2 entered into a revised
engagement letter reflecting these terms. Under the revised letter, if the
Merger is consummated, OEDC will pay M2 a fee of approximately $600,000 for
its services.

The six companies that executed confidentiality agreements included a large
independent energy company that eventually agreed to a combination with
another company, a mid-sized energy company that ultimately determined to
develop its offshore presence internally, a midsized energy company that did
not register any further interest in a transaction with OEDC after it signed
and returned the confidentiality agreement and received the OEDC company
summary prepared by M2, and another mid-sized international energy company
that would have needed to link a transaction with OEDC to a transaction to
raise additional capital, a proposition that the OEDC management and Board
considered to involve too much risk and uncertainty. The other two companies
that signed confidentiality agreements, Titan and another midsized energy
company, were the only companies with which discussions progressed to a
discussion of terms.

On April 25, 1997, the president and chief executive officer of the other
midsized energy company with which discussions progressed contacted David B.
Strassner, President and Chief Executive Officer of OEDC, by phone to discuss
a potential combination.

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<PAGE>

On April 28, 1997, the other midsized company's financial advisor contacted
Mr. Strassner about a potential transaction.

On May 1, 1997, at an energy conference, Mr. Strassner and Douglas H.
Kiesewetter, OEDC's Executive Vice President and Chief Operating Officer, and
the president of the midsized company and its financial advisor met to discuss
the possibility of a transaction.

On May 13, 1997, M2 recommended to OEDC management that Titan be contacted
about a potential transaction, and management agreed that Titan might meet
OEDC's criteria.

On May 16, 1997, Tim Dunn of M2 contacted Jack Hightower, President, Chief
Executive Officer and Chairman of the Board of Titan and Mr. Hightower
indicated an interest in evaluating the possibility of a transaction.

On May 22, 1997, in Houston, Texas, Mr. Hightower met with Mr. Dunn and Jay
McEntire, another representative of M2. Mr. Hightower signed and delivered a
confidentiality and standstill agreement on behalf of Titan and M2 provided
Mr. Hightower with the OEDC company summary that M2 had prepared.

On May 27, 1997, Mr. Dunn contacted Mr. Hightower to ask about Titan's
review of the OEDC company summary and Titan's interest in a transaction with
OEDC.

On May 29, 1997, OEDC and Titan entered into a revised confidentiality and
standstill agreement relating to the exchange of information by the companies.

On June 11, 1997, at the other midsized energy company's offices, and on
June 26, 1997, at OEDC's offices, OEDC management and M2 met with management
of the other mid-sized energy company to exchange information regarding the
companies' assets and financials.

On June 23 and 30, 1997, Mr. Hightower spoke with Mr. Dunn to schedule, and
arrange for, a meeting at OEDC's offices on July 3, 1997 to review OEDC's
reserves, exploration opportunities, financials, and pipeline and gas
processing business.

On July 3, 1997, in OEDC's offices in Houston, Texas, management of OEDC,
including Mr. Strassner and Mr. Kiesewetter, and M2 discussed a potential
transaction and exchanged information regarding the companies' businesses and
assets with management of Titan, including Mr. Hightower; William K. White,
Vice President, Finance and Chief Financial Officer; Rodney L. Woodard, Vice
President, Engineering; and Thomas H. Moore, Vice President, Business
Development.

On July 8, 1997, the other midsized energy company and its financial advisor
met with management of OEDC, including Mr. Kiesewetter, and M2 to discuss the
potential terms of a stock for stock merger. Management of OEDC and M2
believed that the exchange ratio proposed by the company was inadequate.
Although the proposed exchange ratio included a premium in terms of market
price (based on market prices at the time of the discussions, the exchange
ratio would have had a market value of $7.38 per share of OEDC Common Stock),
management of OEDC and M2 believed that a transaction at that exchange ratio
would be significantly dilutive to OEDC's stockholders on a net asset value
per share and cash flow per share basis. In the view of OEDC management and
M2, the proposed exchange ratio would need to be increased by 40% in order to
result in a nondilutive transaction from a net asset value perspective.

On July 10, 1997, at a conference in Santa Fe, New Mexico, OEDC management,
including Mr. Strassner, met briefly with Titan management, including Mr.
Hightower.

On July 11, 1997, M2 communicated to the other midsized energy company's
financial advisor OEDC's view of the inadequacy of the proposed offer and
expressed OEDC's strong desire for a meeting to exchange

28
<PAGE>

additional technical information with the other company to provide the other
company with a more complete basis on which to value OEDC.

On July 16, 17 and 18, 1997, Mr. Hightower continued discussions with Mr.
Strassner by telephone.

On July 22, 1997, in Titan's offices in Midland, Texas, management of Titan,
including Messrs. Hightower, White, George G. Staley, Executive Vice
President, Exploration, Woodard and Moore, and Mr. Dunn of M2 continued
discussions of a potential transaction and exchanged information regarding the
companies' businesses and assets with management of OEDC, including Messrs.
Strassner and Kiesewetter. Following the meeting, Messrs. Hightower and Dunn
discussed Titan's proposing an exchange ratio of 0.6 to OEDC. Mr. Dunn
indicated to Mr. Hightower that he believed OEDC would regard such a proposal
as inadequate.

These discussions between OEDC and Titan confirmed for OEDC management that
Titan was interested in negotiating a transaction. Because NGP is a
substantial stockholder of both OEDC and Titan, to ensure that negotiations
with Titan were conducted at arm's length, it was determined that David R.
Albin, a director of both OEDC and Titan and the owner of a limited
partnership interest in the general partner of NGP, and R. Gamble Baldwin,
another OEDC director and the general partner of the general partner of NGP,
should be excluded from the process of negotiating and approving any
transaction with Titan. Messrs. Albin and Baldwin are close business
associates and two of the four managing members of the general partner of NGP
II, a substantial stockholder of Titan. Consequently, Messrs. Albin and
Baldwin were only informed from time to time on a limited basis of the general
status of negotiations between OEDC and Titan, and they did not participate in
the negotiation of the terms of the Merger or in the OEDC Board's
deliberations concerning the Merger.

On July 24, 1997, Mr. Hightower spoke by phone with Kenneth A. Hersh, a
Titan director, and close business associate of Messrs. Albin and Baldwin. Mr.
Hersh owns a limited partnership interest in the general partner of NGP and is
another of the four managing members of the general partner of NGP II. Mr.
Hightower informed Mr. Hersh that Titan management was interested in pursuing
a merger with OEDC. Adding Mr. Albin to the phone conversation, the three
agreed that, because Mr. Albin is an OEDC director, he would not receive any
information regarding the transaction from Titan and that Mr. Hersh would be
informed only as to the general status of the transaction, with the
understanding that he would not be involved in any negotiations. Although Mr.
Hightower subsequently informed Mr. Hersh from time to time of the general
status of the transaction, Mr. Hersh did not participate in the negotiation of
the terms of the Merger or in the Titan Board's deliberations concerning the
Merger.

On July 29 and 30, 1997, management and technical staff of OEDC and the
other midsized energy company met at the midsized energy company's offices to
present to one another detailed technical information regarding their
respective assets and prospects. The information provided by the midsized
energy company at this meeting confirmed OEDC management and M2's view of the
midsized energy company's net asset value and confirmed their belief that the
assumptions underlying the other company's valuation of OEDC was flawed.
Management of OEDC and M2 suggested that the other company conduct a further
review of OEDC's assets.

On July 30, 1997, Mr. Hightower continued discussions by phone with Douglas
H. Kiesewetter, OEDC's Executive Vice President and Chief Operating Officer.

On August 4, 1997, management of OEDC met again with a representative of the
other midsized energy company at OEDC's offices to discuss valuation issues
relating to the companies' assets.

On August 4, 1997, Mr. Hightower continued discussions by phone in separate
conversations with Mr. Dunn and Mr. Strassner.

On August 7, 1997, in OEDC's offices in Houston, Texas, Titan management,
including Mr. Hightower, and OEDC's management, including Mr. Strassner,
continued discussions.

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<PAGE>

On August 8, 1997, Mr. Hightower met with Mr. Dunn to discuss Titan's
proposing an exchange ratio of 0.650 to OEDC. Mr. Dunn indicated that he
believed OEDC would regard this proposal also as inadequate.

On August 8, 1997, the other midsized energy company's financial advisor
delivered to OEDC a term sheet outlining a proposal for a transaction at an
exchange ratio that was 10% lower than the exchange ratio the midsized energy
company had previously proposed.

On August 11, 1997, OEDC and M2 communicated to the other midsized energy
company's financial advisor that its reduced proposal was inadequate and the
proposed exchange ratio would have to be increased significantly if
discussions were to continue. No further discussions were held with the other
company and no additional proposals were received.

Also on August 11, 1997, Titan management, including Mr. Hightower, and OEDC
management, including Mr. Strassner, negotiated further by telephone,
resulting in a proposal for a transaction with an exchange ratio of 0.675.

On August 12, 1997, Titan's Board met, with Messrs. Albin and Hersh
participating by phone. Mr. Hightower reviewed the status of Titan's analysis
of several possible transactions, including a transaction with OEDC. Mr. Albin
terminated his phone connection prior to discussions of OEDC, with Mr. Hersh
maintaining his connection. Mr. Hightower reviewed negotiations with OEDC and
Titan's analysis of OEDC's net asset value, exploration potential and other
business prospects. Mr. Hightower then sought board approval of proceeding
with negotiation of a merger transaction with OEDC and the proposal of an
exchange ratio of 0.675. With Mr. Albin having terminated his phone
connection, Mr. Hersh abstained from voting and the other three directors
approved proceeding with negotiations and the proposal of an exchange ratio of
0.675. Following the meeting, Mr. Hightower, phoned Messrs. Strassner and
Kiesewetter to inform them of the decision of Titan's Board to proceed with
negotiations and propose an exchange ratio of 0.675.

On August 13, 1997, in two separate phone conversations, and on August 14,
1997, in one phone conversation, Mr. Hightower continued discussions with Mr.
Strassner.

On August 15, 1997, management of OEDC informed the OEDC Board (including
Messrs. Albin and Baldwin) that management had been unable to negotiate an
acceptable transaction with the other midsized energy company but had
negotiated an exchange ratio with Titan that it believed to be favorable.
Messrs. Albin and Baldwin were briefed as to the proposed exchange ratio but
abstained from participating in the discussions and actions of the OEDC Board
relating to the transaction with Titan. The OEDC Board requested that M2
prepare a summary of its analysis of the proposed transaction with Titan,
commissioned the engagement of an investment banking firm to render an opinion
as to the fairness of the proposed transaction and authorized management to
begin negotiation of a definitive merger agreement.

On August 24, 1997, counsel for Titan provided counsel for OEDC drafts of a
merger agreement and an option agreement, by which Titan proposed NGP, Messrs.
Strassner and Kiesewetter and R. Keith Anderson, Vice President of OEDC, would
grant Titan an irrevocable option to acquire in a stock for stock transaction
all the stock of these OEDC stockholders on the basis of a 0.675 exchange
ratio.

On August 26, 1997, OEDC contacted Raymond James about rendering an opinion
with respect to the fairness of the proposed transaction, and Raymond James
began its review of the transaction shortly thereafter. Among the factors that
led to the choice of Raymond James were the experience of Raymond James as
investment bankers in the energy business, the familiarity of Raymond James
with OEDC resulting from Raymond James having participated in the underwriting
syndicate in OEDC's initial public offering and the absence of any substantial
dealings between Raymond James and Titan that could compromise Raymond James'
independence in advising the OEDC Board.

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<PAGE>

On August 27, 28 and 29, 1997, Mr. Hightower continued discussions with Mr.
Kiesewetter in phone conversations. Mr. Kiesewetter indicated that no member
of OEDC management would enter into the proposed option agreements.

On August 29, 1997, Titan proposed that Messrs. Strassner, Kiesewetter and
Anderson and NGP enter into stockholder voting agreements in lieu of the
proposed option agreements. During the period from August 29, 1997 through
September 4, 1997, representatives of Titan and OEDC negotiated the terms of
the proposed stockholder voting agreement and a proposed draft was presented
to representatives of NGP and NGP II for review. NGP objected to the length of
the term of the agreements and refused to enter the agreements as proposed. As
a result, the parties further negotiated the terms of the agreements until
September 5, when the form of the agreement was generally agreed upon.

On September 5, 1997, the OEDC Board met. Present were the members of the
Board of Directors other than Messrs. Albin, Baldwin and Strassner, OEDC's
counsel, representatives of M2 and a representative of Raymond James. Although
Mr. Strassner was unable to attend this meeting, he was briefed on the matters
discussed at the meeting prior to the meeting on September 4 and after the
meeting on September 6 and 7. Management of OEDC also briefed Messrs. Albin
and Baldwin on the terms of the proposed merger with Titan, although it was
agreed that neither would attend the meetings of the OEDC Board to consider
approval of the proposed merger. At the September 5 meeting, M2 presented
materials that it had prepared for the OEDC Board summarizing the process that
led to a potential transaction with Titan and the financial analyses conducted
by it in evaluating the proposed merger. M2 also discussed with the OEDC Board
its view of the inadequacy of the proposal made by the other midsized energy
company. The Board also discussed with OEDC's legal counsel its fiduciary
duties in connection with considering the merger and the terms of the proposed
merger agreement. In connection with considering the terms of the proposed
merger agreement, the Board also considered an analysis prepared by Raymond
James regarding termination fees in similar transactions.

On September 6, 1997, Titan management, including Messrs. Hightower and
White, and counsel to Titan negotiated final terms of the merger agreement in
numerous conference phone calls with OEDC management, including Messrs.
Strassner and Kiesewetter, and counsel to OEDC.

On September 7, 1997, following additional negotiation of the terms of the
merger agreement by representatives of Titan and OEDC, the OEDC Board met
again. This meeting was attended by the members of the Board other than
Messrs. Albin and Baldwin, OEDC's counsel, a representative of M2 and
representatives of Raymond James. At this meeting, Raymond James delivered to
the Board its opinion that the consideration to be received by the
stockholders of OEDC in the merger was fair to the stockholders from a
financial point of view, and discussed with the Board the analyses it
conducted in reaching this opinion. Raymond James delivered its opinion in
written form on September 8. At the September 7 meeting, after receiving the
opinion of Raymond James and discussing the terms of the merger agreement
further, the Board approved the merger and merger agreement.

On September 7, 1997, the Titan Board met. All the members of the Board
other than Messrs. Albin and Hersh and Titan's counsel participated. Mr.
Hightower, together with Titan's counsel, reviewed the fiduciary obligations
of the Board, the background of the proposed merger, due diligence of OEDC and
its properties, the potential benefits of the Merger to Titan, valuation
analysis of the transaction and the terms of the merger agreement. After
deliberation and discussion, all members of the Board (except for Messrs.
Albin and Hersh) determined that the merger was fair to the stockholders of
Titan, and voted to approve the merger and the merger agreement.

On September 8, 1997, representatives of OEDC and Titan executed and
delivered a merger agreement, and NGP and the three management directors of
OEDC entered into the Voting Agreements with Titan.

On September 9, 1997, OEDC and Titan issued a press release announcing the
signing of a merger agreement. During the weeks following the execution of the
merger agreement, Titan conducted a thorough due diligence investigation of
OEDC.

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<PAGE>

On October 30, 1997, OEDC disclosed that it had learned the previous day
that a lawsuit had recently been filed in Harris County, Texas, against it and
other named defendants, including certain members of the OEDC Board. The other
named defendants include Messrs. Strassner, Kiesewetter and Albin, as well as
NGP, the managing underwriters of OEDC's initial public offering and an
analyst from each of the managing underwriters. The suit seeks class
certification on behalf of certain holders of OEDC Common Stock, excluding the
defendants and holders related to or affiliated with the defendants. The suit
alleges generally that, during the period from OEDC's initial public offering
to April 1997, the defendants wrongfully made false or misleading statements
or omissions relating to OEDC's business and prospects. The suit seeks
rescission of sales of OEDC common stock and unspecified monetary damages,
including punitive damages. See "Information Concerning OEDC--Business and
Properties--Legal Proceedings."

On October 31 and November 1, 1997, Mr. Hightower negotiated by phone with
Messrs. Strassner, Kiesewetter and Anderson regarding an adjustment in the
exchange ratio. In the course of its due diligence review of OEDC's properties
and operations, Titan had refined its evaluation of OEDC, and Titan had
considered the cost of defending the recently filed suit. Pending approval by
the Titan Board and the OEDC Board, Mr. Hightower and Messrs. Strassner,
Kiesewetter and Anderson, mutually agreed to a reduction in the exchange ratio
from 0.675 to 0.630.

On November 3, 1997, the Titan Board met to consider the proposed reduction
in the exchange ratio from 0.675 to 0.630. All the members of the Board other
than Messrs. Albin and Hersh participated. The Board again considered a
valuation analysis of the transaction. After deliberation and discussion, all
the members of the Board (other than Messrs. Albin and Hersh who did not
participate) determined that the Merger was fair to the stockholders of Titan,
and voted to approve the Merger and the Merger Agreement.

On November 5, 1997, the OEDC Board, other than Messrs. Albin and Baldwin,
met to consider the reduction in the exchange ratio from 0.675 to 0.630.
OEDC's counsel, a representative of M2 and representatives of Raymond James
also participated. At this meeting, Raymond James delivered to the Board its
opinion that the consideration to be received by the stockholders of OEDC in
the Merger, based on a reduced exchange ratio of 0.630, was fair to the
stockholders from a financial point of view, and discussed with the Board the
analyses it conducted in reaching this opinion. In addition, M2 presented its
analysis of the revised terms of the Merger. Raymond James delivered its
opinion in written form on November 6, 1997. At the November 5, 1997 meeting,
after receiving the opinion of Raymond James and information provided by M2
and discussing the terms of the Merger Agreement further, the Board approved
the Merger and the Merger Agreement, which provides for an exchange ratio of
0.630.

On November 6, 1997, Titan, Titan Sub and OEDC executed the Merger
Agreement, and Titan and OEDC made a joint press release, disclosing the
adjusted exchange ratio.

REASONS FOR THE MERGER--TITAN

The Titan Board believes that the Merger Proposal is fair to, and in the
best interests of, Titan and its stockholders. ACCORDINGLY, THE TITAN BOARD
HAS APPROVED, AND RECOMMENDS THAT THE HOLDERS OF TITAN COMMON STOCK VOTE FOR,
THE MERGER PROPOSAL.

The Titan Board believes that the Merger is desirable for a number of
reasons: (a) OEDC provides Titan with an additional core area of operations,
the prolific Gulf Coast region; (b) OEDC's Gulf of Mexico oil and gas
properties add reserve growth potential; (c) the reserve life of OEDC's
properties complements the longer reserve life of Titan's properties in west
Texas and southeastern New Mexico; (d) OEDC's gas gathering and processing
facilities in the rapidly developing Main Pass and deep water Viosca Knoll
region of the eastern Gulf provide diversification of Titan's assets and offer
relatively stable cash flows: (e) OEDC's employees include a geotechnical
group with Gulf Coast expertise and marketing specialists who will add to
Titan's marketing and midstream asset expertise; and (f) on a pro forma
combined basis as of September 30, 1997, Titan and OEDC had approximately
$23.5 million of net debt outstanding on a net book capital base of
approximately $272

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<PAGE>

million and approximately $155 million of unused bank credit available for
further acquisition and development. Titan will draw on this bank credit to
pay the anticipated $55 million purchase price for the Pioneer Acquisition.
Each of these factors is discussed in more detail below.

New Core Area. OEDC should provide Titan with a platform for growth
opportunities in the prolific Gulf Coast region. Titan currently does not have
significant operations in the region. Through the combination with OEDC, Titan
expects to expand its asset base in this new core area through acquisition,
exploitation and exploration efforts both onshore and offshore.

Reserve Growth Potential. OEDC has interests in approximately 64,000 gross
(56,000 net) undeveloped acres on 24 federal offshore lease blocks and is the
apparent high bidder in a recent federal offshore lease sale with respect to
three additional blocks containing approximately 14,000 net acres. Titan has
the financial resources to prudently explore this acreage. With these
resources, Titan has the option to retain all of OEDC's interest in each
prospect and to conduct 3-D seismic surveys to more specifically target
prospects.

Complementary Reserves. Titan owns interests in 60 fields and 1,688 gross
(554 net) productive wells in the Permian Basin, and has a reserve to
production ratio of approximately 11.7 years. Approximately 72% of Titan's
reserves are natural gas. OEDC, on the other hand, owns interests in 24
federal offshore lease blocks and interests in 11 producing wells in the Gulf
of Mexico, and has a reserve to production ratio of approximately 4.4 years.
Additionally, Titan's undeveloped acreage position is principally located on
shore in South Texas, East Texas and Central Texas and consists of
approximately 171,000 gross (132,000 net) acres, while OEDC's undeveloped
acreage position 64,000 gross (56,000 net) acres is virtually all offshore in
the Gulf of Mexico. Longer reserve life is generally noted for more
predictable production levels and cash flows over time while shorter reserve
life is generally noted for higher levels of cash flows in the early years of
the productive lives of the wells. Development costs onshore are generally
significantly less than those offshore because of costs associated with
platforms and other infrastructure needs related to offshore operations.

Midstream Assets Add Diversification. Pipeline tariffs, which in the case of
OEDC's pipeline assets are partially regulated by the Federal Energy
Regulatory Commission ("FERC"), when coupled with long lived throughput
contracts, usually result in predictable cash flows. In the case of OEDC's
pipeline assets, these long lived cash flows over time should offset the short
term nature of the cash flows which result from offshore oil and gas producing
activities. OEDC's gas processing assets, which are expected to generate
counter cyclical cash flows, will be positioned at the terminus of its
pipeline assets and will extract natural gas liquids from the natural gas that
is expected to be produced from the Mobile Bay, Viosca Knoll and Main Pass
areas of the Gulf of Mexico.

Gulf Coast Geotechnical, Marketing and Midstream Asset Expertise. Titan's
financial resources will assist OEDC's sophisticated geotechnical group in
pursuing high impact reserve opportunities in the Gulf Coast region, including
OEDC's undeveloped acreage. Titan also anticipates growing benefits from
OEDC's gas marketing and transportation experience as Titan increases its
production of gas from current levels in excess of 70 mmcfg/d. Titan's large
gas volume with the addition of the volume produced by OEDC should enable
Titan to aggregate its natural gas production and negotiate more favorable
terms for the sale of its natural gas.

Financial Strength. As of September 30, 1997, Titan had total debt
outstanding of $14.7 million on a net book capital base of $197.6 million. The
borrowing base on Titan's $250 million bank credit facility is currently $165
million, leaving Titan with $153.5 million of availability under its credit
agreement. The anticipated $55 million purchase price for the Pioneer
Acquisition will be drawn from this availability. At September 30, 1997, OEDC
had total debt of $9.5 million outstanding on a net book capital base of $38
million. The borrowing base in its $30 million bank credit agreement was $11
million, leaving OEDC with $1.5 million in availability. Assuming consummation
of the Merger and the Pioneer Acquisition at September 30, 1997, Titan would
have had approximately $100 million of bank credit availability, in addition
to Titan's and OEDC's cash flows, with which to fund future acquisitions and
development activities.

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In arriving at its recommendation, the Titan Board considered the following
factors: (a) Titan's internal detailed engineering, geological and financial
review and evaluation of OEDC; (b) entry into a new core area; (c) the
exploration and exploitation potential of the OEDC properties; (d) the
complementary nature of OEDC's reserves; (e) Titan's diversification
objectives; (e) the marketing synergies between Titan and OEDC; (f) the
expected accretive effect on cash flow per share of Titan Common Stock; (g)
the expected increase in financial resources and business opportunities from
the Merger; and (h) the likelihood that, for federal tax purposes, Titan would
not be adversely affected.

The foregoing describes the primary reasons behind and factors considered in
the decision of the Board of Directors of Titan to approve and recommend the
Merger Proposal. However, the Titan Board did not assign any relative or
specific weight to any reasons or factors. Moreover, individual directors may
have attributed more or less significance to the specific reasons for approval
of the Merger Proposal and may have given more or less consideration to
specific factors than the other directors.

REASONS FOR THE MERGER--OEDC

The OEDC Board believes that the Merger Agreement and the Merger are fair
to, and in the best interests of, OEDC and its stockholders. ACCORDINGLY, THE
OEDC BOARD HAS APPROVED, AND RECOMMENDS THAT THE HOLDERS OF OEDC COMMON STOCK
VOTE FOR, ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.

The OEDC Board believes that the Merger Agreement and the Merger are
desirable for a number of reasons:

1. The Merger provides the best available opportunity for OEDC's
stockholders to maintain significant participation in the upside potential
of OEDC's drilling and development program while reducing relative exposure
to the risks inherent in OEDC's business.

2. Based on market prices in effect at the time of and shortly before the
initial announcement of a transaction with Titan, the exchange ratio in the
Merger offers OEDC's stockholders a substantial premium in terms of the
market value of their shares. In addition, the exchange ratio will result
in a transaction that is not materially dilutive to the OEDC stockholders
on a net asset basis and, in the opinion of OEDC's financial advisors, is
fair to the stockholders of OEDC from a financial point of view.

3. Titan's substantial borrowing capacity and stable, long-life reserve
base should provide adequate capital to allow Titan to pursue OEDC's and
its own exploration and development programs simultaneously.

4. Titan's inventory of projects and the experience and record of success
of Titan's management may offer upside potential to OEDC's stockholders.

5. Titan views favorably OEDC's existing drilling and development program
and OEDC's desire to expand its operations into the onshore Gulf coast
area, and has indicated a willingness to continue the program and support
the onshore expansion.

6. The nonfinancial terms and conditions of the Merger Agreement,
including the structuring of the Merger as a tax free exchange, are
favorable to OEDC and its stockholders.

7. The Merger is expected to provide OEDC stockholders with enhanced
liquidity with respect to their investment because the number of shares
outstanding and trading volume of Titan Common Stock following the Merger
will be significantly larger than the number of shares outstanding and
trading volume of OEDC Common Stock.

8. The combination of OEDC and Titan will provide advantageous synergies,
including the application to Titan's operations of OEDC's midstream and
downstream expertise, and offers the opportunity to create a company with
greater financial resources, competitive strengths and business
opportunities than would be possible for OEDC alone.

In arriving at its determination to approve and recommend the Merger, the
Board of Directors of OEDC considered the following factors without assigning
relative weights to any: (1) the strategic alternatives available

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to OEDC, including continuing as a separate company; (2) the financial
condition, results of operations, business, properties, market position,
prospects and strategic objectives of OEDC; (3) the financial condition,
results of operations, business, properties, market position, prospects,
strategic objectives and management of Titan; (4) the process that resulted in
the execution of the Merger Agreement, including the consideration of other
types of transactions and business combination transactions with other
parties, including the midsized energy company, and the arm's length
negotiation of the terms of the Merger Agreement between OEDC and Titan; (5)
the financial and other terms of the Merger Agreement; and (6) the materials
prepared by and analyses conducted by M2 and Raymond James and the fairness
opinion of Raymond James.

The foregoing describes the primary reasons behind and factors considered in
making the determination of the Board of Directors of OEDC to approve and
recommend the Merger. However, the Board did not assign any relative or
specific weight to any reasons or factors. Moreover, individual directors may
have attributed more or less significance to the specific reasons for the
Merger, and may have given more or less consideration to specific factors,
than other directors.

OPINION OF FINANCIAL ADVISOR TO OEDC

On August 26, 1997, OEDC engaged Raymond James to assist OEDC in assessing
the financial terms of the proposed Merger and to render an opinion to the
Board of Directors of OEDC as to the fairness to the stockholders of OEDC of
the consideration to be received by the stockholders of OEDC in the Merger
from a financial point of view.

On November 5, 1997, Raymond James delivered to the Board of Directors of
OEDC its oral opinion, which was confirmed in writing on November 6, 1997,
that, as of the date of such opinion and based on and subject to the
assumptions and limitations set forth in the opinion and described below, the
consideration proposed to be paid to the stockholders of OEDC in the Merger
was fair, from a financial point of view, to such stockholders. A copy of the
opinion letter dated November 6, 1997 from Raymond James (the "Opinion
Letter") is attached as Appendix II to this Joint Proxy Statement/Prospectus.
Stockholders of OEDC are urged to read the Opinion Letter in its entirety.

In arriving at its conclusion contained in the Opinion Letter, Raymond James
examined (i) the financial terms and conditions of the Merger Agreement, (ii)
the fiscal year 1996 audited financial statements of OEDC and Titan, (iii)
unaudited interim financial statements on Form 10-Q of OEDC and Titan for the
quarter ending June 30, 1997, (iv) certain financial analyses and forecasts
for OEDC and Titan prepared by each company's respective management; (v)
financial analyses of OEDC and Titan prepared for OEDC by M2; and (vi) certain
other publicly available information relating to OEDC and Titan. Raymond James
also held discussions with members of the senior management of OEDC and Titan
regarding the past and current business operations, financial condition and
future prospects of OEDC and Titan. Raymond James considered other matters
which were deemed relevant to its inquiry, including the litigation filed
against OEDC in October 1997. Raymond James assumed the accuracy and
completeness of all such information and did not attempt to verify
independently any of such information. Raymond James did not make or obtain an
independent appraisal of the assets or liabilities of OEDC or Titan. Raymond
James assumed that all financial forecasts were reasonably prepared and
reflected the best currently available estimates and judgments of each
company's management. No limitations were placed by the Board of Directors or
management of OEDC with respect to the investigations made or the procedures
followed by Raymond James.

The following is a brief summary of the analyses conducted by Raymond James,
which were used by Raymond James in preparing the Opinion Letter and were
verbally presented to the Board of Directors of OEDC at its November 5, 1997
meeting. Raymond James reviewed the relevant similar measures with respect to
the consideration to be received by the stockholders of OEDC, which review
supported the conclusion reflected in the Opinion Letter.

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(i) COMPARABLE COMPANY ANALYSIS. Using publicly available information, as
part of its analysis, Raymond James reviewed and compared certain financial
information, ratios and stock market multiples of six publicly traded oil
and gas companies which were deemed to be comparable to OEDC based on
certain factors. The six companies were: Basin Exploration, Inc. (BSNX);
Cairn Energy USA (CEUS); Callon Petroleum Co. (CLNP); Panaco, Inc. (PANA);
Southern Mineral Corp. (SMIN); and The Meridian Resource Corp. (TMR) (the
"Selected Companies"). The public market multiples and financial ratios for
the Selected Companies were calculated using the closing market prices as
of October 31, 1997. With respect to its analysis, Raymond James considered
equity market value as a multiple of latest twelve months ("LTM") and
projected 1998 cash flow, LTM and projected 1998 earnings, and current
calculations of net asset value. Raymond James also considered enterprise
value (i.e., market value of common equity plus book value of debt less
cash and cash equivalents) as a multiple of LTM EBITDA (earnings before
interest, depletion, depreciation and amortization). Such analysis
indicated that for the comparable companies: (a) equity market value as a
multiple of LTM cash flow ranged from 5.2x to 11.3x; (b) equity market
value as a multiple of projected 1998 cash flow ranged from 4.3x to 6.4x;
(c) equity market value as a multiple of LTM earnings ranged from 25x to
41.2x; (d) equity market value as a multiple of projected 1998 earnings
ranged from 4.3x to 29.0x; (e) equity market value as a multiple of net
asset value ranged from 0.9x to 1.1x; and (f) enterprise value as a
multiple of LTM EBITDA ranged from 7.2x to 12.4x.

As part of its analysis Raymond James related the consideration to be
received by stockholders based on closing prices for Titan Common Stock and
OEDC Common Stock on October 31, 1997 to historical financial information
reported by OEDC in public filings and a range of estimates provided by
OEDC with respect to 1998 financial results. Such analysis indicated the
following ratios for the consideration to be received by OEDC shareholders:
(a) equity market value as a multiple of LTM cash flow of 9.1x; (b) equity
market value as a multiple of the projected range of 1998 cash flow of 2.7x
to 5.7x; (c) OEDC had negative LTM earnings, and therefore equity market
value as a multiple of LTM earnings is not meaningful; (d) equity market
value as a multiple of the projected range of 1998 earnings of 10.7x to
41.9x; (e) equity market value as a multiple of net asset value of 0.8x;
and (f) enterprise value as a multiple of LTM EBITDA of 7.8x.

(ii) SELECTED TRANSACTIONS ANALYSIS. Raymond James analyzed certain
information relating to selected transactions in the energy industry
involving the acquisition of certain publicly traded companies involved in
the exploration and production of oil and gas. Such analysis indicated for
the selected transactions that the premiums paid over prevailing equity
market value in effect one week prior to the public announcement of the
transaction ranged from -27.1% to 44.6%. Based on prevailing market prices
in effect four weeks prior to the public announcement of the transaction
premiums paid ranged from -23.2% to 54.1%.

As part of its analysis Raymond James observed that the consideration to
be received by stockholders of OEDC based on the closing market price of
Titan Common Stock on September 5, 1997 resulted in premiums over the
closing market prices of OEDC Common Stock in effect one week and four
weeks prior to September 5 of 25.8% and 40.7% respectively.

(iii) PRO FORMA ANALYSIS. Raymond James analyzed certain pro forma
effects resulting from the Merger including, among other things, the impact
of the Merger on the projected balance sheet and combined net asset values
of OEDC and Titan following the Merger. Based on assumptions provided by
and projections prepared by management of OEDC, and analyses by its
financial advisor, M2, and Titan, the results of the pro forma analysis
suggest that the Merger would not be materially dilutive to the net asset
value per share of OEDC. The actual results achieved by the combined
companies may vary from the projected results and variations may be
material.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary of the material financial analyses
set forth above, without considering the analyses as a whole, could create an
incomplete view of the processes underlying Raymond James' opinion. In
arriving at its fairness opinion, Raymond James did not attribute any
particular weight to any analysis or factor it considered, but rather made
qualitative judgments as to

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the significance and relevance of any analysis or factor. The analyses were
prepared solely for purposes of Raymond James' providing an opinion to the
Board of Directors of OEDC as to the fairness from a financial point of view
of the consideration to be received by the stockholders of OEDC and do not
purport to be appraisals. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, Raymond James does not assume responsibility if future results are
materially different from those forecast.

As described above, Raymond James' opinion to the Board of Directors of OEDC
was one of many factors taken into consideration by the Board of Directors in
making its determination to approve the Merger Agreement and the Merger. The
foregoing summary does not purport to be a complete description of the
analysis performed by Raymond James and is qualified by reference to the
written opinion of Raymond James set forth in Appendix II hereto.

Raymond James, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Among the factors
that led OEDC to engage Raymond James were the experience of Raymond James as
investment bankers in the energy business, the familiarity of Raymond James
with OEDC resulting from Raymond James having participated in the underwriting
syndicate in OEDC's initial public offering and the absence of any substantial
dealings between Raymond James and Titan that could compromise Raymond James'
independence in advising the OEDC Board.

Raymond James provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities of OEDC or Titan
for its own account and for the account of customers.

Pursuant to a letter agreement dated September 5, 1997, OEDC agreed to pay
Raymond James a fee of $250,000 for its services, of which $225,000 was due
upon the delivery of the Opinion Letter and the remaining $25,000 upon the
mailing of this Joint Proxy Statement/Prospectus. In addition, OEDC agreed to
reimburse Raymond James for its reasonable out-of-pocket expenses up to
$25,000 and agreed to indemnify Raymond James and certain related persons
against certain liabilities, including liabilities under the federal
securities laws, arising out of OEDC's engagement of Raymond James.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendations of the respective Boards of Directors
with respect to the Merger, stockholders of Titan and OEDC should be aware
that certain persons may have direct or indirect interests in the Merger
separate from those of the stockholders of Titan and OEDC generally, including
those discussed below.

Interest of NGP; Registration Rights. As of September 30, 1997, NGP owned
4,767,407 shares (14.0%) of the outstanding Titan Common Stock and 2,209,460
shares (25.4%) of the outstanding OEDC Common Stock. R. Gamble Baldwin, a
director of OEDC, is the general partner of G.F.W. Energy, L.P. ("GFW"), the
general partner of NGP. David R. Albin, a director of Titan and OEDC, and
Kenneth A. Hersh, a director of Titan, own limited partnership interests in
GFW. Messrs. Albin, Baldwin and Hersh are three of the four managing members
of the general partner of NGP II and also own limited partnership interests in
NGP II's general partner. As of September 30, 1997, NGP II owned 5,000,777
shares (14.7%) of the outstanding Titan Common Stock. In addition to the
shares of the Titan Common Stock and OEDC Common Stock owned by NGP, Mr.
Baldwin directly owns 9,100 shares and 35,041 shares of Titan and OEDC,
respectively. Messrs. Albin and Hersh, who disclaim beneficial ownership of
Titan Common Stock owned by NGP II, beneficially own 115,772 shares and 67,381
shares, respectively, of Titan Common Stock and 52,596 shares and 49,012
shares, respectively, of OEDC Common Stock. Although OEDC informed Messrs.
Albin and Baldwin from time to time on a limited basis of

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the general status of negotiations with Titan and, likewise, Titan informed
Mr. Hersh of the general status of negotiations with OEDC, none of these
individuals participated in such negotiations or the deliberations of the
board of either company in reviewing and approving the Merger.

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement among OEDC, NGP and certain other stockholders
of OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, Titan has agreed with NGP to use its best efforts
to prepare, file and have declared effective within 180 days of consummation
of the Merger a shelf registration statement registering for resale the
1,391,959 shares of Titan Common Stock to be received by NGP in the Merger and
357,486 shares of Titan Common Stock to be received by NGP in the anticipated
acquisition of Carrollton. One half of these shares will remain subject to
lock-up agreements with Titan until one year after consummation of the Merger.
Titan has also agreed to include in the same shelf registration an aggregate
of 86,088 shares of Titan Common Stock that Messrs. Albin, Baldwin and Hersh
will receive in the Merger.

Employment, Stock Options. David B. Strassner, Douglas H. Kiesewetter and R.
Keith Anderson are executive officers and directors of OEDC who have
recommended the Merger to OEDC stockholders. The Merger Agreement provides
that after the Effective Time it is expected that Titan may, in its sole
discretion, offer employment to the employees of OEDC including these three
individuals; provided, however, that Titan shall have no obligations to retain
any of the employees of OEDC. Titan shall provide the retained employees with
the same benefits that accrue to employees of Titan and their OEDC employee
options will vest fully as a result of the Merger.

Voting Agreements. NGP and Messrs. Strassner, Kiesewetter and Anderson have
delivered the Voting Agreements to Titan relating to the 2,209,460 shares,
748,828 shares, 557,806 shares and 308,036 shares of OEDC Common Stock each
owns respectively. Each has agreed, among other things, to vote its or his
shares of OEDC Common Stock (i) in favor of the Merger, (ii) against approval
of any proposition in opposition to the Merger, (iii) against any merger or
other transaction involving OEDC and any party other than as contemplated in
the Merger Agreement and (iv) against any other proposal or action which could
prohibit or discourage the Merger.

Other than upon consummation of the Merger, the Voting Agreements terminate
upon the earlier to occur of (i) the date on which Titan and OEDC mutually
consent to terminate the Voting Agreement and (ii) the termination of the
Merger Agreement pursuant to its terms. See "Certain Provisions of the Merger
Agreement--Termination."

OEDC Employee Stock Options. At the Effective Time, Titan will assume each
OEDC employee option that remains unexercised and substitute shares of Titan
Common Stock as purchasable under each assumed option. By the terms of the
OEDC option plan, the assumed options will be fully vested as a result of the
Merger and will otherwise have the same terms and conditions as the OEDC
employee options. The number of shares of Titan Common Stock purchasable under
an assumed option will be equal to the number of shares of Titan Common Stock
that the holder of the OEDC employee option being assumed would have received
upon consummation of the Merger had such OEDC employee option been fully
vested and exercised in full immediately prior to consummation of the Merger.
The per share exercise price of each assumed option will be an amount equal to
the per share exercise price of the OEDC employee option being assumed divided
by 0.630.

Pursuant to Titan's assumption of the OEDC employee options, Messrs.
Strassner, Kiesewetter and Anderson will have options to purchase 75,600
shares of Titan Common Stock at an exercise price of $19.05 per share. The
other OEDC employees will have options to purchase an aggregate of 231,574
shares of Titan Common Stock, consisting of 113,400 shares at an exercise
price of $19.05 per share and 118,175 shares at an exercise price of $5.73 per
share. See "Certain Provisions of the Merger Agreement--OEDC Options."

Indemnification. Titan has agreed that it will indemnify each person who is,
has been at any time prior to the date of the Merger Agreement, or becomes
prior to the Effective Time, an officer, director or employee of OEDC to the
extent these persons are currently entitled to indemnity from OEDC, subject to
certain exceptions.

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CERTAIN FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Thompson & Knight, P.C., counsel to Titan ("Counsel"), the
following are the material United States federal income tax consequences,
under currently applicable law, of the Merger to holders of OEDC Common Stock
who are United States citizens or resident individuals and who hold such
shares as capital assets and will hold Titan Common Stock as a capital asset.
The following discussion may not be applicable with respect to other
categories of stockholders, including corporate and foreign stockholders and
stockholders who acquired their shares of OEDC Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. It should be
noted that an opinion of counsel is not binding on the Internal Revenue
Service and that no ruling will be requested from the Internal Revenue Service
on these or any other issues.

Counsel is of the opinion that the Merger will qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. This conclusion is based on
certain factual assumptions and reliance on representations from Titan, Titan
Sub, OEDC, and certain principal stockholders of OEDC. Such assumptions and
representations include, but are not limited to, (i) that Titan has no plan or
intention to cause OEDC to sell or otherwise dispose of any of the assets of
OEDC acquired in the Merger, except for dispositions made in the ordinary
course of business; (ii) that Titan has no plan or intention to (a) liquidate
OEDC following the Merger, (b) merge OEDC with or into another corporation
following the Merger, (c) sell or otherwise dispose of the OEDC Common Stock
following the Merger, or (d) cause or permit OEDC to sell or otherwise dispose
of any of its assets, except for dispositions made in the ordinary course of
business or certain transfers described in Section 368(a)(2)(C) of the Code;
(iii) that OEDC will continue its historic business or use a significant
portion of its historic business assets in a business; (iv) that following the
transaction, OEDC will hold at least 90% of the fair market value of its net
assets and at least 70% of the fair market value of its gross assets held
immediately prior to the transaction; and (v) that there is no plan or
intention by the stockholders of OEDC to sell, exchange or otherwise dispose
of a number of shares of Titan Common Stock received in the Merger that would
reduce the OEDC stockholders' ownership of such Titan Common Stock to a number
of shares having a value, as of the Effective Time, of less than 50% of the
value of all of the formerly outstanding stock of OEDC as of the same date.

Based upon the foregoing conclusion that the Merger will qualify as a
reorganization under Section 368(a) of the Code, in the opinion of Counsel,
the following will be the material United States federal income tax
consequences to the holders of OEDC Common Stock:

(i) A holder of OEDC Common Stock will recognize no gain or loss upon the
exchange of such stock in the Merger solely for Titan Common Stock (except
with respect to cash received in lieu of a fractional share interest in
Titan Common Stock).

(ii) The basis of Titan Common Stock received in the Merger by holders of
OEDC Common Stock (including the basis of any fractional share interest in
Titan Common Stock) will be the same as the basis of the shares of OEDC
Common Stock surrendered in exchange therefor.

(iii) The holding period of a holder of OEDC Common Stock in the shares
of Titan Common Stock received by such stockholder as a result of the
Merger (including the holding period of any fractional share interest in
Titan Common Stock) will include the holding period for which such holder
held the shares of OEDC Common Stock which are exchanged for such shares of
Titan Common Stock.

(iv) Cash received by a holder of OEDC Common Stock in lieu of a
fractional share interest in Titan Common Stock will be treated as received
for such fractional share interest and, provided the fractional share would
have constituted a capital asset in the hands of such holder, the holder
should in general recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and a portion of the
adjusted tax basis in the OEDC Common Stock allocable to the fractional
share interest.

Even if the Merger qualifies as a reorganization, a recipient of Titan
Common Stock at the time of the Merger would recognize gain to the extent that
such shares were considered to be received in exchange for services or
property (other than solely in exchange for OEDC Common Stock). Gain also
would have to be recognized to the extent that a holder of OEDC Common Stock
was treated as receiving (directly or indirectly)

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consideration other than Titan Common Stock in exchange for OEDC Common Stock.
All or a portion of such gain amounts may be taxable as ordinary income.

In addition to the issuance by Counsel of its opinion with respect to the
foregoing matters, consummation of the Merger is conditioned, among other
things, on the receipt by Titan and OEDC of an opinion of Counsel to the
effect that Titan, Titan Sub and OEDC will not recognize any gain or loss for
United States federal income tax purposes as a result of the Merger (except
for amounts resulting from any required change in accounting methods and any
income or deferred gain recognized pursuant to Treasury Regulations issued
under Section 1502 of the Code). The foregoing tax opinion of Counsel is or
will be based, among other things, on representations relating to certain
facts and circumstances of, and the intentions of the parties to, the Merger.

THE FOREGOING DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OEDC COMMON STOCK IN
LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION.
HOLDERS OF OEDC COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS DESCRIBED HEREIN
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE
FUTURE CHANGES IN FEDERAL TAX LAWS.

LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS

If a corporation undergoes an "ownership change" within the meaning of
Section 382 of the Code, the corporation's right to use its then-existing net
operating loss carryforwards ("NOLs") (and other tax attributes), for both
regular and alternative minimum tax purposes, during each future year is
limited to a percentage (currently approximately 5.33%) of the fair market
value of such corporation's stock immediately before the ownership change (the
"Section 382 Limitation"). In general, there is an "ownership change" under
Section 382 if over a three-year period certain stockholders increase their
percentage ownership of a corporation (with NOLs) by more than fifty
percentage points. To the extent that taxable income exceeds the Section 382
Limitation in any year subsequent to the ownership change, such excess income
may not be offset by NOLs from years prior to the ownership change. To the
extent that the amount of taxable income in any subsequent year is less than
the Section 382 Limitation for such year, the Section 382 limitation for
future years is correspondingly increased. In certain circumstances, the
Section 382 Limitation may cause NOLs to be carried forward until such NOLs
expire unused. Where an ownership change occurs during a taxable year, a loss
corporation must allocate its NOL for such year between the pre-change period
and the post-change period. There is generally no restriction on the use of
NOLs arising after the ownership change, although Section 382 applies anew
each time there is an ownership change.

As of December 31, 1996, OEDC had NOLs of approximately $3.2 million. OEDC
has incurred an additional loss of approximately $5.0 million for the period
from January 1, 1997, to September 30, 1997. OEDC expects to have a net
operating loss for the taxable year ending December 31, 1997. Titan believes
that an ownership change with respect to OEDC will occur as a result of the
Merger. The resulting Section 382 Limitation may limit OEDC's ability to use
its NOLs (including a portion of any 1997 NOL) in future years, although the
actual effect, if any, of such limitation will depend on OEDC's profitability
in future years. In connection with the Merger, Counsel will not be rendering
an opinion regarding whether an ownership change will occur as a result of the
Merger or the effect of any such ownership change on OEDC's ability to utilize
its NOLs.

ANTICIPATED ACCOUNTING TREATMENT

The Merger is expected to be accounted for as a purchase of OEDC's assets by
Titan for accounting and financial reporting purposes. The purchase method
requires that the value of the acquisition (i.e., stock issued by Titan), plus
deferred taxes related thereto, be allocated among the assets acquired and
liabilities assumed based on their fair value.

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REGULATORY APPROVALS

Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice and specified waiting period
requirements have been satisfied. Titan and OEDC received notification of
early termination under the HSR Act from the FTC on November 3, 1997.

At any time before or after consummation of the Merger, and notwithstanding
that the HSR Act waiting period has terminated, the FTC or the Antitrust
Division or any state could take such action under the federal or state
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of OEDC or businesses of Titan or OEDC. Private parties
may also seek to take legal action under the antitrust laws under certain
circumstances.

Based on information available to them, Titan and OEDC believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Titan and OEDC would prevail or would not be required to accept certain
conditions, possibly including certain conditions to consummation of the
Merger.

LIMITATIONS ON RESALES; REGISTRATION RIGHTS

Resales by Affiliates. The shares of Titan Common Stock to be issued to the
stockholders of OEDC pursuant to the Merger Agreement are being registered
under the Securities Act pursuant to the Registration Statement and may
generally be resold freely without further registration. However, because some
of such persons are "affiliates" of OEDC (as such term is defined in Rule 144
under the Securities Act), such persons will not be able to resell the Titan
Common Stock received by them in connection with the Merger unless such shares
are registered for resale under the Securities Act, are sold in compliance
with an exemption from the registration requirements of the Securities Act or
are sold in compliance with Rule 145 under the Securities Act (or, in the case
of persons who become affiliates of Titan, Rule 144 under the Securities Act).
Titan will not be required to maintain the effectiveness of the Registration
Statement for the purpose of such resales.

Pursuant to Rule 145, the sale of Titan Common Stock acquired by such
persons pursuant to the Merger Agreement will be subject to certain
restrictions. Such persons may sell Titan Common Stock under Rule 145 only if
(i) Titan has filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months, (ii) the Titan Common Stock
is sold in "brokers' transactions" or in transactions directly with a "market
maker," within the meanings thereof in Rule 144 under the Securities Act, and
(iii) such sale and all other sales made by such person within the preceding
three months do not collectively exceed the greater of (x) one percent of the
then outstanding shares of Titan Common Stock and (y) the average weekly
trading volume of Titan Common Stock in the Nasdaq National Market during the
four-week period preceding the sale.

Persons who may be deemed to be affiliates of Titan or OEDC generally
include individuals or entities that control, are controlled by or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party. The Merger
Agreement requires OEDC to use its reasonable best efforts to cause each
person whom it believes may be an affiliate of OEDC for purposes of Rule 145
to deliver to Titan at or prior to the closing of the Merger a written
agreement to the effect that such person will not, among other things, offer
or sell or otherwise dispose of any shares of Titan Common Stock issued to
such person pursuant to the Merger in violation of the Securities Act or the
rules and regulations promulgated thereunder by the Commission. See "Certain
Provisions of the Merger Agreement--Certain Conditions to Consummation of the
Merger."

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Carrollton, NGP and certain other stockholders, Titan has agreed with NGP to
use its best efforts to prepare, file and have declared effective within 180
days of consummation of the Merger a shelf registration statement registering
for resale the 1,391,959 shares of Titan Common Stock to be received by NGP in
the Merger and 357,486 shares of Titan Common Stock to be received by NGP in
the anticipated acquisition of Carrollton. One half of these shares will
remain subject to lock-up agreements with Titan until one year after
consummation of the Merger. Titan has also agreed to include in the same shelf
registration an aggregate of 86,088 shares of Titan Common Stock that Messrs.
Albin, Baldwin and Hersh will receive in the Merger.

Titan is party to the Amended and Restated Registration Rights Agreement
with NGP, NGP II, Jack Hightower, Joint Energy Development Investments Limited
Partnership, First Union Corporation and Selma International Investment
Limited (the "Shareholder Parties"). Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of Titan's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require Titan to register shares
held by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at
least $3,000,000. The Amended and Restated Registration Rights Agreement also
provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of Titan Common Stock held
by them in certain registrations initiated by Titan or by any other holder of
Titan's Common Stock. The piggyback rights are subject to customary cutback
provisions.

LISTING ON NASDAQ NATIONAL MARKET

Titan Common Stock is currently listed for trading in the Nasdaq National
Market and it is anticipated that such stock will continue to be traded
thereon immediately following consummation of the Merger. Titan will file a
notice with the National Association of Securities Dealers, Inc. (the "NASD")
with respect to the listing of additional shares of Titan Common Stock to be
issued in respect of shares of OEDC Common Stock upon consummation of the
Merger, as well as the shares of Titan Common Stock to be reserved for
issuance upon the exercise of OEDC options to be assumed by Titan in the
Merger. The consummation of the Merger is conditioned upon NASD approval of
such listing.

NO APPRAISAL RIGHTS

Stockholders of OEDC are not entitled to any appraisal or dissenter's rights
under the Delaware General Corporation Law (the "DGCL") in connection with the
Merger. Stockholders of Titan are not entitled to any appraisal or dissenter's
rights under the DGCL in connection with the Merger or the other matters to be
considered at the Titan Special Meeting.

CERTAIN PROVISIONS OF THE MERGER AGREEMENT

GENERAL

The Merger Agreement provides that, subject to the terms and conditions set
forth therein, Titan Sub will be merged with and into OEDC, and the separate
existence of Titan Sub will cease, with OEDC continuing in existence as the
surviving corporation and becoming a wholly owned subsidiary of Titan.
Following the Merger, OEDC will remain a wholly owned subsidiary of Titan.

EFFECTIVE TIME OF THE MERGER; CLOSING

The Merger shall become effective immediately when a certificate of merger,
prepared and executed in accordance with the relevant provisions of the DGCL,
is filed with the Secretary of State of Delaware or at such time thereafter
(not to exceed 90 days from the date the certificate is filed) as is provided
in the certificate of merger pursuant to the mutual agreement of Titan and
OEDC. The filing of the certificate of merger shall be made as soon as
practicable on the Closing Date (as defined below). The closing of the Merger
(the "Closing")

42
<PAGE>

shall take place on a date (the "Closing Date") to be specified by the
parties, which shall be as soon as practicable after the satisfaction or
waiver of the conditions to the consummation of the Merger, unless another
date is agreed to by the parties.

CONVERSION OF SHARES; PROCEDURE FOR EXCHANGE OF CERTIFICATES; FRACTIONAL
SHARES

Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
Titan, OEDC, Titan Sub or their respective stockholders, each share of OEDC
Common Stock issued and outstanding immediately prior to the Effective Time
(the "Shares") will be converted into the right to receive 0.630 of a share of
Titan Common Stock.

As soon as practicable after the Effective Time, each holder of a
certificate that prior thereto represented Shares will be entitled, upon
surrender thereof to Titan or its transfer agent, to receive in exchange
therefor, as applicable a certificate or certificates representing the number
of whole shares of Titan Common Stock into which the shares of OEDC Common
Stock so surrendered shall have been converted in such denominations and
registered in such names as such holder may request. Following the Effective
Time, Titan will cause to be mailed to each holder of certificates that
represented Shares immediately prior to the Effective Time, at such holder's
address as it appears on OEDC's stock transfer records, a letter of
transmittal and other information, advising such holder of the consummation of
the Merger along with instructions to enable such holder to effect the
exchange of stock certificates as contemplated by the Merger Agreement.

Until so surrendered and exchanged, each certificate that prior to the
Effective Time represented Shares shall represent solely the right to receive
Titan Common Stock (and cash in lieu of fractional shares as described below,
if any). Unless and until any such certificates shall be so surrendered and
exchanged, no dividends or other distributions payable to the holders of Titan
Common Stock, as of any time on or after the Effective Time, shall be paid to
the holders of such certificates that prior to the Effective Time represented
Shares; provided, however, that, upon any such surrender and exchange of such
outstanding certificates, there shall be paid to the record holders of the
certificates issued and exchanged therefor the amount, without interest
thereon, of dividends and other distributions, if any, that theretofore were
declared and became payable on or after the Effective Time with respect to the
number of whole shares of Titan Common Stock issued to such holder.

All shares of Titan Common Stock issued upon the surrender for exchange of
certificates that prior to the Effective Time represented Shares in accordance
with the terms of the Merger Agreement (including any cash paid in lieu of
fractional shares, as described below) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Shares. At and after the
Effective Time, there shall be no further registration of transfers on the
stock transfer books of OEDC of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates that
prior to the Effective Time represented Shares are presented to Titan for any
reason, they shall be canceled and exchanged as provided in the Merger
Agreement.

No fractional shares of Titan Common Stock will be issued, and each holder
of OEDC Common Stock who would otherwise be entitled to a fraction of a share
of Titan Common Stock will, upon surrender of the certificates representing
OEDC Common Stock held by such holder to Titan, be paid an amount in cash
equal to the value of such fraction of a share based upon the closing sales
price of Titan Common Stock, as reported on the Nasdaq National Market, on the
last day on which there is a reported trade in the Titan Common Stock prior to
the date on which the Effective Time occurs. No interest will be paid on such
amount. All Shares held by a holder shall be aggregated for purposes of
computing the number of shares of Titan Common Stock to be issued and cash in
lieu of fractional shares.

If any certificate for shares of Titan Common Stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it will be a condition of the issuance thereof that the
certificate so surrendered is properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange has paid to Titan or
its transfer agent any transfer or other taxes required by reason of the
issuance of a certificate for shares of Titan Common Stock in any name other
than that of the registered

43
<PAGE>

holder of the certificate surrendered, or has established to the satisfaction
of Titan or its transfer agent that such tax has been paid or is not payable.

OEDC STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES REPRESENTING OEDC COMMON
STOCK TO TITAN OR ITS TRANSFER AGENT UNTIL THEY HAVE RECEIVED INSTRUCTIONS AS
TO THE MANNER OF SURRENDER. OEDC STOCKHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THEIR PROXY.

REPRESENTATIONS AND WARRANTIES

Pursuant to the Merger Agreement, Titan and OEDC each made various customary
representations and warranties as to, among other things, their respective
corporate organization and compliance with law, their respective
capitalization, the authorization and validity of the Merger Agreement, their
respective businesses and financial condition, required approvals or
conflicts, and their Commission filings and financial statements. OEDC
additionally made specific representations as to litigation, employee benefit
matters, tax matters, environmental matters and matters pertaining to its oil
and gas properties and operations.

CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME

OEDC. Under the Merger Agreement, OEDC has agreed, from the date of the
Merger Agreement until the Effective Time, unless Titan shall otherwise agree
in writing or as otherwise contemplated by the Merger Agreement or as
disclosed to Titan, that, among other things: (a) the business of OEDC shall
be conducted only in the ordinary course of business and consistent with past
practice; (b) OEDC will not directly or indirectly take any of a number of
specific actions, including (i) the issuance of additional capital stock or
the sale or pledge of assets other than in the ordinary course of business,
(ii) the amendment of its charter or bylaws or partnership or joint venture
agreements, (iii) the splitting, combining or reclassifying of any outstanding
capital stock, (iv) the declaration, setting aside or payment of any dividend
with respect to its capital stock, (v) the redemption, purchase or acquisition
of its capital stock or (vi) making any of a number of specified increases or
changes in OEDC's bonus, compensation or employee benefit plans or
arrangements; (c) OEDC will use its reasonable efforts to preserve its
business organizations, any authorizations or similar rights, the services of
its current officers and key employees, the goodwill of those having business
relationships with OEDC, its properties and its levels of insurance coverage;
and (d) OEDC will not make or agree to make capital expenditures that in the
aggregate exceed $100,000.

Titan. Under the Merger Agreement, Titan has agreed, from the date of the
Merger Agreement until the Effective Time, unless OEDC shall otherwise agree
in writing or as otherwise contemplated by the Merger Agreement, that, among
other things, Titan will not directly or indirectly split, combine or
reclassify any outstanding capital stock or declare, set aside or pay any
dividend with respect to its capital stock.

SOLICITATION OF THIRD PARTY OFFERS

The Merger Agreement provides that OEDC will not, directly or indirectly,
solicit or knowingly encourage the initiation of any inquiries or proposals
regarding any OEDC Acquisition Proposal. In the event that OEDC receives an
OEDC Acquisition Proposal, OEDC must immediately advise Titan of the identity
of the party making it and its terms and conditions. In the event that the
OEDC Board determines in good faith that its fiduciary duties to its
stockholders under applicable law require it to respond to, communicate with
or provide information to any party making an inquiry or proposal (as
determined by the OEDC Board after consultation with and based upon advice of
counsel and its financial advisors), OEDC must notify Titan of such
determination prior to the time that OEDC provides any information or enter
into any discussions with the party. OEDC must continue to keep Titan informed
with respect to any actions that OEDC may take, including any discussions,
with respect to each OEDC Acquisition Proposal. Nothing in the Merger
Agreement permits OEDC to enter into any OEDC Acquisition Proposal during the
term of the Merger Agreement or to terminate the Merger Agreement except as
specifically permitted therein.

44
<PAGE>

OEDC OPTIONS

At the Effective Time, Titan will assume each OEDC employee option that
remains unexercised and substitute shares of Titan Common Stock as purchasable
under each assumed option. By the terms of the OEDC option plan, the assumed
options will vest fully as a result of the Merger and will otherwise have the
same terms and conditions as the OEDC employee options. The number of shares
of Titan Common Stock purchasable under an assumed option will be equal to the
number of shares of Titan Common Stock that the holder of the OEDC employee
option being assumed would have received upon consummation of the Merger had
such OEDC employee option been fully vested and exercised in full immediately
prior to consummation of the Merger. The per share exercise price of each
assumed option will be an amount equal to the per share exercise price of the
OEDC employee option being assumed divided by 0.630.

The assumption of OEDC employee options and substitution of shares of Titan
Common Stock as purchasable thereunder should not cause the recognition of
income, gain or loss to the option holders. In addition, with respect to OEDC
employee options that are incentive stock options within the meaning of
Section 422(b) of the Code, such assumption and substitution should not result
in a modification of such options within the meaning of Section 424 of the
Code. However, the accelerated vesting of an OEDC employee option that is an
Incentive Option could result in a portion of such option not being treated as
an incentive option.

Titan will take all corporate action necessary to reserve for issuance a
sufficient number of shares of Titan Common Stock for delivery upon exercise
of the assumed options, and, as soon as practicable after the Effective Time,
Titan will file a registration statement on Form S-8 (or other appropriate
form) with respect to the shares of Titan Common Stock subject to the assumed
options, and will use its best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of any prospectus
contained therein) for so long as any of the assumed options remain
outstanding.

NASDAQ NATIONAL MARKET LISTING

Titan will use all reasonable efforts to cause the shares of Titan Common
Stock to be issued in the Merger and the shares of Titan Common Stock to be
reserved for issuance upon the exercise of OEDC employee options to be assumed
by Titan in the Merger, if any, all to be approved for listing on the Nasdaq
National Market prior to the Closing Date.

INDEMNIFICATION

Titan has agreed that it will indemnify each person who is, has been at any
time prior to the date of the Merger Agreement, or becomes prior to the
Effective Time, an officer, director, employee or other controlling person of
OEDC or any such person's affiliates to the extent these officers, directors,
employees, controlling persons or affiliates are currently entitled to
indemnity from OEDC, subject to certain exceptions.

OEDC EMPLOYEE BENEFITS

The Merger Agreement provides that after the Effective Time it is expected
that Titan may, in its sole discretion, offer employment to the employees of
OEDC; provided, however, that Titan shall have no obligation to retain any of
the employees of OEDC. Titan shall provide the retained employees with the
same benefits that accrue to employees of Titan.

CERTAIN CONDITIONS TO CONSUMMATION OF THE MERGER

The respective obligations of each party to effect the Merger are subject to
the fulfillment at or prior to the Closing Date of a number of conditions set
forth in the Merger Agreement, including: (a) the requisite approval by the
stockholders of OEDC and Titan with respect to the Merger Agreement; (b) the
continuing accuracy in all material respects of the representations and
warranties and the performance in all material respects of all covenants of
Titan and OEDC under the Merger Agreement; (c) the Registration Statement, and
any amendments

45
<PAGE>

thereto, shall have been declared effective by the Commission as of the
Closing Date; (d) no order shall have been entered and remain in effect in any
action or proceeding before any foreign, federal or state court or
governmental agency that would prevent or make illegal the consummation of the
Merger and no material action, suit or proceeding shall be pending or
threatened in writing to prohibit, delay or rescind the Merger or obtain an
award of damages; (e) all material required consents and approvals of
governmental agencies or private persons or entities shall have been obtained;
and (f) the shares of Titan Common Stock issuable upon consummation of the
Merger or upon exercise of any Assumed Options have been approved for listing
on the Nasdaq National Market.

The obligation of Titan to consummate the Merger is subject to the
fulfillment at or prior to the Closing Date of certain additional conditions,
including (a) the accuracy of the representations and warranties of OEDC and
the compliance by OEDC with all covenants made by it under the Merger
Agreement; (b) that there has not been any Material Adverse Effect pertaining
to OEDC and its subsidiaries from the date of the Merger Agreement through the
Closing Date; (c) that Titan shall have received an opinion from Bracewell &
Patterson, L.L.P., counsel to OEDC, with respect to certain legal matters; (d)
that the opinion received by Titan from Thompson & Knight, P.C. with respect
to certain tax aspects of the Merger shall not have been withdrawn or modified
in any material respect; and (e) the Merger shall have been approved by a
majority of the shares of OEDC Common Stock held by persons other than members
of the OEDC Board and their affiliates and otherwise voted at the special
meeting of OEDC stockholders.

The obligation of OEDC to effect the Merger is also subject to the
fulfillment at or prior to the Closing Date of certain additional conditions,
including (a) the accuracy of the representations and warranties of Titan and
the compliance by Titan with all covenants made by it under the Merger
Agreement; (b) the absence of any Material Adverse Effect pertaining to Titan
from the date of the Merger Agreement through the Closing Date; (c) that the
fairness opinion of Raymond James has not been withdrawn; (d) that Titan shall
have received certain agreements from its affiliates relating to resales of
Titan Common Stock; (e) that OEDC shall have received an opinion from Thompson
& Knight, P.C., counsel to Titan, with respect to certain legal matters; and
(f) the Merger shall have been approved by a majority of the shares of OEDC
Common Stock held by persons other than members of the OEDC Board and their
affiliates and otherwise voted at the special meeting of OEDC stockholders.

TERMINATION OF THE MERGER AGREEMENT

By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of Titan and OEDC, or (ii) by either
party if (A) the Merger has not been effected on or before February 28, 1998,
(B) any court or governmental entity shall have prohibited consummation of the
Merger Agreement or the transactions contemplated in connection therewith or
(C) the required approvals of the stockholders of Titan or OEDC are not
received at the applicable stockholders' meeting.

By Titan. Titan may terminate the Merger Agreement if (i) since the date of
the Merger Agreement there has been a Material Adverse Effect pertaining to
OEDC, (ii) there has been a material breach of any representation, warranty or
covenant set forth in the Merger Agreement by OEDC and such breach has not
been cured within five business days following receipt by OEDC of notice
thereof, (iii) the Board of Directors of OEDC in the exercise of its fiduciary
duties to OEDC stockholders, determines not to recommend, or otherwise
withdraws its recommendation of, approval of the Merger Agreement or fails to
convene a meeting of OEDC stockholders or (iv) the merger shall not have been
approved by a majority of the shares of OEDC Common Stock (A) held by persons
other than members of the OEDC Board and their affiliates and (B) voted at the
OEDC Special Meeting.

46
<PAGE>

notice thereof, or (iv) the merger shall not have been approved by a majority
of the shares of OEDC Common Stock (A) held by persons other than members of
the OEDC Board and their affiliates and (B) voted at the OEDC Special Meeting.
Further, OEDC may terminate the Merger Agreement if it determines in good
faith that its fiduciary duties to its stockholders under applicable law
require it to respond to, communicate with or provide information to any party
making an inquiry or proposal; provided that (i) Titan receives one week's
notice of OEDC's intention to terminate, (ii) during such week OEDC shall
consider adjustments to the Merger Agreement that Titan may propose and (iii)
OEDC pays Titan $3,000,000 concurrently with the termination.

TERMINATION FEES AND REIMBURSEMENT OF EXPENSES

If either Titan or OEDC terminates the Merger Agreement for certain of the
reasons described above in "Termination of the Merger Agreement" and (i) the
Merger Agreement has either not been submitted to the stockholders of OEDC or
the stockholders of OEDC have declined to approve the Merger Agreement by the
requisite vote, (ii) after the date of the Merger Agreement but prior to the
time the Merger Agreement is terminated there shall have been a OEDC
Acquisition Transaction proposed in writing to OEDC and (iii) any OEDC
Acquisition Transaction (whether the same or different from the one referenced
in clause (ii)) is consummated within any time within one year after the date
of the Merger Agreement, then OEDC will be required to pay Titan $3,000,000
upon the consummation of any such OEDC Acquisition Proposal.

In addition, if either Titan or OEDC terminates the Merger Agreement because
of the failure of the stockholders of the other to approve the Merger, then
the party whose stockholders have failed to approve the Merger will be
required to pay to the other party $500,000 as reimbursement for an agreed
upon estimate of the terminating party's out-of-pocket fees and expenses
incurred in connection with the Merger; provided, however, that if OEDC is
obligated to pay to Titan the $3,000,000 termination fee described in the
preceding two paragraphs, then OEDC may offset from the amount of such
termination fee any amount paid to Titan as a reimbursement for out-of-pocket
fees and expenses incurred in connection with the Merger. See "Certain
Provisions of the Merger Agreement--Termination."

47
<PAGE>

INFORMATION CONCERNING TITAN

The following Information Concerning Titan section provides information on
the business of Titan on a stand-alone basis and does not describe the
business of Titan if the Merger is consummated. The following Business and
Properties section contains forward-looking statements which involve risks and
uncertainties. Titan's actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including those factors set forth under "Risk Factors" and elsewhere
in this Joint Proxy Statement/Prospectus.

BUSINESS AND PROPERTIES OF TITAN

Titan is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, Titan has experienced significant growth in reserves, production
and cash flow by acquiring and exploiting producing properties primarily in
the Permian Basin of west Texas and southeastern New Mexico.

In December 1996, Titan completed an initial public offering of 14,391,500
shares of Titan Common Stock at $11.00 per share, resulting in net proceeds of
$147.2 million. The shares are traded on the Nasdaq National Market under the
symbol "TEXP." The proceeds were used to repay bank debt.

In December 1995, Titan acquired a concentrated group of Permian Basin
producing oil and gas properties from a large independent company for
approximately $40.6 million (the "1995 Acquisition"). On October 31, 1996,
Titan acquired additional Permian Basin producing properties from a major
integrated company for approximately $135.7 million (the "1996 Acquisition").
As of December 31, 1996, Titan had estimated net proved reserves of
approximately 19.5 MMBbls of oil and 301.4 Bcf of natural gas, or an aggregate
of 69.7 MMBOE with a PV-10 of $537.4 million. Approximately 66% of these
reserves were classified as proved developed. Titan acquired, explored for and
developed its reserves for an average reserve replacement cost of
approximately $2.75 per BOE through December 31, 1996.

Titan prefers to acquire properties over which it can exercise operating
control. Titan operated 458 gross wells (390 net wells) at December 31, 1996,
and these operated properties represented approximately 68% of its proved
developed producing PV-10 and 78% of Titan's PV-10 attributable to proved
reserves at December 31, 1996. Titan's emphasis on controlling the operation
of its properties enables Titan to better manage expenses, capital allocation
and other aspects of development and exploration.

Titan's oil and gas properties are located in approximately 60 fields in the
Permian Basin. Approximately 67% of Titan's PV-10 of total proved reserves is
concentrated in 12 principal fields located in this region. The region is
characterized by complex geology with numerous known producing horizons and
provides significant opportunities to increase reserves, production and
ultimate recoveries through development, exploratory and horizontal drilling,
recompletions, secondary and tertiary recovery methods, and use of 3-D seismic
and other advanced technologies.

Titan's strategy is to grow reserves, production and net income per share
through (i) the acquisition of producing properties that provide development
and exploratory drilling potential, (ii) the exploitation and development of
its reserve base, (iii) the exploration for oil and gas reserves and (iv) the
implementation of a low operating and overhead cost structure.

48
<PAGE>

partner of the partnership, transferred all the issued and outstanding stock
of that corporation to Titan in exchange for an aggregate of 231,814 shares of
Titan Common Stock. These transactions are referred to as the "Conversion." As
a result of the Conversion, Titan owns, directly or indirectly, all the
partnership interests in the partnership and conducts its active business
operations through the partnership.

Titan is incorporated in the State of Delaware, its principal executive
offices are located at 500 West Texas, Suite 500, Midland, Texas 79701, and
its telephone number is 915/498-8600.

Oil and Natural Gas Reserves

The following table summarizes the estimates of Titan's historical net
proved reserves as of December 31, 1995 and December 31, 1996, and the present
values attributable to these reserves at such dates. The reserve and present
value data as of December 31, 1995 were prepared by Titan. The reserve and
present value data of Titan as of December 31, 1996 were prepared by
Williamson Petroleum Consultants, Inc.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1995 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Estimated proved reserves:
Oil (MBbls)........................................ 6,146 19,456
Gas (MMcf)......................................... 134,995 301,378
MBOE (6 Mcf per Bbl)............................... 28,645 69,686
Proved developed reserves as a percentage of proved
reserves............................................ 47% 66%
PV-10(1)............................................. $ 89,753 $ 537,366
Standardized Measure of Discounted Future Net Cash
Flows(2)............................................ $ 66,352 $ 387,863
</TABLE>
- --------
(1) The present value of future net revenue attributable to Titan's reserves
was prepared using prices in effect at the end of the respective periods
presented, discounted at 10% per annum on a pre-tax basis. These amounts
reflect the effects of Titan's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
Titan represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of Titan's
hedging activities.

In accordance with applicable requirements of the Commission, estimates of
Titan's proved reserves and future net revenues are made using sales prices
estimated to be in effect as of the date of such reserve estimates and are
held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). The average prices for Titan's
reserves as of December 31, 1995 were $17.66 per Bbl of oil and $1.38 per Mcf
of natural gas, compared to average prices for Titan's reserves as of December
31, 1996 of $25.09 per Bbl of oil and $2.70 per Mcf of natural gas. On
September 30, 1997, the posted price for West Texas Intermediate Crude was
$19.00 per Bbl, as posted by Titan's major purchaser. On September 30, 1997,
estimated natural gas prices received by Titan at the wellhead averaged $1.76
per Mcf.

Estimated quantities of proved reserves and future net revenues therefrom
are affected by natural gas prices, which have fluctuated widely in recent
years. There are numerous uncertainties inherent in estimating oil and gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this report represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
As a result, estimates of different engineers, including those used by Titan,
may vary. In addition, estimates of reserves are subject to revision based
upon actual production, results of future development and exploration
activities, prevailing oil and gas prices, operating costs and other factors,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered and
are highly dependent upon the accuracy of the assumptions upon which they are
based. Titan's estimated proved reserves have not been filed with or included
in reports to any federal agency.

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<PAGE>

Estimates with respect to proved reserves that may be developed and produced
in the future are often based upon volumetric calculations and upon analogy to
similar types of reserves rather than actual production history. Estimates
based on these methods are generally less reliable than those based on actual
production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.

Productive Wells and Acreage

Productive Wells. The following table sets forth Titan's productive wells as
of September 30, 1997:

<TABLE>
<CAPTION>
ACTUAL
---------
GROSS NET
----- ---
<S> <C> <C>
Oil................................................................... 1,403 473
Gas................................................................... 285 81
----- ---
Total Productive Wells.............................................. 1,688 554
===== ===
</TABLE>

Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections. Wells that are completed in
more than one producing horizon are counted as one well. Of the gross wells
reported above, nine had multiple completions.

Acreage Data. Undeveloped acreage includes leased acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether or not such
acreage contains proved reserves. A gross acre is an acre in which an interest
is owned. A net acre is deemed to exist when the sum of fractional ownership
interests in gross acres equals one. The number of net acres is the sum of the
fractional interests owned in gross acres expressed as whole numbers and
fractions thereof. The following table sets forth the approximate developed
and undeveloped acreage in which Titan held a leasehold mineral or other
interest at September 30, 1997.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES TOTAL ACRES
---------------- ----------------- ---------------
GROSS NET GROSS NET GROSS NET
-------- ------- ----------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total........................ 142,319 50,746 171,373 132,106 313,692 182,852
</TABLE>

Drilling Activities

The following table sets forth the drilling activity of Titan on its
properties for the period from March 31, 1995 (inception) through December 31,
1995, the year ended December 31, 1996 and the nine months ended September 30,
1997.

<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ------------------ -------------------
GROSS NET GROSS NET GROSS NET
--------- -------- --------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells
Productive......... 1 0.5 -- -- 2 1.0
Nonproductive...... 2 1.3 1 0.2 -- --
-------- -------- -------- -------- -------- ---------
Total............ 3 1.8 1 0.2 2 1.0
======== ======== ======== ======== ======== =========
Development Wells
Productive......... -- -- 7 3.9 43 16.0
Nonproductive...... -- -- 1 0.2 3 2.3
-------- -------- -------- -------- -------- ---------
Total............ -- -- 8 4.1 46 18.3
======== ======== ======== ======== ======== =========
</TABLE>

50
<PAGE>

Net Production, Unit Prices and Costs

The following table presents certain information with respect to oil and gas
production prices and costs attributable to all oil and gas property interests
owned by Titan for the period from March 31, 1995 (inception) through December
31, 1995, the year ended December 31, 1996 and for the nine months ended
September 30, 1997.

<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -----------------
<S> <C> <C> <C>
Production
Oil (MBbls)..................... 30 714 1,396
Gas (MMcf)...................... 245 5,787 15,938
Total (MBOE).................... 71 1,679 4,052
Average sales price per unit (1):
Oil (per Bbl)................... $16.80 $19.16 $18.64
Gas (per Mcf)................... .97 1.75 1.63
BOE............................. 10.46 14.19 12.84
Production costs, including
production taxes (per BOE) (2)... $ 4.28 $ 5.48 $ 4.10
General and administrative costs
(per BOE)........................ $21.77 $ 1.35 $ .90
Depletion, depreciation and
amortization expenses (per BOE).. $ 4.21 $ 3.45 $ 3.93
</TABLE>
- --------
(1) Reflects results of hedging activities in 1996.
(2) Includes approximately $1.31 and $.69 per BOE of production costs
primarily attributable to necessary rework operations on the 1995
Acquisition properties and the 1996 Acquisition properties for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.

Acquisitions

Titan regularly pursues and evaluates acquisition opportunities (including
opportunities to acquire oil and gas properties or related assets or entities
owning oil and gas properties or related assets and opportunities to engage in
mergers, consolidations or other business combinations with entities owning
oil and gas properties or related assets) and at any given time may be in
various stages of evaluating these opportunities. These stages may take the
form of internal financial and oil and gas property analysis, preliminary due
diligence, the submission of an indication of interest, preliminary
negotiations, negotiation of a letter of intent, or negotiation of a
definitive agreement. While Titan is currently evaluating a number of
potential acquisition opportunities (some of which would be material in size
to Titan) in addition to the Merger, the acquisition of properties from
Pioneer and the acquisition of Carrollton, it has not signed a letter of
intent with respect to any material acquisition and currently has no assurance
of completing any particular material acquisition or of entering into
negotiations with respect to any particular material acquisition. See
"Summary--Recent Developments--Additional Titan Acquisitions."

Oil and Gas Marketing and Major Customers

The revenues generated by Titan's operations are highly dependent upon the
prices of, and demand for, oil and gas. The price received by Titan for its
oil and gas production depends on numerous factors beyond Titan's control,
including seasonality, the condition of the United States economy,
particularly the manufacturing sector, foreign imports, political conditions
in other oil-producing and gas-producing countries, the actions of OPEC and
domestic government regulation, legislation and policies. Decreases in the
prices of oil and natural gas could have an adverse effect on the carrying
value of Titan's proved reserves and Titan's revenues, profitability and cash
flow. Although Titan is not currently experiencing any significant involuntary
curtailment of its oil or gas production, market, economic and regulatory
factors may in the future materially affect Titan's ability to sell its oil or
gas production.

51
<PAGE>

For the year ended December 31, 1996 and the nine months ended September 30,
1997, sales to Enron Corp., and its subsidiaries and affiliates, were
approximately 43% and 50%, respectively, of Titan's oil and gas revenues.
Certain of these sales were based on six month contracts for crude oil and
month-to-month spot sales for natural gas.

Due to the availability of other markets and pipeline connections, Titan
does not believe that the loss of any single crude oil or gas customer would
have a material adverse effect on Titan's results of operations.

Competition

The oil and gas industry is highly competitive. Titan encounters competition
from other oil and gas companies in all areas of its operations, including the
acquisition of producing properties. Titan's competitors include major
integrated oil and gas companies and numerous independent oil and gas
companies, individuals and drilling and income programs. Many of its
competitors are large, well established companies with substantially larger
operating staffs and greater capital resources than Titan and which, in many
instances, have been engaged in the energy business for a much longer time
than Titan. Such companies may be able to pay more for productive oil and gas
properties and exploratory prospects and to define, evaluate, bid for and
purchase a greater number of properties and prospects than Titan's financial
or human resources permit. Titan's ability to acquire additional properties
and to discover reserves in the future will be dependent upon its ability to
evaluate and select suitable properties and to consummate transactions in a
highly competitive environment.

Operating Hazards and Uninsured Risks

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by Titan will be productive or that Titan
will recover all or any portion of its investment. Drilling for oil and gas
may involve unprofitable efforts, not only from dry wells, but from wells that
are productive but do not produce sufficient net revenues to return a profit
after drilling, operating and other costs. The cost of drilling, completing
and operating wells is often uncertain. Titan's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, many of which
are beyond Titan's control, including title problems, weather conditions,
mechanical problems, compliance with governmental requirements and shortages
or delays in the delivery of equipment and services. Titan's future drilling
activities may not be successful and, if unsuccessful, such failure may have a
material adverse effect on the Company's future results of operations and
financial condition.

In addition, Titan's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although Titan believes
that its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis
of 2-D seismic data and other traditional methods, unsuccessful wells are
likely to occur. There can be no assurance that Titan's drilling program will
be successful or that unsuccessful drilling efforts will not have a material
adverse effect on Titan. Although Titan has identified numerous potential
drilling locations, there can be no assurance that they will ever be drilled
or that oil or gas will be produced from them.

Titan's operations are subject to hazards and risks inherent in drilling for
and producing and transporting oil and gas, such as fires, natural disasters,
explosions, encountering formations with abnormal pressures, blowouts,
cratering, pipeline ruptures and spills, any of which can result in the loss
of hydrocarbons, environmental pollution, personal injury claims and other
damage to properties of Titan and others.

Titan expects to drill a number of deep vertical and horizontal wells in the
future. Titan's deep and/or horizontal drilling activities involve greater
risk of mechanical problems than other drilling operations. These wells may be
significantly more expensive to drill than those drilled to date.

52
<PAGE>

relative to the risks presented. The occurrence of an event that is not
covered, or not fully covered, by insurance could have a material adverse
effect on Titan's financial condition and results of operations.

Employees

As of September 30, 1997, Titan had 47 full-time employees, none of whom is
represented by any labor union. Included in the total were 40 corporate
employees located in Titan's office in Midland, Texas, eight of whom are
involved in the management of Titan. Titan considers its relations with its
employees to be good.

Other Facilities

Titan currently leases approximately 44,270 square feet of office space in
Midland, Texas, where its principal offices are located. This office lease is
with an affiliate of Jack Hightower. Titan's principal offices are leased
through March 15, 2002.

Title to Properties

Titan received title opinions relating to properties representing 80% of the
PV-10 of the 1995 Acquisition and 90% of the PV-10 of the 1996 Acquisition.
Titan's land department and contract land professionals have reviewed title
records of substantially all its producing properties. The title investigation
performed by Titan prior to acquiring undeveloped properties is thorough but
less rigorous than that conducted prior to drilling, consistent with industry
standards. Titan believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. Titan's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens
which Titan believes do not materially interfere with the use of or affect the
value of such properties. Titan's Credit Agreement is secured by a first lien
on properties that represented at least 80% of the value of Titan's proved oil
and gas properties (based on PV-10 as of December 31, 1996). As of September
30, 1997, Titan kept in force its leaseholds for 38% of its net acreage by
virtue of production on that acreage in paying quantities. The remaining
acreage is held by lease rentals and similar provisions and requires
production in paying quantities prior to expiration of various time periods to
avoid lease termination.

Governmental Regulation

Titan's oil and gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases Titan's cost of doing business and affects its profitability.
Although Titan believes it is in substantial compliance with all applicable
laws and regulations, because such rules and regulations are frequently
amended or reinterpreted, Titan is unable to predict the future cost or impact
of complying with such laws. Significant expenditures may be required to
comply with governmental laws and regulations and may have a material adverse
effect on Titan's financial condition and results of operations.

The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the
regulation of spacing, plugging and abandonment of such wells.

The Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of gas produced by Titan, as well as the revenues received by Titan
for sales of such production. Since the mid-1980s, FERC has issued a series of
orders, culminating in Order Nos. 636, 636-A and 636-B ("Order 636"), that
have significantly altered the marketing and transportation of gas. Order 636
mandates a fundamental restructuring of interstate pipeline sales and
transportation service,

53
<PAGE>

including the unbundling by interstate pipelines of the sale, transportation,
storage and other components of the city-gate sales services such pipelines
previously performed. One of FERC's purposes in issuing the orders is to
increase competition within all phases of the gas industry. Order 636 and
subsequent FERC orders on rehearing have been appealed and are pending
judicial review. Because these orders may be modified as a result of the
appeals, it is difficult to predict the ultimate impact of the orders on Titan
and its gas marketing efforts. Generally, Order 636 has eliminated or
substantially reduced the interstate pipelines' traditional role as
wholesalers of natural gas, and has substantially increased competition and
volatility in natural gas markets.

The price Titan receives from the sale of oil and natural gas liquids is
affected by the cost of transporting products to market. Effective January 1,
1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. Titan is
not able to predict with certainty the effect, if any, of these regulations on
its operations. However, the regulations may increase transportation costs or
reduce wellhead prices for oil and natural gas liquids.

Environmental Matters

Titan's operations and properties are subject to extensive and changing
federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating
to safety and health. The recent trend in environmental legislation and
regulation generally is toward stricter standards, and this trend will likely
continue. These laws and regulations may require the acquisition of a permit
or other authorization before construction or drilling commences and for
certain other activities; limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas;
and impose substantial liabilities for pollution resulting from Titan's
operations. The permits required for various of Titan's operations are subject
to revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations are subject to fines or injunction, or both. In the opinion of
management, Titan is in substantial compliance with current applicable
environmental laws and regulations, and Titan has no material commitments for
capital expenditures to comply with existing environmental requirements.
Nevertheless, changes in existing environmental laws and regulations or in
interpretations thereof could have a significant impact on Titan, as well as
the oil and gas industry in general. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes impose
strict, joint and several liability on owners and operators of sites and on
persons who disposed of or arranged for the disposal of "hazardous substances"
found at such sites. It is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the hazardous substances released into the environment. The Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes govern
the disposal of "solid waste" and "hazardous waste" and authorize the
imposition of substantial fines and penalties for noncompliance. Although
CERCLA currently excludes petroleum from its definition of "hazardous
substance," state laws affecting Titan's operations impose clean-up liability
relating to petroleum and petroleum related products. In addition, although
RCRA classifies certain oil field wastes as "nonhazardous," such exploration
and production wastes could be reclassified as hazardous wastes thereby making
such wastes subject to more stringent handling and disposal requirements.

Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as Titan, to prepare and implement spill
prevention, control countermeasure and response plans relating to the possible
discharge of oil into surface waters. The Oil Pollution Act of 1990, as
amended ("OPA"), contains numerous requirements relating to the prevention of
and response to oil spills into waters of the United States. For onshore
facilities that may affect waters of the United States, the OPA requires an
operator to demonstrate $10 million in financial responsibility, and for
offshore facilities the financial responsibility requirement is at least $35
million. Regulations are currently being developed under federal and state
laws concerning oil pollution prevention and other matters that may impose
additional regulatory burdens on Titan. In addition, the Clean Water Act and
analogous state laws require permits to be obtained to authorize discharge
into surface waters or

54
<PAGE>

to construct facilities in wetland areas. With respect to certain of its
operations, Titan is required to maintain such permits or meet general permit
requirements. The EPA recently adopted regulations concerning discharges of
storm water runoff. This program requires covered facilities to obtain
individual permits, participate in a group or seek coverage under an EPA
general permit. Titan believes that it will be able to obtain, or be included
under, such permits, where necessary, and to make minor modifications to
existing facilities and operations that would not have a material effect on
Titan.

The implementation of new, or the modification of existing, laws or
regulations could have a material adverse effect on Titan. The discharge of
oil, gas or other pollutants into the air, soil or water may give rise to
significant liabilities on the part of Titan to the government and third
parties and may require Titan to incur substantial costs of remediation.
Moreover, Titan has agreed to indemnify sellers of producing properties
purchased by Titan in the 1995 Acquisition, the 1996 Acquisition and the
Pioneer Acquisition against environmental claims associated with such
properties. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or reinterpreted in the future, or
future laws or regulations will not materially adversely affect Titan's
results of operations and financial condition or that material indemnity
claims will not arise against Titan with respect to properties acquired by
Titan.

Titan has acquired leasehold interests in numerous properties that for many
years have produced oil and gas. Although the previous owners of these
interests may have used operating and disposal practices that were standard in
the industry at the time, hydrocarbons or other wastes may have been disposed
of or released on or under the properties. In addition, some of Titan's
properties are operated by third parties over whom Titan has no control.
Notwithstanding Titan's lack of control over properties operated by others,
the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, adversely impact Titan.

Abandonment Costs

Titan is responsible for payment of plugging and abandonment costs on the
oil and gas properties pro rata to its working interest. Based on its
experience, Titan anticipates that the ultimate aggregate salvage value of
lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that Titan
will be successful in avoiding additional expenses in connection with the
abandonment of any of its properties. In addition, abandonment costs and their
timing may change due to many factors including actual production results,
inflation rates and changes in environmental laws and regulations.

55
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial data for Titan
for the period from March 31, 1995 (date of inception) through December 31,
1995, the year ended December 31, 1996 and for the nine months ended September
30, 1996 and 1997. The data presented below have been derived from and should
be read in conjunction with the consolidated financial statements of Titan and
related notes and "Management's Discussion and Analysis of Titan's Financial
Condition and Results of Operations" appearing elsewhere in this Joint Proxy
Statement/Prospectus. Selected unaudited financial data for the nine months
ended September 30, 1996 and 1997 include all adjustments (consisting only of
normally recurring accruals) considered necessary for a fair presentation of
the respective consolidated operating results for such interim periods.
Results for the interim periods are not necessarily indicative of results for
the full year.

<TABLE>
<CAPTION>
PERIOD
MARCH 31,
1995 (DATE OF
INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1995 1996 1996 1997
------------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Operating revenues............ $ 743 $ 23,824 $ 10,237 $ 52,011
Other revenues................ 242 144 140 99
-------- --------- -------- --------
Total revenues.............. 985 23,968 10,377 52,110
-------- --------- -------- --------
Expenses:
Oil and gas production........ 304 9,199 4,339 16,627
General and administrative.... 1,546 2,270 1,452 3,637
Amortization of stock option
awards....................... 576 1,839 576 3,790
Exploration and abandonment... 490 184 110 1,342
Depletion, depreciation and
amortization................. 299 5,789 2,269 15,927
Interest...................... 97 2,965 1,179 825
Other......................... (796) (359) (336) (134)
-------- --------- -------- --------
Total expenses.............. 2,516 21,887 9,589 42,014
-------- --------- -------- --------
Net income (loss) before
income taxes................. (1,531) 2,081 788 10,096
Income tax expense............ -- 3,484 2,998 3,534
-------- --------- -------- --------
Net income (loss)............. $ (1,531) $ (1,403) $ (2,210) $ 6,562
Net income (loss) per share... $ (.11) $ (.07) $ (.10) $ .18
Weighted average shares
outstanding.................. 14,066 20,140 21,780 35,714
CONSOLIDATED STATEMENT OF CASH
FLOWS DATA:
Net cash provided by (used in):
Operating activities.......... $ (1,805) $ 7,710 $ 5,643 $ 30,556
Investing activities.......... (47,522) (144,998) (12,753) (43,907)
Financing activities.......... 55,540 137,365 11,700 8,207
Net cash provided by (used in)
operating activities before
working capital adjustments.... (466) 9,795 3,654 29,813
OTHER CONSOLIDATED FINANCIAL
DATA:
Capital expenditures............ 43,669 149,901 17,590 43,089
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents....... 6,213 6,290 10,803 1,146
Working capital................. 11,946 8,124 8,760 2,270
Oil and gas assets, net......... 42,861 190,062 60,168 217,512
Total assets.................... 57,487 207,179 74,824 231,038
Total debt...................... 20,000 6,500 28,000 14,700
Stockholders' equity and
predecessor capital............ 34,585 187,186 37,951 197,560
</TABLE>

56
<PAGE>

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

General

Titan is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Titan's strategy is to
grow reserves, production and net income per share through (i) the acquisition
of producing properties that provide significant development and exploratory
drilling potential, (ii) the exploitation and development of its reserve base,
(iii) the exploration for oil and gas reserves, and (iv) the implementation of
a low operating and overhead structure. Titan has grown rapidly through the
acquisition and exploitation of oil and gas properties, consummating the 1995
Acquisition for a purchase price of approximately $40.6 million and the 1996
Acquisition for approximately $135.7 million.

Titan's growth resulting from acquisitions has impacted its reported
financial results in a number of ways. Acquired properties frequently may not
have received focused attention prior to sale. After acquisition, certain of
these properties require maintenance, workovers, recompletions and other
remedial activity not constituting capital expenditures, which initially
increase lease operating expenses. Titan may dispose of certain of the
properties if it determines they are outside Titan's strategic focus. The
increased production and revenue resulting from the rapid growth of Titan has
required it to recruit and develop operating, accounting and administrative
personnel compatible with its increased size. As a result, Titan anticipates a
corresponding increase in its general and administrative expense. Titan
believes that with its current inventory of drilling locations and the
anticipated additional staff it will be well positioned to follow a more
balanced program of exploration and exploitation activities to complement its
acquisition efforts.

Titan uses the successful efforts method of accounting for its oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved
reserves, and to drill and equip development wells are capitalized. Costs to
drill exploratory wells that do not result in proved reserves, and geological
and geophysical costs are expensed. Costs of significant nonproducing
properties, wells in the process of being drilled and significant development
projects are excluded from depletion until such time as the related project is
developed and proved reserves are established or impairment is determined.

Titan's predecessor was classified as a partnership for federal income tax
purposes. Therefore, no income taxes were paid or accrued by Titan prior to
its conversion from a limited partnership to a corporation on September 30,
1996.

Results of Operations

The financial statements of Titan, which began operations on March 31, 1995,
include the results of the nine months ended December 31, 1995, the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997. As a
result of Titan's limited operating history and rapid growth, its financial
statements are not readily comparable and may not be indicative of future
results.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996

Oil and Gas Revenues. Revenues from oil and gas operations totaled $52.0
million for the nine months ended September 30, 1997 compared to $10.2 million
for the nine months ended September 30, 1996. The increase is primarily
attributable to the 1996 Acquisition, the increase in the average price
received for both oil and gas, and continued exploitation of Titan's proved
properties. Of total oil and gas revenues for the nine months ended September
30, 1997, revenues of $36.5 million (70%) are attributable to the properties
acquired in the 1996 Acquisition. The average oil price received increased 8%
from $17.25 to $18.64 per Bbl and the average gas price received increased 25%
from $1.30 to $1.63 per Mcf for the nine months ended September 30, 1997.

57
<PAGE>

months ended September 30, 1996. The increase in the absolute amount of
production costs was primarily attributable to production costs associated
with the properties acquired in the 1996 Acquisition which totaled $10.2
million ($3.65 per BOE) for the nine months ended September 30, 1997.

Depletion, Depreciation and Amortization Expense. Depletion, depreciation
and amortization expense was $15.9 million ($3.93 per BOE) for the nine months
ended September 30, 1997 compared to $2.3 million ($2.69 per BOE) for the nine
months ended September 30, 1996. The increase per BOE is due to higher
amortization rates on the properties acquired in the 1996 Acquisition compared
to Titan's other properties.

General and Administrative Expense. General and administrative expense was
$3.6 million ($.90 per BOE) for the nine months ended September 30, 1997
compared to $1.5 million ($1.72 per BOE) for the nine months ended September
30, 1996. The increase in the absolute amount is due to the additional general
and administrative expenses which are necessary to administer the properties
acquired in the 1996 Acquisition. The 48% decrease in general and
administrative expenses per BOE for 1997 as compared to 1996 is due to the
spreading of Titan's general and administrative expenses over a larger
production base and to Titan's efforts to maintain a low overhead structure.

Interest Expense. Interest expense was $825,000 for the nine months ended
September 30, 1997 compared to $1.2 million for the nine months ended
September 30, 1996. The 31% decrease is primarily due to the application of
proceeds from the initial offering of common stock to the indebtedness
incurred by Titan to fund the 1995 Acquisition and the 1996 Acquisition.

YEAR ENDED DECEMBER 31, 1996

Oil and Gas Revenues. For the year ended December 31, 1996, Titan's revenues
from the sale of oil and gas (excluding the effects of hedging activities)
were $15.1 million and $11.1 million, respectively. Of total gross oil and gas
revenues, $16.2 million and $9.5 million are attributable to the 1995
Acquisition and the 1996 Acquisition, respectively. During the year, Titan
produced 714 MBbls of oil, (514 MBbls attributable to the 1995 Acquisition and
186 MBbls attributable to the 1996 Acquisition) and 5,787 MMcf of gas (3,401
MMcf attributable to the 1995 Acquisition and 2,124 MMcf attributable to the
1996 Acquisition), with total oil and gas production of 1,679 MBOE. The
revenues and production are primarily attributable to the 1995 Acquisition
since the 1996 Acquisition did not close until October 31, 1996.

As a result of hedging activities in the year ended December 31, 1996, oil
revenues were reduced $1.5 million ($2.10 per Bbl) and gas revenues were
reduced $995,000 ($.17 per Mcf) for a total reduction of $2,495,000.

Production Costs. Oil and gas production costs, including production taxes,
were $9.2 million ($5.48 per BOE) for the year ended December 31, 1996. These
costs included $2.2 million ($1.31 per BOE) of rework expenses of which
$945,000 were attributable to the 1995 Acquisition and $1.2 million were
attributable to the 1996 Acquisition.

Exploration and Abandonment Costs. Exploration and abandonment costs were
$184,000 for the year ended December 31, 1996.

General and Administrative Expense. General and administrative expenses were
$2.3 million ($1.35 per BOE) for the year ended December 31, 1996.

Depletion, Depreciation and Amortization Expense. For the year ended
December 31, 1996, depletion, depreciation and amortization expense was $5.8
million ($3.45 per BOE). This represents a full year of depletion,
depreciation and amortization relating to production for the 1995 Acquisition
and two months of depletion, depreciation and amortization relating to
production for the 1996 Acquisition.

58
<PAGE>

Interest Expense. Interest expense was $2,965,000 for the year ended
December 31, 1996. The interest expense was attributable to bank financing
incurred to fund the 1995 Acquisition and the 1996 Acquisition.

NINE MONTHS ENDED DECEMBER 31, 1995

Oil and Gas Revenues. For the nine months ended December 31, 1995, Titan's
revenues from the sale of oil and gas were $504,000 and $239,000,
respectively. During the period, Titan produced 30 MBbls of oil and 245 MMcf
of gas, for a total production of 71 MBOE. The revenues and production are
primarily attributable to the 1995 Acquisition which was consummated December
11, 1995.

Production Costs. Oil and gas production costs, including production taxes,
were $304,000 ($4.28 per BOE) for the nine months ended December 31, 1995.

Exploration and Abandonment Costs. Exploration and abandonment costs were
$490,000 for the nine months ended December 31, 1995.

General and Administrative Expense. General and administrative expenses were
$1.5 million ($21.77 per BOE) for the nine months ended December 31, 1995.

Depletion, Depreciation and Amortization Expense. For the nine months ended
December 31, 1995, depletion, depreciation and amortization expense was
$299,000 ($4.21 per BOE).

Liquidity and Capital Resources

Titan's primary sources of capital have been its initial capitalization,
private equity sales, bank financing, cash flow from operations and its
initial public offering. The 1995 Acquisition was funded with cash from
Titan's initial capitalization, additional private equity sales and bank
financing. The 1996 Acquisition was principally funded with bank financing,
which was repaid with the proceeds from Titan's initial public offering.

On November 7, 1997, Titan and Pioneer Natural Resources USA, Inc., a
wholly-owned subsidiary of Pioneer, entered into an agreement by which Titan
will acquire certain West Texas producing properties from Pioneer. Titan will
pay approximately $55 million, subject to adjustments, and anticipates closing
the transaction, subject to various conditions, in mid-December 1997. Titan
will fund the acquisition with its existing credit facilities.

Titan requires capital primarily for the exploration, development and
acquisition of oil and gas properties, the repayment of indebtedness and
general working capital needs.

Capital Expenditures. Apart from Titan's expenditure for its planned
acquisition from Pioneer, Titan budgeted for 1997 approximately $27 million
for the drilling and recompletion of approximately 26 oil and gas wells and 45
workover projects on its proved properties and approximately $25.2 million for
expenditures for geological and geophysical costs, drilling costs and lease
acquisition costs on Titan's unproved properties.

Cash expenditures for additions to oil and gas properties were $43.1 million
for the nine months ended September 30, 1997. This includes $10.0 million for
the acquisition of oil and gas leases and $33.1 million for development and
exploratory drilling.

Capital Resources. Titan's primary capital resources are net cash provided
by operating activities and $153.5 million availability under the Credit
Agreement. Titan's acquisition from Pioneer, funded under these facilities,
will reduce availability by approximately $55 million, subject to adjustment
of the purchase price under Titan's agreement with Pioneer.

59
<PAGE>

$3.7 million for the nine months ended September 30, 1996. The increase was
primarily attributable to the cash flow generated by the 1996 Acquisition and
from continued exploitation of Titan's proved properties.

Credit Agreement. The Credit Agreement established a four year revolving
credit facility, up to the maximum amount of $250 million, subject to a
borrowing base to be determined annually by the lenders based on certain
proved oil and gas reserves and other assets of Titan. Initially, the
borrowing base is established at $165 million. To the extent that the
borrowing base is less than the aggregate principal amount of all outstanding
loans and letters of credit under the Credit Agreement, such deficiency must
be cured by Titan ratably within 180 days, by either prepaying a portion of
the outstanding amounts under the Credit Agreement or pledging additional
collateral to the lenders. A portion of the credit facility is available for
the issuance of up to $15.0 million of letters of credit, of which $250,000
was outstanding at September 30, 1997.

In June 1997, the borrowing base was redetermined by the lenders and reset
at $165 million. Titan's outstanding long-term debt under the Credit Agreement
was $11.5 million on September 30, 1997.

All outstanding amounts under the Credit Agreement are due and payable in
full on January 1, 2001.

At Titan's option, borrowings under the Credit Agreement bear interest at
either the "Base Rate" (i.e., the higher of the applicable prime commercial
lending rate, or the federal funds rate plus .5% per annum) or the Eurodollar
rate, plus 1% to 1.50% per annum, depending on the level of Titan's aggregate
outstanding borrowings. In addition, Titan's is committed to pay quarterly in
arrears a fee of .30% to .375% of the unused borrowing base.

The Credit Agreement contains certain covenants and restrictions that are
customary in the oil and gas industry. In addition, the line of credit is
secured by substantially all of Titan's oil and gas properties.

Liquidity and Working Capital. At September 30, 1997, Titan had $1.1 million
of cash and cash equivalents as compared to $6.3 million at December 31, 1996.
Titan's ratio of current assets to current liabilities was 1.24 at September
30, 1997 compared to 2.03 at December 31, 1996. Due principally to a reduction
in cash as a result of an intentional change in the way Titan manages its
operating accounts, Titan's working capital decreased $5.8 million from $8.1
million at December 31, 1996 to $2.3 million at September 30, 1997. Titan
expects working capital to increase during the remainder of 1997 due to an
anticipated lower level of capital expenditures during the remainder of 1997.

Unsecured Credit Agreement. Effective April 16, 1997, Titan entered into a
credit agreement (the "Unsecured Credit Agreement") with Texas Commerce Bank
National Association (the "Bank"), which establishes a one year revolving
credit facility, up to the maximum of $5 million. While all outstanding
amounts are due and payable in full on or before March 6, 1998, Titan
considers amounts outstanding pursuant to the Unsecured Credit Agreement as
long-term as all amounts are repaid from available funds under the Credit
Agreement. Proceeds of the Unsecured Credit Agreement are utilized to fund
short-term needs (less than thirty days). Titan's outstanding debt under the
Unsecured Credit Agreement was $3.2 million at September 30, 1997.

The interest rate of each loan under the Unsecured Credit Agreement is at a
rate determined by agreement between Titan and the Bank. The rate shall not
exceed the maximum interest rate permitted under applicable laws. Interest
rates generally are comparable with Eurodollar rates plus 1% per annum.

Other Matters

60
<PAGE>

$2.08 per share. Options to purchase 1,944,417 shares of Common Stock are
currently vested and an additional 1,209,966 and 426,967 shares will vest on
March 31 of each of 1998 and 1999, respectively. Based in part on selling
prices of interests in the partnership in December 1995 and September 1996,
Titan expected to record a noncash compensation expense of approximately
$421,000 per month for a period of 39 months beginning in the fourth quarter
of 1996 to reflect the estimated value of the revised option plan on September
30, 1996. Noncash compensation expense recorded for the year ended December
31, 1996 was $1,839,000.

Hedging Activities. Titan uses swap agreements in an attempt to reduce the
risk of fluctuating oil and gas prices and interest rates. In November and
December 1995, Titan entered into four master agreements for energy price and
other swap transactions with each of Enron Capital & Trade Resources Corp.
("ECTRC") (an affiliate of Joint Energy Development Investments Limited
Partnership ("JEDI"), an owner of approximately 10% of the outstanding Titan
Common Stock), First Union National Bank of North Carolina (a lender to Titan
under the Credit Agreement and an affiliate of First Union Corporation, an
owner of approximately 4.9% of the outstanding Titan Common Stock), Chemical
Bank and Texas Commerce Bank National Association (a lender to Titan). Titan
has entered into energy price swap arrangements from time to time under these
master agreements. Settlement of gains or losses on these energy swap
transactions is generally based on the difference between the contract price
and a formula using New York Mercantile Exchange ("NYMEX") related prices and
is reported as a component of oil and gas revenues as the associated
production occurs. Titan entered into hedging transactions with respect to a
substantial portion of its estimated production through December 1996,
excluding the production attributable to the 1996 Acquisition. At December 31,
1996, none of Titan's production was subject to hedging contracts.

Beginning September 1, 1997, Titan has entered into certain hedging
arrangements which fix prices on a portion of Titan's production. Currently,
Titan has three crude oil hedging contracts in place: (a) September 1, 1997
through November 30, 1997 at a price of $21.32 per barrel for 2,000 barrels
per day; (b) October 1, 1997 through December 31, 1997 at a price of $21.45
per barrel for 1,000 barrels per day; and (c) November 1, 1997 through January
31, 1998 at a price of $23.36 per barrel for 1,000 barrels per day. This
contract may be extended at the counter party's option for an additional six
month period at the same price. In addition, Titan has 2,140,000 MMBtu of
natural gas production hedged beginning October 1, 1997 through December 31,
1997 at an average price of $2.69 per MMBtu and 4,800,000 MMBtu of natural gas
production hedged beginning January 1, 1998 through April 30, 1998 at an
average price of $2.386 per MMBtu. Any adjustment to revenue recognized due to
Titan's crude oil hedging transactions is determined as the difference between
the contract price and the average of the daily settlement prices for the
prompt month of the NYMEX Light Sweet Crude Oil Futures Contract for each
NYMEX trading day for the applicable determination period. Any adjustment to
revenue recognized due to Titan's natural gas hedging transactions is
determined as the difference between the contract price and the price as
reported from the first issue of the month of Inside F.E.R.C.'s Gas Marketing
Report, El Paso Natural Gas Co.--Permian Basin. Hedging activities do not
affect the actual sales price received for Titan's crude oil and natural gas.
Titan continues to evaluate whether to enter into additional hedging
activities for 1997, 1998 and future years. See "Risk Factors--Risks Relating
to the Business of Titan and OEDC--Risk of Hedging Activities."

Crude Oil. Titan reports average oil prices per Bbl including the net effect
of oil hedges. During the nine months ended September 30, 1997, Titan reported
average oil prices of $18.64 per Bbl, while realizing average prices,
excluding hedging results, of $18.57 per Bbl. Titan recorded net increases to
oil revenues of $93,000 ($.07 per Bbl) for the nine months ended September 30,
1997, as a result of its commodity hedges.

During the nine months ended September 30, 1996, Titan reported average oil
prices of $17.25 per Bbl, while realizing average prices, excluding hedging
results, of $19.57 per Bbl. Titan recorded net decreases to oil revenues of
$899,000 ($2.32 per Bbl) for the nine months ended September 30, 1996, as a
result of its commodity hedges.

Natural Gas. Titan reports average gas prices per Mcf including the net
effect of gas hedges. During the nine months ended September 30, 1997, none of
Titan's gas production was subject to hedging contracts.

61
<PAGE>

During the nine months ended September 30, 1996, Titan reported average gas
prices of $1.30 per Mcf, while realizing average prices, excluding hedging
results, of $1.50 per Mcf. Titan recorded net decreases to gas revenues of
$553,000 ($.20 per Mcf) for the nine months ended September 30, 1996, as a
result of its commodity hedges.

Natural Gas Balancing. It is customary in the natural gas industry for
various working interest partners to produce more or less than their
entitlement share of natural gas from time to time. Titan's net overproduced
position at December 31, 1996 was 243,365 Mcf. Under terms of typical natural
gas balancing agreements, the underproduced party can take a certain
percentage, typically 25% to 50% of the overproduced party's entitled share of
gas sales in future months, to eliminate such imbalances. During the make-up
period, the overproduced party's cash flow will be adversely affected. Titan
recognizes revenue and imbalance obligations under the entitlements method of
accounting, which means that Titan recognizes the revenue to which it is
entitled and records a liability with respect to the value of the overproduced
gas.

Environmental and Other Laws and Regulations. Titan's business is subject to
certain federal, state and local laws and regulations relating to the
exploration for and the development, production and transportation of oil and
gas, as well as environmental and safety matters. Many of these laws and
regulations have become more stringent in recent years, often imposing greater
liability on a larger number of potentially responsible parties. Although
Titan believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by such laws and regulations are
frequently changed and subject to interpretation, and Titan is unable to
predict the ultimate cost of compliance with these requirements or their
effect on its operations. Titan has no material commitments for capital
expenditures to comply with existing environmental requirements.

Nevertheless, changes in existing environmental laws or in interpretations
thereof could have a significant impact on the operating costs of Titan, as
well as the oil and gas industry in general. See "Risk Factors--Risks Relating
to the Business of Titan and OEDC--Compliance with Environmental Regulations,"
"--Business and Properties--Environmental Matters" and "--Business and
Properties--Abandonment Costs."

Recently Issued Accounting Standards. In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("FAS") No. 128, Earnings per Share. FAS No. 128 replaced primary
earnings per share ("EPS") with a newly defined basic EPS that modifies the
computation of diluted EPS. FAS No. 128 is effective for periods ending after
December 15, 1997. The impact of the adoption of FAS No. 128 on Titan's
earnings per share is expected to be immaterial.

In June 1997, FASB issued FAS No. 130, "Reporting Comprehensive Income"
which requires that all items required to be recognized under accounting
standards as components of comprehensive income be reported as a part of the
basic financial statements. FAS No. 130 is effective for both interim and
annual periods beginning after December 15, 1997. The Company plans to adopt
FAS No. 130 for the period ended March 31, 1998 and does not expect FAS No.
130 to have a material effect on reported results.

In June 1997, FASB issues FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which established standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
FAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997 but the statement need not be applied to interim financial
statements in the initial year of application. Titan does not expect FAS No.
131 to materially affect its reporting practices.

62
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Titan Common Stock has been listed on the Nasdaq National Market since
Titan's initial public offering on December 16, 1996 under the symbol "TEXP."
The following table summarizes the high and low last reported sales prices on
Nasdaq for each quarterly period since Titan's initial public offering.

<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
1996
Fourth Quarter (from December 16, 1996)...................... $12.75 $11.25
1997
First Quarter................................................ $14.75 $ 8.125
Second Quarter............................................... 12.125 6.75
Third Quarter................................................ 13.00 9.50
Fourth Quarter (through November 13, 1997)................... 13.50 11.75
</TABLE>

On November 13, 1997, the last reported sales price of Titan Common Stock on
Nasdaq was $11.938 per share.

Titan has never paid cash dividends on the Common Stock and does not
currently intend to pay regular cash dividends in the future. In addition, the
Credit Agreement prohibits the payment of cash dividends.

MANAGEMENT

The following table sets forth certain information concerning the
individuals who serve, and will continue to serve upon completion of the
Merger, as executive officers and directors of Titan.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Jack D. Hightower........ 49 President, Chief Executive Officer and
Chairman of the Board
George G. Staley......... 63 Executive Vice President, Exploration and
Director
Rodney L. Woodard........ 41 Vice President, Engineering
Thomas H. Moore.......... 52 Vice President, Business Development
Dan P. Colwell........... 52 Vice President, Land
William K. White......... 55 Vice President, Finance and Chief Financial
Officer
John L. Benfatti......... 52 Vice President, Accounting and Controller
Susan D. Rowland......... 36 Vice President, Corporate Administration and
Secretary
David R. Albin........... 38 Director
Kenneth A. Hersh......... 34 Director
William J. Vaughn, Jr. .. 76 Director
</TABLE>

Set forth below is a description of the backgrounds of each individual to
serve as an executive officer and director of Titan upon completion of the
Merger, including employment history for at least the last five years.

Jack D. Hightower has served as President, Chief Executive Officer and
Chairman of the Board of Directors of Titan since he founded Titan in March
1995. Prior to forming Titan, from 1986 to January 1996, Mr. Hightower served
as Chairman of the Board and Chief Executive Officer of United Oil Services,
Inc., a complete oil field service company serving customers in the Permian
Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the Board and
President of Amber Energy, Inc., a company formed to identify oil and gas
exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman of
the Board, Chief Executive Officer and President of Enertex, Inc., which
served as the operator of record for several oil and gas properties involving
Mr. Hightower and other nonoperators, including Selma International Investment
Limited. Since 1990, Mr. Hightower has served on the Board of Directors of
Texas Commerce Bank, N.A., Midland.

63
<PAGE>

George G. Staley has served as Executive Vice President, Exploration and
Director of Titan since its formation. From 1975 until 1995, Mr. Staley served
as President and Chief Executive Officer of Staley Gas Co., Inc. and Staley
Operating Co., which are oil and gas exploration and operating companies.

Rodney L. Woodard has served as Vice President, Engineering for Titan since
its formation. From 1985 to 1995, Mr. Woodard served as Vice President of
Selma International Investment Limited.

Thomas H. Moore has served as Vice President, Business Development of Titan
since its formation. From 1992 to 1995, Mr. Moore served as Managing Partner
of Magnum Energy Corporation, L.L.C. From 1991 until 1992, Mr. Moore served as
Executive Vice President--Exploration and Production, Chief Operating Officer
and Director of Clayton Williams Energy, Inc. From 1985 to 1991, Mr. Moore
served as President, Chief Operating Officer and Director of Clayton W.
Williams, Jr. Inc.

Dan P. Colwell has served as Vice President, Land for Titan since its
formation. From 1993 to 1995, Mr. Colwell served as Vice President of Land for
Enertex, Inc. Mr. Colwell was employed by ARCO as Director of Business
Development from 1991 to 1993 and Area Land Manager from 1987 to 1991.

William K. White has served as Vice President, Finance and Chief Financial
Officer of Titan since September 1996. From 1994 to September 1996, Mr. White
was Senior Vice President of the Energy Investment Group of Trust Company of
The West. From 1991 to 1994, Mr. White was President of the Odessa Associates,
a private firm engaged in the practice of providing financial consulting
services to the oil and gas industry.

John L. Benfatti has served as Vice President, Accounting and Controller of
Titan since its formation. From 1980 to 1995, Mr. Benfatti served as
Controller and Treasurer of Staley Gas Co., Inc.

Susan D. Rowland has served as Vice President, Corporate Administration and
Secretary of Titan since its formation. From 1986 to 1996, Ms. Rowland served
as a corporate officer and administrative manager of a number of companies,
including Amber Energy, Inc., Enertex, Inc., Haley Properties, Inc. and United
Oil Services, Inc.

David R. Albin has served as a director of Titan since its formation. Since
1988, Mr. Albin has been a manager of the NGP investment funds, which were
organized to make direct equity investments in the North American oil and gas
industry. He is currently responsible for co-managing NGP's overall investment
portfolio. Mr. Albin serves as a director of OEDC and Petroglyph Energy, Inc.

Kenneth A. Hersh has served as a director of Titan since its formation.
Since 1989, Mr. Hersh has been a manager of the NGP investment funds, which
were organized to make direct equity investments in the North American oil and
gas industry. He is currently responsible for co-managing NGP's overall
investment portfolio. Mr. Hersh serves as a director of Pioneer Natural
Resources Company, HS Resources, Inc. and Petroglyph Energy, Inc.

William J. Vaughn, Jr. has served as director of Titan since March 1997.
Since 1975, Mr. Vaughn has served as Chairman of the Board and President of
WJV, Inc. and DMV, Inc., which are oil and gas exploration companies. From
1986 to 1996, Mr. Vaughn served as Vice President of United Oil Services,
Inc., an oil field service company. From 1975 to 1995, Mr. Vaughn was an
independent geologist in association with Mr. Hightower.

64
<PAGE>

EXECUTIVE COMPENSATION AND OTHER MATTERS

The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer of Titan and the
only other executive officers of Titan who earned in excess of $100,000 in
1996 (the "named executive officers") for the years indicated.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#) COMPENSATION
------------------ ---- -------- ------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Hightower(2)....... 1996 $109,167 $12,000 $ -- 73,103 $10,455(5)
President and Chief 1995 75,000 1,000 -- 1,682,491 6,201
Executive Officer
George G. Staley(3)..... 1996 109,167 12,000 -- 56,858 15,139(6)
Executive Vice 1995 75,000 1,000 -- 975,313 10,423
President, Exploration
Rodney L. Woodard(4).... 1996 97,875 10,800 13,431(7) 24,368 9,442(8)
Vice President,
Engineering 1995 67,500 1,000 -- 196,313 5,596
</TABLE>
- --------
(1) Other Annual Compensation does not include perquisites and other personal
benefits if the aggregate amount of such compensation does not exceed the
lesser of (i) $50,000 or (ii) 10% of individual combined salary and bonus
for the named executive officer in each year.
(2) Upon completion of Titan's initial public offering, Mr. Hightower's base
salary was increased to $160,000.
(3) Upon completion of Titan's initial public offering, Mr. Staley's base
salary was increased to $160,000.
(4) Upon completion of Titan's initial public offering, Mr. Woodard's base
salary was increased to $135,000.
(5) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $7,180 and $3,275, respectively, during 1996 and $5,076 and
$1,125, respectively, during 1995.
(6) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $11,864 and $3,275, respectively, during 1996 and $9,298 and
$1,125, respectively, during 1995.
(7) Consists of lease payments made by Titan for an automobile used by Mr.
Woodard in connection with his position with Titan.
(8) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $6,506 and $2,936, respectively, during 1996 and $4,583 and
$1,013, respectively, during 1995.

Upon completion of Titan's initial public offering, the base salary of each
of Thomas H. Moore, Vice President, Business Development, and Dan P. Colwell,
Vice President, Land was increased to $135,000.

William K. White was elected Vice President, Finance and Chief Financial
Officer of Titan on September 30, 1996 and receives an annual base salary of
$135,000.

65
<PAGE>

Option Grants

The following table contains information about stock option grants to the
named executive officers in 1996:

OPTION GRANTS IN LAST FISCAL YEAR(1)

<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
-------------------------------------------- --------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
---- ----------- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Hightower.......... 1,755,594 48.35% 2.08 3/31/01 17,415,492 22,506,715 28,739,074
George G. Staley........ 1,032,171 28.42% 2.08 3/31/01 10,239,136 13,232,432 16,896,639
Rodney L. Woodard....... 220,681 6.08% 2.08 3/31/01 2,189,156 2,829,130 3,612,548
</TABLE>
- --------
(1) Includes (i) options granted in Titan's conversion from a limited
partnership to a corporation on September 30, 1996 that were substituted
for options granted in 1995 and (ii) additional options granted during
1996.
(2) Amounts represent hypothetical gains that could be achieved for the
options if they are exercised at the end of the option term. Those gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from January 1, 1996, as if such options had been
granted on such date, through the expiration date. For the option term
ending March 31, 2001, based on the closing price on The Nasdaq Stock
Market's National Market of the Titan Common Stock of $12.00 on December
31, 1996, a share of the Common Stock would have a value on March 1, 2001
of approximately $14.90 at an assumed appreciation rate of 5% and
approximately $18.45 at an assumed appreciation rate of 10%.

Option Exercises and Year-End Option Values

The following table provides information about the number of shares issued
upon option exercises by the named executive officers during 1996, and the
value realized by the named executive officers. The table also provides
information about the number and value of options that were held by the named
executive officers at December 31, 1996 as if the options granted in Titan's
conversion from a limited partnership to a corporation on September 30, 1996
to substitute for option grants in 1996 had been granted on January 1, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Jack Hightower.......... 0 0 967,100 788,494 9,594 7,822
George G. Staley........ 0 0 569,137 463,034 5,646 4,593
Rodney L. Woodard....... 0 0 122,165 98,516 1,212 977
</TABLE>

Compensation Committee Interlocks and Insider Participation

66
<PAGE>

the general partner of the general partner of NGP. Messrs. Albin, Baldwin and
Hersh are three of the four managing members of the general partner of NGP II
and also own limited partnership interests in NGP II's general partner. As of
September 30, 1997, NGP II owned 5,000,777 shares (14.7%) of the outstanding
Titan Common Stock. In addition to the shares of Titan Common Stock and OEDC
Common Stock owned by NGP, Mr. Baldwin directly owns 9,100 shares and 35,041
shares of Titan and OEDC, respectively. Messrs. Albin and Hersh, who disclaim
beneficial ownership of Titan Common Stock owned by NGP II, beneficially own
115,772 shares and 67,381 shares, respectively, of Titan Common Stock and
52,596 shares and 49,012 shares, respectively, of OEDC Common Stock. Although
OEDC informed Messrs. Albin and Baldwin from time to time on a limited basis
of the general status of negotiations with Titan and, likewise, Titan informed
Mr. Hersh of the general status of negotiations with OEDC, none of these
individuals participated in such negotiations or the deliberations of the
board of either company in reviewing and approving the Merger.

On November 7, 1997, Titan and Pioneer Natural Resources USA, Inc., a
wholly-owned subsidiary of Pioneer, entered into an agreement by which Titan
will acquire certain producing properties from Pioneer. The properties, 87% of
which are operated, are located in 46 fields in the Permian Basin of West
Texas and Southeastern New Mexico and currently produce approximately 2,500
BOEs per day. Of the reserves, 81% are oil. Titan will pay approximately $55
million, subject to adjustments, and anticipates closing the transaction,
subject to various conditions, in mid-December 1997. Titan will fund the
acquisition with its existing credit facilities. Titan was one of several
companies submitting bids for the properties. As of September 30, 1997, NGP II
owned an approximate 6.0% limited partnership interest in DNR-MESA Holdings,
L.P., a Texas limited partnership that currently owns approximately 15.3% of
the outstanding common stock of Pioneer. Natural Gas Partners III, L.P., a
fund that is under common management with NGP II and in which Messrs. Albin,
Baldwin and Hersh own indirect partnerships interests, also owns an
approximate 8% limited partnership interest in DNR. Mr. Hersh, a director of
Titan, is also a director of Pioneer and currently owns 4,480 shares of the
common stock of Pioneer. Mr. Hersh did not participate in any of the
negotiations of the terms of the acquisition agreement between Titan and
Pioneer or in any of the deliberations of the Boards of either Titan or
Pioneer concerning the acquisition.

Titan and Carrollton Resources, L.L.C., a Louisiana limited liability
company ("Carrollton"), have entered into an agreement by which Titan will
acquire all the outstanding membership interests of Carrollton. Carrollton is
a small independent energy company engaged in the exploration, development and
acquisition of onshore oil and gas properties located primarily in the Gulf
Coast region, which Titan management believes fit well with OEDC's area of
operations. Based on estimates of Carrollton's outside engineers, Carrollton's
total proved reserves were 2.8 million BOE at June 30, 1997. Titan will issue
approximately 900,000 shares of Titan Common Stock equal to 2.6% of the total
currently outstanding Titan Common Stock. NGP-Louisiana Partners, L.P. ("NGP-
Louisiana"), an affiliate of NGP, owns 39.7207% of Carrollton's outstanding
membership units. NGP is the sole limited partner of NGP-Louisiana, and owns a
95.07% economic interest in NGP-Louisiana. A corporation serves as the general
partner and owns the remaining 4.93% of NGP-Louisiana. Messrs. Albin, Baldwin
and Hersh collectively own a majority of the common stock of the corporate
general partner. These individuals were only informed from time to time on a
limited basis of the general status of negotiations between Titan and
Carrollton and did not participate in negotiation of the terms of the
acquisition agreement or in the deliberations concerning the agreement of the
Titan Board or the Carrollton management committee.

67
<PAGE>

CERTAIN TRANSACTIONS

David R. Albin and Kenneth A Hersh, directors of Titan, serve as members of
the compensation committee of the Titan Board. Messrs. Albin and Hersh own
limited partnership interests in the general partner of NGP, which, as of
September 30, 1997, owned 4,767,407 shares (14.0%) of the outstanding Titan
Common Stock and 2,209,460 shares (25.4%) of the outstanding OEDC Common
Stock. R. Gamble Baldwin, a director of OEDC, is the general partner of the
general partner of NGP. Messrs. Albin, Baldwin and Hersh are three of the four
managing members of the general partner of NGP II and also own limited
partnership interests in NGP II's general partner. As of September 30, 1997,
NGP II owned 5,000,777 shares (14.7%) of the outstanding Titan Common Stock.
In addition to the shares of Titan Common Stock and OEDC Common Stock owned by
NGP, Mr. Baldwin directly owns 9,100 shares and 35,041 shares of Titan and
OEDC, respectively. Messrs. Albin and Hersh, who disclaim beneficial ownership
of Titan Common Stock owned by NGP II, beneficially own 115,772 shares and
67,381 shares, respectively, of Titan Common Stock and 52,596 shares and
49,012 shares, respectively, of OEDC Common Stock. Although OEDC informed
Messrs. Albin and Baldwin from time to time on a limited basis of the general
status of negotiations with Titan and, likewise, Titan informed Mr. Hersh of
the general status of negotiations with OEDC, none of these individuals
participated in such negotiations or the deliberations of the board of either
company in reviewing and approving the Merger.

Titan and Carrollton have entered into an agreement by which Titan will
acquire all the outstanding membership interests of Carrollton. Carrollton is
a small independent energy company engaged in the exploration, development and
acquisition of onshore oil and gas properties located primarily in the Gulf
Coast region, which Titan management believes fit well with OEDC's area of
operations. Based on estimates of Carrollton's outside engineers, Carrollton's
total proved reserves were 2.8 million BOE at June 30, 1997. Titan will issue
approximately 900,000 shares of Titan Common Stock equal to 2.6% of the total
currently outstanding

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<PAGE>

Titan Common Stock. NGP-Louisiana, an affiliate of NGP, owns 39.7207% of
Carrollton's outstanding membership units. NGP is the sole limited partner of
NGP-Louisiana, and owns a 95.07% economic interest in NGP-Louisiana. A
corporation serves as the general partner and owns the remaining 4.93% of NGP-
Louisiana. Messrs. Albin, Baldwin and Hersh collectively own a majority of the
common stock of the corporate general partner. These individuals were only
informed from time to time on a limited basis of the general status of
negotiations between Titan and Carrollton and did not participate in
negotiation of the terms of the acquisition agreement or in the deliberations
concerning the agreement of the Titan Board or the Carrollton management
committee.

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement among OEDC, NGP and certain other stockholders
of OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, Titan has agreed with NGP to use its best efforts
to prepare, file and have declared effective within 180 days of consummation
of the Merger a shelf registration statement registering for resale the
1,391,959 shares of Titan Common Stock to be received by NGP in the Merger and
357,486 shares of Titan Common Stock to be received by NGP-Louisiana in the
anticipated acquisition of Carrollton. One half of these shares will remain
subject to lock-up agreements with Titan until one year after consummation of
the Merger. Titan has also agreed to include in the same shelf registration an
aggregate of 86,088 shares of Titan Common Stock that Messrs. Albin, Baldwin
and Hersh will receive in the Merger.

Titan is party to the Amended and Restated Registration Rights Agreement
with the Shareholder Parties. Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of Titan's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require Titan to register shares
held by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at
least $3,000,000. The Amended and Restated Registration Rights Agreement also
provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of Titan Common Stock held
by them in certain registrations initiated by Titan or by any other holder of
Titan's Common Stock. The piggyback rights are subject to customary cutback
provisions.

Titan has entered into an administrative services contract with Staley
Operating Co. ("Staley Operating"), an affiliate of Mr. Staley. Pursuant to
the agreement, Titan provided certain administrative, accounting and other
office and technical services on behalf of Staley Operating, in its capacity
as the operator of certain producing oil and gas properties, in return for
which Titan received the amounts charged by Staley Operating for providing
such services under the applicable operating agreements for such properties.
The total amount of payments received by Titan under such agreement was
approximately $144,000 for the year ended December 31, 1996 and approximately
$7,600 for the nine months ended September 30, 1997.

Messrs. Hightower, Staley and Vaughn and certain of their affiliates have
common ownership interests in wells operated by Titan and, in accordance with
a standard industry operating agreement, Messrs. Hightower, Staley and Vaughn
and certain of their affiliates make payments to Titan of leasehold costs and
lease operating and supervision charges. These payments aggregated
approximately $229,000 and $185,200 for the year ended December 31, 1996 and
the nine months ended September 30, 1997, respectively. Revenue received in
connection with these wells was approximately $7,000 and $21,700 for the year
ended December 31, 1996 and for the nine months ended September 30, 1997,
respectively. The fees charged by Titan to Messrs. Hightower, Staley and
Vaughn are the same as those charged to unaffiliated third parties that are
also party to the operating agreement.

Titan was a party to separate financial advisory services contracts with ECT
Securities Corp. ("ECT") (an affiliate of JEDI) and NGP. In 1996, Titan paid
ECT fees of approximately $95,000, plus expense reimbursements, and NGP fees
of approximately $91,000, plus expense reimbursements. Both agreements
terminated upon the completion of Titan's initial public offering in December
1996.

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<PAGE>

From time to time, Titan enters into certain hedging arrangements with Enron
Capital & Trade Resources Corp. ("ECTRC"), an affiliate of JEDI. Pursuant to
the terms of such arrangements relating to natural gas hedges, during the year
ended December 31, 1996, Titan paid approximately $544,000 to ECTRC. For the
nine months ended September 30, 1997, pursuant to the terms of such
arrangements relating to crude oil hedges, ECTRC paid approximately $93,000 to
Titan.

For the year ended December 31, 1996 and the nine months ended September 30,
1997, sales to Enron Corp. (an affiliate of JEDI), its subsidiaries and
affiliates were approximately 43% and 50%, respectively, of Titan's oil and
gas revenues.

Titan's offices are in Fasken Center located at 500 West Texas, Suite 500,
in Midland, Texas and are leased from Fasken Center Ltd., an affiliate of Mr.
Hightower. The lease is a noncancellable operating lease that terminates on
March 15, 2002 and requires monthly rent payments of $16,895, subject to
increase as Titan assumes additional space.

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<PAGE>

INFORMATION CONCERNING OEDC

The following Information Concerning OEDC section provides information on
the business and properties of OEDC on a stand-alone basis and does not
describe the business and properties of OEDC if the Merger is consummated. The
following Business and Properties section also contains forward-looking
statements which involve risks and uncertainties. OEDC's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of a variety of factors, including those factors set forth under
"Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.

BUSINESS AND PROPERTIES

OEDC is an independent energy company that focuses on the acquisition,
exploration, development and production of natural gas and on natural gas
gathering, processing and marketing activities. OEDC's integrated operations
are conducted in the Gulf of Mexico, where OEDC has interests in 24 lease
blocks, all of which are operated by OEDC. See "--Exploration and
Development--Oil and Gas Properties."

OEDC owns an interest in the Dauphin Island Gathering System (the "DIGS")
and the Main Pass Gas Gathering System (the "MPGGS"), which are pipeline
systems offshore Alabama and Louisiana. Combined, the systems comprise
approximately 225 miles of gas gathering line with a capacity of 650 MMcf/d.
OEDC owns a 1% general partner interest in the partnership that owns the DIGS
and the MPGGS, Dauphin Island Gathering Partners ("DIGP"), and OEDC's interest
will increase to 11.15% when its partners in DIGP receive a return of their
investment plus a 10% rate of return. See "--Natural Gas Gathering."

In November 1996, OEDC formed a partnership with subsidiaries of MCN
Corporation ("MCN") and Duke Energy Corporation ("Duke Energy") (formerly
PanEnergy Corp.) for the construction and development of one or more natural
gas liquids ("NGL") plants onshore in Alabama. The initial plant is expected
to begin operations in the third quarter of 1998 with a capacity of 600
MMcf/d. OEDC's interest in this partnership, called Mobile Bay Processing
Partners ("MBPP"), is currently 1%, and OEDC has acquired from its partners an
option to purchase an additional 32.3% interest (currently subject to dilution
to 24.3%) in MBPP during the first three years of operation of the initial
plant. See "--Natural Gas Processing."

Exploration and Development

GENERAL

In its natural gas and oil exploration and development activities, OEDC
emphasizes several operating strategies. By controlling operations on its
properties, OEDC attempts to reduce development costs and the time between
development expenditures and initial production. By focusing its exploration
and development efforts geographically and geologically and employing
appropriate technology, OEDC attempts to reduce exploration risk. By building
strategic alliances, OEDC aims to complement the strengths of the major Gulf
of Mexico producers with its creativity, focus, flexibility and lower overhead
costs. An important component of OEDC's development strategy is the
development of several proximate blocks in clusters to avoid duplication of
expense in production infrastructure. The principal areas in which OEDC
conducts development activities are the Central Gulf of Mexico offshore
Louisiana, including the South Timbalier and Vermilion areas, offshore Alabama
and Mississippi, including the Mobile, Viosca Knoll, and Destin areas, and
offshore Texas, including the South and North Padre Island areas.

OIL AND GAS PROPERTIES

MOBILE, VIOSCA KNOLL AND DESTIN, OFFSHORE ALABAMA AND MISSISSIPPI

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<PAGE>

geophysically with bright spots and are characterized by productive sands
which generally are highly porous and permeable, allowing the potential for
high deliverabilities. The total cost of drilling and development in these
areas is low in comparison to other offshore developments because of the
shallow water and reservoir depths. In addition, the expected finding costs
per Mcf are low in these areas compared to other onshore and offshore
developments because of the ratio of total drilling and development costs to
the expected recoverable reserves. Finally, gas production from these areas
historically has been sold at a premium as compared to gas produced from other
Gulf Coast and Mid-Continent areas because of the proximity of the Mobile and
VK areas to Northeast and Florida gas markets.

During the 1980s, substantial shallow gas reserves had been drilled in the
Mobile and VK areas but none of the reserves had been placed on production
because there was no public-access pipeline system to gather the gas to
onshore markets. Moreover, fragmented ownership of the reservoirs among
multiple producers discouraged development. In light of these factors, OEDC
decided to acquire significant acreage in the areas and to create a gas
gathering system to solve the marketability problem. See "--Natural Gas
Gathering."

Mobile 822 Cluster. From 1990 through 1993, OEDC acquired leaseholds
covering about 21,000 acres (five blocks) in state and federal waters offshore
Alabama. In 1993 and early 1994, OEDC drilled eight wells with 13 completions
on these blocks and constructed a four-pile platform in 45 feet of water at
Mobile 822 with production and compression facilities to handle up to 50
MMcf/d of gas. Initial production commenced within four months of spudding the
first 822 well. The Mobile 822 cluster cost approximately $35 million to
develop and produced about $9 million in income before it was sold in 1994 for
$50 million. Favorable gas prices and the need for capital to pursue new
projects made the sale attractive to OEDC. OEDC recorded approximately $13.65
million in pre-tax profits from the sale transaction after repaying
development financing and dividing the sale proceeds with minority interest
owners.

Mobile 959/960 Cluster. In late 1994, OEDC acquired an undivided 50%
interest in Mobile 959/960 just east of the Mobile Bay entrance and south of
Fort Morgan peninsula. Drilling for production from these blocks was
problematic because the seismic data was poor due to unfavorable sea floor
conditions and because much of the reserve potential was in the shipping
fairways where drilling was prohibited. OEDC drilled six highly deviated or
horizontal wells to target sands at around 2,000 feet subsea. Four of the
wells had bottom hole locations with lateral displacements over three times
the vertical depth. OEDC constructed a manned, four-pile platform at Mobile
959 in 60 feet of water with 30 MMcf/d in production and compression capacity.
OEDC constructed a three-pile platform at Mobile 960 and a flowline from the
platform to the production platform in Mobile 959. OEDC now owns a 100%
working interest in the property and is currently producing almost five MMcf/d
from four wellbores. OEDC plans one additional recompletion to access
additional proved reserves behind pipe when production from the current
producing zone on that well is depleted.

OEDC has acquired ownership percentages in two blocks offshore Alabama east
of Mobile 959/960 and is the operator of both blocks. These blocks (Mobile 830
and Pensacola 881) have proved undeveloped reserves attributable to two
wellbores drilled by a former operator of these leases. OEDC's working
interest in these blocks has recently been reduced to 1% as a result of a
property trade. However, OEDC believes that these blocks may be developed
utilizing the Mobile 959/960 platforms making use of excess platform capacity
and avoiding an expensive duplication of infrastructure. Although OEDC has
received no commitment with respect to the use of OEDC's Mobile 959/960
platforms, if such facilities are used the processing revenues from handling
this production could be substantial.

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<PAGE>

("Payout"). Once Payout has occurred, the ECT Affiliate's interest will
decrease to 25%, and OEDC's interest will increase to 75%. SDP II has the
option to accelerate the ownership change by prepaying the amount necessary to
cause Payout to occur plus 10% of the ECT Affiliate's net investment (funds
advanced less distributions received) and five percent of its unfunded
commitment. Under the terms of a letter agreement between OEDC and the ECT
affiliate, the parties funded essential repairs on two wells in 25%/75%
proportions. Initial revenues from those wells will be shared 25%/75% until
the repair costs are recovered with a 10% rate of return. Thereafter, sharing
ratios will revert to the arrangement described above.

SDP II has interests in four VK leases, on which four wells were drilled
during 1996. Weather problems and regulatory delays postponed first production
on these wells, but OEDC commenced production through a central production
facility on these VK leases during the third quarter of 1997. The wells are
currently producing 2-3 MMcf/d per well at pressure drawdowns of 10-15%. In
the normal course of operations, over the next two to three months OEDC would
expect to increase production rates until drawdowns of approximately 30% are
achieved.

OEDC has interests in seven additional lease blocks in the VK area. During
1996, OEDC drilled and abandoned a well located at VK 80 which OEDC deemed
uneconomic. OEDC owns one well at VK 117, which was drilled by a prior
operator. OEDC commenced production on the well during the second quarter of
1997. Well flow is currently severely curtailed to less than .1 MMcf/d by
mechanical problems, which OEDC expects to address contemporaneously with its
Destin area activities described below. OEDC also drilled a successful well on
VK 35 in early 1997. Production commenced from that well during the second
quarter of 1997 and is currently in excess of 5 MMcf/d . It is being processed
and compressed through OEDC's existing facilities at Enron Oil and Gas
Company's VK 124 platform.

Once the wells described above have established a stabilized production
history, OEDC will be better able to assess the shallow potential of OEDC's
other VK lease blocks.

OEDC acquired VK 24 in 1993 as a producing property. By the summer of 1996,
production on this development, located due south of Pascagoula, Mississippi,
had declined to less than one MMcf/d with produced water. However, in 1996
OEDC evaluated a proprietary high resolution seismic grid over the property
and identified an updip proved undeveloped drilling location. During the
fourth quarter of 1996, OEDC drilled this well from an existing braced
caisson, and the well is currently producing at a rate of over 2 MMcf/d. In
addition, OEDC recently signed a farm out agreement granting Chevron
exploration rights on a deep objective in this block. OEDC retained up to a
36% interest in the project. Drilling on the first farm out well commenced in
September 1997.

In April 1997, OEDC entered into an agreement with Zilkha Energy Corporation
("Zilkha") wherein Zilkha agreed to purchase and evaluate, at its sole
expense, a newly proposed 3-D seismic survey over six of OEDC's VK blocks.
Zilkha would share the results of its interpretation of the survey with OEDC.
In exchange for procuring and interpreting this data, Zilkha would earn the
right to an unpromoted 50% participation in any drilling prospects identified
by the survey on OEDC acreage. In the event OEDC chooses not to participate in
a Zilkha well on this farm out acreage, OEDC would receive an overriding
royalty interest in that well sufficient to reduce the net revenue interest in
the well to 75%. The survey will be shot and processed during 1998. It is
presently impossible to evaluate the potential impact of that data on OEDC.
Discussions are under way that may eventually expand this seismic option to
include the four VK blocks owned by SDP II and described above.

Destin. OEDC recently increased its working interest to over 56% in two
blocks (Destin Dome 1 and Destin Dome 2) due east of OEDC's VK 35 block. These
blocks have proved undeveloped reserves attributable to two wellbores drilled
by a former operator of these leases. OEDC has recently received regulatory
approval to develop these properties. Depending on equipment availability,
OEDC intends to begin production from these blocks by the first quarter of
1998. Production would be flowed through OEDC's existing facilities at Enron
Oil and Gas Company's Viosca Knoll 124 platform.

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<PAGE>

SOUTH TIMBALIER, OFFSHORE LOUISIANA

In 1988, OEDC led several partners in an acquisition from a subsidiary of
Shell Oil Company of a producing property, South Timbalier 162 ("STIM 162").
The property is located about 45 miles offshore due south of New Orleans in
approximately 125 feet of water. OEDC sold its interest in the platform and
the then producing portion of the property in 1990 but retained the right to
explore and develop the approximately 4,000 undeveloped acres in the block.

In 1990, OEDC identified and drilled a bright spot on the retained acreage
to a total depth of approximately 7,000 feet, encountering two potentially
productive horizons. The well, known as the B-6 well, was dually completed as
a gas well. OEDC constructed and installed an unmanned platform and production
facility known as the B Platform and laid a two mile flowline to the nearby
interstate pipeline. The original B-6 well ceased production in 1993 due to
mechanical problems. In 1996, OEDC attempted to repair problems in the lower
completion of this well to restore production. These efforts proved
unsuccessful, however, and a sidetrack drilled from this wellbore during the
first quarter of 1997 was not productive.

In response to a proposal from OEDC, a subsidiary of Amoco Corp. ("Amoco")
agreed to make its seismic data available to OEDC in exchange for an option
for up to a 25% non-operated participation in any prospects generated by OEDC
from that 3-D survey. OEDC, using Amoco proprietary 3-D seismic, has
identified drilling prospects and drilled and completed two wells on STIM 162
in 1995 and 1996. The first well, known as the B-7 well, was a directional
well drilled from the B Platform to a bottom-hole location west of the B-6
well having a total vertical depth of 7,500 feet. The B-7 well is currently
producing at a rate in excess of 8 MMcf/d. The second well, known as the B-8
well, which was contributed by OEDC to SDP II, was a directional well drilled
from the B Platform to a bottom-hole location east of the B-6 well having a
total vertical depth of 7,000 feet. Production from the B-8 well commenced in
September 1996 but ceased in February 1997 as a result of excessive water
production.

In early 1997, OEDC farmed in development rights from Amoco to a specific
reservoir on South Timbalier Block 161. OEDC drilled a successful well from
the Amoco "D" platform, earning a 100% working interest in that reservoir. It
commenced production from that well in the first quarter of 1997.

VERMILION

In the March 1997 federal offshore lease sale, OEDC acquired three tracts in
the Vermilion area of the Gulf of Mexico. OEDC's winning bids were $224,000
for a 50% working interest in Vermilion 236, $2,753,000 for a 100% working
interest in Vermilion 253 and $822,000 for a 100% working interest in
Vermilion 356. OEDC, which operates all of these tracts, is evaluating
prospects and expects to drill on these tracts during the next six to twelve
months.

NORTH PADRE ISLAND, OFFSHORE TEXAS

In October 1996, OEDC acquired a 60.6% working interest in North Padre
Island Block A-59, offshore Texas in federal waters for $414,000 plus the
assumption of abandonment liability. The block is approximately 50 miles
southeast of Corpus Christi, 35 miles offshore. The water depth on the block
is approximately 222 feet. Taylor Energy, Inc., the prior operator, and its
co-interest owner drilled three wells on the block and constructed a four-pile
six slot manned platform and a flowline from the platform to an interstate
pipeline at North Padre Island Block A-44 offshore Texas. The wells were
drilled through eight potentially productive Miocene sands between 3,500 and
4,500 feet and three deeper Miocene sands at approximately 8,000 feet. The
wells produced from the deeper sands, but two of the wells have been shut in
because of water encroachment and one produces only negligible volumes. During
the second quarter of 1997, OEDC drilled two new wells in the shallow Miocene
sands. These wells were dually completed and are currently producing a total
of almost 10 MMcf/d. OEDC is evaluating the feasibility of reentering one of
the original Taylor wells in order to take completions in one or two
additional shallow Miocene sands.

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<PAGE>

SOUTH PADRE ISLAND, OFFSHORE TEXAS

In August, 1997, OEDC was the apparent high bidder on five tracts totaling
approximately 24,000 gross acres in the South Padre Island area of the Gulf of
Mexico in a federal offshore lease sale. Bids totaled approximately $800,000.
OEDC would be the 100% owner of all five blocks and would operate them. In
October 1997, OEDC was awarded leases on two of these blocks totaling 9,248
acres at a cost of approximately $325,000. In recent years, wells have been
drilled on two of the blocks that have not yet been awarded, identifying
significant shallow pay sands. The extent of these sands is clearly delineated
by seismic anomalies on regional two-dimensional seismic surveys. The drillers
of these wells concluded that the reservoirs were not commercially attractive
as stand alone projects due to a lack of pipeline infrastructure in the
immediate area. OEDC is evaluating the commercial viability of developing
these two reservoirs together, achieving critical mass by aggregating their
reserves.

OTHER DRILLING PROSPECTS

Other potential drilling prospects have been identified on OEDC's acreage,
including prospects at deeper depths than those at which OEDC has historically
operated. A detailed analysis of these prospects has not been undertaken, and
evaluation of these prospects is in the preliminary stage. OEDC will use the
results of its planned drilling and development program to assist in the
evaluation of these additional prospects. No assurance may be given that OEDC
ultimately will attempt to drill any of these prospects or, if it does so,
that such drilling would be successful.

AMOCO JOINT VENTURE

OEDC and Amoco have had a joint development arrangement in the Gulf of
Mexico since late 1995. In October 1996, OEDC and a subsidiary of Amoco
expanded the relationship by entering into an agreement for the purpose of
generating drilling prospects in South Timbalier. Pursuant to the agreement,
OEDC was given exclusive access for the year ending October 1, 1997, to a
proprietary 3-D seismic data base covering approximately 59,000 acres for the
purpose of identifying and prioritizing exploitation potential in the area.
OEDC has, in turn, provided Amoco access to 5,000 acres of 3-D seismic data,
subject to restrictions in OEDC's license. Costs of drilling and development
on existing leases will be shared 75% by the owner of the lease being drilled
and 25% by the other party; such costs will be shared equally on newly
acquired leases. OEDC has generated prospects from the seismic data base and
Amoco must either elect or decline to participate in each prospect. If Amoco
elects not to participate on acreage that Amoco currently owns, it retains a
one-twelfth overriding royalty interest with an option after payout to either
increase the overriding royalty interest to one-tenth or convert such interest
to a 25% working interest. On all other acreage, an election by Amoco not to
participate will result in Amoco having no interest in the prospect. OEDC will
be the operator of any prospects drilled under this agreement. The agreement
would provide OEDC with the opportunity to participate in the development of
properties that would otherwise be unavailable to it on a cost effective
basis. OEDC currently has two proposals for drilling locations in front of
Amoco for consideration. Amoco's decision is expected in the fourth quarter
1997 with any potential drilling as a result of these proposals to occur in
1998. Although the period during which access to data was to be provided has
expired, the parties have continued to allow access to data pending
consideration of the current proposals.

Natural Gas Reserves

The following table sets forth estimates of OEDC's (i) proved natural gas
reserves at December 31, 1996, which were prepared by Ryder Scott Company
("Ryder Scott"), independent petroleum engineers, in accordance with
regulations promulgated by the Commission and (ii) present value of proved
reserves of natural gas at December 31, 1996. The price used in the table
below was based on the price of natural gas at December 31, 1996, with
consideration of price changes only to the extent provided by contractual
arrangements in effect as of such date. As of December 31, 1996, the average
price of natural gas was $3.55 per Mcfe. Additional information

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<PAGE>

concerning OEDC's natural gas reserves is included in the Supplemental
Financial Information accompanying the Notes to Consolidated Financial
Statements included elsewhere in this report.

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Estimated Proved Reserves:
Oil (MBbls)....................................... 6
Gas (MMcf)........................................ 33,162
MBOE (6 Mcf per Bbl).............................. 5,533
Proved developed reserves as a percentage of proved
reserves........................................... 65%
PV-10(1)............................................ $66,891
Standardized Measure of Discounted Future Net Cash
Flows.............................................. $51,166
</TABLE>
- --------
(1) The present value of future net revenue attributable to OEDC's reserves
was prepared using prices in effect as of December 31, 1996, discounted at
10% per annum on a pre-tax basis. Such amounts do not reflect the effects
of OEDC's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
OEDC represents the present value of future net revenues after income
taxes discounted at 10%. Such amounts do not reflect the effects of OEDC's
hedging activities.

Productive Wells and Acreage

PRODUCTIVE WELLS

As of September 30, 1997, OEDC had 15 gross (10.6 net) productive gas wells.
Three gross (1.8 net) wells had multiple completions. Productive wells consist
of producing wells and wells capable of production, including gas wells
awaiting pipeline connections. Wells that are completed in more than one
producing horizon are counted as one well.

ACREAGE DATA

Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in
gross acres equals one. The number of net acres is the sum of fractional
interests owned in gross acres expressed as whole numbers and fractions
thereof. The following table sets forth OEDC's ownership interest in
leaseholds as of September 30, 1997. The leases in which OEDC has an interest
are for varying primary terms and many require the payment of delay rentals to
continue the primary terms. The leases may be surrendered by OEDC at any time
by notice to the lessors, by the cessation of production or by failure to make
timely payment of delay rentals.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------------- ---------------------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total............................ 61,702 39,381 63,661 56,194
</TABLE>

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Drilling Activities

The following table sets forth the drilling activity of OEDC on its
properties during each of the years in the three year period ended December
31, 1996:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Exploratory Wells
Productive............................................ 4.46 3.59 1.72
Nonproductive......................................... 0.80 0.00 1.00
------- ------- -------
Total............................................... 5.26 3.59 2.72
======= ======= =======
Development Wells
Productive............................................ 0.00 0.00 0.00
Nonproductive......................................... 0.00 0.00 0.00
------- ------- -------
Total............................................... 0.00 0.00 0.00
======= ======= =======
</TABLE>

Net Production, Unit Prices and Costs

The following table presents certain information with respect to OEDC's
natural gas production, the average sales price, the production (lifting)
costs and depletion attributable to OEDC's properties during each of the three
years ended December 31, 1996.

NATURAL GAS PRICES,
AVERAGE SALES PRICE AND PRODUCTION COSTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net natural gas production (MMcfe)(1)............... 3,686 3,668 4,756
Net production (MBOE)............................... 614 611 793
Average sales price (per Mcfe)(2)................... $ 1.50 $ 1.68 $ 2.07
Average sales price (per BOE)(2).................... $ 9.00 $ 10.08 $ 12.42
Production costs (per BOE).......................... $ 2.28 $ 3.06 $ 2.49
General and administrative costs (per BOE).......... $ 2.94 $ 2.70 $ 2.25
Depletion, depreciation and amortization expenses
(per BOE).......................................... $ 3.42 $ 9.00 $ 6.18
</TABLE>
- --------
(1) OEDC had immaterial amounts of condensate (oil) production during such
years.
(2) Prices include the effects of hedging transactions. See "Management's
Discussion and Analysis of OEDC's Financial Condition and Results of
Operations--Hedging Activities."

Prices for natural gas have historically been subject to substantial
seasonal fluctuation as demand for natural gas is generally highest during
winter months. Recently, however, demand has been less subject to seasonal
fluctuation as a result of the unbundling and open access of transportation
and storage.

OPERATING PROCEDURES AND RISKS

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geophysicists, engineers and petrophysicists) who attempt to improve
production rates, increase reserves, and/or lower the cost of operating its
oil and gas properties. OEDC thus hopes to have specialized resources applied
to the solution of each nonroutine operation it faces without incurring
overhead charges for such services when they are not needed.

OEDC's reliance upon others for drilling, exploration and other services
requires that it schedule such activities when these services are available.
When drilling activity in the Gulf of Mexico is high, competition for
available equipment and personnel increases and may make it more difficult to
complete projects in a timely manner. Recently, exploration and development
activity has increased in the Gulf of Mexico and has increased the demand for
drilling vessels, supply boats and personnel experienced in offshore
operations. As a result, OEDC has experienced difficulty in obtaining certain
services from vendors that are necessary to implement its growth strategy. The
inability to obtain required services could adversely affect OEDC's ability to
complete its scheduled projects in a timely manner.

OEDC's operations are subject to all of the risks normally incident to the
exploration for and the production of oil and gas, including blowouts,
craterings, explosions, pipe failure, casing collapse, oil spills and fires,
each of which could result in severe damage to or destruction of oil and gas
wells, production facilities or other property, and personal injuries. In
addition, OEDC's oil and gas operations are located in an area that is subject
to tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possible interruptions in production. The
oil and gas exploration business is also subject to environmental hazards,
such as oil spills, gas leaks and ruptures and discharges of toxic substances
or gases that could expose OEDC to substantial liability due to pollution or
other environmental damage. OEDC maintains comprehensive insurance coverage,
including general liability in an amount not less than $35 million, general
partner's liability, operator's extra expenses, physical damage on certain
assets, employer's liability, automobile, workers' compensation and loss of
production income insurance. OEDC believes that its insurance is adequate and
customary for companies of a similar size engaged in comparable operations,
but losses could occur for uninsurable or uninsured risks or in amounts in
excess of existing insurance coverage. Moreover, no assurance can be given
that OEDC will be able to maintain adequate insurance in the future at rates
considered reasonable. Additionally, as general partner of limited
partnerships, and as managing general partner of its general partnerships,
OEDC is solely responsible for the day-to-day conduct of the partnerships'
affairs and accordingly has liability for expenses and liabilities of such
partnerships.

ABANDONMENT COSTS

OEDC establishes reserves, exclusive of salvage value, to provide for the
eventual abandonment of its offshore wells and platforms. Historically, the
actual cost to OEDC of physically abandoning its wells has been largely offset
by the proceeds from the sale of the salvaged equipment. There can be no
assurance that an active secondary market in used equipment will continue to
exist at the time that properties are abandoned, or that the regulatory and
other costs of abandoning offshore properties will not increase. See Note 1 of
Notes to OEDC's Consolidated Financial Statements.

OEDC carries a $3 million area-wide abandonment bond with the Minerals
Management Service (the "MMS"), which is secured by restricted cash balances
on deposit at a commercial bank. The sum on deposit was $1.4 million at
December 31, 1996 and will increase over time to $3 million. Bond premiums
decline as the amount of the security deposit increases, and OEDC receives all
interest earned on the security deposit. The MMS is empowered to require
supplemental abandonment bonds under appropriate circumstances. Although the
cost to OEDC of these supplemental bonds to date has not been material, no
assurance may be given that the amounts thereof will not increase, or that the
availability thereof will not be restricted.

MARKETING

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facilities or due to such capacity being utilized by other gas shippers with
priority agreements. Although OEDC has not experienced any inability to market
its natural gas, if pipeline capacity is restricted or is unavailable, OEDC's
cash flow from the affected properties could be adversely affected.

Substantially all of OEDC's natural gas is sold at current market prices,
under short term contracts (one year or less) providing for variable or market
sensitive prices. Sales to Enron Capital & Trade Resources Corp. ("ECT")
accounted for approximately 54% of revenue in 1996. However, due to the
availability of other markets, OEDC does not believe that the loss of ECT or
any other single customer would adversely affect OEDC's results of operations.
OEDC utilizes forward sales contracts and commodity swaps to achieve more
predictable cash flow and to reduce its exposure to fluctuations in gas
prices. See "Management's Discussion of OEDC's Financial Condition and Results
of Operations--Hedging Activities." OEDC accounts for its commodity swaps as
hedging activities and, accordingly, the effects thereof are included in oil
and gas revenue for the period production was hedged.

The income generated by OEDC's operations is highly dependent upon the
prices of, and demand for, oil and natural gas. The price received by OEDC for
its oil and natural gas production depends on numerous factors beyond OEDC's
control.

OEDC sells its gas from the Mobile and Viosca Knoll areas pursuant to a long
term sales contract with ECT coterminous with the life of the reserves,
subject to earlier termination by OEDC in certain events. The price of gas
sold pursuant to this contract is market sensitive and is considered favorable
by OEDC. The Mobile outlet for OEDC's gas is downstream of the Louisiana
pipeline bottlenecks and is close to locations where gas is sold for delivery
to major East Coast gas consumers. Although the net-back price historically
received by OEDC for its gas production has been less than the Henry Hub price
due to gathering and transportation charges, such price historically has been
higher than prices received by other Gulf Coast and Mid-Continent producers.
As the market for natural gas changes, no assurance may be given that this
premium will continue to be available.

COMPETITION

The oil and gas industry is highly competitive in all its phases. OEDC
encounters strong competition from many other oil and gas producers in the
acquisition of economically desirable producing properties and exploratory
drilling prospects, and in obtaining equipment and labor to operate and
maintain its properties. Many of OEDC's competitors are large well-established
companies with substantially larger operating staffs and greater capital
resources than OEDC. Such competitors may be able to pay more for productive
oil and natural gas properties and exploratory prospects and to define,
evaluate, bid for and purchase a greater number of properties and prospects
than OEDC's financial or human resources permit. OEDC's ability to acquire
additional properties and to discover reserves in the future will depend upon
its ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment.

TITLE TO PROPERTIES

OEDC has obtained title opinions on substantially all of its producing
properties and believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. OEDC's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens
which OEDC believes do not materially interfere with the use of or affect the
value of such properties. Substantially all of OEDC's producing properties are
subject to a lien in favor of Union Bank. See "Management's Discussion and
Analysis of OEDC's Financial Condition and Results of Operations--Liquidity
and Capital Resources." The title investigation performed by OEDC prior to
acquiring undeveloped properties is thorough but less rigorous than that
conducted prior to drilling, consistent with industry standards. The MMS must
approve all transfers of record title or operating rights on its respective
leases. The MMS approval process can in some cases delay the requested
transfer for a significant period of time.

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Natural Gas Gathering

OVERVIEW

In 1990, OEDC recognized the potential for development of an independent gas
gathering system to serve the rapidly developing offshore Alabama area in
which significant reserves of natural gas had been discovered in the shallow
Miocene and deep Norphlet formations. OEDC believed that these reserves would
become available for commitment to a gathering system, but FERC regulatory
issues, perceived environmental problems and high capital costs had
discouraged others from the development of a system through Mobile Bay.
Obtaining the commitment of a volume of reserves sufficient to support the
cost of constructing and operating the gathering system was key to its
development, and OEDC believed that the commitment could be obtained
sequentially to support the incremental construction of the gathering system.
OEDC identified gas reserves located near the central and western end of
Dauphin Island, the barrier island south of Mobile, Alabama, which would
support this incremental development. Because these reserves were located both
north and south of the island, gathering the gas south of the island required
a horizontal boring under the island 4,000 feet long. In 1991, OEDC executed a
construction agreement with a subsidiary of British Petroleum to connect its
field south of OEDC's Mobile 90 field with a gathering line owned by ARCO
north of Dauphin Island. To accommodate future development, OEDC installed
three 12" lines under the island (one to service initial needs and two for
system expansion). Despite the perceived engineering uncertainty associated
with a water-to-water boring of the required length, the first stage of the
DIGS was completed before the end of 1991.

In 1993, OEDC and a non-regulated Enron subsidiary formed DIGP to construct
and operate a 20" pipeline to directly connect the DIGS to the interstate
pipeline transportation network and enable the full utilization of the three
12" pipes under the island. This segment was completed in May 1993, creating
direct outlets to the Transcontinental Gas Pipe Line Corporation ("Transco")
and Koch Gateway Pipeline Company interstate pipeline systems. In 1994,
Florida Gas Transmission Company sponsored an expansion of the Mobile segment
of the Transco pipeline in exchange for capacity ownership therein,
establishing a direct interconnect with the Florida Gas system. DIGP added
Tenneco Gas Inc. as a partner in 1994 and expanded the system to connect
numerous newly developing supply sources in the Mobile and Viosca Knoll
offshore areas. This construction activity brought the DIGS to its current 95
mile, "inverted Y" configuration, consisting of 20", 12" and 8" pipe. In
early 1996, a nonregulated subsidiary of MCN purchased a 99% interest in DIGP,
buying out the interests of Tenneco and Enron and all but a one percent
general partnership interest held by OEDC. In mid-1996, MCN sold a 40%
interest in the partnership to a nonregulated subsidiary of PanEnergy.

On December 31, 1996, DIGP merged with Main Pass Gas Gathering Company
("MPGGC"), which owned the MPGGS. DIGP was the surviving entity of the merger,
and the former partners of MPGGC, subsidiaries of PanEnergy, Coastal Corp. and
CNG Energy Services Corporation, were admitted as partners in DIGP. The MPGGS
is located in the Main Pass Area East, offshore Louisiana, and the southern
Viosca Knoll Area, offshore Alabama, and consists of approximately 57 miles of
pipeline designed to gather approximately 300 MMcf/d.

CURRENT OPERATIONS

The partners in DIGP have retained OEDC to manage and operate the DIGS and
the MPGGS. OEDC is currently responsible for all commercial activities, as
well as all supervisory, administrative, technical, maintenance, and gas
control services necessary to the operation of the DIGS and the MPGGS with the
exception of certain financial functions, which are performed by MCN. On
September 23, 1997, OEDC agreed to relinquish those responsibilities to Duke
Energy effective December 1, 1997. Duke Energy, in turn, for a two year
period, will delegate to OEDC responsibility to lead manage commercial
development and construction on Duke Energy's behalf as operator. For assuming
these duties, OEDC will be paid $22,910 per month plus 0.5% of all
construction costs during the two year period.

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does not exercise the option to increase its interest in MBPP. See "--Natural
Gas Processing." The increase in OEDC's interest in DIGP, which in the absence
of a refinancing transaction OEDC does not expect to occur prior to 2001,
would result in a commensurate increase in OEDC's share of the results of
operations of DIGP. No assurance may be given, however, that DIGP Payout will
occur.

The DIGS and the MPGGS have a current estimated combined throughput capacity
of up to 650 MMcf/d, depending on where gas enters the systems, which could be
expanded with looping and onshore compression. At December 31, 1996, the DIGS
and the MPGGS were gathering between 300 and 350 MMcf/d. Although no
assurances may be given, OEDC believes that additional volumes expected to be
contributed to the system, when combined with new production from the proposed
southern extension of the DIGS, will have the system operating at a level
approaching its current capacity by early 1998.

Customers on the DIGS and MPGGS currently include Chevron U.S.A. Inc., Union
Oil Company of California, Shell Offshore, Inc., Bechtel Energy Partners,
Ltd., SCANA Hydrocarbons, Inc., Chieftain International (U.S.) Inc., Santa Fe
Energy Resources, Inc., Legacy Resources Company, Excel Resources, Inc., EOG,
Coastal Oil & Gas Corporation, CNG Producing Company, Elf Acquitane Oil
Program, Inc., Oryx Gas Marketing Limited Partnership, Piquant, Inc. and OEDC.
Most commitments of gas are reserve life commitments with minimum monthly
production requirements. Several of the contracts are term contracts with
guaranteed payments on throughput volumes. Since the contracts permit
producers to shut in production due to market conditions in only very limited
circumstances, OEDC expects the cash flow of the system to be consistent and
relatively predictable.

Field operations are handled from a DIGP field office in Coden, Alabama.
DIGP employees at that location monitor the system, calibrate offshore sales
meters monthly and perform light maintenance and repair tasks. The sales
meters are linked by satellite communications to DIGP's home office in The
Woodlands, Texas, where they are continuously monitored as part of the gas
control function.

EXTENSIONS AND EXPANSIONS

The partners in DIGP have approved expansion plans to construct
approximately 78 miles of 24-inch diameter gas gathering line, which will
provide an additional 500 MMcf/d of capacity for a total combined capacity of
the DIGS and the MPGGS of approximately 1,150 MMcf/d. The expansion also will
provide a separate system for delivering wet gas (i.e., including gas liquids)
onshore to the NGL processing plant initially planned to be constructed by
MBPP. The expansion will be installed in two phases. The initial phase of the
expansion is expected to enable the utilization of approximately 200 MMcf/d of
unused capacity by the end of 1997. The second phase, which will add
approximately 500 MMcf/d of capacity, is expected to be completed during the
spring of 1998.

On June 27, 1997, the FERC declared that certain portions of the DIGP
pipelines are subject to their jurisdictional authority. Specifically, these
sections are the 55-mile MPGGS, the new 240 line to be constructed from Main
Pass 225 to Mobile 73 in the summer and fall of 1997 and the 200 pipeline from
Mobile 73 to the Coden metering station. DIGP anticipates completing
construction of the extension in 1997. DIGP has received subscriptions for
firm capacity service in the expansion in excess of 200,000 MMbtu/d., as a
result of an Open-Season for excess capacity conducted in mid-1997 for
prospective shippers to obtain firm capacity on a first-come, first-served
basis.

DIGP has the right of first refusal to gather one company's gas production
from its discoveries in the offshore Destin area. These volumes are
tentatively scheduled to come to market in the year 2000. Public data would
indicate that there is the potential for substantial natural gas production
from this area. DIGP will be evaluating the feasibility of an eastward
expansion to collect this gas over the next two to three years. No assurance
may be given that this project will be undertaken or successfully completed.

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COMPETITION

The gas gathering industry is highly competitive in all its phases. OEDC
encounters strong competition from many other gas pipelines, both regulated
and nonregulated, in acquiring gathering commitments. Many of these
competitors possess substantial financial resources and may be able to offer
gathering services for productive oil and natural gas properties at prices
DIGP would consider noncommercial. Because the volumes controlled by
individual producers may be substantial, they have the ability to stimulate
the competitive process by attempting to induce pipeline companies to build
systems in direct competition to the DIGS and the MPGGS. This is particularly
true in the Main Pass area, which has significant uncommitted reserves and is
in reasonable reach of expansion for several large pipeline companies.

OEDC believes, however, that the location of the DIGS outlet to the
interstate grid downstream of existing pipeline bottlenecks in Louisiana gives
OEDC a competitive advantage. The Mobile Bay delivery point is geographically
the closest of any major Gulf Coast gas producing area to locations where gas
is sold for delivery to major East Coast markets, resulting in higher net back
prices. During peak demand times in the past, Mobile prices have been at a
significant premium to those in other domestic producing regions. No assurance
may be given that such positive differentials will continue in the future. In
addition, Mobile area gas has not been curtailed during periods when the
upstream infrastructure in Texas and Louisiana experiences capacity
constraints due to excessive demand. Several of DIGP's competitors route their
offshore gas to the Mississippi River delta area of Louisiana, where market
prices and reliability are less favorable.

Natural Gas Processing

In November 1996, OEDC and subsidiaries of MCN and Duke Energy formed MBPP
for the purpose of constructing, owning and operating, or providing financing
for one or more natural gas processing facilities onshore in Mobile County,
Alabama. Such a facility will extract condensate and natural gas liquids from
natural gas prior to delivery of natural gas to the interstate pipeline
system. Much of the natural gas produced in the Mobile, Viosca Knoll and Main
Pass areas of the Gulf of Mexico has a high gas liquids content. Because no
gas processing facility is currently available in southern Alabama to process
the Mobile, Viosca Knoll and Main Pass gas, producers effectively lose the
potential additional value associated with the liquefiable hydrocarbons in
their natural gas production. Construction of a plant in this area will enable
producers to achieve a higher total price for the sale of their gas and will
make attachment to the DIGS more desirable because the DIGS will be the only
gathering system that delivers gas in proximity to a processing plant in this
area. Duke Energy is the managing partner of MBPP and will manage the
construction and operation of MBPP's projects.

Currently, MBPP is constructing a plant that will have an initial capacity
of 600 MMcf/d, with capacity being increased in increments of 300 MMcf/d as
warranted by demand. Construction bids make this a $65 million project. Long
lead items for the plant have been ordered, the site has been purchased and
all regulatory permitting is in the process of being procured. OEDC expects
the plant to be operational in the third quarter of 1998, and OEDC and its
partners continue to evaluate design, construction and market information for
the plant. No assurance may be given, however, that it will be completed
within the estimated cost or on the anticipated schedule.

MBPP has the firm contractual long-term commitment of 300 MMcf/d of
processable gas from a subsidiary of Mobil Oil Corporation. In addition, the
200 MMcf/d of new gas committed from the Main Pass area to the 1997 DIGP
pipeline extension is all processable and will flow into the MBPP plant.

MBPP is now owned 49.5% by each of MCN and Duke Energy and 1% by OEDC. OEDC
has acquired for $200,000 an option to buy an additional 32.3% (currently
subject to dilution to 24.3%) of the interest in MBPP, exercisable until the
third anniversary of the commencement of commercial operations at MBPP's
initial processing facility. The exercise price for OEDC's option is
calculated by multiplying (a) the product of (i) the "Processing Facilities
Value" and (ii) 32.3% of the interests of MCN and Duke Energy (and in certain
cases their assignees) in MBPP by (b) the "Payment Factor," and then
subtracting $200,000 from such total amount.

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"Processing Facilities Value" means (1) with respect to any processing
facility completed as of the closing of the exercise of the option, the
depreciated book value as of such date, as determined in accordance with
generally accepted accounting principles and using 25-year straight line
depreciation, of such facility and (2) with respect to any facility not
completed as of such date, the allowance for funds used during construction
for such facility as of such date, as determined in accordance with generally
accepted accounting principles. The "Payment Factor" is initially 100% and
increases by 3% upon the commencement of commercial operations at MBPP's
initial processing facility and thereafter by 3% after each three-month period
during the term of the option. The interest in MBPP that OEDC's option
entitles it to buy would be diluted if MBPP admitted an additional partner
that was either an assignee of a proportionate interest from all of the
partners or whose admittance otherwise resulted in a proportionate decrease in
each partner's interest.

OEDC most likely will need to obtain financing in order to exercise the
option to increase its interest, and, although OEDC anticipates that such
financing will be available, no assurance may be given in this regard. If OEDC
does not exercise the option to acquire the additional partnership interest,
OEDC will be required to assign to each of MCN and Duke Energy a .726%
interest in DIGP out of the increased interest in DIGP that OEDC may earn
pursuant to the DIGP partnership agreement upon DIGP Payout.

The partnership agreement for MBPP provides that any partner who desires to
participate in the construction, ownership, operation or financing of a gas
processing plant or associated facility for the fractionation, storage,
transportation and marketing of liquids extracted by said gas processing plant
("Associated Facility") in Mobile County must offer the other partners a right
of first refusal to participate in the project. In addition, OEDC, MCN and
Duke Energy have entered into an Area of Mutual Interest Agreement pursuant to
which any party that desires to construct, own and operate or provide
financing for any gas processing plant or Associated Facility in Jackson or
Harrison Counties, Mississippi, Baldwin County, Alabama or Escambia County,
Florida must offer the other parties a right of first refusal to participate
in the project. OEDC's right to participate would be 33.3% (currently subject
to dilution to 24.3%) in any such processing plant, except that OEDC's right
to participate in a processing plant at any time after the exercise or
termination of OEDC's option described above will be equal to OEDC's interest
in MBPP.

Other Facilities

OEDC currently leases approximately 8,433 square feet of office space in The
Woodlands, Texas, where its administrative offices are located. DIGP owns a
field office in Coden, Alabama.

Employees

As of December 31, 1996, OEDC had 18 employees, none of whom were
represented by any labor union. OEDC also utilizes the services of independent
contractors to perform various field and other services. OEDC considers its
relations with its personnel to be satisfactory.

Government Regulation

GENERAL

Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion,
frequently increasing the regulatory burden. Numerous departments and
agencies, both federal and state, have issued rules and regulations applicable
to the oil and gas industry and its individual members, compliance with which
is often difficult and costly and some of which carry substantial penalties
for the failure to comply. The regulatory burden on the natural gas and oil
industry increases OEDC's cost of doing business and, consequently, affects
its profitability. Inasmuch as such laws and regulations are frequently
expanded, amended or reinterpreted, OEDC is unable to predict the future cost
or impact of complying with such regulations.

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REGULATION OF NATURAL GAS AND OIL EXPLORATION AND PRODUCTION

Exploration and production operations of OEDC are subject to various types
of regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements
in order to drill or operate wells, and regulating the location of wells, the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled and the plugging and abandonment of
wells. Exploration and development operations are also subject to various
conservation laws and regulations that regulate the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases.
In addition, state conservation laws establish maximum rates of production
from natural gas and oil wells, generally prohibit the venting or flaring of
natural gas and impose certain requirements regarding the ratability of
production. The effect of these regulations is to limit the amounts of natural
gas and oil that may be produced and to limit the number of wells or the
locations at which drilling operations may be conducted.

NATURAL GAS MARKETING, GATHERING AND TRANSPORTATION

Federal legislation and regulatory controls in the United States have
historically affected the price of the natural gas produced by OEDC and the
manner in which such production is marketed. The transportation and sale for
resale of natural gas in interstate commerce are regulated by FERC pursuant to
the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978
(the "NGPA"). The maximum selling prices of natural gas were formerly
established pursuant to regulation. However, on July 26, 1989, the Natural Gas
Wellhead Decontrol Act of 1989 ("Decontrol Act") was enacted, which terminated
wellhead price controls on all domestic natural gas on January 1, 1993 and
amended the NGPA to remove completely by January 1, 1993 price and nonprice
controls for all "first sales" of natural gas, which will include all sales by
OEDC of its own production. Consequently, sales of OEDC's natural gas
currently may be made at market prices, subject to applicable contract
provisions. FERC's jurisdiction over natural gas transportation was unaffected
by the Decontrol Act.

FERC also regulates interstate natural gas transportation rates and service
conditions, which affect the marketing of natural gas produced by OEDC, as
well as the revenues received by OEDC for sales of such natural gas. Since the
latter part of 1985, FERC has endeavored to make interstate natural gas
transportation more accessible to gas buyers and sellers on an open and
nondiscriminatory basis. FERC's efforts have significantly altered the
marketing and pricing of natural gas. Commencing in April 1992, FERC issued
Order 636, which, among other things, requires interstate pipelines to
"restructure" their services to provide transportation separate or "unbundled"
from the pipelines' sales of gas. Also, Order 636 requires interstate
pipelines to provide open-access transportation on a basis that is equal for
all gas supplies. Order 636 has been implemented through decisions and
negotiated settlements in individual pipeline services restructuring
proceedings. In many instances, the result of Order 636 and related
initiatives have been to substantially reduce or eliminate the interstate
pipelines' traditional role as wholesalers of natural gas in favor of
providing only storage and transportation services. FERC has issued final
orders in virtually all pipeline restructuring proceedings, and has now
commenced a series of one year reviews to determine whether refinements are
required regarding the implementation by individual pipelines of Order 636. In
July 1996, the United States Court of Appeals for the District of Columbia
Circuit largely upheld Order 636.

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wells along all or part of the pipeline system; (3) the location of
compressors and processing plants on the system; (4) the extension of the
pipeline beyond the central point in the field, (5) the pipeline's geographic
configuration; and (6) the operating pressure of the line. Other factors
(e.g., the business of the pipeline's owners) may also be examined. In its
Statement of Policy, FERC stated for the first time it would presume that
pipeline operations in OCS water depths of 200 meters or greater were exempt
gathering facilities, up to the point of potential connection with an
interstate pipeline.

DIGP is subject to regulation of its gathering operations under the Outer
Continental Shelf Lands Act (the "OCSLA"). This statute requires DIGP, among
other things, to provide OCS gas producers with open and non-discriminatory
access to its gathering system and to charge non-discriminatory rates. OEDC
does not believe a determination that additional portions of DIGP are subject
to FERC jurisdiction would have a material adverse effect on OEDC's
operations. See "--Natural Gas Gathering--Extensions and Expansions."

Although Order 636 does not regulate natural gas production operations, and
OEDC believes Order 636 is not applicable to DIGP's gathering operations, FERC
has stated that Order 636 is intended to foster increased competition within
all phases of the natural gas industry. It is unclear what impact, if any,
increased competition within the natural gas industry under Order 636 will
have on OEDC and its natural gas marketing efforts. Although Order 636 could
provide OEDC with additional market access and more fairly applied
transportation services rates, terms and conditions, it could also subject
OEDC to more restrictive pipeline imbalance tolerances and greater penalties
for violation of those tolerances. OEDC does not believe, however, that it
will be affected by any action taken with respect to Order 636 materially
differently than other natural gas producers and marketers with which it
competes.

FERC has recently announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner for setting
rates for new interstate pipeline construction, the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order 636 for
resale in the secondary market, and the use of negotiated and market-based
rates and terms and conditions for interstate gas transmission. While any
resulting FERC action would affect OEDC only indirectly, FERC's stated
intention is to further enhance competition in natural gas markets.

Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, FERC, state regulatory
bodies and the courts. OEDC cannot predict when or if any such proposals might
become effective, or their effect, if any, on the operations of OEDC or DIGP.
The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by FERC and Congress will continue indefinitely into the
future.

OFFSHORE LEASING

OEDC conducts certain operations on federal oil and gas leases, which the
MMS administers. The MMS issues such leases through competitive bidding. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the OCSLA, which are subject
to change by the MMS. For offshore operations, lessees must obtain MMS
approval for exploration, development and production plans prior to the
commencement of such operations. In addition to permits required from other
agencies (such as the Coast Guard, the Army Corps of Engineers and the
Environmental Protection Agency), lessees must obtain a permit from the MMS
prior to the commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the OCS to meet stringent
engineering and construction specifications, and has recently proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. The MMS also has issued
regulations restricting the flaring or venting of natural gas, and has
recently proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. To cover the
various obligations of lessees on the OCS, the MMS generally requires that
lessees post

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substantial bonds or other acceptable assurances that such obligations will be
met. The cost of such bonds or other surety can be substantial and there is no
assurance that OEDC will be able to obtain bonds or other surety in all cases.
See "--Environmental Matters."

OIL SALES AND TRANSPORTATION RATES

Sales of crude oil, condensate and gas liquids by OEDC are not regulated and
are made at market prices. The price OEDC receives from the sale of these
products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, FERC implemented regulations establishing an
indexing system for transportation rates for oil pipelines, which would
generally index such rates to inflation, subject to certain conditions and
limitations. These regulations could increase the cost of transporting crude
oil, liquids and condensate by pipeline. These regulations are subject to
pending petitions for judicial review. OEDC is not able to predict with
certainty what effect, if any, these regulations will have on it, but other
factors being equal, the regulations may tend to increase transportation costs
or reduce wellhead prices for such commodities.

SAFETY REGULATION

OEDC's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement, and management of facilities. Pipeline safety issues
have recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. In addition, the
major federal pipeline safety law is subject to change this year as it is
considered for reauthorization by Congress. For example, federal legislation
addressing pipeline safety issues has been introduced, which, if enacted,
would establish a federal "one call" notification system. Additional pending
legislation would, among other things, increase the frequency with which
certain pipelines must be inspected, as well as increase potential civil and
criminal penalties for violations of pipeline safety requirements. OEDC
believes its operations, to the extent they may be subject to current gas
pipeline safety requirements, comply in all material respects with such
requirements. OEDC cannot predict what effect, if any, the adoption of this or
other additional pipeline safety legislation might have on its operations, but
the industry could be required to incur additional capital expenditures and
increased costs depending upon future legislative and regulatory changes.

ENVIRONMENTAL MATTERS

OEDC's oil and natural gas exploration, development, production and pipeline
gathering operations are subject to stringent federal, state and local laws
governing the discharge of materials into the environment or otherwise
relating to environmental protection. Numerous governmental departments, such
as the Environmental Protection Agency ("EPA"), issue regulations to implement
and enforce such laws, which are often difficult and costly to comply with and
which carry substantial civil and criminal penalties for failure to comply.
These laws and regulations may require the acquisition of a permit before
drilling commences, restrict the types, quantities and concentrations of
various substances that can be released into the environment in connection
with drilling, production and pipeline gathering activities, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands,
frontier and other protected areas, require some form of remedial action to
prevent pollution from former operations, such as plugging abandoned wells,
and impose substantial liabilities for pollution resulting from OEDC's
operations. In addition, these laws, rules and regulations may restrict the
rate of oil and natural gas production below the rate that would otherwise
exist. The regulatory burden on the oil and gas industry increases the cost of
doing business and consequently affects its profitability. Changes in
environmental laws and regulations occur frequently, and any changes that
result in more stringent and costly waste handling, disposal or clean-up
requirements could adversely affect OEDC's operations and financial position,
as well as the oil and gas industry in general. While management believes that
OEDC is in substantial compliance with current applicable environmental laws
and regulations and OEDC has not experienced any material adverse effect from
compliance with these environmental requirements, there is no assurance that
this will continue in the future.

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CERCLA, also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator
of the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances at the site
where the release occurred. Under CERCLA, such persons may be subject to joint
and several liability for the costs of cleaning up the hazardous substances
that have been released into the environment, for damages to natural resources
and for the costs of certain health studies and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the release of hazardous
substances or other pollutants into the environment. Furthermore, although
petroleum, including crude oil and natural gas, is exempt from CERCLA, at
least two courts have ruled that certain wastes associated with the production
of crude oil may be classified as "hazardous substances" under CERCLA and thus
such wastes may become subject to liability and regulation under CERCLA. State
initiatives to further regulate the disposal of oil and natural gas wastes are
also pending in certain states, and these various initiatives could have a
similar impact on OEDC.

OPA currently requires persons responsible for "offshore facilities" to
establish $150 million in financial responsibility to cover environmental
cleanup and restoration costs likely to be incurred in connection with an oil
spill in the waters of the United States. On September 10, 1996 Congress
passed legislation that would lower the financial responsibility requirement
under OPA to $35 million, subject to increase to $150 million if a formal risk
assessment indicates the increase is warranted. The impact of any legislation
is not expected to be any more burdensome to OEDC than it will be to other
similarly situated companies involved in oil and gas exploration and
production.

OPA imposes a variety of additional requirements on "responsible parties"
for vessels or oil and gas facilities related to the prevention of oil spills
and liability for damages resulting from such spills in waters of the United
States. The "responsible parties" include the owner or operator of an onshore
facility, pipeline, or vessel or the lessee or permittee of the area in which
an offshore facility is located. OPA assigns liability to each responsible
party for oil spill removal costs and a variety of public and private damages
from oil spills. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill is caused by gross
negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If a party fails to report a
spill or to cooperate fully in the cleanup, liability limits likewise do not
apply. OPA establishes a liability limit for offshore facilities (including
pipelines) of all removal costs plus $75 million. Few defenses exist to the
liability for oil spills imposed by OPA. OPA also imposes other requirements
on facility operators, such as the preparation of an oil spill contingency
plan. Failure to comply with ongoing requirements or inadequate cooperation in
a spill event may subject a responsible party to civil or criminal enforcement
actions.

In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operational standards may apply to OCS vessels, rigs,
platforms, pipelines, vehicles and structures. Violations of lease conditions
or regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing
operations and the cancellation of leases. Such enforcement liabilities can
result from either governmental or private prosecution.

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mandates under federal or state law may be significant, the entire industry
will experience similar costs and OEDC believes that these costs will not have
a material adverse impact on OEDC's financial conditions and operations. Some
oil and gas exploration and production facilities are required to obtain
permits for their storm water discharges. Costs may be incurred in connection
with treatment of wastewater or developing storm water pollution prevention
plans.

RCRA, as amended, generally does not regulate most wastes generated by the
exploration and production of oil and gas. RCRA specifically excludes from the
definition of hazardous waste "drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude
oil, natural gas or geothermal energy." However, these wastes may be regulated
by EPA or state agencies as solid waste. Moreover, ordinary industrial wastes,
such as paint wastes, waste solvents, laboratory wastes, and waste compressor
oils, may be regulated as hazardous waste. Pipelines used to transfer oil and
gas may also generate some hazardous wastes. Although the costs of managing
solid and hazardous waste may be significant, OEDC does not expect to
experience more burdensome costs than similarly situated companies involved in
oil and gas exploration and production.

The Clean Air Act Amendments of 1990 required the EPA to promulgate
regulations for the control of air pollution from certain OCS sources. Those
regulations impose requirements on operators of affected OCS facilities,
including the possible need to obtain operating permits. Monitoring,
reporting, notification, inspections, compliance requirements, and other
provisions may also apply to OCS facilities. Failure to comply with these
regulations will subject a facility to civil or criminal enforcement actions.

Legal Proceedings

OEDC, David B. Strassner (OEDC's President and a director), Douglas H.
Kiesewetter (OEDC's Executive Vice President and a director) and David R.
Albin (a director), as well as NGP (OEDC's largest stockholder), the managing
underwriters of OEDC's initial public offering and an analyst from each of the
managing underwriters, have been named as defendants in a suit styled Eric
Barron and Edward C. Allen, On Behalf of Themselves and all Others Similarly
Situated, v. David B. Strassner, Douglas H. Kiesewetter, David R. Albin,
Natural Gas Partners, L.P., David Garcia, John J. Myers, Offshore Energy
Development Corporation, Morgan Keegan & Company, Inc. and Principal
Securities, Inc., which was filed October 20, 1997, in the Texas State
District Court of Harris County, Texas, 270th Judicial District. The suit
seeks class certification on behalf of certain holders of OEDC Common Stock,
excluding the defendants and holders related to or affiliated with the
defendants. The suit alleges generally that the defendants wrongfully made
false or misleading statements or omissions relating to OEDC's business and
prospects in the course of OEDC's initial public offering and subsequent
thereto. The suit seeks rescission of sales of OEDC common stock and
unspecified monetary damages, including punitive damages.

OEDC is a defendant in a suit styled H.E. (Gene) Holder, Jr. and Dan H.
Montgomery v. Offshore Energy Development Corporation, which was filed in 1995
alleging that the idea, design and location of the DIGS, which OEDC developed
as an intrastate gas gatherer regulated by FERC under Section 311 of the NGPA
was a confidential trade secret owned by the plaintiffs which had been
revealed to OEDC during confidential discussions in furtherance of a proposed
joint venture. The plaintiffs further alleged that OEDC made
misrepresentations regarding its intention to form a joint venture with the
plaintiffs in order to obtain the confidential information and to induce the
plaintiffs into executing a confidentiality agreement which thereafter
prevented the plaintiffs from further pursuing the project independently. The
plaintiffs also alleged that OEDC orally agreed to form a joint venture and
that OEDC breached its fiduciary duties to the plaintiffs. As a consequence,
the plaintiffs alleged "millions of dollars in profits" as actual damages and
also sought the award of unspecified punitive damages, attorneys' fees, pre-
and post-judgment interest and costs of suit. On March 10, 1997, OEDC filed a
motion for summary judgment as to all of the plaintiffs' claims. Subsequently,
the plaintiffs amended their petition, dropping their claims of
misrepresentation and conversion of trade secrets and adding a claim of
alleged fraudulent inducement to execute a covenant not to compete. Further,
the plaintiffs specified

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that they seek $6.5 million in actual damages and punitive damages of five
times the amount of actual damages. OEDC denies the plaintiffs' claims and
expects to file another motion for summary judgment based on the plaintiffs'
amended petition. Although a decision adverse to OEDC in this litigation could
have a material adverse effect on OEDC's financial condition and results of
operation, OEDC does not believe that the final resolution of this case will
result in a material liability to OEDC.

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SELECTED FINANCIAL DATA OF OEDC

The following table sets forth selected consolidated historical financial
data for OEDC as of and for each of the periods indicated. The financial data
are derived from the audited financial statements of OEDC. Prior to August 31,
1992, the financial data reflect the operations of Offshore Energy Development
Corporation, a Texas corporation, a predecessor of OEDC. From August 31, 1992
through November 6, 1996, the financial data reflects the consolidated
operations of OEDC Partners, L.P. and OEDC, Inc., predecessors of OEDC. The
following data should be read in conjunction with "Management's Discussion and
Analysis of OEDC's Financial Condition and Results of Operations," which
includes a discussion of the acquisition or sales of oil and gas producing
properties and investments in partnerships and other factors materially
affecting the comparability of the information presented, and OEDC's
consolidated financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Exploration and
production............ $ 2,116 $ 1,744 $ 5,513 $ 6,169 $ 9,835 $ 7,214 $ 7,033
Pipeline operating and
marketing............. 886 358 358 166 1,014 718 823
Equity in earnings
(loss) of equity
investments........... -- (255) (3) 497 53 43 83
Gain on sales of oil
and gas properties or
partnership
investments, net...... -- -- 13,655 -- 10,661 10,661 61
------- -------- -------- -------- ------- -------- --------
Total revenues........ 3,002 1,847 19,523 6,832 21,563 18,636 8,000
------- -------- -------- -------- ------- -------- --------
Expenses:
Operations and
maintenance........... 745 570 1,410 2,210 1,972 1,521 1,650
Exploration charges.... 36 32 2,231 405 2,297 919 5,157
Depreciation, depletion
and amortization...... 1,941 355 2,112 5,501 4,898 3,876 4,042
Abandonment expense.... -- 59 2,735 84 1,301 216 577
General and
administrative........ 785 1,725 2,359 2,192 2,325 1,623 2,483
------- -------- -------- -------- ------- -------- --------
Total expenses........ 3,507 2,741 10,847 10,392 12,793 8,155 13,909
------- -------- -------- -------- ------- -------- --------
Interest income
(expense) and other:
Interest expense....... (975) (228) (590) (1,651) (783) (709) (153)
Preferential payments
by subsidiaries....... -- -- (1,431) -- -- -- --
Interest income and
other................. (63) (226) 317 123 (94) (41) 1,046
------- -------- -------- -------- ------- -------- --------
Total interest income
(expense) and other.. (1,038) (454) (1,704) (1,528) (877) (750) 893
------- -------- -------- -------- ------- -------- --------
Net income (loss) before
income taxes........... (1,543) (1,348) 6,972 (5,088) 7,893 9,731 (5,016)
Net income (loss)....... (1,543) (1,348) 6,945 (5,067) 6,450 9,726 (3,572)
------- -------- -------- -------- ------- -------- --------
Preference unit payments
and accretion of
discount............... -- (731) (585) (1,142) (2,617) (1,333) --
------- -------- -------- -------- ------- -------- --------
Income (loss) available
to common unitholders
and stockholders....... $(1,543) $ (2,079) $ 6,360 $ (6,209) $ 3,833 $ 8,393 $ (3,572)
Net income (loss) per
share.................. $ (0.31) $ (0.41) $ 1.26 $ (1.23) $ 0.68 $ 1.66 $ (0.41)
Weighted average shares
outstanding............ 5,052 5,052 5,052 5,052 5,602 5,052 8,702
CONSOLIDATED STATEMENT
OF CASH FLOWS DATA:
Net cash provided by
(used in):
Operating activities.... 1,666 (1,546) 2,833 (383) 2,011 3,745 9,979
Investing activities.... (3,425) (10,017) 21,133 (16,626) 1,334 7,066 (35,723)
Financing activities.... 2,826 14,381 (19,550) 9,305 14,352 (10,639) 9,360
OTHER CONSOLIDATED
FINANCIAL DATA:
Capital expenditures.... 3,700 10,993 18,418 15,965 9,997 4,492 34,222
CONSOLIDATED BALANCE
SHEET DATA (AT PERIOD
END):
Cash and cash
equivalents............ $ 1,080 $ 3,997 $ 8,414 $ 710 $18,408 $ 882 $ 2,024
Working capital
(deficiency)........... (6,875) 1,036 4,807 (12,834) 15,654 (635) (2,027)
Property, plant and
equipment, net......... 14,146 23,626 9,599 20,108 25,703 18,618 45,452
Total assets............ 16,828 30,952 20,035 25,170 50,941 24,518 57,288
Total long term debt
(less current
portion)............... -- 20,238 5,969 -- -- 2,500 8,800
Capital lease payable-
noncurrent............. -- 474 309 832 462 741 366
Redeemable preference
units, net of
discount............... 6,500 6,500 6,500 10,294 -- 10,824 --
Stockholders' equity
(deficit).............. 971 (1,091) 2,192 (2,117) 41,571 6,277 37,999
</TABLE>

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

The following discussion should be read in conjunction with OEDC's
consolidated financial statements and the notes thereto included elsewhere
herein.

Overview

OEDC was formed for the purpose of becoming the holding company for OEDC,
Inc. and OEDC Partners, L.P. pursuant to the terms of an Agreement and Plan of
Reorganization dated August 30, 1996 (the "Combination"). Under the terms of
the Combination, which was consummated on November 6, 1996, OEDC (i) acquired
all of the outstanding capital stock of OEDC, Inc. previously owned by OEDC
management and by NGP, (ii) acquired by merger 50% of the common limited
partnership units of OEDC Partners, L.P. from the Texas corporation having the
same name as OEDC, and (iii) acquired 50% of the common units of OEDC
Partners, L.P. held by NGP and certain of its employees. OEDC completed an
initial public offering (the "Offering") of 3,650,000 shares of OEDC's Common
Stock contemporaneously with the consummation of the Combination.

Results of Operations

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997.

Income. Total income for OEDC decreased by $10,636,000 (57%) from
$18,636,000 in the nine months ended September 30, 1996 to $8,000,000 in the
nine months ended September 30, 1997. The higher income amount in the first
three quarters of 1996 was primarily attributable to OEDC's sale of all but a
one percent general partnership interest in DIGP, which resulted in a gain of
$10,827,000.

Exploration and production revenue decreased $181,000 (3%) from $7,214,000
in the nine months ended September 30, 1996 compared to $7,033,000 in the nine
months ended September 30, 1997. Production volumes decreased from 3.63 Bcf to
3.43 Bcf (a 6% decrease) in the nine months ended September 30, 1996 and 1997,
respectively. The slight production decrease was attributable to expected
production declines at OEDC's Mobile area 959 cluster and South Timbalier 162
B7 well, which were partially offset by increased production volumes from
OEDC's successful drilling efforts at North Padre Island A59 and Viosca Knoll
35. The Viosca Knoll 35 well (100% working interest) commenced production in
August 1997 and the North Padre Island A59 A5 well (60.6% working interest)
commenced production in August 1997. The decrease in production volume was
positively impacted by slightly higher average natural gas prices. Average
natural gas prices received (inclusive of hedging) were $1.99 per Mcf in the
nine months ended September 30, 1996 compared to $2.05 per Mcf in the nine
months ended September 30, 1997 (a 3% increase).

Pipeline operating and marketing income increased by $105,000 (15%) from
$718,000 for the nine month period ended September 30, 1996 to $823,000 for
the nine month period ended September 30, 1997. OEDC receives a management fee
of $188,000 per quarter for operating the DIGS. Effective late September,
1997, OEDC elected to resign as operator of the DIGS no later than December 1,
1997. A portion of the DIGS was recently determined to be regulated by FERC,
and in connection with the regulated status, the compliance and reporting
burden will increase significantly. Therefore, OEDC deemed it appropriate to
resign as operator to pursue other opportunities. However, OEDC will remain as
the manager of commercial development and construction and will receive
$275,000 per year for these duties compared to the $750,000 per year OEDC has
received as operator of the system. OEDC will perform these duties for a
minimum of two years. OEDC receives a management fee of $188,000 per quarter
for operating the DIGS. OEDC also markets third-party gas on a limited basis.
Marketing revenue received in the first three quarters of 1997 was $260,000.

Expenses. Total expenses increased by $5,754,000 (71%) from $8,155,000 for
the first three quarters of 1996 to $13,909,000 for the first three quarters
of 1997.

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Operations and maintenance expense increased moderately for the first three
quarters of 1997 at $1,650,000 compared to $1,521,000 for the first three
quarters of 1996 (an 8% increase). In general, a significant portion of
operations expense is fixed and, therefore, does not fluctuate from period to
period as changes occur in production volume and prices received for those
volumes. However, operation expenses increased, as expected, as a result of
the second well at North Padre A59 and Viosca Knoll 35 coming online in the
third quarter of 1997. Average operations and maintenance expense per Mcf were
$.42 per Mcf in the nine months ended September 30, 1996 compared to $.48 per
Mcf in the nine months ended September 30, 1997 (a 14% increase).

Exploration charges increased $4,238,000 from $919,000 in the first three
quarters of 1996 to $5,157,000 in the first three quarters of 1997. The major
component of the 1997 increase was attributable to first quarter 1997 charges
relating to dry hole expenses of $3,675,000, of which $3,473,000 relates to
OEDC's unsuccessful attempts to repair and sidetrack out of the existing South
Timbalier 162 B6 non-producing wellbore. An additional $220,000 in dry hole
expense relates to the Viosca Knoll block 80 dry hole that was drilled in
fourth quarter of 1996, as OEDC received additional invoices in the first
quarter of 1997 relating to the drilling of that well. Also contributing to
the increase were additional seismic related charges of $1,103,000 in the
first nine months of 1997 compared to seismic charges of $371,000 in the
comparable period in 1996. The 1997 expenditures consisted of geological
consulting, seismic data and processing for areas offshore Louisiana and Texas
covering blocks acquired by OEDC in a Federal lease sale. As a result of
OEDC's use of the successful efforts method of accounting, OEDC expenses
rather than capitalizes geological and seismic costs.

Although natural gas production volumes decreased by 6% for the nine months
ended September 30, 1997 compared to the same period in 1996, OEDC's DD&A
decreased by $166,000 (4%). OEDC's average DD&A rates per Mcf of production
were $1.07 per Mcf and $1.18 per Mcf for the first three quarters of 1996 and
1997, respectively (a 10% increase). The increase in average DD&A rate per Mcf
was a function of new production coming on line that had a high finding cost
per Mcf compared to previously existing production. The higher finding cost is
partially the result of increased day rates for drilling rigs, boats and
equipment used by OEDC to drill and develop wells.

Abandonment expense increased 167% from $216,000 in the first nine months of
1996 to $577,000 in the first nine months of 1997. OEDC incurred cash
abandonment expense of $104,000 relating to the previous abandonment of OEDC's
Eugene Island 163 block platform, $277,000 of abandonment expense associated
with the previously noted South Timbalier 162 B6 well and abandonment accruals
of $196,000 in the first three quarters of 1997. This compares to actual cash
abandonment expense of $147,000 relating to the above noted Eugene Island 163
platform and abandonment accruals of $69,000 in the first three quarters of
1996.

General and administrative expenses increased $860,000 (53%) from $1,623,000
for the nine months ended September 30, 1996 to $2,483,000 for the nine months
ended September 30, 1997. The increase was primarily the result of additional
staffing combined with annual compensation increases that occurred in the
fourth quarter of 1996. The additional staffing is representative of OEDC's
increase in scope of operations. Other factors leading to the 1997 increase
were various costs associated with OEDC's status as a public company and
increased insurance costs. Average general and administrative expenses per Mcf
were $.45 per Mcf in the nine months ended September 30, 1996 compared to $.72
per Mcf in the nine months ended September 30, 1997 (a 60% increase).

Interest Income (Expense). OEDC incurred net interest expense (net of
interest income) of $750,000 for the first three quarters of 1996 compared to
net interest income of $131,000 for the comparable period in 1997. The net
interest expense in the first three quarters of 1996 primarily represented
interest paid to an affiliate of Enron relating to borrowings utilized for
working capital and hedging needs. OEDC's net interest income in the first
three quarters of 1997 compared to a net interest expense in the first three
quarters of 1996 was the result of paying off all outstanding debt after the
Offering in November, 1996 coupled with increased interest income from
increased cash balances following the Offering. OEDC had other income of
$762,000 in the second quarter of 1997 resulting from a settlement of disputed
mineral rights.

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Net Income (Loss). OEDC had net income before income taxes of $9,731,000 in
the first three quarters of 1996 compared to a net loss of $5,016,000 in the
first three quarters of 1997. The net loss in the 1997 period was primarily
the result of the above noted dry hole cost during early 1997. Net income
(loss) after giving effect to income taxes and tax benefits was net income of
$9,726,000 in the first three quarters of 1996 compared to a net loss of
$3,572,000 for the first three quarters of 1997.

Income (loss) available to common unit holders and stockholders, which gives
effect to preference unit payments and accretion of discount, was net income
of $8,393,000 in the nine month period ended September 30, 1996 compared to a
net loss of $3,572,000 in the nine month period ended September 30, 1997. In
the fourth quarter of 1996, OEDC redeemed all of the outstanding preference
units of OEDC Partners, L.P. with proceeds of the Offering. Therefore, in
periods after the fourth quarter of 1996 all net income will be available to
common stockholders.

During the first three quarters of 1996, OEDC made preference payments to
NGP totaling $803,000. OEDC began accreting the $2 million discount of
preference units following the purchase of additional preference units by NGP
in 1995. The accretion of discount was $530,000 in the nine months ended
September 30, 1996. As OEDC redeemed all preference units outstanding
following the Offering, OEDC will not incur accretion of discount charges nor
will preference payments have to be made.

1996 COMPARED TO 1995

Income. Total income increased $14,732,000 (216%) from $6,832,000 in 1995 to
$21,564,000 in 1996. Exploration and production revenue increased $3,666,000
(59%) from $6,169,000 in 1995 to $9,835,000 in 1996, primarily as a result of
increased production and increases in the price received by OEDC on the sale
of its natural gas production. The production increase was primarily
attributable to full year production from OEDC's South Timbalier 162 B-7 well.
The average natural gas price received (inclusive of hedging) in 1995 was
$1.68 per Mcf compared to $2.07 per Mcf in 1996 (a 23% increase).

OEDC's pipeline operating and marketing income increased $848,000 (511%)
from $166,000 in 1995 to $1,014,000 in 1996. The increase was partially
attributable to increased monthly management fees received by OEDC for
operating the DIGS. Monthly management fees were increased from $5,800 to
$44,700 per month in January, 1996 and subsequently increased to $55,000 per
month in July, 1996. Total DIGS operator fees received by OEDC increased
$472,000 (338%) in 1996 compared to 1995. OEDC increased gas marketing revenue
by $376,000 (1,393%) from $27,000 in 1995 to $403,000 in 1996. The increase
was primarily attributable to full year production in 1996 from a well in the
South Timbalier area where OEDC markets third-party gas.

OEDC's equity in earnings of equity investments relating to OEDC's interest
in DIGP decreased $444,000 (89%) from $497,000 in 1995 to $53,000 in 1996. The
decrease is the result of a reduction in OEDC's ownership in DIGP from 25% to
1% in early 1996.

OEDC's sale of all but a 1% general partnership interest in DIGP resulted in
a gain of $10,827,000 in 1996. The gain on sale was offset by a $166,000 loss
on sale OEDC realized on the disposition of non-strategic and non-producing
acreage.

Expense. Total expenses increased $2,401,000 (23%) from $10,392,000 in 1995
to $12,793,000 in 1996. Operations and maintenance expense decreased by
$238,000 (11%) from $2,210,000 in 1995 to $1,972,000 in 1996. The decrease was
primarily due to a $268,000 (80%) reduction in gas transportation charges from
$334,000 in 1995 to $66,000 in 1996, as the result of a negotiated gas
marketing agreement. In general, a significant portion of operations expense
does not fluctuate from period to period as changes occur in production volume
and prices received for those volumes, provided that new production facilities
are not brought on-line, as was the case in 1996. Therefore, such expenses do
not always change proportionately with changes in exploration and production
income.

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<PAGE>

OEDC's natural gas production volume increased 1.09 Bcf (30%) from 3.67 Bcf
in 1995 compared to 4.76 Bcf in 1996. However, OEDC's depreciation, depletion
and amortization ("DD&A") decreased by $603,000 (11%) from $5,501,000 in 1995
to $4,898,000 in 1996. OEDC's average DD&A rate per Mcf was $1.50 per Mcf in
1995 compared to $1.03 per Mcf in 1996. The decline in DD&A rate per Mcf was
due to increased production in 1996 from OEDC's South Timbalier 162 B-7 well,
which had a lower finding cost per Mcf as compared to OEDC's Mobile 959
cluster.

Exploration charges increased $1,892,000 (467%) from $405,000 in 1995 to
$2,297,000 in 1996. In 1996, OEDC drilled a non-commercial well located at
Viosca Knoll Block 80 at a cost of $1,336,000 and incurred costs of $89,000
relating to an unsuccessful additional completion attempt made by OEDC in a
producing South Timbalier well. OEDC increased expenditures on geological and
seismic data by $511,000 (587%) from $87,000 in 1995 to $598,000 in 1996. The
geological expenditures in 1996 were primarily related to OEDC's activities in
the South Timbalier and Viosca Knoll areas.

Abandonment expenses increased $1,217,000 (1,449%) from $84,000 in 1995 to
$1,301,000 in 1996. OEDC had a Viosca Knoll lease that management deemed
uneconomic which expired in late 1996. This lease had a cost basis of
$581,000, which was expensed when the lease reached expiration. OEDC also
incurred an impairment charge of $422,000 in 1996 related to its interest in a
South Timbalier well. An impairment charge is an amount by which the actual
development cost of a well exceeds the expected future revenues from that
well. An abandonment charge of $148,000 was incurred in 1996 as a result of
final resolution of a vendor dispute relating to a 1995 platform abandonment.

Interest Expense. Interest expense decreased by $868,000 (53%) from
$1,651,000 in 1995 to $783,000 in 1996. During 1995 and 1996, OEDC paid
interest to an affiliate of Enron Corp. ("Enron") relating to a combination
term and revolving credit facility. The term portion of the credit facility
bore interest at 15% per annum and the revolving portion bore interest at a
floating rate equal to 2.5% above the applicable prime rate. During early
1996, OEDC repaid all amounts outstanding under the term portion and one-half
of the amount outstanding under the revolving portion. OEDC also paid $116,000
of interest charges to an Enron affiliate relating to a delayed swap
settlement in early 1996. Total interest paid to Enron decreased by $987,000
(63%) from $1,576,000 in 1995 to $589,000 in 1996.

OEDC replaced the Enron revolving credit facility in August 1996 with a
revolving credit facility from Union Bank of California N.A. ("Union Bank")
with an interest rate of LIBOR plus 2.5%. During 1996, $61,000 in interest was
paid on the Union Bank credit facility. Following OEDC's initial public
offering in November 1996, OEDC repaid all amounts outstanding under the
credit facility. Other interest paid in 1996 of $133,000 primarily consisted
of interest on leased equipment and short-term vendor financings.

Net Income (Loss), Income (Loss) Available To Common Unit Holders And
Stockholders And Preference Unit Payments. OEDC incurred a net loss of
$5,067,000 in 1995 compared to net income of $6,450,000 in 1996. The net
income in 1996 was primarily attributable to the gain realized on the
previously discussed sale of OEDC's interest in DIGP.

Income (loss) available to common unit holders and stockholders, which gives
effect to preference unit payments and accretion of discount, was a loss of
$6,209,000 in 1995 and net income of $3,833,000 in 1996. In November 1996,
OEDC redeemed all of the outstanding preference units of OEDC Partners, L.P.
with proceeds of the Offering. Therefore, in future periods all income will be
available to common stockholders.

During 1995 OEDC made preference payments to NGP totaling $848,000 compared
to $911,000 in 1996 (a 7% increase). OEDC began accreting the $2 million
discount on preference units following the purchase of additional preference
units by NGP in 1995. The accretion of discount was $294,000 in 1995 compared
to $1,706,000 in 1996.

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<PAGE>

1995 COMPARED TO 1994

Income. Total income decreased $12,691,000 (65%) from $19,523,000 in 1994 to
$6,832,000 in 1995. Exploration and production revenue increased $656,000
(12%), primarily as a result of increased natural gas prices, while production
volumes in 1995 decreased slightly from 3.69 Bcfe in 1994 to 3.67 Bcfe
produced in 1995. Production declines associated with the disposition of the
Mobile 822 cluster during the second quarter of 1994 were largely offset by
the addition of Mobile 959/960 in the second quarter of 1995 and the addition
of the South Timbalier 162 B-7 well in October 1995. The average natural gas
price received (inclusive of hedging) in 1994 was $1.50 per Mcf compared to
$1.68 per Mcf in 1995, representing a 12% increase.

OEDC's pipeline operating and marketing income decreased $192,000 from 1994
to 1995 as a result of decreased pipeline construction activity.

Equity earnings in DIGP increased from a loss of $3,000 in 1994 to positive
earnings of $497,000 in 1995 as a result of increased throughput in the DIGS.

OEDC sold its interest in the Mobile 822 cluster during second quarter 1994
at a gain of $13,655,000, which was the primary reason OEDC reported net
income in 1994 as compared to its net loss in 1995.

Expenses. Total expenses decreased $456,000 (4%) from $10,848,000 in 1994 to
$10,392,000 in 1995. Operations and maintenance charges increased by $800,000
(57%) from $1,410,000 in 1994 to $2,210,000 in 1995. In 1995 two new
properties, the Mobile 959/960 cluster and the South Timbalier B-7, were
brought on production, while in 1994 no new properties were brought on
production. The start-up of these wells resulted in additional expense for
personnel, transportation and supplies. Also, OEDC incurred marketing charges
in 1995 due to unused firm transportation charges in the Mobile area.

Exploration charges decreased by $1,826,000 (82%) from $2,231,000 in 1994 to
$405,000 in 1995, due principally to OEDC recording a dry hole charge of
$1,586,000 relating to the Viosca Knoll 79 well in 1994 and the absence of a
similar charge in 1995. Expense relating to seismic data acquisition and
processing declined by $559,000 from $645,000 in 1994 to $87,000 in 1995. In
1994, seismic work was being done on the Mobile 959/960 cluster, while in 1995
no new projects were being developed that involved new seismic expenditure.
During 1995, OEDC paid $318,000 in lease rentals on acreage acquired in 1994.

OEDC's DD&A expense increased $3,389,000 (160%) from $2,112,000 in 1994 to
$5,501,000 in 1995 as a result of the commencement of production of the Mobile
959/960 cluster, which had a higher finding cost per Mcfe than OEDC's reserves
producing in 1994. The DD&A charge in 1994 was $.57 per Mcfe compared to $1.50
Mcfe in 1995.

Abandonment expense declined $2,651,000 (97%) from $2,735,000 in 1994 to
$84,000 in 1995 as the result of a charge of $2,264,743 relating to the
abandonment of OEDC's Eugene Island 163 platform in 1994. This platform was
not able to resume production because of water encroachment in the wellbore
during a routine shut-in due to a hurricane. Other abandonment charges and
accruals were approximately $471,000 in 1994.

Interest Expense And Preferential Payments. In 1994, OEDC made preferential
payments of $1,431,000 to affiliates of Enron to meet non-recurring
partnership obligations. Of this amount, $1,300,000 was a non-cash capital
account adjustment compensating Enron for the cost of capital advanced to
DIGP.

Interest expense increased $1,061,000 (180%) from $590,000 in 1994 to
$1,651,000 in 1995. In 1994, OEDC paid the ECT Affiliate $350,000 in interest
under a term and revolving credit facility, as compared to $744,000 and
$802,000 under the term and revolver portions of the credit facility,
respectively, in 1995. The term portion of the credit facility was used to
partially fund OEDC's development in the Mobile 959/960 cluster and bore
interest at a rate of 15% per annum. The revolver was used for general
corporate purposes and bore interest at a rate equal to the applicable prime
rate plus 2.5%. In 1994, NGP provided OEDC a short-term working capital bridge
facility. Borrowings under the NGP facility bore interest at 15% per annum and
$175,000

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<PAGE>

was paid to NGP during 1994 under this facility. This loan was repaid in 1994.
In 1995, OEDC incurred $75,000 in miscellaneous interest charges.

Net Income (Loss), Income (Loss) Available to Common Unit Holders And
Stockholders And Preference Unit Payments. OEDC recorded 1994 net income of
$6,945,000 compared to a net loss of $5,067,000 in 1995 as a result of the
1994 sale of its interest in the Mobile 822 cluster. Income (loss) available
to common unit holders and stockholders, which gives effect to preference unit
payments and accretion of discount, was income of $6,360,000 for 1994 compared
to a loss of $6,209,000 in 1995. In 1994, OEDC paid $585,000 in preference
unit payments to NGP, which represents a nine percent coupon on NGP's
preference units. This increased to $1,142,000 in 1995, due to NGP's purchase
of additional preference units in August 1995 and due to the five months of
accretion of the $2 million discount associated with the preference units
purchased.

Liquidity and Capital Resources

SUMMARY

OEDC's cash position decreased by $16,383,000 during the first three
quarters of 1997. This decrease is primarily the result of OEDC's ongoing
investment in oil and gas drilling and development activities.

Net cash provided by operating activities was $9,979,000 for the nine months
ended September 30, 1997, as compared to $3,745,000 for the same period in
1996. The cash provided by operating activities was significantly greater in
the first three quarters of 1997 as compared to the first three quarters of
1996 as a result of ordinary changes in current assets and liabilities
creating a source of cash of $1,220,000, a change in oil and gas partnership
interest in the South Dauphin II Limited Partnership of $5,645,000 (which was
offset by a similar amount as investment in oil and gas properties) and
$3,971,000 in dry hole expense, primarily relating to OEDC's South Timbalier
162 B-6 well, which is added back to net income for purposes of calculating
cash provided by operating activities, but is ultimately a use of cash as dry
hole expense is considered a capital expenditure.

Net cash utilized in investing activities was $35,723,000 in the nine months
ended September 30, 1997 compared to $7,066,000 of cash that was provided from
investing activities in the nine months ended September 30, 1996. The first
three quarters of 1997 use of cash represents OEDC's continued investment in
various oil and gas projects. The cash provided in the first three quarters of
1996 was the result of selling all but one percent of OEDC's general
partnership interest in DIGP and selling a non-strategic lease block,
generating $11,340,000 from these transactions.

Financing activities provided $9,360,000 of cash in the first nine months of
1997 as a result of borrowings under OEDC's line of credit. During the
comparable period in 1996, OEDC utilized $10,639,000 which primarily consisted
of principal repayment to Enron on outstanding loans.

In the event the cash flows from OEDC's operating activities and credit
available under its credit facility described below are not sufficient to fund
development costs, or results from drilling are not as successful as
anticipated, OEDC will either curtail its drilling or seek additional
financing to assist in its drilling activities. No assurance may be given that
OEDC will be able to obtain such additional financing. If OEDC is required to
curtail its drilling activities, its ability to develop and expand its
prospect inventory, as well as its earnings and cash flow from exploration and
production activities, will be adversely affected.

OEDC intends to continue its efforts to acquire additional acreage if and
when these opportunities become available. Any such acquisition or related
drilling on such acquisition could require additional borrowings under OEDC's
credit facility or additional debt or equity financing. No assurance may be
given that OEDC will be able to obtain such additional funds.

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<PAGE>

WORKING CAPITAL

OEDC had a working capital deficit of $2,027,000 as of September 30, 1997.
The September 30, 1997 working capital deficit is primarily the result of
continued investment in drilling projects and oil and gas properties. OEDC
periodically has experienced substantial working capital deficits. OEDC has
incurred substantial expenditures for the acquisition and development of
capital assets either on vendor open accounts payable or under short-term
financings. OEDC has been able to refinance the accounts payable balances by
including them in line of credit and longer-term project financings.
Generally, capital investments in properties have converted to cash or
generated borrowing capacity rapidly enough to finance OEDC's working capital
deficits. At September 30, 1997, OEDC had $9,500,000 outstanding under its
credit facility. On November 7, 1997, OEDC increased its lines of credit to
$16,000,000.

FINANCING ACTIVITIES

OEDC budgeted a total of $38.6 million for capital expenditures in 1997.
During the first nine months of 1997, OEDC made capital expenditures of
approximately $34.2 million. Given the dynamic nature of OEDC's business,
management considers it possible that actual capital expenditures in 1997
could exceed the previously budgeted amount. OEDC believes that borrowings
under the existing credit facility described below and cash flows generated
from operations will be sufficient to fund these expenditures. However, no
assurance may be given as to the adequacy of these sources.

Credit Facility. On November 7, 1997, OEDC increased its existing line of
credit. The revised credit facility is a 23 month line of credit with Union
Bank of California, N.A. Borrowing under the line of credit may not exceed at
any time the lesser of $30 million or the borrowing base (computed with
reference to OEDC's oil and gas reserves and other assets) as determined by
the bank in its sole discretion. The borrowing base may be redetermined
quarterly. On November 7, 1997, the borrowing base was redetermined to be
$16,000,000 and there was $10,500,000 under this facility as of that date. The
credit facility will be interest only for the first three months, and then the
borrowing base will be reduced by $800,000 per month for the next twelve
months, then by $640,000 per month for the succeeding six months and by
$450,000 per month for the final two months of the agreement, unless changed
by the bank at the time of a borrowing base redetermination. All remaining
principal and interest become due on September 30, 1999. Borrowings under this
facility bear interest at a rate equal to, at OEDC's option, either the bank's
reference rate plus .25% to 2.5% (depending on amounts outstanding) or LIBOR
plus 1.75% to 4.0% (depending on amounts outstanding). There was $9,500,000
outstanding under the credit agreement as of September 30, 1997.

The credit facility contains restrictive covenants imposing limitations of
the incurrence of indebtedness, the sale of properties, payment of dividends,
mergers or consolidations, capital expenditures, transactions with affiliates,
making loans, and investments outside the ordinary course of business. The
facility requires that OEDC maintain at the subsidiary level certain minimum
financial ratios, including a current ratio of at least 1:1 and interest
coverage ratio on 2.5:1. In addition, the weighted average maturity of
indebtedness incurred on ordinary terms to vendors, suppliers and others
supplying goods and services to OEDC in the ordinary course of business may
not exceed 60 days. The credit facility requires OEDC to maintain a certain
volume of hedging contracts in effect during the term of the credit facility.

Indebtedness under the credit facility is secured by a first lien upon
substantially all of the properties owned by OEDC Exploration and Production,
L.P. and by the pledge of OEDC's limited partnership interests in SDPII and
its general partnership interest in DIGP. All assets not subject to a lien in
favor of the lender are subject to a negative pledge, with certain exceptions.

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<PAGE>

payment schedule is met) until it has been repaid all of its original
investment plus a 15% pre-tax rate of return ("Payout"). Once Payout has
occurred, the ECT Affiliate's interest will decrease to 25% and OEDC's
interest will increase to 75%. SDPII has the option to prepay the ECT
Affiliate's investment and accelerate the ownership change. If such prepayment
is from financing activities instead of cash flow from operations, OEDC is
required to make an additional payment to the ECT Affiliate equal to 10% of
the ECT Affiliate's net investment (funds advanced less distributions
received) and five percent of the unfunded portion of the ECT Affiliate's
commitment. Under the terms of a letter agreement between OEDC and the ECT
Affiliate, the parties funded essential repairs on two wells in 25%/75%
proportions. Initial revenues from those wells will be shared 25%/75% until
the repair costs are recovered with a 10% rate of return. Thereafter, sharing
ratios will revert to the arrangement described above.

During July 1997 OEDC and its Board of Directors elected not to prepay the
ECT Affiliate's investment and accelerate the SDPII Payout as previously
planned. The Board of Directors concluded such an investment by OEDC would be
imprudent unless substantial production history indicates that the
acceleration of SDPII Payout is financially attractive.

Hedging Activities

OEDC continues to utilize financial futures to hedge its natural gas
production. In the first nine months of 1996, total natural gas income
decreased by $1,076,000 compared to a decrease of $823,000 for the first nine
months of 1997 as a result of OEDC's hedging position. As of September 30,
1997, OEDC had .65 Bcf hedged from September 1997 through December 1997 at an
average price of $2.14 per Mcf. In August 1997, OEDC entered into a
participating price collar on 1.2 Bcf of natural gas for the period of
December 1997 through March 1998. Under the terms of the participating price
collar, OEDC receives the actual price on volumes hedged if the actual price
is between $2.20 and $2.76 per Mcf; if the actual price is less than $2.20 per
Mcf, OEDC receives $2.20; and if actual prices are above $2.76, then OEDC
receives $2.76 plus 50% of the amount above $2.76 per Mcf. OEDC estimates that
as of September 30, 1997, the cost to unwind its hedged position was
approximately $805,000. Although hedging reduces OEDC's susceptibility to
declines in the sales prices of its natural gas production, it also prevents
OEDC from receiving the full benefit of any increases in the sales prices of
such production. Further, significant reductions in production at times when
OEDC's production is hedged could require OEDC to make payments under the
hedge agreements in the absence of offsetting income.

NATURAL GAS BALANCING

It is customary in the natural gas industry for various working interest
partners to produce more or less than their entitlement share of natural gas
from time to time. OEDC's net overproduced position at September 30, 1997 was
74,735 Mcf. Under the terms of typical natural gas balancing agreements, the
underproduced party can take a certain percentage, typically 25% to 50% of the
overproduced party's entitled share of gas sales in future months to eliminate
such imbalance. During the make-up period, the overproduced party's cash flow
will be adversely affected.

EFFECTS OF INFLATION

OEDC's results of operations and cash flow are affected by changing oil and
gas prices. Increases in oil and gas prices often result in increased drilling
activity, which in turn increases the demand for and cost of exploration and
development. Thus, increased prices may generate increased revenue without
necessarily increasing profitability. These industry market conditions have
been far more significant determinants of OEDC earnings than have
macroeconomic factors such as inflation, which has had only minimal impact on
OEDC activities in recent years. While it is impossible to predict the precise
effect of changing prices and inflation on future OEDC operations, the short-
lived nature of OEDC's gas reserves makes it more possible to match
development costs with predictable revenue streams than would long-lived
reserves. No assurance can be given as to OEDC's future success at reducing
the impact of price changes on OEDC's operating results.

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<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

Effective December 1997, OEDC will be required to adopt Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS"). FAS No.
128 introduces the concept of basic earnings per share, which represents net
income divided by the weighted average common shares outstanding without the
dilutive effects of common stock equivalents (options, warrants, etc.).
Diluted earnings per share, giving effect for common stock equivalents, will
be reported when FAS No. 128 is adopted in the fourth quarter of 1997. The
impact of adopting FAS No. 128 is anticipated to be immaterial.

Effective December 1997, OEDC will be required to adopt FAS No. 129,
"Disclosure of Information about Capital Structure" FAS No. 129 requires that
all entities disclose in summary form within the financial statements the
pertinent rights and privileges of the various securities outstanding. An
entity is to disclose within the financial statements the number of shares
issued upon conversion, exercise or satisfaction of required conditions during
at least the most recent annual fiscal period and any subsequent interim
period presented. Other special provisions apply to preferred and redeemable
stock. OEDC's adoption of FAS No. 129 in the fourth quarter of 1997 is not
expected to have a material impact on reported results.

In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components. The components of comprehensive income refer to revenues,
expenses, gains and losses that are excluded from net income under current
accounting standards, including unrecognized foreign currency translation
items, minimum pension liability adjustments and unrealized gains and losses
on certain investments in debt and equity securities. FAS No. 130 requires
that all items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed in equal
prominence with the other financial statements; the total of other
comprehensive income for a period is required to be transferred to a component
of equity that is separately displayed in a statement of financial position at
the end of an accounting period. FAS No. 130 is effective for both interim and
annual periods beginning after December 15, 1997, at which time OEDC will
adopt the provisions. OEDC does not expect SFAS 130 to have a material effect
on reported results.

In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises
are to report information about operating segments in annual financial
statements and requires the reporting of selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for periods
beginning after December 15, 1997, at which time OEDC will adopt the
provisions. OEDC does not expect SFAS 131 to have a material effect on its
reported results.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

OEDC Common Stock has been listed on the Nasdaq National Market since OEDC's
initial public offering on November 1, 1996 under the symbol "OEDC." The
following table summarizes the high and low last reported sales prices on
Nasdaq for each quarterly period since OEDC's initial public offering:

<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
1996
Fourth Quarter (from November 1, 1996).......................... $16.50 $13.00
1997
First Quarter................................................... $15.25 $ 9.00
Second Quarter.................................................. 10.00 3.25
Third Quarter................................................... 8.375 4.00
Fourth Quarter (through November 13, 1997)...................... 8.50 7.313
</TABLE>

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<PAGE>

On November 13, 1997, the last reported sales price of OEDC Common Stock on
Nasdaq was $7.313 per share.

OEDC has never paid cash dividends on the OEDC Common Stock and, assuming
the Merger is not consummated, does not currently intend to pay regular cash
dividends in the future. OEDC's credit agreement prohibits the payment of
dividends without its lender's consent.

MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of OEDC:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
David B. Strassner...... 39 President and Class I Director
Douglas H. Kiesewetter.. 44 Executive Vice President, Chief Operating Officer
and Class II Director
R. Keith Anderson....... 43 Vice President and Class III Director
Joseph L. Savoy, Jr. ... 46 Vice President--Engineering
Matthew T. Bradshaw..... 31 Vice President and Treasurer
David R. Albin.......... 38 Class III Director
R. Gamble Baldwin....... 74 Class I Director
G. Alan Rafte........... 43 Class II Director
</TABLE>

David B. Strassner has served as President and a director of OEDC since its
formation in January 1988. For two years prior to forming OEDC, Mr. Strassner
was an independent explorationist specializing in the Gulf of Mexico. For five
years prior to that time, Mr. Strassner was a geophysicist employed by Amoco
Production Company. Mr. Strassner is a director of Gulf Coast Bank and Trust,
New Orleans, Louisiana, and God's World Publications, Asheville, North
Carolina.

Douglas H. Kiesewetter has served as Executive Vice President, Chief
Operating Officer and a director of OEDC since its formation in January 1988.
From June 1984 through October 1987, Mr. Kiesewetter was an executive officer
of Cartex Corporation, a high technology company in the computer media
business co-founded by Mr. Kiesewetter. Serving as Chief Financial Officer for
the first year, Mr. Kiesewetter thereafter served as President of the start-up
company. Mr. Kiesewetter also has served as Chairman (1979 to present) of
Christian Community Foundation, a charitable foundation founded by Mr.
Kiesewetter, and as President (1975-present) of CSA Financial Services, an
international consulting firm founded by Mr. Kiesewetter, initially
specializing in financial planning for closely-held business and high net
worth individuals and since 1987 operating as an employee leasing company from
which OEDC has obtained its employees.

R. Keith Anderson has served as Vice President and a director of OEDC since
1989. Prior to that time Mr. Anderson served as Vice President (1988-1989) of
Endevco, Inc. in charge of managing an independent marketing division, and as
President, Chief Executive Officer and a director (1987-1988) of Stellar Gas
Company, an independent natural gas marketer founded by Mr. Anderson.

Joseph L. Savoy, Jr. has served as Vice President of Engineering since May
1994. Mr. Savoy began his career with Amoco Production Company, where he
worked in drilling, completions, operations, reservoir engineering and
construction. From March 1989 to May 1994 Mr. Savoy was Chief Engineer for
Operators and Consulting Services, Inc., a firm providing contract consulting
services to the oil and gas industry, where he was assigned in 1991 to work on
OEDC's account.

Matthew T. Bradshaw joined OEDC in 1993 and serves as Vice President of
Finance. Prior to joining OEDC, he worked as an energy banker from 1990 to
1992 with Hibernia Bank and from 1992 to 1993 with First National Bank of
Commerce, each in New Orleans, Louisiana.

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David R. Albin has been a director of OEDC since September 1992. Since 1988,
Mr. Albin has been a manager of the NGP investment funds, which were organized
to make direct equity investments in the North American oil and gas industry.
He is currently responsible for co-managing NGP's investment portfolios. Mr.
Albin serves as a director of Titan and Petroglyph Energy, Inc.

R. Gamble Baldwin has been a director of OEDC since September 1992. Since
November 1988, he has been the general partner of G.F.W. Energy, L.P. ("GFW"),
the general partner of Natural Gas Partners, L.P. He is also involved in the
management of the other NGP investment funds. Mr. Baldwin has been a member of
the International Advisory Board of Creditanstalt Bankverein, Vienna, Austria,
since 1982, and a director of Coflexip Stena Offshore, a provider of
industrial technology oilfield equipment and service, since 1993.

G. Alan Rafte was elected to the Board of Directors of OEDC in August 1996
For more than the past five years, Mr. Rafte has been a partner in the law
firm of Bracewell & Patterson, L.L.P., specializing in energy law and finance.

EXECUTIVE COMPENSATION AND OTHER MATTERS

The following table sets forth certain summary information concerning the
compensation paid by OEDC for the fiscal years ended December 31, 1996 and
1995 to its President and the other executive officers of OEDC whose salary
and bonus received from OEDC for services rendered during such years exceeded
$100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS (#) COMPENSATION
------------------ ---- -------- ----- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner...... 1996 $139,423 $-- $-- 120,000 --
President and Chief
Executive Officer..... 1995 125,000 -- -- -- --
Douglas H. Kiesewetter.. 1996 $139,423 $-- $-- 120,000 --
Executive Vice
President............. 1995 125,000 -- -- -- --
R. Keith Anderson....... 1996 $139,423 $-- $-- 120,000 --
Vice President......... 1995 125,000 -- -- -- --
Joseph L. Savoy, Jr..... 1996 $118,808 $-- $-- 40,000(1) --
Vice President......... 1995 112,000 -- -- -- --
</TABLE>
- --------
(1) In addition, in connection with OEDC's reorganization completed in
November 1996, Mr. Savoy received options to purchase 121,180 shares of
OEDC Common Stock in exchange for previously granted options to purchase
securities of one of OEDC's predecessors.

101
<PAGE>

Option Grants

The following table provides certain information concerning options to
purchase Common Stock granted during the fiscal year ended December 31, 1996
to the four executive officers named in the Summary Compensation Table.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------ -------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner...... 120,000 22.22% 12.00 11/01/06 $ 905,760 $ 2,295,000
Douglas H. Kiesewetter.. 120,000 22.22% 12.00 11/01/06 905,760 2,295,000
R. Keith Anderson....... 120,000 22.22% 12.00 11/01/06 905,760 2,295,000
Joseph L. Savoy, Jr..... 40,000 7.41% 12.00 11/01/06 301,920 765,000
</TABLE>
- --------
(1) In addition, in connection with OEDC's reorganization completed in
November 1996, Mr. Savoy received options to purchase 121,180 shares of
Common Stock in exchange for previously granted options to purchase
securities of one of OEDC's predecessors. Such options are exercisable for
$3.61 per share and expire on May 1, 2004.

The following table provides certain information concerning exercises of
options to purchase Common Stock during the fiscal year ended December 31,
1996 by the four executive officers named in the Summary Compensation Table
and the value of such officers' unexercised options at December 31, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
-------------------------
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner...... 0 0 0 120,000 0 390,000
Douglas H. Kiesewetter.. 0 0 0 120,000 0 390,000
R. Keith Anderson....... 0 0 0 120,000 0 390,000
Joseph L. Savoy, Jr..... 0 0 72,708 88,472 846,321 694,214
</TABLE>

Compensation Committee Interlocks and Insider Participation

David R. Albin, a director of OEDC, serves as a member of the compensation
committee of the OEDC Board. Mr. Albin owns a limited partnership interest in
the general partner of NGP, which, as of September 30, 1997, owned 4,767,407
shares (14.0%) of the outstanding Titan Common Stock and 2,209,460 shares
(25.4%) of the outstanding OEDC Common Stock. Mr. Albin is one of the four
managing members of the general partner of NGP II and also own limited
partnership interests in NGP II's general partner. As of September 30, 1997,
NGP II owned 5,000,777 shares (14.7%) of the outstanding Titan Common Stock.
Mr. Albin, who disclaims beneficial ownership of Titan Common Stock owned by
NGP II, beneficially owns 115,772 shares of Titan Common Stock and 52,596
shares of OEDC Common Stock.

102
<PAGE>

OEDC is party to a Registration Rights Agreement with NGP and certain of its
affiliates, including Mr. Albin. Pursuant to the Registration Rights
Agreement, on three separate occasions commencing on the first anniversary of
the effective date of OEDC's initial registration statement under the
securities laws, the holders of at least 35% of the shares of OEDC Common
Stock held by NGP and certain affiliates, including Mr. Albin may require OEDC
to register shares held by them under applicable securities laws provided that
the shares to be registered have an estimated aggregate offering price to the
public of at least $3,000,000. However, if after two such registrations, NGP
continues to own shares of OEDC Common Stock, NGP may require OEDC to effect
the third such registration regardless of its percentage ownership. The
Registration Rights Agreement also provides that NGP and certain of its
affiliates, including Mr. Albin (and, for two years after the effective date
of OEDC's initial registration statement under the securities laws, certain
other stockholders) have "piggyback" registration rights pursuant to which
such persons may include shares of OEDC Common Stock held by them in certain
registrations initiated by OEDC; provided, that in an underwritten registered
offering, if the underwriters determine that the number of shares requested to
be included in the registration exceeds the number that the underwriters
believe can be sold, OEDC will be given first priority and the persons
requesting piggyback registration will be allowed to include shares pro rata
based on the number of shares each such person requested to be included. The
Registration Rights Agreement provides for customary indemnity by OEDC in
favor of persons including shares in a registration pursuant to the
Registration Rights Agreement, and by such persons in favor of OEDC, with
respect to information to be included in the relevant registration statement.

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement referred to in the preceding paragraph and (ii)
the Registration Rights Agreement among Carrollton, NGP and certain other
stockholders, Titan has agreed with NGP to use its best efforts to prepare,
file and have declared effective within 180 days of consummation of the Merger
a shelf registration statement registering for resale the 1,391,959 shares of
Titan Common Stock to be received by NGP in the Merger and 357,486 shares of
Titan Common Stock to be received by NGP in the anticipated acquisition of
Carrollton. One half of these shares will remain subject to lock-up agreements
with Titan until one year after consummation of the Merger. Titan has also
agreed to include in the same shelf registration shares of Titan Common Stock
that Mr. Albin will receive in the Merger.

OEDC and NGP are parties to a Financial Advisory Services Agreement
effective as of April 1, 1996 pursuant to which OEDC engaged NGP to serve as
financial advisor with respect to the public offering process. The agreement
expires on earlier of (i) the dissolution of OEDC Partners, L.P., a subsidiary
of OEDC and (ii) the later of (y) the date that representatives of NGP no
longer serve on the board of directors of OEDC, and (z) the second anniversary
of the closing date of the first issuance of securities by OEDC in a public
offering. In consideration of its services NGP receives an annual fee of
$15,000 for each representative of NGP that serves on the Board of Directors
of OEDC (currently two), and an annual fee of $30,000 commencing as of the
date of consummation of the first public issuance of securities by OEDC and
continuing for a two-year period. Pursuant to the Voting Agreement, NGP has
agreed to terminate the Financial Advisory Services Agreement (except for
indemnification provision thereunder) upon consummation of the Merger.
Assuming that the Financial Advisory Services Agreement does not terminate and
NGP continues to have two representatives on the Board of Directors of OEDC,
during the two-year period beginning November 6, 1996 (the date of the
consummation of OEDC's initial public offering), NGP will be paid $60,000 per
year.

OEDC made preference unit payments to NGP of $585,000, $847,500 and $911,087
in 1994, 1995 and 1996, respectively, in respect of the Preference Units in
OEDC Partners, L.P. held by NGP. In November 1996, OEDC redeemed all of the
outstanding Preference Units with $12 million of the net proceeds of OEDC's
initial public offering.

G. Alan Rafte, a director of OEDC, also serves as a member of the
compensation committee. Mr. Rafte is a partner in Bracewell & Patterson,
L.L.P., a law firm retained by OEDC during 1994, 1995, 1996 and 1997 and
counsel to OEDC in the Merger.

103
<PAGE>

CERTAIN TRANSACTIONS

Pursuant to the Merger Agreement, Titan has agreed to acquire OEDC by
merging Titan Sub with and into OEDC. As of September 30, 1997, NGP owned
4,767,407 shares (14.0%) of the outstanding Titan Common Stock and 2,209,460
shares (25.4%) of the outstanding OEDC Common Stock. R. Gamble Baldwin, a
director of OEDC, is the general partner of GFW, the general partner of NGP.
Messrs. Albin and Hersh own limited partnership interests in GFW. Messrs.
Albin, Baldwin and Hersh are three of the four managing members of the general
partner of NGP II and also own limited partnership interests in NGP II's
general partner. As of September 30, 1997, NGP II owned 5,000,777 shares
(14.7%) of the outstanding Titan Common Stock. In addition to the shares of
Titan Common Stock and OEDC Common Stock owned by NGP, Mr. Baldwin directly
owns 9,100 shares and 35,041 shares of Titan and OEDC, respectively. Messrs.
Albin and Hersh, who disclaim beneficial ownership of Titan Common Stock owned
by NGP II, beneficially own 115,772 shares and 67,381 shares, respectively, of
Titan Common Stock and 52,596 shares and 49,012 shares, respectively, of OEDC
Common Stock. Although OEDC informed Messrs. Albin and Baldwin from time to
time of the general status of negotiations with Titan and, likewise, Titan
informed Mr. Hersh of the general status of negotiations with OEDC, none of
these individuals participated in such negotiations or the deliberations of
the board of either company in reviewing and approving the Merger.

OEDC is party to a Registration Rights Agreement with NGP and certain of its
affiliates, including Messrs. Albin and Baldwin, and Messrs. Strassner,
Kiesewetter and Anderson. Pursuant to the Registration Rights Agreement, on
three separate occasions commencing on the first anniversary of the effective
date of OEDC's initial registration statement under the securities laws, the
holders of at least 35% of the shares of OEDC Common Stock held by NGP and
certain affiliates, including Messrs. Albin and Baldwin, and Messrs.
Strassner, Kiesewetter and Anderson may require OEDC to register shares held
by them under applicable securities laws provided that the shares to be
registered have an estimated aggregate offering price to the public of at
least $3,000,000. However, if after two such registrations, NGP continues to
own shares of OEDC Common Stock, NGP may require OEDC to effect the third such
registration regardless of its percentage ownership. The Registration Rights
Agreement also provides that NGP and certain of its affiliates, including
Messrs. Albin and Baldwin, and Messrs. Strassner, Kiesewetter and Anderson
(and, for two years after the effective date of OEDC's initial registration
statement under the securities laws, certain other stockholders) have
"piggyback" registration rights pursuant to which such persons may include
shares of OEDC Common Stock held by them in certain registrations initiated by
OEDC; provided, that in an underwritten registered offering, if the
underwriters determine that the number of shares requested to be included in
the registration exceeds the number that the underwriters believe can be sold,
OEDC will be given first priority and the persons requesting piggyback
registration will be allowed to include shares pro rata based on the number of
shares each such person requested to be included. The Registration Rights
Agreement provides for customary indemnity by OEDC in favor of persons
including shares in a registration pursuant to the Registration Rights
Agreement, and by such persons in favor of OEDC, with respect to information
to be included in the relevant registration statement.

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement referred to the preceding paragraph and (ii) the
Registration Rights Agreement among Carrollton, NGP and certain other
stockholders, Titan has agreed with NGP to use its best efforts to prepare,
file and have declared effective within 180 days of consummation of the Merger
a shelf registration statement registering for resale the 1,391,959 shares of
Titan Common Stock to be received by NGP in the Merger and 357,486 shares of
Titan Common Stock to be received by NGP in the anticipated acquisition of
Carrollton. One half of these shares will remain subject to lock-up agreements
with Titan until one year after consummation of the Merger. Titan has also
agreed to include in the same shelf registration shares of Titan Common Stock
that Messrs. Albin, Baldwin and Hersh will receive in the Merger.

104
<PAGE>

the second anniversary of the closing date of the first issuance of securities
by OEDC in a public offering. In consideration of its services NGP receives an
annual fee of $15,000 for each representative of NGP that serves on the Board
of Directors of OEDC (currently two), and an annual fee of $30,000 commencing
as of the date of consummation of the first public issuance of securities by
OEDC and continuing for a two-year period. Pursuant to the Voting Agreement,
NGP has agreed to terminate the Financial Advisory Services Agreement (except
indemnification provisions thereunder) upon consummation of the Merger.
Assuming that the Financial Advisory Services Agreement does not terminate and
NGP continues to have two representatives on the Board of Directors of OEDC,
during the two-year period beginning November 6, 1996 (the date of the
consummation of OEDC's initial public offering), NGP will be paid $60,000 per
year.

Historically, all of OEDC's employees were provided by CSA Financial
Services, Inc. ("CSA"). CSA is wholly owned by Douglas H. Kiesewetter,
Executive Vice President, Chief Operating Officer and a director of OEDC. The
employees were provided to OEDC by CSA at cost. OEDC made payments to CSA
aggregating $1,064,818, $1,197,281 and $1,304,107 during 1994, 1995 and 1996,
respectively. OEDC believes that its arrangement with CSA was on terms no less
favorable than could be obtained from an unaffiliated third party. This
arrangement was terminated on December 31, 1996.

G. Alan Rafte, a director of OEDC, is a partner in Bracewell & Patterson,
L.L.P., a law firm retained by OEDC during 1994, 1995, 1996 and 1997 and
counsel to OEDC in the Merger.

105
<PAGE>

BENEFICIAL OWNERSHIP OF TITAN, OEDC AND TITAN POST MERGER

The following table sets forth certain information as of September 30, 1997
with respect to the beneficial ownership of Titan Common Stock, OEDC Common
Stock and Titan Common Stock after giving effect to the Merger, as the case
may be, of the (i) directors and named executive officers, (ii) executive
officers and directors as a group, and (iii) holders of 5% or more of such
securities.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ----------- ----------
<S> <C> <C>
TITAN COMMON STOCK
Directors and Named Executive Officers(1):
Jack D. Hightower(2)................................ 3,834,210 10.98%
George G. Staley(3)................................. 768,662 2.23%
Rodney L. Woodard(4)................................ 168,721 *
David R. Albin(5)(6)................................ 115,772 *
Kenneth A. Hersh(5)................................. 67,381 *
William J. Vaughn, Jr.(7)........................... 345,041 1.02%
Executive Officers and Directors as a Group (11
persons)(8)........................................ 5,825,702 16.20%
Holders of Five Percent or More Not Named Above
Natural Gas Partners II, L.P.(9).................... 5,000,777 14.73%
777 Main Street, Suite 2700
Forth Worth, Texas 76102
R. Gamble Baldwin(5)(10)............................ 4,776,507 14.07%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P.(11)...................... 4,767,407 14.04%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investments
Limited Partnership(12)............................ 3,423,194 10.08%
1400 Smith Street
Houston, Texas 77002
OEDC COMMON STOCK
Directors and Named Executive Officers(13)
David B. Strassner(14).............................. 772,828 8.9%
Douglas H. Kiesewetter(15).......................... 581,806 6.7%
R. Keith Anderson(16)............................... 332,036 3.8%
Joseph L. Savoy, Jr.(17)............................ 104,944 1.2%
David R. Albin(18).................................. 52,596 *
R. Gamble Baldwin(19)............................... 2,244,501 25.8%
G. Alan Rafte....................................... 0 --
Directors and Executive Officers as a Group......... 4,088,711 46.6%
Holders of Five Percent or More Not Named Above
Natural Gas Partners, L.P.(20)...................... 2,209,460 25.4%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
TITAN COMMON STOCK POST MERGER
Directors and Executive Officers(1):
Jack D. Hightower(2)................................ 3,834,210 9.49%
George G. Staley(3)................................. 768,662 1.92%
Rodney L. Woodard(4)................................ 168,721 *
</TABLE>

106
<PAGE>

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ----------- ----------
<S> <C> <C>
David R. Albin(5)(21)............................... 148,907 *
Kenneth A. Hersh(5)................................. 98,258 *
William J. Vaughn, Jr.(7)........................... 345,041 *
Executive Officers and Directors as a Group (11
persons)(8)........................................ 5,879,714 14.18%
Holders of 5% or More Not Named Above
Natural Gas Partners II, L.P.(9).................... 5,000,777 12.68%
777 Main Street, Suite 2700
Forth Worth, Texas 76102
R. Gamble Baldwin(5)(22)............................ 6,190,541 15.70%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P.(11)(20).................. 6,159,336 15.62%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investment
Limited Partnership(12)............................ 3,423,194 8.68%
1400 Smith Street
Houston, Texas 77002
</TABLE>
- --------
* Less than 1%.
(1) The business address of each director and executive officer of Titan is
c/o Titan Exploration, Inc., 500 West Texas, Suite 500, Midland, Texas
79701.
(2) Includes (i) 2,667,588 shares held by Mr. Hightower, (ii) 199,524 shares
held by Mr. Hightower's spouse and children and (iii) 967,098 shares
subject to stock options that are exercisable within 60 days.
(3) Includes (i) 199,525 shares held by Mr. Staley and (ii) 569,137 shares
subject to stock options that are exercisable within 60 days.
(4) Includes (i) 46,565 shares held by Mr. Woodard and (ii) 122,165 shares
subject to stock options that are exercisable within 60 days.
(5) David R. Albin, Kenneth A. Hersh and R. Gamble Baldwin are each managing
members of the general partner of NGP II. As such, Mr. Albin, Mr. Hersh
and Mr. Baldwin may be deemed to share voting and investment power with
respect to the 5,000,777 shares of Titan Common Stock beneficially owned
by NGP II. Mr. Albin, Mr. Hersh and Mr. Baldwin disclaim beneficial
ownership of such shares, which are not included in the total number of
shares reported for each above.
(6) All of these shares are held in trust for Mr. Albin.
(7) Includes (i) 5,500 shares held by Mr. Vaughn, (ii) 299,287 shares held in
trust for Mr. Vaughn and his spouse, and (iii) 40,254 shares held by
affiliates of Mr. Vaughn.
(8) Includes 1,975,294 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the initial stock option plan and the 1996 incentive plan.
(9) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by NGP II, G.F.W. Energy II, L.P. ("GFW II") and GFW II, L.L.C.
with the Commission. GFW II, L.L.C., as the sole general partner of GFW
II, and GFW II, as the sole general partner of NGP II, may each be deemed
to be the beneficial owner of all of the 5,000,777 shares of Titan Common
Stock beneficially owned by NGP II.
(10) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by R. Gamble Baldwin with the Commission. Mr. Baldwin has sole
voting and investment powers with respect to 9,100 shares of common stock
he beneficially owns. In addition, Mr. Baldwin may, as the sole general
partner of G.F.W. Energy, L.P., the sole general partner of NGP, be
deemed to be the beneficial owner of all 4,767,407 shares of Titan common
stock beneficially owned by NGP.
(11) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by NGP and G.F.W. Energy, L.P. with the Commission. G.F.W. Energy,
L.P., as the sole general partner of NGP, may be

107
<PAGE>

deemed to be the beneficial owner of all of the 4,767,407 shares of Titan
Common Stock beneficially owned by NGP.
(12) Based upon information reported in a Schedule 13G dated January 20, 1997
filed by Enron Corp. and Joint Energy Development Investments Limited
Partnership ("JEDI") with the Commission. The general partner of JEDI is
Enron Capital Management Limited Partnership, whose general partner is
Enron Capital Corp., an indirect wholly-owned subsidiary of Enron Corp.
(13) The business address of each director and executive officer of OEDC is
c/o Offshore Energy Development Corporation, 1400 Woodloch Forest Drive,
Suite 200, The Woodlands, Texas 77380.
(14) Includes (i) 100 shares held by Mr. Strassner, (ii) 655,768 shares held
in trust by Mr. Strassner and his spouse for their benefit, (iii) 92,960
shares held by Mr. Strassner's spouse as custodian for their minor
children and (iv) 24,000 shares subject to stock options that are
exercisable within 60 days.
(15) Includes (i) 528,794 shares held in a family limited partnership for the
benefit of Mr. Kiesewetter, his spouse and their minor children, (ii)
6,327 shares held by Mr. Kiesewetter as trustee for the benefit of his
sister, (iii) 22,685 shares held by Mr. Kiesewetter as trustee for the
benefit of his mother and (iv) 24,000 shares subject to stock options
that are exercisable within 60 days.
(16) Includes (i) 275,130 shares held by Mr. Anderson, (ii) 21,248 shares held
by Mr. Anderson's spouse as custodian for their minor children, (iii)
3,886 shares held by Mr. Anderson as trustee for the benefit of his
grandmother, (iv) 3,886 shares held by Mr. Anderson as trustee for the
benefit of his father, (v) 3,886 shares held by Mr. Anderson as trustee
for the benefit of his mother and (vi) 24,000 shares subject to stock
options that are exercisable within 60 days.
(17) Consists of 104,944 shares issuable upon the exercise of options that are
presently exercisable.
(18) Includes (i) 26,298 shares held by Mr. Albin and (ii) 26,298 shares held
in trust for the benefit of Mr. Albin.
(19) Based upon information reported in a Schedule 13D/A dated September 17,
1997 filed by R. Gamble Baldwin with the Commission. Includes (i) 35,041
shares held by Mr. Baldwin and (ii) 2,209,460 shares held by NGP, which
Mr. Baldwin may be deemed to be the beneficial owner of as the result of
his position as the sole general partner of G.F.W. Energy, L.P., the sole
general partner of NGP.
(20) Based upon information reported in a Schedule 13D/A dated September 17,
1997 filed by NGP and G.F.W. Energy L.P. with the Commission. G.F.W.
Energy L.P., as the sole general partner of NGP, may be deemed to be the
beneficial owner of all of the shares of OEDC Common Stock beneficially
owned by NGP.
(21) Includes (i) 16,567 shares held by Mr. Albin and (ii) 132,339 shares held
in trust for the benefit of Mr. Albin.
(22) Includes (i) 31,175 shares held by Mr. Baldwin and (ii) 6,159,336 shares
held by NGP, which Mr. Baldwin may be deemed to be the beneficial owner
of as the result of his position as the sole general partner of G.F.W.
Energy, L.P., the sole general partner of NGP.

108
<PAGE>

DESCRIPTION OF TITAN CAPITAL STOCK

The authorized capital stock of Titan consists of 60,000,000 shares of Titan
Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Of such authorized
shares, 39,427,385 shares of Titan Common Stock will be issued and outstanding
upon completion of the Merger, assuming that no OEDC employee stock options
are exercised prior to the Merger. As of September 30, 1997, Titan had
outstanding 33,945,198 shares of Titan Common Stock and stock options for an
aggregate of 3,712,665 shares.

COMMON STOCK

The holders of Titan Common Stock are entitled to one vote for each share
held of record on all matters submitted to the stockholders, and are entitled
to cumulate their votes for the election of directors. As a result of such
cumulative voting rights, any holder of at least 20% of the outstanding Titan
Common Stock will be assured that such holder's nominee will be elected as a
director for so long as the Board of Directors of Titan consists of five
members. See "Risk Factors--Control by Existing Stockholders." The Certificate
of Incorporation of Titan does not allow the stockholders to take action by
less than unanimous consent, but the Bylaws of Titan permit the holders of 10%
or more of Titan's outstanding Common Stock to call a special meeting of the
stockholders not more frequently than once during each calendar year. The
affirmative vote of the holders of shares of capital stock representing at
least 80% of the outstanding voting power shall be required to amend certain
provisions of the Certificate of Incorporation relating to the management of
Titan. Each share of Titan Common Stock is entitled to participate equally in
dividends, if, as and when declared by Titan's Board of Directors, and in the
distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. titan has never
paid cash dividends on Titan Common Stock. The shares of Titan Common Stock
have no preemptive or conversion rights, redemption rights, or sinking fund
provisions. The outstanding shares of Common Stock are, and the shares of
Titan Common Stock offered hereby upon issuance and sale will be, duly
authorized, validly issued, fully paid, and nonassessable.

PREFERRED STOCK

As of September 30, 1997, Titan has no outstanding Preferred Stock. Titan is
authorized to issue 10,000,000 shares of Preferred Stock. Titan's Board of
Directors may establish, without stockholder approval, one or more classes or
series of Titan Preferred Stock having the number of shares, designations,
relative voting rights, dividend rates, liquidation and other rights,
preferences, and limitations that the Board of Directors may designate. Titan
believes that this power to issue Titan Preferred Stock will provide
flexibility in connection with possible corporate transactions. The issuance
of Titan Preferred Stock, however, could adversely affect the voting power of
holders of Titan Common Stock and restrict their rights to receive payments
upon liquidation of Titan. It could also have the effect of delaying,
deferring or preventing a change in control of Titan. Titan does not currently
plan to issue any shares of Titan Preferred Stock.

DELAWARE LAW PROVISIONS

Titan is a Delaware corporation and is subject to Section 203 of the DGCL.
Generally, Section 203 prohibits the Company from engaging in a "business
combination" (as defined in Section 203) with an "interested stockholder"
(defined generally as a person owning 15% or more of Titan's outstanding
voting stock) for three years following the date that person becomes an
interested stockholder, unless (a) before that person became an interested
stockholder, Titan's Board of Directors approved the transaction in which the
interested stockholder or approved the business combination; (b) upon
completion of the transaction that resulted in the interested stockholder's
becoming a interested stockholder, the interested stockholder owns at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of Titan and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer) or (c) following the transaction in which that
person became an interested stockholder, the business combination is approved
by

109
<PAGE>

Titan's Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder.

Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who was not an interested stockholder with the approval
of a majority of Titan's directors, if that extraordinary transaction is
approved or not opposed by a majority of the directors who were directors
before any person became an interested stockholder in the previous three years
or who were recommended for election to succeed such directors by a majority
of such directors then in office.

REGISTRATION RIGHTS

Titan has entered into the Amended and Restated Registration Rights
Agreement with Natural Gas Partners, L.P., Natural Gas Partners, II, L.P.,
Jack Hightower, JEDI, First Union Corporation and Selma International
Investment Limited (the "Shareholder Parties"). Pursuant to the Amended and
Restated Registration Rights Agreement, on three separate occasions,
commencing on the 180th day following the date of Titan's initial registration
statement under the securities laws, Shareholder Parties owning at least 35%
of the outstanding shares then subject to such agreement may require Titan to
register shares held by them under applicable securities laws, provided that
the shares to be registered have an estimated aggregate offering price to the
public of at least $3,000,000. The Amended and Restated Registration Rights
Agreement also provides that the Shareholder Parties have piggyback
registration rights pursuant to which such persons may include shares of Titan
Common Stock held by them in certain registrations initiated by Titan or by
any other holder of Titan's Common Stock. The piggyback rights are subject to
customary cutback provisions.

The Amended and Restated Registration Rights Agreement provides for
customary indemnities by Titan in favor of persons including shares in a
registration pursuant to the Amended and Restated Registration Rights
Agreement, and by such persons in favor of Titan, with respect to information
to be included in the relevant registration statement. These registration
rights have been waived in connection with this offering and for 180 days
after the date of this Prospectus.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for Titan Common Stock is First Union
National Bank of North Carolina.

110
<PAGE>

COMPARISON OF STOCKHOLDER RIGHTS

If the Merger is consummated, the stockholders of OEDC will become
stockholders of Titan. The rights of the stockholders of both Titan and OEDC
are governed by and subject to the provisions of the DGCL. The rights of
current OEDC stockholders following the Merger will be governed by the Titan
Certificate of Incorporation and the Titan Bylaws rather than the provisions
of the Certificate of Incorporation and Bylaws of OEDC. The following is a
brief summary of certain differences between the rights of stockholders of
Titan and the rights of stockholders of OEDC and is qualified in its entirety
by reference to the relevant provisions of the DGCL, the Titan Certificate of
Incorporation, the Titan Bylaws, OEDC's Certificate of Incorporation (the
"OEDC Certificate of Incorporation") and OEDC's Bylaws.

GENERAL

OEDC, like Titan, is a Delaware corporation organized under the DGCL.
Neither the Titan Certificate of Incorporation nor the OEDC Certificate of
Incorporation permits preemptive rights. Only the Titan Certificate of
Incorporation permits cumulative voting. Whereas OEDC has a classified Board
of Directors, Titan does not. The OEDC Certificate of Incorporation requires
the approval of holders of at least 66% of the outstanding capital stock in
order to approve the merger or consolidation of OEDC, the sale of
substantially all of its assets, or its dissolution. In contrast, the Titan
Certificate of Incorporation does not require a super-majority vote to approve
such actions.

AUTHORIZED CAPITAL

Titan has 70,000,000 authorized shares of stock, consisting of (i)
60,000,000 shares of Titan Common Stock and (ii) 10,000,000 shares of
preferred stock having a par value of $0.01 per share. As of September 30,
1997, there were 33,945,198 shares of Titan Common Stock outstanding. There
are no series of preferred stock outstanding.

OEDC has the authority to issue 11,000,000 shares of capital stock,
10,000,000 of which are OEDC Common Stock and 1,000,000 are preferred stock,
par value $0.01 per share. As of September 30, 1997, there were 8,701,885
shares of OEDC Common Stock outstanding. OEDC has no shares of its preferred
stock outstanding as of the date hereof.

REMOVAL OF DIRECTORS

A director of OEDC may be removed from office only for cause and only by the
affirmative vote of the holders of at least 80% of the combined voting power
of the then outstanding shares of OEDC Common Stock, voting together as a
single class or by a majority of the OEDC Board. A director of Titan may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.

LEGAL MATTERS

The validity of the shares of Titan Common Stock offered by this Joint Proxy
Statement/Prospectus will be passed upon for Titan by Thompson & Knight, P.C.,
Dallas, Texas.

EXPERTS

The consolidated financial statements of Titan as of December 31, 1995 and
1996 and for the period March 31, 1995 (date of inception) to December 31,
1995 and the year ended December 31, 1996, the statements of revenues and
direct operating expenses for the 1996 Acquisition for the years ended
December 31, 1993, 1994, 1995, and the statements of revenues and direct
operating expenses for the 1995 Acquisition for the years ended December 31,
1993 and 1994, and the period ended December 11, 1995, have been included this
Joint Proxy

111
<PAGE>

Statement/Prospectus and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

Information relating to Titan's estimated proved reserves of oil and natural
gas at December 31, 1996 and the related estimates of future net cash flows
and present values thereof included herein has been derived from an
engineering report prepared by Williamson Petroleum Consultants, Inc.,
independent oil and gas consultants, and is included herein in reliance upon
the authority of such firm as experts in petroleum engineering.

The consolidated financial statements of OEDC and its predecessors as of
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996, have been included in this Joint Proxy
Statement/Prospectus and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

Information relating to OEDC's estimated proved reserves of natural gas at
December 31, 1996 and the related estimates of future net cash flows and
present values thereof included herein has been derived from an engineering
report prepared by Ryder Scott Company, and is included herein in reliance
upon the authority of such firm as experts in petroleum engineering.

STOCKHOLDER PROPOSALS

It is contemplated that the 1998 annual meeting of stockholders of Titan
will take place during the fourth week of May 1998. Stockholder proposals for
inclusion in Titan's proxy materials for the 1998 annual meeting of
stockholders must be received at the Company's principal executive offices in
Midland, Texas, addressed to the Secretary of the Company, not less than 60
days prior to such meeting; provided that if the 1998 annual meeting of
stockholders is changed by more than 30 days from the presently contemplated
date, proposals must be so received in a reasonable time in advance of the
meeting.

If the Merger is not consummated, the annual meeting of the stockholders of
OEDC is expected to be held in May 1998. Any proposals of the stockholders of
OEDC intended to be presented at the annual meeting must be received by OEDC,
addressed to the Secretary, no later than December 29, 1997, to be considered
for inclusion in the proxy statement and form of proxy relating to that
meeting.

GLOSSARY OF OIL AND GAS TERMS

The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this report. Unless otherwise indicated in this
report, natural gas volumes are stated at the legal pressure base of the state
or area in which the reserves are located and at 60 degrees Fahrenheit and in
most instances are rounded to the nearest major multiple. BOEs are determined
using the ratio of six Mcf of natural gas to one Bbl of oil.

"Bbl" means a barrel of 42 U.S. gallons of oil.

"Bcf" means billion cubic feet of natural gas.

"Bcfe" means billion cubic feet equivalent, determined using the ratio of 6
Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas
liquids.

"BOE" means barrels of oil equivalent.

"Completion" means the installation of permanent equipment for the
production of oil or gas.

112
<PAGE>

"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.

"Exploratory well" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.

"Gross," when used with respect to acres or wells, refers to the total acres
or wells in which the Company has a working interest.

"Horizontal drilling" means a drilling technique that permits the operator
to contact and intersect a larger portion of the producing horizon than
conventional vertical drilling techniques and can result in both increased
production rates and greater ultimate recoveries of hydrocarbons.

"MBbls" means thousands of barrels of oil.

"Mcf" means thousand cubic feet of natural gas.

"Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of 6
Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas
liquids.

"MMBbls" means millions of barrels of oil.

"MMBOE" means millions of barrels of oil equivalent on a 6:1 basis.

"MMbtu" means 1 million British thermal units.

"MMcf" means million cubic feet of natural gas.

"MMcfe" means 1 million cubic feet equivalent, determined using the ratio of
6 Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas
liquids.

"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by
the Company.

"Net production" means production that is owned by the Company less
royalties and production due others.

"Oil" means crude oil or condensate.

"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.

"Present Value of Future Revenues" or "PV-10" means the pretax present value
of estimated future revenues to be generated from the production of proved
reserves calculated in accordance with SEC guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.

"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery will be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.

113
<PAGE>

"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.

i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.

ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.

iii. Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.

"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.

"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously
completed.

"Reserves" means proved reserves.

"Reservoir" means a porous and permeable underground formation containing a
natural accumulation of producible oils and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.

"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually reserved by an owner of
the leasehold in connection with a transfer to a subsequent owner.

"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.

114
<PAGE>

the reservoir and/or the reservoir rock to cause movement of oil in an
efficient manner, and providing the energy and drive mechanism to force its
flow to a production well. The Company injects chemicals or energy as required
for displacement and for the control of flow rate and flow pattern in the
reservoir, and a fluid drive is provided to force the oil toward a production
well.

"Updip" means a higher point in the reservoir.

"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.

"Workover" means operations on a producing well to restore or increase
production.

115
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Statements:
Pro Forma Combined Balance Sheet as of September 30, 1997 (unaudited)... F1-3
Pro Forma Combined Statement of Operations for the year ended December
31, 1996 (unaudited)................................................... F1-4
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1997 (unaudited)......................................... F1-5
Notes to Unaudited Pro Forma Combined Financial Statements.............. F1-6
Financial Statements of Titan Exploration, Inc.:
Independent Auditor's Report............................................ F2-1
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited)......................................... F2-2
Consolidated Statements of Operations for the period March 31, 1995
(date of inception) through December 31, 1995, the year ended December
31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F2-3
Consolidated Statements of Cash Flows for the period March 31, 1995
(date of inception) through December 31, 1995, the year ended December
31, 1996, and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F2-5
Notes to Consolidated Financial Statements.............................. F2-6
Financial Statements of Offshore Energy Development Corporation:
Independent Auditor's Report............................................ F3-1
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited)......................................... F3-2
Consolidated Statements of Operations for the years ended December 31,
1994 and 1995, the period from January 1 through November 6, 1996, the
period from November 7 through December 31, 1996, and the nine months
ended September 30, 1996 and 1997 (unaudited).......................... F3-3
Consolidated Statements of Cash Flows for years ended December 31, 1994
and 1995, the period from January 1 through November 6, 1996, the
period from November 7 through
December 31, 1996, and the nine months ended September 30, 1996 and
1997 (unaudited)....................................................... F3-4
Notes to Consolidated Financial Statements.............................. F3-6
Financial Statements of the 1995 Acquisition:
Independent Auditor's Report............................................ F4-1
Statements of Revenues and Direct Operating Expenses for the years ended
December 31, 1993 and 1994 and the period ended December 11, 1995...... F4-2
Notes to the Statements of Revenues and Direct Operating Expenses....... F4-3
Financial Statements of the 1996 Acquisition:
Independent Auditor's Report............................................ F5-1
Statements of Revenues and Direct Operating Expenses for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September
30, 1995 and 1996 (unaudited).......................................... F5-2
Notes to the Statements of Revenues and Direct Operating Expenses....... F5-3
</TABLE>

F1-1
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OFTITAN EXPLORATION, INC.

The unaudited pro forma combined financial statements have been prepared to
give effect to the 1996 Acquisition and the Merger as if each transaction had
taken place on September 30, 1997 with respect to the unaudited pro forma
combined balance sheet, and as of January 1, 1996 with respect to the
unaudited pro forma combined statements of operations.

The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the date specified and are not intended to be a
projection of future results. In addition, future results may vary
significantly from the results reflected in the accompanying unaudited pro
forma combined financial statements because of normal production declines,
changes in product prices, future acquisitions and divestitures, and other
factors.

The following unaudited pro forma combined financial statements should be
read in conjunction with the consolidated financial statements and the related
notes of the Company, OEDC and the 1996 Acquisition.

F1-2
<PAGE>

TITAN EXPLORATION, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PRO FORMA
COMBINED PRO FORMA
TITAN OEDC ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 1,146 $ 2,024 $ 3,170
Accounts receivable:
Oil and gas....................... 7,766 3,042 10,808
Affiliate......................... -- 329 329
Other............................. 2,225 1,506 3,731
Prepaid expenses and other current
assets............................ 747 501 1,248
-------- ------- --------
Total current assets............ 11,884 7,402 19,286
Property, plant and equipment, at
cost
Oil and gas properties
Proved and unproved............... 238,775 60,416 (19,116)(a) 280,075
Accumulated depletion, depreciation
and amortization.................. (21,263) (15,653) 15,653 (a) (21,263)
-------- ------- --------
217,512 44,763 258,812
Other property and equipment,
net.............................. 921 689 66,498 (a) 68,108
-------- ------- --------
218,433 45,452 326,920
Investments in affiliates and
others............................. -- 1,656 994 (a) 2,650
Investments in certificates of
deposits, restricted............... -- 2,204 2,204
Other assets, net of accumulated
amortization....................... 721 574 (574)(a) 721
-------- ------- --------
$231,038 $57,288 $351,781
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities:
Trade............................. $ 5,178 $ 7,956 $ 13,134
Other............................. 4,436 1,473 5,909
-------- ------- --------
Total current liabilities....... 9,614 9,429 19,043
Long-term debt...................... 14,700 8,800 23,500
Other liabilities................... 1,805 1,060 2,865
Deferred income tax payable......... 7,359 -- 27,127 (a) 34,486
-------- ------- --------
Total liabilities............... 33,478 19,289 79,894
Stockholders' equity:
Preferred Stock................... -- -- --
Common Stock...................... 339 87 (32)(a) 394
Additional paid-in capital........ 203,433 42,646 31,626 (a) 277,705
Deferred compensation............. (11,371) -- (11,371)
Retained earnings (deficit)....... 5,159 (4,734) 4,734 (a) 5,159
-------- ------- --------
Total stockholders' equity...... 197,560 37,999 271,887
-------- ------- --------
$231,038 $57,288 $351,781
======== ======= ========
</TABLE>

See accompanying notes to unaudited pro forma condensed financial statements.

F1-3
<PAGE>

TITAN EXPLORATION, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
PRO FORMA
1996 COMBINED PRO FORMA
TITAN OEDC ACQUISITION ADJUSTMENTS COMBINED
------- ------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales......... $23,824 $9,835 $36,004 $69,663
Other..................... 144 10,715 -- 10,859
Pipeline operating and
marketing................ -- 1,014 -- 1,014
------- ------ ------- -------
Total revenues.......... 23,968 21,564 36,004 81,536
Expenses:
Oil and gas production.... 9,199 1,973 10,515 21,687
General and
administrative........... 2,270 2,325 -- $2,110(b) 6,705
Amortization of stock
option awards............ 1,839 -- -- 1,839
Exploration and
abandonment.............. 184 3,598 -- 3,782
Depletion, depreciation
and amortization......... 5,789 4,898 -- 1,518(c) 23,018
10,813(d)
------- ------ ------- -------
Total expenses.......... 19,281 12,794 10,515 57,031
------- ------ ------- -------
Operating income........ 4,687 8,770 25,489 24,505
------- ------ ------- -------
Other income (expense):
Interest expense.......... (2,965) (783) -- (3,748)
Interest and other income
(expense)................ 359 (94) -- 265
------- ------ ------- -------
Net income before income
taxes.................. 2,081 7,893 25,489 21,022
Income tax expense.......... 3,484 1,443 -- 2,431(e) 7,358
------- ------ ------- -------
Net income.............. (1,403) 6,450 25,489 13,664
Preference unit payments and
accretion of discount...... -- (2,617) -- 2,617(f) --
------- ------ ------- -------
Income available to
common unitholders and
stockholders........... $(1,403) $3,833 $25,489 $13,664
======= ====== ======= =======
Net income per share.... $ (0.07) $ 0.68 $ 0.58
======= ====== =======
Weighted average common
shares outstanding......... 20,140 5,602 23,669
======= ====== =======
</TABLE>

See accompanying notes to unaudited pro forma condensed financial statements.

F1-4
<PAGE>

TITAN EXPLORATION, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PRO FORMA
COMBINED PRO FORMA
TITAN OEDC ADJUSTMENTS COMBINED
------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales.................. $52,011 $ 7,033 $59,044
Other.............................. 99 145 244
Pipeline operating and marketing... -- 823 823
------- ------- -------
Total revenues................... 52,110 8,001 60,111
Expenses:
Oil and gas production............. 16,627 1,650 18,277
General and administrative......... 3,637 2,483 6,120
Amortization of stock option
awards............................ 3,790 -- 3,790
Exploration and abandonment........ 1,342 5,734 7,076
Depletion, depreciation and
amortization...................... 15,927 4,042 1,234(c) 21,203
------- ------- -------
Total expenses................... 41,323 13,909 56,466
------- ------- -------
Operating income................. 10,787 (5,908) 3,645
------- ------- -------
Other income (expense):
Interest income.................... 134 1,046 1,180
Interest expense................... (825) (153) (978)
------- ------- -------
Net income before income taxes... 10,096 (5,015) 3,847
Income tax (benefit) expense......... 3,534 (1,443) (745)(e) 1,346
------- ------- -------
Net income (loss)................ $ 6,562 $(3,572) $ 2,501
======= ======= =======
Net income (loss) per share...... $ 0.18 $ (0.41) $ 0.06
======= ======= =======
Weighted average common shares
outstanding......................... 35,714 8,702 41,196
======= ======= =======
</TABLE>

See accompanying notes to unaudited pro forma condensed financial statements.

F1-5
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND SEPTEMBER 30, 1997

NOTE 1. BASIS OF PRESENTATION

The unaudited pro forma combined financial statements have been prepared to
give effect to the 1996 Acquisition and the Merger as if each transaction had
taken place on September 30, 1997, with respect to the unaudited pro forma
combined balance sheet, and as of January 1, 1996, with respect to the
unaudited pro forma combined statement of operations. Each acquisition is
recorded using the purchase method of accounting.

Following is a description of the individual columns included in these
unaudited pro forma combined financial statements:

THE COMPANY Represents the consolidated balance sheet of Titan Exploration,
Inc. as of September 30, 1997 and the related consolidated statements of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997.

OEDC Represents the consolidated balance sheet of Offshore Energy
Development Corporation as of September 30, 1997 and the related consolidated
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997.

1996 ACQUISITION Represents the revenues and direct operating expenses of
the properties acquired in the 1996 Acquisition for the ten months ended
October 31, 1996. The 1996 Acquisition was consummated on October 31, 1996.

NOTE 2. PRO FORMA ENTRIES

(a) To record the acquisition of OEDC using the purchase method of
accounting. The allocation of the purchase price to the acquired assets and
liabilities is preliminary and, therefore, subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to be
material to the unaudited pro forma combined financial statements.

(b) To record estimated incremental general and administrative expenses
necessary to administer the properties acquired in the 1996 Acquisition of
$1,764,000 per year, and to increase public reporting and administration costs
by approximately $337,000 per year.

(c) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired in the
Merger and accounted for using the successful efforts method of accounting.

(d) To record estimated incremental depletion expense for the properties
acquired in the 1996 Acquisition from January 1, 1996 through October 31,
1996.

(e) To adjust income tax expense.

(f) To eliminate OEDC's preference units (redeemed in November 1996) and the
related accretion of discount.

NOTE 3. INCOME TAXES

The Company accounts for income taxes pursuant to the provisions of SFAS
109. At September 30, 1997, the pro forma book basis of the Company's assets
and liabilities exceeded the pro forma tax basis by approximately $50,378,000
giving rise to an estimated deferred tax liability of approximately
$27,127,000. The temporary differences are primarily related to the
differences in book and tax basis of oil and gas properties due to the
expensing of intangible development costs for tax purposes and other income
tax differences arising from the tax treatment of oil and gas producing
activities.

F1-6
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996 AND SEPTEMBER 30, 1997

NOTE 4. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)

The following unaudited pro forma supplemental information regarding the oil
and gas activities of the Company is presented pursuant to the disclosure
requirements promulgated by the Commission and Statement of Financial
Accounting Standards No. 69, "Disclosures About Oil and Gas Producing
Activities". The pro forma combined reserve information is presented as if the
merger had occurred on January 1, 1996.

Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.

Quantities of oil and gas reserves

Set forth below is a pro forma summary of the changes in the net quantities
of oil and natural gas reserves for the year ended December 31, 1996.

<TABLE>
<CAPTION>
OIL AND
NATURAL CONDENSATE
GAS (MMCF) (MBBLS)
---------- ----------
<S> <C> <C>
Balance, January 1, 1996.................................. 262,350 16,460
Purchases of minerals-in-place............................ 6,503 771
Revisions of previous estimates........................... 77,833 3,945
Extensions and discoveries................................ 9,352 --
Production................................................ (21,461) (1,720)
------- ------
Balance, December 31, 1996................................ 334,577 19,456
======= ======
</TABLE>

Standardized measure of discounted future net cash flows

The pro forma combined standardized measure of discounted future net cash
flows is computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by contractual
arrangements) to the estimated future production of oil and gas reserves less
estimated future expenditures (based on year-end costs) to be incurred in
developing and producing the proved reserves, discounted using a rate of 10%
per year to reflect the estimated timing of the future cash flows. Future
income taxes are calculated by comparing discounted future cash flows to the
tax basis of oil and gas properties, plus available carryforwards and credits,
and applying the current tax rate to the difference.

<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Future cash inflows.............................................. $1,422,018
Future production and development costs.......................... (386,508)
Future income tax expense........................................ (286,226)
----------
10% annual discount factor....................................... (310,255)
----------
Standardized measure of dicounted future net cash flows.......... $ 439,029
==========
</TABLE>

F1-7
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996 AND SEPTEMBER 30, 1997

NOTE 4. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)

Changes relating to the standardized measure of discounted future net cash
flows

The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31,
1996 are as follows (in thousands):

<TABLE>
<S> <C>
Standardized Measure, Beginning of year.............................. $ 202,865
Purchases of Reserves in place..................................... 13,373
Revisions of previous quantity estimates........................... 133,522
Extensions and discoveries less related costs...................... 19,985
Net changes in income tax.......................................... (123,667)
Net changes in prices and production costs......................... 224,792
Revisions of estimated future development costs.................... (7,942)
Sales, net of production costs..................................... (48,187)
Accretion of discount.............................................. 20,286
Other.............................................................. 4,002
---------
Standardized Measure, End of year.................................... $ 439,029
=========
</TABLE>

F1-8
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Titan Exploration, Inc.

We have audited the accompanying consolidated balance sheets of Titan
Exploration, Inc. (the "Company") as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from March 31, 1995 (date of inception) through
December 31, 1995, and for the year ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Titan
Exploration, Inc. as of December 31, 1995 and December 31, 1996, and the
results of its operations and its cash flows for the period from March 31,
1995 (date of inception) through December 31, 1995 and the year ended December
31, 1996, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Midland, Texas
March 12, 1997

F2-1
<PAGE>

TITAN EXPLORATION, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 6,213 $ 6,290 $ 1,146
Short-term investment--certificate of
deposit................................... 5,000 -- --
Accounts receivable:
Oil and gas.............................. 996 8,533 7,766
Other.................................... 1,554 931 2,225
Prepaid expenses and other current assets.. 121 266 747
------- -------- --------
Total current assets................... 13,884 16,020 11,884
------- -------- --------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of accounting:
Proved properties........................ 42,887 194,699 228,250
Unproved properties...................... 190 987 10,525
Accumulated depletion, depreciation and
amortization.............................. (216) (5,624) (21,263)
------- -------- --------
42,861 190,062 217,512
Other property and equipment, net.......... 96 277 921
------- -------- --------
42,957 190,339 218,433
Other assets, net of accumulated amortization
of $78 in 1995, $203 in 1996 and $393 in
1997........................................ 646 820 721
------- -------- --------
$57,487 $207,179 $231,038
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY AND
PREDECESSOR CAPITAL
Current liabilities:
Accounts payable and accrued liabilities:
Trade.................................... $ 1,766 $ 7,112 $ 5,178
Accrued interest......................... 97 -- --
Other.................................... 75 784 4,436
------- -------- --------
Total current liabilities.............. 1,938 7,896 9,614
------- -------- --------
Long-term debt............................... 20,000 6,500 14,700
Other liabilities............................ 964 1,772 1,805
Deferred income tax payable.................. -- 3,825 7,359
Stockholders' equity and predecessor capital:
Predecessor capital........................ 37,081 -- --
Preferred Stock, $.01 par value, 10,000,000
shares authorized; none issued and
outstanding............................... -- -- --
Common Stock, $.01 par value, 60,000,000
shares authorized; 33,941,513 shares
issued and outstanding at December 31,
1996 and 33,945,198 shares issued and
outstanding at September 30, 1997......... -- 339 339
Additional paid-in capital................. -- 203,411 203,433
Deferred compensation...................... (2,496) (15,161) (11,371)
Retained earnings (deficit)................ -- (1,403) 5,159
------- -------- --------
Total stockholders' equity and
predecessor capital................... 34,585 187,186 197,560
------- -------- --------
$57,487 $207,179 $231,038
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F2-2
<PAGE>

TITAN EXPLORATION, INC.

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

See accompanying notes to consolidated financial statements.

F2-3
<PAGE>

TITAN EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PREDECESSOR CAPITAL
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PREDECESSOR COMMON PAID-IN DEFERRED EARNINGS STOCKHOLDERS'
CAPITAL STOCK CAPITAL COMPENSATION (DEFICIT) EQUITY
----------- ------ ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1995................... $ -- $-- $ -- $ -- $ -- $ --
Capital
contributions........ 35,540 -- -- -- -- 35,540
Deferred
compensation......... 3,072 -- -- (2,496) -- 576
Net loss.............. (1,531) -- -- -- -- (1,531)
-------- ---- -------- -------- ------- --------
Balance at December 31,
1995................... 37,081 -- -- (2,496) -- 34,585
Sale of interest in
predecessor.......... 5,000 -- -- -- -- 5,000
September 30, 1996
stock plan........... -- -- 14,504 (14,504) -- --
Common stock issued... -- 144 147,021 -- -- 147,165
Deferred
compensation......... -- -- -- 1,839 -- 1,839
Net loss.............. -- -- -- -- (1,403) (1,403)
Transfer of
predecessor capital
and issuance of
common stock pursuant
to the Offering...... (42,081) 195 41,886 -- -- --
-------- ---- -------- -------- ------- --------
Balance at December 31,
1996................... -- 339 203,411 (15,161) (1,403) 187,186
Deferred compensation
(unaudited).......... -- -- -- 3,790 -- 3,790
Net income
(unaudited).......... -- -- -- -- 6,562 6,562
Other (unaudited)..... -- -- 22 -- -- 22
-------- ---- -------- -------- ------- --------
Balance at September 30,
1997
(unaudited)............ $ -- $339 $203,433 $(11,371) $ 5,159 $197,560
======== ==== ======== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F2-4
<PAGE>

TITAN EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION) NINE MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------------- ------------ ----------------
1995 1996 1996 1997
------------------- ------------ ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $(1,531) $ (1,403) $(2,210) $ 6,562
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depletion, depreciation
and amortization....... 299 5,789 2,269 15,927
Amortization of stock
option awards.......... 576 1,839 576 3,790
Dry holes and
abandonments........... 434 21 21 --
(Gain) loss on sale of
assets................. (244) 65 -- --
Deferred income taxes... -- 3,484 2,998 3,534
Changes in assets and
liabilities:
Increase in accounts
receivable............. (2,153) (7,311) (833) (527)
(Increase) decrease in
prepaid expenses and
other current assets... (121) (145) 28 (481)
Increase in other
assets................. (724) (516) -- --
Increase in accounts
payable and accrued
liabilities............ 1,659 5,887 2,794 1,751
------- -------- ------- -------
Total adjustments..... (274) 9,113 7,853 23,994
------- -------- ------- -------
Net cash (used in)
operating
activities........... (1,805) 7,710 5,643 30,556
------- -------- ------- -------
Cash flows from investing
activities:
Purchase of short-term
investment............... (5,000) -- -- --
Redemption of short-term
investment............... -- 5,000 5,000 --
Acquisition of oil and gas
properties............... (39,881) (134,413) -- --
Additions to oil and gas
properties............... (3,788) (15,488) (17,590) (43,089)
Proceeds from sale of
nonproducing oil and gas
properties, net of
commissions paid......... 1,248 121 -- --
Other..................... (101) (218) (163) (818)
------- -------- ------- -------
Net cash (used in)
investing
activities........... (47,522) (144,998) (12,753) (43,907)
------- -------- ------- -------
Cash flows from financing
activities:
Proceeds from the issuance
of long-term debt........ 28,000 162,500 8,000 33,850
Payments of long-term
debt..................... (8,000) (176,000) -- (25,650)
Capital contributions..... 35,540 3,700 3,700 --
Proceeds from initial
common stock offering.... -- 148,376 -- --
Direct costs of initial
common stock offering.... -- (1,211) -- --
Proceeds from exercise of
employee stock options... -- -- -- 7
------- -------- ------- -------
Net cash provided by
financing
activities........... 55,540 137,365 11,700 8,207
------- -------- ------- -------
Net increase
(decrease) in cash
and cash
equivalents.......... 6,213 77 4,590 (5,144)
Cash and cash equivalents,
beginning of period........ -- 6,213 6,213 6,290
------- -------- ------- -------
Cash and cash equivalents,
end of period.............. $ 6,213 $ 6,290 $10,803 $ 1,146
======= ======== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F2-5
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

(1) ORGANIZATION AND NATURE OF OPERATIONS

Titan Exploration, Inc. (the "Company") a Delaware corporation, was
organized on September 27, 1996 and began operations on September 30, 1996
with the combination, pursuant to the terms of an Exchange Agreement and Plan
of Reorganization (the "Exchange Agreement"), of Titan Resources I, Inc. (the
"General Partner"), a Texas corporation, and Titan Resources, L.P. (the
"Partnership"). Under the exchange agreement, the limited partners of the
Partnership transferred all of their limited partnership interests to the
Company in exchange for 19,318,199 shares of common stock, and the
shareholders of the General Partner transferred all of the issued and
outstanding stock of that corporation to the Company in exchange for an
aggregate of 231,814 shares of common stock. These transactions are referred
to as the "Conversion."

Prior to the Conversion, the Company had no issued or outstanding shares of
common stock and there was no public market for the General Partner's common
stock. All shares of the Company currently outstanding were issued in the
Conversion to the shareholders of the General Partner or to the limited
partners of the Partnership. The combination of the Company, the General
Partner and the Partnership is treated as a combination of entities under
common control because of the 100% commonality of control between the Company
subsequent to the Conversion and the Partnership prior to the Conversion. All
partners of the Partnership were party to the exchange of shares in the
Conversion. Consequently, the accompanying consolidated financial statements
have given effect to the Conversion as if it were a pooling of interests.
Revenues and costs arising from transactions between the two predecessor
entities (the General Partner and the Partnership) have been eliminated. The
following table sets forth revenues and net income with respect to the two
predecessor entities (in thousands):

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------------- ------------
<S> <C> <C>
Revenues:
General Partner.............................. $ 680 $ --
Partnership.................................. 985 23,968
Intercompany eliminations.................... (680) --
------- -------
$ 985 $23,968
======= =======
Net income (loss):
General Partner.............................. $ (9) $ (66)
Partnership.................................. (1,522) 1,502
The Company.................................. -- (2,839)
------- -------
$(1,531) $(1,403)
======= =======
</TABLE>

The Company is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, the Company has experienced significant growth, primarily through
the acquisition of oil and gas properties and the exploitation of these
properties in the Permian Basin region of west Texas and southeastern New
Mexico.

F2-6
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries, each of which is wholly owned, since their formation
(See Note 1). All material intercompany accounts and transactions have been
eliminated in the consolidation.

Use of Estimates in the Preparation of Financial Statements

Preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
demand deposits, money market accounts and certificates of deposit purchased
with an original maturity of three months or less to be cash equivalents.

Inventories

Inventories consist of lease and well equipment not currently being used in
production and are accounted for at the lower of cost (first-in, first-out) or
market.

Oil and Gas Properties

The Company utilizes the successful efforts method of accounting for its oil
and gas properties. Under this method of accounting, all costs associated with
productive wells and nonproductive development wells are capitalized.
Exploration costs are capitalized pending determination of whether proved
reserves have been found. If no proved reserves are found, previously
capitalized exploration costs are charged to expense.

Costs of significant nonproducing properties, wells in the process of being
drilled and development projects are excluded from depletion until such time
as the related project is developed and proved reserves are established or
impairment is determined. The Company capitalizes interest on expenditures for
significant development projects until such time as significant operations
commence.

Capitalized costs of individual properties abandoned or retired are charged
to accumulated depletion, depreciation and amortization. Sales proceeds from
sales of individual properties are credited to property costs. No gain or loss
is recognized until the entire amortization base is sold or abandoned.

Other property and equipment are recorded at cost. Major renewals and
betterments are capitalized while the costs of repairs and maintenance are
charged to operating expenses in the period incurred. With respect to
dispositions of assets other than oil and gas properties, the cost of assets
retired or otherwise disposed of, and the applicable accumulated depreciation
are removed from the accounts, and the resulting gains or losses, if any, are
reflected in operations.

Depletion, Depreciation and Amortization

Provision for depletion of oil and gas properties is calculated using the
unit-of-production method on the basis of an aggregation of properties with a
common geologic structural feature or stratigraphic condition,

F2-7
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

typically a field or reservoir. In addition, estimated costs of future
dismantlement, restoration and abandonment, if any, are accrued as a part of
depletion, depreciation and amortization expense on a unit of production
basis; actual costs are charged to the accrual. Other property and equipment
is depreciated using the straight-line method over the estimated useful lives
of the assets. Organization costs are amortized over five years, while loan
costs are amortized over the life of the related loan.

Impairment of Long-Lived Assets

The Company follows the provisions of Statement of Financial Accounting
Standards No. 121--Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("FAS 121"). Consequently, the Company
reviews its long-lived assets to be held and used, including oil and gas
properties accounted for under the successful efforts method of accounting,
whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is indicated if the sum of
the expected future cash flows, on a depletable unit basis, is less than the
carrying amount of such assets. In this circumstance, the Company recognizes
an impairment loss for the amount by which the carrying amount of the asset
exceeds the fair value of the asset. No impairment was determined to exist
during the period March 31, 1995 (date of inception) through December 31, 1995
or the year ended December 31, 1996.

The Company accounts for long-lived assets to be disposed of at the lower of
their carrying amount or fair value less cost to sell once management has
committed to a plan to dispose of the assets.

Earnings per Share

Primary net income (loss) per share is computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalent shares arising from
stock options are computed using the treasury stock method. There were no
potentially dilutive securities, other than common stock equivalents.
Consequently, primary and fully diluted earnings per share do not differ. For
the periods prior to the Offering, the weighted average shares outstanding
attributable to predecessor capital are the shares issued to the predecessor
members upon Conversion.

Income Taxes

The Company follows the provisions of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under the asset and liability
method of FAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under FAS
109, the effect on deferred tax assets and liabilities of a change in tax rate
is recognized in income in the period that includes the enactment date.

Upon Conversion, the Company recorded the tax effect of the differences
between the book and tax basis of its assets and liabilities as a deferred tax
liability and a corresponding charge to deferred income tax expense.

Environmental

The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures
are expensed or capitalized depending on their future

F2-8
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated.

Revenue Recognition

The Company uses the sales method of accounting for crude oil revenues.
Under this method, revenues are recognized based on actual volumes of oil sold
to purchasers.

The Company uses the entitlements method of accounting for natural gas
revenues. Under this method, revenues are recognized based on the Company's
proportionate share of actual sales of natural gas. Natural gas revenues would
not have been significantly altered in any period had the sales method of
recognizing natural gas revenues been utilized. The Company has a net
liability of approximately $964,000 and $508,000 associated with gas balancing
recorded in other liabilities at December 31, 1995 and December 31, 1996,
respectively.

Stock-based Compensation

The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, the
Company has only adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). See Note 10 for the pro forma disclosures of compensation expense
determined under the fair-value provisions of FAS 123.

Commodity Hedging

The financial instruments that the Company accounts for as hedging contracts
must meet the following criteria: the underlying asset or liability must
expose the Company to price or interest rate risk that is not offset in
another asset or liability, the hedging contract must reduce that price or
interest rate risk at the inception of the contract and throughout the
contract period, and the instrument must be designated as a hedge. In order to
qualify as a hedge, there must be clear correlation between changes in the
fair value of the financial instrument and the fair value of the underlying
asset or liability such that changes in the market value of the financial
instrument will be offset by the effect of price or interest rate changes on
the exposed items.

The Company periodically enters into commodity derivative contracts (swaps)
in order to hedge the effect of price changes on commodities the Company
produces and sells. Gains and losses on contracts that are designed to hedge
commodities are included in income recognized from the sale of those
commodities. Gains and losses on derivative contracts which do not qualify as
hedges are recognized in each period based on the market value of the related
instrument. At December 31, 1996, the Company was not subject to any commodity
derivative contracts.

Interest Rate Swap Agreements

The Company enters into interest rate swap agreements to effectively convert
a portion of its floating-rate borrowings into fixed rate obligations. The
interest rate differential to be received or paid is recognized over the lives
of the agreements as an adjustment to interest expense. At December 31, 1996,
the Company was not subject to any interest rate swap agreements.

Interim Consolidated Financial Statements

The interim consolidated financial information as of September 30, 1997 and
for the periods ended September 30, 1996 and 1997, is unaudited. However, in
the opinion of management, these interim consolidated financial statements
include all the necessary adjustments to fairly present the results of the
interim periods, and

F2-9
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

all such adjustments are of a normal recurring nature. The interim
consolidated financial statement should be read in conjunction with the
audited financial statements as of and for the year ended December 31, 1996.

Reclassifications

Certain reclassifications have been made to the 1995 and 1996 amounts to
conform to the 1997 presentation.

(3) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, short-term investments,
other current assets, accounts receivable, accounts payable, and accrued
liabilities approximates fair value because of the short maturity of these
instruments.

The carrying amount of long-term debt approximates fair value because the
Company's current borrowing rate does not materially differ from market rates
for similar bank borrowings.

The fair market values of commodity derivative instruments are estimated
based upon the current market price of the respective commodities at the date
of valuation. It represents the amount which the Company would be required to
pay or able to receive based upon the differential between a fixed and a
variable commodity price as specified in the hedge contracts. At December 31,
1995, the Company would have been required to pay approximately $606,000 to
terminate the existing contracts. There were not any commodity derivatives in
effect at December 31, 1996.

The fair values of interest rate swap agreements are obtained from bank
quotes. This value represents the estimated amount the Company would pay to
terminate the agreement, taking into consideration current interest rates. The
Company estimates that, at December 31, 1995, the Company would have been
required to pay approximately $17,000 to terminate the existing interest rate
swap agreement. The interest rate swap agreement matured on December 23, 1996,
consequently, no interest rate swap agreements were in effect at December 31,
1996.

(4) LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
1996 Line of credit................................ $ -- $6,500 $11,500
1995 Line of credit................................ 20,000 -- --
Unsecured credit agreement......................... -- -- 3,200
------- ------ -------
$20,000 $6,500 $14,700
======= ====== =======
</TABLE>

1996 Line of Credit

On October 31, 1996, the Company entered into a new credit agreement (the
"Credit Agreement") with Chase Securities, Inc., an affiliate of the Company's
current lender, which establishes a four year revolving credit facility, up to
the maximum amount of $250 million with an initial borrowing base of $165
million. All outstanding amounts are due and payable in full on January 1,
2001. The borrowing base is subject to

F2-10
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

redetermination semiannually by the lenders based on certain proved oil and
gas reserves and other assets of the Company. In June 1997, the borrowing base
was redetermined by the lenders and reset at $165 million. Proceeds of the
credit facility were utilized to fund the 1996 Acquisition, development of oil
and gas reserves, and for general corporate requirements.

The credit agreement, which is secured by the Company's proved oil and gas
reserves, is subject to mandatory prepayments. To the extent that the
borrowing base is less than the aggregate principal amount of all outstanding
loans and letters of credit under the Credit Agreement, such deficiency must
be cured by the Company within 180 days, by either prepaying a portion of the
outstanding amounts or pledging additional collateral. Commitment fees are due
quarterly and range from .300% to .375% per annum on the difference between
the commitment and the average daily amount outstanding.

At the Company's option, borrowings under the Credit Agreement bear interest
at either (i) the "Base Rate" (i.e. the higher of the agent's prime commercial
lending rate, or the federal funds rate plus 0.5% per annum), or (ii) the
Eurodollar rate plus a margin ranging from 1% to 1.50% per annum, which margin
increases as the level of the Company's aggregate outstanding borrowings under
the Credit Agreement increases. The interest rate in effect at December 31,
1996 was the prime rate of 8.25%.

The credit agreement contains various restrictive covenants and compliance
requirements, which include (1) limiting the incurrence of additional
indebtedness, (2) restrictions as to merger, sale or transfer of assets and
transactions with affiliates without the lenders' consent, and (3) prohibition
of any return of capital payments or distributions to any of its partners
other than for taxes due as a result of their partnership interest.

1995 Line of Credit

On December 11, 1995, the Company entered into a credit agreement with Texas
Commerce Bank. The note provided for a two-year revolving line of credit of
$100,000,000 with an initial borrowing base of $35,000,000. The loan documents
governing the Credit Agreement contained certain covenants and restrictions
that are customary in the oil and gas industry relating to the Company's
operations. The 1995 line of credit was paid in full on December 20, 1996.

Unsecured Credit Agreement

Effective April 16, 1997, the Company entered into a credit agreement (the
"Unsecured Credit Agreement") with Texas Commerce Bank National Association
(the "Bank"), an affiliate of Chase Securities, Inc., which establishes a one
year revolving credit facility, up to the maximum of $5 million. While all
outstanding amounts are due and payable in full on or before March 6, 1998,
the Company considers amounts outstanding pursuant to the Unsecured Credit
Agreement as long-term as all amounts are repaid from available funds under
the Credit Agreement. Proceeds of the Unsecured Credit Agreement are utilized
to fund short-term needs (less than thirty days).

The interest rate of each loan under the Unsecured Credit Agreement is at a
rate determined by agreement between the Company and the Bank. The rate shall
not exceed the maximum interest rate permitted under applicable laws. Interest
rates generally are comparable with Eurodollar rates plus 1% per annum.

The Company was party to an interest rate swap agreement entered into on
December 21, 1995. The effect of this agreement was to provide the Company
with a fixed interest rate of 6.72% on $10,000,000 of its revolving line of
credit through December 23, 1996.

F2-11
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

Maturities of long-term debt are as follows (in thousands):

<TABLE>
<S> <C>
1996.................................................................. $ --
1997.................................................................. --
1998.................................................................. --
1999.................................................................. --
2000.................................................................. --
Thereafter............................................................ 14,700
</TABLE>

(5) ACQUISITIONS OF OIL AND GAS PROPERTIES

On October 31, 1996, the Company completed the acquisition of certain oil
and gas properties from a major integrated company (the "1996 Acquisition").
The Company funded the acquisition from the 1996 Line of Credit agreement
described in Note 4. The total consideration paid for the properties was
$134,413,066. The acquisition of these oil and gas properties, accounted for
using the purchase method, resulted in the following noncash investing
activities:

<TABLE>
<S> <C>
Recorded amount of assets acquired, including receivables of
$300,187................................................... $135,983,556
Liabilities assumed......................................... (1,570,490)
------------
Cash paid................................................... $134,413,066
============
</TABLE>

Included in receivables assumed is a $300,187 long-term receivable recorded
as a purchase price adjustment related to the 1996 Acquisition for a gas
imbalance. It is shown net of other gas imbalance liabilities in the financial
statements. Liabilities assumed are amounts recorded as purchase price
adjustments related to the 1996 Acquisition for potential environmental
remediation.

On December 11, 1995, the Company completed the acquisition of certain oil
and gas properties from a large independent oil and gas company (the "1995
Acquisition"). The Company funded the acquisition from the 1995 Line of Credit
agreement described in Note 4. The total consideration paid for the properties
was $39,881,094. The acquisition of these oil and gas properties, accounted
for using the purchase method, resulted in the following noncash investing
activities:

<TABLE>
<S> <C>
Recorded amount of assets acquired, including receivables of
$396,719.................................................... $40,992,065
Liabilities assumed.......................................... (1,110,971)
-----------
Cash paid.................................................... $39,881,094
===========
</TABLE>

Included in liabilities assumed is a $963,898 long-term liability recorded
as a purchase price adjustment related to the 1995 Acquisition for a gas
imbalance liability.

F2-12
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

Pro Forma Results of Operations (Unaudited)

The following table reflects the pro forma results of operations for the
years ended December 31, 1995 and 1996 as though the 1995 and the 1996
Acquisition had occurred as of January 1, 1995 and as if the Conversion had
taken place on January 1, 1995. The pro forma amounts are not necessarily
indicative of the results that may be reported in the future (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Revenues................................................... $49,591 $59,972
Net income (loss).......................................... (459) 1,556
Net income (loss) per share................................ (0.03) .08
</TABLE>

(6) STATEMENTS OF CASH FLOWS

No interest was paid in 1995. Interest expense of $3,062,656 was paid as of
December 31, 1996.

During 1996, a $1,300,000 noncash contribution of interests in oil and gas
properties was made in exchange for interest in the Company. Also at December
31, 1996, a $341,250 noncash property addition was recorded as a purchase
price adjustment related to the Conversion.

(7) COMMON STOCK OFFERING

On December 16, 1996, the Company completed an initial public offering of
14,391,500 shares of common stock at a price of $11.00 per share. Proceeds
received, net of related expenses, were approximately $148,376,365.

(8) INCOME TAXES

Upon Conversion, the Company became a tax paying entity for U.S. Federal
income tax purposes. At that date, the book basis of the Company's assets and
liabilities exceeded the tax basis by approximately $16,934,000, resulting in
a deferred tax liability of approximately $2,998,000. Income tax provision for
the year ended December 31, 1996 is as follows (in thousands):

<TABLE>
<S> <C>
Deferred income tax expense at statutory rate on income of $1,293,000
since incorporation.................................................... $ 486
Deferred income tax expense to record difference between book and tax
basis of assets upon
Conversion............................................................. 2,998
------
$3,484
======
</TABLE>

F2-13
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 are as follows (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss.................................................... $1,458
Compensation, principally due to accrual for financial reporting
purposes............................................................. 644
------
Total gross deferred tax assets..................................... 2,102
------
Deferred tax liabilities:
Oil and gas properties, principally due to differences in basis,
depletion, and the deduction of intangible drilling costs for tax
purposes............................................................. 5,927
------
Total gross deferred tax liabilities................................ 5,927
------
Net deferred tax liability.......................................... $3,825
======
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Based on expectations
for the future and the availability of certain tax planning strategies that
would generate taxable income to realize the net tax benefits, if implemented,
management has determined that taxable income of the Company will more likely
than not be sufficient to fully utilize available carryforwards prior to their
ultimate expiration.

At December 31, 1996, the Company has net operating loss carryforwards
("NOLs") for U.S. federal income tax purposes of approximately $4.2 million,
which are available to offset future regular taxable income, if any. The
carryforwards expire December 31, 2011.

(9) RELATED PARTY TRANSACTIONS

For the year ended December 31, 1995, the Company received $241,563 for
administrative services from a related party. During 1996 revenue received was
$144,167.

For the period March 31, 1995 (date of inception) through December 31, 1995,
financial advisory service fees of $428,958 were paid to two shareholders and
two affiliates of shareholders. During 1996, financial advisory service fees
of $185,854 were paid to two shareholders.

Director's fees of $20,833 and $10,000 were paid during 1995 and 1996,
respectively.

The Company has recorded in other assets approximately $425,000 of
organization costs which were paid to related parties for consulting and
advisory fees. These costs are being amortized over a period of five years.

Certain properties that were owned or controlled by certain shareholders
were acquired by the Company for $1,142,000 and $21,708 in 1995 and 1996,
respectively, which approximates the predecessor cost of the properties.

The Company entered into a three-year noncancellable operating lease with an
entity controlled by an officer of the General Partner for office facilities
on January 1, 1996.

F2-14
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

Future minimum lease commitments under the lease at September 30, 1997 are
as follows:

Lease expense paid through December 31, 1996 was $110,625. The lease was
renegotiated in March 1997, with monthly lease payments of $16,895 subject to
increase as the Company assumes additional space. The lease expires on March
15, 2002.

The Company was party to two financial advisory service contracts with a
shareholder and an affiliate of a shareholder. These contracts require
consolidated annual payments of $185,000 per year to be paid by the Company
until any one of the following events occur:

(i) the date of dissolution of the Company;

(ii) the first date on which the respective shareholder no longer owns at
least 35% of the outstanding shares of common stock of the Company;

(iii) the first date on which the Company or its successors complete an
equity offering to the public, or

(iv) written notice by the respective party of their election to
terminate the contracts with the Company.

These contracts were terminated on December 16, 1996 pursuant to (iii)
above.

The Company regularly uses certain aircraft owned by an affiliate. The
Company is billed for any use of such aircraft by Company personnel. Payments
made for the use of such aircraft were $4,140 for the period ended March 31,
1995 (date of inception) through December 31, 1995 and $17,348 for the year
ended December 31, 1996.

The President, Chief Executive Officer and Chairman of the Board of the
Company, and certain of his affiliates have a common ownership interest in an
oil and gas property that is operated by the Company and, in accordance with a
standard industry operating agreement, make payments to the Company of
leasehold costs and lease operating and supervision charges. These payments
were approximately $12,000 for period March 31, 1995 (date of inception)
through December 31, 1995 and $229,332 for the year ended December 31, 1996.
Revenue received in connection with these oil and gas properties was $6,868
for the year ended December 31, 1996. These interests were owned by the Chief
Executive Officer and his affiliates prior to the formation of the Company on
March 31, 1995.

(10) COMPANY OPTION PLANS

Initial Stock Option Plan

During 1995, the Titan Resources, L.P. established a unit option plan (the
Plan) for certain officers and key employees of the Partnership and the
General Partner. The Plan provided for the issuance of 5,460,000 options in
four separate series with an initial exercise price of $1 which was to be
increased 10% per annum from the initial plan adoption date of March 31, 1995.
Option A series, covering 3,624,706 units, was to vest at a rate of one-third
of the options at each of the dates of March 31, 1996, 1997 and 1998; Option
B, C, and D series were

F2-15
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

to vest on the dates that the Board determines that the current value of
partnership units had increased by a factor of 3, 4, and 5, respectively, or
on the date that such per unit amounts of cash or other assets have been or
are authorized to be distributed to the Partners. Option B, C, and D series
cover 582,282, 611,037, and 641,975 units, respectively. As of December 31,
1995, 5,093,616 unit options had been awarded and none were vested or
exercised.

Based on the price of equity interests sold at December 11, 1995, the
Company recorded deferred compensation for the expected value of the options,
amortized over the period from March 31, 1995 through March 31, 1998.

Revised Stock Option Plan

On September 30, 1996, upon the consolidation of Titan Exploration, Inc.,
the Plan was replaced by a new stock option plan the ("Stock Plan"). The Stock
Plan provides for the issuance of 3,631,350 options to acquire common stock of
the Company, in four separate series with a fixed exercise price of $2.08.
Option A series, covering 2,410,728 shares of common stock, was to vest at a
rate of one-third of the options at each of the dates of March 31, 1996, 1997
and 1998; Option B, C, and D series cover 387,265, 406,390, and 426,967 shares
of common stock, respectively and vest over a period through March 31, 1999.
Deferred compensation was recorded based on the value of the Company's common
stock on September 30, 1996, and will be amortized to expense over a 39 month
period. Deferred compensation of approximately $17,576,000 (before reduction
by amounts previously amortized to expense under the Plan, as described above)
was recorded at September 30, 1996. At December 31, 1996, unamortized deferred
compensation was $15,160,371.

1996 Incentive Plan

The Board of Directors and the stockholders of the Company approved the
adoption of the Company's 1996 Incentive Plan (the "1996 Incentive Plan") as
of October 1, 1996. The purpose of the 1996 Incentive Plan is to reward
selected officers and key employees of the Company and others who have been or
may be in a position to benefit the Company, compensate them for making
significant contributions to the success of the Company and provide them with
a proprietary interest in the growth and performance of the Company.

Participants in the 1996 Incentive Plan are selected by the Board of
Directors or such committee of the Board as is designated by the Board to
administer the 1996 Incentive Plan (the Compensation Committee of the Board of
Directors) from among those who hold positions of responsibility with the
Company and whose performance, in the judgment of the Compensation Committee,
can have a significant effect on the success of the Company. An aggregate of
850,000 shares of Common Stock have been authorized and reserved for issuance
pursuant to the 1996 Incentive Plan. At December 31, 1996, options have been
granted to a participant under the 1996 Incentive Plan to purchase a total of
85,000 shares of Common Stock at an exercise price of $11 per share. These
options vest ratable on each of the first through fourth anniversaries of the
grant date.

Subject to the provisions of the 1996 Incentive Plan, the Compensation
Committee will be authorized to determine the type or types of awards made to
each participant and the terms, conditions and limitations applicable to each
award. In addition, the Compensation Committee will have the exclusive power
to interpret the 1996 Incentive Plan and to adopt such rules and regulations
as it may deem necessary or appropriate in keeping with the objectives of the
1996 Incentive Plan.

Pursuant to the 1996 Incentive Plan, participants will be eligible to
receive awards consisting of (i) stock options, (ii) stock appreciation
rights, (iii) stock, (iv) restricted stock, (v) cash or (vi) any combination
of the

F2-16
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

foregoing. Stock options may be either incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options.

The Company applies APB 25 and related interpretations in accounting for its
stock option plans. If compensation expense for the stock option plans had
been determined consistent with Statement of Financial Accounting Standards
123, "Accounting for Stock-Based Compensation ("FAS 123"), the Company's net
loss and net loss per share would have been adjusted to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net loss.................................................. $ (1,454) $ (1,744)
Net loss per share........................................ (0.10) (0.09)
</TABLE>

The pro forma net loss and pro forma net loss per share amounts noted above
are not likely to be representative of the pro forma amounts to be reported in
future years. The pro forma amounts for 1995 and 1996 reflect the initial
phase-in of FAS 123, and as a result, do not reflect any compensation expense
for options granted prior to 1995. Pro forma adjustments in future years will
include compensation expense associated with the options granted in 1995 and
1996 plus compensation expense associated with any options awarded in future
years. As a result, such pro forma compensation expense is likely to be higher
than the levels experienced in 1995 and 1996.

Under FAS 123, the fair value of each stock option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Risk-free interest rate........................................ 6.00% 6.15%
Expected life.................................................. 4.5 3.0
Expected volatility............................................ 52% 52%
Expected dividend yield........................................ -- --
</TABLE>

F2-17
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

A summary of the Company's stock option plans as of December 31, 1995 and
1996, and changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- --------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE
----------- --------- ---------- --------
<S> <C> <C> <C> <C>
Stock options:
Outstanding at beginning of
year............................ -- -- 3,387,674 $1.50
Options granted--initial plan.. -- -- 243,676 $1.50
Options canceled............... -- -- (3,631,350) $1.50
Options granted................ 3,387,674 $ 1.50 3,716,350 $2.28
----------- ----------
Outstanding at end of year....... 3,387,674 3,716,350
=========== ==========
Exercisable at end of year....... -- --
=========== ==========
Weighted average fair value of op-
tions granted during the year..... $ 0.75 $ 5.27
=========== ==========
</TABLE>

The following table summarizes information about the Company's stock options
outstanding atDecember 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
----------------- ---------------- --------------
<S> <C> <C> <C>
3,631,350 51 months $ 2.08
85,000 51 months $11.00
---------
3,716,350
=========
</TABLE>

(11) 401(K) PLAN

The Company has established a qualified cash or deferred arrangement under
IRS code section 401(k) covering substantially all employees. Under the plan,
the employees have an option to make elective contributions of a portion of
their eligible compensation, not to exceed specified annual limitations, to
the plan and the Company has an option to match a portion of the employee's
contribution. The Company has made matching contributions to the plan totaling
$8,199 and $23,034 in 1995 and 1996, respectively.

(12) STOCKHOLDERS' EQUITY

In May 1997, the Company announced a plan to repurchase up to $25 million of
the Company's common stock. The repurchase will be made periodically,
depending on market conditions, and will be funded with cash flow from
operations and, as necessary, borrowings under the Credit Agreement. At
September 30, 1997, the Company had not repurchased any shares of its common
stock.

F2-18
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

(13) MAJOR CUSTOMERS

The following purchasers accounted for 10% or more of the Company's oil and
gas sales for the period March 31, 1995 (date of inception) through December
31, 1995 and for the year ended December 31, 1996.

<TABLE>
<CAPTION>
1995 1996
---- -----
<S> <C> <C>
Purchaser A................................................... -- 43.06%
</TABLE>

(14) OIL AND GAS EXPENDITURES

The following table reflects costs incurred in oil and gas property
acquisition, exploration and development activities:

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Property acquisition costs:
Proved................................. $40,873 $139,110
Unproved............................... 1,040 802
Exploration.............................. 448 129
Development.............................. 1,580 12,468
------- --------
$43,941 $152,509
======= ========
</TABLE>

(15) SUBSEQUENT EVENTS

Titan and Offshore Energy Development Corporation, a Delaware corporation
("OEDC"), have entered into an agreement by which Titan will acquire all the
outstanding OEDC common stock. OEDC is an independent energy company that
focuses on the acquisition, exploration, development and production of natural
gas in the Gulf of Mexico and on natural gas gathering, processing and
marketing activities. OEDC is listed on the Nasdaq National Market under the
symbol "OEDC." Based on estimates of OEDC's outside engineers, OEDC's total
proved reserves were 5.5 million BOE at December 31, 1996. Titan will issue
approximately 5.5 million shares of Titan common stock equal to 16.2% of the
total Titan common stock currently outstanding. The transaction is subject to
various conditions, including approval by stockholders of both companies.
Special meetings of Titan and OEDC stockholders have been scheduled for
December 12, 1997 to consider the transaction.

(16) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, Earnings per Share. FAS No.
128 establishes standards for computing and presenting earnings per share and
is effective for periods ending after December 15, 1997. The impact of the
adoption of FAS No. 128 on the Company's earnings per share is expected to be
immaterial.

F2-19
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS) No. 130, Reporting Comprehensive Income.
FAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. FAS No. 130 is effective for interim and annual periods beginning
after December 15, 1997. The Company plans to adopt FAS No. 130 for the period
ended March 31, 1998.

(17) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)

The estimates of proved oil and gas reserves, which are located principally
in the United States, were prepared by the Company as of December 31, 1995,
and Williamson Petroleum Consultants as of December 31, 1996. Reserves were
estimated in accordance with guidelines established by the SEC and FASB which
require that reserve estimates be prepared under existing economic and
operating conditions with no provision for price and cost escalations except
by contractual arrangements. The Company has presented the reserve estimates
utilizing an and an oil price of $17.66 per Bbl and a gas price of $1.38 per
Mcf as of December 31, 1995 and an oil price of $25.09 per Bbl and a gas price
of $2.70 per Mcf as of December 31, 1996.

Oil and Gas Producing Activities

Oil and gas reserve quantity estimates are subject to numerous uncertainties
inherent in the estimation of quantities of proved reserves and in the
projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of
currently producing oil and gas properties. Accordingly, these estimates are
expected to change as additional information becomes available in the future.

<TABLE>
<CAPTION>
OIL AND
CONDENSATE NATURAL
(MBBLS) GAS (MMCF)
---------- ----------
<S> <C> <C>
Total Proved Reserves:
Balance, March 31, 1995................................... -- --
Extensions and discoveries.............................. 108 33,724
Purchases of minerals-in-place.......................... 6,068 101,516
Production.............................................. (30) (245)
------ -------
Balance, December 31, 1995................................ 6,146 134,995
Purchases of minerals-in-place.......................... 704 264
Revision of previous estimates.......................... 101 47,031
Production.............................................. (388) (2,725)
------ -------
Balance, September 30, 1996............................... 6,563 179,565
Purchases of minerals-in-place.......................... 12,510 109,381
Revision of previous estimates.......................... 709 15,494
Production.............................................. (326) (3,062)
------ -------
Balance, December 31, 1996................................ 19,456 301,378
====== =======
Proved Developed Reserves:
March 31, 1995.......................................... -- --
December 31, 1995....................................... 5,945 45,470
September 30, 1996...................................... 6,252 54,119
December 31, 1996....................................... 16,024 180,161
</TABLE>

F2-20
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves

The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on period-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses
(based on period-end statutory tax rates, with consideration of future tax
rates already legislated) to be incurred on pretax net cash flows less tax
basis of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10% per year to reflect the estimated timing of the
future cash flows.

Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and
production costs and risks associated with future production. Because of these
and other considerations, any estimate of fair value is necessarily subjective
and imprecise.

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------------- ------------
<S> <C> <C>
Future:
Cash inflows............................... $270,965 $1,300,863
Production and development costs........... (95,490) (348,705)
Future income taxes........................ (45,754) (264,904)
-------- ----------
Future net cash flows.................... 129,721 687,254
10% annual discount for estimated timing of
cash flows.................................. (63,369) (299,391)
-------- ----------
Standardized measure of discounted net cash
flows....................................... $ 66,352 $ 387,863
======== ==========
</TABLE>

Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves

<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Standardized measure, beginning of period..... $ -- $ 66,352
Extensions and discoveries and improved
recovery, net of future production and
development costs.......................... 18,087 --
Accretion of discount....................... -- 6,635
Net change in sales prices, net of
production, costs.......................... -- 83,823
Net change in income taxes.................. (23,401) (126,102)
Purchase of minerals-in-place............... 71,561 298,867
Revision of quantity estimates and revenues
added by development drilling.............. -- 70,755
Sales, net of production costs.............. (439) (14,624)
Other....................................... 544 2,157
-------- ---------
Standardized measure, end of period........... $ 66,352 $ 387,863
======== =========
</TABLE>

F2-21
<PAGE>

TITAN EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)

(18) SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH(1)
--------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Total revenues.................... -- -- $ 173 $ 812
Total expenses.................... -- -- 93 2,423
Net income (loss)................. -- -- 80 (1,611)
Net income (loss) per share....... -- -- .01 (.11)
1996
Total revenues.................... $ 3,304 $ 3,486 $ 3,587 $ 13,591
Total expenses.................... 3,155 3,485 5,947 12,784
Net income (loss)................. 149 1 (2,360) 807
Net income (loss) per share....... (.01) -- (.11) .03
1997
Total revenues.................... $ 18,036 $ 16,203 $ 17,871 $ --
Total expenses.................... 15,759 14,478 15,311 --
Net income (loss)................. 2,277 1,725 2,560 --
Net income (loss) per share....... .06 .05 .07 --
</TABLE>
- --------
(1) In the fourth quarter of 1995, Titan acquired a group of producing oil and
gas properties from a large independent company (the 1995 Acquisition). In
the fourth quarter of 1996, Titan acquired additional producing oil and
gas properties from a major integrated company (the 1996 Acquistion). See
the financial statements of the 1995 Acquisition and the 1996 Acquisition
included elsewhere herein.

F2-22
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Offshore Energy Development Corporation:

We have audited the accompanying consolidated balance sheet of Offshore
Energy Development Corporation as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period November 7, 1996 through December 31, 1996 and the consolidated
balance sheet of the Company's Predecessors as of December 31, 1995 and the
related Predecessors' consolidated statements of operations, predecessors'
equity (deficit) and cash flows for the period January 1, 1996 through
November 6, 1996 and for the years ended December 31, 1995 and 1994. These
consolidated financial statements are the responsibility of the Company's and
the Predecessors' management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Offshore
Energy Development Corporation and its Predecessors as of December 31, 1996
and 1995, respectively, and the results of its operations and its cash flows
and those of its Predecessors for the period November 7, 1996 through December
31, 1996 and the period January 1, 1996 through November 6, 1996 and for the
years ended December 31, 1995 and 1994, respectively, in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
March 17, 1997

F3-1
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1995 1997
(PREDECESSORS) (COMPANY) (COMPANY)
-------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $ 710,306 $ 18,407,768 $ 2,024,302
Accounts receivable--trade,
affiliate and other.............. 2,352,191 4,184,702 4,877,446
Prepaids and other assets......... 27,484 45,491 500,496
----------- ------------ ------------
Total current assets............ 3,089,981 22,637,961 7,402,244
Oil and gas properties--at cost
(successful efforts method)........ 26,153,845 36,769,166 60,415,462
Other property and equipment........ 329,923 372,946 689,093
Accumulated depreciation, depletion
and amortization................... (6,376,095) (11,439,301) (15,652,751)
----------- ------------ ------------
20,107,673 25,702,811 45,451,804
Investments in affiliates and
others............................. 245,783 729,784 1,655,523
Investments in certificates of
deposits, restricted............... 1,378,601 1,445,442 2,204,161
Deferred and other assets........... 348,347 424,855 574,013
----------- ------------ ------------
Total Assets.................... $25,170,385 $ 50,940,853 $ 57,287,745
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts payable--trade and
affiliate........................ $ 3,137,347 $ 6,392,031 $ 7,956,296
Capital lease payable--current.... 168,168 187,444 144,161
Accrued liabilities............... 357,766 404,138 628,784
Current maturities of long-term
debt............................. 12,260,962 -- 700,000
----------- ------------ ------------
Total current liabilities....... 15,924,243 6,983,613 9,429,241
Long-term debt...................... -- -- 8,800,000
Deferred tax liability.............. -- 1,442,844 --
Capital lease payable--noncurrent... 831,692 462,380 365,880
Reserve for abandonment............. 236,608 480,906 693,936
----------- ------------ ------------
Total Liabilities............... 16,992,543 9,369,743 19,289,057
Redeemable preference units, net.... 10,294,365 -- --
Stockholders' equity (Deficit):
Predecessor deficit............... (2,116,523) -- --
Preferred stock, $.01 par value,
authorized 1,000,000 shares, none
issued or outstanding............ -- -- --
Common stock--Offshore Energy
Development Corporation $.01 par
value; authorized 10,000,000
shares; issued and outstanding
8,701,885 at December 31, 1996
and September 30, 1997,
respectively..................... -- 87,019 87,019
Additional paid-in capital........ -- 42,645,778 42,645,778
Retained earnings................. -- (1,161,687) (4,734,109)
----------- ------------ ------------
Total stockholders' equity
(deficit)...................... (2,116,523) 41,571,110 37,998,688
----------- ------------ ------------
Commitments and contingencies
Total Liabilities and Stockholders'
Equity (Deficit)................... $25,170,385 $ 50,940,853 $ 57,287,745
=========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F3-2
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
JANUARY 1 NOVEMBER 7
YEAR ENDED YEAR ENDED THROUGH THROUGH NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 6, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
(PREDECESSORS) (PREDECESSORS) (PREDECESSORS) (COMPANY) (PREDECESSORS) (COMPANY)
-------------- -------------- -------------- ------------ ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income:
Exploration and
production............. $ 5,512,496 $ 6,168,591 $ 8,018,667 $ 1,816,403 $ 7,214,461 $ 7,033,196
Pipeline operating and
marketing.............. 358,150 166,419 808,081 206,124 718,418 822,654
Equity in earnings
(loss) of
equity investments..... (2,779) 496,979 37,753 15,125 41,753 83,430
Gain on sales of oil and
gas properties or
partnership
investments, net....... 13,655,225 -- 10,661,433 -- 10,661,433 61,146
----------- ----------- ----------- ----------- ----------- -----------
Total Income............ 19,523,092 6,831,989 19,525,934 2,037,652 18,636,065 8,000,426
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operations and
maintenance............ 1,410,231 2,210,070 1,746,710 225,687 1,520,932 1,649,820
Exploration charges..... 2,231,349 404,836 961,798 1,335,338 918,774 5,157,174
Depreciation, depletion
and amortization....... 2,112,350 5,501,072 4,273,109 624,535 3,876,782 4,041,549
Abandonment expense..... 2,735,253 84,219 216,215 1,084,695 216,215 577,102
General and
administrative......... 2,358,668 2,191,877 1,824,963 500,258 1,622,591 2,483,241
----------- ----------- ----------- ----------- ----------- -----------
Total Expenses.......... 10,847,851 10,392,074 9,022,795 3,770,513 8,155,294 13,908,886
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before
interest and taxes...... 8,675,241 (3,560,085) 10,503,139 (1,732,861) 10,480,771 (5,908,460)
Interest Income (Expense)
and Other:
Interest expense........ (589,948) (1,651,063) (782,708) -- (709,190) (153,049)
Preferential payments
by subsidiaries........ (1,430,722) -- -- -- -- --
Interest income and
other, net............. 316,668 122,974 (70,083) (24,468) (40,980) 1,046,243
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Income
(Expense) and Other.... (1,704,002) (1,528,089) (852,791) (24,468) (750,170) 893,194
----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) Before
Income Taxes............ 6,971,239 (5,088,174) 9,650,348 (1,757,329) 9,730,601 (5,015,266)
Income Tax Benefit
(Expense)............... (26,723) 21,375 (2,038,486) 595,642 (4,778) 1,442,844
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss)........ 6,944,516 (5,066,799) 7,611,862 (1,161,687) 9,725,823 (3,572,422)
Preference unit payments
and accretion of
discount................ (585,000) (1,141,865) (2,616,722) -- (1,332,357) --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) available
to common unit holders
and stockholders........ $ 6,359,516 $(6,208,664) $ 4,995,140 $(1,161,687) $ 8,393,466 $(3,572,422)
=========== =========== =========== =========== =========== ===========
Income (loss) available
to common unit holders
and stockholders per
common share............ $ 1.26 $ (1.23) $ 0.99 $ (0.13) $ 1.66 $ (0.41)
=========== =========== =========== =========== =========== ===========
Weighted average number
of common shares and
common share
equivalents outstanding.. 5,051,882 5,051,882 5,051,882 8,701,885 5,051,882 8,701,885
=========== =========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F3-3
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND PREDECESSORS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
PREDECESSORS' PAID-IN ACCUMULATED AND PREDECESSORS'
EQUITY (DEFICIT) SHARES AMOUNT CAPITAL (DEFICIT) EQUITY (DEFICIT)
---------------- --------- ------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994
(Predecessors)......... $(1,090,748) -- $ -- $ -- $ -- $(1,090,748)
Capital Distributions... (3,076,681) -- -- -- -- (3,076,681)
Net income.............. 6,944,516 -- -- -- -- 6,944,516
Preference units
payments............... (585,000) -- -- -- -- (585,000)
----------- --------- ------- ----------- ----------- -----------
December 31, 1994
(Predecessors)......... 2,192,087 -- -- -- -- 2,192,087
Capital distributions... (100,000) -- -- -- -- (100,000)
Issuance of common
units, 99,000 units.... 2,000,000 -- -- -- -- 2,000,000
Issuance of common
stock, 5,400 shares.... 54 -- -- -- -- 54
Net loss................ (5,066,799) -- -- -- -- (5,066,799)
Preference unit
payments............... (847,500) -- -- -- -- (847,500)
Accretion of discount on
preference units....... (294,365) -- -- -- -- (294,365)
----------- --------- ------- ----------- ----------- -----------
December 31, 1995
(Predecessors)......... (2,116,523) -- -- -- -- (2,116,523)
Net income.............. 7,611,862 -- -- -- -- 7,611,862
Preference unit
payments............... (911,087) -- -- -- -- (911,087)
Issuance of common stock
(Company).............. -- 3 -- 30 -- 30
Accretion of discount on
preference units....... (1,705,635) -- -- -- -- (1,705,635)
----------- --------- ------- ----------- ----------- -----------
November 6, 1996
(Predecessors
and Company)........... 2,878,617 3 -- 30 -- 2,878,647
Transfer of predecessor
equity and issuance of
common stock pursuant
to the Combination..... (2,878,617) 5,051,882 50,519 2,828,098 -- --
Issuance of common
stock, net............. -- 3,650,000 36,500 39,817,650 -- 39,854,150
Net loss................ -- -- -- -- (1,161,687) (1,161,687)
----------- --------- ------- ----------- ----------- -----------
December 31, 1996
(Company).............. -- 8,701,885 87,019 42,645,778 (1,161,687) 41,571,110
Net loss (unaudited).... -- -- -- -- (3,572,422) (3,572,422)
----------- --------- ------- ----------- ----------- -----------
September 30, 1997
(Company).............. $ -- 8,701,885 $87,019 $42,645,778 $(4,734,109) $37,998,688
=========== ========= ======= =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F3-4
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
JANUARY 1 NOVEMBER 7 NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED THROUGH THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 6, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
(PREDECESSORS) (PREDECESSORS) (PREDECESSORS) (COMPANY) (PREDECESSORS) (COMPANY)
-------------- -------------- -------------- ------------ -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 6,944,516 $ (5,066,799) $ 7,611,862 $(1,161,687) $ 9,725,823 $ (3,572,422)
Adjustments to reconcile
net income (loss) to
cash provided by
(used in) operations
Depreciation, depletion
and amortization...... 2,234,000 5,652,841 4,409,690 637,755 3,984,982 4,106,637
Abandonment expense.... 2,735,253 84,219 68,644 1,084,695 68,644 195,512
Gain on sales, net..... (13,655,225) -- (10,661,433) -- (10,661,433) (61,146)
Dry hole expense....... 1,585,872 -- 301,750 1,123,601 301,750 3,971,197
Transfer of partnership
equity interest....... 1,300,000 41,126 -- -- -- --
Equity in (earnings)
loss of
equity investments.... 2,779 (496,979) (37,753) (15,125) (41,753) (83,430)
Change in interest of
oil and
gas partnerships...... 25,864 344,590 845,995 (2,101,538) 753,382 5,645,281
Deferred taxes......... 23,018 (23,018) 2,038,486 (595,642) 4,778 (1,442,844)
Changes in assets and
liabilities:
Accounts receivable.... 1,211,677 (1,561,151) 639,167 (999,717) 755,218 (975,182)
Deferred and other
assets................ (72,381) 134,016 (853,006) (874,129) (1,910,033) (1,069,996)
Accounts payable....... 443,173 719,648 2,748,657 (2,245,598) 213,359 3,007,834
Accrued liabilities.... 54,839 (211,565) 358,381 (312,009) 550,276 257,450
------------ ------------ ------------ ----------- ------------ ------------
Total adjustments..... (4,111,131) 4,683,727 (141,422) (4,297,707) (5,980,830) 13,551,313
------------ ------------ ------------ ----------- ------------ ------------
Net cash provided by
(used in) operating
activities........... 2,833,385 (383,072) 7,470,440 (5,459,394) 3,744,993 9,978,891
INVESTING ACTIVITIES
Investment in equity
interests.............. (192,474) (263,534) (245,748) (208,930) (243,748) (842,309)
Advances to equity
investees.............. (714,918) (836,137) -- -- -- --
Repayments from equity
investees.............. 40,624 997,791 512,640 -- 512,640 --
Short term investments.. 50,000 -- -- -- -- --
Cash paid under net
profits interest....... (32,440) -- -- -- -- --
Proceeds from the sales
of properties and other
investments............ 40,289,309 -- 11,340,093 -- 11,340,093 100,760
Note receivable......... 246,030 -- -- -- -- --
Restricted investments
in certificates of
deposit................ (134,682) (558,431) (55,224) (11,617) (50,215) (758,719)
Capital expenditures for
property and
equipment.............. (18,418,340) (15,965,301) (7,955,984) (2,041,103) (4,492,440) (34,222,306)
------------ ------------ ------------ ----------- ------------ ------------
Net cash provided by
(used in) investing
activities........... 21,133,109 (16,625,612) 3,595,777 (2,261,650) 7,066,330 (35,722,574)
</TABLE>

See accompanying notes to consolidated financial statements.

F3-5
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
JANUARY 1 NOVEMBER 7 NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED THROUGH THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 6, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
(PREDECESSORS) (PREDECESSORS) (PREDECESSORS) (COMPANY) (PREDECESSORS) (COMPANY)
-------------- -------------- -------------- ------------ -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Capital distributions... $ (3,076,681) $ (100,000) $ -- $ -- $ -- $ --
Proceeds from issuance
of redeemable
preference units and
common units........... -- 5,500,000 -- -- -- --
Redemption of preference
units.................. -- -- -- (12,000,000) -- --
Preference unit
payments............... (585,000) (847,500) (802,500) (108,587) (802,500) --
Payments of note payable
to partner............. (2,000,000) -- -- -- -- --
Proceeds from
borrowings............. 7,400,000 8,291,492 3,133,606 -- 2,633,606 9,500,000
Principal payments on
borrowings............. -- (3,430,530) (12,260,962) (3,133,606) (12,260,962) --
Fees paid to acquire
financing.............. (560,003) -- (121,004) (39,884) (98,971) --
Settlement of production
payment................ (20,237,945) -- -- -- -- --
Proceeds from stock
issuance............... -- -- -- 40,734,030 -- --
Payment of initial
public
offering expenses...... -- -- -- (879,850) -- --
Principal payments on
capital lease.......... (490,513) (108,254) (139,378) (29,576) (110,331) (139,783)
------------ ----------- ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities........... (19,550,142) 9,305,208 (10,190,238) 24,542,527 (10,639,158) 9,360,217
------------ ----------- ------------ ------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents.......... 4,416,352 (7,703,476) 875,979 16,821,483 172,165 (16,383,466)
Cash and cash
equivalents balance,
beginning of period.... 3,997,430 8,413,782 710,306 1,586,285 710,306 18,407,768
------------ ----------- ------------ ------------ ------------ ------------
Cash and cash
equivalents balance,
end of period.......... $ 8,413,782 $ 710,306 $ 1,586,285 $ 18,407,768 $ 882,471 $ 2,024,302
============ =========== ============ ============ ============ ============
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for interest... $ 353,809 $ 1,760,571 $ 744,045 $ 58,407 $ 712,545 $ 103,199
============ =========== ============ ============ ============ ============
Cash paid during the
period for income
taxes................. $ -- $ -- $ -- $ -- $ -- $ --
============ =========== ============ ============ ============ ============
Supplemental disclosure
of non-cash activity:
Capital lease
acquisition........... $ 256,553 $ 762,349 -- -- -- --
Issuance of stock...... -- 54 -- -- -- --
Accretion of discount
on preference units... -- 294,365 $ 1,705,635 -- $ 529,857 --
Interests in OEDC
Partners, L.P. and
OEDC Inc. contributed
for common stock...... -- -- 50,519 -- -- --
Predecessors' partners
capital and retained
earnings reclassified
to additional
paid-in capital....... -- -- 2,828,098 -- -- --
</TABLE>

See accompanying notes to consolidated financial statements.

F3-6
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 AND UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include, in the
opinion of management, all adjustments necessary to present fairly the
consolidated financial position of Offshore Energy Development Corporation
("OEDC" or the "Company") at September 30, 1997 and its results of operations
and cash flows for the nine months ended September 30, 1997 and 1996.

ORGANIZATION AND BUSINESS PURPOSE

Offshore Energy Development Corporation ("OEDC" or the "Company") is a
Delaware corporation formed on July 24, 1996 for the purpose of acquiring the
common stock of OEDC, Inc. and the partners' interest in OEDC Partners, L.P.
(the "Combination"). At formation, OEDC issued a share of stock to three of
its officers.

The Combination was consummated on November 6, 1996 and OEDC issued
5,051,882 shares of common stock to the stockholders of OEDC, Inc. ("Inc.")
and the partners of OEDC Partners, L.P. ("Partners"), collectively (the
"Predecessors). The Combination was accounted for by assigning the
Predecessors' carryover basis to the acquired assets. In conjunction with the
Combination, the Company completed a public issuance of 3,650,000 shares of
common stock.

The Predecessors were formed on August 31, 1992 for the purpose of investing
in certain partnerships involved in drilling, producing, marketing, gathering
and storing oil and gas. Upon completion of the Combination, all of Partners'
assets and liabilities were transferred to OEDC, the partners of Partners were
issued common stock in exchange for their interests and Partners was
dissolved. The shareholders of Inc. exchanged their Inc. common stock for OEDC
common stock and Inc. became a wholly-owned subsidiary of OEDC.

PRINCIPLES OF CONSOLIDATION

The Company's investments in associated oil and gas partnerships are
accounted for using the proportionate consolidation method, whereby the
Company's proportionate share of each oil and gas partnerships' assets,
liabilities, revenues, and expenses is included in the appropriate
classifications in the Company's financial statements. Investments in non-oil
and gas partnerships where the Company has ownership interest of less than 50%
are accounted for on the equity method, all investments with an ownership
interest of less than 20% are accounted for on the cost method. All of the
Company's material intercompany accounts and transactions have been eliminated
in the consolidation.

The consolidated financial statements include the consolidated accounts of
Inc. and Partners prior to the Combination. The consolidated financial
statements are presented due to Inc.'s sole general partner interest and
control over Partners. The stockholders' equity of Inc. and partners' equity
of Partners are presented together due to the commonality of the stockholders
and partners of Inc. and Partners.

CASH AND CASH EQUIVALENTS

Short-term investments with an original maturity of three months or less are
considered cash equivalents and are classified as such in the accompanying
statements of cash flows. Cash and cash equivalents consist of cash on hand
and investments in short-term government securities at cost, which
approximates market.

OIL AND GAS PROPERTIES

Oil and gas properties are accounted for on the successful efforts method
whereby costs, including lease acquisition and intangible drilling costs
associated with exploration efforts which result in the discovery of

F3-7
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

proved reserves and costs associated with development wells, whether or not
productive, are capitalized. Gain or loss is recognized when a property is
sold or ceases to produce and is abandoned. Capitalized costs of producing oil
and gas properties are amortized using the unit-of-production method based on
units of proved developed reserves for each property whereas leasehold costs
are depleted based on total proved reserves.

The costs of unproved leaseholds are capitalized pending the results of
exploration efforts. Significant unproved leaseholds are assessed
periodically, on a property-by-property basis, and a loss is recognized to the
extent, if any, that the costs of the property has been impaired. Exploratory
dry holes, geological and geophysical charges and delay rentals are expensed
as incurred. Costs to operate and maintain wells and equipment and to lift oil
and gas to the surface are expensed as incurred.

Estimated future expenditures for site remediation, abandonment and
dismantlement costs are charged to operations using the unit-of-production
method based upon estimates of proved oil and gas reserves for each property.

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, ("SFAS No. 121").
Consequently, the Company reviews its long-lived assets to be held and used,
including oil and gas properties accounted for under the successful efforts
method of accounting, whenever events or circumstances indicate the carrying
value of those assets may not be recoverable. SFAS No. 121 requires that an
impairment loss be recognized whenever the carrying amount of an asset exceeds
the sum of the estimated future net cash flows (undiscounted) of the asset.
Under SFAS No. 121, the Company performs its impairment review of proved oil
and gas properties on a depletable unit basis. For any depletable unit
determined to be impaired, an impairment loss equal to the difference between
the carrying value and the fair value of the depletable unit will be
immediately recognized. Fair value, on a depletable unit basis, is estimated
to be the present value of expected future cash flows computed by applying
estimated future oil and gas prices, as determined by management, to estimated
future production of oil and gas reserves over the economic lives of the
reserves. No such impairment was recognized as a result of the adoption of
SFAS No. 121.

Prior to January 1, 1996, the Company determined the impairment of proved
oil and gas properties on an aggregate basis. Using the aggregate basis, if
the net capitalized costs exceeded the estimated future undiscounted after-tax
net cash flows from proved oil and gas reserves using period-ending pricing,
such excess would be charged to expense. No such charge was required at
December 31, 1995 or 1994.

INCOME TAXES

The Company provides for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Prior to the Combination, Partners was a limited partnership. As such, it
was not subject to federal income taxes; the taxable income or loss was passed
through to the partners.

STOCK-BASED COMPENSATION

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS
No. 123"). SFAS No. 123 allows a

F3-8
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

company to adopt a fair value based method of accounting for a stock-based
employee compensation plan or to continue to use the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB No. 25"). The Company has
chosen to continue to account for stock-based compensation under APB No. 25
using the intrinsic value method. Under this method, the Company has not
recorded any compensation expense related to stock options granted. The
disclosures required by SFAS No. 123, however, have been included in Note 6.

REVENUE RECOGNITION

The Company uses the sales method of accounting for natural gas imbalances.
Under the sales method, the Company recognizes revenues based on the amount of
gas sold to purchasers, which may differ from the amounts to which the Company
is entitled based on its interest in the properties. Gas imbalance obligations
as of December 31, 1996, 1995, and 1994, and September 30, 1997 and 1996 were
not significant.

The Company recognizes marketing revenue net of the cost of gas and third-
party delivery fees as service is provided.

The Company recognizes pipeline operating revenue as service is provided.

NATURAL GAS HEDGING ACTIVITIES

The Company periodically enters into natural gas price swaps with third
parties to hedge against potential adverse effects of fluctuations in future
prices for the Company's anticipated production volumes based on current
engineering estimates. The natural gas price swaps qualify as hedges and
correlate to natural gas production; therefore any gains or losses will be
recorded when the related natural gas production has been delivered. In order
to qualify as a hedge, the price movements in the underlying commodity
derivatives must be sufficiently correlated with the hedged commodity.

Gains and losses on closed natural gas swap agreements will be deferred and
amortized over the original term of the agreement. Should the natural gas
price swaps cease to be recognized as a hedge, subsequent changes in value
will be recorded in the Statements of Operations. While the swaps are intended
to reduce the Company's exposure to declines in the market price of natural
gas, they may limit the Company's gain from increases in the market price. The
swap agreements also expose the Company to credit risk to the extent the
counterparty is unable to perform under the agreement.

OTHER PROPERTY AND EQUIPMENT

Other property and equipment consists of furniture, office equipment and
automobiles which are depreciated on a straight-line basis over the estimated
useful life of the assets ranging from five to seven years.

DEFERRED AND OTHER ASSETS

The December 31, 1996 and 1995 and September 30, 1997 and 1996 balances
primarily consist of financing fees, incurred in securing a long-term note
payable, and partnership organization costs. The financing fees are being
amortized over the life of the loan and the partnership organization costs are
being amortized over 60 months.

NET INCOME PER SHARE

Net income per common share is computed using the weighted average number of
common shares outstanding and common stock equivalents during each of the
years presented. Outstanding stock options are common stock equivalents and
are considered when the effect is dilutive.

F3-9
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses approximates fair value
because of the short-term maturity of these instruments.

The carrying value of the outstanding debt at December 31, 1995 approximated
fair value as this debt bears interest at rates which approximate current
market rates and there has been no change in the Company's credit profile.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. Certain amounts of reported revenues and expenses are
also affected by these estimates and assumptions. Actual results could differ
from those estimates.

2. INVESTMENTS

AFFILIATES

Through Dauphin Island Gathering Company, L.P. ("DIGCO"), a partnership
wholly-owned by OEDC, the Company has a one percent investment in Dauphin
Island Gathering Partners ("DIGP") that is accounted for using the equity
method. This investment includes undistributed earnings (losses) of
approximately $53,000, $497,000 and $(3,000) in 1996, 1995, and 1994, and
$83,000 and $42,000 for the nine months ended September 30, 1997 and 1996,
respectively.

On January 14, 1993, the Company entered into a Texas general partnership
with Enron Gas Gathering, Inc. ("EGGI"), a wholly-owned subsidiary of Enron
Corp., to form DIGP to which the Company contributed the Dauphin Island
Gathering System ("DIGS") together with certain permits, contracts, accrued
income and liabilities with a net book value of $13,692. The Company serves as
operator of DIGP's pipeline facilities. Under the DIGP partnership agreement,
income is to be allocated on the basis of 80% to EGGI and 20% to the Company
until such time as EGGI has recouped its investment together with a specified
rate of return, as defined. After such time, both income and losses will be
allocated equally to EGGI and to the Company.

On March 25, 1994, DIGP entered into a contribution agreement with Tenneco
Gas, Inc. ("Tenneco"), whereby Tenneco contributed $19 million in cash,
contracts and materials to DIGP in exchange for a 50% interest in DIGP. The
remaining 50% interest was split evenly between the Company and EGGI.

Also in 1994, the Company transferred $1,300,000 of its partners' capital in
DIGP to EGGI. The Company and EGGI agreed that the transfer resulted in EGGI
realizing the recoupment of its investment as of September 30, 1994. Beginning
October 1, 1994, income and losses were allocated 50% to Tenneco, 25% to EGGI
and 25% to the Company.

In 1995, DIGP recorded an $82,252 transfer of partners' capital from the
Company and EGGI to Tenneco to reflect the proper allocation of state sales
and use tax relating to materials purchased prior to March 25, 1994 by DIGP to
construct DIGS. The transfer was split evenly between the Company and EGGI. As
a result, the Company transferred $41,126 of its partners' capital in DIGP to
Tenneco.

In 1996, the Company sold approximately 96% if its remaining interest in
DIGP to a subsidiary of MCN Investment Corporation ("MCN") thereby reducing
its interest in DIGP to 1%.

F3-10
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Effective December 31, 1996, DIGP merged with Main Pass Gas Gathering
Company, which owned the Main Pass Gas Gathering System, with DIGP being the
surviving entity of the merger. In connection with the merger, the Company
agreed to purchase from one of its partners in DIGP for approximately $619,000
additional interest in DIGP in order to maintain the Company's interest in
DIGP at 1%.

The Company continues to operate DIGS and, pursuant to an incentive
management arrangement, its one percent interest in DIGP will increase up to a
maximum of 11.15% when its DIGP partners receive the return of their
investment plus a 10% rate of return, subject to certain other conditions.
Accordingly, the investment continued to be carried on the equity method.

Summarized financial data of DIGP as of December 31, 1995 and 1994 and for
the years then ended follows:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Current assets..................................... $ 3,496,164 $ 1,963,998
Long-term assets................................... 51,714,521 58,172,859
----------- -----------
Total assets....................................... $55,210,685 $60,136,857
=========== ===========
Current liabilities................................ $ 6,702,506 $ 9,689,455
Long-term liabilities.............................. 18,461,633 18,375,242
Partners' capital.................................. 30,046,546 32,072,160
----------- -----------
Total liabilities and partners' capital............ $55,210,685 $60,136,857
=========== ===========
Revenues........................................... $ 4,482,987 $ 9,526,215
Operating expenses................................. (4,299,971) (7,500,601)
----------- -----------
Net income......................................... $ 183,016 $ 2,025,614
----------- -----------
The Company's share of net income.................. $ 29,661 $ 506,403
=========== ===========
</TABLE>

Summarized financial data for the year ended and as of December 31, 1996 and
subsequently is not presented since the Company's ownership interest in DIGP
is not material to its current operations.

In 1996, the Company and subsidiaries of MCN and PanEnergy Corp formed a
partnership (the "Processing Partnership") for the purpose of constructing,
owning and operating, or providing financing for one or more natural gas
processing facilities onshore in Mobile County, Alabama. The Company has
approximately $200,000 invested in the Processing Partnership, representing a
1% general partnership interest. The Company has an option to buy an
additional 32 1/3% interest in the Processing Partnership, exercisable until
the third anniversary of the commencement of commercial operations at the
Processing Partnership's initial processing facility. The costs of the
additional partnership interest will be equal to the historical book value of
the plant reduced for depreciation on the date the option is exercised and
increased by 12% per year.

OTHER

The Company has approximately $250,000 invested in Asia-Pacific Refinery
Investment, L.P. ("APRI"), representing a 13.33% limited partnership interest,
which is carried at cost. APRI is involved in the construction and operation
of a refinery unit and is currently in the final stages of compiling a
financing group to generate the additional funds necessary to begin
construction of the refinery. The Company has no responsibility to provide
additional funds to APRI. The refinery will be constructed in Houston, Texas
and transported to Papua New Guinea. APRI has already purchased the necessary
refinery site in Papua New Guinea. The construction of the refinery began in
1997. Subsequent to September 30, 1997 APRI sold approximately 2% of its
holdings and distributed the sale proceeds to the partners. The Company
received $83,196 in this distribution. The Company also has a $4,109
investment in the Salach Partnership ("Salach"). Salach was formed to
participate in the acquisition of on-shore undeveloped leases. Salach's
operations have been, and are expected to be, insignificant to the Company.

F3-11
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. LONG-TERM DEBT

In 1994, the Company obtained a credit facility from Joint Energy
Development Investments Limited Partnership totaling $16,000,000. The
$16,000,000 includes a revolving credit loan for $7,500,000 and a term loan
for $8,500,000 made available to the Company upon request. The outstanding
principal balance of each revolving credit loan accrues interest at a varying
rate per annum that is 2.5% per annum above the prime lending rate. The
outstanding principal amount of each term loan bears interest from the date
made until the due date at a rate of 15% per annum. Under the debt agreement,
principal repayments for the term loan are to begin on or before March 20,
1995. Amounts outstanding under the revolving loan are due in full in August
1996. The current portion of the term loan is determined based on the terms
set forth in the agreements. At December 31, 1995, the Company had borrowed $5
million against the revolving loan and $7,260,962 against the term loan. All
amounts borrowed were repaid in 1996 and the credit facility was terminated.

In 1996, the Company entered into a two-year $10,000,000 line of credit with
Union Bank of California, N.A. At June 30, 1997, the borrowing base was
$3,125,500 with no amounts outstanding under this facility. The borrowing base
is reduced by $312,500 per month through August 31, 1997, by $250,000 per
month for the succeeding six months and by $166,667 per month for the final
six months of the agreement, unless changed by the bank at the time of a
borrowing base redetermination. The borrowing base is to be redetermined every
six months. Borrowings under this facility bear interest at a rate equal to,
at the Company's option, either the bank's reference rate plus 1% or LIBOR
plus 2.5%.

Subsequent to September 30, 1997, the line of credit agreement was restated,
raising the borrowing base to $16,000,000 and extending the commitment period
of the agreement to September 30, 1999. The borrowing base is reduced by
$800,000 for the first twelve months after December 31, 1997, by $640,000 per
month for the succeeding six months and by $450,000 for the next two months of
the agreement, unless changed by the bank at the time of a borrowing base
redetermination. Any remaining principal balance is due and payable on
September 30, 1999. The borrowing base is to be redetermined every three
months. At September 30, 1997, the classification of the outstanding balance
between current and long-term is reflective of the terms of the restated
credit agreement.

The Union Bank credit facility is collateralized by the Company's
investments in oil and gas properties. The credit facility contains
restrictive covenants imposing limitations on the incurrence of indebtedness,
the sale of properties, payment of dividends, mergers or consolidations,
capital expenditures, transactions with affiliates, making loans and
investments outside the ordinary course of business. The credit facility also
contains certain restrictions of working capital and interest coverage and
requires the Company to maintain a certain volume of hedging contracts in
effect during the term of the facility.

The Company is in compliance with all debt covenants for all periods
presented.

4. REDEEMABLE PREFERENCE UNITS

In August of 1992, the Predecessors issued 100,000 common units to one of
its partners. In July of 1995, an additional 20,000 preference units were
issued and the redemption price of all 120,000 preference units was increased
to $100 from $65 per unit, resulting in a redemption value of $12 million. Of
the total cash contribution made by the Predecessors' partners, $10 million
was allocated to the preference units. The difference between the redemption
value and recorded value of the preference units, $2,000,000, is being
accreted over the redemption period for the preference units. The Predecessors
paid a 9% coupon on the preference units outstanding.

The preference units were redeemed for $12 million in November of 1996 at
which time, the unaccreted discount was recognized in the Statements of
Operation and all obligations under the agreement were terminated.

F3-12
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. STOCKHOLDERS' EQUITY

In November of 1996, the Company completed an initial public offering,
issuing 3,650,000 shares of stock.

The Board of Directors of the Company is empowered, without approval of
stockholders, to cause shares of preferred stock to be issued in one or more
series. The Board of Directors is authorized to fix and determine variations
in designations, preferences and relative, participating, optional or other
special rights and the limitations or restrictions of such rights and voting
powers, No preferred stock has been issued at December 31, 1996.

Holders of common stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common
stockholders. The common stock does not have cumulative voting rights. Holders
of common stock are entitled to received dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefore, subject to
any preferential dividend rights of holders of outstanding preferred stock.

6. KEY EMPLOYEE STOCK PLAN

The Company has established a stock awards plan (the "1996 Stock Awards
Plan") pursuant to which options to purchase up to 835,000 shares of common
stock will be available for grants. The 1996 Stock Awards Plan provides for
the granting of incentive options, non-qualified stock options, restricted
stock awards, stock appreciation rights, performance awards and phantom stock
awards, or any combination thereof. Non-qualified stock options to purchase
727,580 shares of common stock were granted in 1996 and are outstanding and
subject to vesting requirements. Twenty percent of the granted options vest
each year. Of such, options to purchase 187,580 shares of common stock (of
which 99,268 are currently exercisable) were exchanged for options issued by
Offshore Energy Development Corporation (a Texas Corporation) prior to 1995 at
a fair value exercise price of $3.61. The quantity and price of the options
have been adjusted for the effect of the Combination and the exercise price
was adjusted to the initial public offering price per share. The exercise
price of the balance of options to purchase 727,580 shares of common stock is
$12. No option may be exercised earlier than six months from the date of
grant.

At December 31, 1996, the Company has reserved a total of approximately
727,580 shares of common stock for issuance under the 1996 Stock Award Plan.
The outstanding stock options granted to key employees, officers and directors
for the purchase of shares of the Company's common stock are as follows:

<TABLE>
<CAPTION>
PRICE PER SHARE
--------------------
SHARES FROM TO
------- ----- ------
<S> <C> <C> <C>
Balance, December 31, 1995............................. -- -- --
Granted................................................ 727,580 $3.61 $12.00
Exercised.............................................. -- -- --
Expired................................................ -- -- --
------- ----- ------
Balance, December 31, 1996............................. 727,580 $3.61 $12.00
======= ===== ======
</TABLE>

As of December 31, 1996, 99,268 options are immediately exercisable and have
a remaining term of approximately seven years. No grants were made in 1994 or
1995. The expected life of the options granted is 8-10 years. The weighted
average fair value of options granted during 1996 is $5.48. The fair value of
each option grant is estimated on the date of grant, using the Black-Scholes
options-pricing model. The model assumed expected volatility of 30% and risk-
free interest rates of 5.58%, 6.69%, and 6.31% for grants in 1996. As the
Company has not declared dividends since it became a public entity, no
dividend yield was used. Actual value realized, if any, is dependent on the
future performance of the Company's common stock and over all stock

F3-13
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

market conditions. There is no assurance the value realized by an optionee
will be at or near the value estimated by the Black-Scholes model.

Outstanding options at December 31, 1996 expire between January 2004 and
November 2006.

As discussed in Note 1, no compensation expense has been recorded in 1996
for the Company's non-qualified stock options under the intrinsic value
method. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates for awards made after
December 31, 1994 under those plans, the Company's net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net income (loss)..............................................
As reported.................................................. $3,833,453
Pro forma.................................................... $ (152,716)
Earnings (loss) per share......................................
As reported.................................................. $ 0.68
Pro forma.................................................... $ (0.03)
</TABLE>

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

7. ABANDONMENT OF OIL AND GAS OF PROPERTIES

After evaluating the potential results from a workover of the well, the
Company allowed its lease on the Eugene Island Block 163 to expire in 1994.
All property costs and accumulated depletion and depreciation were written off
in 1994, resulting in an abandonment charge of $2,108,743. As of December 31,
1994, $292,425 had been accrued for final abandonment costs which were
incurred in 1995. During 1996, the Company incurred $147,572 in abandonment
expense for the settlement of disputed invoices related to the Eugene Island
Block 163 abandonment and accrued an additional $150,538 for future
abandonment costs.

In 1996, the Company allowed its lease on the Viosca Knoll Block 118 to
expire. All property costs were written off in 1996, resulting in a lease
expiration charge of $581,020. Also in 1996, due to poor results from the
South Timbalier Block 162 B-8 well, the well costs and accumulated depletion
and depreciation were written off, resulting in an abandonment charge of
$421,780.

In 1996, the Company drilled two exploratory dry holes resulting in
exploration charges of $1.4 million. During the nine months ended September
30, 1997, $3,971,197 was charged to operations for exploratory dry holes;
$301,750 of such charges were recorded for the nine months ended September 30,
1996.

The Company has an estimated future abandonment liability related to its
producing properties of approximately $830,000 at December 31, 1996, and
September 30, 1997, which will be amortized to expense over the properties'
reserve life.

F3-14
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. NATURAL GAS HEDGING

During 1996, the Company entered into natural gas price swap agreements with
Enron Capital & Trade Resources. The Company's exploration and production
revenues were decreased by approximately $1,276,000 in 1996 as a result of the
swap agreements.

At December 31, 1996, the Company had the following commitments under swap
agreements:

<TABLE>
<CAPTION>
MONTHLY
VOLUME FIXED PRICE
TIME PERIOD (MMBTU) ($/MMBTU)
----------- ------- ------------
<S> <C> <C>
January 1997 to February 1997.......................... 350,000 $2.009-2.880
March 1997............................................. 370,000 2.009-2.375
April 1997............................................. 400,000 2.009-2.165
May 1997............................................... 410,000 2.009-2.065
June 1997 to August 1997............................... 420,000 2.009-2.045
September 1997......................................... 60,000 2.009
October 1997 to December 1997.......................... 50,000 2.009
</TABLE>

At September 30, 1997, the Company had commitments under natural gas price
swaps for volumes of 1.9 Bcf at prices from $2.009 to $2.755 per mmbtu. Such
commitments expire periodically through March 1998. At September 30, 1997, the
Company estimates the cost of unwinding these positions to be approximately
$805,000.

During 1995 and 1994, the Company entered into natural gas swap agreements
with Enron Capital & Trade Resources and Enron Risk Management Services
Corporation, respectively. During 1995 and 1994, the Company's exploration and
production revenues were increased by approximately $622,000 and $482,000,
respectively, as a result of the swap agreements.

9. SALE OF INVESTMENT IN PARTNERSHIP AND OIL AND GAS PROPERTIES

During 1996, the Company sold approximately 96% of its interest in DIGP to
MCN. The Company received net proceeds of approximately $10,800,000 from MCN
resulting in a gain of approximately $10,800,000. The Company will continue to
operate DIGP and retain a 1% ownership interest (see Note 2).

Also, during 1996 the Company sold its interest in a non-producing oil and
gas property for approximately $500,000 resulting in a loss of approximately
$166,000.

The Company sold a group of properties effective June 1, 1994, to Scana
Petroleum Resources Inc., for net proceeds of approximately $40,000,000,
resulting in a gain of approximately $13,700,000.

F3-15
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. CAPITAL LEASE

During 1994, the Company entered into a capital lease agreement for a
compressor unit. The compressor, with a net book value at December 31, 1996 of
approximately $632,000, is the security for the lease. The agreement calls for
monthly payments of $22,614 including interest at a basic annual rate of 11%.
Total future minimum lease obligations at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1997............................................................. $271,368
1998............................................................. 271,368
1999............................................................. 271,368
2000............................................................. 22,614
--------
Total future minimum lease payments................................ 836,718
Less amounts representing interest................................. 186,894
--------
Present value of future minimum lease payments..................... 649,824
Less current installments of obligation under capital lease........ 187,444
--------
Obligations under capital lease, excluding current installments.... $462,380
========
</TABLE>

11. RELATED PARTY TRANSACTIONS

OPERATOR FEES

The Company, as operator of the DIGS, is entitled to charge certain fees to
DIGP attributable to the pipeline operations. For the nine months ended
September 30, 1997 and 1996, respectively, the Company charged $562,500 and
$446,337 in operator fees to DIGP. For the year ended December 31, 1996, the
Company charged $611,337 in operator fees to DIGP. In 1995, the Company
charged $139,544 in operator fees and construction overhead fees to DIGP, of
which $65,569 is a receivable at December 31, 1995. In 1994, the Company
charged $338,221 in operator fees and construction overhead fees to DIGP.

RECEIVABLE FROM AFFILIATES

At September 30, 1997, the Company had affiliated receivables from DIGP of
$162,491 for expenses paid by the Company on behalf of DIGP. Also, at
September 30, 1997, the Company had a receivable from Enron for $1,504,509 for
development costs paid by the Company on behalf of Enron Capital & Trade
Resources ("ECT"). At December 31, 1996, the Company had affiliated
receivables from DIGP of $87,979 for expenses paid by the Company on behalf of
DIGP. Also at December 31, 1996, the Company had a receivable from ECT for
$1,787,084 for development costs paid by the Company on behalf of ECT. This
receivable is included in the accounts receivable from others balance at
December 31, 1996. At December 31, 1995, the Company had affiliated
receivables from DIGP of $585,732, representing expenses paid by the Company
on behalf of DIGP and accrued interest charged to DIGP for its outstanding
payable balance due to the Company at a rate commensurate with DIGP's long-
term borrowing rate. The interest charged is in accordance with the DIGP
Partnership Agreement. Also at December 31, 1995, the Company had a receivable
from NGP in the amount of $54 for the purchase of the Predecessor's common
stock and $1,713 from the Company's officers for expenses paid by the Company
on behalf of the officers.

PREFERENCE UNIT PAYMENTS

Preference units payments totaling $911,087, $847,500 and $585,000 were paid
to NGP for preference units outstanding during the years ended December 31,
1996, 1995 and 1994, respectively. The preference units were redeemed for
$12,000,000 by the Company in November 1996 at which time the unaccreted
discount was recognized in the Statements of Operations.

F3-16
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

OTHER

During 1994, the Company made a $130,722 non-cash preferential payment, in
the form of a transfer of partners capital to Enron Finance Corporation
("EFC") to complete EFC's recoupment of its investment in an oil and gas
partnership participated in by both EFC and the Company. Upon EFC's recoupment
of its initial investment in the partnership, the income (loss) sharing ratio
between EFC and the Company was restructured.

One of the employees, who is also an officer and a director of the Company,
is a majority shareholder of CSA Financial Services ("CSA"). CSA provides, on
a contractual basis, all Company operating personnel. The Company reimburses
CSA for actual payroll costs plus burden. The Company made payments to CSA
totaling approximately $1,304,000, $1,197,000 and $1,065,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. No amounts were
outstanding or payable under this arrangement at the end of any of the years
presented. This arrangement was terminated on December 31, 1996.

Two of the Company's directors are majority shareholders of Natural Gas
Partners L.P. (NGP). The Company and NGP are parties to a Financial Advisory
Services Agreement pursuant to which the Company has engaged NGP to serve as
financial advisor. In consideration of its services, NGP receives an annual
fee of $15,000 for each representative of NGP that serves on the board of
directors of the Company and an annual fee of $30,000 commencing November 6,
1996 and continuing for a two-year period. In 1996, the Company paid $30,000
under this agreement, of which $7,500 is accrued for at year-end. In the nine
months ended September 30, 1997, the Company paid $15,000 under this
agreement.

12. INCOME TAXES

As discussed in Note 1, the Company accounts for income taxes under the
asset and liability method. Prior to the Combination, Partners, representing
the majority ownership of the Predecessors, did not incur federal income
taxes; the taxable income or loss was passed through to the partners. As a
result of the Combination in November 1996, the Predecessors became a taxable
entity and recorded a one-time charge of $2,038,486, primarily representing
the difference between the financial statement and income tax basis of oil and
gas properties. Income tax benefit for the period November 7, 1996 through
December 31, 1996 was $595,642, which represents a deferred federal income tax
benefit.

Income tax expense (benefit) relating to the Company's and Inc.'s pre-tax
operating results for the years ended December 31, 1996, 1995 and 1994
consists of:

<TABLE>
<CAPTION>
PREDECESSORS PREDECESSORS PREDECESSORS COMPANY
------------ ------------ ------------ ------------
JANUARY 1 NOVEMBER 7
THROUGH THROUGH
NOVEMBER 6, DECEMBER 31,
1994 1995 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current federal
expense................ $ 3,705 $ 1,643 $ -- $ --
Deferred federal expense
(benefit).............. 23,018 (23,018) 2,038,486 (595,642)
------- -------- ---------- ---------
$26,723 $(21,375) $2,038,486 $(595,642)
======= ======== ========== =========
</TABLE>

The Company's effective tax rate applicable for the period November 7, 1996
to December 31, 1996 approximates the statutory federal tax rate of 34%.

F3-17
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 are presented below:

<TABLE>
<CAPTION>
INC. COMPANY
-------- ----------
1995 1996
-------- ----------
<S> <C> <C>
Net operating loss carry forwards...................... $ 54,706 $ 987,406
Accrued contracts payable.............................. -- 136,000
Accrued abandonment costs.............................. -- 163,508
-------- ----------
Total gross deferred tax assets........................ 54,706 1,286,914
Valuation allowance.................................... (22,864) --
-------- ----------
Net deferred tax assets................................ 31,842 1,286,914
======== ==========
Basis differences in property and equipment............ -- 2,654,366
Investments in partnerships............................ 31,842 75,392
-------- ----------
Total gross deferred tax liabilities................... 31,842 2,729,758
-------- ----------
Net deferred tax liability............................. $ -- $1,442,844
======== ==========
</TABLE>

There was an increase in the valuation allowance for deferred tax assets of
$22,864 during 1995. The change in the total valuation allowance for the year
ended December 31, 1996 was a decrease of $22,864.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Accordingly, a valuation allowance was
established at December 31, 1995. No such valuation allowance was established
at December 31, 1996. The net deferred tax assets primarily relates to net
operating loss carryforwards which will begin to expire in 2010 if not
previously utilized.

13. RESTRICTED INVESTMENTS

The Company carries a $3.0 million Gulf of Mexico area-wide abandonment bond
with the Minerals Management Service, which is secured by cash balances
currently invested in certificates of deposit at a commercial bank. The sum on
deposit related to this area-wide abandonment bond is approximately $1.4
million at September 30, 1996 and at December 31, 1996 and 1995, and $2.2
million at September 30, 1997.

14. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company has a non-cancelable operating lease for its office space which
will expire on September 30, 1998. The Company will be required to make future
payments in connection with the lease agreement as follows for the years
ending:

<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1997................................................................ $116,976
1998................................................................ 87,732
--------
$204,708
========
</TABLE>

Rent expense under operating leases was $130,413, $115,698 and $82,583 in
1996, 1995 and 1994, and $79,170 and $84,967 for the nine months ended
September 30, 1997 and 1996, respectively.

F3-18
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

OTHER

The Company is a defendant in a suit filed in 1995 alleging that the idea,
design and location of DIGS was a confidential trade secret owned by the
plaintiffs which had been revealed to the Company during confidential
discussions in furtherance of a proposed joint venture. The plaintiffs allege
"millions of dollars in profits" as actual damages and also seek unspecified
punitive damages, attorneys' fees, pre- and post- judgment interest and costs
of the suit. On March 10, 1997, the Company filed a motion for summary
judgment as to all of the plaintiffs' claims. Subsequently, the plaintiffs
amended their petition, dropping their claims of misrepresentation and
conversion of trade secrets and adding a claim of alleged fraudulent
inducement to execute a covenant not to compete. Further, the plaintiffs
specified that they seek $6.5 million in actual damages and punitive damages
of five times the amount of actual damages. The Company denies the plaintiffs'
allegations and is vigorously defending this matter. Oral argument on the
Company's motion for summary judgment will be heard in May 1997 and the trial
is set for January 5, 1998. While a decision adverse to the Company in this
litigation could have a material adverse effect on the Company's financial
condition and results of operations, the Company does not believe that the
final resolution of this case will result in a material liability to the
Company.

Subsequent to September 30, 1997, the Company was named as a defendant in a
suit filed October 20, 1997 in Harris County, Texas. The suit seeks class
certification on behalf of certain holders of the Company's common stock,
excluding the defendants and holders related to the defendants. The suit
alleges that the defendants made false and misleading statements or omissions
relating to the Company's business and prospects in the course of the
Company's initial public offering and subsequent thereto. The suit seeks
rescission of sales of the Company's common stock and unspecified monetary
damages, including punitive damages. The Company and its legal counsel are
currently evaluating the claim.

The Company is involved in other various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.

In connection with sales and marketing of natural gas, the Company entered
into a commitment in 1995 to secure firm transportation capacity on an
interstate pipeline. The Company has recorded, in operations and maintenance
expense, estimated amounts related to the cost of not utilizing firm
transportation capacity. Subsequent to December 31, 1996, the Company has
settled all obligations related to the commitment for $400,000, of which the
entire amount is accrued for at December 31, 1996.

During 1996, approximately 100% of the Company's natural gas sales were to
two customers. During 1995, and 1994 approximately 80% of the Company's
natural gas sales were to a single customer. However, due to the availability
of other markets, the Company does not believe that the loss of this single
customer would adversely affect the Company's results of operations.

15. SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

RESERVE QUANTITY INFORMATION

Total proved and proved developed oil and gas reserves of the Company's
properties at December 31, 1996 and 1995 have been estimated by an independent
petroleum engineer in accordance with guidelines established by the Securities
and Exchange Commission ("SEC"). Total proved and proved developed oil and gas
reserves at December 31, 1994 have been estimated by the Company in accordance
with guidelines established by the SEC. All reserves are based on economic and
operating conditions existing at the respective year end. The future net cash
flows from the production of these proved reserve quantities were computed by
applying current prices of oil and gas, at each period end, (with
consideration of price changes only to the extent provided by contractual and
derivative arrangements) to estimated future production of proved oil and gas
reserves less the estimated future expenditures (based on current costs) to be
incurred in developing and producing the proved reserves. Year-end 1996
calculations were made using prices of $3.55 per Mcfe. The Company had
immaterial amounts of condensate (oil) production during the years presented.
All of the Company's properties are located offshore in the Gulf of Mexico in
federal and state waters.

F3-19
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Proved properties.............................. $22,234,125 $ 35,595,670
Unproved properties............................ 3,919,720 1,173,496
----------- ------------
26,153,845 36,769,166
Accumulated depreciation, depletion and
amortization.................................. (6,210,210) (11,233,986)
----------- ------------
$19,943,635 $ 25,535,180
=========== ============
</TABLE>

COSTS INCURRED IN OIL AND GAS PROPERTY, ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Acquisition of properties:
Proved.................................. $ 2,173,901 $ 1,850,000 $ 420,831
Unproved................................ 2,422,080 -- --
Exploration costs....................... 2,231,349 404,836 2,297,136
Development costs....................... 14,070,818 13,876,703 9,333,052
----------- ----------- -----------
$20,898,148 $16,131,539 $12,051,019
=========== =========== ===========
</TABLE>

RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................ $ 5,512,496 $ 6,168,591 $ 9,835,070
Lifting costs:
Lease operating expense........... 1,410,231 1,876,186 1,906,281
----------- ----------- -----------
4,102,265 4,292,405 7,928,789
General operating expense........... (388,097) (423,742) (181,429)
Exploration charges................. (2,231,349) (404,836) (2,297,136)
Depreciation, depletion and
amortization....................... (2,112,350) (5,501,072) (4,897,644)
Abandonment of oil and gas
properties......................... (2,735,253) (84,219) (1,300,910)
----------- ----------- -----------
Results of operations from producing
activities......................... $(3,364,784) $(2,121,464) $ (748,330)
=========== =========== ===========
</TABLE>

F3-20
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

RESERVE QUANTITY INFORMATION

<TABLE>
<CAPTION>
GAS
-----------
(MCFE)
<S> <C>
Year Ended December 31, 1994:
Proved Developed and Undeveloped Reserves:
Beginning of year............................................. 23,932,644
Sales of reserves in place.................................... (19,849,128)
Revisions of previous estimates............................... 4,325,581
Production.................................................... (3,685,681)
-----------
End of year................................................... 4,723,416
===========
Year Ended December 31, 1995:
Proved Developed and Undeveloped Reserves:
Beginning of year............................................. 4,723,416
Purchases of reserve in place................................. 5,299,000
Revisions of previous estimates............................... 8,734,305
Extensions and discoveries.................................... 5,223,000
Production.................................................... (3,668,721)
-----------
End of year................................................... 20,311,000
===========
Year Ended December 31, 1996:
Proved Developed and Undeveloped Reserves:
Beginning of year............................................. 20,311,000
Purchases of reserve in place................................. 6,207,000
Revisions of previous estimates............................... 2,084,659
Extensions and discoveries.................................... 9,352,000
Production.................................................... (4,755,914)
-----------
End of year................................................... 33,198,745
===========
Proved Developed Reserves:
December 31, 1994............................................. 4,723,416
December 31, 1995............................................. 14,987,000
December 31, 1996............................................. 21,444,174
===========
</TABLE>

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

F3-21
<PAGE>

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Future cash inflows................ $ 6,719,617 $46,478,461 $121,154,647
Future development costs........... (138,771) (7,173,990) (22,384,474)
Future production costs............ (1,935,929) (7,589,878) (15,418,769)
----------- ----------- ------------
Future net cash inflows before
income taxes...................... 4,644,917 31,714,593 83,351,404
Future income taxes................ -- -- (21,321,525)
Future net cash inflows............ 4,644,917 31,794,593 62,029,879
10% annual discount................ (694,423) (5,270,803) (10,864,103)
----------- ----------- ------------
Standardized measure of discounted
future net cash inflows........... $ 3,950,494 $26,443,790 $ 51,165,776
=========== =========== ============
</TABLE>

PRINCIPAL SOURCES OF CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Standardized measure of discounted
future net cash flows
Beginning of year................... $35,323,954 $ 3,950,494 $26,443,790
Purchases of reserves in place..... -- 3,318,239 7,332,943
Sales of reserves in place......... (36,329,095) -- --
Revisions of previous quantity
estimates less related costs...... 6,034,804 17,051,312 5,686,006
Extensions and discoveries less
related costs..................... -- 6,678,479 19,985,027
Net change in income taxes......... -- -- (15,724,866)
Net changes in prices and
production costs.................. (3,500,358) 3,655,966 17,204,691
Acquisition/development costs
incurred during period and changes
in estimated future development
costs............................. 5,530,947 (1,329,510) (3,657,026)
Sales of oil and gas produced
during period, net of lifting
costs............................. (4,102,265) (4,292,405) (7,928,789)
Accretion of discount.............. 3,532,395 395,049 2,644,379
Other.............................. (2,539,888) (2,983,834) (820,379)
----------- ----------- -----------
Standardized measure of discounted
future net cash flows, end of year.. $ 3,950,494 $26,443,790 $51,165,776
=========== =========== ===========
</TABLE>

16. SUBSEQUENT EVENT

Subsequent to December 31, 1996, OEDC entered into an agreement to purchase
the remaining interest in one of its associated oil and gas partnerships for
approximately $218,000. The oil and gas partnership will now be wholly owned
by the Company.

F3-22
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Titan Exploration, Inc.:

We have audited the accompanying statements of revenues and direct operating
expenses of the oil and gas properties acquired (1995 Acquisition) by Titan
Exploration, Inc. for the years ended December 31, 1993 and 1994 and the
period ended December 11, 1995. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audits.

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

The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in Form S-1 of Titan
Exploration, Inc. as described in Note 1) and are not intended to be a
complete presentation of the 1995 Acquisition revenues and expenses.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the 1995 Acquisition for the years ended December
31, 1993 and 1994 and the period ended December 11, 1995 in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
September 23, 1996

F4-1
<PAGE>

TITAN EXPLORATION, INC.

1995 ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 11,
-------------- ------------
1993 1994 1995
------- ------ ------------
<S> <C> <C> <C>
Revenues:
Oil and condensate............................... $ 8,847 $7,590 $7,130
Natural gas...................................... 6,441 5,229 3,699
------- ------ ------
15,288 12,819 10,829
Direct operating expenses:
Lease operating.................................. 3,277 3,436 3,515
Production taxes................................. 1,223 1,271 1,104
------- ------ ------
4,500 4,707 4,619
------- ------ ------
Revenues in excess of direct operating expenses.... $10,788 $8,112 $6,210
======= ====== ======
</TABLE>

See accompanying notes to statements of revenues and direct operating expenses.

F4-2
<PAGE>

TITAN EXPLORATION, INC.

1995 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES

(1) BASIS OF PRESENTATION

On December 11, 1995, Titan Exploration, Inc. (the "Company") acquired from
a large independent oil and gas company certain oil and gas properties (the
"1995 Acquisition") for $39,881,094. The accompanying statements of revenues
and direct operating expenses for the 1995 Acquisition do not include general
and administrative expenses, interest income or expense, a provision for
depreciation, depletion and amortization, or any provision for income taxes
since historical expenses of this nature incurred by Anadarko are not
necessarily indicative of the costs to be incurred by the Company.

Historical financial information reflecting financial position, results of
operations, and cash flows of the 1995 Acquisition, are not presented because
the purchase price was assigned to the oil and gas property interests
acquired. Other assets acquired and liabilities assumed were not material. In
addition, the properties acquired were a part of a much larger enterprise
prior to acquisition by the Company and representative amounts of general and
administrative expenses, depreciation, depletion and amortization, interest
and other indirect costs were not necessarily allocated to the specific
properties acquired, nor would such allocated historical costs be relevant to
future operations of the properties. Development and exploration expenditures
related to these properties have been insignificant in the relevant periods.
Accordingly, the historical statements of revenues and direct operating
expenses of the 1995 Acquisition are presented in lieu of the financial
statements required under Rule 3-05 of Securities and Exchange Commission
Regulation S-X.

Revenues in the accompanying statements of revenues and direct operating
expenses are recognized on the sales method. Under this method, revenues are
recognized based on actual volumes of oil and gas sold to purchasers. Direct
operating expenses are recognized on the accrual method.

(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

Estimated Quantities of Proved Oil and Gas Reserves

Reserve information presented below is based on reserve estimates prepared
by the Company.

Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those which are expected
to be recovered through existing wells with existing equipment and operating
methods. Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and
in the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of
currently producing oil and gas properties. Accordingly, these reserve
estimates are expected to change as additional information becomes available
in the future.

F4-3
<PAGE>

TITAN EXPLORATION, INC.

1995 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES--(CONTINUED)

Below are the net estimated quantities of proved reserves and proved
developed reserves for the 1995 Acquisition.

<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
----------- ----------
<S> <C> <C>
Proved reserves at December 31, 1992..................... 7,598 116,693
Revision of previous estimates......................... (869) (226)
Production............................................. (535) (4,291)
----- -------
Proved reserves at December 31, 1993..................... 6,194 112,176
Revision of previous estimates......................... 470 (1,612)
Production............................................. (491) (4,002)
----- -------
Proved reserves at December 31, 1994..................... 6,173 106,562
Revision of previous estimates......................... 320 (1,517)
Production............................................. (425) (3,529)
----- -------
Proved reserves at December 11, 1995..................... 6,068 101,516
===== =======
Proved developed reserves at December 11, 1995........... 5,923 45,707
===== =======
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and
Gas Reserves

The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting
Standards Board through its Statement No. 69. The estimates of future cash
flows and future production and development costs are based on period-end
sales prices for oil and gas, estimated future production of proved reserves,
and estimated future production and development costs of proved reserves,
based on current costs and economic conditions. The estimated future net cash
flows are then discounted at a rate of 10%.

Discounted future net cash flow estimates like those shown below are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value should also consider probable
reserves, anticipated future oil and gas prices, interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value
is necessarily subjective and imprecise.

The following are the Company's estimated standardized measure of discounted
future net cash flows from proved reserves attributable to the 1995
Acquisition:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 11,
------------------ ------------
1993 1994 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future:
Cash inflows................................ $272,478 $202,316 $221,731
Production and development costs............ (87,704) (82,079) (82,753)
-------- -------- --------
Net cash flows............................ 184,774 120,237 138,978
10% annual discount for estimated timing of
cash flows................................... (98,187) (60,881) (67,837)
-------- -------- --------
Standardized measure of discounted future net
cash flows before
income taxes................................. $ 86,587 $ 59,356 $ 71,141
======== ======== ========
</TABLE>

F4-4
<PAGE>

TITAN EXPLORATION, INC.

1995 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES--(CONTINUED)

Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves

<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 11,
------------------------ ------------
1993 1994 1995
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of pe-
riod.................................. $ 93,099 $ 86,587 $59,356
Accretion of discount.................. 9,309 8,658 5,276
Net change in sales prices, net of pro-
duction costs......................... (773) (28,377) 12,556
Revision of quantity estimates......... (3,227) 516 215
Sales, net of production costs......... (10,788) (8,112) (6,210)
Other.................................. (1,033) 84 (52)
----------- ----------- -------
Standardized measure, end of period.... $ 86,587 $ 59,356 $71,141
=========== =========== =======
</TABLE>

F4-5
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Titan Exploration, Inc.:

We have audited the accompanying statements of revenues and direct operating
expenses of the oil and gas properties to be acquired (1996 Acquisition) by
Titan Exploration Inc. for the years ended December 31, 1993, 1994 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the 1996 Acquisition for the years ended December
31, 1993, 1994 and 1995 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Dallas, Texas
September 25, 1996

F5-1
<PAGE>

TITAN EXPLORATION, INC.
1996 ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and condensate................ $25,627 $22,708 $20,891 $ 15,878 $ 15,991
Natural gas....................... 22,670 18,522 16,886 12,915 16,186
------- ------- ------- -------- --------
48,297 41,230 37,777 28,793 32,177
Direct operating expenses:
Lease operating................... 13,151 11,428 10,538 8,290 7,842
Production taxes.................. 3,045 2,436 1,974 1,512 1,639
------- ------- ------- -------- --------
16,196 13,864 12,512 9,802 9,481
------- ------- ------- -------- --------
Revenues in excess of direct
operating expenses................. $32,101 $27,366 $25,265 $ 18,991 $ 22,696
======= ======= ======= ======== ========
</TABLE>

See accompanying notes to statements of revenues and direct operating expenses.

F5-2
<PAGE>

TITAN EXPLORATION, INC.
1996 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES

(1) BASIS OF PRESENTATION

On October 31, 1996, Titan Exploration, Inc. (the "Company") acquired from a
major integrated company certain oil and gas properties located in the Permian
Basin (the "1996 Acquisition") for $135,524,139. The accompanying statements
of revenues and direct operating expenses for the 1996 Acquisition do not
include general and administrative expenses, interest income or expense, a
provision for depreciation, depletion and amortization, or any provision for
income taxes since historical expenses of this nature incurred by Mobil are
not necessarily indicative of the costs to be incurred by the Company.

Historical financial information reflecting financial position, results of
operations, and cash flows of the 1996 Acquisition, are not presented because
the purchase price will be assigned to the oil and gas property interests
acquired. Other assets acquired and liabilities assumed were not material. In
addition, the properties acquired were a part of a much larger enterprise
prior to acquisition by the Company and representative amounts of general and
administrative expenses, depreciation, depletion and amortization, interest
and other indirect costs were not necessarily allocated to the specific
properties acquired, nor would such allocated historical costs be relevant to
future operations of the properties. Development and exploration expenditures
related to these properties have been insignificant in the relevant periods.
Accordingly, the historical statements of revenues and direct operating
expenses of the 1996 Acquisition are presented in lieu of the financial
statements required under Rule 3-05 of Securities and Exchange Commission
Regulation S-X.

The financial information for the nine months ended September 30, 1995 and
1996, is unaudited. However, in the opinion of management, the statements of
revenues and direct operating expenses for the nine months ended September 30,
1995 and 1996 include all the necessary adjustments to fairly present the
results of these periods.

(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

Estimated Quantities of Proved Oil and Gas Reserves

Reserve information presented below based on reserve estimates prepared by
the Company.

F5-3
<PAGE>

TITAN EXPLORATION, INC.
1996 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES--(CONTINUED)

Below are the net estimated quantities of proved reserves and proved
developed reserves for the 1996 Acquisition.

<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
----------- ----------
<S> <C> <C>
Proved reserves at December 31, 1992..................... 12,951 132,445
Revision of previous................................... 76 10,901
Production............................................. (1,857) (12,650)
------ -------
Proved reserves at December 31, 1993..................... 11,170 130,696
Revision of previous................................... 1,284 421
Production............................................. (1,804) (12,124)
------ -------
Proved reserves at December 31, 1994..................... 10,650 118,993
Revision of previous................................... 1,213 2,228
Production............................................. (1,549) (14,177)
------ -------
Proved reserves at December 31, 1995..................... 10,314 107,044
Revision of previous................................... 1,889 3,725
Production............................................. (923) (9,510)
------ -------
Proved reserves at September 30, 1996.................... 11,280 101,259
====== =======
Proved developed reserves at December 31, 1995........... 8,314 99,553
====== =======
Proved developed reserves at September 30, 1996.......... 9,281 94,358
====== =======
</TABLE>

Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and
Gas Reserves

F5-4
<PAGE>

TITAN EXPLORATION, INC.
1996 ACQUISITION

NOTES TO THE STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES--(CONTINUED)

The following are the Company's estimated standardized measure of discounted
future net cash flows from proved reserves attributable to the 1996
Acquisition:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future:
Cash inflows.................... $396,798 $393,721 $383,701 $416,844
Production and development
costs.......................... (172,110) (160,629) (166,517) (174,736)
-------- -------- -------- --------
Net cash flows................ 224,688 233,092 217,184 242,108
10% annual discount for estimated
timing of cash flows............. (91,315) (105,759) (89,886) (94,559)
-------- -------- -------- --------
Standardized measure of discounted
future net cash flows............ $133,373 $127,333 $127,298 $147,549
======== ======== ======== ========
</TABLE>

Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD ENDED
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Standardized measure, beginning of
period........................... $163,590 $133,373 $127,333 $127,298
Accretion of discount............. 16,359 13,337 12,733 9,521
Net change in sales prices, net of
production costs................. (17,086) 13,823 (1,673) 15,581
Revision of quantity estimates.... 7,821 5,770 7,320 13,404
Sales, net of production costs.... (32,101) (27,366) (25,265) (22,696)
Other............................. (5,210) (11,604) 6,850 4,441
-------- -------- -------- --------
Standardized measure, end of peri-
od............................... $133,373 $127,333 $127,298 $147,549
======== ======== ======== ========
</TABLE>

F5-5
<PAGE>

APPENDIX I

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

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

AMONG

TITAN EXPLORATION, INC.,

TITAN OFFSHORE, INC.

AND

OFFSHORE ENERGY DEVELOPMENT CORPORATION

NOVEMBER 6, 1997

- --------------------------------------------------------------------------------
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I
<CAPTION>
PAGE
----
<S> <C>
The Merger.............................................................. 1
1.1The Merger........................................................... 1
1.2Closing Date......................................................... 1
1.3Consummation of the Merger........................................... 2
1.4Effects of the Merger................................................ 2
1.5Certificate of Incorporation; Bylaws................................. 2
1.6Directors and Officers............................................... 2
1.7Conversion of Securities............................................. 2
1.8Exchange of Certificates; Fractional Shares.......................... 2
1.9Taking of Necessary Action; Further Action........................... 4
1.10Adjustment.......................................................... 4
1.11OEDC Stock Options.................................................. 4
ARTICLE II
Representations and Warranties.......................................... 4
2.1Representations and Warranties of OEDC............................... 4
(a)Organization and Qualification of OEDC............................. 5
(b)Organization and Qualification of the Subsidiaries................. 5
(c)Capitalization..................................................... 5
(d)Authorization and Validity of Agreement............................ 6
(e) No Approvals or Notices Required; No Conflict with Instruments to
which OEDC or any of the OEDC Subsidiaries is a Party............. 6
(f)Commission Filings; Financial Statements........................... 6
(g)Conduct of Business in the Ordinary Course; Absence of Certain
Changes and Events................................................... 7
(h)Litigation......................................................... 7
(i)Compliance with Laws and Permits................................... 7
(j)Employees; Employee Benefit Plans.................................. 8
(k)Severance Payments................................................. 9
(l)Taxes.............................................................. 9
(m)Books and Records.................................................. 10
(n)Governmental Regulation............................................ 10
(o)Environmental Matters.............................................. 10
(p)Insurance.......................................................... 11
(q)Title to Oil and Gas Interests..................................... 11
(r)Oil and Gas Operations............................................. 11
(s)Hydrocarbon Sales and Purchase Agreements.......................... 11
(t)Intellectual Property.............................................. 12
(u)Financial and Commodity Hedging.................................... 12
(v)Maintenance of Machinery........................................... 12
(w)Gas Imbalances; Calls on Production; Prepayments................... 12
(x)Royalties.......................................................... 12
(y)Payout Balances.................................................... 12
(z)Plugging and Abandonment Liabilities............................... 12
(aa) 1997 Exploration Activities...................................... 12
(bb)Disclosure........................................................ 13
(cc)Voting Requirements............................................... 13
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.2Representations and Warranties of Titan and Sub...................... 13
(a)Organization and Compliance with Law............................... 13
(b)Capitalization..................................................... 13
(c)Authorization and Validity of Agreement............................ 14
(d) No Approvals or Notices Required; No Conflict with Instruments to
which Titan or any of the Titan Subsidiaries is a Party........... 14
(e)Commission Filings; Financial Statements........................... 14
(f)Litigation......................................................... 15
(g)Severance Payments................................................. 15
(h)Voting Requirements................................................ 15
(i)Interim Operations of Sub.......................................... 15
(j)Disclosure......................................................... 15
ARTICLE III
Covenants of OEDC Prior to the Effective Time........................... 16
3.1Conduct of Business by OEDC Pending the Merger....................... 16
3.2Joint Proxy Statement................................................ 17
3.3Meeting of Stockholders of OEDC...................................... 18
3.4No Solicitation...................................................... 18
3.5Affiliates' Agreements............................................... 18
3.6Access to Information; Confidentiality............................... 19
ARTICLE IV
Covenants of Titan Prior to the Effective Time.......................... 19
4.1Conduct of Business by Titan Pending the Merger...................... 19
4.2Joint Proxy Statement................................................ 19
4.3Meeting of Stockholders of Titan..................................... 20
4.4Registration Statement............................................... 20
4.5Reservation of Titan Stock........................................... 20
4.6Affiliates' Agreements............................................... 20
ARTICLE V
Additional Agreements................................................... 20
5.1Accountants' Letters................................................. 20
5.2Filings; Consents; Reasonable Efforts................................ 20
5.3Notification of Certain Matters...................................... 21
5.4Agreement to Defend.................................................. 21
5.5Expenses............................................................. 21
5.6Indemnification...................................................... 21
5.7OEDC Employees....................................................... 21
5.8Post-Effective Time Mailing.......................................... 22
5.9Tax Treatment........................................................ 22
5.10HSR Act Notification................................................ 22
5.11Public Announcements................................................ 22
5.12Indemnification of Brokerage........................................ 22
ARTICLE VI
Conditions.............................................................. 22
6.1Conditions to Obligation of Each Party to Effect the Merger.......... 22
6.2Additional Conditions to Obligations of Titan........................ 23
6.3Additional Conditions to Obligations of OEDC......................... 24
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII
Miscellaneous.............................................................. 25
7.1Termination........................................................... 25
7.2Effect of Termination................................................. 25
7.3Waiver and Amendment.................................................. 26
7.4Nonsurvival of Representations, Warranties and Agreements............. 26
7.5Assignment............................................................ 26
7.6Notices............................................................... 26
7.7Governing Law......................................................... 27
7.8Severability.......................................................... 27
7.9Counterparts.......................................................... 27
7.10Headings............................................................. 27
7.11Confidentiality...................................................... 27
7.12Entire Agreement; Third Party Beneficiaries.......................... 28
7.13Disclosure Letters................................................... 28
ARTICLE VIII
Definitions................................................................ 28
8.1Certain Defined....................................................... 28
8.2Certain Additional Defined Terms...................................... 31
</TABLE>

iii
<PAGE>

AGREEMENT AND PLAN OF MERGER

This Amended and Restated Agreement and Plan of Merger, dated as of the 6th
day of November, 1997 (the "Agreement"), is among Titan Exploration, Inc., a
Delaware corporation ("Titan"), Titan Offshore, Inc., a newly-formed Delaware
corporation and a wholly-owned subsidiary of Titan ("Sub"), and Offshore
Energy Development Corporation, a Delaware corporation ("OEDC").

WHEREAS, the respective Boards of Directors of Titan, Sub and OEDC have
determined that the acquisition by Titan of OEDC is desirable and in the best
interests of the stockholders of the respective companies;

WHEREAS, the respective Boards of Directors of Titan, Sub and OEDC have
approved the acquisition of OEDC by Titan pursuant to the terms of this
Agreement;

WHEREAS, the respective Boards of Directors of Titan, Sub and OEDC, and
Titan as sole stockholder of Sub, have approved the merger of Sub with and
into OEDC (the "Merger"), whereby each issued and outstanding share of common
stock, par value $.01 per share, of OEDC ("OEDC Common Stock") not owned
directly or indirectly by OEDC will be converted into the right to receive
shares of common stock, par value $.01 per share, of Titan ("Titan Common
Stock"), upon the terms and subject to the conditions set forth herein;

WHEREAS, for federal income tax purposes, the parties intend that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");

WHEREAS, the parties intend that this Agreement, as it relates to the
Merger, shall constitute a "plan of reorganization" within the meaning of
Treasury Regulation Section 1.368-3;

WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger; and

WHEREAS, the parties entered into an Agreement and Plan of Merger dated as
of September 8, 1997 (the "Original Agreement"), and the parties desire to
amend and restate the Original Agreement in its entirety pursuant to the terms
of this Agreement;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Titan, Sub and OEDC hereby agree as follows:

ARTICLE I

The Merger

1.1 The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the General Corporation Law of the
State of Delaware (the "DGCL"), at the Effective Time (as defined in Section
1.3) Sub shall be merged with and into OEDC. As a result of the Merger, the
separate corporate existence of Sub shall cease and OEDC shall continue as the
surviving corporation (sometimes referred to herein as the "Surviving
Corporation").

1.2 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Thompson &
Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201, as soon as
practicable after the satisfaction or waiver of the conditions set forth in
Article VI or at such other time and place and on such other date as Titan and
OEDC shall agree; provided, that the closing conditions set forth in Article
VI shall have been satisfied or waived at or prior to such time. The date on
which the Closing occurs is herein referred to as the "Closing Date".

I-1
<PAGE>

1.3 Consummation of the Merger. As soon as practicable on the Closing Date,
the parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of Delaware a certificate of merger in such form as
required by, and executed in accordance with, the relevant provisions of the
DGCL. The "Effective Time" of the Merger as that term is used in this
Agreement shall mean such time as the certificate of merger is duly filed with
the Secretary of State of Delaware or at such later time (not to exceed 90
days from the date the certificate is filed) as is specified in the
certificate of merger pursuant to the mutual agreement of Titan, Sub and OEDC.

1.4 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the properties,
rights, privileges, powers and franchises of OEDC and Sub shall vest in the
Surviving Corporation, without any transfer or assignment having occurred, and
all debts, liabilities and duties of OEDC and Sub shall attach to the
Surviving Corporation, all in accordance with the DGCL.

1.5 Certificate of Incorporation; Bylaws.

(a) The Certificate of Incorporation of OEDC, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation and thereafter shall continue to be its Certificate of
Incorporation until amended as provided therein and under the DGCL.

(b) The bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation and thereafter shall continue
to be its bylaws until amended as provided therein and under the DGCL.

1.6 Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation at and
after the Effective Time, each to hold office in accordance with the
Certificate of Incorporation and bylaws of the Surviving Corporation, and the
officers of Sub immediately prior to the Effective Time shall be the officers
of the Surviving Corporation at and after the Effective Time, in each case
until their respective successors are duly elected or appointed and qualified.

1.7 Conversion of Securities. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Titan, OEDC, Sub or their stockholders:

(a) Each share of OEDC Common Stock issued and outstanding immediately
prior to the Effective Time, other than any shares of OEDC Common Stock to
be canceled pursuant to Section 1.7(b), shall be converted into the right
to receive .630 (the "Exchange Ratio") of a share of Titan Common Stock.

(b) Each share of OEDC Common Stock held in the treasury of OEDC and each
share of OEDC Common Stock owned by Sub, Titan or any direct or indirect
wholly-owned subsidiary of Titan or of OEDC immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof and no payment shall be made with respect thereto.

(c) Each share of common stock, par value $.01 per share, of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock, $.01 par value per share, of the
Surviving Corporation.

1.8 Exchange of Certificates; Fractional Shares.

(a) As soon as practicable after the Effective Time, each holder of a
certificate that prior thereto represented OEDC Common Stock shall be
entitled, upon surrender thereof to Titan or its transfer agent, to receive in
exchange therefor a certificate or certificates representing the number of
whole shares of Titan Common Stock into which the shares of OEDC Common Stock
so surren dered shall have been converted as aforesaid, in such denominations
and registered in such names as such holder may request. Each holder of shares
of OEDC Common Stock who would otherwise be entitled to a fraction of a share
of Titan Common Stock shall, upon surrender of the certificates representing
such shares held by such holder to Titan or its transfer agent, be paid an
amount in cash in accordance with the provisions of Section 1.8(d). Until so
surrendered and exchanged, each

I-2
<PAGE>

certificate that prior to the Effective Time represented OEDC Common Stock
shall represent solely the right to receive Titan Common Stock and cash in
lieu of fractional shares, if any. Unless and until any such certificates
shall be so surrendered and exchanged, no dividends or other distributions
payable to the holders of Titan Common Stock, as of any time on or after the
Effective Time, shall be paid to the holders of such certificates that prior
to the Effective Time represented shares of OEDC Common Stock; provided,
however, that, upon any such surrender and exchange of such certificates,
there shall be paid to the record holders of the certificates issued and
exchanged therefor the amount, without interest thereon, of dividends and
other distributions, if any, that theretofore were declared and became payable
after the Effective Time with respect to the number of whole shares of Titan
Common Stock issued to such holder.

(b) All shares of Titan Common Stock issued upon the surrender for exchange
of certificates that prior to the Effective Time represented shares of OEDC
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8(d)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of OEDC Common Stock. At
and after the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of OEDC
Common Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates which prior to the Effective Time
represented shares of OEDC Common Stock are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article I.

(c) If any certificate for shares of Titan Common Stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange shall have paid
to Titan or its transfer agent any transfer or other taxes required by reason
of the issuance of a certificate for shares of Titan Common Stock in any name
other than that of the registered holder of the certificate surrendered, or
established to the satisfaction of Titan or its transfer agent that such tax
has been paid or is not payable.

(d) No fraction of a share of Titan Common Stock shall be issued, but in
lieu thereof each holder of OEDC Common Stock who would otherwise be entitled
to a fraction of a share of Titan Common Stock shall, upon surrender of the
certificate formerly representing OEDC Common Stock held by such holder to
Titan or its transfer agent, be paid an amount in cash equal to the value of
such fraction of a share based upon the closing sales price of Titan Common
Stock, as reported on the NMS on the last day on which there is a reported
trade in the Titan Common Stock prior to the date on which the Effective Time
occurs. No interest shall be paid on such amount. All shares of OEDC Common
Stock held by a record holder shall be aggregated for purposes of computing
the number of shares of Titan Common Stock to be issued pursuant to this
Article I and cash in lieu of fractional shares payable hereunder.

(e) None of Titan, Sub, OEDC, the Surviving Corporation or their transfer
agents shall be liable to a holder of the shares of OEDC Common Stock for any
amount properly paid to a public official pursuant to applicable property,
escheat or similar laws.

(f) As soon as practicable after the Effective Time, Titan's transfer agent
shall mail and otherwise make available to each holder of a certificate that
prior thereto represented OEDC Common Stock a form of letter of transmittal
and instructions for use in effecting the surrender of the certificates for
conversion thereof and payment therefor, which letter of transmittal shall
comply with all applicable rules of the NMS.

(g) Any holder whose certificates representing OEDC Common Stock have been
lost or destroyed may nevertheless obtain the Titan Common Stock into which
such OEDC Common Stock has been converted, provided such holder delivers to
Titan and OEDC a statement certifying such loss or destruction and providing
for indemnity reasonably satisfactory to Titan and OEDC against any loss or
expense either of them may incur as a result of such lost or destroyed
certificate being thereafter surrendered to OEDC.

I-3
<PAGE>

1.9 Taking of Necessary Action; Further Action. The parties hereto shall
take all such reasonable and lawful action as may be necessary or appropriate
in order to effectuate the Merger as promptly as possible. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of OEDC or Sub, such corporations shall
direct their respective officers and directors to take all such lawful and
necessary action.

1.10 Adjustment. In the event of any stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution payable in Titan Common Stock with respect to shares of Titan
Common Stock (or if a record date with respect to any of the foregoing actions
should occur) during the period between the date of this Agreement and the
Effective Time, then the number of shares of Titan Common Stock into which
each share of OEDC Common Stock is to be converted pursuant to this Agreement
shall be adjusted to reflect any such action.

1.11 OEDC Stock Options. Subject to the consummation of the Merger and
effective at the Effective Time, Titan will take such action as is necessary
to assume, effective at the Effective Time, each option to purchase shares of
OEDC Common Stock (each, an "OEDC Employee Option") that remains as of such
time unexercised in whole or in part and to substitute shares of Titan Common
Stock as purchasable under each such assumed option ("Assumed Option"), with
such assumption and substitution to be effected as follows:

(a) The Assumed Option shall not give the optionee additional benefits
which he did not have under the OEDC Employee Option before such assumption
and shall be assumed on the same terms and conditions as the OEDC Employee
Options being assumed, subject to Section 1.11(b) and (c) (it being
recognized that each OEDC Employee Option shall vest on the Closing Date
insofar as such OEDC Employee Options vest as a result of the Merger);

(b) The number of shares of Titan Common Stock purchasable under the
Assumed Option shall be equal to the nearest whole number of shares of
Titan Common Stock that the holder of the OEDC Employee Option being
assumed would have received (without regard to any vesting schedule) upon
consummation of the Merger had such OEDC Employee Option been exercised in
full immediately prior to consummation of the Merger; and

(c) The per share exercise price of such Assumed Option shall be an
amount equal to the per share exercise price of the OEDC Employee Option
being assumed divided by .630.

Titan shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Titan Common Stock for delivery upon exercise
of the Assumed Options, and, as soon as practicable after the Effective Time,
Titan shall file a registration statement on Form S-8 (or other appropriate
form) with respect to the shares of Titan Common Stock subject to the Assumed
Options, and shall use its best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of any prospectus
contained therein) for so long as any of the Assumed Options remain
outstanding.

ARTICLE II

Representations and Warranties

2.1 Representations and Warranties of OEDC. OEDC hereby represents and
warrants to Titan that:

(a) Organization and Qualification of OEDC. OEDC is duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority and all
necessary governmental authorizations to own, lease and operate all of its
properties and assets and to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing
or to have such authority would not reasonably be expected to have a
Material Adverse Effect. Except as set forth in Section 2.1(a) of the
disclosure letter delivered by OEDC to Titan on the date hereof, which may
be supplemented upon the written agreement of Titan (as so supplemented,
the "OEDC

I-4
<PAGE>

Disclosure Letter"), OEDC is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. No actions or proceedings to dissolve OEDC
are pending. OEDC has heretofore delivered to Titan true and complete
copies of OEDC's Certificate of Incorporation (the "OEDC Certificate") and
bylaws as in existence on the date hereof.

(b) Organization and Qualification of the Subsidiaries. Except as
otherwise set forth in Section 2.1(b) of the OEDC Disclosure Letter, OEDC
does not own, directly or indirectly, the capital stock or other securities
of any corporation or partnership or have any direct or indirect equity or
ownership interest in any other person, other than the persons described in
Section 2.1(b) of the OEDC Disclosure Letter as the "OEDC Subsidiaries".
Section 2.1(b) of the OEDC Disclosure Letter lists each OEDC Subsidiary as
of the date hereof, the jurisdiction of incorporation or formation of each
OEDC Subsidiary, and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each OEDC
Subsidiary. Each corporate OEDC Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation, and each partnership OEDC Subsidiary is a partnership
duly formed and validly existing under the laws of the jurisdiction of its
formation. Each OEDC Subsidiary is duly qualified to do business, and to
the extent applicable, is in good standing, in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Each OEDC Subsidiary has all requisite
corporate or, in the case of a partnership OEDC Subsidiary, partnership
power and authority to own, lease, and operate its properties and to carry
on its business as now being conducted. No actions or proceedings to
dissolve any OEDC Subsidiary are pending. All outstanding shares of capital
stock of each corporate OEDC Subsidiary have been validly issued and are
fully paid and nonassessable. All partnership interests of each partnership
OEDC Subsidiary have been validly issued and are fully paid (to the extent
required at such time). No shares of capital stock or other equity
interests of any OEDC Subsidiary are subject to, nor have any been issued
in violation of, preemptive or similar rights.

(i) The authorized capital stock of OEDC consists of 10,000,000 shares of
OEDC Common Stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $.01 per share. As of July 31, 1997, there were
issued and outstanding 8,701,885 shares of OEDC Common Stock, and no shares
of preferred stock of OEDC, and no shares of OEDC Common Stock and no
shares of preferred stock of OEDC were held as treasury shares. A total of
835,000 shares of OEDC Common Stock have been reserved for issuance
pursuant to the stock option plans described in Section 2.1(c)(ii). All
issued shares of OEDC Common Stock are validly issued, fully paid and
nonassessable and no holder thereof is entitled to preemptive rights.
Except as set forth in Section 2.1(c) of the OEDC Disclosure Letter, OEDC
is not a party to, and is not aware of, any voting agreement, voting trust
or similar agreement or arrangement relating to any class or series of its
capital stock, or any agreement or arrangement providing for registration
rights with respect to any capital stock or other securities of OEDC.

(ii) As of July 31, 1997, there are outstanding OEDC Employee Options to
purchase an aggregate of 727,580 shares of OEDC Common Stock under the 1996
Stock Awards Plan (the "1 OEDC 1996 Plan"). Other than as set forth in
Section 2.1(c)(i) and this Section 2.1(c)(ii) and other than shares of OEDC
Common Stock, not to exceed 10,000 shares that may be issued in
satisfaction of OEDC's employer matching contribution obligations under its
401(k) plan, there are not now, and at the Effective Time there will not
be, any (A) shares of capital stock or other equity securities of OEDC
outstanding other than OEDC Common Stock issued pursuant to the exercise of
OEDC Employee Options or (B) outstanding options, warrants, scrip, rights
to subscribe for, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
any class of capital stock of OEDC or

I-5
<PAGE>

any OEDC Subsidiary, or contracts, understandings or arrangements to which
OEDC or any OEDC Subsidiary is a party, or by which OEDC or any OEDC
Subsidiary is or may be bound, to issue additional shares of capital stock
or equity interests or options, warrants, scrip or rights to subscribe for,
or securities or rights convertible into or exchangeable for, any
additional shares of capital stock or equity interests.

(iii) Except as set forth in Section 2.1(c) of the OEDC Disclosure
Letter, all outstanding shares of capital stock, all partnership interests
and all other securities or equity equivalents of the OEDC Subsidiaries are
owned by OEDC or a wholly-owned subsidiary of OEDC, free and clear of all
Encumbrances.

(d) Authorization and Validity of Agreement. OEDC has all requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery by OEDC of this
Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action (subject
only, with respect to the Merger, to approval of this Agreement by its
stockholders as provided for in Section 3.3). On or prior to the date
hereof the Board of Directors of OEDC (the "OEDC Board") has determined to
recommend approval of the Merger to the stockholders of OEDC, and such
determination is in effect as of the date hereof. This Agreement has been
duly executed and delivered by OEDC and is the valid and binding obligation
of OEDC, enforceable against OEDC in accordance with its terms. The OEDC
Board has approved the Stockholder Voting Agreements of even date herewith
entered into between OEDC and each of Natural Gas Partners, L.P., David B.
Strassner, Douglas H. Kiesewetter and B. Keith Anderson.

(e) No Approvals or Notices Required; No Conflict with Instruments to
which OEDC or any of the OEDC Subsidiaries is a Party. Except as set forth
in Section 2.1(e) of the OEDC Disclosure Letter, neither the execution and
delivery of this Agreement nor the performance by OEDC of its obligations
hereunder, nor the consummation of the transactions contemplated hereby by
OEDC, will (i) conflict with the OEDC Certificate or the bylaws of OEDC or
the charter or bylaws, or partnership or joint venture agreement, of any of
the OEDC Subsidiaries; (ii) assuming satisfaction of the requirements set
forth in clause (iii) below, violate any provision of law applicable to
OEDC or any of the OEDC Subsidiaries; (iii) except for (A) requirements of
Federal or state securities laws, (B) requirements arising out of the HSR
Act, (C) requirements of notice filings in such foreign jurisdictions as
may be applicable, and (D) the filing of articles of merger in accordance
with the DGCL, require any consent or approval of, or filing with or notice
to, any Governmental Entity, domestic or foreign, under any provision of
law applicable to OEDC or any of the OEDC Subsidiaries; or (iv) require any
consent, approval or notice under, or violate, breach, be in conflict with
or constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, or permit the termination of any
provision of, or result in the creation or imposition of any lien upon any
properties, assets or business of OEDC or any of the OEDC Subsidiaries
under, any note, bond, indenture, mortgage, deed of trust, lease,
franchise, permit, authorization, license, contract, instrument,
partnership agreement or other agreement or commitment or any order,
judgment or decree to which OEDC or any of the OEDC Subsidiaries is a party
or by which OEDC or any of the OEDC Subsidiaries or any of its or their
assets or properties is bound or encumbered, except (A) those that have
already been given, obtained or filed, (B) those that are required pursuant
to bank loan agreements or leasing arrangements, as set forth in Section
2.1(e) of the OEDC Disclosure Letter, which will be obtained prior to the
Effective Time, and (C) those that, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect. No property of OEDC or any
OEDC Subsidiary is subject to a preferential right to purchase that is
applicable to the transactions contemplated by this Agreement

(f) Commission Filings; Financial Statements. OEDC and each of the OEDC
Subsidiaries have filed all reports, registration statements and other
filings, together with any amendments required to be made with respect
thereto, that they have been required to file with the Commission under the
Securities Act and the Exchange Act. All reports, registration statements
and other filings (including all notes, exhibits and schedules thereto and
documents incorporated by reference therein) filed by OEDC with the
Commission since October 31, 1996 through the date of this Agreement,
together with any amendments thereto, are sometimes collectively referred
to as the "OEDC Commission Filings." OEDC has heretofore delivered to Titan
copies of the OEDC Commission Filings. As of the respective dates of their
filing with the

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Commission, the OEDC Commission Filings complied in all material respects
with the Securities Act, the Exchange Act and the rules and regulations of
the Commission thereunder, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

All material contracts of OEDC and the OEDC Subsidiaries have been
included in the OEDC Commission Filings, except for those contracts not
required to be filed pursuant to the rules and regulations of the
Commission.

Each of the consolidated financial statements (including any related
notes or schedules) included in the OEDC Commission Filings was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be noted therein or in the notes or
schedules thereto) and complied with the rules and regulations of the
Commission. Such consolidated financial statements fairly present the
consolidated financial position of OEDC and the OEDC Subsidiaries as of the
dates thereof and the results of operations, cash flows and changes in
shareholders' equity for the periods then ended (subject, in the case of
the unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods). As of the date
hereof, OEDC has no liabilities, absolute or contingent, that may
reasonably be expected to have a Material Adverse Effect on OEDC and the
OEDC Subsidiaries that are not reflected in the OEDC Commission Filings,
except (i) those incurred in the ordinary course of business consistent
with past operations and not relating to the borrowing of money, and (ii)
those set forth in Section 2.1(f) of the OEDC Disclosure Letter.

(g) Conduct of Business in the Ordinary Course; Absence of Certain
Changes and Events. Since January 1, 1997, except as contemplated by this
Agreement or as disclosed in the OEDC Commission Filings filed with the
Commission prior to the date hereof or as set forth in Section 2.1(g) of
the OEDC Disclosure Letter, OEDC and the OEDC Subsidiaries have conducted
their business only in the ordinary and usual course, and there has not
been (i) any Material Adverse Effect pertaining to OEDC and the OEDC
Subsidiaries, or any condition, event or development that reasonably may be
expected to result in any such Material Adverse Effect; (ii) any material
change by OEDC in its accounting methods, principles or practices; (iii)
any revaluation by OEDC or any of the OEDC Subsidiaries of any of its or
their assets, including, without limitation, writing down the value of
properties or assets or writing off notes or accounts receivable other than
in the ordinary course of business; (iv) any entry by OEDC or any of the
OEDC Subsidiaries into any commitment or transaction material to OEDC and
the OEDC Subsidiaries, taken as a whole; (v) any declaration, setting aside
or payment of any dividends or distributions in respect of the OEDC Common
Stock or any redemption, purchase or other acquisition of any of its
securities or any securities, or equity equivalents, of any of the OEDC
Subsidiaries; (vi) any increase in indebtedness for borrowed money; (vii)
any granting of a security interest or lien on any material property or
assets of OEDC and the OEDC Subsidiaries, taken as a whole, other than
Permitted Encumbrances; or (viii) any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting
of stock options, stock appreciation rights, performance awards or
restricted stock awards), stock purchase or other employee benefit plan or
any other increase in the compensation payable or to become payable to any
officers or key employees of OEDC or any of the OEDC Subsidiaries.

(h) Litigation. Except as set forth in Section 2.1(h) of the OEDC
Disclosure Letter, there are no claims, actions, suits, investigations,
inquiries or proceedings pending or, to the knowledge of OEDC, overtly
threatened against or affecting OEDC or any of the OEDC Subsidiaries or any
of their respective properties at law or in equity, or any of their
respective employee benefit plans or fiduciaries of such plans, or before
or by any Governmental Entity or before any arbitration board or panel,
wherever located, that individually or in the aggregate if adversely
determined would reasonably be expected to have a Material Adverse Effect
on OEDC and the OEDC Subsidiaries, or that involve the risk of criminal
liability.

(i) Compliance with Laws and Permits. Except as set forth in Section
2.1(i) of the OEDC Disclosure Letter, each of OEDC and the OEDC
Subsidiaries (i) has complied with all Applicable Laws (including

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<PAGE>

without limitation Applicable Laws relating to securities, properties,
production, sales, gathering and transportation of hydrocarbons, employment
practices, terms and conditions of employment, wages and hours, safety,
occupational safety, product safety, and civil rights) other than
violations which do not and would not reasonably be expected to have a
Material Adverse Effect; (ii) has obtained and hold all material permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Entities necessary for the lawful
conduct of its business or the lawful ownership, use and operation of its
assets; (iii) has not received any written notice, which has not been
dismissed or otherwise disposed of, that it has not so complied; and (iv)
has not been charged or, to the best knowledge of OEDC, threatened with,
or, to the best knowledge of OEDC, under investigation with respect to, any
violation of any Applicable Law relating to any aspect of the business of
OEDC or any OEDC Subsidiary other than violations which do not and would
not reasonably be expected to have a Material Adverse Effect.

(j) Employees; Employee Benefit Plans.

(i) Section 2.1(j) of the OEDC Disclosure Letter sets forth a list of all
employees of OEDC and the OEDC Subsidiaries, as well as the title and
annual compensation of each such employee.

(ii) Section 2.1(j) of the OEDC Disclosure Letter provides a description
of each Plan or Benefit Program or Agreement which is sponsored, maintained
or contributed to by OEDC, an OEDC Subsidiary or any corporation, trade,
business or entity under common control with OEDC or an OEDC Subsidiary
within the meaning of Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA (an "OEDC ERISA Affiliate") for the benefit of its
employees, or has been so sponsored, maintained or contributed to within
six years prior to the Closing Date. True and complete copies of each of
the Plans, Benefit Programs or Agreements, related trusts, if applicable,
and all amendments thereto, have been furnished to Titan.

(iii) Except as otherwise set forth in Section 2.1(j) of the OEDC
Disclosure Letter:

(A) None of OEDC, any OEDC Subsidiary or any OEDC ERISA Affiliate
contributes to or has an obligation to contribute to, or has at any
time contributed to or had an obligation to contribute to, a plan
subject to Title IV of ERISA, including, without limitation, a
multiemployer plan within the meaning of Section 3(37) of ERISA;

(B) Each Plan and each Benefit Program or Agreement has been
administered, maintained and operated in all material respects in
accordance with the terms thereof and in compliance with its governing
documents and applicable law (including, where applicable, ERISA and
the Code);

(C) There is no matter pending with respect to any of the Plans
before any governmental agency, and there are no actions, suits or
claims pending (other than routine claims for benefits) or to the
knowledge of OEDC, threatened against, or with respect to, any of the
Plans or Benefit Programs or Agreements or their assets;

(D) No act, omission or transaction has occurred which would result
in imposition on OEDC, any OEDC Subsidiary or any OEDC ERISA Affiliate
of breach of fiduciary duty liability damages under Section 409 of
ERISA, a civil penalty assessed pursuant to subsections (c), (i) or (l)
of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code; and

(E) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not require OEDC, any OEDC
Subsidiary or any OEDC ERISA Affiliate to make a larger contribution
to, or pay greater benefits under, any Plan, Benefit Program or
Agreement than it otherwise would or create or give rise to any
additional vested rights or service credits under any Plan or Benefit
Program or Agreement.

(iv) Termination of employment of any employee of OEDC, any OEDC
Subsidiary or any OEDC ERISA Affiliate immediately after consummation of
the transactions contemplated by this Agreement would not result in
payments under the Plans, Benefit Programs or Agreements which, in the
aggregate, would result in imposition of the sanctions imposed under
Sections 280G and 4999 of the Code.

(v) Each Plan which is an "employee welfare benefit plan," as such term
is defined in Section 3(1) of ERISA, may be unilaterally amended or
terminated in its entirety without liability except as to benefits accrued
thereunder prior to such amendment or termination.

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<PAGE>

(vi) None of the employees of OEDC, any of the OEDC Subsidiaries or any
OEDC ERISA Affiliate are subject to union or collective bargaining
agreements.

(k) Severance Payments. Except as set forth in Section 2.1(k) of the OEDC
Disclosure Letter, none of OEDC or the OEDC Subsidiaries owes or will owe a
severance payment or similar obligation to any of their respective
employees, officers or directors as a result of the Merger or the
transactions contemplated by this Agreement, nor will any of such persons
be entitled to an increase in severance payments or other benefits as a
result of the Merger or the transactions contemplated by this Agreement in
the event of the subsequent termination of their employment.

(l) Taxes. Except as set forth in Section 2.1(l) of the OEDC Disclosure
Letter, all Tax Returns of or relating to any Tax that are required to be
filed on or before the Closing Date by or with respect to OEDC or any of
the OEDC Subsidiaries, or any other corporation that is or was a member of
an affiliated group (within the meaning of Section 1504 (a) of the Code) of
corporations of which OEDC was a member for any period ending on or prior
to the Closing Date, have been or will be duly and timely filed, and all
Taxes, including interest and penalties, due and payable pursuant to such
Tax Returns have been paid or adequately provided for in reserves
established by OEDC, except where the failure to file, pay or provide for
would not reasonably be expected to have a Material Adverse Effect. Except
as set forth in Section 2.1(l) of the OEDC Disclosure Letter, all U.S.
Federal income Tax Returns of or with respect to OEDC or any of the OEDC
Subsidiaries have been audited by the applicable governmental authority, or
the applicable statute of limitations has expired, for all periods up to
and including the tax year ended December 31, 1993. There is no material
claim against OEDC or any of the OEDC Subsidiaries with respect to any
Taxes, and no material assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax Return of or with respect to
OEDC or any of the OEDC Subsidiaries that has not been adequately provided
for in reserves established by OEDC. The total amounts set up as
liabilities for current and deferred Taxes in the consolidated financial
statements included in the OEDC Commission Filings have been prepared in
accordance with generally accepted accounting principles and are sufficient
to cover the payment of all material Taxes, including any penalties or
interest thereon and whether or not assessed or disputed, that are, or are
hereafter found to be, or to have been, due with respect to the operations
of OEDC and the OEDC Subsidiaries through the periods covered thereby. OEDC
and each of the OEDC Subsidiaries have (and as of the Closing Date will
have) made all deposits (including estimated tax payments for taxable years
for which the consolidated federal income tax return is not yet due)
required with respect to Taxes. Except as set forth in Section 2.1(l) of
the OEDC Disclosure Letter, no waiver or extension of any statute of
limitations as to any federal, local or foreign Tax matter has been given
by or requested from OEDC or any of the OEDC Subsidiaries. Except for
statutory liens for current Taxes not yet due, no liens for Taxes exist
upon the assets of either OEDC or the OEDC Subsidiaries. Except as set
forth in Section 2.1(l) of the OEDC Disclosure Letter, neither OEDC nor any
of the OEDC Subsidiaries has filed consolidated income Tax Returns with any
corporation, other than consolidated federal and state income Tax Returns
by OEDC, for any taxable period which is not now closed by the applicable
statute of limitations. Neither OEDC nor the OEDC Subsidiaries has any
deferred intercompany gain within the meaning of Treasury Regulation
Section 1.1502-13 or any predecessor provision.

Following the Merger, OEDC will hold at least 90% of the fair market
value of its net assets and at least 70% of the fair market value of its
gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by OEDC to stockholders who receive cash or
other property, amounts used by OEDC to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends)
made by OEDC will be included as assets of OEDC immediately prior to the
Merger. As of the Closing Date, there is no plan or intention by the
stockholders of OEDC to sell, exchange or otherwise dispose of a number of
shares of Titan Common Stock received in the Merger that would reduce the
OEDC stockholders' ownership of Titan Common Stock to a number of shares
having a value, as of the date of the Merger, of less than 50% of the value
of all of the formerly outstanding shares of OEDC Common Stock as of the
same date. For purposes of this representation, shares of OEDC Common Stock
exchanged for cash or other property or exchanged in lieu of fractional
shares of Titan Common Stock will be treated as

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outstanding OEDC Common Stock on the date of the Merger. Moreover, the
shares of Titan Common Stock or OEDC Common Stock held by the OEDC
stockholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Merger will be considered in making this representation.

(m) Books and Records. All books, records and files of OEDC and each of
the OEDC Subsidiaries (including those pertaining to oil and gas
properties, wells and other assets, those pertaining to the production,
gathering, transportation and sale of hydrocarbons, and corporate,
accounting, financial and employee records) (i) have been prepared,
assembled and maintained in accordance with usual and customary policies
and procedures and (ii) fairly and accurately reflect in all material
respects the ownership, use, enjoyment and operation by OEDC and each of
the OEDC Subsidiaries of their respective assets.

(n) Governmental Regulation. Neither OEDC nor any OEDC Subsidiary is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
Neither OEDC nor any OEDC Subsidiary is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended. Neither OEDC nor any OEDC Subsidiary has a similar status under
any similar state laws or regulations of the type regulating public
utilities.

(o) Environmental Matters. Except as disclosed in Section 2.1(o) of the
OEDC Disclosure Letter, or as would not reasonably be expected to have a
Material Adverse Effect:

(i) Each of OEDC and the OEDC Subsidiaries has conducted its business
and operated its assets, and is conducting its business and operating
its assets, in material compliance with all Applicable Laws pertaining
to health, safety, the environment, Hazardous Material (as such term is
defined in CERCLA), or Solid Wastes (as such term is defined in RCRA)
(such Applicable Laws as they now exist or are hereafter enacted and/or
amended are collectively, for purposes of this Agreement, called
"Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 (as
amended, for purposes of this Section, called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980,
and the Hazardous and Solid Waste Amendments of 1984 (as amended, for
purposes of this Section, called "RCRA");

(ii) Neither OEDC nor any of the OEDC Subsidiaries has been notified
by any Governmental Entity that any of the operations or assets of any
of such persons is the subject of any investigation or inquiry by any
Governmental Entity evaluating whether any material remedial action is
needed to respond to a release of any Hazardous Material or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Material;

(iii) Neither OEDC nor any of the OEDC Subsidiaries and, to OEDC's
knowledge, no other person has filed any notice under any federal,
state or local law indicating that (i) any of the OEDC or the OEDC
Subsidiaries is responsible for the improper release into the
environment, or the improper storage or disposal, of any Hazardous
Material, or (ii) any Hazardous Material is improperly stored or
disposed of upon any property of any of OEDC or any of the OEDC
Subsidiaries;

(iv) Neither OEDC nor any OEDC Subsidiary has any material contingent
liability in connection with (A) the release into the environment at or
on any property now or previously owned or leased by any of such
persons, or (B) storage or disposal of any Hazardous Material;

(v) In the last six years, neither OEDC nor any OEDC Subsidiary has
received any claim, complaint, notice, inquiry or request for
information which remains unresolved as of the date hereof with respect
to any alleged material violation of any Environmental Law or regarding
potential material liability under any Environmental Law relating to
operations or conditions or any facilities or property owned, leased or
operated by any of such persons;

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(vi) No property now or previously owned, leased or operated by OEDC
or any of the OEDC Subsidiaries is listed on the National Priorities
List pursuant to CERCLA or on any similar federal or state list as
sites requiring investigation or cleanup;

(vii) Neither OEDC nor any of the OEDC Subsidiaries is directly
transporting, has directly transported, is directly arranging for the
transportation of, or has directly transported, any Hazardous Material
to any location which is listed on the National Priorities List
pursuant to CERCLA or on any similar federal or state list or which is
the subject of federal, state or local enforcement actions that may
lead to material claims against such company for remedial work, damage
to natural resources or personal injury, including claims under CERCLA;

(viii) There are no sites, locations or operations at which any of
OEDC or the OEDC Subsidiaries is currently undertaking any remedial or
response action relating to any disposal or release of any Hazardous
Material, as required by Environmental Laws; and

(ix) All underground storage tanks and solid waste disposal
facilities owned or operated by OEDC or any of the OEDC Subsidiaries
are used and operated in material compliance with Environmental Laws.

(p) Insurance. All material properties and material risks of OEDC and the
OEDC Subsidiaries are covered by valid and currently effective insurance
policies or binders of insurance or programs of self-insurance in such
types and amounts and with such deductible amounts as are consistent with
customary practices and standards of companies engaged in businesses and
operations similar to those of OEDC and the OEDC Subsidiaries. Neither OEDC
nor any of the OEDC Subsidiaries shall have any liability for retroactive
price adjustments arising under such insurance coverage based on levels of
actual activity during the time period of such coverage. Set forth on
Section 2.1(p) of the OEDC Disclosure Letter is a list of all (i) policies
of fire, liability, casualty, life and other insurance currently in force,
and (ii) the termination dates for each such policy.

(q) Title to Oil and Gas Interests. Section 2.1(q) of the OEDC Disclosure
Letter contains a complete list of the Oil and Gas Interests of OEDC and
the OEDC Subsidiaries. Each of the Oil and Gas Interests has the applicable
"net revenue interest" and "working interest" set forth in Section 2.1(q)
of the OEDC Disclosure Letter. The title of OEDC or the OEDC Subsidiaries
to each of the Oil and Gas Interests is Defensible Title. Except as shown
on Section 2.1(q) of the OEDC Disclosure Letter, none of the Oil and Gas
Interests is burdened by any production payment, net profits interest,
reversionary interest or similar interest. The oil and gas leases included
within the Oil and Gas Interests are in full force and effect.

(r) Oil and Gas Operations. Except as otherwise set forth in Section
2.1(r) of the OEDC Disclosure Letter:

(i) All wells included in the Oil and Gas Interests of OEDC have been
drilled and (if completed) completed, operated and produced in
accordance with generally accepted oil and gas field practices and in
compliance in all material respects with Applicable Law, except where
any failure or violation could not reasonably be expected to have a
Material Adverse Effect on OEDC.

(ii) Proceeds from the sale of hydrocarbons produced from OEDC's Oil
and Gas Interests are being received by OEDC in a timely manner and are
not being held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $100,000 and held in
suspense in the ordinary course of business).

(s) Hydrocarbon Sales and Purchase Agreements. Section 2.1(s) of the OEDC
Disclosure Letter contains a complete list of the Hydrocarbon Agreements to
which any of OEDC and the OEDC Subsidiaries is a party. Except as otherwise
set forth in Section 2.1(s) of the OEDC Disclosure Letter, each of the
Hydrocarbon Agreements is valid, binding and in full force and effect, and
no party is in material breach or default of any Hydrocarbon Agreement, and
no event has occurred (including for this purpose, the execution of this
Agreement or the consummation of the Merger) that with notice or lapse of
time (or both) would constitute a material breach or default or permit
termination, modification or acceleration under any Hydrocarbon Agreement.

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(t) Intellectual Property. OEDC and the OEDC Subsidiaries either own or
have valid licenses or other rights to use all patents, copyrights,
trademarks, software, databases, geological data, geophysical data,
engineering data, maps, interpretations and other technical information
used in their businesses as presently conducted, subject to the limitations
contained in the agreements governing the use of the same, which
limitations are customary for companies engaged in the business of the
exploration and production of oil, gas, condensate and other hydrocarbons.
There are no limitations contained in the agreements of the type described
in the immediately preceding sentence which, upon consummation of the
Merger, will alter or impair any such rights, breach any such agreement
with any third party vendor, or require payments of additional sums
thereunder other than as set forth in Section 2.1(t) of the OEDC Disclosure
Letter. OEDC and the OEDC Subsidiaries are in compliance in all material
respects with such licenses and agreements and there are no pending or
threatened claims, actions, suits or proceedings challenging or questioning
the validity or effectiveness of any license or agreement relating to such
property or the right of OEDC or any OEDC Subsidiary to use, copy, modify
or distribute the same.

(u) Financial and Commodity Hedging. Section 2.1(u) of the OEDC
Disclosure Letter accurately summarizes the outstanding hydrocarbon and
financial hedging positions of OEDC (including fixed price controls,
collars, swaps, caps, hedges and puts) as of the date reflected on the OEDC
Disclosure Letter.

(v) Maintenance of Machinery. All equipment and machinery owned by OEDC
or any OEDC Subsidiary has had reasonable and prudent maintenance upkeep
and repair since the date it was acquired thereby.

(w) Gas Imbalances; Calls on Production; Prepayments. Except as is
reflected in Section 2.1(w) of the OEDC Disclosure Letter, (i) neither OEDC
nor any OEDC Subsidiary has received any deficiency payments under gas
contracts for which any party has a right to take deficiency gas therefrom
nor received any payments for production which are subject to refund or
recoupment out of future production; (ii) no prepayment for hydrocarbon
sales has been received by OEDC nor any OEDC Subsidiary for hydrocarbons
which have not been delivered as of the date hereof; and (iii) no party has
a call or preferential right to purchase production from any of OEDC's or
any OEDC Subsidiary's Oil and Gas Interests.

(x) Royalties. To the knowledge of OEDC (after due inquiry) as to wells
not operated by OEDC or any OEDC Subsidiary, and without qualification as
to knowledge as to all wells operated by OEDC, all royalties, overriding
royalties, compensatory royalties and other payments due from or in respect
of production with respect to OEDC's or any OEDC Subsidiary's Oil and Gas
Interests, have been or will be, prior to the Effective Time, properly and
correctly paid or provided for in all material respects, except for those
for which OEDC or any OEDC Subsidiary has a valid right to suspend.

(y) Payout Balances. Except as reflected in Section 2.1(y) of the OEDC
Disclosure Letter, to the knowledge of OEDC, and based on information given
to OEDC by third-party operators for all wells not operated by OEDC or any
OEDC Subsidiary, the Payout Balance for any well owned by OEDC or any OEDC
Subsidiary is properly reflected in the OEDC Disclosure Letter as of the
respective dates shown thereon. "Payout Balance(s)" means the status, as of
the dates of OEDC's calculations, of the recovery by OEDC or a third party
of a cost amount specified in the contract relating to a well out of the
revenue from such well where the net revenue interest of OEDC or any OEDC
Subsidiary therein will be reduced when such amount has been recovered.

(z) Plugging and Abandonment Liabilities. Except to the extent expressly
set forth in Section 2.1(z) of the OEDC Disclosure Letter, neither OEDC nor
any OEDC Subsidiary has any obligation as of the date hereof under
Applicable Law to plug and abandon any well.

(aa) 1997 Exploration Activities. Section 2.1(aa) of the OEDC Disclosure
Letter sets forth a listing of all exploration and development activities
in which OEDC or any OEDC Subsidiary has elected to participate since
January 1, 1997 and with respect to which OEDC or any OEDC Subsidiary has
expended or committed to expend $100,000 or more. OEDC has provided Titan
with true and complete information (to the extent OEDC or any OEDC
Subsidiary has such information in its possession or has access to such
information) regarding the status and results of all such activities,
including, without limitation, well logs, results of drill stem tests,
production information and other pertinent information.

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<PAGE>

(bb) Disclosure. All factual information heretofore furnished by OEDC to
Titan for purposes of or in connection with the transactions contemplated
by this Agreement, including, without limitation, all historical production
and cost information pertaining to the Oil and Gas Interests, maps and well
logs, has been true and accurate in all material respects. All estimates
furnished by OEDC were prepared on the basis of assumptions, data,
information, tests or conditions believed to be valid or accurate or to
exist at the time such estimates were furnished.

(cc) Voting Requirements. The affirmative vote of the holders of 66% of
the outstanding shares of OEDC Common Stock is the only vote of the holders
of any class or series of the capital stock of OEDC necessary to approve
this Agreement and the Merger.

2.2 Representations and Warranties of Titan and Sub. Titan and Sub hereby
jointly and severally represent and warrant to OEDC that:

(a) Organization and Compliance with Law. Each of Titan and its
consolidated subsidiaries (the "1 Titan Subsidiaries") is a corporation or
partnership duly organized, validly existing and, to the extent applicable,
in good standing under the laws of the jurisdiction in which it is
chartered or organized and has all requisite corporate or partnership power
and corporate or partnership authority and all necessary governmental
authorizations to own, lease and operate all of its properties and assets
and to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such
authority would not reasonably be expected to have a Material Adverse
Effect on Titan and the Titan Subsidiaries. Except as set forth in Section
2.2(a) of the disclosure letter delivered by Titan to OEDC on the date
hereof, which may be supplemented upon the written agreement of OEDC (as so
supplemented, (the "Titan Disclosure Letter"), each of Titan and the Titan
Subsidiaries is duly qualified as a foreign corporation or partnership to
do business, and, to the extent applicable, is in good standing, in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be duly qualified does
not and would not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Titan and the Titan
Subsidiaries. Each of Titan and the Titan Subsidiaries is in compliance
with all applicable laws, judgments, orders, rules and regulations,
domestic and foreign, except where failure to be in such compliance would
not reasonably be expected to have a Material Adverse Effect on Titan and
the Titan Subsidiaries, taken as a whole. Titan has heretofore delivered to
OEDC true and complete copies of Titan's Certificate of Incorporation, as
amended (the "Titan Certificate"), and bylaws as in existence on the date
hereof.

(b) Capitalization.

(i) The authorized capital stock of Titan consists of 60,000,000 shares
of Titan Common Stock, par value $.01 per share. As of July 31, 1997, there
were issued and outstanding 33,943,543 shares of Titan Common Stock and no
shares of Titan Common Stock were held as treasury shares. As of July 31,
1997, an aggregate of 4,479,320 shares of Titan Common Stock were reserved
for issuance and issuable pursuant to Titan's Stock Option Plan and 1996
Incentive Plan, or upon the exercise of outstanding employee or non-
employee director stock options granted under Titan's stock option plans
and agreements. All issued shares of Titan Common Stock are validly issued,
fully paid and nonassessable and no holder thereof is entitled to
preemptive rights. All shares of Titan Common Stock to be issued pursuant
to the Merger, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable and will not violate the pre
emptive rights of any person. Except as set forth in Section 2.2(b) of the
Titan Disclosure Letter, Titan is not a party to, and is not aware of, any
voting agreement, voting trust or similar agreement or arrangement relating
to any class or series of its capital stock, or any agreement or
arrangement providing for registration rights with respect to any capital
stock or other securities of Titan.

(ii) As of July 31, 1997, there were outstanding options to purchase
3,918,820 shares of Titan Common Stock pursuant to the plans referenced in
Section 2.2(b)(i) above (the "Titan Options"). Other than as set forth in
this Section 2.2(b) and except for issuances contemplated by this Agreement
in connection with the Merger, there are not now, and at the Effective Time
there will not be, any (A) shares

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<PAGE>

of capital stock or other equity securities of Titan outstanding (other
than Titan Common Stock issued pursuant to the exercise of Titan Options as
described herein) or (B) except for options granted pursuant to any of the
plans referenced above, outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
any class of capital stock of Titan, or contracts, understandings or
arrangements to which Titan is a party, or by which it is or may be bound,
to issue additional shares of its capital stock or options, warrants, scrip
or rights to subscribe for, or securities or rights convertible into or
exchangeable for, any additional shares of its capital stock.

(iii) Except as set forth in Section 2.2(b) of the Titan Disclosure
Letter, all outstanding shares of capital stock of the Titan Subsidiaries
are owned by Titan, a wholly- owned subsidiary of Titan or individuals who
hold nominal quantities of shares on behalf of Titan or such a subsidiary
as director's qualifying shares, free and clear of all Encumbrances which
would reasonably be expected to have a Material Adverse Effect.

(iv) As of the date hereof, the authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $.01 per share, all of which are
validly issued, fully paid and nonassessable and are owned by Titan.

(c) Authorization and Validity of Agreement. Titan and Sub have all
requisite corporate power and authority to enter into this Agreement and to
perform their obligations hereunder. The execution and delivery by Titan
and Sub of this Agreement and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action (subject only, with respect to the Merger, to the approval
of this Agreement by the stockholders of Titan as provided for in Section
4.3). On or prior to the date hereof, the Board of Directors of Titan has
determined to recommend the adoption of the approval of the Merger to the
stockholders of Titan, and such determination is in effect as of the date
hereof. This Agreement has been duly executed and delivered by Titan and
Sub and is the valid and binding obligation of Titan and Sub, enforceable
against Titan and Sub in accordance with its terms.

(d) No Approvals or Notices Required; No Conflict with Instruments to
which Titan or any of the Titan Subsidiaries is a Party. Neither the
execution and delivery of this Agreement nor the performance by Titan or
Sub of its obligations hereunder, nor the consummation of the transactions
contemplated hereby by Titan and Sub, will (i) conflict with the Titan
Certificate or the bylaws of Titan or the charter or bylaws of any of the
Titan Subsidiaries; (ii) assuming satisfaction of the requirements set
forth in clause (iii) below, violate any provision of law applicable to
Titan or any of the Titan Subsidiaries; (iii) except for (A) requirements
of Federal or state securities laws, (B) requirements arising out of the
HSR Act, (C) requirements of notice filings in such foreign jurisdictions
as may be applicable, and (D) the filing of a certificate of merger by OEDC
and Sub in accordance with the DGCL, require any consent or approval of, or
filing with or notice to, any Governmental Entity, domestic or foreign,
under any provision of law applicable to Titan or any of the Titan
Subsidiaries; or (iv) require any consent, approval or notice under, or
violate, breach, be in conflict with or constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default)
under, or permit the termination of any provision of, or result in the
creation or imposition of any lien upon any properties, assets or business
of Titan or any of the Titan Subsidiaries under, any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment or any order,
judgment or decree to which Titan or any of the Titan Subsidiaries is a
party or by which Titan or any of the Titan Subsidiaries or any of its or
their assets or properties is bound or encumbered, except (A) those that
have already been given, obtained or filed, (B) those that are required
pursuant to bank loan agreements, as set forth in Section 2.2(d) of the
Titan Disclosure Letter, which will be obtained prior to the Effective
Time, and (C) those that, in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.

(e) Commission Filings; Financial Statements. Titan and each of the Titan
Subsidiaries have filed all reports, registration statements and other
filings, together with any amendments required to be made with respect
thereto, that they have been required to file with the Commission under the
Securities Act and the

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<PAGE>

Exchange Act. All reports, registration statements and other filings
(including all notes, exhibits and schedules thereto and documents
incorporated by reference therein) filed by Titan with the Commission since
December 13, 1996, through the date of this Agreement, together with any
amendments thereto, are sometimes collectively referred to as the "Titan
Commission Filings". Titan has heretofore delivered to OEDC copies of the
Titan Commission Filings. As of the respective dates of their filing with
the Commission, the Titan Commission Filings complied in all material
respects with the Securities Act, the Exchange Act and the rules and
regulations of the Commission thereunder, and did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading.

All material contracts of Titan and the Titan Subsidiaries have been
included in the Titan Commission Filings, except for those contracts not
required to be filed pursuant to the rules and regulations of the
Commission.

Each of the consolidated financial statements (including any related
notes or schedules) included in the Titan Commission Filings was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be noted therein or in the notes or
schedules thereto) and complied with all applicable rules and regulations
of the Commission. Such consolidated financial statements fairly present
the consolidated financial position of Titan and the Titan Subsidiaries as
of the dates thereof and the results of operations, cash flows and changes
in shareholders' equity for the periods then ended (subject, in the case of
the unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods). As of the date
hereof, Titan has no liabilities, absolute or contingent, that may
reasonably be expected to have a Material Adverse Effect on Titan and the
Titan Subsidiaries that are not reflected in the Titan Commission Filings,
except (i) those incurred in the ordinary course of business consistent
with past operations and not relating to the borrowing of money, and (ii)
those set forth in Section 2.2(e) of the Titan Disclosure Letter.

(f) Litigation. Except as disclosed in the Titan Commission Filings or as
set forth in Section 2.2(f) of the Titan Disclosure Letter, there are no
claims, actions, suits, investigations, inquiries or proceedings pending
or, to the knowledge of Titan, overtly threatened against or affecting
Titan or any of the Titan Subsidiaries or any of their respective
properties at law or in equity, or any of their respective employee benefit
plans or fiduciaries of such plans, or before or by any Governmental
Entity, or before any arbitration board or panel, wherever located, that
individually or in the aggregate if adversely determined would reasonably
be expected to have a Material Adverse Effect on Titan and the Titan
Subsidiaries, or that involve the risk of criminal liability.

(g) Severance Payments. Except as set forth in Section 2.2(g) of the
Titan Disclosure Letter, none of Titan or the Titan Subsidiaries will owe a
severance payment or similar obligation to any of their respective
employees, officers or directors as a result of the Merger or the
transactions contemplated by this Agreement, nor will any of such persons
be entitled to an increase in severance payments or other benefits as a
result of the Merger or the transactions contemplated by this Agreement in
the event of the subsequent termination of their employment.

(h) Voting Requirements. The affirmative vote of the holders of a
majority of the shares of Titan Common Stock present at the Titan special
stockholders' meeting convened in accordance with Section 4.3 and entitled
to vote thereon is the only vote of the holders of any class or series of
the capital stock of Titan necessary to approve this Agreement.

(i) Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.

(j) Disclosure. All factual information heretofore furnished by Titan to
OEDC for purposes of or in connection with the transactions contemplated by
this Agreement has been true and accurate in all material respects. All
estimates furnished by Titan were prepared on the basis of assumptions,
data, information, tests or conditions believed to be valid or accurate or
to exist at the time such estimates were furnished.

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ARTICLE III

Covenants of OEDC Prior to the Effective Time

3.1 Conduct of Business by OEDC Pending the Merger. OEDC covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
Titan shall otherwise agree in writing or as otherwise expressly contemplated
by this Agreement or set forth in Section 3.1 of the OEDC Disclosure Letter:

(a) the business of OEDC and the OEDC Subsidiaries shall be conducted
only in, and OEDC and the OEDC Subsidiaries shall not take any action
except in, the ordinary course of business and consistent with past
practice;

(b) OEDC shall not directly or indirectly do any of the following: (i)
issue, sell, pledge, dispose of or encumber, or permit any OEDC Subsidiary
to issue, sell, pledge, dispose of or encumber, (A) any capital stock of
OEDC or any OEDC Subsidiary except upon the exercise of OEDC Employee
Options or (B) other than in the ordinary course of business and consistent
with past practice and not relating to the borrowing of money, any assets
of OEDC or any OEDC Subsidiary; (ii) amend or propose to amend the
respective charters or bylaws, or partnership or joint venture agreements,
of OEDC or any OEDC Subsidiary; (iii) split, combine or reclassify any
outstanding capital stock, or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to its capital
stock or other securities or equity equivalents, whether now or hereafter
outstanding; (iv) redeem, purchase or acquire or offer to acquire, or
permit any of the OEDC Subsidiaries to redeem, purchase or acquire or offer
to acquire, any of its or their capital stock or other securities or equity
equivalents; (v) except in the ordinary course of business and consistent
with past practice, enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section
3.1(b); (vi) enter into, adopt or (except as may be required by law) amend
or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (vii) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense, increase in any manner the compensation or fringe
benefits of any director, officer or employee; or (viii) pay to any
director, officer or employee any benefit not required by any employee
benefit agreement, trust, plan, fund or other arrangement as in effect on
the date hereof;

(c) OEDC shall use its reasonable efforts (i) to preserve intact the
business organization of OEDC and each of the OEDC Subsidiaries; (ii) to
maintain in effect any authorizations or similar rights of OEDC and each of
the OEDC Subsidiaries; (iii) to keep available the services of its and
their current officers and key employees; (iv) to preserve the goodwill of
those having business relationships with it and the OEDC Subsidiaries; (v)
to maintain and keep its properties and the properties of the OEDC
Subsidiaries in as good a repair and condition as presently exists, except
for deterioration due to ordinary wear and tear and damage due to casualty;
and (vi) to maintain in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained by it and the
OEDC Subsidiaries;

(d) OEDC shall not make or agree to make, or permit any of the OEDC
Subsidiaries to make or agree to make, new capital expenditures that in the
aggregate exceed $100,000, unless in OEDC's good faith judgment, emergency
circumstances require such an expenditure in order to preserve the value of
OEDC's assets or to avoid substantial risk of loss to OEDC and OEDC
immediately advises Titan in writing of the expenditure;

(e) OEDC shall, and shall cause the OEDC Subsidiaries to, perform their
respective obligations under any contracts and agreements to which any of
them is a party or to which any of their assets is subject, except to the
extent such failure to perform would not have a Material Adverse Effect on
OEDC and the OEDC Subsidiaries, and except for such obligations as OEDC or
the OEDC Subsidiaries in good faith may dispute;

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<PAGE>

(f) neither OEDC nor any of the OEDC Subsidiaries shall acquire, sell,
lease, transfer, or otherwise dispose of, directly or indirectly, any
assets outside the ordinary course of business consistent with past
practice or stock, equity interests or any assets that in the aggregate are
material to OEDC and the OEDC Subsidiaries, taken as a whole;

(g) neither OEDC nor any of the OEDC Subsidiaries shall acquire (by
merger, consolidation, or acquisition of stock or assets or otherwise) any
corporation, partnership, or other business organization or division
thereof;

(h) neither OEDC nor any of the OEDC Subsidiaries shall amend any Tax
Return or make any Tax election or settle or compromise any federal, state,
local, or foreign Tax liability material to OEDC and the OEDC Subsidiaries
taken as a whole;

(i) neither OEDC nor any of the OEDC Subsidiaries shall pay, discharge,
or satisfy any claims, liabilities, or obligations (whether accrued,
absolute, contingent, unliquidated, or otherwise, and whether asserted or
unasserted), other than the payment, discharge, or satisfaction in the
ordinary course of business consistent with past practice, or in accordance
with their terms, of liabilities reflected or reserved against in OEDC's
financial statements or incurred since June 30, 1997 in the ordinary course
of business consistent with past practice;

(j) neither OEDC nor any of the OEDC Subsidiaries shall enter into any
lease, contract, agreement, commitment, arrangement, or transaction outside
the ordinary course of business consistent with past practice;

(k) neither OEDC nor any of the OEDC Subsidiaries shall amend, modify, or
change in any material respect any existing lease, contract, or agreement,
other than in the ordinary course of business consistent with past
practice;

(l) neither OEDC nor any of the OEDC Subsidiaries shall waive, release,
grant, or transfer any rights of value, other than in the ordinary course
of business consistent with past practice;

(m) OEDC shall not, and shall not permit any of the OEDC Subsidiaries to,
take any action that would, or that reasonably could be expected to, result
in any of the representations and warranties set forth in this Agreement
becoming untrue or any of the conditions to the Merger set forth in Article
VI not being satisfied. OEDC promptly shall advise Titan orally and in
writing of any change or event having, or which, insofar as reasonably can
be foreseen, would have, a Material Adverse Effect on OEDC and the OEDC
Subsidiaries; and

(n) neither OEDC nor any of the OEDC Subsidiaries shall authorize or
propose, or agree in writing or otherwise to take, any of the actions
described in this Section.

3.2 Joint Proxy Statement. Promptly after the date of this Agreement, OEDC
shall cooperate with Titan in preparing and shall file with the Commission
under the Exchange Act, and shall use its reasonable efforts to have cleared
by the Commission, a joint proxy statement (the "Proxy Statement") with
respect to the meeting of stockholders of OEDC referred to in Section 3.3 and
OEDC shall cooperate with Titan in preparing the Registration Statement (as
defined below in Section 4.4). OEDC agrees that the Proxy Statement (except
with respect to information concerning Titan and the Titan Subsidiaries
furnished by or on behalf of Titan specifically for use therein, for which
information Titan shall be responsible) will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations adopted thereunder, and the Registration Statement (with respect
to information concerning OEDC and the OEDC Subsidiaries provided by OEDC
specifically for use therein) and the Proxy Statement (except with respect to
information concerning Titan and the Titan Subsidiaries furnished by or on
behalf of Titan specifically for use therein, for which information Titan
shall be responsible) will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. Subject to the fiduciary duties
of the OEDC Board under applicable law (as determined by the OEDC Board in
good faith after consultation with and based upon advice of counsel and its
financial advisors) and subject to the provisions of Section 3.4, the Proxy
Statement shall contain the recommendation of the OEDC Board that the
stockholders of

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OEDC vote to approve and adopt this Agreement. OEDC will advise Titan promptly
in writing if prior to the Effective Time it shall obtain knowledge of any
facts that would make it necessary to amend or supplement the Proxy Statement
(or the Registration Statement of which the Proxy Statement is a part) in
order to make the statements therein not misleading or to comply with
applicable law.

3.3 Meeting of Stockholders of OEDC. Subject to the terms and conditions set
forth in Section 3.4, OEDC shall promptly take all action reasonably necessary
in accordance with the DGCL and the OEDC Certificate and bylaws to convene a
meeting of its stockholders to consider and vote upon the adoption and
approval of this Agreement. Subject to the fiduciary duties of the OEDC Board
under applicable law (as determined by the OEDC Board in good faith after
consultation with and based upon advice of counsel and its financial advisors)
and subject to the provisions of Section 3.4, the OEDC Board (a) shall
recommend at such meeting that the stockholders of OEDC vote to adopt and
approve this Agreement; (b) shall use its reasonable efforts to solicit from
stockholders of OEDC proxies in favor of such adoption and approval; and (c)
shall take all other action reasonably necessary to secure a vote of its
stockholders in favor of the adoption and approval of this Agreement.

3.4 No Solicitation.

(a) From and after the date of this Agreement, neither OEDC nor any OEDC
Subsidiary shall, directly or indirectly, through any officer, director,
employee, affiliate, representative or agent (including without limitation
attorneys, accountants, consultants, bankers and financial advisors)
(collectively, "Representatives") of OEDC or any of the OEDC Subsidiaries, (i)
solicit or knowingly encourage, including by way of furnishing information,
the initiation of any inquiries or proposals regarding (A) any merger, tender
offer, sale of shares of capital stock or other securities or equity
equivalents, or similar business transactions involving OEDC or the OEDC
Subsidiaries, or (B) any sale of all or substantially all the assets of OEDC
and the OEDC Subsidiaries (any of the foregoing transactions being referred to
herein as a "OEDC Acquisition Proposal") or (ii) except in a situation
described in Section 3.4(b) below, participate in any discussion or
negotiations, or provide third parties with any information, relating to an
inquiry or proposal regarding an OEDC Acquisition Proposal other than to
notify any such party that it is engaged in the transactions contemplated by
this Agreement and will not engage in any further communications with any such
party. Without limitation of the foregoing, OEDC shall immediately cease and
cause to be terminated any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any parties conducted heretofore by
OEDC or any OEDC Representatives with respect to any OEDC Acquisition Proposal
existing on the date hereof.

(b) In the event that OEDC shall receive an inquiry or proposal regarding an
OEDC Acquisition Proposal pursuant to Section 3.4(a)(ii) above, OEDC shall
immediately advise Titan orally and in writing of any inquiry or proposal by
any party regarding any OEDC Acquisition Proposal, including the identity of
the party making such inquiry or proposal and the terms and conditions of any
proposal made to OEDC. In the event that the OEDC Board shall determine in
good faith that its fiduciary duties to its stockholders under applicable law
require it to respond to, communicate with or provide information to any party
making an inquiry or proposal (as determined by the OEDC Board after
consultation with and based upon advice of counsel and its financial
advisors), OEDC shall give notice to Titan of each such determination made by
the OEDC Board, which notice shall be given to Titan prior to the time that
OEDC shall provide any such information or enter into any discussions with any
such party. OEDC shall continue to keep Titan informed with respect to any
actions that OEDC may take, including any discussions, with respect to each
such OEDC Acquisition Proposal.

(c) Nothing in this Section 3.4 shall permit OEDC to (i) enter into any
agreement with respect to any OEDC Acquisition Proposal during the term of
this Agreement (it being agreed that during the term of this Agreement, OEDC
shall not enter into any agreement with any person that provides for, or in
any way facilitates, any OEDC Acquisition Proposal), or (ii) terminate this
Agreement except as specifically provided in Section 7.1.

3.5 Affiliates' Agreements. Prior to the Closing Date, OEDC shall deliver to
Titan a letter identifying all persons whom it believes are, at the time this
Agreement is submitted for approval to the stockholders of OEDC, "affiliates"
of OEDC for purposes of Rule 145 under the Securities Act. OEDC shall use its
reasonable efforts

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to cause each such person to deliver to Titan on or prior to the Closing Date
a written agreement substantially in the form of Exhibit A. Titan shall not be
required to maintain the effectiveness of the Registration Statement (as
defined below) for the purpose of resale by stockholders of OEDC who may be
"affiliates" pursuant to Rule 145 under the Securities Act.

3.6 Access to Information; Confidentiality. Between the date hereof and the
Effective Time, OEDC (i) shall give Titan and Sub and their respective
authorized representatives reasonable access, during regular business hours
and upon reasonable advance notice, to all employees, all plants, offices,
properties and other facilities, and all books and records, of OEDC and the
OEDC Subsidiaries, (ii) shall permit Titan and Sub and their respective
authorized representatives to make such inspections as they may reasonably
require, and (iii) shall cause OEDC's officers to furnish Titan and Sub and
their respective authorized representatives with such financial and operating
data and other information with respect to OEDC and the OEDC Subsidiaries as
Titan or Sub may from time to time reasonably request; provided, however, that
no investigation pursuant to this Section shall affect any representation or
warranty of OEDC contained in this Agreement or in any agreement, instrument,
or document delivered pursuant hereto or in connection herewith; and provided
further that OEDC shall have the right to have a representative present at all
times of any such inspections, interviews, and examinations conducted at or on
the offices or other facilities or properties of OEDC or its affiliates or
representatives. All such information shall be maintained in the strictest
confidence in accordance with Section 7.11 of this Agreement.

ARTICLE IV

Covenants of Titan Prior to the Effective Time

4.1 Conduct of Business by Titan Pending the Merger. Titan covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
OEDC shall otherwise agree in writing or as otherwise expressly contemplated
by this Agreement:

(a) Titan shall not directly or indirectly split, combine or reclassify
any outstanding capital stock, or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to its capital
stock whether now or hereafter outstanding;

(b) Titan shall not, and shall not permit any of the Titan Subsidiaries
to, take any action that would, or that reasonably could be expected to,
result in any of the representations and warranties set forth in this
Agreement becoming untrue or any of the conditions to the Merger set forth
in Article VI not being satisfied. Titan promptly shall advise OEDC orally
and in writing of any change or event having, or which, insofar as
reasonably can be foreseen, would have, a Material Adverse Effect on Titan
and the Titan Subsidiaries; and

(c) neither Titan nor any of the Titan Subsidiaries shall authorize or
propose, or agree in writing or otherwise to take, any of the actions
described in this Section.

4.2 Joint Proxy Statement. Promptly after the date of this Agreement, Titan
shall cooperate with OEDC in preparing and shall file with the Commission
under the Exchange Act, and shall use its reasonable efforts to have cleared
by the Commission, the Proxy Statement with respect to the meeting of the
stockholders of Titan referred to in Section 4.3. Titan agrees that the Proxy
Statement (except with respect to information concerning OEDC and the OEDC
Subsidiaries furnished by or on behalf of OEDC specifically for use therein,
for which information OEDC shall be responsible) will comply as to form in all
material respects with the requirements of the Exchange Act and the respective
rules and regulations adopted thereunder, and the Proxy Statement (except with
respect to information concerning OEDC and the OEDC Subsidiaries furnished by
or on behalf of OEDC specifically for use therein, for which information OEDC
shall be responsible) will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Proxy Statement shall
contain the recommendation of the Board of Directors of Titan that the
stockholders of Titan vote to approve this Agreement. Titan will advise OEDC
promptly in writing if prior to the Effective Time it shall obtain knowledge
of any facts that would make it

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necessary to amend or supplement the Proxy Statement in order to make the
statements therein not misleading or to comply with Applicable Law.

4.3 Meeting of Stockholders of Titan. Titan shall promptly take all action
reasonably necessary in accordance with the DGCL and the Titan Certificate and
bylaws to convene a meeting of its stockholders to consider and vote upon the
approval of this Agreement. The Board of Directors of Titan (i) shall
recommend at such meeting that the stockholders of Titan vote to approve this
Agreement; (ii) shall use its reasonable efforts to solicit from stockholders
of Titan proxies in favor of such approval; and (iii) shall take all other
action reasonably necessary to secure a vote of its stockholders in favor of
such approval.

4.4 Registration Statement. Promptly after the date of this Agreement, Titan
will file a registration statement (the "1 Registration Statement") on Form S-
4 with the Commission under the Securities Act with respect to the offering,
sale and delivery of the shares of Titan Common Stock to be issued pursuant to
the Merger; and Titan will use its reasonable efforts to cause such
Registration Statement to become effective as soon as practicable after
filing. Titan agrees that the Registration Statement (except with respect to
information concerning OEDC and the OEDC Subsidiaries furnished by or on
behalf of OEDC specifically for use therein, for which information OEDC shall
be responsible) will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the respective
rules and regulations adopted thereunder, and will not contain any untrue
statement of any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements made therein not
misleading. Titan will advise OEDC in writing if prior to the Effective Time
it shall obtain knowledge of any fact that would, in its opinion, make it
necessary to amend or supplement the Registration Statement in order to make
the statements therein not misleading or to comply with applicable law.

4.5 Reservation of Titan Stock. Titan shall reserve for issuance, out of its
authorized but unissued capital stock, such number of shares of Titan Common
Stock as may be issuable upon consumma tion of the Merger and such number of
shares of Titan Common Stock as may be issuable upon exercise of the Assumed
Options.

4.6 Affiliates' Agreements. Titan shall use its reasonable efforts to cause
each person whom it believes is an "affiliate" of Titan within the meaning
thereof under Rule 405 under the Securities Act, to deliver to Titan on or
prior to the Closing Date a written agreement substantially in the form of
Exhibit B hereto.

ARTICLE V

Additional Agreements

5.1 Accountants' Letters.

(a) OEDC shall use its reasonable efforts to cause KPMG Peat Marwick to
deliver a letter dated as of the date of the Proxy Statement, and addressed to
itself and Titan, in form and substance reasonably satisfactory to Titan and
customary in scope and substance for agreed upon procedures letters delivered
by independent public accountants in connection with registration statements
and proxy statements similar to the Registration Statement and Proxy
Statement.

(b) Titan shall use its reasonable efforts to cause KPMG Peat Marwick to
deliver a letter dated as of the date of the Proxy Statement, and addressed to
itself and OEDC, in form and substance reasonably satisfactory to OEDC and
customary in scope and substance for agreed upon procedures letters delivered
by independent public accountants in connection with registration state ments
and proxy statements similar to the Registration Statement and Proxy
Statement.

5.2 Filings; Consents; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, OEDC and Titan shall (i) make all necessary
filings with respect to the Merger and this Agreement under the HSR Act,

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the Securities Act, the Exchange Act and applicable blue sky or similar
securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto; (ii) obtain all consents,
waivers, approvals, authorizations and orders required in connection with the
authorization, execution and delivery of this Agreement and the consummation
of the Merger; and (iii) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.

5.3 Notification of Certain Matters. OEDC shall give prompt notice to Titan,
and Titan shall give prompt notice to OEDC, orally and in writing, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate at any time from the date hereof to the
Effective Time, and (ii) any material failure of OEDC or Titan, as the case
may be, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder.

5.4 Agreement to Defend. In the event any claim, action, suit, investigation
or other proceeding by any Governmental Entity or other person or other legal
or administrative proceeding is commenced that questions the validity or
legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.

5.5 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, except
that expenses incurred in connection with printing and mailing the
Registration Statement and the Proxy Statement shall be shared equally by
Titan and OEDC; provided, however, that if this Agreement shall have been
terminated pursuant to Section 7.1 as a result of the willful breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, such breaching party shall pay the costs and expenses
of the other parties in connection with the transactions contemplated by this
Agreement.

5.6 Indemnification. From and after the Effective Time, Titan and the
Surviving Corporation shall, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer, director, employee or other
controlling person of OEDC or any of the OEDC Subsidiaries and such person's
affiliates (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses, liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party (which approval shall
not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director,
officer, employee or controlling person of OEDC or any of the OEDC
Subsidiaries or any such person's affiliate, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether reasserted
or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including without limitation all Indemnified Liabilities based
in whole or in part on, or arising in whole or in part out of, or pertaining
to acts or omissions, or alleged acts or omissions, by him in his capacity as
an officer or director of OEDC, which acts or omissions occurred prior to the
Effective Time; provided, however, that Titan shall be under no obligation to
indemnify any Indemnified Party pursuant to this Section 5.6 except to the
extent such Indemnified Party was entitled to indemnification from OEDC
(pursuant to applicable law or contract) immediately prior to the Effective
Time. The procedures associated with such indemnification shall be the same as
those associated with the Indemnified Parties' indemnification from OEDC, as
the case may be, immediately prior to the Effective Time (provided, however,
that Titan shall be under no obligation to deposit trust funds pursuant to any
"change-in-control" or similar provisions). OEDC hereby agrees that, from and
after the date hereof until the Effective Time, it will not amend, modify or
otherwise alter any contractual provision under which any Indemnified Party is
entitled to indemnification from OEDC at the time the execution of this
Agreement. The provisions of this Section 5.6 are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each
Indemnified Party, his heirs and his representatives.

5.7 OEDC Employees. After the Effective Time, it is expected that Titan may,
in its sole discretion, offer employment to, or cause OEDC to continue the
employment of, the employees of OEDC (the "Retained

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Employees"); provided, however, that Titan shall have no obligation to retain
any of the employees of OEDC. Titan shall provide the Retained Employees with
the same benefits that accrue to employees of Titan.

5.8 Post-Effective Time Mailing. As soon as practicable following the
Effective Time, Titan will cause to be mailed to each holder of certificates
that represented shares of OEDC Common Stock immediately prior to the
Effective Time such information as contemplated by Article I of this
Agreement.

5.9 Tax Treatment. Each of Titan and OEDC undertakes and agrees to use its
reasonable efforts to cause the Merger to qualify, and to take no action which
would cause the Merger not to qualify, for treatment as a "reorganization"
within the meaning of Section 368(a) of the Code.

5.10 HSR Act Notification. To the extent required by the HSR Act, each of
the parties hereto shall (i) file or cause to be filed, as promptly as
practicable but in no event later than ten days after the execution and
delivery of this Agreement, with the Federal Trade Commission and the United
States Department of Justice, all reports and other documents required to be
filed by such party under the HSR Act concerning the transactions contemplated
hereby and (ii) promptly comply with or cause to be complied with any requests
by the Federal Trade Commission or the United States Department of Justice for
additional information concerning such transactions, in each case so that the
waiting period applicable to this Agreement and the transactions contemplated
hereby under the HSR Act shall expire as soon as practicable after the
execution and delivery of this Agreement. Each party hereto agrees to request,
and to cooperate with the other party or parties in requesting, early
termination of any applicable waiting period under the HSR Act.

5.11 Public Announcements. Except as may be required by applicable law,
neither Titan and Sub, on the one hand, nor OEDC, on the other, shall issue
any press release or otherwise make any public statement with respect to this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by applicable law shall
only be made after reasonable notice to the other party.

5.12 Indemnification of Brokerage. OEDC, on the one hand, and Titan, on the
other, shall indemnify and hold each other harmless from any claim or demand
for commission or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of OEDC or Titan,
as the case may be, and shall bear the cost of legal fees and expenses
incurred in defending against any such claim. OEDC shall pay the fees that it
owes to M2 Capital Ventures, L.L.C. in connection with the Merger pursuant to
the letter agreement dated May 28, 1997 (as amended) between OEDC and M2
Capital Ventures, L.L.C.

ARTICLE VI

Conditions

6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:

(a) This Agreement shall have been approved by the requisite vote of the
stockholders of Titan and OEDC, as may be required by this Agreement, by
Applicable Law, by the rules of the NMS and by any applicable provisions of
their respective certificates of incorporation or bylaws;

(b) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;

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delay or rescind this Agreement or any aspect of the Merger or to obtain an
award of damages in connection with the Merger and which, in the good faith
judgment of any of the parties, is material;

(d) The Registration Statement shall be effective on the Closing Date,
and all post-effective amendments filed shall have been declared effective
or shall have been withdrawn; and no stop-order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the Commission;

(e) There shall have been obtained any and all material permits,
approvals and consents of securities or blue sky commissions of any
jurisdiction, and of any other Governmental Entity, that reasonably may be
deemed necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance with Applicable
Laws, the failure to comply with which would reasonably be expected to have
a Material Adverse Effect on Titan, the Surviving Corporation and their
subsidiaries, taken as a whole after consummation of the Merger;

(f) The shares of Titan Common Stock issuable upon consummation of the
Merger and the shares of Titan Common Stock issuable upon exercise of any
Assumed Options shall have been approved for listing on the NMS or other
national securities exchange or automated quotation system, subject to
official notice of issuance;

(g) All approvals of private persons or corporations, (i) the granting of
which is necessary for the consummation of the Merger or the transactions
contemplated in connection therewith and (ii) the non-receipt of which
would reasonably be expected to have a Material Adverse Effect on Titan,
the Surviving Corporation and their subsidiaries, taken as a whole after
the consummation of the Merger, shall have been obtained; and

(h) Titan and OEDC shall have received a written opinion from Thompson &
Knight, P.C., in form reasonably satisfactory to such parties (the "Tax
Opinion"), to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, (ii) the
exchange in the Merger of OEDC Common Stock for Titan Common Stock will not
give rise to gain or loss to the shareholders of OEDC with respect to such
exchange (except to the extent of any cash received), and (iii) Titan, Sub
and OEDC will not recognize any gain or loss as a result of the Merger
(except for amounts resulting from any required change in accounting
methods and any income or deferred gain recognized pursuant to Treasury
Regulations issued under Section 1502 of the Code). In rendering such Tax
Opinion, such counsel shall be entitled to rely upon representations of
officers of Titan and OEDC and of their respective "affiliates" reasonably
satisfactory in form and substance to such counsel.

6.2 Additional Conditions to Obligations of Titan. The obligation of Titan
to effect the Merger is, at the option of Titan, also subject to the
fulfillment at or prior to the Closing Date (unless an earlier date is
provided herein) of the following conditions:

(a) The representations and warranties of OEDC contained in Section 2.1
shall be accurate in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak
specifically as of an earlier date) as of the Closing Date as though such
representations and warranties had been made at and as of that time; all of
the terms, covenants and conditions of this Agreement to be complied with
and performed by OEDC and/or the OEDC Subsidiaries on or before the Closing
Date shall have been duly complied with and performed in all material
respects; and a certificate to the foregoing effect dated the Closing Date
and signed by the chief executive officer of OEDC shall have been delivered
to Titan;

(b) Since the date of this Agreement, no Material Adverse Effect
pertaining to OEDC and the OEDC Subsidiaries shall have occurred, and OEDC
and the OEDC Subsidiaries shall not have suffered any damage, destruction
or loss materially and adversely affecting the properties or business of
OEDC and the OEDC Subsidiaries, taken as a whole, and Titan shall have
received a certificate signed by the chief executive officer of OEDC dated
the Closing Date to such effect;

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(c) OEDC shall have received, and furnished written copies to Titan of,
the OEDC affiliates' agreements pursuant to Section 3.5;

(d) Titan shall have received from Bracewell & Patterson, L.L.P. counsel
to OEDC, an opinion dated the Closing Date covering the matters set forth
in Exhibit C; and

(e) This Agreement shall have been approved by a majority of the shares
of OEDC Common Stock (i) held by persons other than members of the OEDC
Board and their affiliates and (ii) voted at the meeting of stockholders of
OEDC provided for in Section 3.3.

6.3 Additional Conditions to Obligations of OEDC. The obligation of OEDC to
effect the Merger is, at the option of OEDC, also subject to the fulfillment
at or prior to the Closing Date of the following conditions:

(a) The representations and warranties of Titan and Sub contained in
Section 2.2 shall be accurate in all material respects as of the date of
this Agreement and (except to the extent such representations and
warranties speak specifically as of an earlier date) as of the Closing Date
as though such representations and warranties had been made at and as of
that time; all the terms, covenants and conditions of this Agreement to be
complied with and performed by Titan on or before the Closing Date shall
have been duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed by
the chief executive officer of Titan shall have been delivered to OEDC;

(b) Since the date of this Agreement, no Material Adverse Effect
pertaining to Titan and the Titan Subsidiaries shall have occurred, and
Titan and the Titan Subsidiaries shall not have suffered any damage,
destruction or loss materially adversely affecting the properties or
business of Titan and the Titan Subsidiaries, taken as a whole, and OEDC
shall have received a certificate signed by the chief executive officer of
Titan dated the Closing Date to such effect;

(c) OEDC shall have received from Raymond James & Associates, Inc.,
financial advisor to OEDC, a written opinion, dated as of the date of this
Agreement, satisfactory in form and substance to the OEDC Board, to the
effect that the Exchange Ratio is fair to the stockholders of OEDC from a
financial point of view, which opinion shall have been confirmed in writing
to such Board as of the date of the Proxy Statement and not subsequently
withdrawn;

(d) OEDC shall have received from Thompson & Knight, P.C., counsel to
Titan, an opinion dated the Closing Date covering the matters set forth in
Exhibit D;

(e) Titan shall have received, and furnished copies to OEDC of, the Titan
affiliates' agreements pursuant to Section 4.6; and

(f) This Agreement shall have been approved by a majority of the shares
of OEDC Common Stock (i) held by persons other than members of the OEDC
Board and their affiliates and (ii) voted at the meeting of stockholders of
OEDC provided for in Section 3.3.

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ARTICLE VII

Miscellaneous

7.1 Termination. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to
the Effective Time, whether prior to or after approval by the stockholders of
Titan or the stockholders of OEDC:

(a) by mutual consent of Titan and OEDC;

(b) by either Titan or OEDC if the Merger has not been effected on or
before February 28, 1998;

(d) by OEDC if the condition set forth in Section 6.3(c) is not
satisfied;

(e) by either Titan or OEDC if a final, unappealable order of a judicial
or administrative authority of competent jurisdiction to restrain, enjoin
or otherwise prevent a consummation of this Agreement or the transactions
contemplated in connection herewith shall have been entered;

(f) by either Titan or OEDC if the required approval of the stockholders
of OEDC or the stockholders of Titan provided for in Sections 3.3 and 4.3,
respectively, is not received in a vote duly taken at their respective
stockholders' meetings;

(g) by Titan if (i) since the date of this Agreement there has been a
Material Adverse Effect pertaining to OEDC and the OEDC Subsidiaries, or
(ii) there has been a material breach of any representation or warranty or
covenant set forth in this Agreement by OEDC which breach has not been
cured within five business days following receipt by OEDC of notice of such
breach;

(h) by OEDC if (i) since the date of this Agreement there has been a
Material Adverse Effect pertaining to Titan and the Titan Subsidiaries, or
(ii) there has been a material breach of any representation or warranty or
covenant set forth in this Agreement by Titan which breach has not been
cured within five business days following receipt by Titan of notice of
such breach;

(i) by Titan if the OEDC Board, in the exercise of its fiduciary duties
to the stockholders of OEDC pursuant to Sections 3.2, 3.3 or 3.4(b),
determines not to recommend, or otherwise withdraws its recommendation of,
the approval of this Agreement or fails to convene a meeting of the OEDC
stockholders; or

(j) by OEDC, if the OEDC Board makes the determination specified in
Section 3.4(b); provided that OEDC may not effect such termination pursuant
to this Section 7.1(j) unless and until (i) Titan receives at least one
week's prior written notice from OEDC of its intention to effect such
termination pursuant to this Section 7.1(j); (ii) during such week, OEDC
shall, and shall cause its respective financial and legal advisors and
other Representatives to, consider any adjustment in the terms and
conditions of this Agreement that Titan may propose; and (iii) OEDC pays
the amounts required by Section 7.2(c) concurrently with such termination.

7.2 Effect of Termination.

(a) In the event of any termination of this Agreement pursuant to Section
7.1, (i) the provisions of Sections 5.5, 5.12 and 7.11 shall survive any such
termination, and (ii) such termination shall not relieve any party from
liability for any breach of this Agreement.

(b) In the event that either Titan or OEDC terminates this Agreement
pursuant to Sections 7.1(a), 7.1(b), 7.1(c), 7.1(d), 7.1(f), 7.1(g)(ii),
7.1(i) or 7.1(j), and (i) this Agreement has either not been submitted to the
stockholders of OEDC or the stockholders of OEDC have declined to approve this
Agreement by the requisite vote, (ii) after the date of this Agreement but at
or before the time this Agreement is terminated there shall have been an OEDC
Acquisition Proposal proposed to OEDC and (iii) any OEDC Acquisition Proposal
(whether the same or different from the one referenced in clause (ii)) is
consummated at any time within one year after the date of this Agreement, then
OEDC shall promptly pay to Titan the sum of $3,000,000 upon the consummation
of any such OEDC Acquisition Proposal.

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(c) In the event that OEDC terminates this Agreement pursuant to Section
7.1(j), then OEDC shall promptly pay to Titan the sum of $3,000,000.

(d) If this Agreement is terminated pursuant to Section 7.1(f) because of
the failure of Titan to secure the approval of its stockholders as required
under Section 4.3 and the conditions to closing set forth in Sections 6.1 and
6.2 (other than Sections 6.1(f), 6.1(h), 6.2(c) and 6.2(d) have otherwise been
satisfied, then Titan shall promptly, but in no event later than five business
days after written request by OEDC, pay to OEDC an amount equal to $500,000 in
immediately available funds as reimbursement for an agreed upon estimate of
OEDC's out-of-pocket fees and expenses incurred in connection with the
transactions contemplated hereby.

(e) If this Agreement is terminated pursuant to Section 7.1(f) because of
the failure of OEDC to secure the approval of its stockholders as required
under Section 3.3 or pursuant to 7.1(c) and the conditions to closing set
forth in Sections 6.1 and 6.3 (other than Sections 6.1(f), 6.1(h), 6.3(d) and
6.3(e)) have otherwise been satisfied, then OEDC shall promptly, but in no
event later than five business days after written request by Titan, pay to
Titan an amount equal to $500,000 in immediately available funds as
reimbursement for an agreed upon estimate of Titan's out-of-pocket fees and
expenses incurred in connection with the transactions contemplated hereby;
provided, however, that if OEDC shall be obligated to make any payment to
Titan pursuant to Section 7.2(b) or Section 7.2(c), then OEDC shall be
entitled to offset from any amount due under Section 7.2(b) or Section 7.2(c)
any amount paid to Titan pursuant to this Section 7.2(e).

7.3 Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is, or whose stockholders are, entitled to the
benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party
hereto, provided that after this Agreement has been approved and adopted by
the stockholders of Titan and OEDC, this Agreement may be amended only as may
be permitted by applicable provisions of the DGCL. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived.

7.4 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants or agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the terms of Article I, the second paragraph of
Section 2.1(l), Sections 5.6, 5.7, 5.9, 5.11 and 5.12, Article VII, and the
agreements of the "affiliates" of OEDC and Titan delivered pursuant to
Sections 3.5 and 4.6, respectively hereof.

7.5 Assignment. This Agreement shall inure to the benefit of and will be
binding upon the parties hereto and their respective legal representatives,
successors and permitted assigns. Except as set forth in this Agreement, this
Agreement shall not be assignable by the parties hereto.

7.6 Notices. All notices, requests, demands, claims and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given if (i) delivered in person
or by expedited courier service, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, certified first class
mail, postage prepaid, return receipt requested, to the parties hereto at the
following addresses:

if to OEDC: Offshore Energy Development Corporation
1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
Attention: Douglas H. Kiesewetter

with a copy to: Bracewell & Patterson, L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: Charles H. Still, Jr.

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if to Titan: Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack D. Hightower

with a copy to: Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Joe Dannenmaier

or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 7.6. Such notices shall be
effective, (i) if delivered in person or by expedited courier service, upon
actual receipt by the intended recipient, (ii) if sent by telecopy or
facsimile transmission, when the answer back is received, or (iii) if mailed,
upon the earlier of five days after deposit in the mail and the date of
delivery as shown by the return receipt therefor.

7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive law of the State of Texas without giving
effect to the principles of conflicts of law thereof.

7.8 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated.

7.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.

7.10 Headings. The Section headings herein are for convenience only and
shall not affect the construction hereof.

7.11 Confidentiality.

(a) The parties hereto agree that all Confidential Information (as defined
below) of OEDC shall be kept confidential by Titan, and all Confidential
Information of Titan shall be kept confidential by OEDC. No such Confidential
Information shall be disclosed by any such party in any manner whatsoever;
provided, however, that (i) any of such Confidential Information may be
disclosed to such Representatives as need to know such information for the
purpose of evaluating the Merger (it being understood that such
Representatives shall be informed as to the confidential nature of such
information and shall be required to treat such information confidentially),
(ii) any disclosure of Confidential Information may be made to the extent to
which OEDC or Titan, as the case may be, consents in writing, and (iii)
Confidential Information may be disclosed by any Representative to the extent
that, in the opinion of counsel for such party or such Representative, Titan,
OEDC or such Representative is legally compelled to do so, provided that,
prior to making such disclosure, Titan, OEDC or such Representative, as the
case may be, advises and consults with the Titan or OEDC, as applicable,
regarding such disclosure and provided further that Titan, OEDC or such
Representative, as the case may be, discloses only that portion of the
Confidential Information as is legally required. Titan and OEDC agree that
none of the Confidential Information will be used for any purpose other than
in connection with the Merger contemplated hereby. The term "Confidential
Information", as used herein, means all information (irrespective of the form
of communication) obtained by or on behalf (A) Titan from OEDC or its
Representatives or (B) OEDC from Titan or its Representatives pursuant to this
Section and all similar information obtained from OEDC or Titan, as the case
may be, prior to the date of this Agreement, other than information which (i)
was or becomes generally available to the public other than as a result of
disclosure by a person without the right to make such disclosure, (ii) was or
becomes available to Titan or OEDC on a nonconfidential basis prior to
disclosure to OEDC or Titan, or (iii) was or becomes available to Titan or
OEDC from a source other than OEDC or Titan and their respective
Representatives, provided that such source is not known to be bound by a
confidentiality agreement with OEDC or Titan.

I-27
<PAGE>

(b) If this Agreement is terminated, Titan and OEDC shall promptly return,
and shall use their reasonable best efforts to cause all of their respective
Representatives to promptly return, all Confidential Information to OEDC or
Titan, as applicable, without retaining any copies thereof, provided that such
portion of the Confidential Information as consists of notes, compilations,
analyses, reports, studies, or other documents shall be destroyed.

7.12 Entire Agreement; Third Party Beneficiaries. This Agreement constitutes
the entire agreement and supersedes the Original Agreement and all other prior
agreements and understandings, both oral and written, among the parties or any
of them, with respect to the subject matter hereof and neither this nor any
document delivered in connection with this Agreement confers upon any person
not a party hereto any rights or remedies hereunder except as provided in
Section 5.6 and Section 5.7.

7.13 Disclosure Letters.

(a) The OEDC Disclosure Letter contains all disclosure required to be made
by OEDC under the various terms and provisions of this Agreement. Each item of
disclosure set forth in the OEDC Disclosure Letter specifically refers to the
Article and Section of the Agreement to which such disclosure responds, and
shall not be deemed to be disclosed with respect to any other Article or
Section of the Agreement.

(b) The Titan Disclosure Letter contains all disclosure required to be made
by Titan under the various terms and provisions of this Agreement. Each item
of disclosure set forth in the Titan Disclosure Letter specifically refers to
the Article and Section of the Agreement to which such disclosure responds,
and shall not be deemed to be disclosed with respect to any other Article or
Section of the Agreement.

ARTICLE VIII

Definitions

8.1 Certain Defined Terms. As used in this Agreement, each of the following
terms has the meaning given it in this Article:

"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to
which a specified person or property is subject.

"Benefit Program or Agreement" means each personnel policy, stock option
plan, collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy or
agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan, agreement,
arrangement, program, practice or understanding that is not a Plan.

"Commission" shall mean the Securities and Exchange Commission.

"Defensible Title" means, as of the date set forth in the OEDC Disclosure
Letter and as to each Oil and Gas Interest, such title that:

(i) Is defensible by OEDC or any OEDC Subsidiary, as applicable, against
the claims of all other persons; and

(ii) Entitles OEDC or the OEDC Subsidiaries, as applicable, to receive
not less than the net revenue interest for such Oil and Gas Interest as
described in the OEDC Disclosure Letter as the "Net Revenue Interest" with
respect to such Oil and Gas Interests; and

(iii) Obligates OEDC or the OEDC Subsidiaries, as applicable, to pay
costs and expenses relating to such Oil and Gas Interest in an amount not
greater than the "Working Interest" as described in the OEDC Disclosure
Letter with respect to such Oil and Gas Interest; and

(iv) Except for Permitted Encumbrances, is free and clear of any
Encumbrance.

I-28
<PAGE>

"Encumbrances" means liens, charges, pledges, options, mortgages, deeds of
trust, security interests, claims, restrictions (whether on voting, sale,
transfer, disposition, or otherwise), easements, and other encumbrances of
every type and description, whether imposed by law, agreement, understanding,
or otherwise.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body, agency,
department, commission, board, bureau, or other authority or instrumentality
(domestic or foreign).

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

"Hydrocarbon Agreement" means any of the following:

(i) "Hydrocarbon Purchase Agreement," which means any sales agreement,
purchase contract or marketing agreement that is currently in effect and
under which OEDC or an OEDC Subsidiary is a buyer of hydrocarbons for
resale (other than purchase agreements entered into in the ordinary course
of business with a term of three months or less, terminable without penalty
on 30 days' notice or less, which provide for a price not greater than the
market value price that would be paid pursuant to an arm's-length contract
for the same term with an unaffiliated third party seller, and which do not
obligate the purchaser to take any specified quantity of hydrocarbons or to
pay for any deficiencies in quantities of hydrocarbons not taken).

(ii) "Hydrocarbon Sales Agreement," which means any sales agreement,
purchase contract or marketing agreement that is currently in effect and
under which any of OEDC or an OEDC Subsidiary is a seller of hydrocarbons
(other than "spot" sales agreements entered into in the ordinary course of
business with a term of three months or less, terminable without penalty on
30 days' notice or less, and which provide for a price not less than the
market value price that would be received pursuant to an arms'-length
contract for the same term with an unaffiliated third party purchaser).

(iii) "Hydrocarbon Support Agreement," which means any gathering,
transportation, treatment, compression, processing or similar agreement
that is currently in effect and to which OEDC or an OEDC Subsidiary is a
party (other than gathering, transportation, treatment, compression,
processing and similar agreements that have been entered into in the
ordinary course of business and which contain market value prices and terms
of the type found in gathering, transportation, treatment, compression,
processing and similar agreements entered into between unaffiliated parties
in arm's-length transactions).

"NMS" means the NASDAQ National Market System.

"Oil and Gas Interest(s)" means (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net
profits interests, other non-working interests and non-operating interests;
(b) interests in and rights with respect to hydrocarbons and other minerals or
revenues therefrom and contracts in connection therewith and claims and rights
thereto (including oil and gas leases, operating agreements, unitization and
pooling agreements and orders, division orders, transfer orders, mineral
deeds, royalty deeds, oil and gas sales, exchange and processing contracts and
agreements and, in each case, interests thereunder), surface interests, fee
interests, reversionary interests, reservations and concessions;

I-29
<PAGE>

(c) easements, rights of way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; and (d) interests in equipment and machinery (including well
equipment and machinery), oil and gas production, gathering, transmission,
compression, treating, processing and storage facilities (including tanks,
tank batteries, pipelines and gathering systems), pumps, water plants,
electric plants, gasoline and gas processing plants, refineries and other
tangible personal property and fixtures associated with, appurtenant to, or
necessary for the operation of any of the foregoing.

"Permitted Encumbrances" means (i) Encumbrances for inchoate mechanics' and
materialmen's liens for construction in progress and workmen's, repairmen's,
warehousemen's and carriers' liens arising in the ordinary course of business,
(ii) requirements for consent to assignment and other encumbrances of a
similar nature which are part of contracts customarily used in the oil and gas
industry, (iii) Encumbrances for Taxes not yet payable, (iv) Encumbrances and
imperfections of title, including servitudes, permits, surface leases and
other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like; conditions, covenants or other
restrictions; easements for streets, alleys, highways, pipelines, power lines,
telephone lines and railways, and other assessments and rights-of-way, and all
other liens, in each case listed in this subsection (iv) that (A) do not arise
in connection with or secure indebtedness for money borrowed or owed or the
extension of credit, (B) do not materially detract from the value of the Oil
and Gas Interests subject thereto or affected thereby or otherwise materially
impair the Property or operations being conducted thereon or therewith, so a
reasonably prudent operator engaged in the oil and gas industry with knowledge
of the facts and circumstances and the legal effect thereon would accept title
to such Oil and Gas Interests subject to such detractions, interferences or
impairments or (C) do not reduce the net revenue interest or increase the
working interest shown for the affected Oil and Gas Interests on the OEDC
Disclosure Letter, and (v) any other Encumbrances to the extent expressly set
forth in Section 8.1 of the OEDC Disclosure Letter.

"person" means any individual, corporation, partnership, joint venture,
limited liability company association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.

"Plan" shall mean an "employee benefit plan" as such term is defined in
Section 3(3) of ERISA.

"Securities Act" means the Securities Act of 1933, as amended.

"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, or other tax imposed by any United States
federal, state, or local (or any foreign or provincial) taxing authority,
including any interest, penalties, or additions attributable thereto.

"Tax Return" means any return or report, including any related or supporting
information, with respect to Taxes.

I-30
<PAGE>

8.2 Certain Additional Defined Terms. In addition to such terms as are
defined in the opening paragraph of and the recitals to this Agreement and in
Section 8.1, the following terms are used in this Agreement as defined in the
pages set forth opposite such terms:

<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Agreement................................................................. 1
Assumed Option............................................................ 27-31
Closing...................................................................
Closing Date.............................................................. 2
Code...................................................................... 1
Confidential Information.................................................. 34
DGCL...................................................................... 1
Effective Time............................................................ 2
Exchange Ratio............................................................ 2
Indemnified Parties....................................................... 26
Merger.................................................................... 1
OEDC...................................................................... 1
OEDC 1996 Plan............................................................ 6
OEDC Acquisition Proposal................................................. 22
OEDC Board................................................................ 7
OEDC Certificate..........................................................
OEDC Commission Filings................................................... 8
OEDC Common Stock......................................................... 1
OEDC Disclosure Letter.................................................... 5
OEDC Employee Option...................................................... 4
OEDC ERISA Affiliate......................................................
OEDC Subsidiaries.........................................................
Original Agreement........................................................
Proxy Statement........................................................... 21
Registration Statement.................................................... 24
Representatives........................................................... 22
Retained Employees........................................................
Sub....................................................................... 1
Surviving Corporation..................................................... 1
Tax Opinion............................................................... 28
Titan..................................................................... 1
Titan Certificate......................................................... 16
Titan Commission Filings.................................................. 18
Titan Common Stock........................................................ 1
Titan Disclosure Letter................................................... 16
Titan Options............................................................. 17
Titan Subsidiaries........................................................ 16
</TABLE>

I-31
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.

Titan Exploration, Inc.

/s/ Jack D. Hightower
By___________________________________
Jack D. Hightower
President

Titan Offshore, Inc.

/s/ Jack D. Hightower
By___________________________________
Jack D. Hightower
President

Offshore Energy Development
Corporation

/s/ David B. Strassner
By___________________________________
David B. Strassner
President & CEO

I-32
<PAGE>

[Raymond James & Associates, Inc. Letterhead]

November 6, 1997

The Board of Directors
Offshore Energy Development Corporation
1400 Woodloch Forest Drive
Suite 200
The Woodlands, Texas 77380

Gentlemen:

You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Offshore Energy Development Corporation ("OEDC" or
the "Company") of the consideration to be received by them in connection with
the proposed merger (the "Merger") of Titan Offshore, Inc. ("TOI"), a wholly-
owned subsidiary of Titan Exploration, Inc., ("Titan"), with and into the
Company pursuant to the terms and subject to the conditions contained within the
proposed Agreement and Plan of Merger (the "Merger Agreement") among OEDC, Titan
and TOI. The Merger Agreement provides, among other things, that each
outstanding share of OEDC common stock will be converted into the right to
receive 0.63 shares (the "Exchange Ratio") of Titan common stock at closing.

In connection with our review of the proposed Merger and the preparation of our
opinion herein, we have examined (i) the financial terms and conditions of the
Merger Agreement; (ii) the audited financial statements of the Company and
Titan; (iii) unaudited interim financial statements of the Company and Titan;
(iv) certain internal financial analyses and forecasts for the Company and
certain financial analyses and forecasts for Titan prepared by each company's
respective management; (v) financial analyses of OEDC and Titan prepared for the
Company by M2 Capital Partners LLC; and (vi) certain other publicly available
information relating to the Company and Titan. We have also held discussions
with members of the senior management of OEDC and Titan regarding the past and
current business operations, financial condition and future prospects of OEDC
and Titan, and we have considered other matters which were deemed relevant to
our inquiry, including the litigation filed against OEDC in October 1997.

We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any of such
information, nor have we made or obtained an independent appraisal of the assets
or liabilities (contingent or otherwise) of the Company or Titan. With respect
to financial forecasts, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of each
company's management, and we have relied upon each party to advise us promptly
if any
<PAGE>

The Board of Directors
Offshore Energy Development Corporation
November 7, 1997
Page 2 of 3

information previously provided became inaccurate or was required to be updated
during the period of our review.

Our opinion herein is based upon market, economic, financial and other
circumstances and conditions as disclosed to us and existing as of November 5,
1997, and any material change in such circumstances and conditions would require
a reevaluation of this opinion. In particular, we are expressing no opinion
herein as to the price at which the common stock of Titan will trade at any
future time. Because the consideration to be received by the Company's
shareholders is governed solely by the Exchange Ratio, the market value of the
shares of common stock of Titan to be issued in exchange for each share of
common stock of the Company may vary significantly.

In conducting our investigation and in arriving at the opinion expressed herein,
we have taken into account such accepted financial and investment banking
procedures and analyses as we have deemed relevant, including our review of (i)
historical and projected revenues, operating earnings, net income and
capitalization of the Company, Titan and certain other publicly held companies
we believe to be comparable to OEDC; (ii) the current financial position and
results of operations of the Company and Titan and forecasted results of such
entities; (iii) the historical market prices and trading activity of the common
stock of OEDC and Titan; (iv) financial and operating information concerning
selected completed business combinations which we deemed comparable to the
Merger in whole or in part; and (v) the general condition of the securities
markets.

Raymond James & Associates, Inc. is actively engaged in the investment banking
business and regularly undertakes the valuation of investment securities in
connection with public offerings, private offerings, private placements,
business combinations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee upon the issuance of
this opinion. In addition, the Company has agreed to indemnify Raymond James
against certain liabilities arising out of the rendering of this opinion.

In the ordinary course of our business, we may trade in the equity securities of
OEDC and Titan for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.

It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the proposed Merger. This opinion is not
to be quoted or referred to, in whole or in part, without our written consent
<PAGE>

The Board of Directors
Offshore Energy Development Corporation
November 7, 1997
Page 3 of 3

Based upon and subject to the foregoing, it is our opinion that, as of November
5, 1997, the consideration to be received by the shareholders of the Company
pursuant to the proposed Merger Agreement is fair, from a financial point of
view, to the shareholders of the Company.

Very truly yours,

/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE>

Subject to Completion, Dated November 14, 1997

PROSPECTUS

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

TITAN EXPLORATION, INC.
8,000,000 SHARES
COMMON STOCK

______________________

This Prospectus covers the offer and sale of up to 8,000,000 shares of
common stock, $.01 par value per share (the "Common Stock"), of Titan
Exploration, Inc. ("Titan" or the "Company") that may be offered and issued by
the Company from time to time in connection with future acquisitions of other
businesses or properties, or securities of other businesses, in business
combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation C
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise permitted under the Securities Act. This Prospectus, as amended or
supplemented, if necessary, also relates to certain shares of Common Stock which
may be resold or reoffered by persons who acquired such shares pursuant to this
Prospectus (the "Selling Stockholders").

Titan intends to concentrate its acquisitions in areas related to the
current business of Titan. If the opportunity arises, however, Titan may
attempt to make acquisitions that are either complementary to its present
operations or which it considers advantageous even though they may be dissimilar
to its present activities. The consideration for any such acquisition may
consist of shares of Common Stock, cash, notes or other evidences of debt,
assumptions of liabilities or a combination thereof, as determined from time to
time by negotiations between Titan and the owners or controlling persons of the
businesses or properties to be acquired.

The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in exchange
for assets used in or related to the business of such entities or otherwise
pursuant to the agreements providing for such acquisitions. The terms of such
acquisitions and of the issuance of shares of Common Stock under acquisition
agreements will generally be determined by direct negotiations with the owners
or controlling persons of the business or properties to be acquired or, in the
case of entities that are more widely held, through exchange offers to
stockholders or documents soliciting the approval of statutory mergers,
consolidations or sales of assets. It is anticipated that the shares of Common
Stock issued in any such acquisition will be valued at a price reasonably
related to the market value of the Common Stock either at the time of agreement
on the terms of an acquisition or at or about the time of delivery of the shares
of Common Stock.

It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under this
Prospectus. However, finders' fees or brokers' commissions may be paid from
time to time in connection with specific acquisitions, and such fees may be paid
through the issuance of shares of Common Stock covered by this Prospectus. Any
person receiving such a fee may be deemed to be an underwriter within the
meaning of the Securities Act.

Titan's Common Stock is quoted on the Nasdaq National Market under the
symbol "TEXP." On November 13, 1997, the last reported sale price of Titan's
Common Stock on the Nasdaq National Market was $11.938 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS

______________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is November ___, 1997.
<PAGE>

NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TITAN.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF TITAN SINCE THE DATE HEREOF OR THAT THE
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.

AVAILABLE INFORMATION

Titan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, file reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements, information statements and other information may be
inspected and copied or obtained by mail upon the payment of the Commission's
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549,
and at the following Regional Offices of the Commission: Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048. In addition, reports, proxy statements, information statements and
other information filed by Titan can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006
or electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).

Titan has filed with the Commission a registration statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above or electronically by means of the Commission's home page on the
Internet (http://www.sec.gov).
<PAGE>

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

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. As used in this Prospectus, unless otherwise required by
the context, the terms the "Company" and "Titan" mean Titan Exploration, Inc.
and its consolidated subsidiaries, the term Titan Sub means Titan Offshore,
Inc., a newly-formed and wholly-owned subsidiary of Titan, and the term "OEDC"
means Offshore Energy Development Corporation and its consolidated subsidiaries.

TITAN

Titan is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, Titan has experienced significant growth in reserves, production and
cash flow by acquiring and exploiting producing properties primarily in the
Permian Basin of west Texas and southeastern New Mexico.

In December 1995, Titan acquired a concentrated group of Permian Basin
producing oil and gas properties from a large independent company for
approximately $40.6 million (the "1995 Acquisition"). On October 31, 1996,
Titan acquired additional Permian Basin producing properties from a major
integrated company for approximately $135.7 million (the "1996 Acquisition").
As of December 31, 1996, Titan had estimated net proved reserves of
approximately 19.5 MMBbls of oil and 301.4 Bcf of natural gas, or an aggregate
of 69.7 MMBOE with a PV-10 of $537.4 million. Approximately 66% of these
reserves were classified as proved developed. Titan acquired, explored for and
developed its reserves for an average reserve replacement cost of approximately
$2.75 per BOE through December 31, 1996.

Titan prefers to acquire properties over which it can exercise operating
control. Titan operated 458 gross wells (390 net wells) at December 31, 1996,
and these operated properties represented approximately 68% of its proved
developed producing PV-10 and 78% of Titan's PV-10 attributable to proved
reserves at December 31, 1996. Titan's emphasis on controlling the operation of
its properties enables Titan to better manage expenses, capital allocation and
other aspects of development and exploration.

Titan's oil and gas properties are located in approximately 60 fields in
the Permian Basin. Approximately 67% of Titan's PV-10 of total proved reserves
is concentrated in 12 principal fields located in this region. The region is
characterized by complex geology with numerous known producing horizons and
provides significant opportunities to increase reserves, production and ultimate
recoveries through development, exploratory and horizontal drilling,
recompletions, secondary and tertiary recovery methods, and use of 3-D seismic
and other advanced technologies.

Titan's strategy is to grow reserves, production and net income per share
through (i) the acquisition of producing properties that provide development and
exploratory drilling potential, (ii) the exploitation and development of its
reserve base, (iii) the exploration for oil and gas reserves and (iv) the
implementation of a low operating and overhead cost structure.

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

1
<PAGE>

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

that corporation to Titan in exchange for an aggregate of 231,814 shares of
Titan Common Stock. These transactions are referred to as the "Conversion." As a
result of the Conversion, Titan owns, directly or indirectly, all the
partnership interests in the partnership and conducts its active business
operations through the partnership.

Pursuant to an Amended and Restated Agreement and Plan of Merger among
Titan, Titan Offshore, Inc. ("Titan Sub"), a Delaware corporation and a wholly-
owned subsidiary of Titan, and OEDC dated November 6, 1997, Titan has agreed to
acquire OEDC by merging Titan Sub with and into OEDC (the "Merger"). The merger
agreement provides that, upon consummation of the Merger, each issued and
outstanding share of common stock of OEDC would be converted into the right to
receive 0.630 of a share of Common Stock of Titan. Based on the capitalization
of Titan and OEDC as of September 30, 1997, pursuant to the Merger 5,482,187
shares of Titan's Common Stock will be issued pursuant to the Merger, or
approximately 13.9% of the number of shares of Titan's Common Stock that will be
outstanding after giving effect to the Merger. Approval of the Merger requires
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of Titan and the affirmative vote of the holders of 66% of the
outstanding shares of common stock of OEDC. Each company has called a special
meeting of stockholders to be held on Friday, December 12, 1997 to consider and
vote upon the Merger. If the Merger is approved by the requisite votes of such
stockholders, Titan Sub will be merged into OEDC, the separate existence of
Titan Sub will cease and OEDC, which will succeed to all of the assets, rights,
liabilities and obligations of Titan Sub, will become a wholly-owned subsidiary
of Titan. There can be no assurance that the stockholders of both companies
will vote to approve the Merger. If the Merger is not approved by the requisite
votes of such stockholders, Titan and OEDC will continue to operate
independently. Titan believes that the failure to obtain such approval and to
complete the Merger would not materially adversely affect its business.

Titan is incorporated in the State of Delaware, its principal executive
offices are located at 500 West Texas, Suite 500, Midland, Texas 79701, and its
telephone number is 915/498-8600.

For additional information concerning Titan, see "Information Concerning
Titan."

OEDC

OEDC owns an interest in the Dauphin Island Gathering System (the "DIGS")
and the Main Pass Gas Gathering System (the "MPGGS"), which are pipeline systems
offshore Alabama and Louisiana. Combined, the systems comprise approximately
225 miles of gas gathering line with a capacity of 650 MMcf/d. OEDC owns a 1%
general partner interest in the partnership that owns the DIGS and the MPGGS,
Dauphin Island Gathering Partners ("DIGP"), and OEDC's interest will increase to
11.15% when its partners in DIGP receive a return of their investment plus a 10%
rate of return. See "--Natural Gas Gathering."

In November 1996, OEDC formed a partnership with subsidiaries of MCN
Corporation ("MCN") and Duke Energy Corporation ("Duke Energy") (formerly
PanEnergy Corp.) for the construction and development of one or more natural gas
liquids ("NGL") plants onshore in Alabama. The initial plant is expected to
begin operations in the third quarter of 1998 with a capacity of 600 MMcf/d.
OEDC's interest in this partnership, called Mobile Bay Processing Partners
("MBPP"), is currently 1%, and OEDC has acquired from its partners an option to
purchase an additional 32.3% interest (currently subject to dilution to 24.3%)
in MBPP during the first three years of operation of the initial plant. See "--
Natural Gas Processing."

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

2
<PAGE>

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

For additional information concerning OEDC, see "Information Concerning
OEDC."

RECENT DEVELOPMENTS -- ADDITIONAL TITAN ACQUISITION

FORWARD LOOKING STATEMENTS OR INFORMATION

Certain statements contained in this Prospectus are forward looking
statements regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in oil and gas production, and Titan's
financial position, business strategy and other plans and objectives for future
operations. Although Titan believes that the expectations reflected in these
forward looking statements are reasonable, there can be no assurance that the
actual results or developments anticipated by Titan will be realized or, even if
substantially realized, that they will have the expected effects on its business
or operations. Among the factors that could cause actual results to differ
materially from Titan's expectations are general economic conditions, inherent
uncertainties in interpreting engineering data, operating hazards, delays or
cancellations of drilling operations for a variety of reasons, competition,
fluctuations in oil and gas prices, the ability of Titan to successfully
integrate the business and operations of OEDC, government regulations and other
factors described in "Risk Factors" or in the description of Titan's and OEDC's
business. All subsequent oral and written forward looking statements
attributable to Titan or persons acting on its behalf are expressly qualified in
their entirety by these factors. Titan assumes no obligation to update any of
these statements.

RISK FACTORS

See "Risk Factors" beginning on page 10 for a discussion of certain factors
with respect to the business and operations of Titan and OEDC that should be
considered by prospective investors.

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

3
<PAGE>

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

SELECTED HISTORICAL FINANCIAL DATA

The following tables set forth selected historical financial data for Titan
for the period from March 31, 1995 (date of inception) through December 31,
1995, the year ended December 31, 1996 and for the nine months ended September
30, 1996 and 1997 and for OEDC for each of the five years in the period ended
December 31, 1996 and for the nine months ended September 30, 1996 and 1997.
The data presented below have been derived from and should be read in
conjunction with the consolidated financial statements of Titan and OEDC and the
related notes thereto appearing elsewhere in this Prospectus. Selected
unaudited financial data for the nine months ended September 30, 1996 and 1997
for Titan and OEDC include all adjustments (consisting only of normally
recurring accruals) that Titan and OEDC each consider necessary for a fair
presentation of their respective consolidated operating results for such interim
periods. Results for the interim periods are not necessarily indicative of
results for the full year.

TITAN EXPLORATION, INC.
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
PERIOD
MARCH 31,
1995 (DATE OF
INCEPTION)
THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------------
1995 1996 1996 1997
-------------- ------------- --------------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Operating revenues..................................... $ 743 $ 23,824 $ 10,237 $ 52,011
Other revenues......................................... 242 144 140 99
-------- --------- -------- --------
Total revenues.......................................... 985 23,968 10,377 52,110
-------- --------- -------- --------
Expenses:
Oil and gas production................................. 304 9,199 4,339 16,627
General and administrative............................. 1,546 2,270 1,452 3,637
Amortization of stock option awards.................... 576 1,839 576 3,790
Exploration and abandonment............................ 490 184 110 1,342
Depletion, depreciation and amortization............... 299 5,789 2,269 15,927
Interest............................................... 97 2,965 1,179 825
Other.................................................. (796) (359) (336) (134)
-------- --------- -------- --------
Total expenses............................................. 2,516 21,887 9,589 42,014
-------- --------- -------- --------
Net income (loss) before income taxes.................. (1,531) 2,081 788 10,096
Income tax expense..................................... -- 3,484 2,998 3,534
-------- --------- -------- --------
Net income (loss)...................................... $ (1,531) $ (1,403) $ (2,210) $ 6,562
Net income (loss) per share............................ $ (.11) $ (.07) $ (.10) $ .18
Weighted average shares outstanding.................... 14,066 20,140 21,780 35,714
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities................................... $ (1,805) $ 7,710 $ 5,643 $ 30,556
Investing activities................................... (47,522) (144,998) (12,753) (43,907)
Financing activities................................... 55,540 137,365 11,700 8,207
Net cash provided by (used in) operating activities
before working capital adjustments..................... (466) 9,795 3,654 29,813
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures..................................... 43,669 149,901 17,590 43,089
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................ 6,213 6,290 10,803 1,146
Working capital.......................................... 11,946 8,124 8,760 2,270
Oil and gas assets, net.................................. 42,861 190,062 60,168 217,512
Total assets............................................. 57,487 207,179 74,824 231,038
Total debt............................................... 20,000 6,500 28,000 14,700
Stockholders' equity and predecessor capital............. 34,585 187,186 37,951 197,560
</TABLE>

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4
<PAGE>

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

OFFSHORE ENERGY DEVELOPMENT CORPORATION
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------------------ --------------------

1992 1993 1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Exploration and production... $ 2,116 $ 1,744 $ 5,513 $ 6,169 $ 9,835 $ 7,214 $ 7,033
Pipeline operating and
marketing.................... 886 358 358 166 1,014 718 823
Equity in earnings (loss) of
equity investments.......... -- (255) (3) 497 53 43 83
Gain on sales of oil and gas
properties or partnership
investments, net............ -- -- 13,655 -- 10,661 10,661 61
------------ ------------ ------------ ------------ ------------ -------- --------
Total revenues.......... 3,002 1,847 19,523 6,832 21,563 18,636 8,000
------------ ------------ ------------ ------------ ------------ -------- --------
Expenses:
Operations and maintenance... 745 570 1,410 2,210 1,972 1,521 1,650
Exploration charges.......... 36 32 2,231 405 2,297 919 5,157
Depreciation, depletion and
amortization................. 1,941 355 2,112 5,501 4,898 3,876 4,042
Abandonment expense.......... -- 59 2,735 84 1,301 216 577
General and administrative... 785 1,725 2,359 2,192 2,325 1,623 2,483
------------ ------------ ------------ ------------ ------------ -------- --------
Total expenses.......... 3,507 2,741 10,847 10,392 12,793 8,155 13,909
------------ ------------ ------------ ------------ ------------ -------- --------
Interest income (expense) and
other:
Interest expense.............. (975) (228) (590) (1,651) (783) (709) (153)

Preferential payments by
subsidiaries.................. -- -- (1,431) -- -- -- --
Interest income and other...... (63) (226) 317 123 (94) (41) 1,046
------------ ------------ ------------ ------------ ------------ -------- --------
Total interest income
(expense) and other......... (1,038) (454) (1,704) (1,528) (877) (750) 893
------------ ------------ ------------ ------------ ------------ -------- --------
Net income (loss) before
income taxes................... (1,543) (1,348) 6,972 (5,088) 7,893 9,731 (5,016)

Net income (loss)............... (1,543) (1,348) 6,945 (5,067) 6,450 9,726 (3,572)

------------ ------------ ------------ ------------ ------------ -------- --------
Preference unit payments and
accretion of discount.......... -- (731) (585) (1,142) (2,617) (1,333) --
------------ ------------ ------------ ------------ ------------ -------- --------
Income (loss) available to
common unitholders and
stockholders................... $(1,543) $ (2,079) $ 6,360 $ (6,209) $ 3,833 $ 8,393 $ (3,572)

Net income (loss) per share..... $(0.31) $(0.41) $1.26 $(1.23) $0.68 $1.66 $(0.41)

Weighted average shares
outstanding.................... 5,052 5,052 5,052 5,052 5,602 5,052 8,702
CONSOLIDATED STATEMENT OF CASH
FLOWS DATA:
Net cash provided by (used in):
Operating activities.......... 1,666 (1,546) 2,833 (383) 2,011 3,745 9,979
Investing activities....... (3,425) (10,017) 21,133 (16,626) 1,334 7,066 (35,723)
Financing activities....... 2,826 14,381 (19,550) 9,305 14,352 (10,639) 9,360
OTHER CONSOLIDATED FINANCIAL
DATA:
Capital expenditures.......... 3,700 10,993 18,418 15,965 9,997 4,492 34,222
CONSOLIDATED BALANCE SHEET
DATA (AT
PERIOD END):
Cash and cash equivalents..... $ 1,080 $ 3,997 $ 8,414 $ 710 $18,408 $ 882 $ 2,024
Working capital (deficiency).... (6,875) 1,036 4,807 (12,834) 15,654 (635) (2,027)
Property, plant and
equipment, net.............. 14,146 23,626 9,599 20,108 25,703 18,618 45,452
Total assets................. 16,828 30,952 20,035 25,170 50,941 24,518 57,288
Total long term debt (less
current portion)............ -- 20,238 5,969 -- -- 2,500 8,800
Capital lease
payable-noncurrent.......... -- 474 309 832 462 741 366
Redeemable preference
units, net of discount...... 6,500 6,500 6,500 10,294 -- 10,824 --
Stockholders' equity
(deficit)................... 971 (1,091) 2,192 (2,117) 41,571 6,277 37,999
</TABLE>

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5
<PAGE>

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

SUMMARY SELECTED HISTORICAL OPERATING DATA

The following table sets forth summary information with respect to Titan's and
OEDC's operations for the periods indicated:

<TABLE>
<CAPTION>
TITAN OEDC
-------------------------------------------------------------- --------------------------------------------
PERIOD
MARCH 31,
1995 (DATE OF
INCEPTION)
THROUGH YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------- ----------------------- -----------------
1995 1996 1996 1997 1994 1995 1996 1996 1997
------------ ------------ ------- ------- ------ ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)............. 30 714 388 1,396 -- -- -- -- 1
Gas (MMcf).............. 245 5,787 2,725 15,938 3,686 3,668 4,756 3,630 3,430
Total (MBOE)............ 71 1,679 842 4,052 614 611 793 605 572
Average Sales Prices Per
Unit (1):
Oil (per Bbl)........... $16.80 $19.16 $17.25 $ 18.64 $ -- $ -- $ -- $ -- $20.03
Gas (per Mcf)........... .97 1.75 1.30 1.63 1.50 1.68 2.07 1.99 2.05
BOE..................... 10.46 14.19 12.16 12.84 9.00 10.08 12.42 11.92 12.30

Expenses per BOE:
Production costs,
including production
taxes (2).............. $ 4.28 $ 5.48 $ 5.15 $ 4.10 $ 2.28 $ 3.06 $ 2.49 $ 2.51 $ 2.88

General and
administrative......... 21.77 1.35 1.72 .90 2.94 2.70 2.25 1.95 3.36

Depletion,
Depreciation
and amortization....... 4.21 3.45 2.69 3.93 3.42 9.00 6.18 6.41 7.07
</TABLE>

____________________

(1) Reflects results of hedging activities for Titan and OEDC.
(2) Includes approximately $1.31, $.77 and $.69 per BOE of production costs
primarily attributable to necessary rework operations on the 1995
Acquisition properties and the 1996 Acquisition properties for Titan for
the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997, respectively.

SUMMARY HISTORICAL OIL AND GAS RESERVE INFORMATION

The following table sets forth summary information with respect to Titan's
and OEDC's proved oil and gas reserves as of December 31, 1996.

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS OIL EQUIVALENT
(MBBLS) (MMCF) (MBOE)
---------- ------------ ---------------
<S> <C> <C> <C>
NET PROVED RESERVES:
Titan:
Developed......... 16,024 180,161 46,051
Undeveloped....... 3,432 121,217 23,635
------ ------- ------
Total.......... 19,456 301,378 69,686
====== ======= ======
OEDC:
Developed......... 5 21,411 3,574
Undeveloped....... 1 11,751 1,959
------ ------- ------
Total.......... 6 33,162 5,533
====== ======= ======
</TABLE>

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6
<PAGE>

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following selected unaudited pro forma combined financial data
assume, effective as of January 1, 1996, the consummation of the Merger. The
Merger is accounted for as a purchase of OEDC by Titan. The following selected
pro forma combined financial data are derived from the unaudited pro forma
combined financial statements and notes thereto appearing elsewhere in this
Prospectus and should be read in conjunction with such information and notes.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ -------------------
STATEMENT OF OPERATIONS DATA: (in thousands, except per share data)
<S> <C> <C>
Revenues:
Oil and gas sales........................ $69,663 $ 59,044
Pipeline operating and marketing......... 1,014 823
Other.................................... 10,859 244
------- --------
Total revenues...................... 81,536 60,111

Expenses:
Oil and gas production................... 21,687 18,277
General and administrative............... 6,705 6,120
Amortization of stock option awards...... 1,839 3,790
Exploration and abandonment.............. 3,782 7,076
Depletion, depreciation, and amortization 23,018 21,203
Interest expense......................... 3,748 978
Other.................................... (265) (1,180)
------- --------
Total expenses...................... 60,514 56,264
------- --------
Net income before income taxes........... 21,022 3,847
Income tax expense....................... 7,358 1,346
------- --------
Net income............................... $13,664 $ 2,501
Net income per share..................... $0.58 $0.06
Weighted average shares outstanding...... 23,669 41,196
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................ $ 3,170
Working capital.......................... 243
Oil and gas properties, net.............. 258,812
Other property and equipment, net........ 68,108
Total assets............................. 351,781
Long-term debt........................... 23,500
Stockholders' equity..................... 271,887
</TABLE>

7
<PAGE>

Pro Forma Reserves. The following table provides information
regarding Titan's pro forma reserves as of December 31, 1996, assuming
consummation of the Merger.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
PRO FORMA PROVED RESERVES: (dollars in thousands)
<S> <C>
Oil (MBbls)................................................ 19,456
Natural gas (MMcf)......................................... 334,577
Equivalent barrels (Mboe).................................. 75,219
PV-10(1)................................................... $604,257
Standardized Measure of Discounted Future Net Cash Flows(2) $439,029
</TABLE>

_______________________
(1) The present value of future net revenue attributable to Titan's reserves
was prepared using prices in effect at the end of the respective periods
presented, discounted at 10% per annum on a pre-tax basis. These amounts
reflect the effects of Titan's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
Titan represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of Titan's
hedging activities.

Pro Forma Wells and Acreage. On a pro forma basis (assuming consummation
of the Merger), Titan's properties at December 31, 1996 include interests in
1,351 productive oil wells (444 net wells) and 290 productive gas wells (83 net
wells). Such properties include approximately 94,072 total net developed
mineral acres.

1997 Capital Expenditure Budget. Titan's capital expenditure budget for
1997 is anticipated to be approximately $91.3 million. This budget will be
funded primarily by internally-generated cash flow, bank borrowings,
dispositions of non-strategic assets and joint venture financings. The
following table outlines Titan's estimated capital expenditure budget for 1997
(assuming consummation of the Merger).

PRO FORMA BUDGET FOR 1997
--------------------------
(in thousands)
<S> <C>
Titan properties.. $52,200
OEDC properties... 39,100
-------
Total....... $91,300
=======
</TABLE>

Management of Titan continually reevaluates capital expenditures in light
of market conditions, opportunities presented (including acquisition
opportunities) and other factors, and may increase or decrease capital spending,
or reallocate amounts between areas or projects, if deemed necessary or
desirable, including in the event the Merger is not consummated.

8
<PAGE>

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COMPARATIVE PER SHARE DATA

The following tables present comparative per share information (a) for each
of Titan and OEDC on a historical basis, and (b) for Titan and OEDC on a pro
forma combined basis assuming the Merger had been effective during the periods
presented. The pro forma information has been prepared giving effect to the
Merger as a purchase of OEDC by Titan. Equivalent pro forma information for OEDC
Common Stock has been calculated by multiplying the pro forma per share amounts
shown for Titan Common Stock by the Merger exchange ratio of 0.630 of a share of
Titan Common Stock for each share of OEDC Common Stock.

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31,1996 September 30,1997
---------------- -----------------
<S> <C> <C>
TITAN - HISTORICAL
Book value................................. $5.51 $ 5.82
Cash dividends declared.................... -- --
Income (loss) from continuing operations... (.07) .18
OEDC - HISTORICAL
Book value................................. $4.78 $ 4.37
Cash dividends declared.................... -- --
Income (loss) from continuing operations... 0.68 (.41)
TITAN AND OEDC--PRO FORMA COMBINED
Book value................................. n/a $ 6.90
Cash dividends declared.................... n/a --
Income from continuing operations.......... n/a .06
OEDC--EQUIVALENT PRO FORMA
Book value................................. n/a $ 4.35
Cash dividends declared.................... n/a --
Income from continuing operations.......... n/a .04
</TABLE>

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9
<PAGE>

RISK FACTORS

Investors should carefully consider the following risk factors, in addition
to the other information contained in this Prospectus, before purchasing shares
of Common Stock offered hereby.

RISKS RELATING TO THE MERGER

Failure to Achieve Beneficial Synergies. The managements of Titan and OEDC
have entered into the Merger Agreement with the expectation that the Merger will
result in beneficial synergies. Achieving these anticipated synergies will
depend on a number of factors including, without limitation, the successful
integration of Titan's and OEDC's operations and general and industry-specific
economic factors. Even if Titan and OEDC are able to integrate their operations
and economic conditions remain stable, there can be no assurance that the
anticipated synergies will be achieved. The failure to achieve such synergies
could have a material adverse effect on the business, results of operations and
financial condition of the combined company.

Dependence on Retention and Integration of Key Employees. The success of
the Merger is dependent on Titan's retention and integration of the key
management, engineering and other technical employees of OEDC. Stock options,
which generally become exercisable only over a period of several years of
employment, serve as an important incentive for retaining key employees. In
accordance with their original terms, certain stock options held by several key
OEDC optionees will be fully exercisable or the vesting thereof will accelerate
upon the consummation of the Merger, thus potentially reducing the retention
incentive provided by such options. While it is anticipated that Titan will
implement retention arrangements for its key employees, there can be no
assurance that key employees will remain. The loss of services of any of the key
employees of OEDC could materially and adversely affect Titan's business,
financial condition and results of operation.

Legal Proceedings. OEDC, David B. Strassner (OEDC's President and a
director), Douglas H. Kiesewetter (OEDC's Executive Vice President and a
director) and David R. Albin (a director), as well as NGP (OEDC's largest
stockholder), the managing underwriters of OEDC's initial public offering and an
analyst from each of the managing underwriters, have been named as defendants in
a suit styled Eric Barron and Edward C. Allen, On Behalf of Themselves and all
Others Similarly Situated, v. David B. Strassner, Douglas H. Kiesewetter, David
R. Albin, Natural Gas Partners, L.P., David Garcia, John J. Myers, Offshore
Energy Development Corporation, Morgan Keegan & Company, Inc. and Principal
Securities, Inc., which was filed October 20, 1997, in the Texas State District
Court of Harris County, Texas, 270th Judicial District. The suit seeks class
certification on behalf of certain holders of OEDC Common Stock, excluding the
defendants and holders related to or affiliated with the defendants. The suit
alleges generally that the defendants wrongfully made false or misleading
statements or omissions relating to OEDC's business and prospects in the course
of OEDC's initial public offering and subsequent thereto. The suit seeks
rescission of sales of OEDC common stock and unspecified monetary damages,
including punitive damages. Assurance cannot be given that the outcome of the
suit will not materially adversely affect the results of operations or financial
condition of Titan subsequent to the Merger.

Substantial Expenses Resulting from the Merger. Titan and OEDC estimate
they will incur direct transaction costs relating primarily to regulatory filing
costs, and the fees of financial advisors, attorneys, accountants, financial
printers and proxy solicitors of approximately $1.5 million associated with the
Merger. Titan and OEDC expect to incur an additional significant charge to
operations, which is not currently reasonably estimable, in the quarter in which
the Merger is consummated, to reflect costs associated with

10
<PAGE>

integrating the two companies. There can be no assurance that Titan will not
incur additional material charges in subsequent quarters to reflect additional
costs associated with the Merger.

RISKS RELATING TO THE BUSINESS OF TITAN AND OEDC

Volatility of Oil and Gas Prices. Titan's revenues, operating results and
future rate of growth are highly dependent upon the prices received for oil and
gas. Historically, the markets for oil and gas have been volatile and may
continue to be volatile in the future. Revenues generated from the oil and gas
operations of both companies will be highly dependent on the future prices of
oil and gas. Various factors beyond their control will affect prices of oil and
gas, including but not limited to the worldwide and domestic supplies of oil and
gas, the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls, political
instability or armed conflict in oil-producing regions, the price and level of
foreign imports, the level of consumer demand, the price and availability of
alternative fuels, the availability of pipeline capacity, weather conditions,
domestic and foreign governmental regulations and taxes and the overall economic
environment. On September 30, 1997, the posted price for West Texas
Intermediate Crude was $19.00 per Bbl, as posted by Titan's major purchaser. On
December 31, 1996, the posted price for West Texas Intermediate Crude was $23.39
per Bbl, as posted by Titan's major purchaser. Titan is unable to predict the
long-term effects of these and other conditions on the prices of oil. Moreover,
it is possible that prices for any oil Titan produces will be lower than current
prices received by Titan. Historically, the market for natural gas has been
volatile and is likely to continue to be volatile in the future. Prices for
natural gas are subject to wide fluctuation in response to market uncertainty,
changes in supply and demand and a variety of additional factors, all of which
are beyond Titan's control. On September 30, 1997, estimated natural gas prices
received by Titan at the wellhead averaged $1.76 per Mcf. On December 31, 1996,
natural gas prices received by Titan at the wellhead averaged $2.83 per Mcf.
Lower oil and gas prices may reduce the amount of oil and gas that the companies
can produce economically. Although Titan has used energy swap arrangements and
financial futures to reduce their sensitivity to oil and gas price volatility,
these arrangements cannot eliminate the adverse effect of lower oil and gas
prices. Any significant decline in the price of oil or gas would adversely
affect the companies' revenues and operating income and may require a reduction
in the carrying value of the companies' oil and gas properties.

Uncertainty of Reserve Information and Future Net Revenue Estimates. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and their values, including many factors beyond the control of Titan. The
reserve information set forth in this report represents estimates only.
Although Titan believes such estimates to be reasonable, reserve estimates are
imprecise and should be expected to change as additional information becomes
available.

Estimates of oil and gas reserves, by necessity, are projections based on
engineering data, and there are uncertainties inherent in the interpretation of
such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that are difficult to
measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom may vary substantially. Moreover, there can be no assurance
that Titan's or OEDC's reserves will ultimately be produced or that Titan's or
OEDC's proved undeveloped reserves will be developed within the periods
anticipated. Any significant variance in the assumptions could materially
affect the estimated quantity and value of Titan's and OEDC's reserves. Actual
production, revenues and expenditures with respect to Titan's and OEDC's
reserves will likely vary from estimates, and such variances may be material.

11
<PAGE>

gas purchasers and changes in governmental regulations or taxation. The timing
of actual future net cash flows from proved reserves, and thus their actual
present value, will be affected by the timing of both the production and the
incurrence of expenses in connection with development and production of oil and
gas properties. In addition, the 10% discount factor, which is required to be
used to calculate discounted future net cash flows for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with Titan or the oil and gas
industry in general.

Limited Operating History; Rapid Growth. Titan, which began operations in
March 1995, has a brief operating history upon which investors may base their
evaluation of Titan's performance. As a result of its brief operating history
and rapid growth, the operating results from Titan's historical periods are not
readily comparable and may not be indicative of future results. There can be no
assurance that Titan will continue to experience growth in, or maintain its
current level of, revenues, oil and gas reserves or production.

Titan's rapid growth has placed significant demands on its administrative,
operational and financial resources. Any future growth of Titan's oil and gas
reserves, production and operations would place significant further demands on
Titan's financial, operational and administrative resources. Titan's future
performance and profitability will depend in part on its ability to successfully
integrate the administrative and financial functions of acquired properties and
companies, like OEDC, Carrollton or the Pioneer properties into Titan's
operations, to hire additional personnel and to implement necessary enhancements
to its management systems to respond to changes in its business. There can be
no assurance that Titan will be successful in these efforts. The inability of
Titan to integrate acquired properties and companies, to hire additional
personnel or to enhance its management systems could have a material adverse
effect on Titan's results of operations.

Substantial Capital Requirements. Titan makes, and will continue to make,
substantial capital expenditures for the exploration, development, acquisition
and production of reserves. Titan intends to finance its capital expenditures
primarily with funds provided by operations and borrowings under its $250
million Credit Agreement, which currently has a borrowing base of $165 million,
against which $11.5 million had been drawn as of September 30, 1997, and the
anticipated $55 million purchase price of the Pioneer properties will be drawn.
If revenues for Titan decrease as a result of lower oil or gas prices or
otherwise, it may have limited ability to expend the capital necessary to
replace its reserves or to maintain production at current levels, resulting in a
decrease in production over time. If Titan's cash flow from operations and
availability under existing credit facilities are not sufficient to satisfy
capital expenditure requirements, there can be no assurance that additional debt
or equity financing will be available to meet these requirements.

Reserve Replacement Risk. Titan's future success depends upon its ability
to find, develop or acquire additional oil and gas reserves that are
economically recoverable. The proved reserves of the companies will generally
decline as reserves are depleted, except to the extent that the companies
conduct successful exploration or development activities or acquires properties
containing proved reserves, or both. In order to increase reserves and
production, the companies must continue their development and exploration
drilling and recompletion programs or undertake other replacement activities.
Titan's current strategy includes increasing its reserve base through
acquisitions of producing properties, continued exploitation of its existing
properties and exploration of new and existing properties. OEDC's strategy
includes increasing its reserve base through exploitation of its existing
properties and exploration of existing properties. There can be no assurance,
however, that Titan's or OEDC's planned development and exploration projects and
acquisition activities will result in significant additional reserves or that
Titan or OEDC will have continuing success drilling productive wells at low
finding and development costs. Furthermore, while Titan's and OEDC's revenues
may increase if prevailing oil and gas prices increase significantly, Titan's
OEDC's finding costs for additional reserves could also increase.

Drilling and Operating Risks. Drilling activities are subject to many
risks, including well blowouts, cratering, uncontrollable flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pollution,
releases of toxic gas and other environmental hazards and risks, any of which
could result in substantial losses to Titan and OEDC. OEDC's offshore operations
are also subject to the additional hazards of marine operations such as severe
weather, capsizing and collision. In addition, both companies incur the risk
that no commercially productive reservoirs will be encountered through their
drilling operations. There can be no assurance that new wells drilled by either
company will be productive or that either company will recover all or any
portion of its investment in wells drilled. Drilling for oil and gas may involve
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net reserves to return a profit after
drilling, operating and other costs. The cost of

12
<PAGE>

drilling, completing and operating wells is often uncertain. Both companies'
drilling operations may be curtailed, delayed or canceled as a results of
numerous factors, many of which are beyond their control, including economic
conditions, mechanical problems, title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services.

Acquisition Risks. Titan's rapid growth since its inception in March 1995
has been largely the result of acquisitions of producing properties. As an
integral part of its business strategy, Titan intends to continue to expand by
acquiring properties and oil and gas companies with attractive reserves or
exploration opportunities. Titan expects to continue to evaluate and pursue
acquisition opportunities available on terms management considers favorable to
Titan. The successful acquisition of producing properties involves an assessment
of recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors beyond Titan's control.
This assessment is necessarily inexact and its accuracy is inherently uncertain.
In connection with such an assessment, Titan performs a review of the subject
properties it believes to be generally consistent with industry practices. This
review, however, will not reveal all existing or potential problems, nor will it
permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and capabilities. Inspections may not be performed on
every well, and structural and environmental problems are not necessarily
observable even when an inspection is undertaken. Titan generally assumes
preclosing liabilities, including environmental liabilities, and generally
acquires interests in the properties on an "as is" basis. With respect to its
acquisitions to date, Titan has no material commitments for capital expenditures
to comply with existing environmental requirements. There can be no assurance
that Titan's acquisitions will be successful. Any unsuccessful acquisition could
have a material adverse effect on Titan.

Risk of Hedging Activities. Titan's and OEDC's use of energy swap
arrangements and financial futures to reduce their sensitivity to oil and gas
price volatility is subject to a number of risks. If the companies' reserves
are not produced at the rates estimated by the companies due to inaccuracies in
the reserve estimation process, operational difficulties or regulatory
limitations, the companies would be required to satisfy obligations it may have
under fixed price sales and hedging contracts on potentially unfavorable terms
without the ability to hedge that risk through sales of comparable quantities of
its own production. Further, the terms under which the companies enter into
fixed price sales and hedging contracts are based on assumptions and estimates
of numerous factors such as cost of production and pipeline and other
transportation costs to delivery points. Substantial variations between the
assumptions and estimates used and actual results experienced could materially
adversely affect anticipated profit margins and the companies ability to manage
the risk associated with fluctuations in oil and gas prices. Additionally,
fixed price sales and hedging contracts limit the benefits Titan and OEDC will
realize if actual prices rise above the contract prices. In addition, fixed
price sales and hedging contracts are subject to the risk that the counter-party
may prove unable or unwilling to perform its obligations under such contracts.
Any significant nonperformance could have a material adverse financial effect on
Titan and OEDC.

Marketability of Production. The marketability of Titan's and OEDC's
production depends in part upon the availability, proximity and capacity of
natural gas gathering systems, pipelines and processing facilities. Most of
Titan's and OEDC's natural gas is delivered through gas gathering systems and
gas pipelines that are not owned by Titan or OEDC. Federal and state regulation
of oil and gas production and transportation, tax and energy policies, changes
in supply and demand and general economic conditions all could adversely affect
Titan's and OEDC's ability to produce and market its oil and gas. Any dramatic
change in market factors could have a material adverse effect on Titan and OEDC.

Compliance with Environmental Regulations. Titan's and OEDC's operations
are subject to complex and constantly changing environmental laws and
regulations adopted by federal, state and local governmental authorities. The
implementation of new, or the modification of existing, laws or regulations
could have a material adverse effect on the companies. Discharge of oil, gas or
other pollutants into the air, soil or water may give rise to significant
liabilities on the part of the companies to the government and third parties and
may require the companies to incur substantial costs of remediation. Moreover,
Titan has agreed to indemnify sellers of producing properties purchased by Titan
in the 1995 Acquisition, the 1996 Acquisition and the Pioneer Acquisition
against environmental claims associated with such properties. No assurance can
be given that existing environmental laws or regulations, as currently
interpreted or reinterpreted in the future, or future laws or regulations will
not materially adversely affect the results of operations or financial condition
of the companies or that material indemnity claims will not arise against Titan
with respect to properties acquired by Titan. See "Information Concerning
Titan--Business and Properties of Titan--Environmental Matters" and "Information
Concerning OEDC--Business and Properties of OEDC--Environmental Matters."

13
<PAGE>

Dependance on Key Personnel. Titan's success has been and will continue to
be highly dependent on Jack Hightower, its Chairman of the Board and Chief
Executive Officer, and a limited number of senior management personnel. The
success of OEDC has been and will continue to be highly dependent on David B.
Strassner, Douglas H. Kieswetter, R. Keith Anderson and other senior management
personnel. Loss of the services of any of these individuals could have a
material adverse effect on both companies' operations. Titan maintains a $3.0
million key man life insurance policy on the life of Mr. Hightower, but no other
senior management personnel. OEDC does not maintain key man life insurance on
any of its personnel. In addition, as a result of the 1996 Acquisition and since
December 31, 1996, Titan has employed 24 additional employees and plans to
employ more and will face competition for such personnel from other companies.
There can be no assurance that Titan or OEDC will be successful in hiring or
retaining key personnel. Titan's or OEDC's failure to hire additional personnel
or retain its key personnel could have a material adverse effect on such
company's results of operations.

Control by Existing Stockholders. Upon completion of the Merger, directors,
executive officers and principal stockholders of Titan, and certain of their
affiliates, will beneficially own approximately 54.18% of Titan's outstanding
Common Stock. Accordingly, these stockholders, as a group, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in Titan's
Certificate of Incorporation or Bylaws and the approval of mergers and other
significant corporate transactions. See "Description of Capital Stock--Titan
Common Stock." The existence of these levels of ownership concentrated in a few
persons makes it unlikely that any other holder of Titan Common Stock will be
able to affect the management or direction of Titan. These factors may also have
the effect of delaying or preventing a change in the management or voting
control of Titan, including transactions that otherwise could involve payment of
a premium over prevailing market prices to holders of Titan Common Stock. See
"Beneficial Ownership of Titan, OEDC and Titan Post Merger."

Competition. Titan operates in the highly competitive areas of oil and gas
exploration, development, acquisition and production with other companies, many
of which have substantially larger financial resources, staffs and facilities.
In seeking to acquire desirable producing properties or new leases for future
exploration and in marketing its oil and gas production, Titan faces intense
competition from both major and independent oil and gas companies. Many of
these competitors have financial and other resources substantially in excess of
those available to Titan. This highly competitive environment could have a
material adverse effect on Titan.

Future Sales of Common Stock. Sales of a substantial number of shares of
Common Stock, including shares issued in conjunction with previously completed
or future business combinations, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of Common Stock.

Cumulative Voting; Blank Check Preferred Stock. Titan's Certificate of
Incorporation (i) provides for cumulative voting for the election of directors
and (ii) authorizes the Board of Directors of the Company to issue up to
10,000,000 shares of preferred stock without stockholder approval and to set the
rights, preferences and other designations, including voting rights, of those
shares as the Board of Directors may determine. These provisions, alone or in
combination with each other and with the matters described in "Risk Factors--
Control by Existing Stockholders," may discourage transactions involving actual
or potential changes of control of Titan, including transactions that otherwise
could involve payment of a premium over prevailing market prices to holders of
Common Stock. Titan also is subject to provisions of the Delaware General
Corporation Law that may make some business combinations more difficult. See
"Description of Capital Stock--Delaware Law Provisions."

Absence of Dividends on Common Stock. Titan does not currently intend to
pay regular cash dividends on the Common Stock. In addition, the Credit
Agreement prohibits the payment of cash dividends. See "Price Range of Common
Stock and Dividend Policy."

14
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Titan's Common Stock has been listed on the Nasdaq National Market since
Titan's initial public offering on December 16, 1996 under the symbol "TEXP."
The following table summarizes the high and low last reported sales prices on
Nasdaq for each quarterly period since Titan's initial public offering.

<TABLE>
<CAPTION>
Common Stock
-------------
High Low
------ -----
<S> <C> <C>
1996
Fourth Quarter (from December 16, 1996)..... $12.75 $11.25

1997
First Quarter............................... $14.75 $8.125
Second Quarter.............................. 12.125 6.75
Third Quarter............................... 13.00 9.50
Fourth Quarter (through November 13, 1997).. 13.50 11.75
</TABLE>

On November 13, 1997, the last reported sales price of the Common Stock on
Nasdaq was $11.938 per share.

The Company has never paid cash dividends on the Common Stock and does not
currently intend to pay regular cash dividends in the future. In addition, the
Credit Agreement prohibits the payment of cash dividends.

15
<PAGE>

INFORMATION CONCERNING TITAN

The following Information Concerning Titan section provides information on
the business of Titan on a stand-alone basis and does not describe the business
of Titan if the Merger is consummated. The following Business and Properties
section contains forward-looking statements which involve risks and
uncertainties. Titan's actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including those factors set forth under "Risk Factors" and elsewhere in
this Prospectus.

BUSINESS AND PROPERTIES OF TITAN

Titan is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, Titan has experienced significant growth in reserves, production and
cash flow by acquiring and exploiting producing properties primarily in the
Permian Basin of west Texas and southeastern New Mexico.

In December 1995, Titan acquired a concentrated group of Permian Basin
producing oil and gas properties from a large independent company for
approximately $40.6 million (the "1995 Acquisition"). On October 31, 1996,
Titan acquired additional Permian Basin producing properties from a major
integrated company for approximately $135.7 million (the "1996 Acquisition").
As of December 31, 1996, Titan had estimated net proved reserves of
approximately 19.5 MMBbls of oil and 301.4 Bcf of natural gas, or an aggregate
of 69.7 MMBOE with a PV-10 of $537.4 million. Approximately 66% of these
reserves were classified as proved developed. Titan acquired, explored for and
developed its reserves for an average reserve replacement cost of approximately
$2.75 per BOE through December 31, 1996.

Titan prefers to acquire properties over which it can exercise operating
control. Titan operated 458 gross wells (390 net wells) at December 31, 1996,
and these operated properties represented approximately 68% of its proved
developed producing PV-10 and 78% of Titan's PV-10 attributable to proved
reserves at December 31, 1996. Titan's emphasis on controlling the operation of
its properties enables Titan to better manage expenses, capital allocation and
other aspects of development and exploration.

Titan's oil and gas properties are located in approximately 60 fields in
the Permian Basin. Approximately 67% of Titan's PV-10 of total proved reserves
is concentrated in 12 principal fields located in this region. The region is
characterized by complex geology with numerous known producing horizons and
provides significant opportunities to increase reserves, production and ultimate
recoveries through development, exploratory and horizontal drilling,
recompletions, secondary and tertiary recovery methods, and use of 3-D seismic
and other advanced technologies.

Titan's strategy is to grow reserves, production and net income per share
through (i) the acquisition of producing properties that provide development and
exploratory drilling potential, (ii) the exploitation and development of its
reserve base, (iii) the exploration for oil and gas reserves and (iv) the
implementation of a low operating and overhead cost structure.

Titan was formed in 1996 for the purpose of becoming the holding company
for Titan Resources, L.P. pursuant to the terms of an exchange agreement dated
September 30, 1996. The partnership was formed in March 1995 and grew primarily
through acquisitions of oil and gas properties and the exploitation of those
properties. Under the exchange agreement, effective September 30, 1996, (i) the
limited partners of the partnership transferred all their limited partnership
interests to Titan in exchange for an aggregate of 19,318,199 shares of Common
Stock, and (ii) the shareholders of Titan Resources I, Inc., a Texas corporation
that is the general partner of the partnership, transferred all the issued and
outstanding stock of that corporation to Titan in exchange for an aggregate of
231,814 shares of Titan Common Stock. These transactions are referred to as the
"Conversion." As a result of the Conversion, Titan owns, directly or indirectly,
all the partnership interests in the partnership and conducts its active
business operations through the partnership.

16
<PAGE>

"Merger"). The merger agreement provides that, upon consummation of the Merger,
each issued and outstanding share of common stock of OEDC would be converted
into the right to receive 0.630 of a share of Common Stock of Titan. Based on
the capitalization of Titan and OEDC as of September 30, 1997, pursuant to the
Merger 5,482,187 shares of Titan's Common Stock will be issued pursuant to the
Merger, or approximately % of the number of shares of Titan's Common Stock that
will be outstanding after giving effect to the Merger. Approval of the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of Titan and the affirmative vote of the holders of 66%
of the outstanding shares of common stock of OEDC. Each company has called a
special meeting of stockholders to be held on Friday, December 12, 1997 to
consider and vote upon the Merger. If the Merger is approved by the requisite
votes of such stockholders, Titan Sub will be merged into OEDC, the separate
existence of Titan Sub will cease and OEDC, which will succeed to all of the
assets, rights, liabilities and obligations of Titan Sub, will become a wholly-
owned subsidiary of Titan. There can be no assurance that the stockholders of
both companies will vote to approve the Merger. If the Merger is not approved by
the requisite votes of such stockholders, Titan and OEDC will continue to
operate independently. Titan believes that the failure to obtain such approval
and to complete the Merger would not materially adversely affect its business.

Titan is incorporated in the State of Delaware, its principal executive
offices are located at 500 West Texas, Suite 500, Midland, Texas 79701, and its
telephone number is 915/498-8600.

Oil and Natural Gas Reserves

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996
---------- ------------
<S> <C> <C>
(dollars in thousands)
ESTIMATED PROVED RESERVES:
Oil (MBbls)............................................... 6,146 19,456
Gas (MMcf)................................................ 134,995 301,378
MBOE (6 Mcf per Bbl)...................................... 28,645 69,686
Proved developed reserves as a percentage of proved
reserves.................................................. 47% 66%
PV-10(1).................................................... $ 89,753 $537,366
Standardized Measure of Discounted Future Net Cash
Flows(2).................................................. $ 66,352 $387,863
</TABLE>

(1) The present value of future net revenue attributable to Titan's reserves
was prepared using prices in effect at the end of the respective periods
presented, discounted at 10% per annum on a pre-tax basis. These amounts
reflect the effects of Titan's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
Titan represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of Titan's
hedging activities.

In accordance with applicable requirements of the Commission, estimates of
Titan's proved reserves and future net revenues are made using sales prices
estimated to be in effect as of the date of such reserve estimates and are held
constant throughout the life of the properties (except to the extent a contract
specifically provides for escalation). The average prices for Titan's reserves
as of December 31, 1995 were $17.66 per Bbl of oil and $1.38 per Mcf of natural
gas, compared to average prices for Titan's reserves as of December 31, 1996 of
$25.09 per Bbl of oil and $2.70 per Mcf of natural gas. On September 30, 1997,
the posted price for West Texas Intermediate Crude was $19.00 per Bbl, as posted
by Titan's major purchaser. On September 30, 1997, estimated natural gas prices
received by Titan at the wellhead averaged $1.76 per Mcf.

17
<PAGE>

estimating oil and gas reserves and their estimated values, including many
factors beyond the control of the producer. The reserve data set forth in this
report represents only estimates. Reservoir engineering is a subjective process
of estimating underground accumulations of oil and gas that cannot be measured
in an exact manner. The accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. As a result, estimates of different engineers, including those used by
Titan, may vary. In addition, estimates of reserves are subject to revision
based upon actual production, results of future development and exploration
activities, prevailing oil and gas prices, operating costs and other factors,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered and
are highly dependent upon the accuracy of the assumptions upon which they are
based. Titan's estimated proved reserves have not been filed with or included in
reports to any federal agency.

Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.

Productive Wells and Acreage

Productive Wells. The following table sets forth Titan's productive wells
as of September 30, 1997:

<TABLE>
<CAPTION>
ACTUAL
------------
GROSS NET
----- -----
<S> <C> <C>
Oil.......................................... 1,403 473
Gas.......................................... 285 81
----- -----
Total Productive Wells......................... 1,688 554
===== =====
</TABLE>

Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, nine had multiple completions.

Acreage Data. Undeveloped acreage includes leased acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether or not such acreage
contains proved reserves. A gross acre is an acre in which an interest is owned.
A net acre is deemed to exist when the sum of fractional ownership interests in
gross acres equals one. The number of net acres is the sum of the fractional
interests owned in gross acres expressed as whole numbers and fractions thereof.
The following table sets forth the approximate developed and undeveloped acreage
in which Titan held a leasehold mineral or other interest at September 30, 1997.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES TOTAL ACRES
----------------- -------------------- -----------------
GROSS NET GROSS NET GROSS NET
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total............. 142,319 50,746 171,373 132,106 313,692 182,852
</TABLE>

18
<PAGE>

Drilling Activities

<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ------------------- ---------------------
GROSS NET GROSS NET GROSS NET
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells
Productive...................... 1 0.5 -- -- 2 1.0
Nonproductive................... 2 1.3 1 0.2 -- --
-------- -------- -------- -------- -------- --------
Total....................... 3 1.8 1 0.2 2 1.0
======== ======== ======== ======== ======== ========
Development Wells
Productive...................... -- -- 7 3.9 43 16.0
Nonproductive................... -- -- 1 0.2 3 2.3
-------- -------- -------- -------- -------- --------
Total....................... -- -- 8 4.1 46 18.3
======== ======== ======== ======== ======== ========
</TABLE>

19
<PAGE>

Net Production, Unit Prices and Costs

<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -----------------
<S> <C> <C> <C>
Production
Oil (MBbls).............................................. 30 714 1,396
Gas (MMcf)............................................... 245 5,787 15,938
Total (MBOE)............................................. 71 1,679 4,052
Average sales price per unit (1):
Oil (per Bbl)............................................ $16.80 $19.16 $ 18.64
Gas (per Mcf)............................................ .97 1.75 1.63
BOE...................................................... 10.46 14.19 12.84
Production costs, including production taxes (per BOE) (2) $ 4.28 $ 5.48 $ 4.10
General and administrative costs (per BOE)................. $21.77 $ 1.35 $ .90
Depletion, depreciation and amortization expenses (per $ 4.21 $ 3.45 $ 3.93
BOE).......................................................
</TABLE>

_________________________

(1) Reflects results of hedging activities in 1996.
(2) Includes approximately $1.31 and $.69 per BOE of production costs primarily
attributable to necessary rework operations on the 1995 Acquisition
properties and the 1996 Acquisition properties for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.

Acquisitions

Titan regularly pursues and evaluates acquisition opportunities (including
opportunities to acquire oil and gas properties or related assets or entities
owning oil and gas properties or related assets and opportunities to engage in
mergers, consolidations or other business combinations with entities owning oil
and gas properties or related assets) and at any given time may be in various
stages of evaluating these opportunities. These stages may take the form of
internal financial and oil and gas property analysis, preliminary due diligence,
the submission of an indication of interest, preliminary negotiations,
negotiation of a letter of intent, or negotiation of a definitive agreement.
While Titan is currently evaluating a number of potential acquisition
opportunities (some of which would be material in size to Titan) in addition to
the Merger, the acquisition of properties from Pioneer and the acquisition of
Carrollton, it has not signed a letter of intent with respect to any material
acquisition and currently has no assurance of completing any particular material
acquisition or of entering into negotiations with respect to any particular
material acquisition. See "Summary -- Recent Developments -- Additional Titan
Acquisitions."

Oil and Gas Marketing and Major Customers

The revenues generated by Titan's operations are highly dependent upon the
prices of, and demand for, oil and gas. The price received by Titan for its oil
and gas production depends on numerous factors beyond Titan's control, including
seasonality, the condition of the United States economy, particularly the
manufacturing sector, foreign imports, political conditions in other oil-
producing and gas-producing countries, the actions of OPEC and domestic
government regulation, legislation and policies. Decreases in the prices of oil
and natural gas could have an adverse effect on the carrying value of Titan's
proved reserves and Titan's revenues, profitability and cash flow. Although
Titan is not currently experiencing any significant involuntary curtailment of
its oil or gas production, market, economic and regulatory factors may in the
future materially affect Titan's ability to sell its oil or gas production.

20
<PAGE>

For the year ended December 31, 1996 and the nine months ended September
30, 1997, sales to Enron Corp., and its subsidiaries and affiliates, were
approximately 43% and 50%, respectively, of Titan's oil and gas revenues.
Certain of these sales were based on six month contracts for crude oil and
month-to-month spot sales for natural gas.

Competition

The oil and gas industry is highly competitive. Titan encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties. Titan's competitors include
major integrated oil and gas companies and numerous independent oil and gas
companies, individuals and drilling and income programs. Many of its competitors
are large, well established companies with substantially larger operating staffs
and greater capital resources than Titan and which, in many instances, have been
engaged in the energy business for a much longer time than Titan. Such companies
may be able to pay more for productive oil and gas properties and exploratory
prospects and to define, evaluate, bid for and purchase a greater number of
properties and prospects than Titan's financial or human resources permit.
Titan's ability to acquire additional properties and to discover reserves in the
future will be dependent upon its ability to evaluate and select suitable
properties and to consummate transactions in a highly competitive environment.

Operating Hazards and Uninsured Risks

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by Titan will be productive or that Titan will
recover all or any portion of its investment. Drilling for oil and gas may
involve unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Titan's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, many of which
are beyond Titan's control, including title problems, weather conditions,
mechanical problems, compliance with governmental requirements and shortages or
delays in the delivery of equipment and services. Titan's future drilling
activities may not be successful and, if unsuccessful, such failure may have a
material adverse effect on the Company's future results of operations and
financial condition.

In addition, Titan's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although Titan believes that
its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic data and other traditional methods, unsuccessful wells are likely to
occur. There can be no assurance that Titan's drilling program will be
successful or that unsuccessful drilling efforts will not have a material
adverse effect on Titan. Although Titan has identified numerous potential
drilling locations, there can be no assurance that they will ever be drilled or
that oil or gas will be produced from them.

Titan's operations are subject to hazards and risks inherent in drilling
for and producing and transporting oil and gas, such as fires, natural
disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and spills, any of which can result in
the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to properties of Titan and others.

Titan expects to drill a number of deep vertical and horizontal wells in
the future. Titan's deep and/or horizontal drilling activities involve greater
risk of mechanical problems than other drilling operations. These wells may be
significantly more expensive to drill than those drilled to date.

21
<PAGE>

Titan maintains insurance against some, but not all, of the risks described
above. Titan may elect to self-insure in circumstances in which management
believes that the cost of insurance, although available, is excessive relative
to the risks presented. The occurrence of an event that is not covered, or not
fully covered, by insurance could have a material adverse effect on Titan's
financial condition and results of operations.

Employees

Other Facilities

Title to Properties

Titan received title opinions relating to properties representing 80% of
the PV-10 of the 1995 Acquisition and 90% of the PV-10 of the 1996 Acquisition.
Titan's land department and contract land professionals have reviewed title
records of substantially all its producing properties. The title investigation
performed by Titan prior to acquiring undeveloped properties is thorough but
less rigorous than that conducted prior to drilling, consistent with industry
standards. Titan believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. Titan's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens
which Titan believes do not materially interfere with the use of or affect the
value of such properties. Titan's Credit Agreement is secured by a first lien on
properties that represented at least 80% of the value of Titan's proved oil and
gas properties (based on PV-10 as of December 31, 1996). As of September 30,
1997, Titan kept in force its leaseholds for 38% of its net acreage by virtue of
production on that acreage in paying quantities. The remaining acreage is held
by lease rentals and similar provisions and requires production in paying
quantities prior to expiration of various time periods to avoid lease
termination.

Governmental Regulation

Titan's oil and gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases Titan's cost of doing business and affects its profitability. Although
Titan believes it is in substantial compliance with all applicable laws and
regulations, because such rules and regulations are frequently amended or
reinterpreted, Titan is unable to predict the future cost or impact of complying
with such laws. Significant expenditures may be required to comply with
governmental laws and regulations and may have a material adverse effect on
Titan's financial condition and results of operations.

The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging and abandonment of such wells.

22
<PAGE>

culminating in Order Nos. 636, 636-A and 636-B ("Order 636"), that have
significantly altered the marketing and transportation of gas. Order 636
mandates a fundamental restructuring of interstate pipeline sales and
transportation service, including the unbundling by interstate pipelines of the
sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the orders is to increase competition within all phases of the gas industry.
Order 636 and subsequent FERC orders on rehearing have been appealed and are
pending judicial review. Because these orders may be modified as a result of the
appeals, it is difficult to predict the ultimate impact of the orders on Titan
and its gas marketing efforts. Generally, Order 636 has eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas, and has substantially increased competition and volatility in
natural gas markets.

The price Titan receives from the sale of oil and natural gas liquids is
affected by the cost of transporting products to market. Effective January 1,
1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such rates
to inflation, subject to certain conditions and limitations. Titan is not able
to predict with certainty the effect, if any, of these regulations on its
operations. However, the regulations may increase transportation costs or
reduce wellhead prices for oil and natural gas liquids.

Environmental Matters

Titan's operations and properties are subject to extensive and changing
federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness and other protected areas; and impose
substantial liabilities for pollution resulting from Titan's operations. The
permits required for various of Titan's operations are subject to revocation,
modification and renewal by issuing authorities. Governmental authorities have
the power to enforce compliance with their regulations, and violations are
subject to fines or injunction, or both. In the opinion of management, Titan is
in substantial compliance with current applicable environmental laws and
regulations, and Titan has no material commitments for capital expenditures to
comply with existing environmental requirements. Nevertheless, changes in
existing environmental laws and regulations or in interpretations thereof could
have a significant impact on Titan, as well as the oil and gas industry in
general. The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and comparable state statutes impose strict, joint and several
liability on owners and operators of sites and on persons who disposed of or
arranged for the disposal of "hazardous substances" found at such sites. It is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes govern the disposal of
"solid waste" and "hazardous waste" and authorize the imposition of substantial
fines and penalties for noncompliance. Although CERCLA currently excludes
petroleum from its definition of "hazardous substance," state laws affecting
Titan's operations impose clean-up liability relating to petroleum and petroleum
related products. In addition, although RCRA classifies certain oil field
wastes as "nonhazardous," such exploration and production wastes could be
reclassified as hazardous wastes thereby making such wastes subject to more
stringent handling and disposal requirements.

Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as Titan, to prepare and implement spill
prevention, control countermeasure and response plans relating to the possible
discharge of oil into surface waters. The Oil Pollution Act of 1990, as amended
("OPA"), contains numerous requirements relating to the prevention of and
response to oil spills into waters of the United States. For onshore facilities
that may affect waters of the United States, the OPA requires an operator to
demonstrate $10 million in financial responsibility, and for offshore facilities
the financial responsibility requirement is at least $35 million. Regulations
are currently being developed under federal and state laws concerning oil
pollution prevention and other matters that may impose additional regulatory
burdens on Titan. In addition, the Clean Water Act and analogous state laws
require permits to be obtained

23
<PAGE>

to authorize discharge into surface waters or to construct facilities in wetland
areas. With respect to certain of its operations, Titan is required to maintain
such permits or meet general permit requirements. The EPA recently adopted
regulations concerning discharges of storm water runoff. This program requires
covered facilities to obtain individual permits, participate in a group or seek
coverage under an EPA general permit. Titan believes that it will be able to
obtain, or be included under, such permits, where necessary, and to make minor
modifications to existing facilities and operations that would not have a
material effect on Titan.

The implementation of new, or the modification of existing, laws or
regulations could have a material adverse effect on Titan. The discharge of oil,
gas or other pollutants into the air, soil or water may give rise to significant
liabilities on the part of Titan to the government and third parties and may
require Titan to incur substantial costs of remediation. Moreover, Titan has
agreed to indemnify sellers of producing properties purchased by Titan in the
1995 Acquisition, the 1996 Acquisition and the Pioneer Acquisition against
environmental claims associated with such properties. No assurance can be given
that existing environmental laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations will not materially
adversely affect Titan's results of operations and financial condition or that
material indemnity claims will not arise against Titan with respect to
properties acquired by Titan.

Titan has acquired leasehold interests in numerous properties that for many
years have produced oil and gas. Although the previous owners of these
interests may have used operating and disposal practices that were standard in
the industry at the time, hydrocarbons or other wastes may have been disposed of
or released on or under the properties. In addition, some of Titan's properties
are operated by third parties over whom Titan has no control. Notwithstanding
Titan's lack of control over properties operated by others, the failure of the
operator to comply with applicable environmental regulations may, in certain
circumstances, adversely impact Titan.

Abandonment Costs

Titan is responsible for payment of plugging and abandonment costs on the
oil and gas properties pro rata to its working interest. Based on its
experience, Titan anticipates that the ultimate aggregate salvage value of lease
and well equipment located on its properties will exceed the costs of abandoning
such properties. There can be no assurance, however, that Titan will be
successful in avoiding additional expenses in connection with the abandonment of
any of its properties. In addition, abandonment costs and their timing may
change due to many factors including actual production results, inflation rates
and changes in environmental laws and regulations.

24
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial data for Titan
for the period from March 31, 1995 (date of inception) through December 31,
1995, the year ended December 31, 1996 and for the nine months ended September
30, 1996 and 1997. The data presented below have been derived from and should
be read in conjunction with the consolidated financial statements of Titan and
related notes and "Management's Discussion and Analysis of Titan's Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.
Selected unaudited financial data for the nine months ended September 30, 1996
and 1997 include all adjustments (consisting only of normally recurring
accruals) considered necessary for a fair presentation of the respective
consolidated operating results for such interim periods. Results for the
interim periods are not necessarily indicative of results for the full year.

<TABLE>
<CAPTION>
PERIOD
MARCH 31,
1995 (DATE OF
INCEPTION)
THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------------
1995 1996 1996 1997
-------------- ------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues:
Operating revenues ........................ $ 743 $ 23,824 $ 10,237 $ 52,011
Other revenues ............................ 242 144 140 99
-------- --------- -------- --------
Total revenues ........................... 985 23,968 10,377 52,110
-------- --------- -------- --------
Expenses:
Oil and gas production .................... 304 9,199 4,339 16,627
General and administrative ................ 1,546 2,270 1,452 3,637
Amortization of stock option awards ....... 576 1,839 576 3,790
Exploration and abandonment ............... 490 184 110 1,342
Depletion, depreciation and amortization .. 299 5,789 2,269 15,927
Interest .................................. 97 2,965 1,179 825
Other ..................................... (796) (359) (336) (134)
-------- --------- -------- --------
Total expenses ........................... 2,516 21,887 9,589 42,014
-------- --------- -------- --------
Net income (loss) before income taxes ..... (1,531) 2,081 788 10,096
Income tax expense ........................ -- 3,484 2,998 3,534
-------- --------- -------- --------
Net income (loss) ......................... $ (1,531) $ (1,403) $ (2,210) $ 6,562
Net income (loss) per share ............... $(.11) $(.07) $(.10) $.18
Weighted average shares outstanding ....... 14,066 20,140 21,780 35,714
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities ...................... $ (1,805) $ 7,710 $ 5,643 $ 30,556
Investing activities ...................... (47,522) (144,998) (12,753) (43,907)
Financing activities ...................... 55,540 137,365 11,700 8,207
Net cash provided by (used in) operating
activities before working capital adjustments (466) 9,795 3,654 29,813
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures ........................ 43,669 149,901 17,590 43,089
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents ................. 6,213 6,290 10,803 1,146
Working capital ........................... 11,946 8,124 8,760 2,270
Oil and gas assets, net ................... 42,861 190,062 60,168 217,512
Total assets .............................. 57,487 207,179 74,824 231,038
Total debt ................................ 20,000 6,500 28,000 14,700
Stockholders' equity and predecessor capital 34,585 187,186 37,951 197,560
</TABLE>

25
<PAGE>

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

General

Titan is an independent energy company engaged in the exploration, development
and acquisition of oil and gas properties. Titan's strategy is to grow
reserves, production and net income per share through (i) the acquisition of
producing properties that provide significant development and exploratory
drilling potential, (ii) the exploitation and development of its reserve base,
(iii) the exploration for oil and gas reserves, and (iv) the implementation of a
low operating and overhead structure. Titan has grown rapidly through the
acquisition and exploitation of oil and gas properties, consummating the 1995
Acquisition for a purchase price of approximately $40.6 million and the 1996
Acquisition for approximately $135.7 million.

Titan's growth resulting from acquisitions has impacted its reported financial
results in a number of ways. Acquired properties frequently may not have
received focused attention prior to sale. After acquisition, certain of these
properties require maintenance, workovers, recompletions and other remedial
activity not constituting capital expenditures, which initially increase lease
operating expenses. Titan may dispose of certain of the properties if it
determines they are outside Titan's strategic focus. The increased production
and revenue resulting from the rapid growth of Titan has required it to recruit
and develop operating, accounting and administrative personnel compatible with
its increased size. As a result, Titan anticipates a corresponding increase in
its general and administrative expense. Titan believes that with its current
inventory of drilling locations and the anticipated additional staff it will be
well positioned to follow a more balanced program of exploration and
exploitation activities to complement its acquisition efforts.

Titan uses the successful efforts method of accounting for its oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves, and geological and
geophysical costs are expensed. Costs of significant nonproducing properties,
wells in the process of being drilled and significant development projects are
excluded from depletion until such time as the related project is developed and
proved reserves are established or impairment is determined.

Titan's predecessor was classified as a partnership for federal income tax
purposes. Therefore, no income taxes were paid or accrued by Titan prior to its
conversion from a limited partnership to a corporation on September 30, 1996.

Results of Operations

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996

Oil and Gas Revenues. Revenues from oil and gas operations totaled $52.0
million for the nine months ended September 30, 1997 compared to $10.2 million
for the nine months ended September 30, 1996. The increase is primarily
attributable to the 1996 Acquisition, the increase in the average price received
for both oil and gas, and continued exploitation of Titan's proved properties.
Of total oil and gas revenues for the nine months ended September 30, 1997,
revenues of $36.5 million (70%) are attributable to the properties acquired in
the 1996 Acquisition. The average oil price received increased 8% from $17.25 to
$18.64 per Bbl and the average gas price received increased 25% from $1.30 to
$1.63 per Mcf for the nine months ended September 30, 1997.

Production Costs. Oil and gas production costs, including production taxes,
were $16.6 million ($4.10 per BOE) for the nine months ended September 30, 1997
compared to $4.3 million ($5.15 per BOE) for the nine months ended September 30,
1996. The increase in the absolute amount of production costs was primarily
attributable to production costs associated with the properties acquired in the
1996 Acquisition which totaled $10.2 million ($3.65 per BOE) for the nine months
ended September 30, 1997.

26
<PAGE>

Depletion, Depreciation and Amortization Expense. Depletion, depreciation and
amortization expense was $15.9 million ($3.93 per BOE) for the nine months ended
September 30, 1997 compared to $2.3 million ($2.69 per BOE) for the nine months
ended September 30, 1996. The increase per BOE is due to higher amortization
rates on the properties acquired in the 1996 Acquisition compared to Titan's
other properties.

General and Administrative Expense. General and administrative expense was
$3.6 million ($.90 per BOE) for the nine months ended September 30, 1997
compared to $1.5 million ($1.72 per BOE) for the nine months ended September 30,
1996. The increase in the absolute amount is due to the additional general and
administrative expenses which are necessary to administer the properties
acquired in the 1996 Acquisition. The 48% decrease in general and administrative
expenses per BOE for 1997 as compared to 1996 is due to the spreading of Titan's
general and administrative expenses over a larger production base and to Titan's
efforts to maintain a low overhead structure.

Interest Expense. Interest expense was $825,000 for the nine months ended
September 30, 1997 compared to $1.2 million for the nine months ended September
30, 1996. The 31% decrease is primarily due to the application of proceeds from
the initial offering of common stock to the indebtedness incurred by Titan to
fund the 1995 Acquisition and the 1996 Acquisition.

YEAR ENDED DECEMBER 31, 1996

Oil and Gas Revenues. For the year ended December 31, 1996, Titan's revenues
from the sale of oil and gas (excluding the effects of hedging activities) were
$15.1 million and $11.1 million, respectively. Of total gross oil and gas
revenues, $16.2 million and $9.5 million are attributable to the 1995
Acquisition and the 1996 Acquisition, respectively. During the year, Titan
produced 714 MBbls of oil, (514 MBbls attributable to the 1995 Acquisition and
186 MBbls attributable to the 1996 Acquisition) and 5,787 MMcf of gas (3,401
MMcf attributable to the 1995 Acquisition and 2,124 MMcf attributable to the
1996 Acquisition), with total oil and gas production of 1,679 MBOE. The
revenues and production are primarily attributable to the 1995 Acquisition since
the 1996 Acquisition did not close until October 31, 1996.

As a result of hedging activities in the year ended December 31, 1996, oil
revenues were reduced $1.5 million ($2.10 per Bbl) and gas revenues were reduced
$995,000 ($.17 per Mcf) for a total reduction of $2,495,000.

Production Costs. Oil and gas production costs, including production taxes,
were $9.2 million ($5.48 per BOE) for the year ended December 31, 1996. These
costs included $2.2 million ($1.31 per BOE) of rework expenses of which $945,000
were attributable to the 1995 Acquisition and $1.2 million were attributable to
the 1996 Acquisition.

Exploration and Abandonment Costs. Exploration and abandonment costs were
$184,000 for the year ended December 31, 1996.

General and Administrative Expense. General and administrative expenses were
$2.3 million ($1.35 per BOE) for the year ended December 31, 1996.

Depletion, Depreciation and Amortization Expense. For the year ended December
31, 1996, depletion, depreciation and amortization expense was $5.8 million
($3.45 per BOE). This represents a full year of depletion, depreciation and
amortization relating to production for the 1995 Acquisition and two months of
depletion, depreciation and amortization relating to production for the 1996
Acquisition.

Interest Expense. Interest expense was $2,965,000 for the year ended December
31, 1996. The interest expense was attributable to bank financing incurred to
fund the 1995 Acquisition and the 1996 Acquisition.

NINE MONTHS ENDED DECEMBER 31, 1995

Oil and Gas Revenues. For the nine months ended December 31, 1995, Titan's
revenues from the sale of oil and gas were $504,000 and $239,000, respectively.
During the period, Titan produced 30 MBbls of oil and 245 MMcf of gas, for a
total production of 71 MBOE. The revenues and production are primarily
attributable to the 1995 Acquisition which was consummated December 11, 1995.

27
<PAGE>

Production Costs. Oil and gas production costs, including production taxes,
were $304,000 ($4.28 per BOE) for the nine months ended December 31, 1995.

Exploration and Abandonment Costs. Exploration and abandonment costs were
$490,000 for the nine months ended December 31, 1995.

General and Administrative Expense. General and administrative expenses were
$1.5 million ($21.77 per BOE) for the nine months ended December 31, 1995.

Depletion, Depreciation and Amortization Expense. For the nine months ended
December 31, 1995, depletion, depreciation and amortization expense was $299,000
($4.21 per BOE).

Liquidity and Capital Resources

Titan's primary sources of capital have been its initial capitalization,
private equity sales, bank financing, cash flow from operations and its initial
public offering. The 1995 Acquisition was funded with cash from Titan's initial
capitalization, additional private equity sales and bank financing. The 1996
Acquisition was principally funded with bank financing, which was repaid with
the proceeds from Titan's initial public offering.

On November 7, 1997, Titan and Pioneer Natural Resources USA, Inc., a wholly-
owned subsidiary of Pioneer, entered into an agreement by which Titan will
acquire certain West Texas producing properties from Pioneer. Titan will pay
approximately $55 million, subject to adjustments, and anticipates closing the
transaction, subject to various conditions, in mid-December 1997. Titan will
fund the acquisition with its existing credit facilities.

Titan requires capital primarily for the exploration, development and
acquisition of oil and gas properties, the repayment of indebtedness and general
working capital needs.

Capital Expenditures. Apart from Titan's expenditure for its planned
acquisition from Pioneer, Titan budgeted for 1997 approximately $27 million for
the drilling and recompletion of approximately 26 oil and gas wells and 45
workover projects on its proved properties and approximately $25.2 million for
expenditures for geological and geophysical costs, drilling costs and lease
acquisition costs on Titan's unproved properties.

Capital Resources. Titan's primary capital resources are net cash provided by
operating activities and $153.5 million availability under the Credit Agreement.
Titan's acquisition from Pioneer, funded under these facilities, will reduce
availability by approximately $55 million, subject to adjustment of the purchase
price under Titan's agreement with Pioneer.

Net Cash Provided By Operating Activities. Net cash provided by operating
activities, before changes in operating assets and liabilities, was $29.8
million for the nine months ended September 30, 1997, compared to $3.7 million
for the nine months ended September 30, 1996. The increase was primarily
attributable to the cash flow generated by the 1996 Acquisition and from
continued exploitation of Titan's proved properties.

Credit Agreement. The Credit Agreement established a four year revolving
credit facility, up to the maximum amount of $250 million, subject to a
borrowing base to be determined annually by the lenders based on certain proved
oil and gas reserves and other assets of Titan. Initially, the borrowing base
is established at $165 million. To the extent that the borrowing base is less
than the aggregate principal amount of all outstanding loans and letters of
credit under the Credit Agreement, such deficiency must be cured by Titan
ratably within 180 days, by either prepaying a portion of the outstanding
amounts under the Credit Agreement or pledging additional collateral to the
lenders. A portion of the credit facility is available for the issuance of up
to $15.0 million of letters of credit, of which $250,000 was outstanding at
September 30, 1997.

In June 1997, the borrowing base was redetermined by the lenders and reset at
$165 million. Titan's outstanding long-term debt under the Credit Agreement was
$11.5 million on September 30, 1997.

28
<PAGE>

All outstanding amounts under the Credit Agreement are due and payable in full
on January 1, 2001.

Liquidity and Working Capital. At September 30, 1997, Titan had $1.1 million
of cash and cash equivalents as compared to $6.3 million at December 31, 1996.
Titan's ratio of current assets to current liabilities was 1.24 at September 30,
1997 compared to 2.03 at December 31, 1996. Due principally to a reduction in
cash as a result of an intentional change in the way Titan manages its operating
accounts, Titan's working capital decreased $5.8 million from $8.1 million at
December 31, 1996 to $2.3 million at September 30, 1997. Titan expects working
capital to increase during the remainder of 1997 due to an anticipated lower
level of capital expenditures during the remainder of 1997.

Unsecured Credit Agreement. Effective April 16, 1997, Titan entered into a
credit agreement (the "Unsecured Credit Agreement") with Texas Commerce Bank
National Association (the "Bank"), which establishes a one year revolving credit
facility, up to the maximum of $5 million. While all outstanding amounts are due
and payable in full on or before March 6, 1998, Titan considers amounts
outstanding pursuant to the Unsecured Credit Agreement as long-term as all
amounts are repaid from available funds under the Credit Agreement. Proceeds of
the Unsecured Credit Agreement are utilized to fund short-term needs (less than
thirty days). Titan's outstanding debt under the Unsecured Credit Agreement was
$3.2 million at September 30, 1997.

The interest rate of each loan under the Unsecured Credit Agreement is at a
rate determined by agreement between Titan and the Bank. The rate shall not
exceed the maximum interest rate permitted under applicable laws. Interest rates
generally are comparable with Eurodollar rates plus 1% per annum.

Other Matters

Stock Options and Compensation Expense. In connection with Titan's conversion
from a limited partnership to a corporation on September 30, 1996, Titan issued
options to purchase 3,631,350 shares of Common Stock to certain of its officers
and employees in substitution for options issued by Titan Resources, L.P. Of
the options issued by the partnership, approximately 93% were issued on March
31, 1995, the date of inception, and approximately 7% were issued as of
September 1, 1996. The options issued by Titan have an exercise price of $2.08
per share. Options to purchase 1,944,417 shares of Common Stock are currently
vested and an additional 1,209,966 and 426,967 shares will vest on March 31 of
each of 1998 and 1999, respectively. Based in part on selling prices of
interests in the partnership in December 1995 and September 1996, Titan expected
to record a noncash compensation expense of approximately $421,000 per month for
a period of 39 months beginning in the fourth quarter of 1996 to reflect the
estimated value of the revised option plan on September 30, 1996. Noncash
compensation expense recorded for the year ended December 31, 1996 was
$1,839,000.

Hedging Activities. Titan uses swap agreements in an attempt to reduce the
risk of fluctuating oil and gas prices and interest rates. In November and
December 1995, Titan entered into four master agreements for energy price and
other swap transactions with each of Enron Capital & Trade Resources Corp.
("ECTRC") (an affiliate of Joint Energy Development Investments Limited
Partnership ("JEDI"), an owner of approximately 10% of the outstanding Common
Stock), First Union National Bank of North Carolina (a lender to Titan under the
Credit Agreement and an affiliate of First Union Corporation, an owner of
approximately 4.9% of the outstanding Common Stock), Chemical Bank and Texas
Commerce Bank National Association (a lender to Titan). Titan has entered into
energy price swap arrangements from time to time under these master agreements.
Settlement of gains or losses on these energy swap transactions is generally
based on the difference between the contract price and a formula using New York
Mercantile Exchange ("NYMEX") related prices and is reported as a component of
oil and gas revenues as the associated production occurs. Titan entered into
hedging transactions with respect to a substantial portion of its estimated
production through December 1996, excluding the production attributable to the
1996 Acquisition. At December 31, 1996, none of Titan's production was subject
to hedging contracts.

29
<PAGE>

Beginning September 1, 1997, Titan has entered into certain hedging
arrangements which fix prices on a portion of Titan's production. Currently,
Titan has three crude oil hedging contracts in place: (a) September 1, 1997
through November 30, 1997 at a price of $21.32 per barrel for 2,000 barrels per
day; (b) October 1, 1997 through December 31, 1997 at a price of $21.45 per
barrel for 1,000 barrels per day; and (c) November 1, 1997 through January 31,
1998 at a price of $23.36 per barrel for 1,000 barrels per day. This contract
may be extended at the counter party's option for an additional six month period
at the same price. In addition, Titan has 2,140,000 MMBtu of natural gas
production hedged beginning October 1, 1997 through December 31, 1997 at an
average price of $2.69 per MMBtu and 4,800,000 MMBtu of natural gas production
hedged beginning January 1, 1998 through April 30, 1998 at an average price of
$2.386 per MMBtu. Any adjustment to revenue recognized due to Titan's crude oil
hedging transactions is determined as the difference between the contract price
and the average of the daily settlement prices for the prompt month of the NYMEX
Light Sweet Crude Oil Futures Contract for each NYMEX trading day for the
applicable determination period. Any adjustment to revenue recognized due to
Titan's natural gas hedging transactions is determined as the difference between
the contract price and the price as reported from the first issue of the month
of Inside F.E.R.C.'s Gas Marketing Report, El Paso Natural Gas Co. -- Permian
Basin. Hedging activities do not affect the actual sales price received for
Titan's crude oil and natural gas. Titan continues to evaluate whether to enter
into additional hedging activities for 1997, 1998 and future years. See "Risk
Factors-- Risks Relating to the Business-- Risk of Hedging Activities."

Crude Oil. Titan reports average oil prices per Bbl including the net effect
of oil hedges. During the nine months ended September 30, 1997, Titan reported
average oil prices of $18.64 per Bbl, while realizing average prices, excluding
hedging results, of $18.57 per Bbl. Titan recorded net increases to oil
revenues of $93,000 ($.07 per Bbl) for the nine months ended September 30, 1997,
as a result of its commodity hedges.

Natural Gas Balancing. It is customary in the natural gas industry for
various working interest partners to produce more or less than their entitlement
share of natural gas from time to time. Titan's net overproduced position at
December 31, 1996 was 243,365 Mcf. Under terms of typical natural gas balancing
agreements, the underproduced party can take a certain percentage, typically 25%
to 50% of the overproduced party's entitled share of gas sales in future months,
to eliminate such imbalances. During the make-up period, the overproduced
party's cash flow will be adversely affected. Titan recognizes revenue and
imbalance obligations under the entitlements method of accounting, which means
that Titan recognizes the revenue to which it is entitled and records a
liability with respect to the value of the overproduced gas.

Environmental and Other Laws and Regulations. Titan's business is subject to
certain federal, state and local laws and regulations relating to the
exploration for and the development, production and transportation of oil and
gas, as well as environmental and safety matters. Many of these laws and
regulations have become more stringent in recent years, often imposing greater
liability on a larger number of potentially responsible parties. Although Titan
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by such laws and regulations are
frequently changed and subject to interpretation, and Titan is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
operations. Titan has no material commitments for capital expenditures to
comply with existing environmental requirements.

Nevertheless, changes in existing environmental laws or in interpretations
thereof could have a significant impact on the operating costs of Titan, as well
as the oil and gas industry in general. See "Risk Factors--Risks Relating to
the Business of Titan and OEDC--Compliance with Environmental Regulations," "--
Business and Properties--Environmental Matters" and "--Business and Properties--
Abandonment Costs."

30
<PAGE>

In June 1997, FASB issued FAS No. 130, "Reporting Comprehensive Income" which
requires that all items required to be recognized under accounting standards as
components of comprehensive income be reported as a part of the basic financial
statements. FAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997. The Company plans to adopt FAS No. 130 for
the period ended March 31, 1998 and does not expect FAS No. 130 to have a
material effect on reported results.

In June 1997, FASB issues FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which established standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. FAS No. 131
is effective for financial statements for periods beginning after December 15,
1997 but the statement need not be applied to interim financial statements in
the initial year of application. Titan does not expect FAS No. 131 to materially
affect its reporting practices.

MANAGEMENT

The following table sets forth certain information concerning the individuals
who serve, and will continue to serve upon completion of the Merger, as
executive officers and directors of Titan.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack D. Hightower ........ 49 President, Chief Executive Officer and Chairman of
the Board
George G. Staley ......... 63 Executive Vice President, Exploration and Director
Rodney L. Woodard ........ 41 Vice President, Engineering
Thomas H. Moore .......... 52 Vice President, Business Development
Dan P. Colwell ........... 52 Vice President, Land
William K. White ......... 55 Vice President, Finance and Chief Financial Officer
John L. Benfatti ......... 52 Vice President, Accounting and Controller
Susan D. Rowland ......... 36 Vice President, Corporate Administration and
Secretary
David R. Albin .......... 38 Director
Kenneth A. Hersh ........ 34 Director
William J. Vaughn, Jr. .. 76 Director
</TABLE>

Jack D. Hightower has served as President, Chief Executive Officer and
Chairman of the Board of Directors of Titan since he founded Titan in March
1995. Prior to forming Titan, from 1986 to January 1996, Mr. Hightower served
as Chairman of the Board and Chief Executive Officer of United Oil Services,
Inc., a complete oil field service company serving customers in the Permian
Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the Board and
President of Amber Energy, Inc., a company formed to identify oil and gas
exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman of
the Board, Chief Executive Officer and President of Enertex, Inc., which served
as the operator of record for several oil and gas properties involving Mr.
Hightower and other nonoperators, including Selma International Investment
Limited. Since 1990, Mr. Hightower has served on the Board of Directors of
Texas Commerce Bank, N.A., Midland.

31
<PAGE>

Rodney L. Woodard has served as Vice President, Engineering for Titan since
its formation. From 1985 to 1995, Mr. Woodard served as Vice President of Selma
International Investment Limited.

Thomas H. Moore has served as Vice President, Business Development of Titan
since its formation. From 1992 to 1995, Mr. Moore served as Managing Partner of
Magnum Energy Corporation, L.L.C. From 1991 until 1992, Mr. Moore served as
Executive Vice President -- Exploration and Production, Chief Operating Officer
and Director of Clayton Williams Energy, Inc. From 1985 to 1991, Mr. Moore
served as President, Chief Operating Officer and Director of Clayton W.
Williams, Jr. Inc.

William K. White has served as Vice President, Finance and Chief Financial
Officer of Titan since September 1996. From 1994 to September 1996, Mr. White
was Senior Vice President of the Energy Investment Group of Trust Company of The
West. From 1991 to 1994, Mr. White was President of the Odessa Associates, a
private firm engaged in the practice of providing financial consulting services
to the oil and gas industry.

John L. Benfatti has served as Vice President, Accounting and Controller of
Titan since its formation. From 1980 to 1995, Mr. Benfatti served as Controller
and Treasurer of Staley Gas Co., Inc.

David R. Albin has served as a director of Titan since its formation. Since
1988, Mr. Albin has been a manager of the Natural Gas Partners investment funds,
which were organized to make direct equity investments in the North American oil
and gas industry. He is currently responsible for co-managing NGP's overall
investment portfolio. Mr. Albin serves as a director of OEDC and Petroglyph
Energy, Inc.

Kenneth A. Hersh has served as a director of Titan since its formation. Since
1989, Mr. Hersh has been a manager of the Natural Gas Partners investment funds,
which were organized to make direct equity investments in the North American oil
and gas industry. He is currently responsible for co-managing NGP's overall
investment portfolio. Mr. Hersh serves as a director of Pioneer Natural
Resources Company, HS Resources, Inc. and Petroglyph Energy, Inc.

William J. Vaughn, Jr. has served as director of Titan since March 1997.
Since 1975, Mr. Vaughn has served as Chairman of the Board and President of WJV,
Inc. and DMV, Inc., which are oil and gas exploration companies. From 1986 to
1996, Mr. Vaughn served as Vice President of United Oil Services, Inc., an oil
field service company. From 1975 to 1995, Mr. Vaughn was an independent
geologist in association with Mr. Hightower.

32
<PAGE>

EXECUTIVE COMPENSATION AND OTHER MATTERS

The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer of Titan and the
only other executive officers of Titan who earned in excess of $100,000 in 1996
(the "named executive officers") for the years indicated.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ----------------
SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS (#) COMPENSATION
- ---------------------------------------- ---- --------- -------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack Hightower (2)...................... 1996 $109,167 $12,000 $ -- 73,103 $10,455 (5)
President and Chief Executive 1995 75,000 1,000 -- 1,682,491 6,201
Officer
George G. Staley (3).................... 1996 109,167 12,000 -- 56,858 15,139 (6)
Executive Vice President, Exploration 1995 75,000 1,000 -- 975,313 10,423
Rodney L. Woodard (4)................... 1996 97,875 10,800 13,431 (7) 24,368 9,442 (8)
Vice President, Engineering 1995 67,500 1,000 -- 196,313 5,596
</TABLE>

__________________________

(1) Other Annual Compensation does not include perquisites and other personal
benefits if the aggregate amount of such compensation does not exceed the
lesser of (i) $50,000 or (ii) 10% of individual combined salary and bonus
for the named executive officer in each year.
(2) Upon completion of Titan's initial public offering, Mr. Hightower's base
salary was increased to $160,000.
(3) Upon completion of Titan's initial public offering, Mr. Staley's base
salary was increased to $160,000.
(4) Upon completion of Titan's initial public offering, Mr. Woodard's base
salary was increased to $135,000.
(5) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $7,180 and $3,275, respectively, during 1996 and $5,076 and $1,125,
respectively, during 1995.
(6) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $11,864 and $3,275, respectively, during 1996 and $9,298 and
$1,125, respectively, during 1995
(7) Consists of lease payments made by Titan for an automobile used by Mr.
Woodard in connection with his position with Titan.
(8) Consists of premiums paid by Titan under a nondiscriminatory group
insurance program and contributions by Titan under its 401(k) Retirement
Plan of $6,506 and $2,936, respectively, during 1996 and $4,583 and $1,013,
respectively, during 1995.

William K. White was elected Vice President, Finance and Chief Financial
Officer of Titan on September 30, 1996 and receives an annual base salary of
$135,000.

33
<PAGE>

Option Grants

The following table contains information about stock option grants to the
named executive officers in 1996:

OPTION GRANTS IN LAST FISCAL YEAR (1)

____________________________

(1) Includes (i) options granted in Titan's conversion from a limited
partnership to a corporation on September 30, 1996 that were substituted
for options granted in 1995 and (ii) additional options granted during
1996.

(2) Amounts represent hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are based
on assumed rates of stock price appreciation of 0%, 5% and 10% compounded
annually from January 1, 1996, as if such options had been granted on such
date, through the expiration date. For the option term ending March 31,
2001, based on the closing price on The Nasdaq Stock Market's National
Market of the Titan Common Stock of $12.00 on December 31, 1996, a share of
the Common Stock would have a value on March 1, 2001 of approximately
$14.90 at an assumed appreciation rate of 5% and approximately $18.45 at an
assumed appreciation rate of 10%.

Option Exercises and Year-End Option Values

The following table provides information about the number of shares issued
upon option exercises by the named executive officers during 1996, and the value
realized by the named executive officers. The table also provides information
about the number and value of options that were held by the named executive
officers at December 31, 1996 as if the options granted in Titan's conversion
from a limited partnership to a corporation on September 30, 1996 to substitute
for option grants in 1996 had been granted on January 1, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
-------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ------------ ----------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Jack Hightower...... 0 0 967,100 788,494 9,594 7,822
George G. Staley.... 0 0 569,137 463,034 5,646 4,593
Rodney L. Woodard... 0 0 122,165 98,516 1,212 977
</TABLE>

Compensation Committee Interlocks and Insider Participation

34
<PAGE>

NGP. Messrs. Albin, Baldwin and Hersh are three of the four managing members of
the general partner of Natural Gas Partners II, L.P. ("NGP II") and also own
limited partnership interests in NGP II's general partner. As of September 30,
1997, NGP II owned 5,000,777 shares (14.7%) of the outstanding Titan Common
Stock. In addition to the shares of Titan Common Stock and OEDC Common Stock
owned by NGP, Mr. Baldwin directly owns 9,100 shares and 35,041 shares of Titan
and OEDC, respectively. Messrs. Albin and Hersh, who disclaim beneficial
ownership of Titan Common Stock owned by NGP II, beneficially own 115,772 shares
and 67,381 shares, respectively, of Titan Common Stock and 52,596 shares and
49,012 shares, respectively, of OEDC Common Stock. Although OEDC informed
Messrs. Albin and Baldwin from time to time on a limited basis of the general
status of negotiations with Titan and, likewise, Titan informed Mr. Hersh of the
general status of negotiations with OEDC, none of these individuals participated
in such negotiations or the deliberations of the board of either company in
reviewing and approving the Merger.

In consideration of NGP's agreement to terminate its rights under (i)
the Registration Rights Agreement among OEDC, NGP and certain other stockholders
of OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, Titan has agreed with NGP to use its best efforts to
prepare, file and have declared effective within 180 days of consummation of the
Merger a shelf registration statement registering for resale the 1,391,959
shares of Titan Common Stock to be received by NGP in the Merger and 357,486
shares of Titan Common Stock to be received by NGP in the anticipated
acquisition of Carrollton. One half of these shares will remain subject to lock-
up agreements with Titan until one year after consummation of the Merger. Titan
has also agreed to include in the same shelf registration an aggregate of 86,088
shares of Titan Common Stock that Messrs. Albin, Baldwin and Hersh will receive
in the Merger.

Titan is party to the Amended and Restated Registration Rights
Agreement with NGP, NGP II, Jack Hightower, Joint Energy Development Investments
Limited Partnership, First Union Corporation and Selma International Investment
Limited (the "Shareholder Parties"). Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of Titan's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require Titan to register shares held
by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. The Amended and Restated Registration Rights Agreement also
provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of Titan Common Stock held by
them in certain registrations initiated by Titan or by any other holder of
Titan's Common Stock. The piggyback rights are subject to customary cutback
provisions.

CERTAIN TRANSACTIONS

35
<PAGE>

Baldwin, a director of OEDC, is the general partner of the general partner of
NGP. Messrs. Albin, Baldwin and Hersh are three of the four managing members of
the general partner of NGP II and also own limited partnership interests in NGP
II's general partner. As of September 30, 1997, NGP II owned 5,000,777 shares
(14.7%) of the outstanding Titan Common Stock. In addition to the shares of
Titan Common Stock and OEDC Common Stock owned by NGP, Mr. Baldwin directly owns
9,100 shares and 35,041 shares of Titan and OEDC, respectively. Messrs. Albin
and Hersh, who disclaim beneficial ownership of Titan Common Stock owned by NGP
II, beneficially own 115,772 shares and 67,381 shares, respectively, of Titan
Common Stock and 52,596 shares and 49,012 shares, respectively, of OEDC Common
Stock. Although OEDC informed Messrs. Albin and Baldwin from time to time on a
limited basis of the general status of negotiations with Titan and, likewise,
Titan informed Mr. Hersh of the general status of negotiations with OEDC, none
of these individuals participated in such negotiations or the deliberations of
the board of either company in reviewing and approving the Merger.

Titan and Carrollton have entered into an agreement by which Titan
will acquire all the outstanding membership interests of Carrollton. Carrollton
is a small independent energy company engaged in the exploration, development
and acquisition of onshore oil and gas properties located primarily in the Gulf
Coast region, which Titan management believes fit well with OEDC's area of
operations. Based on estimates of Carrollton's outside engineers, Carrollton's
total proved reserves were 2.8 million BOE at June 30, 1997. Titan will issue
approximately 900,000 shares of Titan Common Stock equal to 2.6% of the total
currently outstanding Titan Common Stock.

In consideration of NGP's agreement to terminate its rights under (i)
the Registration Rights Agreement among OEDC, NGP and certain other stockholders
of OEDC and (ii) the Registration Rights Agreement among Carrollton, NGP and
certain other stockholders, Titan has agreed with NGP to use its best efforts to
prepare, file and have declared effective within 180 days of consummation of the
Merger a shelf registration statement registering for resale the 1,391,959
shares of Titan Common Stock to be received by NGP in the Merger and 357,486
shares of Titan Common Stock to be received by NGP-Louisiana Partners, L.P. in
the anticipated acquisition of Carrollton. One half of these shares will remain
subject to lock-up agreements with Titan until one year after consummation of
the Merger. Titan has also agreed to include in the same shelf registration an
aggregate of 86,088 shares of Titan Common Stock that Messrs. Albin, Baldwin and
Hersh will receive in the Merger.

Titan is party to the Amended and Restated Registration Rights
Agreement with the Shareholder Parties. Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of Titan's initial public offering under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require Titan to register shares held
by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. The Amended and Restated Registration Rights Agreement also
provides that the Shareholder Parties have piggyback registration rights
pursuant to which such persons may include shares of Titan Common Stock held by
them in certain registrations initiated by Titan or by any other holder of
Titan's Common Stock. The piggyback rights are subject to customary cutback
provisions.

Titan has entered into an administrative services contract with Staley
Operating Co. ("Staley Operating"), an affiliate of Mr. Staley. Pursuant to the
agreement, Titan provided certain administrative, accounting and other office
and technical services on behalf of Staley Operating, in its capacity as the
operator of certain producing oil and gas properties, in return for which Titan
received the amounts charged by Staley Operating for providing such services
under the applicable operating agreements for such properties. The total amount
of payments received by Titan under such agreement was approximately $144,000
for the year ended December 31, 1996 and approximately $7,600 for the nine
months ended September 30, 1997.

36
<PAGE>

Messrs. Hightower, Staley and Vaughn and certain of their affiliates
have common ownership interests in wells operated by Titan and, in accordance
with a standard industry operating agreement, Messrs. Hightower, Staley and
Vaughn and certain of their affiliates make payments to Titan of leasehold costs
and lease operating and supervision charges. These payments aggregated
approximately $229,000 and $185,200 for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively. Revenue received in
connection with these wells was approximately $7,000 and $21,700 for the year
ended December 31, 1996 and for the nine months ended September 30, 1997,
respectively. The fees charged by Titan to Messrs. Hightower, Staley and Vaughn
are the same as those charged to unaffiliated third parties that are also party
to the operating agreement.

Titan was a party to separate financial advisory services contracts
with ECT Securities Corp. ("ECT") (an affiliate of JEDI) and NGP. In 1996,
Titan paid ECT fees of approximately $95,000, plus expense reimbursements, and
NGP fees of approximately $91,000, plus expense reimbursements. Both agreements
terminated upon the completion of Titan's initial public offering in December
1996.

From time to time, Titan enters into certain hedging arrangements with
Enron Capital & Trade Resources Corp. ("ECTRC"), an affiliate of JEDI. Pursuant
to the terms of such arrangements relating to natural gas hedges, during the
year ended December 31, 1996, Titan paid approximately $544,000 to ECTRC. For
the nine months ended September 30, 1997, pursuant to the terms of such
arrangements relating to crude oil hedges, ECTRC paid approximately $93,000 to
Titan.

For the year ended December 31, 1996 and the nine months ended
September 30, 1997, sales to Enron Corp. (an affiliate of JEDI), its
subsidiaries and affiliates were approximately 43% and 50%, respectively, of
Titan's oil and gas revenues.

Titan's offices are in Fasken Center located at 500 West Texas, Suite
500, in Midland, Texas and are leased from Fasken Center Ltd., an affiliate of
Mr. Hightower. The lease is a noncancellable operating lease that terminates on
March 15, 2002 and requires monthly rent payments of $16,895, subject to
increase as Titan assumes additional space.

37
<PAGE>

INFORMATION CONCERNING OEDC

The following Information Concerning OEDC section provides information
on the business and properties of OEDC on a stand-alone basis and does not
describe the business and properties of OEDC if the Merger is consummated. The
following Business and Properties section also contains forward-looking
statements which involve risks and uncertainties. OEDC's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a variety of factors, including those factors set forth under "Risk
Factors" and elsewhere in this Prospectus.

BUSINESS AND PROPERTIES

OEDC owns an interest in the Dauphin Island Gathering System (the
"DIGS") and the Main Pass Gas Gathering System (the "MPGGS"), which are pipeline
systems offshore Alabama and Louisiana. Combined, the systems comprise
approximately 225 miles of gas gathering line with a capacity of 650 MMcf/d.
OEDC owns a 1% general partner interest in the partnership that owns the DIGS
and the MPGGS, Dauphin Island Gathering Partners ("DIGP"), and OEDC's interest
will increase to 11.15% when its partners in DIGP receive a return of their
investment plus a 10% rate of return. See "--Natural Gas Gathering."

In November 1996, OEDC formed a partnership with subsidiaries of MCN
Corporation ("MCN") and Duke Energy Corporation ("Duke Energy") (formerly
PanEnergy Corp.) for the construction and development of one or more natural gas
liquids ("NGL") plants onshore in Alabama. The initial plant is expected to
begin operations in the third quarter of 1998 with a capacity of 600 MMcf/d.
OEDC's interest in this partnership, called Mobile Bay Processing Partners
("MBPP"), is currently 1%, and OEDC has acquired from its partners an option to
purchase an additional 32.3% interest (currently subject to dilution to 24.3%)
in MBPP during the first three years of operation of the initial plant. See "--
Natural Gas Processing."

Exploration and Development

GENERAL

In its natural gas and oil exploration and development activities,
OEDC emphasizes several operating strategies. By controlling operations on its
properties, OEDC attempts to reduce development costs and the time between
development expenditures and initial production. By focusing its exploration
and development efforts geographically and geologically and employing
appropriate technology, OEDC attempts to reduce exploration risk. By building
strategic alliances, OEDC aims to complement the strengths of the major Gulf of
Mexico producers with its creativity, focus, flexibility and lower overhead
costs. An important component of OEDC's development strategy is the development
of several proximate blocks in clusters to avoid duplication of expense in
production infrastructure. The principal areas in which OEDC conducts
development activities are the Central Gulf of Mexico offshore Louisiana,
including the South Timbalier and Vermilion areas, offshore Alabama and
Mississippi, including the Mobile, Viosca Knoll, and Destin areas, and offshore
Texas, including the South and North Padre Island areas.

OIL AND GAS PROPERTIES

Mobile, Viosca Knoll and Destin, Offshore Alabama and Mississippi

General. In 1990, OEDC began examining the potential for exploration
activity in the Mobile and Viosca Knoll ("VK") areas offshore Alabama and
Mississippi. Potential gas reservoirs in this area can be defined geophysically
with bright spots and are characterized by productive sands which generally are
highly porous and permeable, allowing the potential for high deliverabilities.
The total cost of drilling and development in these areas is low in comparison
to other offshore developments because of the shallow water and reservoir
depths. In addition, the expected finding costs per Mcf are low in these areas
compared to other onshore and offshore developments because of the ratio of
total drilling and development costs to the expected recoverable reserves.
Finally, gas production from these areas historically has been

38
<PAGE>

sold at a premium as compared to gas produced from other Gulf Coast and Mid-
Continent areas because of the proximity of the Mobile and VK areas to Northeast
and Florida gas markets.

During the 1980s, substantial shallow gas reserves had been drilled in
the Mobile and VK areas but none of the reserves had been placed on production
because there was no public-access pipeline system to gather the gas to onshore
markets. Moreover, fragmented ownership of the reservoirs among multiple
producers discouraged development. In light of these factors, OEDC decided to
acquire significant acreage in the areas and to create a gas gathering system to
solve the marketability problem. See "--Natural Gas Gathering."

Mobile 822 Cluster. From 1990 through 1993, OEDC acquired leaseholds
covering about 21,000 acres (five blocks) in state and federal waters offshore
Alabama. In 1993 and early 1994, OEDC drilled eight wells with 13 completions
on these blocks and constructed a four-pile platform in 45 feet of water at
Mobile 822 with production and compression facilities to handle up to 50 MMcf/d
of gas. Initial production commenced within four months of spudding the first
822 well. The Mobile 822 cluster cost approximately $35 million to develop and
produced about $9 million in income before it was sold in 1994 for $50 million.
Favorable gas prices and the need for capital to pursue new projects made the
sale attractive to OEDC. OEDC recorded approximately $13.65 million in pre-tax
profits from the sale transaction after repaying development financing and
dividing the sale proceeds with minority interest owners.

Mobile 959/960 Cluster. In late 1994, OEDC acquired an undivided 50%
interest in Mobile 959/960 just east of the Mobile Bay entrance and south of
Fort Morgan peninsula. Drilling for production from these blocks was
problematic because the seismic data was poor due to unfavorable sea floor
conditions and because much of the reserve potential was in the shipping
fairways where drilling was prohibited. OEDC drilled six highly deviated or
horizontal wells to target sands at around 2,000 feet subsea. Four of the wells
had bottom hole locations with lateral displacements over three times the
vertical depth. OEDC constructed a manned, four-pile platform at Mobile 959 in
60 feet of water with 30 MMcf/d in production and compression capacity. OEDC
constructed a three-pile platform at Mobile 960 and a flowline from the platform
to the production platform in Mobile 959. OEDC now owns a 100% working interest
in the property and is currently producing almost five MMcf/d from four
wellbores. OEDC plans one additional recompletion to access additional proved
reserves behind pipe when production from the current producing zone on that
well is depleted.

OEDC has acquired ownership percentages in two blocks offshore
Alabama east of Mobile 959/960 and is the operator of both blocks. These blocks
(Mobile 830 and Pensacola 881) have proved undeveloped reserves attributable to
two wellbores drilled by a former operator of these leases. OEDC's working
interest in these blocks has recently been reduced to 1% as a result of a
property trade. However, OEDC believes that these blocks may be developed
utilizing the Mobile 959/960 platforms making use of excess platform capacity
and avoiding an expensive duplication of infrastructure. Although OEDC has
received no commitment with respect to the use of OEDC's Mobile 959/960
platforms, if such facilities are used the processing revenues from handling
this production could be substantial.

Viosca Knoll. Certain of OEDC's VK exploration and development
activities are conducted through a partnership, South Dauphin II Limited
Partnership ("SDP II"), with an affiliate of Enron Capital & Trade Resources
Corp. (the "ECT Affiliate"). OEDC and the ECT Affiliate formed SDP II to fund a
drilling and development program on certain of OEDC's properties. Under the
terms of the SDP II partnership agreement, the ECT Affiliate receives 85% of the
net cash flow from the wells included in the program (provided a minimum payment
schedule is met) until it has been repaid all of its original investment plus a
15% pre-tax rate of return ("Payout"). Once Payout has occurred, the ECT
Affiliate's interest will decrease to 25%, and OEDC's interest will increase to
75%. SDP II has the option to accelerate the ownership change by prepaying the
amount necessary to cause Payout to occur plus 10% of the ECT Affiliate's net
investment (funds advanced less distributions received) and five percent of its
unfunded commitment. Under the terms of a letter agreement between OEDC and the
ECT affiliate, the parties funded essential repairs on two wells in 25%/75%
proportions. Initial revenues from those wells will be shared 25%/75% until the
repair costs are recovered with a 10% rate of return. Thereafter, sharing ratios
will revert to the arrangement described above.

SDP II has interests in four VK leases, on which four wells were
drilled during 1996. Weather problems and regulatory delays postponed first
production on these wells, but OEDC commenced production through a central
production facility on these VK leases during the third quarter of 1997. The
wells are currently producing 2-3 MMcf/d per well at pressure drawdowns of 10-
15%. In the normal course of

39
<PAGE>

operations, over the next two to three months OEDC would expect to increase
production rates until drawdowns of approximately 30% are achieved.

OEDC has interests in seven additional lease blocks in the VK area.
During 1996, OEDC drilled and abandoned a well located at VK 80 which OEDC
deemed uneconomic. OEDC owns one well at VK 117, which was drilled by a prior
operator. OEDC commenced production on the well during the second quarter of
1997. Well flow is currently severely curtailed to less than .1 MMcf/d by
mechanical problems, which OEDC expects to address contemporaneously with its
Destin area activities described below. OEDC also drilled a successful well on
VK 35 in early 1997. Production commenced from that well during the second
quarter of 1997 and is currently in excess of 5 MMcf/d . It is being processed
and compressed through OEDC's existing facilities at Enron Oil and Gas Company's
VK 124 platform.

Once the wells described above have established a stabilized
production history, OEDC will be better able to assess the shallow potential of
OEDC's other VK lease blocks.

OEDC acquired VK 24 in 1993 as a producing property. By the summer of
1996, production on this development, located due south of Pascagoula,
Mississippi, had declined to less than one MMcf/d with produced water. However,
in 1996 OEDC evaluated a proprietary high resolution seismic grid over the
property and identified an updip proved undeveloped drilling location. During
the fourth quarter of 1996, OEDC drilled this well from an existing braced
caisson, and the well is currently producing at a rate of over 2 MMcf/d. In
addition, OEDC recently signed a farm out agreement granting Chevron exploration
rights on a deep objective in this block. OEDC retained up to a 36% interest in
the project. Drilling on the first farm out well commenced in September 1997.

In April 1997, OEDC entered into an agreement with Zilkha Energy
Corporation ("Zilkha") wherein Zilkha agreed to purchase and evaluate, at its
sole expense, a newly proposed 3-D seismic survey over six of OEDC's VK blocks.
Zilkha would share the results of its interpretation of the survey with OEDC. In
exchange for procuring and interpreting this data, Zilkha would earn the right
to an unpromoted 50% participation in any drilling prospects identified by the
survey on OEDC acreage. In the event OEDC chooses not to participate in a Zilkha
well on this farm out acreage, OEDC would receive an overriding royalty interest
in that well sufficient to reduce the net revenue interest in the well to 75%.
The survey will be shot and processed during 1998. It is presently impossible to
evaluate the potential impact of that data on OEDC. Discussions are under way
that may eventually expand this seismic option to include the four VK blocks
owned by SDP II and described above.

Destin. OEDC recently increased its working interest to over 56% in
two blocks (Destin Dome 1 and Destin Dome 2) due east of OEDC's VK 35 block.
These blocks have proved undeveloped reserves attributable to two wellbores
drilled by a former operator of these leases. OEDC has recently received
regulatory approval to develop these properties. Depending on equipment
availability, OEDC intends to begin production from these blocks by the first
quarter of 1998. Production would be flowed through OEDC's existing facilities
at Enron Oil and Gas Company's Viosca Knoll 124 platform.

South Timbalier, Offshore Louisiana

In 1988, OEDC led several partners in an acquisition from a subsidiary
of Shell Oil Company of a producing property, South Timbalier 162 ("STIM 162").
The property is located about 45 miles offshore due south of New Orleans in
approximately 125 feet of water. OEDC sold its interest in the platform and the
then producing portion of the property in 1990 but retained the right to explore
and develop the approximately 4,000 undeveloped acres in the block.

In 1990, OEDC identified and drilled a bright spot on the retained
acreage to a total depth of approximately 7,000 feet, encountering two
potentially productive horizons. The well, known as the B-6 well, was dually
completed as a gas well. OEDC constructed and installed an unmanned platform
and production facility known as the B Platform and laid a two mile flowline to
the nearby interstate pipeline. The original B-6 well ceased production in 1993
due to mechanical problems. In 1996, OEDC attempted to repair problems in the
lower completion of this well to restore production. These efforts proved
unsuccessful, however, and a sidetrack drilled from this wellbore during the
first quarter of 1997 was not productive.

40
<PAGE>

has identified drilling prospects and drilled and completed two wells on STIM
162 in 1995 and 1996. The first well, known as the B-7 well, was a directional
well drilled from the B Platform to a bottom-hole location west of the B-6 well
having a total vertical depth of 7,500 feet. The B-7 well is currently producing
at a rate in excess of 8 MMcf/d. The second well, known as the B-8 well, which
was contributed by OEDC to SDP II, was a directional well drilled from the B
Platform to a bottom-hole location east of the B-6 well having a total vertical
depth of 7,000 feet. Production from the B-8 well commenced in September 1996
but ceased in February 1997 as a result of excessive water production.

In early 1997, OEDC farmed in development rights from Amoco to a
specific reservoir on South Timbalier Block 161. OEDC drilled a successful well
from the Amoco "D" platform, earning a 100% working interest in that reservoir.
It commenced production from that well in the first quarter of 1997.

Vermilion

In the March 1997 federal offshore lease sale, OEDC acquired three
tracts in the Vermilion area of the Gulf of Mexico. OEDC's winning bids were
$224,000 for a 50% working interest in Vermilion 236, $2,753,000 for a 100%
working interest in Vermilion 253 and $822,000 for a 100% working interest in
Vermilion 356. OEDC, which operates all of these tracts, is evaluating
prospects and expects to drill on these tracts during the next six to twelve
months.

North Padre Island, Offshore Texas

In October 1996, OEDC acquired a 60.6% working interest in North Padre
Island Block A-59, offshore Texas in federal waters for $414,000 plus the
assumption of abandonment liability. The block is approximately 50 miles
southeast of Corpus Christi, 35 miles offshore. The water depth on the block is
approximately 222 feet. Taylor Energy, Inc., the prior operator, and its co-
interest owner drilled three wells on the block and constructed a four-pile six
slot manned platform and a flowline from the platform to an interstate pipeline
at North Padre Island Block A-44 offshore Texas. The wells were drilled through
eight potentially productive Miocene sands between 3,500 and 4,500 feet and
three deeper Miocene sands at approximately 8,000 feet. The wells produced from
the deeper sands, but two of the wells have been shut in because of water
encroachment and one produces only negligible volumes. During the second
quarter of 1997, OEDC drilled two new wells in the shallow Miocene sands. These
wells were dually completed and are currently producing a total of almost 10
MMcf/d. OEDC is evaluating the feasibility of reentering one of the original
Taylor wells in order to take completions in one or two additional shallow
Miocene sands.

South Padre Island, Offshore Texas

In August, 1997, OEDC was the apparent high bidder on five tracts
totaling approximately 24,000 gross acres in the South Padre Island area of the
Gulf of Mexico in a federal offshore lease sale. Bids totaled approximately
$800,000. OEDC would be the 100% owner of all five blocks and would operate
them. In October 1997, OEDC was awarded leases on two of these blocks totaling
9,248 acres at a cost of approximately $325,000. In recent years, wells have
been drilled on two of the blocks that have not yet been awarded, identifying
significant shallow pay sands. The extent of these sands is clearly delineated
by seismic anomalies on regional two-dimensional seismic surveys. The drillers
of these wells concluded that the reservoirs were not commercially attractive as
stand alone projects due to a lack of pipeline infrastructure in the immediate
area. OEDC is evaluating the commercial viability of developing these two
reservoirs together, achieving critical mass by aggregating their reserves.

Other Drilling Prospects

Other potential drilling prospects have been identified on OEDC's
acreage, including prospects at deeper depths than those at which OEDC has
historically operated. A detailed analysis of these prospects has not been
undertaken, and evaluation of these prospects is in the preliminary stage. OEDC
will use the results of its planned drilling and development program to assist
in the evaluation of these additional prospects. No assurance may be given that
OEDC ultimately will attempt to drill any of these prospects or, if it does so,
that such drilling would be successful.

41
<PAGE>

Amoco Joint Venture

OEDC and Amoco have had a joint development arrangement in the Gulf of
Mexico since late 1995. In October 1996, OEDC and a subsidiary of Amoco expanded
the relationship by entering into an agreement for the purpose of generating
drilling prospects in South Timbalier. Pursuant to the agreement, OEDC was
given exclusive access for the year ending October 1, 1997, to a proprietary 3-D
seismic data base covering approximately 59,000 acres for the purpose of
identifying and prioritizing exploitation potential in the area. OEDC has, in
turn, provided Amoco access to 5,000 acres of 3-D seismic data, subject to
restrictions in OEDC's license. Costs of drilling and development on existing
leases will be shared 75% by the owner of the lease being drilled and 25% by the
other party; such costs will be shared equally on newly acquired leases. OEDC
has generated prospects from the seismic data base and Amoco must either elect
or decline to participate in each prospect. If Amoco elects not to participate
on acreage that Amoco currently owns, it retains a one-twelfth overriding
royalty interest with an option after payout to either increase the overriding
royalty interest to one-tenth or convert such interest to a 25% working
interest. On all other acreage, an election by Amoco not to participate will
result in Amoco having no interest in the prospect. OEDC will be the operator
of any prospects drilled under this agreement. The agreement would provide OEDC
with the opportunity to participate in the development of properties that would
otherwise be unavailable to it on a cost effective basis. OEDC currently has two
proposals for drilling locations in front of Amoco for consideration. Amoco's
decision is expected in the fourth quarter 1997 with any potential drilling as a
result of these proposals to occur in 1998. Although the period during which
access to data was to be provided has expired, the parties have continued to
allow access to data pending consideration of the current proposals.

Natural Gas Reserves

The following table sets forth estimates of OEDC's (i) proved natural
gas reserves at December 31, 1996, which were prepared by Ryder Scott Company
("Ryder Scott"), independent petroleum engineers, in accordance with regulations
promulgated by the Commission and (ii) present value of proved reserves of
natural gas at December 31, 1996. The price used in the table below was based
on the price of natural gas at December 31, 1996, with consideration of price
changes only to the extent provided by contractual arrangements in effect as of
such date. As of December 31, 1996, the average price of natural gas was $3.55
per Mcfe. Additional information concerning OEDC's natural gas reserves is
included in the Supplemental Financial Information accompanying the Notes to
Consolidated Financial Statements included elsewhere in this report.

AS OF
DECEMBER 31, 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Estimated Proved Reserves :
Oil (MBbls)..................................... 6
Gas (MMcf)...................................... 33,162
MBOE (6 Mcf per Bbl)............................ 5,533
Proved developed reserves as a percentage of proved
reserves........................................ 65%
PV-10 (1).......................................... $66,891
Standardized Measure of Discounted Future Net Cash
Flows........................................... $51,166
</TABLE>
_______________

(1) The present value of future net revenue attributable to OEDC's reserves was
prepared using prices in effect as of December 31, 1996, discounted at 10%
per annum on a pre-tax basis. Such amounts do not reflect the effects of
OEDC's hedging activities.
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by
OEDC represents the present value of future net revenues after income taxes
discounted at 10%. Such amounts do not reflect the effects of OEDC's hedging
activities.

42
<PAGE>

Productive Wells and Acreage

PRODUCTIVE WELLS

As of September 30, 1997, OEDC had 15 gross (10.6 net) productive gas
wells. Three gross (1.8 net) wells had multiple completions. Productive wells
consist of producing wells and wells capable of production, including gas wells
awaiting pipeline connections. Wells that are completed in more than one
producing horizon are counted as one well.

ACREAGE DATA

Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
following table sets forth OEDC's ownership interest in leaseholds as of
September 30, 1997. The leases in which OEDC has an interest are for varying
primary terms and many require the payment of delay rentals to continue the
primary terms. The leases may be surrendered by OEDC at any time by notice to
the lessors, by the cessation of production or by failure to make timely payment
of delay rentals.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
---------------------- ----------------------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total................................ 61,702 39,381 63,661 56,194
</TABLE>

Drilling Activities

The following table sets forth the drilling activity of OEDC on its
properties during each of the years in the three year period ended December 31,
1996:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Exploratory Wells
Productive....................................... 4.46 3.59 1.72
Nonproductive.................................... 0.80 0.00 1.00
---- ---- ----
Total....................................... 5.26 3.59 2.72
==== ==== ====
Development Wells
Productive....................................... 0.00 0.00 0.00
Nonproductive.................................... 0.00 0.00 0.00
---- ---- ----
Total....................................... 0.00 0.00 0.00
==== ==== ====
</TABLE>

43
<PAGE>

Net Production, Unit Prices and Costs

The following table presents certain information with respect to OEDC's
natural gas production, the average sales price, the production (lifting) costs
and depletion attributable to OEDC's properties during each of the three years
ended December 31, 1996.

NATURAL GAS PRICES,
AVERAGE SALES PRICE AND PRODUCTION COSTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net natural gas production (MMcfe)(1)........................ 3,686 3,668 4,756
Net production (MBOE)........................................ 614 611 793
Average sales price (per Mcfe)(2)............................ $ 1.50 $ 1.68 $ 2.07
Average sales price (per BOE)(2)............................. $ 9.00 $10.08 $12.42
Production costs (per BOE)................................... $ 2.28 $ 3.06 $ 2.49
General and administrative costs (per BOE)................... $ 2.94 $ 2.70 $ 2.25
Depletion, depreciation and amortization expenses(per BOE).. $ 3.42 $ 9.00 $ 6.18
</TABLE>

__________________
(1) OEDC had immaterial amounts of condensate (oil) production during such
years.
(2) Prices include the effects of hedging transactions. See "Management's
Discussion and Analysis of OEDC's Financial Condition and Results of
Operations--Hedging Activities."

OPERATING PROCEDURES AND RISKS

OEDC generally seeks to be named as operator for wells in which it has
acquired a significant interest and currently operates 100% of its material
holdings. As operator, OEDC is able to exercise substantial influence over
development and enhancement of a well, and supervises operation and maintenance
activities on a day-to-day basis. OEDC does not conduct the actual drilling of
wells on properties for which it acts as operator. Drilling operations are
conducted by independent contractors engaged and supervised by OEDC. OEDC
employs supervisory personnel, but contracts with appropriate outside
specialists (such as petroleum geologists, geophysicists, engineers and
petrophysicists) who attempt to improve production rates, increase reserves,
and/or lower the cost of operating its oil and gas properties. OEDC thus hopes
to have specialized resources applied to the solution of each nonroutine
operation it faces without incurring overhead charges for such services when
they are not needed.

OEDC's reliance upon others for drilling, exploration and other services
requires that it schedule such activities when these services are available.
When drilling activity in the Gulf of Mexico is high, competition for available
equipment and personnel increases and may make it more difficult to complete
projects in a timely manner. Recently, exploration and development activity has
increased in the Gulf of Mexico and has increased the demand for drilling
vessels, supply boats and personnel experienced in offshore operations. As a
result, OEDC has experienced difficulty in obtaining certain services from
vendors that are necessary to implement its growth strategy. The inability to
obtain required services could adversely affect OEDC's ability to complete its
scheduled projects in a timely manner.

44
<PAGE>

insurance. OEDC believes that its insurance is adequate and customary for
companies of a similar size engaged in comparable operations, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. Moreover, no assurance can be given that OEDC will be able
to maintain adequate insurance in the future at rates considered reasonable.
Additionally, as general partner of limited partnerships, and as managing
general partner of its general partnerships, OEDC is solely responsible for the
day-to-day conduct of the partnerships' affairs and accordingly has liability
for expenses and liabilities of such partnerships.

ABANDONMENT COSTS

OEDC carries a $3 million area-wide abandonment bond with the Minerals
Management Service (the "MMS"), which is secured by restricted cash balances on
deposit at a commercial bank. The sum on deposit was $1.4 million at December
31, 1996 and will increase over time to $3 million. Bond premiums decline as
the amount of the security deposit increases, and OEDC receives all interest
earned on the security deposit. The MMS is empowered to require supplemental
abandonment bonds under appropriate circumstances. Although the cost to OEDC of
these supplemental bonds to date has not been material, no assurance may be
given that the amounts thereof will not increase, or that the availability
thereof will not be restricted.

MARKETING

OEDC's natural gas is transported through gas pipelines that are not owned
by OEDC. Capacity on such pipelines is occasionally limited and at times
unavailable due to repairs or improvements being made to such facilities or due
to such capacity being utilized by other gas shippers with priority agreements.
Although OEDC has not experienced any inability to market its natural gas, if
pipeline capacity is restricted or is unavailable, OEDC's cash flow from the
affected properties could be adversely affected.

Substantially all of OEDC's natural gas is sold at current market prices,
under short term contracts (one year or less) providing for variable or market
sensitive prices. Sales to Enron Capital & Trade Resources Corp. ("ECT")
accounted for approximately 54% of revenue in 1996. However, due to the
availability of other markets, OEDC does not believe that the loss of ECT or any
other single customer would adversely affect OEDC's results of operations. OEDC
utilizes forward sales contracts and commodity swaps to achieve more predictable
cash flow and to reduce its exposure to fluctuations in gas prices. See
"Management's Discussion of OEDC's Financial Condition and Results of
Operations--Hedging Activities." OEDC accounts for its commodity swaps as
hedging activities and, accordingly, the effects thereof are included in oil and
gas revenue for the period production was hedged.

OEDC sells its gas from the Mobile and Viosca Knoll areas pursuant to a
long term sales contract with ECT coterminous with the life of the reserves,
subject to earlier termination by OEDC in certain events. The price of gas sold
pursuant to this contract is market sensitive and is considered favorable by
OEDC. The Mobile outlet for OEDC's gas is downstream of the Louisiana pipeline
bottlenecks and is close to locations where gas is sold for delivery to major
East Coast gas consumers. Although the net-back price historically received by
OEDC for its gas production has been less than the Henry Hub price due to
gathering and transportation charges, such price historically has been higher
than prices received by other Gulf Coast and Mid-Continent producers. As the
market for natural gas changes, no assurance may be given that this premium will
continue to be available.

COMPETITION

The oil and gas industry is highly competitive in all its phases. OEDC
encounters strong competition from many other oil and gas producers in the
acquisition of economically desirable producing

45
<PAGE>

properties and exploratory drilling prospects, and in obtaining equipment and
labor to operate and maintain its properties. Many of OEDC's competitors are
large well-established companies with substantially larger operating staffs and
greater capital resources than OEDC. Such competitors may be able to pay more
for productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than OEDC's financial or human resources permit. OEDC's ability to
acquire additional properties and to discover reserves in the future will depend
upon its ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment.

TITLE TO PROPERTIES

OEDC has obtained title opinions on substantially all of its producing
properties and believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. OEDC's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens
which OEDC believes do not materially interfere with the use of or affect the
value of such properties. Substantially all of OEDC's producing properties are
subject to a lien in favor of Union Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The title investigation performed by OEDC prior to acquiring
undeveloped properties is thorough but less rigorous than that conducted prior
to drilling, consistent with industry standards. The MMS must approve all
transfers of record title or operating rights on its respective leases. The MMS
approval process can in some cases delay the requested transfer for a
significant period of time.

Natural Gas Gathering

OVERVIEW

In 1990, OEDC recognized the potential for development of an independent
gas gathering system to serve the rapidly developing offshore Alabama area in
which significant reserves of natural gas had been discovered in the shallow
Miocene and deep Norphlet formations. OEDC believed that these reserves would
become available for commitment to a gathering system, but FERC regulatory
issues, perceived environmental problems and high capital costs had discouraged
others from the development of a system through Mobile Bay. Obtaining the
commitment of a volume of reserves sufficient to support the cost of
constructing and operating the gathering system was key to its development, and
OEDC believed that the commitment could be obtained sequentially to support the
incremental construction of the gathering system. OEDC identified gas reserves
located near the central and western end of Dauphin Island, the barrier island
south of Mobile, Alabama, which would support this incremental development.
Because these reserves were located both north and south of the island,
gathering the gas south of the island required a horizontal boring under the
island 4,000 feet long. In 1991, OEDC executed a construction agreement with a
subsidiary of British Petroleum to connect its field south of OEDC's Mobile 90
field with a gathering line owned by ARCO north of Dauphin Island. To
accommodate future development, OEDC installed three 12" lines under the island
(one to service initial needs and two for system expansion). Despite the
perceived engineering uncertainty associated with a water-to-water boring of the
required length, the first stage of the DIGS was completed before the end of
1991.

In 1993, OEDC and a non-regulated Enron subsidiary formed DIGP to construct
and operate a 20" pipeline to directly connect the DIGS to the interstate
pipeline transportation network and enable the full utilization of the three 12"
pipes under the island. This segment was completed in May 1993, creating direct
outlets to the Transcontinental Gas Pipe Line Corporation ("Transco") and Koch
Gateway Pipeline Company interstate pipeline systems. In 1994, Florida Gas
Transmission Company sponsored an expansion of the Mobile segment of the Transco
pipeline in exchange for capacity ownership therein, establishing a direct
interconnect with the Florida Gas system. DIGP added Tenneco Gas Inc. as a
partner in 1994 and expanded the system to connect numerous newly developing
supply sources in the Mobile and Viosca Knoll offshore areas. This construction
activity brought the DIGS to its current 95 mile, "inverted Y" configuration,
consisting of 20", 12" and 8" pipe. In early 1996, a nonregulated subsidiary of
MCN purchased a 99% interest in DIGP, buying out the interests of Tenneco and
Enron and all but a one percent general partnership interest held by OEDC. In
mid-1996, MCN sold a 40% interest in the partnership to a nonregulated
subsidiary of PanEnergy.

46
<PAGE>

as partners in DIGP. The MPGGS is located in the Main Pass Area East, offshore
Louisiana, and the southern Viosca Knoll Area, offshore Alabama, and consists of
approximately 57 miles of pipeline designed to gather approximately 300 MMcf/d.

CURRENT OPERATIONS

The partners in DIGP have retained OEDC to manage and operate the DIGS and
the MPGGS. OEDC is currently responsible for all commercial activities, as well
as all supervisory, administrative, technical, maintenance, and gas control
services necessary to the operation of the DIGS and the MPGGS with the exception
of certain financial functions, which are performed by MCN. On September 23,
1997, OEDC agreed to relinquish those responsibilities to Duke Energy effective
December 1, 1997. Duke Energy, in turn, for a two year period, will delegate to
OEDC responsibility to lead manage commercial development and construction on
Duke Energy's behalf as operator. For assuming these duties, OEDC will be paid
$22,910 per month plus 0.5% of all construction costs during the two year
period.

OEDC's partnership interest will increase from 1% to 11.15% when OEDC's
DIGP partners receive the return of their investment plus a 10% rate of return
("DIGP Payout"), subject to reduction, however, if OEDC does not exercise the
option to increase its interest in MBPP. See "--Natural Gas Processing." The
increase in OEDC's interest in DIGP, which in the absence of a refinancing
transaction OEDC does not expect to occur prior to 2001, would result in a
commensurate increase in OEDC's share of the results of operations of DIGP. No
assurance may be given, however, that DIGP Payout will occur.

The DIGS and the MPGGS have a current estimated combined throughput
capacity of up to 650 MMcf/d, depending on where gas enters the systems, which
could be expanded with looping and onshore compression. At December 31, 1996,
the DIGS and the MPGGS were gathering between 300 and 350 MMcf/d. Although no
assurances may be given, OEDC believes that additional volumes expected to be
contributed to the system, when combined with new production from the proposed
southern extension of the DIGS, will have the system operating at a level
approaching its current capacity by early 1998.

Customers on the DIGS and MPGGS currently include Chevron U.S.A. Inc.,
Union Oil Company of California, Shell Offshore, Inc., Bechtel Energy Partners,
Ltd., SCANA Hydrocarbons, Inc., Chieftain International (U.S.) Inc., Santa Fe
Energy Resources, Inc., Legacy Resources Company, Excel Resources, Inc., EOG,
Coastal Oil & Gas Corporation, CNG Producing Company, Elf Acquitane Oil Program,
Inc., Oryx Gas Marketing Limited Partnership, Piquant, Inc. and OEDC. Most
commitments of gas are reserve life commitments with minimum monthly production
requirements. Several of the contracts are term contracts with guaranteed
payments on throughput volumes. Since the contracts permit producers to shut in
production due to market conditions in only very limited circumstances, OEDC
expects the cash flow of the system to be consistent and relatively predictable.

Field operations are handled from a DIGP field office in Coden, Alabama.
DIGP employees at that location monitor the system, calibrate offshore sales
meters monthly and perform light maintenance and repair tasks. The sales meters
are linked by satellite communications to DIGP's home office in The Woodlands,
Texas, where they are continuously monitored as part of the gas control
function.

EXTENSIONS AND EXPANSIONS

The partners in DIGP have approved expansion plans to construct
approximately 78 miles of 24-inch diameter gas gathering line, which will
provide an additional 500 MMcf/d of capacity for a total combined capacity of
the DIGS and the MPGGS of approximately 1,150 MMcf/d. The expansion also will
provide a separate system for delivering wet gas (i.e., including gas liquids)
onshore to the NGL processing plant initially planned to be constructed by MBPP.
The expansion will be installed in two phases. The initial phase of the
expansion is expected to enable the utilization of approximately 200 MMcf/d of
unused capacity by the end of 1997. The second phase, which will add
approximately 500 MMcf/d of capacity, is expected to be completed during the
spring of 1998.

On June 27, 1997, the FERC declared that certain portions of the DIGP
pipelines are subject to their jurisdictional authority. Specifically, these
sections are the 55-mile MPGGS, the new 24" line to be constructed from Main
Pass 225 to Mobile 73 in the summer and fall of 1997 and the 20" pipeline from
Mobile 73 to the Coden metering station. DIGP anticipates completing
construction of the extension in 1997. DIGP has received subscriptions for firm
capacity service in the expansion in excess of 200,000 MMbtu/d., as a result of
an Open-Season for excess capacity conducted in mid-1997 for prospective
shippers to obtain firm capacity on a first-come, first-served basis.

47
<PAGE>

DIGP has the right of first refusal to gather one company's gas production
from its discoveries in the offshore Destin area. These volumes are tentatively
scheduled to come to market in the year 2000. Public data would indicate that
there is the potential for substantial natural gas production from this area.
DIGP will be evaluating the feasibility of an eastward expansion to collect this
gas over the next two to three years. No assurance may be given that this
project will be undertaken or successfully completed.

COMPETITION

The gas gathering industry is highly competitive in all its phases. OEDC
encounters strong competition from many other gas pipelines, both regulated and
nonregulated, in acquiring gathering commitments. Many of these competitors
possess substantial financial resources and may be able to offer gathering
services for productive oil and natural gas properties at prices DIGP would
consider noncommercial. Because the volumes controlled by individual producers
may be substantial, they have the ability to stimulate the competitive process
by attempting to induce pipeline companies to build systems in direct
competition to the DIGS and the MPGGS. This is particularly true in the Main
Pass area, which has significant uncommitted reserves and is in reasonable reach
of expansion for several large pipeline companies.

OEDC believes, however, that the location of the DIGS outlet to the
interstate grid downstream of existing pipeline bottlenecks in Louisiana gives
OEDC a competitive advantage. The Mobile Bay delivery point is geographically
the closest of any major Gulf Coast gas producing area to locations where gas is
sold for delivery to major East Coast markets, resulting in higher net back
prices. During peak demand times in the past, Mobile prices have been at a
significant premium to those in other domestic producing regions. No assurance
may be given that such positive differentials will continue in the future. In
addition, Mobile area gas has not been curtailed during periods when the
upstream infrastructure in Texas and Louisiana experiences capacity constraints
due to excessive demand. Several of DIGP's competitors route their offshore gas
to the Mississippi River delta area of Louisiana, where market prices and
reliability are less favorable.

Natural Gas Processing

In November 1996, OEDC and subsidiaries of MCN and Duke Energy formed MBPP
for the purpose of constructing, owning and operating, or providing financing
for one or more natural gas processing facilities onshore in Mobile County,
Alabama. Such a facility will extract condensate and natural gas liquids from
natural gas prior to delivery of natural gas to the interstate pipeline system.
Much of the natural gas produced in the Mobile, Viosca Knoll and Main Pass areas
of the Gulf of Mexico has a high gas liquids content. Because no gas processing
facility is currently available in southern Alabama to process the Mobile,
Viosca Knoll and Main Pass gas, producers effectively lose the potential
additional value associated with the liquefiable hydrocarbons in their natural
gas production. Construction of a plant in this area will enable producers to
achieve a higher total price for the sale of their gas and will make attachment
to the DIGS more desirable because the DIGS will be the only gathering system
that delivers gas in proximity to a processing plant in this area. Duke Energy
is the managing partner of MBPP and will manage the construction and operation
of MBPP's projects.

Currently, MBPP is constructing a plant that will have an initial capacity
of 600 MMcf/d, with capacity being increased in increments of 300 MMcf/d as
warranted by demand. Construction bids make this a $65 million project. Long
lead items for the plant have been ordered, the site has been purchased and all
regulatory permitting is in the process of being procured. OEDC expects the
plant to be operational in the third quarter of 1998, and OEDC and its partners
continue to evaluate design, construction and market information for the plant.
No assurance may be given, however, that it will be completed within the
estimated cost or on the anticipated schedule.

MBPP has the firm contractual long-term commitment of 300 MMcf/d of
processable gas from a subsidiary of Mobil Oil Corporation. In addition, the 200
MMcf/d of new gas committed from the Main Pass area to the 1997 DIGP pipeline
extension is all processable and will flow into the MBPP plant.

MBPP is now owned 49.5% by each of MCN and Duke Energy and 1% by OEDC.
OEDC has acquired for $200,000 an option to buy an additional 32.3% (currently
subject to dilution to 24.3%) of the interest in MBPP, exercisable until the
third anniversary of the commencement of commercial operations at MBPP's initial
processing facility. The exercise price for OEDC's option is calculated by
multiplying (a) the product of (i) the "Processing Facilities Value" and (ii)
32.3% of the interests of MCN and Duke Energy (and in certain cases their
assignees) in MBPP by (b) the "Payment Factor," and then subtracting

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<PAGE>

$200,000 from such total amount. "Processing Facilities Value" means (1) with
respect to any processing facility completed as of the closing of the exercise
of the option, the depreciated book value as of such date, as determined in
accordance with generally accepted accounting principles and using 25-year
straight line depreciation, of such facility and (2) with respect to any
facility not completed as of such date, the allowance for funds used during
construction for such facility as of such date, as determined in accordance with
generally accepted accounting principles. The "Payment Factor" is initially 100%
and increases by 3% upon the commencement of commercial operations at MBPP's
initial processing facility and thereafter by 3% after each three-month period
during the term of the option. The interest in MBPP that OEDC's option entitles
it to buy would be diluted if MBPP admitted an additional partner that was
either an assignee of a proportionate interest from all of the partners or whose
admittance otherwise resulted in a proportionate decrease in each partner's
interest.

OEDC most likely will need to obtain financing in order to exercise the
option to increase its interest, and, although OEDC anticipates that such
financing will be available, no assurance may be given in this regard. If OEDC
does not exercise the option to acquire the additional partnership interest,
OEDC will be required to assign to each of MCN and Duke Energy a .726% interest
in DIGP out of the increased interest in DIGP that OEDC may earn pursuant to the
DIGP partnership agreement upon DIGP Payout.

The partnership agreement for MBPP provides that any partner who desires to
participate in the construction, ownership, operation or financing of a gas
processing plant or associated facility for the fractionation, storage,
transportation and marketing of liquids extracted by said gas processing plant
("Associated Facility") in Mobile County must offer the other partners a right
of first refusal to participate in the project. In addition, OEDC, MCN and Duke
Energy have entered into an Area of Mutual Interest Agreement pursuant to which
any party that desires to construct, own and operate or provide financing for
any gas processing plant or Associated Facility in Jackson or Harrison Counties,
Mississippi, Baldwin County, Alabama or Escambia County, Florida must offer the
other parties a right of first refusal to participate in the project. OEDC's
right to participate would be 33.3% (currently subject to dilution to 24.3%) in
any such processing plant, except that OEDC's right to participate in a
processing plant at any time after the exercise or termination of OEDC's option
described above will be equal to OEDC's interest in MBPP.

Other Facilities

OEDC currently leases approximately 8,433 square feet of office space in
The Woodlands, Texas, where its administrative offices are located. DIGP owns a
field office in Coden, Alabama.

Employees

Government Regulation

GENERAL

Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion, frequently
increasing the regulatory burden. Numerous departments and agencies, both
federal and state, have issued rules and regulations applicable to the oil and
gas industry and its individual members, compliance with which is often
difficult and costly and some of which carry substantial penalties for the
failure to comply. The regulatory burden on the natural gas and oil industry
increases OEDC's cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently expanded,
amended or reinterpreted, OEDC is unable to predict the future cost or impact of
complying with such regulations.

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<PAGE>

REGULATION OF NATURAL GAS AND OIL EXPLORATION AND PRODUCTION

Exploration and production operations of OEDC are subject to various types
of regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or operate wells, and regulating the location of wells, the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled and the plugging and abandonment of
wells. Exploration and development operations are also subject to various
conservation laws and regulations that regulate the size of drilling and spacing
units or proration units and the density of wells which may be drilled and
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely on voluntary pooling of lands and leases. In addition,
state conservation laws establish maximum rates of production from natural gas
and oil wells, generally prohibit the venting or flaring of natural gas and
impose certain requirements regarding the ratability of production. The effect
of these regulations is to limit the amounts of natural gas and oil that may be
produced and to limit the number of wells or the locations at which drilling
operations may be conducted.

NATURAL GAS MARKETING, GATHERING AND TRANSPORTATION

Federal legislation and regulatory controls in the United States have
historically affected the price of the natural gas produced by OEDC and the
manner in which such production is marketed. The transportation and sale for
resale of natural gas in interstate commerce are regulated by FERC pursuant to
the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978
(the "NGPA"). The maximum selling prices of natural gas were formerly
established pursuant to regulation. However, on July 26, 1989, the Natural Gas
Wellhead Decontrol Act of 1989 ("Decontrol Act") was enacted, which terminated
wellhead price controls on all domestic natural gas on January 1, 1993 and
amended the NGPA to remove completely by January 1, 1993 price and nonprice
controls for all "first sales" of natural gas, which will include all sales by
OEDC of its own production. Consequently, sales of OEDC's natural gas currently
may be made at market prices, subject to applicable contract provisions. FERC's
jurisdiction over natural gas transportation was unaffected by the Decontrol
Act.

FERC also regulates interstate natural gas transportation rates and service
conditions, which affect the marketing of natural gas produced by OEDC, as well
as the revenues received by OEDC for sales of such natural gas. Since the latter
part of 1985, FERC has endeavored to make interstate natural gas transportation
more accessible to gas buyers and sellers on an open and nondiscriminatory
basis. FERC's efforts have significantly altered the marketing and pricing of
natural gas. Commencing in April 1992, FERC issued Order 636, which, among
other things, requires interstate pipelines to "restructure" their services to
provide transportation separate or "unbundled" from the pipelines' sales of gas.
Also, Order 636 requires interstate pipelines to provide open-access
transportation on a basis that is equal for all gas supplies. Order 636 has been
implemented through decisions and negotiated settlements in individual pipeline
services restructuring proceedings. In many instances, the result of Order 636
and related initiatives have been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas in favor of
providing only storage and transportation services. FERC has issued final
orders in virtually all pipeline restructuring proceedings, and has now
commenced a series of one year reviews to determine whether refinements are
required regarding the implementation by individual pipelines of Order 636. In
July 1996, the United States Court of Appeals for the District of Columbia
Circuit largely upheld Order 636.

The DIGS and the MPGGS have been operated as gas gatherers exempt from
FERC's jurisdiction under the NGA, until September 1, 1997. All of the existing
DIGS with the exception of the 13-mile leg from Mobile 73 to the Coden metering
station remains nonjurisdictional gathering. The balance of the DIGP facilities
became jurisdictional transmission activity on September 1, 1997. In February
1996, FERC issued a Statement of Policy concerning gas gathering on the Outer
Continental Shelf (the "OCS"). FERC reaffirmed its so-called "modified primary
function" test as appropriate to determine whether a gas pipeline operating on
the OCS is subject to its jurisdiction as an interstate transporter or exempt
from its jurisdiction as a gatherer. The modified primary function test
examines several criteria, including (1) the length and diameter of the
pipeline; (2) the location of wells along all or part of the pipeline system;
(3) the location of compressors and processing plants on the system; (4) the
extension of the pipeline beyond the central point in the field, (5) the
pipeline's geographic configuration; and (6) the operating pressure of the line.
Other factors (e.g., the business of the pipeline's owners) may also be
examined. In its Statement of Policy, FERC stated for the first time it would
presume that pipeline operations in OCS water depths of 200 meters or greater
were exempt gathering facilities, up to the point of potential connection with
an interstate pipeline.

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<PAGE>

DIGP is subject to regulation of its gathering operations under the Outer
Continental Shelf Lands Act (the "OCSLA"). This statute requires DIGP, among
other things, to provide OCS gas producers with open and non-discriminatory
access to its gathering system and to charge non-discriminatory rates. OEDC does
not believe a determination that additional portions of DIGP are subject to FERC
jurisdiction would have a material adverse effect on OEDC's operations. See "--
Natural Gas Gathering--Extensions and Expansions."

Although Order 636 does not regulate natural gas production operations, and
OEDC believes Order 636 is not applicable to DIGP's gathering operations, FERC
has stated that Order 636 is intended to foster increased competition within all
phases of the natural gas industry. It is unclear what impact, if any,
increased competition within the natural gas industry under Order 636 will have
on OEDC and its natural gas marketing efforts. Although Order 636 could provide
OEDC with additional market access and more fairly applied transportation
services rates, terms and conditions, it could also subject OEDC to more
restrictive pipeline imbalance tolerances and greater penalties for violation of
those tolerances. OEDC does not believe, however, that it will be affected by
any action taken with respect to Order 636 materially differently than other
natural gas producers and marketers with which it competes.

FERC has recently announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner for setting
rates for new interstate pipeline construction, the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order 636 for
resale in the secondary market, and the use of negotiated and market-based rates
and terms and conditions for interstate gas transmission. While any resulting
FERC action would affect OEDC only indirectly, FERC's stated intention is to
further enhance competition in natural gas markets.

OFFSHORE LEASING

OEDC conducts certain operations on federal oil and gas leases, which the
MMS administers. The MMS issues such leases through competitive bidding. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the OCSLA, which are subject to
change by the MMS. For offshore operations, lessees must obtain MMS approval
for exploration, development and production plans prior to the commencement of
such operations. In addition to permits required from other agencies (such as
the Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and construction
specifications, and has recently proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms and
pipelines. The MMS also has issued regulations restricting the flaring or
venting of natural gas, and has recently proposed to amend such regulations to
prohibit the flaring of liquid hydrocarbons and oil without prior authorization.
Similarly, the MMS has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the removal of all production
facilities. To cover the various obligations of lessees on the OCS, the MMS
generally requires that lessees post substantial bonds or other acceptable
assurances that such obligations will be met. The cost of such bonds or other
surety can be substantial and there is no assurance that OEDC will be able to
obtain bonds or other surety in all cases. See "--Environmental Matters."

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<PAGE>

OIL SALES AND TRANSPORTATION RATES

Sales of crude oil, condensate and gas liquids by OEDC are not regulated
and are made at market prices. The price OEDC receives from the sale of these
products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, FERC implemented regulations establishing an
indexing system for transportation rates for oil pipelines, which would
generally index such rates to inflation, subject to certain conditions and
limitations. These regulations could increase the cost of transporting crude
oil, liquids and condensate by pipeline. These regulations are subject to
pending petitions for judicial review. OEDC is not able to predict with
certainty what effect, if any, these regulations will have on it, but other
factors being equal, the regulations may tend to increase transportation costs
or reduce wellhead prices for such commodities.

SAFETY REGULATION

OEDC's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement, and management of facilities. Pipeline safety issues
have recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. In addition, the
major federal pipeline safety law is subject to change this year as it is
considered for reauthorization by Congress. For example, federal legislation
addressing pipeline safety issues has been introduced, which, if enacted, would
establish a federal "one call" notification system. Additional pending
legislation would, among other things, increase the frequency with which certain
pipelines must be inspected, as well as increase potential civil and criminal
penalties for violations of pipeline safety requirements. OEDC believes its
operations, to the extent they may be subject to current gas pipeline safety
requirements, comply in all material respects with such requirements. OEDC
cannot predict what effect, if any, the adoption of this or other additional
pipeline safety legislation might have on its operations, but the industry could
be required to incur additional capital expenditures and increased costs
depending upon future legislative and regulatory changes.

ENVIRONMENTAL MATTERS

OEDC's oil and natural gas exploration, development, production and
pipeline gathering operations are subject to stringent federal, state and local
laws governing the discharge of materials into the environment or otherwise
relating to environmental protection. Numerous governmental departments, such as
the Environmental Protection Agency ("EPA"), issue regulations to implement and
enforce such laws, which are often difficult and costly to comply with and which
carry substantial civil and criminal penalties for failure to comply. These laws
and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentrations of various
substances that can be released into the environment in connection with
drilling, production and pipeline gathering activities, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands, frontier
and other protected areas, require some form of remedial action to prevent
pollution from former operations, such as plugging abandoned wells, and impose
substantial liabilities for pollution resulting from OEDC's operations. In
addition, these laws, rules and regulations may restrict the rate of oil and
natural gas production below the rate that would otherwise exist. The regulatory
burden on the oil and gas industry increases the cost of doing business and
consequently affects its profitability. Changes in environmental laws and
regulations occur frequently, and any changes that result in more stringent and
costly waste handling, disposal or clean-up requirements could adversely affect
OEDC's operations and financial position, as well as the oil and gas industry in
general. While management believes that OEDC is in substantial compliance with
current applicable environmental laws and regulations and OEDC has not
experienced any material adverse effect from compliance with these environmental
requirements, there is no assurance that this will continue in the future.

CERCLA, also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances at the site
where the release occurred. Under CERCLA, such persons may be subject to joint
and several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and
for the costs of certain health studies and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the release of hazardous substances or other
pollutants into the environment. Furthermore, although petroleum, including
crude oil and natural gas, is exempt from CERCLA, at least two courts have ruled
that certain wastes associated with the production of

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<PAGE>

crude oil may be classified as "hazardous substances" under CERCLA and thus such
wastes may become subject to liability and regulation under CERCLA. State
initiatives to further regulate the disposal of oil and natural gas wastes are
also pending in certain states, and these various initiatives could have a
similar impact on OEDC.

OPA currently requires persons responsible for "offshore facilities" to
establish $150 million in financial responsibility to cover environmental
cleanup and restoration costs likely to be incurred in connection with an oil
spill in the waters of the United States. On September 10, 1996 Congress passed
legislation that would lower the financial responsibility requirement under OPA
to $35 million, subject to increase to $150 million if a formal risk assessment
indicates the increase is warranted. The impact of any legislation is not
expected to be any more burdensome to OEDC than it will be to other similarly
situated companies involved in oil and gas exploration and production.

OPA imposes a variety of additional requirements on "responsible parties"
for vessels or oil and gas facilities related to the prevention of oil spills
and liability for damages resulting from such spills in waters of the United
States. The "responsible parties" include the owner or operator of an onshore
facility, pipeline, or vessel or the lessee or permittee of the area in which an
offshore facility is located. OPA assigns liability to each responsible party
for oil spill removal costs and a variety of public and private damages from oil
spills. While liability limits apply in some circumstances, a party cannot take
advantage of liability limits if the spill is caused by gross negligence or
willful misconduct or resulted from violation of a federal safety, construction
or operating regulation. If a party fails to report a spill or to cooperate
fully in the cleanup, liability limits likewise do not apply. OPA establishes a
liability limit for offshore facilities (including pipelines) of all removal
costs plus $75 million. Few defenses exist to the liability for oil spills
imposed by OPA. OPA also imposes other requirements on facility operators, such
as the preparation of an oil spill contingency plan. Failure to comply with
ongoing requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.

In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operational standards may apply to OCS vessels, rigs,
platforms, pipelines, vehicles and structures. Violations of lease conditions
or regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.

The Federal Water Pollution Control Act ("FWPCA") imposes restrictions and
strict controls regarding the discharge of produced waters and other oil and gas
wastes into navigable waters. Permits must be obtained to discharge pollutants
into state and federal waters. The FWPCA and analogous state laws provide for
civil, criminal and administrative penalties for any unauthorized discharges of
oil and other hazardous substances in reportable quantities and, along with the
OPA, may impose substantial potential liability for the costs of removal,
remediation and damages. State water discharge regulations and the federal
(NPDES) permits prohibit or are expected to prohibit within the next year the
discharge of produced water and sand, and some other substances related to the
oil and gas industry, into coastal waters. Although the costs to comply with
zero discharge mandates under federal or state law may be significant, the
entire industry will experience similar costs and OEDC believes that these costs
will not have a material adverse impact on OEDC's financial conditions and
operations. Some oil and gas exploration and production facilities are required
to obtain permits for their storm water discharges. Costs may be incurred in
connection with treatment of wastewater or developing storm water pollution
prevention plans.

RCRA, as amended, generally does not regulate most wastes generated by the
exploration and production of oil and gas. RCRA specifically excludes from the
definition of hazardous waste "drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy." However, these wastes may be regulated by
EPA or state agencies as solid waste. Moreover, ordinary industrial wastes,
such as paint wastes, waste solvents, laboratory wastes, and waste compressor
oils, may be regulated as hazardous waste. Pipelines used to transfer oil and
gas may also generate some hazardous wastes. Although the costs of managing
solid and hazardous waste may be significant, OEDC does not expect to experience
more burdensome costs than similarly situated companies involved in oil and gas
exploration and production.

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inspections, compliance requirements, and other provisions may also apply to OCS
facilities. Failure to comply with these regulations will subject a facility to
civil or criminal enforcement actions.

Legal Proceedings

OEDC, David B. Strassner (OEDC's President and a director), Douglas H.
Kiesewetter (OEDC's Executive Vice President and a director) and David R. Albin
(a director), as well as NGP (OEDC's largest stockholder), the managing
underwriters of OEDC's initial public offering and an analyst from each of the
managing underwriters, have been named as defendants in a suit styled Eric
Barron and Edward C. Allen, On Behalf of Themselves and all Others Similarly
Situated, v. David B. Strassner, Douglas H. Kiesewetter, David R. Albin, Natural
Gas Partners, L.P., David Garcia, John J. Myers, Offshore Energy Development
Corporation, Morgan Keegan & Company, Inc. and Principal Securities, Inc., which
was filed October 20, 1997, in the Texas State District Court of Harris County,
Texas, 270th Judicial District. The suit seeks class certification on behalf
of certain holders of OEDC Common Stock, excluding the defendants and holders
related to or affiliated with the defendants. The suit alleges generally that
the defendants wrongfully made false or misleading statements or omissions
relating to OEDC's business and prospects in the course of OEDC's initial public
offering and subsequent thereto. The suit seeks rescission of sales of OEDC
common stock and unspecified monetary damages, including punitive damages.

OEDC is a defendant in a suit styled H.E. (Gene) Holder, Jr. and Dan H.
Montgomery v. Offshore Energy Development Corporation, which was filed in 1995
alleging that the idea, design and location of the DIGS, which OEDC developed as
an intrastate gas gatherer regulated by FERC under Section 311 of the NGPA was a
confidential trade secret owned by the plaintiffs which had been revealed to
OEDC during confidential discussions in furtherance of a proposed joint venture.
The plaintiffs further alleged that OEDC made misrepresentations regarding its
intention to form a joint venture with the plaintiffs in order to obtain the
confidential information and to induce the plaintiffs into executing a
confidentiality agreement which thereafter prevented the plaintiffs from further
pursuing the project independently. The plaintiffs also alleged that OEDC
orally agreed to form a joint venture and that OEDC breached its fiduciary
duties to the plaintiffs. As a consequence, the plaintiffs alleged "millions of
dollars in profits" as actual damages and also sought the award of unspecified
punitive damages, attorneys' fees, pre- and post-judgment interest and costs of
suit.

On March 10, 1997, OEDC filed a motion for summary judgment as to all of
the plaintiffs' claims. Subsequently, the plaintiffs amended their petition,
dropping their claims of misrepresentation and conversion of trade secrets and
adding a claim of alleged fraudulent inducement to execute a covenant not to
compete. Further, the plaintiffs specified that they seek $6.5 million in actual
damages and punitive damages of five times the amount of actual damages. OEDC
denies the plaintiffs' claims and expects to file another motion for summary
judgment based on the plaintiffs' amended petition. Although a decision adverse
to OEDC in this litigation could have a material adverse effect on OEDC's
financial condition and results of operation, OEDC does not believe that the
final resolution of this case will result in a material liability to OEDC.

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SELECTED FINANCIAL DATA OF OEDC

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- -------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Exploration and production......................... $ 2,116 $ 1,744 $ 5,513 $ 6,169 $ 9,835 $ 7,214 $ 7,033
Pipeline operating and marketing................... 886 358 358 166 1,014 718 823
Equity in earnings (loss) of equity
investments....................................... -- (255) (3) 497 53 43 83
Gain on sales of oil and gas properties or
partnership investments, net...................... -- -- 13,655 -- 10,661 10,661 61
------- -------- -------- -------- ------- -------- --------
Total revenues.................................. 3,002 1,847 19,523 6,832 21,563 18,636 8,000
------- -------- -------- -------- ------- -------- --------
Expenses:
Operations and maintenance......................... 745 570 1,410 2,210 1,972 1,521 1,650
Exploration charges................................ 36 32 2,231 405 2,297 919 5,157
Depreciation, depletion and amortization........... 1,941 355 2,112 5,501 4,898 3,876 4,042
Abandonment expense................................ -- 59 2,735 84 1,301 216 577
General and administrative......................... 785 1,725 2,359 2,192 2,325 1,623 2,483
------- -------- -------- -------- ------- -------- --------
Total expenses.................................. 3,507 2,741 10,847 10,392 12,793 8,155 13,909
------- -------- -------- -------- ------- -------- --------
Interest income (expense) and other:
Interest expense................................... (975) (228) (590) (1,651) (783) (709) (153)
Preferential payments by subsidiaries.............. -- -- (1,431) -- -- -- --
Interest income and other.......................... (63) (226) 317 123 (94) (41) 1,046
------- -------- -------- -------- ------- -------- --------
Total interest income (expense) and
other......................................... (1,038) (454) (1,704) (1,528) (877) (750) 893
------- -------- -------- -------- ------- -------- --------
Net income (loss) before income taxes................ (1,543) (1,348) 6,972 (5,088) 7,893 9,731 (5,016)
Net income (loss).................................... (1,543) (1,348) 6,945 (5,067) 6,450 9,726 (3,572)
------- -------- -------- -------- ------- -------- --------
Preference unit payments and accretion of
discount........................................... -- (731) (585) (1,142) (2,617) (1,333) --
------- -------- -------- -------- ------- -------- --------
Income (loss) available to common
unitholders and stockholders....................... $(1,543) $ (2,079) $ 6,360 $ (6,209) $ 3,833 $ 8,393 $ (3,572)
Net income (loss) per share.......................... $ (0.31) $ (0.41) $ 1.26 $ (1.23) $ 0.68 $ 1.66 $ (0.41)
Weighted average shares outstanding.................... 5,052 5,052 5,052 5,052 5,602 5,052 8,702
CONSOLIDATED STATEMENT OF CASH FLOWS
DATA:
Net cash provided by (used in):
Operating activities............................... 1,666 (1,546) 2,833 (383) 2,011 3,745 9,979
Investing activities............................... (3,425) (10,017) 21,133 (16,626) 1,334 7,066 (35,723)
Financing activities............................... 2,826 14,381 (19,550) 9,305 14,352 (10,639) 9,360
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures................................. 3,700 10,993 18,418 15,965 9,997 4,492 34,222
</TABLE>

55
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents........................... $ 1,080 $ 3,997 $ 8,414 $ 710 $18,408 $ 882 $ 2,024
Working capital (deficiency)........................ (6,875) 1,036 4,807 (12,834) 15,654 (635) (2,027)
Property, plant and equipment, net.................. 14,146 23,626 9,599 20,108 25,703 18,618 45,452
Total assets........................................ 16,828 30,952 20,035 25,170 50,941 24,518 57,288
Total long term debt (less current portion)......... -- 20,238 5,969 -- -- 2,500 8,800
Capital lease payable-noncurrent.................... -- 474 309 832 462 741 366
Redeemable preference units, net of
discount........................................... 6,500 6,500 6,500 10,294 -- 10,824 --
Stockholders' equity (deficit)...................... 971 (1,091) 2,192 (2,117) 41,571 6,277 37,999
</TABLE>

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

The following discussion should be read in conjunction with OEDC's
consolidated financial statements and the notes thereto included elsewhere
herein.

Overview

OEDC was formed for the purpose of becoming the holding company for OEDC,
Inc. and OEDC Partners, L.P. pursuant to the terms of an Agreement and Plan of
Reorganization dated August 30, 1996 (the "Combination"). Under the terms of the
Combination, which was consummated on November 6, 1996, OEDC (i) acquired all of
the outstanding capital stock of OEDC, Inc. previously owned by OEDC management
and by NGP, (ii) acquired by merger 50% of the common limited partnership units
of OEDC Partners, L.P. from the Texas corporation having the same name as OEDC,
and (iii) acquired 50% of the common units of OEDC Partners, L.P. held by NGP
and certain of its employees. OEDC completed an initial public offering (the
"Offering") of 3,650,000 shares of OEDC's Common Stock contemporaneously with
the consummation of the Combination.

Results of Operations

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997.

Exploration and production revenue decreased $181,000 (3%) from $7,214,000
in the nine months ended September 30, 1996 compared to $7,033,000 in the nine
months ended September 30, 1997. Production volumes decreased from 3.63 Bcf to
3.43 Bcf (a 6% decrease) in the nine months ended September 30, 1996 and 1997,
respectively. The slight production decrease was attributable to expected
production declines at OEDC's Mobile area 959 cluster and South Timbalier 162 B7
well, which were partially offset by increased production volumes from OEDC's
successful drilling efforts at North Padre Island A59 and Viosca Knoll 35. The
Viosca Knoll 35 well (100% working interest) commenced production in August 1997
and the North Padre Island A59 A5 well (60.6% working interest) commenced
production in August 1997. The decrease in production volume was positively
impacted by slightly higher average natural gas prices. Average natural gas
prices received (inclusive of hedging) were $1.99 per Mcf in the nine months
ended September 30, 1996 compared to $2.05 per Mcf in the nine months ended
September 30, 1997 (a 3% increase).

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<PAGE>

it appropriate to resign as operator to pursue other opportunities. However,
OEDC will remain as the manager of commercial development and construction and
will receive $275,000 per year for these duties compared to the $750,000 per
year OEDC has received as operator of the system. OEDC will perform these duties
for a minimum of two years. OEDC receives a management fee of $188,000 per
quarter for operating the DIGS. OEDC also markets third-party gas on a limited
basis. Marketing revenue received in the first three quarters of 1997 was
$260,000.

Expenses. Total expenses increased by $5,754,000 (71%) from $8,155,000 for
the first three quarters of 1996 to $13,909,000 for the first three quarters of
1997.

Operations and maintenance expense increased moderately for the first three
quarters of 1997 at $1,650,000 compared to $1,521,000 for the first three
quarters of 1996 (an 8% increase). In general, a significant portion of
operations expense is fixed and, therefore, does not fluctuate from period to
period as changes occur in production volume and prices received for those
volumes. However, operation expenses increased, as expected, as a result of the
second well at North Padre A59 and Viosca Knoll 35 coming online in the third
quarter of 1997. Average operations and maintenance expense per Mcf were $.42
per Mcf in the nine months ended September 30, 1996 compared to $.48 per Mcf in
the nine months ended September 30, 1997 (a 14% increase).

Exploration charges increased $4,238,000 from $919,000 in the first three
quarters of 1996 to $5,157,000 in the first three quarters of 1997. The major
component of the 1997 increase was attributable to first quarter 1997 charges
relating to dry hole expenses of $3,675,000, of which $3,473,000 relates to
OEDC's unsuccessful attempts to repair and sidetrack out of the existing South
Timbalier 162 B6 non-producing wellbore. An additional $220,000 in dry hole
expense relates to the Viosca Knoll block 80 dry hole that was drilled in fourth
quarter of 1996, as OEDC received additional invoices in the first quarter of
1997 relating to the drilling of that well. Also contributing to the increase
were additional seismic related charges of $1,103,000 in the first nine months
of 1997 compared to seismic charges of $371,000 in the comparable period in
1996. The 1997 expenditures consisted of geological consulting, seismic data and
processing for areas offshore Louisiana and Texas covering blocks acquired by
OEDC in a Federal lease sale. As a result of OEDC's use of the successful
efforts method of accounting, OEDC expenses rather than capitalizes geological
and seismic costs.

Although natural gas production volumes decreased by 6% for the nine months
ended September 30, 1997 compared to the same period in 1996, OEDC's DD&A
decreased by $166,000 (4%). OEDC's average DD&A rates per Mcf of production were
$1.07 per Mcf and $1.18 per Mcf for the first three quarters of 1996 and 1997,
respectively (a 10% increase). The increase in average DD&A rate per Mcf was a
function of new production coming on line that had a high finding cost per Mcf
compared to previously existing production. The higher finding cost is partially
the result of increased day rates for drilling rigs, boats and equipment used by
OEDC to drill and develop wells.

Abandonment expense increased 167% from $216,000 in the first nine months
of 1996 to $577,000 in the first nine months of 1997. OEDC incurred cash
abandonment expense of $104,000 relating to the previous abandonment of OEDC's
Eugene Island 163 block platform, $277,000 of abandonment expense associated
with the previously noted South Timbalier 162 B6 well and abandonment accruals
of $196,000 in the first three quarters of 1997. This compares to actual cash
abandonment expense of $147,000 relating to the above noted Eugene Island 163
platform and abandonment accruals of $69,000 in the first three quarters of
1996.

General and administrative expenses increased $860,000 (53%) from
$1,623,000 for the nine months ended September 30, 1996 to $2,483,000 for the
nine months ended September 30, 1997. The increase was primarily the result of
additional staffing combined with annual compensation increases that occurred in
the fourth quarter of 1996. The additional staffing is representative of OEDC's
increase in scope of operations. Other factors leading to the 1997 increase were
various costs associated with OEDC's status as a public company and increased
insurance costs. Average general and administrative expenses per Mcf were $.45
per Mcf in the nine months ended September 30, 1996 compared to $.72 per Mcf in
the nine months ended September 30, 1997 (a 60% increase).

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<PAGE>

expense in the first three quarters of 1996 was the result of paying off all
outstanding debt after the Offering in November, 1996 coupled with increased
interest income from increased cash balances following the Offering. OEDC had
other income of $762,000 in the second quarter of 1997 resulting from a
settlement of disputed mineral rights.

Net Income (Loss). OEDC had net income before income taxes of $9,731,000 in
the first three quarters of 1996 compared to a net loss of $5,016,000 in the
first three quarters of 1997. The net loss in the 1997 period was primarily the
result of the above noted dry hole cost during early 1997. Net income (loss)
after giving effect to income taxes and tax benefits was net income of
$9,726,000 in the first three quarters of 1996 compared to a net loss of
$3,572,000 for the first three quarters of 1997.

Income (loss) available to common unit holders and stockholders, which
gives effect to preference unit payments and accretion of discount, was net
income of $8,393,000 in the nine month period ended September 30, 1996 compared
to a net loss of $3,572,000 in the nine month period ended September 30, 1997.
In the fourth quarter of 1996, OEDC redeemed all of the outstanding preference
units of OEDC Partners, L.P. with proceeds of the Offering. Therefore, in
periods after the fourth quarter of 1996 all net income will be available to
common stockholders.

During the first three quarters of 1996, OEDC made preference payments to
NGP totaling $803,000. OEDC began accreting the $2 million discount of
preference units following the purchase of additional preference units by NGP in
1995. The accretion of discount was $530,000 in the nine months ended September
30, 1996. As OEDC redeemed all preference units outstanding following the
Offering, OEDC will not incur accretion of discount charges nor will preference
payments have to be made.

1996 COMPARED TO 1995

Income. Total income increased $14,732,000 (216%) from $6,832,000 in 1995
to $21,564,000 in 1996. Exploration and production revenue increased $3,666,000
(59%) from $6,169,000 in 1995 to $9,835,000 in 1996, primarily as a result of
increased production and increases in the price received by OEDC on the sale of
its natural gas production. The production increase was primarily attributable
to full year production from OEDC's South Timbalier 162 B-7 well. The average
natural gas price received (inclusive of hedging) in 1995 was $1.68 per Mcf
compared to $2.07 per Mcf in 1996 (a 23% increase).

OEDC's pipeline operating and marketing income increased $848,000 (511%)
from $166,000 in 1995 to $1,014,000 in 1996. The increase was partially
attributable to increased monthly management fees received by OEDC for operating
the DIGS. Monthly management fees were increased from $5,800 to $44,700 per
month in January, 1996 and subsequently increased to $55,000 per month in July,
1996. Total DIGS operator fees received by OEDC increased $472,000 (338%) in
1996 compared to 1995. OEDC increased gas marketing revenue by $376,000 (1,393%)
from $27,000 in 1995 to $403,000 in 1996. The increase was primarily
attributable to full year production in 1996 from a well in the South Timbalier
area where OEDC markets third-party gas.

OEDC's sale of all but a 1% general partnership interest in DIGP resulted
in a gain of $10,827,000 in 1996. The gain on sale was offset by a $166,000 loss
on sale OEDC realized on the disposition of non-strategic and non-producing
acreage.

Expense. Total expenses increased $2,401,000 (23%) from $10,392,000 in 1995
to $12,793,000 in 1996. Operations and maintenance expense decreased by $238,000
(11%) from $2,210,000 in 1995 to $1,972,000 in 1996. The decrease was primarily
due to a $268,000 (80%) reduction in gas transportation charges from $334,000 in
1995 to $66,000 in 1996, as the result of a negotiated gas marketing agreement.
In general, a significant portion of operations expense does not fluctuate from
period to period as changes occur in production volume and prices received for
those volumes, provided that new production facilities are not brought on-line,
as was the case in 1996. Therefore, such expenses do not always change
proportionately with changes in exploration and production income.

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<PAGE>

was $1.50 per Mcf in 1995 compared to $1.03 per Mcf in 1996. The decline in DD&A
rate per Mcf was due to increased production in 1996 from OEDC's South Timbalier
162 B-7 well, which had a lower finding cost per Mcf as compared to OEDC's
Mobile 959 cluster.

Abandonment expenses increased $1,217,000 (1,449%) from $84,000 in 1995 to
$1,301,000 in 1996. OEDC had a Viosca Knoll lease that management deemed
uneconomic which expired in late 1996. This lease had a cost basis of $581,000,
which was expensed when the lease reached expiration. OEDC also incurred an
impairment charge of $422,000 in 1996 related to its interest in a South
Timbalier well. An impairment charge is an amount by which the actual
development cost of a well exceeds the expected future revenues from that well.
An abandonment charge of $148,000 was incurred in 1996 as a result of final
resolution of a vendor dispute relating to a 1995 platform abandonment.

Interest Expense. Interest expense decreased by $868,000 (53%) from
$1,651,000 in 1995 to $783,000 in 1996. During 1995 and 1996, OEDC paid interest
to an affiliate of Enron Corp. ("Enron") relating to a combination term and
revolving credit facility. The term portion of the credit facility bore interest
at 15% per annum and the revolving portion bore interest at a floating rate
equal to 2.5% above the applicable prime rate. During early 1996, OEDC repaid
all amounts outstanding under the term portion and one-half of the amount
outstanding under the revolving portion. OEDC also paid $116,000 of interest
charges to an Enron affiliate relating to a delayed swap settlement in early
1996. Total interest paid to Enron decreased by $987,000 (63%) from $1,576,000
in 1995 to $589,000 in 1996.

OEDC replaced the Enron revolving credit facility in August 1996 with a
revolving credit facility from Union Bank of California N.A. ("Union Bank") with
an interest rate of LIBOR plus 2.5%. During 1996, $61,000 in interest was paid
on the Union Bank credit facility. Following OEDC's initial public offering in
November 1996, OEDC repaid all amounts outstanding under the credit facility.
Other interest paid in 1996 of $133,000 primarily consisted of interest on
leased equipment and short-term vendor financings.

Net Income (Loss), Income (Loss) Available To Common Unit Holders And
Stockholders And Preference Unit Payments. OEDC incurred a net loss of
$5,067,000 in 1995 compared to net income of $6,450,000 in 1996. The net income
in 1996 was primarily attributable to the gain realized on the previously
discussed sale of OEDC's interest in DIGP.

Income (loss) available to common unit holders and stockholders, which
gives effect to preference unit payments and accretion of discount, was a loss
of $6,209,000 in 1995 and net income of $3,833,000 in 1996. In November 1996,
OEDC redeemed all of the outstanding preference units of OEDC Partners, L.P.
with proceeds of the Offering. Therefore, in future periods all income will be
available to common stockholders.

1995 COMPARED TO 1994

Income. Total income decreased $12,691,000 (65%) from $19,523,000 in 1994
to $6,832,000 in 1995. Exploration and production revenue increased $656,000
(12%), primarily as a result of increased natural gas prices, while production
volumes in 1995 decreased slightly from 3.69 Bcfe in 1994 to 3.67 Bcfe produced
in 1995. Production declines associated with the disposition of the Mobile 822
cluster during the second quarter of 1994 were largely offset by the addition of
Mobile 959/960 in the second quarter of 1995 and the addition of the South
Timbalier 162 B-7 well in October 1995. The average natural gas price received
(inclusive of hedging) in 1994 was $1.50 per Mcf compared to $1.68 per Mcf in
1995, representing a 12% increase.

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<PAGE>

OEDC's pipeline operating and marketing income decreased $192,000 from 1994
to 1995 as a result of decreased pipeline construction activity.

Equity earnings in DIGP increased from a loss of $3,000 in 1994 to positive
earnings of $497,000 in 1995 as a result of increased throughput in the DIGS.

OEDC sold its interest in the Mobile 822 cluster during second quarter 1994
at a gain of $13,655,000, which was the primary reason OEDC reported net income
in 1994 as compared to its net loss in 1995.

Expenses. Total expenses decreased $456,000 (4%) from $10,848,000 in 1994
to $10,392,000 in 1995. Operations and maintenance charges increased by $800,000
(57%) from $1,410,000 in 1994 to $2,210,000 in 1995. In 1995 two new properties,
the Mobile 959/960 cluster and the South Timbalier B-7, were brought on
production, while in 1994 no new properties were brought on production. The
start-up of these wells resulted in additional expense for personnel,
transportation and supplies. Also, OEDC incurred marketing charges in 1995 due
to unused firm transportation charges in the Mobile area.

Exploration charges decreased by $1,826,000 (82%) from $2,231,000 in 1994
to $405,000 in 1995, due principally to OEDC recording a dry hole charge of
$1,586,000 relating to the Viosca Knoll 79 well in 1994 and the absence of a
similar charge in 1995. Expense relating to seismic data acquisition and
processing declined by $559,000 from $645,000 in 1994 to $87,000 in 1995. In
1994, seismic work was being done on the Mobile 959/960 cluster, while in 1995
no new projects were being developed that involved new seismic expenditure.
During 1995, OEDC paid $318,000 in lease rentals on acreage acquired in 1994.

Abandonment expense declined $2,651,000 (97%) from $2,735,000 in 1994 to
$84,000 in 1995 as the result of a charge of $2,264,743 relating to the
abandonment of OEDC's Eugene Island 163 platform in 1994. This platform was not
able to resume production because of water encroachment in the wellbore during a
routine shut-in due to a hurricane. Other abandonment charges and accruals were
approximately $471,000 in 1994.

Interest Expense And Preferential Payments. In 1994, OEDC made preferential
payments of $1,431,000 to affiliates of Enron to meet non-recurring partnership
obligations. Of this amount, $1,300,000 was a non-cash capital account
adjustment compensating Enron for the cost of capital advanced to DIGP.

Interest expense increased $1,061,000 (180%) from $590,000 in 1994 to
$1,651,000 in 1995. In 1994, OEDC paid the ECT Affiliate $350,000 in interest
under a term and revolving credit facility, as compared to $744,000 and $802,000
under the term and revolver portions of the credit facility, respectively, in
1995. The term portion of the credit facility was used to partially fund OEDC's
development in the Mobile 959/960 cluster and bore interest at a rate of 15% per
annum. The revolver was used for general corporate purposes and bore interest at
a rate equal to the applicable prime rate plus 2.5%. In 1994, NGP provided OEDC
a short-term working capital bridge facility. Borrowings under the NGP facility
bore interest at 15% per annum and $175,000 was paid to NGP during 1994 under
this facility. This loan was repaid in 1994. In 1995, OEDC incurred $75,000 in
miscellaneous interest charges.

Net Income (Loss), Income (Loss) Available to Common Unit Holders And
Stockholders And Preference Unit Payments. OEDC recorded 1994 net income of
$6,945,000 compared to a net loss of $5,067,000 in 1995 as a result of the 1994
sale of its interest in the Mobile 822 cluster. Income (loss) available to
common unit holders and stockholders, which gives effect to preference unit
payments and accretion of discount, was income of $6,360,000 for 1994 compared
to a loss of $6,209,000 in 1995. In 1994, OEDC paid $585,000 in preference unit
payments to NGP, which represents a nine percent coupon on NGP's preference
units. This increased to $1,142,000 in 1995, due to NGP's purchase of additional
preference units in August 1995 and due to the five months of accretion of the
$2 million discount associated with the preference units purchased.

60
<PAGE>

Liquidity and Capital Resources

SUMMARY

Net cash provided by operating activities was $9,979,000 for the nine
months ended September 30, 1997, as compared to $3,745,000 for the same period
in 1996. The cash provided by operating activities was significantly greater in
the first three quarters of 1997 as compared to the first three quarters of 1996
as a result of ordinary changes in current assets and liabilities creating a
source of cash of $1,220,000, a change in oil and gas partnership interest in
the South Dauphin II Limited Partnership of $5,645,000 (which was offset by a
similar amount as investment in oil and gas properties) and $3,971,000 in dry
hole expense, primarily relating to OEDC's South Timbalier 162 B-6 well, which
is added back to net income for purposes of calculating cash provided by
operating activities, but is ultimately a use of cash as dry hole expense is
considered a capital expenditure.

Net cash utilized in investing activities was $35,723,000 in the nine
months ended September 30, 1997 compared to $7,066,000 of cash that was provided
from investing activities in the nine months ended September 30, 1996. The first
three quarters of 1997 use of cash represents OEDC's continued investment in
various oil and gas projects. The cash provided in the first three quarters of
1996 was the result of selling all but one percent of OEDC's general partnership
interest in DIGP and selling a non-strategic lease block, generating $11,340,000
from these transactions.

Financing activities provided $9,360,000 of cash in the first nine months
of 1997 as a result of borrowings under OEDC's line of credit. During the
comparable period in 1996, OEDC utilized $10,639,000 which primarily consisted
of principal repayment to Enron on outstanding loans.

In the event the cash flows from OEDC's operating activities and credit
available under its credit facility described below are not sufficient to fund
development costs, or results from drilling are not as successful as
anticipated, OEDC will either curtail its drilling or seek additional financing
to assist in its drilling activities. No assurance may be given that OEDC will
be able to obtain such additional financing. If OEDC is required to curtail its
drilling activities, its ability to develop and expand its prospect inventory,
as well as its earnings and cash flow from exploration and production
activities, will be adversely affected.

WORKING CAPITAL

OEDC had a working capital deficit of $2,027,000 as of September 30, 1997.
The September 30, 1997 working capital deficit is primarily the result of
continued investment in drilling projects and oil and gas properties. OEDC
periodically has experienced substantial working capital deficits. OEDC has
incurred substantial expenditures for the acquisition and development of capital
assets either on vendor open accounts payable or under short-term financings.
OEDC has been able to refinance the accounts payable balances by including them
in line of credit and longer-term project financings. Generally, capital
investments in properties have converted to cash or generated borrowing capacity
rapidly enough to finance OEDC's working capital deficits. At September 30,
1997, OEDC had $9,500,000 outstanding under its credit facility. On November 7,
1997, OEDC increased its lines of credit to $16,000,000.

FINANCING ACTIVITIES

OEDC budgeted a total of $38.6 million for capital expenditures in 1997.
During the first nine months of 1997, OEDC made capital expenditures of
approximately $34.2 million. Given the dynamic nature of OEDC's business,
management considers it possible that actual capital expenditures in 1997 could
exceed the previously budgeted amount. OEDC believes that borrowings under the
existing credit facility described below and cash flows generated from
operations will be sufficient to fund these expenditures. However, no assurance
may be given as to the adequacy of these sources.

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<PAGE>

Credit Facility. On November 7, 1997, OEDC increased its existing line of
credit. The revised credit facility is a 23 month line of credit with Union Bank
of California, N.A. Borrowing under the line of credit may not exceed at any
time the lesser of $30 million or the borrowing base (computed with reference to
OEDC's oil and gas reserves and other assets) as determined by the bank in its
sole discretion. The borrowing base may be redetermined quarterly. On November
7, 1997, the borrowing base was redetermined to be $16,000,000 and there was
$10,500,000 under this facility as of that date. The credit facility will be
interest only for the first three months, and then the borrowing base will be
reduced by $800,000 per month for the next twelve months, then by $640,000 per
month for the succeeding six months and by $450,000 per month for the final two
months of the agreement, unless changed by the bank at the time of a borrowing
base redetermination. All remaining principal and interest become due on
September 30, 1999. Borrowings under this facility bear interest at a rate equal
to, at OEDC's option, either the bank's reference rate plus .25% to 2.5%
(depending on amounts outstanding) or LIBOR plus 1.75% to 4.0% (depending on
amounts outstanding). There was $9,500,000 outstanding under the credit
agreement as of September 30, 1997.

The credit facility contains restrictive covenants imposing limitations of
the incurrence of indebtedness, the sale of properties, payment of dividends,
mergers or consolidations, capital expenditures, transactions with affiliates,
making loans, and investments outside the ordinary course of business. The
facility requires that OEDC maintain at the subsidiary level certain minimum
financial ratios, including a current ratio of at least 1:1 and interest
coverage ratio on 2.5:1. In addition, the weighted average maturity of
indebtedness incurred on ordinary terms to vendors, suppliers and others
supplying goods and services to OEDC in the ordinary course of business may not
exceed 60 days. The credit facility requires OEDC to maintain a certain volume
of hedging contracts in effect during the term of the credit facility.

Indebtedness under the credit facility is secured by a first lien upon
substantially all of the properties owned by OEDC Exploration and Production,
L.P. and by the pledge of OEDC's limited partnership interests in SDPII and its
general partnership interest in DIGP. All assets not subject to a lien in favor
of the lender are subject to a negative pledge, with certain exceptions.

South Dauphin II Limited Partnership OEDC and an affiliate of Enron ("ECT
Affiliate") formed SDPII to fund drilling and development, with OEDC generally
responsible for costs in excess of budgeted amounts. The financing of SDPII is
non-recourse to OEDC's other assets. Pursuant to the terms of the partnership
agreement, the ECT Affiliate receives 85% of the net cash flows from the subject
wells (provided a minimum payment schedule is met) until it has been repaid all
of its original investment plus a 15% pre-tax rate of return ("Payout"). Once
Payout has occurred, the ECT Affiliate's interest will decrease to 25% and
OEDC's interest will increase to 75%. SDPII has the option to prepay the ECT
Affiliate's investment and accelerate the ownership change. If such prepayment
is from financing activities instead of cash flow from operations, OEDC is
required to make an additional payment to the ECT Affiliate equal to 10% of the
ECT Affiliate's net investment (funds advanced less distributions received) and
five percent of the unfunded portion of the ECT Affiliate's commitment. Under
the terms of a letter agreement between OEDC and the ECT Affiliate, the parties
funded essential repairs on two wells in 25%/75% proportions. Initial revenues
from those wells will be shared 25%/75% until the repair costs are recovered
with a 10% rate of return. Thereafter, sharing ratios will revert to the
arrangement described above.

During July 1997 OEDC and its Board of Directors elected not to prepay the
ECT Affiliate's investment and accelerate the SDPII Payout as previously
planned. The Board of Directors concluded such an investment by OEDC would be
imprudent unless substantial production history indicates that the acceleration
of SDPII Payout is financially attractive.

Hedging Activities

OEDC continues to utilize financial futures to hedge its natural gas
production. In the first nine months of 1996, total natural gas income decreased
by $1,076,000 compared to a decrease of $823,000 for the first nine months of
1997 as a result of OEDC's hedging position. As of September 30, 1997, OEDC had
.65 Bcf hedged from September 1997 through December 1997 at an average price of
$2.14 per Mcf. In August 1997, OEDC entered into a participating price collar on
1.2 Bcf of natural gas for the period of December 1997 through March 1998. Under
the terms of the participating price collar, OEDC receives the actual price on
volumes hedged if the actual price is between $2.20 and $2.76 per Mcf; if the
actual price is less than $2.20 per Mcf, OEDC receives $2.20; and if actual
prices are above $2.76, then OEDC receives $2.76 plus 50% of the amount above
$2.76 per Mcf. OEDC estimates that as of September 30, 1997, the cost to unwind
its hedged position was approximately $805,000. Although hedging reduces OEDC's
susceptibility to declines in the sales prices of its natural gas production, it
also prevents OEDC

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from receiving the full benefit of any increases in the sales prices of such
production. Further, significant reductions in production at times when OEDC's
production is hedged could require OEDC to make payments under the hedge
agreements in the absence of offsetting income.

NATURAL GAS BALANCING

EFFECTS OF INFLATION

OEDC's results of operations and cash flow are affected by changing oil and
gas prices. Increases in oil and gas prices often result in increased drilling
activity, which in turn increases the demand for and cost of exploration and
development. Thus, increased prices may generate increased revenue without
necessarily increasing profitability. These industry market conditions have been
far more significant determinants of OEDC earnings than have macroeconomic
factors such as inflation, which has had only minimal impact on OEDC activities
in recent years. While it is impossible to predict the precise effect of
changing prices and inflation on future OEDC operations, the short-lived nature
of OEDC's gas reserves makes it more possible to match development costs with
predictable revenue streams than would long-lived reserves. No assurance can be
given as to OEDC's future success at reducing the impact of price changes on
OEDC's operating results.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective December 1997, OEDC will be required to adopt Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS"). FAS No.
128 introduces the concept of basic earnings per share, which represents net
income divided by the weighted average common shares outstanding without the
dilutive effects of common stock equivalents (options, warrants, etc.). Diluted
earnings per share, giving effect for common stock equivalents, will be reported
when FAS No. 128 is adopted in the fourth quarter of 1997. The impact of
adopting FAS No. 128 is anticipated to be immaterial.

Effective December 1997, OEDC will be required to adopt FAS No. 129,
"Disclosure of Information about Capital Structure" FAS No. 129 requires that
all entities disclose in summary form within the financial statements the
pertinent rights and privileges of the various securities outstanding. An entity
is to disclose within the financial statements the number of shares issued upon
conversion, exercise or satisfaction of required conditions during at least the
most recent annual fiscal period and any subsequent interim period presented.
Other special provisions apply to preferred and redeemable stock. OEDC's
adoption of FAS No. 129 in the fourth quarter of 1997 is not expected to have a
material impact on reported results.

In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components. The components of comprehensive income refer to
revenues, expenses, gains and losses that are excluded from net income under
current accounting standards, including unrecognized foreign currency
translation items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities. FAS No. 130
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with the other financial statements; the total of
other comprehensive income for a period is required to be transferred to a
component of equity that is separately displayed in a statement of financial
position at the end of an accounting period. FAS No. 130 is effective for both
interim and annual periods beginning after December 15, 1997, at which time OEDC
will adopt the provisions. OEDC does not expect SFAS 130 to have a material
effect on reported results.

63
<PAGE>

services, geographic areas and major customers. SFAS 131 is effective for
periods beginning after December 15, 1997, at which time OEDC will adopt the
provisions. OEDC does not expect SFAS 131 to have a material effect on its
reported results.

MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of OEDC:

NAME AGE POSITION
---- --- --------

David B. Strassner........ 39 President and Class I Director
Douglas H. Kiesewetter.... 44 Executive Vice President, Chief Operating
Officer and Class II Director
R. Keith Anderson......... 43 Vice President and Class III Director
Joseph L. Savoy, Jr....... 46 Vice President -- Engineering
Matthew T. Bradshaw....... 31 Vice President and Treasurer
David R. Albin............ 38 Class III Director
R. Gamble Baldwin......... 74 Class I Director
G. Alan Rafte............. 43 Class II Director

Douglas H. Kiesewetter has served as Executive Vice President, Chief
Operating Officer and a director of OEDC since its formation in January 1988.
From June 1984 through October 1987, Mr. Kiesewetter was an executive officer of
Cartex Corporation, a high technology company in the computer media business co-
founded by Mr. Kiesewetter. Serving as Chief Financial Officer for the first
year, Mr. Kiesewetter thereafter served as President of the start-up company.
Mr. Kiesewetter also has served as Chairman (1979 to present) of Christian
Community Foundation, a charitable foundation founded by Mr. Kiesewetter, and as
President (1975-present) of CSA Financial Services, an international consulting
firm founded by Mr. Kiesewetter, initially specializing in financial planning
for closely-held business and high net worth individuals and since 1987
operating as an employee leasing company from which OEDC has obtained its
employees.

Joseph L. Savoy, Jr. has served as Vice President of Engineering since May
1994. Mr. Savoy began his career with Amoco Production Company, where he worked
in drilling, completions, operations, reservoir engineering and construction.
From March 1989 to May 1994 Mr. Savoy was Chief Engineer for Operators and
Consulting Services, Inc., a firm providing contract consulting services to the
oil and gas industry, where he was assigned in 1991 to work on OEDC's account.

Matthew T. Bradshaw joined OEDC in 1993 and serves as Vice President of
Finance. Prior to joining OEDC, he worked as an energy banker from 1990 to 1992
with Hibernia Bank and from 1992 to 1993 with First National Bank of Commerce,
each in New Orleans, Louisiana.

David R. Albin has been a director of OEDC since September 1992. Since
1988, Mr. Albin has been a manager of the NGP investment funds, which were
organized to make direct equity investments in the North American oil and gas
industry. He is currently responsible for co-managing NGP's investment
portfolios. Mr. Albin serves as a director of Titan and Petroglyph Energy, Inc.

64
<PAGE>

has been a member of the International Advisory Board of Creditanstalt
Bankverein, Vienna, Austria, since 1982, and a director of Coflexip Stena
Offshore, a provider of industrial technology oilfield equipment and service,
since 1993.

G. Alan Rafte was elected to the Board of Directors of OEDC in August
1996 For more than the past five years, Mr. Rafte has been a partner in the law
firm of Bracewell & Patterson, L.L.P., specializing in energy law and finance.

EXECUTIVE COMPENSATION AND OTHER MATTERS

The following table sets forth certain summary information concerning
the compensation paid by OEDC for the fiscal years ended December 31, 1996 and
1995 to its President and the other executive officers of OEDC whose salary and
bonus received from OEDC for services rendered during such years exceeded
$100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ----------
SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
- ---------------------------------------- ---- --------- ----- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner...................... 1996 $139,423 $ -- $ -- 120,000 --
President and Chief Executive Officer 1995 125,000 -- -- -- --
Douglas H. Kiesewetter.................. 1996 $139,423 $ -- $ -- 120,000 --
Executive Vice President 1995 125,000 -- -- -- --
R. Keith Anderson....................... 1996 $139,423 $ -- $ -- 120,000 --
Vice President 1995 125,000 -- -- -- --
Joseph L. Savoy, Jr..................... 1996 $118,808 $ -- $ -- 40,000 (1) --
Vice President 1995 112,000 -- -- -- --
</TABLE>

________________

(1) In addition, in connection with OEDC's reorganization completed in November
1996, Mr. Savoy received options to purchase 121,180 shares of OEDC Common
Stock in exchange for previously granted options to purchase securities of
one of OEDC's predecessors.

Option Grants

The following table provides certain information concerning options to
purchase Common Stock granted during the fiscal year ended December 31, 1996 to
the four executive officers named in the Summary Compensation Table.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------- ---------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner ...... 120,000 22.22% 12.00 11/01/06 $905,760 $2,295,000
Douglas H. Kiesewetter .. 120,000 22.22% 12.00 11/01/06 905,760 2,295,000
R. Keith Anderson ....... 120,000 22.22% 12.00 11/01/06 905,760 2,295,000
Joseph L. Savoy, Jr. .... 40,000 7.41% 12.00 11/01/06 301,920 765,000
</TABLE>

_____________

(1) In addition, in connection with OEDC's reorganization completed in November
1996, Mr. Savoy received options to purchase 121,180 shares of Common Stock
in exchange for previously granted options to purchase securities of one of
OEDC's predecessors. Such options are exercisable for $3.61 per share and
expire on May 1, 2004.

65
<PAGE>

The following table provides certain information concerning exercises of
options to purchase Common Stock during the fiscal year ended December 31, 1996
by the four executive officers named in the Summary Compensation Table and the
value of such officers' unexercised options at December 31, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
-------------------------- ----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ ------------ ----------- ------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
David B. Strassner ..... 0 0 0 120,000 0 390,000
Douglas H. Kiesewetter . 0 0 0 120,000 0 390,000
R. Keith Anderson ...... 0 0 0 120,000 0 390,000
Joseph L. Savoy, Jr. ... 0 0 72,708 88,472 846,321 694,214
</TABLE>

Compensation Committee Interlocks and Insider Participation

David R. Albin, a director of OEDC, serves as a member of the compensation
committee of the OEDC Board. Mr. Albin owns a limited partnership interest in
the general partner of NGP, which, as of September 30, 1997, owned 4,767,407
shares (14.0%) of the outstanding Titan Common Stock and 2,209,460 shares
(25.4%) of the outstanding OEDC Common Stock. Mr. Albin is one of the four
managing members of the general partner of NGP II and also own limited
partnership interests in NGP II's general partner. As of September 30, 1997, NGP
II owned 5,000,777 shares (14.7%) of the outstanding Titan Common Stock. Mr.
Albin, who disclaims beneficial ownership of Titan Common Stock owned by NGP II,
beneficially owns 115,772 shares of Titan Common Stock and 52,596 shares of OEDC
Common Stock.

OEDC is party to a Registration Rights Agreement with NGP and certain of
its affiliates, including Mr. Albin. Pursuant to the Registration Rights
Agreement, on three separate occasions commencing on the first anniversary of
the effective date of OEDC's initial registration statement under the securities
laws, the holders of at least 35% of the shares of OEDC Common Stock held by NGP
and certain affiliates, including Mr. Albin may require OEDC to register shares
held by them under applicable securities laws provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. However, if after two such registrations, NGP continues to own
shares of OEDC Common Stock, NGP may require OEDC to effect the third such
registration regardless of its percentage ownership. The Registration Rights
Agreement also provides that NGP and certain of its affiliates, including Mr.
Albin (and, for two years after the effective date of OEDC's initial
registration statement under the securities laws, certain other stockholders)
have "piggyback" registration rights pursuant to which such persons may include
shares of OEDC Common Stock held by them in certain registrations initiated by
OEDC; provided, that in an underwritten registered offering, if the underwriters
determine that the number of shares requested to be included in the registration
exceeds the number that the underwriters believe can be sold, OEDC will be given
first priority and the persons requesting piggyback registration will be allowed
to include shares pro rata based on the number of shares each such person
requested to be included. The Registration Rights Agreement provides for
customary indemnity by OEDC in favor of persons including shares in a
registration pursuant to the Registration Rights Agreement, and by such persons
in favor of OEDC, with respect to information to be included in the relevant
registration statement.

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement referred to in the preceding paragraph and (ii)
the Registration Rights Agreement among Carrollton, NGP and certain other
stockholders, Titan has agreed with NGP to use its best efforts to prepare, file
and have declared effective within 180 days of consummation of the Merger a
shelf registration statement registering for resale the 1,391,959 shares of
Titan Common Stock to be received by NGP in the Merger and 357,486 shares of
Titan Common Stock to be received by NGP in the anticipated acquisition of
Carrollton. One half of these shares will remain subject to lock-up agreements
with Titan until one year after consummation of the Merger. Titan has also
agreed to include in the same shelf registration shares of Titan Common Stock
that Mr. Albin will receive in the Merger.

66
<PAGE>

and (ii) the later of (y) the date that representatives of NGP no longer serve
on the board of directors of OEDC, and (z) the second anniversary of the closing
date of the first issuance of securities by OEDC in a public offering. In
consideration of its services NGP receives an annual fee of $15,000 for each
representative of NGP that serves on the Board of Directors of OEDC (currently
two), and an annual fee of $30,000 commencing as of the date of consummation of
the first public issuance of securities by OEDC and continuing for a two-year
period. Pursuant to the Voting Agreement, NGP has agreed to terminate the
Financial Advisory Services Agreement (except for indemnification provision
thereunder) upon consummation of the Merger. Assuming that the Financial
Advisory Services Agreement does not terminate and NGP continues to have two
representatives on the Board of Directors of OEDC, during the two-year period
beginning November 6, 1996 (the date of the consummation of OEDC's initial
public offering), NGP will be paid $60,000 per year.

OEDC made preference unit payments to NGP of $585,000, $847,500 and
$911,087 in 1994, 1995 and 1996, respectively, in respect of the Preference
Units in OEDC Partners, L.P. held by NGP. In November 1996, OEDC redeemed all of
the outstanding Preference Units with $12 million of the net proceeds of OEDC's
initial public offering.

CERTAIN TRANSACTIONS

Pursuant to the Merger Agreement, Titan has agreed to acquire OEDC by
merging Titan Sub with and into OEDC. As of September 30, 1997, NGP owned
4,767,407 shares (14.0%) of the outstanding Titan Common Stock and 2,209,460
shares (25.4%) of the outstanding OEDC Common Stock. R. Gamble Baldwin, a
director of OEDC, is the general partner of GFW, the general partner of NGP.
Messrs. Albin and Hersh own limited partnership interests in GFW. Messrs. Albin,
Baldwin and Hersh are three of the four managing members of the general partner
of NGP II and also own limited partnership interests in NGP II's general
partner. As of September 30, 1997, NGP II owned 5,000,777 shares (14.7%) of the
outstanding Titan Common Stock. In addition to the shares of Titan Common Stock
and OEDC Common Stock owned by NGP, Mr. Baldwin directly owns 9,100 shares and
35,041 shares of Titan and OEDC, respectively. Messrs. Albin and Hersh, who
disclaim beneficial ownership of Titan Common Stock owned by NGP II,
beneficially own 115,772 shares and 67,381 shares, respectively, of Titan Common
Stock and 52,596 shares and 49,012 shares, respectively, of OEDC Common Stock.
Although OEDC informed Messrs. Albin and Baldwin from time to time of the
general status of negotiations with Titan and, likewise, Titan informed Mr.
Hersh of the general status of negotiations with OEDC, none of these individuals
participated in such negotiations or the deliberations of the board of either
company in reviewing and approving the Merger.

OEDC is party to a Registration Rights Agreement with NGP and certain of
its affiliates, including Messrs. Albin and Baldwin, and Messrs. Strassner,
Kiesewetter and Anderson. Pursuant to the Registration Rights Agreement, on
three separate occasions commencing on the first anniversary of the effective
date of OEDC's initial registration statement under the securities laws, the
holders of at least 35% of the shares of OEDC Common Stock held by NGP and
certain affiliates, including Messrs. Albin and Baldwin, and Messrs. Strassner,
Kiesewetter and Anderson may require OEDC to register shares held by them under
applicable securities laws provided that the shares to be registered have an
estimated aggregate offering price to the public of at least $3,000,000.
However, if after two such registrations, NGP continues to own shares of OEDC
Common Stock, NGP may require OEDC to effect the third such registration
regardless of its percentage ownership. The Registration Rights Agreement also
provides that NGP and certain of its affiliates, including Messrs. Albin and
Baldwin, and Messrs. Strassner, Kiesewetter and Anderson (and, for two years
after the effective date of OEDC's initial registration statement under the
securities laws, certain other stockholders) have "piggyback" registration
rights pursuant to which such persons may include shares of OEDC Common Stock
held by them in certain registrations initiated by OEDC; provided, that in an
underwritten registered offering, if the underwriters determine that the number
of shares requested to be included in the registration exceeds the number that
the underwriters believe can be sold, OEDC will be given first priority and the
persons requesting piggyback registration will be allowed to include shares pro
rata based on the number of shares each such person requested to be included.
The Registration Rights Agreement provides for customary indemnity by OEDC in
favor of persons including shares in a registration pursuant to the Registration
Rights Agreement, and by such persons in favor of OEDC, with respect to
information to be included in the relevant registration statement.

67
<PAGE>

In consideration of NGP's agreement to terminate its rights under (i) the
Registration Rights Agreement referred to the preceding paragraph and (ii) the
Registration Rights Agreement among Carrollton, NGP and certain other
stockholders, Titan has agreed with NGP to use its best efforts to prepare, file
and have declared effective within 180 days of consummation of the Merger a
shelf registration statement registering for resale the 1,391,959 shares of
Titan Common Stock to be received by NGP in the Merger and 357,486 shares of
Titan Common Stock to be received by NGP in the anticipated acquisition of
Carrollton. One half of these shares will remain subject to lock-up agreements
with Titan until one year after consummation of the Merger. Titan has also
agreed to include in the same shelf registration shares of Titan Common Stock
that Messrs. Albin, Baldwin and Hersh will receive in the Merger.

OEDC and NGP are parties to a Financial Advisory Services Agreement
effective as of April 1, 1996 pursuant to which OEDC engaged NGP to serve as
financial advisor with respect to the public offering process. The agreement
expires on earlier of (i) the dissolution of OEDC Partners, L.P., a subsidiary
of OEDC and (ii) the later of (y) the date that representatives of NGP no longer
serve on the board of directors of OEDC, and (z) the second anniversary of the
closing date of the first issuance of securities by OEDC in a public offering.
In consideration of its services NGP receives an annual fee of $15,000 for each
representative of NGP that serves on the Board of Directors of OEDC (currently
two), and an annual fee of $30,000 commencing as of the date of consummation of
the first public issuance of securities by OEDC and continuing for a two-year
period. Pursuant to the Voting Agreement, NGP has agreed to terminate the
Financial Advisory Services Agreement (except indemnification provisions
thereunder) upon consummation of the Merger. Assuming that the Financial
Advisory Services Agreement does not terminate and NGP continues to have two
representatives on the Board of Directors of OEDC, during the two-year period
beginning November 6, 1996 (the date of the consummation of OEDC's initial
public offering), NGP will be paid $60,000 per year.

OEDC made preference unit payments to NGP of $585,000, $847,500 and
$911,087 in 1994, 1995 and 1996, respectively, in respect of the Preference
Units in OEDC Partners, L.P. held by NGP. In November 1996, OEDC redeemed all of
the outstanding Preference Units with $12 million of the net proceeds of OEDC's
initial public offering.

Historically, all of OEDC's employees were provided by CSA Financial
Services, Inc. ("CSA"). CSA is wholly owned by Douglas H. Kiesewetter, Executive
Vice President, Chief Operating Officer and a director of OEDC. The employees
were provided to OEDC by CSA at cost. OEDC made payments to CSA aggregating
$1,064,818, $1,197,281 and $1,304,107 during 1994, 1995 and 1996, respectively.
OEDC believes that its arrangement with CSA was on terms no less favorable than
could be obtained from an unaffiliated third party. This arrangement was
terminated on December 31, 1996.

G. Alan Rafte, a director of OEDC, is a partner in Bracewell & Patterson,
L.L.P., a law firm retained by OEDC during 1994, 1995, 1996 and 1997 and counsel
to OEDC in the Merger.

68
<PAGE>

BENEFICIAL OWNERSHIP OF TITAN, OEDC AND TITAN POST MERGER

The following table sets forth certain information as of September 30, 1997
with respect to the beneficial ownership of Titan Common Stock, OEDC Common
Stock and Titan Common Stock after giving effect to the Merger, as the case may
be, of the (i) directors and named executive officers, (ii) executive officers
and directors as a group, and (iii) holders of 5% or more of such securities.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- --------
TITAN COMMON STOCK
<S> <C> <C>
Directors and Named Executive Officers (1):
Jack D. Hightower (2)........................................ 3,834,210 10.98%
George G. Staley (3)......................................... 768,662 2.23%
Rodney L. Woodard (4)........................................ 168,721 *
David R. Albin (5) (6)....................................... 115,772 *
Kenneth A. Hersh (5)......................................... 67,381 *
William J. Vaughn, Jr. (7)................................... 345,041 1.02%
Executive Officers and Directors as a Group (11 persons) (8)... 5,825,702 16.20%
Holders of Five Percent or More Not Named Above
Natural Gas Partners II, L.P. (9)............................ 5,000,777 14.73%
777 Main Street, Suite 2700
Forth Worth, Texas 76102
R. Gamble Baldwin (5) (10)................................... 4,776,507 14.07%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P. (11).............................. 4,767,407 14.04%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investments Limited
Partnership (12)............................................... 3,423,194 10.08%
1400 Smith Street
Houston, Texas 77002
OEDC COMMON STOCK
Directors and Named Executive Officers (13)
David B. Strassner (14)...................................... 772,828 8.9%
Douglas H. Kiesewetter (15).................................. 581,806 6.7%
R. Keith Anderson (16)....................................... 332,036 3.8%
Joseph L. Savoy, Jr. (17).................................... 104,944 1.2%
David R. Albin (18).......................................... 52,596 *
R. Gamble Baldwin (19)....................................... 2,244,501 25.8%
G. Alan Rafte................................................ 0 --
Directors and Executive Officers as a Group 4,088,711 46.6%
Holders of Five Percent or More Not Named Above
Natural Gas Partners, L.P. (20).............................. 2,209,460 25.4%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
TITAN COMMON STOCK POST MERGER
Directors and Executive Officers (1):
Jack D. Hightower (2)........................................ 3,834,210 9.49%
George G. Staley (3)......................................... 768,662 1.92%
Rodney L. Woodard (4)........................................ 168,721 *
David R. Albin (5) (21)...................................... 148,907 *
Kenneth A. Hersh (5)......................................... 98,258 *
William J. Vaughn, Jr. (7)................................... 345,041 *
Executive Officers and Directors as a Group (11 persons) (8)... 5,879,714 14.18%
Holders of 5% or More Not Named Above
</TABLE>

69
<PAGE>

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- --------
<S> <C> <C>
Natural Gas Partners II, L.P. (9)............................ 5,000,777 12.68%
777 Main Street, Suite 2700
Forth Worth, Texas 76102
R. Gamble Baldwin (5) (22)................................... 6,190,541 15.70%
1130 Park Avenue
New York, New York 10128
Natural Gas Partners, L.P. (11) (20)......................... 6,159,336 15.62%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Enron Corp. and Joint Energy Development Investment Limited
Partnership (12).......................................... 3,423,194 8.68%
1400 Smith Street
Houston, Texas 77002
</TABLE>

______________

* Less than 1%.
(1) The business address of each director and executive officer of Titan is c/o
Titan Exploration, Inc., 500 West Texas, Suite 500, Midland, Texas 79701.
(2) Includes (i) 2,667,588 shares held by Mr. Hightower, (ii) 199,524 shares
held by Mr. Hightower's spouse and children and (iii) 967,098 shares
subject to stock options that are exercisable within 60 days.
(3) Includes (i) 199,525 shares held by Mr. Staley and (ii) 569,137 shares
subject to stock options that are exercisable within 60 days.
(4) Includes (i) 46,565 shares held by Mr. Woodard and (ii) 122,165 shares
subject to stock options that are exercisable within 60 days.
(5) David R. Albin, Kenneth A. Hersh and R. Gamble Baldwin are each managing
members of the general partner of NGP II. As such, Mr. Albin, Mr. Hersh
and Mr. Baldwin may be deemed to share voting and investment power with
respect to the 5,000,777 shares of Titan Common Stock beneficially owned by
NGP II. Mr. Albin, Mr. Hersh and Mr. Baldwin disclaim beneficial ownership
of such shares, which are not included in the total number of shares
reported for each above.
(6) All of these shares are held in trust for Mr. Albin.
(7) Includes (i) 5,500 shares held by Mr. Vaughn, (ii) 299,287 shares held in
trust for Mr. Vaughn and his spouse, and (iii) 40,254 shares held by
affiliates of Mr. Vaughn.
(8) Includes 1,975,294 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the initial stock option plan and the 1996 incentive plan.
(9) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by NGP II, G.F.W. Energy II, L.P. ("GFW II") and GFW II, L.L.C. with
the Commission. GFW II, L.L.C., as the sole general partner of GFW II, and
GFW II, as the sole general partner of NGP II, may each be deemed to be the
beneficial owner of all of the 5,000,777 shares of Titan Common Stock
beneficially owned by NGP II.
(10) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by R. Gamble Baldwin with the Commission. Mr. Baldwin has sole
voting and investment powers with respect to 9,100 shares of common stock
he beneficially owns. In addition, Mr. Baldwin may, as the sole general
partner of G.F.W. Energy, L.P., the sole general partner of NGP, be deemed
to be the beneficial owner of all 4,767,407 shares of Titan common stock
beneficially owned by NGP.
(11) Based upon information reported in a Schedule 13G dated February 5, 1997
filed by NGP and G.F.W. Energy, L.P. with the Commission. G.F.W. Energy,
L.P., as the sole general partner of NGP, may be deemed to be the
beneficial owner of all of the 4,767,407 shares of Titan Common Stock
beneficially owned by NGP.
(12) Based upon information reported in a Schedule 13G dated January 20, 1997
filed by Enron Corp. and Joint Energy Development Investments Limited
Partnership ("JEDI") with the Commission. The general partner of JEDI is
Enron Capital Management Limited Partnership, whose general partner is
Enron Capital Corp., an indirect wholly-owned subsidiary of Enron Corp.
(13) The business address of each director and executive officer of OEDC is c/o
Offshore Energy Development Corporation, 1400 Woodloch Forest Drive, Suite
200, The Woodlands, Texas 77380.

70
<PAGE>

(14) Includes (i) 100 shares held by Mr. Strassner, (ii) 655,768 shares held in
trust by Mr. Strassner and his spouse for their benefit, (iii) 92,960
shares held by Mr. Strassner's spouse as custodian for their minor children
and (iv) 24,000 shares subject to stock options that are exercisable within
60 days.
(15) Includes (i) 528,794 shares held in a family limited partnership for the
benefit of Mr. Kiesewetter, his spouse and their minor children, (ii) 6,327
shares held by Mr. Kiesewetter as trustee for the benefit of his sister,
(iii) 22,685 shares held by Mr. Kiesewetter as trustee for the benefit of
his mother and (iv) 24,000 shares subject to stock options that are
exercisable within 60 days.
(16) Includes (i) 275,130 shares held by Mr. Anderson, (ii) 21,248 shares held
by Mr. Anderson's spouse as custodian for their minor children, (iii) 3,886
shares held by Mr. Anderson as trustee for the benefit of his grandmother,
(iv) 3,886 shares held by Mr. Anderson as trustee for the benefit of his
father, (v) 3,886 shares held by Mr. Anderson as trustee for the benefit of
his mother and (vi) 24,000 shares subject to stock options that are
exercisable within 60 days.
(17) Consists of 104,944 shares issuable upon the exercise of options that are
presently exercisable.
(18) Includes (i) 26,298 shares held by Mr. Albin and (ii) 26,298 shares held in
trust for the benefit of Mr. Albin.
(19) Based upon information reported in a Schedule 13D/A dated September 17,
1997 filed by R. Gamble Baldwin with the Commission. Includes (i) 35,041
shares held by Mr. Baldwin and (ii) 2,209,460 shares held by NGP, which Mr.
Baldwin may be deemed to be the beneficial owner of as the result of his
position as the sole general partner of G.F.W. Energy, L.P., the sole
general partner of NGP.
(20) Based upon information reported in a Schedule 13D/A dated September 17,
1997 filed by NGP and G.F.W. Energy L.P. with the Commission. G.F.W.
Energy L.P., as the sole general partner of NGP, may be deemed to be the
beneficial owner of all of the shares of OEDC Common Stock beneficially
owned by NGP.
(21) Includes (i) 16,567 shares held by Mr. Albin and (ii) 132,339 shares held
in trust for the benefit of Mr. Albin.
(22) Includes (i) 31,175 shares held by Mr. Baldwin and (ii) 6,159,336 shares
held by NGP, which Mr. Baldwin may be deemed to be the beneficial owner of
as the result of his position as the sole general partner of G.F.W. Energy,
L.P., the sole general partner of NGP.

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DESCRIPTION OF TITAN CAPITAL STOCK

The authorized capital stock of Titan consists of 60,000,000 shares of
Titan Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Of such authorized shares,
39,427,385 shares of Titan Common Stock will be issued and outstanding upon
completion of the Merger, assuming that no OEDC employee stock options are
exercised prior to the Merger. As of September 30, 1997, Titan had outstanding
33,945,198 shares of Titan Common Stock and stock options for an aggregate of
3,712,665 shares.

COMMON STOCK

The holders of Titan Common Stock are entitled to one vote for each share
held of record on all matters submitted to the stockholders, and are entitled to
cumulate their votes for the election of directors. As a result of such
cumulative voting rights, any holder of at least 20% of the outstanding Titan
Common Stock will be assured that such holder's nominee will be elected as a
director for so long as the Board of Directors of Titan consists of five
members. See "Risk Factors--Control by Existing Stockholders." The Certificate
of Incorporation of Titan does not allow the stockholders to take action by less
than unanimous consent, but the Bylaws of Titan permit the holders of 10% or
more of Titan's outstanding Common Stock to call a special meeting of the
stockholders not more frequently than once during each calendar year. The
affirmative vote of the holders of shares of capital stock representing at least
80% of the outstanding voting power shall be required to amend certain
provisions of the Certificate of Incorporation relating to the management of
Titan. Each share of Titan Common Stock is entitled to participate equally in
dividends, if, as and when declared by Titan's Board of Directors, and in the
distribution of assets in the event of liquidation, subject in all cases to any
prior rights of outstanding shares of Preferred Stock. titan has never paid cash
dividends on Titan Common Stock. The shares of Titan Common Stock have no
preemptive or conversion rights, redemption rights, or sinking fund provisions.
The outstanding shares of Common Stock are, and the shares of Titan Common Stock
offered hereby upon issuance and sale will be, duly authorized, validly issued,
fully paid, and nonassessable.

PREFERRED STOCK

As of September 30, 1997, Titan has no outstanding Preferred Stock. Titan
is authorized to issue 10,000,000 shares of Preferred Stock. Titan's Board of
Directors may establish, without stockholder approval, one or more classes or
series of Titan Preferred Stock having the number of shares, designations,
relative voting rights, dividend rates, liquidation and other rights,
preferences, and limitations that the Board of Directors may designate. Titan
believes that this power to issue Titan Preferred Stock will provide flexibility
in connection with possible corporate transactions. The issuance of Titan
Preferred Stock, however, could adversely affect the voting power of holders of
Titan Common Stock and restrict their rights to receive payments upon
liquidation of Titan. It could also have the effect of delaying, deferring or
preventing a change in control of Titan. Titan does not currently plan to issue
any shares of Titan Preferred Stock.

DELAWARE LAW PROVISIONS

Titan is a Delaware corporation and is subject to Section 203 of the DGCL.
Generally, Section 203 prohibits the Company from engaging in a "business
combination" (as defined in Section 203) with an "interested stockholder"
(defined generally as a person owning 15% or more of Titan's outstanding voting
stock) for three years following the date that person becomes an interested
stockholder, unless (a) before that person became an interested stockholder,
Titan's Board of Directors approved the transaction in which the interested
stockholder or approved the business combination; (b) upon completion of the
transaction that resulted in the interested stockholder's becoming a interested
stockholder, the interested stockholder owns at least 85% of the voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of Titan and by employee stock plans that do not
provide employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (c)
following the transaction in which that person became an interested stockholder,
the business combination is approved by Titan's Board of Directors and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of the outstanding voting stock not owned by the
interested stockholder.

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a majority of Titan's directors, if that extraordinary transaction is approved
or not opposed by a majority of the directors who were directors before any
person became an interested stockholder in the previous three years or who were
recommended for election to succeed such directors by a majority of such
directors then in office.

REGISTRATION RIGHTS

Titan has entered into the Amended and Restated Registration Rights
Agreement with Natural Gas Partners, L.P., Natural Gas Partners, II, L.P., Jack
Hightower, JEDI, First Union Corporation and Selma International Investment
Limited (the "Shareholder Parties"). Pursuant to the Amended and Restated
Registration Rights Agreement, on three separate occasions, commencing on the
180th day following the date of Titan's initial registration statement under the
securities laws, Shareholder Parties owning at least 35% of the outstanding
shares then subject to such agreement may require Titan to register shares held
by them under applicable securities laws, provided that the shares to be
registered have an estimated aggregate offering price to the public of at least
$3,000,000. The Amended and Restated Registration Rights Agreement also provides
that the Shareholder Parties have piggyback registration rights pursuant to
which such persons may include shares of Titan Common Stock held by them in
certain registrations initiated by Titan or by any other holder of Titan's
Common Stock. The piggyback rights are subject to customary cutback provisions.

The Amended and Restated Registration Rights Agreement provides for
customary indemnities by Titan in favor of persons including shares in a
registration pursuant to the Amended and Restated Registration Rights Agreement,
and by such persons in favor of Titan, with respect to information to be
included in the relevant registration statement. These registration rights have
been waived in connection with this offering and for 180 days after the date of
this Prospectus.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for Titan Common Stock is First Union
National Bank of North Carolina.

PLAN OF DISTRIBUTION

This Prospectus relates to 8,000,000 shares of Common Stock that may be
offered and issued by the Company from time to time in connection with future
acquisitions of other businesses or properties, or securities of other
businesses, by Titan. This Prospectus, as amended or supplemented, if necessary,
also relates to certain shares of Common Stock which may be resold or reoffered
by persons who acquired such shares pursuant to this Prospectus.

Titan intends to concentrate its acquisitions in areas related to the
current business of Titan. If the opportunity arises, however, Titan may attempt
to make acquisitions that are either complementary to its present operations or
which it considers advantageous even though they may be dissimilar to its
present activities. The consideration for any such acquisition may consist of
shares of Common Stock, cash, notes or other evidences of debt, assumptions of
liabilities or a combination thereof, as determined from time to time by
negotiations between Titan and the owners or controlling persons of businesses
or properties to be acquired.

The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in exchange
for assets used in or related to the business of such entities or otherwise
pursuant to the agreements providing for such acquisitions. The terms of such
acquisitions and of the issuance of shares of Common Stock under acquisition
agreements will generally be determined by direct negotiations with the owners
or controlling persons of the business or properties to be acquired or, in the
case of entities that are more widely held, through exchange offers to
stockholders or document soliciting the approval of statutory mergers,
consolidations or sales of assets. It is anticipated that the shares of Common
Stock issued in any such acquisition will be valued at a price reasonably
related to the market value of the Common Stock either at the time of agreement
on the terms of an acquisition or at or about the time of delivery of the
shares.

It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under this
Prospectus. However, finders' fees or

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brokers' commissions may be paid from time to time in connection with specific
acquisitions, and such fees may be paid through the issuance of shares of Common
Stock covered by this Prospectus. Any person receiving such a fee may be deemed
to be an underwriter within the meaning of the Securities Act.

The sale of all or a portion of the shares of Common Stock offered hereby
by the Selling Stockholders may be effected from time to time on the Nasdaq
National Market at prevailing prices at the time of such sales, at prices
related to such prevailing prices or at negotiated prices. The Selling
Stockholders may sell all or a portion of the shares offered hereby in private
transactions or in the over-the-counter market at prices related to the
prevailing prices of the shares on the Nasdaq National Market.

The Selling Stockholders may effect such transactions by selling to or
through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders. The Selling Stockholders and any broker-dealers
that participate in the distribution may under certain circumstances be deemed
to be underwriters within the meaning of the Securities Act, and any commissions
received by such broker-dealers and any profits realized on the resale of shares
by them may be deemed to be underwriting discounts and commissions under the
Securities Act. The Company and the Selling Stockholders may agree to indemnify
such broker-dealers against certain liabilities, including liabilities under the
Securities Act. In addition, the Company may agree to indemnify the Selling
Stockholders and any underwriter with respect to the shares of Common Stock
offered hereby against certain liabilities, including, without limitation,
certain liabilities under the Securities Act, or, if such indemnity is
unavailable to contribute toward amounts required to be paid in respect of such
liabilities.

To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any Selling Stockholders, (b) the name
of any such broker-dealers, (c) the number of shares involved, (d) the price at
which such shares are to be sold, (e) the commissions paid or discounts or
concessions allowed to such broker-dealer, where applicable, (f) that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus, as supplemented, and (g)
other facts material to the transaction.

There is no assurance that any of the Selling Stockholders will sell any or
all of the shares of Common Stock offered hereby.

The Company may agree to pay certain costs and expenses incurred in
connection with the registration of the shares of Common Stock offered hereby,
except that the Selling Stockholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer and
sale of such shares.

The Company may agree to keep the Registration Statement relating to the
offering and sale by the Selling Stockholders of the shares of Common Stock
continuously effective until a fixed date or such earlier date as such shares of
Common Stock may be resold without registration under the provisions of the
Securities Act.

SELLING STOCKHOLDERS

The Selling Stockholders may sell the shares of Common Stock offered hereby
from time to time and may choose to sell less than all or none of such shares.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for
Titan by Thompson & Knight, P.C., Dallas, Texas.

EXPERTS

The consolidated financial statements of Titan as of December 31, 1995 and
1996 and for the period March 31, 1995 (date of inception) to December 31, 1995
and the year ended December 31, 1996, the statements of revenues and direct
operating expenses for the 1996 Acquisition for the years ended December 31,
1993, 1994, 1995, and the statements of revenues and direct operating expenses
for the 1995 Acquisition for the years ended December 31, 1993 and 1994, and the
period ended December 11, 1995, have been included in and in this Prospectus and
in the Registration Statement in reliance upon the report of

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KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

Information relating to Titan's estimated proved reserves of oil and
natural gas at December 31, 1996 and the related estimates of future net cash
flows and present values thereof included herein has been derived from an
engineering report prepared by Williamson Petroleum Consultants, Inc.,
independent oil and gas consultants, and is included herein in reliance upon the
authority of such firm as experts in petroleum engineering.

The consolidated financial statements of OEDC and its predecessors as of
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996, have been included in this Prospectus and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

Information relating to OEDC's estimated proved reserves of natural gas at
December 31, 1996 and the related estimates of future net cash flows and present
values thereof included herein has been derived from an engineering report
prepared by Ryder Scott Company, and is included herein in reliance upon the
authority of such firm as experts in petroleum engineering.

GLOSSARY OF OIL AND GAS TERMS

"Bbl" means a barrel of 42 U.S. gallons of oil.

"Bcf" means billion cubic feet of natural gas.

"Bcfe" means billion cubic feet equivalent, determined using the ratio of 6
Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas liquids.

"BOE" means barrels of oil equivalent.

"Completion" means the installation of permanent equipment for the
production of oil or gas.

"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.

"Exploratory well" means a well drilled to find and produce oil or gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.

"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which the Company has a working interest.

"MBbls" means thousands of barrels of oil.

"Mcf" means thousand cubic feet of natural gas.

"Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of 6
Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas liquids.

"MMBbls" means millions of barrels of oil.

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"MMBOE" means millions of barrels of oil equivalent on a 6:1 basis.

"MMbtu" means 1 million British thermal units.

"MMcf" means million cubic feet of natural gas.

"MMcfe" means 1 million cubic feet equivalent, determined using the ratio
of 6 Mcf of natural gas to 1 barrel of crude oil, condensate or natural gas
liquids.

"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
Company.

"Net production" means production that is owned by the Company less
royalties and production due others.

"Oil" means crude oil or condensate.

"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.

"Present Value of Future Revenues" or "PV-10" means the pretax present
value of estimated future revenues to be generated from the production of proved
reserves calculated in accordance with SEC guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.

"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.

ii. Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project, or
the operation of an installed program in the reservoir, provides support
for the engineering analysis on which the project or program was based.

iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.

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"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.

"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.

"Reserves" means proved reserves.

"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.

"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.

"Tertiary recovery" means enhanced recovery methods for the production of
oil or gas. Enhanced recovery of crude oil requires a means for displacing oil
from the reservoir rock, modifying the properties of the fluids in the reservoir
and/or the reservoir rock to cause movement of oil in an efficient manner, and
providing the energy and drive mechanism to force its flow to a production well.
The Company injects chemicals or energy as required for displacement and for the
control of flow rate and flow pattern in the reservoir, and a fluid drive is
provided to force the oil toward a production well.

"Updip" means a higher point in the reservoir.

"Workover" means operations on a producing well to restore or increase
production.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of members of its Board of
Directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Such a provision may not eliminate or
limit the liability of a director (1) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (2) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of a law, (3) for paying an unlawful dividend or approving an illegal stock
repurchase (as provided in Section 174 of the DGCL), or (4) for any
transaction from which the director derived an improper personal benefit.

Under Section 145 of the DGCL, a corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies only if the person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.

In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine that despite the adjudication
of liability such person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper. Section 145 of the DGCL
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.

A corporation also has the power to purchase and maintain insurance on
behalf of any person covering any liability incurred by such person in his
capacity as a director, officer, employee or agent of the corporation, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability.

The Registrant's Certificate of Incorporation, as amended, and Bylaws
provide that no director of the Registrant will be personally liable to the
Registrant or any of its stockholders for monetary damages arising from the
director's breach of fiduciary duty as a director. However, this does not
apply with respect to any action in which the director would be liable under
Section 174 of Title 8 of the DGCL nor does it apply with respect to any
liability in which the director (i) breached his duty of loyalty to the
Registrant; (ii) did not act in good faith or, in failing to act, did not act
in good faith; (iii) acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv)
derived an improper personal benefit.

The Certificate of Incorporation, as amended, and Bylaws provide that the
Registrant will indemnify its officers and directors and former officers and
directors against any expenses, judgments or settlement payments sustained or
paid by such persons as a result of having acted as an officer or director of
the Registrant, or, at the request of the Registrant, as an officer, director,
agent or employee of another business entity. The Certificate of
Incorporation, as amended, and Bylaws further provide that the Registrant may,
by action of its Board of

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<PAGE>

Directors, provide indemnification to employees and agents of the Registrant,
individually or as a group, with the same scope and effect as the
indemnification of directors and officers.

The form of Indemnity Agreement contained in Exhibit 10.23 provides for the
indemnification in certain instances against liability and expenses incurred
in connection with proceedings brought by or in the right of the Registrant or
by third parties by reason of a person serving as an officer or director of
the Registrant.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
2.1 --Exchange Agreement and Plan of Reorganization (filed as Exhibit 2.1
to the Registrant's Registration Statement on Form S-1, Registration
No. 333-14029, and incorporated herein by reference).
2.2 --Amended and Restated Agreement and Plan of Merger, dated as of
November 6, 1997, among Titan Exploration, Inc., Titan Offshore, Inc.
and Offshore Energy Development Corporation (included as Appendix I to
the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement).
2.3 --Agreement and Plan of Merger, dated as of November 4, 1997, among
Titan Exploration, Inc., Titan Bayou Bengal Holdings, Inc. and
Carrollton Resources, L.L.C.
3.1 --Certificate of Incorporation of Titan Exploration, Inc. (filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
3.1.1 --Certificate of Amendment of Certificate of Incorporation of Titan
Exploration, Inc. (filed as Exhibit 3.1.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
3.2 --Bylaws of Titan Exploration, Inc. (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
5.1 --Opinion of Thompson & Knight, A Professional Corporation.
8.1 --Opinion of Thompson & Knight, A Professional Corporation.
10.1.1 --Amendment No. 1 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated December 11, 1995, by and among Titan Resources
I, Inc., as the general partner, and a Majority Interest of the
Limited Partners (filed as Exhibit 10.1.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.1.2 --Amendment No. 2 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 27, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners (filed as Exhibit 10.1.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.1.3 --Amendment No. 3 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 30, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners (filed as Exhibit 10.1.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.2 --Amended and Restated Voting and Shareholders Agreement, dated
December 11, 1995, by and among Titan Resources I, Inc., Jack
Hightower, Natural Gas Partners, L.P., Natural Gas Partners II, L.P.,
Joint Energy Development Investments Limited Partnership and First
Union Corporation (filed as Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.3 --Amended and Restated Registration Rights Agreement, dated September
30, 1996, by and among Titan Exploration, Inc., Jack Hightower,
Natural Gas Partners, L.P., Natural Gas Partners II, L.P., Joint
Energy Development Investments Limited Partnership, First Union
Corporation and Selma International Investment Limited (filed as
Exhibit 10.3 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.4 --Financial Advisory Services Contract, dated March 31, 1995, by and
between Titan Resources, L.P. and Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P. (filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.4.1 --First Amendment to Financial Advisory Services Contract, dated
December 11, 1995, between Titan Resources, L.P., Natural Gas
Partners, L.P. and Natural Gas Partners II, L.P. (filed as Exhibit
10.4.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.5 --Employment Agreement, dated September 30, 1996, by and between Titan
Exploration, Inc., Titan Resources I, Inc. and Jack Hightower (filed
as Exhibit 10.5 to the Registrant's Registration Statement on Form S-
1, Registration No. 333-14029, and incorporated herein by reference).
10.6.1 --Form of Confidentiality and Non-compete Agreement among Titan
Resources, L.P., Titan Resources I, Inc. and certain of the
Registrant's executive officers (filed as Exhibit 10.6.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.6.2 --Form of Confidentiality and Non-compete Agreement among the
Registrant, Titan Resources I, Inc. and certain of the Registrant's
executive officers (filed as Exhibit 10.6.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.7 --Titan Exploration, Inc. Option Plan (filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.7.1 --Form of Option Agreement (A Option) (filed as Exhibit 10.8.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.7.2 --Form of Option Agreement (B Option) (filed as Exhibit 10.8.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.7.3 --Form of Option Agreement (C Option) (filed as Exhibit 10.8.3 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.7.4 --Form of Option Agreement (D Option) (filed as Exhibit 10.8.4 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.8 --1996 Incentive Plan (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.9 --Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among Joint Energy Development Investments Limited Partnership, Titan
Resources I, Inc. and Titan Resources, L.P. (filed as Exhibit 10.10 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.9.1 --Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.10.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-14029, and incorporated
herein by reference).
10.10 --Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among First Union Corporation, Titan Resources I, Inc. and Titan
Resources, L.P. (filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.10.1 --Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and First Union Corporation (filed as Exhibit 10.11.1
to the Registrant's Registration Statement on Form
S-1, Registration No. 333-14029, and incorporated herein by
reference).
10.11 --Advisory Services Contract, dated December 11, 1995, between Titan
Resources, L.P. and ECT Securities Corp. (filed as Exhibit 10.12 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.12 --Amended and Restated Credit Agreement, dated October 31, 1996, among
Titan Resources, L.P. and Texas Commerce Bank National Association,
as Agent, and Financial Institutions now or hereafter parties hereto
(filed as Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-14029, and incorporated herein by
reference).
10.12.1 --First Amendment to Amended and Restated Credit Agreement, dated May
12, 1997, among Titan Resources, L.P., The Chase Manhattan Bank, as
Administrative Agent, and Financial Institutions now or thereafter
parties thereto (filed as Exhibit 10.13.1 to the Registrant's Form
10-Q for the quarterly period ended June 30, 1997 and incorporated
herein by reference).
10.12.2 --Form of Guaranty Agreement among The Chase Manhattan Bank, as
Administrative Agent, Financial Institutions now or thereafter
parties thereto and Titan Exploration, Inc., Titan Resources I, Inc.
and Titan Resources Holdings, Inc. (filed as Exhibit 10.13.2 to the
Registrant's Form 10-Q for the quarterly period ended June 30, 1997
and incorporated herein by reference).
10.12.3 --Second Amendment to Amended and Restated Credit Agreement, dated
August 12, 1997, effective as of April 1, 1997, by and among Titan
Resources, L.P., The Chase Manhattan Bank, as Administrative Agent,
and Financial Institutions now or thereafter parties thereto (filed
as Exhibit 10.13.3 to the Registrant's Form 10-Q for the quarterly
period ended September 30, 1997 and incorporated herein by
reference).
10.13 --Agreement of Sale and Purchase, dated April 19, 1995, between
Enertex, Inc. and Titan Resources, L.P. (filed as Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.14 --Agreement of Sale and Purchase, dated April 19, 1995, between Staley
Gas Co., Inc. and Titan Resources, L.P. (filed as Exhibit 10.15 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.15 --Administrative Services Contract, dated March 31, 1995, between
Staley Operating Co. and Titan Resources, L.P. (filed as Exhibit
10.16 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.16 --Services Agreement, dated April 1, 1995, between Titan Resources I,
Inc. and Titan Resources, L.P. (filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.17 --Office Lease Agreement, dated April 10, 1997, between Fasken Center,
Ltd. and Titan Exploration, Inc.
10.18 --Purchase and Sale Agreement, dated October 12, 1995, by and between
Anadarko Petroleum Corporation and Titan Resources, L.P. (filed as
Exhibit 10.19 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.19 --Amendment No. 1 to Purchase and Sale Agreement, dated December 11,
1995, by and between Anadarko Petroleum Corporation and Titan
Resources, L.P. (filed as Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.20 --Purchase and Sale Agreement, dated July 12, 1996, by and between
Mobil Producing Texas & New Mexico Inc. and Titan Resources, L.P.
(filed as Exhibit 10.21 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-14029, and incorporated herein by
reference).
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.21 --Unit Purchase and Exchange Agreement, dated September 27, 1996, by
and between Selma International Investment Limited and Titan
Resources, L.P. (filed as Exhibit 10.22 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.22 --Form of Indemnity Agreement between the Registrant and each of its
executive officers (filed as Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.23 --Advisory Director Agreement, dated September 30, 1996, by and between
Titan Exploration, Inc. and Joint Energy Development Investments
Limited Partnership (filed as Exhibit 10.24 to the Company's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.24 --Form of Stockholders Voting Agreement, dated November 6, 1997,
between the Registrant and the executive officers and directors of
Offshore Energy Development Corporation.
10.25 --Stockholders Voting Agreement, dated November 6, 1997, between the
Registrant and Natural Gas Partners, L.P.
10.26 --Master Promissory Note, dated March 6, 1997, between Titan Resources,
L.P. and Texas Commerce Bank National Association (filed as Exhibit
10.25 to the Registrant's Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated herein by reference).
10.27 --Letter Agreement, dated November 6, 1997, among the Registrant and
certain stockholders of the Registrant.
23.1 --Consent of KPMG Peat Marwick LLP, independent auditors.
23.2 --Consent of KPMG Peat Marwick LLP, independent auditors.
23.3 --Consent of Thompson & Knight, A Professional Corporation (contained
in its opinion to be filed as Exhibit 5.1).
23.4 --Consent of Thompson & Knight, A Professional Corporation (contained
in its opinion to be filed as Exhibit 8.1).
23.5 --Consent of Raymond James & Associates, Inc.
23.6 --Consent of Williamson Petroleum Consultants, independent petroleum
engineers.
23.7 --Consent of Ryder Scott, independent petroleum engineers.
24.1 --Power of attorney (included on the signature page of this
Registration Statement).
99.1 --Form of Proxy of Titan Exploration, Inc. (relating to the Special
Meeting of the stockholders of Titan Exploration, Inc. described in
the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement).
99.2 --Form of Proxy of Offshore Energy Development Corporation (relating to
the Special Meeting of the stockholders of Offshore Energy Development
Corporation described in the Joint Proxy Statement/Prospectus forming
a part of this Registration Statement).
</TABLE>

ITEM 22. UNDERTAKINGS.

(a) Rule 415 Offering.

The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;

II-5
<PAGE>

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bonafide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(g) Registration on Form S-4 of Securities Offered for Resale.

(1) The undersigned Registrant hereby undertakes as follows: That prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is part of this Registration Statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.

(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (g)(1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bonafide offering
thereof.

(h) Acceleration of effectiveness.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

Requests for information incorporated by reference; post-effective
amendments.

The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.

The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MIDLAND, STATE OF
TEXAS, ON THE 13TH DAY OF NOVEMBER, 1997.

TITAN EXPLORATION, INC.

By: /s/ Jack Hightower
---------------------------------
JACK HIGHTOWER CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JACK HIGHTOWER AND WILLIAM K. WHITE, AND EACH
OF THEM (WITH FULL POWER TO EACH OF THEM TO ACT ALONE), HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN EACH CAPACITY STATED
BELOW ANY AMENDMENT, INCLUDING POST-EFFECTIVE AMENDMENTS, TO THIS REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS
IN CONNECTION THEREWITH WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS AND EITHER OF THEM, OR THEIR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

SIGNATURE TITLE DATE

/s/ Jack Hightower Chairman, President November 13,
- ------------------------------------- and Chief Executive 1997
JACK HIGHTOWER Officer and
Director (Principal
Executive Officer)

/s/ William K. White Vice President, November 13,
- ------------------------------------- Finance and Chief 1997
WILLIAM K. WHITE Financial Officer
(Principal
Financial and
Accounting Officer)

/s/ George G. Staley Executive Vice November 13,
- ------------------------------------- President and 1997
GEORGE G. STALEY Director

/s/ David R. Albin Director November 13,
- ------------------------------------- 1997
DAVID R. ALBIN

/s/ Kenneth A. Hersh Director November 13,
- ------------------------------------- 1997
KENNETH A. HERSH

/s/ William J. Vaughn, Jr. Director November 13,
- ------------------------------------- 1997
WILLIAM J. VAUGHN, JR.

II-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 --Exchange Agreement and Plan of Reorganization (filed as Exhibit 2.1
to the Registrant's Registration Statement on Form S-1, Registration
No. 333-14029, and incorporated herein by reference).
2.2 --Amended and Restated Agreement and Plan of Merger, dated as of
November 6, 1997, among Titan Exploration, Inc., Titan Offshore, Inc.
and Offshore Energy Development Corporation (included as Appendix I
to the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement).
2.3 --Agreement and Plan of Merger, dated as of November 4, 1997, among
Titan Exploration, Inc., Titan Bayou Bengal Holdings, Inc. and
Carrollton Resources, L.L.C.
3.1 --Certificate of Incorporation of Titan Exploration, Inc. (filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
3.1.1 --Certificate of Amendment of Certificate of Incorporation of Titan
Exploration, Inc. (filed as Exhibit 3.1.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
3.2 --Bylaws of Titan Exploration, Inc. (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
5.1 --Opinion of Thompson & Knight, A Professional Corporation.
8.1 --Opinion of Thompson & Knight, A Professional Corporation.
10.1.1 --Amendment No. 1 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated December 11, 1995, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners (filed as Exhibit 10.1.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.1.2 --Amendment No. 2 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 27, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners (filed as Exhibit 10.1.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.1.3 --Amendment No. 3 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 30, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners (filed as Exhibit 10.1.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.2 --Amended and Restated Voting and Shareholders Agreement, dated
December 11, 1995, by and among Titan Resources I, Inc., Jack
Hightower, Natural Gas Partners, L.P., Natural Gas Partners II, L.P.,
Joint Energy Development Investments Limited Partnership and First
Union Corporation (filed as Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.3 --Amended and Restated Registration Rights Agreement, dated September
30, 1996, by and among Titan Exploration, Inc., Jack Hightower,
Natural Gas Partners, L.P., Natural Gas Partners II, L.P., Joint
Energy Development Investments Limited Partnership, First Union
Corporation and Selma International Investment Limited (filed as
Exhibit 10.3 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.4 --Financial Advisory Services Contract, dated March 31, 1995, by and
between Titan Resources, L.P. and Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P. (filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.4.1 --First Amendment to Financial Advisory Services Contract, dated
December 11, 1995, between Titan Resources, L.P., Natural Gas
Partners, L.P. and Natural Gas Partners II, L.P. (filed as Exhibit
10.4.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.5 --Employment Agreement, dated September 30, 1996, by and between Titan
Exploration, Inc., Titan Resources I, Inc. and Jack Hightower (filed
as Exhibit 10.5 to the Registrant's Registration Statement on Form S-
1, Registration No. 333-14029, and incorporated herein by reference).
10.6.1 --Form of Confidentiality and Non-compete Agreement among Titan
Resources, L.P., Titan Resources I, Inc. and certain of the
Registrant's executive officers (filed as Exhibit 10.6.1 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.6.2 --Form of Confidentiality and Non-compete Agreement among the
Registrant, Titan Resources I, Inc. and certain of the Registrant's
executive officers (filed as Exhibit 10.6.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.7 --Titan Exploration, Inc. Option Plan (filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.7.1 --Form of Option Agreement (A Option) (filed as Exhibit 10.8.1 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.7.2 --Form of Option Agreement (B Option) (filed as Exhibit 10.8.2 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.7.3 --Form of Option Agreement (C Option) (filed as Exhibit 10.8.3 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.7.4 --Form of Option Agreement (D Option) (filed as Exhibit 10.8.4 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.8 --1996 Incentive Plan (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.9 --Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among Joint Energy Development Investments Limited Partnership, Titan
Resources I, Inc. and Titan Resources, L.P. (filed as Exhibit 10.10
to the Registrant's Registration Statement on Form S-1, Registration
No. 333-14029, and incorporated herein by reference).
10.9.1 --Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.10.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.10 --Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among First Union Corporation, Titan Resources I, Inc. and Titan
Resources, L.P. (filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.10.1 --Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and First Union Corporation (filed as Exhibit 10.11.1
to the Registrant's Registration Statement on Form S-1, Registration
No. 333-14029, and incorporated herein by reference).
10.11 --Advisory Services Contract, dated December 11, 1995, between Titan
Resources, L.P. and ECT Securities Corp. (filed as Exhibit 10.12 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.12 --Amended and Restated Credit Agreement, dated October 31, 1996, among
Titan Resources, L.P. and Texas Commerce Bank National Association,
as Agent, and Financial Institutions now or hereafter parties hereto
(filed as Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-14029, and incorporated herein by
reference).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.12.1 --First Amendment to Amended and Restated Credit Agreement, dated May
12, 1997, among Titan Resources, L.P., The Chase Manhattan Bank, as
Administrative Agent, and Financial Institutions now or thereafter
parties thereto (filed as Exhibit 10.13.1 to the Registrant's Form
10-Q for the quarterly period ended June 30, 1997 and incorporated
herein by reference).
10.12.2 --Form of Guaranty Agreement among The Chase Manhattan Bank, as
Administrative Agent, Financial Institutions now or thereafter
parties thereto and Titan Exploration, Inc., Titan Resources I, Inc.
and Titan Resources Holdings, Inc. (filed as Exhibit 10.13.2 to the
Registrant's Form 10-Q for the quarterly period ended June 30, 1997
and incorporated herein by reference).
10.12.3 --Second Amendment to Amended and Restated Credit Agreement, dated
August 12, 1997, effective as of April 1, 1997, by and among Titan
Resources, L.P., The Chase Manhattan Bank, as Administrative Agent,
and Financial Institutions now or thereafter parties thereto (filed
as Exhibit 10.13.3 to the Registrant's Form 10-Q for the quarterly
period ended September 30, 1997 and incorporated herein by
reference).
10.13 --Agreement of Sale and Purchase, dated April 19, 1995, between
Enertex, Inc. and Titan Resources, L.P. (filed as Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.14 --Agreement of Sale and Purchase, dated April 19, 1995, between Staley
Gas Co., Inc. and Titan Resources, L.P. (filed as Exhibit 10.15 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.15 --Administrative Services Contract, dated March 31, 1995, between
Staley Operating Co. and Titan Resources, L.P. (filed as Exhibit
10.16 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.16 --Services Agreement, dated April 1, 1995, between Titan Resources I,
Inc. and Titan Resources, L.P. (filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-14029, and incorporated herein by reference).
10.17 --Office Lease Agreement, dated April 10, 1997, between Fasken Center,
Ltd. and Titan Exploration, Inc.
10.18 --Purchase and Sale Agreement, dated October 12, 1995, by and between
Anadarko Petroleum Corporation and Titan Resources, L.P. (filed as
Exhibit 10.19 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-14029, and incorporated herein by reference).
10.19 --Amendment No. 1 to Purchase and Sale Agreement, dated December 11,
1995, by and between Anadarko Petroleum Corporation and Titan
Resources, L.P. (filed as Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.20 --Purchase and Sale Agreement, dated July 12, 1996, by and between
Mobil Producing Texas & New Mexico Inc. and Titan Resources, L.P.
(filed as Exhibit 10.21 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-14029, and incorporated herein by
reference).
10.21 --Unit Purchase and Exchange Agreement, dated September 27, 1996, by
and between Selma International Investment Limited and Titan
Resources, L.P. (filed as Exhibit 10.22 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
10.22 --Form of Indemnity Agreement between the Registrant and each of its
executive officers (filed as Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-14029, and
incorporated herein by reference).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.23 --Advisory Director Agreement, dated September 30, 1996, by and
between Titan Exploration, Inc. and Joint Energy Development
Investments Limited Partnership (filed as Exhibit 10.24 to the
Company's Registration Statement on Form S-1, Registration No. 333-
14029, and incorporated herein by reference).
10.24 --Form of Stockholders Voting Agreement, dated November 6, 1997,
between the Registrant and the executive officers and directors of
Offshore Energy Development Corporation.
10.25 --Stockholders Voting Agreement, dated November 6, 1997, between the
Registrant and Natural Gas Partners, L.P.
10.26 --Master Promissory Note, dated March 6, 1997, between Titan
Resources, L.P. and Texas Commerce Bank National Association (filed
as Exhibit 10.25 to the Registrant's Form 10-Q for the quarterly
period ended June 30, 1997 and incorporated herein by reference).
10.27 --Letter Agreement, dated November 6, 1997, among the Registrant and
certain stockholders of the Registrant.
23.1 --Consent of KPMG Peat Marwick LLP, independent auditors.
23.2 --Consent of KPMG Peat Marwick LLP, independent auditors.
23.3 --Consent of Thompson & Knight, A Professional Corporation (contained
in its opinion to be filed as Exhibit 5.1).
23.4 --Consent of Thompson & Knight, A Professional Corporation (contained
in its opinion to be filed as Exhibit 8.1).
23.5 --Consent of Raymond James & Associates, Inc.
23.6 --Consent of Williamson Petroleum Consultants, independent petroleum
engineers.
23.7 --Consent of Ryder Scott, independent petroleum engineers.
24.1 --Power of attorney (included on the signature page of this
Registration Statement).
99.1 --Form of Proxy of Titan Exploration, Inc. (relating to the Special
Meeting of the stockholders of Titan Exploration, Inc. described in
the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement).
99.2 --Form of Proxy of Offshore Energy Development Corporation (relating
to the Special Meeting of the stockholders of Offshore Energy
Development Corporation described in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement).
</TABLE>

<PAGE>

EXHIBIT 2.3

[Execution Copy]

AGREEMENT AND PLAN OF MERGER

AMONG

TITAN EXPLORATION, INC.,

TITAN BAYOU BENGAL HOLDINGS, INC.

AND

CARROLLTON RESOURCES, L.L.C.

NOVEMBER 4, 1997
<PAGE>

TABLE OF CONTENTS

ARTICLE I
THE MERGER..................................................... 1
1.1 The Merger.............................................. 1
1.2 Closing Date............................................ 2
1.3 Consummation of the Merger.............................. 2
1.4 Effects of the Merger................................... 2
1.5 Articles of Organization; Operating Agreement........... 2
1.6 Managers and Officers................................... 2
1.7 Conversion of Securities................................ 2
1.8 Exchange; Fractional Shares............................. 3
1.9 Taking of Necessary Action; Further Action.............. 3
1.10 Adjustment.............................................. 4

ARTICLE II

REPRESENTATIONS AND WARRANTIES................................. 4
2.1 Representations and Warranties of Carrollton............ 4
(a) Organization and Qualification of Carrollton......... 4
(b) Organization and Qualification of the Subsidiary..... 4
(c) Capitalization....................................... 5
(d) Authorization and Validity of Agreement.............. 5
(e) No Approvals or Notices Required; No Conflict........ 6
(f) Financial Statements................................. 6
(g) Conduct of Business in the Ordinary Course;
Absence of Certain Changes and Events................ 7
(h) Litigation........................................... 7
(i) Compliance with Laws and Permits..................... 7
(j) Employees; Employee Benefit Plans.................... 7
(k) Severance Payments................................... 8
(l) Taxes................................................ 8
(m) Books and Records.................................... 9
(n) Voting Requirements.................................. 9
(o) Environmental Matters................................ 9
(p) Insurance............................................ 10
(q) Title to Oil and Gas Interests....................... 11
(r) Oil and Gas Operations............................... 11
(s) Hydrocarbon Sales and Purchase Agreements............ 11
(t) Intellectual Property................................ 11

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<PAGE>

(u) Financial and Commodity Hedging...................... 12
(v) Maintenance of Machinery............................. 12
(w) Gas Imbalances; Calls on Production; Prepayments..... 12
(x) Royalties............................................ 12
(y) Payout Balances...................................... 12
(z) Plugging and Abandonment Liabilities................. 12
(aa)1997 Exploration Activities.......................... 13
(bb) Disclosure.......................................... 13
(cc) Brokerage Fees...................................... 13
(dd) Affiliated Transactions............................. 13
(ee) Accredited Investors................................ 13

2.2 Representations and Warranties of Titan and Sub........... 13
(a) Organization and Compliance with Law................. 13
(b) Capitalization....................................... 14
(c) Authorization and Validity of Agreement.............. 15
(d) No Approvals or Notices Required; No Conflict with
Instruments to which Titan or any of the
Titan Subsidiaries is a Party....................... 15
(e) Commission Filings; Financial Statements.............. 15
(f) Litigation............................................ 16
(g) Interim Operations of Sub............................. 16
(h) Disclosure............................................ 16
(i) Brokerage Fees........................................ 17

ARTICLE III

COVENANTS OF CARROLLTON PRIOR TO THE EFFECTIVE TIME........ 17
3.1 Conduct of Business by Carrollton Pending the Merger 17
3.2 Vote of Members of Carrollton....................... 19
3.3 No Solicitation..................................... 19
3.4 Affiliates' Agreements.............................. 19
3.5 Access to Information; Confidentiality.............. 20

ARTICLE IV

COVENANTS OF TITAN PRIOR TO THE EFFECTIVE TIME............. 20
4.1 Conduct of Business by Titan Pending the Merger....... 20
4.2 Registration Statement................................ 20
4.3 Reservation of Titan Stock............................ 21

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<PAGE>

ARTICLE V

ADDITIONAL AGREEMENTS...................................... 21
5.1 Filings; Consents; Reasonable Efforts................ 21
5.2 Notification of Certain Matters...................... 21
5.3 Agreement to Defend.................................. 21
5.4 Expenses............................................. 22
5.5 Indemnification...................................... 22
5.6 Carrollton Employees................................. 22
5.7 Tax Treatment........................................ 22
5.8 HSR Act Notification................................. 22
5.9 Public Announcements................................. 23
5.10 Indemnification of Brokerage......................... 23

ARTICLE VI

CONDITIONS.................................................. 23
6.1 Conditions to Obligation of Each Party to
Effect the Merger..................................... 23
6.2 Additional Conditions to Obligations of Titan......... 24
6.3 Additional Conditions to Obligations of Carrollton.... 25

ARTICLE VII

MISCELLANEOUS.............................................. 25
7.1 Termination.......................................... 25
7.2 Effect of Termination................................ 26
7.3 Waiver and Amendment................................. 27
7.4 Nonsurvival of Representations, Warranties and
Agreements.......................................... 27
7.5 Assignment........................................... 27
7.6 Notices.............................................. 27
7.7 Governing Law........................................ 28
7.8 Severability......................................... 28
7.9 Counterparts......................................... 28
7.10 Headings............................................. 28
7.11 Entire Agreement; Third Party Beneficiaries.......... 28
7.12 Disclosure Letters................................... 28

ARTICLE VIII

DEFINITIONS................................................ 29
8.1 Certain Defined...................................... 29
8.2 Certain Additional Defined Terms...................... 31

iii
<PAGE>

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger, dated as of the 4th day of November,
1997 (the "Agreement"), is among Titan Exploration, Inc., a Delaware corporation
("Titan"), Titan Bayou Bengal Holdings, Inc., a newly-formed Delaware
corporation and a wholly-owned subsidiary of Titan ("Sub"), and Carrollton
Resources, L.L.C., a Louisiana limited liability company ("Carrollton").

WHEREAS, the respective Boards of Directors of Titan and Sub, and the
Managers of Carrollton, have determined that the acquisition by Titan of
Carrollton is desirable and in the best interests of the stockholders and
members of the respective companies;

WHEREAS, the respective Boards of Directors of Titan and Sub, and the
Managers of Carrollton, have approved the acquisition of Carrollton by Titan
pursuant to the terms of this Agreement;

WHEREAS, the respective Boards of Directors of Titan and Sub, the Managers
of Carrollton, have approved the merger of Sub with and into Carrollton (the
"Merger"), whereby the Class A, Class B and Class C membership units of
Carrollton (collectively, the "Membership Units") will be converted into shares
of common stock, par value $.01 per share, of Titan ("Titan Common Stock"), upon
the terms and subject to the conditions set forth herein;

WHEREAS, for federal income tax purposes, the parties intend that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");

WHEREAS, the parties intend that this Agreement, as it relates to the
Merger, shall constitute a "plan of reorganization" within the meaning of
Treasury Regulation Section 1.368-3; and

WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Titan, Sub and Carrollton hereby agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the Louisiana Limited Liability Company
Act (the "LLLC") and the General Corporation Law of the State of Delaware (the
"DGCL"), at the Effective Time (as defined in Section 1.3) Sub shall be merged
with and into Carrollton. As a result of the Merger, the separate corporate
existence of Sub shall cease and Carrollton shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Entity").
<PAGE>

1.2 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Phelps Dunbar,
L.L.P., Texaco Center, 400 Poydras Street, New Orleans, Louisiana, as soon as
practicable after the satisfaction or waiver of the conditions set forth in
Article VI or at such other time and place and on such other date as Titan and
Carrollton shall agree; provided, that the closing conditions set forth in
Article VI shall have been satisfied or waived at or prior to such time. The
date on which the Closing occurs is herein referred to as the "Closing Date".

1.3 Consummation of the Merger. As soon as practicable on the Closing
Date, the parties hereto will cause the Merger to be consummated by filing with
each of the Secretary of State of Louisiana and the Secretary of State of
Delaware a certificate of merger in such forms as required by, and executed in
accordance with, the relevant provisions of the LLLC and the DGCL. The
"Effective Time" of the Merger as that term is used in this Agreement shall mean
such time as the certificates of merger are duly filed with the Secretary of
State of Louisiana and the Secretary of State of Delaware or at such later time
(not to exceed 90 days from the date the certificates are filed) as is specified
in the certificates of merger pursuant to the mutual agreement of Titan, Sub and
Carrollton.

1.4 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the LLLC and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
properties, rights, privileges, powers and franchises of Carrollton and Sub
shall vest in the Surviving Entity, without any transfer or assignment having
occurred, and all debts, liabilities and duties of Carrollton and Sub shall
attach to the Surviving Entity, all in accordance with the LLLC and the DGCL.

1.5 Articles of Organization; Operating Agreement.

(a) The Articles of Organization of Carrollton, as in effect
immediately prior to the Effective Time, shall be the Articles of
Organization of the Surviving Entity and thereafter shall continue to be
its Articles of Organization until amended as provided therein and under
the LLLC.

(b) The Operating Agreement of Carrollton, as in effect immediately
prior to the Effective Time, shall be the operating agreement of the
Surviving Entity and thereafter shall continue to be its operating
agreement until amended as provided therein and under the LLLC; provided
that at the Effective Time, such operating agreement shall be deemed to be
amended to eliminate separate classes of Membership Units.

1.6 Managers and Officers. The directors of Sub immediately prior to the
Effective Time shall become the managers of the Surviving Entity at and after
the Effective Time, each to hold office in accordance with the Articles of
Organization and Operating Agreement of the Surviving Entity, and the officers
of Sub immediately prior to the Effective Time shall be the officers of the
Surviving Entity at and after the Effective Time, in each case until their
respective successors are duly elected or appointed and qualified.

1.7 Conversion of Securities. Subject to the terms and conditions of this
Agreement, at the Effective Time (regardless of whether such Membership Units
are Class A, Class B or Class C Membership Units), by virtue of the Merger and
without any action on the part of Titan, Sub or their stockholders or Carrollton
or its Members:

2
<PAGE>

(a) Each Membership Unit issued and outstanding immediately prior to
the Effective Time shall be converted into the right to receive .5499791
(the "Exchange Ratio") of a share of Titan Common Stock.

(b) Each share of common stock, par value $.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one membership unit of the Surviving Entity.

1.8 Exchange; Fractional Shares.

(a) As soon as practicable after the Effective Time, each owner of
Membership Units shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of whole shares of
Titan Common Stock into which the Membership Units shall have been
converted as aforesaid, in such denominations and registered in such names
as such holder may request. Each holder of Membership Units who would
otherwise be entitled to a fraction of a share of Titan Common Stock shall
be paid an amount in cash in accordance with the provisions of Section
1.8(c). Until so exchanged, each Membership Unit shall represent solely the
right to receive Titan Common Stock and cash in lieu of fractional shares,
if any.

(b) All shares of Titan Common Stock issued upon the exchange of
Membership Units in accordance with the terms hereof (including any cash
paid pursuant to Section 1.8(d)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Membership Units. At and
after the Effective Time, there shall be no further transfers of Membership
Units that were outstanding immediately prior to the Effective Time.

(c) No fraction of a share of Titan Common Stock shall be issued, but
in lieu thereof each holder of Membership Units who would otherwise be
entitled to a fraction of a share of Titan Common Stock shall be paid an
amount in cash equal to the value of such fraction of a share based upon
the closing sales price of Titan Common Stock, as reported on the NMS on
the last day on which there is a reported trade in the Titan Common Stock
prior to the date on which the Effective Time occurs. No interest shall be
paid on such amount. All Membership Units held by a record holder shall be
aggregated for purposes of computing the number of shares of Titan Common
Stock to be issued pursuant to this Article I and cash in lieu of
fractional shares payable hereunder.

(d) None of Titan, Sub, Carrollton, the Surviving Entity or their
transfer agents shall be liable to a holder of the Membership Units of
Carrollton for any amount properly paid to a public official pursuant to
applicable property, escheat or similar laws.

(e) As soon as practicable after the Effective Time, Titan's transfer
agent shall mail and otherwise make available to each holder of Membership
Units a form of letter of transmittal and instructions for use in effecting
the conversion thereof and payment therefor, which letter of transmittal
shall comply with all applicable rules of the NMS.

3
<PAGE>

and possession to all assets, property, rights, privileges, powers and
franchises of Carrollton or Sub, such persons shall direct their respective
officers and directors or managers, as applicable, to take all such lawful and
necessary action.

1.10 Adjustment. In the event of any stock split, combination,
reclassification, recapitalization, exchange, stock dividend or other
distribution payable in Titan Common Stock with respect to shares of Titan
Common Stock (or if a record date with respect to any of the foregoing actions
should occur) during the period between the date of this Agreement and the
Effective Time, then the number of shares of Titan Common Stock into which each
Membership Unit is to be converted pursuant to this Agreement shall be adjusted
to reflect any such action.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

2.1 Representations and Warranties of Carrollton. Carrollton hereby
represents and warrants to Titan that:

(a) Organization and Qualification of Carrollton. Carrollton is duly
organized, validly existing and in good standing under the laws of the
State of Louisiana and has all requisite power and authority and all
necessary governmental authorizations to own, lease and operate all of its
properties and assets and to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing
or to have such authority would not reasonably be expected to have a
Material Adverse Effect. Except as set forth in Section 2.1(a) of the
disclosure letter delivered by Carrollton to Titan on the date hereof (the
"Carrollton Disclosure Letter"), Carrollton is duly qualified to do
business, and is in good standing, in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. No actions or proceedings to dissolve
Carrollton are pending. Carrollton has heretofore delivered to Titan true
and complete copies of Carrollton's Articles of Organization and its
Operating Agreement (the "Carrollton Organizational Documents") as in
existence on the date hereof.

(b) Organization and Qualification of the Subsidiary. Except for
Carrollton Resources, Corp., a Louisiana corporation (the "Carrollton
Subsidiary"), Carrollton does not own, directly or indirectly, the capital
stock or other securities of any corporation or partnership or have any
direct or indirect equity or ownership interest in any other person.
Section 2.1(b) of the Carrollton Disclosure Letter lists the authorized (in
the case of capital stock) and outstanding capital stock or other equity
interests of the Carrollton Subsidiary. The Carrollton Subsidiary is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Louisiana. The Carrollton Subsidiary is duly
qualified to do business and is in good standing in each jurisdiction in
which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Carrollton Subsidiary has all
requisite corporate power

4
<PAGE>

and authority to own, lease, and operate its properties and to carry on its
business as now being conducted. No actions or proceedings to dissolve the
Carrollton Subsidiary are pending. All outstanding shares of capital stock
of the Carrollton Subsidiary have been validly issued and are fully paid
and nonassessable. No shares of capital stock or other equity interests of
the Carrollton Subsidiary are subject to, nor have any been issued in
violation of, preemptive or similar rights.

(i) As of the date hereof there are issued and outstanding
1,636,425.6. Membership Units in Carrollton, which Membership Units
represent all of the outstanding equity interests in Carrollton. The
Membership Units and the holders thereof (the "Members") are as set
forth in Section 2.1(c)(i) of the Carrollton Disclosure Letter. All
Membership Units are validly issued, fully paid and nonassessable and
no holder thereof is entitled to preemptive rights. Except as set
forth in the Carrollton Organizational Documents, Carrollton is not a
party to, and is not aware of, any voting agreement, voting trust or
similar agreement or arrangement relating to any class or series of
its equity interests, or any agreement or arrangement providing for
registration rights with respect to any Membership Units or other
securities of Carrollton. At the Closing there will not be any
Membership Units or other equity securities of Carrollton outstanding
other than the Membership Units set forth in Section 2.1(c)(i) of the
Carrollton Disclosure Letter.

(ii) Section 2.1(c)(ii) of the Carrollton Disclosure Letter sets
forth all outstanding options, warrants, scrip, rights to subscribe
for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of
any class of equity interests of Carrollton or any Carrollton
Subsidiary, or contracts, understandings or arrangements to which
Carrollton or any Carrollton Subsidiary is a party, or by which
Carrollton or any Carrollton Subsidiary is or may be bound, to issue
additional Membership Units or equity interests or options, warrants,
scrip or rights to subscribe for, or securities or rights convertible
into or exchangeable for, any Membership Units or other equity
interests (collectively, the "Carrollton Options"). On or prior to
the Closing, Carrollton shall take all such action necessary to cancel
all of the Carrollton Options, and no holder of Carrollton Options
shall have the right to acquire Membership Units or other equity
securities of Carrollton as a consequence of the exercise of any
Carrollton Options.

(iii) All outstanding shares of capital stock of the Carrollton
Subsidiary are owned by Carrollton, free and clear of all Encumbrances.

(d) Authorization and Validity of Agreement. Carrollton has all
requisite power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery by Carrollton of
this Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary action (subject only,
with respect to the Merger, to approval of this Agreement by its Members as
provided for in Section 3.2). On or prior to the date hereof the Managers
of Carrollton (the "Managers") determined to recommend approval of the
Merger to the Members of Carrollton, and such determination is in effect as
of the date hereof. This Agreement has been duly executed and delivered by
Carrollton and is the valid and binding obligation of Carrollton,
enforceable against Carrollton in accordance with its terms.

5
<PAGE>

(e) No Approvals or Notices Required; No Conflict. Except as set
forth in Section 2.1(e) of the Carrollton Disclosure Letter, neither the
execution and delivery of this Agreement nor the performance by Carrollton
of its obligations hereunder, nor the consummation of the transactions
contemplated hereby by Carrollton, will (i) conflict with the Carrollton
Organizational Documents or the charter or bylaws of the Carrollton
Subsidiary; (ii) assuming satisfaction of the requirements set forth in
clause (iii) below, violate any provision of law applicable to Carrollton
or the Carrollton Subsidiary; (iii) except for (A) requirements of Federal
or state securities laws, (B) requirements arising out of the HSR Act, (C)
requirements of notice filings in such foreign jurisdictions as may be
applicable, and (D) the filing of articles of merger in accordance with the
LLLC and the DGCL, require any consent or approval of, or filing with or
notice to, any Governmental Entity, domestic or foreign, under any
provision of law applicable to Carrollton or the Carrollton Subsidiary; or
(iv) require any consent, approval or notice under, or violate, breach, be
in conflict with or constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the creation or imposition of
any lien upon any properties, assets or business of Carrollton or the
Carrollton Subsidiary under, any note, bond, indenture, mortgage, deed of
trust, lease, franchise, permit, authorization, license, contract,
instrument, partnership agreement or other agreement or commitment or any
order, judgment or decree to which Carrollton or the Carrollton Subsidiary
is a party or by which Carrollton or the Carrollton Subsidiary or any of
their assets or properties is bound or encumbered, except (A) those that
have already been given, obtained or filed, (B) those that are required
pursuant to bank loan agreements or leasing arrangements, as set forth in
Section 2.1(e) of the Carrollton Disclosure Letter, which will be obtained
prior to the Effective Time, and (C) those that, in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. No property
of Carrollton or the Carrollton Subsidiary is subject to a preferential
right to purchase that is applicable to the transactions contemplated by
this Agreement

(f) Financial Statements. Carrollton has delivered to Titan accurate
and complete copies of (i) Carrollton's audited consolidated balance sheet
as of December 31, 1996, and the related audited consolidated statements of
income, members' equity and cash flows and changes in financial position
for the year then ended, and the notes and schedules thereto, together with
the unqualified report thereon of Arthur Andersen LLP, independent public
accountants (the "Audited Financial Statements"), and (ii) Carrollton's
unaudited consolidated balance sheet as of June 30, 1997 (the "Latest
Balance Sheet"), and the related unaudited consolidated statements of
income, members' equity and cash flows and changes in financial position
for the six-month period then ended (the "Unaudited Financial
Statements") (collectively, the "Financial Statements"). The Financial
Statements (i) represent actual bona fide transactions, (ii) have been
prepared from the books and records of Carrollton and the Carrollton
Subsidiary in conformity with generally accepted accounting principles
applied on a basis consistent with preceding years throughout the periods
involved, except that the Unaudited Financial Statements may not be
accompanied by notes or other textual disclosure required by generally
accepted accounting principles, and (iii) accurately, completely, and
fairly present Carrollton's consolidated financial position as of the
respective dates thereof and its consolidated results of operations and
cash flows and changes in financial position for the periods then ended. As
of the date hereof, Carrollton has no liabilities, absolute or contingent,
that may reasonably be expected to have a Material Adverse Effect on
Carrollton and the Carrollton Subsidiaries that are not reflected in the
Financial Statements, except (i) those incurred in the ordinary course of
business consistent with past operations and not relating to the borrowing
of money, and (ii) those set forth in Section 2.1(f) of the Carrollton
Disclosure Letter.

6
<PAGE>

(g) Conduct of Business in the Ordinary Course; Absence of Certain
Changes and Events. Since January 1, 1997, except as contemplated by this
Agreement or as set forth in Section 2.1(g) of the Carrollton Disclosure
Letter, Carrollton and the Carrollton Subsidiary have conducted their
business only in the ordinary and usual course, and there has not been (i)
any Material Adverse Effect pertaining to Carrollton and the Carrollton
Subsidiary, or any condition, event or development that reasonably may be
expected to result in any such Material Adverse Effect; (ii) any material
change by Carrollton in its accounting methods, principles or practices;
(iii) any revaluation by Carrollton or the Carrollton Subsidiary of any of
their assets, including, without limitation, writing down the value of
properties or assets or writing off notes or accounts receivable other than
in the ordinary course of business; (iv) any entry by Carrollton or the
Carrollton Subsidiary into any commitment or transaction material to
Carrollton and the Carrollton Subsidiary, taken as a whole; (v) any
increase in indebtedness for borrowed money; (vi) any granting of a
security interest or lien on any material property or assets of Carrollton
and the Carrollton Subsidiary, taken as a whole, other than Permitted
Encumbrances; or (vii) any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan or any other
increase in the compensation payable or to become payable to any officers
or key employees of Carrollton or the Carrollton Subsidiary.

(h) Litigation. Except as set forth in Section 2.1(h) of the
Carrollton Disclosure Letter, there are no claims, actions, suits,
investigations, inquiries or proceedings pending or, to the knowledge of
Carrollton, overtly threatened against or affecting Carrollton or the
Carrollton Subsidiary or any of their respective properties at law or in
equity, or any of their respective employee benefit plans or fiduciaries of
such plans, or before or by any Governmental Entity or before any
arbitration board or panel, wherever located.

(i) Compliance with Laws and Permits. Each of Carrollton and the
Carrollton Subsidiary (i) has complied with all Applicable Laws (including
without limitation Applicable Laws relating to securities, properties,
production, sales, gathering and transportation of hydrocarbons, employment
practices, terms and conditions of employment, wages and hours, safety,
occupational safety, product safety, and civil rights) other than
violations which do not and would not reasonably be expected to have a
Material Adverse Effect; (ii) has obtained and hold all material permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Entities necessary for the lawful
conduct of its business or the lawful ownership, use and operation of its
assets; (iii) has not received any written notice, which has not been
dismissed or otherwise disposed of, that it has not so complied; and (iv)
has not been charged or, to the best knowledge of Carrollton, threatened
with, or, to the best knowledge of Carrollton, under investigation with
respect to, any violation of any Applicable Law relating to any aspect of
the business of Carrollton or the Carrollton Subsidiary other than
violations which do not and would not reasonably be expected to have a
Material Adverse Effect.

(j) Employees; Employee Benefit Plans.

(i) Section 2.1(j) of the Carrollton Disclosure Letter sets forth
a list of all employees of Carrollton and the Carrollton Subsidiary,
as well as the title and annual compensation of each such employee.

7
<PAGE>

(ii) None of Carrollton, the Carrollton Subsidiary nor any
corporation, trade, business or entity under common control with
Carrollton or the Carrollton Subsidiary within the meaning of Section
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA
contributes to or has an obligation to contribute to, or has at any
time contributed to or had an obligation to contribute to, a plan
subject to Title IV of ERISA, including, without limitation, a
multiemployer plan within the meaning of Section 3(37) of ERISA.

(k) Severance Payments. Neither Carrollton nor the Carrollton
Subsidiary owes or will owe a severance payment or similar obligation to
any of their respective employees, officers or Managers as a result of the
Merger or the transactions contemplated by this Agreement, nor will any of
such persons be entitled to an increase in severance payments or other
benefits as a result of the Merger or the transactions contemplated by this
Agreement in the event of the subsequent termi nation of their employment.

(l) Taxes. All Tax Returns of or relating to any Tax that are
required to be filed on or before the Closing Date by or with respect to
Carrollton or the Carrollton Subsidiary, or any other corporation that is
or was a member of an affiliated group (within the meaning of Section
1504(a) of the Code) of corporations of which Carrollton was a member for
any period ending on or prior to the Closing Date, have been or will be
duly and timely filed, and all Taxes, including interest and penalties, due
and payable pursuant to such Tax Returns have been paid or adequately
provided for in reserves established by Carrollton. All U.S. Federal
income Tax Returns of or with respect to Carrollton or the Carrollton
Subsidiary have been audited by the applicable Governmental Entity, or the
applicable statute of limitations has expired, for all periods up to and
including the tax year ended December 31, 1993. There is no material claim
against Carrollton or the Carrollton Subsidiary with respect to any Taxes,
and no material assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to Carrollton or
the Carrollton Subsidiary that has not been adequately provided for in
reserves established by Carrollton. The total amounts set up as
liabilities for current and deferred Taxes in the Financial Statements have
been prepared in accordance with generally accepted accounting principles
and are sufficient to cover the payment of all material Taxes, including
any penalties or interest thereon and whether or not assessed or disputed,
that are, or are hereafter found to be, or to have been, due with respect
to the operations of Carrollton and the Carrollton Subsidiary through the
periods covered thereby. Carrollton and the Carrollton Subsidiary have (and
as of the Closing Date will have) made all deposits (including estimated
tax payments for taxable years for which the consolidated federal income
tax return is not yet due) required with respect to Taxes. No waiver or
extension of any statute of limitations as to any federal or local Tax
matter has been given by or requested from Carrollton or the Carrollton
Subsidiary. Except for statutory liens for current Taxes not yet due, no
liens for Taxes exist upon the assets of either Carrollton or the
Carrollton Subsidiary. Neither Carrollton nor the Carrollton Subsidiary
has filed consolidated income Tax Returns with any corporation, other than
consolidated federal and state income Tax Returns by Carrollton, for any
taxable period which is not now closed by the applicable statute of
limitations. Neither Carrollton nor the Carrollton Subsidiary has any
deferred intercompany gain within the meaning of Treasury Regulation
Section 1.1502-13 or any predecessor provision.

Following the Merger, Carrollton will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of
its gross assets held immediately prior to the Merger. For purposes of
this representation, amounts paid by Carrollton to Members who receive

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cash or other property, amounts used by Carrollton to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Carrollton will be included as assets of Carrollton
immediately prior to the Merger. As of the Closing Date, there is no plan
or intention by the Members of Carrollton to sell, exchange or otherwise
dispose of a number of shares of Titan Common Stock received in the Merger
that would reduce the Carrollton Members' ownership of Titan Common Stock
to a number of shares having a value, as of the date of the Merger, of less
than 50% of the value of all of the formerly outstanding Membership Units
as of the same date. For purposes of this representation, Membership Units
exchanged for cash or other property or exchanged in lieu of fractional
shares of Titan Common Stock will be treated as outstanding Carrollton
Membership Units on the date of the Merger. Moreover, the shares of Titan
Common Stock or Membership Units held by the Carrollton Members and
otherwise sold, redeemed or disposed of prior or subsequent to the Merger
will be considered in making this representation.

(m) Books and Records. All books, records and files of Carrollton
and the Carrollton Subsidiary (including those pertaining to oil and gas
properties, wells and other assets, those pertaining to the production,
gathering, transportation and sale of hydrocarbons, and corporate,
accounting, financial and employee records) (i) have been prepared,
assembled and maintained in accordance with usual and customary policies
and procedures and (ii) fairly and accurately reflect in all material
respects the ownership, use, enjoyment and operation by Carrollton and the
Carrollton Subsidiary of their respective assets.

(n) Voting Requirements. The affirmative vote of the holders of 66%
of the outstanding Membership Units voting together rather than separately
as a class is the only vote of the holders of any class or series of the
Members of Carrollton necessary to approve this Agreement and the Merger.

(o) Environmental Matters. Except as would not reasonably be
expected to have a Material Adverse Effect:

(i) Each of Carrollton and the Carrollton Subsidiary has conducted
its business and operated its assets, and is conducting its business
and operating its assets, in material compliance with all Applicable
Laws pertaining to health, safety, the environment, Hazardous Material
(as such term is defined in CERCLA), or Solid Wastes (as such term is
defined in RCRA) (such Applicable Laws as they now exist or are
hereafter enacted and/or amended are collectively, for purposes of
this Agreement, called "Environmental Laws"), including without
limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended, for purposes of this Section,
called "CERCLA"), the Resource Conservation and Recovery Act of 1976,
as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984 (as amended, for purposes of this Section, called
"RCRA");

(ii) Neither Carrollton nor the Carrollton Subsidiary has been
notified by any Governmental Entity that any of the operations or
assets of any of such persons is the subject of any investigation or
inquiry by any Governmental Entity evaluating whether any material
remedial action is needed to respond to a release of any Hazardous
Material or to

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<PAGE>

the improper storage or disposal (including storage or disposal at
offsite locations) of any Hazardous Material;

(iii) Neither Carrollton nor the Carrollton Subsidiary and, to
Carrollton's knowledge, no other person has filed any notice under any
federal, state or local law indicating that (i) Carrollton or the
Carrollton Subsidiary is responsible for the improper release into the
environment, or the improper storage or disposal, of any Hazardous
Material, or (ii) any Hazardous Material is improperly stored or
disposed of upon any property of any of Carrollton or the Carrollton
Subsidiary;

(iv) Neither Carrollton nor the Carrollton Subsidiary has any
material contingent liability in connection with (A) the release into
the environment at or on any property now or previously owned or
leased by any of such persons, or (B) storage or disposal of any
Hazardous Material;

(v) In the last six years, neither Carrollton nor the Carrollton
Subsidiary has received any claim, complaint, notice, inquiry or
request for information which remains unresolved as of the date hereof
with respect to any alleged material violation of any Environmental
Law or regarding potential material liability under any Environmental
Law relating to operations or conditions or any facilities or property
owned, leased or operated by any of such persons;

(vi) No property now or previously owned, leased or operated by
Carrollton or the Carrollton Subsidiary is listed on the National
Priorities List pursuant to CERCLA or on any similar federal or state
list as sites requiring investigation or cleanup;

(vii) Neither Carrollton nor the Carrollton Subsidiary is directly
transporting, has directly transported, is directly arranging for the
transportation of, or has directly transported, any Hazardous Material
to any location which is listed on the National Priorities List
pursuant to CERCLA or on any similar federal or state list or which is
the subject of federal, state or local enforcement actions that may
lead to material claims against such company for remedial work, damage
to natural resources or personal injury, including claims under
CERCLA;

(viii) There are no sites, locations or operations at which either
Carrollton or the Carrollton Subsidiary is currently undertaking any
remedial or response action relating to any disposal or release of any
Hazardous Material, as required by Environmental Laws; and

(ix) All underground storage tanks and solid waste disposal
facilities owned or operated by Carrollton or the Carrollton
Subsidiary are used and operated in material compliance with
Environmental Laws.

(p) Insurance. All material properties and material risks of
Carrollton and the Carrollton Subsidiary are covered by valid and currently
effective insurance policies or binders of insurance or programs of self-
insurance in such types and amounts and with such deductible amounts as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of Carrollton and the Carrollton
Subsidiary. Neither

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<PAGE>

Carrollton nor the Carrollton Subsidiary shall have any liability for
retroactive price adjustments arising under such insurance coverage based
on levels of actual activity during the time period of such coverage. Set
forth on Section 2.1(p) of the Carrollton Disclosure Letter is a list of
all (i) policies of fire, liability, casualty, life and other insurance
currently in force, and (ii) the termination dates for each such policy.

(q) Title to Oil and Gas Interests. Section 2.1(q) of the Carrollton
Disclosure Letter contains a complete list of the Oil and Gas Interests of
Carrollton and the Carrollton Subsidiaries. Each of the Oil and Gas
Interests has the applicable "net revenue interest" and "working interest"
set forth in Section 2.1(q) of the Carrollton Disclosure Letter. The title
of Carrollton or the Carrollton Subsidiary to each of the Oil and Gas
Interests is Defensible Title. Except as shown on Section 2.1(q) of the
Carrollton Disclosure Letter, none of the Oil and Gas Interests is burdened
by any production payment, net profits interest, reversionary interest or
similar interest. The oil and gas leases included within the Oil and Gas
Interests are in full force and effect and are not in dispute by any of the
parties to such leases.

(r) Oil and Gas Operations. Except as otherwise set forth in Section
2.1(r) of the Carrollton Disclosure Letter:

(i) All wells included in the Oil and Gas Interests of Carrollton
have been drilled and (if completed) completed, operated and produced
in accordance with generally accepted oil and gas field practices and
in compliance in all material respects with Applicable Law, except
where any failure or violation could not reasonably be expected to
have a Material Adverse Effect on Carrollton.

(ii) Proceeds from the sale of hydrocarbons produced from
Carrollton's Oil and Gas Interests are being received by Carrollton in
a timely manner and are not being held in suspense for any reason
(except for amounts, individually or in the aggregate, not in excess
of $50,000 and held in suspense in the ordinary course of business).

(s) Hydrocarbon Sales and Purchase Agreements. Section 2.1(s) of the
Carrollton Disclosure Letter contains a complete list of the Hydrocarbon
Agreements to which either Carrollton or the Carrollton Subsidiary is a
party. Except as otherwise set forth in Section 2.1(s) of the Carrollton
Disclosure Letter, each of the Hydrocarbon Agreements is valid, binding and
in full force and effect, and no party is in material breach or default of
any Hydrocarbon Agreement, and no event has occurred (including for this
purpose, the execution of this Agreement or the consummation of the Merger)
that with notice or lapse of time (or both) would constitute a material
breach or default or permit termination, modification or acceleration under
any Hydrocarbon Agreement.

(t) Intellectual Property. Carrollton and the Carrollton Subsidiary
either own or have valid licenses or other rights to use all patents,
copyrights, trademarks, software, databases, geological data, geophysical
data, seismic or seismic interpretational data, engineering data, maps,
interpretations and other technical information used in their businesses as
presently conducted, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for
companies engaged in the business of the exploration and production of oil,
gas, condensate and other hydrocarbons. There are no limitations contained
in the agreements of the type described in the immediately preceding
sentence which, upon consummation of the

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<PAGE>

Merger, will alter or impair any such rights, breach any such agreement
with any third party vendor, or require payments of additional sums
thereunder. Carrollton and the Carrollton Subsidiary are in compliance in
all material respects with such licenses and agreements and there are no
pending or threatened claims, actions, suits or proceedings challenging or
questioning the validity or effectiveness of any license or agreement
relating to such property or the right of Carrollton or the Carrollton
Subsidiary to use, copy, modify or distribute the same.

(u) Financial and Commodity Hedging. Carrollton has no outstanding
hydrocarbon and financial hedging positions (including fixed price
controls, collars, swaps, caps, hedges and puts) as of the date hereof.

(v) Maintenance of Machinery. All equipment and machinery owned by
Carrollton or the Carrollton Subsidiary has had reasonable and prudent
maintenance upkeep and repair since the date it was acquired thereby.

(w) Gas Imbalances; Calls on Production; Prepayments. Except as is
reflected in Section 2.1(w) of the Carrollton Disclosure Letter, (i)
neither Carrollton nor the Carrollton Subsidiary has received any
deficiency payments under gas contracts for which any party has a right to
take deficiency gas therefrom nor received any payments for production
which are subject to refund or recoupment out of future production; (ii)
no prepayment for hydrocarbon sales has been received by Carrollton nor the
Carrollton Subsidiary for hydrocarbons which have not been delivered as of
the date hereof; and (iii) no party has a call or preferential right to
purchase production from any of Carrollton's or the Carrollton Subsidiary's
Oil and Gas Interests.

(x) Royalties. To the knowledge of Carrollton (after due inquiry) as
to wells not operated by Carrollton or the Carrollton Subsidiary, and
without qualification as to knowledge as to all wells operated by
Carrollton or the Carrollton Subsidiary, all royalties, overriding
royalties, compensatory royalties and other payments due from or in respect
of production with respect to Carrollton's or the Carrollton Subsidiary's
Oil and Gas Interests, have been or will be, prior to the Effective Time,
properly and correctly paid or provided for in all material respects,
except for those for which Carrollton or any Carrollton Subsidiary has a
valid right to suspend.

(y) Payout Balances. Except as reflected in Section 2.1(y) of the
Carrollton Disclosure Letter, to the knowledge of Carrollton, and based on
information given to Carrollton by third-party operators for all wells not
operated by Carrollton or the Carrollton Subsidiary, the Payout Balance for
any well owned by Carrollton or the Carrollton Subsidiary is properly
reflected in the Carrollton Disclosure Letter as of the respective dates
shown thereon. "Payout Balance(s)" means the status, as of the dates of
Carrollton's calculations, of the recovery by Carrollton or a third party
of a cost amount specified in the contract relating to a well out of the
revenue from such well where the net revenue interest of Carrollton or the
Carrollton Subsidiary therein will be reduced when such amount has been
recovered.

(z) Plugging and Abandonment Liabilities. Except to the extent
expressly set forth in Section 2.1(z) of the Carrollton Disclosure Letter,
neither Carrollton nor the Carrollton Subsidiary has any obligation as of
the date hereof under Applicable Law to plug and abandon any well.

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<PAGE>

(aa) 1997 Exploration Activities. Section 2.1(aa) of the Carrollton
Disclosure Letter sets forth a listing of all exploration and development
activities in which Carrollton or the Carrollton Subsidiary has elected to
participate since January 1, 1997 and with respect to which Carrollton or
the Carrollton Subsidiary has expended or committed to expend $100,000 or
more. Carrollton has provided Titan with full access to information (to
the extent Carrollton or the Carrollton Subsidiary has such information in
its possession or has access to such information) regarding the status and
results of all such activities, including, without limitation, well logs,
results of drill stem tests, production information and other pertinent
information.

(bb) Disclosure. All factual information heretofore furnished by
Carrollton to Titan for purposes of or in connection with the transactions
contemplated by this Agreement, including, without limitation, all
historical production and cost information pertaining to the Oil and Gas
Interests, reserve reports, maps and well logs, has been true and accurate
in all material respects. All estimates furnished by Carrollton were
prepared on the basis of assumptions, data, information, tests or
conditions believed to be valid or accurate or to exist at the time such
estimates were prepared.

(cc) Brokerage Fees. Except as set forth in Section 2.1(cc) of the
Carrollton Disclosure Letter, neither Carrollton nor any of its affiliates
has retained any financial advisor, broker, agent, or finder or paid or
agreed to pay any financial advisor, broker, agent, or finder on account of
this Agreement or any transaction contemplated hereby.

(dd) Affiliated Transactions. Except as set forth in Section 2.1(dd)
of the Carrollton Disclosure Letter, other than the payment of wages and
salaries in accordance with the ordinary and usual payroll practices of
Carrollton, there are no agreements, arrangements or understandings
(written or oral, formal or informal) to which Carrollton or the Carrollton
Subsidiary is a party with any current or former director, officer,
employee, consultant or advisor or any affiliate of any such person by
which any such person shall receive any compensation, consideration or
benefit of any kind (whether cash or property) from Carrollton or the
Carrollton Subsidiary.

(ee) Accredited Investors. With the exception of not more than 35
Members of Carrollton, each Member of Carrollton (i) is an "accredited
investor" as defined in Rule 501 of the rules promulgated pursuant to the
Securities Act; and (ii) has such knowledge and experience in financial and
business matters in general that it has the capacity to evaluate the merits
and risks of an investment in the Titan Common Stock and to protect its own
interest in connection with its approval of the transaction contemplated in
this Agreement.

2.2 Representations and Warranties of Titan and Sub. Titan and Sub hereby
jointly and severally represent and warrant to Carrollton that:

(a) Organization and Compliance with Law. Each of Titan and its
consolidated subsidiaries (the "Titan Subsidiaries") is a corporation or
partnership duly organized, validly existing and, to the extent applicable,
in good standing under the laws of the jurisdiction in which it is
chartered or organized and has all requisite corporate or partnership power
and corporate or partnership authority and all necessary governmental
authorizations to own, lease and operate all of its properties and assets
and to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such
authority would not

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<PAGE>

reasonably be expected to have a Material Adverse Effect on Titan and the
Titan Subsidiaries. Except as set forth in Section 2.2(a) of the disclosure
letter delivered by Titan to Carrollton on the date hereof (the "1 Titan
Disclosure Letter"), each of Titan and the Titan Subsidiaries is duly
qualified as a foreign corporation or partnership to do business, and, to
the extent applicable, is in good standing, in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Titan and the Titan Subsidiaries. Each of
Titan and the Titan Subsidiaries is in compliance with all applicable laws,
judgments, orders, rules and regulations, domestic and foreign, except
where failure to be in such compliance would not reasonably be expected to
have a Material Adverse Effect on Titan and the Titan Subsidiaries, taken
as a whole. Titan has heretofore delivered to Carrollton true and complete
copies of Titan's Certificate of Incorporation, as amended (the "Titan
Certificate"), and bylaws as in existence on the date hereof.

(b) Capitalization.

(i) The authorized capital stock of Titan consists of 60,000,000
shares of Titan Common Stock, par value $.01 per share. As of July
31, 1997, there were issued and outstanding 33,943,543 shares of Titan
Common Stock and no shares of Titan Common Stock were held as treasury
shares. As of July 31, 1997, an aggregate of 4,479,320 shares of
Titan Common Stock were reserved for issuance and issuable pursuant to
Titan's Stock Option Plan and 1996 Incentive Plan, or upon the
exercise of outstanding employee or non-employee director stock
options granted under Titan's stock option plans and agreements. All
issued shares of Titan Common Stock are validly issued, fully paid and
nonassessable and no holder thereof is entitled to preemptive rights.
All shares of Titan Common Stock to be issued pursuant to the Merger,
when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable and will not violate the preemptive
rights of any person. Except as set forth in Section 2.2(b) of the
Titan Disclosure Letter, Titan is not a party to, and is not aware of,
any voting agreement, voting trust or similar agreement or arrangement
relating to any class or series of its capital stock, or any agreement
or arrangement providing for registration rights with respect to any
capital stock or other securities of Titan.

(ii) As of July 31, 1997, there were outstanding options to purchase
3,918,820 shares of Titan Common Stock pursuant to the plans
referenced in Section 2.2(b)(i) above (the "Titan Options"). Other
than as set forth in Section 2.2(b) of the Titan Disclosure Letter, as
set forth in this Section 2.2(b) and except for issuances contemplated
by this Agreement in connection with the Merger, there are not now,
and at the Effective Time there will not be, any (A) shares of capital
stock or other equity securities of Titan outstanding (other than
Titan Common Stock issued pursuant to the exercise of Titan Options as
described herein) or (B) except for options granted pursuant to any of
the plans referenced above, outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any class of capital stock of Titan, or
contracts, understandings or arrangements to which Titan is a party,
or by which it is or may be bound, to issue additional shares of its
capital stock or options, warrants, scrip or rights to subscribe for,
or securities or rights convertible into or exchangeable for, any
additional shares of its capital stock.

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<PAGE>

(iii) Except as set forth in Section 2.2(b) of the Titan
Disclosure Letter, all outstanding shares of capital stock of the Titan
Subsidiaries are owned by Titan, a wholly-owned subsidiary of Titan or
individuals who hold nominal quantities of shares on behalf of Titan or
such a subsidiary as director's qualifying shares, free and clear of all
Encumbrances which would reasonably be expected to have a Material Adverse
Effect.

(iv) As of the date hereof, the authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of
which are validly issued, fully paid and nonassessable and are owned by
Titan.

(d) No Approvals or Notices Required; No Conflict with Instruments to
which Titan or any of the Titan Subsidiaries is a Party. Neither the
execution and delivery of this Agreement nor the performance by Titan or
Sub of its obligations hereunder, nor the consummation of the transactions
contemplated hereby by Titan and Sub, will (i) conflict with the Titan
Certificate or the bylaws of Titan or the charter or bylaws of any of the
Titan Subsidiaries; (ii) assuming satisfaction of the requirements set
forth in clause (iii) below, violate any provision of law applicable to
Titan or any of the Titan Subsidiaries; (iii) except for (A) requirements
of Federal or state securities laws, (B) requirements arising out of the
HSR Act, (C) requirements of notice filings in such foreign jurisdictions
as may be applicable, and (D) the filing of a certificate of merger by
Carrollton and Sub in accordance with the LLLC and the DGCL, require any
consent or approval of, or filing with or notice to, any Governmental
Entity, domestic or foreign, under any provision of law applicable to Titan
or any of the Titan Subsidiaries; or (iv) require any consent, approval or
notice under, or violate, breach, be in conflict with or constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any provision of,
or result in the creation or imposition of any lien upon any properties,
assets or business of Titan or any of the Titan Subsidiaries under, any
note, bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or
commitment or any order, judgment or decree to which Titan or any of the
Titan Subsidiaries is a party or by which Titan or any of the Titan
Subsidiaries or any of its or their assets or properties is bound or
encumbered, except (A) those that have already been given, obtained or
filed, (B) those that are required pursuant to bank loan agreements, as set
forth in Section 2.2(d) of the Titan Disclosure Letter, which will be
obtained prior to the Effective Time, and (C) those that, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.

(e) Commission Filings; Financial Statements. Titan and each of the
Titan Subsidiaries have filed all reports, registration statements and
other filings, together with any amendments required to be made with
respect thereto, that they have been required to file with the Commission

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<PAGE>

under the Securities Act and the Exchange Act. All reports, registration
statements and other filings (including all notes, exhibits and schedules
thereto and documents incorporated by reference therein) filed by Titan
with the Commission since December 13, 1996, through the date of this
Agreement, together with any amendments thereto, are sometimes collectively
referred to as the "Titan Commission Filings". Titan has heretofore
delivered to Carrollton copies of the Titan Commission Filings. As of the
respective dates of their filing with the Commission, the Titan Commission
Filings complied in all material respects with the Securities Act, the
Exchange Act and the rules and regulations of the Commission thereunder,
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.

(f) Litigation. Except as disclosed in the Titan Commission Filings
or as set forth in Section 2.2(f) of the Titan Disclosure Letter, there are
no claims, actions, suits, investigations, inquiries or proceedings pending
or, to the knowledge of Titan, overtly threatened against or affecting
Titan or any of the Titan Subsidiaries or any of their respective
properties at law or in equity, or any of their respective employee benefit
plans or fiduciaries of such plans, or before or by any Governmental
Entity, or before any arbitration board or panel, wherever located, that
individually or in the aggregate if adversely determined would reasonably
be expected to have a Material Adverse Effect on Titan and the Titan
Subsidiaries, or that involve the risk of criminal liability.

(g) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby.

(h) Disclosure. All factual information heretofore furnished by
Titan to Carrollton for purposes of or in connection with the transactions
contemplated by this Agreement has been true and accurate in all material
respects. All estimates furnished by Titan were prepared on the basis of

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<PAGE>

assumptions, data, information, tests or conditions believed to be valid or
accurate or to exist at the time such estimates were prepared.

(i) Brokerage Fees. Neither Titan nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed
to pay any financial advisor, broker, agent, or finder on account of this
Agreement or any transaction contemplated hereby.

ARTICLE III

COVENANTS OF CARROLLTON PRIOR TO THE EFFECTIVE TIME

3.1 Conduct of Business by Carrollton Pending the Merger. Carrollton
covenants and agrees that, from the date of this Agreement until the Effective
Time, unless Titan shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement or set forth in Section 3.1 of the Carrollton
Disclosure Letter:

(a) the business of Carrollton and the Carrollton Subsidiary shall be
conducted only in, and Carrollton and the Carrollton Subsidiary shall not
take any action except in, the ordinary course of business and consistent
with past practice;

(b) Carrollton shall not directly or indirectly do any of the
following: (i) issue, sell, pledge, dispose of or encumber, or permit the
Carrollton Subsidiary to issue, sell, pledge, dispose of or encumber, (A)
any Membership Units or any equity interests of any kind of Carrollton or
the Carrollton Subsidiary or (B) other than in the ordinary course of
business and consistent with past practice and not relating to the
borrowing of money, any assets of Carrollton or the Carrollton Subsidiary;
(ii) amend or propose to amend the Carrollton Organizational Documents or
the charter or bylaws of the Carrollton Subsidiary; (iii) split, combine or
reclassify any outstanding equity interests or declare, set aside or pay
any distribution payable in cash, stock, property or otherwise with respect
to its Membership Units or equity equivalents, whether now or hereafter
outstanding; (iv) redeem, purchase or acquire or offer to acquire, or
permit the Carrollton Subsidiary to redeem, purchase or acquire or offer to
acquire, any of their Membership Units or other securities or equity
equivalents; (v) except in the ordinary course of business and consistent
with past practice, enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section
3.1(b); (vi) enter into, adopt or (except as may be required by law) amend
or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any manager, officer or employee; (vii) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense, increase in any manner the compensation or fringe
benefits of any manager, officer or employee; or (viii) pay to any manager,
officer or employee any benefit not required by any employee benefit
agreement, trust, plan, fund or other arrangement as in effect on the date
hereof;

(c) Carrollton shall use its reasonable efforts (i) to preserve intact
the business organization of Carrollton and the Carrollton Subsidiary; (ii)
to maintain in effect any authorizations

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or similar rights of Carrollton and the Carrollton Subsidiary; (iii) to
keep available the services of its and their current officers and key
employees; (iv) to preserve the goodwill of those having business
relationships with it and the Carrollton Subsidiary; (v) to maintain and
keep its properties and the properties of the Carrollton Subsidiary in as
good a repair and condition as presently exists, except for deterioration
due to ordinary wear and tear and damage due to casualty; and (vi) to
maintain in full force and effect insurance comparable in amount and scope
of coverage to that currently maintained by it and the Carrollton
Subsidiary;

(d) Except as set forth in Section 2.1(aa) of the Carrollton
Disclosure Letter, Carrollton shall not without the prior written approval
of Titan make or agree to make, or permit the Carrollton Subsidiary to make
or agree to make, new capital expenditures that in the aggregate exceed
$50,000, unless in Carrollton's good faith judgment, emergency
circumstances require such an expenditure in order to preserve the value of
Carrollton's assets or to avoid substantial risk of loss to Carrollton and
Carrollton immediately advises Titan in writing of the expenditure;

(e) Carrollton shall, and shall cause the Carrollton Subsidiary to,
perform their respective obligations under any contracts and agreements to
which any of them is a party or to which any of their assets is subject,
except to the extent such failure to perform would not have a Material
Adverse Effect on Carrollton and the Carrollton Subsidiary, and except for
such obligations as Carrollton or the Carrollton Subsidiary in good faith
may dispute;

(f) neither Carrollton nor the Carrollton Subsidiary shall acquire,
sell, lease, transfer, or otherwise dispose of, directly or indirectly, any
assets outside the ordinary course of business consistent with past
practice or Membership Units, equity interests or any assets that in the
aggregate are material to Carrollton and the Carrollton Subsidiary, taken
as a whole;

(g) neither Carrollton nor the Carrollton Subsidiary shall acquire (by
merger, consolidation, or acquisition of stock or assets or otherwise) any
corporation, partnership, or other business organization or division
thereof;

(h) neither Carrollton nor the Carrollton Subsidiary shall amend any
Tax Return or make any Tax election or settle or compromise any federal,
state, local, or foreign Tax liability material to Carrollton and the
Carrollton Subsidiary taken as a whole;

(i) neither Carrollton nor the Carrollton Subsidiary shall pay,
discharge, or satisfy any claims, liabilities, or obligations (whether
accrued, absolute, contingent, unliquidated, or otherwise, and whether
asserted or unasserted), other than the payment, discharge, or satisfaction
in the ordinary course of business consistent with past practice, or in
accordance with their terms, of liabilities reflected or reserved against
in Carrollton's Financial Statements or incurred since June 30, 1997 in the
ordinary course of business consistent with past practice;

(j) neither Carrollton nor the Carrollton Subsidiary shall enter into
any lease, contract, agreement, commitment, arrangement, or transaction
(including any financial or commodity hedging transaction) outside the
ordinary course of business consistent with past practice;

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(k) neither Carrollton nor the Carrollton Subsidiary shall amend,
modify, or change in any material respect any existing lease, contract, or
agreement, other than in the ordinary course of business consistent with
past practice;

(l) neither Carrollton nor the Carrollton Subsidiary shall waive,
release, grant, or transfer any rights of value, other than in the ordinary
course of business consistent with past practice;

(m) Carrollton shall not, and shall not permit the Carrollton
Subsidiary to, take any action that would, or that reasonably could be
expected to, result in any of the representations and warranties set forth
in this Agreement becoming untrue or any of the conditions to the Merger
set forth in Article VI not being satisfied. Carrollton promptly shall
advise Titan orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect on Carrollton and the Carrollton Subsidiary; and

(n) neither Carrollton nor the Carrollton Subsidiary shall authorize
or propose, or agree in writing or otherwise to take, any of the actions
described in this Section.

3.2 Vote of Members of Carrollton. Carrollton shall promptly take all
action reasonably necessary in accordance with the LLLC and the Carrollton
Organizational Documents, as well as state and federal securities laws, to cause
its Members to consider and vote upon the adoption and approval of this
Agreement. The Carrollton Managers (a) shall recommend at such meeting that the
Members of Carrollton vote to adopt and approve this Agreement; and (b) shall
take all action reasonably necessary to secure a vote of its Members in favor of
the adoption and approval of this Agreement. Carrollton's materials for
soliciting the vote of its Members shall be ready for mailing to the Members on
or before November 11, 1997.

3.3 No Solicitation. From and after the date of this Agreement, neither
Carrollton nor the Carrollton Subsidiary shall, directly or indirectly, through
any officer, manager, employee, affiliate, representative or agent (including
without limitation attorneys, accountants, consultants, bankers and financial
advisors) (collectively, "Representatives") of Carrollton or the Carrollton
Subsidiary, (i) solicit or knowingly encourage, including by way of furnishing
information, the initiation of any inquiries or proposals regarding (A) any
merger, tender offer, sale of Membership Units or other securities or equity
equivalents, or similar business transactions involving Carrollton or the
Carrollton Subsidiary, or (B) any sale of all or substantially all the assets of
Carrollton and the Carrollton Subsidiary (any of the foregoing transactions
being referred to herein as a "Carrollton Acquisition Proposal") or (ii)
participate in any discussion or negotiations, or provide third parties with any
information, relating to an inquiry or proposal regarding a Carrollton
Acquisition Proposal other than to notify any such party that it is engaged in
the transactions contemplated by this Agreement and will not engage in any
further communications with any such party. Without limitation of the foregoing,
Carrollton shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Carrollton or any Carrollton
Representatives with respect to any Carrollton Acquisition Proposal existing on
the date hereof.

3.4 Affiliates' Agreements. Prior to the Closing Date, Carrollton shall
deliver to Titan a letter identifying all persons whom it believes are, at the
time this Agreement is submitted for approval to the stockholders of Carrollton,
"affiliates" of Carrollton for purposes of Rule 145 under the Securities Act.
Carrollton shall use its reasonable efforts to cause each such person to deliver
to Titan on or prior to the

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Closing Date a written agreement substantially in the form of Exhibit A. Titan
shall not be required to maintain the effectiveness of the Registration
Statement (as defined below) for the purpose of resale by Members of Carrollton
who may be "affiliates" pursuant to Rule 145 under the Securities Act.

3.5 Access to Information; Confidentiality. Between the date hereof and
the Effective Time, Carrollton (i) shall give Titan and Sub and their respective
authorized representatives reasonable access, during regular business hours and
upon reasonable advance notice, to all employees, all plants, offices,
properties and other facilities, and all books and records, of Carrollton and
the Carrollton Subsidiary, (ii) shall permit Titan and Sub and their respective
authorized representatives to make such inspections as they may reasonably
require, and (iii) shall cause Carrollton's officers to furnish Titan and Sub
and their respective authorized representatives with such financial and
operating data and other information with respect to Carrollton and the
Carrollton Subsidiary as Titan or Sub may from time to time reasonably request;
provided, however, that no investigation pursuant to this Section shall affect
any representation or warranty of Carrollton contained in this Agreement or in
any agreement, instrument, or document delivered pursuant hereto or in
connection herewith; and provided further that Carrollton shall have the right
to have a representative present at all times of any such inspections,
interviews, and examinations conducted at or on the offices or other facilities
or properties of Carrollton or its affiliates or representatives.

ARTICLE IV

COVENANTS OF TITAN PRIOR TO THE EFFECTIVE TIME

4.1 Conduct of Business by Titan Pending the Merger. Titan covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
Carrollton shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement:

(a) Titan shall not directly or indirectly split, combine or
reclassify any outstanding capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or otherwise with respect to its
capital stock whether now or hereafter outstanding;

(b) Titan shall not, and shall not permit any of the Titan
Subsidiaries to, take any action that would, or that reasonably could be
expected to, result in any of the representations and warranties set forth
in this Agreement becoming untrue or any of the conditions to the Merger
set forth in Article VI not being satisfied. Titan promptly shall advise
Carrollton orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect on Titan and the Titan Subsidiaries; and

(c) neither Titan nor any of the Titan Subsidiaries shall authorize or
propose, or agree in writing or otherwise to take, any of the actions
described in this Section.

4.2 Registration Statement. Titan has filed a registration statement (the
"Registration Statement") on Form S-4 with the Commission under the Securities
Act with respect to the offering, sale and delivery of shares of Titan Common
Stock that may be offered and issued in acquisitions of other businesses in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act; and Titan will use its reasonable efforts
to issue pursuant to such Registration Statement the shares of Titan Common
Stock to be issued pursuant to the Merger; provided that Titan is relying on

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paragraph 2(a) of the Commission's no-action letter to Service Corporation
International dated October 31, 1985. Subject to the immediately foregoing
proviso, Titan agrees that the Registration Statement will comply as to form in
all material respects with the requirements of the Securities Act and the
Exchange Act and the respective rules and regulations adopted thereunder, and
will not contain any untrue statement of any material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
made therein not misleading (except with respect to information concerning
Carrollton and the Carrollton Subsidiary furnished by or on behalf of Carrollton
specifically for use therein, for which information Carrollton shall be
responsible). Titan will advise Carrollton in writing if prior to the Effective
Time it shall obtain knowledge of any fact that would, in its opinion, make it
necessary to amend or supplement the Registration Statement in order to make the
statements therein not misleading or to comply with applicable law.

4.3 Reservation of Titan Stock. Titan shall reserve for issuance, out of
its authorized but unissued capital stock, such number of shares of Titan Common
Stock as may be issuable upon consummation of the Merger.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Filings; Consents; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, Carrollton and Titan shall (i) make all necessary
filings with respect to the Merger and this Agreement under the HSR Act, the
Securities Act, the Exchange Act and applicable blue sky or similar securities
laws and shall use all reasonable efforts to obtain required approvals and
clearances with respect thereto; (ii) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger; and
(iii) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement.

5.2 Notification of Certain Matters. Carrollton shall give prompt notice
to Titan, and Titan shall give prompt notice to Carrollton, orally and in
writing, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
hereof to the Effective Time, and (ii) any material failure of Carrollton or
Titan, as the case may be, or any officer, director, employee or agent thereof,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.

5.3 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any Governmental Entity or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.

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5.4 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense; provided,
however, that if this Agreement shall have been terminated pursuant to Section
7.1 as a result of the willful breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement, such breaching
party shall pay the costs and expenses of the other parties in connection with
the transactions contemplated by this Agreement.

5.5 Indemnification. From and after the Effective Time, Titan and the
Surviving Entity shall, indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer, manager or employee of Carrollton or any of the
Carrollton Subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of Carrollton or the Carrollton Subsidiary, whether pertaining to
any matter existing or occurring at or prior to the Effective Time and whether
reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including without limitation all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to
acts or omissions, or alleged acts or omissions, by him in his capacity as an
officer or director of Carrollton, which acts or omissions occurred prior to the
Effective Time; provided, however, that Titan shall be under no obligation to
indemnify any Indemnified Party pursuant to this Section 5.5 except to the
extent such Indemnified Party was entitled to indemnification from Carrollton
(pursuant to applicable law or contract) immediately prior to the Effective
Time. The procedures associated with such indemnification shall be the same as
those associated with the Indemnified Parties' indemnification from Carrollton,
as the case may be, immediately prior to the Effective Time (provided, however,
that Titan shall be under no obligation to deposit trust funds pursuant to any
"change-in-control" or similar provisions). Carrollton hereby agrees that, from
and after the date hereof until the Effective Time, it will not amend, modify or
otherwise alter any contractual provision under which any Indemnified Party is
entitled to indemnification from Carrollton at the time the execution of this
Agreement. The provisions of this Section 5.5 are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each Indemnified
Party, his heirs and his representatives.

5.6 Carrollton Employees. After the Effective Time, it is expected that
Titan may, in its sole discretion, offer employment to, or cause Carrollton to
continue the employment of, the employees of Carrollton (the "Retained
Employees"); provided, however, that Titan shall have no obligation to retain
any of the employees of Carrollton. Titan shall provide the Retained Employees
with the same benefits that accrue to employees of Titan.

5.7 Tax Treatment. Each of Titan and Carrollton undertakes and agrees to
use its reasonable efforts to cause the Merger to qualify, and to take no action
which would cause the Merger not to qualify, for treatment as a "reorganization"
within the meaning of Section 368(a) of the Code.

5.8 HSR Act Notification. To the extent required by the HSR Act, each of
the parties hereto shall (i) file or cause to be filed, as promptly as
practicable but in no event later than ten days after the execution and delivery
of this Agreement, with the Federal Trade Commission and the United States
Department of Justice, all reports and other documents required to be filed by
such party under the HSR Act concerning the transactions contemplated hereby and
(ii) promptly comply with or cause to be complied with

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<PAGE>

any requests by the Federal Trade Commission or the United States Department of
Justice for additional information concerning such transactions, in each case so
that the waiting period applicable to this Agreement and the transactions
contemplated hereby under the HSR Act shall expire as soon as practicable after
the execution and delivery of this Agreement. Each party hereto agrees to
request, and to cooperate with the other party or parties in requesting, early
termination of any applicable waiting period under the HSR Act.

5.9 Public Announcements. Except as may be required by applicable law,
neither Titan and Sub, on the one hand, nor Carrollton, on the other, shall
issue any press release or otherwise make any public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by applicable law shall only
be made after reasonable notice to the other party.

5.10 Indemnification of Brokerage. Carrollton, on the one hand, and
Titan, on the other, shall indemnify and hold each other harmless from any claim
or demand for commission or other compensation by any broker, finder, agent or
similar intermediary claiming to have been employed by or on behalf of
Carrollton or Titan, as the case may be, and shall bear the cost of legal fees
and expenses incurred in defending against any such claim.

ARTICLE VI

CONDITIONS

(a) This Agreement shall have been approved by the requisite vote of
the Members of Carrollton;

(b) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;

(c) Other than suits to enforce this Agreement, there shall not be (i)
any effective injunction, writ or temporary restraining order or any other
order of any nature issued by a court or Governmental Entity of competent
jurisdiction directing that any aspect of the Merger not be consummated, or
(ii) any action, suit or proceeding pending or threatened in writing in
which it is or may be sought to prohibit, substantially delay or rescind
this Agreement or any aspect of the Merger or to obtain an award of damages
in connection with the Merger and which, in the good faith judgment of any
of the parties, is material;

(d) There shall have been obtained any and all material permits,
approvals and consents of securities or blue sky commissions of any
jurisdiction, and of any other Governmental Entity, that reasonably may be
deemed necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance with Applicable
Laws, the failure to comply with which

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<PAGE>

would reasonably be expected to have a Material Adverse Effect on Titan,
the Surviving Entity and their subsidiaries, taken as a whole after
consummation of the Merger; and

(e) All approvals of private persons or corporations, (i) the granting
of which is necessary for the consummation of the Merger or the
transactions contemplated in connection therewith and (ii) the non-receipt
of which would reasonably be expected to have a Material Adverse Effect on
Titan, the Surviving Entity and their subsidiaries, taken as a whole after
the consummation of the Merger, shall have been obtained.

6.2 Additional Conditions to Obligations of Titan. The obligation of
Titan to effect the Merger is, at the option of Titan, also subject to the
fulfillment at or prior to the Closing Date (unless an earlier date is provided
herein) of the following conditions:

(a) The representations and warranties of Carrollton contained in
Section 2.1 shall be accurate in all material respects as of the date of
this Agreement and (except to the extent such representations and
warranties speak specifically as of an earlier date) as of the Closing Date
as though such representations and warranties had been made at and as of
that time; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by Carrollton and/or the Carrollton
Subsidiaries on or before the Closing Date shall have been duly complied
with and performed in all material respects; and a certificate to the
foregoing effect dated the Closing Date and signed by the chief executive
officer of Carrollton shall have been delivered to Titan;

(b) Since the date of this Agreement, no Material Adverse Effect
pertaining to Carrollton and the Carrollton Subsidiary (taken as a whole)
shall have occurred, and Carrollton and the Carrollton Subsidiary (taken as
a whole) shall not have suffered any damage, destruction or loss materially
and adversely affecting the properties or business of Carrollton and the
Carrollton Subsidiaries, taken as a whole, and Titan shall have received a
certificate signed by the chief executive officer of Carrollton dated the
Closing Date to such effect;

(c) Carrollton shall have received, and furnished written copies to
Titan of, the Carrollton affiliates' agreements pursuant to Section 3.4;

(d) Titan shall have received from Phelps Dunbar, L.L.P., counsel to
Carrollton, an opinion dated the Closing Date covering the matters set
forth in Exhibit B; and

(e) Carrollton shall have substantially complied in all material
respects with all recommendations set forth on pages 19 and 20 of that
certain "Environmental Site Assessment of Oil and Gas Production Located in
Louisiana Operated by Carrollton Resources Corporation and Resources
Acquisition Corporation" prepared by Highlander Environmental Corp. dated
as of September, 1997.

(f) Carrollton shall have taken all action necessary to cancel all of
the Carrollton Options, and no holder of Carrollton Options shall have
acquired Membership Units or other equity securities of Carrollton as a
consequence of the exercise of any Carrollton Options.

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<PAGE>

6.3 Additional Conditions to Obligations of Carrollton. The obligation of
Carrollton to effect the Merger is, at the option of Carrollton, also subject to
the fulfillment at or prior to the Closing Date of the following conditions:

(b) Since the date of this Agreement, no Material Adverse Effect
pertaining to Titan and the Titan Subsidiaries shall have occurred, and
Titan and the Titan Subsidiaries shall not have suffered any damage,
destruction or loss materially adversely affecting the properties or
business of Titan and the Titan Subsidiaries, taken as a whole, and
Carrollton shall have received a certificate signed by the chief executive
officer of Titan dated the Closing Date to such effect;

(c) Carrollton shall have received from Thompson & Knight, P.C.,
counsel to Titan, an opinion dated the Closing Date covering the matters
set forth in Exhibit C;

(e) The shares of Titan Common Stock issuable upon consummation of the
Merger shall have been approved for listing on the NMS or other national
securities exchange or automated quotation system, subject to official
notice of issuance.

ARTICLE VII

MISCELLANEOUS

7.1 Termination. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether prior to or after approval by the stockholders of Titan
or the stockholders of Carrollton:

(a) by mutual consent of Titan and Carrollton;

(b) by either Titan or Carrollton if the Merger has not been effected
on or before January 31, 1998;

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<PAGE>

(d) by either Titan or Carrollton if a final, unappealable order of a
judicial or administrative authority of competent jurisdiction to restrain,
enjoin or otherwise prevent a consummation of this Agreement or the
transactions contemplated in connection herewith shall have been entered;

(e) by either Titan or Carrollton if the required approval of the
Members of Carrollton is not received;

(f) by Titan if (i) since the date of this Agreement there has been a
Material Adverse Effect pertaining to Carrollton and the Carrollton
Subsidiary, or (ii) there has been a material breach of any representation
or warranty or covenant set forth in this Agreement by Carrollton which
breach has not been cured within five business days following receipt by
Carrollton of notice of such breach; or

(f) by Carrollton if (i) since the date of this Agreement there has
been a Material Adverse Effect pertaining to Titan and the Titan
Subsidiaries, or (ii) there has been a material breach of any
representation or warranty or covenant set forth in this Agreement by Titan
which breach has not been cured within five business days following receipt
by Titan of notice of such breach.

7.2 Effect of Termination.

(a) In the event of any termination of this Agreement pursuant to
Section 7.1, (i) the provisions of Sections 5.4 and 5.10 shall survive any
such termination, and (ii) such termination shall not relieve any party
from liability for any breach of this Agreement.

(b) In the event that either Titan or Carrollton terminates this
Agreement pursuant to Section 7.1(b) (and the conditions to closing set
forth in Sections 6.1 and 6.3 (other than Sections 6.3(c), 6.3(d) and
6.3(e)) have otherwise been satisfied) or Sections 7.1(d), 7.1(e) or
7.1(f)(ii) and (i) after the date of this Agreement but at or before the
time this Agreement is terminated there shall have been a Carrollton
Acquisition Proposal proposed to Carrollton and (ii) any Carrollton
Acquisition Proposal (whether the same or different from the one referenced
in clause (i)) is consummated at any time within one year after the date of
this Agreement, then Carrollton shall promptly pay to Titan the sum of
$500,000 upon the consummation of any such Carrollton Acquisition Proposal.

(c) If this Agreement is terminated pursuant to Section 7.1(e) because
of the failure of Carrollton to secure the approval of its Members as
required under Section 3.2 and the conditions to closing set forth in
Sections 6.1 and 6.3 (other than Sections 6.3(c), 6.3(d) and 6.3(e)) have
otherwise been satisfied, then Carrollton shall promptly, but in no event
later than five business days after written request by Titan, pay to Titan
an amount equal to $100,000 in immediately available funds as reimbursement
for an agreed upon estimate of Titan's out-of-pocket fees and expenses
incurred in connection with the transactions contemplated hereby; provided,
however, that if Carrollton shall be obligated to make any payment to Titan
pursuant to Section 7.2(b), then Carrollton shall be entitled to offset
from any amount due under Section 7.2(b) any amount paid to Titan pursuant
to this Section 7.2(c).

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7.3 Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party that is, or whose stockholders or members are, entitled
to the benefits thereof. This Agreement may not be amended or supplemented at
any time, except by an instrument in writing signed on behalf of each party
hereto, provided that after this Agreement has been approved and adopted by the
Members of Carrollton, this Agreement may be amended only as may be permitted by
applicable provisions of the LLLC and the DGCL. The waiver by any party hereto
of any condition or of a breach of another provision of this Agreement shall not
operate or be construed as a waiver of any other condition or subsequent breach.
The waiver by any party hereto of any of the conditions precedent to its
obligations under this Agreement shall not preclude it from seeking redress for
breach of this Agreement other than with respect to the condition so waived.

7.4 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants or agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the terms of Article I, the second paragraph of Section 2.1(l),
Sections 5.5, 5.6, 5.7, 5.9 and 5.10, Article VII, and the agreements of the
"affiliates" of Carrollton delivered pursuant to Section 3.4.

7.6 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i) delivered
in person or by expedited courier service, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, certified first class
mail, postage prepaid, return receipt requested, to the parties hereto at the
following addresses:

if to Carrollton: Carrollton Resources, L.L.C.
8440 Jefferson Highway, Suite 302
Baton Rouge, Louisiana 70809
Attention: John R. Howard, Jr.

with a copy to: Phelps Dunbar, L.L.P.
Texaco Center
400 Poydras Street
New Orleans, Louisiana 70130-3245
Attention: Virginia Boulet

if to Titan: Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack D. Hightower

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with a copy to: Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Jeffrey A. Zlotky

or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 7.6. Such notices shall be
effective, (i) if delivered in person or by expedited courier service, upon
actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile
transmission, when the answer back is received, or (iii) if mailed, upon the
earlier of five days after deposit in the mail and the date of delivery as shown
by the return receipt therefor.

7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive law of the State of Texas without giving effect
to the principles of conflicts of law thereof.

7.8 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provision, covenants and restrictions
of this Agreement shall continue in full force and effect and shall in no way be
affected, impaired or invalidated.

7.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.

7.10 Headings. The Section headings herein are for convenience only and
shall not affect the construction hereof.

7.11 Entire Agreement; Third Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof and neither this nor any document delivered
in connection with this Agreement confers upon any person not a party hereto any
rights or remedies hereunder except as provided in Section 5.5 and Section 5.6.

7.12 Disclosure Letters.

(a) The Carrollton Disclosure Letter, executed by Carrollton as of the
date hereof, and delivered to Titan on the date hereof, contains all
disclosure required to be made by Carrollton under the various terms and
provisions of this Agreement. Each item of disclosure set forth in the
Carrollton Disclosure Letter specifically refers to the Article and Section
of the Agreement to which such disclosure responds, and shall not be deemed
to be disclosed with respect to any other Article or Section of the
Agreement.

(b) The Titan Disclosure Letter, executed by Titan as of the date
hereof, and delivered to Carrollton on the date hereof, contains all
disclosure required to be made by Titan under the various terms and
provisions of this Agreement. Each item of disclosure set forth in the
Titan Disclosure Letter specifically refers to the Article and Section of
the Agreement to which such disclosure responds, and shall not be deemed to
be disclosed with respect to any other Article or Section of the Agreement.

28
<PAGE>

ARTICLE VIII

DEFINITIONS

8.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:

"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to
which a specified person or property is subject.

"Commission" shall mean the Securities and Exchange Commission.

"Defensible Title" means, as of the date set forth in the Carrollton
Disclosure Letter and as to each Oil and Gas Interest, such title that:

(i) Is defensible by Carrollton or the Carrollton Subsidiary, as
applicable, against the claims of all other persons; and

(ii) Entitles Carrollton or the Carrollton Subsidiary, as applicable,
to receive not less than the net revenue interest for such Oil and Gas
Interest as described in the Carrollton Disclosure Letter as the "Net
Revenue Interest" with respect to such Oil and Gas Interests; and

(iii) Obligates Carrollton or the Carrollton Subsidiary, as
applicable, to pay costs and expenses relating to such Oil and Gas Interest
in an amount not greater than the "Working Interest" as described in the
Carrollton Disclosure Letter with respect to such Oil and Gas Interest; and

(iv) Except for Permitted Encumbrances, is free and clear of any
Encumbrance.

"Encumbrances" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition, or otherwise), easements, and other
encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body,
agency, department, commission, board, bureau, or other authority or
instrumentality (domestic or foreign).

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

"Hydrocarbon Agreement" means any of the following:

29
<PAGE>

(i) "Hydrocarbon Purchase Agreement," which means any sales agreement,
purchase contract or marketing agreement that is currently in effect and
under which Carrollton or a Carrollton Subsidiary is a buyer of
hydrocarbons for resale (other than purchase agreements entered into in the
ordinary course of business with a term of three months or less, terminable
without penalty on 30 days' notice or less, which provide for a price not
greater than the market value price that would be paid pursuant to an
arm's-length contract for the same term with an unaffiliated third party
seller, and which do not obligate the purchaser to take any specified
quantity of hydrocarbons or to pay for any deficiencies in quantities of
hydrocarbons not taken).

(ii) "Hydrocarbon Sales Agreement," which means any sales agreement,
purchase contract or marketing agreement that is currently in effect and
under which any of Carrollton or a Carrollton Subsidiary is a seller of
hydrocarbons (other than "spot" sales agreements entered into in the
ordinary course of business with a term of three months or less, terminable
without penalty on 30 days' notice or less, and which provide for a price
not less than the market value price that would be received pursuant to an
arms'-length contract for the same term with an unaffiliated third party
purchaser).

(iii) "Hydrocarbon Support Agreement," which means any gathering,
transportation, treatment, compression, processing or similar agreement
that is currently in effect and to which Carrollton or a Carrollton
Subsidiary is a party (other than gathering, transportation, treatment,
compression, processing and similar agreements that have been entered into
in the ordinary course of business and which contain market value prices
and terms of the type found in gathering, transportation, treatment,
compression, processing and similar agreements entered into between
unaffiliated parties in arm's-length transactions).

"Material Adverse Effect" means any change, development, or effect
(individually or in the aggregate) which is, or is reasonably likely to be,
materially adverse (i) to the business, assets, results of operations,
condition (financial or otherwise), or prospects of (A) Carrollton and the
Carrollton Subsidiaries, or (B) Titan or the Titan Subsidiaries, as
applicable, considered as a whole, or (ii) to the ability of Carrollton or
Titan, as applicable, to perform on a timely basis any material obligation
of Carrollton or Titan, respectively, under this Agreement or any
agreement, instrument, or document entered into or delivered in connection
herewith; provided, however, that the drilling of a dry hole with respect
to any drilling project set forth in Section 2.1(aa) of the Carrollton
Disclosure Letter or otherwise approved by Titan between the date of this
Agreement and the Effective Time, and the depletion or cessation of
production of an existing well in the ordinary course of business shall not
be deemed to give rise to a Material Adverse Effect.

"NMS" means the NASDAQ National Market System.

"Oil and Gas Interest(s)" means (a) direct and indirect interests in
and rights with respect to oil, gas, mineral and related properties and
assets of any kind and nature, direct or indirect, including working,
royalty and overriding royalty interests, production payments, operating
rights, net profits interests, other non-working interests and non-
operating interests; (b) interests in and rights with respect to
hydrocarbons and other minerals or revenues therefrom and contracts in
connection therewith and claims and rights thereto (including oil and gas
leases, operating agreements, unitization and pooling agreements and
orders, division orders, transfer orders, mineral deeds, royalty deeds, oil
and gas sales, exchange and processing contracts and agreements and, in

30
<PAGE>

each case, interests thereunder), surface interests, fee interests,
reversionary interests, reservations and concessions; (c) easements, rights
of way, licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; and
(d) interests in equipment and machinery (including well equipment and
machinery), oil and gas production, gathering, transmission, compression,
treating, processing and storage facilities (including tanks, tank
batteries, pipelines and gathering systems), pumps, water plants, electric
plants, gasoline and gas processing plants, refineries and other tangible
personal property and fixtures associated with, appurtenant to, or
necessary for the operation of any of the foregoing.

"Permitted Encumbrances" means (i) Encumbrances for inchoate
mechanics' and materialmen's liens for construction in progress and
workmen's, repairmen's, warehousemen's and carriers' liens arising in the
ordinary course of business, (ii) requirements for consent to assignment
and other encumbrances of a similar nature which are part of contracts
customarily used in the oil and gas industry, (iii) Encumbrances for Taxes
not yet payable, (iv) Encumbrances and imperfections of title, including
servitudes, permits, surface leases and other rights in respect to surface
operations, pipelines, grazing, logging, canals, ditches, reservoirs or the
like; conditions, covenants or other restrictions; easements for streets,
alleys, highways, pipelines, power lines, telephone lines and railways, and
other assessments and rights-of-way, and all other liens, in each case
listed in this subsection (iv) that (A) do not arise in connection with or
secure indebtedness for money borrowed or owed or the extension of credit,
(B) do not materially detract from the value of the Oil and Gas Interests
subject thereto or affected thereby or otherwise materially impair the
Property or operations being conducted thereon or therewith, so a
reasonably prudent operator engaged in the oil and gas industry with
knowledge of the facts and circumstances and the legal effect thereon would
accept title to such Oil and Gas Interests subject to such detractions,
interferences or impairments or (C) do not reduce the net revenue interest
or increase the working interest shown for the affected Oil and Gas
Interests on the Carrollton Disclosure Letter, and (v) any other
Encumbrances to the extent expressly set forth in Section 8.1 of the
Carrollton Disclosure Letter.

"person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, enterprise, unincorporated organization, or Governmental Entity.

"Securities Act" means the Securities Act of 1933, as amended.

"Taxes" means any income taxes or similar assessments or any sales,
excise, occupation, use, ad valorem, property, production, severance,
transportation, employment, payroll, franchise, or other tax imposed by any
United States federal, state, or local taxing authority, including any
interest, penalties, or additions attributable thereto.

"Tax Return" means any return or report, including any related or
supporting information, with respect to Taxes.

31
<PAGE>

TERM PAGE
---- ----

Agreement....................................................... 1
Audited Financial Statements.................................... 6
Carrollton...................................................... 1
Carrollton Acquisition Proposal................................. 19
Carrollton Disclosure Letter.................................... 4
Carrollton Options.............................................. 5
Carrollton Organizational Documents............................. 4
Carrollton Subsidiary........................................... 4
Closing......................................................... 2
Closing Date.................................................... 2
Code............................................................ 1
DGCL............................................................ 1
Effective Time.................................................. 2
Exchange Ratio.................................................. 3
Financial Statements............................................ 6
Indemnified Parties............................................. 22
Latest Balance Sheet............................................ 6
LLLC............................................................ 1
Managers........................................................ 5
Members......................................................... 5
Membership Units................................................ 1
Merger.......................................................... 1
Registration Statement.......................................... 20
Representatives................................................. 19
Retained Employees.............................................. 22
Sub............................................................. 1
Surviving Entity................................................ 1
Titan........................................................... 1
Titan Certificate............................................... 14
Titan Commission Filings........................................ 16
Titan Common Stock.............................................. 1
Titan Disclosure Letter......................................... 14
Titan Options................................................... 14
Titan Subsidiaries.............................................. 13
Unaudited Financial Statements.................................. 6

32
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.

TITAN EXPLORATION, INC.

By:/s/ Jack D. Hightower
---------------------
Jack D. Hightower
President

TITAN BAYOU BENGAL HOLDINGS, INC.

By:/s/ Jack D. Hightower
---------------------
Jack D. Hightower
President

CARROLLTON RESOURCES, L.L.C.

By:/s/ John R. Howard, Jr.
-----------------------
John R. Howard, Jr.
President

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF THOMPSON & KNIGHT]

November 13, 1997

Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701

Ladies and Gentlemen:

We have acted as counsel for Titan Exploration, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the registration by the Company of up to 13,573,011 shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), including up to 5,573,011 shares (the "OEDC Shares") to be issued in
connection with the acquisition by the Company of Offshore Energy Development
Corporation and up to 8,000,000 shares (the "Acquisition Shares") that may be
offered and sold by the Company from time to time in connection with
acquisitions of other businesses or properties by the Company.

In connection with the foregoing, we have examined the originals or copies,
certified or otherwise authenticated to our satisfaction, of the Registration
Statement and such corporate records of the Company, the proceedings taken in
connection with the issuance and sale of the OEDC Shares, the proceedings to be
taken in connection with the issuance and sale of the Acquisition Shares,
certificates of public officials and of officers of the Company, and other
agreements, instruments and documents as we have deemed necessary as a basis for
the opinions hereinafter expressed. Where facts material to the opinions
hereinafter expressed were not independently established by us, we have relied
upon the statements of officers of the Company, where we deemed such reliance
appropriate under the circumstances.

Based upon the foregoing and in reliance thereon, and subject to the
assumptions and qualifications hereinafter specified, it is our opinion that:

1. The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware.
<PAGE>

Titan Exploration, Inc.
November 13, 1997
Page 2

2. Upon the issuance and sale of the OEDC Shares in accordance with
the terms of the Amended and Restated Agreement and Plan of Merger between
the Company and OEDC, the OEDC Shares will be duly authorized by all
necessary corporate action on the part of the Company, validly issued,
fully paid and nonassessable.

3. Upon the issuance and sale of any Acquisition Shares in accordance
with plan of distribution for the Acquisition Shares set forth in the
Registration Statement, such Acquisition Shares will be duly authorized by
all necessary corporate action on the part of the Company, validly issued,
fully paid and nonassessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectuses forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules or regulations of the Commission thereunder.

Respectfully submitted,

THOMPSON & KNIGHT,
A Professional Corporation

By: /s/ Joe Dannenmaier
-------------------
Joe Dannenmaier,
Attorney

<PAGE>

EXHIBIT 8.1

October 28, 1997

Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701

Re: Tax Summary in Registration Statement on Form S-4

Ladies and Gentlemen:

We have acted as counsel to Titan Exploration, Inc. ("Titan") in connection
with the preparation of the proxy statement/prospectus forming a part of the
registration statement on Form S-4 (collectively, the "Registration
Statement"), to be filed with the Securities and Exchange Commission (the
"Commission") in connection with the Merger pursuant to that certain Agreement
and Plan of Merger dated September 8, 1997, among Titan, Titan Offshore, Inc.
and OEDC (the "Agreement"). In particular, we have aided in the preparation of
the discussion in the Registration Statement under the heading "Certain
Federal Income Tax Consequences" (the "Tax Summary").

In our capacity as stated above, we have been asked to render our opinion
with respect to the material United States federal income tax considerations
arising from and relating to the Merger that are generally applicable to OEDC
shareholders that are U.S. citizens or residents, domestic corporations,
domestic partnerships, and estates subject to United States federal income tax
on their income regardless of source, and trusts, but only if a court within
the Unites States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust. As the basis
for the opinion described below, we have examined the Agreement and the
Registration Statement and have conducted such factual and legal research as
we have deemed appropriate. In rendering the opinion described below, we have
assumed that OEDC shareholders will be treated in accordance with the terms
and provisions of the Agreement and the Registration Statement and that there
are no changes in the facts, representations and assumptions stated herein or
in the Agreement or in the Registration Statement. In addition, we have
assumed with your consent that the representations contained in the letters of
representation from OEDC dated September 25, 1997, from Titan and Titan
Offshore, Inc. dated October 7, 1997, and from certain shareholders of OEDC,
are true, correct and complete and will continue to be true, correct and
complete as of the Effective Time of the Merger. Except as otherwise provided,
capitalized terms shall have the same meaning as set forth in the Agreement
and the Registration Statement.

We hereby confirm, in all material respects, that the Tax Summary expresses
our opinion as to the matters addressed therein, based upon current law and
the assumptions stated or referred to therein. This opinion represents and is
based upon our best judgment regarding the application of United States
federal income tax laws arising under the Code, existing judicial decisions,
administrative regulations and published rulings and procedures. It is
possible that contrary positions may be taken by the Internal Revenue Service
and that a court may agree with such contrary positions. Furthermore, no
assurance can be given that future legislation, judicial or administrative
changes, either on a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated in the Tax Summary.

This opinion is furnished to you solely for use in connection with the
Registration Statement and, except as set forth below, is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied
upon by any other person for any purpose without our prior written consent. We
hereby consent to the filing of this opinion with the Commission as an exhibit
to the Registration Statement and the use of our name in the Tax
<PAGE>

Titan Exploration, Inc.
October 28, 1997
Page 2

Summary. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.

Very truly yours,

THOMPSON & KNIGHT, P.C.

By: /s/ R. David Wheat
-----------------------------------
R. David Wheat, Shareholder

<PAGE>

EXHIBIT 10.17

OFFICE LEASE AGREEMENT

FASKEN CENTER
TOWER ONE, SUITE 500

500 WEST TEXAS AVENUE
MIDLAND, TEXAS 79701

BETWEEN

FASKEN CENTER, LTD.

AND

TITAN EXPORATION, INC.

1
<PAGE>

FASKEN CENTER OFFICE LEASE

TABLE OF CONTENTS

ARTICLE 1 - BASIC LEASE TERMS
- -----------------------------
LESSOR 1
LESSEE 1
01 MANAGER 1
01 BUILDING 1
01 LEASED PREMISES 1
01 LEASE TERM 1
01 COMMENCEMENT DATE 1
01 BASE RENT 1
01 SECURITY DEPOSIT 1
01 PERMITTED USE 2
01 COMMON AREAS 2
01 GUARANTOR 2
01 OPERATING EXPENSE BASE 2
01 PARKING 2
ARTICLE 2 - GRANTING CLAUSE AND RENT PROVISIONS
- -----------------------------------------------
21 GRANT OF PREMISES 2
22 BASE RENT 2
21 OPERATING EXPENSES 2
21 DEFINITION OF OPERATING EXPENSES 3
21 LATE PAYMENT CHARGE 3
21 INCREASE IN INSURANCE PREMIUMS 3
21 DELETED 3
21 HOLDING OVER 3
21 PARKING 4
ARTICLE 3 - OCCUPANCY, USE AND OPERATIONS
- -----------------------------------------
31 USE 4
31 SIGNS 4
31 COMPLIANCE WITH LAWS, RULES AND REGULATIONS 4
31 COMPLIANCE WITH ALL ENVIRONMENTAL LAWS, REGULATIONS,
POLICIES, ORDERS, ETC. 4
31 QUIET ENJOYMENT 4
31 ACCEPTANCE OF PREMISES 4
31 INSPECTION 5
31 SECURITY 5
31 PERSONAL PROPERTY TAXES 5
ARTICLE 4 - UTILITIES AND SERVICE
- ---------------------------------
41 BUILDING SERVICES 5
42 DELETED 5
41 JANITORIAL SERVICE 5
41 EXCESSIVE UTILITY CONSUMPTION 5
41 WINDOW COVERINGS 5
41 RESTORATION OF SERVICES; ABATEMENT 6
41 DELETED 6
ARTICLE 5 - REPAIRS AND MAINTENANCE
- -----------------------------------
51 LESSOR REPAIRS 6
52 LESSEE REPAIRS AND DAMAGES 6
ARTICLE 6 - ALTERATIONS AND IMPROVEMENTS
- ----------------------------------------
61 CONSTRUCTION 6
62 LESSEE IMPROVEMENTS 6
61 COMMON AND SERVICE AREA ALTERATIONS 7
ARTICLE 7 - CASUALTY; WAIVERS; SUBROGATION AND INDEMNITY
- --------------------------------------------------------
71 REPAIR ESTIMATE 7
72 LESSOR'S AND LESSEE'S RIGHTS 7

2
<PAGE>

71 LESSOR'S RIGHTS 7
71 REPAIR OBLIGATION 7
71 PROPERTY INSURANCE 7
71 WAIVER; NO SUBROGATION 7
71 DELETED 8
71 INSURANCE 8
71 AD VALOREM TAXES 8
ARTICLE 8 - CONDEMNATION
- ------------------------
81 TAKING - LESSOR'S AND LESSEE'S RIGHTS 8
82 TAKING - LESSOR'S RIGHTS 8
81 AWARD 8
ARTICLE 9 - ASSIGNMENT OR SUBLEASE; SUBORDINATION OR NOTICE
- -----------------------------------------------------------
91 SUBLEASE; CONSENT 8
92 DELETED 9
91 ADDITIONAL COMPENSATION 9
91 LESSOR ASSIGNMENT 9
91 RIGHTS OF MORTGAGEE 9
91 MORTGAGEE'S RIGHT TO CURE 9
91 ESTOPPEL CERTIFICATES 9
ARTICLE 10 - LIENS
- ------------------
01 DELETED 9
ARTICLE 11 - DEFAULT AND REMEDIES
- ---------------------------------
01 EVENTS OF DEFAULT 9
02 REMEDIES 10
01 PAYMENT BY LESSEE 10
01 PERFORMANCE BY LESSOR 10
01 POST JUDGMENT INTEREST 11
ARTICLE 12 - RELOCATION
- -----------------------
01 DELETED 11
02 DELETED 11
ARTICLE 13 - DEFINITIONS
- ------------------------
01 DELETED 11
02 ACT OF GOD OR FORCE MAJEURE 11
01 DELETED 11
ARTICLE 14 - MISCELLANEOUS
- --------------------------
01 WAIVER 11
02 ACT OF GOD 11
01 ATTORNEY'S FEES 11
01 SUCCESSORS 11
01 RENT TAX 12
01 INTERPRETATION 12
01 NOTICES 12
01 SUBMISSION OF LEASE 12
01 AUTHORITY 12
01 DELETED 12
01 DELETED 12
01 SEVERABILITY 12
01 LESSOR'S LIABILITY 12
01 SALE OF PROPERTY 12
01 TIME IS OF THE ESSENCE 13
01 SUBTENANCIES 13
01 NAME 13
01 CHOICE OF LAW 13
01 PRESUMPTIONS 13
01 EXHIBITS 13
01 BROKERS 13
ARTICLE 15 - SPECIAL PROVISIONS
- -------------------------------
ARTICLE 16 - AMENDMENT AND LIMITATION OF WARRANTIES
- ---------------------------------------------------
01 ENTIRE AGREEMENT 14
02 AMENDMENT 14
01 LIMITATION OF WARRANTIES 14
01 WAIVER AND RELEASES 15

3
<PAGE>

EXHIBIT "A" - LAND DESCRIPTION
EXHIBIT "B" - SUITE DESCRIPTION
EXHIBIT "C" - BASE RENTAL
EXHIBIT "D" - CONSTRUCTION RIDER
BUILDING RULES AND REGULATIONS

4
<PAGE>

OFFICE LEASE

Fasken Center, Tower One , Suite 500
----- ---
500 West Texas Avenue, Midland, Texas 79701

This Lease ("Lease") is made as of the 4/th/ day of April , 1997
----- ------- ------- -
and between the Lessor and the Lessee named below.

ARTICLE 1 - BASIC LEASE TERMS

For the purposes of this Lease, the following terms shall have the meanings set
forth below:

1.1 Lessor.
------

Fasken Center, Ltd. , a Texas limited partnership whose address is P.O. Box
11227, Midland, Texas 79702.

1.2 Lessee.
------

Titan Exploration, Inc. , whose address is 500 West Texas Avenue, Suite
------------------------- ----------------------------
500 , Midland, Texas 79701 .
- ----- --

1.3 Manager.
-------

Haley Properties, Inc., a Texas corporation whose address is P.O. Box
11227, Midland, Texas 79702.

1.4 Building.
--------

The Building (including the Leased Premises) known as Fasken Center, 500
West Texas Avenue, Midland, Texas 79701, located on the tract of land (the

"Land") described on Exhibit "A" hereto, together with all other buildings,
- ----- -----------
structures, fixtures and other improvements located thereon from time to time.
The Building and the Land are collectively referred to herein as the "Property".
--------

1.5 Leased Premises.
---------------

Approximately 44,270 square feet of Net Rentable Area in the Building as
------
more fully described in Article 15, Section 15.2 and as more fully diagrammed on
the floor plans of such premises attached hereto and made a part hereof as

Exhibit "B", on the floor(s) indicated thereon, together with a common area
- -----------
percentage factor determined by Lessor. Said demised space represents
approximately 10.501819 % of the Total Net Rentable Area, such Total Net
------------
Rentable Area of the Building being approximately 421,546 square feet.

1.6 Lease Term.
----------

Five (5) years and Zero (0) months, beginning on the Commencement
-------- ------------
Date.

1.7 Commencement Date.
-----------------

If improvements are to be erected upon the Leased Premises pursuant to a
separate Leasehold Improvements Agreement between Lessor and Lessee, as
described in Section 6.1, and the "Commencement Date" shall be the earlier of
the date Lessee begins operating its business in the Leased Premises or the
scheduled "Commencement Date" as stated herein; and if no improvements are to be
erected upon the Leased Premises pursuant to a Leasehold Improvements Agreement,
the Commencement Date shall be the earlier of the date Lessee begins operating
its business in the Leased Premises or March 15 , 1997 (the "Commencement
----------- - ------------
Date"). The Commencement Date shall constitute the commencement of the term of
- ----
this Lease for all purposes, whether or not Lessee has actually taken
possession. If this Lease is executed before the Leased Premises become vacant
or otherwise available and ready for occupancy by Lessee, or if any present
occupant of the Leased Premises holds over and Lessor cannot acquire possession
of the Leased Premises before the Commencement Date, then (a) Lessee's
obligation to pay rent hereunder shall be waived until Lessor tenders possession
of the Leased Premises to Lessee, (b) the term shall be extended by the time
between the scheduled Commencement Date and the date on which Lessor tenders
possession of the Leased Premises to Lessee (which date will then be defined as
the Commencement Date), (c) Lessor shall not be in default hereunder or be
liable for damages therefore, and (d) Lessee shall accept possession of the
Leased Premises when Lessor tenders possession thereof to Lessee.

1.8 Base Rent.
---------

During the term of this Lease, Lessee hereby agrees to pay a Base Rental
(herein called "Base Rental") in the amount set out in Exhibit "C", which
----------- ---
Exhibit is executed by Lessor and Lessee contemporaneously herewith and
incorporated herein by

5
<PAGE>

reference for all purposes.

1.9 Security Deposit.
----------------

Security Deposit is $ -0- .
-----

1.10 Permitted Use.
-------------

The Leased Premises are to be used and occupied by Lessee solely for the
purposes of office space and a health and shower facility and for no other
purpose without Lessor's expressed written consent.

1.11 Common Areas.
------------

Such parking areas, streets, driveways, aisles, sidewalks, curbs, delivery
passages, loading areas, lighting facilities, designated elevators, public
corridors, stairwells, lobbies, restrooms, and all other areas situated on or in
the Property which are designated by Lessor from time to time, for use by all
tenants of the Property in common.

1.12 Guarantor.
---------

The guarantor of Lessee's obligations under this Lease pursuant to a
Guaranty of Lease, if any, executed for the benefit of Lessor. Said Guarantor
is, as of the date of execution hereof: N/A .
--------

1.13 Operating Expense Base.
----------------------

Base Year 1997 .
------------------

1.14 Parking.
-------

Lessor agrees to provide parking in the attached parking garage for up to
Eighty-Five (85) Contract parking spaces and up to Eight (8) Basement
------------------ -------------
parking spaces at the rate of $ -0- per space per month. In addition, Two
-------
(2) Reserved spaces on the ground floor level shall be provided for Lessee's
pool cars.

ARTICLE 2. - GRANTING CLAUSE AND RENT PROVISIONS

2.1 Grant of Premises.
-----------------

In consideration of the obligation of Lessee to pay the rent and other
charges as provided in this Lease, and in consideration of the other terms and
provisions of this Lease, Lessor hereby leases the Leased Premises to Lessee
during the Lease Term, subject to the terms and provisions of this Lease.

2.2 Base Rent.
---------

Lessee agrees to pay monthly as base rent during the term of this Lease the
sum of money set forth in Section 1.8 of this Lease, which amount shall be
payable to Lessor at the address shown in Section 1.1 above or at such address
that Lessor in writing shall notify Lessee. One (1) monthly installment of rent
shall be due and payable on the date of execution of this Lease by Lessee for
the first month's rent and a like monthly installment shall be due and payable
on or before the first day of each calendar month succeeding the Commencement
Date during the term of this Lease, without demand offset or reduction;
provided, if the Commencement Date should be a date other than the first day of
a calendar month, the monthly rental set forth above shall be prorated to the
end of that calendar month, and all succeeding installments of rent shall be
payable on or before the first day of each succeeding calendar month during the
term of this Lease. Unless otherwise specified, Lessee shall pay as additional
rent all other sums due under this Lease at the same time and in the same manner
as the base rent due hereunder. No payment by Lessee or receipt by Lessor of a
lesser amount than the monthly installment of rents herein stipulated shall be
deemed to be other than a payment on account of the earliest stipulated rent
and/or additional rent; nor shall any endorsement of payment on any check or any
letter accompanying any check or payment as rent be deemed an accord or
satisfaction and Lessor may accept such check for payment without prejudice to
Lessor's right to recover the balance of such rent and/or additional rent or to
pursue any other remedy provided in this Lease and/or under applicable law.

2.3 Operating Expenses.
------------------

If Lessor's Operating Expenses per net rentable square foot for the
Property, in any calendar year during the term of this Lease exceeds the
Operating Expense Base, Lessee agrees to pay as additional rent Lessee's share
of such excess operating expenses. As used herein, the term "Lessee's share of
-----------------
such excess Operating Expenses" means the amount by which Lessor's Operating
- ------------------------------
Expenses per net rentable square foot exceed the Operating Expense Base,
multiplied by the net rentable square feet comprising the Leased Premises.
Lessor may invoice Lessee monthly for Lessee's share of the estimated operating
expenses for each calendar year, which amount shall be adjusted each year based
upon anticipated operating expenses. Within one-hundred twenty (120) days
following the close of each calendar year, Lessor shall provide Lessee an
accounting showing in reasonable

6
<PAGE>

detail all computations of additional rent due under this section. Failure of
Lessor to give Lessee said notice within said time period shall not be a waiver
of Lessor's right to collect said additional rent. If the accounting shows that
the total of the monthly payments made by Lessee exceeds the amount of the
additional rent due by Lessee under this section, the accounting shall be
accompanied by a refund. If the accounting shows that the total of the monthly
payments made by Lessee is less than the amount of additional rent due by Lessee
under this section, the accounting shall be accompanied by an invoice for the
additional rent. Notwithstanding any other provisions in this Lease, during the
year in which the Lease terminates, Lessor within six (6) months following the
termination date, shall have the option to invoice Lessee for Lessee's share of
the excess operating expenses based upon the previous year's operating expenses.
If this Lease shall terminate on a day other than the last day of a calendar
year, the amount of any additional rent payable by Lessee applicable to the year
in which such termination shall occur shall be prorated on the ratio that the
number of days from the commencement of the calendar year to and including the
termination date bears to 365. Lessee shall have the right at its own expense
and within a reasonable time, to audit during Lessor's regular business hours
Lessor's books relevant to the additional rent payable under this Section.
Notwithstanding anything to the contrary contained in this Lease, if the
Building is not occupied to the extent of ninety-five percent (95%) of the
rentable area thereof, during any calendar year, Lessee's additional rent under
this Section and the operating expenses shall be determined as if the Building
had been occupied to the extent of ninety-five (95%) of the rentable area during
such year. Lessee agrees to pay any additional rent due under this Section
within thirty (30) days following receipt of the invoice or accounting showing
additional rent due.

2.4 Definition of Operating Expenses.
--------------------------------

The term "Operating Expenses" includes all expenses incurred by Lessor with
------------------
respect to the maintenance, servicing, repairing and operation of the Property,
including, but not limited to the following: maintenance, repair and replacement
costs (other than major or substantive repair, replacement and general
maintenance of the roof, foundation and exterior walls of the Building);
electricity, fuel, water, sewer, gas and other utility charges; security, window
washing and janitorial services; trash and snow and ice removal; landscaping and
pest control; management fees payable to Lessor or third parties; wages and
salaries of all employees employed by Manager or Lessor, engaged in the
operation, repair, replacement, maintenance, and security of the Building,
including taxes, insurance, and benefits relating thereto; all services,
supplies, repairs, replacement or other expenses for maintaining and operating
the Property including parking and common areas; the cost including interest,
amortized over a reasonable period, of any capital improvement made to the
Property by Lessor after the date of this Lease which is required under any
governmental law or regulation that was not applicable to the Property at the
time it was constructed; the cost, including interest, amortized over a
reasonable period, of installation of any device or other equipment which
improves the operating efficiency of any system applicable to the Leased
Premises or the Property and thereby reduces operating expenses; all other
expenses which generally would be regarded as operating and maintenance expenses
which would be reasonably amortized over a period not to exceed five (5) years;
all real property taxes and installments of special assessments, including dues
and assessments by means of deed restrictions and/or owner's associations which
accrue against the Property during the term of this Lease; governmental levies
or charges of any kind or nature assessed or imposed on the Property, whether by
state, county, city or any political subdivision thereof; and all insurance
premiums Lessor is required to pay or deems necessary to pay including public
liability insurance, with respect to the Property. The term operating expenses
does not include the following: expenses for repairs, restoration or other work
occasioned by fire, wind, the elements or other casualty to the extent they are
covered by insurance proceeds; income and franchise taxes of Lessor; expenses
incurred in leasing to or procuring of tenants, leasing commissions, advertising
expenses and expenses for the renovating of space for new tenants; interest or
principal payments on any mortgage or other indebtedness of Lessor; compensation
paid to any employee of Lessor above the grade of property manager; any
depreciation allowance or expense; operating expenses which are the
responsibility of Lessee; or that portion of after hours charges specifically
attributable to increased utility costs as calculated by Lessor.

For the term of this Lease, Operating Expenses may not be increased by
Lessor by more than the proportion of increase in the Consumer Price Index for
Urban Wage Earners (("CPI-U") maintained by the United States Department of
Labor, with a base month of December, 1997 for Operating Expenses within
Lessor's control. That portion of the Excess Operating Expenses made up of
Operating Expenses that are not within Lessor's control, i.e., Noncontrollable
Expenses [increases in real property and ad valorem taxes, insurance, utilities
(including water, sewer, electricity, natural gas fuel and trash hauling], third
party contractors such as janitorial and mechanical, and government levies or
charges of any kind or nature assessed or imposed on the property and directly
paid by Lessor, whether by state, county, city or any political subdivision
thereof, shall not be limited to the increase in the CPI as set forth above, and
Lessee shall pay its full share of any Excess Operating Expenses for
Noncontrollable Expenses.

2.5 Late Payment Charge.
-------------------

Other remedies for nonpayment of rent notwithstanding, if any monthly
rental payment is not received by Lessor on or before the fifth (5th) day of the
month for which the rent is due, or if any other payment hereunder due Lessor by
Lessee is not received by Lessor on or before the fifth (5th) day of the month
next following the month in which Lessee was invoiced, a late payment charge of
ten percent (10%) of such past due amount shall become due and payable in
addition to such amounts owed under this Lease. Alternatively, at Lessor's
election, all payments required of Lessee hereunder shall bear interest from the
date due until paid at the maximum lawful rate. In no event, however, shall the
charges permitted under this Section 2.5 or elsewhere in this Lease, to the
extent the same are considered to be interest under applicable law, exceed the
maximum lawful rate of interest.

2.6 Increase In Insurance Premiums.
------------------------------

If an increase in any insurance premiums paid by Lessor for the Property is
caused by Lessee's use of the Leased Premises or if Lessee vacates the Leased
Premises and causes an increase in such premiums, then Lessee shall pay as
additional rent the amount of such increase to Lessor and acceptance of such
payment shall not constitute waiver of any of Lessor's other rights. Lessee
agrees to pay any amount due under this Section within ten (10) days following
receipt of the invoice showing the additional rent due.

2.7 Deleted.
-------

7
<PAGE>

2.8 Holding Over.
------------

If Lessee does not vacate the Leased Premises upon the expiration or
earlier termination of this Lease, Lessee shall be a tenant at will for the
holdover period and all of the terms and provisions of this Lease shall be
applicable during that period, except that Lessee shall pay Lessor (in addition
to additional rent payable under Section 2.3 and any other sums payable under
this Lease) as base rental for the period of such holdover an amount equal to
two times the base rent which would have been payable by Lessee had the holdover
period been a part of the original term of this Lease (without waiver of
Lessor's right to recover damages as permitted by law). Upon the expiration or
earlier termination of this Lease, Lessee agrees to vacate and deliver the
Leased Premises, and all keys thereto, to Lessor upon delivery to Lessee of
notice from Lessor to vacate. The rental payable during the holdover period
shall be payable to Lessor on demand. No holding over by Lessee, whether with
or without the consent of Lessor, shall operate to extend the term of this
Lease. Lessee shall indemnify Lessor against all claims made by any tenant or
prospective tenant against Lessor resulting from delay by Lessor in delivering
possession of the Leased Premises to such other tenant or prospective tenant.

2.9 Parking.
-------

The parking spaces set forth in Section 1.14 shall be for Lessee and/or
Lessee's employees and Lessor shall have the right to assign parking space as
conditions permit. However, Lessor shall not be required to police the use of
these spaces. Lessor may make, modify and enforce rules and regulations
relating to the parking of automobiles in the parking area(s), and Lessee shall
abide thereby. Lessor shall not be liable to Lessee or Lessee's agents,
servants, employees, customers, or invitees for damage to person or property
caused by any act omission or neglect of Lessee, and Lessee agrees to hold
Lessor harmless from all claims for any such damage.

ARTICLE 3. - OCCUPANCY, USE AND OPERATIONS

3.1 Use.
---

Lessee warrants and represents to Lessor that the Leased Premises shall be
used and occupied only for the purpose as set forth in Section 1.10. Lessee
shall occupy the Leased Premises, conduct its business and control its agents,
employees, invitees, licensees and visitors in such a manner as is lawful,
reputable and will not create a nuisance to other tenants in the Property.
Lessee shall not solicit business, distribute handbills or display merchandise
within the Common Areas, or take any action which would interfere with the
rights of other persons to use the Common Areas. Lessee shall not permit any
operation which emits any odor or matter which intrudes into other portions of
the Property, use any apparatus or machine which makes undue noise or causes
vibration in any portion of the Property or otherwise interfere with, annoy or
disturb any other tenant in its normal business operations or Lessor in its
management of the Property. Lessee shall neither permit any waste on the Leased
Premises nor allow the Leased Premises to be used in any way which would, in the
opinion of Lessor, be extra hazardous on account of fire or which would in any
way increase or render void the fire insurance on the Property, or permit the
storage of any hazardous materials or substances.

3.2 Signs.
-----

No signs of any type or description shall be erected, placed or painted in
or about the Leased Premises except those signs submitted to Lessor in writing
and approved by Lessor in writing, and which signs are in conformity with
Lessor's sign criteria established for the Property. Lessor reserves the right
to remove, at Lessee's expense, all signs other than signs approved in writing
by Lessor under this Section 3.2 without notice to Lessee and without liability
to Lessee for any damages sustained by Lessee as a result thereof.
Notwithstanding anything contained herein to the contrary, Lessor shall permit
Lessee to place a monument type sign on the premises. However, the size and
location of such sign must be approved by Lessor and further shall be erected at
Lessee's sole cost.

3.3 Compliance with Laws, Rules and Regulations.
-------------------------------------------

Lessee, at Lessee's sole cost and expense, shall comply with all laws,
ordinances, orders rules and regulations of state, federal, municipal or other
agencies or bodies having jurisdiction over the use, condition or occupancy of
the Leased Premises. Lessee shall procure at its own expense all permits and
licenses required for the transaction of its business in the Leased Premises.
Lessee will comply with the rules and regulations of the Property adopted by
Lessor which are set forth on a schedule attached to this Lease. If Lessee is
not complying with such rules and regulations, or if Lessee is in any way not
complying with this Article 3, then notwithstanding anything to the contrary
contained herein, Lessor, may, at its election, enter the Leased Premises
without liability therefor and fulfill Lessee's obligations. Lessee shall
reimburse Lessor on demand for any expenses which Lessor may incur in effecting
compliance with Lessee's obligations and agrees that Lessor shall not be liable
for any damages resulting to Lessee from such action. Lessor shall have the
right at all times to change and amend the rules and regulations in any
reasonable manner as it may deem advisable for the safety, care, cleanliness,
preservation of good order and operation or use of the Property or the Leased
Premises. All changes and amendments to the rules and regulations of the
Property will be forwarded by Lessor to Lessee in writing and shall thereafter
be carried out and observed by Lessee.

3.4 Compliance with all Environmental Laws, Regulations, Policies, Orders, etc.
---------------------------------------------------------------------------

Lessee agrees that it will comply fully and promptly with any and all
environmental laws, regulations, statutes, ordinances, policies and orders
issued by any federal, state, county or local governmental authority; that it
will obtain, maintain in full force and effect, and strictly comply with any and
all governmental permits, approvals and authorizations necessary for the conduct
of its

8
<PAGE>

business operations; that it will supply Lessor with copies of any such permits,
approvals and authorizations; that it will promptly notify Lessor of the
expiration or revocation of any such permits, approvals and authorizations; and
that it will promptly notify Lessor and supply Lessor with a copy of any notice
of violation of any environmental law, regulation, statute, ordinance, policy or
order Lessee receives.

3.5 Quiet Enjoyment.
---------------

Provided Lessee has performed all of the terms and conditions of this Lease
to be performed by Lessee, Lessee shall peaceably and quietly hold and enjoy the
Leased Premises for the term, without hindrance from Lessor or any party
claiming by, through, or under Lessor, subject to the terms and conditions of
this Lease and subject to all mortgages, deeds of trust, leases and agreements
to which this Lease is subordinate and to all laws, ordinances, orders, rules
and regulations of any governmental authority. Lessor shall not be responsible
for the acts or omissions of any other lessee or third party that may interfere
with Lessee's use and enjoyment of the Leased Premises.

3.6 Acceptance of Premises.
----------------------

By occupying the Leased Premises, Lessee shall be deemed to have accepted
the Leased Premises in their condition as of the date of such occupancy. Lessee
shall execute and deliver to Lessor, within ten (10) days after Lessor has
requested same, a letter confirming (i) the Commencement Date, (ii) that Lessee
has accepted the Leased Premises, and (iii) that Lessor has performed all of its
obligations with respect to the Leased Premises (except for items specified in
such letter) if applicable.

3.7 Inspection.
----------

Lessor or its authorized agents shall at any and all reasonable times have
the right to enter the Leased Premises to inspect the same, to supply janitorial
service or any other service to be provided by Lessor, to show the Leased
Premises to prospective mortgagees, purchasers or prospective tenants, and to
alter, improve or repair the Leased Premises or any other portion of the
Property. Lessee hereby waives any claim for abatement or reduction of rent or
for any damages for injury or inconvenience to or interference with Lessee's
business, for any loss of occupancy or use of the Leased Premises, and for any
other loss occasioned thereby. Lessor shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Leased Premises.
Lessee shall not change Lessor's lock system or in any other manner prohibit
Lessor from entering the Leased Premises. Lessor shall have the right at all
times to enter the Leased Premises by any means in the event of an emergency
without liability therefor.

3.8 Security.
--------

Lessor may, at its option, provide a security service or electronic
security devices to supervise access to the Building during the weekends and
after normal working hours during the week; provided, however, Lessor shall have
no responsibility to prevent, and shall be indemnified by Lessee against
liability to Lessee, its agents, employees, licensees and invitees for losses
due to theft or burglary, or damages done by persons gaining access to the
Leased Premises or the Building and the parking areas.

3.9 Personal Property Taxes.
-----------------------

Lessee shall be liable for all taxes levied against leasehold improvements,
merchandise, personal property, trade fixtures and all other taxable personal
property belonging to Lessee and located in the Leased Premises. If any such
taxes for which Lessee is liable are levied against Lessor or Lessor's property
and if Lessor elects to pay the same or if the assessed value of Lessor's
property is increased by inclusion of personal property and trade fixtures
placed by Lessee in the Leased Premises and Lessor elects to pay the taxes based
on such increase, Lessee shall pay to Lessor, upon demand, that part of such
taxes for which the Lessee is primarily liable pursuant to the terms of this
Section. Lessee shall pay when due any and all taxes related to Lessee's use
and operation of its business in the Leased Premises.

ARTICLE 4. - UTILITIES AND SERVICE

4.1 Building Services.
-----------------

Lessor shall provide water and electricity for Lessee during the term of
this Lease. Lessee shall pay all telephone charges. Lessor shall furnish
Lessee water at those points of supply provided for general use by other tenants
in the Building, and central heating and air conditioning in season on business
days during regular hours as are considered normal in Midland, Texas (7:00 a.m.
to 6:00 p.m., Monday through Friday, 8:00 a.m. to 2:00 p.m. Saturday except for
legal holidays) and at temperatures and in amounts as are considered by Lessor
to be standard or in compliance with any governmental regulations, such service
at times other than regular hours to be furnished upon request with not less
than twenty-four (24) hours advance notice from Lessee, who shall bear the
entire cost thereof (which cost shall include but not be limited to an amount
that will fairly compensate Lessor for additional services, depreciation and
replacement of capital items and any other costs attributable thereto) at the
rate not to exceed $25.00 per hour. Lessor shall also provide routine
maintenance, painting and electric lighting service for all public areas and
special service areas of the Property in the manner and to the extent deemed by
Lessor to be standard. Lessor may, in its sole discretion, provide additional
services not enumerated herein. Failure by Lessor to any extent to provide
these defined services or any other services not enumerated, or any cessation
thereof, shall not render Lessor liable in any respect for damages to either
person or property, be construed as an eviction of Lessee, work an abatement of
rent or relieve Lessee from fulfillment of any covenant in this Lease. If any
of the equipment or machinery useful or necessary for provision of utility
services, and for which Lessor is responsible, breaks down, or for any cause
ceases to function properly, Lessor shall use reasonable diligence to repair

9
<PAGE>

the same promptly, but Lessee shall have no claim for rebate of rent or damages
on account of any interruption in service occasioned from the repairs. Lessor
reserves the right from time to time to make changes in the utilities and
services provided by Lessor to the Property.

4.2 Deleted.
-------

4.3 Janitorial Service.
------------------

Lessor shall furnish janitorial services to the Leased Premises and public
areas of the Building five (5) times per week during the term of this Lease,
excluding holidays. Lessor shall not provide janitorial service to storage
areas included in the Leased Premises.

4.4 Excessive Utility Consumption.
-----------------------------

Lessee shall pay all utility costs occasioned by electronic data processing
equipment telephone equipment, special lighting and other equipment of high
electrical consumption as determined by Lessor, whose electrical consumption
exceeds normal office usage including (without limitation) the cost of
installing, servicing and maintaining any special or additional inside or
outside wiring or lines, meters or submeters, transformers, poles, air
conditioning costs, or the cost of any other equipment necessary to increase the
amount or type of electricity or power available to the Leased Premises.

4.5 Window Coverings.
----------------

Lessor may (but shall not be obligated to) furnish and install window
coverings on all exterior windows to maintain a uniform exterior appearance.
Lessee shall not remove or replace these window coverings or install any other
window covering which would affect the exterior appearance of the Building.
Lessee may install lined or unlined draperies on the interior sides of the
Lessor furnished window coverings for interior appearance or to reduce light
transmission, provided such over draperies do not (in Lessor's determination)
affect the exterior appearance of the Building or affect the operation of the
Building's heating, ventilating and air conditioning systems.

4.6 Restoration of Services; Abatement.
----------------------------------

Lessor shall use reasonable efforts to restore any service that becomes
unavailable; however, such unavailability shall not render Lessor liable for any
damages caused thereby, be a constructive eviction of Lessee, constitute a
breach of any implied warranty, or, except as provided in the next sentence,
entitle Lessee to any abatement of Lessee's obligations hereunder. However, if
Lessee is prevented from making reasonable use of the Leased Premises for more
than thirty (30) consecutive days because of the unavailability of any such
service, Lessee shall, as its exclusive remedy therefor, be entitled to a
reasonable abatement of rent for each consecutive day (after such thirty (30)
day period) that Lessee is so prevented from making reasonable use of the Leased
Premises.

4.7 Deleted.
-------

ARTICLE 5. - REPAIRS AND MAINTENANCE

5.1 Lessor Repairs.
--------------

Unless otherwise expressly stipulated herein, Lessor shall not be required
to make any improvements to or repairs of any kind or character on the Leased
Premises during the term of this Lease, except such repairs as may be for normal
maintenance of the Common Areas which shall include the painting of and repairs
to walls, floors, corridors, windows, and other structures and equipment within
the Common Areas only, and such additional maintenance of the Common Areas as
may be necessary because of damages by persons other than Lessee, its agents,
employees, invitees, licensees or visitors. Lessor shall have no obligation to
maintain or repair the Leased Premises except as set forth herein. Lessee will
promptly give Lessor notice of any damage in the Leased Premises requiring
repairs by Lessor. If the Building or the equipment used to provide the
services referred to in Section 4.1 are damaged by acts or omissions of Lessee,
its agents, customers, employees, licensees or invitees, then Lessee will bear
the cost of such repairs. Lessor shall not be liable to Lessee, except as
expressly provided in this Lease, for any damage or inconvenience, and Lessee
shall not be entitled to any damages nor to any abatement or reduction of rent
by reason of any repairs, alterations or additions made by Lessor under this
Lease. Lessor's cost of maintaining and repairing the items set forth in this
section are subject to the operating expense provisions in Section 2.3. All
requests for repairs or maintenance that are the responsibility of Lessor
pursuant to any provision of this Lease must be made in writing to Lessor and
Manager at the addresses in Section 1.1 and Section 1.3.

5.2 Lessee Repairs and Damages.
--------------------------

Lessee, at its own cost and expense, shall maintain the Leased Premises in
a first-class condition (except for those items that are the responsibility of
Lessor under Section 5.1) and shall repair or replace any damage or injury to
all or any part of the Leased Premises and/or the Property, caused by any act or
omission of Lessee or Lessee's agents, employees, invitees, licensees or
visitors. Lessee shall not allow any damage to be committed on any portion of
the Leased Premises or Property, and at the termination of this Lease, by lapse
of time or otherwise, Lessee shall deliver the Leased Premises to Lessor in as
good a condition

10
<PAGE>

as existed at the Commencement Date of this Lease, ordinary wear and tear
excepted. The cost and expense of any repairs necessary to restore the condition
of the Leased Premises shall be borne by Lessee.

ARTICLE 6. - ALTERATIONS AND IMPROVEMENTS

6.1 Construction.
------------

If any construction of tenant improvements is necessary for the initial
occupancy of the Leased Premises, such construction shall be accomplished and
the cost of such construction shall be borne by Lessor and/or Lessee in
accordance with a separate "Leasehold Improvements Agreement" (herein so called
--------------------------------
and made a part hereof as Exhibit "D") between Lessor and Lessee. Except as
----------
expressly provided in this Lease or in the Leasehold Improvements Agreement (if
any), Lessee acknowledges and agrees that Lessor has not undertaken to perform
any modification, alteration or improvements to the Leased Premises, and Lessee
further waives any defects in the Leased Premises (except in accordance with
Section 6.2 below) and acknowledges and accepts (1) the Leased Premises as
suitable for the purpose for which they are leased and (2) the Property and
every part and appurtenance thereof as being in good and satisfactory condition.
Upon the request of Lessor, Lessee shall deliver to Lessor a completed
acceptance of premises memorandum in Lessor's standard form.

6.2 Lessee Improvements.
-------------------

Lessee shall not make or allow to be made any alterations, physical
additions or improvements in or to the Leased Premises without first obtaining
the written consent of Lessor, which consent may be denied in the sole and
absolute discretion of Lessor. Any alterations, physical additions or
improvements to the Leased Premises made by or installed by either party hereto
shall remain upon and be surrendered with the Leased Premises and become the
property of Lessor upon the expiration or earlier termination of this Lease
without credit to Lessee; provided, however, Lessor, at its option, may require
Lessee to remove any physical improvements or additions and/or repair any
alterations in order to restore the Leased Premises to the condition existing at
the time Lessee took possession, all costs of removal and/or alterations to be
borne by Lessee. This clause shall not apply to moveable equipment, furniture
or moveable trade fixtures owned by Lessee, which may be removed by Lessee at
the end of the term of this Lease if Lessee is not then in default and if such
equipment and furniture are not then subject to any other rights, liens and
interests of Lessor. Lessee shall have no authority or power, express or
implied, to create or cause any mechanic's or materialmen's lien, charge or
encumbrance of any kind against the Leased Premises, the Property or any portion
thereof. Lessee shall promptly cause any such liens that have arisen by reason
of any work claimed to have been undertaken by or through Lessee to be released
by payment, bonding or otherwise within thirty (30) days after request by
Lessor, and shall indemnify Lessor against losses arising out of any such claim
(including, without limitation, legal fees and court costs). If Lessee fails to
timely take either such action, then Lessor may pay the lien claim without
inquiry as to the validity thereof, and any amounts so paid, including expenses
and interest, shall be paid by Lessee to Lessor within ten (10) days after
Lessor has delivered to Lessee an invoice therefor.

6.3 Common and Service Area Alterations.
-----------------------------------

Lessor shall have the right to decorate and to make repairs, alterations,
additions, changes or improvements, whether structural or otherwise, in, about
or on the Property or any part thereof, and to change, alter, relocate, remove
or replace service areas and/or Common Areas, to place, inspect, repair and
replace in the Leased Premises (below floors, above ceilings or next to columns)
utility lines, pipes and the like to serve other areas of the Property outside
the Leased Premises and to otherwise alter or modify the Property, and for such
purposes to enter upon the Leased Premises and, during the continuance of any
such work, to take such measures for safety or for the expediting of such work
as may be required, in Lessor's judgment, all without affecting any of Lessee's
obligations hereunder.

ARTICLE 7. - CASUALTY; WAIVERS; SUBROGATION AND INDEMNITY

7.1 Repair Estimate.
---------------

If the Leased Premises or the Building are damaged by fire or other
casualty (a "Casualty"), Lessor shall, within sixty (60) days after such
--------
Casualty, deliver to Lessee a good faith estimate (the "Damage Notice") of the
-------------
time needed to repair the damage caused by such Casualty.

7.2 Lessor's and Lessee's Rights.
----------------------------

If a material portion of the Leased Premises or the Building is damaged by
Casualty such that Lessee is prevented from conducting its business in the
Leased Premises in a manner reasonably comparable to that conducted immediately
before such Casualty and Lessor estimates that the damage caused thereby cannot
be repaired within 180 days after the commencement of repair, then Lessor may,
at its expense, relocate Lessee to office space reasonably comparable to the
Leased Premises, provided that Lessor notifies Lessee of its intention to do so
in the Damage Notice. Such relocation may be for a portion of the remaining
term or the entire term. Lessor shall complete any such relocation within
ninety (90) days after Lessor has delivered the Damage Notice to Lessee. If
such relocation is not for the remaining term, Lessor agrees to pay for Lessee's
relocation back to the Leased Premises. If Lessor does not elect to relocate
Lessee following such Casualty, then Lessee may terminate this Lease by
delivering written notice to Lessor of its election to terminate within thirty
(30) days after the Damage Notice has been delivered to Lessee. If Lessor does
not relocate Lessee and Lessee does not terminate this Lease, then (subject to
Lessor's rights under Section 7.3) Lessor shall repair the Building or the
Leased Premises, as the case may be, as provided below, and Basic Rental for the
portion of the Leased Premises rendered untenantable by the damage shall be
abated on a reasonable basis from the date of damage until

11
<PAGE>

the completion of the repair, unless Lessee caused such damage, in which case,
Lessee shall continue to pay rent without abatement.

7.3 Lessor's Rights.
---------------

If a Casualty damages a material portion of the Building, and Lessor makes
a good faith determination that restoring the Leased Premises would be
uneconomical, or if Lessor is required to pay any insurance proceeds arising out
of the Casualty to Lessor's Mortgagee, then Lessor may terminate this Lease by
giving written notice of its election to terminate within thirty (30) days after
the Damage Notice has been delivered to Lessee, and Basic Rental hereunder shall
be abated as of the date of the Casualty.

7.4 Repair Obligation.
-----------------

If neither party elects to terminate this Lease following a Casualty, then
Lessor shall, within a reasonable time after such Casualty, commence to repair
the Building and the Leased Premises and shall proceed with reasonable diligence
to restore the Building and Leased Premises to substantially the same condition
as they existed immediately before such Casualty; however, Lessor shall not be
required to repair or replace any part of the furniture, equipment, fixtures,
and other improvements which may have been placed by, or at the request of,
Lessee or other occupants in the Building or the Leased Premises, and the
Lessor's obligation to repair or restore the Building or Leased Premises shall
be limited to the extent of the insurance proceeds actually received by Lessor
for the Casualty in question. However, in the event the Building or Leased
Premises is not repaired to substantially the same condition as existing prior
to the Casualty, then Lessee shall have the right to terminate this Lease.

7.5 Property Insurance.
------------------

Lessor shall at all times during the term of this Lease insure the Property
against all risk of direct physical loss in an amount and with such deductibles
as Lessor considers appropriate; provided, Lessor shall not be obligated in any
way or manner to insure any personal property (including, but not limited to,
any furniture, machinery, goods or supplies) of Lessee upon or within the Leased
Premises, any fixtures installed or paid for by Lessee upon or within the Leased
Premises, or any improvements which Lessee may construct on the Leased Premises.
Lessee shall have no right in or claim to the proceeds of any policy of
insurance maintained by Lessor even if the cost of such insurance is borne by
Lessee as set forth in Article 2. Lessee at all times during the term of the
Lease shall, at its own expense, keep in full force and effect insurance
including self insurance against fire and such other risks as are from time to
time included in standard all-risk insurance (including coverage against
vandalism and malicious mischief) for the full insurable value of Lessee's trade
fixtures, furniture, supplies and all items of personal property of Lessee
located on or within the Leased Premises.

7.6 Waiver; No Subrogation.
----------------------

Lessor shall not be liable to Lessee or those claiming by, through, or
under Lessee or to Lessee's agents, employees, invitees or licensees for any
injury to or death of any person or persons or the damage to or theft,
destruction, loss, or loss of use of any property (a "Loss") caused by casualty,
----
theft, fire, third parties, or any other matter beyond the control of Lessor, or
for any injury or damage or inconvenience which may arise through repair or
alteration of any part of the Building, or failure to make repairs, or from any
other cause, except if such Loss is caused by Lessor's gross negligence or
willful misconduct. Lessor and Lessee each waives any claim it might have
against the other for any damage to or theft, destruction, loss, or loss of use
of any property, to the extent the same is insured against under any insurance
policy that covers the Building, the Leased Premises, Lessor's or Lessee's
fixtures, personal property, leasehold improvements, or business, or is required
to be insured against under the terms hereof, regardless of whether the
negligence or fault of the other party caused such loss. Each party shall cause
its insurance carrier to endorse all applicable policies waiving the carrier's
rights of recovery under subrogation or otherwise against the other party.

7.7 Deleted.
-------

7.8 Insurance.
---------

Lessee shall at its expense procure and maintain throughout the term
comprehensive general liability insurance in amounts of not less than $ 500,000,
insuring Lessee and Lessor and Lessor's agents against all liability for injury
to or death of a person or persons or damage to property arising from the use
and occupancy of the Leased Premises. Lessee's insurance shall provide primary
coverage to Lessor when any policy issued to Lessor provides duplicate or
similar coverage, and in such circumstance Lessor's policy will be excess over
Lessee's policy. Lessee shall furnish certificates of such insurance and such
other evidence satisfactory to Lessor of the maintenance of all insurance
coverage required hereunder, and Lessee shall obtain a written obligation on the
part of each insurance company to notify Lessor at least fifteen (15) days
before cancellation or a material change of any such insurance.

7.9 Ad Valorem Taxes.
----------------

Lessee hereby waives any right it may have to contest the appraised value
of the Property or Building as the appraised value may be determined by any
taxing authority.

ARTICLE 8. - CONDEMNATION

12
<PAGE>

8.1 Taking - Lessor's and Lessee's Rights.
---------------------------------------

If any part of the Building is taken by right of eminent domain or conveyed
in lieu thereof (a "Taking"), and such Taking prevents Lessee from conducting
------
its business in the Leased Premises in a manner reasonably comparable to that
conducted immediately before such Taking, then Lessor may, at its expense,
relocate Lessee to office space reasonably comparable to the Leased Premises,
provided that Lessor notifies Lessee of its intention to do so within thirty
(30) days after the Taking. Such relocation may be for a portion of the
remaining term or the entire term. Lessor shall complete any such relocation
within ninety (90) days after Lessor has notified Lessee of its intention to
relocate Lessee. If Lessor does not elect to relocate Lessee following such
Taking, then Lessee may terminate this Lease as of the date of such Taking by
giving written notice to Lessor within sixty (60) days after the Taking, and
rent shall be apportioned as of the date of such Taking. If Lessor does not
relocate Lessee and Lessee does not terminate this Lease, then Base Rental shall
be abated on a reasonable basis as to that portion of the Leased Premises
rendered untenantable by the Taking.

8.2 Taking - Lessor's Rights.
------------------------

If any material portion, but less than all, of the Building becomes subject
to a Taking, or if Lessor is required to pay any of the proceeds received for a
Taking to Lessor's Mortgagee, then this Lease, at the option of Lessor,
exercised by written notice to Lessee within thirty (30) days after such Taking,
shall terminate and rent shall be apportioned as of the date of such Taking. If
Lessor does not so terminate this Lease and does not elect to relocate Lessee,
then this Lease will continue, but if any portion of the Leased Premises has
been taken, Base Rental shall abate as provided in the last sentence of Section
8.1.

8.3 Award.
-----

If any Taking occurs, then Lessor shall receive the entire award or other
compensation for the Land, the Building, and other improvements taken, and
Lessee may separately pursue a claim against the condemnor for the value of
Lessee's personal property which Lessee is entitled to remove under this Lease,
moving costs, loss of business, and other claims it may have.

ARTICLE 9. - ASSIGNMENT OR SUBLEASE; SUBORDINATION AND NOTICE

9.1 Sublease; Consent.
-----------------

Lessee shall not, without the prior written consent of Lessor (which shall
not be unreasonably withheld), (i) advertise that any portion of the Leased
Premises is available for lease, (ii) assign, sublease, or encumber this Lease
or any estate or interest herein, whether directly or by operation of law,
(iii) permit any other entity to become Lessee hereunder by merger,
consolidation, or other reorganization, (iv) sublet any portion of the Leased
Premises, (v) grant any license, concession, or other right of occupancy of any
portion of the Leased Premises, or (vi) permit the use of the Leased Premises by
any parties other than Lessee (any of the events listed in clauses (ii) through
(vi) being a "Sublease"). If Lessee requests Lessor's consent to a Sublease,
--------
then Lessee shall provide Lessor with a written description of all terms and
conditions of the proposed Sublease, copies of the proposed documentation, and
the following information about the proposed sublease: name and address;
reasonably satisfactory information about its business and business history; its
proposed use of the Leased Premises; banking, financial, and other credit
information; and general references sufficient to enable Lessor to determine the
proposed sublessee's credit worthiness and character. Lessee shall reimburse
Lessor for its attorneys' fees and other expenses incurred in connection with
considering any request for its consent to a Sublease. If Lessor consents to a
proposed Sublease, then the proposed sublessee shall deliver to Lessor a written
agreement whereby it expressly assumes the Lessee's obligations hereunder;
however, any sublessee of less than all of the space in the Leased Premises
shall be liable only for obligations under this Lease that are properly
allocable to the space subject to the Sublease, and only to the extent of the
rent it has agreed to pay Lessee therefor. Lessor's consent to a Sublease shall
not release Lessee from performing its obligations under this Lease, but rather
Lessee and its sublessee shall be jointly and severally liable therefor.
Lessor's consent to any Sublease shall not waive Lessor's rights as to any
subsequent Subleases. If an Event of Default occurs while the Leased Premises
or any part thereof are subject to a Sublease, then Lessor, in addition to its
other remedies, may collect directly from such sublessee all rents becoming due
to Lessee and apply such rents against rent. Lessee authorizes its sublessees
to make payments of rent directly to Lessor upon receipt of notice from Lessor
to do so.

9.2 Deleted.
-------

9.3 Additional Compensation.
-----------------------

Lessee shall pay to Lessor, immediately upon receipt thereof, seventy-five
per cent (75%) of all compensation received by Lessee for a Sublease that
exceeds the rent allocable to the portion of the Leased Premises covered
thereby.

9.4 Lessor Assignment.
-----------------

Lessor shall have the right to sell, transfer or assign, in whole or in
part, its rights and obligations under this Lease and in the Property. Any such
sale, sublease or assignment shall operate to release Lessor from any and all
liabilities under this Lease arising after the date of such sale, assignment or
transfer.

9.5 Rights of Mortgagee.
-------------------

Lessee accepts this Lease subject and subordinate to any recorded lease,
mortgage or deed of trust lien presently existing,

13
<PAGE>

if any, or hereafter encumbering the Property and to all existing ordinances and
recorded restrictions, covenants, easements, and agreements with respect to the
Property, Lessor hereby is irrevocably vested with full power and authority to
subordinate Lessee's interest under this Lease to any mortgage or deed of trust
lien hereafter placed on the Property. Upon any foreclosure, judicially or non-
judicially, of any such mortgage, or the sale of the Property in lieu of
foreclosure, or any other transfer of Lessor's interest in the Property, whether
or not in connection with a mortgage, Lessee hereby does, and hereafter agrees
to attorn to the purchaser at such foreclosure sale or to the grantee under any
deed in lieu of foreclosure or to any other transferee of Lessor's interest, and
shall recognize such purchaser, grantee, or other transferee as Lessor under
this Lease, and no further attornment or other agreement shall be required to
effect or evidence Lessee's attornment to and recognition of such purchaser or
grantee as Lessor hereunder. Such agreement of Lessee to attorn shall survive
any such foreclosure sale, trustee's sale, conveyance in lieu thereof, or any
other transfer of Lessor's interest in the Property. Lessee, upon demand, at any
time, before or after any such foreclosure sale, trustee's sale, conveyance in
lieu thereof, or other transfer shall execute, acknowledge, and deliver to the
prospective transferee and/or mortgagee the Lease Subordination, Non-disturbance
and Attornment Agreement and any additional written instruments and certificates
evidencing such attornment all on substantially the same terms as those herein
as the mortgagee or other prospective transferee may reasonably require.
Notwithstanding anything to the contrary implied in this Section, any mortgagee
under any mortgage shall have the right at any time to subordinate any such
mortgage to this Lease on such terms and subject to such conditions as the
mortgagee in its discretion may consider appropriate.

9.6 Mortgagee's Right to Cure.
-------------------------

No act or omission by Lessor which would entitle Lessee under the terms of
this Lease or any Laws to be relieved of Lessee's obligations hereunder, or to
terminate this Lease, shall result in a release or termination of such
obligations or this Lease unless: (a) Lessee first shall have given written
notice of Lessor's act or omission to Lessor and all Lessor's Mortgagees whose
names and addresses shall have been or will be furnished by Certified mail to
Lessee; and (b) Lessor's Mortgagees, after receipt of such notice, fail to
correct or cure the act or omission within a reasonable time thereafter (but in
no event less than sixty (60) days). However, nothing contained in this Section
shall impose any obligation on Lessor's Mortgagees to correct or cure any act or
omission.

9.7 Estoppel Certificates.
---------------------

Lessee agrees to furnish, from time to time (but no more frequently than
two (2) times annually), within ten (10) days after receipt of a request from
Lessor's or Lessor's Mortgagee, a statement certifying, if applicable, all of
the following: Lessee is in possession of the Leased Premises; the Lease is in
full force and effect; the Lease is unmodified (except as disclosed in such
statement); Lessee claims no present charge, lien, or claim of offset against
rent; the rent is paid for the current month, but is not prepaid for more than
one (1) month and will not be prepaid for more than one (1) month in advance;
there is no existing default by reason of some act or omission by Lessor; that
Lessor has performed all inducements required of Lessor, in connection with this
Lease, including construction obligations, and Lessee accepts the Leased
Premises as constructed; an acknowledgment of the assignment of rentals and
other sums due hereunder to the mortgage and agreement to be bound thereby; an
agreement requiring Lessee to advise the mortgagee of damage to or destruction
of the Leased Premises by fire or other casualty requiring reconstruction; an
agreement by Lessee to give the mortgagee written notice of Lessor's default
hereunder and to permit mortgagee to cure such default within no less than sixty
(60) days after such notice before exercising any remedy Lessee might possess as
a result of such default. Lessee's failure to deliver such statement, in
addition to being a default under this Lease, shall be deemed to establish
conclusively that this Lease is in full force and effect except as declared by
Lessor, that Lessor is not in default of any of its obligations under this
Lease, and that Lessor has not received more than one (1) month's rent in
advance.

ARTICLE 10. - LIENS

10.1 Deleted.
-------

ARTICLE 11. - DEFAULT AND REMEDIES

11.1 Events of Default.
-----------------

Each of the following occurrences shall constitute an "Event of Default" :

a. Lessee's failure to pay rent, or any other sums due from Lessee to
Lessor under the Lease (or any other lease executed by Lessee for space in the
Building), when due;

b. Lessee's failure to perform, comply with, or observe any other
agreement or obligation of Lessee under this Lease (or any other Lease executed
by Lessee for space in the Building};

c. Deleted.

d. Deleted.

e. Deleted.

a. Lessee's dissolution or termination of existence.

b. Lessee's failure to deliver such statement described in Section 9.6
Estoppel Certificates after thirty (30) days written notice.

14
<PAGE>

11.2 Remedies.
--------

Upon any Event of Default, Lessor may, in addition to all other rights and
remedies afforded Lessor hereunder or by law or equity, take any of the
following actions:

a. Terminate this Lease by giving Lessee written notice thereof, in which
event, Lessee shall pay to Lessor the sum of (i) all rent accrued hereunder
through the date of termination, (ii) all amounts due under Section 11.3., and
(iii) an amount equal to (A) the total rent that Lessee would have been required
to pay for the remainder of the term discounted to present value at a per annum
rate equal to ten per cent (10%), minus (B) the then present fair rental value
of the Leased Premises for such period, similarly discounted; or

b. Terminate Lessee's right to possession of the Leased Premises without
terminating this Lease by giving written notice thereof to Lessee, in which
event Lessee shall pay to Lessor (i) all rent and other amounts accrued
hereunder to the date of termination of possession, (ii) all amounts due from
time to time under Section 11.3., and (iii) all rent and other sums required
hereunder to be paid by Lessee during the remainder of the term, reduced by any
net sums thereafter received by Lessor through reletting the Leased Premises
during such period. Lessor shall use reasonable efforts to relet the Leased
Premises on such terms and conditions as Lessor in its sole discretion may
determine (including a term different from the term, rental concessions, and
alterations to, and improvement of, the Leased Premises); however, Lessor shall
not be obligated to relet the Leased Premises before leasing other portions of
the Building. Lessor shall not be liable for, nor shall Lessee's obligations
hereunder be diminished because of, Lessor's failure to relet the Leased
Premises or to collect rent due for such reletting. Lessee shall not be
entitled to the excess of any consideration obtained by reletting over the rent
due hereunder. Re-entry by Lessor in the Leased Premises shall not affect
Lessee's obligations hereunder for the unexpired term; rather, Lessor may, from
time to time, bring action against Lessee to collect amounts due by Lessee,
without the necessity of Lessor's waiting until the expiration of the term.
Unless Lessor delivers written notice to Lessee expressly stating that it has
elected to terminate this Lease, all actions taken by Lessor to exclude or
dispossess Lessee of the Leased Premises shall be deemed to be taken under this
Section 11.2b. If Lessor elects to proceed under this Section 11.2b., it may at
any time elect to terminate this Lease under Section 11.2a.

c. In addition to its rights under 11.2(a) and (b) above, Lessor may,
without notice, alter locks or other security devices at the Leased Premises to
deprive Lessee of access thereto, and Lessor shall not be required to provide a
new key or right of access to Lessee so long as any Event of Default exists.

11.3 Payment by Lessee.
-----------------

Upon any Event of Default, Lessee shall pay to Lessor all costs incurred by
Lessor (including court costs and reasonable attorneys' fees and expenses) in
(i) obtaining possession of the Leased Premises, (ii) removing and storing
Lessee's or any other occupant's property, (including the cost of altering any
locks or security devices), (iii) the reasonable cost of repairing, restoring,
altering, remodeling, or otherwise putting the Leased Premises into rentable
condition, (iv) if Lessee is dispossessed of the Leased Premises and this Lease
is not terminated, reletting all or any part of the Leased Premises (including
brokerage commissions, cost of tenant finish work to Building Standards, and
other costs incidental to such reletting), (v) performing Lessee's obligations
which Lessee failed to perform, and (vi) enforcing, or advising Lessor of, its
rights, remedies, and recourse arising out of the Event of Default.

11.4 Performance by Lessor.
---------------------

If Lessee defaults under this Lease, Lessor, without waiving or curing the
default, may, but shall not be obligated to, perform Lessee's obligations for
the account and at the expense of Lessee. Notwithstanding Section 11.1b, in the
case of an emergency, Lessor need not give any notice prior to performing
Lessee's obligations. Lessee irrevocably appoints Lessor and Lessor's successor
and assigns, with full power of substitution, as Lessee's attorney-in-fact,
coupled with an interest, to execute, acknowledge and deliver any instruments in
connection with Lessor's performance of Lessee's obligations if Lessee is in
default, and to take all other acts in connection therewith.

11.5 Post-Judgment Interest.
----------------------

The amount of any judgment obtained by Lessor against Lessee in any legal
proceeding arising out of Lessee's default under this Lease shall bear interest
until paid at the maximum rate allowed by law, or, if no maximum rate prevails,
at the rate of eighteen percent (18%) per annum. Notwithstanding anything to the
contrary contained in any laws, with respect to any damages that are certain or
ascertainable by calculation, interest shall accrue from the day that the right
to the damages vests in Lessor, and in the case of any unliquidated claim,
interest shall accrue from the day the claim arose.

ARTICLE 12. - RELOCATION

12.1 Deleted.
-------

12.2 Deleted.
-------

ARTICLE 13. - DEFINITIONS

15
<PAGE>

13.1 Deleted.
-------

13.2 Act of God or Force Majeure.
---------------------------

An "act of God" or "force majeure" is defined for purposes of this Lease as
---------- -------------
including, by way of example, but not limited to strikes, lockouts, sitdowns,
material or labor restrictions by any governmental authority, unusual
transportation delays, riots, floods, washouts, explosions, earthquakes, fire
storms, weather (including wet grounds or inclement weather which prevents
construction), acts of the public enemy, wars, insurrections, and/or any other
cause not reasonably within the control of Lessor or which by the exercise of
due diligence Lessor is unable wholly or in part, to prevent or overcome.

13.3 Deleted.
-------

ARTICLE 14. - MISCELLANEOUS

14.1 Waiver.
------

Failure of Lessor to declare an event of default immediately upon its
occurrence, or delay in taking any action in connection with an event of
default, shall not constitute a waiver of the default, but Lessor shall have the
right to declare the default at any time and take such action as is lawful or
authorized under this Lease. Pursuit of any one or more of the remedies set
forth in Article 11 above shall not preclude pursuit of any one or more of the
other remedies provided elsewhere in this Lease or provided by law, nor shall
pursuit of any remedy hereunder or at law constitute forfeiture or waiver of any
rent or damages accruing to Lessor by reason of the violation of any of the
terms, provisions or covenants of this Lease. Failure by Lessor to enforce one
or more of the remedies provided hereunder or at law upon any event of default
shall not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms provisions and covenants contained
in this Lease. Lessor may collect and receive rent due from Lessee without
waiving or affecting any rights or remedies that Lessor may have at law or in
equity or by virtue of this Lease at the time of such payment. Institution of a
forcible detainer action to re-enter the Leased Premises shall not be construed
to be an election by Lessor to terminate this Lease.

14.2 Act of God.
----------

Lessor shall not be required to perform any covenant or obligation in this
Lease, or be liable in damages to Lessee, so long as the performance or non-
performance of the covenant or obligation is delayed, caused or prevented by an
act of God, force majeure or by Lessee.

14.3 Attorney's Fees.
---------------

If either Lessor or Lessee defaults in the performance of any of the terms,
covenants, agreements or conditions contained in this Lease and either party
places in the hands of any attorney the enforcement of all or any part of this
Lease, the collection of any rent or other sums due or to become due or recovery
of the possession of the Leased Premises, the defaulting party agrees to pay
Lessor's costs of collection, including reasonable attorney's fees.

14.4 Successors.
----------

This Lease shall be binding upon and inure to the benefit of Lessor and
Lessee and their respective heirs, personal representatives, successors and
assigns.

14.5 Rent Tax.
--------

If applicable in the jurisdiction where the Leased Premises are situated,
Lessee shall pay and be liable for all rental, sales and use taxes or other
similar taxes, if any, levied or imposed by any city, state, county or other
governmental body having authority, such payments to be in addition to all other
payments required to be paid to Lessor by Lessee under the terms of this Lease.
Any such payment shall be paid concurrently with the payment of the rent,
additional rent, operating expenses or other charge upon which the tax is based
as set forth above.

14.6 Interpretation.
--------------

The captions appearing in this Lease are for convenience only and in no way
define, limit, construe or describe the scope or intent of any Section.
Grammatical changes required to make the provisions of this Lease apply (1) in
the plural sense where there is more than one tenant and (2) to limited
liability companies, corporations, associations, partnerships or individuals,
males or females, shall in all instances be assumed as though in each case fully
expressed. The laws of the State of Texas shall govern the validity,
performance and enforcement of this Lease. This Lease shall not be construed
more or less favorably with respect to either party as a consequence of the
Lease or various provisions hereof having been drafted by one of the parties
hereto.

14.7 Notices.
-------

All rent and other payments required to be made by Lessee shall be payable
to Lessor, in care of Manager, at Manager's

16
<PAGE>

address set forth on page 1. All payments required to be made by Lessor to
Lessee shall be payable to Lessee at Lessee's address set forth on page 1. Any
notice or document (other than rent) required or permitted to be delivered by
the terms of this Lease shall be deemed to be delivered (whether or not actually
received) when deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth on page 1 (or, in the case of Lessee, at the Leased
Premises), or to such other addresses as the parties may have designated by
written notice to each other, with copies of notices to Lessor being sent to
Lessor's address as shown on page 1. Manager shall be a co-addressee with Lessor
on all notices sent to Lessor by Lessee hereunder, and any notice sent to Lessor
and not to Manager, also, in accordance with this section shall be deemed
ineffective.

14.8 Submission of Lease.
-------------------

Submission of this Lease to Lessee for signature does not constitute a
reservation of space or an option to Lease. This Lease is not effective until
execution by and delivery to both Lessor and Lessee.

14.9 Authority.
---------

If Lessee executes this Lease as a limited liability company, corporation
or a partnership (general or limited), each person executing this Lease on
behalf of Lessee hereby personally represents and warrants that: Lessee is a
duly authorized and existing limited liability company, corporation or
partnership (general or limited), Lessee is qualified to do business in the
state in which the Leased Premises are located, the limited liability company,
corporation or partnership (general or limited) has full right and authority to
enter into this Lease, each person signing on behalf of the limited liability
company, corporation or partnership (general or limited) is authorized to do so,
and the execution and delivery of the Lease by Lessee will not result in any
breach of, or constitute a default under any mortgage, deed of trust, lease,
loan, credit agreement, partnership agreement, or other contract or instrument
to which Lessee is a party or by which Lessee may be bound. If any
representation or warranty contained in this Section is false, each person who
executes this Lease shall be liable, individually, as Lessee hereunder.

14.10 Deleted.
-------

14.11 Deleted.
-------

14.12 Severability.
------------

If any provision of this Lease or the application thereof to any person or
circumstances shall be invalid or unenforceable to any extent, the remainder of
this Lease and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law. Each covenant and agreement contained in this
Lease shall be construed to be a separate and independent covenant and
agreement, and the breach of any such covenant or agreement by Lessor shall not
discharge or relieve Lessee from Lessee's obligation to perform each and every
covenant and agreement of this Lease to be performed by Lessee.

14.13 Lessor's Liability.
------------------

If Lessor shall be in default under this Lease and, if as a consequence of
such default, Lessee shall recover a money judgment against Lessor, such
judgment shall be satisfied only out of the right, title, and interest of Lessor
in the Property as the same may then be encumbered and neither Lessor nor any
person or entity comprising Lessor shall be liable for any deficiency. In no
event shall Lessee have the right to levy execution against any property of
Lessor nor any person or entity comprising Lessor other than its interest in the
Property as herein expressly provided.

14.14 Sale of Property.
----------------

Upon any conveyance, sale or exchange of the Leased Premises or assignment
of this Lease, Lessor shall be and is hereby entirely free and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence, or omission relating
to the Leased Premises or this Lease occurring after the consummation of such
sale or exchange and assignment.

14.15 Time is of the Essence.
----------------------

The time of the performance of all of the covenants, conditions and
agreements of this Lease is of the essence of this Lease.

14.16 Subtenancies.
------------

At Lessor's option, the voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger of estates and
shall operate as an assignment of any or all permitted subleases or
subtenancies.

14.17 Name.
----

17
<PAGE>

Lessee shall not use the name of the Building or of the development in
which the Building is situated, if any, for any purpose other than as an address
of the business to be conducted by Lessee in the Premises.

14.18 Choice of Law.
-------------

This Lease shall be governed by the laws of the State of Texas applicable
to transactions to be performed wholly therein.

14.19 Presumptions.
------------

This Lease shall be construed without regard to any presumption or other
rule requiring construction against the party drafting the document. It shall be
construed neither for nor against Lessor or Lessee, but shall be given
reasonable interpretation in accordance with the plain meaning of its terms and
the intent of the parties.

14.20 Exhibits.
--------

All exhibits and any riders annexed to this Lease are incorporated herein
by this reference.

14.21 Brokers.
-------

Lessee represents and warrants to Lessor that Lessee has had no dealings
with any broker, finder, or similar person who is or might be entitled to a
commission or other fee in connection with introducing Lessee to the Building or
in connection with this Lease. Lessor shall pay the commission due Lessor's
Broker pursuant to a separate agreement between Lessor and Lessor's Broker.
Lessee shall indemnify Lessor for, and hold Lessor harmless from and against,
any and all claims of any person other than Lessor's Broker who claims to have
introduced Lessee to the Building or dealt with Lessee in connection with this
Lease and all liabilities arising out of or in connection with such claims.

ARTICLE 15. - SPECIAL PROVISIONS

11 Prior Lease Agreement.
---------------------

Upon execution, this Lease Agreement shall supersede and replace that
certain prior lease agreement by and between the parties dated the 8 /th/ day of
January, 1996 and such prior lease shall be considered canceled and of no
further effect.

11 "Add-On Space".
--------------

Notwithstanding anything contained herein to the contrary, the
approximately 44,270 square feet of Net Rentable Area referred to in Section 1.5
"Leased Premises" shall consist of approximately 14, 750 square feet located on
Floor Five and approximately 7,872 square feet located on Floor Two known as
the "Original Space" as well as all or a portion of approximately 6,888 square
feet located on Floor Two and approximately 14,760 square feet located on Floor
Four collectively known as the "Add-On Space".

(a) The "Add-On Space" or any portion thereof shall be added to the Leased
Premises within sixty (60) days of its release by the present tenant.
It is hereby recognized by the parties hereto that such Add-On Space
shall be released in increments and Lessee shall only be allowed to
increase the Leased Premises square footage as the Add-On Space
becomes available.

(a) From the Commencement Date of this Lease until such time as Lessee
increases their square footage by virtue of the Add-On Space
provisions herein, Lessee shall only pay rent and its pro-rata share
of the Operating Expenses on the Original Space and such amount of the
Add-On Space as Lessee has assumed hereunder.

(a) Lessee shall assume the Add-On Space at the same rental rate and under
the same terms and conditions as set forth herein for the "Original
Space".

11 Renewal Option.
--------------

Provided no Event of Default exists and Lessee is occupying the entire
Premises at the time of such election, Lessee may renew this Lease for One (1)
additional period of Five (5) years on the same terms provided in this Lease
(except as set forth below), by delivering written notice of the exercise
thereof to Lessor not later than 180 days before the expiration of the Term. On
or before the commencement date of the extended term, Lessor and Lessee shall
execute an amendment to this Lease extending the Term on the same terms provided
in this Lease, except as follows:

(a) The Basic Rental Rate payable for each month during the extended Term
shall be at ninety-three and one/half per cent (93 1/2 %) of the then
prevailing market rate.

(a) Lessee shall have no further renewal options unless expressly granted
by Lessor in writing; and

(a) Lessor shall lease to Lessee the Leased Premises in their then current
condition, and Lessor shall not provide to Lessee any allowances
(e.g., moving allowance, construction allowance and the like) or other
tenant inducements.

18
<PAGE>

Lessee's rights under this clause shall terminate if (I) this Lease or
Lessee's right to possession of the Premises is terminated, (ii) Lessee assigns
any of its interest in this Lease or sublets any material portion of the
Premises, or (iii) Lessee fails to timely exercise its option under this
Exhibit, time being of the essence with respect to Lessee's exercise thereof.

11 First Right of Refusal.
----------------------

Lessee shall have First Right of Refusal on all space adjacent or
contiguous to the Leased Premises as that space shall become available at a
Basic Rental Rate equal to ninety-three and one/half per cent (93 1/2 %) of the
then prevailing market rate.

ARTICLE 16. - AMENDMENT AND LIMITATION OF WARRANTIES

16.1 Entire Agreement.
----------------

IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE
EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO
EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES: THAT THERE ARE, AND
WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS,
AGREEMENT OR PROMISES PERTAINING TO THE SUBJECT MATTER OF THIS LEASE OR OF ANY
EXPRESSLY MENTIONED EXTRINSIC DOCUMENTS THAT ARE NOT INCORPORATED IN WRITING IN
THIS LEASE.

16.2 Amendment.
---------

THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN
INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.

16.3 Limitation of Warranties.
------------------------

LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED
WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS OF A PARTICULAR PURPOSE OR
OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH
EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, LESSEE EXPRESSLY ACKNOWLEDGES THAT LESSOR HAS MADE
NO WARRANTIES OR REPRESENTATIONS CONCERNING ANY HAZARDOUS SUBSTANCES OR OTHER
ENVIRONMENTAL MATTERS AFFECTING ANY PART OF THE PROPERTY, AND LESSOR HEREBY
EXPRESSLY DISCLAIMS AND LESSOR WAIVES ANY EXPRESS OR IMPLIED WARRANTIES WITH
RESPECT TO ANY SUCH MATTER.

16.4 Waiver and Releases.
-------------------

LESSEE SHALL NOT HAVE THE RIGHT TO WITHHOLD OR TO OFFSET RENT OR TO
TERMINATE THIS LEASE EXCEPT AS EXPRESSLY PROVIDED HEREIN. LESSEE WAIVES AND
RELEASES ANY AND ALL STATUTORY LIENS AND OFFSET RIGHTS.

EXECUTED to be effective the date first above written.

LESSOR

FASKEN CENTER, LTD.
By: 550 Texas, Inc., General Partner

By:/s/ Wendell L. Brown, Jr.
-------------------------------------
Name: Wendell L. Brown, Jr.
---------------------------------
Title: Vice President
--------------------------------

LESSEE

TITAN EXPLORATION, INC.

By: /s/ William K. White
-------------------------------------
Name: William K. White
---------------------------------
Title: Vice President
--------------------------------

19
<PAGE>

EXHIBIT "A"

LEGAL DESCRIPTION

PHASE I:

Field Note description of the survey of the Midland National Bank Tower tract,
consisting of Block 32 & 33, Original Town of Midland, Midland County, Texas,
and being described more fully by metes and bounds as follows:

BEGINNING as a 1/2" reinf. bar at the SW corner of Block 32 for the SW corner of
this tract, the same being the intersection of the North right-of-way line of W.
Texas Ave. with the East right-of-way line of N. Carrizo Street;

THENCE North 300 feet along the West line of Block 32 and the East ROW line of
N. Carrizo Street to a 1/2" reinf. bar set at the NW corner of Block 32 for the
NW corner of this tract in the south right-of-way line of W. Illinois Ave;

THENCE East 680 feet along the South ROW line of W. Illinois Ave. and along the
North line of Blocks 32 and 33 to a 1/2" reinf. bar in the West ROW line of N.
Marienfeld Street for the NE corner of Block 33 and the NE corner of this tract;

THENCE South 300 feet along the East line of Block 33 and the West ROW line of
N. Marienfeld Street to a 1/2" reinf. bar set at the SE corner of Block 33 for
the SE corner of this tract in the North ROW line of W. Texas Ave.

THENCE West 680 feet along the North ROW line of W. Texas Ave. and along the
South line of Block 32 and 33 to the PLACE OF BEGINNING.

LESS AND EXCEPT, HOWEVER, the following described property:

A tract of land out of Blocks 32 and 33, Original Town of Midland, as per plat
recorded in Volume 2, Page 232, Deed Records of Midland County, Texas, also that
portion of Pecos Street between said blocks and the 20-foot alleys in said
blocks as abandoned by City Ordinance and recorded in Volume 294, Page 454, Deed
Records of Midland County, Texas, as follows:

BEGINNING at a "X" marked in concrete for the NE corner of this Tract, same
being the NE corner of the above said Block 33, at the intersection of the South
right-of-way line of West Illinois Avenue and the West right-of-way line of
North Marienfeld Street;

THENCE South 126.79 feet along said West right-of-way line of North Marienfeld
Street to an "X" marked in concrete for the most easterly SE corner of this
Tract;

THENCE West 155.92 feet to a "PK" nail set for an interior corner of this
Tract;

THENCE South 45 degrees 00' W. 136.0 feet to a 1/2" reinf. bar set for another
interior corner of this Tract;

THENCE South 77.05 feet to an "X" marked in concrete for the most southerly SE
corner of this Tract in the North right-of-way line of West Texas Avenue;

THENCE West 277.92 feet along said North right-of-way line of West Texas Avenue
to an "X" market in concrete for the SW corner of this Tract;

THENCE North 300.00 feet to an "X" marked in concrete for the NW corner of this
Tract in the above said South right-of-way line of West Illinois Avenue:

THENCE East 530.0 feet along said South right-of-way line of West Illinois
Avenue to the PLACE OF BEGINNING.

PHASE II:

A tract of land out of Blocks 32 and 33, Original Town of Midland, as per Plat
recorded in Volume 2, Page 232, Deed Records of Midland County, Texas, also that
portion of Pecos Street between said blocks and the 20-foot alleys in said block
as abandoned by City Ordinance and recorded in Volume 294, Page 454, Deed
Records of Midland County, Texas as follows:

BEGINNING at an "X" marked in concrete for the NE corner of this Tract, same
being the NE corner of the above said Block 33, at the intersection of the South
right-of-way line of West Illinois Avenue and the West right-of-way line of
North Marienfeld Street;

THENCE South 126.79 feet along said West right-of-way line of North Marienfeld
Street to an "X" marked in concrete for the most easterly SE corner of this
Tract;

THENCE West 155.92 feet to a "PK" nail set for an interior corner of this
Tract;

THENCE South 45 degrees 00' W. 136.0 feet to a 1/2" reinf. bar set for another
interior corner of this Tract;

THENCE South 77.05 feet to an "X" marked in concrete for the most southerly SE
corner of this Tract in the North right-of-way line of West Texas Avenue;

THENCE West 277.92 feet along said North right-of-way line of West Texas Avenue
to an "X" marked in concrete for the SW corner of this Tract;

THENCE North 300.0 feet to an "X" marked in concrete for the NW corner of this
Tract in the above said South right-of-way line of West Illinois Avenue;

20
<PAGE>

THENCE East 530.0 feet along said South right-of-way line of West Illinois
Avenue to the PLACE OF BEGINNING.

21
<PAGE>

EXHIBIT "B"

FLOOR PLANS

22
<PAGE>

EXHIBIT "C"

BASE RENTAL

The following Base Rental Provision are hereby incorporated in and made a part
of the Lease Agreement by and between:

Lessor: Fasken Center, Ltd.
-------------------------------------

P. O. Box 11227
-------------------------------------

Midland, Texas 79702
-------------------------------------

and Lessee: Titan Exploration, Inc.
-------------------------------------

500 West Texas Avenue
-------------------------------------

Suite 500
-------------------------------------

Midland, Texas 79701
-------------------------------------

Base Rent for "Original Space": $ 16,023.92/Month $ 192,287.00/Year

Base Rent with "Add-On Space": $ 31,357.92/Month $ 376,295.00/Year

*Notwithstanding anything contained herein to the contrary, subject to Section
15.2, such Base Rental together with any escalation of rent provided for in the
Lease Agreement, then in effect, shall be due and payable in Sixty (60)
---------------
monthly installments and such Base Rent for the Add-On Space may be
proportionately paid based upon actual square footage leased under the terms of
this Lease.

LESSOR

FASKEN CENTER, LTD.
- ----------------------------------------
a Texas Limited Partnership
- ----------------------------------------

By: 550 TEXAS, INC., General Partner,
a Texas Corporation

By: Wendell L. Brown, Jr.
-----------------------------------

Name: Wendell L. Brown, Jr.
------------------------------

Title: Vice President
-----------------------------

LESSEE

TITAN EXPLORATION, INC.
- ----------------------------------------

By: /s/ William K. White
-------------------------------------

Name: William K. White
--------------------------------

Title: Vice President
-------------------------------

23
<PAGE>

EXHIBIT "D"
WORK LETTER

Lessee accepts the Leased Premises in "as is" condition. All finish out
costs shall be at Lessee's sole expense.

Agreed to and accepted this 10th ,day of April ,
------------------ -----------
1997 .
----

LESSOR

FASKEN CENTER, LTD.
- ----------------------------------------
a Texas Limited Partnership
- ----------------------------------------

By: 550 TEXAS, INC., General Partner,
a Texas Corporation

By: Wendell L. Brown, Jr.
-----------------------------------

Name: Wendell L. Brown, Jr.
------------------------------

Title: Vice President
-----------------------------

LESSEE

TITAN EXPLORATION, INC.
- ----------------------------------------

By: /s/ William K. White
-------------------------------------

Name: William K. White
--------------------------------

Title: Vice President
-------------------------------

24
<PAGE>

BUILDING RULES AND AGREED REGULATIONS

1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by any Lessee or used by any Lessee for any purpose
other than access to and from such Lessee's Leased Premises and other portions
of the building.

2. Plumbing, fixtures and appliances within the building shall be used only
for the purposes for which designed and no sweepings, rubbish, rags or other
unsuitable material shall be thrown or placed therein. Damage resulting to any
such fixtures or appliances from misuse by a Lessee or such Lessee's agents,
employees or invitees, shall be paid by such Lessee and Lessor shall not in any
case be responsible therefore.

3. No signs, advertisements, or notices shall be painted or affixed on or to
any windows or doors or other part of the building except of such color, size
and style in such places as shall be first approved in writing by Lessor. No
part of the building shall be defaced by any Lessee. No curtains or other
window treatments shall be placed between the glass and the building standard
window treatments.

4. Lessor shall provide and maintain an alphabetical directory board for all
Lessees in the first floor (main lobby) of the building and no other directory
shall be permitted without Lessor's prior written consent prorated for the use
of all occupants.

5. Lessor shall provide all locks for doors in each Lessee's leased area, and
no Lessee shall place any additional lock or locks on any door in such Lessee's
Leased Premises, without Lessor's prior written consent. A reasonable number of
keys to the locks on the doors in each Lessee's leased area shall be furnished
by Lessor to each Lessee.

6. Construction or building repair work shall be performed by any Lessee only
within any such Lessee's Leased Premise and only with the prior written consent
of Lessors, and all Lessees will refer all contractors, subcontractors, and
suppliers, and their agents, representatives, and technicians, to Lessor for
Lessor's supervision, approval and control prior to the performance of any
contractual service. This provision shall apply to all construction or building
repair work performed in the building including, but not limited to,
installations of telephones, telegraph equipment, electrical devices, and
attachments, and any and all installations of every nature affecting doors,
walls, woodwork, trim, windows, ceilings, equipment and any other physical
portion of the building.

7. Movement in or out of the building of furniture or office equipment, or
dispatch or receipt by any Lessee of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
building entrances or lobby shall be restricted to such hours as Lessor shall
designate. All such movement shall be by persons acceptable to Lessor, and
shall be performed under the supervision of Lessor and in the manner agreed
between such Lessee and Lessor by prearrangement before initiated by each
requesting Lessee with reasonable advance notice and Lessor shall determine and
control the time, method, and routing of any permitted movement and any
limitations for safety or other concerns which may prohibit any article,
equipment or any other item from being brought into the building. Each Lessee
assumes all risks of, and agrees to pay and hold Lessor harmless from any loss,
cost or expense associated with damage to any articles moved and injury to
property and persons engaged or not engaged in such movement, including property
and personnel of Lessor if damaged or injured as a result of acts or omissions
in connection with carrying out this service for a Lessee, but Lessor shall not
be liable for the acts of omission of any person engaged in, or any damage or
loss to any of said property or persons resulting from any act or omission in
connection with, such service performed for a Lessee.

8. Lessor shall have the power to prohibit, or prescribe the weight and
---------------------------------------
position of safes and other heavy equipment which shall in all cases where
permitted, in order to distribute weight, stand on supporting devices approved
by Lessor. Each Lessee shall notify Lessor when safes or other heavy equipment
are to be taken in or out of the building and the moving shall be done under the
supervision of Lessor, all as is more particularly required by Paragraph 7,
above.

9. Lessor shall provide janitorial cleaning services. Janitorial service to
be made available by Lessor to the Leased Premises shall, to the extent
available in the market place, be performed by bonded cleaning and maintenance
personnel as is reasonably customary and usual for buildings similar to the
building in which the Leased Premises are located, which janitorial services
will include: nightly vacuuming, waste removal, dusting of the Leased Premises
and general cleaning of public areas. Building porters, employed by the Lessor
for miscellaneous daytime cleaning services and other needs of the Lessor may
not be called upon by Lessee for services, except when approved by telephone
request to Lessor's management office. Approvals by Lessor will be only for
short time assistance and solely at the discretion of the Lessor. Lessee shall
in no way be responsible to any Lessee or third party for any negligent or
willful act of omission of any person or persons performing any cleaning service
in the building or any portion thereof, or on the land adjacent thereto.

10. Each Lessee shall cooperate in keeping its Leased Premises neat and clean,
and except as expressly authorized in writing by Lessor, Lessees shall not
employ any person for the purpose of the building's cleaning and maintenance.

11. No telegraphic, enunciator, or other communication service shall be placed
in any Leased Premises except as

25
<PAGE>

Lessor shall permit, and as to any such service so permitted by Lessor, Lessor
will direct the electrician where and how wires are to be introduced and placed.
Additionally, no electric current shall be used for heating without Lessor's
prior written consent.

12. Lessees shall not make or permit any improper noises in the building or
otherwise interfere in any way with other Lessees or persons visiting or doing
business with such other Lessees.

13. Nothing shall be swept or thrown into, or placed, discarded or abandoned
in, the corridors, halls, elevator shafts or stairways. No animals shall be
brought in or kept in, on or about any Lessee's Leased Premises.

14. No machinery excluding machines required for normal business activities of
any kind shall be operated by any Lessee in its Leased Premises without the
prior written consent of Lessor, nor shall any Lessee use or keep in the
building any inflammable or explosive fluid or substance.

15. No portion of any Lessee's Leased Premises shall at any time be used or
occupied as sleeping or lodging quarters.

16. Lessor reserves the right to rescind any of these rules and regulations and
to make such other and further rules and regulations as in its judgment shall
from time to time be needful for the safety, protection, care and cleanliness of
the building, the operation thereof, the preservation of good order therein and
the protection and comfort of the Lessees and their agents, employees and
invitees, provided such changes shall be consistently applied to all Lessees of
the Building, which rules and regulations, when made and written notice thereof
is given to a Lessee, shall be binding upon such Lessee in like manner as if
originally herein prescribed.

17. Lessor shall in no event be responsible to any Lessee or other third party
for lost or stolen personal property including but not limited to money or
jewelry from any of Lessee's Leased Premises (regardless of whether such loss or
theft occurs when such area is locked against entry or not) or from any other
parts of the building or the land.

18. Lessor shall have the right to delegate all or portions of Lessor's rights
and obligations pursuant to these rules and regulations to one or more building
managers, and each Lessee shall thereupon recognize and deal with such building
manager with respect to these rules and regulations.

19. Building standard hours will be from 7:00 a.m. to 6:00 p.m. Monday through
Friday, and from 8:00 a.m. to 2:00 p.m. on Saturday, exclusive of the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

20. Each Lessee will comply and will be responsible for causing its agents,
employees and invitees to comply with all signs and notices which Lessor may
have caused to be posted in the parking garage, including but not limited to
signs pertaining to any reserved or assigned parking spaces. Each Lessee will
further be responsible for causing all driving and parking operations conducted
by it or its agents, employees, and invitees to be conducted in a reasonable,
prudent and safe manner. Lessor shall have the right to designate parking for
visitors and Lessee, its agents, and employees shall not park cars, trucks, or
any other motor vehicles in parking spaces which are designated visitors
parking, Lessee agrees that upon written notice from Lessor it will furnish to
Lessor within five (5) days from receipt to such notice the state automobile
license numbers assigned to the automobiles of the Lessee and its employees.

21. Corridor doors, when not in use, shall be kept closed.

22. All changes and amendments to these Rules and Regulations of the Property
shall be forwarded by Lessor to Lessee in writing and shall thereafter be
carried out and observed by Lessee.

<PAGE>

EXHIBIT 10.24

STOCKHOLDER VOTING AGREEMENT

THIS STOCKHOLDER VOTING AGREEMENT (the "Voting Agreement") is made and
entered into as of November 6, 1997 by and between Titan Exploration, Inc., a
Delaware corporation ("Titan"), and the undersigned officer, director or
affiliate ("Stockholder") of Offshore Energy Development Corporation, Delaware
corporation ("OEDC").

WITNESSETH:

WHEREAS, concurrently with the execution of this Voting Agreement, Titan,
Titan Offshore, Inc, a Delaware corporation and a wholly-owned subsidiary of
Titan ("Sub"), and OEDC have entered into that certain Amended and Restated
Agreement and Plan of Merger, dated as of November 6, 1997 (the "Merger
Agreement"), which provides for the merger of Sub with and into OEDC (the
"Merger"), pursuant to which OEDC will become a wholly-owned subsidiary of
Titan; and

WHEREAS, Stockholder is the record holder and beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the number of shares of the outstanding capital stock of
OEDC indicated on the signature page of this Voting Agreement (the "Shares");
and

WHEREAS, in consideration of and to induce the execution and delivery of
the Merger Agreement by Titan, Stockholder is willing to agree not to transfer
or otherwise dispose of any of the Shares, or any other shares of capital stock
of OEDC acquired hereafter and prior to the Expiration Date (as defined in
Section 1 below), except as specifically permitted hereby, and to vote the
Shares and any other such shares of capital stock of OEDC so as to facilitate
the consummation of the Merger, as more fully described below;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1. NO TRANSFER OR ENCUMBRANCE OF SHARES. Stockholder agrees not to
transfer, sell, exchange, pledge or offer to transfer or sell or otherwise
dispose of or encumber any of the Shares or any New Shares (as defined below),
or to make any offer or agreement relating thereto at any time prior to the
Expiration Date (as defined below). The foregoing restrictions shall not
prohibit a transfer of Shares or New Shares to a trust for the benefit of
Stockholder or a transfer of Shares or New Shares upon the death of Stockholder;
provided, however, that any transferee with respect to such transfer shall agree
to be bound by the terms and conditions of this Voting Agreement. As used
herein, the term "Expiration Date" shall mean the earliest to occur of (i) the
date on which Titan and OEDC mutually consent to terminate this Agreement in
writing, (ii) consummation of the transactions contemplated by the Merger
Agreement, or (iii) prior to the consummation of the transactions contemplated
by the Merger Agreement, the termination of the Merger Agreement pursuant to its
terms. Stockholder agrees that any shares of capital stock of OEDC that
Stockholder purchases or with respect to which Stockholder otherwise acquires
beneficial ownership after the execution of this Voting
<PAGE>

Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Voting Agreement to the same extent as if such
shares were owned as of the date hereof.

2. AGREEMENT TO VOTE SHARES. At every meeting of the OEDC stockholders
prior to the Expiration Date called with respect to any of the following, and at
any adjournment thereof, and with respect to every action or approval by written
consent of OEDC stockholders prior to the Expiration Date solicited with respect
to any of the following, Stockholder shall vote the Shares and any New Shares:
(i) in favor of approval of the Merger Agreement and the Merger and any proposal
or action which would, or could reasonably be expected to, facilitate the
Merger, (ii) against approval of any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement, (iii)
against any merger or consolidation of OEDC with, sale of assets or stock of
OEDC to, or reorganization or recapitalization involving OEDC with, any party
other than as contemplated or permitted by the Merger Agreement, (iv) against
any liquidation or winding up of OEDC, and (v) against any other proposal or
action which would, or could reasonably be expected to, prohibit or discourage
the Merger: This Voting Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein, and shall not prohibit
Stockholder from acting in accordance with his fiduciary duties as an officer,
director or affiliate of OEDC.

3. IRREVOCABLE PROXY. Concurrently with the execution of this Voting
Agreement, Stockholder agrees to deliver to Titan a proxy in the form attached
hereto as ANNEX A (the "Proxy"), which shall be irrevocable to the extent
provided therein; provided, however, that the Proxy shall be revoked upon
termination of this Voting Agreement in accordance with its terms.

4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to Titan as follows:

4.1. OWNERSHIP OF SHARES. Stockholder (i) is the holder of record
and beneficial owner of the Shares and will be the holder of record and
beneficial owner of all New Shares, if any, which at the date hereof and at
all times until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances that would interfere with
the voting of the Shares or the granting of any proxy with respect thereto,
(ii) does not beneficially own any shares of capital stock of OEDC other
than the Shares (except to the extent that Stockholder currently disclaims
beneficial ownership in accordance with applicable law) and (iii) has full
power and authority to make, enter into, deliver and carry out the terms of
this Voting Agreement and the Proxy.

4.2. NO VOTING TRUSTS AND AGREEMENTS. Between the date of this
Agreement and the Expiration Date, Stockholder will not, and will not
permit any entity under Stockholder's control to, deposit any shares of
OEDC capital stock held by Stockholder or such entity in a voting trust or
subject any shares of OEDC capital stock held by such Stockholder or such
entity to any arrangement or agreement with respect

2
<PAGE>

to the voting of such shares of capital stock, other than agreements
entered into with Titan.

4.3. VALIDITY; NO CONFLICT. This Voting Agreement constitutes the
legal, valid and binding obligation of Stockholder. Neither the execution
of this Voting Agreement by Stockholder nor the consummation of the
transactions contemplated herein will violate or result in a breach of (i)
any provision of any trust, charter, partnership agreement or other charter
document applicable to Stockholder, (ii) any agreement to which Stockholder
is a party or by which Stockholder is bound, (iii) any decree, judgment or
order to which Stockholder is subject, or (iv) any law or regulation now in
effect applicable to Stockholder.

5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF Titan. Titan represents,
warrants and covenants to Stockholder as follows:

5.1. DUE AUTHORIZATION. This Voting Agreement has been authorized
by all necessary corporate action on the part of Titan and has been duly
executed by a duly authorized officer of Titan.

5.2. VALIDITY; NO CONFLICT. This Voting Agreement constitutes the
legal, valid and binding obligation of Titan. Neither the execution of
this Voting Agreement by Titan nor the consummation of the transactions
contemplated herein will violate or result in a breach of (i) any agreement
to which Titan is a party or by which Titan is bound, (ii) any decree,
judgment or order to which Titan is subject, or (iii) any law or regulation
now in effect applicable to Titan.

6. ADDITIONAL DOCUMENTS. Stockholder and Titan hereby covenant and
agree to execute and deliver any additional documents necessary or desirable, in
the reasonable opinion of Titan's legal counsel or Stockholder, as the case may
be, to carry out the intent of this Voting Agreement.

7. CONSENT AND WAIVER. Stockholder hereby gives any consent or waiver
reasonably required for the consummation of the Merger under the terms of any
agreement to which Stockholder is a party.

8. TERMINATION. Notwithstanding any other provision contained herein,
this Voting Agreement and the Proxy, and all obligations of Stockholder
hereunder and thereunder, shall terminate as of the Expiration Date.

9. MISCELLANEOUS.

9.1. SEVERABILITY. If any term, provision, covenant or restriction
of this Voting Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this

3
<PAGE>

Voting Agreement shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.

9.2. BINDING EFFECT AND ASSIGNMENT. This Voting Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Voting
Agreement nor any of the rights, interests or obligations of the parties
hereto may be assigned by either of the parties hereto without the prior
written consent of the other, and any attempted assignment thereof without
such consent shall be null and void.

9.3. AMENDMENTS AND MODIFICATIONS. This Voting Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.

9.4. SPECIFIC PERFORMANCE: INJUNCTIVE RELIEF. The parties hereto
acknowledge that Titan will be irreparably harmed by a breach of any of the
covenants or agreements of Stockholder set forth herein and that there will
be no adequate remedy at law for such a breach. Therefore, it is agreed
that, in addition to any other remedies which may be available to Titan
upon such breach, Titan shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to it at law or in equity.

9.5. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed telecopy, or
sent by mail (registered or certified mail, postage prepaid, return receipt
requested) to the respective parties as follows:

If to Titan: Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack Hightower

If to Stockholder: To the address for notice set forth on
the last page hereof.

With a copy to: Offshore Energy Development Corporation
1400 Woodloch Forest Drive, Suite 200
Houston, Texas 77380
Attention: David B. Strassner

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.

4
<PAGE>

9.6. GOVERNING LAW. This Voting Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law. Each
party hereto irrevocably and unconditionally consents and submits to the
jurisdiction of the courts of the State of Delaware and of the United
States of America located in the State of Delaware for any actions, suits
or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail
to Stockholder c/o OEDC, at the address set forth in Section 9.5, or to
Titan, at the address set forth in Section 9.5, shall be effective service
of process for any action, suit or proceeding brought against such party in
any such court. Each party hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or
proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of Delaware located in Wilmington,
Delaware or the United States of America located in Wilmington, Delaware,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum. If
any provision of this Agreement is held to be unenforceable for any reason,
it shall be modified rather than voided, if possible, in order to achieve
the intent of the parties to the extent possible. In any event, all other
provisions of this Agreement shall be deemed valid and enforceable to the
extent possible.

9.7. ENTIRE AGREEMENT This Voting Agreement contains the entire
understanding of the parties with respect to the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties
with respect to such subject matter.

9.8. COUNTERPARTS. This Voting Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.

9.9. EFFECT OF HEADINGS. The section headings contained herein are
for convenience only and shall not affect the construction or
interpretation of this Voting Agreement.

5
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.

TITAN EXPLORATION, INC.:

By: /s/ Jack D. Hightower
--------------------------------------------
Jack D. Hightower
President

Shares beneficially owned:[see Exhibit A] STOCKHOLDER:

--------------------------------------------------
[See Exhibit A]

6
<PAGE>

EXHIBIT A

Name Shares Beneficially Owned
- ---- -------------------------

R. Keith Anderson 308,036

Douglas H. Kiesewetter 557,806

David B. Strassner 748,728

1
<PAGE>

ANNEX A

IRREVOCABLE PROXY

The undersigned stockholder of Offshore Energy Development Corporation, a
Delaware corporation ("OEDC"), hereby irrevocably appoints and constitutes the
members of the Board of Directors of Titan Exploration, Inc., a Delaware
corporation ("Titan"), and each of them (the "Proxyholders"), the agents and
proxies of the undersigned, with full power of substitution and resubstitution,
to the full extent of the undersigned's rights with respect to the shares of
capital stock of OEDC beneficially owned by the undersigned, which shares are
listed below and any and all other shares or securities issued or issuable in
respect thereof, or which the undersigned otherwise acquires, on or after the
date hereof and prior to the date this proxy terminates (collectively, the
"Shares"), to vote the Shares as follows:

The agents and proxies named above are empowered at any time prior to
termination of this proxy to exercise all voting and other rights (including,
without limitation, the power to execute and deliver written consents with
respect to the Shares) of the undersigned at every annual, special or adjourned
meeting of OEDC Stockholders, and in every written consent in lieu of such a
meeting, or otherwise, in favor of approval of the Merger (as defined in that
certain Voting Agreement, dated November 6, 1997, between the undersigned and
Titan (the "Voting Agreement")) and that certain Amended and Restated Agreement
and Plan of Merger dated as of November 6, 1997 by and among Titan, Titan
Offshore, Inc., a Delaware corporation and a wholly-owned subsidiary of Titan
("Sub"), and OEDC (the "Merger Agreement") and any proposal or action that could
reasonably be expected to facilitate the Merger.

The Proxyholders may not exercise this proxy with respect to any other
matter. The undersigned may vote the Shares on all such other matters.

The proxy granted by the undersigned to the Proxyholders hereby is granted
as of the date of this Irrevocable Proxy in order to secure the obligations of
the undersigned set forth in Section 2 of the Voting Agreement, and is
irrevocable and coupled with an interest in such obligations and in the
interests in OEDC to be purchased and sold pursuant the Merger Agreement. This
proxy will terminate upon the termination of the Voting Agreement in accordance
with its terms.

Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares are hereby revoked, and no subsequent proxies will be
given with respect to the Shares until such time as this proxy shall be
terminated in accordance with its terms.

Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned authorizes the
Proxyholders to file this proxy and any substitution or revocation of
substitution with the Secretary of OEDC and with any Inspector of Elections at
any meeting of the stockholders of OEDC.
<PAGE>

This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.

Dated: November 6, 1997

Signature of Stockholder: ______________________________________

Print name of Stockholder: ______________________________________

Shares beneficially owned: ______________________________________

<PAGE>

EXHIBIT 10.25

STOCKHOLDER VOTING AGREEMENT

WITNESSETH:

1. NO TRANSFER OR ENCUMBRANCE OF SHARES. Stockholder agrees not to
transfer, sell, exchange, pledge or offer to transfer or sell or otherwise
dispose of or encumber any of the Shares or any New Shares (as defined below),
or to make any offer or agreement relating thereto at any time prior to the
Expiration Date (as defined below). The foregoing restrictions shall not
prohibit a transfer of Shares or New Shares to a trust for the benefit of
Stockholder or to a limited partner of Stockholder or a transfer of Shares or
New Shares upon the death of Stockholder; provided, however, that any transferee
with respect to such transfer shall agree to be bound by the terms and
conditions of this Voting Agreement. As used herein, the term "Expiration Date"
shall mean the earliest to occur of (i) the date on which Titan and OEDC
mutually consent to terminate this Agreement in writing, (ii) consummation of
the transactions contemplated by the Merger Agreement, or (iii) prior to the
consummation of the transactions contemplated by the Merger Agreement, the
termination of the Merger Agreement pursuant to its terms. Stockholder agrees
that any shares of capital stock of OEDC that Stockholder purchases or with
respect to which Stockholder otherwise acquires
<PAGE>

beneficial ownership after the execution of this Voting Agreement and prior to
the Expiration Date ("New Shares") shall be subject to the terms and conditions
of this Voting Agreement to the same extent as if such shares were owned as of
the date hereof.

4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. Stockholder
hereby represents, warrants and covenants to Titan as follows:

2
<PAGE>

to the voting of such shares of capital stock, other than agreements
entered into with Titan.

5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF Titan. Titan represents,
warrants and covenants to Stockholder as follows:

5.1. DUE AUTHORIZATION. This Voting Agreement has been authorized
by all necessary corporate action on the part of Titan and has been duly
executed by a duly authorized officer of Titan.

7. CONSENT AND WAIVER. Stockholder hereby gives any consent or waiver
reasonably required for the consummation of the Merger under the terms of any
agreement to which Stockholder is a party.

9. MISCELLANEOUS.

3
<PAGE>

Voting Agreement shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.

If to Titan: Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack Hightower

If to Stockholder: To the address for notice set forth on
the last page hereof.

With a copy to: Offshore Energy Development Corporation
1400 Woodloch Forest Drive, Suite 200
Houston, Texas 77380
Attention: David B. Strassner

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.

4
<PAGE>

9.8. COUNTERPARTS. This Voting Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.

9.9. EFFECT OF HEADINGS. The section headings contained herein are
for convenience only and shall not affect the construction or
interpretation of this Voting Agreement.

10. AT THE EFFECTIVE TIME, AS DEFINED IN THE MERGER AGREEMENT, THE
FINANCIAL ADVISORY SERVICES AGREEMENT DATED AS OF APRIL 1, 1996 BETWEEN OEDC AND
NATURAL GAS PARTNERS, L.P. ("NGP") SHALL TERMINATE AND OEDC SHALL PAY TO NGP THE
FEE OWING TO NGP ON A PRO RATA BASIS FOR THE QUARTER IN WHICH THE EFFECTIVE TIME
OCCURS; PROVIDED, HOWEVER, THAT ANY INDEMNIFICATION OBLIGATIONS OF OEDC IN FAVOR
OF NGP PURSUANT TO PARAGRAPH 4 OF SUCH AGREEMENT FOR MATTERS ARISING PRIOR TO
THE EFFECTIVE TIME SHALL REMAIN IN FULL FORCE AND EFFECT.

5
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.

TITAN EXPLORATION, INC.:

By: /s/ Jack D. Hightower
----------------------------------
Jack D. Hightower
President

Shares beneficially owned: 2,209,460 STOCKHOLDER:

NATURAL GAS PARTNERS, L.P.

By: G.F.W. Energy, L.P.,
its general partner

By: /s/ David R. Albin
----------------------------------
David R. Albin
Authorized Representative

6
<PAGE>

ANNEX A

IRREVOCABLE PROXY

The Proxyholders may not exercise this proxy with respect to any other
matter. The undersigned may vote the Shares on all such other matters.

A1
<PAGE>

This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.

Dated: November 6, 1997

Signature of Stockholder: NATURAL GAS PARTNERS, L.P.

By: G.F.W. Energy, L.P.,
its general partner

By: /s/ David R. Albin
-----------------------------
David R. Albin
Authorized Representative

Print name of Stockholder: Natural Gas Partners, L.P.
----------------------------------

Shares beneficially owned: 2,209,460
----------------------------------

<PAGE>

Exhibit 10.27

TITAN EXPLORATION INC.
500 West Texas, Suite 500
Midland, Texas 79701

November 6, 1997

Natural Gas Partners, L.P.
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Attention: Kenneth A. Hersh

Re: Registration Rights for Merger Shares

Gentlemen:

Reference is made to the following agreements:

(i) Registration Rights Agreement, dated as of August 30, 1996 (the
"OEDC Registration Rights Agreement"), by and among David B. Strassner,
Douglas H. Kiesewetter, Offshore Energy Development Corporation ("OEDC"),
Natural Gas Partners, L.P. ("NGP"), R. Gamble Baldwin, David R. Albin, Donald
Shore as Trustee of the Albin Income Trust, John S. Foster, Kenneth A. Hersh,
Bruce B. Selkirk, III, John C. Goff and Agnes Denise Darraugh (collectively,
such persons and their successors and assigns, together with NGP, NGP's general
partner and the individuals who are partners of such general partner and their
successors and assigns, are referred to herein as the "NGP OEDC Parties").

(ii) Registration Rights and Management Unitholders' Agreement (the
"Carrollton Registration Rights Agreement"), dated as of November 12, 1993,
among Carrollton Resources L.L.C. ("Carrollton"), John R. Howard, Jr.,
Benjamin M. Jones and NGP-Louisiana Partners, L.P. ("NGP Louisiana" and
collectively with its general partner, the individuals who are partners of such
general partner and their successors and assigns, the "NGP Carrollton Parties")
(the NGP OEDC Parties and the NGP Carrollton Parties are collectively referred
to herein as the "NGP Parties");

(iii) Amended and Restated Registration Rights Agreement, dated
September 30, 1996 (the "Titan Registration Rights Agreement"), among Titan
Exploration, Inc. ("Company"), NGP, Natural Gas Partners II, L.P. ("NGP II"),
Joint Energy Development Investment Limited Partnership, First Union Corporation
and Selma International Investment Limited.

(iv) Amended and Restated Agreement and Plan of Merger (the "OEDC
Merger Agreement") dated November 6, 1997, among Titan Exploration, Inc.
("Company"), Titan Offshore, Inc. ("TOI") and OEDC; and

(v) Agreement and Plan of Merger dated November 4, 1997 (the
"Carrollton Merger Agreement" and collectively with the OEDC Merger Agreement,
the "Merger Agreements") among Titan Exploration, Inc. ("Company") Titan Bayou
Bengel Holdings, Inc. ("TBB") and Carrollton; and

Pursuant to the Merger Agreements, TOI will merge with and into OEDC and
TBB will
<PAGE>

Natural Gas Partners, L.P.
November 6, 1997
Page 2

merge with and into Carrollton and the NGP Parties will receive shares of Titan
common stock in exchange for the shares of common stock of OEDC and the units of
Carrollton currently owned by them (such shares of Titan common stock are
referred to herein as the "Merger Shares"). The Merger Shares are entitled to
certain registration rights pursuant to the terms of the OEDC Registration
Rights Agreement, the Carrollton Registration Rights Agreement and the Titan
Registration Rights Agreement.

The Company has requested that the NGP Parties agree to terminate their
registration rights for the Merger Shares under the OEDC Registration Rights
Agreement and the Carrollton Registration Agreement. In addition, NGP has been
requested to execute an OEDC Affiliate's Agreement in substantially the form set
forth as Exhibit A to the OEDC Merger Agreement and a Carrollton Affiliate's
Agreement in substantially the form set forth as Exhibit A to the Carrollton
Merger Agreement (collectively, the "Affiliate Agreements"), which Affiliate
Agreements require NGP to refrain from disposing of its Merger Shares for
certain periods following the closing of the mergers (the "Lock-up Periods"). In
order to induce the NGP Parties to agree to such requests, the Company has
offered to provide for the registration of the Merger Shares. This letter
agreement (this "Agreement"), when executed by the NGP Parties, establishes the
terms of agreement among the Company and NGP Parties with respect to the
registration of the Merger Shares.

Capitalized terms used and not defined in the Agreement shall have the
meaning set forth for such terms in the Titan Registration Agreement.

1. Registration of Shares.
----------------------

(a) The Company will prepare and file a "shelf" registration
statement on an appropriate form pursuant to Rule 415 under the Securities Act
(or any similar rule that may be adopted by the Commission) with respect to the
resale by the NGP Parties of the Merger Shares together with any securities
issued or issuable with respect to any Merger Shares by way of stock dividend,
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise (collectively with
the Merger Shares, the "Registrable Merger Securities") shall use its best
efforts to cause such registration statement to become effective not later than
180 days after the Closing Date (such registration statement, together with any
subsequent amendment of such "shelf" registration statement filed pursuant
hereto, the "Shelf Registration"). The Company shall maintain the effectiveness
of the Shelf Registration until such time as the amount of Registrable Merger
Securities held by the NGP Parties represents less than 10 percent of initial
number of Registrable Merger Securities (the "Registration Period").

(b) As to any particular Registrable Merger Securities, such
securities shall cease to be Registrable Merger Securities when such securities
(i) shall have been disposed of in accordance with the Shelf Registration,
(ii) shall be have been distributed to the public pursuant to Rule 144,
Rule 144A or Rule 145 (or any successor provision) under the Securities Act,
(iii) shall otherwise be eligible to be disposed of without registration or
qualification under the Securities Act or any similar state law then in force
and the Company or its transfer agent shall have issued in exchange for any
certificates bearing legends restricting further transfer, new certificates for
such securities
<PAGE>

Natural Gas Partners, L.P.
November 6, 1997
Page 3

not bearing any such restrictive legends, (iv) shall no longer be owned by the
NGP Parties, or (v) shall have ceased to be outstanding.

(c) The registration of the Registrable Merger Securities shall be
effectuated in accordance with the procedures and shall be subject to the terms
and conditions applicable to a registration of Registrable Securities under
Section 2.1 of the Titan Registration Rights Agreement and all of the provisions
of the Titan Registration Rights Agreement shall be applicable to such
registration; except that, (i) the limitations in Section 2.1(e) shall not be
applicable to registration of the Registrable Merger Securities, (ii)
registration under this Agreement shall not count as one of the three demand
registration rights which are provided for Registrable Securities under
Section 2.1 of the Titan Registration Rights Agreement, and (iii) in the event
of any conflict or inconsistency between the terms of this Agreement and the
terms of the Titan Registration Rights Agreement, the terms of this Agreement
shall be controlling.

(d) The rights of the NGP Parties pursuant to this Agreement are in
addition to any registration rights which the holders of the Registrable Merger
Securities may be entitled under the terms of the Titan Registration Rights
Agreement, and accordingly, none of the terms of the Titan Registration Rights
Agreement shall be deemed to be amended or modified in any respect as a result
of this Agreement.

2. Agreement of NGP Parties.
------------------------

(a) The NGP Parties hereby agree to (i) terminate their rights to
require registration of the Registrable Merger Securities pursuant to the OEDC
Registration Rights Agreement and the Carrollton Registration Rights Agreement,
and (ii) enter into the Affiliate Agreements in substantially the form set forth
as exhibits to the Merger Agreements.

(b) NGP and Natural Gas Partners II, L.P. each agrees to waive any
right that it may have under Section 2.2 of the Titan Registration Rights
Agreement to include shares of Titan common stock, other than the Merger Shares,
in the registration of the Merger Shares pursuant hereto.

3. Specific Performance.
--------------------

The parties hereto recognize and agree than money damages may be
insufficient to compensate the parties for breaches by the other parties hereto
of the terms hereof, and, consequently, the parties hereto agree that the
equitable remedy of specific performance of the terms hereof will be available
in the event of any such breach.

4. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties hall be governed by, the laws of
the State of Texas.

5. Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original, but all
of such counterparts shall together constitute one and the same instrument.
<PAGE>

Natural Gas Partners, L.P.
November 6, 1997
Page 4

If the foregoing correctly sets forth the agreements among the Company
and the NGP Parties, please indicate your acceptance in the space provided for
that purpose below.

Sincerely,

Titan Exploration, Inc.

By: /s/ Jack D. Hightower
------------------------------

Name: Jack D. Hightower
----------------------------

Title: President
----------------------------
Accepted:

Natural Gas Partners, L.P.
By: G.F.W. Energy, L.P., its general partner

By: /s/ David R. Albin
-----------------------------------------
David R. Albin, Authorized Representative

R. Gamble Baldwin
David R. Albin
Donald Shore as Trustee for the Albin Income Trust
John S. Foster
Kenneth A. Hersh
Bruce B. Selkirk III
John C. Goff
Agnes Denise Darraugh
By: Natural Gas Partners, L.P. attorney-in-fact
By: G.F.W. Energy, L.P. its general partner

By: /s/ David R. Albin
-----------------------------------------
David R. Albin, Authorized Representative

NGP-Louisiana Partners, L.P.
By: NGP-Louisiana Operating Corporation,
its general partner
<PAGE>

Natural Gas Partners, L.P.
November 6, 1997
Page 5

By: /s/ Kenneth A. Hersh
-----------------------------------
Kenneth A. Hersh, Vice President
<PAGE>

Natural Gas Partners, L.P.
November 6, 1997
Page 6

The undersigned is executing this letter agreement solely for the purpose set
forth in Section 2(b) thereof.

Natural Gas Partners II, L.P.
By: G.F.W. Energy II, L.P., its general partner
BY: GFW II, L.L.C.

By: /s/ Kenneth A. Hersh
-----------------------------------
Kenneth A. Hersh, Authorized Member

<PAGE>

[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]

EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Titan Exploration, Inc.

We consent to the use of our audit report dated March 12, 1997 on the
consolidated financial statements of Titan Exploration, Inc. and subsidiaries as
of December 31, 1995 and 1996, for the period from March 31, 1995 (date of
inception) through December 31, 1995, and for the year ended December 31, 1996,
our audit report on the 1995 Acquisition for the years ended December 31, 1993
and 1994 and the period ended December 11, 1995, and our audit report on the
1996 Acquisition for the years ended December 31, 1993, 1994 and 1995 each
included herein and to the reference to our firm under the heading "Experts" in
the Prospectus.

KPMG PEAT MARWICK LLP

Midland, Texas
November 14, 1997

<PAGE>

[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Offshore Energy Development Corporation

We consent to the use of our audit report dated March 17, 1997 on the
consolidated financial statements of Offshore Energy Development Corporation and
its predecessors as of December 31, 1995 and 1996 and for each of the years in
the three-year period ended December 31, 1996 included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.

KPMG PEAT MARWICK LLP

Houston, Texas
November 14, 1997

<PAGE>

EXHIBIT 23.5

CONSENT OF RAYMOND JAMES & ASSOCIATES, INC.

We hereby consent to the use of our name, to the summarization of our
letter dated November 6, 1997 and to the other references to us in the Joint
Proxy Statement/Prospectus of Titan Exploration, Inc. and Offshore Energy
Development Corporation, and to the inclusion of such letter as Appendix II to
such Joint Proxy Statement/Prospectus, which Joint Proxy Statement/Prospectus is
part of this Registration Statement on Form S-4 of Titan Exploration, Inc. By
giving such consent, we do not thereby admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "expert"
as used in the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission promulgated thereunder, or are within
the class of persons whose consent is required thereunder.

RAYMOND JAMES & ASSOCIATES, INC.

By: /s/ James A. McDaniel
-------------------------------------
Name: James A. McDaniel
--------------------------------
Title: Senior Vice President
-------------------------------

Dallas, Texas
November 13, 1997

<PAGE>

[LETTERHEAD OF WILLIAMSON PETROLEUM CONSULTANTS, INC. APPEARS HERE]

Exhibit 23.6

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

Williamson Petroleum Consultants, Inc. (Williamson) hereby consents to the use
of our report entitled "Evaluation of Oil and Gas Reserves to the Interests of
Titan Exploration, Inc. Effective December 31, 1996 for Disclosure to the
Securities and Exchange Commission, Williamson Project 7.8469" dated March 4,
1997, with respect to Titan Exploration, Inc. and to all references to our firm
included in or made a part of the Registration Statement on form S-4, which
includes the Joint Proxy Statement/Prospectus, for Titan Exploration, Inc. to be
filed on November 14, 1997.

/s/ Williamson Petroleum Consultants, Inc.
WILLIAMSON PETROLEUM CONSULTANTS, INC.

Midland, Texas
November 11, 1997

<PAGE>

[LETTERHEAD OF RYDER SCOTT COMPANY APPEARS HERE]

Exhibit 23.7

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

We hereby consent to the reference in this Registration Statement on
Form S-4 to our reserve report regarding the interests of Offshore Energy
Development Corporation (the Company) dated April 22, 1997, relating to the
estimated quantities of certain of the Company's proved reserves and the related
estimates of future net revenue and present values for the year ended December
31, 1996. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.

/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS

RYDER SCOTT COMPANY
PETROLEUM ENGINEERS

Houston, Texas
October 30, 1997

<PAGE>

EXHIBIT 99.1

[Proxy Card]

TITAN EXPLORATION, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Jack D. Hightower and William K. White, and
each of them, proxies with power of substitution in each, and hereby authorizes
them to represent and to vote, as designated below, all shares of Common Stock
("Common Stock") of Titan Exploration, Inc. (the "Company") standing in the name
of the undersigned on October 24, 1997, at the special meeting of stockholders
to be held on December 12, 1997 at 10:00 a.m., local time, at the Midland Room,
Tower Two, Fasken Center, 550 West Texas, Midland, Texas, and at any adjournment
thereof and especially to vote on the items of business specified below, as more
fully described in the notice of the meeting and the proxy statement
accompanying the same, receipt of which is hereby acknowledged.

1. FOR [ ] AGAINST [ ] ABSTAIN [ ] Approval of (a) the Amended and Restated
Agreement and Plan of Merger (the
"Merger Agreement"), as more fully
described in the accompanying Joint
Proxy Statement/Prospectus, and pursuant
to which, among other things, (i) Titan
Offshore, Inc., a wholly-owned
subsidiary of the Company, would merge
with and into Offshore Energy
Development Corporation ("OEDC") and
(ii) each issued and outstanding share
of Common Stock of OEDC would be
converted into the right to receive
0.630 of a share of Common Stock of the
Company, and (b) the issuance of shares
of Common Stock of the Company pursuant
to the Merger Agreement.

2. In their discretion, the proxies are authorized to vote upon such other
business or matters as may properly come before the meeting or any
adjournment thereof.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>

[Reverse of Proxy Card]

THIS PROXY, WHEN DULY EXECUTED AND RETURNED, WILL BE VOTED IN THE MANNER
DESIGNATED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS DULY
EXECUTED AND RETURNED, BUT WITHOUT A CLEAR VOTING DESIGNATION, IT WILL BE VOTED
FOR ITEM 1.

The undersigned hereby revokes any proxy or proxies heretofore given to
represent or vote such Common Stock and hereby ratifies and confirms all actions
that said proxies, their substitutes, or any of them, may lawfully take in
accordance with the terms hereof.

Dated: , 1997
-------------------------------

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

-------------------------------------------
Signature(s) of Stockholder(s)

This proxy should be signed exactly as your name
appears hereon. Joint owners should both sign. If
signed as attorney, executor, guardian or in some
other representative capacity, or as officer of a
corporation, please indicate your capacity or
title.

PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.

<PAGE>

EXHIBIT 99.2

[Proxy Card]

OFFSHORE ENERGY DEVELOPMENT CORPORATION

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints David B. Strassner and Douglas H.
Kiesewetter, and each of them, proxies with power of substitution in each, and
hereby authorizes them to represent and to vote, as designated below, all shares
of Common Stock ("Common Stock") of Offshore Energy Development Corporation (the
"Company") standing in the name of the undersigned on October 24, 1997, at the
special meeting of shareholders to be held on December 12, 1997 at 10:00 a.m.,
local time, at The Woodlands Executive Conference Center, 2301 North Millbend,
The Woodlands, Texas, and at any adjournment thereof and especially to vote on
the items of business specified below, as more fully described in the notice of
the meeting and the proxy statement accompanying the same, receipt of which is
hereby acknowledged.

1. FOR [ ] AGAINST [ ] ABSTAIN [ ] Approval of the Amended and Restated
Agreement and Plan of Merger (the "Merger
Agreement"), as more fully described in
the accompanying Joint Proxy
Statement/Prospectus, and pursuant to
which, among other things, (i) Titan
Offshore, Inc., a wholly-owned subsidiary
of Titan Exploration, Inc. ("Titan"),
would merge with and into the Company and
(ii) each issued and outstanding share of
Common Stock of the Company would be
converted into the right to receive 0.630
of a share of Common Stock of Titan.

2. In their discretion, the proxies are authorized to vote upon such other
business or matters as may properly come before the meeting or any
adjournment thereof.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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[Reverse of Proxy Card]

It is important that your shares be represented at the special meeting of
shareholders regardless of whether you plan to attend. Therefore, please mark,
date and sign this proxy and return it in the accompanying postpaid envelope as
promptly as possible. If you are present at the special meeting, and wish to do
so, you may revoke the proxy and vote in person.

Dated: , 1997
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Signature(s) of Stockholder(s)

This proxy should be signed exactly as
your name appears hereon. Joint owners
should both sign. If signed as attorney,
executor, guardian or in some other
representative capacity, or as officer of
a corporation, please indicate your
capacity or title.