TATHAM OFFSHORE INC, S-1, 1998-04-10

TATHAM OFFSHORE INC
S-1, 1998-04-10
OIL & GAS FIELD EXPLORATION SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998.

REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
TATHAM OFFSHORE, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 1381 76-0269967
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code number) Identification Number)
DENNIS A. KUNETKA
7400 CHASE TOWER 7400 CHASE TOWER
600 TRAVIS STREET 600 TRAVIS STREET
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
TELEPHONE: (713) 224-7400 TELEPHONE: (713) 224-7400
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area number,
code, of registrant's principal executive offices) including area code, of agent for service)
</TABLE>

---------------------
Copies to:
RICK L. BURDICK
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
711 LOUISIANA STREET, SUITE 1900
HOUSTON, TEXAS 77002
TELEPHONE: (713) 220-5800
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective. 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. [ ] If this form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
============================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............................. 28,073,450 Shares $2.7864(3) $78,223,458 $23,075.92(4)
- ----------------------------------------------------------------------------------------------------------------------------
Series A 12% Convertible Exchangeable
Preferred Stock........................ 4,670,957 Shares $ .4636(3) $ 2,165,523 $ 638.83(4)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable On Conversion of
Series A 12% Convertible Exchangeable
Preferred Stock........................ 1,298,059 Shares(2) --(2) --(2) --(2)
============================================================================================================================
</TABLE>

(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.

(2) And such indeterminate number of shares of Common Stock to be issued upon
conversion of future accrued and unpaid dividends.

(3) Calculated based on a total offering price of $3.25 for 1.12654 shares of
Common Stock and .18744 shares of Series A 12% Convertible Exchangeable
Preferred Stock.

(4) The total registration fee is $23,714.75.

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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. DEEPTECH
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED , 1998

PROSPECTUS

28,073,450 SHARES OF COMMON STOCK

4,670,957 SHARES OF SERIES A
12% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

TATHAM OFFSHORE, INC.
[TATHAM OFFSHORE, INC. LOGO]

DeepTech International Inc., a Delaware corporation ("DeepTech"), is
granting at no cost to you or any of the other holders of its common stock,
transferable rights (the "Rights") to purchase an aggregate of 28,073,450 shares
of common stock, $0.01 par value per share ("Common Stock"), and 4,670,957
shares of Series A 12% Convertible Exchangeable Preferred Stock, $0.01 par value
per share ("Series A Preferred Stock"), of Tatham Offshore, Inc., a Delaware
corporation (the "Company"). In this Rights offering (the "Offering"), you will
receive one Right for each share of DeepTech common stock that you own of record
as of , 1998. Based on the number of shares of DeepTech common stock
outstanding on , 1998, each Right will entitle you to purchase
1.12654 shares of Common Stock ("Underlying Common Shares"), and 0.18744 shares
of Series A Preferred Stock ("Underlying Preferred Shares," and, together with
the Underlying Common Shares, the "Underlying Shares") at a subscription price
of $3.25 for the Underlying Shares purchasable under each Right. As of March 17,
1998, there were 24,920,057 shares of DeepTech common stock outstanding and
options to purchase 4,371,538 shares of DeepTech common stock outstanding. If
there are more than 24,920,057 shares of DeepTech common stock outstanding on
, 1998, the number of Underlying Shares to be purchased on exercise
of each Right will be adjusted accordingly; provided that such adjustments will
not reduce the number of Underlying Shares to less than 0.95841 shares of Common
Stock or 0.15946 shares of Series A Preferred Stock. If any Underlying Shares
remain unsubscribed after the exercise of Rights, Tatham Brothers, LLC, a
Delaware limited liability company ("TBL"), and an affiliate of Mr. Thomas P.
Tatham, Chairman of the Board and Chief Executive Officer of the Company and
DeepTech, will purchase such number of unsubscribed Underlying Shares as will
result in DeepTech receiving net proceeds from the Offering of not less than $75
million. To the extent any Underlying Shares remain unsubscribed after TBL's
purchase of such Underlying Shares, the Company has agreed to purchase such
remaining Underlying Shares, and DeepTech, subject to certain limitations, will
contribute the proceeds from such purchase to the Company.

The exercise period for the Rights will expire at 5:00 p.m., New York City
time, on , 1998 unless extended by DeepTech's Board of Directors (as
extended, the "Expiration Date").

Once you exercise a Right and DeepTech accepts the exercise, you may not
withdraw the exercise. There is no minimum number of shares that must be
subscribed for in the Offering for it to be completed. DeepTech may cancel this
Offering if, among other things, the merger of DeepTech and El Paso Natural Gas
Company fails to occur. If the Offering is canceled, the Rights will expire
worthless, and all of the trades will be canceled. See "The Offering-What
Happens If The Rights Offering Is Canceled." In that event, if you have
exercised your Rights, any payments made to the rights agent, ChaseMellon
Shareholder Services, L.L.C., will be promptly returned to you.

The Company will only receive proceeds from the Offering to the extent the
subscription yields greater than $75 million of net proceeds to DeepTech and
exceeds the amount of certain estimated tax payments of the Company to the
extent unpaid. After the completion of this Offering, DeepTech will own none of
the Company's capital stock.

We have filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") covering the Underlying Shares. Our Common Stock is
listed on The Nasdaq Stock Market's National Market and our Series A Preferred
Stock is traded on The Nasdaq Stock Market's OTC Bulletin Board Service under
the trading symbols "TOFF" and "TOFFL," respectively. The closing prices for our
Common Stock and Series A Preferred Stock on March 17, 1998, were $4.53125 and
$1.50 per share, respectively. We have filed an application to have the Rights
approved for quotation on The Nasdaq OTC Bulletin Board under the symbol
"TOFFR".

SEE "RISK FACTORS" ON PAGE 12 FOR A DISCUSSION OF FACTORS YOU SHOULD
CONSIDER IN CONNECTION WITH THIS OFFERING.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES NOR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

- The Common Stock and Series A Preferred Stock purchasable upon
exercise of the Rights will be sold for an aggregate of $3.25.
- We will receive no proceeds from this Offering unless the Rights
holders and/or TBL exercise more than 23,076,924 Rights.
- TBL will receive a commitment fee of between $5,769,230 and
$7,500,000 in connection with this Offering.

The date of this Prospectus is [ ], 1998.
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[MAP OF ATLANTIC CANADA]

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TATHAM OFFSHORE, INC. ORGANIZATIONAL CHART

Currently, none of the companies for the prospective businesses that are
connected by a dashed line have been formed. Each of these companies is in a
preliminary, conceptual phase. The only company that currently has operating
revenues is DeepFlex Production Services, Inc. through the operations of RIGCO
North America, L.L.C. There can be no assurances that the Company will be able
to obtain sufficient capital for any or all of the planned companies or projects
or that the companies will prove to be economic. See "Risk Factors."
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<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and pro forma and consolidated financial statements, including notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, (i)
all current and prospective information in this Prospectus gives effect to the
Reorganization Transactions (as defined), including the sale of substantially
all of Tatham Offshore's existing assets, the related retirement of certain
amounts of Tatham Offshore's Preferred Stock, the contribution to Tatham
Offshore of two semisubmersible drilling rigs, and the assumption of certain
debt, (ii) all references to "Tatham Offshore" are to Tatham Offshore, Inc. and
its subsidiaries, (iii) all references to the "Company" are to Tatham Offshore,
Inc. and its subsidiaries and DeepFlex Production Services, Inc. and its
subsidiaries ("DeepFlex"), and (iv) all financial information and per share data
in this Prospectus gives effect to the one for ten reverse stock split Tatham
Offshore completed on November 24, 1997. In this Prospectus there are numerous
references to DeepTech's rights, plans and responsibilities with respect to this
Offering. Such rights, plans and responsibilities are DeepTech's and the Company
hereby disclaims any obligation to exercise, effect or comply with any such
rights, plans or responsibilities. Certain industry and other terms herein are
defined in "Defined Terms."

Historically, Tatham Offshore has been in the oil and gas exploration and
development business, primarily in the Gulf of Mexico. In connection with
DeepTech's impending merger (the "Merger") with El Paso Natural Gas Company ("El
Paso") discussed below, the Company is refocusing its business from the oil and
gas exploration and production business in the Gulf of Mexico to an integrated
frontier investment strategy targeting Atlantic Canada with an initial emphasis
on the offshore contract drilling business. The Company will transfer
substantially all of its existing assets to DeepTech and Leviathan Gas Pipeline
Partners, L.P., a New York Stock Exchange-listed master limited partnership in
which DeepTech owns an effective 23.2% interest (the "Partnership"). In
connection with the Merger and this Offering, DeepTech is transferring its
ownership of DeepFlex and therefore the FPS Laffit Pincay (the "Pincay") and the
FPS Bill Shoemaker (the "Shoemaker" and, together with the Pincay, the "Rigs")
to the Company.

THE COMPANY

The Company provides offshore contract drilling services to the oil and gas
industry in the Gulf of Mexico and Atlantic Canada and is currently pursuing
other opportunities in Atlantic Canada. The Company owns two semisubmersible
drilling rigs, the Pincay and the Shoemaker. The Shoemaker is capable of
conducting drilling operations in cold weather, hostile environments and
currently satisfies all of the requirements to operate in Atlantic Canada
waters. The Shoemaker is one of only two semisubmersible drillings rigs
currently qualified to operate in Canadian waters. The Shoemaker currently
operates and is under contract in the Gulf of Mexico while the Pincay is
undergoing certain upgrades and routine maintenance at a shipyard in Texas and
is expected to resume contract drilling services in the near future. The Rigs
generated revenue totaling $34.8 million for the six months ended December 31,
1997.

The Rigs are currently chartered to the Sedco Forex Division of
Schlumberger Technology Corporation ("Sedco Forex") pursuant to which Sedco
Forex markets, manages, mans and operates the Rigs. Although Sedco Forex has the
right to negotiate drilling contracts with respect to each Rig, the Company has
the sole right to approve any drilling contracts, the working location of the
Rigs and certain other matters. Pursuant to the charter agreements, Sedco Forex
is paid a monthly fee for the management of each Rig which is comprised of a
fixed amount and a variable amount based on performance. The amount to be paid
to Sedco Forex under each of these agreements is dependent on the drilling rates
received for the Rigs, the costs of operating and maintaining the Rigs and the
utilization rates of the Rigs, among other things. The charter agreements for
the Pincay and the Shoemaker, which were entered into in 1995 and 1996,
respectively, have five-year terms, subject to mutual termination rights. If
either or both agreements are not renewed, the Company believes that it can find
an alternative company to manage and operate the Rigs for a reasonable fee and
within a reasonable period of time.

The Company's semisubmersible rigs are floating platforms that consist of
an upper working and living deck resting on vertical columns connected to lower
hull members. These Rigs operate in a semisubmerged
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position, remaining afloat, off bottom in a position in which the lower hull is
from about 55 to 90 feet below the water line and the upper deck protrudes well
above the surface. The Rigs are positioned by chain mooring lines with anchors
on the seafloor and remain stable for drilling in the semi-submerged floating
position due in part to their wave transparency characteristics at the water
line. The Rigs are able to change draft through a water ballasting system that
permits them to be submerged to a predetermined depth so that a portion of the
hulls are below the water surface during drilling operations.

FPS Bill Shoemaker. The Shoemaker is a self-propelled, twin pontoon,
eight column, second generation semisubmersible drilling rig of Aker H-3
design. It can drill to depths of 25,000 feet, in water depths of up to
1,500 feet, and has a drilling variable load of approximately 3,850 short
tons, a VARCO TDS-4S top-drive drilling system, a 10,000 psi blow-out
prevention system, 2,000 barrel mud pits and eight 80,000 pound riser
tensioners. This rig was built in 1976 and was extensively refurbished,
repaired, renovated and upgraded in 1997 at a cost of approximately $56
million. The upgrades included installing a new heliport, a mud booster
line, a third mud pump, a third level of personnel accommodations and a new
electrical "SCR" system. In addition to the above, the Shoemaker underwent
a complete winterization program in this upgrade, and, as a result, is
again able to operate year-round in harsh environments such as the North
Sea, offshore Newfoundland and eastern Canada, where it has operated in the
past.

After completion of the upgrade and refurbishment in July 1997, the
Shoemaker was mobilized to the Grand Banks area offshore Newfoundland where
it completed drilling an exploratory well for Amoco Canada Petroleum
Company Ltd. in the West Bonne Bay Field on January 25, 1998. The Shoemaker
is currently under contract to Shell Offshore Inc. in the Gulf of Mexico.
The contract with Shell extends through January 1999 and Shell has an
option to extend it for six months subject to the Company's approval of the
contract drilling rate for the period. Sedco Forex has entered into a
nonbinding letter of intent for the mobilization of the Shoemaker to the
Grand Banks area in Atlantic Canada to conduct a two-well (with three
one-well options) program at predetermined rates for Husky Oil Operations
Limited upon the completion of the Shell contract.

FPS Laffit Pincay. The Pincay is a second generation semisubmersible
drilling rig of Penrod/Reineke design. It can drill to depths of 25,000
feet in water depths of up to 1,200 feet. It has a drilling variable load
of approximately 2,000 short tons, a 10,000 psi blow-out prevention system,
1,600 barrel mud pits and six 80,000 pound riser tensioners. This rig was
built in 1976 and was completely refurbished, upgraded and renovated in
1996 with the installation of a VARCO TDS-3S top-drive system and a new
electrical "SCR" system.

The Pincay is currently undergoing routine maintenance and certain
upgrades and is not expected to be under contract until late April at the
earliest. At such time, the Company expects the Pincay to resume drilling
activities in the Gulf of Mexico.

The offshore contract drilling industry, as measured by offshore drilling
rig utilization and dayrates, has improved substantially since early 1995. From
the mid-1980s through the early 1990s, demand for offshore drilling rigs was
declining or flat, and the industry fleet of offshore drilling rigs was reduced.
In recent years, demand for offshore rigs has improved, but the supply of rigs
is only now beginning to increase. The industry generally has emphasized
upgrading and refurbishing existing rigs due to the high capital costs and long
lead times associated with new construction. In the last year, several
competitors have announced new-build deepwater drillships and semisubmersible
rigs in response to increased demand for deepwater rigs. Recently, however, oil
prices have declined substantially, which may cause drilling budgets to decline.
Although downturns in oil prices do not generally have an immediate impact on
the demand for deepwater drilling rigs, such declines are likely to put downward
pressure on dayrates.

BUSINESS STRATEGY

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Atlantic Canada region offers significant investment opportunities. The
Company's plans include expanding its drilling fleet as well as diversifying its
business to include substantial natural gas gathering and transmission
facilities, related gas processing facilities, a facility for the generation of
electricity and other related investments. In Atlantic Canada, as with any
frontier region, there will be substantial risks associated with investments in
such projects. Further, if recent declines in the price of crude oil are
sustained for some period, the pace of development within the area could be
affected and materially extend the time frame for the projects discussed herein
to commence or become operational. However, the Company believes that by using
an integrated investment approach related to the development of the region's
hydrocarbon reserves, the potential for investment returns is maximized. The
Company is contemplating pursuing the development of the projects described
below. Each of these projects is in a preliminary, conceptual phase. In
addition, (i) the Company does not currently possess the capital necessary to
implement its business strategy completely and there can be no assurances that
the Company will be able to obtain sufficient capital for any or all of the
projects, (ii) there can be no assurances that these projects and other
opportunities will prove to be economic or that they will occur, and (iii) many
of these projects will require governmental approvals, almost all of which the
Company has yet to receive. Moreover, if there are developments that the Company
determines to be indicative of a lack of reasonable opportunity to realize
benefits for the Company's stockholders, then the Company will pursue other
opportunities, wherever located.

POSSIBLE ATLANTIC CANADA PROJECTS

Special Multipurpose, New Build Semisubmersible. As part of its strategy to
enhance the number, size and capability of its available rigs, the Company has
entered into a nonbinding Memorandum of Understanding with Friede-Goldman Inc.
regarding the construction of a fifth-generation, state-of-the-art drilling rig
(the "Planned Rig"). The Planned Rig, which is still in the design phase and
estimated to cost approximately $300 million, would be Canadian built and
flagged and would be able to drill throughout the region to depths of 25,000
feet in water depths to 5,000 feet. The Planned Rig's characteristics would make
it suitable for use to develop any known proven or potential oil and gas
reserves in Atlantic Canada. In addition, the Planned Rig would have heavy lift
capability, enabling it to install subsea transmission, gathering and production
systems, and provide repair and maintenance capability for such systems as well
as allowing it to repair and maintain the pipeline system proposed by North
Atlantic Pipeline Partners, L.P. ("North Atlantic Partners"). The Planned Rig's
high (5,500 short tons) deckload capacity will enable it to inventory drilling
equipment and other stores to better facilitate uninterrupted drilling
operations. These additional capabilities should expand the market for the
Planned Rig and enhance its competitiveness compared to lesser equipped rigs.

Pipeline Activities. During 1997, Tatham Offshore Canada Limited, a
wholly-owned subsidiary of the Company, was formed to pursue business
opportunities in the Atlantic Canada region. In addition, the Company has caused
to be formed two limited partnerships, one in Canada and one in the United
States and both known collectively as "North Atlantic Partners," to construct
and operate an offshore natural gas pipeline from the Grand Banks area offshore
Newfoundland to the east coast of the United States with land falls in both
Newfoundland and Nova Scotia. The General Partner of North Atlantic Partners
(Canada) has filed an application with Canada's National Energy Board, and North
Atlantic Partners (U.S.) has filed an application with the Federal Energy
Regulatory Commission in the United States for authority to build a three-phase,
1,500 mile natural gas pipeline that would serve the growing hydrocarbon
industry offshore Atlantic Canada.

Because another pipeline has been given regulatory authority and is planned
to begin construction this year, North Atlantic Partners is also assessing
redesigning and downsizing the first phase of the pipeline so as to reduce the
capital cost of that phase of the pipeline to approximately $600 million. As
redesigned, the initial phase of the pipeline project would be approximately 375
miles long and would originate in the Jeanne D' Arc Basin of the Grand Banks
area and extend to a point near Argentia, Newfoundland.

To date, North Atlantic Partners has obtained nonbinding letters of intent
for the use of its system to deliver gas to the United States which total
approximately 500 MMcf per day. The Company believes that there is significant
reserve potential from the areas offshore Atlantic Canada and as that reserve
potential is developed, a second pipeline into the United States will be
required to meet increased demand for natural gas on the east coast of the
United States.
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Power Generation Facility. To develop a market for the Grand Banks area
natural gas, in addition to a gas processing plant, the Company has examined the
feasibility of building a gas fired power generating plant in the Argentia area.
Electrical generation in Newfoundland is currently not gas fired, relying
instead in large part, on less efficient, transported fuel oil. The successful
development of any such power generation project would be dependent on the
construction of the pipeline system and gas processing facility discussed above.

Hydrocarbon Marketing Company. As part of its activities in the region, the
Company has formed North Atlantic Hydrocarbon Marketing, Inc. ("North Atlantic
Marketing") to buy natural gas and NGLs contained in the natural gas stream.
North Atlantic Marketing would assume the marketing risk related to the natural
gas stream, purchasing the natural gas and entrained liquids from producers and
finding a market for those hydrocarbons. North Atlantic Marketing is in the
process of finalizing a proposal to purchase the associated gas reserves
produced from the Hibernia Field and plans to submit additional gas purchase
proposals to the owners of the Terra Nova and White Rose development projects.
There can be no assurances that such proposal will prove economic or will be
accepted.

Oil and Gas Development. Significant oil and gas exploration and production
opportunities also exist throughout the region. The Company is actively seeking
to acquire working interests for proven and probable reserves in Atlantic Canada
and has had independent studies undertaken of the prospective reserves in the
region. Those studies indicate that the region is one of the largest potential
gas regions in North America. Unlike other international opportunities, the
Company does not consider political risk as a factor in evaluating Canadian
opportunities.

Other Opportunities. Among other potential businesses the Company may
enter, the Company is currently evaluating the feasibility of (i) an industrial
gas distribution system, (ii) an ice management system designed to manage and
reduce the risk of potential damage to its proposed offshore pipelines and
subsea facilities owned by other parties, operated through the Company's
subsidiary, Berg Masters Limited, (iii) a large diameter steel pipe rolling
mill, (iv) methanol production, and (v) other opportunities related to or
located in Atlantic Canada. There can be no assurances that such opportunities
will prove economic, will be adequately financed or will occur.

THE REORGANIZATION TRANSACTIONS

On February 27, 1998, El Paso, El Paso Acquisition Company, a wholly owned
subsidiary of El Paso ("Merger Sub"), and DeepTech executed an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which DeepTech will merge
into El Paso or, under certain circumstances, Merger Sub. The material terms of
the Merger and the transactions contemplated by the Merger Agreement and other
agreements related to the Company (the "Reorganization Transactions") are: (i)
DeepTech will sell to the Company approximately $8.0 million of the intercompany
debt DeepFlex owes to DeepTech (the "DeepFlex Debt") in exchange for (x) the
delivery by the Company to DeepTech of all of the outstanding shares of capital
stock of Tatham Offshore Development, Inc. ("TODI"), which owns the working
interests in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday Silence
Project") located in the Gulf of Mexico, and (y) cancellation of a reversionary
interest in certain oil and gas properties; (ii) in satisfaction of
approximately $12.0 million of the DeepFlex Debt, DeepFlex will deliver to
DeepTech all of the Tatham Offshore Common Stock and Series A Preferred Stock
held by DeepFlex; (iii) the balance of the DeepFlex Debt will be contributed to
the capital of DeepFlex; (iv) DeepTech will contribute all of the outstanding
shares of capital

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stock of DeepFlex, which owns the Rigs, to Tatham Offshore (together with the
transactions described in subsections (i) through (iii), the "Contribution," as
described in "Business -- General -- Description of Reorganization
Transactions -- The Contribution and Distribution Agreement); (v) the Company,
through DeepFlex, will assume approximately $60 million of third party debt owed
by DeepFlex; (vi) DeepTech will merge with and into El Paso or, under certain
circumstances, with Merger Sub, and (vii) the Company will transfer the oil and
gas properties it owns together with all related liabilities (other than TODI's)
to the Partnership in consideration of redemption by the Company of 7,500 shares
(including satisfaction of unpaid dividends) of the Company's Series B 9% Senior
Convertible Preferred Stock (the "Series B Senior Preferred Stock") owned by the
Partnership. See "Business -- General -- Description of Reorganization
Transactions."

The consummation of the Merger is subject to customary conditions precedent
and requires consent from the holders of DeepTech's 12% Senior Secured Notes due
2000 and Senior Subordinated Notes due 2000. ALTHOUGH THE COMPANY UNDERSTANDS
THAT DEEPTECH INTENDS TO ATTEMPT TO EFFECT THE OFFERING EVEN IF THE MERGER FAILS
TO OCCUR, IF THIS OFFERING FAILS TO OCCUR, THE RIGHTS WILL EXPIRE WORTHLESS, AND
ALL OF THE TRADES WILL BE CANCELED.

There will not be a DeepTech stockholders' meeting to vote on the Merger
because the holders of a majority of DeepTech's common stock have already
approved the Merger. Accordingly, DeepTech is not soliciting proxies or holding
a stockholders' meeting. Because DeepTech holds a majority of the Company's
Common Stock, DeepTech was able to approve all actions that require stockholder
approval without any further action on the Company's part. The Company is not
soliciting proxies or holding a stockholders' meeting to approve this Offering
or any of the Reorganization Transactions.

Because DeepTech will no longer continue to operate the Company under a
management agreement as has been the case, upon the completion of the Offering,
the Company will hire a management team comprised of the DeepTech employees that
were primarily responsible for Rig operations, financial reporting and planning,
and additional personnel as required to implement the Company's Atlantic Canada
strategy, some of whom are expected to be current DeepTech employees and some of
whom are expected to be Canadian nationals. Mr. Tatham will continue as the
Company's Chief Executive Officer and Chairman of the Board. At or prior to the
closing of the Offering, the management fees due to DeepTech from DeepFlex that
accrue from December 19, 1997 through the closing of the Merger will be
contributed or forgiven. If the transactions contemplated by the Redemption
Agreement (as discussed under "Business -- General -- Description of
Reorganization Transactions -- The Redemption Agreement") are consummated, the
management fees due to DeepTech from Tatham Offshore will be reduced by 50%
effective retroactively to January 1, 1998 and the balance owed to DeepTech will
be paid at the closing of the Merger.

The Company's principal executive offices are at 7400 Chase Tower, 600
Travis Street, Houston, Texas 77002, and its telephone number is (713) 224-7400.

THE OFFERING

Description of the Rights
Offering................. DeepTech will issue to you and the other record
holders of DeepTech common stock as of 5:00 p.m.,
New York City time, on the Record Date (
, 1998), Rights entitling you and the other
holders of the Rights to subscribe for and purchase
(the "Subscription Privilege") an aggregate of
28,073,450 shares (the "Underlying Common Shares")
of common stock, $0.01 par value per share ("Common
Stock"), and 4,670,957 shares (the "Underlying
Preferred Shares" and, together with the Underlying
Common Shares, the "Underlying Shares") of Series A
12% Convertible Exchangeable Preferred Stock, par
value $0.01 ("Series A Preferred Stock") of the
Company. For each share of DeepTech common stock
you hold on , 1998, you will receive
one Right to subscribe to purchase 1.12654 shares
of Underlying Common Stock and 0.18744 Underlying
Preferred Shares (the "Subscription") at
5
<PAGE> 10

a subscription price of $3.25 for the Underlying
Shares comprising each Right (the "Subscription
Price"), in each case, subject to pro rata
reduction if the number of DeepTech common shares
exceeds 24,920,057. To the extent more shares of
DeepTech common stock are outstanding (which total
amount shall not exceed 29,291,595), the number of
shares of Underlying Common Shares and Underlying
Preferred Shares will be adjusted accordingly.
Under no circumstances will a Right allow the
purchase of less than 0.95841 shares of Common
Stock or 0.15946 shares of Series A Preferred
Stock. For a discussion of the allocation of the
Subscription Price between the Underlying Common
Shares and the Underlying Preferred Shares, see
"Federal Income Tax Consequences -- Exercise of
Rights." The partial exercise of a Right is
prohibited, and in exercising a Right, you must
purchase both the Underlying Common Shares and the
Underlying Preferred Shares purchasable on exercise
of the Right. If the total number of Rights you
exercise allows you to purchase a fraction of a
share, the number of shares you will be entitled to
purchase upon exercise will be rounded down to the
nearest whole number, with cash to be issued in
lieu of fractional shares.

If the Rights holders do not exercise enough of
their Rights to purchase a sufficient number of
Underlying Shares such that DeepTech will receive
$75 million in net proceeds from the Offering,
Tatham Brothers, LLC ("TBL"), an affiliate of Mr.
Thomas P. Tatham, Chairman of the Board and Chief
Executive Officer of the Company and DeepTech, will
subscribe for and purchase, at the Subscription
Price (the "Conditional Subscription"), that number
of Underlying Shares not purchased by the Rights
holders in this Offering, that will result in
DeepTech receiving not less than $75 million in net
proceeds from its sale of Underlying Shares in this
Offering. TBL also has the option to purchase any
unsubscribed shares, which would provide proceeds
of greater than $75 million.

The Company will purchase any Underlying Shares
that TBL does not purchase from DeepTech, and
DeepTech, subject to certain limitations, will
contribute the proceeds from such purchase to the
Company. In addition, to the extent this Offering
yields net proceeds of greater than $75 million,
the Company will receive such proceeds, which will
be used for general corporate purposes. See "The
Offering -- Subscription Privileges,"
"-- Conditional Subscription" and "Use of
Proceeds."

ONCE YOU HAVE EXERCISED YOUR RIGHTS, YOU MAY NOT REVOKE SUCH EXERCISE. IF
YOU DO NOT EXERCISE YOUR RIGHTS PRIOR TO THE EXPIRATION DATE, THEY WILL EXPIRE.
ALTHOUGH THE COMPANY UNDERSTANDS THAT DEEPTECH INTENDS TO ATTEMPT TO EFFECT THE
OFFERING EVEN IF THE MERGER FAILS TO OCCUR, IF THIS OFFERING FAILS TO OCCUR, THE
RIGHTS WILL EXPIRE WORTHLESS, AND ALL TRADES WILL BE CANCELED.

The Subscription Price on
Exercise of the Rights... $3.25 for the Underlying Shares contained in each
Right (1.12654 shares of Common Stock and 0.18744
shares of Series A Preferred Stock). Assuming the
issuance prior to the Record Date of all DeepTech
common shares issuable on the exercise of options
and warrants, the number of Common Stock and Series
A Preferred Stock would be reduced to 0.95841
shares of Common Stock and 0.15946 shares of Series
A Preferred Stock.

6
<PAGE> 11

When You Can Exercise Your
Rights................... , 1998 and ending on , 1998
at 5:00 p.m., New York City time (the "Expiration
Date").

How Your Rights Will Be
Evidenced................ You will receive certificates ("Rights
Certificates") that represent your transferable
Rights.

Number of Underlying Shares
of our Stock Offered in the
Rights Offering.......... 28,073,450 Shares of Common Stock. 4,670,957 Shares
of Series A Preferred Stock.

Description of the Series A
Preferred Stock and
Common Stock............. Each Right is exercisable for both Common Stock and
Series A Preferred Stock of the Company. Taking the
Reorganization Transactions into account, each
share of the Series A Preferred Stock will be
senior to all other classes of the Company's
Preferred and Common Stock with respect to
liquidation, dissolution or winding up of the
Company. Additionally, each share of Series A
Preferred Stock may be converted into such number
of whole shares of Common Stock as is equal to (i)
the sum of $1.50 and any accrued and unpaid
dividends (approximately $0.31 per share as of
March 31, 1998) thereon through the date of
conversion divided by (ii) $6.53, which is subject
to adjustment for certain events. Further, at any
time until December 31, 1998, each share of Series
A Preferred Stock may be exchanged for 0.4 Exchange
Warrants, each of which entitles the holder to
purchase one share of Common Stock at $6.53 per
share. The Exchange Warrants expire on July 1,
1999.

Each share of Common Stock is entitled to one vote
per share on those matters upon which it is
entitled to vote. Common Stock holders have neither
cumulative voting rights nor preemptive rights.
With respect to receiving dividends and sharing in
the Company's assets upon liquidation, dissolution
or winding up of the Company, the Common Stock
ranks junior to all Preferred Stocks.

Stock to be Outstanding
After the Offering......... Depending on the number of shares of Common Stock
and Series A Preferred Stock purchased in the
Offering, we will have between 24,025,908 and
29,982,673 shares of Common Stock and between
16,634,693 and 17,623,710 shares of Series A
Preferred Stock outstanding. This excludes 136,500
shares of Common Stock issuable upon the exercise
of outstanding stock options and warrants, at a
weighted average exercise price of $4.85 per share,
of which options and warrants to purchase 31,500
shares of Common Stock, at a weighted average
exercise price of $10.20 per share, were
exercisable as of March 17, 1998. In addition, at
March 31, 1998, pro forma for the Reorganization
Transactions, the Company had outstanding shares of
Preferred Stock (other than the Underlying
Preferred Shares) convertible into 3,638,151 shares
of Common Stock and a potential obligation to issue
Common Stock upon conversion of approximately $11.4
million under a production payment agreement. See
"Certain Transactions -- Historical -- Other."

7
<PAGE> 12

Proceeds................... There will only be proceeds to the Company from the
Offering to the extent the Offering yields greater
than $75 million of net proceeds to DeepTech. Such
excess, if any, will be used for general corporate
purposes. See "Use of Proceeds."

Nasdaq National Market
and OTC Bulletin Board
Symbols.................. While your Rights are exercisable, they will trade
on The Nasdaq OTC Bulletin Board under the symbol
"TOFFR".

Our Common Stock and Series A Preferred Stock are
traded on The Nasdaq National Market and The Nasdaq
OTC Bulletin Board, respectively, under the symbols
"TOFF" and "TOFFL," respectively. On March 17,
1998, the closing sale price of our Common Stock
and Series A Preferred Stock was $4.53125 and $1.50
per share, respectively.

Rights Agent............... ChaseMellon Shareholder Services, L.L.C. (the
"Rights Agent").

Procedure for Exercising
Rights................... To exercise your Rights, you should properly
complete and sign the Rights Certificate and
forward it (or follow the Guaranteed Delivery
Procedures), with payment of the Subscription Price
for the Underlying Shares to be purchased, to the
Rights Agent. The Rights Agent must receive your
Rights Certificate or Notice of Guaranteed Delivery
with payment of the Subscription Price on or prior
to [ ] days before the Expiration Date. If you
use the mail to forward Rights Certificates, we
urge you to use insured, registered mail, return
receipt requested. See "The Offering -- How You Can
Exercise Your Rights."

If the aggregate Subscription Price you pay is
insufficient to purchase the number of Underlying
Shares for which you subscribed, then you will be
deemed to have exercised the maximum number of
Rights purchasable with the submitted Subscription
Price. If you do not specify the number of
Underlying Shares to be purchased, or if the
aggregate Subscription Price you pay exceeds the
amount necessary to purchase the number of
Underlying Shares for which you indicated an
intention to subscribe, then you will be deemed to
have exercised all of the Rights you hold and any
remaining funds will be returned to you. No
interest will be paid on funds delivered in payment
of the Subscription Price. See "The Offering -- How
You Can Exercise Your Rights."

Persons Holding Shares, or
Wishing to Exercise
Rights, Through Others... If you hold DeepTech common stock beneficially and
receive the Rights distributable with respect to
those shares through a broker, dealer, commercial
bank, trust company or other nominee, or if you
hold DeepTech common stock certificates directly
and prefer to have such institutions effect
transactions relating to the Rights on your behalf,
you should contact the appropriate institution or
nominee and request it to effect the transactions
for you. If you wish to obtain a separate Rights
Certificate, you should contact the nominee as soon
as possible and request that the Rights Agent issue
you a separate Rights Certificate. If you are a
nominee, you may request any Rights Certificate you
hold to be split into such smaller denominations as
you wish, provided that the Rights Agent receives
the Rights Certificate, properly endorsed, no later

8
<PAGE> 13

than [ ], New York City time, on
[ ], 1998. See "The Offering -- How You
Can Exercise Your Rights."

Procedure for Exercising
Rights by Foreign and
Certain Other
Stockholders............. The Rights Agent will not mail Rights Certificates
to you if your address is outside the United States
or if you have an Army Post Office ("APO") or a
Fleet Post Office ("FPO") address, but will hold
the Rights Certificates for your account. To
exercise your Rights in such case, you must notify
the Rights Agent, and take all other steps
necessary to exercise the Rights, on or prior to
the Expiration Date. If you are such a holder and
do not follow the procedures set forth in the
preceding sentence prior to the Expiration Date,
your Rights will expire worthless. See "The
Offering -- Foreign and Certain Other
Stockholders."

Federal Income Tax
Consequences............. For United States income tax purposes, your receipt
of Rights will be treated as a taxable distribution
with respect to DeepTech common stock. See "Federal
Income Tax Consequences."

No Board Recommendation.... An investment in the Underlying Shares must be made
pursuant to your evaluation of your best interests.
Accordingly, neither the Company's Board of
Directors nor DeepTech's Board of Directors makes
any recommendation to you regarding whether you
should exercise your Rights.

Exercise of Rights......... You may exercise your Rights by forwarding the
attached Subscription Exercise Notice, with payment
in full of the Subscription Price, to the Rights
Agent prior to 5:00 p.m., New York City time, on
, 1998 (the "Expiration Date") to any
of the following addresses:

By Mail: ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 3301
South Hackensack, New Jersey 07606

By Hand: ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
120 Broadway, 13th Floor
New York, New York 10271

By Overnight
Delivery: ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
85 Challenger Road -- Mail Drop -- Reorg
Ridgefield Park, New Jersey 07660

IF YOU USE THE MAIL TO EXERCISE RIGHTS, WE RECOMMEND YOU USE INSURED,
REGISTERED MAIL. ONCE YOU EXERCISE YOUR RIGHTS AND THE RIGHTS AGENT HAS RECEIVED
PAYMENT, YOU MAY NOT REVOKE THE EXERCISE.

9
<PAGE> 14

IF YOU WISH TO EXERCISE YOUR RIGHTS, BUT TIME WILL NOT PERMIT YOU TO CAUSE
THE RIGHTS CERTIFICATE TO REACH THE RIGHTS AGENT PRIOR TO THE EXPIRATION DATE,
YOU MAY EXERCISE YOUR RIGHTS BY MEETING THE GUARANTEED DELIVERY CONDITIONS SET
FORTH UNDER THE "THE OFFERING -- HOW YOU CAN EXERCISE YOUR RIGHTS."

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
SIGNIFICANT EVENT DATE
----------------- ----
<S> <C>
Record Date................. , 1998
Expiration Date............. , 1998
</TABLE>

RISK FACTORS

Each person contemplating an investment in the Company should carefully
examine all of the information contained in this Prospectus and should give
particular consideration to the risk factors and investment considerations under
the caption "Risk Factors." ALTHOUGH THE COMPANY UNDERSTANDS THAT DEEPTECH
INTENDS TO ATTEMPT TO EFFECT THE OFFERING EVEN IF THE MERGER FAILS TO OCCUR, IF
THIS OFFERING FAILS TO OCCUR, THE RIGHTS WILL EXPIRE WORTHLESS, AND ALL OF THE
TRADES WILL BE CANCELED.

FORWARD-LOOKING STATEMENTS

The Company has made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of the Company's
operations. Also, when words such as "believes," "expects," "anticipates" or
similar expressions are used, they are intended to identify forward-looking
statements. You should note that many factors, some of which are discussed
elsewhere in this document (particularly under "Risk Factors"), could cause the
Company's future financial results to differ materially from those expressed in
the forward-looking statements contained in this document.

10
<PAGE> 15

SUMMARY PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA

<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUE:
Drilling services.................. $ 34,772 $19,057 $ -- $ -- $ -- $ -- $ --
Oil and gas sales.................. -- -- 7,159 10,302 20,723 16,070 8,054
-------- ------- ------- ------- -------- -------- --------
Total revenue.............. 34,772 19,057 7,159 10,302 20,723 16,070 8,054
-------- ------- ------- ------- -------- -------- --------
COSTS AND EXPENSES:
Production, operating and
exploration expenses............. 17,409 10,840 3,124 3,755 9,007 13,840 25,204
Depreciation, depletion and
amortization..................... 2,596 1,723 2,039 2,140 5,364 1,758 1,210
Impairment, abandonment and
other............................ -- -- -- -- 41,674 8,000 --
Management fee and general and
administrative expenses.......... 2,991 4,628 2,964 2,541 4,846 6,275 7,112
-------- ------- ------- ------- -------- -------- --------
Total operating costs...... 22,996 17,191 8,127 8,436 60,891 29,873 33,526
-------- ------- ------- ------- -------- -------- --------
Operating income (loss)............ 11,776 1,866 (968) 1,866 (40,168) (13,803) (25,472)
Gain on sale of oil and gas
properties....................... -- -- -- -- -- 22,641 1,496
Interest and other financing costs,
net.............................. (4,776) 784 (1,542) (3,992) (7,803) (8,048) (10,795)
-------- ------- ------- ------- -------- -------- --------
Net income (loss).................. 7,000 2,650 (2,510) (2,126) (47,971) 790 (34,771)
Preferred stock dividends.......... (1,627) (3,245) (1,965) (1,974) (3,920) (281) --
-------- ------- ------- ------- -------- -------- --------
Net income (loss) available to
common shareholders.............. $ 5,373 $ (595) (4,475) $(4,100) $(51,891) $ 509 $(34,771)
======== ======= ======= ======= ======== ======== ========
Basic net income (loss) per common
share............................ $ 1.09 $ (0.22) $ (0.91) $ (1.56) $ (19.47) $ 0.20 $ (13.91)
======== ======= ======= ======= ======== ======== ========
Diluted net income (loss) per
common share..................... $ 0.54 $ (0.22) $ (0.91) $ (1.56) $ (19.47) $ 0.09 $ (13.91)
======== ======= ======= ======= ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Semisubmersible drilling rigs,
net.............................. $126,451 (a) $ -- (a) $ -- $ -- $ --
Oil and gas properties, net........ -- (a) 28,540 (a) 30,752 64,900 70,829
Total assets....................... 147,108 (a) 41,501 (a) 42,485 97,130 94,720
Notes payable...................... 68,876 (a) -- (a) -- 1,734 10,468
Long term debt..................... -- (a) -- (a) 60,000 60,000 60,000
Stockholders' equity (deficit)..... 74,185 (a) 31,767 (a) (27,696) 18,862 (20,020)
</TABLE>

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

(a) Information has not been included as it is not required.

11
<PAGE> 16

RISK FACTORS

You should carefully consider the following factors, which may affect the
Company's current operations and future prospects, in addition to the other
information contained in this Prospectus before exercising your Rights.

RIGHTS MAY BECOME WORTHLESS

If the Offering is canceled, the Rights will expire and be worthless, and
all of the trades will be canceled. The Offering may be canceled due to the
failure of the Merger between El Paso and DeepTech to occur. However, at
DeepTech's option, the Offering may be continued even if the Merger fails to
occur. The closing of the Merger is conditioned upon: (i) the receipt of
required governmental approvals, including approval under the Hart-Scott-Rodino
Antitrust Improvements Act, (ii) the absence of a material adverse change to
DeepTech and its business, and (iii) certain other conditions customary for
transactions such as the Merger. See "Business -- General -- Description of
Reorganization Transactions."

INDUSTRY CONDITIONS AND COMPETITION

The offshore drilling industry is a highly competitive and cyclical
business that is fundamentally based on oil and gas prices. It is characterized
by high capital costs, long lead times for construction of new rigs and numerous
industry participants, most of which have substantially greater financial
resources and more drilling rigs than the Company. Because of very high capital
costs and other reasons, there has been a consolidation of the offshore drilling
industry over the last few years. Although dayrates for rigs have gone up
dramatically over the last three years, there can be no assurance that dayrates
will remain at their current level. This is particularly true given the numerous
recent orders for new rigs by the Company's competitors and the recent decline
of oil prices. There can also be no assurance that the Company will be able to
compete successfully through Sedco Forex against its competitors in the future.
Furthermore, offshore drilling rigs have few alternative uses and, because of
their nature and the environment in which they work, have relatively high
maintenance costs whether employed or unemployed. See "-- Dependence on Oil and
Gas Industry."

SUCCESS OF ATLANTIC CANADA OPPORTUNITIES DEPENDS UPON SUCCESSFUL DEVELOPMENT OF
GAS RESERVES

The Company's plans for investment in the Atlantic Canada region are
dependent upon the successful development of gas reserves in the region,
including the Jeanne d' Arc basin. The Hibernia field, the first commercial oil
and gas development in the Jeanne d' Arc basin, began oil production in November
1997. The Canadian-Newfoundland Offshore Petroleum Board has estimated that the
Hibernia field contains 666 million barrels of recoverable oil and 1.0 trillion
cubic feet of recoverable gas. Discovery wells have also been drilled on the
Terra Nova and White Rose fields in the region where the operators of such
fields are developing drilling and production scenarios. The
Canadian-Newfoundland Offshore Petroleum Board has estimated that recoverable
reserves from the Terra Nova and White Rose fields total approximately 585
million barrels of oil and 1.8 trillion cubic feet of gas. The Company's plans
for the gas pipeline, NGL processing facility, electric generation facility and
related infrastructure are dependent upon the development of these and other gas
reserves in the Grand Banks area. The successful development of gas reserves for
transportation on the proposed pipeline is dependent upon certain regulatory
approvals, the need for gas for injection purposes and the ultimate availability
of gas for sale, the future rates of oil and gas production, the timing of
development and production and other events that are beyond the control of the
Company.

IMPACT OF PROSPECTIVE DEVELOPMENT OF HYDROELECTRIC POWER FROM THE LOWER
CHURCHILL RIVER

The Newfoundland provincial government is currently in discussion with the
Province of Quebec and the Canadian Government regarding development of 3,300
megawatts of hydroelectric power from the Lower Churchill River and providing
800 megawatts of electric transmission facilities into Newfoundland, connecting
Newfoundland with the North American Power grid. The availability of this
additional power source, if built, could have an adverse effect on the Company's
ability to market power from its proposed electric generating facility.

12
<PAGE> 17

POTENTIAL INABILITY TO FINANCE AND EXECUTE BUSINESS STRATEGY

Although the Company has identified and is actively considering numerous
business opportunities, including the Planned Rig, the North Atlantic Partners
pipeline project, a gas processing plant, electrical generation facilities,
production and development opportunities, hydrocarbon marketing and other
opportunities, there can be no assurances that any of them will actually be
pursued or secured or that the amount and timing of expenditures for such
prospects will not vary materially from those currently contemplated.
Furthermore, many of these opportunities would require governmental approvals,
of which the Company has filed for none, other than with respect to the North
Atlantic Partners pipeline project.

Although the Company believes that it will be able to finance the
expenditures required to own and operate the Rigs from cash flows from
operations and borrowings under credit facilities that may exist from time to
time, to further execute its business strategy, it will be required to seek to
obtain substantial amounts of additional capital from equity and debt offerings,
joint venture arrangements or vendor financing, or any combination thereof. In
addition, the Company may sell all or a portion of its interest in one or both
Rigs to generate capital to finance other projects. The Company's ability to
access additional capital will depend on third parties' assessment of the
Company's projects, whether by potential joint venturers or by the debt and
equity markets, industry conditions and the status of the capital markets at the
time such capital is sought. Accordingly, there can be no assurance that
additional capital will be available to the Company from any source or that, if
available, it will be on terms acceptable to the Company. Should sufficient
capital not be available, the implementation of the Company's business strategy
would be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

SUBSTANTIAL LEVERAGE

Upon consummation of the Reorganization Transactions, the Company will have
certain indebtedness and debt service obligations. In addition, the Company
plans to incur additional debt in connection with pursuing and implementing its
business strategy. At December 31, 1997, pro forma for the Reorganization
Transactions, the Company's total consolidated indebtedness would have been
$68.9 million, and its consolidated total assets would have been $147.1 million.
The level of the Company's indebtedness could have important consequences to its
stockholders, including: (i) a substantial portion of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional debt financing
in the future for working capital, capital expenditures, research and
development or acquisitions may be limited; and (iii) the Company's level of
indebtedness could increase its vulnerability to general adverse economic and
industry conditions and limit its flexibility to react to changes in its
operating environment and in economic conditions generally. In addition, the
Company's credit facilities, if any, will most likely contain financial and
other restrictive covenants.

POTENTIAL LACK OF LIQUIDITY

To date the Underlying Shares have not been widely held and have
experienced very low trading volume. The development of a liquid market for the
Underlying Common Shares and Underlying Preferred Shares will depend, among
other things, on the number of Rights that DeepTech stockholders exercise,
because trading in shares by affiliates of the Company such as Mr. Tatham, TBL
and the Company's directors and senior officers will be subject to certain
regulatory and other limitations. See "-- Possible Adverse Effect of Future
Sales of Securities on Market Price." If a liquid trading market does not
develop for the Common Stock and the Series A Preferred Stock, any attempts to
sell such stock will be more likely to depress the trading prices for such
stock.

13
<PAGE> 18

NUMBER OF RIGS

The Company has only two semisubmersible offshore drilling rigs. Most, if
not all, of the Company's competitor's have larger fleets with a wider range of
capabilities. Although the Company plans on expanding its current number of rigs
and has the benefit of having Sedco Forex market the Rigs, there can be no
assurance that the Company will be able to expand its fleet or that the Company
will be able to compete successfully against its competitors. Furthermore, a two
rig fleet necessarily increases the risk of fluctuations in revenue.

In addition, the Pincay is currently undergoing routine repairs and certain
upgrades. During the performance of this maintenance work, which is expected to
take approximately six weeks, the Pincay will not be under contract and the
Company's revenue and earnings will be decreased for such period as compared to
the previous quarter. After the completion of the required maintenance work, the
Company expects the Pincay to resume drilling activities in the Gulf of Mexico.

CONTROL OF RIGS BY SEDCO FOREX

Sedco Forex markets, manages, mans and operates the Pincay and Shoemaker
under five-year management agreements in effect since 1995 and 1996,
respectively. Although Sedco Forex has the right to negotiate drilling contracts
with respect to each Rig, the Company has the right to accept or reject any
drilling contracts and to approve the Rigs' location and certain other matters.
Because of these management arrangements, the Company neither has full control
over the Rigs' operation nor a direct relationship with the Rigs' users. In
addition, the results of operations for the Rigs could be adversely affected by
the inherent conflicts of interests associated with Sedco Forex managing the
Rigs and the rest of the Sedco Forex fleet (most of which Sedco Forex owns). If
either or both of the agreements with Sedco Forex are not renewed or extended by
mutual agreement or are terminated by Sedco Forex, the Company does not
currently have the ability to operate the Rigs and would be forced to engage a
new operator. Nonetheless, although the Company believes that it could find,
within a reasonable period of time, an alternate company to manage and operate
the Rigs for a reasonable fee, there can be no assurances that such will be the
case.

DEPENDENCE ON OIL AND GAS INDUSTRY

The Rigs' operations are materially dependent upon activity levels in
offshore oil and natural gas exploration, development and production. Short-term
and long-term trends in oil and natural gas prices are the primary factors
affecting such activity levels. Oil prices have recently experienced severe
declines. Historically, the prices for oil and natural gas have been volatile
and are subject to wide fluctuations in response to changes in the supply and
demand for oil and natural gas, market uncertainty and a variety of political,
economic and other factors beyond the Company's control. Worldwide military,
political and economic events, including initiatives by OPEC, have contributed
to, and are likely to continue to contribute to, price volatility. The Company
cannot predict future oil and natural gas price movements with any certainty.
Any prolonged reduction in oil and natural gas prices, however, could depress
the level of exploration, development and production activity and result in a
corresponding decline in the demand, and resulting dayrates for the Rigs and,
therefore, have a material adverse effect on the Company's results of operations
and financial position. In this vein, the Company has already seen a softening
in short-term demand for offshore drilling rigs and consequently pressure on
current dayrates, as a result of price declines.

In addition to adverse effects that future declines in demand could have on
the Company, ongoing movement or reactivation of offshore rigs or new
construction of rigs could adversely affect dayrates, utilization levels and
revenue, even in an environment of stronger oil and natural gas prices and
increased drilling activity.

OPERATIONAL RISKS AND INSURANCE

The Rigs and their operation through Sedco Forex, are subject to the many
hazards inherent in the business of drilling oil and gas wells, such as
blowouts, explosions, cratering, fires, oil and gas reservoir damage, loss of
production, loss of well control, collisions or groundings of drilling
equipment, and damage or
14
<PAGE> 19

loss from adverse weather and seas, which could cause substantial damage or
destroy equipment or cause environmental damage. These hazards could also cause
personal injury and loss of life, suspend drilling operations or seriously
damage or destroy the property and equipment involved and, in addition to
environmental damage, could cause substantial damage to producing formations and
surrounding areas. The Rigs are also subject to hazards inherent in marine
operations, such as capsizing, grounding, collision, damage from weather or sea
conditions or unsound location, and conditions in harsh weather environments,
including extremely cold temperatures and damage from icebergs. Furthermore, the
Company may be subject to liability for oil spills, oil and gas reservoir damage
and other accidents that could cause substantial damages.

While the Company maintains what it believes are customary insurance
coverages for the energy services industry, the occurrence of a significant
event not fully insured against could have a material adverse effect on the
Company's results of operations and financial position. This is particularly
true for catastrophic events such as a major loss of lives or an environmental
incident for which the Company is responsible. No assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
it considers reasonable.

Under the charter agreements with Sedco Forex, the Company is entitled to
indemnification for any damages Sedco Forex causes to the Rigs which are due to
Sedco Forex's negligence or misconduct. In addition, when Sedco Forex enters
into contracts with its customers, such contracts typically contain an indemnity
from the customer to Sedco Forex and the Company for negligence or misconduct on
the part of the customer. To the extent the Company is required to collect under
these indemnities, there can be no assurance that Sedco Forex or such customers
would be willing or able to make such payments. If there are no such
indemnities, the Company may be responsible for damages.

RISK OF NEW VENTURE; LACK OF PRIOR OPERATING HISTORY

Tatham Offshore was organized in 1988, but will start operations as an
offshore drilling rig owner as of the closing of the Contribution which will
take place prior to the distribution of the Rights. Prior to such closing,
Tatham Offshore was engaged in the development, exploration and production of
oil and gas properties, primarily in the Gulf of Mexico and had no prior history
in operating drilling rigs. Therefore, the Company's success must be considered
in light of the risks, expenses and difficulties companies frequently encounter
in their early stage of development, especially companies in a highly
competitive industry. Although, as part of the Reorganization Transactions, the
Company will be hiring substantially all of DeepTech's management that has been
responsible for the management of the Rigs, and DeepTech's relationship with
Sedco Forex will continue, the Company and its operations are subject to all of
the risks inherent in the establishment of a new business enterprise. There can
be no assurance that the Company will be able to operate its new business on a
profitable basis. The historical financial results of DeepFlex cover periods
when it was not under the Company's control, and therefore, may not be
indicative of the Company's future financial performance. The inability of the
Company to operate the Rigs successfully would have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company's limited operating history as an owner of offshore drilling
rigs makes the prediction of future operating results difficult or impossible.
Future operating results will depend on a myriad of factors, including without
limitation, the continued chartering of the Rigs, the rates at which the Rigs
are chartered, the Company's ability to establish new business, the size of the
Company's fleet of rigs, the price of oil and gas, the number of rigs available
for contract in the area in which the Rigs are operating, and the physical
condition and maintenance of the Rigs. Currently, only the Shoemaker is under
contract but the Company expects the Pincay to resume operations when current
maintenance and certain upgrades are completed.

POSSIBLE ADVERSE EFFECT OF FUTURE SALES OF SECURITIES ON MARKET PRICE

DeepTech is offering 28,073,450 shares of Common Stock and 4,670,957 shares
of Series A Preferred Stock, all of which are currently issued and outstanding
and will be eligible for immediate resale in the public market without
restriction unless an affiliate of the Company owns them (as will be the case
with respect to any Underlying Shares the Company's affiliates purchase in this
Offering (generally, Mr. Tatham, the

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<PAGE> 20

Company's directors and senior officers, and 10% stockholders, possibly
including TBL)). Any shares TBL beneficially owns as a result of this Offering
will be restricted securities. Such shares may be resold publicly only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. In addition, certain other
parties have the right to convert $11.4 million, at December 31, 1997, of a
convertible production payment into shares of Common Stock. Such parties have
the right to require the Company to register such shares, subject to certain
terms and conditions. See "Certain Transactions -- Historical -- Other" and
"Shares Eligible for Future Sale." Sales of a substantial amount of Common Stock
or Series A Preferred Stock, or a perception that such sales could occur, could
adversely affect the prevailing market price, of the Common Stock or the Series
A Preferred Stock. Because the Series A Preferred Stock is convertible into
Common Stock, changes in the Common Stock's trading price may affect the trading
price of the Series A Preferred Stock.

CONCENTRATION OF OWNERSHIP; INFLUENCE OF THOMAS P. TATHAM

As of the date of this Prospectus, Mr. Tatham owns approximately 37.0% of
the outstanding common stock of DeepTech, 0.6% of the Company's outstanding
Common Stock and 8.7% of the Series A Preferred Stock. Accordingly, if Mr.
Tatham exercises his Rights in full, he would control at least 30.0% of the
Company's outstanding Common Stock and 17.0% of the Series A Preferred Stock. In
addition, Mr. Tatham has the right to purchase a one third interest in TBL for
$1,000 and 50% of the shares purchasable under the production payment described
under "Certain Transactions." In such case, depending on TBL's management at the
time, he may have the ability to elect all of the Company's directors and
control the outcome of all other matters submitted to a vote of the Company's
stockholders. In addition, to the extent Mr. Tatham owns more than one-third of
the Company's outstanding Common Stock, he would be able to prevent certain
actions that require the affirmative vote of at least two-thirds of the
Company's outstanding voting Common Stock. See "Description of Capital
Stock -- Provisions Having Possible Anti-Takeover Effects."

LOSSES FROM OPERATIONS

Tatham Offshore reported a net loss of approximately $51.9 million and
$34.8 million for the years ended June 30, 1997 and 1995, respectively, and net
income of $0.5 million for the year ended June 30, 1996. Although the Company
believes that as a result of its acquisition of the Rigs and entry into the
offshore drilling business it will become profitable, there can be no assurances
that such will be the case. See "-- Risk of New Venture; Lack of Prior Operating
History" and "Selected Pro Forma and Historical Consolidated Financial Data."

ENVIRONMENTAL MATTERS

The Company, through its ownership of the Rigs, is subject to numerous
domestic and, when operating in other countries, foreign governmental
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Laws and regulations
specifically applicable to the Company's business activities could impose
significant liability on it for damages, cleaning costs, and penalties in the
event of oil spills or similar discharges of pollutants into the environment in
the course of the Company's operations. However, to date, these laws and
regulations have not had a materially adverse effect on the results of
operations of the Rigs through Sedco Forex, nor have the Rigs experienced an
accident that has exposed the Company to material liability for discharges of
pollutants into the environment. Under certain circumstances, environmental laws
and regulations may impose "strict liability" and render a company liable for
environmental damage without regard to negligence or fault; such laws and
regulations could expose the Company to liability for the conduct of or
conditions caused by others. In addition, events of recent years have heightened
environmental concerns about the oil and gas industry generally. From time to
time legislative proposals have been introduced that would materially limit or
prohibit offshore drilling in certain areas. To date, no proposals that would
materially limit or prohibit drilling in certain areas have been enacted into
law. If laws are enacted or other governmental action is taken that restrict or
prohibit offshore drilling in the Company's areas of operation or impose
environmental protection requirements that materially increase the costs of
offshore exploration, development or production of oil and gas, the Company
could be materially adversely affected.

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<PAGE> 21

The United States Oil Pollution Act of 1990 ("OPA 90") and similar
legislation enacted in Texas, Louisiana and other coastal states address oil
spill prevention and control and significantly expand liability exposure across
all segments of the oil and gas industry. OPA 90, and similar such legislation
and related regulations, impose a variety of obligations on the Company related
to the prevention of oil spills and liability for damages resulting from such
spills. OPA 90 imposes strict and, with limited exceptions, joint and several
liability upon each responsible party for oil removal costs and a variety of
public and private damages. OPA 90 also imposes ongoing financial responsibility
requirements on a responsible party. A failure to comply with ongoing
requirements or inadequate cooperation in a spill may subject a responsible
party, including in some cases the Company, to civil or criminal enforcement
action. Also, the Minerals Management Service of the Department of the Interior
is required to promulgate regulations to implement the financial responsibility
requirements for offshore facilities. If implemented as written, the financial
responsibility requirements of OPA 90 could have the effect of significantly
increasing the amount of financial responsibility that oil and gas operators
must demonstrate to comply with OPA 90. While industry groups and marine
insurance carriers are seeking modification of these requirements,
implementation of these requirements in their current form could adversely
affect the ability of some potential customers for the Rigs to operate in United
States waters, which could have a material adverse effect on the Company.

AVAILABILITY OF QUALIFIED RIG PERSONNEL

Increases in worldwide drilling demand during the past two years and the
corresponding increase in the number of offshore rigs working has resulted in a
shortage of qualified rig personnel in the industry. To date, the Company
understands that Sedco Forex has not experienced significant problems with
personnel in the Rigs' areas of operation; however, if Sedco Forex is unable to
continue to attract and retain sufficient qualified personnel, its operations
could be adversely affected and its ability to keep the Rigs operating could be
impaired. A Sedco Forex shortage of personnel could also result in wage
increases which could, without offsetting increases in revenue, adversely affect
the Company's profitability and cash flow.

GOVERNMENT REGULATION

The Company's business and the operation of the Rigs are affected by
political developments and by federal, state, local and foreign laws and
regulations that relate directly to the oil and gas industry. Statutory
provisions generally include requirements as to well spacing, waste prevention,
production limitation, well and dredging permits and similar matters. The
drilling industry is also affected by changing tax laws, price controls and
other laws affecting the energy business. Drilling rigs and operations are
subject to federal, state, local and foreign laws and regulations relating to
engineering, design, structural, safety, operational and inspection standards.
The adoption of laws and regulations curtailing exploration and development and
drilling for oil and gas for economic, environmental or other policy reasons
would adversely affect the Company's operations by limiting available drilling
opportunities for its customers and/or increasing the costs of such activities
to the Company and its customers.

UNCERTAIN MARKET FOR THE RIGHTS

The Rights are securities. Accordingly, if and when issued, such securities
will have no trading history. An application has been made to list the Rights on
The Nasdaq OTC Bulletin Board under the symbol "TOFFR." No assurance can be
given that a trading market will develop for the Rights or of the liquidity of
any such market, the ability of holders to sell their Rights or the prices that
they may obtain for their Rights upon any sale.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO THE OFFERING AND THE
SECURITIES

The holders of DeepTech common stock will recognize ordinary income for
U.S. federal income tax purposes equal to the fair market value of the Rights
received, to the extent of the current and accumulated earnings and profits of
DeepTech. If the value of the Rights exceeds the earnings and profits of
DeepTech, such excess will be treated first as a return of basis and then as
capital gain. A holder of DeepTech common stock will have a tax basis in the
Rights equal to the fair market value of the Rights received. In general,
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<PAGE> 22

shares acquired pursuant to the Offering will have a tax basis to the acquirer
equal to the sum of the cash paid for such shares and the acquirer's tax basis
in the exercised Rights. Rights which are acquired and expire unexercised will
result in a capital loss equal to the tax basis in the expired Rights. Such
capital loss may not be available to offset the ordinary income recognized upon
receipt of the Rights. However, in general, any capital loss which is not used
in the year the Rights expire may be carried over for possible use in a limited
number of subsequent years and, in the case of a corporation, may be carried
back.

In addition, because the Company has never paid dividends on the Series A
Preferred Stock, the Internal Revenue Service could assert that the holders of
Series A Preferred Stock are required to report all accrued and unpaid dividends
on such stock as taxable income. In such case, a holder of Series A Preferred
Stock may have to report income for all dividends on shares of Series A
Preferred Stock that accrue during the holding period of such stock, regardless
of whether such holder ever receives cash dividends.

DETERMINATION OF SUBSCRIPTION PRICES; POSSIBLE VOLATILITY OF SECURITY PRICE

The Subscription Price does not necessarily bear any relationship to the
Company's book value or assets, past operations, financial condition or any
other established criteria for value and should not be considered an indication
of the actual value of the Underlying Shares when, as and if sold. The market
value of the Underlying Shares after the sale may be significantly higher or
lower than the Subscription Price. In addition, as a result of the
Reorganization Transactions, the Company will be in a different business than
its historical business. Accordingly, the market price of the Company's
securities in the past may not be indicative of their future value. See "-- Risk
of New Venture; Lack of Prior Operating History."

Further, the market price of the Rights and the Underlying Shares issued
upon exercise of the Rights may be highly volatile. There have been periods of
extreme fluctuation in the stock market that, in many cases, are unrelated to
the operating performance of, or announcements concerning, the issuers of the
affected securities. Securities of issuers having relatively limited
capitalization or securities recently issued in a public offering (in each case
such as the Underlying Shares offered hereby) are particularly susceptible to
price fluctuations based on short-term trading strategies of certain investors.

NO PROCEEDS FROM OFFERING

The Company will receive no proceeds from the Offering unless DeepTech
stockholders and/or TBL purchase Underlying Shares in the Subscription which
generate net proceeds to DeepTech in excess of $75 million. In such event, the
Company will receive any amounts in excess of $75 million (which will be
approximately $20.2 million at the most), which amounts will be used first to
satisfy certain estimated tax liabilities and second for general corporate
purposes. See "Business -- General -- Description of Reorganization
Transactions."

CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL; ISSUANCE OF PREFERRED STOCK

The Company's Restated Certificate of Incorporation as amended (the
"Certificate") and By-laws contain provisions which may have the effect of
delaying, deferring or preventing a change in control of the Company. For
example, the Certificate and By-laws provide for, among other things, the
prohibition of stockholder action by written consent in certain circumstances
and the affirmative vote of at least 66 2/3% of all outstanding shares of Common
Stock to approve the removal of directors from office. Also, the Certificate
requires super majority voting thresholds to approve "business combinations"
(other than "business combinations" involving Mr. Tatham and his heirs,
successors, assigns and certain assignees), which may render more difficult or
tend to discourage attempts to acquire the Company. See "Description of Capital
Stock -- Provisions Having Possible Antitakeover Effects." In addition, the
Company's Board of Directors has the authority to issue shares of preferred
stock in one or more series and to fix the rights and preferences of the shares
of any such series without stockholder approval. The ability to issue preferred
stock could have the effect of discouraging unsolicited acquisition proposals.
See "Description of Capital Stock -- Preferred Stock."

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<PAGE> 23

AVAILABILITY OF FEDERAL INCOME TAX BENEFITS

As of June 30, 1997, the Company had $112.7 million of regular net
operating losses ("NOL") and $111.3 million in alternative minimum tax NOL
carryforwards which begin to expire in 2005. These losses are subject to review
and potential disallowance by the Internal Revenue Service upon audit of the
federal income tax returns of the Company. As of June 30, 1996, the Company
believes it may have undergone an ownership change within the meaning of section
382 of the Internal Revenue Code. In such a case, the ability of the Company to
use its NOL accrued through the ownership change date will be limited. In
general, the amount of NOL the Company can use for any tax year after the date
of the ownership change is limited to the value of the stock of the Company (as
of the ownership change date) multiplied by the long-term tax-exempt rate. The
Company can give no assurance that the Internal Revenue Service will not further
disallow the Company's NOL's for other reasons.

NO DIVIDENDS

To date, the Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash or other dividends on its Common
Stock in the foreseeable future. In addition, the Series A Preferred Stock, the
Series B 8% Convertible Exchangeable Preferred Stock, par value $0.01 per share
("Series B Preferred Stock"), the Series C 4% Convertible Exchangeable Preferred
Stock, par value $0.01 per share ("Series C Preferred Stock"), and the Series B
9% Senior Convertible Preferred Stock, par value $0.01 per share ("Series B
Senior Preferred Stock"), rank senior to the Common Stock, with the Series A
Preferred Stock ranking senior in rights to receive dividends to the Series B
Preferred Stock, which ranks senior to the Series C Preferred Stock. Pro forma
for the Reorganization Transactions, at March 31, 1998, there will be $5,551,469
of accrued but unpaid dividends on the Series A Preferred Stock, $8,925 of
accrued but unpaid dividends on the Series B Preferred Stock, and $8,030 on the
Series C Preferred Stock. In connection with the Reorganization Transaction, the
Company's Series B Senior Preferred Stock and all related unpaid dividends will
be redeemed in full. See "Price Range of Securities and Dividend Policy."

NON-PARTICIPANTS IN THE OFFERING WILL HAVE NO INTEREST IN THE COMPANY

If you do not exercise your Rights, you will have no continuing ownership
in the Company, nor will you have any voting rights or rights to future earnings
of the Company.

THE OFFERING

WHY DEEPTECH IS SELLING SHARES THROUGH A RIGHTS OFFERING

DeepTech is issuing the Rights and selling the Underlying Shares in the
Offering because as part of the Reorganization Transactions, El Paso and
DeepTech determined that the Underlying Shares, DeepFlex and the Rigs were not
to be included among DeepTech's assets in the Merger.

YOU CAN EXERCISE OR SELL YOUR RIGHTS

Until , 1998, you may purchase 1.12654 shares of our Common
Stock and 0.18744 shares of our Series A Preferred Stock for each Right you
receive, or you may sell your Rights in the market. If the number of shares of
DeepTech's common stock exceeds the 24,920,057 shares outstanding on March 17,
1998, the number of Underlying Shares will be reduced accordingly, provided that
such adjustments will not reduce the number of Underlying Shares to less than
0.95841 shares of Common Stock or less than 0.15946 shares of Series A Preferred
Stock. We have applied to have the Rights listed on The Nasdaq OTC Bulletin
Board under the symbol "TOFFR."

WHAT WILL BE DONE WITH RIGHTS TO PURCHASE FRACTIONAL SHARES

The partial exercise of a Right is prohibited, and in exercising a Right,
you must purchase both the Underlying Common Shares and the Underlying Preferred
Shares purchasable on exercise of the Right. If the

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<PAGE> 24

total number of Rights you exercise results in you purchasing fractional shares,
we will round down to the nearest whole number in calculating the number of
Underlying Shares that you are entitled to purchase and issue cash to you in
lieu of the fractional shares. If you are a nominee for beneficial holders of
DeepTech common shares, we will round the number of Rights that you will receive
based upon the amount each beneficial holder holds individually.

WHEN YOU CAN EXERCISE YOUR RIGHTS

You can exercise your Rights at any time during the period beginning on
, 1998 and ending at 5:00 p.m., New York City time, on ,
1998. After that date, your Rights will expire and you will not be able to
exercise or transfer your Rights and they will be worthless. DeepTech does not
intend to honor any Rights that the Rights Agent receives after ,
1998, regardless of when you sent your Rights to the Rights Agent for exercise.

HOW YOU CAN TRANSFER YOUR RIGHTS

You may transfer all or a portion of your Rights by endorsing and
delivering your Rights Certificate to the Rights Agent at the address set forth
below. You must properly endorse the Certificate for transfer, a bank or
securities broker must guarantee your signature, and your Certificate must be
accompanied by instructions to reissue the Rights you want to transfer in the
name of the person purchasing the rights. The Rights Agent will reissue
Certificates for the transferred Rights to the purchaser, and will reissue a
Certificate for the balance, if any, to you if it is able to do so before
, 1998. You will be responsible for the payment of any commissions,
fees and other expenses (including brokerage commissions and any transfer taxes)
incurred in connection with the purchase or sale of your Rights. We believe that
a market for the Rights may develop during the period in which the Rights may be
exercised. To facilitate the market, we have applied with The Nasdaq OTC
Bulletin Board to have the Rights approved for quotation from , 1998
through , 1998. We have applied to reserve "TOFFR" as The Nasdaq OTC
Bulletin Board symbol under which the Rights will trade. If you have any
questions regarding the transfer of Rights, you should contact the Rights Agent
at P.O. Box 3301, South Hackensack, New Jersey 07606, Attention: Reorganization
Department, telephone number (800) 777-3674.

HOW YOU CAN EXERCISE YOUR RIGHTS

To exercise your Rights, you should properly complete and sign the Rights
Certificate and forward it (or follow the Guaranteed Delivery Procedures), with
payment in full of the Subscription Price for the Underlying Shares to be
purchased, to the Rights Agent. The Rights Agent must receive these documents
and the payment of the Subscription Price by 5:00 p.m., New York City time, on
, 1998. DeepTech does not intend to honor any exercise of Rights
that the Rights Agent receives after that date.

DeepTech will, however, accept your exercise if the Rights Agent has
received full payment of the Subscription Price for the Underlying Shares, and
has received a letter or telegraphic notice from a bank, trust company or member
firm of the New York Stock Exchange or the American Stock Exchange setting forth
your name, address and taxpayer identification number, the number of Underlying
Shares you wish to purchase, and guaranteeing that a properly completed and
signed election to purchase form will be delivered to the Rights Agent by 5:00
p.m., New York City time, on , 1998. If the properly executed
documents are not received by 5:00 p.m. on , 1998, DeepTech will not
accept your subscription.

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<PAGE> 25

We suggest, for your protection, that you deliver your Rights Certificate
to the Rights Agent by overnight or express mail courier. If you mail your
Rights Certificate, we suggest that you use insured registered mail. If you wish
to exercise your Rights, you should mail or deliver your Rights Certificate and
payment for the exercise price to the Rights Agent as follows:

<TABLE>
<S> <C>
By Mail: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway, 13th Floor
South Hackensack, New Jersey 07606 New York, New York 10271
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
85 Challenger Road-Mail Drop-Reorg
Ridgefield Park, New Jersey 07660
</TABLE>

You must pay the Subscription Price in U.S. dollars by cash, check or money
order payable to the "DeepTech Escrow Account." Until this Offering is closed,
the Rights Agent, as the escrow agent of the DeepTech Escrow Account, will hold
your payment in escrow.

The Rights Agent will deliver certificates to you representing the
Underlying Shares purchased through the exercise of Rights by ,
1998. Until that date, the Rights Agent will hold all funds received in payment
of the exercise price in escrow and will not deliver any funds to DeepTech until
the Underlying Shares have been transferred.

If you are a broker or depositary who holds DeepTech common stock for the
account of others and you receive Rights Certificates for the account of more
than one beneficial owner, you should provide copies of this Prospectus to the
beneficial owners. You should also carry out their intentions as to the exercise
or transfer of their Rights.

DeepTech will decide all questions as to the validity, form and eligibility
(including times of receipt, beneficial ownership and compliance with minimum
exercise provisions). DeepTech will also determine the acceptance of
subscription forms and the Subscription Price. Alternative, conditional or
contingent exercises will not be accepted. DeepTech reserves the absolute right
to reject any subscriptions not properly submitted. In addition, DeepTech may
reject any subscription if the acceptance of the subscription would be unlawful.
DeepTech also may waive any irregularities (or conditions) in the subscription,
and its interpretation of the terms and conditions of this Offering shall be
final and binding.

If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than , 1998. Neither
DeepTech nor we are obligated to give you notification of defects in your
subscription. Neither DeepTech nor we will consider an exercise to be made until
all defects have been cured or waived. If your exercise is rejected, the Rights
Agent will promptly return your payment of the Subscription Price.

HOW YOU CAN OBTAIN ADDITIONAL INFORMATION

If you wish to receive additional copies of this Prospectus or additional
information concerning this offering, you should contact ChaseMellon Shareholder
Services, L.L.C., 120 Broadway, 13th Floor, New York, New York 10271, telephone
number (800) 414-2879.

WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELED

DeepTech has the right to cancel the Offering if certain conditions,
including the failure of the Merger to close, are not satisfied or if certain
circumstances exist prior to the closing date of this Offering. IN SUCH EVENT,
ALTHOUGH DEEPTECH INTENDS TO COMPLETE THE OFFERING IF THE MERGER IS NOT
COMPLETED, DEEPTECH MAY CANCEL

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<PAGE> 26

THIS OFFERING AND THE RIGHTS WILL EXPIRE AND BE WORTHLESS, AND ALL OF THE TRADES
WILL BE CANCELED. If you exercise Rights and the Offering is canceled, the
Rights Agent will promptly return to you, without interest, any payment received
in respect of the Subscription Price and you will not receive any Underlying
Shares. DeepTech has established an escrow account with the Rights Agent to hold
funds received prior to the closing date of this Offering. Trades in the Rights
and the when-issued shares of Common Stock and Series A Preferred Stock in the
market will be canceled and unwound if this Offering is not consummated.

SUBSCRIPTION PRIVILEGES

Subscription Privilege. Each Right will allow you to receive, upon payment
of the Subscription Price, 1.12654 shares of Underlying Common Shares and
0.18744 shares of Underlying Preferred Shares. If the number of shares of
DeepTech common stock exceeds 24,920,057 we will adjust the number of shares of
Common Stock and Series A Preferred Stock downward pro rata, and the
Subscription Price will not change. In no event will the number of shares of
DeepTech common stock outstanding exceed 29,291,595 and, accordingly, the number
of shares of our Common Stock and Series A Preferred Stock will not be reduced
to less than 0.95841 and 0.15946, respectively. The certificates representing
shares of Common Stock and Series A Preferred Stock purchased pursuant to your
exercise will be delivered to you as soon as practicable after the Expiration
Date and after all prorations and adjustments contemplated by the terms of the
Offering have been effected. To the extent you exercise Rights to purchase
fractional Underlying Shares and you have made funds available, your
subscription will be rounded down to the nearest whole number, with cash issued
in lieu of fractional shares.

Conditional Subscription. If all Underlying Shares are not purchased
pursuant to the Rights Offering, TBL, will subscribe for and purchase at the
Subscription Price, a sufficient number of Underlying Shares such that DeepTech
will receive no less than $75 million in net proceeds from the Offering. The
Company will purchase any Underlying Shares that remain unpurchased from
DeepTech after the exercise of the Conditional Subscription and any additional
purchase of Underlying Shares by TBL, and DeepTech, subject to certain
limitations, will contribute the proceeds from such purchase to the Company. In
addition, to the extent the Conditional Subscription yields net proceeds of
greater than $75 million, the Company will receive such proceeds which will be
used for general corporate purposes.

NO REVOCATION

ONCE A HOLDER OF RIGHTS HAS EXERCISED HIS RIGHTS, SUCH EXERCISE MAY NOT BE
REVOKED. RIGHTS NOT EXERCISED PRIOR TO THE EXPIRATION DATE WILL EXPIRE.

PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS

If you hold record title to Rights through the Depository Trust Company
(the "Depositary"), you may exercise your Subscription Privilege by (i)
instructing the Depositary to transfer Rights from your account with the
Depositary to the Rights Agent's account with the Depositary, together with
certification as to the aggregate number of Rights you wish to exercise and the
number of Underlying Shares thereby subscribed for pursuant to the Subscription
Privilege and (ii) paying the Subscription Price for each exercised Right.

DESCRIPTION OF SERIES A PREFERRED STOCK AND COMMON STOCK

Each Right is comprised of both Common Stock and Series A Preferred Stock
of the Company. Taking the Reorganization Transactions into account, each share
of the Series A Preferred Stock will be senior to all other classes of the
Company's Preferred and Common Stock with respect to liquidation, dissolution or
winding up of the Company. Additionally, each outstanding share of Series A
Preferred Stock may be converted, at any time and from time to time, into such
number of whole shares of Common Stock as is equal to (i) the sum of $1.50 and
any accrued and unpaid dividends thereon (approximately $0.31 per share as of
March 31, 1998) through the date of conversion divided by (ii) $6.53, which is
subject to adjustment for certain events. Further, at any time until December
31, 1998, each share of Series A Preferred Stock may be

22
<PAGE> 27

exchanged for 0.4 Exchange Warrants, each of which entitles the holder to
purchase one share of Common Stock at $6.53 per share. The Exchange Warrants
expire on July 1, 1999. See "Description of Capital Stock -- Series A Preferred
Stock."

Each share of Common Stock is entitled to one vote per share on those
matters upon which it is entitled to vote. Common Stock holders have neither
cumulative voting rights nor preemptive rights. With respect to receiving
dividends and sharing in the Company's assets upon liquidation, dissolution or
winding up of the Company, the Common Stock ranks junior to all Preferred
Stocks. See "Description of Capital Stock -- Common Stock."

EFFECTS OF RIGHTS OFFERING ON OTHER SECURITIES AND STOCK OPTIONS OF THE COMPANY
AND COMPANY PLANS

Other than possible increased liquidity in our Common Stock and Series A
Preferred Stock and the potential reduction in the number of shares of Common
Stock and Series A Preferred Stock outstanding as a result of any redemptions by
the Company, this Offering will have no effect on the Company's other securities
and stock option plans.

FOREIGN AND CERTAIN OTHER STOCKHOLDERS

Rights Certificates will not be mailed to you if your address is outside
the United States or you have an APO or FPO address, but will be held by the
Rights Agent for your account. To exercise your Rights, you must notify the
Rights Agent, and must take all other steps which are necessary to exercise the
Rights on or prior to the Expiration Date. If the procedures set forth in the
preceding sentence are not followed prior to the Expiration Date, your Rights
will expire.

OTHER MATTERS

The Offering is not being made in any state or other jurisdiction in which
it is unlawful to do so, nor is DeepTech selling or accepting any offers to
purchase any Underlying Shares from Rights holders who are residents of any such
state or other jurisdiction. DeepTech may delay commencing of the Offering in
certain states or other jurisdictions, or change the Offering's terms, to comply
with the securities law requirements of such states or other jurisdictions. We
do not anticipate (and we understand that DeepTech does not anticipate) that
there will be any changes in the Offering's terms. If any such change is made
that is material and has a significant adverse effect on you, if you have
previously exercised Rights, you will be provided the opportunity to revoke such
exercise. If DeepTech determines in its sole discretion that the Offering may
not be consummated in certain states or jurisdictions, it may decline to make
modifications to the terms of the Offering requested by such states or other
jurisdictions, in which event Rights holders resident in those states or
jurisdictions will not be eligible to participate in the Offering.

For a discussion of the federal income tax consequences of the Rights
distribution and this Offering, see "Federal Income Tax Consequences."

USE OF PROCEEDS

The Company will receive no proceeds from the Offering unless DeepTech
stockholders (or TBL in the Conditional Subscription) purchase more than $75
million of Underlying Shares in this Offering. In such event, the Company will
receive any net proceeds in excess of $75 million (which will be approximately
$20.2 million at the most), which amounts will be used for general corporate
purposes. See "Business -- General -- Description of Reorganization
Transactions."

23
<PAGE> 28

PRICE RANGE OF SECURITIES AND DIVIDEND POLICY

The following table sets forth the high and low sales prices for the Common
Stock and the Series A Preferred Stock as quoted on The Nasdaq National Market
and The Nasdaq OTC Bulletin Board, respectively, for the indicated periods. In
addition, the table is adjusted for the one for ten reverse common stock split
Tatham Offshore effected on November 24, 1997.

<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK
------------- ---------------
LOW HIGH LOW HIGH
--- ---- ---- -----
<S> <C> <C> <C> <C>
Year Ended June 30, 1998
Period from January 1, 1998 through March 17,
1998.......................................... 3 4 7/8 11/16 1 3/4
Second Quarter................................... 2 1/2 5 5/8 1/2 2
First Quarter.................................... 2 13/16 6 9/16 7/8 2 3/8
Year Ended June 30, 1997
Fourth Quarter................................... 5 7 1/2 1 1/4 2 1/8
Third Quarter.................................... 5 9 3/8 1 1/4 2 1/2
Second Quarter................................... 4 3/8 9 3/8 1 2 3/4
First Quarter.................................... 7 1/2 13 3/4 1 1/2 2 7/8
Year Ended June 30, 1996
Fourth Quarter................................... 6 1/4 21 1/4 (1) (1)
Third Quarter.................................... 5 12 1/2 (1) (1)
Second Quarter................................... 8 3/4 23 3/4 (1) (1)
First Quarter.................................... 20 52 1/2 (1) (1)
</TABLE>

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

(1) The Series A Preferred Stock was issued on June 30, 1996.

As of March 17, 1998, there were approximately 160 and 8 holders of record
of our Common Stock and Series A Preferred Stock, respectively. On March 17,
1998, the closing sale price of the Common Stock and the Series A Preferred
Stock was $4.53125 and $1.50 per share, respectively.

Tatham Offshore has never declared or paid any cash dividends on the Common
Stock. The Company intends to retain any future earnings to fund growth and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. In connection with the Reorganization Transactions, the Series B Senior
Preferred Stock and all related unpaid dividends will be redeemed in full. The
outstanding Preferred Stock has priority as to dividends and liquidation over
the Common Stock, with the Series A Preferred Stock having priority over the
Series B Preferred Stock as to dividends and liquidation, which has priority
over the Series C Preferred Stock. Depending on availability of cash and the
Company's options with respect to such cash, the Company may make dividend
payments on its Preferred Stock. No dividends may be paid unless all accrued and
unpaid dividends on such Preferred Stock have been paid or declared and set
aside for payment. As of March 31, 1998, the amount of accrued and unpaid
dividends on the Series A Preferred, Series B Preferred, and Series C Preferred
Stocks was $5,551,469, $8,925, and $8,030, respectively.

24
<PAGE> 29

CAPITALIZATION

The following table sets forth the capitalization of Tatham Offshore as of
December 31, 1997, and of the Company as adjusted to reflect the Reorganization
Transactions. This table should be read in conjunction with "Use of Proceeds,"
"Selected Pro Forma and Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto listed on page F-1.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Notes payable............................................... $ -- $ 68,876
--------- ---------
Stockholders' equity:
Preferred stock (par value $0.01 per share, 110,000,000
shares authorized and 24,335,255 shares issued and
outstanding)...........................................
Senior Convertible Preferred Stock (par value of $0.01 per
share, 7,500 shares authorized and issued)(5).......... -- --
Series A Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 17,923,837 shares
issued(3))............................................. 179 179(2)
Series B Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 74,379 shares
issued)................................................ 1 1
Series C Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 1,338,162 shares
issued)................................................ 13 13
Mandatory Redeemable Preferred Stock (par value of $0.01
per share, 25,120,948 shares authorized(1) and
4,991,377 shares issued)............................... 50 50
Common stock (par value of $0.01 per share, 250,000,000
shares authorized and 29,464,532 shares issued)........ 295(2) 295(2)(4)
Additional paid in capital................................ 146,177 193,454(3)(4)
Accumulated deficit....................................... (114,948) (119,807)
--------- ---------
Total stockholder's equity........................... 31,767 74,185
--------- ---------
Total capitalization.............................. $ 31,767 $ 143,061
========= =========
</TABLE>

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

(1) The aggregate number of issued shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Mandatory Redeemable Preferred
Stock shall not exceed 25,120,948 shares at any given time. As of March 17,
1998, the number of shares outstanding was 17,623,710 shares of Series A
Preferred Stock, 74,379 shares of Series B Preferred Stock, 321,205 shares
of Series C Preferred Stock. Currently, no shares of Mandatory Redeemable
Preferred Stock are outstanding.

(2) Excludes 400,000 shares of Common Stock reserved for issuance under Tatham
Offshore's Stock Option Plan pursuant to which options covering 102,500
shares have been granted at a weighted average price of $4.51 per share and
100,000 shares of Common Stock reserved for issuance under Tatham Offshore's
Director Plan, pursuant to which options covering 34,000 shares have been
granted at a weighted average of $5.86 per share.

(3) To the extent that no more than $75 million of proceeds are received from
this Offering, the number of shares outstanding of Series A Preferred Stock
will be decreased by the number of unsubscribed shares of Series A Preferred
Stock (which will not exceed 991,017 shares).

(4) To the extent that no more than $75 million of proceeds are received from
this Offering, the number of shares outstanding of Common Stock will be
decreased by the number of unsubscribed shares of Common Stock (which will
not exceed 5,956,223 shares).

(5) In March 1998, the Company eliminated its Senior Convertible Preferred Stock
and replaced it with its Series B Senior Preferred Stock. In connection with
the Reorganization Transactions, the Company's Series B Senior Preferred
Stock and all related unpaid dividends will be redeemed in full.

25
<PAGE> 30

SELECTED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA

The unaudited pro forma consolidated financial information of the Company
is based on assumptions and adjustments described in the notes to the unaudited
pro forma consolidated financial statements located on pages F-2 through F-8 and
is not necessarily indicative of the results of operations that may be achieved
in the future. The historical financial information at and for each of the six
months ended December 31, 1997 and 1996 was derived from Tatham Offshore's
unaudited consolidated financial statements included elsewhere in this
Prospectus. Tatham Offshore believes that all material adjustments, consisting
only of normal recurring adjustments necessary for the fair presentation of
Tatham Offshore's interim results, have been included. The historical financial
information for each of the three years ended June 30, 1997, 1996 and 1995 and
at June 30, 1997 and 1996 was derived from Tatham Offshore's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The historical financial information for each of the two years ended June 30,
1994 and 1993 and at June 30, 1995, 1994 and 1993 was derived from the
historical consolidated financial statements of Tatham Offshore. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto listed on page F-1.
<TABLE>
<CAPTION>
THE COMPANY -- PRO FORMA TATHAM OFFSHORE -- HISTORICAL
-------------------------- -----------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, JUNE 30, ------------------------- -------------------
1997 1997 1997 1996 1997 1996
------------ ----------- ----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUE:
Drilling services................. $ 34,772 $19,057 $ -- $ -- $ -- $ --
Oil and gas sales................. -- -- 7,159 10,302 20,723 16,070
-------- ------- ------- ------- -------- --------
Total revenue............. 34,772 19,057 7,159 10,302 20,723 16,070
-------- ------- ------- ------- -------- --------
COSTS AND EXPENSES:
Production and operating
expenses........................ 17,409 10,840 3,099 3,427 8,465 13,203
Exploration expenses.............. -- -- 25 328 542 637
Depreciation, depletion and
amortization.................... 2,596 1,723 2,039 2,140 5,364 1,758
Impairment, abandonment and
other........................... -- -- -- -- 41,674 8,000
Management fee and general and
administrative expenses......... 2,991 4,628 2,964 2,541 4,846 6,275
-------- ------- ------- ------- -------- --------
Total operating costs..... 22,996 17,191 8,127 8,436 60,891 29,873
-------- ------- ------- ------- -------- --------
Operating income (loss)........... 11,776 1,866 (968) 1,866 (40,168) (13,803)
Gain on sale of oil and gas
properties...................... -- -- -- -- -- 22,641
Interest income................... 388 1,486 178 246 571 113
Interest and other financing
costs........................... (5,164) (702) (1,720) (4,238) (8,374) (8,161)
-------- ------- ------- ------- -------- --------
Net income (loss)................. 7,000 2,650 (2,510) (2,126) (47,971) 790
Preferred stock dividends......... (1,627) (3,245) (1,965) (1,974) (3,920) (281)
-------- ------- ------- ------- -------- --------
Net income (loss) available to
common shareholders............. $ 5,373 $ (595) $(4,475) $(4,100) $(51,891) $ 509
======== ======= ======= ======= ======== ========
Basic net income (loss) per common
share........................... $ 1.09 $ (0.22) $ (0.91) $ (1.56) $ (19.47) $ 0.20
======== ======= ======= ======= ======== ========
Diluted net income (loss) per
common share.................... $ 0.54 $ (0.22) $ (0.91) $ (1.56) $ (19.47) $ 0.09
======== ======= ======= ======= ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Semisubmersible drilling rigs,
net............................. $126,451 (a) $ -- (a) $ -- $ --
Oil and gas properties, net....... -- (a) 28,540 (a) 30,752 64,900
Total assets...................... 147,108 (a) 41,501 (a) 42,485 97,130
Notes payable..................... 68,876 (a) -- (a) -- 1,734
Long term debt.................... -- (a) -- (a) 60,000 60,000
Convertible redeemable preferred
stock........................... -- (a) -- (a) -- --
Stockholders' equity (deficit).... 74,185 (a) 31,767 (a) (27,696) 18,862

<CAPTION>
TATHAM OFFSHORE -- HISTORICAL
-----------------------------

YEAR ENDED JUNE 30,
-----------------------------
1995 1994 1993
-------- ------- --------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUE:
Drilling services................. $ -- $ -- $ --
Oil and gas sales................. 8,054 12,146 268
-------- ------- --------
Total revenue............. 8,054 12,146 268
-------- ------- --------
COSTS AND EXPENSES:
Production and operating
expenses........................ 13,745 8,509 341
Exploration expenses.............. 11,459 3,067 1,104
Depreciation, depletion and
amortization.................... 1,210 983 --
Impairment, abandonment and
other........................... -- -- --
Management fee and general and
administrative expenses......... 7,112 4,873 3,056
-------- ------- --------
Total operating costs..... 33,526 17,432 4,501
-------- ------- --------
Operating income (loss)........... (25,472) (5,286) (4,233)
Gain on sale of oil and gas
properties...................... 1,496 -- --
Interest income................... 836 431 3
Interest and other financing
costs........................... (11,631) (3,935) (2,094)
-------- ------- --------
Net income (loss)................. (34,771) (8,790) (6,324)
Preferred stock dividends......... -- (1,135) (120)
-------- ------- --------
Net income (loss) available to
common shareholders............. $(34,771) $(9,925) $ (6,444)
======== ======= ========
Basic net income (loss) per common
share........................... $ (13.91) $ (4.50) $ (3.20)
======== ======= ========
Diluted net income (loss) per
common share.................... $ (13.91) $ (4.50) $ (3.20)
======== ======= ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Semisubmersible drilling rigs,
net............................. $ -- $ -- $ --
Oil and gas properties, net....... 70,829 46,453 7,910
Total assets...................... 94,720 99,291 8,274
Notes payable..................... 10,468 11,428 --
Long term debt.................... 60,000 60,000 21,469
Convertible redeemable preferred
stock........................... -- -- 3,600
Stockholders' equity (deficit).... (20,020) 14,751 (19,465)
</TABLE>

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

(a) Information has not been included as it is not required.

26
<PAGE> 31

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

The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto listed on page F-1 and
the information set forth under the heading "Selected Pro Forma and Historical
Consolidated Financial Data." This discussion is intended to assist in the
understanding of the Company's financial position and results of operations for
the pro forma six months ended December 31, 1997 and for the pro forma year
ended June 30, 1997 and for Tatham Offshore's financial position and results of
operations for each of the historical six months ended December 31, 1997 and
1996 and for each of the historical years ended June 30, 1997, 1996 and 1995.

RESULTS OF OPERATIONS -- PRO FORMA

Pro Forma Six Months Ended December 31, 1997

Drilling services totaled $34.8 million for the pro forma six months ended
December 31, 1997 and represented revenue from contract drilling services
provided by the Rigs. Operating expenses, including fees payable to Sedco Forex,
and depreciation totaled $17.4 million and $2.6 million, respectively, for the
pro forma six months ended December 31, 1997. The Pincay was under contract for
the entire six month period, and the Shoemaker was under contract from August
1997 (in service date) through December 1997.

General and administrative expenses for the pro forma six months ended
December 31, 1997 totaled $3.0 million and reflects salaries, rent, professional
fees and other administrative costs. Interest income for the pro forma six
months ended December 31, 1997 totaled $0.4 million and included interest income
from available cash. Interest and other financing costs for the pro forma six
months ended December 31, 1997 totaled $5.2 million and included interest and
amortization of debt issue costs related to the Credit Facility, net of $0.3
million of interest costs capitalized related to capital improvements made to
the Shoemaker.

After taking into account $1.6 million of Preferred Stock dividends in
arrears, pro forma net income available to common shareholders for the six
months ended December 31, 1997 totaled $5.4 million, or $1.09 per share. Due to
significant net operating tax loss carryforwards and anticipated losses for
federal income tax purposes, a pro forma provision for federal income taxes was
not recorded.

Pro Forma Year Ended June 30, 1997

Drilling services totaled $19.1 million for the pro forma year ended June
30, 1997 and represented revenue from contract drilling services provided by the
Pincay. Operating expenses, including fees payable to Sedco Forex, and
depreciation totaled $10.8 million and $1.7 million, respectively, for the pro
forma year ended June 30, 1997. Because the Shoemaker was not yet in service,
all such expenses related to the Pincay.

General and administrative expenses for the pro forma year ended June 30,
1997 totaled $4.6 million and reflect salaries, rent, professional fees and
other administrative costs. Interest income for the pro forma year ended June
30, 1997 totaled $1.5 million and included interest income from available cash.
Interest and other financing costs for the pro forma year ended June 30, 1997
totaled $0.7 million and included interest and amortization of debt issue costs
related to DeepFlex's credit facility, net of $6.6 million of interest costs
capitalized related to capital improvements made to the Shoemaker.

After taking into account $3.2 million of Preferred Stock dividends in
arrears, pro forma net loss available to common stockholders for the year ended
June 30, 1997 totaled $0.6 million, or $0.22 per share. Due to significant net
operating tax loss carryforwards and anticipated losses for federal income tax
purposes, a pro forma provision for federal income taxes was not recorded.

LIQUIDITY AND CAPITAL RESOURCES -- PRO FORMA

Sources of Cash. As a holding company whose material assets will consist
primarily of stock of and notes receivable from its subsidiaries, the Company
expects to be dependent upon cash on hand and cash generated from its drilling
services operations to pay its operating expenses, service its debt and satisfy
its other

27
<PAGE> 32

obligations. However, as described below, the Company will need to raise
substantial capital (equity, debt or both) or enter into other arrangements to
allow the Company to generate operating cash flow to fund on-going activities
and operations.

During the pro forma six months ended December 31, 1997, drilling services
operations of the Company generated $16.0 million of net operating cash flow,
all of which was used to pay interest and principal due under DeepFlex's
third-party credit facility. Substantially all of the net operating cash flows
are expected to be used to service obligations under this credit facility. In
particular, under DeepFlex's credit facility, after payments allowed with
respect to overhead, permitted capital expenditures and certain other matters,
the Company is required to use all excess cash flow to retire the principal
amount outstanding under the credit facility.

Uses of Cash. The Company expects that its primary uses of cash will
consist of (i) scheduled principal payments on the credit facility discussed
above equal to excess cash flow as defined in the credit agreement plus a
minimum principal amortization of $250,000 per quarter and scheduled interest
payments on the remaining principal balance, (ii) amounts necessary to fund
capital expenditures related to the Rigs, including the maintenance and upgrades
currently being performed on the Pincay and (iii) amounts necessary to pay
general and administrative and other operational expenses. In addition, the
Company will use cash on hand to fund its business strategy in Atlantic Canada.
Such uses will include funding the North Atlantic Partners pipeline project, the
Planned Rig, the remainder of the Company's Atlantic Canada strategy and any of
the Company's other potential capital expenditures. North Atlantic Partners is
the sponsor of a proposal to construct a natural gas pipeline from offshore
Newfoundland and Nova Scotia to Seabrook, New Hampshire. As of March 17, 1997,
Tatham Offshore Canada Limited, the Canadian representative of North Atlantic
Partners, has incurred $10.2 million of pre-developmental costs in connection
with such project. The Company anticipates that pre-developmental costs
associated with the North Atlantic Partners pipeline project could ultimately
reach approximately $12.0 million by the summer of 1998 and the ultimate capital
costs of the project, if approved, would be in excess of several billion
dollars. See "Business -- Business Strategy."

Liquidity Outlook. The Company intends to fund its immediate cash
requirements with cash on hand and cash from its drilling services operations.
The Company is currently negotiating with its lenders to refinance its
third-party credit facility. Proceeds from the refinancing would be used: (i) to
complete the current maintenance and upgrades being performed on the Pincay,
(ii) to repay existing debt, (iii) to continue paying predevelopment costs
associated with pursuing the Company's strategy in Atlantic Canada and (iv) for
general corporate purposes.

The ability of the Company to satisfy its future capital needs with respect
to its planned Atlantic Canada strategy, particularly its ability to obtain
regulatory approval and financing for the North Atlantic Partners pipeline
project, will depend upon its ability to raise substantial amounts of additional
capital and to implement its business strategy successfully. With respect to the
Company's strategy described under "Business -- Business Strategy", (i) the
Company does not currently possess the capital necessary to implement its
business strategy completely and there can be no assurances that the Company
will be able to obtain sufficient capital for any or all of the projects, (ii)
there can be no assurances that these projects and other opportunities will
prove to be economical or that they will occur, and (iii) many of these projects
will require governmental approvals, almost all of which the Company has yet to
receive. Moreover, if there are developments that the Company determines to be
indicative of a lack of reasonable opportunity to realize benefits for the
Company's stockholders, then the Company will pursue other opportunities,
wherever located, as the Company determines to be in the Company's best
interests.

RESULTS OF OPERATIONS -- HISTORICAL

The following discussion is included in this Prospectus due to the
requirements of the Securities Act. With the exception of the North Atlantic
Partners pipeline project, all of the historical business and operations of
Tatham Offshore will be transferred to DeepTech and the Partnership who will
also assume all future liability related to these assets and operations as part
of the Reorganization Transaction. Such information,

28
<PAGE> 33

although important for an understanding of Tatham Offshore's historical
financial results and business, is of little relevance to the Company's business
and operations on a going forward basis. See "Business -- Prospective Business"
and "Business -- General -- Description of Reorganization Transactions."

Six Months Ended December 31, 1997 Compared With Six Months Ended December 31,
1996

Revenue from oil and gas sales totaled $7.2 million for the six months
ended December 31, 1997 as compared with $10.3 million for the six months ended
December 31, 1996. During the six months ended December 31, 1997, Tatham
Offshore sold 2,723 MMcf of gas and 13,019 barrels of oil at average prices of
$2.55 per Mcf and $17.40 per barrel, respectively. During the same period in
1996, Tatham Offshore sold 3,279 MMcf of gas and 108,000 barrels of oil at
average prices of $2.38 per Mcf and $23.05 per barrel, respectively. The
decrease in oil and gas sales was primarily a result of the cessation of oil and
gas production from Tatham Offshore's Ewing Bank 914 #2 well which was shut-in
in May 1997, lower oil prices and decreased gas production from Tatham
Offshore's Viosca Knoll Block 817 lease, slightly offset by higher gas prices.

Production and operating expenses for the six months ended December 31,
1997 totaled $3.1 million as compared with $3.4 million for the same period in
1996. The decrease of $0.3 million was primarily comprised of a decrease of $1.3
million in the cost of transportation services and production, operating and
workover expenses offset by an increase of $1.0 million related to a production
payment equal to 25% of the net operating cash flow from Tatham Offshore's
working interest in Viosca Knoll Block 817.

Exploration expenses for the six months ended December 31, 1997 totaled
$25,000 as compared with $0.3 million for the six months ended December 31,
1996. Exploration expenses primarily included delay rentals and minimum
royalties.

Depreciation, depletion and amortization totaled $2.0 million for the six
months ended December 31, 1997 as compared with $2.1 million for the six months
ended December 31, 1996. The decrease was primarily a result of a $0.8 million
net reduction in abandonment expense as a result of Tatham Offshore assigning
its working interest in Ship Shoal Block 331 to a third party for the assumption
of the abandonment obligations offset by additional depletion at Viosca Knoll
Block 817 and West Delta Block 35 of $0.5 million and abandonment accruals
related to Viosca Knoll Blocks 817 and 818 of $0.2 million.

General and administrative expenses, including the management fee allocated
from DeepTech, for the six months ended December 31, 1997 totaled $3.0 million
as compared with $2.5 million for the same period in 1996. The increase
reflected an increase in staff and overhead expenses allocated to Tatham
Offshore under the First Restated Management Agreement, dated November 10, 1993,
between Tatham Offshore and DeepTech (the "Management Agreement"), as amended,
of $0.6 million offset by a decrease in direct general and administrative
expenses of $0.1 million. Tatham Offshore amended its Management Agreement
effective July 1, 1997 to provide for a 26% overhead allocation as compared to a
24% overhead allocation during the six months ended December 31, 1996.

Operating loss for the six months ended December 31, 1997 was $1.0 million
as compared with operating income of $1.9 million for the six months ended
December 31, 1996. The change was due to the items discussed above.

Interest income totaled $0.2 million for the six months ended December 31,
1997 and 1996 and included interest income from available cash.

Interest expense for the six months ended December 31, 1997 totaled $1.7
million as compared with $4.2 million for the six months ended December 31, 1996
and primarily related to interest under the $60 million principal amount of
Subordinated Convertible Promissory Notes (the "Subordinated Notes") held by
DeepTech, which were converted into shares of Common Stock in December 1997.

After taking into account $2.0 million of Preferred Stock dividends in
arrears, Tatham Offshore's net loss available to common stockholders for the six
months ended December 31, 1997 was $4.5 million, or $0.91 per share, as compared
with net loss available to common stockholders for the six months ended December
31,

29
<PAGE> 34

1996 of $4.1 million, or $1.56 per share, after taking into account $2.0 million
of Preferred Stock dividends in arrears. The weighted average shares outstanding
for the purposes of calculating loss per share for the six months ended December
31, 1997 and 1996 were 4,934,170 shares and 2,622,472 shares, respectively.

Year Ended June 30, 1997 Compared With Year Ended June 30, 1996

Revenue from oil and gas sales totaled $20.7 million for the year ended
June 30, 1997 as compared with $16.1 million for the year ended June 30, 1996.
During the year ended June 30, 1997, Tatham Offshore sold 7,180 MMcf of gas and
170,000 barrels of oil and condensate at average prices of $2.36 per Mcf and
$22.35 per barrel, respectively. During the year ended June 30, 1996, Tatham
Offshore sold 3,274 MMcf of gas and 418,000 barrels of oil and condensate at
average prices of $2.51 per Mcf and $18.83 per barrel, respectively. The
increase was primarily due to increased production from the Viosca Knoll Block
817 project and higher oil prices partially offset by lower oil and gas
production from the Ewing Bank 914 #2 well and lower gas prices.

Production and operating expenses for the year ended June 30, 1997 totaled
$8.5 million as compared with $13.2 million for the year ended June 30, 1996.
The decrease of $4.7 million was comprised of (i) a decrease of $4.0 million in
the cost of transportation services primarily related to lower oil production
and the restructuring of certain transportation agreements with the Partnership,
(ii) a decrease of $2.0 million in workover and repair expenses, (iii) a
decrease of $0.2 million in operating costs primarily related to the Viosca
Knoll Block 817 project and (iv) an increase of $1.5 million related to a
production payment equal to 25% of the net operating cash flow from Tatham
Offshore's working interest in the Viosca Knoll Block 817 property. During the
year ended June 30, 1996, Tatham Offshore incurred $2.3 million of workover and
repair expenses related to the Ewing Bank 914 #2 well.

Exploration expenses for the year ended June 30, 1997 totaled $0.5 million
as compared with $0.6 million for the year ended June 30, 1996. Exploration
expenses for both periods included delay rentals, minimum royalties and costs
incurred under an amended technology services agreement with an affiliate of
DeepTech.

Depreciation, depletion and amortization totaled $5.4 million for the year
ended June 30, 1997 as compared with $1.8 million for the year ended June 30,
1996. The increase was primarily attributable to the initiation of production
from the first well at Viosca Knoll Block 817 in December 1995 and from an
additional seven wells during calendar 1996.

Impairment, abandonment and other for the year ended June 30, 1997 totaled
$41.7 million as compared with $8.0 million for the year ended June 30, 1996.
Impairment, abandonment and other for the year ended June 30, 1997 consisted of
a charge to reserve Tatham Offshore's investment in its Ewing Bank 914 #2 well,
certain adjacent leases and Ship Shoal Block 331 property, to accrue Tatham
Offshore's abandonment obligations associated with the Ewing Bank 914 #2 and 915
#4 wells and the Ship Shoal Block 331 property and to expense Tatham Offshore's
net prepaid demand charges related to obligations under certain transportation
agreements. See "Note 3" to Tatham Offshore's audited consolidated financial
statements located elsewhere in this Prospectus. In connection with Tatham
Offshore's assessment of its Ship Shoal Block 331 property and its decision to
seek a sale of all or a portion of such property, or a joint venture partner,
Tatham Offshore reduced its investment in its Ship Shoal Block 331 property by
$8.0 million during the year ended June 30, 1996.

General and administrative expenses, including the management fee allocated
from DeepTech, for the year ended June 30, 1997 totaled $4.8 million as compared
with $6.3 million for the year ended June 30, 1996. The decrease of $1.5 million
reflected a decrease in direct general and administrative expenses of $0.3
million and a decrease in staff and overhead expenses allocated to Tatham
Offshore under its Management Agreement of $1.2 million. As a result of
DeepTech's reduction of services provided to Tatham Offshore, Tatham Offshore
amended its Management Agreement effective July 1, 1996 to provide for a 24%
overhead allocation as compared to an effective 31.6% overhead allocation during
the year ended June 30, 1996.

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Operating loss for the year ended June 30, 1997 totaled $40.2 million as
compared with an operating loss of $13.8 million for the year ended June 30,
1996. The change in operating loss was due to the items discussed above.

During the year ended June 30, 1996, Tatham Offshore recognized a $22.6
million gain related to the sale of its working interest in certain properties
to the Partnership as a result of Tatham Offshore waiving its options to prepay
the then-existing payout amount and receive a reassignment of its working
interests.

Interest expense, net of interest income, for the year ended June 30, 1997
totaled $7.8 million as compared with $8.0 million for the year ended June 30,
1996. For the years ended June 30, 1997 and 1996, interest expense of $7.1
million was attributable to interest payable to DeepTech under the Subordinated
Notes.

After considering $3.9 million in Preferred Stock Dividends in arrears,
Tatham Offshore's net loss available to common stockholders for the year ended
June 30, 1997 was $51.9 million, or $19.47 per share, as compared with net
income available to common stockholders for the year ended June 30, 1996 of $0.5
million, or $0.20 per share, after considering $0.3 million in Preferred Stock
dividends in arrears.

Year Ended June 30, 1996 Compared With Year Ended June 30, 1995

Revenue from oil and gas sales totaled $16.1 million for the year ended
June 30, 1996 as compared with $8.1 million for the year ended June 30, 1995.
During the year ended June 30, 1996, Tatham Offshore sold 3,274 MMcf of gas and
418,000 barrels of oil at average prices of $2.51 per Mcf and $18.83 per barrel,
respectively. During the same period in 1995, Tatham Offshore sold 1,505 MMcf of
gas and 333,000 barrels of oil at average prices of $1.67 per Mcf and $16.67 per
barrel, respectively. The increase was due primarily to increased production
from the Ewing Bank 914 #2 well, the initiation of production at the Viosca
Knoll Block 817 project in December 1995 and higher oil and gas prices. During
the year ended June 30, 1995, the Ewing Bank 914 #2 well was shut-in for
approximately four months to allow Tatham Offshore to replace the flow lines
from the subsea wellhead to a fixed platform. During the year ended June 30,
1996, the Ewing Bank 914 #2 well was shut-in approximately six weeks during
which Tatham Offshore completed repair operations on the flow lines.

Production and operating expenses for the year ended June 30, 1996 totaled
$13.2 million as compared with $13.7 million for the same period in 1995. The
decrease of $0.5 million was comprised of (i) a decrease of $1.5 million in
transportation services primarily related to the restructuring of certain
transportation agreements with the Partnership, (ii) a decrease in workover
expenses of $0.8 million and (iii) a net decrease in operating costs related to
Ewing Bank, West Delta, West Cameron and Ship Shoal properties of $1.8 million
offset by $2.3 million of costs associated with the repair of the flow lines
that connect the Ewing Bank 914 #2 well to a fixed platform and $1.3 million of
operating costs associated with the Viosca Knoll Block 817 project.

Exploration expenses for the year ended June 30, 1996 totaled $0.6 million
as compared with $11.5 million for the year ended June 30, 1995. During the year
ended June 30, 1995, Tatham Offshore expensed drilling costs of $10.6 million
associated with the Ewing Bank 915 #4 and Viosca Knoll Block 818 #1 wells.
Exploration expenses for both periods included delay rentals, minimum royalties
and costs incurred under an amended technology services agreement with an
affiliate of DeepTech.

Depreciation, depletion and amortization for the year ended June 30, 1996
totaled $1.8 million as compared with $1.2 million for the year ended June 30,
1995. Depreciation, depletion and amortization for the year ended June 30, 1996
reflected costs associated with the West Delta Block 35 and Viosca Knoll Block
817 projects and the Ewing Bank 914 #2 well whereas depreciation, depletion and
amortization for the year ended June 30,1995 reflected costs associated with the
West Delta Block 35 and Ship Shoal Block 331 projects and the Ewing Bank 914 #2
well.

In connection with Tatham Offshore's assessment of its Ship Shoal Block 331
property and its decision to seek a sale of all or a portion of such property,
or a joint venture partner, Tatham Offshore reduced its

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investment in its Ship Shoal Block 331 property by $8.0 million during the year
ended June 30, 1996 which is included in impairment, abandonment and other.

General and administrative expenses, including the management fee and
general and administrative expenses allocated from DeepTech, for the year ended
June 30, 1996 totaled $6.3 million as compared with $7.1 million for the same
period in 1995. The decrease of $0.8 million reflected a $0.5 million decrease
related to Tatham Offshore reducing the amount of managerial and administrative
services provided by DeepTech pursuant to the Management Agreement and a $0.3
million decrease in direct general and administrative expenses incurred by
Tatham Offshore. As a result of DeepTech's reduction of services provided to
Tatham Offshore, Tatham Offshore amended its Management Agreement effective
November 1, 1995 to provide for an effective 31.6% overhead allocation during
the year ended June 30, 1996 as compared to a 40% overhead allocation during the
year ended June 30, 1995.

The operating loss for the year ended June 30, 1996 was $13.8 million as
compared with $25.5 million for the year ended June 30, 1995. The change in
operating loss was due to the items discussed above.

During the year ended June 30, 1996, Tatham Offshore recognized a $22.6
million gain related to the sale of certain properties to the Partnership as a
result of Tatham Offshore waiving its options to prepay the then-existing payout
amount and receive a reassignment of its working interests. During the year
ended June 30, 1995, Tatham Offshore recognized a $1.5 million gain primarily
related to a farmout agreement on its Viosca Knoll project.

Interest expense, net of interest income, for the year ended June 30, 1996
totaled $8.0 million as compared with $10.8 million for the year ended June 30,
1995. For the years ended June 30, 1996 and 1995, interest expense of $7.1
million was attributable to interest payable to DeepTech under the Subordinated
Notes.

After considering $0.3 million of Preferred Stock dividends in arrears,
Tatham Offshore's net income available to common stockholders for the year ended
June 30, 1996 was $0.5 million, or $0.20 per share, as compared with a net loss
available to common stockholders for the year ended June 30, 1995 of $34.8
million, or $13.91 per share.

LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL

Sources of Cash. Tatham Offshore satisfied its immediate capital
requirements and other working capital needs primarily from cash on hand and
cash generated from operations. At December 31, 1997, Tatham Offshore had $2.9
million of cash and cash equivalents. However, as described below, Tatham
Offshore would need to raise substantial capital (equity, debt or both) or enter
into other arrangements (such as drilling and development commitments) to
develop its current inventory of properties and prospects to allow Tatham
Offshore to generate operating cash flow to fund ongoing activities and
operations.

Cash from continuing operations was derived primarily from production from
Tatham Offshore's working interest in Viosca Knoll Block 817. Tatham Offshore's
current 25% working interest in the Viosca Knoll Block 817 is subject to a
production payment equal to 25% of the net operating cash flow from such working
interest. For the six months ended December 31, 1997, Tatham Offshore's net
revenue from this property was reduced by $1.0 million of production payment
obligations.

Tatham Offshore also has producing wells at its West Delta Block 35 which
contribute to cash from operations. Tatham Offshore owns a 38% working interest
in West Delta Block 35.

In February 1998, DeepFlex exchanged its 1,016,957 shares of Series C
Preferred Stock for 406,783 Exchange Warrants and immediately converted the
Exchange Warrants into 406,783 shares of Common Stock at $6.53 per share for a
total of $2.7 million in proceeds to Tatham Offshore. Tatham Offshore used $2.5
million of proceeds to redeem all of the 4,991,377 shares of Mandatory
Redeemable Preferred Stock outstanding at $0.50 per share as required under the
terms of the Mandatory Redeemable Preferred Stock issue.

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Tatham Offshore anticipates that declining revenue from currently producing
properties would need to be replaced by revenue from other sources.

Uses of Cash. Tatham Offshore's primary uses of cash consisted of (i)
expenses associated with operating its producing properties, including its
leasehold abandonment liabilities, (ii) capital expenditures necessary to fund
its portion of the development costs attributable to its working interests,
(iii) platform access fees and processing and commodity charges payable to the
Partnership, (iv) payments due under the management agreement with DeepTech and
(v) expenditures related to the North Atlantic Partners pipeline project.

Tatham Offshore is obligated to pay to the Partnership commodity charges,
based on the volume of oil and gas transported or processed, under certain
transportation agreements. Tatham Offshore is also obligated to pay to the
Partnership $1.6 million in platform access fees annually relative to its 25%
working interest in its Viosca Knoll Block 817.

The Management Agreement provides for an annual management fee which is
intended to reimburse DeepTech for the estimated costs of its operational,
financial, accounting and administrative services provided to Tatham Offshore.
Effective July 1, 1997, the Management Agreement was amended to provide for an
annual management fee of 26% of DeepTech's overhead expenses. For the six months
ended December 31, 1997, DeepTech charged Tatham Offshore $2.1 million in
management fees pursuant to this agreement.

North Atlantic Partners is the sponsor of a proposal to construct a natural
gas pipeline from offshore Newfoundland and Nova Scotia to Seabrook, New
Hampshire. As of December 31, 1997, Tatham Offshore Canada Limited, the Canadian
representative of North Atlantic Partners, has incurred $9.0 million of pre-
developmental costs in connection with such project. Tatham Offshore anticipates
that pre-developmental costs associated with the North Atlantic Partners
pipeline project could ultimately reach approximately $12.0 million by the
summer of 1998 and the ultimate capital costs of the project, if approved, could
reach several billion dollars.

Liquidity Outlook. In order to improve liquidity and partially address its
capital requirements, Tatham Offshore entered into an option agreement to
restructure the Subordinated Notes held by DeepTech whereby DeepTech converted
the Subordinated Notes into 26,666,667 shares of Common Stock at a conversion
rate of $2.25 per share, the average of the closing price for the ten trading
days immediately preceding the exercise of the option. As a result of the
conversion of the Subordinated Notes, Tatham Offshore eliminated all of its
outstanding debt.

Tatham Offshore currently intends to fund its immediate cash requirements
with cash on hand and cash from continuing operations. Tatham Offshore generated
approximately $1.1 million in positive operating cash flow for the six months
ended December 31, 1997.

The ability of Tatham Offshore to satisfy its future capital needs will
depend upon its ability to raise additional capital and to implement its
business strategy successfully, particularly its ability to obtain regulatory
approval and financing for the North Atlantic Partners pipeline project. There
can be no assurance, however, that Tatham Offshore will be able to obtain
regulatory approval, joint venture partners or adequate financing for these
projects.

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BUSINESS

SUMMARY

BUSINESS STRATEGY

As its principal focus, the Company intends to pursue an integrated
investment strategy in Atlantic Canada by levering initially on the cash flow
from, and utilization of, the Rigs. The Company believes that the Atlantic
Canada region offers significant investment opportunities. The Company's plans
include expanding its drilling rig fleet's cold weather, hostile environment
capabilities as well as diversifying its business to include substantial natural
gas gathering and transmission facilities, related gas processing facilities, a
facility for the generation of electricity and other related investments. In
Atlantic Canada, as with any frontier region, there will be substantial risks
associated with investments in such projects. Further, if recent declines in the
price of crude oil are sustained for some period, the pace of development within
the area could be affected and materially extend the time frame for the projects
discussed herein to commence or become operational. However, the Company
believes that by using an integrated investment approach related to the
development of the region's hydrocarbon reserves, the potential for investment
returns is maximized. The Company is contemplating pursuing the development of
the projects described below. Each of these projects is in a preliminary,
conceptual phase. In addition, (i) the Company does not currently possess the
capital necessary to implement its business strategy completely and there can be
no assurances that the Company will be able to obtain sufficient capital for any
or all of the projects, (ii) there can be no assurances that these projects and
other opportunities will prove to be economic or that they will occur, and (iii)
many of these projects will require governmental approvals, almost all of which
the Company has yet to receive. Moreover, if there are developments that the
Company determines to be indicative of a lack of reasonable opportunity to
realize benefits for the Company's stockholders, then the Company will pursue
other opportunities, wherever located.

Special Multipurpose, New Build Semisubmersible. As part of its strategy to
enhance the number, size and capability of its available rigs, the Company has a
nonbinding Memorandum of Understanding with Friede-Goldman Inc. regarding the
construction of a fifth-generation, state-of-the-art drilling rig (the "Planned
Rig"). The Planned Rig, which is still in the design phase and estimated to cost
approximately $300 million, would be Canadian built and flagged and would be
able to drill throughout the region to depths of 25,000 feet in water depths to
5,000 feet. The Planned Rig's characteristics would make it suitable for use to
develop any known proven or potential oil and gas reserves in Atlantic Canada.
In addition, the Planned Rig would have heavy lift capability, enabling it to
install subsea transmission, gathering and production systems, and provide
repair and maintenance capability for such systems as well as allowing it to
repair and maintain the pipeline system proposed by North Atlantic Pipeline
Partners, L.P. ("North Atlantic Partners"). The Planned Rig's high (5,500 short
tons) deckload capacity will enable it to inventory drilling equipment and other
stores to better facilitate uninterrupted drilling operations. These additional
capabilities should expand the market for the Planned Rig and enhance its
competitiveness compared to lesser equipped rigs.

In connection with the construction of the Planned Rig, the Company has
initiated negotiations with Sedco Forex, which manages and operates the Rigs,
regarding a joint venture involving the Rigs and the Planned Rig in the Atlantic
Canada area. Discussions regarding the feasibility of this joint venture, the
operating area, and the contributions by each of the parties to the joint
venture are currently on-going. Regardless of whether the joint venture is
formed, however, the Company plans to construct the Planned Rig

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since it believes that the demand for the Planned Rig will be significant due to
its design characteristics. Demand for the Planned Rig could be adversely
impacted, however, by an extended period of depressed crude oil prices, as is
currently the case in North America and worldwide. If these events were
determined to render the Planned Rig uneconomic, the Company would reconsider
whether to commence construction of the Planned Rig until conditions improved.
In addition, the Company currently does not have the financial resources to
construct the Planned Rig. No assurances can be given that the Company will be
able to raise the necessary capital at satisfactory rates to fund such
construction.

Pipeline Activities. During 1997, Tatham Offshore Canada Limited, a
wholly-owned subsidiary of the Company, was formed to pursue business
opportunities in the Atlantic Canada region. In addition, the Company has caused
to be formed two limited partnerships, one in Canada and one in the United
States and both known collectively as North Atlantic Partners to construct and
operate an offshore natural gas pipeline from the Grand Banks area offshore
Newfoundland to the east coast of the United States with land falls in both
Newfoundland and Nova Scotia. The General Partner of North Atlantic Partners
(Canada) has filed an application with Canada's National Energy Board, and North
Atlantic Partners (U.S.) has filed an application with the Federal Energy
Regulatory Commission in the United States for authority to build a three-phase,
1,500 mile natural gas pipeline that would serve the growing hydrocarbon
industry offshore Atlantic Canada.

Because another pipeline has been given regulatory authority and is planned
to begin construction this year, North Atlantic Partners is also assessing
redesigning and downsizing the first phase of the pipeline so as to reduce the
capital cost of that phase of the pipeline to approximately $600 million. As
redesigned, the initial phase of the pipeline project would be approximately 375
miles long and would originate in the Jeanne D'Arc Basin of the Grand Banks area
and extend to a point near Argentia, Newfoundland.

Gas Processing Facility. The natural gas that will be produced in the Grand
Banks area and potentially be transported through the North Atlantic Partners
pipeline system is expected to contain significant quantities of natural gas
liquids ("NGLs"), such as ethane, propane, butanes and natural gasoline. These
NGLs can be recovered from the natural gas stream through processing. The
Company is investigating the possibility of developing a gas processing plant in
the Argentia area to use the natural gas from the Grand Banks area. The Company
estimates that a processing plant to process the natural gas would cost
approximately $110 million and would be able to initially process up to 400 MMcf
of gas per day, with the ability to be upgraded to process additional natural
gas at a cost of approximately $75 million for each additional 400 MMcf per day.
In addition, the Company is evaluating opportunities to maximize economic value
from potential processing operations with petrochemical producers and with other
potential users of NGLs. The successful development of any such processing
project would be dependent on the construction of the pipeline system proposed
by the North Atlantic Partners. The Company currently does not possess the
capital necessary to construct a gas processing plant and there can be no
assurances that the Company will be able to raise sufficient capital resources
at attractive rates to construct such a facility.

Power Generation Facility. To develop a market for the Grand Banks area
natural gas, in addition to a gas processing plant, the Company has examined the
feasibility of building a gas fired power generating plant in the Argentia area
to cost approximately $600 million for 1100 megawatts of combined cycle power
generation. Electrical generation in Newfoundland is currently not gas fired,
relying instead in large part, on less efficient, transported fuel oil. The
successful development of any such power generation project would be dependent
on the construction of the pipeline system and gas processing facility discussed
above.

Hydrocarbon Marketing Company. As part of its activities in the region, the
Company has formed North Atlantic Hydrocarbons Marketing, Inc. ("North Atlantic
Marketing") to buy natural gas and NGLs contained in the natural gas stream in
the production. North Atlantic Marketing would assume the marketing risk related
to the natural gas stream, purchasing the natural gas and entrained liquids from
producers and
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finding a market for those hydrocarbons. North Atlantic Marketing is in the
process of finalizing a proposal to purchase the associated gas reserves
produced from the Hibernia Field and plans to submit additional gas purchase
proposals to the owners of the Terra Nova and White Rose development projects.
As currently contemplated, the proposal would provide for approximately $30
million of U.S. letters of credit or advanced payments or contribution.

Other Opportunities. Among other potential businesses the Company may
enter, the Company is currently evaluating the feasibility of (i) an industrial
gas distribution system, (ii) an ice management system designed to manage and
reduce the risk of potential damage to its proposed offshore pipelines and
subsea facilities owned by other parties, operated through the Company's
Subsidiary, Berg Masters Limited, (iii) a large diameter steel pipe rolling
mill, (iv) methanol production, and (v) other opportunities related to or
located in Atlantic Canada. There can be no assurances that such opportunities
will prove economical, be financable or will occur.

THE PROSPECTIVE BUSINESS

Due to the requirements of the Securities Act, the Company is required to
disclose information with respect to its historical business despite the fact
that, other than the North Atlantic Partners pipeline project, all of the
Company's historical business and operations will be transferred to DeepTech and
the Partnership as part of the Reorganization Transactions. Accordingly, the
ensuing "Business" discussion in this Prospectus is divided into three major
sections: "-- Prospective Business, "-- Historical Business" and "-- General."
The discussion under "-- Prospective Business" is focused on DeepFlex's offshore
drilling business while the discussion under "-- Historical Business" addresses
Tatham Offshore's historical oil and gas exploration and production business.
The discussion under "-- General" concerns the Reorganization Transactions and
ongoing issues affecting the Company. See "-- Prospective Business,"
"-- Historical Business," "-- General," and "-- General -- Description of
Reorganization Transactions."

GENERAL

After the closing of the Reorganization Transactions, the Company will
conduct its offshore contract drilling service business through DeepFlex.
DeepFlex is engaged in the contract drilling of offshore oil and gas wells in
the Gulf and offshore eastern Canada. DeepFlex owns two second generation
semisubmersible rigs, the Pincay and the Shoemaker, which pursuant to management
and charter agreements, the Sedco Forex Division of Schlumberger Technology
Corporation ("Sedco Forex") markets, manages, mans and operates.

DESCRIPTION OF THE RIGS

Semisubmersible rigs are floating platforms that consist of an upper
working and living deck resting on vertical columns connected to lower hull
members. These rigs operate in a "semisubmerged" position, remaining afloat, off
bottom in a position in which the lower hull is from about 55 to 90 feet below
the water line and the upper deck protrudes well above the surface. The Rigs are
positioned by chain mooring lines with anchors on the sea floor and remain
stable for drilling in the semi-submerged floating position due in part to their
wave transparency characteristics at the water line. The Rigs are able to change
draft through a water ballasting system that permits them to be submerged to a
predetermined depth so that a portion of the hulls are below the water surface
during drilling operations.

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drilling system, a 10,000 psi blow-out prevention system, 2,000 barrel mud pits
and eight 80,000 pound riser tensioners. This rig was built in 1976 and was
extensively refurbished, repaired, renovated and upgraded in 1997 at a cost of
approximately $56 million. The upgrades included installing a new heliport, mud
booster line, third mud pump, a third level of personnel accommodations and a
new electrical "SCR" system. In addition, the Shoemaker underwent a complete
winterization program in this upgrade, and as a result, is again able to operate
year-round in harsh environments, such as the North Sea, offshore Newfoundland
and eastern Canada, where it has operated in the past.

After completion of the upgrade and refurbishment in July 1997, the
Shoemaker was mobilized to the Grand Banks area offshore Newfoundland where it
completed drilling an exploratory well for Amoco Canada Petroleum Company Ltd.
in the West Bonne Bay Field on January 25, 1998. The Shoemaker is currently
under contract to Shell Offshore Inc. in the Gulf of Mexico. The contract with
Shell extends through January 1999 and Shell has an option to extend it for six
months subject to the Company's approval of the contract drilling rates for the
period. Sedco Forex has entered into a nonbinding letter of intent for the
mobilization of the Shoemaker to the Grand Banks area to conduct a two-well
(with three one-well options) program at predetermined rates for Husky Oil
Operations Limited upon completion of the Shell contract.

FPS Laffit Pincay. The Pincay is a second generation semisubmersible
drilling rig of Penrod/Reineke design. It can drill to depths of 25,000 feet, in
water depths of up to 1,200 feet and has a drilling variable load of
approximately 2,000 short tons, a 10,000 psi blow-out prevention system, 1,600
barrel mud pits and six 80,000 pound riser tensioners. This rig was built in
1976 and was completely refurbished, upgraded and renovated in 1996 with the
installation of a VARCO TDS-3S top-drive system and a new electrical "SCR"
system.

The Pincay is currently undergoing routine repairs and certain upgrades and
is not expected to be under contract until late April at the earliest. At such
time, the Company expects the Pincay to resume drilling activities in the Gulf
of Mexico.

Part of the Company's strategy is to increase the size and capability of
its fleet of rigs; it plans on building the fifth-generation, state-of-the-art
drilling rig described under "Business -- Business Strategy."

RIG MANAGEMENT

Sedco Forex has managed and operated the Pincay and the Shoemaker since
1995 and 1996, respectively. Under the charter agreements pursuant to which
Sedco Forex manages the Rigs, Sedco Forex is responsible for not only managing,
maintaining and operating the Rigs, but also for marketing the Rigs worldwide
and thereby increasing their utilization rates. Although Sedco Forex has the
right to negotiate drilling contracts with respect to each Rig, the Company has
the sole right to approve any drilling contracts, the working location of the
Rigs and certain other matters.

Under the charter agreements, Sedco Forex is paid a monthly fee for the
management of each Rig which is comprised of a fixed amount and a variable
amount based on performance. The total amount to be paid to Sedco Forex under
each of these agreements is dependent on the drilling rates received for the
Rigs, the costs of operating and maintaining the Rigs and the utilization rates
of the Rigs, among other things. The charter agreements for the Pincay and the
Shoemaker, which were entered into in 1995 and 1996, respectively, have
five-year terms, subject to mutual termination rights. If either or both
agreements are not renewed or extended by mutual agreement, the Company believes
that it can find, within a reasonable period of time, an alternative company to
manage and operate the Rigs for a reasonable fee.

DRILLING CONTRACTS

Most drilling contracts are structured on a dayrate, footage or turnkey
basis. They usually extend over a period covering either the drilling of a
single well, a group of wells (a "well-to-well contract") or a stated term (a
"term contract") and are terminable if the drilling unit is destroyed or lost,
drilling operations are suspended for a specified time because of a breakdown of
major equipment or other events occur which are beyond either party's control.
In many instances, the customer may extend the contract term upon exercising

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options to drill additional wells at fixed or mutually agreed upon terms. The
Company's contracts, through Sedco Forex, to provide offshore drilling services
vary in their terms and provisions. Most of the Company's drilling contracts are
obtained through competitive bids or negotiations with customers. To date, the
Company has entered only into dayrate contracts, although the Company may enter
into non-dayrate contracts in the future, depending on market conditions, profit
potential and risk exposure, among other things.

A dayrate drilling contract generally provides for a basic drilling rate
based on a fixed rate per day. Under such a contract, the customer usually bears
a major portion of out-of-pocket costs of drilling and assumes most of the risk
associated with drilling operations such as risk of blowout, loss of hole, stuck
drill stem, machinery breakdowns, abnormal drilling conditions and risks
associated with subcontractors' services, supplies and personnel. In contrast,
the risks to the contractor on non-dayrate contracts could be substantially
greater than on a dayrate drilling contract because the contractor may, and
often does, assume more of those risks associated with drilling operations
generally assumed by the operator in a dayrate contract.

The duration of offshore drilling contracts is generally determined by
market demand and the respective management strategy of the offshore drilling
contractor and its customers. During periods of rising demand for offshore rigs,
contractors typically prefer well-to-well contracts since such contracts provide
them the flexibility to profit from increasing dayrates. In contrast, during
such periods, customers with reasonably definite drilling programs typically
prefer longer-term contracts to maintain prices at the lowest level possible.

FPS Bill Shoemaker. After completion of the upgrade and refurbishment in
July 1997, the Shoemaker was mobilized to the Grand Banks area offshore
Newfoundland where it completed drilling an exploratory well for Amoco Canada
Petroleum Company Ltd. in the West Bonne Bay Field on January 25, 1998. The
Shoemaker is currently under contract to Shell Offshore Inc. in the Gulf of
Mexico. The contract with Shell extends through January 1999 and Shell has an
option to extend it for six months subject to the Company's approval of the
contract drilling rates for the period. Sedco Forex has entered into a
nonbinding letter of intent for the mobilization of the Shoemaker to the Grand
Banks area in Atlantic Canada to conduct a two-well (with three one-well
options) program at predetermined rates for Husky Oil Operations Limited.

FPS Laffit Pincay. During the year ended June 30, 1997, the Pincay
generated a total of $14.6 million of revenue under two dayrate drilling
contracts. The first contract was with the Partnership to complete a previously
drilled well and drill a new well in Garden Banks Block 117. Under the second
contract, the Pincay was committed to Phillips Petroleum Company to drill one
well at Garden Banks Block 70 in the Gulf with options to drill and/or complete
three additional wells at various Gulf locations. This contract was completed in
late September 1997 after Phillips drilled one of its "option" wells. Pennzoil
Exploration and Production Company drilled one new well following the completion
of the two Phillips' wells. The Pincay is currently undergoing routine repairs
and certain upgrades and is not expected to be under contract until late April
at the earliest. At such time, the Company expects the Pincay to resume drilling
activities in the Gulf.

CUSTOMERS

The Company provides offshore drilling services to a market that is
comprised of major and independent oil and gas companies. During the year ended
June 30, 1997, DeepFlex had only one rig operating, the Pincay, which worked
continuously for two customers, from February 1996 (its in-service date) through
the fiscal year end. Management believes the Company will continue to enhance
its client base through its arrangement with Sedco Forex and through continued
services to its current customers. The inability of the Company and Sedco Forex
to attract customers for the Rigs would, have a material adverse impact on the
Company's operations for such period of time as may be required to find other
users, if any, for the Rigs.

COMPETITION

The contract drilling industry is an intensely competitive industry where
no one competitor is dominant. The Company's ability to continue to generate
business is dependent primarily on the level of domestic oil and gas exploration
and development activity and, in part on its ability to adapt to new technology
and drilling techniques as they become available. The Company, through Sedco
Forex, competes with numerous other

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<PAGE> 43

drilling contractors, some of whom are substantially larger than the Company and
possess appreciably greater financial and other resources.

During the last three years, there have been several business
consolidations that have reduced the drilling industry's fragmented nature.
Although this has decreased the total number of competitors, the Company
believes that competition for drilling contracts will remain intense in the
foreseeable future. Companies generally compete on the basis of price, workforce
experience, equipment suitability and availability, reputation, expertise,
technology and financial capability. While competition is primarily on a
regional basis, rigs can be moved from one region to another, as well as between
water depths, in response to changes in levels of drilling activity, subject to
crew availability and mobilization expenses.

Moreover, the recent improvement in the current results of operations and
prospects for the offshore contract drilling industry as a whole has led to
increased rig activation, enhancement and construction programs by the Company's
competitors and, if current trends continue for an extended period, may lead to
new entrants into the market. Furthermore, the Company understands that there
are currently numerous new rigs on order at various shipyards worldwide. A
significant increase in the supply of technologically-advanced rigs capable of
drilling in deepwater, including drillships, may have an adverse effect on the
average operating rates and utilization levels for the Rigs. In addition, there
is a general shortage in the industry of drill pipe and other equipment, and,
therefore, the cost and time required to obtain replacement drill pipe and other
equipment are substantially greater than in prior periods and both are currently
escalating.

INDUSTRY CONDITIONS

The condition of the offshore contract drilling industry, and resulting
offshore drilling rig utilization and dayrates, have improved substantially
since the beginning of 1995. From the mid-1980s through the early 1990s, demand
for offshore drilling rigs was declining or flat, and the industry fleet of
offshore drilling rigs was reduced. In recent years, demand for offshore rigs
has improved, but the supply of rigs is only now beginning to increase. The
industry has emphasized upgrading and refurbishing existing rigs, due to the
high capital costs and long lead times associated with new construction. In the
last year, several competitors have announced new-build deepwater drillships and
semisubmersible rigs in response to increased demand for rigs with deepwater
capabilities.

Several trends have increased the demand for offshore drilling rigs. Rising
worldwide energy demand has helped improve fundamentals in the oil and natural
gas markets. In addition, technological advancements discussed below, company
downsizing, establishment of government-sponsored exploration, development and
production sharing programs, and growing deepwater exploration have increased
drilling activity and the demand for rigs. Consequently, companies have
increased their capital expenditures to find and develop new oil and gas
reserves.

Technological advances such as extended reach drilling, multilateral
drilling techniques and new offshore development and production applications
have reduced the costs of developing oil and gas fields. As a result, previously
uneconomic discoveries, particularly in deeper water, have become viable, and
the industry has placed increasing emphasis on exploiting existing resources
using new applications. The development of three-dimensional seismic surveys has
reduced exploration risks, thus placing increased emphasis on selective
exploratory drilling. Government-sponsored exploration, development and
production sharing programs are growing in number, and many of those programs
require companies to commence drilling within specified time periods. All of
these trends have increased the demand for high quality offshore rigs. Recently,
oil prices have declined substantially, which may cause drilling budgets to
decline. Although downturns in oil prices do not generally have an immediate
impact on the demand for deepwater drilling rigs, such declines are likely to
put downward pressure on dayrates.

MAINTENANCE

The Rigs require continuous and significant maintenance to remain
operational, competitive and economically efficient. In addition to daily
repairs and maintenance and planned monthly or annual maintenance, which may
constitute as much as 15% to 20% of the aggregate operating expenditures of a
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<PAGE> 44

properly maintained rig, semisubmersible rigs require periodic major
maintenance, reworking and refurbishment, and replacement, if necessary, of
major drilling equipment, power generation equipment, mooring systems and drill
pipe. Because such major maintenance results in significant expenditures as well
as the loss of revenue associated with the required downtime, it usually is
scheduled over a rolling five year period and coordinated with other necessary
operations and, where possible, business cycles. While the Rigs have recently
completed a total maintenance and refurbishment program, the Pincay is currently
undergoing repairs and certain upgrades. See "-- Description of Rigs."

Notwithstanding the age of its Rigs, the Company believes that it will be
feasible to continue to upgrade them. However, there can be no assurance as to
if, when or to what extent upgrades will continue to be made to such Rigs,
particularly in view of current rates that would be foregone by removing a rig
from service for upgrade. If such upgrades are undertaken, there can be no
assurance that the upgrades can be completed in a cost-effective manner or that
there will be adequate demand for the Rigs' services.

REGULATION

The oil and gas industry is extensively regulated by federal, state and
provincial authorities in the United States and Canada. Numerous departments and
agencies, both federal and state, have issued rules and regulations binding on
the oil and gas industry and its individual members, some of which carry
substantial penalties for the failure to comply. Legislation affecting the oil
and gas industry is under constant review and statutes are constantly being
adopted, expanded or amended. This regulatory burden increases the oil and gas
industry's cost of doing business.

In particular, the drilling industry is dependent on the demand for
services from the oil and gas exploration industry and, accordingly, is affected
by changing tax laws, price controls and other laws relating to the energy
business. The Company's business is affected generally by political developments
and by federal, state, provincial, local and foreign laws, rules and regulations
which may relate directly to the oil and gas industry. The adoption of laws,
rules and regulations, both domestic and foreign, which curtail exploration and
development drilling for oil and gas for economic, environmental or other policy
reasons may adversely affect the Company's operations by limiting available
drilling and production opportunities. The Company's foreign operations are
subject to political, economic, environmental and other uncertainties associated
with foreign operations, as well as the additional risks of fluctuating currency
values and exchange controls. Governments may from time to time suspend or
curtail drilling operations or leasing activities when such operations are
considered to be detrimental to the environment or to jeopardize public safety.

OPERATIONAL HAZARDS AND INSURANCE

The Company's exploration, production and development operations are
subject to the usual hazards incident to the drilling and production of natural
gas and crude oil, such as blowouts, cratering, explosions, uncontrollable flows
of oil, natural gas or well fluids, fires, pollution, releases of toxic gas and
other environmental hazards and risks. These hazards can cause personal injury
and loss of life, severe damage to and destruction of property and equipment,
pollution or environmental damages and suspension of operations. To mitigate the
impact of repair costs associated with such an accident or disaster, the Company
maintains insurance of various types that it considers to be adequate to cover
its operations. Such insurance is subject to deductibles that the Company
considers reasonable and not excessive. The Company's insurance does not cover
every potential risk associated with the drilling and production of oil and
natural gas but is consistent with insurance coverage generally available to the
industry. The Company's insurance policies do not provide coverage for losses or
liabilities relating to pollution, except for sudden and accidental occurrences.

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<PAGE> 45

THE HISTORICAL BUSINESS

The following discussion is included in this Prospectus due to the
requirements of the Securities Act. With the exception of the North Atlantic
Partners pipeline project in Atlantic Canada, all of Tatham Offshore's
historical business and operations will be transferred to DeepTech and the
Partnership who will also assume all future liability related to these assets
and operations as part of the Reorganization Transactions. Such information,
although important for an understanding of Tatham Offshore's historical
financial results and business, is of little relevance to the Company's business
and operations on a going forward basis. See "Business -- Prospective Business"
and "Business -- General -- Description of Reorganization Transactions."

Tatham Offshore has historically been (and will be until the completion of
the Contribution) engaged in the development, exploration and production of oil
and gas reserves located primarily in the Gulf of Mexico focusing principally on
the flextrend and deepwater areas, and in the development of pipeline
infrastructure offshore eastern Canada. As of June 30, 1997, Tatham Offshore
owned interests in 15 oil and gas leases in the Gulf of Mexico, which included
producing properties and undeveloped leases covering approximately 83,200 gross
(72,500 net) acres.

The following is a description of the significant properties that Tatham
Offshore will hold until the closing of the Contribution. In connection with the
Contribution and the Reorganization Transactions, Tatham Offshore will assign
these properties to DeepTech and the Partnership. See "General -- Description of
Reorganization Transactions."

Viosca Knoll Block 817. Viosca Knoll Block 817 is a producing property with
eight wells, comprised of 5,760 gross (1,440 net) acres located 40 miles off the
coast of Louisiana in approximately 650 feet of water. Tatham Offshore owns a
25% working interest in the Viosca Knoll Block 817 acreage, which interest is
burdened by a convertible production payment of 25% of the production proceeds
from such interest. See "Certain Transactions -- Historical -- Other." The
Viosca Knoll Block 817 project is currently producing an aggregate of
approximately 56 MMcf of gas per day. From the inception of production in
December 1995 through June 30, 1997, the Viosca Knoll Block 817 project has
produced 8.6 Bcf of gas and 11,995 barrels of oil, net to Tatham Offshore's 25%
working interest. Gas production from Viosca Knoll Block 817 is dedicated to the
Partnership for gathering through the Viosca Knoll system.

West Delta Block 35. West Delta Block 35, a producing field located 10
miles off the coast of Louisiana in approximately 60 feet of water, was acquired
by Tatham Offshore in 1992 to drill for and produce remaining reserves in a
fault block of an abandoned field. In late 1992, Tatham Offshore farmed-out the
property and retained a 38% working interest. The West Delta Block 35 field
commenced production in July 1993. Two wells are currently producing in the
aggregate approximately 7 MMcf of gas and 44 barrels of oil per day. From the
inception of production through June 30, 1997, the West Delta Block 35 field has
produced 2.7 Bcf of gas and 31,500 barrels of oil, net to the Company's
interest.

Ewing Bank Blocks 958, 959, 1002 and 1003. Tatham Offshore, through TODI,
owns a 100% working interest in Ewing Bank Blocks 958, 959, 1002 and 1003, the
Sunday Silence Project, a currently undeveloped field, which is comprised of
20,160 gross acres located approximately six miles south of Ewing Bank Blocks
914 and 915 (discussed below) in water depths ranging from 1,400 to 1,600 feet.
In July 1994, Tatham Offshore completed drilling an exploratory well, the Ewing
Bank 958 #1. Logs and sidewall cores indicate that the Ewing Bank 958 #1 well
contains approximately 380 feet of oil and gas pay. The Ewing Bank 958 #1 well,
which was drilled to a total measured depth of 17,600 feet, identified pay zones
lying primarily at measured depths between 10,000 and 15,000 feet. Tatham
Offshore completed drilling a second well at Ewing Bank Block 1003 in September
1994 to delineate the field. During October 1994, the Ewing Bank 1003 #1
delineation well was flow-tested at a rate of approximately 8,700 barrels of oil
and 5.4 MMcf of gas per day.

In June 1997, the United States Department of the Interior, Minerals
Management Service notified Tatham Offshore that its application for deepwater
royalty relief for the Sunday Silence Project had been approved under a federal
law enacted in November 1995. The royalty relief provides for the abatement of
federal royalty on the first 52.5 million barrels of oil equivalent produced
from the Sunday Silence Project.

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<PAGE> 46

Ewing Bank Blocks 914 and 915. Tatham Offshore owns a 100% working interest
in each of Ewing Bank Blocks 914 and 915, which are both in approximately 1,000
feet of water. From the inception of production through June 30, 1997, the Ewing
Bank 914 #2 well has produced a total of 1.2 million barrels of oil and
condensate and 3.4 Bcf of gas. In May 1997, the Ewing Bank 914 #2 well was
shut-in as a result of a downhole mechanical problem.

Ship Shoal Block 331 Platform. Tatham Offshore owns 100% of a multipurpose
platform located in Ship Shoal Block 331. The SS 331 Platform is located
adjacent to the Partnership's platform at Ship Shoal Block 332 which serves as
the junction platform connecting two pipeline systems in which the Partnership
owns an approximate 25.7% interest.

CUSTOMERS AND CONTRACTS

Ewing Bank Gathering Agreement. In 1992, the Partnership, DeepTech and
Tatham Offshore entered into the Ewing Bank Gathering Agreement (the "Ewing Bank
Agreement"). Pursuant to the Ewing Bank Agreement and the Master Gas Dedication
Agreement (as discussed below), all existing and future oil and gas production
from Tatham Offshore's leaseholds in the Ewing Bank project area, is dedicated
to the Partnership in exchange for the Partnership's obligation to transport any
production.

Master Gas Dedication Agreement. In December 1993, the Partnership and
Tatham Offshore entered into the Master Gas Dedication Agreement pursuant to
which Tatham Offshore dedicated to the Partnership transportation of all future
production; if any, from Tatham Offshore's Viosca Knoll Block 817, Garden Banks
Block 72, Garden Banks Block 117 and Ship Shoal Block 331 project areas and, in
certain cases, additional acreage contained in adjoining areas of mutual
interest.

Marketing Agreements. Tatham Offshore and Offshore Gas Marketing, Inc.
("Offshore Marketing"), an affiliate of DeepTech, have entered into agreements
whereby Offshore Marketing has agreed to purchase all of the gas, oil and
condensate produced by Tatham Offshore. The agreement provides Offshore
Marketing fees equal to 2% of the sales value of crude oil and condensate and
$0.015 per dekatherm of natural gas for selling Tatham Offshore's production.

All of the foregoing agreements will either be terminated or assigned to
DeepTech or the Partnership in connection with the Reorganization Transactions.

OIL AND GAS RESERVES

Estimates of Tatham Offshore's oil and gas reserves as of June 30, 1997
have been made by Ryder Scott Company Petroleum Engineers, an independent
engineering consulting firm ("Ryder Scott"). As of June 30, 1997, Ryder Scott
estimated that the aggregate proved developed reserves totaled 125,022 barrels
of oil and 12,292 MMcf of gas. Estimated proved reserves totaled 98,480 barrels
of oil and 10,910 MMcf of gas for Viosca Knoll Block 817 and 26,542 barrels of
oil and 1,382 MMcf of gas for West Delta Block 35.

For the year ended June 30, 1996, Tatham Offshore reported proved
undeveloped reserves for its Sunday Silence Project of 6.2 million barrels of
oil and 7,279 MMcf of gas using a development scenario which involved subsea
completions of the two existing wells. Under Tatham Offshore's current
development scenario, additional wells will need to be drilled to establish
commercial quantities of proved reserves.

The estimated future net cash flows and the present value of estimated
future net cash flows discounted at 10% per annum, from the production and sale
of the proved developed reserves attributable to Tatham Offshore's interest in
oil and gas properties as of June 30, 1997, as determined by Ryder Scott before
income

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<PAGE> 47

taxes totaled $12.7 million and $11.0 million, respectively. In preparing these
estimates, Ryder Scott used prices of $17.20 per barrel of oil and $2.39 per Mcf
of gas as of June 30, 1997.

In accordance with Securities and Exchange Commission requirements, the
estimated discounted future net revenue from estimated proved reserves are based
on prices and costs at fiscal year end unless future prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Factors such as actual production, supply and demand
for oil and gas, curtailments or increases in consumption by natural gas
purchasers, changes in governmental regulations or taxation and the impact of
inflation on costs will affect actual future net revenue.

PRODUCTION, UNIT PRICES AND COSTS

The following table sets forth certain information regarding the production
volumes of, average unit prices received for and average production costs for
Tatham Offshore's sale of oil and gas for the periods indicated:

<TABLE>
<CAPTION>
NATURAL GAS (MMCF) OIL AND CONDENSATE (MBBL)
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------ ---------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net production.................... 7,180 3,274 1,505 170 418 333
Average sales price............... $ 2.36 $ 2.51 $ 1.67 $22.35 $18.83 $16.67
Average production costs(1)....... $ 1.03 $ 1.50 $ 2.33 $ 6.19 $19.86 $28.02
</TABLE>

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

(1) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include demand and commodity charges under transportation
agreements, platform access and processing fees, maintenance and repair,
labor and utilities costs.

The relationship between Tatham Offshore's average prices and its average
production costs depicted by the table above is not necessarily indicative of
future results of operations expected by Tatham Offshore. Average production
costs exceeded average sales prices in 1995 due primarily to production problems
experienced by the Ewing Bank 914 #2 well and three other wells.

ACREAGE

As of June 30, 1997, Tatham Offshore held 83,167 gross and 72,516 net
developed and undeveloped acres. Gross acreage was comprised of 6,472 developed
acres and 76,695 undeveloped acres. Net acreage was comprised of 4,042 developed
acres and 68,474 undeveloped acres.

OIL AND GAS DRILLING ACTIVITY

Tatham Offshore did not drill any exploratory wells during the years ended
June 30, 1997 and 1996. For the year ended June 30, 1995, Tatham Offshore
drilled a total of 4 gross (3.50 net) exploratory wells, of which 2 gross (1.5
net) were productive wells and 2 gross (2 net) were dry wells.

Tatham Offshore drilled total development wells for the years ended June
30, 1997, 1996 and 1995 as follows: 4 gross (1 net), 5 gross (1.25 net) and 1
gross (1 net), respectively. All of these wells were productive except for 1
gross (.25 net) dry well drilled during the year ended June 30, 1996. As of June
30, 1997, Tatham Offshore owned 10 gross and 2.76 net producing wells.

GENERAL

DESCRIPTION OF REORGANIZATION TRANSACTIONS

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agreements related to the Company (the "Reorganization Transactions") are: (i)
DeepTech will sell to the Company approximately $8.0 million of the intercompany
debt DeepFlex owes to DeepTech (the "DeepFlex Debt") in exchange for (x) the
delivery by the Company to DeepTech of all of the outstanding shares of capital
stock of Tatham Offshore Development, Inc. ("TODI"), which owns the working
interests in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday Silence
Project") located in the Gulf of Mexico, and (y) cancellation of a reversionary
interest in certain oil and gas properties; (ii) in satisfaction of
approximately $12.0 million of the DeepFlex Debt, DeepFlex will deliver to
DeepTech all of the Tatham Offshore Common Stock and Series A Preferred Stock
held by DeepFlex; (iii) the balance of the DeepFlex Debt will be contributed to
the capital of DeepFlex; (iv) DeepTech will contribute all of the outstanding
shares of capital stock of DeepFlex, which owns the Rigs, to Tatham Offshore
(together with the transactions described in subsections (i) through (iii), the
"Contribution," as described in "Business -- General -- Description of
Reorganization Transactions -- The Contribution and Distribution Agreement");
(v) the Company, through DeepFlex, will assume approximately $60 million of
third party debt owed by DeepFlex; (vi) DeepTech will merge with and into El
Paso or, under certain circumstances, with Merger Sub, and (vii) the Company
will transfer the oil and gas properties it owns together with all related
liabilities (other than TODI's) to the Partnership in consideration of
redemption by the Company of 7,500 shares (including satisfaction of unpaid
dividends) of the Company's Series B 9% Senior Convertible Preferred Stock (the
"Series B Senior Preferred Stock") owned by the Partnership. See
"Business -- General -- Description of Reorganization Transactions."

The Company is a party to several agreements in connection with the
Reorganization Transactions: the Contribution and Distribution Agreement, the
Standby Agreement, the Redemption Agreement, and the Tax Sharing Agreement, each
of which is summarized in all material respects below.

The Contribution and Distribution Agreement

The Contribution and Distribution Agreement (the "Contribution Agreement"),
dated February 27, 1998, by and between the Company, DeepTech, DeepFlex and El
Paso, sets forth the mechanics of this Offering and the transfer of DeepFlex,
and therefore the Rigs, to the Company. Pursuant to the Contribution Agreement,
DeepTech will effect the transactions described under "The Offering." DeepTech
will retain the first $75 million of net proceeds of the Offering (the "Initial
Proceeds") and to the extent any Underlying Shares remain unpurchased by TBL
under the Standby Agreement (as defined), the Company will purchase such shares
for cash at the Subscription Price of $3.25 and DeepTech will contribute such
amount to the Company, except for amounts necessary to satisfy certain estimated
tax payment obligations of the Company or DeepFlex (the "Estimated Tax Amount"),
to the extent the Company has not previously paid them. The Initial Proceeds and
the Estimated Tax Amount will be held in escrow pursuant to an escrow agreement
between the parties. Accordingly, to the extent the Rights holders and TBL
purchase Underlying Shares in this Offering which generate net proceeds to
DeepTech in excess of $75 million, the proceeds of such purchases will be for
the benefit of the Company and will be used for general corporate purposes. See
"-- The Standby Agreement."

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<PAGE> 49

Under the Contribution Agreement, at least seven days prior to the date of
the distribution of the Rights to the holders of record on the Record Date of
DeepTech's common stock: (i) the Company will convey its interest in TODI and
cancel certain oil and gas reversionary rights in exchange for approximately $8
million of DeepFlex Debt held by DeepTech; (ii) DeepTech will dispose of its
offshore contract drilling services business by contributing all of the
outstanding shares of the capital stock of DeepFlex (the "DeepFlex Shares") to
the Company; (iii) DeepFlex will deliver to DeepTech all of the outstanding
shares of the Company's Common Stock and Series A Preferred Stock owned by
DeepFlex in satisfaction of $12 million of the DeepFlex Debt; and (iv) the
remaining balance of approximately $61.4 million of the DeepFlex Debt will be
contributed to the capital of DeepFlex.

The Contribution Agreement establishes certain preconditions to the
consummation of both the Contribution and the Offering. The Contribution and the
completion of the Offering will be subject to the satisfaction or waiver by
DeepTech and the Company of the following conditions: (i) the Contribution and
this Offering being in compliance with applicable federal and state securities
laws and any applicable Nasdaq regulations and the registration statements
relating to the Offering having been declared effective and no stop order being
in effect; (ii) there being no injunction or order in effect which prevents the
consummation of the Merger; and (iii) in the case of the Offering only, the net
proceeds actually received and retained by DeepTech being not less than $75
million and the Estimated Tax Amount having been paid by the Company or retained
by DeepTech out of the proceeds in excess of $75 million, or such amounts having
been deposited in escrow in accordance with the Contribution Agreement.

Prior to the Contribution, the Company has the option to require DeepTech
to cause RIGCO North America, L.L.C. ("RIGCO"), the current owner of the Rigs
and wholly owned subsidiary of DeepFlex, to distribute to FPS III, Inc. and/or
FPS V, Inc., each a wholly-owned subsidiary of DeepFlex and parent of RIGCO,
either the Pincay or the Shoemaker; provided, however, that this distribution
will occur only if the taxable gain realized by RIGCO on the distribution is no
more than $48 million.

The Contribution Agreement also sets forth certain indemnification terms
among the parties. Under the Contribution Agreement, from and after the closing
of the Merger, the Company will indemnify El Paso and its subsidiaries and any
of its officers, directors and employees of each such entity (the "El Paso
Group") against all losses, expenses, claims, damages and liabilities (other
than income tax liabilities, which are the subject of the Tax Sharing Agreement)
to which El Paso may be or become subject that relate to (i) the assets,
business, operations, debts or liabilities of DeepFlex, the Company or its
subsidiaries (other than TODI) (collectively, the "Company Group"), whether
arising prior to, concurrent with or after the Contribution or this Offering,
(ii) the failure to obtain all necessary third party consents to the
Contribution or this Offering (other than the failure to obtain all necessary
consents under the DeepTech Indenture and DeepTech's Senior Subordinated Notes
due 2000 in connection with the Contribution and this Offering, or the failure
to obtain any other necessary third party consents as to which the Company will
notify El Paso to the extent the failure to obtain the consent is a result of El
Paso's election to unreasonably withhold or delay its consent under the Merger
Agreement (the "Third Party Consents")), or (iii) any filing by any member of
the Company Group under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including, without limitation, this
Prospectus), or any information relating to the Company Group contained in any
filing made by any member of the DeepTech Group, in each case whether made prior
to or concurrent with the closing of the Merger. The "DeepTech Group" includes
DeepTech and its subsidiaries other than the Company Group.

From and after the closing of the Merger, El Paso will indemnify, defend
and hold the Company Group and the officers, directors and employees thereof
harmless from and against all losses, expenses, claims, damages and liabilities
(other than income tax liabilities) to which such group may be or become subject
that relate to (i) the assets, business, operations, debt, or liabilities of the
DeepTech Group, whether arising prior to, concurrent with, or after the
Contribution or the Offering, (ii) the failure to obtain the Third Party
Consents, or (iii) any filing by any member of the DeepTech Group (other than to
the extent a filing by a member of the DeepTech Group contained or contains
information relating to the Company Group) under the Securities Act or the
Exchange Act, whether made prior to or concurrent with the closing of the
Merger.

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<PAGE> 50

In addition to the foregoing, the Contribution Agreement prohibits
intercompany transactions except as listed below. Except as contemplated by the
Contribution Agreement, the Merger Agreement and other related agreements,
between the date of the Contribution Agreement and the closing of the Merger, no
member of the DeepTech Group may invest, loan, pay or otherwise advance or
contribute any funds or property (other than the accrual of (i) amounts payable
under the Management Agreement, and (ii) interest on indebtedness outstanding on
the date of the Contribution Agreement under the DeepFlex Debt) to any member of
the Company Group or pay any taxes relating to the assets, business or
operations of any member of the Company Group or forgive or capitalize any
amounts owed by any member of the Company Group to any member of the DeepTech
Group. Except as contemplated by the Contribution Agreement, the Merger
Agreement and the related agreements, immediately prior to the closing of the
Merger, the members of the Company Group will (i) pay in cash all amounts owed
by them to any member of the DeepTech Group (except that (x) amounts outstanding
under the Management Agreement which relate to DeepFlex will be contributed to
the Company or forgiven, (y) if the transactions contemplated by the Redemption
Agreement are consummated, the management fee payable by the Company under the
Management Agreement will be reduced by 50%, effective retroactively to January
1, 1998, and (z) except as described above with respect to the DeepFlex Debt)
and (ii) reimburse DeepTech for any payments of taxes made by DeepTech after
January 1, 1998 and prior to the closing of the Merger which relate to the
assets, business or operations of any member of the Company Group. Any amounts
owing by the DeepTech Group to the Company Group will be offset against amounts
otherwise owed to DeepTech as part of the DeepFlex Debt. Other than the Tax
Sharing Agreement (as defined), the Contribution Agreement and certain other
agreements contemplated by the Contribution Agreement, all intercompany
agreements and arrangements between any member of the Company Group and any
member of the DeepTech Group will terminate as of the closing of the Merger.

The Standby Agreement

The Standby Agreement (the "Standby Agreement"), dated as of February 27,
1998, was executed in connection with the Reorganization Transactions and is by
and among the Company, DeepTech, Mr. Tatham, TBL and El Paso. Pursuant to the
Standby Agreement, to the extent that any Underlying Shares are not subscribed
for by holders of DeepTech common stock, TBL has committed to purchase in the
Conditional Subscription, at a Subscription Price of $3.25 for the Underlying
Shares purchasable under each Right, such number of unsubscribed Underlying
Shares in the Offering as will result in DeepTech receiving net proceeds from
the Offering of not less than $75 million (the "Standby Commitment"). In
addition, TBL has the right to purchase any Underlying Shares which DeepTech
holds after this Offering and the Conditional Subscription for the Subscription
Price. Mr. Tatham has unconditionally guaranteed TBL's performance of the
Standby Commitment, which guarantee is backed by a letter of credit from
NationsBank, N.A. In consideration of Mr. Tatham's guarantee of the Standby
Commitment, under the terms of a Repayment Agreement between Mr. Tatham and TBL,
dated February 27, 1998, (i) TBL granted to Mr. Tatham an option to purchase up
to a one-third membership interest in TBL for $1,000 through the issuance of new
membership units, and (ii) Mr. Tatham has the right, but not the obligation, to
lend to TBL all sums necessary for TBL to fulfill its obligations under the
Standby Commitment.

The Purchase Commitment Agreement

Pursuant to the Purchase Commitment Agreement, dated as of February 27,
1998 by and between TBL and the Company, in consideration of the Standby
Commitment, the Company will pay to TBL a fee equal to the product of (i)
23,076,923 and (ii) the "Fee Multiplier" (as defined). The "Fee Multiplier"
means, with respect to the date of the closing of the Offering, (a) if prior to
July 1, 1998, $0.25, (b) if on or after July 1, 1998 through July 31, 1998,
$0.275, (c) if on or after August 1, 1998 through August 31, 1998, $0.30 or (d)
if on or after September 1, 1998, $0.325. Such fee is payable by the Company in
cash, or at its election in shares of Common Stock. In connection with the
Standby Commitment, the Company has agreed to grant TBL certain registration
rights with respect to such Underlying Shares, including three demand
registrations and unlimited piggyback registration rights for five years.

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<PAGE> 51

The Redemption Agreement

The Redemption Agreement (the "Redemption Agreement"), dated as of February
27, 1998, is by and between the Company and a subsidiary of the Partnership. The
Redemption Agreement provides for an exchange of certain of the Company's oil
and gas properties for 7,500 shares of the Company's Series B Senior Preferred
Stock owned by the Partnership on the later of July 1, 1998 or one business day
after the closing of this Offering.

Under the Redemption Agreement, subject to the satisfaction of the
conditions contained in the Redemption Agreement, the Company will convey to the
Partnership all of the Company's right, title and interest in Ship Shoal Block
331, West Delta Block 35, Viosca Knoll Blocks 772, 773, 774, 817, 818 and 861
and Ewing Bank Blocks 871, 914, 915 and 916 (the "Properties"). In exchange for
the Properties, the Partnership will (i) convey the Series B Senior Preferred
Stock to the Company and (ii) deem satisfied all of the accrued and unpaid
dividends on the shares of the Series B Senior Preferred Stock due to the
Partnership as of the date of the exchange. The Partnership will be entitled to
all revenues and will assume all of the costs, obligations and liabilities of
the Properties that arise after January 1, 1998.

In addition to the foregoing, the Company has agreed not to, among other
things, (i) sell or otherwise convey any of its interests in the Properties,
other than the sale of any oil, gas or other hydrocarbon sold in the ordinary
course of business or personal property and equipment which is replaced with
comparable or better value and utility, (ii) permit the creation of any
encumbrance on the Properties, (iii) grant any preferential right to purchase or
similar right or agree to require the consent of any party to the transfer and
assignment of the Properties, (iv) designate any person, other than the
Partnership, as the operator of the Properties, or (v) incur any debt,
obligation or liability which would be assumed by the Partnership, other than
those incurred in the ordinary course with the consent of the Partnership which
would not have a material adverse effect on any of the Properties. The Company
will pay one half of (a) the costs of all fees for the recording of transfer
documents necessary to transfer title in such Properties to the Partnership and
(b) any sales, transfer, stamp or other excise taxes resulting from the transfer
of the Properties.

The Tax Sharing Agreement

The Tax Sharing Agreement (the "Tax Sharing Agreement"), to be executed in
connection with the Reorganization Transactions by and among the Company,
DeepTech and DeepFlex establishes the manner in which the parties will allocate
the responsibilities, liabilities and benefits relating to or affecting the
payment of federal, state, local or foreign income and other taxes, licenses and
fees ("Taxes") following the date the Contribution is effected.

Under the Tax Sharing Agreement, the parties will be responsible for the
payment of various Taxes either arising from the Reorganization Transactions or
regular business operations. The Company will pay (i) all Taxes attributable to
the Company and its subsidiaries, including under certain circumstances, Taxes
arising from the transfer of the Rigs to the Company, (ii) Taxes of TODI for
periods prior to the transfer by the Company of the outstanding shares of TODI
to DeepTech pursuant to the Contribution Agreement, and (iii) Taxes of DeepTech
attributable to the Contribution and this Offering (but not to the extent such
Taxes exceed the sum of $7 million and any Taxes attributable to the value of
the Company being in excess of a notional amount to be determined according to a
formula set forth in the Tax Sharing Agreement). DeepTech will pay all other
Taxes attributable to DeepTech other than those described in the preceding
sentence. Both the Company and DeepFlex will cooperate with DeepTech in the
filing of any consolidated tax return covering the Taxes to be paid by DeepTech.

The Tax Sharing Agreement provides for the allocation of any net operating
losses and other available Tax attributes. Pursuant to the Tax Sharing
Agreement, DeepTech's net operating losses and other Tax attributes are
allocated first to offset DeepTech's income (other than income arising from this
Offering and the Contribution), second to offset DeepFlex's operating income
(for the period ending June 30, 1998 and (if different) the period ending on the
date the Contribution is effected), third to offset gain DeepTech may recognize
on the Contribution and this Offering, and fourth, to offset RIGCO's gain on the
distribution of one of the Rigs to the Company. Finally, under the Tax Sharing
Agreement, El Paso will pay the Company for the
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<PAGE> 52

benefit of any Tax savings resulting from the use of any remaining losses of
DeepTech which are carried forward to periods after the closing of the Merger.

Finally, if a Rig is distributed to FPS III, Inc. and/or FPS V, Inc. prior
to the Contribution, both the Company and DeepTech (or El Paso as successor to
DeepTech) are required to provide the other party with letters of credit in the
amount of $7 million to secure certain of their payment obligations under the
Tax Sharing Agreement. The letters of credit are to expire after five years (but
may be extended for an additional three years under certain circumstances
described in the Tax Sharing Agreement).

EMPLOYEES

Tatham Offshore and DeepFlex currently have no employees. To date, all
individuals, including executive officers, necessary to meet the financial,
geological, engineering and other technical and administrative requirements have
been provided by DeepTech pursuant to management agreements with DeepTech. For
the year ended June 30, 1997 and for the six months ended December 31, 1997,
DeepTech charged (i) Tatham Offshore $3.3 million and $2.1 million,
respectively, under its Management Agreement and (ii) DeepFlex $2.5 million and
$1.5 million, respectively, under its management agreement.

Upon the consummation of the Reorganization Transactions, the management
agreements will terminate and the Company will directly employ all of its
executive officers and other employees necessary to meet its financial,
technical and administrative requirements. See "Management."

OFFICE SPACE LEASE

Following the Merger, the Company may maintain a portion of its current
office space under a Sublease Agreement between itself and El Paso under
customary terms. The agreement imposes a 90-day obligation by El Paso to
sublease the office space to the Company, but with no minimum term for the
Company. Either party may terminate such lease with 30 days notice. The monthly
rental rate will be $25,000.

LEGAL PROCEEDINGS

The Company is involved in certain legal proceedings which have arisen in
the ordinary course of business. Management believes that the outcome of such
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.

AVAILABLE INFORMATION

The Company is required to make periodic filings with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). You may
inspect and copy these filings at the public reference facilities the SEC
maintains at: (i) Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004; (ii) Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and (iii) 7 World Trade Center, 13th
Floor, New York, New York 10048. You may also obtain copies of such materials at
prescribed rates from the SEC's Public Reference Section at its principal office
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. You
also may access the Company's filings on the Internet at http://www.sec.gov. In
addition, the Company's Common Stock is listed for quotation on The Nasdaq
National Market and the Company's Series A Preferred Stock is listed on The
Nasdaq OTC Bulletin Board and reports and other information concerning the
Company may also be inspected at the offices of The Nasdaq Stock Market, Inc.,
Nasdaq Regulatory Filings, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed the Registration Statement related to this Prospectus
with the SEC. This Prospectus, which is a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the SEC. You may obtain such additional information from the
SEC's principal office in Washington, D.C. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete (but are accurate statements of those matters considered by
the Company to be material to the Company stockholders in connection with this
Prospectus). You may find more information

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<PAGE> 53

with respect to such documents by looking to the exhibits, and each such
statement is qualified in its entirety by such reference. You may inspect the
Registration Statement, without charge, at the offices discussed above.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the current
executive officers of the Company. Each executive officer named in the following
table has been elected to serve until his successor is duly appointed or elected
or until his earlier removal or resignation from office. No arrangement or
understanding exists between any executive officer of the Company and any other
person pursuant to which he was or is to be selected as an officer.

Because the Company will be refocusing its efforts on pursuing an
integrated frontier investment strategy targeting Atlantic Canada with an
initial emphasis on the offshore contract drilling industry, the Company's
management can be expected to change materially. In particular, after the
Offering, the Company's executive management will be: Thomas P. Tatham -- Chief
Executive Officer, Dennis A. Kunetka -- Chief Financial Officer and Secretary,
Phil German -- Vice President -- Senior Project Engineer, Harvey O. Fleshier --
Senior Vice President -- Marine Services, Kenneth L. Hamilton -- Vice
President -- Treasurer and Assistant Secretary, and Dennis J. Lubojacky -- Vice
President -- Controller and Financial Planning. To the extent the Company
concentrates its efforts in Atlantic Canada, it expects to hire more personnel,
including Canadian nationals, in the area. In connection with the Offering,
Messrs. Beeney, Gautreaux, Gibbon, Lucas and Pike will resign from their
offices.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas P. Tatham.................. 52 Current and Planned Chairman of the Board and Chie
Executive Officer
Kenneth E. Beeney................. 38 Current Vice President -- Chief Geophysicist and a
Director
Antoine Gautreaux, Jr. ........... 46 Current Chief Operating Officer and Director
Edward J. Gibbon, Jr. ............ 52 Current Vice President -- Reservoir Engineering
Dennis A. Kunetka................. 48 Current and Planned Chief Financial Officer, Senior
Vice President and Secretary
Jeffrey K. Lucas.................. 41 Current Vice President -- Land Manager
John D. Pike...................... 42 Current Vice President -- Chief Geologist
Phil German....................... 44 Planned Vice President -- Senior Project Engineer
Harvey O. Fleisher................ 51 Planned Senior Vice President -- Marine Services
Kenneth L. Hamilton............... 51 Planned Vice President -- Treasurer and Assistant
Secretary
Dennis J. Lubojacky............... 45 Planned Vice President -- Controller and Financial
Planning
Phillip G. Clarke................. 62 Director
Eric Lynn Hill.................... 52 Director
Edward L. Moses, Jr. ............. 61 Director
Clyde E. Nath..................... 64 Director
James G. Niven.................... 52 Director
Jonathan D. Pollock............... 34 Director
Roger B. Vincent, Sr. ............ 52 Director
Diana J. Walters.................. 34 Director
</TABLE>

Thomas P. Tatham has served as Chairman of the Board and a Director of the
Company since 1988. In addition, Mr. Tatham has served as Chairman of the Board,
Chief Executive Officer and a Director of DeepTech and Chairman of the Board of
the general partner of the Partnership since October 1989 and February 1989,
respectively. Mr. Tatham also served as Chief Executive Officer of the general
partner of the Partnership from February 1989 until June 1995. Mr. Tatham has
over 27 years experience in the oil and gas industry. He founded Mid American
Oil Company in 1970 and served as Chairman of the Board and Chief Executive
Officer until he sold his interest therein to Centex Corporation in 1979. In
1979, Mr. Tatham

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<PAGE> 54

founded Tatham Corporation to acquire Sugar Bowl Gas Corporation ("Sugar Bowl"),
the second largest intrastate pipeline system in Louisiana. He served as
Chairman of the Board of Tatham Corporation from 1979 to December 1983, at which
time it sold the assets of Sugar Bowl to a joint venture between MidCon Corp.
and Texas Oil and Gas, Inc. From 1984 to 1988, Mr. Tatham pursued personal
investments in various industries, including the oil and gas industry. Mr.
Tatham served as a director of J. Ray McDermott, S.A. from its inception in
February 1995 through August 1997.

Kenneth E. Beeney has served as a Director and Vice President -- Chief
Geophysicist of the Company since August 1993. Mr. Beeney has 16 years of
exploration experience, with a primary focus in the Gulf of Mexico. Prior to
joining DeepTech in 1989, Mr. Beeney worked for Tenneco Oil Company ("Tenneco
Oil") for eight years and Anadarko Petroleum Corporation on a variety of
exploration assignments. Mr. Beeney received a B.S. in Geophysics from the
Colorado School of Mines.

Antoine Gautreaux, Jr. has served as a Director of the Company since
October 1996, Chief Operating Officer of the Company since July 1996 and as
Senior Vice President -- Operations from September 1995 to July 1996. Prior to
joining DeepTech, Mr. Gautreaux was employed by Placid Oil Company ("Placid")
for 21 years in various capacities, including Manager of Drilling and
Production. Mr. Gautreaux received a B.S. degree from Nichols State University.

Edward J. Gibbon, Jr. has served as Vice President -- Reservoir Engineering
of the Company since September 1995. Mr. Gibbon has served as Vice
President -- Reservoir Engineering of Deepwater Production Systems, Inc.
("Deepwater Systems"), an affiliate of the Company, since September 1993. Prior
thereto, Mr. Gibbon served as the President of IDM Engineering, Inc., a company
he founded and which specialized in reservoir engineering studies and economic
evaluations. Mr. Gibbon received a degree of Petroleum Engineering from the
Colorado School of Mines.

Dennis A. Kunetka has served as Senior Vice President -- Corporate Finance
of the Company since October 1993 and as Chief Financial Officer and Secretary
since January 1998. Mr. Kunetka has served as Senior Vice President -- Corporate
Finance and Investor Relations of DeepTech and the Partnership since August
1993. Prior to joining DeepTech, Mr. Kunetka served as Vice President and
Controller of United Gas Pipe Line Company and its parent company, United Gas
Holding Corporation. Prior to joining United in 1984, Mr. Kunetka spent 11 years
with Getty Oil Company in various tax, financial and regulatory positions. Mr.
Kunetka holds B.B.A. and M.S.A. degrees from the University of Houston, a J.D.
degree from South Texas College of Law and is a certified public accountant.

Jeffrey K. Lucas has served as Vice President -- Land Manager of the
Company since June 1991. Mr. Lucas has worked in the oil industry for 18 years.
Prior to joining DeepTech, Mr. Lucas served in various capacities, including
Division Landman, in the Land Department of Tenneco Oil from 1979 to 1989 and
was primarily responsible for negotiating lease acquisitions in the Rocky
Mountain area and the Gulf. Mr. Lucas received a B.S. in Mineral Land Management
from the University of Colorado.

John D. Pike has served as Vice President and Chief Geologist of the
Company since August 1993. Mr. Pike has 15 years of exploration experience, with
primary focus on various offshore Louisiana trends. Prior to joining DeepTech,
Mr. Pike was employed with Tenneco Oil from 1981 to 1988 and Forest Oil Company
from 1988 to 1991 in a variety of exploration assignments. Mr. Pike received
B.S. and M.S. degrees in Geology from Texas A&M University and is a member of
the American Association of Petroleum Geologists.

Phil German will serve as Vice President -- Senior Project Engineer of the
Company. Mr. German served as the Chief Pipeline Engineer for Intec Engineering
Inc. of Houston and Vice President of J.P. Kenny Inc., Houston. From
1981 -- 1990, Phillip German was associated with J.P. Kenny and Partners, Ltd.,
London. Mr. German has been actively involved in offshore pipeline and onshore
pipelines and facilities projects in the U.K., Norway, Australia, North Africa,
East Africa and China. In addition to his work with engineering companies, Mr.
German has also spent extended periods acting on behalf of oil and gas
companies, most notably Statoil and Conoco. Mr. German holds a Bachelor of
Science (degree) in Mechanical Engineering from Thames Polytechnic, London.

Harvey O. Fleisher will serve as Senior Vice President of Marine Services
of the Company. Mr. Fleisher has served as Executive Vice President of DeepFlex
since April 1995. From June 1988 to April 1995, Mr. Fleisher held various
engineering and operations positions with DeepTech entities. Mr. Fleisher has
over
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<PAGE> 55

25 years experience in the offshore oil and gas industry primarily in the
floating drilling and production areas. Prior to joining DeepTech in 1988, Mr.
Fleisher worked for two years as an independent consultant and 14 years with
Sonat Offshore Drilling, Inc. (formerly The Offshore Company). Mr. Fleisher is a
Registered Professional Engineer and holds MS and BS degrees in Industrial
Engineering from Texas A&M University.

Kenneth L. Hamilton will serve as Vice President and Assistant Secretary of
the Company. Currently, Mr. Hamilton serves as Corporate Tax Director of
DeepTech. Prior to joining DeepTech in August 1997, Mr. Hamilton was a
shareholder in Verne Sanders & Associates, a certified public accounting firm
for 11 years. Mr. Hamilton served as Vice President-Controller of Tatham
Corporation from 1981 to 1986 and as Tax Manager with Price Waterhouse LLP in
Houston from 1974 to 1981. Mr. Hamilton holds a B.A. degree from the University
of Texas at El Paso and is a certified public accountant.

Dennis L. Lubojacky will serve as Vice President -- Controller and
Financial Planning of the Company. Currently, Mr. Lubojacky serves as Controller
of DeepFlex. Prior to joining DeepTech in August 1996, Mr. Lubojacky worked for
two years as an independent consultant, prior thereto as Vice President --
Controller for Nabors Yemen Ltd. Mr. Lubojacky has over 23 years in the oil and
gas industry, primarily with offshore and onshore drilling contractors in
various accounting and financial management positions. Mr. Lubojacky holds a
B.B.A. degree from Sam Houston State University and is a certified public
accountant.

Philip G. Clarke has served as a Director of the Company since March 1995.
Mr. Clarke has worked in the oil and gas industry for 40 years. He was initially
employed by Texaco, Inc. for approximately eight years, serving in various
engineering positions. In 1965, Mr. Clarke was employed by Placid where he
accumulated an additional 30 years of diversified experience. In 1977, Mr.
Clarke was made Vice President of Operations for Placid's world-wide activities
and held that position until his retirement in 1995. Following his retirement
from Placid, Mr. Clarke continued his oil industry activity by joining several
associates in forming Rising Star Energy, LLC, a Dallas, Texas based independent
energy company where he is currently employed. Mr. Clarke received a B.S. degree
in Mechanical Engineering from Oklahoma State University.

Eric Lynn Hill has served as a Director of the Company since November 1997.
From January 1997 to January 1998, Mr. Hill served as Chief Financial Officer
and Secretary of the Company. Since January 1998, Mr. Hill has served as Vice
President of Finance and Administration of Seagull Egypt Ltd. Prior to joining
DeepTech, Mr. Hill served as Senior Vice -- President Finance, Administration
and Secretary -- Treasurer of Global Natural Resources, Inc. from July 1988 to
March 1997. Mr. Hill has over 28 years of experience in finance and auditing in
energy related companies and in public accounting. Mr. Hill received a B.B.A.
degree from the University of North Texas and is a certified public accountant.

Edward L. Moses, Jr. has served as Senior Vice President -- Engineering and
Production of DeepTech since 1992, Managing Director and a Director of Deepwater
Systems since August 1993 and a Director of the Company since November 1997.
From 1991 to 1992, he served as Senior Vice President and a Director of the
Company. From 1989 to 1991, Mr. Moses served as Vice President -- Engineering of
the Company. Mr. Moses has worked for over 30 years in the oil and gas industry.
Prior to joining DeepTech, he worked for 12 years as an independent consultant
in the oil and gas industry. Prior thereto, he spent 18 years working for
Superior Oil Company where he served as Manager of International Drilling
Operations. Mr. Moses has a B.S. in Petroleum Engineering from Texas A&M
University.

Clyde E. Nath has served as a Director of the Company since March 1995. Mr.
Nath worked in the oil and gas industry for 40 years with Kerr-McGee Corp.,
holding various positions in Kerr-McGee's Exploration and Production Division
throughout his career. From 1985 until his retirement in December 1994, Mr. Nath
was Vice President of Exploration for the Gulf of Mexico Region of Kerr-McGee's
Exploration and Production Division. Mr. Nath holds a Bachelor's degree in
Geology from Oklahoma City University. He is a member of the American
Association of Petroleum Geologists, the Houston Geological Society and American
Petroleum Institute.

James G. Niven has served as a Director of the Company since June 1994 and
as a General Partner of Pioneer Associates, a venture capital investment
company, since 1982. Mr. Niven has been a Senior Vice President of Sotheby's
Inc. since November 1996 and is currently a Director and Co-chairman of The
Lynton Group, Inc., Chairman of Omar Torres, Inc., and is a Director of Noel
Group, Inc., The Prospect Group, Inc., Global Natural Resources, Inc., Lincoln
Snacks Company, HealthPlan Services, Victory Capital LLC, CBT

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<PAGE> 56

Bancshares, Inc., and an Advisory Director of Houston National Bank. He is a
member of the Board of Managers of Memorial Sloan-Kettering Cancer Center, and a
Trustee of the Museum of Modern Art, and the National Center for Learning
Disabilities, Inc.

Jonathan D. Pollock is a Portfolio Manager of Elliott Associates, L.P.
("Elliott Associates") responsible for the firm's oil and gas investments and
has served as a Director of the Company since October 1996. He has been with
Elliott Associates since 1989. Prior to joining Elliott Associates, Mr. Pollock
was employed by Greenleaf Partners, an investment banking firm. See
"-- Principal and Selling Stockholders."

Roger B. Vincent, Sr. has served as a Director of the Company since January
1996. Mr. Vincent is President of Springwell Corporation, a corporate finance
advisory firm located in New York. Prior to founding Springwell, Mr. Vincent
spent 18 years with Bankers Trust Company where he was a Managing Director of
the firm as well as in charge of the firm's Client Group. Mr. Vincent is a
director of AmeriGas Propane, Inc., a general partner of AmeriGas Partners, L.P.
(NYSE listed), a Trustee of the GCG Trust of the Golden American Life Insurance
Company (a subsidiary of the ING Group) and a member of the Policy Committee of
Atlantic Asset Management Partners, LLC. Mr. Vincent served as a director of
Petrolane, Inc. (Nasdaq listed) from July 1993 until the sale of the company in
April 1995. Mr. Vincent is a graduate of Yale University and Harvard Business
School.

Diana J. Walters has served as a Director of the Company since September
1995 and is a Vice President of PaineWebber, Inc. in their energy group. Prior
to joining PaineWebber, Ms. Walters served as Vice President -- Corporate
Finance and Planning of the Company from October 1993 through September 1995 and
as Chief Financial Officer of the Company from September 1995 through November
1996. Prior to joining DeepTech, she served as a Vice President in the Natural
Resources Group of Internationale Nederlanden Bank (ING Bank) from 1990 to 1993
financing independent oil and gas companies and as an Assistant Vice President
in the Natural Resources Department at The Chase Manhattan Bank (formerly
Manufacturers Hanover Trust Company) from 1986 to 1990 financing interstate and
intrastate pipeline companies. Ms. Walters received a B.A. degree and a M.A.
degree in Energy and Mineral Resources from the University of Texas at Austin.

BOARD OF DIRECTORS AND COMMITTEES

The Board of Directors held four meetings during the fiscal year ended June
30, 1997. During the fiscal year ended June 30, 1997, each director attended at
least 75% of the total number of meetings of the Board of Directors and the
committees on which each such director served.

The Incentive Plan Compensation Committee is responsible for administering
the Equity Incentive Plan (the "Incentive Plan"). Pursuant to the Incentive
Plan, the Board of Directors appoints two or more directors to the Incentive
Plan Compensation Committee each of which is a disinterested person under Rule
16b-3 of the Exchange Act, and qualifies as an "outside director" under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Incentive Plan Compensation Committee, which is comprised of Messrs. Clarke,
Nath and Vincent, held two meetings during the fiscal year ended June 30, 1997.

The Conflicts and Audit Committee provides two primary services. First, it
advises the Board of Directors in matters regarding the system of internal
controls and the annual independent audit, and reviews policies and practices of
the Company, including changes in accounting practice and significant estimates
made by management affecting the financial statements. Second, the Conflicts and
Audit Committee, at the request of the Board of Directors, reviews specific
matters as to which the Board of Directors believe there may be a conflict of
interest to determine if the resolution of such potential conflict proposed by
the Board of Directors is fair and reasonable to the Company. The Conflicts and
Audit Committee also reviews other matters that the Board deems appropriate. Any
such matters approved by a majority vote of the Conflicts and Audit Committee
will be deemed conclusively to be fair and reasonable to the Company. The
Conflicts and Audit Committee of the Board of Directors, comprised of Messrs.
Niven, Powell and Vincent, met once during the fiscal year ended June 30, 1997.

The Special Committee is responsible for certain matters at the request of
the Board of Directors by resolution. The Special Committee is comprised of
Messrs. Clarke, Nath, Niven, Powell and Vincent. The Special Committee did not
meet during the year ended June 30, 1997.

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<PAGE> 57

The Company's directors are entitled to reimbursement for their reasonable
out-of-pocket expenses in connection with their travel to and from, and
attendance at, meetings of the Board of Directors or committees thereof. The
Company's Directors who are not officers or affiliates of the Company are paid
an annual fee of $30,000 plus $2,000 per meeting attended. See "-- Non-Employee
Director Stock Option Plan."

Mr. Nath entered into a business consulting agreement with the Partnership
immediately after the Partnership acquired working interests in certain offshore
oil and gas leases from Tatham Offshore on June 30, 1995. Pursuant to this
agreement, Mr. Nath agreed to provide the Partnership consulting services in
exchange for a one time consulting fee of $150,000. The business consulting
agreement had a one-year term commencing on the date of the agreement, July 1,
1995. Through June 30, 1996, Mr. Nath abstained from voting on matters that came
before the Company's Board of Directors. Effective July 1, 1996, Mr. Nath and
the Partnership entered into a similar agreement providing that Mr. Nath would
devote 25% of his time to the Partnership for an annual fee of $75,000 which was
paid in January 1997. This agreement expired on its terms and was not renewed.
See "-- Certain Transactions -- Purchase and Sale Agreement."

EXECUTIVE COMPENSATION

Summary Compensation Table

Historically DeepTech has compensated Tatham Offshore's executive officers
and they have not received compensation from Tatham Offshore for their services
as such except for amounts that may be paid to them under the Incentive Plan (as
defined). See "-- Incentive Plan." DeepTech has charged Tatham Offshore an
annual management fee in exchange for operational, financial, accounting and
administrative services which is intended to reimburse DeepTech for the
estimated costs of the services provided to Tatham Offshore. DeepTech charged
Tatham Offshore $3,279,000 and $2,096,000 under this management agreement for
the year ended June 30, 1997 and the six months ended December 31, 1997,
respectively.

In the future, the named executive officers of the Company will be Thomas
P. Tatham as Chief Executive Officer, Dennis A. Kunetka as Chief Financial
Officer and Secretary, Phil German as Vice President -- Senior Project Engineer,
Harvey O. Fleisher as Senior Vice President -- Marine Services, Kenneth L.
Hamilton as Vice President -- Treasurer and Assistant Secretary, and Dennis J.
Lubojacky as Vice President -- Controller and Financial Planning. The Company is
currently in the process of determining the compensation for Mr. Tatham for the
fiscal year after the Merger ending June 30, 1999. The following table sets
forth the planned compensation for the Company's other named executive officers.

PLANNED COMPENSATION

<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED STOCK(1)
NAME/PRINCIPAL POSITION SALARY ($) OPTIONS(1) (SERIES A PREFERRED STOCK)
- ------------------------------------------ ---------- ------------ ---------------------------
<S> <C> <C> <C>
Dennis A. Kunetka......................... 200,000 100,000 50,000
Chief Financial Officer and Secretary
Harvey O. Fleisher........................ 180,000 100,000 50,000
Senior Vice President -- Marine Services
Phil German............................... 180,000 100,000 50,000
Vice President -- Senior Project
Engineer -- North Atlantic Pipeline
Kenneth L. Hamilton....................... 150,000 100,000 50,000
Vice President -- Treasurer and
Assistant Secretary
Dennis J. Lubojacky....................... 120,000 100,000 30,000
Vice President -- Controller and
Financial Planning
</TABLE>

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

(1) Vests one-third after each of the third, fourth and fifth years following
granting.

53
<PAGE> 58

The following table sets forth the compensation DeepTech paid to Tatham
Offshore's Chief Executive Officer and Tatham Offshore's five other most highly
compensated executive officers for the year ended June 30, 1997 (collectively,
the "Named Officers"). The compensation set forth in the table represents
amounts paid to the Named Officers for their services rendered in all capacities
to DeepTech and its subsidiaries for the fiscal years ended June 30, 1997, 1996
and 1995. Therefore, the amounts shown do not reflect amounts earned solely as
compensation for services to Tatham Offshore. During the fiscal year ended June
30, 1997, each of Messrs. Tatham and Kunetka spent less than a majority of his
performing services for Tatham Offshore. During the same period, Messrs.
Gautreaux, Beeney, Gibbon and Lucas spent a majority of their time performing
services for Tatham Offshore. As noted below, in addition to serving as
executive officers of Tatham Offshore each of Messrs. Tatham and Kunetka also
served as officers of DeepTech and one or more of its affiliates.

ANNUAL COMPENSATION BY DEEPTECH

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NAME/PRINCIPAL OTHER ANNUAL AWARDS
POSITION WITH FISCAL SALARY(1) BONUS(1) COMPENSATION OPTIONS
TATHAM OFFSHORE YEAR ($) ($) ($) (#)
--------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas P. Tatham(2) 1997 1,000,000(3) -- 1,400,000(3) --(4)
Chief Executive Officer 1996 2,731,750(5) 600,000(5) 39,178(6) 300,000(7)(10)
1995 600,000 600,000(9) 107,714(9) 100,000(10)
Antoine Gautreaux, Jr(11) 1997 200,000 -- -- 10,000(12)
Chief Operating Officer 1996 162,500 -- -- 75,000(10)
1995 31,248 -- -- 2,500(12)
Dennis A. Kunetka(13) 1997 140,000 -- -- --
Senior Vice President- 1996 120,000 -- -- 30,000(10)
Corporate Finance & 1995 120,000 15,000 -- --
Investor Relations
Kenneth E. Beeney(11) 1997 140,000 -- -- 10,000(12)
Vice President- 1996 110,000 -- -- 75,000(10)
Chief Geophysicist 1995 90,000 50,000 -- --
Edward J. Gibbon, Jr.(11) 1997 125,000 -- -- 10,000(12)
Vice President- 1996 106,660 -- -- 50,000(10)
Reservoir Engineering 1995 100,000 15,000 -- --
Jeffrey K. Lucas(11) 1997 100,000 -- -- 7,000(12)
Vice President- 1996 95,000 -- -- 50,000(10)
Land Manager 1995 95,000 50,000 -- --
</TABLE>

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

(1) Includes the aggregate market value of Common Stock and DeepTech common
stock issued as a result of the exercise of options granted pursuant to the
Deferred Compensation Arrangement (as defined) for salary and bonuses. The
aggregate market value is calculated based on the last reported sales
prices of the Common Stock and/or the DeepTech common stock on the dates of
exercise of the options.

(2) Mr. Tatham also serves as Chairman of the Board and Chief Executive Officer
of DeepTech and Chairman of the Board of the Partnership. During the fiscal
year ended June 30, 1997, Mr. Tatham spent less than a majority of his time
performing services for Tatham Offshore.

(3) Effective July 1, 1996, DeepTech's Compensation Committee established a
compensation plan for Mr. Tatham for the years ended June 30, 1997 and
1998. Under the compensation plan, Mr. Tatham is to receive a base salary
of $1,000,000 per annum plus $1,400,000 per annum to be credited against
incentive bonuses as they are earned. The base salary and bonus are payable
at the rate of $200,000 per month. DeepTech's Compensation Committee
detailed certain performance goals for DeepTech and its subsidiaries and
affiliates, including the Company, and Mr. Tatham, which would allow him to
earn the

54
<PAGE> 59

incentive bonus payments over the two year period. The performance goals
are structured to reward Mr. Tatham for enhancing shareholder value through
increased earnings per share and the financing of key projects. During the
nine months ended March 31, 1998, DeepTech paid Mr. Tatham a base salary of
$750,000 and advanced him $1,050,000 in incentive bonuses. All advances not
earned by Mr. Tatham prior to the closing of the Merger will be forgiven by
DeepTech at the closing.

(4) Excludes options to acquire 1,100,000 shares of DeepTech common stock that
were granted to Mr. Tatham during the fiscal year ended June 30, 1997
related to matters other than for executive compensation and unrelated to
the operations of DeepTech or Tatham Offshore.

(5) Mr. Tatham's salary and bonus for the fiscal year ended June 30, 1996 were
settled through the issuance of options pursuant to the Deferred
Compensation Arrangement. Under the Deferred Compensation Arrangement, for
each $1 of salary deferred, Mr. Tatham was entitled to apply $3 to the
exercise price of options to acquire Common Stock or DeepTech common stock
under the Incentive Plan or DeepTech's equity incentive plan, respectively.
Through June 30, 1996, Mr. Tatham had exercised options to acquire 600,125
shares of DeepTech common stock in full settlement of his salary for the
fiscal year ended June 30, 1996. In addition, Mr. Tatham was awarded a
bonus during the fiscal year ended June 30, 1996 unrelated to Tatham
Offshore's operations. This bonus was settled pursuant to the Deferred
Compensation Arrangement in September 1995 when Mr. Tatham exercised
options to purchase 150,000 shares of DeepTech common stock. The aggregate
market value of the 750,125 shares of DeepTech common stock issued,
calculated based on the last reported sales price on the dates of exercise,
was $3,331,750.

(6) Represents dues for club memberships.

(7) Excludes options to acquire 1,666,666 shares of DeepTech common stock that
were granted by DeepTech to Mr. Tatham during the fiscal year ended June
30, 1996 related to matters other than for executive compensation and
unrelated to the operations of DeepTech or Tatham Offshore.

(8) Mr. Tatham's bonus was earned during the fiscal year ended June 30, 1995,
but was deferred under the Deferred Compensation Arrangement with DeepTech.
In August 1995, Mr. Tatham exercised options to purchase 150,000 shares of
DeepTech common stock in settlement of this bonus obligation. The market
value of the 150,000 shares of DeepTech common stock issued, calculated
based on the last reported sales price on the date of exercise, was
$600,000.

(9) Includes $85,400 to pay the initial membership fee at two country clubs.

(10) Options to acquire DeepTech common stock granted pursuant to DeepTech's
equity incentive plan.

(11) Each of these executive officers spent the majority of his time performing
services for Tatham Offshore during the fiscal year ended June 30, 1997.

(12) Represents options issued to purchase shares of Common Stock pursuant to
Tatham Offshore's Incentive Plan.

(13) Mr. Kunetka also served as Senior Vice President -- Corporate Finance and
Investor Relations for DeepTech and the Partnership. During the fiscal year
ended June 30, 1997, Mr. Kunetka spent less than a majority of his time
performing services for Tatham Offshore.

55
<PAGE> 60

SAR Grants Table

The following table sets forth certain information detailing Stock
Appreciation Rights ("SARs") grants made to the Named Officers under the
Incentive Plan with respect to shares of Common Stock during the fiscal year
ended June 30, 1997. Each SAR listed below was issued pursuant to the Incentive
Plan.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF SHARES VALUE AT ASSUMED
OF TATHAM ANNUAL RATES OF
OFFSHORE PERCENT OF STOCK PRICE
COMMON STOCK TOTAL EXERCISE APPRECIATION FOR
UNDERLYING OPTIONS/SARS OR BASE OPTION TERM
OPTIONS/SARS GRANTED IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Beeney.......... 10,000 12.7% $8.125 10/21/02 27,630 62,690
Antoine Gautreaux, Jr...... 10,000 12.7% $8.125 10/21/02 27,630 62,690
Edward J. Gibbon, Jr....... 10,000 12.7% $8.125 10/21/02 27,630 62,690
Jeffrey K. Lucas........... 7,000 12.7% $8.125 10/21/02 19,341 43,883
</TABLE>

Option Exercises and Year-End Value Tables

The following table sets forth certain information regarding the
outstanding options and warrants to purchase DeepTech common stock held by the
Named Officers as of June 30, 1997:

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas P. Tatham........... 722,917(1) --(2) 2,568,749(4)/ -- $ 5,603,121/$ --
Antoine Gautreaux, Jr...... -- -- 18,750 /56,250(3) $ 75,000/$225,000
Dennis A. Kunetka.......... -- -- 7,500 /22,500(3) $ 30,000/$ 90,000
Kenneth E. Beeney.......... -- -- 18,750 /56,250(3) $ 75,000/$225,000
Edward J. Gibbon, Jr....... -- -- 12,500 /37,500(3) $ 50,000/$150,000
Jeffrey K. Lucas........... -- -- 12,500 /37,500(3) $ 50,000/$150,000
</TABLE>

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

(1) Options exercised to purchase DeepTech common stock were acquired by Mr.
Tatham related to matters other than executive compensation and unrelated to
the operations of DeepTech or Tatham Offshore.

(2) On May 21, 1997, Mr. Tatham exercised 447,917 warrants to purchase a like
amount of shares of DeepTech common stock at $4.50 per share. In addition,
Mr. Tatham exercised 275,000 warrants to purchase a like amount of shares of
DeepTech common stock at $10.00 per share. On May 21, 1997, DeepTech common
stock closed at $6.44 per share on The Nasdaq National Market.

(3) Represents unvested portion of options issued pursuant to DeepTech's equity
incentive plan and which vest 25% annually beginning November 14, 1996.

(4) Currently, options for only 300,000 shares remain unexercised.

The following table sets forth certain information regarding the
outstanding options and warrants to purchase Common Stock held by the Named
Officers at June 30, 1997.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)
NAME EXERCISE(#) VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------------- ----------------------------- --------------------------
<S> <C> <C> <C> <C>
Antoine Gautreaux,
Jr................... -- -- 2,500(1)/10,000(2) --/--
Kenneth E. Beeney...... -- -- -- /10,000(2) --/--
Edward J. Gibbon,
Jr................... -- -- -- /10,000(2) --/--
Jeffrey K. Lucas....... -- -- -- / 7,000(2) --/--
</TABLE>

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

(1) Fully vested options granted pursuant to the Incentive Plan.

(2) SARs granted pursuant to the Incentive Plan on October 21, 1996 which vest
1/3 each year beginning three years from the date of grant.

56
<PAGE> 61

Incentive Plan

In 1995, Tatham Offshore adopted the Incentive Plan. Tatham Offshore
effected the Incentive Plan to allow it to grant a variety of awards pursuant to
the Incentive Plan including stock options, restricted stock, and stock value
equivalent awards.

Under the Incentive Plan, Tatham Offshore may grant to employees,
consultants or agents of Tatham Offshore or any of its parents or subsidiaries
one or more options (each, a "Stock Option") to purchase shares of Common Stock
as hereinafter set forth. Stock Options granted under the Incentive Plan may be
either incentive stock options ("Incentive Stock Options") under Section 422(b)
of the Code or stock options that do not qualify as Incentive Stock Options
("Non-Qualified Stock Options"). Pursuant to the Incentive Plan, Tatham Offshore
may grant awards of Common Stock subject to restrictions on disposition
("Restricted Stock Grant") and such other requirements as the Incentive Plan
Compensation Committee deems appropriate. Pursuant to the Incentive Plan, Tatham
Offshore may also grant rights to receive an amount equal to the fair market
value of shares of Common Stock or rights to receive an amount equal to any
appreciation or increase in the fair market value of Common Stock over a
specified period of time ("SARs"). Stock Options, Restricted Stock Grants and
SARs are referred to as "Awards."

Except with respect to outstanding Awards, and unless sooner terminated by
action of Tatham Offshore's Board of Directors, the Incentive Plan will
terminate on December 31, 2005. The maximum number of shares of Common Stock
with respect to which Awards may be granted under the Incentive Plan is 400,000,
subject to adjustments for stock splits, stock dividends and certain other
changes in capitalization.

The Board of Directors may terminate or suspend the Incentive Plan (or any
portion thereof) at any time with respect to any shares for which Awards remain
outstanding. The Board of Directors has the right to amend the Incentive Plan
from time to time; and provided, further, that the Board of Directors may not,
without stockholder approval, (i) materially increase the number of shares of
Common Stock which may be issued under the Incentive Plan (other than in
connection with adjustments permitted by the Incentive Plan), (ii) materially
modify the requirements as to eligibility for participation in the Incentive
Plan, (iii) materially increase the benefits accruing to participants under the
Incentive Plan, or (iv) extend the termination date of the Incentive Plan. In
addition, no amendment, suspension or termination can be adopted which would
disqualify the Incentive Plan from (i) the exemption provided by Rule 16b-3,
promulgated under the Exchange Act, or (ii) the benefits provided under Section
422 of the Code.

The Incentive Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or the qualification
requirements of Section 401 of the Code.

The Incentive Plan is to be administered by the Incentive Plan Compensation
Committee. Each member of the Incentive Plan Compensation Committee is a
disinterested person under Rule 16b-3 of the Exchange Act and qualifies as an
"outside director," as such term is used under Section 162(m) of the Code.

Subject to the provisions of the Incentive Plan, the Incentive Plan
Compensation Committee has sole authority to select the individuals who are to
be granted Awards from among those persons who are eligible and to determine the
restrictions, terms and conditions of each Award granted under the Incentive
Plan (subject to the terms of the incentive plan). The Incentive Plan
Compensation Committee is authorized to interpret the Incentive Plan and may,
from time to time, adopt, amend, or rescind rules and regulations relating to
the implementation, administration and maintenance of the Incentive Plan.

A total of 181,500 Awards issued pursuant to the Incentive Plan are
currently outstanding.

Non-Employee Director Stock Option Plan

In 1995, Tatham Offshore adopted the Tatham Offshore Non-Employee Director
Stock Option Plan (the "Director Plan") to allow Tatham Offshore to attract the
best available individuals to serve as outside directors of Tatham Offshore.

All non-employee directors of Tatham Offshore are eligible to participate
in the Director Plan. The Director Plan provides for (i) automatic one-time
grants of Stock Options to Tatham Offshore's non-
57
<PAGE> 62

employee directors and (ii) the issuance and exercise of Stock Options in lieu
of standard cash director compensation upon the election of non-employee
directors. All Stock Options granted under the Director Plan are Non-Qualified
Stock Options.

Except with respect to outstanding Stock Options, and unless sooner
terminated by action of the Board of Directors, the Director Plan will terminate
on December 31, 2005. The maximum number of shares of Common Stock for which
Stock Options may be granted under the Director Plan is 100,000, subject to
adjustments for stock splits, stock dividends and certain other changes in
capitalization.

Under the Director Plan, grants of Stock Options to purchase 3,000 shares
of Common stock were automatically made to all non-employee directors of Tatham
Offshore provided that such non-employee directors had not already received
stock options to purchase 3,000 shares of Common Stock in connection with their
service as a director. In addition, after the effective date of the Director
Plan, any newly elected non-employee director will automatically receive Stock
Options to purchase 3,000 shares of Common Stock. The exercise price for the
Stock Options to purchase 3,000 shares of Common Stock will be 100% of the fair
market value of the Common Stock on the later to occur of (i) the effectiveness
of the Director Plan, or (ii) the election of a participant as a director. The
Stock Options issued pursuant to these provisions can be immediately exercisable
and, unless terminated sooner in accordance with the Director Plan, expire on a
date which is ten years after the date of grant of the option.

In connection with their agreements to serve on the Board of Directors,
each of Messrs. Niven and Powell were originally granted stock options to
purchase 3,000 shares of Common Stock for $100.00 per share. Each of these stock
options vested at the rate of 1,000 per year beginning June 30, 1995 and were
subject to stockholder approval. During the year ended June 30, 1996, these
stock options were canceled and Messrs. Niven and Powell were granted Stock
Options to purchase 3,000 shares of Common Stock at $8.125 per share, pursuant
to the Director Plan which included 1,000 Stock Options each, which vested
immediately, and 1,000 Stock Options each, which vested annually on June 30,
1996 and 1997. In connection with his appointment to the Board, Mr. Vincent was
issued Stock Options to purchase 3,000 shares of Common Stock at $8.125 per
share pursuant to the Director Plan. These Stock Options vest at the rate of
1,000 per year beginning January 31, 1997.

In connection with his election to the Board of Directors, Mr. Pollock was
issued Stock Options to purchase 3,000 shares of Common Stock at $8.125 per
share. In their new roles as non-employee directors on the Board of Directors,
Mr. Donald S. Taylor and Ms. Walters were each issued Stock Options to purchase
3,000 shares of Common Stock at $8.125 per share. The Stock Options issued to
Messrs. Pollock and Taylor and Ms. Walters vest at the rate of 1,000 per year
beginning October 21, 1997. Because Mr. Taylor did not stand for re-election in
November, 1997, options to purchase 2,000 shares of Common Stock granted to him
were canceled.

In January 1998, Tatham Offshore entered into an agreement with Mr. Hill
regarding his service as a director of Tatham Offshore whereby Tatham Offshore
issued Mr. Hill a fully vested option to purchase 15,000 shares of Common Stock
for $3.00 per share.

The Board of Directors may terminate or suspend the Director Plan (or any
portion thereof) at any time with respect to any shares for which Stock Options
remain outstanding. The Board of Directors has the right to amend the Director
Plan from time to time; provided, however, that the Board of Directors may not,
without stockholder approval, (i) materially increase the number of shares of
Common Stock which may be issued under the Director Plan (other than in
connection with adjustments permitted by the Director Plan), (ii) materially
modify the requirements as to eligibility for participation in the Director
Plan, (iii) materially increase the benefits accruing to participants under the
Director Plan, or (iv) extend the termination date of the Director Plan. In
addition, no amendment, suspension or termination may be adopted which would
disqualify the Director Plan from (i) the exemption provided by Rule 16b-3,
promulgated under the Exchange Act, or (ii) the benefits provided under Section
422 of the Code.

58
<PAGE> 63

CERTAIN TRANSACTIONS

Because DeepTech has historically managed Tatham Offshore and has owned a
significant percentage of its Common Stock, there are numerous transactions
required to be disclosed with respect to Tatham Offshore's historical
relationship with DeepTech, DeepFlex and the Partnership. However, on a going
forward basis, because of the transfers of assets contemplated by the
Reorganization Transactions, there will be relatively few relationships between
the Company and DeepTech and the Partnership. In addition, the Company will no
longer be affiliated with either DeepTech or the Partnership. Accordingly, the
description of related transactions under "-- Historical," although of
significant importance in understanding the Company's historical business, is of
little relevance in understanding the Company's prospective business and
operations. You are, however, advised to read closely the transactions described
under "-- Prospective" because they include a description of related
transactions arising out of the Reorganization Transactions and the Company's
related transactions on a going forward basis.

It is the Company's policy to enter into transactions with related parties
on terms that, on the whole, are no less favorable than those that would be
available from unaffiliated parties. Based on the Company's experience in the
industry and the terms of its transactions with unaffiliated parties, management
believes that all of the transactions described below met that standard at the
time such transactions were effected.

PROSPECTIVE

In connection with the Reorganization Transactions, the Company has entered
into several agreements with DeepTech, Mr. Tatham, the Partnership, and TBL.
Included in these agreements are the Contribution and Distribution Agreement
between the Company, DeepTech, DeepFlex and El Paso, the Standby Agreement
between the Company, DeepTech, Mr. Tatham, TBL and El Paso, the Purchase
Commitment Agreement between the Company and TBL, the Redemption Agreement
between the Company and a subsidiary of the Partnership, and the Tax Sharing
Agreement between the Company, DeepTech and DeepFlex. See "Business -- General
Business -- Description of Reorganization Transactions."

HISTORICAL

Management Agreement

The Management Agreement between Tatham Offshore and DeepTech provides for
an annual management fee which is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to Tatham Offshore. During the year ended June 30, 1997 and
for the six months ended December 31, 1997, DeepTech charged Tatham Offshore
$3,279,000 and $2,096,000, respectively, under the Management Agreement. As a
result of the Reorganization Transactions, if the Redemption Agreement is
consummated, the management fees due to DeepTech from Tatham Offshore will be
reduced by 50% effective retroactively to January 1, 1998.

Subordinated Notes Restructuring Option Agreement

Until December 17, 1997, DeepTech held Tatham Offshore's Subordinated Notes
with an aggregate principal amount of $60 million. On December 17, 1997,
DeepTech converted all of the principal amount outstanding under the
Subordinated Notes into 26,666,667 shares of Common Stock based on the market
price at the time of exercise. As part of this Offering, DeepTech is granting to
its stockholders Rights to purchase all of the Common Stock and Series A
Preferred Stock it owns. Following the Offering, DeepTech will not own any
shares of Common Stock or Series A Preferred Stock.

Marketing Agreements

Tatham Offshore and Offshore Marketing entered into purchase agreements
whereby Offshore Marketing has agreed to purchase all of the gas, oil and
condensate produced by Tatham Offshore from its properties on a month to month
basis. During the year ended June 30, 1997, Tatham Offshore sold 99% of its
production to Offshore Marketing. The agreement with Offshore Marketing provides
Offshore Marketing fees equal to 2%

59
<PAGE> 64

of the sales value of crude oil and condensate and $0.015 per dekatherm of
natural gas for selling Tatham Offshore's production. Tatham Offshore's sales to
Offshore Marketing totaled $20.5 million for the year ended June 30, 1997. All
such purchase agreements between Tatham Offshore and Offshore Marketing will
terminate on or prior to the Closing.

Convertible Exchangeable Preferred Stock

As of July 1, 1996, DeepFlex owned 4,670,957 shares of Series A Preferred
Stock and 5,329,043 warrants of Tatham Offshore. In December 1996, DeepFlex
exercised 1,016,957 of its Tatham Offshore warrants to acquire an equal number
of shares of Series C Preferred Stock at $1.00 per share. The remaining
4,312,086 warrants of Tatham Offshore held by DeepFlex were automatically
converted into an equal number of shares of Tatham Offshore's Mandatory
Redeemable Preferred Stock on January 1, 1997.

In February 1998, DeepFlex exchanged its 1,016,957 shares of Series C
Preferred Stock for 406,783 Exchange Warrants and immediately converted the
Exchange Warrants into 406,783 shares of Common Stock at $6.53 per share for a
total cost of $2,656,000. These shares are part of the shares included in this
Rights Offering. Tatham Offshore used the proceeds to redeem all of the
4,991,377 shares of Mandatory Redeemable Preferred Stock outstanding at $0.50
per share as required under the terms of the Mandatory Redeemable Preferred
Stock issue. DeepFlex received $2,156,000 as a result of this redemption by
Tatham Offshore.

In March 1998, DeepFlex transferred all of its shares of Series A Preferred
Stock and Common Stock (discussed above) to DeepTech in satisfaction of
$12,000,000 of the DeepFlex Debt.

Purchase and Sale Agreement

On June 30, 1995, the Partnership entered into a purchase and sale
agreement with Tatham Offshore pursuant to which the Partnership acquired,
subject to certain reversionary interests, a 75% working interest in Viosca
Knoll Block 817, a 50% working interest in Garden Banks Block 72 and a 50%
working interest in Garden Banks Block 117 (the "Subject Properties") from
Tatham Offshore for $30 million.

In connection with Reorganization Transactions, and more specifically the
Redemption Agreement, Tatham Offshore will assign all of its right, title and
interest in the purchase and sale agreement with the Partnership and the
properties related to such agreement to the Partnership.

Transportation, Processing and Platform Access Agreements

Tatham Offshore entered into transportation, processing and platform access
agreements with the Partnership pursuant to a Master Gas Dedication Agreement in
which Tatham Offshore dedicated all production from its Garden Banks, Viosca
Knoll, Ewing Bank and Ship Shoal leases as well as certain adjoining areas of
mutual interest to the Partnership for transportation. In exchange, the
Partnership agreed to install the pipeline facilities necessary to transport
production from the areas and certain related facilities and to provide
transportation services with respect to such production. These agreements are
generally in effect for the productive life of the reserves. Tatham Offshore
agreed to pay certain fees for transportation services and facilities access
provided under the Master Gas Dedication Agreement. Pursuant to the terms of the
purchase and sale agreement discussed above, the Partnership assumed all of
Tatham Offshore's obligations under the Master Gas Dedication Agreement and
certain ancillary agreements with respect to the Subject Properties. Tatham
Offshore paid the Partnership $4,126,000 under these agreements during the year
ended June 30, 1997.

As part of the Reorganization Transactions, the Company will assign all of
its right, title and interest in the Master Gas Dedication Agreement and related
agreements to the Partnership.

Dover Services Agreement

Effective November 1, 1995, Dover Technology, Inc. ("Dover"), an affiliate
of DeepTech, entered into a Technology Services Agreement with Tatham Offshore
(the "Dover Services Agreement") which expired on
60
<PAGE> 65

October 31, 1996. Under the Dover Services Agreement, Dover provided development
and exploration services to Tatham Offshore, which services included, without
limitation, 2-D and 3-D seismic interpretation, reserve quantification and
evaluation, prospect generation, log analyses, mapping and technical
presentations, and structural modeling utilizing CAEX technology with reasonable
access to DeepTech's equipment. For the year ended June 30, 1997, charges for
technical services by Dover to Tatham Offshore under the Dover Services
Agreement totaled $160,000. Tatham Offshore's payable to Dover for these
services in the amount of $1,734,000 at November 1, 1995 was converted into the
affiliate note discussed below.

Affiliate Note

On November 1, 1995, Tatham Offshore converted $1,734,000 of its accounts
payable to Dover into an unsecured promissory note payable to DeepTech. This
note bore interest at 14.5% per annum, payable quarterly, and the principal was
payable to DeepTech in six monthly installments which began on January 31, 1997.
Interest expense related to the note totaled $202,000 for the year ended June
30, 1997. Tatham Offshore paid the note in full on June 30, 1997.

Other

In September 1995, Tatham Offshore reacquired an aggregate 25% working
interest in Viosca Knoll Block 817 and an approximate 12.5% working interest in
the remainder of the Viosca Knoll Blocks 772/773, 774, 818 and 861
(collectively, the "Viosca Knoll Properties") from two industry partners for a
total of $16,000,000 in convertible production payments payable from 25% of the
net cash flow from the Viosca Knoll Properties so acquired. Under the agreements
related to the production payment, the unpaid portion of the production payments
is convertible into Common Stock at any time until September 2000. Upon
conversion, the holders of stock issued thereunder will be entitled to three
demand and unlimited "piggyback" registration rights. Under certain
circumstances, the industry partners may require DeepTech to purchase the
convertible production payments for an amount equal to 50% of the unrecovered
portion thereof. At February 28, 1998, the unpaid portion of the production
payment obligation totaled approximately $11.4 million. In March 1998, Mr.
Tatham acquired one-half of this convertible production payment.

61
<PAGE> 66
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, as of March 17, 1998, the beneficial
ownership of the outstanding Common Stock and Series A Preferred Stock by (i)
each person who is known to the Company to beneficially own more than 5% of the
outstanding Common Stock or Series A Preferred Stock, or any combination
thereof, of the Company, (ii) each director of the Company and (iii) all
executive officers and directors of the Company as a group as of the date of
this Prospectus.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
COMMON STOCK/ COMMON STOCK/ COMMON STOCK/
SERIES A PREFERRED STOCK BEFORE SERIES A PREFERRED STOCK SERIES A PREFERRED STOCK
THIS OFFERING(1)(2)(3)(4) SOLD IN THIS OFFERING AFTER THIS OFFERING(1)(2)(4)
-------------------------------- ------------------------- -----------------------------
NAME AND ADDRESS NUMBER PERCENT SHARES PERCENT SHARES PERCENT
---------------- --------------- ------------ ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Beeney............... 8,500 * -/- -/- 8,500 *
Phillip G. Clarke............... 6,379 * -/- -/- 6,379 *
Antoine Gautreaux, Jr........... 2,500(5) * -/- -/- 2,500 *
E. Lynn Hill.................... 15,000(6) * -/- -/- 15,000 *
Edward L. Moses................. 95,558/255,100(7) */1.4% -/- -/- 95,558/255,100 */1.4%
Clyde E. Nath................... 8,458(8) * -/- -/- 8,458 *
James G. Niven.................. 9,379(9) * -/- -/- 9,379 *
Jonathon D. Pollock............. 1,000(10) * -/- -/- 1,000 *
Thomas P. Tatham................ 596,875/ 2.0%/8.7% -/- -/- 596,875/ 2.0%/8.7%
7500 Chase Tower 1,537,600(11) 1,537,600
Houston, Texas 77002
Roger Vincent................... 2,371(12) * -/- -/- 2,371 *
Diana J. Walters................ 3,500(13) * -/- -/- 3,500 *
DeepTech International Inc...... 28,073,450/ 93.9%/26.5% 28,073,450/ 93.9%/ -/- -/-
7500 Chase Tower 4,670,957(14) 4,670,957 26.5%
Houston, Texas 77002
Elliott Associates, L.P......... 1,636,843/ 5.2%/34.3% -/- -/- 1,636,843/ 5.2%/34.3%
712 5th Avenue, 36th Floor 6,037,784(15) 6,037,784
New York, New York 10019
Martley International, L.P...... 1,636,843/ 5.2%/34.3% -/- -/- 1,636,843/ 5.2%/34.3%
1086 Teaneck Road 6,037,784(15) 6,037,784
Teaneck, New Jersey 07666
Westgate International, L.P..... 1,636,843/ 5.2%/34.3% -/- -/- 1,636,843/ 5.2%/34.3%
c/o Midland Bank Trust 6,037,784(15) 6,037,784
Corporation (Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman
Island, British West Indies
Executive officers and directors
as a group (15 persons)......... 793,620/ 2.6%/10.5% -/- -/- 793,620/ 2.6%/10.5%
1,854,000(16) 1,854,000
</TABLE>

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

* Less than 1%

(1) Shares of Common Stock that are not outstanding but that may be acquired by
a person upon exercise of options or warrants within 60 days of the date of
this Registration Statement are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person. However, such shares are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially
owned by other persons.

(2) Shares of Series B Preferred Stock and Series C Preferred Stock held by
each named person are assumed converted into shares Common Stock for the
purpose of computing the number of shares of Common Stock beneficially
owned by such person. Alternatively, each share of Series A Preferred
Stock, Series B and C Preferred Stock may be exchanged for 0.4 exchange
warrants which are each exercisable to purchase one share of Common Stock
at $6.53 per share.

(3) Excludes each named person's indirect ownership interest, if any, in the
shares of the Company beneficially owned by DeepTech.

(4) Excludes any shares of Common Stock that may be purchased by such
individuals in this Offering.

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<PAGE> 67

(5) Includes options to purchase 2,500 shares of Common Stock.

(6) Includes options to purchase 15,000 shares of Common Stock.

(7) Includes 69,158 shares assumed acquired as a result of conversion of
255,100 shares of Series A Preferred Stock into Common Stock.

(8) Includes options to purchase 3,000 shares of Common Stock.

(9) Includes options to purchase 3,000 shares of Common Stock.

(10) Mr. Pollock is Portfolio manager of Elliott Associates whose beneficial
ownership of securities is shown elsewhere in this table. Includes options
to purchase 1,000 shares of Common Stock.

(11) Includes 416,681 shares assumed acquired as a result of conversion of
1,537,600 shares of Series A Preferred Stock into Common Stock. Also
includes 1,834 shares assumed acquired as a result of conversion of 21,000
shares of Series C Preferred Stock into Common Stock.

(12) Includes 271 shares assumed acquired as a result of conversion of 1,000
shares of Series A Preferred Stock into Common Stock. Also includes options
to purchase 2,000 shares of Common Stock.

(13) Includes options to purchase 1,000 shares of Common Stock.

(14) Includes 1,266,296 shares of Common Stock assumed acquired as a result of
the conversion of 4,670,957 shares of Series A Preferred Stock.

(15) The shares credited to Elliott Associates, a Delaware limited partnership,
Westgate International, L.P., a Cayman Islands Limited Partnership
("Westgate") and Martley International, Inc., a Delaware corporation as
beneficial ownership interest include (a) 1,406,408 shares beneficially
owned by Elliott Associates ("Elliott Shares") and (b) 230,435 shares
beneficially owned by Westgate ("Westgate Shares"). The Elliott Shares
include 1,406,408 shares that Elliott Associates may acquire on conversion
of 5,187,784 shares of Series A Preferred Stock into Common Stock.

(16) Includes (i) 502,619 shares of Common Stock assumed acquired upon
conversion of 1,854,000 shares of Series A Preferred Stock, (ii) 1,834
shares of Common Stock assumed acquired upon conversion of 21,000 shares of
Series C Preferred Stock and (iii) options to purchase 27,500 shares of
Common Stock.

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<PAGE> 68

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's present authorized capital consists of 360,000,000 shares of
stock, comprised of 250,000,000 shares of Common Stock, par value of $0.01 per
share, and 110,000,000 shares of Preferred Stock, par value of $0.01 per share.

COMMON STOCK

Subject to the rights of holders of Preferred Stock of the Company then
outstanding (including shares of Convertible Exchangeable Preferred Stock),
holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board of Directors of the Company. Holders of Common
Stock are entitled to one vote per share on all matters on which the holders of
Common Stock are entitled to vote. Because holders of Common Stock do not have
cumulative voting rights, the holders of a majority of the shares of Common
Stock represented at a meeting can select all of the directors. In addition,
super majority voting requirements apply in respect of certain stockholder
actions. In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock would be entitled to share ratably in all assets of the
Company available for distribution to the holders of Common Stock.

Shares of Common Stock are not liable to further calls or assessments by
the Company. Stockholders do not have preemptive rights to purchase any
securities of the Company.

As of March 17, 1998, there were 160 stockholders of record of Common Stock
and 29,982,673 shares issued and outstanding.

The Transfer Agent and Registrar for the Common Stock and Series A
Preferred Stock is ChaseMellon Shareholder Services, L.L.C.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation of the Company, the Company's
Board of Directors is authorized, subject to any limitations prescribed by law,
to provide for the issuance of shares of Preferred Stock in series and to
establish from time to time the number of shares to be included in each such
series to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof.
Because the Board of Directors has the power to establish the preferences and
rights of each series, it may afford the holders of any Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of Common Stock. The issuance of shares of Preferred Stock, or the
issuance of rights to purchase such shares, could be used to discourage an
unsolicited acquisition proposal.

As of the date of this Prospectus, the Board of Directors has provided for
the issuance of five series of Preferred Stock: Series B Senior Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Mandatory Redeemable Preferred Stock. The aggregate number of issued shares of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Mandatory Redeemable Preferred Stock may not exceed 25,120,948 at any given
time. The Mandatory Redeemable Preferred Stock was retired in February 1998.

Series B Senior Preferred Stock. The Series B Senior Preferred Stock has a
liquidation preference of $1,000 per share and accrues quarterly dividends at an
annual rate of 9% on the liquidation preference commencing on March 31, 1996. As
of March 31, 1998, 7,500 shares of the Series B Senior Preferred Stock were
issued and outstanding to the Partnership. All of the Series B Senior Preferred
Stock will be retired as part of the Reorganization Transactions.

Each outstanding share of Series B Senior Preferred Stock may be converted,
at any time and from time to time, into such number of whole shares of Series A
Preferred Stock as is equal to (i) the sum of $1,000 and any accrued and unpaid
dividends thereon through the date of conversion divided by (ii) $0.9375 (the
"Trading Reference Price"). The Trading Reference Price is subject to adjustment
for certain events,
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<PAGE> 69

including without limitation, a stock dividend of Series A Preferred Stock, a
stock split, a reverse stock split, an issuance of rights, warrants or options,
and a distribution of assets. To convert the Series B Senior Preferred Stock,
the holder of such shares must deliver to the Company (i) certificate(s)
representing the shares of Series B Senior Preferred Stock to be converted and
(ii) a written notice of election.

Series A Preferred Stock. The Series A Preferred Stock accrues dividends
quarterly which are payable commencing on September 30, 1996, at an annual rate
of 12% on the liquidation preference of $1.50 per share. Such dividends are
cumulative and payable in arrears.

Upon liquidation, dissolution or winding up, the Series A Preferred Stock
will rank (i) senior to the Series B Preferred Stock, the Series C Preferred
Stock, the Common Stock and each other class of capital stock or series of
Preferred Stock that may be issued that ranks junior to the Series A Preferred
Stock with respect to liquidation, dissolution or winding up, (ii) on a parity
with each other class of capital stock or series of Preferred Stock that may be
issued that ranks on a parity with the Series A Preferred Stock with respect to
liquidation, dissolution or winding up and (iii) junior to each other class of
capital stock or series of Preferred Stock that may be issued that ranks senior
to the Series A Preferred Stock with respect to liquidation, dissolution or
winding up.

Each outstanding share of Series A Preferred Stock may be converted, at any
time and from time to time, into such number of whole shares of Common Stock as
is equal to (i) the sum of $1.50 and any accrued and unpaid dividends thereon
through the date of conversion divided by (ii) $6.53 (the "Trading Reference
Price"). If the Company elects to redeem the Series A Preferred Stock, all such
rights to convert shall terminate, however, at 5:00 p.m., New York City time, on
the last business day before the redemption is to occur. The Trading Reference
Price is subject to adjustment for certain events, including without limitation,
a stock dividend of Common Stock, a stock split, a reverse stock split, an
issuance of rights, warrants or options, and a distribution of assets. To
convert the Series A Preferred Stock, the holder of such shares must deliver to
the Company (i) certificate(s) representing the shares of Series A Preferred
Stock to be converted and (ii) a written notice of election. Further, at any
time until December 31, 1998, each share may be exchanged for 0.4 Exchange
Warrants, each of which entitles the holder to purchase one share of Common
Stock at $6.53 per share. The Exchange Warrants expire on July 1, 1999.

As of March 31, 1998, 17,623,710 shares of Series A Preferred Stock were
issued and outstanding and each share of Series A Preferred Stock had
approximately $0.31 of accrued and unpaid dividends for a total of $5,551,469.

Series B Preferred Stock. Series B Preferred Stock accrues dividends
quarterly which are payable commencing on December 31, 1996, at an annual rate
of 8% on the liquidation preference of $1.00 per share. Such dividends are
cumulative and payable in arrears.

Upon liquidation, dissolution or winding up, the Series B Preferred Stock
will rank (i) senior to the Series C Preferred Stock, the Common Stock and to
each other class of capital stock or series of Preferred Stock that may be
issued that ranks junior to the Series B Preferred Stock with respect to
liquidation, dissolution or winding up, (ii) on a parity with each other class
of capital stock or series of Preferred Stock that may be issued that ranks on a
parity with the Series B Preferred Stock with respect to liquidation,
dissolution or winding up, and (iii) junior to the Series A Preferred Stock and
to each other class of capital stock or series of Preferred Stock that may be
issued that ranks senior to the Series B Preferred Stock with respect to
liquidation, dissolution or winding up.

Each outstanding share of Series B Preferred Stock may be converted, at any
time and from time to time, into such number of whole shares of Common Stock as
is equal to (i) the sum of $1.00 and any accrued and unpaid dividends thereon
through the date of conversion divided by (ii) $6.53 (the "Trading Reference
Price"). If the Company elects to redeem the Series B Preferred Stock, all such
rights to convert shall terminate, however, at 5:00 p.m., New York City time, on
the last business day before the redemption is to occur. The Trading Reference
Price is subject to adjustment for certain events, including without limitation,
a

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<PAGE> 70

stock dividend of Common Stock, a stock split, a reverse stock split, an
issuance of rights, warrants or options, and a distribution of assets. To
convert the Series B Preferred Stock, the holder of such shares must deliver to
the Company (i) certificate(s) representing the shares of Series B Preferred
Stock to be converted and (ii) a written notice of election. Further, at any
time until December 31, 1998, each share may be exchanged for 0.4 Exchange
Warrants, each of which entitles the holder to purchase one share of Common
Stock at $6.53 per share. The Exchange Warrants expire on July 1, 1999.

As of March 31, 1998, 74,379 shares of Series B Preferred Stock were issued
and outstanding and each share of Series B Preferred Stock had approximately
$0.12 of accrued and unpaid dividends for a total of $8,925.

Series C Preferred Stock. Series C Preferred Stock accrues dividends
quarterly beginning January 1, 1997, at an annual rate of 4%, on the liquidation
preference of $0.50 per share. Such dividends are cumulative and payable in
arrears.

Upon liquidation, dissolution or winding up, the Series C Preferred Stock
will rank (i) senior to the Common Stock and other class of capital stock or
series of Preferred Stock that may be issued that ranks junior to the Series C
Preferred Stock with respect to liquidation, dissolution or winding up, (ii) on
a parity with each other class of capital stock or series of Preferred Stock
that may be issued that ranks on a parity with the Series C Preferred Stock with
respect to liquidation, dissolution or winding up, and (iii) junior to the
Series A Preferred Stock, the Series B Preferred Stock and each other class of
capital stock or series of Preferred Stock that may be issued that ranks senior
to the Series C Preferred Stock with respect to liquidation, dissolution or
winding up.

Each outstanding share of Series C Preferred Stock may be converted, at any
time and from time to time, into such number of whole shares of Common Stock as
is equal to (i) the sum of $0.50 and any accrued and unpaid dividends thereon
through the date of conversion divided by (ii) $6.53 (the "Trading Reference
Price"). If the Company elects to redeem the Series C Preferred Stock, all such
rights to convert shall terminate, however, at 5:00 p.m., New York City time, on
the last business day before the redemption is to occur. The Trading Reference
Price is subject to adjustment for certain events, including without limitation,
a stock dividend of Common Stock, a stock split, a reverse stock split, an
issuance of rights, warrants or options, and a distribution of assets. To
convert the Series C Preferred Stock, the holder of such shares must deliver to
the Company (i) certificate(s) representing the shares of Series C Preferred
Stock to be converted and (ii) a written notice of election. Further, at any
time until December 31, 1998, each share may be exchanged for 0.4 Exchange
Warrants, each of which entitles the holder to purchase one share of Common
Stock at $6.53 per share. The Exchange Warrants expire on July 1, 1999.

As of March 17, 1998, 321,205 shares of Series C Preferred Stock were
issued and outstanding and each share of Series C Preferred Stock had
approximately $0.03 of accrued and unpaid dividends for a total of $8,030.

RIGHTS

DeepTech is granting the Rights on the date hereof to the holders of its
Common Stock. The Rights, subject to minimum exercise requirements, are each
exercisable for 1.12654 Underlying Common Shares and 0.18744 Underlying
Preferred Shares at a Subscription Price of $3.25 for such Underlying Shares.
Rights may be transferred, in whole or in part, by endorsing and delivering to
the Rights Agent a Rights Certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the expiration date of the Rights. This Offering will
terminate and the Rights will expire at 5:00 p.m., New York City time, on the
Expiration Date, which is , 1998. After the expiration date,
unexercised Rights will be null and void. For more information about the Rights
and the Offering process, see "The Offering" and "Risk Factors -- Cancellation
of Rights Offering."

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PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS

The Certificate of Incorporation (the "Certificate") and the Bylaws of the
Company contain provisions that could have an anti-takeover effect. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors of the Company and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company. The provisions are designed to reduce the vulnerability of the Company
to an unsolicited proposal for a takeover of the Company that does not
contemplate the acquisition of all of its outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of the Company. The
provisions are also intended to discourage certain tactics that may be used in
proxy fights. The Board of Directors believes that, as a general rule, such
takeover proposals would not be in the best interest of the company and its
stockholders. Set forth below is a description of such provisions in the
Certificate and the Bylaws. The Board of Directors has no current plans to
formulate or effect additional measures that could have an anti-takeover effect.

Pursuant to the Certificate, directors, other than those, if any, elected
by the holders of Preferred Stock, can be removed from office by the affirmative
vote of the holders of 66 2/3% of the voting power of the then outstanding
shares of capital stock entitled to vote thereon ("Voting Stock"). Vacancies on
the Board of Directors may only be filled by the remaining directors and not by
the stockholders.

Except as otherwise provided for with respect to the rights of the holders
of Preferred Stock, the Certificate provides that the whole Board of Directors
will consist of that number of directors determined from time to time by the
Board of Directors.

The Bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election to the Board of Directors and with
regard to certain matters to be brought before an annual meeting of stockholders
of the Company. In general notice must be received by the Company not later than
10 days after the public announcement of the meeting date and must contain
certain specified information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.

The Company has elected not to be governed by Section 203 of the DGCL. The
Certificate provides, however, that in addition to any other vote required by
law, a "business combination" (which is defined in the Certificate to generally
include (i) any merger or consolidation with or into, (ii) any sale or other
transfer of assets aggregating $1.0 million or more to or (iii) other material
corporate transactions with, a "related person" (which is defined in the
Certificate to generally include any person, entity or group which beneficially
owns 10% or more of the outstanding voting stock of the Company, provided,
however, that Mr. Tatham and his respective heirs, successors, assigns and
certain designees are deemed not to be a "related person")) shall require the
affirmative vote of the holders of at least 75% or more of the combined voting
power of the then outstanding shares of voting capital stock of the Company,
voting together as a class; provided, however, if there are one or more
"continuing directors" then in office, and such business combination has been
approved by the Board of Directors (including the affirmative vote of at least a
majority of the "continuing directors"), then such "business combination shall
only require such vote, if any, as is required by law or by other provisions of
the Certificate. A "continuing director" means generally, as to any related
person, any member of the Board of Directors who (i) is not, and is not
affiliated with, the related person and (ii) became a member of the Board of
Directors prior to the time the related person became a related person or is a
successor to a continuing director.

The Certificate provides that, except as otherwise provided for with
respect to the rights of the holders of Preferred Stock no action that is
required or permitted to be taken by the Company's stockholders at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders, unless the action to be
effected by written consent of stockholders and the taking of such action by
such written consent have expressly been approved in advance by the Board of
Directors and, if such action involves a business combination, such written
consent shall have expressly been approved in advance by the affirmative vote of
at least a majority of the continuing directors then in office.

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<PAGE> 72

The Certificate further provides that the Board of Directors, by a majority
vote, may adopt, alter, amend or repeal provisions of the Bylaws. However,
stockholders may only adopt alter, amend or repeal provisions of the Bylaws by a
vote of 66 2/3% outstanding Voting Stock. In addition, the Certificate provides
that whenever any vote of Voting Stock is required by law to amend, alter,
repeal or rescind ("Change") any provision thereof, then, in addition to any
affirmative vote required by law, (i) the affirmative vote of 66 2/3% or more of
the combined voting power of the then outstanding shares of Voting Stock is
required to change certain provisions of the Certificate, including the
provisions referred to above relating to vacancies on the Board of Directors,
removal of directors, prohibiting stockholder action by written consent the
calling of special meetings by stockholders and approval of amendments to the
Company's Bylaws and (ii) if at that time there exists one or more related
persons, such Change must also be approved by the affirmative vote of the
holders of at least a majority of the combined voting power of the Disinterested
Shares (as defined in the Certificate).

LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION

The Certificate limits the liability of the directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by the DGCL. Accordingly, pursuant to
the DGCL, directors will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any action from which the director
derived an improper personal benefit. The Certificate also provides that if the
DGCL is amended after the approval of the Certificate to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Company will be eliminated or limited tot he
full extent permitted by the DGCL, as so amended.

In addition, the Bylaws, in substance, require the Company to indemnify
each person who is or was a director, officer, employee or agent of the Company
to the full extent permitted by the laws of the State of Delaware if he is
involved in legal proceedings by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at the
Company's request as a director, officer, employee or agent of another
corporation, partnership or other enterprise. The Company is also required to
advance to such persons payments incurred in defending a proceeding to which
indemnification might apply, provided the recipient provides and undertaking
agreeing to repay all such advanced amounts if it is ultimately determined that
he is not entitled to be indemnified. In addition, the bylaws specifically
provide that the indemnification rights granted thereunder are non-exclusive.

The Company has entered into indemnification agreements with certain of its
directors providing for indemnification to the full extent permitted by the laws
of the State of Delaware. These agreements provide for specific procedures to
better assure the directors' rights to indemnification, including procedures for
directors to submit claims, for determination of directors' entitlement to
indemnification (including the allocation of the burden of proof and selection
of a reviewing party) and for enforcement of directors' indemnification rights.
The Company has officers' and directors' liability insurance in amounts that are
reasonable under the circumstances.

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<PAGE> 73

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Common Stock and Series A Preferred Stock by existing
stockholders, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock and the Series A Preferred Stock.
Currently, the Company has 29,982,673 shares of Common Stock and 17,623,710
shares of Series A Preferred Stock outstanding, and of which are freely
tradeable without restriction except for shares purchased by affiliates of the
Company. As of [ ], approximately [ ]shares of the
outstanding Common Stock and [ ] shares of Series A Preferred
Stock were "restricted securities" within the meaning of Rule 144 (the
"Restricted Shares"). Such shares may be resold publicly only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. Directors and officers of the Company held
approximately [ ]% of the Restricted Shares and directors of the Company
held vested options exercisable for approximately 29,000 shares of Common Stock
as of March 17, 1998.

In general under Rule 144, a person (or persons whose shares are
aggregated) who beneficially owns Restricted Shares that have been held for a
period of at least two years by a person other than an affiliate of the Company
is entitled to sell within any three-month period, a number of shares that does
not exceed the greater of: (i) one percent of the then outstanding shares of
Common Stock, or (ii) an amount equal to the average weekly reported volume of
trading in such shares during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale notice requirements
and the availability of current public information about the Company. A person
(or persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company and who has beneficially owned Restricted Shares for
at least two years by a person is entitled to sell such shares under Rule 144
without regard to these volume or other limitations. Restricted Shares properly
sold in reliance on Rule 144 are thereafter freely tradeable without
restrictions or registration under the Securities Act, unless thereafter held by
an affiliate of the Company.

FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of the material United States federal
income tax consequences affecting holders of DeepTech common stock receiving
Rights in this Offering and is not intended to be a complete discussion of all
potential tax effects that might be relevant to this Offering. Such discussion
deals only with a citizen or resident of the United States or a domestic
corporation. This summary assumes that the Rights and DeepTech stock are held as
a capital asset. It may not be applicable to certain classes of taxpayers,
including, without limitation, insurance companies, tax-exempt organization,
financial institutions, securities dealers, broker-dealers, foreign persons,
persons who hold DeepTech Stock as part of a conversion transaction, and persons
who acquired DeepTech Stock pursuant to the exercise of employee stock options
or rights or otherwise as compensation. Moreover, the state, local, foreign, and
states tax consequences to DeepTech stockholders are not discussed.

This summary is based on laws, regulations, rulings, practices, and
judicial decisions in effect at the date of this Registration Statement.
However, legislative, judicial, or administrative changes or interpretations may
be forthcoming that could after or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences described herein to stockholders. EACH
STOCKHOLDER IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S OWN TAX ADVISER AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE TRANSACTIONS DESCRIBED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN
TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.

DISTRIBUTION OF RIGHTS TO HOLDERS OF DEEPTECH SHARES

The Rights, representing the right to acquire the Underlying Shares from
DeepTech, can be considered as constituting "property" within the meaning of
Section 317(a) of the Code. Assuming the Rights are treated as property, the
federal income tax consequences of a distribution of the Rights, as determined
under the Code
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<PAGE> 74

and the regulations thereunder, are as follows: (i) each noncorporate DeepTech
stockholder will be deemed to have received a distribution from DeepTech,
generally taxable as ordinary dividend income, in an amount equal to the fair
market value (if any) of the Rights, as of the date of distribution, to the
extent of the accumulated and current earnings and profits of DeepTech, (ii)
each corporate DeepTech stockholder (other than foreign corporations and S
corporations) will be deemed to have received a distribution from DeepTech
(generally taxable as a dividend subject to the dividends received deduction for
corporations (generally 70%, or 80% under certain circumstances)) in an amount
equal to the fair market value (if any) of the Rights, as of the date of
distribution to the extent of the accumulated and current earnings and profits
of DeepTech; and (iii) the tax basis of the Rights in the hands of each holder
(whether corporate or noncorporate) of DeepTech common stock will be equal to
the fair market value (if any) of the Rights as of the date of distribution. To
the extent the fair market value of the Rights (if any) exceeds the accumulated
and current earnings and profits of DeepTech, such excess will be treated first
as a return of basis to the stockholders, with respect to its DeepTech stock, to
the extent thereof, (and, therefore, not taxable) and second as gain from the
sale or exchange of such stockholder's DeepTech stock. A corporation that has
held its shares of DeepTech common stock for less than two years may be subject
to the extraordinary dividend rules of Section 1059 of the Code, which, if
applicable, generally would reduce the corporation's basis in its DeepTech
common stock by the amount of the dividends received deduction taken with
respect to the distributed Rights and would result in gain recognition to the
extent that the amount of such dividends received deduction exceeds such basis.

Since the fair market value of the Rights will determine the amount of
taxable income the DeepTech stockholder is deemed to receive, the determination
of the fair market value of each Right as of the date of distribution is
critical. Because of the predominantly factual nature of determining the fair
market value, if any, of the Rights, DeepTech cannot predict the fair market
value of the Rights.

EXERCISE OF RIGHTS

Holders of Rights, whether corporate or noncorporate, will recognize
neither gain nor loss upon their exercise. A holder of Rights who receives the
Underlying Shares upon the exercise of the Rights will acquire a tax basis in
such shares equal to the sum of the exercise price paid under this Offering and
the fair market value (if any) of the Rights as of the date of distribution,
which such tax basis will be allocated between the Common Stock and Series A
Preferred Stock based on the relative fair market values of each. Upon the
exercise of the Rights, a DeepTech stockholder's holding period in the
Underlying Shares will begin on the date of such exercise.

TRANSFER OF RIGHTS

The transferable nature of the Rights will permit a holder of Rights to
sell its Rights prior to exercise. Pursuant to Section 1234 of the Code, a
Rights holder who sells Rights prior to exercise will be entitled to treat the
difference between the amount received for the Rights and the adjusted tax basis
(if any) of the holder of Rights in the Rights as a short-term capital gain or
capital loss, provided that Underlying Shares subject to the Rights would have
been a capital asset in the hands of the holder if the Underlying Shares had
been acquired by him. The gain or loss so recognized will be short-term since
the Rights will have been held for less than 12 months.

NON-EXERCISE OF RIGHTS

The income tax treatment applicable to holders of Rights who fail to
exercise or transfer their Rights prior to the expiration date also is set forth
in Section 1234 of the Code. Holders of Rights who allow their Rights to lapse
are deemed under the Code to have sold their Rights on the date on which the
Rights expire. Since upon such lapse the holder will have received no
consideration, and since the Rights will have been held for less than 12 months,
the Holder will sustain a short-term capital loss equal to the tax basis (if
any) in the Rights on such lapse, provided that Underlying Shares subject to the
Rights would have been a capital asset in the hands of the holder had he
acquired such Underlying Shares.

70
<PAGE> 75

CONVERSION OF SERIES A PREFERRED STOCK

The conversion of the Series A Preferred Stock for Common Stock by a holder
should be treated as a reorganization described under section 368(a) of the
Code. Each holder of Series A Preferred Stock should recognize no gain or loss
upon such conversion, except to the extent of any shares of Common Stock
received in satisfaction of accrued but unpaid dividends on the Series A
Preferred Stock.

The amount of such accrued but unpaid dividends should be treated as a
distribution with respect to such Series A Preferred Stock and, thus, taxable as
a dividend to the extent of the current and accumulated earnings and profits of
the Company. To the extent the amount of accrued but unpaid dividends exceeds
the current and accumulated earnings and profits of the Company, such excess
should be treated first as a return of tax basis with respect to the Series A
Preferred Stock and second as gain from the sale or exchange of the holder's
Series A Preferred Stock.

A holder receiving cash in lieu of a fractional share of Common stock, if
any, should be treated as having received such fractional share and then as
having received such cash in redemption of such fractional share. Such a holder
should generally recognize capital gain or loss on such deemed redemption equal
to the difference between the amount of cash received and the holder's adjusted
tax basis in the fractional share of Common Stock deemed received.

Upon conversion, a holder of Series A Preferred Stock should acquire a tax
basis in the Common Stock equal to its adjusted tax basis in its Series A
Preferred Stock immediately prior to the conversion, plus the sum of (i) any
amounts it is treated as having received as a dividend and (ii) any gain from
the deemed redemption of a fractional share of Common Stock and less any cash
received in lieu of a fractional share of Common Stock. The holding period of
each share of Common Stock received upon the conversion should include the
holding period of each holder's Series A Preferred Stock except for any shares
received in satisfaction of accrued but unpaid dividends, which should have a
holding period starting on the day of the conversion.

POTENTIAL TAXATION OF HOLDERS OF SERIES A PREFERRED STOCK

Because the Company has never paid dividends on the Series A Preferred
Stock, the Internal Revenue Service could assert that the holders of Series A
Preferred Stock are required to report all accrued and unpaid dividends on such
stock as taxable income. In such case, a holder of Series A Preferred Stock may
have to report income for all dividends on shares of Series A Preferred Stock
that accrue during the holding period of such stock, regardless of whether such
holder ever receives cash dividends.

LEGAL MATTERS

The validity of the shares of Common Stock and Series A Preferred Stock
offered hereby will be passed upon for the Company by Akin, Gump, Strauss, Hauer
& Feld, L.L.P., Houston, Texas.

71
<PAGE> 76

EXPERTS

The financial statements of Tatham Offshore as of June 30, 1997 and 1996
and each of the three years in the period ending June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of DeepFlex as of June 30, 1997 and 1996 and for
each of the two years in the period ending June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

Information derived from the report of Ryder Scott, independent petroleum
engineers, with respect to estimated oil and gas reserves of Tatham Offshore
included in this Prospectus have been so included in reliance upon the authority
of said firm as experts with respect to the matters contained in their report.

DEFINED TERMS

The following are abbreviations and words commonly used in the oil and gas
industry and in this Prospectus.

"bbl" or "barrel" means barrels, a standard measure of volume for oil,
condensate and natural gas liquids, which equals 42 U.S. gallons.

"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 commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.

"gross" oil and natural gas wells or gross acres are the total number of
wells or acres, respectively, in which the Company has an interest, without
regard to the size of that interest.

"Mcf" means thousand cubic feet, a standard measure of volume for gas.

"MMcf" means million cubic feet.

"net" oil and natural gas wells or "net" acres or "net" production or
reserves are the total gross number of wells or acres, respectively, in which
the Company has an interest multiplied times the Company's working interest in
such wells or acres.

"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.

72
<PAGE> 77

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA TATHAM OFFSHORE, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................. F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1997................................ F-3
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Six Months Ended December 31,
1997................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended June 30, 1997............ F-5
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-6
HISTORICAL TATHAM OFFSHORE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet as of December 31, 1997
(unaudited) and June 30, 1997.......................... F-9
Unaudited Consolidated Statement of Operations for the Six
Months Ended December 31, 1997 and 1996,
respectively........................................... F-10
Unaudited Consolidated Statement of Cash Flows for the Six
Months Ended December 31, 1997 and 1996................ F-11
Consolidated Statement of Stockholders' Equity (Deficit)
for the Six Months Ended December 31, 1997
(unaudited)............................................ F-12
Notes to Consolidated Financial Statements................ F-13
HISTORICAL TATHAM OFFSHORE, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-17
Consolidated Balance Sheet as of June 30, 1997 and 1996... F-18
Consolidated Statement of Operations for the Years Ended
June 30, 1997, 1996 and 1995........................... F-19
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995........................... F-20
Consolidated Statement of Stockholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995............... F-21
Notes to Consolidated Financial Statements................ F-22
HISTORICAL DEEPFLEX PRODUCTION SERVICES, INC. AND
SUBSIDIARIES
Report of Independent Accountants......................... F-37
Consolidated Balance as of December 31, 1997 (unaudited)
and June 30, 1997 and 1996............................. F-38
Consolidated Statement of Operations for the Six Months
Ended December 31, 1997 and 1996 (unaudited) and for
the Years Ended June 30, 1997 and 1996................. F-39
Consolidated Statement of Cash Flows for the Six Months
Ended December 31, 1997 and 1996 (unaudited) and for
the Years Ended June 30, 1997 and 1996................. F-40
Consolidated Statements of Stockholder's Equity (Deficit)
for the Years Ended June 30, 1996 and 1997 and for the
Six Months Ended December 31, 1997 (unaudited)......... F-41
Notes to Consolidated Financial Statements................ F-42
</TABLE>

F-1
<PAGE> 78

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements at and
for the six months ended December 31, 1997 and for the year ended June 30, 1997
have been prepared based on the historical consolidated balance sheet and
statement of operations of Tatham Offshore, Inc. and its subsidiaries ("Tatham
Offshore"). The historical balance sheet and statement of operations were
adjusted to give effect to the transactions identified below (the
"Transactions"). The balance sheet was adjusted by giving effect to the
Transactions as if they had occurred on December 31, 1997. The statements of
operations for the six months ended December 31, 1997 and for the year ended
June 30, 1997 were adjusted by giving effect to the Transactions as if they had
occurred on July 1, 1997 and July 1, 1996, respectively.

Tatham Offshore, 94%-owned by DeepTech International Inc. ("DeepTech")
which is a diversified energy company, is currently engaged in exploration and
production activities in the flextrend and deepwater areas of the Gulf of Mexico
(the "Gulf") and is pursuing energy related opportunities in eastern Canada,
including the development of offshore pipeline infrastructure. DeepFlex
Production Services, Inc. ("DeepFlex"), a wholly-owned subsidiary of DeepTech,
through its subsidiaries, focuses on the acquisition and deployment of
semisubmersible drilling rigs for contract drilling services. DeepFlex owns and
operates two semisubmersible drilling rigs, the FPS Bill Shoemaker and the FPS
Laffit Pincay.

The pro forma financial information gives effect to the following
Transactions:

(1) The Boards of Directors of El Paso Natural Gas Company ("El Paso")
and DeepTech and a majority of DeepTech stockholders have approved a
definitive merger agreement (the "Merger"). Prior to and in connection with
the Merger, the following events will occur. DeepFlex will convey to
DeepTech all of its equity ownership in Tatham Offshore (including 406,783
shares of common stock and 4,670,957 shares of Series A 12% Convertible
Exchangeable Preferred Stock ("Series A Preferred Stock")) as satisfaction
of approximately $12 million of the amount DeepFlex owes to DeepTech under
an intercompany line of credit. DeepTech will then offer all of the shares
of Tatham Offshore common stock and Series A Preferred Stock held by
DeepTech to the stockholders of DeepTech in a rights offering.
Additionally, DeepTech will contribute to the capital of DeepFlex all of
its remaining amounts due from DeepFlex under an intercompany line of
credit, except for $8.0 million, prior to contributing all of the
outstanding shares of capital stock of DeepFlex to Tatham Offshore.
Further, DeepTech will exchange the remaining $8.0 million due from
DeepFlex for Tatham Offshore's assignment to DeepTech of all of the
outstanding shares of capital stock of Tatham Offshore Development, Inc.
("Tatham Development") which owns leases covering Ewing Bank Blocks 958,
959, 1002 and 1003 located in the Gulf.

(2) Additionally, in connection with the Merger, Leviathan Gas
Pipeline Partners, L.P. (the "Partnership"), effectively owned 23.2% by
DeepTech and 27.3% by El Paso after the Merger, has agreed to exchange
7,500 shares of Tatham Offshore Series B 9% Senior Convertible Preferred
Stock ("Senior Preferred Stock") currently held by the Partnership for 100%
of Tatham Offshore's right, title and interest in and to its remaining oil
and gas assets located in the Gulf. Tatham Offshore has agreed to pay an
amount to the Partnership at closing equal to the net cash generated from
these properties, if any, from January 1, 1998 through the closing date and
the Partnership has agreed to assume all abandonment and restoration
obligations associated with these assets.

The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of Tatham Offshore's consolidated financial condition or
results of operations that might have occurred had the Transactions been
completed at the beginning of the period or as of the date specified, and do not
purport to indicate Tatham Offshore's consolidated financial position or results
of operations for any future period or at any future date. The unaudited pro
forma condensed consolidated financial statements should be read in the context
of the related historical consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.

F-2
<PAGE> 79

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DEEPFLEX PRO FORMA
HISTORICAL PRO FORMA(A) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 2,919 $ 1,304 $ -- $ 4,223
Accounts receivable................... 963 4,506 -- 5,469
Prepaid assets........................ 116 151 -- 267
--------- -------- -------- ---------
Total current assets.......... 3,998 5,961 -- 9,959
--------- -------- -------- ---------
Property and equipment:
Oil and gas properties, at cost....... 51,906 -- (22,079)(b) --
Semisubmersible drilling rigs......... -- 130,390 (29,827)(c) 130,390
--------- -------- -------- ---------
51,906 130,390 (51,906) 130,390
Less: Accumulated depreciation,
depletion, amortization and
impairment......................... 23,366 3,939 (23,366)(c) 3,939
--------- -------- -------- ---------
Property and equipment, net........ 28,540 126,451 (28,540) 126,451
--------- -------- -------- ---------
Deferred costs.......................... 8,963 -- -- 8,963
Debt issue costs, net................... -- 1,735 -- 1,735
--------- -------- -------- ---------
Total assets.................. $ 41,501 $134,147 $(28,540) $ 147,108
========= ======== ======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 2,584 $ 1,213 $ -- $ 3,797
Notes payable......................... -- 68,876 -- 68,876
Note payable to DeepTech.............. -- 8,000 (8,000)(b) --
--------- -------- -------- ---------
Total current liabilities..... 2,584 78,089 (8,000) 72,673
Other noncurrent liabilities............ 7,150 -- (400)(b) --
(6,750)(c)
--------- -------- -------- ---------
Total liabilities............. 9,734 78,089 (15,150) 72,673
--------- -------- -------- ---------
Minority interests in consolidated
subsidiaries.......................... -- 250 -- 250
--------- -------- -------- ---------
Stockholders' equity:
Preferred stock....................... 243 -- --(c) 243
Common stock.......................... 295 -- -- 295
Additional paid-in capital............ 146,177 61,409 (14,421)(b) 193,454
289(c)
Accumulated deficit................... (114,948) (5,601) 742(b) (119,807)
--------- -------- -------- ---------
31,767 55,808 (13,390) 74,185
--------- -------- -------- ---------
Total liabilities and
stockholders' equity........ $ 41,501 $134,147 $(28,540) $ 147,108
========= ======== ======== =========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-3
<PAGE> 80

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DEEPFLEX
PRO PRO FORMA
HISTORICAL FORMA(A) ADJUSTMENTS PRO FORMA
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Drilling services.............................. $ -- $34,772 $ -- $34,772
Oil and gas sales.............................. 7,159 -- (7,159)(b) --
------- ------- ------- -------
7,159 34,772 (7,159) 34,772
------- ------- ------- -------
Costs and expenses:
Production, operating and exploration
expenses.................................... 3,124 17,409 (3,068)(b) 17,409
(56)(c)
Depreciation, depletion and amortization....... 2,039 2,596 (2,039)(b) 2,596
Management fee and general and administrative
expenses.................................... 2,964 70 (38)(b) 2,991
(5)(c)
------- ------- ------- -------
8,127 20,075 (5,206) 22,996
------- ------- ------- -------
Operating (loss) income.......................... (968) 14,697 (1,953) 11,776
Interest income.................................. 178 210 -- 388
Interest and other financing costs............... -- (5,164) -- (5,164)
Interest expense -- affiliates................... (1,720) -- 1,720(d) --
------- ------- ------- -------
Net (loss) income................................ (2,510) 9,743 (233) 7,000(f)
Preferred stock dividends........................ (1,965) -- 338(e) (1,627)
------- ------- ------- -------
Net (loss) income available to common
shareholders................................... $(4,475) $ 9,743 $ 105 $ 5,373
======= ======= ======= =======
Weighted average number of shares outstanding.... 4,934 4,934
======= =======
Basic net (loss) income per common share......... $ (0.91) $ 1.09
======= =======
Diluted number of shares......................... 4,934 9,912
======= =======
Diluted net (loss) income per common share....... $ (0.91) $ 0.54
======= =======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE> 81

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DEEPFLEX PRO FORMA
HISTORICAL PRO FORMA(G) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Drilling services....................... $ -- $19,057 $ -- $19,057
Oil and gas sales....................... 20,723 -- (20,723)(b) --
-------- ------- -------- -------
20,723 19,057 (20,723) 19,057
-------- ------- -------- -------
Costs and expenses:
Production, operating and exploration
expenses............................. 9,007 10,840 (8,927)(b) 10,840
(80)(c)
Depreciation, depletion and
amortization......................... 5,364 1,723 (4,964)(b) 1,723
(400)(c)
Impairment, abandonment and other....... 41,674 -- (41,674)(b) --
Management fee and general and
administrative expenses.............. 4,846 49 (185)(b) 4,628
(82)(c)
-------- ------- -------- -------
60,891 12,612 (56,312) 17,191
-------- ------- -------- -------
Operating (loss) income................... (40,168) 6,445 35,589 1,866
Interest income........................... 571 915 -- 1,486
Interest and other financing costs........ -- (702) -- (702)
Interest expense -- affiliates............ (8,374) -- 8,374(d) --
-------- ------- -------- -------
Net (loss) income......................... (47,971) 6,658 43,963 2,650(f)
Preferred stock dividends................. (3,920) -- 675(e) (3,245)
-------- ------- -------- -------
Net (loss) income available to common
shareholders............................ $(51,891) $ 6,658 $ 44,638 $ (595)
======== ======= ======== =======
Weighted average number of shares
outstanding............................. 2,665 2,665
======== =======
Basic and diluted net loss per common
share................................... $ (19.47) $ (0.22)
======== =======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE> 82

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements have
been prepared to reflect the Transactions described on page F-2 and the
application of the adjustments to the historical amounts as described below:

BALANCE SHEET

(a) To record the Transactions resulting in DeepTech's contribution of all of
the outstanding shares of capital stock of DeepFlex to Tatham Offshore.

DEEPFLEX PRODUCTION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,304 $ -- $ 1,304
Accounts receivable................................ 4,506 -- 4,506
Prepaid assets..................................... 151 -- 151
-------- -------- --------
Total current assets....................... 5,961 -- 5,961
-------- -------- --------
Property and equipment:
Semisubmersible drilling rigs...................... 130,390 -- 130,390
Less: Accumulated depreciation..................... 3,939 -- 3,939
-------- -------- --------
Property and equipment, net........................ 126,451 -- 126,451
-------- -------- --------
Debt issue costs, net................................ 1,735 -- 1,735
-------- -------- --------
Total assets............................... $134,147 $ -- $134,147
======== ======== ========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Accounts payable and accrued liabilities............. $ 1,213 $ -- $ 1,213
Notes payable........................................ 68,876 -- 68,876
Note payable to DeepTech............................. 80,897 (11,490)(1) 8,000
(61,407)(2)
-------- -------- --------
Total liabilities.......................... 150,986 (72,897) 78,089
-------- -------- --------
Minority interest in consolidated subsidiaries....... 250 -- 250
-------- -------- --------
Stockholder's (deficit) equity:
Common stock....................................... -- -- --
Additional paid in capital......................... 2 61,407(2) 61,409
Accumulated deficit................................ (17,091) 11,490(1) (5,601)
-------- -------- --------
(17,089) 72,897 55,808
-------- -------- --------
$134,147 $ -- $134,147
======== ======== ========
</TABLE>

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

(1) To record the conveyance by DeepFlex of all of its equity ownership in
Tatham Offshore (including 406,783 shares of common stock and 4,670,957
shares of Series A Preferred Stock) to DeepTech as satisfaction of
approximately $12 million of the amount owed to DeepTech under an
intercompany line of credit.

(2) To record DeepTech's contribution to the capital of DeepFlex all of the
remaining amounts due to DeepTech under an intercompany line of credit,
except for $8,000,000. See note (b) below.

F-6
<PAGE> 83
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) To record DeepTech's exchange of the remaining $8,000,000 due from DeepFlex
for Tatham Offshore's assignment to DeepTech of all of the outstanding
shares of capital stock of Tatham Development.

<TABLE>
<S> <C>
Tatham Offshore's investment in Tatham Development:
Oil and gas properties.................................... $ 22,079,000
Abandonment obligations................................... (400,000)
Accumulated deficit....................................... 742,000
------------
Net investment.................................... 22,421,000
Forgiveness of amount due to DeepTech....................... (8,000,000)
------------
Reduction of paid-in capital................................ $ 14,421,000
============
</TABLE>

(c) To record Tatham Offshore's redemption of the Senior Preferred Stock held
by the Partnership in exchange for the assignment to the Partnership of
Tatham Offshore's remaining oil and gas properties located in the Gulf.

<TABLE>
<S> <C>
Tatham Offshore's assets and liabilities conveyed:
Oil and gas properties.................................... $ 29,827,000
Accumulated depreciation, depletion, amortization and
impairment............................................. (23,366,000)
Other noncurrent liabilities.............................. (6,750,000)
------------
Increase in paid-in capital............................... $ (289,000)
============
</TABLE>

STATEMENT OF OPERATIONS

(a) To adjust historical results of operations to reflect the drilling
operations of DeepFlex, excluding management fees and interest expense
charged by DeepTech on the intercompany line of credit as future charges
are eliminated in connection with the Transactions, contributed by DeepTech
to Tatham Offshore in connection with the Merger as if such events had
occurred at the beginning of the period.

DEEPFLEX PRODUCTION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Drilling services...................................... $34,772 $ -- $34,772
------- ------- -------
Costs and expenses:
Operating expenses................................... 17,409 -- 17,409
Depreciation......................................... 2,596 -- 2,596
General and administrative expenses.................. 1,521 (1,451) 70
------- ------- -------
21,526 (1,451) 20,075
------- ------- -------
Operating income (loss)................................ 13,246 1,451 14,697
Interest income........................................ 210 -- 210
Interest expense....................................... (5,164) -- (5,164)
Interest expense -- affiliates......................... (5,407) 5,407 --
------- ------- -------
Net income............................................. $ 2,885 $ 6,858 $ 9,743(1)
======= ======= =======
</TABLE>

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

(1) Due to net operating tax loss carryforwards and anticipated losses for
federal income tax purposes, a pro forma provision for federal income
taxes was not recorded.

F-7
<PAGE> 84
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) To reverse historical results of operations related to the assets and
liabilities transferred to the Partnership as if such transfer had occurred
at the beginning of the period.

(c) To reverse the historical results of operations related to the conveyance
of Tatham Development to DeepTech as if such conveyance had occurred at the
beginning of the period.

(d) To reverse Tatham Offshore's historical interest expense related to the
conversion of $60 million notes payable to DeepTech into common equity on
December 17, 1997.

(e) To reverse the preferred dividends related to the Senior Preferred Stock
redeemed in conjunction with the conveyance to the Partnership of the
remaining oil and gas assets located in the Gulf.

(f) Due to significant net operating tax loss carryforwards and anticipated
losses for federal income tax purposes, a pro forma provision for federal
income taxes was not recorded.

(g) To adjust results of operations to reflect the drilling operations of
DeepFlex contributed by DeepTech to Tatham Offshore in connection with the
Merger as if such events had occurred at the beginning of the period.

DEEPFLEX PRODUCTION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Drilling services..................................... $ 14,609 $ 4,448(1) $19,057
-------- ------- -------
Costs and expenses:
Operating expenses.................................. 8,201 2,639(1) 10,840
Depreciation........................................ 1,219 504(1) 1,723
Losses of equity investee........................... 1,261 (1,261)(1) --
General and administrative expenses................. 2,336 (2,287)(2) 49
-------- ------- -------
13,017 (405) 12,612
-------- ------- -------
Operating income (loss)............................... 1,592 4,853 6,445
Loss on investment.................................... (10,688) 10,688(3) --
Interest income....................................... 902 13(1) 915
Interest income -- affiliates......................... 1,199 (1,199)(1) --
Interest expense...................................... (2,214) 1,512(4) (702)
Interest expense -- affiliates........................ (7,577) 7,577(2) --
-------- ------- -------
Net (loss) income..................................... $(16,786) $23,444 $ 6,658(5)
======== ======= =======
</TABLE>

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

(1) To reverse equity losses of DeepFlex Production Partners, L.P.
("DeepFlex Partners"), a 50%-owned equity investee of DeepFlex, and
interest income from DeepFlex Partners and to record 100% of the
drilling operations of DeepFlex Partners for the three-month period
prior to DeepFlex acquiring 100% of the drilling rig assets of DeepFlex
Partners.

(2) Exclude management fees and interest expense charged by DeepTech as
future charges are eliminated in connection with the Transactions.

(3) Exclude non-recurring losses related to other investments.

(4) To reverse interest expense related to other debt paid as of September
30, 1996.

(5) Due to net operating tax loss carryforwards and anticipated losses for
federal income tax purposes, a pro forma provision for federal income
taxes was not recorded.

F-8
<PAGE> 85

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,919 $ 7,887
Accounts receivable from joint venture partners........... 189 201
Receivable from affiliates................................ 774 1,350
Prepaid assets............................................ 116 --
--------- ---------
Total current assets.............................. 3,998 9,438
--------- ---------
Oil and gas properties:
Oil and gas properties, at cost, using successful efforts
method................................................. 51,906 81,081
Less -- accumulated depreciation, depletion, amortization
and impairment......................................... 23,366 50,329
--------- ---------
Oil and gas properties, net....................... 28,540 30,752
--------- ---------
Deferred costs.............................................. 8,963 1,317
--------- ---------
Total assets...................................... $ 41,501 $ 41,507
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 2,386 $ 1,385
Accounts payable to affiliates............................ 198 155
--------- ---------
Total current liabilities......................... 2,584 1,540
Long-term debt to affiliate................................. -- 60,000
Other noncurrent liabilities................................ 7,150 7,663
--------- ---------
9,734 69,203
--------- ---------
Stockholders' equity (deficit) (Note 3):
Preferred stock, $0.01 par value, 110,000,000 shares
authorized as of December 31, 1997 and June 30, 1997,
24,335,255 shares and 24,343,931 shares issued and
outstanding at December 31, 1997 and June 30, 1997,
respectively........................................... 243 243
Common stock, $0.01 par value, 250,000,000 shares
authorized as of December 31, 1997 and June 30, 1997,
29,464,532 shares and 2,735,573 shares issued and
outstanding at December 31, 1997 and June 30, 1997,
respectively........................................... 295 274
Additional paid-in capital................................ 146,177 84,225
Accumulated deficit....................................... (114,948) (112,438)
--------- ---------
31,767 (27,696)
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 41,501 $ 41,507
========= =========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-9
<PAGE> 86

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Revenue:
Oil and gas sales......................................... $ 7,159 $10,302
------- -------
Costs and expenses:
Production and operating expenses......................... 3,099 3,427
Exploration expenses...................................... 25 328
Depreciation, depletion and amortization.................. 2,039 2,140
Management fee............................................ 2,095 1,551
General and administrative expenses....................... 869 990
------- -------
8,127 8,436
------- -------
Operating (loss) income..................................... (968) 1,866
Interest income............................................. 178 246
Interest expense -- affiliate............................... (1,720) (4,238)
------- -------
Net loss.................................................... (2,510) (2,126)
Preferred stock dividends................................... (1,965) (1,974)
------- -------
Net loss available to common shareholders................... $(4,475) $(4,100)
======= =======
Weighted average number of shares outstanding............... 4,934 2,622
======= =======
Basic and diluted loss per common share (Note 4)............ $ (0.91) $ (1.56)
======= =======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-10
<PAGE> 87

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,510) $(2,126)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization............... 2,039 2,140
Costs and expenses settled by issuance of common
stock................................................. 263 --
Noncash interest expense related to conversion of debt
into common stock..................................... 1,709 --
Other.................................................. -- 1,103
Changes in operating working capital:
Decrease in accounts receivable from joint venture
partners............................................ 12 467
Decrease (increase) in receivable from affiliates.... 576 (1,504)
(Increase) decrease in prepaid expenses.............. (116) 30
Increase (decrease) in accounts payable and accrued
liabilities......................................... 1,001 (1,777)
Increase (decrease) in accounts payable to
affiliates.......................................... 43 (2,481)
------- -------
Net cash provided by (used in) operating
activities....................................... 3,017 (4,148)
------- -------
Cash flows from investing activities:
Additions to oil and gas properties....................... (339) (2,812)
Deferred costs............................................ (7,646) --
------- -------
Net cash used in investing activities............. (7,985) (2,812)
------- -------
Cash flows from financing activities:
Proceeds from issuance of Series A Preferred Stock........ -- 12,242
Proceeds from issuance of Series B Preferred Stock........ -- 74
Proceeds from issuance of Series C Preferred Stock........ -- 1,018
------- -------
Net cash provided by financing activities......... -- 13,334
------- -------
Net (decrease) increase in cash and cash equivalents........ (4,968) 6,374
Cash and cash equivalents at beginning of year.............. 7,887 4,764
------- -------
Cash and cash equivalents at end of period.................. $ 2,919 $11,138
======= =======
</TABLE>

Supplemental disclosures to the statement of cash flows -- see Note 6.

The accompanying notes are an integral part of this financial statement.

F-11
<PAGE> 88

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- --------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997................ 24,344 $243 27,356 $ 274 $ 84,225 $(112,438) $(27,696)
Reverse stock split (unaudited)....... -- -- (24,620) (246) 246 -- --
Conversion of debt into common stock
(unaudited)......................... -- -- 26,667 266 61,443 -- 61,709
Issuance of common stock
(unaudited)......................... -- -- 60 1 263 -- 264
Conversion of Series A Preferred Stock
into common stock (unaudited)....... (9) -- 2 -- -- -- --
Net loss for the six months ended
December 31, 1997 (unaudited)....... -- -- -- -- -- (2,510) (2,510)
------ ---- ------- ----- -------- --------- --------
Balance, December 31, 1997
(unaudited)......................... 24,335 $243 29,465 $ 295 $146,177 $(114,948) $ 31,767
====== ==== ======= ===== ======== ========= ========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-12
<PAGE> 89

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:

Tatham Offshore, Inc. ("Tatham Offshore"), a Delaware corporation, is an
independent energy company engaged in the development, exploration and
production of oil and gas reserves located primarily offshore the United States
in the Gulf of Mexico (the "Gulf"). In addition, Tatham Offshore is currently
pursuing energy related opportunities in eastern Canada, including the
development of offshore pipeline infrastructure. Tatham Offshore is an
approximately 94%-owned subsidiary of DeepTech International Inc. ("DeepTech"),
a diversified energy company, which, through its affiliates, is engaged in
offshore contract drilling services and the acquisition, development,
production, processing, gathering, transportation and marketing of, and the
exploration for, oil and gas located offshore in the Gulf and offshore eastern
Canada.

Tatham Offshore Canada Limited, a wholly-owned subsidiary of Tatham
Offshore, pursues certain opportunities offshore eastern Canada and is the
Canadian representative of North Atlantic Pipeline Partners, L.P. ("North
Atlantic"). North Atlantic is the sponsor of a proposal to construct a natural
gas pipeline offshore Newfoundland and Nova Scotia to the eastern seaboard of
the United States. Through December 31, 1997, Tatham Offshore Canada Limited has
incurred approximately $9.0 million in pre-development costs associated with the
North Atlantic project. Such costs include engineering, survey, legal,
regulatory and other costs associated with the project.

In 1996, Tatham Offshore formed a wholly-owned subsidiary, Tatham Offshore
Development, Inc. ("Tatham Offshore Development"), a Delaware corporation, to
hold certain of Tatham Offshore's oil and gas leases.

The accompanying consolidated financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, the statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of operations for the period covered by such
statements. These interim consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997. All number of shares of Tatham Offshore common stock and per share
disclosures have been restated to reflect a ten-for-one common share reverse
stock split approved by the Board of Directors of Tatham Offshore on November
13, 1997 for the shareholders of record as of the close of business on November
24, 1997. See Note 5.

NOTE 2 -- RELATED PARTY TRANSACTIONS:

MANAGEMENT AGREEMENT

The management agreement between Tatham Offshore and DeepTech provides for
an annual management fee which is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to the Company. Effective July 1, 1997, the management
agreement was amended to provide for an annual management fee of 26% of
DeepTech's overhead expenses. During the six months ended December 31, 1997,
DeepTech charged Tatham Offshore $2.1 million under this agreement.

NOTES PAYABLE TO DEEPTECH

As of June 30, 1997, Tatham Offshore had $60.0 million aggregate principal
amount of Subordinated Convertible Promissory Notes (the "Subordinated Notes")
outstanding, all of which were held by DeepTech. Interest expense related to the
Subordinated Notes totaled $1.7 million from July 1, 1997 through September 18,
1997, the date on which the DeepTech Board of Directors approved the
Restructuring Agreement discussed below.

In September 1997, DeepTech and Tatham Offshore entered into an option
agreement to restructure the Subordinated Notes (the "Restructuring Agreement").
Under the Restructuring Agreement, DeepTech agreed to forgive the next two
scheduled interest payments under the Subordinated Notes. In exchange,

F-13
<PAGE> 90
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DeepTech received three restructuring options from Tatham Offshore and agreed to
restructure the Subordinated Notes by consummating one of the following
transactions: (i) to convert all of the principal amount outstanding under the
Subordinated Notes into shares of Tatham Offshore common stock at the market
price at the time the option is exercised; (ii) to purchase shares of 6% Senior
Preferred Stock of Tatham Offshore with a liquidation value of $60 million, the
proceeds from which would be used to prepay the Tatham Offshore Subordinated
Notes; or (iii) to purchase all of the outstanding capital stock of Tatham
Offshore Development for $60 million, the proceeds from which would be used to
prepay the outstanding balance of the Subordinated Notes. DeepTech was required
to select one of the above restructuring transactions on or before December 31,
1997.

On December 17, 1997, DeepTech's Board of Directors elected to exercise the
common stock option under the Restructuring Agreement. Under this option,
DeepTech converted the Subordinated Notes into 26,666,667 shares of Tatham
Offshore common stock at a conversion rate of $2.25 per share, the average
closing price of Tatham Offshore common stock for the ten trading days
immediately preceding the exercise of the option. As a result of the conversion
of the Subordinated Notes, Tatham Offshore eliminated all of its outstanding
debt.

NOTE 3 -- STOCKHOLDERS' EQUITY:

The following table summarizes Tatham Offshore's outstanding equity as of
December 31, 1997:

<TABLE>
<CAPTION>
CONVERSION/
SHARES LIQUIDATION DIVIDEND DIVIDENDS EXCHANGE
EQUITY OUTSTANDING PREFERENCE RATE IN ARREARS FEATURES
------ ----------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Senior Preferred Stock(a)....... 7,500 $1,000 per share 9% $1,293,750 (e)
Series A Preferred Stock(b)..... 17,923,837 $ 1.50 per share 12% $4,839,436 (f)(g)
Series B Preferred Stock........ 74,379 $ 1.00 per share 8% $ 7,438 (f)(g)
Series C Preferred Stock(c)..... 1,338,162 $ 0.50 per share 4% $ 26,763 (f)(g)
Mandatory Redeemable Preferred
Stock(d)...................... 4,991,377 $ 0.50 per share -- $ -- (g)(h)
Common Stock (Note 5)........... 29,464,532 -- -- $ -- --
</TABLE>

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

(a) Each share of the Senior Preferred Stock is senior to all other classes of
Tatham Offshore preferred and common stock in the case of liquidation,
dissolution or winding up of Tatham Offshore. Leviathan Gas Pipeline
Partners, L.P. (the "Partnership"), an affiliate of the Company, holds all
outstanding shares. See Note 7.

(b) DeepFlex Production Services, Inc. ("DeepFlex Services"), a wholly-owned
subsidiary of DeepTech, holds 4,670,957 shares of the outstanding Series A
Preferred Stock.

(d) DeepFlex Services holds 4,312,086 shares of the outstanding Mandatory
Redeemable Preferred Stock. (See discussion below.)

(e) The Partnership has made an irrevocable offer to the Company to sell all or
any portion of the Senior Preferred Stock to the Company or its designee at
a price equal to $1,000 per share, plus interest thereon at 9% per annum
less the sum of any dividends paid thereon. In the event the Company does
not purchase the Senior Preferred Stock on or before September 30, 1998,
then, for a period of 90 days thereafter, the Senior Preferred Stock shall
be convertible into Series A Preferred Stock. The conversion ratio shall be
equal to (i) the liquidation preference amount plus accumulated unpaid
dividends divided by (ii) the arithmetic average of the closing prices for
the 20 trading days following October 1, 1998 of the Series A Preferred
Stock. See Note 7.

(f) At any time until December 31, 1998, each share may be exchanged for 0.4
Exchange Warrants. Each full Exchange Warrant entitles the holder thereof
to purchase one share of Tatham Offshore common stock at $6.53 per share.
The Exchange Warrants expire on July 1, 1999. Alternatively, at any time,
the holder of any shares may convert the liquidation value and accrued and
unpaid dividends into shares of Tatham Offshore common stock at $6.53 per
share. Through December 31, 1997, a total of 793,193 shares of Series A
Preferred Stock had been converted into 187,833 shares of Tatham Offshore
common stock.

(g) Redeemable at the option of Tatham Offshore on or after July 1, 1997. (See
discussion below.)

(h) Tatham Offshore is required to redeem the shares at a redemption price of
$0.50 per share if the Company redeems any shares of Series A, B or C
Preferred Stock. Tatham Offshore is also required to redeem the shares at a
redemption price of $0.50 per share from net proceeds from the sale of
Tatham Offshore common stock pursuant to the exercise of Exchange Warrants,
subject to certain conditions.

F-14
<PAGE> 91
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In February 1998, DeepFlex Services exchanged its 1,016,957 shares of
Tatham Offshore Series C Preferred Stock for 406,783 Exchange Warrants and
immediately converted the Exchange Warrants into 406,783 shares of common stock
at $6.53 per share for a total of $2.7 million in proceeds to Tatham Offshore.
Tatham Offshore used $2.5 million of proceeds to redeem all of the 4,991,377
shares of Mandatory Redeemable Preferred Stock outstanding at $0.50 per share as
required under the terms of the Mandatory Redeemable Preferred Stock issue.

NOTE 4 -- EARNINGS PER SHARE:

During the three months ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 establishes new guidelines for computing earnings per share
("EPS") and requires dual presentation of basic and diluted EPS for entities
with complex capital structures. Basic EPS excludes dilution and is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects potential dilution and is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period increased by the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. All prior period EPS data has been restated to conform with the
provisions of SFAS No. 128.

The Company excluded from its computation of diluted EPS the effect of
antidilutive securities related to its outstanding convertible exchangeable
preferred stocks discussed in Note 3 and its convertible production payment
related to 25% of the net operating cash flow from Viosca Knoll Block 817.

NOTE 5 -- COMMITMENTS AND CONTINGENCIES:

THE NASDAQ NATIONAL MARKET

On October 7, 1997, Tatham Offshore received notification from The Nasdaq
Stock Market, Inc. ("Nasdaq") that because the Company had reported losses from
operations and/or net losses in three of the past four fiscal years and had a
net tangible asset value of less than $4.0 million as of June 30, 1997, Tatham
Offshore no longer met the listing requirements for continued inclusion on The
Nasdaq National Market. On October 20, 1997, Tatham Offshore responded to
Nasdaq's notification by detailing the pro forma effect of each of the three
options under the Restructuring Agreement with DeepTech. Under each option, the
Company's pro forma net tangible asset value was in excess of $4.0 million as of
December 31, 1997, the date on which DeepTech was required to exercise one of
the three options. On January 14, 1998, Nasdaq granted Tatham Offshore an
exception to the net tangible assets requirement as a result of DeepTech's
election under the Restructuring Agreement thus allowing Tatham Offshore to
remain listed on The Nasdaq National Market.

On October 22, 1997, Tatham Offshore received a notification from Nasdaq
that because Tatham Offshore failed to maintain a closing bid price greater than
or equal to $1.00 per share of its common stock for the last ten consecutive
trade dates, Tatham Offshore no longer met the listing requirements for
continued inclusion on The Nasdaq National Market. On November 13, 1997, the
shareholders of Tatham Offshore approved the Board of Directors to effect a
reverse stock split of up to ten-for-one. On November 13, 1997, the Board of
Directors of Tatham Offshore approved a ten-for-one reverse stock split of
Tatham Offshore's common stock for the shareholders of record at the close of
business on November 24, 1997 which allowed the bid price of Tatham Offshore's
common stock to be in excess of the Nasdaq minimum price requirement.

The Nasdaq listing criteria also requires a company listed on The Nasdaq
National Market to have a minimum dollar value associated with the public float
of its listed stock. The current public float requirement is $1.0 million,
however, on February 23, 1998, the Nasdaq minimum public float requirement will
increase to $5.0 million. Based upon recent closing prices of Tatham Offshore's
common stock, Tatham Offshore believes that the dollar value of its public float
is approximately $4.5 million to $5.5 million. If Tatham Offshore's public float
does not exceed $5.0 million on February 23, 1998, Tatham Offshore will have
until May 26, 1998 to meet the minimum public float requirement. In the event
Tatham Offshore is unable to comply with the new public float requirement by May
26, 1998, Tatham Offshore's common stock will immediately be delisted from The
Nasdaq National Market. In the event that The Nasdaq National Market delists
Tatham Offshore's
F-15
<PAGE> 92
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

common stock, the holders thereof could suffer a decrease in marketability of
their shares and the liquidity of their investment in Tatham Offshore's common
stock and its preferred stocks which are convertible into common stock, which
may have a material adverse effect on the market value of Tatham Offshore's
common stock. Tatham Offshore is currently reviewing options which, if
implemented, could allow it to continue to meet the Nasdaq minimum public float
requirement.

OTHER

In the ordinary course of business, the Company is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or operations of
the Company. Various legal actions have arisen in the ordinary course of
business. Management believes that the outcome of such proceedings will not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.

The Company anticipates substantial future capital expenditures associated
with the full development of its oil and gas properties and the North Atlantic
pipeline project. Realization of the full potential of the Company's properties
and the North Atlantic pipeline project is dependent upon the ability to obtain
sufficient additional capital or project financing.

NOTE 6 -- SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:

CASH PAID, NET OF AMOUNTS CAPITALIZED

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------
1997 1996
---- ------
(IN THOUSANDS)
<S> <C> <C>
Interest................................................... $9 $4,238
Taxes...................................................... $-- $ --
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------
1997 1996
-------- -----
(IN THOUSANDS)
<S> <C> <C>
Conversion of long-term debt to common stock................ $60,000 $ --
Conversion of preferred stock to common stock............... $ 13 $799
Assignment of oil and gas properties and abandonment
obligations............................................... $ 1,200 $ --
</TABLE>

NOTE 7 -- SUBSEQUENT EVENTS:

In March 1998, Tatham Offshore eliminated its 9% Senior Convertible
Preferred Stock issued to the Partnership and replaced this stock with Series B
9% Senior Convertible Preferred Stock ("Series B Senior Preferred Stock"). The
Partnership, at any time, may convert the 7,500 shares of Series B Senior
Preferred Stock into shares of Series A Preferred Stock (Note 3) using a
conversion ratio equal to (i) the liquidation preference amount plus accumulated
and unpaid dividends divided by (ii) the closing price of the Series A Preferred
Stock on February 27, 1998. In connection with the transaction discussed below,
the Series B Senior Preferred Stock and all related unpaid dividends will be
redeemed in full.

In March 1998, Tatham Offshore agreed to relinquish its reversionary rights
related to certain oil and gas properties and the Partnership agreed to exchange
7,500 shares of Series B Senior Preferred Stock, discussed above for 100% of
Tatham Offshore's right, title and interest in and to Viosca Knoll Blocks 772,
773, 774, 817, 818 and 861, West Delta Block 35, Ewing Bank Blocks 871, 914, 915
and 916 and the platform located on Ship Shoal Block 331. At the closing, which
is expected to be in July 1998, Tatham Offshore will pay to/ receive from the
Partnership an amount equal to the net cash generated from/required by such
properties from January 1, 1998 through the closing date. In addition, the
Partnership agreed to assume all abandonment and restoration obligations
associated with the platform and leases.

F-16
<PAGE> 93

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Tatham Offshore, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Tatham
Offshore, Inc. and its subsidiaries at June 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Houston, Texas
September 19, 1997 except as to the
reverse stock split described in Notes 2 and 5,
which is as of November 13, 1997 and except
as to the restatement of earnings per share
information described in Note 2, which is as of
March 18, 1998.

F-17
<PAGE> 94

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7,887 $ 4,764
Stock subscriptions receivable............................ -- 12,242
Accounts receivable from joint venture partners........... 201 719
Receivable from affiliates................................ 1,350 968
Prepaid expenses.......................................... -- 1,943
--------- --------
Total current assets.............................. 9,438 20,636
--------- --------
Oil and gas properties:
Oil and gas properties, at cost, using successful efforts
method................................................. 81,081 78,158
Less -- accumulated depreciation, depletion, amortization
and impairment......................................... 50,329 13,258
--------- --------
Oil and gas properties, net....................... 30,752 64,900
--------- --------
Deferred costs and prepaid expenses......................... 1,317 11,594
--------- --------
Total assets...................................... $ 41,507 $ 97,130
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 1,385 $ 4,654
Accounts payable to affiliates............................ 155 3,101
Notes payable to affiliate................................ -- 1,734
--------- --------
Total current liabilities......................... 1,540 9,489
Long-term debt to affiliate................................. 60,000 60,000
Other noncurrent liabilities................................ 7,663 8,779
--------- --------
69,203 78,268
--------- --------
Commitments and contingencies (Note 8)
Stockholders' equity (deficit) (Note 5):
Preferred stock, $0.01 par value, 110,000,000 shares
authorized as of June 30, 1997 and 1996, respectively,
24,343,931 and 18,724,530 shares issued and outstanding
at June 30, 1997 and 1996, respectively................ 243 187
Common stock, $0.01 par value, 250,000,000 shares
authorized as of June 30, 1997 and 1996, respectively,
2,735,573 and 2,550,032 shares issued and outstanding
as of June 30, 1997 and 1996, respectively............. 27 255
Warrants outstanding to purchase shares of Convertible
Exchangeable Preferred Stock........................... -- 2,883
Additional paid-in capital................................ 84,472 80,004
Accumulated deficit....................................... (112,438) (64,467)
--------- --------
(27,696) 18,862
--------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 41,507 $ 97,130
========= ========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-18
<PAGE> 95

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Oil and gas sales to affiliates.......................... $ 20,543 $ 15,904 $ 7,800
Oil and gas sales........................................ 180 166 254
-------- -------- --------
20,723 16,070 8,054
-------- -------- --------
Costs and expenses:
Production and operating expenses........................ 8,465 13,203 13,745
Exploration expenses..................................... 542 637 11,459
Depreciation, depletion and amortization................. 5,364 1,758 1,210
Impairment, abandonment and other........................ 41,674 8,000 --
Management fee and general and administrative expenses
allocated from affiliate.............................. 3,279 4,436 4,967
General and administrative expenses...................... 1,567 1,839 2,145
-------- -------- --------
60,891 29,873 33,526
-------- -------- --------
Operating loss............................................. (40,168) (13,803) (25,472)
Interest income............................................ 571 113 836
Gain on sale of oil and gas properties..................... -- 22,641 1,496
Interest and other financing costs......................... -- (255) (4,566)
Interest expense -- affiliates............................. (8,374) (7,906) (7,065)
-------- -------- --------
Net (loss) income.......................................... (47,971) 790 (34,771)
Preferred stock dividends.................................. (3,920) (281) --
-------- -------- --------
Net (loss) income available to common stockholders......... $(51,891) $ 509 $(34,771)
======== ======== ========
Weighted average number of shares outstanding.............. 2,665 2,509 2,500
======== ======== ========
Basic net (loss) income per common share (Note 2).......... $ (19.47) $ 0.20 $ (13.91)
======== ======== ========
Diluted net (loss) income per common share (Note 2)........ $ (19.47) $ 0.09 $ (13.91)
======== ======== ========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-19
<PAGE> 96

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................ $(47,971) $ 790 $(34,771)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation, depletion and amortization.............. 5,364 1,758 1,210
Impairment, abandonment and other..................... 41,674 8,000 --
Amortization of debt issue costs...................... -- -- 2,810
Gain on sale of oil and gas properties................ -- (22,641) (1,496)
Other................................................. 2,377 1,889 --
Changes in operating working capital:
Decrease (increase) in accounts receivable from
joint venture partners........................... 518 2,743 (2,837)
(Increase) decrease in receivable from affiliates... (382) 303 (773)
Decrease (increase) in prepaid expenses............. 29 175 (81)
(Decrease) increase in accounts payable and accrued
liabilities...................................... (3,221) (7,809) 15,697
(Decrease) increase in accounts payable to
affiliates....................................... (2,946) 7,208 (4,092)
-------- -------- --------
Net cash used in operating activities............ (4,558) (7,584) (24,333)
-------- -------- --------
Cash flows from investing activities:
Additions to oil and gas properties...................... (2,923) (9,143) (25,686)
Deferred costs........................................... (1,317) -- --
Proceeds from deferred income related to the Assigned
Properties............................................ -- 15,000 15,000
Proceeds from the sale of oil and gas properties......... -- -- 1,619
-------- -------- --------
Net cash (used in) provided by investing
activities..................................... (4,240) 5,857 (9,067)
-------- -------- --------
Cash flows from financing activities:
Repayment of notes payable............................... -- (10,468) (11,428)
Proceeds from notes payable to affiliate................. -- 8,000 --
Repayment of notes payable to affiliate.................. (1,734) (8,000) --
Proceeds of offering of Warrants, net of underwriting
fees, commissions and offering costs.................. -- 11,291 --
Proceeds from issuance of Series A Preferred Stock....... 12,242 1,804 --
Proceeds from issuance of Series B Preferred Stock....... 74 -- --
Proceeds from issuance of Series C Preferred Stock....... 1,339 -- --
Debt issue costs......................................... -- -- (183)
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 11,921 2,627 (11,611)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 3,123 900 (45,011)
Cash and cash equivalents at beginning of year............. 4,764 3,864 48,875
-------- -------- --------
Cash and cash equivalents at end of year................... $ 7,887 $ 4,764 $ 3,864
======== ======== ========
</TABLE>

Supplemental disclosures to the statement of cash flows -- see Note 9.

The accompanying notes are in integral part of this financial statement.

F-20
<PAGE> 97

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
WARRANTS
OUTSTANDING
PREFERRED STOCK COMMON STOCK TO PURCHASE SHARES
----------------- ----------------- OF CONVERTIBLE ADDITIONAL
NUMBER OF PAR NUMBER OF PAR EXCHANGEABLE PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE PREFERRED STOCK CAPITAL DEFICIT TOTAL
--------- ----- --------- ----- ------------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994... -- $ -- 25,000 $ 250 $ -- $44,987 $ (30,486) $ 14,751
Net loss for the year
ended June 30, 1995.... -- -- -- -- -- -- (34,771) (34,771)
------ ---- ------- ----- ------- ------- --------- --------
Balance, June 30, 1995... -- -- 25,000 250 -- 44,987 (65,257) (20,020)
Offering of Warrants,
net.................... -- -- -- -- 11,291 -- -- 11,291
Issuance of Senior
Preferred Stock........ 8 -- -- -- -- 7,500 -- 7,500
Issuance of Series A
Preferred Stock........ 18,717 187 -- -- (8,408) 26,939 -- 18,718
Issuance of common
stock.................. -- -- 500 5 -- 578 -- 583
Net income for the year
ended June 30, 1996.... -- -- -- -- -- -- 790 790
------ ---- ------- ----- ------- ------- --------- --------
Balance, June 30, 1996... 18,725 187 25,500 255 2,883 80,004 (64,467) 18,862
Issuance of Series B
Preferred Stock........ 74 1 -- -- (34) 107 -- 74
Issuance of Series C
Preferred Stock........ 1,338 13 -- -- (602) 1,928 -- 1,339
Conversion of Warrants
into Mandatory
Redeemable Preferred
Stock.................. 4,991 50 -- -- (2,247) 2,197 -- --
Conversion of Series A
Preferred Stock into
Common Stock........... (784) (8) 1,856 19 -- (11) -- --
Net loss for the year
ended June 30, 1997.... -- -- -- -- -- -- (47,971) (47,971)
Reverse stock split (Note
5)..................... -- -- (24,620) (247) -- 247 -- --
------ ---- ------- ----- ------- ------- --------- --------
Balance, June 30, 1997... 24,344 $243 2,736 $ 27 $ -- $84,472 $(112,438) $(27,696)
====== ==== ======= ===== ======= ======= ========= ========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-21
<PAGE> 98

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION:

Tatham Offshore, Inc. ("Tatham Offshore"), a Delaware corporation, is an
independent energy company engaged in the development, exploration and
production of oil and gas reserves located primarily offshore the United States
in the Gulf of Mexico (the "Gulf") and in the development of offshore pipeline
infrastructure offshore eastern Canada. The Company is an approximately
36.6%-owned subsidiary of DeepTech International Inc. ("DeepTech"), a
diversified energy company, which, through its affiliates, is engaged in
offshore contract drilling services and the acquisition, development,
production, processing, transportation and marketing of, and the exploration
for, oil and gas located offshore in the Gulf and offshore eastern Canada.

In March 1997, the Company formed a wholly-owned subsidiary, Tatham
Offshore Canada Limited, to pursue certain opportunities offshore eastern Canada
and to be the Canadian representative of North Atlantic Pipeline Partners, L.P.
("North Atlantic"). North Atlantic is the sponsor of a proposal to construct a
substantial natural gas pipeline offshore Newfoundland, Nova Scotia to the
eastern seaboard of the United States. In April 1996, the Company formed a
wholly-owned subsidiary, Tatham Offshore Development, Inc. ("Tatham Offshore
Development"), a Delaware corporation, to hold certain of Tatham Offshore's oil
and gas leases.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Tatham Offshore and those 50% or more owned subsidiaries controlled by Tatham
Offshore (collectively referred to as the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
All number of shares of Tatham Offshore common stock and per share disclosures
have been restated to reflect a ten-for-one common share reverse stock split
approved by the Board of Directors of Tatham Offshore on November 13, 1997 for
the shareholders of record as of the close of business on November 24, 1997. See
Note 5.

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

DEBT ISSUE COSTS

Debt issue costs are capitalized and amortized over the expected life of
the related indebtedness. Any unamortized debt issue costs are expensed at the
time the related indebtedness is repaid or otherwise terminated.

OIL AND GAS PROPERTIES

The Company accounts for its oil and gas exploration and production
activities using the successful efforts method of accounting. Under this method,
costs of successful exploratory wells, development wells and acquisitions of
mineral leasehold interests are capitalized. Production, exploratory dry hole
and other exploration costs, including geological and geophysical costs and
delay rentals, are expensed as incurred. Unproved properties are assessed
periodically and any impairment in value is recognized currently as impairment,
abandonment and other expense. Upon discovery of proved reserves, the costs of
unproved properties are transferred to proved properties.

Depreciation, depletion and amortization of the capitalized costs of
producing oil and gas properties, consisting principally of tangible and
intangible costs incurred in developing a property and costs of productive
leasehold interests, are computed on the unit-of-production method.
Unit-of-production rates are based on annual estimates of remaining proved
developed reserves or proved reserves, as appropriate, for each property.
Estimated dismantlement, restoration and abandonment costs and estimated
residual salvage values are taken into account in determining depreciation
provisions. Other noncurrent liabilities at June 30, 1997 and 1996 include
$7,663,000 and $811,000, respectively, of accrued dismantlement, restoration and
abandonment costs.

F-22
<PAGE> 99
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", effective July 1, 1996. SFAS No. 121 requires
recognition of impairment losses on long-lived assets (including proved
properties, wells, equipment and related facilities) if the carrying amount of
such assets, grouped at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows from other assets, exceeds
the estimated undiscounted future cash flows of such assets. Measurement of any
impairment loss is based on the fair value of the assets. Prior to the adoption
of SFAS No. 121, the Company recorded impairments to the extent that the net
book value of oil and gas properties, on an overall basis, exceeded the
estimated undiscounted future net revenue of proved oil and gas reserves, net of
income taxes. Implementation of SFAS No. 121 did not have a material effect on
the Company's financial position or results of operations. See Note 3.

Repair and maintenance costs are charged to expense as incurred; additions,
improvements and replacements are capitalized.

DEFERRED COSTS

The Company capitalizes costs related to advisory, legal and other direct
project costs of pending transactions as deferred costs. At June 30, 1997, the
Company had capitalized $1,317,000 of pre-development costs related to its
sponsorship of North Atlantic's proposal to construct a pipeline offshore
eastern Canada as discussed in Note 1.

REVENUE RECOGNITION

Revenue from oil and gas sales is recognized upon delivery in the period of
production.

INCOME TAXES

The Company utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities.

EARNINGS PER SHARE

During the three months ended December 31, 1997, the Company adopted SFAS
No. 128, "Earnings per Share". SFAS No. 128 establishes new guidelines for
computing earnings per share ("EPS") and requires dual presentation of basic and
diluted EPS for entities with complex capital structures. Basic EPS excludes
dilution and is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects potential dilution and is computed by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period increased by the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. All prior period EPS data has been
restated to conform with the provisions of SFAS No. 128.

The Company excluded from its computation of diluted EPS the effect of
antidilutive securities related to its outstanding convertible exchangeable
preferred stocks discussed in Note 5 and its convertible production payment
related to Viosca Knoll Block 817 discussed in Note 3.

F-23
<PAGE> 100
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Basic net loss per share equals diluted net loss per share for the years
ended June 30, 1997 and 1995. The following is a reconciliation of the
numerators and the denominators of the basic and diluted per share computations
for the year ended June 30, 1996.

<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
-------- --------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income....................................... $509,000 2,508,824 $0.20
=====
EFFECT OF DILUTIVE SECURITIES
Conversion of preferred stock and related accrued
dividends..................................... 281,000 6,169,449
-------- ---------
DILUTED EPS
Net income....................................... $790,000 8,678,273 $0.09
======== ========= =====
</TABLE>

ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, including those related to oil and gas reserves and potential
environmental liabilities, that affect the reported amounts of certain assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that its estimates are reasonable.

OTHER

The fair values of the financial instruments included in the Company's
assets and liabilities approximate their carrying values.

The Company adopted SFAS No. 123, "Accounting for Stock Based
Compensation", effective July 1, 1996. While SFAS No. 123 encourages entities to
adopt the fair value method of accounting for their stock-based compensation
plans, the Company has elected to continue to utilize the intrinsic value method
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". The adoption of SFAS No. 123 did not have a material adverse
effect on the Company's financial position or results of operations at adoption
and during the years ended June 30, 1997 and 1996.

Certain amounts in prior years have been reclassified to conform to the
current year's presentation.

NOTE 3 -- OIL AND GAS PROPERTIES:

CAPITALIZED COSTS

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Proved properties........................................... $ 6,050 $ 6,050
Unproved properties......................................... 1,539 1,539
Wells, equipment and related facilities..................... 73,492 70,569
-------- --------
Total capitalized costs........................... 81,081 78,158
Accumulated depreciation, depletion amortization and
impairment................................................ (50,329) (13,258)
-------- --------
Net capitalized costs............................. $ 30,752 $ 64,900
======== ========
</TABLE>

F-24
<PAGE> 101
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COSTS INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of proved properties................... $ -- $ 2,373 $ --
Exploration........................................ 542 637 11,459
Development........................................ 2,923 8,799 20,559
-------- -------- --------
Total costs incurred..................... $ 3,465 $ 11,809 $ 32,018
======== ======== ========
</TABLE>

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas sales.................................. $ 20,723 $ 16,070 $ 8,054
Production and operating expenses.................. (8,465) (13,203) (13,745)
Exploration expenses............................... (542) (637) (11,459)
Depreciation, depletion and amortization........... (5,364) (1,758) (1,210)
Impairment, abandonment and other.................. (41,674) (8,000) --
-------- -------- --------
Results of operations from oil and gas producing
activities (excluding corporate overhead,
interest costs and income tax benefits).......... $(35,322) $ (7,528) $(18,360)
======== ======== ========
</TABLE>

SALE OF PROPERTIES TO FLEXTREND DEVELOPMENT COMPANY, L.L.C.

On June 30, 1995, Flextrend Development Company, L.L.C. ("Flextrend
Development"), a subsidiary of Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), which is an effective 23.2% owned affiliate of DeepTech, entered
into a purchase and sale agreement (the "Purchase and Sale Agreement") with
Tatham Offshore. Pursuant to the Purchase and Sale Agreement, Flextrend
Development acquired, subject to certain reversionary interests, a 75% working
interest in Viosca Knoll Block 817, a 50% working interest in Garden Banks Block
72 and a 50% working interest in Garden Banks Block 117 (the "Assigned
Properties") from Tatham Offshore for $30,000,000. The Company received
$15,000,000 at closing and an additional $15,000,000 on August 15, 1995.
Flextrend Development is entitled to retain all of the revenue attributable to
the Assigned Properties until it has received net revenue equal to the Payout
Amount (as defined below), whereupon the Company is entitled to receive a
reassignment of the Assigned Properties, subject to reduction and conditions as
discussed below. Prior to December 10, 1996, "Payout Amount" was defined as an
amount equal to all costs incurred by Flextrend Development with respect to the
Assigned Properties (including the $30,000,000 acquisition cost paid to the
Company) plus interest thereon at a rate of 15% per annum. Effective February 1,
1996, the Partnership entered into an agreement with Tatham Offshore regarding
the restructuring of certain transportation agreements that increased the amount
recoverable from the Payout Amount by $7,500,000 plus interest (see "Impairment,
Abandonment and Other" discussion below). During the year ended June 30, 1996,
the Company waived its options to prepay the then-existing Payout Amount and
receive a reassignment of its working interests and recognized $22,641,000 as a
gain on the sale of oil and gas properties.

Effective December 10, 1996, Flextrend Development exercised its option to
permanently retain 50% of the acquired working interest in the Assigned
Properties in exchange for forgiving 50% of the then-existing Payout Amount
exclusive of the $7,500,000 plus interest added to the Payout Amount in
connection with the restructuring of certain transportation agreements discussed
above. Flextrend Development remains obligated to fund any further development
costs attributable to Tatham Offshore's portion of the working interests, with
such costs to be added to the Payout Amount. Flextrend Development's election to
retain 50% of the acquired working interest in the Assigned Properties reduced
the Payout Amount from $94,020,000 to $50,760,000. Subsequent to December 10,
1996, only 50% of the development and operating costs attributable to the
Assigned Properties are added to the Payout Amount and 50% of the net revenue
from the Assigned Properties reduce the Payout Amount. As of June 30, 1997, the
Payout Amount totaled $45,918,000. See "Impairment, Abandonment and Other"
discussion below.

F-25
<PAGE> 102
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

VIOSCA KNOLL BLOCK 817

In September 1995, the Company reacquired an aggregate 25% working interest
in Viosca Knoll Block 817 and an approximate 12.5% working interest in the
remainder of Viosca Knoll Blocks 772/773, 774, 818 and 861 (collectively, the
"Viosca Knoll Properties") from two industry partners for a total of $16,000,000
in convertible production payments payable from 25% of the net cash flow from
the Viosca Knoll Properties so acquired. The estimated net present value of the
convertible production payments payable of $2,000,000 was recorded as oil and
gas properties on the date of acquisition. The unpaid portion of the production
payments is convertible into Tatham Offshore common stock at any time during the
first five years at $8.00 per share. Under certain circumstances, the industry
partners may require DeepTech to purchase the convertible production payments
for an amount equal to 50% of the unrecovered portion thereof. At June 30, 1997,
the unpaid portion of the production payment obligation totaled $12,535,000. For
the year ended June 30, 1997, production and operating expenses include
$1,465,000 of production payments made during the year.

During the year ended June 30, 1995, the Company recognized a $1,500,000
gain related to the farmout of 25% of its working interest in its Viosca Knoll
Properties to third parties.

TRANSPORTATION AND PROCESSING AGREEMENTS

General. In December 1993, Tatham Offshore entered into a master gas
dedication arrangement with the Partnership (the "Master Dedication Agreement").
Under the Master Dedication Agreement, Tatham Offshore dedicated all production
from its Garden Banks, Viosca Knoll, Ewing Bank and Ship Shoal leases as well as
certain adjoining areas of mutual interest to the Partnership for
transportation. In exchange, the Partnership agreed to install the pipeline
facilities necessary to transport production from the areas and certain related
facilities and to provide transportation services with respect to such
production. Tatham Offshore agreed to pay certain fees for transportation
services and facilities access provided under the Master Dedication Agreement.
Pursuant to the terms of the Purchase and Sale Agreement, Flextrend Development
assumed all of Tatham Offshore's obligations under the Master Dedication
Agreement and certain ancillary agreements with respect to the Assigned
Properties.

Ewing Bank Gathering System. Pursuant to a gathering agreement (the "Ewing
Bank Agreement") among Tatham Offshore, DeepTech, and a subsidiary of the
Partnership, Tatham Offshore dedicated all natural gas and crude oil produced
from eight of its Ewing Bank leases for gathering and redelivery by the
Partnership and was obligated to pay a demand rate as well as a commodity charge
equal to 4% of the market price of production actually transported. Tatham
Offshore's Ewing Bank 914 #2 well commenced production in August 1993.
Production and operating expenses on the accompanying consolidated statement of
operations included demand and commodity fees of $1,493,000, $5,090,000 and
$6,906,000 for the years ended June 30, 1997, 1996 and 1995, respectively,
related to the Ewing Bank Agreement. In March 1996, the Partnership settled all
remaining unpaid demand charge obligations under this agreement in exchange for
certain consideration as discussed below.

Ship Shoal. Tatham Offshore and the Partnership also entered into a
gathering and processing agreement (the "Ship Shoal Agreement") pursuant to
which the Partnership constructed a gathering line from Tatham Offshore's Ship
Shoal Block 331 lease to interconnect with a third-party pipeline at the
Partnership's processing facilities located on its Ship Shoal Block 332
platform. Pursuant to the terms of the Ship Shoal Agreement, and in
consideration for constructing the interconnect, refurbishing the platform and
providing access to the processing facilities, Tatham Offshore was required to
pay the Partnership demand charges and has dedicated all production from its
Ship Shoal 331 lease and eight additional surrounding leases for gathering and
processing by the Partnership for additional commodity fees. Production and
operating expenses on the accompanying consolidated statement of operations
include demand and commodity fees of $638,000, $997,000 and $1,408,000 for the
years ended June 30, 1997, 1996 and 1995, respectively, related to the Ship
Shoal Agreement. In March 1996, the Partnership settled all remaining unpaid
demand charge obligations under this agreement in exchange for certain
consideration as discussed below.

F-26
<PAGE> 103
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Transportation Agreements Settled. Effective February 1, 1996, Tatham
Offshore entered into an agreement with the Partnership to prepay its remaining
demand charge obligations under the Ewing Bank and Ship Shoal Agreements. Under
the agreement, Tatham Offshore's demand charge obligations relative to the Ewing
Bank Gathering System and the pipeline facilities constructed by the Partnership
for its Ship Shoal property have been prepaid in full. In exchange, Tatham
Offshore (i) issued to the Partnership 7,500 shares of Senior Preferred Stock
(as defined in Note 5) with a liquidation preference of $1,000 per share, (ii)
added the sum of $7,500,000 to the Payout Amount under the Purchase and Sale
Agreement with Flextrend Development and (iii) granted to the Partnership
certain rights to use and acquire the Ship Shoal Block 331 platform. The
Partnership has the right to utilize the Ship Shoal Block 331 platform and
related facilities at a rental rate of $1.00 per annum for such period as the
platform is owned by Tatham Offshore and located on the Ship Shoal Block 331,
provided such use does not interfere with lease operations or other activities
of Tatham Offshore. In addition, the Partnership has a right of first refusal
relative to a sale of the platform. The agreement with the Partnership resulted
in a reduction in demand charge payments of $4,100,000 and $7,800,000 for the
years ended June 30, 1996 and 1997, respectively. Tatham Offshore remains
obligated to pay the commodity charges under these agreements. At June 30, 1996,
the total present value of the unamortized demand charge obligations of
$13,507,000 was reflected as prepaid expenses and the $7,500,000 addition to the
Payout Amount, including accrued interest of $469,000, was classified as a
production payment and included in other noncurrent liabilities in the
accompanying consolidated balance sheet. See "Impairment, Abandonment and Other"
discussion below.

IMPAIRMENT, ABANDONMENT AND OTHER

In May 1997, the Company shut-in the Ewing Bank 914 #2 well as a result of
a downhole mechanical problem. Although Tatham Offshore is evaluating potential
workover and recompletion alternatives for this well, the Company, at June 30,
1997, reserved its remaining investment in the Ewing Bank 914 #2 well and
certain adjacent leases and accrued additional costs associated with the
abandonment of this well and the Ewing Bank 915 #4 well.

Problems resulting from the completion of three wellbores at Ship Shoal
Block 331 have resulted in only a minimal amount of production from the property
and the Company has decided not to pursue further recompletion operations at
this time. As a result of the Company's decision, at June 30, 1997, the Company
reserved its investment in its Ship Shoal Block 331 and accrued costs associated
with the abandonment of the platform and wells.

In addition, the Company has determined that given the current estimates of
commodity prices and proved reserves, the possibility that the designated
revenue from the Assigned Properties will be sufficient to satisfy the Payout
Amount is remote. Unless the Payout Amount is reduced to zero, the Partnership
will retain 100% of the revenue from its working interest in the Assigned
Properties.

In summary, impairment, abandonment and other on the accompanying
consolidated statement of operations includes the following items related to the
Ewing Bank and Ship Shoal properties discussed above.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Reserve investments in oil and gas properties............... $32,389 $8,000
Accrue abandonment costs.................................... 6,622 --
Expense prepaid demand charges, net......................... 2,663 --
------- ------
$41,674 $8,000
======= ======
</TABLE>

F-27
<PAGE> 104
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- INDEBTEDNESS:

LONG-TERM DEBT -- AFFILIATES

As of June 30, 1997, the Company had $60,000,000 aggregate principal amount
of Subordinated Convertible Promissory Notes (the "Subordinated Notes")
outstanding. The Subordinated Notes bore interest at a rate of 11 3/4% per
annum, payable quarterly. Effective July 1, 1997, the interest rate increased to
13% per annum. Interest expense related to this borrowing totaled $7,040,000,
$7,060,000 and $7,050,000 for the years ended June 30, 1997, 1996 and 1995,
respectively. Under the terms of the Subordinated Notes, the principal amount of
the notes was payable in seven equal annual installments of approximately
$8,571,000 commencing August 1, 1999. See Note 10.

OTHER

Interest expense related to third party debt totaled $256,000 and $665,000
for the years ended June 30, 1996 and 1995, respectively. Amortization of debt
issue costs of $2,810,000 is included as interest expense in the accompanying
statement of operations for the year ended June 30, 1995.

NOTE 5 -- STOCKHOLDERS' EQUITY:

The following table summarizes the Company's outstanding equity:

<TABLE>
<CAPTION>
SHARES OUTSTANDING AT DIVIDENDS IN ARREARS
JUNE 30, JUNE 30, CONVERSION/
----------------------- LIQUIDATION DIVIDEND --------------------- EXCHANGE
EQUITY 1997 1996 PREFERENCE RATE 1997 1996 FEATURES
------ ---------- ---------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Preferred Stock(a)... 7,500 7,500 $1,000 per share 9% $ 956,000 $281,000 (e)
Series A Preferred
Stock(b).................. 17,932,513 18,717,030 $ 1.50 per share 12% 3,228,000 -- (f)(g)
Series B Preferred Stock.... 74,379 -- $ 1.00 per share 8% 4,000 -- (f)(g)
Series C Preferred
Stock(c).................. 1,338,162 -- $ 0.50 per share 4% 13,000 -- (f)(g)
Mandatory Redeemable
Preferred Stock(d)........ 4,991,377 -- $ 0.50 per share -- -- -- (g)(h)
Warrants.................... -- 6,403,918 N/A -- -- -- (i)
Common Stock................ 2,735,573 2,550,032 N/A -- -- -- --
</TABLE>

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

(a) Each share of the Senior Preferred Stock is senior to all other classes of
Tatham Offshore preferred and common stock in the case of liquidation,
dissolution or winding up of Tatham Offshore. The Partnership holds all
outstanding shares. See Note 3.

(b) DeepFlex Production Services, Inc. ("DeepFlex Services"), an affiliate of
the Company, holds 4,670,957 shares of the outstanding Series A Preferred
Stock.

(d) DeepFlex Services holds 4,312,086 shares of the outstanding Mandatory
Redeemable Preferred Stock.

(e) The Partnership has made an irrevocable offer to Tatham Offshore to sell
all or any portion of the Senior Preferred Stock to Tatham Offshore or its
designee at a price equal to $1,000 per share, plus interest thereon at 9%
per annum less the sum of any dividends paid thereon. In the event Tatham
Offshore does not purchase the Senior Preferred Stock on or before
September 30, 1998, then for a period of 90 days thereafter it shall be
convertible into Series A Preferred Stock. The conversion ratio shall be
equal to (i) the liquidation preference amount plus accumulated unpaid
dividends divided by (ii) the arithmetic average of closing prices for the
20 trading days following October 1, 1998 of the Series A Preferred Stock.

(f) At any time until December 31, 1998, each share may be exchanged for 0.4
Exchange Warrants, each of which entitles the holder thereof to purchase
one share of Tatham Offshore common stock at $6.53 per share. The Exchange
Warrants expire on July 1, 1999. Alternatively, at any time, the holder of
any shares may convert the liquidation value and accrued and unpaid
dividends into shares of Tatham Offshore common stock at $6.53 per share.
Through June 30, 1997, a total of 784,517 shares of Series A Preferred
Stock had been converted into 185,541 shares of Tatham Offshore common
stock.

(g) On or after July 1, 1997, redeemable at the option of the Company.

(h) The Company is required to redeem at a redemption price of $0.50 per share
if the Company redeems any shares of Series A, B or C Preferred Stock. The
Company is also required to redeem at a redemption price of $0.50 per share
from net proceeds from the sale of common stock pursuant to the exercise of
Exchange Warrants, subject to certain conditions.

(i) On January 1, 1997, all outstanding Warrants were automatically converted,
without any action on the part of the holders thereof, into an equal number
of shares of Mandatory Redeemable Preferred Stock.

F-28
<PAGE> 105
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMMON STOCK

Effective February 1996, an amendment to the Company's Restated Certificate
of Incorporation increased the number of authorized shares of the Company's
common stock, $0.01 par value per share, from 100,000,000 shares to 250,000,000
shares and the number of shares of preferred stock, $0.01 par value per share,
from 10,000,000 shares to 110,000,000 shares. This increase in authorized
capital was necessary in order for the Company to effect the rights offering, as
discussed below.

During the year ended June 30, 1996, the Company issued 24,518 shares of
common stock to certain management personnel of DeepTech in connection with
DeepTech's deferred compensation arrangement discussed in Note 6.

PREFERRED STOCK

The Company filed a registration statement (the "Offering") with the
Securities and Exchange Commission (the "Commission") which was declared
effective on December 26, 1995, relating to the granting to all holders of
Tatham Offshore's common stock, on the record date, December 26, 1995, rights
(the "Rights") to purchase up to 25,120,948 warrants (the "Warrants"). Each
Right entitled the holder to subscribe to purchase one Warrant at the purchase
price of $.50 per Warrant. In February 1996, the Company issued 25,120,948
Warrants and received $12,560,000 in gross proceeds ($11,291,000 in net
proceeds) pursuant to the exercise of Rights. A total of 20,129,571 Warrants
were exercised to purchase 18,717,030 shares, 74,379 shares and 1,338,162 shares
of Series A, B and C Preferred Stock, respectively, at $1.00 per share which
generated an additional $15,459,000 in proceeds to the Company. The remaining
4,991,377 Warrants outstanding on January 1, 1997 were automatically converted
into an equal number of shares of Mandatory Redeemable Preferred Stock.

STOCK COMPENSATION PLANS

On August 28, 1995, the Company filed a registration statement on Form S-8
with the Commission for the registration of 400,000 shares of common stock
authorized for issuance upon exercise of options under the Company's Equity
Incentive Plan (the "Incentive Plan") and 100,000 shares of common stock
authorized for issuance upon exercise of options under the Company's
Non-Employee Director Stock Option Plan (the "Director Option Plan" and
collectively with the Incentive Plan, the "Option Plans"). The Incentive Plan,
as amended, provides the Company the ability to issue a variety of awards
pursuant to the plan including stock options, restricted stock, stock
appreciation rights and stock value equivalent awards. In June 1996, the Company
issued 25,514 shares of common stock to outside directors pursuant to the
exercise of options granted under the Director Option Plan in settlement of
directors' fees and meeting attendance fees for the year ended June 30, 1996.
During the years ended June 30, 1997 and 1996, Tatham Offshore issued 9,000
options and 13,000 options, respectively, pursuant to the Director Option Plan.
Options outstanding under the Option Plans at June 30, 1997 totaled 24,500 of
which 9,500 options were exercisable. In addition, Tatham Offshore issued 79,000
stock appreciation rights pursuant to the Incentive Plan during the year ended
June 30, 1997.

NOTE 6 -- RELATED PARTY TRANSACTIONS:

DEEPTECH

The management agreement between the Company and DeepTech provides for an
annual management fee which is intended to reimburse DeepTech for the estimated
costs of its operational, financial, accounting and administrative services
provided to the Company. Effective July 1, 1993, the management agreement
between the Company and DeepTech provided for an annual management fee equal to
40% of DeepTech's overhead. Effective November 1, 1995 and July 1, 1996, the
Company amended its management agreement

F-29
<PAGE> 106
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

with DeepTech to provide for an annual management fee of 27.4% and 24%,
respectively, of DeepTech's overhead. During the years ended June 30, 1997, 1996
and 1995, DeepTech charged Tatham Offshore $3,279,000, $4,436,000 and
$4,967,000, respectively, under the management agreement. On June 30, 1996,
DeepFlex Services exercised 4,670,957 of its 10,000,000 Warrants to purchase an
equal number of shares of Series A Preferred Stock at $1.00 per share by
offsetting the then outstanding payable to DeepTech for costs allocated under
the management agreement by $4,670,957.

On November 1, 1995, the Company converted $1,734,000 of its accounts
payable to an affiliate into an unsecured promissory note payable to DeepTech
(the "Affiliate Note"). The Affiliate Note bore interest at 14.5% per annum,
payable quarterly, and the principal was payable to DeepTech in six monthly
installments which began on January 31, 1997. Interest expense related to the
Affiliate Note totaled $202,000 and $170,000 for the years ended June 30, 1997
and 1996, respectively.

In October 1995, DeepFlex Services entered into a bridge loan agreement
(the "Bridge Loan") with Tatham Offshore whereby DeepFlex Services agreed to
make $12,500,000 of interim bridge financing available to fund a portion of the
Company's working capital and capital requirements. Tatham Offshore borrowed a
total of $8,000,000 under the Bridge Loan which accrued interest at a rate of
15% per annum. Interest expense related to borrowings under the Bridge Loan
totaled $210,000 for the year ended June 30, 1996. On January 31, 1996, DeepFlex
Services subscribed for the purchase of 10,000,000 Warrants, pursuant to the
exercise of Rights which had been assigned from DeepTech, at a cost of
$5,000,000, which was paid through the forgiveness of $5,000,000 of principal
and interest due under the Bridge Loan. In February 1996, Tatham Offshore used
Offering proceeds to repay in full the remaining principal and accrued interest
outstanding under the Bridge Loan.

Effective July 1, 1995, DeepTech established three deferred compensation
arrangements: (i) a mandatory arrangement for DeepTech's Chief Executive Officer
(the "DeepTech CEO"), (ii) a mandatory arrangement for certain senior executives
of DeepTech and (iii) an optional arrangement for all other employees of
DeepTech. Pursuant to the terms of each arrangement, participants deferred all
or a portion of their cash salary until no later than July 1, 1996. During each
month in the deferral period, each participant was entitled to receive options
to purchase a number of shares of either DeepTech or Tatham Offshore or
Preference Units of the Partnership equal to a percentage (ranging from 100% to
300% of their cash salary) divided by the lesser of the closing price on June
30, 1995 (DeepTech -- $4.00, Tatham Offshore -- $3.50 and the
Partnership -- $11.875) or the average closing price for the applicable month.
Options were exercisable only by cancellation of the participant's cash salary.
Each participant earned credits equal to a multiple, based on the option
elected, of their deferred cash salary. Any participant except the DeepTech CEO
could have received all or a portion of their salary in cash if they did not
elect to exercise any options. To the extent that the Company issued its common
stock pursuant to the exercise of options granted under these arrangements, it
received an offsetting credit against its management fees payable to DeepTech.
In November 1995, DeepTech terminated the deferred compensation arrangement for
all but three employees of DeepTech. In November 1995 and June 1996, the Company
issued 120,948 shares and 124,234 shares, respectively, of its common stock in
connection with the mandatory arrangement for certain senior executives of
DeepTech and received a $360,000 credit against its management fees payable to
DeepTech.

OTHER

The Partnership charged Tatham Offshore $1,995,000 and $1,722,000 for the
years ended June 30, 1997 and 1996, respectively, for commodity and platform
access fees associated with the Viosca Knoll 817 lease in accordance with
certain agreements between the parties. Commodity charges are based on the
volume of oil and gas transported or processed.

During the years ended June 30, 1997, 1996 and 1995, the Company sold 99%,
99% and 97%, respectively, of its production to Offshore Gas Marketing, Inc.
("Offshore Marketing"), an 80%-owned subsidiary of DeepTech. Through October
1995, the sales prices were based upon contractually agreed-upon posted prices.
In November 1995, Tatham Offshore renegotiated its agreement with Offshore
Marketing to provide Offshore Marketing fees equal to 2% of the sales value of
crude oil and condensate and $0.015 per dekatherm of natural gas for selling the
Company's production.

F-30
<PAGE> 107
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Dover Technology, Inc. ("Dover"), a 50%-owned subsidiary of DeepTech,
charged Tatham Offshore $160,000, $601,000 and $747,000 for the years ended June
30, 1997, 1996 and 1995, respectively, for services related to the acquisition,
development, exploration or evaluation of oil and gas properties. Tatham
Offshore's payable to Dover for these services in the amount of $1,734,000 at
November 1, 1995 was converted into the Affiliate Note.

During the year ended June 30, 1996, the Company forgave a $90,000 advance
to an officer of DeepTech who is also a stockholder of the Company in exchange
for consulting fees rendered by the officer/stockholder to Tatham Offshore.

NOTE 7 -- INCOME TAXES:

The Company's deferred income tax liabilities (assets) at June 30, 1997 and
1996 consist of net operating loss ("NOL") carryforwards and the tax effect of
timing differences between financial and tax reporting related to the
recognition of certain amounts as follows:

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Oil and gas properties...................................... $ 702 $ 1,142
-------- --------
Gross deferred liability.......................... 702 1,142
-------- --------
NOL carryforwards........................................... (38,315) (22,445)
-------- --------
Gross deferred asset.............................. (38,315) (22,445)
-------- --------
Net deferred tax asset...................................... (37,613) (21,303)
Valuation allowances........................................ 37,613 21,303
-------- --------
$ -- $ --
======== ========
</TABLE>

Because of the Company's cumulative losses, valuation allowances of
$37,613,000 and $21,303,000 at June 30, 1997 and 1996, respectively, were
provided against the net deferred tax assets. At June 30, 1997, the Company had
approximately $112,691,000 of regular tax NOL carryforwards and approximately
$111,280,000 of alternative minimum tax NOL carryforwards. These losses begin to
expire in the year 2005. Substantial changes in a company's ownership can result
in an annual limitation on the utilization of federal income tax NOL
carryforwards.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES:

DRILLING ARRANGEMENT

In September 1996, the Company entered into a drilling arrangement (the
"Drilling Arrangement") with Sedco Forex Division of Schlumberger Technology
Corporation ("Sedco Forex") to provide the Company with the use of a
semisubmersible drilling rig capable of drilling in water depths of up to 1,500
feet. The Drilling Arrangement will become effective upon the mobilization of
the rig to the Company's initial drilling location. Once effective, the Drilling
Arrangement will last for 90 days or, if sooner, the date on which the Company
completes its initial drilling operations and the rig is mobilized to another
location. After the initial well, the Company may, at its option, extend the
Drilling Arrangement through three successive one-well options or two successive
one-year terms.

Under the terms of the Drilling Arrangement, the Company has committed to
pay Sedco Forex a drilling rate of $70,000 per day for the initial well. As
security for its obligations under the Drilling Arrangement, the Company will be
required to post an irrevocable letter of credit or cash collateral of $6.3
million, which amount is equal to the aggregate operating dayrate for the
initial contract well. If the Company elects to extend the Drilling Arrangement,
the dayrate for the three well extension option would be $75,000 per day. If the
Company elects to extend the Drilling Arrangement under the one-year options,
the dayrate for the initial year would be $75,000 per day. The dayrate for the
second year under this option would be based on prevailing market rates. Under
either of the extension options, the Company and Sedco Forex must agree-upon

F-31
<PAGE> 108
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

additional security for the extension period. During the term of the Drilling
Arrangement, the Company has the right to subcontract the rig to other operators
and receive the difference between the subcontract rate and the above agreed
upon rates, if any, subject to a fee of 10% of the difference payable to Sedco
Forex. In order to obtain the dayrates outlined above, the Company must exercise
its option to drill the initial well by the later of (i) 180 days after June 30,
1997 or (ii) 30 days after the completion of a well that Sedco Forex has
committed to drill for a third party. If the Company initiates the Drilling
Arrangement after the end of the option period, all drilling dayrates will be at
prevailing market rates. The Company has agreed to fund the capital requirements
necessary to upgrade and modify a drilling rig to drill in water depths of 1,500
feet if it wishes to utilize the rig in water depths greater than its current
water depth rating. Tatham Offshore estimates that the capital costs required
for the upgrade would total approximately $19.0 million.

The Company has a second option under the Drilling Arrangement to utilize a
rig offshore eastern Canada for the drilling of one well, at the existing
contract rate, following the completion of drilling activity for a third party.

OTHER

The Company anticipates substantial future capital expenditures associated
with the full development of its oil and gas properties. Realization of the full
potential of the Company's properties is dependent upon the ability to obtain
sufficient additional capital or project financing.

NOTE 9 -- SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest, net of amounts capitalized....... $7,249 $7,693 $8,548
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1996 1995
------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Additions to oil and gas properties.................. $ -- $ (2,000) $ --
Issuance of notes payable............................ -- -- 12,813
Increase (reduction) in accounts payable and accrued
liabilities........................................ -- 2,000 (12,813)
Deferred income related to oil and gas properties
held for sale...................................... -- -- 15,000
Receivable from affiliate............................ -- -- (15,000)
Stock subscriptions receivable....................... -- (12,242) --
Issuance of Series A Preferred Stock................. -- 16,913 --
Payable to affiliate................................. -- (4,671) --
</TABLE>

F-32
<PAGE> 109
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- SUBSEQUENT EVENTS:

In September 1997, DeepTech and Tatham Offshore entered into an option
agreement to restructure the Subordinated Notes (the "Restructuring Option
Agreement"). Under the Restructuring Option Agreement, DeepTech has agreed to
forgive the next two scheduled interest payments under the Subordinated Notes, a
total of $3,900,000. In exchange, DeepTech received several options from Tatham
Offshore and has agreed to restructure the Subordinated Notes by consummating
one of the following transactions: (i) to convert all of the principal amount
outstanding under the Subordinated Notes into shares of Tatham Offshore common
stock at the market price at the time the option is exercised; (ii) to purchase
shares of 6% Senior Preferred Stock of Tatham Offshore with a liquidation value
of $60 million, the proceeds from which would be used to prepay the Tatham
Offshore Subordinated Notes; or (iii) to purchase all of the outstanding capital
stock of Tatham Offshore Development for $60 million, the proceeds from which
would be used to prepay the outstanding balance of the Subordinated Notes.
DeepTech is required to select one of the above restructuring transactions on or
before December 31, 1997.

Tatham Offshore Development holds the leasehold interests in Ewing Bank
Blocks 958, 959, 1002 and 1003, the Sunday Silence Project. Under the
Restructuring Option Agreement, Tatham Offshore has the right to pursue the
sale, farmout or other disposition of the Sunday Silence Project during the
option period. In the event that Tatham Offshore enters into a sales agreement
for 100% of Tatham Offshore Development or the Sunday Silence Project prior to
the expiration of the option period, DeepTech has the further option to receive
50% of the cash proceeds from such transaction as a prepayment of the
Subordinated Notes. If DeepTech elects this option, DeepTech has agreed to
convert the remaining principal amount of the Subordinated Notes into common
stock of Tatham Offshore at the market price. For purposes of determining the
market price of Tatham Offshore's common stock under this agreement, the parties
have agreed that the market price shall be the average of the closing prices for
the ten trading days immediately preceding the exercise of the option.
DeepTech's option to acquire Tatham Offshore Development also includes all of
Tatham Offshore's interest in the Drilling Arrangement with Sedco Forex for the
use of a semisubmersible drilling rig in the Gulf. Tatham Offshore has agreed
not to sell less than 100% of its interest in Tatham Offshore Development
pending the exercise by DeepTech of one of its options.

NOTE 11 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED):

OIL AND GAS RESERVES

The following table represents the Company's net interest in estimated
quantities of developed and undeveloped reserves of crude oil, condensate and
natural gas and changes in such quantities at fiscal year end 1997, 1996 and
1995. Estimates of the Company's reserves at June 30, 1997, 1996 and 1995 have
been made by the independent engineering consulting firm, Ryder Scott Company
Petroleum Engineers. Net proved reserves are the 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
proved reserve volumes that can be expected to be recovered through existing
wells with existing equipment and operating methods. Proved undeveloped reserves
are proved reserve volumes that are expected to be recovered from new wells on
undrilled acreage or from existing wells where a significant expenditure is
required for recompletion.

F-33
<PAGE> 110
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Estimates of reserve quantities are based on sound geological and
engineering principles, but, by their very nature, are still estimates that are
subject to substantial upward or downward revision as additional information
regarding producing fields and technology becomes available.

<TABLE>
<CAPTION>
OIL/CONDENSATE NATURAL GAS
(BARRELS) (MCF)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Proved reserves -- June 30, 1994............................ 13,351 99,300
Revisions of previous estimates........................... 3 (7,146)
Extensions, discoveries and other additions............... 1,767 1,117
Production................................................ (333) (1,505)
Sales of reserves in place................................ (2,733) (50,156)
------- -------
Proved reserves -- June 30, 1995............................ 12,055 41,610
Revisions of previous estimates........................... (168) (3,902)
Purchase of reserves in place............................. -- 17,160
Extensions, discoveries and other additions............... 398 8,427
Production................................................ (418) (1,035)
------- -------
Proved reserves -- June 30, 1996............................ 11,867 62,260
Revisions of previous estimates........................... (11,608) (43,328)
Purchase of reserves in place............................. -- --
Extensions, discoveries and other additions............... 36 540
Production................................................ (170) (7,180)
------- -------
Proved reserves -- June 30, 1997............................ 125 12,292
======= =======
Proved developed reserves -- June 30, 1995.................. 3,661 13,930
======= =======
Proved developed reserves -- June 30, 1996.................. 3,388 35,274
======= =======
Proved developed reserves -- June 30, 1997.................. 125 12,292
======= =======
</TABLE>

In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs and
future plugging and abandonment costs, all of which may vary considerably from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.

Furthermore, Tatham Offshore's wells have only been producing for a short
period of time and, accordingly, estimates of future production are based on
this limited history. 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 upon
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. A significant portion of Tatham
Offshore's reserves is based upon volumetric calculations.

FUTURE NET CASH FLOWS

The standardized measure of discounted future net cash flows relating to
the Company's proved oil and gas reserves is calculated and presented in
accordance with SFAS No. 69, "Disclosures About Oil and Gas Producing
Activities." Accordingly, future cash inflows were determined by applying
year-end oil and gas prices to the Company's estimated share of future
production from proved oil and gas reserves. The average prices utilized in the
calculation of the standardized measure of discounted future net cash flows at
June 30, 1997 were $17.20 per barrel of oil and $2.39 per MCF of gas. Future
production and development costs were computed by applying year-end costs to
future years. Future income taxes were derived by applying year-end statutory
tax rates to the estimated net future cash flows taking into consideration the
Company's NOL

F-34
<PAGE> 111
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carryforwards. A prescribed 10% discount factor was applied to the future net
cash flows.

In the Company's opinion, this standardized measure is not a representative
measure of fair market value, and the standardized measure presented for the
Company's proved oil and gas reserves is not representative of the reserve
value. The standardized measure is intended only to assist financial statement
users in making comparisons between companies.

<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows................................. $31,512 $383,130 $275,415
Future production costs............................. 16,750 128,195 100,638
Future development costs............................ 2,096 89,024 88,801
Future income tax expenses.......................... -- 14,882 --
------- -------- --------
Future net cash flows............................... 12,666 151,029 85,976
Annual discount at 10% rate......................... 1,623 47,346 37,993
------- -------- --------
Standardized measure of discounted future net cash
flows............................................. $11,043 $103,683 $ 47,983
======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PROVED PROVED
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows from
proved reserves before income taxes............... $12,666 $ -- $12,666
======= ====== =======
Present value of future net cash flows from proved
reserves before income taxes, discounted at 10%... $11,043 $ -- $11,043
======= ====== =======
</TABLE>

F-35
<PAGE> 112
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following are the principal sources of change in the standardized
measure (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning of year.......................................... $103,683 $ 47,983 $107,665
Sales and transfers of oil and gas produced, net of
production costs...................................... (13,771) (8,678) (3,156)
Net changes in prices and production costs............... (52,887) 38,730 (32,805)
Extensions, discoveries and improved recovery, less
related costs......................................... 627 3,746 1,227
Changes in estimated future development costs............ 70,198 5,764 (10,909)
Previously estimated development costs incurred during
the year.............................................. 2,976 1,987 13,000
Revisions of previous quantity estimates................. (78,596) (3,198) (6,917)
Purchase of reserves in place............................ -- 18,200 --
Sales of reserves in place............................... -- -- (25,298)
Net change in income taxes............................... 5,330 (5,330) 18,410
Accretion of discount.................................... 10,901 4,798 12,607
Changes in production rates, timing and other............ (37,418) (319) (25,841)
-------- -------- --------
End of year(1)............................................. $ 11,043 $103,683 $ 47,983
======== ======== ========
</TABLE>

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

(1) The standardized measure calculations at June 30, 1995 exclude the Company's
obligations to pay demand charges to an affiliate relative to its Ewing Bank
and Ship Shoal properties. These demand charges were prepaid in full during
the year ended June 30, 1996. See Note 3.

F-36
<PAGE> 113

To the Board of Directors and Stockholders of
DeepFlex Production Services, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholder's equity
(deficit) present fairly, in all material respects, the financial position of
DeepFlex Production Services, Inc. and its subsidiaries at June 30, 1997 and
1996, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As described in Note 6, the RIGCO Credit Facility expires September 30,
1998. The Company is currently in negotiation with the lenders to refinance this
credit facility.

As described in Note 1, the Company, a subsidiary of DeepTech International
Inc., and its affiliates have significant transactions with DeepTech
International Inc. and its affiliates. Accordingly, the financial statements
should be read in conjunction with the consolidated financial statements of
DeepTech International Inc.

PRICE WATERHOUSE LLP

Houston, Texas
March 18, 1998

F-37
<PAGE> 114

DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -------------------
1997 1997 1996
------------ -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 1,304 $ 49 $ 5,492
Account receivable...................................... 4,506 413 2
Prepaid expenses........................................ 151 563 --
Notes receivable from affiliate......................... -- -- 8,241
-------- -------- -------
Total current assets............................ 5,961 1,025 13,735
-------- -------- -------
Semisubmersible drilling rigs............................. 130,390 126,287 151
Less: Accumulated depreciation............................ 3,939 1,219 --
-------- -------- -------
Semisubmersible drilling rigs, net.............. 126,451 125,068 151
-------- -------- -------
Construction fund collateral account...................... -- 554 --
Note receivable from affiliate............................ -- -- 40,490
Equity investments........................................ -- -- 11,939
Debt issue costs, net..................................... 1,735 2,861 485
-------- -------- -------
Total assets.................................... $134,147 $129,508 $66,800
======== ======== =======

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities................ $ 1,213 $ 5,936 $ 643
Current portion of notes payable........................ 68,876 7,893 14,310
Note payable to DeepTech................................ 80,897 67,046 38,105
-------- -------- -------
Total current liabilities....................... 150,986 80,875 53,058
Notes payable............................................. -- 68,357 5,931
Long-term debt............................................ -- -- 11,000
-------- -------- -------
Total liabilities............................... 150,986 149,232 69,989
-------- -------- -------
Minority interests in consolidated subsidiaries........... 250 250 --
-------- -------- -------
Commitments and contingencies (Note 10)
Stockholder's equity (deficit):
Common stock, $.001 par value, 1,000 shares authorized,
1 share issued and outstanding....................... -- -- --
Additional paid-in capital.............................. 2 2 1
Accumulated deficit..................................... (17,091) (19,976) (3,190)
-------- -------- -------
(17,089) (19,974) (3,189)
-------- -------- -------
Total liabilities and stockholder's equity
(deficit)..................................... $134,147 $129,508 $66,800
======== ======== =======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-38
<PAGE> 115

DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------------- -------------------
1997 1996 1997 1996
----------- ----------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Drilling services............................. $34,772 $ 4,588 $ 14,609 $ --
Equity in earnings............................ -- 483 -- 1,310
------- ------- -------- -------
34,772 5,071 14,609 1,310
------- ------- -------- -------
Costs and expenses:
Operating expenses............................ 17,409 2,520 8,201 --
Depreciation.................................. 2,596 402 1,219 --
Losses of equity investee..................... -- -- 1,261 --
Management fee................................ 1,451 996 2,287 1,761
General and administrative expenses........... 70 (13) 49 712
------- ------- -------- -------
21,526 3,905 13,017 2,473
------- ------- -------- -------
Operating income (loss)......................... 13,246 1,166 1,592 (1,163)
Gain on sale of drilling rig.................... -- -- -- 562
Loss on investment.............................. -- -- (10,688) --
Interest income................................. 210 265 902 223
Interest income -- affiliates................... -- 1,195 1,199 6,510
Interest expense................................ (5,164) (2,214) (2,214) (2,547)
Interest expense -- affiliates.................. (5,407) (3,137) (7,577) (5,826)
------- ------- -------- -------
Net income (loss)............................... $ 2,885 $(2,725) $(16,786) $(2,241)
======= ======= ======== =======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-39
<PAGE> 116

DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------------- --------------------
1997 1996 1997 1996
----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 2,885 $ (2,725) $(16,786) $ (2,241)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of debt issue costs........................ 1,150 989 2,046 243
Depreciation............................................ 2,596 402 1,219 --
Equity in earnings...................................... -- (483) -- (1,310)
Losses of equity investee............................... -- -- 1,261 --
Gain in sale of drilling rig............................ -- -- -- (562)
Loss on investment...................................... -- -- 10,688 --
Noncash interest income................................. -- (1,195) (1,195) (5,790)
Noncash interest expense................................ 5,388 3,137 7,577 5,826
Noncash management fees................................. 1,451 1,041 2,337 1,761
Noncash general and administrative expense.............. -- -- -- 600
Other noncash items..................................... -- -- -- (531)
Changes in operating working capital:
(Increase) decrease in accounts receivable............ (4,093) (655) (355) 220
Decrease (increase) in prepaid expenses............... 412 -- (563) --
(Decrease) increase in accounts payable and accrued
liabilities......................................... (4,723) 170 5,293 160
------- -------- -------- --------
Net cash provided by (used in) operating
activities........................................ 5,066 681 11,522 (1,624)
------- -------- -------- --------
Cash flows from investing activities:
Additions to semisubmersible drilling rigs................ (3,978) (26,327) (62,622) (151)
Investment in equity investees............................ -- (1,017) (1,017) (1,010)
Proceeds from sale of common stock (Note 3)............... -- -- -- 14,708
Advances to affiliates.................................... -- -- -- (23,886)
Repayment of advance from affiliates...................... -- 1,751 1,751 6,566
------- -------- -------- --------
Net cash used in investing activities............... (3,978) (25,593) (61,888) (3,773)
------- -------- -------- --------
Cash flows from financing activities:
Decrease (increase) in restricted cash.................... 554 (12,054) (554) --
Proceeds from issuance of notes payable................... -- 65,992 77,992 20,241
Proceeds from note payable to DeepTech.................... 7,012 1,749 12,916 4,845
Repayment of notes payable................................ (7,374) (30,500) (31,000) (2,927)
Repayment of notes payable to affiliates.................. -- -- -- (3,415)
Repayment of note payable to DeepTech..................... -- (1,582) (10,260) (7,127)
Debt issue costs.......................................... (25) (3,634) (4,171) (728)
------- -------- -------- --------
Net cash provided by financing activities........... 167 19,971 44,923 10,889
------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 1,255 (4,941) (5,443) 5,492
Cash and cash equivalents at beginning of period............ 49 5,492 5,492 --
------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 1,304 $ 551 $ 49 $ 5,492
======= ======== ======== ========
</TABLE>

Supplemental disclosures to the statement of cash flows -- see Note 9.

The accompanying notes are an integral part of this financial statement.

F-40
<PAGE> 117

DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL
NUMBER PAR PAID-IN ACCUMULATED
OF SHARES VALUE CAPITAL DEFICIT TOTAL
--------- ----- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995...................... 1 $-- $ 1 $ (949) $ (948)
Net loss for the year ended June 30, 1996... -- -- -- (2,241) (2,241)
-- --- --- -------- --------
Balance, June 30, 1996...................... 1 -- 1 (3,190) (3,189)
Additional paid in capital from DeepTech
International Inc......................... -- -- 1 -- 1
Net loss for the year ended June 30, 1997... -- -- -- (16,786) (16,786)
-- --- --- -------- --------
Balance, June 30, 1997...................... 1 -- 2 (19,976) (19,974)
Net income for the six months ended December
31, 1997 (unaudited)...................... -- -- -- 2,885 2,885
-- --- --- -------- --------
Balance, December 31, 1997 (unaudited)...... 1 $-- $ 2 $(17,091) $(17,089)
== === === ======== ========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-41
<PAGE> 118

DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION:

DeepFlex Production Services, Inc. ("DeepFlex"), a Delaware corporation and
wholly-owned subsidiary of DeepTech International Inc. ("DeepTech"), was formed
on January 19, 1995 and through its subsidiaries and equity interests, focuses
on the acquisition and deployment of semisubmersible drilling rigs for contract
drilling. DeepTech is a diversified energy company engaged, through its
operating subsidiaries, in offshore contract drilling services and the
acquisition, development, production, processing, transportation and marketing
of, and the exploration for, oil and gas located offshore the United States in
the Gulf of Mexico and offshore eastern Canada.

In March 1995, DeepFlex entered into a partnership agreement with an
affiliate of Coflexip Stena Offshore Inc. ("Coflexip") to form DeepFlex
Production Partners, L.P. ("DeepFlex Partners"). DeepFlex Partners, effectively
owned 50% by DeepFlex and 50% by Coflexip, operated the FPS Laffit Pincay, a
second generation semisubmersible drilling rig, through September 30, 1996.

In December 1995, DeepFlex entered into an agreement with Highwood
Partners, L.P. ("Highwood Partners") to form Deepwater Drillers, L.L.C.
("Deepwater Drillers") to exercise an option assigned from an indirect
subsidiary of DeepTech to acquire the FPS Bill Shoemaker, a second generation
semisubmersible drilling rig. At inception, Deepwater Drillers was owned 50% by
a wholly-owned subsidiary of DeepFlex and 50% by Highwood Partners. On June 30,
1996, FPS V, Inc. ("FPS V"), a wholly-owned subsidiary of DeepTech, acquired
Highwood Partners' 50% interest. DeepTech subsequently contributed its
investment in FPS V to DeepFlex.

On September 30, 1996, Deepwater Drillers was merged with and into RIGCO
North America, L.L.C. ("RIGCO"), a wholly-owned indirect subsidiary of DeepFlex.
RIGCO also acquired the FPS Laffit Pincay from DeepFlex Partners in exchange for
payment-in-kind indebtedness ("PIK Notes") (See Notes 3, 4, 5 and 6).

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
DeepFlex and its wholly-owned subsidiaries (collectively referred to as the
"Company"). The Company uses the equity method to account for its investment in
entities in which the Company owns 50% or less.

The financial data for the six months ended December 31, 1997 and 1996 is
unaudited; however, this data has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. This interim data
reflects all normal recurring adjustments which are, in the opinion of
management, necessary for a fair statement of the results of operations for such
interim periods.

All significant intercompany balances and transactions have been eliminated
in consolidation.

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

SEMISUBMERSIBLE DRILLING RIGS

The cost of the semisubmersible drilling rigs is capitalized and
depreciated using the straight-line method over the drilling rigs' estimated
useful lives of 25 years.

F-42
<PAGE> 119
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Impairment losses on long-lived assets (including the semisubmersible
drilling rigs) are recognized if the carrying amount of such assets, grouped at
the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows from other assets, exceeds the estimated
undiscounted future cash flows of such assets. Measurement of any impairment
loss is based on the fair value of the assets.

CAPITALIZATION OF INTEREST

Interest and other financing costs are capitalized in connection with
construction projects as part of the cost of the asset and amortized over the
related asset's estimated useful life.

DEBT ISSUE COSTS

Debt issue costs are capitalized and amortized over the life of the related
indebtedness.

REVENUE RECOGNITION

Revenue from services is recognized in the period rendered. All of the
Company's operating revenues are generated from contract drilling services
related to the use of its two semisubmersible drilling rigs.

INCOME TAXES

The Company's results are included with its parent, DeepTech, in a
consolidated federal income tax return. DeepTech and its subsidiaries which are
part of the consolidated tax group, including the Company, are parties to
intercompany tax sharing agreements which describe the method of determining the
intercompany charge for income taxes. Under its tax sharing agreement, the
Company is to calculate a provision for income taxes equal to that which would
be calculated if the Company filed a separate income tax return. Tax loss and
other tax benefit carryforwards are similarly calculated for the Company on a
separate return basis. Federal income taxes currently payable are remitted to
DeepTech and state income taxes are remitted to the applicable state taxing
authorities.

ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of certain assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that its estimates are reasonable.

OTHER

The fair values of the financial instruments included in the Company's
assets and liabilities approximate their carrying values.

During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 129, "Disclosure of Information
About Capital Structure". This statement, which establishes standards for
disclosing information about an entity's capital structure previously not
required by nonpublic entities, is effective for fiscal years beginning after
December 15, 1997 and will not affect the Company.

NOTE 3 -- SEMISUBMERSIBLE DRILLING RIGS:

Additions to semisubmersible drilling rigs during the year ended June 30,
1997 related to the acquisition of the FPS Laffit Pincay from DeepFlex Partners
for the assumption of all of the then outstanding PIK Notes of $40,056,000 and
the acquisition, refurbishment and upgrade of the FPS Bill Shoemaker. During the
years ended June 30, 1997 and 1996, the Company capitalized $7,140,000 and
$1,021,000, respectively, of interest costs related to the refurbishment and
upgrade of the semisubmersible drilling rigs.

F-43
<PAGE> 120
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Both the FPS Laffit Pincay and the FPS Bill Shoemaker are currently
operated under management and charter agreements with Sedco Forex Division
("Sedco Forex") of Schlumberger Technology Corporation. Sedco Forex is
responsible for all aspects of operating and marketing of the drilling rigs,
subject to agreed budgets and certain authorizations for new contracts. The
agreements with Sedco Forex provide them with a management fee and the
recoupment of their actual operating costs. During July 1997, Sedco Forex
completed the refurbishment and upgrade on the FPS Bill Shoemaker and mobilized
the rig to offshore eastern Canada where it conducted drilling operations.

In November 1994, the Company acquired a semisubmersible drilling rig, the
FPS Eddie Delahoussaye, for $11,000,000 (Note 6). Effective March 31, 1995, the
Company transferred the FPS Eddie Delahoussaye to DeepFlex Partners for the
issuance of PIK Notes in the amount of $14,763,000 which was the Company's cost
of acquisition and capital additions since November 1994.

In September 1995, the Company sold the FPS Eddie Delahoussaye (on behalf
of DeepFlex Partners) to Reading & Bates (U.K.) Limited for $18,000,000 which
was comprised of (i) $3,000,000, (ii) 1,232,057 shares of Reading & Bates
Corporation ("Reading & Bates") common stock and (iii) the forgiveness of
$292,000 of trade receivables due Reading & Bates from a wholly-owned subsidiary
of DeepTech. DeepFlex Partners transferred the net sales proceeds (including the
Reading & Bates common stock) to the Company as repayment of a portion of the
PIK Notes issued by DeepFlex Partners. The Reading & Bates common stock was
subsequently sold for $14,708,000.

NOTE 4 -- NOTES RECEIVABLE FROM AFFILIATES:

BRIDGE LOAN

In October 1995, DeepFlex entered into a bridge loan agreement (the "Bridge
Loan") with Tatham Offshore, Inc. ("Tatham Offshore"), a subsidiary of DeepTech,
whereby DeepFlex agreed to make $12,500,000 of interim bridge financing
available to fund a portion of Tatham Offshore's working capital and capital
requirements. DeepFlex advanced Tatham Offshore $8,000,000 under the Bridge
Loan. All indebtedness outstanding under the Bridge Loan accrued interest at a
rate of 15% per annum. Interest income related to outstanding advances under the
Bridge Loan totaled $210,000 for the year ended June 30, 1996. The terms of the
Bridge Loan required Tatham Offshore to undertake an equity offering or to
implement another refinancing or asset disposition sufficient to repay the
outstanding indebtedness under the Bridge Loan. On January 31, 1996, DeepFlex
subscribed for the purchase of 10,000,000 Tatham Offshore warrants, pursuant to
the exercise of Rights which had been assigned from DeepTech, at a cost of
$5,000,000, which was paid through the forgiveness of $5,000,000 of principal
and interest due under the Bridge Loan. In February 1996, Tatham Offshore used
offering proceeds to repay the remaining principal and accrued interest
outstanding under the Bridge Loan.

PROMISSORY NOTES

In December 1995, a wholly-owned subsidiary of DeepFlex and Highwood
Partners formed Deepwater Drillers to acquire the FPS Bill Shoemaker for
$14,500,000 pursuant to the exercise of an option assigned from the Company
(Notes 1 and 6). As of June 30, 1996, the Company advanced $8,241,000 to
Deepwater Drillers from proceeds from the Highwood Notes (Note 6) in exchange
for promissory notes ("Promissory Notes"). The Promissory Notes bore interest at
12% per annum, payable quarterly, were due on March 31, 1997 and were secured by
a mortgage on the FPS Bill Shoemaker. Interest income related to the Promissory
Notes totaled $510,000 for the year ended June 30, 1996. In connection with the
contribution by DeepTech of its investment in FPS V to DeepFlex, the merger of
Deepwater Drillers with and into RIGCO and the repayment of the Highwood Notes
(Note 6), the Promissory Notes were settled.

PIK NOTES

As of June 30, 1996, DeepFlex Partners owed DeepFlex $40,490,000 aggregate
principal amount of PIK Notes which comprises the long term note receivable from
affiliate on the accompanying consolidated balance sheet. The PIK Notes from
DeepFlex Partners bore interest at 12% per annum, payable quarterly, and were
due on March 31, 2002.

F-44
<PAGE> 121
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest was paid under certain circumstances by the issuance of additional
PIK Notes. The PIK Notes were subordinate to all indebtedness incurred by
DeepFlex Partners and were secured by a first mortgage on the FPS Laffit Pincay.
On September 30, 1996, RIGCO acquired the FPS Laffit Pincay from DeepFlex
Partners for the assumption of the then outstanding PIK Notes payable to
DeepFlex of $40,056,000. Interest income related to the PIK Notes totaled
$1,195,000 and $5,790,000 for the years ended June 30, 1997 and 1996,
respectively.

NOTE 5 -- EQUITY INVESTMENTS:

At June 30, 1997, the Company owned 26% of Tatham Offshore's Series A 12%
Convertible Exchangeable Preferred Stock ("Series A Preferred Stock"), 76% of
Tatham Offshore's Series C 4% Convertible Exchangeable Preferred Stock ("Series
C Preferred Stock") and 86% of Tatham Offshore's Mandatory Redeemable Preferred
Stock. See Note 11. In June 1997, the Company reserved its investment in Tatham
Offshore's Series A, Series C and Mandatory Redeemable Preferred Stocks which is
included in loss on investments on the accompanying consolidated statement of
operations. The Company's investment in Tatham Offshore, DeepFlex Partners and
Deepwater Drillers totaled $9,671,000, $1,258,000 and $1,010,000, respectively,
at June 30, 1996.

The summarized financial information for the Company's significant
investments in unconsolidated subsidiaries which are accounted for using the
equity method is as follows:

SUMMARIZED BALANCE SHEET

<TABLE>
<CAPTION>
DEEPWATER DRILLERS DEEPFLEX PARTNERS
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997(A) 1996 1997(B) 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current assets................................. $ -- $ -- $ -- $ 659
Noncurrent assets.............................. -- 19,554 -- 42,403
Current liabilities............................ -- 17,528 -- 57
Noncurrent liabilities......................... -- -- -- 40,490
</TABLE>

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

(a) On September 30, 1996, Deepwater Drillers was merged with and into RIGCO.

(b) Effective September 30, 1996, RIGCO acquired the FPS Laffit Pincay for the
assumption of all PIK Notes then outstanding of $40,056,000. Accordingly,
at June 30, 1997, the FPS Laffit Pincay is included in property and
equipment on the Company's consolidated balance sheet.

SUMMARIZED HISTORICAL OPERATING RESULTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DEEPFLEX PARTNERS
YEAR ENDED JUNE 30,
--------------------
1997(A) 1996
-------- --------
<S> <C> <C>
Operating revenue........................................... $ 4,448 $ 4,668
Other income................................................ 179 5,130
Operating expenses.......................................... (2,805) (3,927)
Depreciation................................................ (504) (760)
Impairment, abandonment and other........................... (2,645) --
Other expenses.............................................. (1,195) (2,491)
------- -------
Net (loss) income........................................... (2,522) 2,620
Ownership percentage........................................ 50% 50%
------- -------
Equity in (losses) earnings................................. $(1,261) $ 1,310
======= =======
</TABLE>

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

(a) Effective September 30, 1996, RIGCO acquire the FPS Laffit Pincay from
DeepFlex Partners. Accordingly, activity related to the operations of the
FPS Laffit Pincay for the period from October 1, 1996 through June 30, 1997
is included in the Company's consolidated statement of operations.
F-45
<PAGE> 122
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- INDEBTEDNESS:

Outstanding indebtedness is comprised of the following:

<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------------- -------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Highwood Notes.................................. $ -- $ -- $ 8,241 $ --
Term Loan....................................... -- -- 6,069 5,931
RIGCO Credit Facility........................... 7,893 68,357 -- --
Wilrig AS promissory notes...................... -- -- -- 11,000
Note payable to parent.......................... 67,046 -- 38,105 --
</TABLE>

HIGHWOOD NOTES

Prior to June 30, 1996, DeepFlex issued promissory notes to Highwood
Partners (the "Highwood Notes") for an aggregate principal amount of $8,241,000
which funds were advanced to Deepwater Drillers in exchange for Promissory Notes
(Note 4). The Company retired the Highwood Notes in connection with obtaining
the RIGCO Credit Facility discussed below. The Highwood Notes were secured by a
mortgage on the FPS Bill Shoemaker, the Promissory Notes issued to the Company
by Deepwater Drillers and a portion of the PIK Notes, bore interest at 12% per
annum, payable quarterly and were due March 31, 1997. Interest expense for the
years ended June 30, 1997 and 1996 totaled $23,000 and $510,000, respectively.

TERM LOAN

In February 1996, DeepFlex entered into a term loan agreement to borrow $12
million (the "Term Loan") from a syndicate of commercial lenders. The Term Loan
bore interest at 12% per annum, payable monthly, was due on July 15, 1997 and
was secured by substantially all tangible and intangible assets owned by
DeepFlex. In addition, the lenders required an assignment by DeepFlex of the
first preferred ship mortgage on the FPS Laffit Pincay. In connection with the
Term Loan, DeepTech issued to the lenders warrants to purchase an aggregate of
up to 2,666,667 shares of DeepTech common stock at $4.50 per share. One of the
lenders, Citibank, N.A., required that Mr. Thomas P. Tatham (the Chief Executive
Officer, Chairman of the Board of Directors and principal stockholder of
DeepTech) guarantee $6,000,000 of the Term Loan. In exchange for Mr. Tatham
agreeing to guarantee a portion of the Term Loan, Mr. Tatham received from
Citibank, N.A. warrants to purchase 333,333 shares of DeepTech common stock,
twenty-five percent of the loan fees payable by DeepFlex to Citibank, N.A. and a
quarterly fee equal to 50 basis points per annum for the period the guaranty was
outstanding. Proceeds from the Term Loan were utilized to repay $3,492,000 of
the Short-Term Notes, discussed below, for expenses incurred in connection with
the Term Loan and for working capital and general corporate requirements. The
Company retired the Term Loan in connection with obtaining the RIGCO Credit
Facility discussed below. Interest expense and amortization of debt issue costs
related to the Term Loan for the years ended June 30, 1997 and 1996 totaled
$850,000 and $783,000, respectively.

RIGCO CREDIT FACILITY

On September 30, 1996, RIGCO entered into a $65 million senior secured
credit facility with a syndicate of lenders (the "RIGCO Credit Facility").
Proceeds from the RIGCO Credit Facility were used to acquire the FPS Bill
Shoemaker, to fund significant upgrades to the FPS Bill Shoemaker, and to retire
the Highwood Notes and the Term Loan. In April 1997, the RIGCO Credit Facility
was amended to provide for an additional $12,000,000 to fund the remaining
refurbishments and upgrades to the FPS Bill Shoemaker. The RIGCO Credit Facility
was amended in July 1997 to revise certain covenants. The RIGCO Credit Facility
(i) matures on September 30, 1998, (ii) bears interest at the prime rate plus 3%
per annum (11.5% at June 30, 1997), payable quarterly, (iii) is secured by all
tangible and intangible assets of RIGCO including the two semisubmersible
drilling rigs, (iv) requires a quarterly principal payment of excess cash flow
as defined in the credit agreement with a minimum principal amortization of
$250,000 per quarter beginning on December 31, 1996 and (v) is subject to
customary conditions and covenants, including the maintenance of a

F-46
<PAGE> 123
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

minimum level of working capital. As of June 30, 1997, amounts outstanding under
the RIGCO Credit Facility totaled $76,250,000. Debt issue costs related to the
RIGCO Credit Facility of $4,400,000 were capitalized and are being amortized
over the two-year life of the credit facility. Interest incurred and
amortization of debt issue costs related to the RIGCO Credit Facility totaled
$7,282,000 for the year ended June 30, 1997. The construction fund collateral
account on the accompanying consolidated balance sheet represents remaining
funds available from the RIGCO Credit Facility which were restricted for use
related to the refurbishment and upgrade of the FPS Bill Shoemaker. In
connection with providing the RIGCO Credit Facility, lending syndicate members
were issued warrants to purchase an aggregate of 5% of RIGCO's outstanding
equity.

As required by the RIGCO Credit Facility, RIGCO purchased an interest rate
cap from a financial institution which established a maximum rate of 11.74% per
annum on $36.5 million of outstanding principal for the remaining term of the
credit facility.

The Company is currently in negotiation with the lenders to refinance this
credit facility.

WILRIG AS PROMISSORY NOTES

In November 1994, the Company acquired from Wilrig AS ("Wilrig") a
semisubmersible drilling rig, the FPS Eddie Delahoussaye (Note 3). In connection
with this acquisition, the Company obtained an option to acquire the FPS Bill
Shoemaker (Note 1) from Wilrig. As consideration, DeepTech and the Company
issued to Wilrig (i) promissory notes in the aggregate principal amount of
$11,000,000 (the "Wilrig Notes") due December 1997 and (ii) warrants which
granted Wilrig the right to exchange the principal and interest outstanding
under the promissory notes for common stock of DeepTech at the rate of $10.00
per share up to a maximum of 1,100,000 shares (the "Wilrig Warrants"). Interest
expense related to this debt was payable quarterly at 10% per annum and totaled
$617,000 and $1,100,000 for the years ended June 30, 1997 and 1996,
respectively. DeepFlex transferred the FPS Eddie Delahoussaye to DeepFlex
Partners in exchange for PIK notes in March 1995. On January 23, 1997, DeepTech
assumed the Wilrig Notes from the Company by increasing the note payable to
DeepTech discussed below and agreed to assign the Wilrig Warrants to Mr. Tatham.

NOTE PAYABLE TO DEEPTECH

Advances made to the Company by DeepTech are evidenced by an unsecured line
of credit, are due on demand and, if no demand is made, on November 14, 2000 and
bear interest at 14.5% per annum. Interest expense related to outstanding
advances totaled $7,577,000 and $5,826,000 for the years ended June 30, 1997 and
1996, respectively. See Note 9. DeepTech may, at its sole discretion, make
additional advances at the request of the Company. See Note 11.

NOTES PAYABLE TO AFFILIATES

In January 1996, the Company issued $3,415,000 in unsecured notes payable
(the "Short-Term Notes") bearing interest at 18% per annum and due on February
15, 1996 to affiliates of DeepTech in settlement of interest which was due on
January 1, 1996 that was related to DeepTech's affiliate indebtedness. DeepFlex
paid the Short-Term Notes in February 1996 as discussed above. Interest expense
related to this debt totaled $77,000 for the year ended June 30, 1996.

NOTE 7 -- RELATED PARTY TRANSACTIONS:

DeepTech has entered into management agreements with each of its
subsidiaries, including DeepFlex, pursuant to which each affiliate is charged an
annual management fee in exchange for operational, financial, accounting and
administrative services. The management fee is intended to reimburse DeepTech
for the estimated costs of services provided to each affiliate. Effective July
1, 1995, November 1, 1995 and July 1, 1996, the management agreement was amended
to provide for an annual management fee of 7.5%, 18.8% and 18%, respectively, of
DeepTech's unreimbursed overhead. For the years ended June 30, 1997 and 1996,
DeepFlex incurred $2,458,000 and $2,078,000, respectively, under this management
agreement of which

F-47
<PAGE> 124
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DeepFlex charged $171,000 and $317,000, respectively, to DeepFlex Partners
pursuant to a management agreement between DeepFlex and DeepFlex Partners
whereby DeepFlex provided operational, financial, accounting and administrative
services to DeepFlex Partners. Management fees charged to DeepFlex by DeepTech
for the years ended June 30, 1997 and 1996 are included in the note payable to
DeepTech (Note 6) as DeepFlex did not make cash payments of management fees to
DeepTech during such periods. See Notes 9 and 11.

On June 30, 1996, DeepFlex exercised 4,670,957 Tatham Offshore warrants to
purchase an equal number of shares of Tatham Offshore Series A Preferred Stock
for $1.00 per share by increasing its note payable to DeepTech by $4,670,957.
DeepTech, in turn, offset its then outstanding receivable from Tatham Offshore
for costs allocated under its management agreement by $4,670,957.

In February 1996, the FPS Laffit Pincay began providing contract drilling
services to Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), an affiliate of
DeepTech, which included the drilling and completion of the Garden Banks Block
117 #2 well in the Gulf of Mexico. As a result of RIGCO acquiring the FPS Laffit
Pincay in September 1996, RIGCO assumed this drilling contract. For the year
ended June 30, 1997, the Company's operating revenue included $10,779,000
related to these services provided to Leviathan. For the period from February
1996 through September 30, 1996, DeepFlex Partners reported operating revenue of
$9,116,000 related to these services.

In connection with the sale of the FPS Eddie Delahoussaye (Note 3), Mr.
Tatham was awarded a $200,000 bonus which he deferred under the DeepTech
deferred compensation arrangement. The DeepTech deferred compensation
arrangement required Mr. Tatham to defer all of his cash salary and entitled him
to receive options to purchase a number of shares of either DeepTech or Tatham
Offshore or preference units of Leviathan equal to 300% of his cash salary
divided by the lesser of the closing price on June 30, 1995 (DeepTech -- $4.00,
Tatham Offshore -- $35.00 and Leviathan -- $11.875) or the average closing price
for the applicable month. On September 25, 1995, Mr. Tatham exercised his
options under DeepTech's deferred compensation arrangement and received 150,000
shares of DeepTech common stock at an option price of $4.00 per share. This
$600,000 bonus is included in general and administrative expenses for the year
ended June 30, 1996 on the accompanying consolidated statement of operations.

In connection with the issuance of the Highwood Notes (Note 6), DeepTech
granted Highwood Partners warrants to acquire 472,973 shares of DeepTech common
stock at $5.00 per share until December 5, 1997. Highwood Partners assigned such
warrants to Westgate International, L.P. ("Westgate") who exercised all of these
warrants on September 30, 1996 to acquire 472,973 shares of DeepTech common
stock. In June 1997, DeepTech registered the shares of common stock acquired by
Westgate pursuant to the warrant agreement. As of June 30, 1997, Westgate,
Elliott Associates, L.P. and Martley International, Inc., which are entities
under common control with Highwood Partners, owned a total of 472,973 shares of
DeepTech common stock and 6,037,784 shares of Tatham Offshore Series A Preferred
Stock. See Notes 4 and 6.

In June 1997, RIGCO factored $1,300,000 of its accounts receivable to
DeepTech in order to fund certain obligations. RIGCO agreed to pay DeepTech 1%
per month of the outstanding accounts receivable balance until collected by
DeepTech. DeepTech collected all of the factored accounts receivable subsequent
to June 30, 1997.

In December 1996, DeepFlex exercised 1,016,957 Tatham Offshore warrants to
acquire shares of Tatham Offshore's Series C Preferred Stock at $1.00 per share.
The remaining 4,312,086 Tatham Offshore warrants held by DeepFlex were
automatically converted into 4,312,086 shares of Tatham Offshore's Mandatory
Redeemable Preferred Stock on January 1, 1997. See Notes 5 and 11.

F-48
<PAGE> 125
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INCOME TAXES:

The Company has been and will be included in the consolidated federal
income tax returns filed by DeepTech. DeepFlex and DeepTech have entered into a
tax sharing agreement providing for the manner of determining payments with
respect to federal income tax liabilities (Note 2).

There were no intercompany charges for federal income taxes for the period
ended June 30, 1997 and 1996.

No amounts were currently due for federal income taxes at June 30, 1997 or
1996.

<TABLE>
<CAPTION>
JUNE 30
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Depreciable/amortizable assets.............................. $(4,772) $ (134)
Gross deferred liability.................................. (4,772) (134)
------- -------
Investment in Tatham Offshore............................... 3,923 --
NOL carryforwards........................................... 7,640 1,218
------- -------
Gross deferred asset...................................... 11,563 1,218
------- -------
Net deferred tax asset...................................... 6,791 1,084
Valuation allowances........................................ (6,791) (1,084)
------- -------
$ -- $ --
======= =======
</TABLE>

Because of the Company's cumulative losses, valuation allowances of
$6,791,000 and $1,084,000 at June 30, 1997 and 1996, respectively, were provided
against the net deferred tax assets. Although substantial changes in a company's
ownership can result in an annual limitation on the utilization of federal
income tax NOL carryforwards, it is not anticipated that this restriction will
significantly affect the utilization of the Company's NOL carryforwards under
its intercompany tax sharing agreement with DeepTech.

NOTE 9 -- SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:

CASH PAID, NET OF AMOUNTS CAPITALIZED, DURING EACH OF THE PERIODS PRESENTED

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1997 1996
---- ------
(IN THOUSANDS)
<S> <C> <C>
Interest.................................................... $445 $4,618
Taxes....................................................... $ -- $ --
</TABLE>

F-49
<PAGE> 126
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Additions to property and equipment (Note 3)................ $(40,000) $ --
Acquisition of accounts receivable (Note 3)................. (56) --
Assumption of PIK Notes (Note 3)............................ 40,056 --
Warrants issued in connection with the RIGCO Credit Facility
(Note 6).................................................. 250 --
Investment in Tatham Offshore (Note 4)...................... -- (5,000)
Reduction of note receivable from Tatham Offshore (Note
4)........................................................ -- 5,000
Issuance of notes payable (Note 6).......................... -- 3,415
Decrease in note payable to DeepTech (Note 6)............... -- (3,415)
Investment in Series A Preferred Stock (Note 7)............. -- (4,671)
Increase in note payable to DeepTech (Note 7)............... 11,000 4,671
Conveyance of note payable (Note 6)......................... (11,000) --
Increase in note payable to DeepTech related to interest
expense (Note 6).......................................... 7,577 5,826
Increase in note payable to DeepTech related to management
fees (Note 7)............................................. 2,458 2,078
Increase in note payable to DeepTech related to bonus
awarded to Mr. Tatham (Note 7)............................ -- 600
Increase in PIK Note from DeepFlex Partners related to
interest income (Note 4).................................. (1,195) (5,790)
Increase in PIK Note from DeepFlex Partners related to
management fees (Note 7).................................. (122) (317)
Increase in PIK Note from DeepFlex Partners related to
settlement of certain acquisition costs................... -- (531)
Sale of semisubmersible drilling rigs (Note 3).............. -- 14,763
Increase in PIK Note from DeepFlex Partners (Note 3)........ -- (14,763)
Repayment of PIK Note from DeepFlex Partners (Note 3)....... -- 14,708
</TABLE>

NOTE 10 -- COMMITMENTS AND CONTINGENCIES:

NOTE 11 -- SUBSEQUENT EVENTS:

In February 1998, DeepFlex exchanged its 1,016,957 shares of Tatham
Offshore Series C Preferred Stock for 406,783 Tatham Offshore exchange warrants
and immediately converted these exchange warrants into 406,783 shares of Tatham
Offshore common stock at $6.53 per share for a total cost of $2,656,000. Tatham
Offshore used the proceeds to redeem all of the 4,991,377 shares of Mandatory
Redeemable Preferred Stock outstanding at $0.50 per share as required under the
terms of the Mandatory Redeemable Preferred Stock issue. DeepFlex received
$2,156,000 as a result of this redemption by Tatham Offshore.

In March 1998, DeepFlex transferred all of its shares of Tatham Offshore
Series A Preferred Stock (Notes 5 and 7) and common stock (discussed above) to
DeepTech in satisfaction of $12,000,000 under its unsecured line of credit with
DeepTech.

F-50
<PAGE> 127
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On March 2, 1998, DeepTech announced that its Board of Directors and a
majority of its stockholders had approved entering into a definitive merger
agreement with El Paso Natural Gas Company (the "Merger"), expected to close in
June or July 1998. Prior to the Merger, shares of Tatham Offshore common stock
and Series A Preferred Stock currently held by DeepTech will be offered to the
stockholders of DeepTech in a rights offering. In connection with the Merger,
DeepTech will contribute to the capital of DeepFlex all of its remaining amounts
due from DeepFlex under an intercompany line of credit, except for $8,000,000,
prior to contributing all of the outstanding shares of capital stock of DeepFlex
to Tatham Offshore. Upon completion of this transaction, the Company will be a
wholly-owned subsidiary of Tatham Offshore. Further, DeepTech will exchange the
remaining $8,000,000 due from DeepFlex under an intercompany line of credit for
Tatham Offshore's assignment to DeepTech of all of the outstanding shares of
capital stock of Tatham Offshore Development, Inc. which owns leases covering
Ewing Bank Blocks 958, 959, 1002 and 1003 located in the Gulf of Mexico.

F-51
<PAGE> 128

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
The Offering.......................... 19
Use of Proceeds....................... 22
Price Range of Securities and Dividend
Policy.............................. 23
Capitalization........................ 24
Selected Pro Forma and Historical
Consolidated Financial Data......... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 33
Management............................ 48
Certain Transactions.................. 58
Principal and Selling Stockholders.... 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 67
Federal Income Tax Consequences....... 68
Legal Matters......................... 69
Experts............................... 69
Defined Terms......................... 70
Financial Statements.................. F-1
</TABLE>

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

TATHAM OFFSHORE, INC.

28,073,450 SHARES

COMMON STOCK

4,670,957 SHARES

SERIES A 12% CONVERTIBLE

EXCHANGEABLE PREFERRED STOCK

------------------------------
PROSPECTUS
------------------------------

, 1998

================================================================================
<PAGE> 129

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. DeepTech International Inc.
("DeepTech"), as a selling security holder is responsible for the first $1.0
million of expenses of issuance and distribution in proportion and any remaining
expenses are for the Company's account. Each amount, except for the SEC fees, is
estimated.

<TABLE>
<S> <C>
SEC registration fees....................................... $23,714.75
The Nasdaq National Market application and listing fees..... $
Transfer agents' and registrar's fees and expenses.......... $
Printing and engraving expenses............................. $
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky fees and expenses.................................. $
Miscellaneous............................................... $
----------
Total............................................. $
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in right of the
corporation), brought against them by reason of the fact that they were or are
such directors, officers, employees or agents, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in any
such action, suit or proceeding. The Registrant's Certificate of Incorporation
(the "Certificate") and Bylaws provide for indemnification of each person who is
or was made a party to any actual or threatened civil, criminal, administrative
or investigative action, suit or proceeding because such person is or was an
office or director of the Registrant or is a person who is or was severing at
the request of the Registrant as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service relating to employee benefit plans, to the fullest
extent permitted by the Delaware General Corporation Law as it existed at the
time the indemnification provisions of the Registrant's Certificate and Bylaws
were adopted or as may be thereafter amended. The Certification and Bylaws
expressly provide that they are not the exclusive methods of indemnification.

Section 8.6 of the Bylaws also provides that the Registrant may maintain
insurance, at its own expense, to protect itself and any director, officer,
employee or agent of the Registrant or of another entity against any expense,
liability, or loss, regardless of whether the Registrant would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.

Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for its or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) or (iv) far any
transaction from which the director derived an improper personal benefit.
Article IX of the Registrant's Certificate of Incorporation contains such a
provision.

II-1
<PAGE> 130

Furthermore, the Company has entered into individual indemnification
agreements with each director of the Company that contractually obligate the
Company to provide to the directors indemnification for liabilities they may
incur in the performance of their duties and insurance or self-insurance in lieu
thereof.

Moreover, the Contribution and Distribution Agreement among the Company,
DeepTech, DeepFlex Production Services, Inc., and El Paso Natural Gas Company
provides for the indemnification by the Company of DeepTech, certain of its
officers and any controlling person against any liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following information relates to sales and other issuances by the
Company within the past three fiscal years of the Company securities, the sales
or issuances of which were not registered pursuant to the Securities Act of 1933
(the "Securities Act").

In September 1995, the Company issued two industry partners convertible
production payments as consideration for the acquisition of a 25% working
interest in Viosca Knoll Block 817 and an approximate 12.5% working interest in
the remainder of the Viosca Knoll Block 817 Unit. Under the agreements related
to the production payment, the unpaid portion of the production payments is
convertible into Common Stock at any time until September 2000. Such transaction
was completed without registration under the Securities Act in reliance on the
exemption provided by Section 4(2) of the Securities Act.

In February 1996, the Company issued 7,500 shares of its 9% Senior
Convertible Preferred Stock to Leviathan Gas Pipeline Partners, L.P. (the
"Partnership") as partial consideration for the satisfaction of certain demand
charge obligations. Such transaction was completed without registration under
the Securities Act in reliance on the exemptions provided by Section 4(2) of the
Securities Act.

In December 1997, the Company issued 26,666,667 shares of its Common Stock
to DeepTech in satisfaction of the outstanding aggregate principal of $60
million under the Subordinated Convertible Promissory Notes, all of which were
held by DeepTech, at a rate of $2.25 per share. The transaction was completed
without registration under the Securities Act in reliance on the exemption
provided by Section 3(a)(9) of the Securities Act.

In February 1998, the Company issued 7,500 shares of its Series B 9% Senior
Convertible Preferred Stock to the Partnership in exchange for the 7,500 shares
of the Company's 9% Senior Convertible Preferred Stock held by the Partnership.
The transaction was completed without registration under the Securities Act in
reliance on the exemptions provided by Section 3(a)(9) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

II-2
<PAGE> 131
<TABLE>
<C> <S>
4.3 -- Form of Certificate of Designations Establishing the
Series C Convertible Exchangeable Preferred Stock (filed
as Exhibit 4.3 to Registration Statement S-1,
Registration No. 33-99388, and incorporated herein by
reference).
4.4 -- Certificate of Designation Establishing the Mandatory
Redeemable Preferred Stock (filed as Exhibit 4.4 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.5+ -- Certificate of Designation Establishing the Series B
Senior Convertible Preferred Stock.
4.6 -- Warrant Agreement relating to the warrants entitling the
holder thereof to purchase shares of Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.5 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.7 -- Exchange Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of Tatham
Offshore's Common Stock (filed as Exhibit 4.6 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
5.1+ -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Registration Rights Agreement dated March 21, 1994,
between Tatham Offshore and First Interstate Bank of
Texas, N.A., as Trustee (filed as Exhibit 10.17 to
DeepTech's Registration Statement on Form S-1, File No.
33-76999, and incorporated herein by reference).
10.2 -- Amended and Restated Management Agreement, effective as
of July 1, 1992, between DeepTech and Tatham Offshore
(filed as Exhibit 10.1 to Amendment No. 4 to Tatham
Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.3 -- First Amendment to the Amended and Restated Management
Agreement, dated as of January 1, 1995, between DeepTech
and Tatham Offshore (filed as Exhibit 10.71 to DeepTech's
Registration Statement on Form S-1, File No. 33-88688,
and incorporated herein by reference).
10.4 -- Letter Agreement dated March 22, 1995 between Tatham
Offshore and Ewing Bank Gathering Company, L.L.C.
amending the Gathering Agreement dated July 1, 1992
(filed as Exhibit 10.44 to DeepTech's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.5 -- Gas Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.17 to Tatham Offshore's Registration Statement on Form
S-1, File No. 33-70120, and incorporated herein by
reference).
10.6 -- Condensate Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.18 to Tatham Offshore's Registration Statement on Form
S-1, File No. 33-70120, and incorporated herein by
reference).
10.7 -- Farmout Agreement, dated October 1, 1994, between Tatham
Offshore, F-W Oil Interests, Inc., O.P.I. International,
Inc., and J. Ray McDermott Properties, Inc. (filed as
Exhibit 10.48 to DeepTech's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, Commission File
No. 0-23934 and incorporated herein by reference).
10.8 -- Agreement dated July 2, 1993 and amended on December 6,
1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Incorporated and Tatham Offshore covering
Viosca Knoll Blocks 772/773, 774, 817, 818 and 861 (filed
as Exhibit 10.20 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
</TABLE>

II-3
<PAGE> 132
<TABLE>
<C> <S>
10.9 -- Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Ewing Bank
Blocks 871, 914, 915, 916, 958 and 959, Ewing Bank Area,
Offshore Louisiana, dated May 13, 1988 by and among
Mobil-X, Sohio, Kerr-McGee and Kerr-McGee Federal Limited
Partnership I-1981 (filed as Exhibit 10.22 to Tatham
Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.10 -- Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Viosca
Knoll Blocks 772, 773, 774, 817, 818 and 861, Viosca
Knoll Area Offshore Louisiana, dated July 7, 1993 by and
among Tatham Offshore, Petrofina Delaware, Incorporated
and Fina Oil & Chemical Company (filed as Exhibit 10.23
to Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120, and incorporated herein by reference).
10.11 -- DeepTech Registration Rights Agreement by and between
Tatham Offshore and DeepTech (filed as Exhibit 10.25 to
Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120, and incorporated herein by reference).
10.12 -- Indemnification Agreement dated as of October 16, 1993
between Tatham Offshore and its directors (filed as
Exhibit 10.26 to Tatham Offshore's Registration Statement
on Form S-1, File No. 33-70120, and incorporated herein
by reference).
10.13 -- Subordinated Convertible Note Purchase Agreement between
Tatham Offshore and DeepTech, as amended (filed as
exhibit 10.30 in Tatham Offshore's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.14 -- 11 3/4% Subordinated Convertible Promissory Note made
payable by the Company to the order of the holder thereof
(filed as exhibit 10.31 in Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.15 -- Form of Stock Option Agreement by and between the
Optionee and Tatham Offshore (filed as exhibit 10.35 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
10.16 -- Agreement for Purchase and Sale by and between Tatham
Offshore, Inc., as Seller, and Flextrend Development
Company, L.L.C., as Buyer, dated June 30, 1995 (filed as
Exhibit 6(a) to the Leviathan Gas Pipeline Partners, L.P.
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, Commission File Number 1-11680 and incorporated
herein by reference).
10.17 -- Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of F-W Oil Interests,
Inc. (filed as Exhibit 10.91 to DeepTech's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.18 -- Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of J. Ray McDermott
Properties, Inc. (filed as Exhibit 10.92 to DeepTech's
Annual Report on Form 10-K for the fiscal year ended June
30, 1995, Commission File No. 0-23934 and incorporated
herein by reference).
10.19 -- Tatham Offshore, Inc. Employee Equity Incentive Plan
(filed as Exhibit 10.47 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.20 -- Tatham Offshore, Inc. Non-Employee Director Stock Option
Plan (filed as Exhibit 10.48 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.21 -- Master Drilling Agreement and Drilling Order between
Tatham Offshore, Inc. and Sedco Forex Division,
Schlumberger Technology Corporation dated September 19,
1996 (filed as Exhibit 10.50 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1996, and incorporated herein by reference).
</TABLE>

II-4
<PAGE> 133
<TABLE>
<C> <S>
10.22 -- Fourth Amendment to First Amended and Restated Management
Agreement Between DeepTech International Inc. and Tatham
Offshore, Inc. dated as of May 1, 1997. (filed as Exhibit
10.22 to Tatham Offshore's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, Commission File
Number 0-22892 and incorporated herein by reference).
10.23 -- Master Agreement, dated as of November 29, 1995, by and
among Highwood Partners, L.P., DeepTech International
Inc., DeepFlex Production Services, Inc., FPS III, Inc.
and Deepwater Drillers, L.L.C. (filed as Exhibit 10.1 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.24 -- Limited Liability Company Agreement of Deepwater
Drillers, L.L.C. (filed as Exhibit 10.2 to DeepTech's
Current Report on Form 8-K dated May 2, 1996 and
incorporated herein by reference).
10.25 -- First Amended and Restated Drilling Make-Ready Agreement
dated November 29, 1996 between RIGCO North America,
L.L.C. and Schlumberger Technology Corporation (Sedco
Forex Division) (filed as Exhibit 10.1 to the DeepTech's
Quarterly Report or Form 10-Q for the quarter ended
December 31, 1996, Commission File Number 0-23934 and
incorporated herein by reference).
10.26* -- Contribution and Distribution Agreement dated February
27, 1998, between DeepTech International Inc., Tatham
Offshore, Inc., DeepFlex Production Services, Inc., and
El Paso Natural Gas Company.
10.27* -- Standby Agreement dated February 27, 1998, between
DeepTech International Inc., Tatham Offshore, Inc.,
Thomas P. Tatham, Tatham Brothers, LLC and El Paso
Natural Gas Company.
10.28* -- Form of Tax Sharing Agreement among Tatham Offshore,
Inc., DeepTech International Inc. and DeepFlex Production
Services, Inc.
10.29* -- Redemption Agreement dated February 27, 1998, by and
between Tatham Offshore, Inc. and Flextrend Development
Company, L.L.C.
10.30+ -- Purchase Commitment Agreement dated February 27, 1998, by
and between Tatham Offshore, Inc. and Tatham Brothers,
LLC.
21.1* -- List of Subsidiaries of the Registrant
23.1 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(contained in Exhibit 5.1)
23.2* -- Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers
23.3* -- Consent of Price Waterhouse LLP, Independent Accountants
for Tatham Offshore, Inc. and DeepFlex Production
Services, Inc.
24.1* -- Power of Attorney (included on the signature pages on
this Registration Statement on Form S-1.)
99.1* -- Form of Rights Certificate
99.2* -- Form of Subscription Election Form
</TABLE>

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

* Filed herewith

+ To be filed

(b) Financial Statement Schedules

None.

Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.

II-5
<PAGE> 134

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, 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 Securities Act and
is, therefore, unenforceable. If 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 Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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 bona fide offering thereof.

II-6
<PAGE> 135

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on April 10, 1998.

TATHAM OFFSHORE, INC.

By: /s/ THOMAS P. TATHAM
----------------------------------
Thomas P. Tatham
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas P. Tatham and Dennis A. Kunetka, and each
of them, with the power to act without the other, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her in his or her name, place and stead, in any and
all capacities, to sign on his or her behalf individually and in each capacity
stated below any or all amendments or 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 the amount the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated:

/s/ THOMAS P. TATHAM Title: Chairman of the Date: April 10, 1998
- ----------------------------------------------------- Board and Chief
Thomas P. Tatham Executive Officer
(Principal Executive
Officer)

/s/ ANTOINE GAUTREAUX, JR. Title: Director and Date: April 10, 1998
- ----------------------------------------------------- Chief Operating
Antoine Gautreaux, Jr. Officer

/s/ E. LYNN HILL Title: Director Date: April 10, 1998
- -----------------------------------------------------
E. Lynn Hill

/s/ JONATHAN D. POLLOCK Title: Director Date: April 10, 1998
- -----------------------------------------------------
Jonathan D. Pollock

/s/ PHILLIP G. CLARKE Title: Director Date: April 10, 1998
- -----------------------------------------------------
Phillip G. Clarke

/s/ ROGER B. VINCENT, SR. Title: Director Date: April 10, 1998
- -----------------------------------------------------
Roger B. Vincent, Sr.

/s/ CLYDE E. NATH Title: Director Date: April 10, 1998
- -----------------------------------------------------
Clyde E. Nath
</TABLE>

II-7
<PAGE> 136

<TABLE>
/s/ EDWARD L. MOSES, JR. Title: Director Date: April 10, 1998
- -----------------------------------------------------
Edward L. Moses, Jr.
<C> <S> <C>
/s/ KENNETH E. BEENEY Title: Director Date: April 10, 1998
- -----------------------------------------------------
Kenneth E. Beeney

/s/ JAMES G. NIVEN Title: Director Date: April 10, 1998
- -----------------------------------------------------
James G. Niven

/s/ DIANA J. WALTERS Title: Director Date: April 10, 1998
- -----------------------------------------------------
Diana J. Walters

/s/ DENNIS A. KUNETKA Title: Chief Financial Date: April 10, 1998
- ----------------------------------------------------- Officer (Principal
Dennis A. Kunetka Accounting Officer)
</TABLE>

II-8
<PAGE> 137

INDEX TO EXHIBITS

<TABLE>
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 2.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994,
Commission File No. 0-22892, and incorporated herein by
reference).
3.2 -- Certificate of Amendment of the Certificate of
Incorporation of the Registrant
3.3 -- Bylaws of the Registrant (filed as Exhibit 3.2 in the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, Commission File No. 0-22892,
and incorporated herein by reference).
4.1 -- Form of Certificate of Designations Establishing the
Series A Convertible Exchangeable Preferred Stock (filed
as Exhibit 4.1 to Registration Statement S-1,
Registration No. 33-99388, and incorporated herein by
reference).
4.2 -- Form of Certificate of Designations Establishing the
Series B Convertible Exchangeable Preferred Stock (filed
as Exhibit 4.2 to Registration Statement S-1,
Registration No. 33-99388, and incorporated herein by
reference).
4.3 -- Form of Certificate of Designations Establishing the
Series C Convertible Exchangeable Preferred Stock (filed
as Exhibit 4.3 to Registration Statement S-1,
Registration No. 33-99388, and incorporated herein by
reference).
4.4 -- Certificate of Designation Establishing the Mandatory
Redeemable Preferred Stock (filed as Exhibit 4.4 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.5+ -- Certificate of Designation Establishing the Series B
Senior Convertible Preferred Stock.
4.6 -- Warrant Agreement relating to the warrants entitling the
holder thereof to purchase shares of Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.5 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
4.7 -- Exchange Warrant Agreement relating to the warrants
entitling the holder thereof to purchase shares of Tatham
Offshore's Common Stock (filed as Exhibit 4.6 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995, Commission File No.
0-22892 and incorporated herein by reference).
5.1+ -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Registration Rights Agreement dated March 21, 1994,
between Tatham Offshore and First Interstate Bank of
Texas, N.A., as Trustee (filed as Exhibit 10.17 to
DeepTech's Registration Statement on Form S-1, File No.
33-76999, and incorporated herein by reference).
10.2 -- Amended and Restated Management Agreement, effective as
of July 1, 1992, between DeepTech and Tatham Offshore
(filed as Exhibit 10.1 to Amendment No. 4 to Tatham
Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.3 -- First Amendment to the Amended and Restated Management
Agreement, dated as of January 1, 1995, between DeepTech
and Tatham Offshore (filed as Exhibit 10.71 to DeepTech's
Registration Statement on Form S-1, File No. 33-88688,
and incorporated herein by reference).
</TABLE>
<PAGE> 138
<TABLE>
<C> <S>
10.4 -- Letter Agreement dated March 22, 1995 between Tatham
Offshore and Ewing Bank Gathering Company, L.L.C.
amending the Gathering Agreement dated July 1, 1992
(filed as Exhibit 10.44 to DeepTech's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.5 -- Gas Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.17 to Tatham Offshore's Registration Statement on Form
S-1, File No. 33-70120, and incorporated herein by
reference).
10.6 -- Condensate Purchase Agreement dated July 26, 1993 between
Offshore Marketing and Tatham Offshore (filed as Exhibit
10.18 to Tatham Offshore's Registration Statement on Form
S-1, File No. 33-70120, and incorporated herein by
reference).
10.7 -- Farmout Agreement, dated October 1, 1994, between Tatham
Offshore, F-W Oil Interests, Inc., O.P.I. International,
Inc., and J. Ray McDermott Properties, Inc. (filed as
Exhibit 10.48 to DeepTech's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, Commission File
No. 0-23934 and incorporated herein by reference).
10.8 -- Agreement dated July 2, 1993 and amended on December 6,
1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Incorporated and Tatham Offshore covering
Viosca Knoll Blocks 772/773, 774, 817, 818 and 861 (filed
as Exhibit 10.20 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.9 -- Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Ewing Bank
Blocks 871, 914, 915, 916, 958 and 959, Ewing Bank Area,
Offshore Louisiana, dated May 13, 1988 by and among
Mobil-X, Sohio, Kerr-McGee and Kerr-McGee Federal Limited
Partnership I-1981 (filed as Exhibit 10.22 to Tatham
Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.10 -- Unit Agreement for Outer Continental Shelf Exploration,
Development and Production Operations for the Viosca
Knoll Blocks 772, 773, 774, 817, 818 and 861, Viosca
Knoll Area Offshore Louisiana, dated July 7, 1993 by and
among Tatham Offshore, Petrofina Delaware, Incorporated
and Fina Oil & Chemical Company (filed as Exhibit 10.23
to Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120, and incorporated herein by reference).
10.11 -- DeepTech Registration Rights Agreement by and between
Tatham Offshore and DeepTech (filed as Exhibit 10.25 to
Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120, and incorporated herein by reference).
10.12 -- Indemnification Agreement dated as of October 16, 1993
between Tatham Offshore and its directors (filed as
Exhibit 10.26 to Tatham Offshore's Registration Statement
on Form S-1, File No. 33-70120, and incorporated herein
by reference).
10.13 -- Subordinated Convertible Note Purchase Agreement between
Tatham Offshore and DeepTech, as amended (filed as
exhibit 10.30 in Tatham Offshore's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.14 -- 11 3/4% Subordinated Convertible Promissory Note made
payable by the Company to the order of the holder thereof
(filed as exhibit 10.31 in Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10.15 -- Form of Stock Option Agreement by and between the
Optionee and Tatham Offshore (filed as exhibit 10.35 in
Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein
by reference).
</TABLE>
<PAGE> 139
<TABLE>
<C> <S>
10.16 -- Agreement for Purchase and Sale by and between Tatham
Offshore, Inc., as Seller, and Flextrend Development
Company, L.L.C., as Buyer, dated June 30, 1995 (filed as
Exhibit 6(a) to the Leviathan Gas Pipeline Partners, L.P.
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, Commission File Number 1-11680 and incorporated
herein by reference).
10.17 -- Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of F-W Oil Interests,
Inc. (filed as Exhibit 10.91 to DeepTech's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by
reference).
10.18 -- Production Payment Agreement dated as of September 19,
1995 by Tatham Offshore in favor of J. Ray McDermott
Properties, Inc. (filed as Exhibit 10.92 to DeepTech's
Annual Report on Form 10-K for the fiscal year ended June
30, 1995, Commission File No. 0-23934 and incorporated
herein by reference).
10.19 -- Tatham Offshore, Inc. Employee Equity Incentive Plan
(filed as Exhibit 10.47 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.20 -- Tatham Offshore, Inc. Non-Employee Director Stock Option
Plan (filed as Exhibit 10.48 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
10.21 -- Master Drilling Agreement and Drilling Order between
Tatham Offshore, Inc. and Sedco Forex Division,
Schlumberger Technology Corporation dated September 19,
1996 (filed as Exhibit 10.50 to Tatham Offshore's Annual
Report on Form 10-K for the fiscal year ended June 30,
1996, and incorporated herein by reference).
10.22 -- Fourth Amendment to First Amended and Restated Management
Agreement Between DeepTech International Inc. and Tatham
Offshore, Inc. dated as of May 1, 1997. (filed as Exhibit
10.22 to Tatham Offshore's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, Commission File
Number 0-22892 and incorporated herein by reference).
10.23 -- Master Agreement, dated as of November 29, 1995, by and
among Highwood Partners, L.P., DeepTech International
Inc., DeepFlex Production Services, Inc., FPS III, Inc.
and Deepwater Drillers, L.L.C. (filed as Exhibit 10.1 to
DeepTech's Current Report on Form 8-K dated May 2, 1996
and incorporated herein by reference).
10.24 -- Limited Liability Company Agreement of Deepwater
Drillers, L.L.C. (filed as Exhibit 10.2 to DeepTech's
Current Report on Form 8-K dated May 2, 1996 and
incorporated herein by reference).
10.25 -- First Amended and Restated Drilling Make-Ready Agreement
dated November 29, 1996 between RIGCO North America,
L.L.C. and Schlumberger Technology Corporation (Sedco
Forex Division) (filed as Exhibit 10.1 to the DeepTech's
Quarterly Report or Form 10-Q for the quarter ended
December 31, 1996, Commission File Number 0-23934 and
incorporated herein by reference).
10.26* -- Contribution and Distribution Agreement dated February
27, 1998, between DeepTech International Inc., Tatham
Offshore, Inc., DeepFlex Production Services, Inc., and
El Paso Natural Gas Company.
10.27* -- Standby Agreement dated February 27, 1998, between
DeepTech International Inc., Tatham Offshore, Inc.,
Thomas P. Tatham, Tatham Brothers, LLC and El Paso
Natural Gas Company.
10.28* -- Form of Tax Sharing Agreement among Tatham Offshore,
Inc., DeepTech International Inc. and DeepFlex Production
Services, Inc.
</TABLE>
<PAGE> 140
<TABLE>
<C> <S>
10.29* -- Redemption Agreement dated February 27, 1998, by and
between Tatham Offshore, Inc. and Flextrend Development
Company, L.L.C.
10.30+ -- Purchase Commitment Agreement dated February 27, 1998, by
and between Tatham Offshore, Inc. and Tatham Brothers,
LLC.
21.1* -- List of Subsidiaries of the Registrant
23.1 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(contained in Exhibit 5.1)
23.2* -- Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers
23.3* -- Consent of Price Waterhouse LLP, Independent Accountants
for Tatham Offshore, Inc. and DeepFlex Production
Services, Inc.
24.1* -- Power of Attorney (included on the signature pages on
this Registration Statement on Form S-1.)
99.1* -- Form of Rights Certificate
99.2* -- Form of Subscription Election Form
</TABLE>

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

* Filed herewith

+ To be filed

<PAGE> 1
EXHIBIT 10.26

CONTRIBUTION AND DISTRIBUTION AGREEMENT

This CONTRIBUTION AND DISTRIBUTION AGREEMENT (the "Agreement") is made
as of the 27th day of February, 1998 among DeepTech International Inc., a
Delaware corporation (the "Company"), Tatham Offshore, Inc., a Delaware
corporation ("Offshore"), DeepFlex Production Services, Inc., a Delaware
corporation ("DeepFlex"), and El Paso Natural Gas Company, a Delaware
corporation ("Parent").

BACKGROUND

A. The Company and its affiliates are the holders of the shares
of common stock and preferred stock of Offshore set forth on Schedule 1.

B. DeepFlex desires to satisfy a portion of certain indebtedness
owed by DeepFlex to the Company by causing Offshore to transfer the shares of
capital stock of Offshore held by DeepFlex to the Company.

C. The Company desires to sell, and Offshore desires to purchase,
a portion of certain indebtedness owed by DeepFlex to the Company, in exchange
for which Offshore will transfer all of the stock of Tatham Offshore
Development, Inc. ("TODI"), to the Company and Offshore will cancel certain
reversionary interests.

D. The Company desires to capitalize the remaining portion of the
indebtedness owed by DeepFlex to the Company.

E. The Company desires to contribute to Offshore, and Offshore
desires to accept the contribution of, the stock of DeepFlex.

F. The Company desires to distribute on a pro rata basis to the
holders of the Company's common stock, par value $0.01 per share ("Company
Common Stock"), rights (the "Rights") to purchase the Offshore Shares (as
hereinafter defined) on the terms and subject to the conditions set forth
herein (including the sale of the underlying Offshore Shares, the "Rights
Offering") and Offshore is willing to cooperate with the Company in connection
therewith.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:

1. Definitions.

For purposes of this Agreement, the following terms shall have the
meanings set forth below:

"Action" shall mean any action, suit, arbitration, inquiry, proceeding
or investigation by or before any court, any governmental or other regulatory
or administrative agency or commission or any arbitration tribunal.

"Commission" shall mean the Securities and Exchange Commission.

"Company Indenture" shall mean the Indenture dated as of March 21,
1994 between the Company and the Bank of New York, successor in interest to the
First Interstate Bank of Texas, N.A. and the related loan and security
documents.

"Completion Date" shall mean the earlier of (i) the date on which all
of the Offshore Shares shall have been subscribed and paid for pursuant to the
Rights Offering, including any subscriptions and payments for Offshore Shares
by Tatham Brothers, Thomas P. Tatham and/or Offshore, and such subscriptions
shall have been accepted by the Company and (ii) the Final Expiration Date.

"DeepFlex Note" shall mean (i) the Second Amended and Restated Senior
Promissory Note dated March 1, 1995, issued by DeepFlex to the Company and (ii)
any other indebtedness owed by DeepFlex or any of its Subsidiaries to the
Company or any Company Subsidiary.

"DeepFlex Shares" shall mean the shares of capital stock of DeepFlex
owned, directly or indirectly, by the Company.

"Distribution" shall mean the distribution pursuant to the Rights
Offering of the Rights to holders of record on the Record Date of Company
Common Stock.

"Distribution Date" shall mean the date of effecting the Distribution.

"Effective Time" shall have the meaning ascribed to it in the Merger
Agreement.

"Estimated Tax Amount" shall mean the tax estimated to be due by
DeepFlex or Offshore as set forth on the Price Tax Schedule (as defined in the
Tax Sharing Agreement).

"Excess Proceeds" means the net proceeds of the Rights Offering in
excess of $75 million.

2
<PAGE> 3
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

"FPS" shall mean the FPS III, Inc., a Delaware corporation and/or FPS
V, Inc., a Delaware corporation.

"Final Expiration Date" shall mean the date on which the right of
Tatham Brothers, Thomas P. Tatham and Offshore to exercise any Rights pursuant
to the Rights Offering shall terminate, which date shall be the close of
business on the later of (x) two days after the General Expiration Date and (y)
five days after the date of the Effective Time.

"General Expiration Date" shall mean the date fixed by the Board of
Directors of Offshore on which the right of all holders of Rights (other than
Tatham Brothers, Thomas P. Tatham and Offshore) to exercise Rights pursuant to
the Rights Offering shall terminate, which date shall be not more than 50 days
following the Distribution Date.

"Initial Proceeds" shall have the meaning ascribed to it in Section
4.3 hereof.

"Initial Subscription Period" shall mean the period fixed by the Board
of Directors of Offshore for holders of Rights to purchase the Offshore Shares
subject to such Rights (exclusive of any period (an "Additional Period") fixed
by the Board of Directors of Offshore for the purchase of any unsubscribed
Shares), which period shall expire no later than the General Expiration Date.

"Leviathan" shall mean Leviathan Gas Pipeline Partners, L.P.

"Merger Agreement" shall mean the Agreement and Plan of Merger, among
Parent, El Paso Acquisition Company and the Company, dated as of February 27,
1998.

"Offshore Common Stock" shall mean the common stock, par value $0.01
per share, of Offshore listed on Schedule 1 attached hereto.

"Offshore Preferred Stock" shall mean the Series A 12% Convertible
Exchangeable Preferred Stock, par value $0.01 per share, Series B 8%
Convertible Exchangeable Preferred Stock, par value $0.01 per share, Series C
4% Convertible Exchangeable Preferred Stock, par value $0.01 per share, 9%
Senior Convertible Preferred Stock, par value $0.01 per share, and Mandatory
Redeemable Preferred Stock, par value $0.01 per share, of Offshore listed on
Schedule 1 attached hereto.

"Offshore Shares" shall mean (i) the shares of Offshore Common Stock
and Offshore Preferred Stock or (ii) units comprised of such shares.

"Prospectus" shall mean the prospectus(es) to be distributed to the
holders of Company Common Stock in connection with the Rights Offering.

3
<PAGE> 4
"Record Date" shall mean the record date for the Distribution fixed by
the Company's Board of Directors or any committee thereof.

"Redemption Agreement" shall mean the Redemption Agreement dated the
date hereof between Leviathan and Offshore.

"Registration Statement" shall mean the registration statement(s)
registering the offering and sale of the Rights and the Offshore Shares
pursuant to the Rights Offering.

"RIGCO" shall mean RIGCO North America, L.L.C., a Delaware limited
liability company.

"Rig Distribution" shall have the meaning ascribed to it in Section
3.2 hereof.

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Senior Preferred Stock" shall mean the 9% Senior Convertible
Preferred Stock, par value $0.01 per share, of Offshore.

"Subordinated Note" shall mean the Company's Senior Subordinated Note
dated January 23, 1997 payable to Hare & Co.

"Tatham Brothers" shall mean Tatham Brothers, L.L.C., a Delaware
limited liability company.

"Tax" shall have the meaning ascribed to it in the Tax Sharing
Agreement.

"Tax Sharing Agreement" shall have the meaning ascribed to it in the
Merger Agreement.

Other capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Merger Agreement.

2. Preliminary Action.

2.1 Registration Statement and Prospectus. The Company and
Offshore shall prepare and file the Registration Statement (which shall include
the Prospectus) with the Commission as promptly as practical, and in no event
later than March 31, 1998. Subject to the conditions set forth herein, the
Company and Offshore shall use all commercially reasonable efforts to cause the
Registration Statement to become effective under the Securities Act. The
Company and Offshore shall cause the Prospectus to be mailed to the holders of
record on the Record Date of Company Common Stock.

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<PAGE> 5
2.2 Federal Securities Laws. The Company and Offshore shall take
all such other action as may be necessary or appropriate under the securities
laws of the United States in connection with the Rights Offering to permit the
Rights and the Offshore Shares to be offered and sold as provided herein.

2.3 Blue Sky. The Company and Offshore shall take all such action
as may be necessary or appropriate under the securities or blue sky laws of
states or other political subdivisions of the United States in connection with
the Rights Offering to permit the offering and sale of the Rights and the
Offshore Shares as provided herein.

2.4 Listing. Offshore may prepare and file an application to
effect the listing of the Offshore Shares on the Nasdaq National Market.

2.5 Representations and Warranties Regarding TODI. Offshore
represents and warrants to Parent and the Company as of the date of this
Agreement and as of the date of the Contribution as follows:

(a) TODI is a corporation validly existing and in good standing
under the laws of Delaware. The authorized capital stock of TODI consists of
1,000 shares of common stock, par value $.01, of which 1 share is validly
issued and outstanding, which is owned by Offshore. There are no options,
warrants, calls, convertible securities or other rights, agreements or
commitments obligating TODI to issue, deliver or sell shares of its capital
stock or obligating TODI to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment.

(b) Except as listed on Schedule 2, TODI is not a party to any
contracts or agreements and has no liabilities or obligations, whether absolute
or contingent, accrued or unaccrued, matured or unmatured.

2.6 No Other Representations or Warranties; Consents. Each party
hereto understands and agrees that, except as expressly provided in Section
2.5, no party hereto is, in this Agreement or in any other agreement or
document contemplated by this Agreement or otherwise, representing or
warranting in any way (i) that the obtaining of any consents or approvals, the
execution and delivery of any agreements or the making of any filings or
applications contemplated by this Agreement will satisfy the provisions of any
or all applicable laws or (ii) matters relating to the business, operations,
assets, debts or liabilities of DeepFlex, Offshore or their respective
Subsidiaries. Notwithstanding the foregoing, the parties shall use all
commercially reasonable efforts to obtain all consents and approvals, to enter
into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents

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<PAGE> 6
under federal or state laws and all necessary consents, approvals, agreements,
filings and applications.

3. The Contribution.

3.1 The Contribution. Subject to the satisfaction of the
conditions set forth in Article 7 hereof, at least seven days prior to the
Distribution Date:

(a) (i) the Company shall sell to Offshore, and Offshore shall
purchase from the Company $8 million of the DeepFlex Note in exchange for (x)
the delivery by Offshore to the Company of a stock certificate evidencing the
outstanding share of capital stock of TODI, duly endorsed for transfer, free
and clear of all liens, charges and encumbrances, and (y) the irrevocable
termination and cancellation by Offshore of all its rights to receive an
assignment of certain interests in oil and gas properties under the Agreement
for Purchase and Sale by and between Offshore and Flextrend Development
Company, L.L.C. dated June 30, 1995 and (ii) in satisfaction of $12 million of
the amount due and owing with respect to the DeepFlex Note, DeepFlex shall
deliver to the Company stock certificates evidencing all of the shares of
Offshore Common Stock and Offshore Preferred Stock owned by DeepFlex, duly
endorsed for transfer, free and clear of all liens, charges and encumbrances;

(b) in full satisfaction of the remaining balance of the DeepFlex
Note held by the Company, the Company shall contribute to the capital of
DeepFlex the balance of the amount due and owing with respect to the DeepFlex
Note after the repayment and transfer in paragraph (a) (or, in the case of
indebtedness due and owing from a DeepFlex Subsidiary, transfer such
indebtedness to DeepFlex); and

(c) the Company shall contribute to the capital of Offshore the
DeepFlex Shares, by delivery to Offshore of stock certificates evidencing the
DeepFlex Shares, duly endorsed for transfer, free and clear of all liens,
charges and encumbrances (the contributions described in clauses (a) through
(c) are referred to herein collectively as the "Contribution").

3.2 Optional Rig Distribution. Prior to the Contribution, at
Offshore's option, the Company shall cause RIGCO to distribute to FPS either
(but not both of) the FPS Laffit Pincay or the FPS Bill Shoemaker (the "Rig
Distribution"); provided, however, that such Rig Distribution shall occur only
if the gain realized (as calculated for federal income tax purposes) by RIGCO
on the distribution is no more than $48 million.

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<PAGE> 7
4. The Rights Offering.

4.1 The Rights Offering. The Company shall take all steps
required to effect the Rights Offering and Offshore shall cooperate with the
Company in connection therewith, including, without limitation, the
transactions contemplated by Section 2.

4.2 Terms of the Rights Offering.

(a) Pursuant to the Rights Offering, the Company will distribute
to the holders of record on the Record Date of the Company Common Stock, pro
rata, Rights to purchase all of the Offshore Shares. The Rights will be
transferable by the holders thereof and will be listed or admitted to trading
on NASDAQ.

(b) The subscription price payable for the Offshore Shares by
holders of Rights shall be $3.25 per Offshore Share.

(c) Subject to paragraph (e) below, each Right will expire on the
General Expiration Date, unless theretofore exercised by the holder thereof by
completion of the subscription form mailed to holders of Rights, accompanied by
payment of the aggregate subscription price for the Offshore Shares covered
thereby.

(d) At Offshore's election, the subscription form will include an
over-subscription option which will permit each holder who exercises in full
the Rights distributed to such holder to elect to subscribe, pro rata with all
holders of Rights who exercise their over-subscription option (each, a
"Subscribing Holder"), for any Offshore Shares covered by unexercised Rights
("Unsubscribed Shares"). As promptly as practicable following the Initial
Subscription Period, the Company shall notify each Subscribing Holder of the
number of Unsubscribed Shares to be distributed to such holder and the
aggregate subscription price therefor, and each Subscribing Holder shall have
until the General Expiration Date to deliver to the Company payment of the
subscription price for the Unsubscribed Shares to be delivered to such holder.

(e) Immediately following the General Expiration Date, any Rights
to acquire Unsubscribed Shares which have not been subscribed for as provided
in paragraph (d) ("Remaining Shares") will be transferred to Tatham Brothers
and Tatham Brothers shall be obligated to exercise such number of Rights, if
any, as is required by the Standby Agreement dated the date hereof among
Parent, the Company, Offshore, Tatham Brothers and Thomas P. Tatham (the
"Standby Agreement").

(f) Thomas P. Tatham has guaranteed the obligations of Tatham
Brothers under the Standby Agreement and is obligated pursuant to such
guarantee to perform prior to the Final Expiration Date the obligations of
Tatham Brothers described in clause

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<PAGE> 8
(e) of this Section 4.2, to the extent Tatham Brothers has not theretofore
performed such obligations in accordance with the Standby Agreement.

(g) Offshore shall purchase on the Final Expiration Date all
Remaining Shares not purchased by Tatham Brothers at the subscription price of
$3.25 per Offshore Share.

(h) All Rights of Tatham Brothers, Thomas P. Tatham and Offshore
to exercise any Rights covering Remaining Shares shall expire on the Final
Expiration Date.

(i) All net proceeds received by the Company from any holder of
Rights, including, without limitation, Tatham Brothers, Thomas P. Tatham and/or
Offshore upon the exercise of Rights, constitute net proceeds of the Rights
Offering and shall be distributed as provided in Section 4.3.

(j) The completion of the Rights Offering is subject to the
satisfaction of the conditions set forth in Article 7 hereof and the prior
consummation of the Contribution.

(k) Other terms of the Rights Offering shall be determined by
mutual agreement between the Company, Parent and Offshore.

4.3 Proceeds of Rights Offering. The first $75 million of net
proceeds (the "Initial Proceeds") of the Rights Offering shall be retained by
the Company. Subject to Section 3.03 of the Tax Sharing Agreement, the Company
shall contribute the Excess Proceeds to the capital of Offshore. If the
Completion Date occurs prior to the date of the Effective Time, the Initial
Proceeds, together with the Estimated Tax Amount, shall be deposited by the
Company in escrow in accordance with an escrow agreement in the form of
Schedule 3 hereto.

4.4 Expenses of Contribution and Rights Offering. Subject to
Sections 5.2 and 5.3, the first $1 million of expenses related in any way to
the Contribution and the Rights Offering, including, without limitation, all
legal, financial advisory, accounting and printing fees of the Company and
Offshore ("Expenses"), shall be borne by the Company and any Expenses in excess
of $1 million shall be borne by Offshore. Neither the Company nor Offshore has
retained (or will retain) a financial advisor in connection with the
Contribution and the Rights Offering.

5. Additional Assurances; Indemnification.

5.1 Mutual Assurances. Parent, the Company and Offshore agree to
cooperate with respect to the Contribution and the Rights Offering and to
execute such further documents and instruments as may be necessary to effect
the transactions contemplated thereby.

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<PAGE> 9
5.2 Indemnification.

(a) From and after the Effective Time, Offshore shall indemnify,
defend and hold Parent and its Subsidiaries (including the Company and the
Company Subsidiaries) and the officers, directors and employees of each such
entity (other than members of the Offshore Indemnified Group (defined herein),
the "Parent Indemnified Group") harmless from and against all losses, expenses,
claims, damages and liabilities (other than Taxes, which are governed by the
Tax Sharing Agreement) to which the Parent Indemnified Group may be or become
subject that relate to (i) the assets, business, operations, debts or
liabilities of the Offshore Group, whether arising prior to, concurrent with or
after the Contribution or the Rights Offering, (ii) the failure to obtain all
necessary third party consents to the Contribution or the Rights Offering
(other than the failure to obtain all necessary consents under the Company
Indenture and the Subordinated Note in connection with the Contribution and the
Rights Offering, or the failure to obtain any other necessary third party
consents as to which Offshore or the Company notify Parent to the extent the
failure to obtain the consent is a result of Parent's election to unreasonably
withhold or delay its consent under Section 4.1 of the Merger Agreement (the
"5.2(a)(ii) Consents")), or (iii) any filing by any member of the Offshore
Group under the Securities Act or the Exchange Act (including, without
limitation, the Registration Statement) or any information relating to the
Offshore Group contained in any filing made by any member of the Company Group
in each case whether made prior to or concurrent with the Effective Time.

(b) From and after the Effective Time, Parent shall indemnify,
defend and hold the Offshore Group and the officers, directors and employees
thereof (other than members of the Company Indemnified Group, the "Offshore
Indemnified Group") harmless from and against all losses, expenses, claims,
damages and liabilities (other than Taxes, which are governed by the Tax
Sharing Agreement) to which the Offshore Indemnified Group may be or become
subject that relate to (i) the assets, business, operations, debts or
liabilities of the Company Group, whether arising prior to, concurrent with, or
after the Contribution or the Rights Offering, (ii) the failure to obtain the
5.2(a)(ii) Consents, or (iii) any filing by any member of the Company Group
(other than to the extent a filing by a member of the Company Group contained
or contains information relating to the Offshore Group) under the Securities
Act or the Exchange Act, whether made prior to or concurrent with the Effective
Time.

6. Covenants.

6.1 Employment Matters. As of the Effective Time, the employees
of the Company and each Company Subsidiary listed in Schedule 4 hereto (the
"Spin Off Employees") shall be offered full-time employment by Offshore or one
of its Subsidiaries; provided, however, that except as may be specifically
required by applicable

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<PAGE> 10
law or any contract, neither Offshore and its Subsidiaries, on the one hand,
nor any employee, on the other hand, shall be obligated to continue any
employment relationship or any specific terms of employment for any specific
period of time. Effective as of the Effective Time, Offshore shall, and hereby
does, assume all obligations arising under any employment agreement or
arrangement (written or oral) between the Company or any of its Subsidiaries
and the Spin Off Employees (including, without limitation, any obligation of
the Company under lease agreements relating to automobiles provided by the
Company to any Spin Off Employee prior to the Effective Time), and, effective
as of the Effective Time, the Company and its Subsidiaries shall be, and hereby
are, indemnified by Offshore from all obligations arising under such employment
agreements or arrangements.

6.2 Offshore Defined Contribution Plan. Effective as of the
Effective Time, Offshore shall establish a defined contribution plan for the
benefit of the Spin Off Employees and any other full-time Offshore employees
(the "Offshore DC Plan"). As promptly as practicable after the Effective Time,
the Company shall cause the trustee of the DeepTech International Inc. Section
401(k) Plan (the "DeepTech DC Plan") to transfer to the trustee of the Offshore
DC Plan the account balances of each Spin Off Employee with respect to whom the
DeepTech DC Plan maintains an account as of the close of business on the date
of the Effective Time. Such transfers shall be equal to the value of the
transferred account balances as of the close of business on the day preceding
the date of transfer and shall be in cash, except that the Offshore DC Plan
shall accept the following: (a) Company Common Stock (which, as of the
Effective Time, will represent solely the right to receive the Merger
Consideration) for the Company Common Stock fund portion of such account
balances (together with the Offshore Shares distributed in connection with the
Distribution); and (b) amounts credited to the DeepTech DC Plan which are held
in mutual funds which are also investment media in the Offshore DC Plan.
Offshore shall cause the Offshore DC Plan (x) to permit the Spin Off Employees
to sell from the Company Common Stock fund portion of the Offshore DC Plan any
shares of the Parent Common Stock received in the Merger and (y) not to permit
the future investment in the shares of Company Common Stock or the common stock
of any other entity that does not sponsor the Offshore DC Plan (except for
investments through mutual funds or other collective investment vehicles with
respect to which participants have no control over the individual investments
thereof).

6.3 Severance and Consulting Arrangements.

(a) In the case of any person listed on Schedule 5 hereto, such
person shall be entitled to severance as provided below, if such person is not
offered employment by the Surviving Corporation, Parent or any of their
Subsidiaries in Houston at such person's current base salary as of the
Effective Time or is terminated by the Surviving Corporation, Parent or any of
their Subsidiaries prior to January 1, 1999. In the case of

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<PAGE> 11
any person listed on Schedule 6 hereto, such person shall be entitled to
severance as provided below, if (i) such person is not employed by Offshore or
any of its Subsidiaries in Houston as of the Effective Time, unless such person
is offered employment by the Surviving Corporation, Parent or any of their
Subsidiaries in Houston at such person's current base salary as of the
Effective Time or (ii) such person is employed by the Surviving Corporation,
Parent or any of their Subsidiaries at such person's current base salary as of
the Effective Time and is terminated by the Surviving Corporation, Parent or
any of their Subsidiaries prior to January 1, 1999. Any person entitled to
severance as provided in this paragraph shall receive a lump sum cash payment
equal to six months' base salary based upon such person's current monthly base
salary paid to such employee as of the date of termination. Until January 1,
1999, none of Offshore and its Subsidiaries listed shall employ or enter into
any consulting arrangement with any employee listed on Schedule 5.

(b) Certain individuals listed on Schedule 7 hereto may enter into
agreements to provide certain consulting services to the Company and Offshore
for a period of six months after the Effective Time. The Company and Offshore
shall each pay one half of the costs of such consulting agreements.

6.4 Offshore Group/Company Group Arrangements. All arrangements
and agreements between any member of the Offshore Group and the Company Group
are set forth in the Company Disclosure Schedule. Except as contemplated by
this Agreement, the Merger Agreement (including the Company Disclosure
Schedule) and the related Agreements, it is the intention of the parties hereto
that between the date of this Agreement and the Effective Time the Company
Group and the Offshore Group shall be operated as independent corporate groups
and there shall be no new investment, contribution, financing or credit support
or payments of Taxes (as defined in the Tax Sharing Agreement) provided by any
member of either group to any member of the other group, and any additional
funds required by any member of either group from the date of this Agreement to
the Effective Time shall be obtained from such group's internally generated
funds or from third parties. Except as contemplated by this Agreement, the
Merger Agreement (including the Company Disclosure Schedule) and the related
Agreements, in furtherance of the foregoing, between the date of this Agreement
and the Effective Time, no member of the Company Group shall invest, loan, pay
or otherwise advance or contribute any funds or property (other than the
accrual of (i) amounts payable under that certain First Amended and Restated
Management Agreement dated November 10, 1993 between Offshore and the Company
(the "Management Agreement"), as amended, and (ii) interest on indebtedness
outstanding on the date of this Agreement under the DeepFlex Note) to any
member of the Offshore Group or pay any Taxes relating to the assets, business
or operations of any member of the Offshore Group or forgive or capitalize any
amounts owed by any member of the Offshore Group to any member of the Company
Group (other than, if the transactions contemplated by the

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Redemption Agreement are consummated, the reduction by 50% of the management
fees payable by Offshore to the Company pursuant to the Management Agreement,
effective retroactively to January 1, 1998). Except as contemplated by this
Agreement, the Merger Agreement (including the Company Disclosure Schedule) and
the Related Agreements, immediately prior to the Effective Time, the members of
the Offshore Group (i) shall pay in cash all amounts owed by them to any member
of the Company Group (except that amounts outstanding under the Management
Agreement which relate to DeepFlex and its Subsidiaries will be contributed to
Offshore or forgiven and the DeepFlex Note will be treated as provided in
Article 3 hereof) and (ii) shall reimburse the Company for any payments of
Taxes made by the Company or any Company Subsidiary after January 1, 1998 and
prior to the Effective Time which relate to the assets, business or operations
of any member of the Offshore Group. Any amounts owing by the Company Group to
the Offshore Group (all of which are set forth in the Company Disclosure
Schedule) will be offset against amounts otherwise owed to the Company under
the DeepFlex Note. Other than the Tax Sharing Agreement, this Agreement and
the agreements marked with an asterisk as continuing agreements in the Company
Disclosure Schedule, all intercompany agreements and arrangements between any
member of the Offshore Group and any member of the Company Group shall
terminate as of the Effective Time. The Company and Offshore shall take or
shall cause to be taken all actions necessary to effectuate the termination of
such agreements.

6.5 Restrictions on Amendments. The Company and Offshore shall
not amend, modify, waive or extend any time period under any provisions of this
Agreement, the Redemption Agreement, or the Tax Sharing Agreement prior to the
Effective Time without the consent of Parent.

6.6 Sublease. As of the Effective Time, subject to the approval
by the lessor of (i) the assignment of the existing lease to Parent, as
successor to the Company, and (ii) the sublease contemplated hereby, the
Company shall sublease to Offshore, and Offshore shall sublease from the
Company, the space currently occupied by the Company on the 74th and 75th floor
of 600 Travis Street, Houston, Texas, pursuant to the Sublease Agreement
attached as Schedule 8 hereto, which shall be executed and delivered at the
Effective Time.

6.7 North Atlantic Partners. Leviathan has entered into an
agreement, attached as Schedule 9 hereto, with North Atlantic Pipeline
Partners, L.P., an indirect wholly owned subsidiary of Offshore, and other
parties, dated February 5, 1998, relating to the participation by Leviathan in
a proposed pipeline project in Canadian Atlantic waters (the "NAP Agreement").
The Company and Offshore agree that no payments shall be made by or on behalf
of Leviathan pursuant to the NAP Agreement and Leviathan will not incur any
liability or obligation under the NAP Agreement prior to the first anniversary
of the Effective Time, and the NAP Agreement may be terminated by Leviathan at
any time

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prior to the first anniversary of the Effective Time without cost, liability,
expense or continuing obligation on the part of Leviathan or any of its
affiliates. No press release or other public disclosure that mentions Parent
or its Subsidiaries shall be made with respect to the NAP Agreement or the
transactions contemplated thereby, except by Offshore with the prior consent of
Parent, which will not be unreasonably withheld or delayed.

6.8 Exchange of Senior Preferred Stock. As promptly as practical,
and in any event no later than Monday, March 2, 1998, Offshore shall take, and
the Company shall cause Leviathan to take, all such actions as shall be
necessary to exchange the outstanding shares of the Senior Preferred Stock for
a substantially identical series of preferred stock of Offshore, except that
such new series of preferred stock shall not be redeemable and shall be
immediately convertible into Offshore Common Stock. References in this
Agreement to the Senior Preferred Stock shall include the shares of preferred
stock of Offshore for which the Senior Preferred Stock shall be exchanged.

6.9 Cross-Guarantees. Each of the Company, Offshore, Leviathan
and DeepFlex shall be responsible for its respective premium obligations under
the premium finance agreements between such parties and AFCO Credit
Corporation. Prior to the Effective Time, each of the Company, Offshore,
Leviathan and DeepFlex shall pay any unpaid portion of its premium obligations
under such agreements, whether or not such obligations are then due and
payable.

7. Conditions to the Contribution and the Completion of the Rights
Offering.

The Contribution and the completion of the Rights Offering shall be
subject to the satisfaction or waiver of the following conditions (provided
that the condition in Section 7.3 shall apply solely to the Rights Offering):

7.1 Securities Law Compliance. The transactions contemplated
hereby shall be in compliance with applicable federal and state securities laws
and applicable Nasdaq regulations, and the Registration Statement shall have
been declared effective and no stop orders shall have been instituted with
respect thereto under the Securities Act.

7.2 Legal Proceedings. No preliminary or permanent injunction or
other order by any federal or state court in the United States of competent
jurisdiction which prevents the consummation of the Contribution or the Rights
Offering shall have been issued and remain in effect (each party agreeing to
use all commercially reasonable efforts to have any such injunction lifted).

7.3 Proceeds of Rights Offering. The net proceeds actually
received and retained by the Company pursuant to the Rights Offering shall be
not less than the Initial Proceeds and the Estimated Tax Amount shall have been
paid by Offshore or retained by

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the Company out of the Excess Proceeds, and such amounts shall have been
deposited in escrow in accordance with Section 4.3, if required.

8. Miscellaneous.

8.1 Waiver and Amendment. Any agreement on the part of a party
hereto to any waiver shall be valid only if set forth in an instrument in
writing duly executed by such party. The failure of any party to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights. This Agreement may not be amended except by an instrument in
writing duly executed by each of the parties hereto.

8.2 Assignment. No party may assign its rights and obligations
hereunder without the prior written consent of the other; provided, however,
that, so long as such party remains primarily obligated and responsible with
respect thereto, any party may assign its rights hereunder to any of its
affiliates (which remains an affiliate) or to any person or entity with which
the assigning party is merged or consolidated if such person is the surviving
entity or which acquires all or substantially all of the assets of such party.

8.3 No Third-Party Beneficiaries. This Agreement is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.

8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall be
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.

8.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to its rules of conflicts of laws thereof.

8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

8.7 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day
after being delivered to a nationally recognized overnight courier or when
telecopied (with a confirmatory copy sent by such overnight courier) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

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(a) if to Parent or the Company, to

El Paso Natural Gas Company
1001 Louisiana
Houston, Texas 77002
Attention: William A. Wise
Facsimile No.: (713) 757-6030

and

Attention: Britton White, Jr.
Facsimile No.: (713) 757-1872

with a copy to:

Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Gary P. Cooperstein
Facsimile No.: (212) 859-4000

(b) if to Offshore or DeepFlex, to

Tatham Offshore, Inc.
7500 Chase Tower
600 Travis Street
Houston, Texas 77002
Attention: Chief Executive Officer
Facsimile No.: (713) 224-7574

with a copy to:

Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place - South Tower
Houston, Texas 77002
Attention: Rick L. Burdick
Facsimile No.: (713) 236-0822

8.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and

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effect so long as the economic and legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.

8.9 Termination. Parent's obligations under this Agreement shall
terminate upon termination of the Merger Agreement if the Merger has not been
consummated prior thereto.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

DEEPTECH INTERNATIONAL INC.

By:
-----------------------------------
Name:
Title:

TATHAM OFFSHORE, INC.

By:
-----------------------------------
Name:
Title:

DEEPFLEX PRODUCTION SERVICES, INC.

By:
-----------------------------------
Name:
Title:

EL PASO NATURAL GAS COMPANY

By:
-----------------------------------
Name:
Title:

<PAGE> 1
EXHIBIT 10.27

STANDBY AGREEMENT

This STANDBY AGREEMENT, dated as of February 27, 1998 (the
"Agreement"), between Thomas P. Tatham (the "Stockholder"), DeepTech
International Inc., a Delaware corporation (the "Company"), Tatham Brothers,
LLC, a Delaware limited liability company ("Tatham Brothers"), Tatham Offshore,
Inc., a Delaware corporation ("Offshore"), and El Paso Natural Gas Company, a
Delaware corporation ("Parent").

Parent, the Company and El Paso Acquisition Company, a
Delaware corporation ("Merger Sub"), are entering into an Agreement and Plan of
Merger (the "Merger Agreement") on the date of this Agreement pursuant to which
Parent proposes to acquire the entire equity interest in the Company pursuant
to the merger (the "Merger") of the Company with Parent or Merger Sub, as a
result of which each outstanding share of Common Stock, $.01 par value, of the
Company (the "Company Common Stock"), would be converted into the right to
receive Common Stock, $3.00 par value, of Parent (the "Parent Common Stock") or
cash as provided in the Merger Agreement.

As part of the transactions contemplated by the Merger
Agreement, the Company, Offshore, DeepFlex Production Services, Inc.
("DeepFlex") and Parent are entering into a Contribution and Distribution
Agreement (the "Contribution Agreement") on the date of this Agreement pursuant
to which the Company will contribute to Offshore the stock of DeepFlex in
exchange for the consideration stated in the Contribution Agreement.

Pursuant to the Contribution Agreement, the Company will
distribute on a pro rata basis to the holders of Company Common Stock rights
(the "Rights") to purchase all of the Offshore Shares (as defined in the
Contribution Agreement) (the "Rights Offering").

Parent and the Company desire to induce Tatham Brothers to
enter into this Agreement by entering into the Merger Agreement, and Tatham
Brothers desires to induce Parent and the Company to enter into the Merger
Agreement by entering into this Agreement.

Capitalized terms used but not defined herein have the
meanings set forth in the Contribution Agreement.

Accordingly, in consideration of the mutual covenants and
agreements set forth herein and in consideration of $1.00 and such other
valuable consideration the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
<PAGE> 2
1. Standby Commitment. (a) To the extent any Unsubscribed
Shares have not theretofore been subscribed and paid for in the Rights Offering
(the "Remaining Shares"), on the General Expiration Date, the Company will
provide Tatham Brothers with a notice in writing setting forth the number of
Remaining Shares and the aggregate subscription price therefor as provided in
Section 4.2 of the Contribution Agreement. No later than the Final Expiration
Date, Tatham Brothers shall purchase from the Company (and the Company shall
sell to Tatham Brothers), at the subscription price of $3.25 per Remaining
Share, that number of such Remaining Shares, if any, which is necessary to
provide the Company with net proceeds from the Rights Offering at least equal
to $75 million.

(b) At the closing of the purchase and sale of such Remaining Shares,
Tatham Brothers shall make payment in cash to the Company of the subscription
price for the Remaining Shares purchased by Tatham Brothers and, except as
otherwise required by the Letter of Credit described in Section 3, the Company
shall deliver to Tatham Brothers stock certificates representing the Remaining
Shares purchased pursuant to this Agreement (the "Acquired Shares"), free and
clear of all liens, charges and encumbrances (other than those created by
Tatham Brothers).

(c) In consideration for Tatham Brothers' commitment to purchase any
Remaining Shares, Tatham Brothers will receive from Offshore a fee pursuant to
the Purchase Commitment Agreement, dated as of even date herewith, between
Tatham Brothers and Offshore.

2. Guarantee. (a) The Stockholder hereby absolutely and
unconditionally guarantees the performance by Tatham Brothers of its obligation
under Section 1 of this Agreement (the "Obligation"). To the extent that
Tatham Brothers fails to tender payment of the Obligation on the Final
Expiration Date, the Stockholder shall immediately pay to the Company any
unpaid portion of the Obligation.

(b) The liability of the Stockholder under this guarantee shall be
primary and not as a surety, and shall not be affected by the bankruptcy of
Tatham Brothers, the Company or Offshore or any failure or delay by the Company
or Parent in exercising any right or remedy against Tatham Brothers, or any
amendment or waiver of any provision of the Contribution Agreement, the Merger
Agreement or any other agreement executed and delivered in connection with the
foregoing. The Stockholder hereby waives notice or demand of performance in
the acceptance of its obligations hereunder.

3. Letter of Credit. The Stockholder has obtained from
NationsBank, N.A. ("NationsBank") an irrevocable letter of credit in the form
of Exhibit A hereto (the "Letter of Credit") in favor of the Company. The cost
of issuance of the Letter of Credit is being borne by Parent and Parent shall
pay all such costs related to the issuance of the Letter of Credit directly to
NationsBank (and Parent shall reimburse the Stockholder promptly if and to the
extent any payments of fees and costs (excluding in all cases any

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<PAGE> 3
obligation to reimburse NationsBank for drawings under the Letter of Credit)
under the Letter of Credit shall have been made by the Stockholder).

4. Other Acts. The parties to this Agreement agree to, in a
prompt manner and using all commercially reasonable efforts, prepare, file or
draft such documents and perform such acts as required by the Letter of Credit,
including, without limitation, upon the termination of the Merger Agreement
pursuant to the terms thereof, the preparation and delivery of a signed
certificate to such effect or, upon the closing of the Merger, the preparation
of a signed certificate to such effect, and other certificates and documents
required by the Letter of Credit (including certificates for any Offshore
Shares) required to be delivered to NationsBank.

5. Representations and Warranties of Tatham Brothers. Tatham
Brothers hereby represents and warrants to Parent that:

(a) Tatham Brothers is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware;

(b) Tatham Brothers has all requisite right,
power and authority to execute and deliver this Agreement and perform all its
obligations hereunder;

(c) the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate or similar action on
Tatham Brothers' part and does not constitute a violation of, conflict with or
result in a material default under (i) any contract or agreement to which
Tatham Brothers is a party or by which Tatham Brothers is bound, (ii) any
judgment, decree or order applicable to Tatham Brothers or (iii) to Tatham
Brothers' actual knowledge, any law, rule or regulation of any governmental
body applicable to Tatham Brothers, including, without limitation, any
securities laws exemptions, in the case of clauses (i) through (iii), except
for violations, conflicts or defaults which would not, or would not reasonably
be expected to, materially affect Tatham Brothers' ability to perform its
obligations under this Agreement;

(d) this Agreement has been duly executed and
delivered by Tatham Brothers; and

(e) this Agreement constitutes a valid and
binding agreement on Tatham Brothers' part, enforceable against Tatham Brothers
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.

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<PAGE> 4
6. Miscellaneous.

6.1 Waiver and Amendment. Any agreement on the part of a
party hereto to any waiver shall be valid only if set forth in an instrument in
writing duly executed by such party. The failure of any party to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights. This Agreement may not be amended except by an instrument in
writing duly executed by each of the parties hereto.

6.2 Assignment. Any party to this Agreement may assign
its rights or interests hereunder without obtaining the written consent of any
other party. No such assignment shall relieve the assigning party of any of
its obligations under this Agreement and any non-assigning party shall have the
right to seek remedies directly from the assigning party without seeking the
same from the assignee. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
and their respective successors and permitted assigns. The parties hereto
acknowledge that NationsBank has been granted a security interest in all of the
right, title and interest of the Stockholder and Tatham Brothers in and to this
Agreement.

6.3 No Third-Party Beneficiaries. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except that NationsBank is a third party beneficiary of
Section 1(b) and such section may not be amended or modified without the
express written consent of NationsBank.

6.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement, and
shall be effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.

6.5 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, without
regard to its rules of conflicts of laws thereof.

6.6 Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

6.7 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally, one day after being delivered to a nationally recognized overnight
courier or when telecopied (with a confirmatory copy sent by such overnight
courier) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):

(a) if to Parent or the Company, to

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<PAGE> 5
El Paso Natural Gas Company
1001 Louisiana
Houston, Texas 77002
Attention: William A. Wise
Facsimile No.: (713) 757-6030

and

Attention: Britton White, Jr.
Facsimile No.: (713) 757-1872

with a copy to:

Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Gary P. Cooperstein
Facsimile No.: (212) 859-4000

(b) if to Tatham Brothers, the Stockholder or
Offshore, to

7500 Chase Tower
600 Travis
Houston, Texas 77002
Attention: Thomas P. Tatham
Facsimile No.: (713) 224-7574

with a copy to:

Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place - South Tower
Houston, Texas 77002
Attention: Rick L. Burdick
Facsimile No.: (713) 236-0822

6.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable

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<PAGE> 6
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.

6.9 Termination. This Agreement shall terminate upon
termination of the Merger Agreement if the Merger has not been consummated
prior thereto.

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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

EL PASO NATURAL GAS COMPANY

By:
------------------------------
Name:
Title:

TATHAM OFFSHORE, INC.

By:
------------------------------
Name:
Title:

---------------------------------
Thomas P. Tatham

DEEPTECH INTERNATIONAL INC.

By:
------------------------------
Name:
Title:

TATHAM BROTHERS, L.L.C.

By:
------------------------------
Name:
Title:

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<PAGE> 1
EXHIBIT 10.28

TAX SHARING AGREEMENT

This TAX SHARING AGREEMENT (the "Agreement") is made as of the ___ day
of ___ 1998 among DeepTech International Inc., a Delaware corporation (the
"Company"), Tatham Offshore, Inc., a Delaware corporation ("Offshore"), and
DeepFlex Production Systems, Inc., a Delaware corporation ("DeepFlex").

BACKGROUND

A. Company is the common parent of an affiliated group that files
a consolidated federal income tax return.

B. DeepFlex has been a member of the Company affiliated group
since January 19, 1995.

C. The Company and Offshore have entered into a Contribution and
Distribution Agreement dated February 27, 1998 (the "Distribution Agreement").

D. Pursuant to the Distribution Agreement, (i) in satisfaction of
an aggregate of approximately $12 million of the DeepFlex Note (as defined in
the Distribution Agreement), DeepFlex will distribute to Company the Offshore
Preferred Stock (as defined in the Distribution Agreement) and the Offshore
Common Stock (as defined in the Distribution Agreement) held by it (the "Stock
Repayment") and (ii) the Company will sell to Offshore approximately $8 million
of the principal amount of the DeepFlex
<PAGE> 2
Note, in exchange for which Offshore will deliver to the Company a stock
certificate (or certificates) evidencing all of the outstanding shares of
capital stock of TODI (as hereinafter defined), and all rights of Offshore to
receive an assignment of certain interests in oil and gas properties under the
Agreement and Purchase and Sale by and between Offshore and Flextrend
Development Company, L.L.C. dated June 30, 1996 will be irrevocably terminated
and canceled (the "TODI Payment" and together with the Stock Repayment, the
"Repayment").

E. Pursuant to the Distribution Agreement, the Company will
contribute to DeepFlex the outstanding balance of the DeepFlex Note held by the
Company after the transfers described in paragraph D above (the "Note
Capitalization").

F. Pursuant to the Distribution Agreement, the Company will
contribute to the capital of Offshore all of the shares of common stock of
DeepFlex owned by the Company (the "Contribution").

G. Pursuant to the Distribution Agreement, the Company will
distribute to the holders of the Company's common stock, par value $0.01 per
share ("Company Common Stock"), rights to purchase all of the Offshore Common
Stock and all of the Offshore Preferred Stock held by Company.

H. Offshore and Flextrend Development Company, L.L.C., a Delaware
limited liability company ("Flextrend"), have entered into a Redemption
Agreement dated February 27, 1998 (the "Redemption Agreement"), pursuant to
which Offshore will transfer certain oil and gas properties to Leviathan Gas
Pipeline Partners, L.P., a Delaware limited partnership (the "Partnership"), in
redemption of Senior Preferred Stock

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<PAGE> 3

(as defined in the Redemption Agreement) owned or beneficially owned by the
Partnership.

I. Company, El Paso Natural Gas Company, a Delaware corporation
("Parent"), and El Paso Acquisition Company ("Merger Sub"), a Delaware
corporation ("Merger Sub"), have entered into an Agreement and Plan of Merger
dated February ___, 1998 (the "Merger Agreement"), pursuant to which, after the
closing of the transactions contemplated by the Distribution Agreement, Company
shall merge with Parent or Merger Sub.

NOW, THEREFORE, Company, on behalf of itself and its present and
future Subsidiaries, other than the members of the DeepFlex Group (as
hereinafter defined) and other than members of the Offshore Group (as
hereinafter defined) (the "Company Group") and Offshore and DeepFlex, on behalf
of themselves and the members of the DeepFlex Group and the Offshore Group,
enter into this Agreement to provide for the allocation among the Company
Group, the DeepFlex Group and the Offshore Group of all responsibilities,
liabilities and benefits relating to or affecting Taxes (as hereinafter
defined) paid or payable by any of them for all taxable periods, whether
beginning before, on or after the Contribution Date and to provide for certain
other matters. This Agreement also provides, among other things, for Company
and DeepFlex to assist each other for an interim period in the preparation of
Tax Returns (as hereinafter defined) required to be filed after the
Contribution Date.

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<PAGE> 4

ARTICLE I
DEFINITIONS

For purposes of this Agreement, the following terms shall have the
meanings set forth below:

"Adjustment Request" means any claim for Tax refund, carryback or any
other self-audit adjustment or similar claim.

"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.

"Company Businesses" means the present, former and future
Subsidiaries, divisions and businesses of any member of the Company Group.

"Company Tax Attributes" means the following Tax attributes of Company
and DeepWater Production Systems, Inc. ("DeepWater") (but not of any other
member of the Company Group and in the case of consolidated Tax attributes, not
including any portion of a Tax attribute attributable to a member of the
Company Group other than Company and DeepWater under applicable regulations)
actually existing at the Effective Time, subject to adjustment on audit or as a
result of a Tax Contest: (i) net operating loss carryovers, (ii) alternative
minimum tax ("AMT") credit carryovers, but only to the extent that Company or
DeepWater had such AMT credit carryovers as of June 30, 1997, and (iii) capital
loss carryovers.

"Contribution Date" shall mean the date the Contribution is effected;
provided, however, that for purposes of allocating items of income between
taxable periods, the Contribution Date shall be treated as ending at the time
of the Contribution.

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<PAGE> 5

"DeepFlex Businesses" means the present, former and future
Subsidiaries, divisions and other businesses of any member of the DeepFlex
Group which are not, or are not contemplated by the Distribution Agreement to
be, part of the Company Group immediately after the Contribution.

"DeepFlex Group" means DeepFlex and its Subsidiaries before the
Contribution.

"Effective Time" means the Effective Time as defined by the Merger
Agreement.

"FPS" means FPS III, Inc. and FPS V, Inc., each a Delaware
corporation.

"Merger Transactions" means the Repayment, the Note Capitalization,
the Rig Distribution (if it occurs), the Contribution, the Rights Offering (as
defined by the Distribution Agreement), the transfer of the Offshore Shares
pursuant to the exercise of Rights (as defined by the Distribution Agreement),
the purchase of Offshore Shares by Tatham Brothers, LLC, a Delaware limited
liability company, or Thomas P. Tatham and/or Offshore pursuant to the Standby
Agreement and the lapse (if any) of Rights on the Expiration Date (as defined
by the Distribution Agreement).

"Offshore Group" shall mean Offshore and its former, present and
future Subsidiaries (other than members of the DeepFlex Group); provided, that
TODI shall be treated as a member of the Offshore Group with respect to all
periods up to and including the TODI Payment Date. For periods after the TODI
Payment Date, TODI shall be considered a member of the Company Group.

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<PAGE> 6

"Rig Distribution" means a distribution by RIGCO North America, LLC, a
Delaware limited liability company ("RIGCO"), to FPS of one of the drilling
rigs owned by RIGCO as of the date of the Merger Agreement.

"Separate Tax" means any Tax computed by reference to the assets and
activities of a single entity.

"Subsidiary" means any entity that directly or indirectly is
"controlled" by the entity in question. "Control" for this purpose means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity, whether through
ownership of voting securities, by contract or otherwise.

"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not; provided,
however, that for purposes of Section 2.02(d), Section 2.03(d), Section 3.01,
and Section 3.02, the term "Tax" shall not include any alternative minimum tax.

"Tax Authority" means, with respect to any Tax, the governmental
entity or political subdivision thereof that imposes such Tax, and the agency
(if any) charged with the collection of such Tax for such entity or
subdivision.

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<PAGE> 7

"Tax Benefit" means the amount by which any Tax Item decreases the
liability for Taxes on or with respect to a Tax Return.

"Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the members of the Company Group, the Offshore
Group or the DeepFlex Group (including any administrative or judicial review of
any claim for refund).

"Tax Detriment" means the amount by which any Tax Item increases the
liability for Taxes on or with respect to a Tax Return.

"Tax Item" means any item affecting Taxes, including but not limited
to items of income, gain, loss, deduction, and credit.

"Tax Return" means any return, declaration, report, claim for refund,
estimated Tax filing, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.

"TODI" means Tatham Offshore Development, Inc., a Delaware
corporation.

"TODI Payment Date" means the date the TODI Payment is effected;
provided, however, that for purposes of allocating Tax Items between taxable
periods, the TODI Payment Date shall be treated as ending at the time of the
TODI Payment.

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<PAGE> 8

ARTICLE II
LIABILITY FOR TAXES; TAX RETURNS

Section 2.01 Manner of Preparation of Returns. In the absence of
controlling change in law or circumstances, all Tax Returns filed by Company,
TODI, Offshore or DeepFlex (or required to be prepared by DeepFlex under
Sections 2.02 and 2.03) after the date of this Agreement shall be prepared on a
basis consistent with the elections, accounting methods, conventions, and
principles of taxation used for the most recent taxable periods for which Tax
Returns involving similar items have been filed. Subject to the provisions of
this Agreement, all decisions relating to the preparation and filing of all Tax
Returns and any audit or other review of such Tax Returns shall be made in the
sole discretion of the party responsible under this Agreement for the filing of
such Tax Return. Without the prior written consent of Offshore or DeepFlex,
the Company will not elect to retain any carryovers of any member of the
Offshore Group or the DeepFlex Group under Treasury Regulation Section
1.1502-20(g). Except as consistent with past practice or as required by law,
Company shall take no position on any Company Pre-Contribution Federal
Consolidated Return or Company Pre-Contribution State Combined Return (as both
terms are hereinafter defined) that would be adverse to a member of the
DeepFlex Group in subsequent periods. Except as required by a change in law
after February 27, 1998, Company shall prepare the Company Pre-Contribution
Federal Consolidated Returns and Company Pre-Contribution State Combined
Returns on the basis that the "check the box" election (attached hereto) made
by RIGCO to be treated as a corporation for federal Tax purposes is to be
treated as a transfer of assets from a partnership to a corporation governed by
Code Sections 351, 357(c), and any other Section of the Code relating to
Section 351, and shall thereafter maintain such position and shall allow
DeepFlex to participate in the defense of such position in a manner similar to
that contemplated by Section 5.03(c) of this Agreement.

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<PAGE> 9

Section 2.02 Company Pre-Contribution Federal Consolidated
Returns.

(a) All federal consolidated Tax Returns not yet filed as of the
date hereof which include at least one member of the Company Group and at least
one member of the DeepFlex Group that are required to be filed after the
Contribution Date for periods beginning before the Contribution Date (a
"Company Pre-Contribution Federal Consolidated Return") shall be prepared and
filed by Company and Company shall include the Tax Items of includible members
of the DeepFlex Group on such Tax Returns. To permit Company to prepare and
file such Tax Returns, DeepFlex shall, for each taxable period for which a
member of the DeepFlex Group is included in a Company Pre-Contribution Federal
Consolidated Return, provide Company with (in all cases subject to the
provisions of Section 2.02(b)) (i) a true and correct (in all material
respects) pro-forma consolidated federal income Tax Return for all members of
the DeepFlex Group included in the Company Pre-Contribution Federal
Consolidated Return (a "DeepFlex Pre-Contribution Federal Consolidated
Return"), together with an accompanying computation of the pro-forma
consolidated federal tax liability of such members of the DeepFlex Group
(provided that, for any period which includes the Merger Transactions, the
DeepFlex Pre-Contribution Federal Consolidated Return shall not include any Tax
Item arising from the Merger Transactions), (ii) a true and correct (in all
material respects) pro-forma separate federal income Tax Return for each member
of the DeepFlex Group included in the Company Pre-Contribution Federal
Consolidated Return, together with accompanying computations of the pro-forma
separate federal income Tax liability of each such member of the DeepFlex
Group, (iii) a reconciliation of book income to federal taxable income for each
member of the DeepFlex Group included in the DeepFlex Pre-Contribution Federal
Consolidated Return, and (iv) for any period that includes the Merger
Transactions, a pro-forma consolidated federal income Tax Return for all
members of the DeepFlex Group included in the Company Pre-Contribution Federal
Consolidated Return which includes any Tax Items arising from the Merger
Transactions. DeepFlex shall provide Company with such returns and

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<PAGE> 10

computations on or before the later of (x) the first day of the fourth month
following the end of the period to which such returns and computations relate,
or (y) the date that is ten (10) days after the date hereof.

(b) The above-mentioned pro-forma consolidated and separate
federal income Tax Returns, and pro-forma computations of the consolidated
federal income Tax liability of members of the DeepFlex Group included in any
Company Pre-Contribution Federal Consolidated Return, shall be prepared by (i)
apportioning the income of the members of the DeepFlex Group on a closing of
the books method between the period up to and including the Contribution Date
and the period after the Contribution Date as if the relevant taxable period
ended on the Contribution Date, (ii) giving effect to net operating loss
carryovers, capital loss carryovers, excess charitable deduction carryovers,
and other similar carryover items to the extent such carryover items are
available to be used (taking into account applicable limitations, if any) on
the Company Pre-Contribution Federal Consolidated Return, and (iii) not
considering or giving any effect to any net operating loss carryback, capital
loss carryback, or other similar carryback item.

(c) With respect to each taxable period covered by Section
2.02(a), DeepFlex and Offshore hereby jointly and severally agree to pay the
Company or any successor thereto, including Parent the DeepFlex Group Federal
Tax Liability (as defined in Section 2.02(d)), at the times contemplated
herein.

(d) The "DeepFlex Group Federal Tax Liability" for any taxable
period in which a member of the DeepFlex Group is included in a Company
Pre-Contribution Federal Consolidated Return shall be the excess of:

(i) the lesser of:

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<PAGE> 11

(A) The Tax liability shown on the
DeepFlex Pre-Contribution Federal
Consolidated Return, or

(B) The Tax liability shown on the
Company Pre-Contribution Federal
Consolidated Return, recalculated by
disregarding the net gain, if any, resulting
from the Merger Transactions; over

(ii) all estimated payments theretofore actually
made by DeepFlex to Company on account of such Tax
liability.

If the amount referred to in clause (ii) exceeds the amount referred to in
clause (i), within ten (10) days of the filing by Company of the applicable
Company Pre-Contribution Federal Consolidated Return, Company shall pay such
excess to DeepFlex.

Section 2.03 Pre-Contribution State Combined, Unitary or
Consolidated Income Tax Returns.

(a) All state combined, unitary, or consolidated income Tax
Returns not yet filed as of the date hereof which include at least one member
of the DeepFlex Group and at least one member of the Company Group that may be
or are required to be filed by Company or a member of the Company Group for
periods beginning before the Contribution Date ("Company Pre-Contribution State
Combined Returns") shall be prepared and filed by Company and Company shall
include the income of the includible members of the DeepFlex Group on such Tax
Returns. To permit Company to prepare and file such Tax Returns, DeepFlex
shall, for each taxable period for which a member of the DeepFlex Group is
includible in a Company Pre-Contribution State Combined Return,

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<PAGE> 12

provide Company with (in all cases subject to the provisions of Section
2.03(b)) (i) a true and correct (in all material respects) pro-forma state
combined, unitary or consolidated Tax Return (whichever applicable) for each
member of the DeepFlex Group includible in the Company Pre-Contribution State
Combined Return (a "DeepFlex Pre-Contribution State Combined Return"), together
with an accompanying computation of the pro-forma combined, unitary or
consolidated Tax liability (whichever applicable) of such members of the
DeepFlex Group (provided that, for any period which includes the Merger
Transactions, the DeepFlex Pre-Contribution State Combined Return shall not
include any Tax Item arising from the Merger Transactions), (ii) a true and
correct (in all material respects) pro-forma separate state income Tax Return
for each member of the DeepFlex Group includible in the Company
Pre-Contribution State Combined Return together with accompanying computations
of the pro-forma separate state income Tax liability of each such member of the
DeepFlex Group, (iii) a reconciliation of the separate company state Taxable
income of each such member of the DeepFlex Group to its separate Taxable income
for federal purposes (as determined pursuant to Section 2.02(a) above), (iv)
any apportionment factors prescribed by applicable state law and all other
information necessary or appropriate for the proper apportionment and
allocation of the combined, unitary or consolidated group income, and (v) for
any period that includes the Merger Transactions, a pro-forma state combined,
unitary or consolidated Tax Return for all members of the DeepFlex Group
included in the Company Pre-Contribution State Combined Return which includes
any Tax Item arising from the Merger Transactions. DeepFlex shall provide
Company with such returns and computations on or before the later of (x) the
first day of the fourth month following the end of the period to which such
returns and computations relate, or (y) the date that is ten (10) days after
the date hereof.

(b) The above-mentioned state pro-forma Tax Returns and
computations of the state combined, unitary or consolidated Tax liability of
members of the DeepFlex Group

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<PAGE> 13

includible in the Company Pre-Contribution State Combined Return shall be
prepared by (i) apportioning the income of the members of the DeepFlex Group
between the period up to and including the Contribution Date and the period
after the Contribution Date as if the relevant taxable period ended on the
Contribution Date, (ii) giving effect to net operating loss carryovers, capital
loss carryovers, excess charitable deduction carryovers, and other similar
carryover items to the extent such carryover items are available to be used
(taking into account applicable limitations, if any) on the Company
Pre-Contribution State Combined Return, and (iii) not considering or giving any
effect to any net operating loss carryback, capital loss carryback, or other
similar carryback item.

(c) With respect to each taxable period covered by Section
2.03(a), DeepFlex and Offshore hereby jointly and severally agree to pay the
Company or any successor thereto, including Parent, the DeepFlex Group State
Tax Liability (as defined by Section 2.03(d)), at the times contemplated
herein.

(d) The "DeepFlex Group State Tax Liability" for any taxable
period in which a member of the DeepFlex Group is included in a Company
Pre-Contribution State Combined Return shall be the excess of:

(i) the lesser of:

(A) The Tax liability shown on the DeepFlex
Pre-Contribution State Combined Return, or

(B) The Tax liability shown on the Company
Pre-Contribution State Combined Return, recalculated
by disregarding the net gain, if

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<PAGE> 14

any, resulting from the Merger Transactions included
in such Return; over

(ii) all estimated payments theretofore actually made by
DeepFlex to Company on account of such Tax liability.

If the amount referred to in clause (ii) exceeds the amount referred to in
clause (i), within ten (10) days of the filing by Company of the applicable
Company Pre-Contribution State Combined Return, Company shall pay such excess
to DeepFlex.

Section 2.04 Payment of DeepFlex Federal and State Tax Liability

(a) Company shall calculate the DeepFlex Group Federal Tax
Liability and the DeepFlex Group State Tax Liability for each of the periods
covered by Sections 2.02 and 2.03 and shall provide DeepFlex with written
notification of such calculation (together with supporting documentation
sufficient to enable DeepFlex or Offshore to verify the computation of the
amount due) (such notice and supporting documentation is collectively referred
to as the "Notice") as soon as practicable after receiving from DeepFlex the
returns and computations referenced in Section 2.02(a) or Section 2.03(a), as
the case may be, but in any event no later than ten (10) days after filing the
applicable Company Pre- Contribution Federal Consolidated Return or Company
Pre-Contribution State Combined Return. Within twenty (20) days of receipt of
the Notice, Offshore or DeepFlex shall either (i) pay the amount shown as due
to the Company, or (ii) notify the Company in writing if it disputes the amount
shown as due and pay to the Company the portion of such amount which Offshore
or DeepFlex does not dispute as due to the Company. In the case of a dispute,
such notice shall contain Offshore's explanation of the dispute, its
computation (based on all information in its possession, including the

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documentation supplied by Company) of the amount due and supporting
documentation sufficient to enable Company to verify Offshore's computation of
the amount due. If Offshore and DeepFlex fail to so notify Company within
twenty (20) days, Company's computation of the DeepFlex Group Federal Tax
Liability or DeepFlex Group State Tax Liability shall become final.

(b) If Offshore disputes in writing the amount shown as due on a
Notice, Offshore and Company shall attempt in good faith to resolve such
dispute. If Company and DeepFlex or Offshore, as the case may be, are unable
to resolve the dispute, either party may utilize the dispute mechanism provided
for in Article VI. No later than two (2) days following the Accounting Firm's
decision, DeepFlex or Offshore shall make any required payment to Company.

Section 2.05 Other Pre-Contribution Tax Returns.

(a) DeepFlex Group. Tax Returns required to be filed for periods
beginning before the Contribution Date which include one or more members of the
DeepFlex Group, other than Tax Returns for which Company bears the filing
responsibility under Sections 2.02 and 2.03, shall be filed by the applicable
member(s) of the DeepFlex Group, and DeepFlex (and Offshore) shall be liable
for, and shall indemnify and hold harmless the Company Group against, all Taxes
due with respect to such Tax Returns. DeepFlex, Offshore and Company believe
that there is no Tax not specifically covered by Sections 2.02 and 2.03 which
is legally imposed on more than one legal entity (e.g., joint and several
liability); however, if there is any such Tax, it shall be allocated in
accordance with the principles of Sections 2.02, 2.03 and 2.04.

(b) TODI.

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(i) Offshore will include the income of TODI (including
any deferred income triggered into income by Treasury Regulation Section
1.1502-13 and Treasury Regulation Section 1.1502-14 and any excess loss
accounts taken into income under Treasury Regulation Section 1.1502-19) on the
Offshore federal consolidated income (and state combined, consolidated or
unitary) Tax Returns for all periods ending on or before the TODI Payment Date
and pay any Taxes attributable to such income. TODI will furnish Tax
information to Offshore for inclusion in Offshore's federal consolidated income
(and state combined, consolidated or unitary) Tax Return for the period ending
on the TODI Payment Date in accordance with TODI's past custom and practice.
Offshore will allow Company an opportunity to review and comment upon such
Offshore Group Tax Returns (including any amended Tax Returns) to the extent
that they relate to TODI. Except as consistent with past practice, Offshore
will take no position on such Tax Returns that relate to TODI that would
adversely affect TODI after the TODI Payment Date. The income of TODI will be
apportioned on a closing of the books method between the period up to and
including the TODI Payment Date and the period after the TODI Payment Date as
if the relevant taxable period ended on the TODI Payment Date. Offshore will
not elect to retain any net operating loss carryovers or capital loss
carryovers of TODI under Treasury Regulation Section 1.1502-20(g).

(ii) Offshore shall prepare and cause to be filed any
Separate Tax Returns of TODI required to be filed for periods beginning and
ending before the TODI Payment Date, and Offshore shall pay any Taxes shown as
due (and not yet paid) on such Tax Returns. Except as consistent with past
practice or as required by law, Offshore shall take no position on any such Tax
Return that would be adverse to TODI in subsequent periods. Offshore shall
allow Company a thirty (30) day opportunity to review and comment upon any such
Tax Return prior to its filing.

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(iii) TODI shall prepare and file any Separate Tax Returns
of TODI for Tax periods which begin before the TODI Payment Date and end after
the TODI Payment Date ("Straddle Periods"). Offshore shall be liable for the
portion of the Taxes shown as due on such return which relates to the portion
of such Straddle Period ending on the TODI Payment Date. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Straddle Period, the portion of such Tax which relates to the
portion of such Taxable period ending on the TODI Payment Date shall (x) in the
case of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire Taxable period multiplied
by a fraction the numerator of which is the number of days in the Taxable
period ending on the TODI Payment Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any Tax
based upon or related to income or receipts, be deemed equal to the amount
which would be payable if the relevant Taxable period ended on the TODI Payment
Date. Any credits relating to a Straddle Period shall be allocated according
to the preceding sentence. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with the prior
practice of TODI. Company shall provide Offshore with a thirty (30) day
opportunity to review and comment upon any Tax Return described in this
Paragraph (iii) prior to the filing of any such Tax Return. No later than the
date on which TODI files the applicable Tax Return, Company shall send written
notification to Offshore of the amount due under this Section 2.05(b), together
with supporting documentation sufficient to enable Offshore to verify the
computation of the amount due. Within twenty (20) days of the receipt by
Offshore of such written notification and documentation, Offshore shall either
(A) pay to Company the amount due, or (B) if Offshore disputes the Company's
determination of the amount due pursuant to this Section, pay the undisputed
portion (if any) of the amount due to Company and notify the Company in writing
of the dispute. In the case of a

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dispute, such notice shall contain Offshore's explanation of the dispute, its
computation (based on all information in its possession, including the
documentation supplied by Company) of the amount due and supporting
documentation sufficient to enable Company to verify Offshore's explanations
and computations. If Offshore fails to dispute Company's computation of the
amount due within such twenty (20) days, Offshore shall be deemed to have
acknowledged that the amount due as computed by Company is correct and agreed
to. Offshore and Company shall attempt in good faith to resolve any dispute as
to the amount due and either party may utilize the dispute resolution process
of Article VI if the parties are unable to agree on a resolution to the
dispute. No later than two (2) days following the Accounting Firm's decision,
Offshore or DeepFlex shall make any required payment to Company.

(c) Offshore Group. Company and Offshore believe that no member
of the Offshore Group is (or ever has been) includible on any federal
consolidated or state combined, unitary or consolidated Tax Return that
includes a member of the Company Group, and all parties to this Agreement shall
prepare and file all Tax Returns consistent with such belief. Members of the
Offshore Group shall be exclusively liable for Taxes imposed on any members of
the Offshore Group. If any member of the Offshore Group is includible on any
federal consolidated or state combined, unitary or consolidated Tax Return that
includes a member of the Company Group, Offshore shall be liable for, and shall
indemnify and hold harmless the Company Group for Taxes attributable to Tax
Items of members of the Offshore Group which are includible on such Tax Return,
computed as if all such members of the Offshore Group (and only such members)
had filed a true and correct federal consolidated or state combined, unitary or
consolidated Tax Return (whichever applicable) (provided that such computation
shall be made by taking into account only those net operating losses of the
Offshore Group actually used on the applicable Company (or Company Group
member) Tax Return). Notwithstanding the

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preceding sentence, no member of the Offshore Group shall be considered a
member of the Company Group.

Section 2.06 Filing of Post-Contribution Tax Returns. All Tax
Returns for periods beginning on or after the Contribution Date shall be the
responsibility of the DeepFlex Group if such Tax Returns relate exclusively to
the DeepFlex Businesses, and shall be the responsibility of the Company Group
if such Tax Returns relate exclusively to the Company Businesses.

Section 2.07 Certification. Each Tax Return and computation of
Tax liability required to be provided to Company by DeepFlex or Offshore, or to
Offshore or DeepFlex by Company, pursuant to this Agreement shall be
accompanied by a statement signed by the Chief Financial Officer of such entity
to the effect that such officer has reviewed for completeness and accuracy the
Tax Return and computation of the Tax liability and the documentation in
support thereof and has determined that such return and computation properly
reflect the taxable income (or loss), Tax liability and credits of the entity
or entities, as the case may be, to which such return and computation relate
for the period covered thereby.

ARTICLE III
RIG DISTRIBUTION; MERGER TRANSACTIONS; LOSS SHARING

Section 3.01 Rig Tax and Excess Value Tax.

(a) If, pursuant to Section 3.2 of the Distribution Agreement, a
Rig Distribution has occurred prior to the Effective Time, Offshore shall pay
Company any Rig Tax, as

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defined in paragraph (a) of this Section. For purposes of this Agreement, "Rig
Tax" shall be the excess (if any) of

(x) the actual Taxes owed by members of the Company Group
and members of the DeepFlex Group for all periods which include the Rig
Distribution, over

(y) the notional Taxes (but not less than zero) that
would have been owed by members of the Company Group and the members of the
DeepFlex Group for all periods which include the Rig Distribution if such Rig
Distribution had not occurred.

(b) Offshore shall pay Company any Excess Value Tax, as defined in
paragraph (b) of this Section. For purposes of this Agreement, "Excess Value
Tax" shall be the excess (if any) of

(x) the actual Taxes owed by members of the Company Group
and members of the DeepFlex Group for all periods which include any of the
Merger Transactions reduced by the Rig Tax, over

(y) the notional Taxes (but not less than zero) that
would have been owed by members of the Company Group and members of the
DeepFlex Group for all periods which include any of the Merger Transactions,
calculated (A) by disregarding the Rig Distribution, and (B) as if the overall
gain on the Merger Transactions (other than the Rig Distribution) is reduced by
the Excess Value Gain.

(c) "Excess Value Gain" shall mean the excess, if any, of (x) the
sum of (A) the fair market value on the Distribution Date (as defined in the
Distribution Agreement) of the Rights issued by the Company and (B) the net
proceeds of the Rights Offering

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received by the Company, over (y) the sum of (C) the adjusted tax basis of
Company in the DeepFlex Shares after adjustment pursuant to Treasury Regulation
Section . 1.1502-32 for the period ending on the Contribution Date, and after
giving effect to any deemed distributions for payments required to be made by
DeepFlex to Company under this Agreement, but otherwise without giving effect
to the Merger Transactions (other than the Stock Repayment), (D) the adjusted
tax basis of the DeepFlex Note that is actually capitalized (as contemplated by
Section 3.1(b) of the Distribution Agreement), reduced by any deemed payments
on the DeepFlex Note for payments required to be made by DeepFlex to Company
under this Agreement (E) the adjusted tax basis of the Company in the Offshore
Shares, determined after giving effect to any deemed distributions for payments
required to be made by Offshore to Company under this Agreement, but otherwise
without giving effect to the Merger Transactions (other than the Stock
Repayment), and (F) any increase in the adjusted tax basis of the Company in
the shares of Offshore as a result of the contribution of "Excess Proceeds" to
Offshore pursuant to Section 4.3 of the Distribution Agreement. The parties
agree that, for this purpose, the fair market value of the Rights on the
Distribution Date shall be the trading price of the rights on such date,
subject to adjustment only in connection with a Tax Contest.

Section 3.02 Merger Transactions Tax. Offshore shall pay Company
any Merger Transactions Tax, as defined in paragraph (a) of this Section.

(a) "Merger Transactions Tax" shall mean the lesser of:

(x) $ 7 million; or

(y) the excess of (i) the actual Taxes owed by members of
the Company Group and members of the DeepFlex Group for all periods which
include any of the Merger Transactions reduced by the sum of the Rig Tax and
the Excess Value Tax, over (ii) the notional Taxes that would have been owed by
members of the Company Group

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and members of the DeepFlex Group for all periods which include any of the
Merger Transactions, calculated by disregarding the Merger Transactions; if
there is no such excess, the amount described in this clause (y) shall be zero.

Section 3.03 Payment of Rig Tax and Merger Transactions Tax.

(a) The parties shall cause Price Waterhouse, L.L.P. or any other
firm mutually agreed upon by the parties ("Price") to provide Offshore and
Company with a schedule at least ten (10) days prior to the Completion Date (as
defined in the Distribution Agreement) setting forth an estimate of the Rig
Tax, the Excess Value Tax and the Merger Transactions Tax (the "Price Tax
Schedule"). Prior to the Completion Date, DeepFlex shall pay the amount of
such estimated Taxes to Company. Company may retain any Excess Proceeds (as
defined in the Distribution Agreement) in satisfaction of all or a portion of
DeepFlex's unpaid payment obligations under the preceding sentence.

(b) No later than ten (10) days after filing the applicable
Company Pre-Contribution Federal Consolidated Return for the period that ends
on the Effective Time, Company shall recompute the Rig Tax, the Excess Value
Tax and the Merger Transactions Tax based on the Tax Items of the Company
affiliated group as reported and shall provide DeepFlex with written
notification of such computations (together with supporting documentation
sufficient to enable DeepFlex or Offshore to verify the computation)
(collectively, the "Merger Transactions Tax Notice"). If the amount shown as
due on the Merger Transactions Tax Notice exceeds the amount previously paid to
Company under Section 3.03(a), Company shall return such excess to Offshore
along with the Merger Transactions Tax Notice. Within twenty (20) days of
receipt of the Merger Transactions Tax Notice, Offshore or DeepFlex shall
notify the Company in

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writing if it disputes the amount shown as due or owing (if Offshore and
DeepFlex fail to so notify Company within twenty (20) days, Company's
computation of the Merger Transactions Tax shall become final). In the case of
a dispute, such notice shall contain Offshore's or DeepFlex's explanation of
the dispute, its computation (based on all information in its possession,
including the documentation supplied by Company) of the amount due or owing and
supporting documentation sufficient to enable Company to verify Offshore's
computation of the amount due. If Offshore and DeepFlex do not dispute the
amount shown as due, Offshore shall pay to Company the amount shown as due on
the Merger Transactions Tax Notice in excess of the amount shown as due on the
Price Tax Schedule.

(c) If Offshore disputes the amount shown as due or owing on the
Merger Transactions Tax Notice, Offshore and Company shall attempt in good
faith to resolve such dispute. If Company and DeepFlex or Offshore, as the
case may be, are unable to resolve the dispute, either party may utilize the
dispute mechanism provided for in Article VI. No later than two (2) days
following the Accounting Firm's decision, Offshore or Company shall make any
required payment to the other.

Section 3.04 Loss Sharing.

(a) If Company (or any successor in interest) uses any Company Tax
Attribute in a taxable period beginning after the Effective Time, Company shall
pay Offshore (as provided in Section 3.04(b)) an amount equal to the Tax
Benefit received by Company and any affiliated group in which it or its
successor is a member as a result of the use of such Company Tax Attribute.
For purposes of this Section, a Company Tax Attribute shall be deemed to be
used if such Company Tax Attribute actually would have been used, assuming that
Company and any affiliated group in which it or its successor is a

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member had no net operating loss carryovers, AMT credit carryovers or capital
loss carryovers other than the Company Tax Attributes.

(b) On or about each September 15, Offshore may send a written
notification to Company requesting that Company compute the amount due under
paragraph (a) with respect to the preceding taxable year and provide Offshore
with an officer's certificate detailing the amount of the Company Tax
Attributes used by Company Group (or its successor) together with supporting
documentation sufficient for Offshore to verify Company's computation of the
amount owing (the "Officer's Certificate"). Within 45 days of receipt of such
written notification, Company shall deliver to Offshore the Officer's
Certificate along with the payment, if any, shown as due and owing on the
Officer's Certificate. Offshore shall notify Company in writing within twenty
(20) days of receipt of the Officer's Certificate if it disputes the amount
shown as owing thereon. In the case of a dispute, such notice shall contain
Offshore's explanation of the dispute, its computation (based on all
information in its possession, including the documentation supplied by Company)
of the amount owing and supporting documentation sufficient to enable Company
to verify Offshore's computation of the amount owing. If Offshore fails to so
notify Company within twenty (20) days, Offshore shall be deemed to have
accepted and agreed to the computation of the amount shown as owing on the
Officer's Certificate, and Offshore shall be precluded from contesting such
amount. If Offshore disputes the amount shown as owing on the Officer's
Certificate, Offshore and Company shall attempt in good faith to resolve such
dispute. If Company and Offshore are unable to resolve the dispute, either
party may utilize the dispute mechanism provided for in Article VI. No later
than two (2) days following the Accounting Firm's decision, Company shall make
any required payment to Offshore.

(c) If the Company receives (or has reason to believe it will
receive) a report of a revenue agent of a Tax Authority (an "Agent's Report")
that raises an issue which, if

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resolved in favor of the Tax Authority, would eliminate the Company's ability
to use any Company Tax Attributes previously reported as existing as of the day
after the Effective Time ("Challenged Company Tax Attributes"), Company's
obligation to make any payments under this Section 3.04 with respect to
Challenged Company Tax Attributes shall be suspended pending resolution of the
issues raised in the Agent's Report. Upon final resolution of the issues
raised in the Agent's Report, Company shall make a payment to Offshore equal to
the Tax Benefits realized on the use of a Challenged Company Tax Attribute to
the extent that such Challenged Company Tax Attribute was unaffected by the
resolution, together with interest at a rate of ten (10)% per annum from the
date on which the payment would have been made but for the preceding sentence.
Adjustments to Company Tax Attributes pursuant to resolution of the issues
raised in the Agent's Report are governed by Section 4.03.

Section 3.05 Transfer Taxes. Company and Offshore shall each be
responsible for one-half of any sales and use, gross receipts, or other
transfer Taxes imposed on the transfers occurring pursuant to Distribution
Agreement and Redemption Agreement, except that Offshore shall be responsible
for 100% of any such Taxes payable in connection with the Rig Distribution.

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ARTICLE IV
DEFICIENCIES AND REFUNDS OF TAXES

Section 4.01 Deficiencies and Refunds Relating to Company
Consolidated and Combined Tax Returns.

(a) If an adjustment is made with respect to any Tax Return of the
Company (or any member of the Company Group) in which any member of the
DeepFlex Group is included or in which any Merger Transaction occurs, DeepFlex
or Offshore shall pay Company:

(i) in the case of an adjustment to a period not
described in Sections 2.02(a) or 2.03(a), as the case may be, to the extent of
the increase in Taxes payable by Company for such period, the excess of (A) the
federal consolidated or state combined, unitary or consolidated Tax liability
of the DeepFlex Group computed as if all the members of the DeepFlex Group
included in the Tax Return had filed a federal consolidated or state combined,
unitary or consolidated Tax Return (whichever applicable) based on the Tax
Items of members of the DeepFlex Group as so adjusted (including the effect of
adjustments to prior taxable periods), including interest and penalties, over
(B) the federal consolidated or state combined, unitary or consolidated Tax
liability of the DeepFlex Group computed as if all the members of the DeepFlex
Group included in the Tax Return had filed a federal consolidated or state
combined, unitary or consolidated Tax Return (whichever applicable) based on
the Tax Items of members of the DeepFlex Group as reported (or, if applicable,
as previously adjusted); or

(ii) in the case of adjustments to periods described in
Sections 2.02(a) or 2.03(a), or any period in which a Merger Transaction
occurs, the excess of (A) the sum of (w) the Rig Tax, (x) the Excess Value Tax,
(y) the Merger Transactions Tax and (z) the DeepFlex Group Federal Tax
Liability or the DeepFlex Group State Tax Liability, whichever applicable, all
computed based on the Tax Items of members of the DeepFlex

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Group as so adjusted (including the effect of adjustments to prior taxable
periods), including interest and penalties, over (B) the sum of (w) the Rig
Tax, (x) the Excess Value Tax, (y) the Merger Transactions Tax, and (z) the
DeepFlex Group Federal Tax Liability or DeepFlex Group State Tax Liability, all
computed based on the Tax Items of members of the DeepFlex Group as reported
(or, if applicable, as previously adjusted). If the amount described in clause
(ii)(B) exceeds the amount described in clause (ii)(A), then Company shall pay
to Offshore such excess, but only to the extent of amounts previously paid by
Offshore or DeepFlex to Company with respect to the Rig Tax, the Excess Value
Tax, the Merger Transactions Tax, the DeepFlex Group Federal Tax Liability and
the DeepFlex Group State Tax Liability. The parties acknowledge that any
payments required to be made by Company under the preceding sentence shall be
offset to the extent of payments required to be made by Offshore or DeepFlex
under this Article IV.

Section 4.02 TODI.

(a) Offshore Tax Returns. If any adjustment is made with respect
to a Tax Return which includes TODI and at least one other member of the
Offshore Group, Offshore shall pay, indemnify and hold harmless Company and
TODI against any Taxes resulting from such adjustment.

(b) Separate Taxes of TODI. If any adjustment is made with
respect to a Separate Tax of TODI for periods beginning before the TODI Payment
Date, Offshore shall pay Company the excess of (i) the Separate Tax liability
of TODI for the applicable Tax period (or, in the case of a Straddle Period,
for the portion of the Straddle Period ending on the TODI Payment Date
(computed in the manner set forth in Section 2.05(b)(ii))), over (ii) the
applicable Separate Tax liability of TODI as so reported (or, if

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applicable, as previously adjusted) for the applicable Tax period (or, in the
case of a Straddle Period, for the portion of the Straddle Period ending on the
TODI Payment Date (computed in the manner set forth in Section 2.05(b)(ii))).

Section 4.03 Recovery of Loss Sharing. If any adjustment is made
affecting the amount or use (within the meaning of Section 3.04) of the Company
Tax Attributes, Offshore shall return to Company any payments made by Company
to Offshore under Section 3.04 to the extent that such payments would not have
been made had the amount and use of the Company Tax Attributes been originally
computed based on the Tax Items of members of the DeepFlex Group and the
Company Group as so adjusted. Any return payment made under this Section 4.03
shall include interest at a rate of ten (10)% per annum from the date on which
Company made the payment being returned.

Section 4.04 Manner and Time of Payments. Company shall compute
the amount of any payment due to be made by Offshore under this Article IV, and
shall provide Offshore with written notification of such computations (together
with supporting documentation sufficient to enable Offshore to verify the
computation) (collectively, the "Adjustment Notice"). Within twenty (20) days
of receipt of the Adjustment Notice, Offshore shall either (i) pay the amount
shown as due on the Adjustment Notice, or (ii) notify the Company in writing if
it disputes the amount shown as due and pay to Company any amount not in
dispute. If Offshore and DeepFlex fail to so notify Company within twenty (20)
days, Company's computation of the amount due shall become final. In the case
of a dispute, such notice shall contain Offshore's explanation of the dispute,
its computation of the amount due and supporting documentation sufficient to
enable Company to verify Offshore's computation of the amount due.

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(b) If Offshore disputes the amount shown as due on an Adjustment
Notice, Offshore and Company shall attempt in good faith to resolve such
dispute. If Company and Offshore are unable to resolve the dispute, either
party may utilize the dispute mechanism provided for in Article VI. No later
than two (2) days following the Accounting Firm's decision, Offshore shall make
any required payment to Company.

(c) Any payments made to Company under this Article that are made
after the date that is ten (10) days after receipt by Offshore of the
applicable Adjustment Notice shall include interest at a rate of ten (10)% per
annum.

Section 4.05 Tax Refunds Generally. No member of the DeepFlex
Group shall be entitled to any payment or benefit as a result of the receipt of
any Tax refund received by any member of the Company Group, and TODI shall not
be entitled to any payment or benefit as a result of the receipt of any Tax
refund received by any member of the Offshore Group or the DeepFlex Group.

ARTICLE V
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS

Section 5.01 Claims for Refund, Carrybacks, and Self-Audit
Adjustments. Notwithstanding anything herein to the contrary, Adjustment
Requests with respect to any Company Pre-Contribution Federal Consolidated
Return, any Company Pre-Contribution State Combined Return, or any Separate Tax
Return of TODI for periods beginning before the Contribution Date, shall be
made at the sole discretion of Company.

Section 5.02 Notice of Tax Contests. Company shall provide prompt
notice to Offshore or DeepFlex of any pending or threatened Tax audit,
assessment or proceeding

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or other Tax Contest of which it becomes aware related to Taxes for Tax periods
for which it may receive a payment from Offshore or DeepFlex under this
Agreement. Such notice shall contain factual information (to the extent known)
describing any asserted Tax liability in reasonable detail and shall be
accompanied by copies of any notice and other documents received from any Tax
Authority in respect of any such matters. If Company has knowledge of an
asserted Tax liability with respect to a matter for which it may receive a
payment from Offshore or DeepFlex under this Agreement and fails to give
Offshore or DeepFlex prompt notice of such asserted Tax liability, then (i) if
Offshore or DeepFlex is precluded from contesting the asserted Tax liability in
any forum as a result of the failure to give prompt notice, Offshore or
DeepFlex shall have no obligation to indemnify Company for or make payments
with respect to any Taxes arising out of such asserted Tax liability, and (ii)
if Offshore or DeepFlex is not precluded from contesting the asserted Tax
liability in any forum, but such failure to give prompt notice results in a
monetary detriment to Offshore or DeepFlex, then any amount which Offshore or
DeepFlex is otherwise required to pay Company pursuant to this Agreement shall
be reduced by the amount of such detriment.

Section 5.03 Control of Tax Contests

(a) Except as otherwise provided in this Section 5.03, (i) Company
shall have the exclusive authority to represent each member of the DeepFlex
Group before any Tax Authority or before any court with respect to any Tax
Contest affecting the Tax liability of any member of the DeepFlex Group or the
Company Group for any period beginning before the Contribution Date, and (ii)
Company shall have full responsibility and discretion in handling, settling or
contesting all other Tax Contests relating to the Company Group, and Offshore
and DeepFlex shall have no right to participate in the handling, settling or
contesting of such other Tax Contests.

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(b) Company shall allow Offshore or DeepFlex to assume control of
the defense or prosecution, as the case may be, of the portion of any Tax
Contest (other than Tax Contests described in Section 5.03(c)), if such portion
relates exclusively to a Tax Item of a member of the DeepFlex Group or to a Tax
of TODI for which Offshore or DeepFlex is potentially liable to make a payment
to Company pursuant to this Agreement, provided that, prior to assuming such
control, Offshore or DeepFlex, as the case may be, reaffirms in writing its
potential indemnification obligation with respect to such Taxes under this
Agreement. Anything in this Section 5.03 to the contrary notwithstanding, (i)
Company shall have the right to participate, at its own expense, in any portion
of a Tax Contest controlled by Offshore or DeepFlex pursuant to this Section
5.03(b), (ii) Offshore or DeepFlex shall not settle any portion of a Tax
Contest controlled by it pursuant to this Section 5.03(b) without Company's
consent, which consent shall not be unreasonably withheld, provided that if
Company does not consent to such settlement proposal and such settlement would
not have adversely affected the Company Group and TODI, the obligations of
Offshore and DeepFlex hereunder shall be limited to the amount that would have
resulted if the settlement had been approved, and (iii) Company shall have the
right to settle (and to cause Offshore and DeepFlex to settle) any portion of a
Tax Contest controlled by Offshore or DeepFlex pursuant to this Section 5.03(b)
if such settlement would be reasonable for a person liable for all Taxes of all
members of the Company Group, the DeepFlex Group and the Offshore Group for all
periods, determined as if the only Tax Items disputed under the Tax Contest
were the Tax Items disputed under the portion of the Tax Contest controlled by
Offshore or DeepFlex under this paragraph (and, if Offshore or DeepFlex
disputes whether the proposed settlement would be reasonable for a person
liable for all Taxes of all members of the Company Group, the DeepFlex Group
and the Offshore Group for all periods, determined as if the only Tax Items
disputed under the Tax Contest were the Tax Items disputed under the portion of

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the Tax Contest controlled by Offshore or DeepFlex under this paragraph, the
parties shall utilize the dispute mechanism provided for in Article VI and the
Accounting Firm shall decide whether Company has the right to settle (or to
cause settlement of) the Tax Contest under this clause (iii)). If neither
Offshore nor DeepFlex assumes control of the defense or prosecution, as the
case may be, of the portion of any Tax Contest described in the first sentence
of this paragraph, Offshore and DeepFlex shall indemnify Company for fees and
expenses incurred by Company in connection with Company's defense or
prosecution of such portion of such Tax Contest.

(c) Company and Offshore shall jointly control (and each party
shall bear their own expenses in connection with) any Tax Contest relating to
the Merger Transactions, to the extent that such Tax Contest could result in
Offshore or DeepFlex making a payment to Company hereunder and Offshore or
DeepFlex reaffirms in writing its potential indemnification obligation under
this Agreement. Company shall have the authority to settle any such Tax
Contest with the consent of Offshore or DeepFlex, which consent shall not be
unreasonably withheld. If Offshore withholds consent to settlement of a Tax
Contest and such settlement would not have resulted in Offshore and DeepFlex
making any payments to Company in excess of payments actually made pursuant to
the ultimate resolution of the Tax Contest, Offshore shall indemnify Company
for any Taxes owed by Company that would not have been owed had Offshore
consented to the settlement. Likewise, Offshore shall have the authority to
settle any such Tax Contest with the consent of Company, which consent shall
not be unreasonably withheld. If Company withholds consent to settlement of a
Tax Contest and such settlement would not have adversely affected Company, the
obligations of Offshore and DeepFlex hereunder shall be limited to the amount
that would have resulted if Company had consented to the settlement.

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<PAGE> 33

(d) In the case of any Tax Contest which relates exclusively to
Taxes of members of the Offshore Group or DeepFlex Group for which Offshore,
DeepFlex or the members of the Offshore Group or the DeepFlex Group have no
obligation to make a payment to Company under this Agreement, Offshore,
DeepFlex or the applicable member(s) of the Offshore Group or the DeepFlex
Group shall have exclusive control over the Tax Contest; provided that Company
shall be allowed to participate (at its own expense) in such Tax Contest if the
resolution of the Tax Contest could result in a Tax Detriment to any member of
the Company Group.

(e) Offshore will allow TODI and its representatives to
participate (at its own expense) in any audits of the Offshore federal
consolidated income (or state combined, unitary or consolidated) Tax Returns to
the extent such Tax Returns relate to TODI. Offshore will not settle any such
audit in a manner which would adversely affect TODI after the TODI Payment Date
without the prior written consent of Company.

Section 5.04 Retention of Books and Records. Offshore, DeepFlex
and Company each agrees to retain all Tax Returns, related schedules and
workpapers, and all material records and other documents relating thereto
existing on the date hereof or created through or with respect to taxable
periods ending on or before the Contribution Date, until the later of (a) the
expiration of the statute of limitations (including extensions of which such
party has been notified) of the taxable years to which such Tax Returns and
other documents relate, or (b) the date that is ten (10) years after the
Contribution Date.

Section 5.05 Cooperation re Return Filings, Examinations and
Controversies.

(a) Offshore's and DeepFlex's Obligations. Except as
otherwise provided in this Article V, Offshore, DeepFlex and each other member
of the Offshore

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Group and DeepFlex Group shall fully cooperate with Company and its
representatives, in a prompt and timely manner, in connection with (i) the
preparation and filing of and (ii) any inquiry, audit, examination,
investigation, dispute, or litigation involving, any Tax Return filed or
required to be filed by or for any member of the Company Group for any taxable
period beginning before the Contribution Date. Such cooperation shall include,
but not be limited to, (x) the execution and delivery to Company by the
appropriate Offshore Group or DeepFlex Group member of any power of attorney
required to allow Company and its counsel to represent Offshore, DeepFlex or
such other Offshore Group or DeepFlex Group member in any Tax Contest which
Company shall have the right to control pursuant to the terms of Section 5.03
of this Agreement, provided, that such power of attorney shall be used only in
a manner consistent with the terms of this Article V, and (y) making available
to Company, during normal business hours, and within thirty (30) days of any
request therefor, all books, records and information, and the assistance of all
officers and employees, necessary or useful in connection with any Tax inquiry,
audit, examination, investigation, dispute, litigation or any other matter.
Offshore and DeepFlex agree to make (or to cause members of the DeepFlex Group)
any elections necessary for any member of the DeepFlex Group to be included in
a Pre-Contribution Federal Consolidated Return or Pre-Contribution State
Combined Return.

(b) Company's Obligations. Except as otherwise provided
in this Article V, Company shall fully cooperate with Offshore, DeepFlex and
their representatives, in a prompt and timely manner, in connection with (i)
the preparation and filing of and (ii) any inquiry, audit, examination,
investigation, dispute, or litigation involving, any Tax Return filed or
required to be filed by or for any member of the DeepFlex Group or Offshore
Group. Such cooperation shall include, but not be limited to, (x) the
execution and delivery to Offshore or DeepFlex by the appropriate Company Group
member of any power of attorney required to allow Offshore or DeepFlex and its

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<PAGE> 35

counsel to represent Company in any Tax Contest which Offshore or DeepFlex
shall have the right to control pursuant to the terms of Section 5.03 of this
Agreement, provided, that such power of attorney shall be used only in a manner
consistent with the terms of this Article V, and (y) making available to
Offshore or DeepFlex, during normal business hours, and within thirty (30) days
of any request therefor, all books, records and information, and the assistance
of all officers and employees, necessary or useful in connection with any tax
inquiry, audit, examination, investigation, dispute, litigation or any other
matter.

(c) Remedy for Failure to Comply. If Company reasonably
determines that Offshore or DeepFlex is not for any reason fulfilling its
obligations under Section 5.05(a), or if Offshore or DeepFlex reasonably
determines that Company is not for any reason fulfilling its obligations under
Section 5.05(b), then Company, Offshore or DeepFlex, as the case may be, shall
have the right to appoint, at the expense of the other, an independent entity
such as a nationally-recognized public accounting firm to assist the other in
meeting its obligations under this Section 5.05. Such entity shall have
complete access to all books, records and information, and the complete
cooperation of all officers and employees, of Offshore, DeepFlex or Company, as
the case may be.

ARTICLE VI
DISPUTE RESOLUTION

Section 6.01 Dispute Resolution. If after good faith negotiations
the parties cannot agree on the application of this Agreement to any matter,
then the matter will be referred to a nationally recognized accounting firm
acceptable to each of the parties (the ''Accounting Firm''). The Accounting
Firm shall furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45

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<PAGE> 36

days after its acceptance of the matter for resolution. Any such resolution by
the Accounting Firm will be conclusive and binding on all parties to this
Agreement (except to the extent such resolution is redetermined pursuant to a
Tax Contest). Each party shall pay its own fees and expenses (including the
fees and expenses of its representatives) incurred in connection with the
referral of the matter to the Accounting Firm. All fees and expenses of the
Accounting Firm in connection with such referral shall be shared equally by the
parties.

ARTICLE VIII
LETTERS OF CREDIT

Section 7.01 Initial Letters of Credit.

(a) In the event that a Rig Distribution occurs prior to the
Effective Time, then to secure the payment obligations of Offshore under
Section 3.01, Section 4.01 (but only to the extent that an adjustment results
in an increase in the amount of the Rig Tax) and Section 4.03, Offshore shall
deliver to Company simultaneously with the execution of this Agreement an
initial letter of credit in the amount of $7.5 million (the "Offshore Letter of
Credit"). The initial Offshore Letter of Credit shall, except as otherwise
provided in the Offshore Letter of Credit, expire one year from the date
hereof.

(b) In the event Offshore delivers to Company the Offshore Letter
of Credit pursuant to Section 7.01(a), then, to secure the payment obligations
of Company under Section 3.04, Company shall deliver to Offshore simultaneously
with the execution of this Agreement an initial letter of credit in the amount
of $7.5 million (the "Company Letter of Credit"). The initial Company Letter
of Credit shall, except as otherwise provided in the Company Letter of Credit,
expire one year from the date hereof.

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<PAGE> 37

Section 7.02 Renewal Letters of Credit. Subject to Section 7.03,
Offshore shall deliver to Company at least ten (10) days prior to the
expiration of any Offshore Letter of Credit a new Offshore Letter of Credit in
an amount equal to $7.5 million less any amount drawn down against the expiring
Offshore Letter of Credit or any earlier Offshore Letter of Credit by reason of
a failure to make a payment under Section 3.01, Section 4.01 (but only to the
extent that an adjustment results in an increase in the amount of the Rig Tax)
or Section 4.03. Subject to Section 7.03, Company shall deliver to Offshore at
least ten (10) days prior to the expiration of any Company Letter of Credit a
new Company Letter of Credit in an amount equal to $7.5 million less any amount
drawn down against the expiring Company Letter of Credit or any earlier Company
Letter of Credit by reason of a failure to make a payment under Section 3.04.

Section 7.03 Term. The obligations of Offshore and Company to
deliver a renewal Offshore Letter of Credit and a renewal Company Letter of
Credit, respectively, shall expire on the "Final Expiration Date" which shall
be the later of (i) the date that is five years from the Effective Time, or
(ii) if Company notifies Offshore within five years of the Effective Time that
Company has received (or has reason to believe it will receive) an Agent's
Report proposing to challenge the Company's treatment of the Merger
Transactions, the earlier of: (A) the date that is eight years from the
Effective Time, or (B) the date that is sixty (60) days after the date of the
"determination" (within the meaning of Code Section 1313) of the issues raised
in the Agent's Report.

Section 7.04 Drawing on Letters of Credit. Offshore shall be
entitled to drawdown on the Company Letter of Credit and Company shall be
entitled to drawdown on the Offshore Letter of Credit after compliance with the
drawdown procedures set forth in the applicable Letter of Credit, under any of
the following circumstances:

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<PAGE> 38

(a) If Offshore fails to pay Company any amount payable to Company
under Section 3.01, Section 4.01 (but only to the extent that an adjustment
results in an increase in the amount of the Rig Tax), Section 4.03 or Section
7.06 on or prior to the due date for such payment, then (so long as such
default in payment shall be continuing) Company (or its successor) shall be
entitled to drawdown the Offshore Letter of Credit to the extent of the amount
so payable;

(b) If Company fails to pay Offshore an amount payable to Offshore
under Section 3.04 or Section 7.06 on or prior to the due date for such
payment, then (so long as such default in payment shall be continuing) Offshore
shall be entitled to drawdown the Company Letter of Credit to the extent of
the amount so payable;

(c) If Company has not received a renewal Offshore Letter of
Credit from Offshore by the date required under Section 7.02, then (so long as
Company has not received such renewal Offshore Letter of Credit), Company shall
be entitled to drawdown the Offshore Letter of Credit to the full extent of the
Offshore Letter of Credit, but only by a draft directing deposit into an escrow
account (the "Offshore L/C Escrow Account") of the funds being drawn down. If,
after the drawdown of the Offshore Letter of Credit pursuant to the preceding
sentence, Offshore fails to pay Company any amount payable to Company under
Section 3.01, Section 4.01 (but only to the extent that an adjustment results
in an increase in the amount of the Rig Tax), Section 4.03 or Section 7.06 on
or prior to the due date for such payment, then (so long as such default in
payment shall be continuing) Company (or its successor) shall be entitled to
drawdown the Offshore L/C Escrow Account to the extent of the amount so
payable. Upon the Final Expiration Date, any funds remaining in the Offshore
L/C Escrow Account will be returned to Offshore.

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<PAGE> 39

(d) If Offshore has not received a renewal Company Letter of
Credit from Company by the date required under Section 7.02, then (so long as
Offshore has not received such renewal Company Letter of Credit), Offshore
shall be entitled to drawdown the Company Letter of Credit to the full extent
of the Company Letter of Credit, but only by a draft directing deposit into an
escrow account (the "Company L/C Escrow Account") of the funds being drawn
down. If, after the drawdown of the Company Letter of Credit pursuant to the
preceding sentence, Company fails to pay Offshore an amount payable to Offshore
under Section 3.04 or Section 7.06 on or prior to the due date for such
payment, then (so long as such default in payment shall be continuing) Offshore
shall be entitled to drawdown the Company L/C Escrow Account to the extent of
the amount so payable. Upon the Final Expiration Date, any funds remaining in
the Company L/C Escrow Account will be returned to Company.

Section 7.05 L/C Escrow Account.

(a) At any time after the funding of the Offshore L/C Escrow
Account pursuant to Section 7.04(c), Offshore shall have the right to deliver
to Company a renewal or substitute Offshore Letter of Credit provided that such
Offshore Letter of Credit is equal to the amount in the Offshore L/C Escrow
Account, and upon delivery thereof, Company shall instruct the escrow agent to
release to Offshore the funds in the Offshore L/C Escrow Account.

(b) At any time after the funding of the Company L/C Escrow
Account pursuant to Section 7.04(d), Company shall have the right to deliver to
Offshore a renewal or substitute Company Letter of Credit provided that such
Company Letter of Credit is equal to the amount in the Company L/C Escrow
Account, and upon delivery

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<PAGE> 40

thereof, Offshore shall instruct the escrow agent to release to Company the
funds in the Company L/C Escrow Account.

(c) Offshore and Company, acknowledging that any Offshore L/C
Escrow Account established under Section 7.04(c) will be established to secure
Offshore's obligations hereunder, and that any Company L/C Escrow Account
established under Section 7.04(d) will be established to secure Company's
obligations hereunder, hereby agree that all Taxes payable with respect to any
earnings or investments in the Offshore L/C Escrow Account shall be payable by
Offshore and that all Taxes payable with respect to any earnings or investments
in the Company L/C Escrow Account shall be payable by Company.

Section 7.06 Wrongful Drawdowns.

(a) Any wrongful drawdown by Company or Offshore of funds (the
"Breaching Party") against its Letter of Credit shall be restored by the
Breaching Party to the other party on demand, together with interest at 12%,
compounded quarterly, commencing from the date of such wrongful drawdown. If
the Breaching Party fails to comply with the requirements of the preceding
sentence, the other party shall be entitled to recover said funds from the
Breaching Party in an action at law;

(b) Any wrongful drawdown by a Breaching Party of funds from an
L/C Escrow Account shall be restored by the Breaching Party to the L/C Escrow
Account on demand, together with interest at 12%, compounded quarterly,
commencing from the date of such wrongful drawdown. If the Breaching Party
fails to comply with the requirements of the preceding sentence, the other
party shall be entitled to recover said funds from the Breaching Party in an
action at law;

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<PAGE> 41

(c) A Breaching party shall be liable to the other party for all
costs and expenses incurred by such other party in connection with any wrongful
drawdown of a Letter of Credit or L/C Escrow Account;

(d) As liquidated damages, and not as a penalty, in addition to
any amounts to which it is entitled under the preceding paragraphs, the other
party shall be entitled to receive from the Breaching Party with respect to any
wrongful drawdown an amount equal to 50% of the amount of such funds.

Section 7.07 Election to Forego Letters of Credit. Company (or
its successor) may elect at any time to release Offshore from its obligation to
provide the Offshore Letter of Credit which will in turn release Company from
its obligation to provide the Company Letter of Credit. If Company so elects,
it shall provide written notification of its election to Offshore. Within five
(5) days of receipt of such written notification, Offshore shall deliver to
Company the Company Letter of Credit and shall acknowledge to Company in
writing that Company's obligations under this Article VII to provide the
Company Letter of Credit have been discharged. Within five (5) days of receipt
by Company of the items described in the preceding sentence, Company shall
deliver to Offshore the Offshore Letter of Credit and shall acknowledge to
Offshore in writing that Offshore's obligations under this Article VII to
provide the Offshore Letter of Credit have been discharged.

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<PAGE> 42

ARTICLE VIII
MISCELLANEOUS

Section 8.01 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby.

Section 8.02 Modification of Agreement. No modification, amendment
or waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto and then such
modification, amendment or waiver shall be effective only in the specific
instance and for the purpose for which given.

Section 8.03 Entire Agreement; Termination of Prior Agreements;
Conflict With Other Agreements. This agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes
all other agreements, whether or not written, in respect of any Tax between or
among any member or members of the Offshore Group or DeepFlex Group, on the one
hand, and any member or members of the Company Group, on the other hand. Any
and all such other agreements are hereby canceled.

Section 8.04 Indemnification for Fees and Expenses; Interest;
Gross-Up.

(a) Gross-Up. The parties hereto agree to report all payments
received by a party (the "Indemnified Party") from another party (the
"Indemnifying Party") hereunder as capital contributions or distributions, as
the case may be, made immediately prior to the Contribution. In the event that
a Tax Authority determines that Taxes are owing by an Indemnified Party as a
result of the receipt of a payment (other than a payment of Merger Transactions
Tax) by an Indemnifying Party, the Indemnifying Party shall make an additional
payment (a "Gross-Up Payment") to the Indemnified Party equal to the sum

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<PAGE> 43

of (i) the amount of such Taxes and (ii) any additional Taxes that will be
imposed on the Gross-Up Payment.

(b) Interest. If any payment required to be made under this
Agreement is made after the original due date (without extensions) for the
filing of the Tax Return to which such payment relates (the "Return Due Date"),
such payment shall include interest at a rate of 8% on the amount of the
payment required based on the number of days from the Return Due Date to the
date of payment.

Section 8.05 Deconsolidation Date. The parties believe that
members of the DeepFlex Group will cease to be includible on any Company (or
Company Group member) Tax Return on the Contribution Date and will prepare all
Tax Returns consistent with that belief. If the members of the DeepFlex Group
will cease to be includible on any Company (or Company Group member) Tax Return
on a date other than the Contribution Date, then all calculations made
hereunder with respect to the Contribution Date shall be made with respect to
such other date.

Section 8.06 Taxes of Other Persons DeepFlex and Offshore shall
pay, indemnify, and hold harmless Company against the Taxes of any Person other
than the Company and its Subsidiaries on a consolidated or combined basis (i)
under Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise, but only to the extent that such liability arises as a result of any
member of the DeepFlex Group or the Offshore Group being a member of an
affiliated group of which no member of the Company Group was a member. For
this purpose, "Person" shall mean an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity.

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<PAGE> 44

Section 8.07 Taxes Generally. Without in any way limiting the
obligations of Offshore, DeepFlex or any member of the Offshore Group and the
DeepFlex Group, Company shall indemnify and hold harmless the Offshore Group
and the DeepFlex Group from all Taxes imposed on the Company and any of them on
a consolidated or combined basis (i) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise. Offshore shall indemnify and
hold harmless Company (and TODI) from all Taxes imposed on TODI and any member
of the Offshore Group on a consolidated or combined basis (i) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign law),
(ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.

Section 8.08 Alternative Minimum Tax Credits. DeepFlex and
Company agree to use their best efforts to allocate any available AMT credits
attributable to periods beginning before the Contribution Date pursuant to a
reasonable allocation method. If the parties are unable to agree on a
reasonable allocation method, the matter of allocating any AMT credits will be
referred to the Accounting Firm for resolution pursuant to Article VI. With
respect to any AMT (including AMT resulting from an adjustment) actually
payable with respect to a Company Pre-Contribution Federal Consolidated Tax
Return, a Company Pre-Contribution State Combined Tax Return, or any Company
Tax Return that includes the Merger Transactions, the party to whom the AMT
credit is allocated under this paragraph shall pay and be liable for the AMT
(which, in the case of an adjustment, shall be deemed for this purpose to
include interest and penalties relating to the AMT adjustment) relating to the
credit.

Section 8.09 Value Adjustment. If the fair market value of the
property described in Section 3.1(a)(i)(x) and (y) of the Distribution
Agreement (the "XY Property") is

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<PAGE> 45

determined in a Tax Contest to be greater than approximately $8 million,
Company shall be treated as selling, and Offshore as buying, an amount of the
DeepFlex Note equal to the fair market value (as so determined) of the XY
Property. If the fair market value of the Offshore Common Stock and Offshore
Preferred Stock transferred to Company in partial satisfaction of the DeepFlex
Note is determined in a Tax Contest to be greater than approximately $12
million, DeepFlex shall be treated as satisfying an amount of the DeepFlex Note
equal to the fair market value (as so determined) of such Offshore Common Stock
and Offshore Preferred Stock. For purposes of Section 3.01(c)(y)(D), the
amount of the DeepFlex Note treated as capitalized shall be determined by
taking into account the adjustments pursuant to the first two sentences of this
Section ("Value Adjustments"), but only to the extent such Value Adjustments
exceed the gain realized by RIGCO on the Rig Distribution.

Section 8.10 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally, one day after being delivered to a nationally recognized overnight
courier or when telecopied (with a confirmatory copy sent by such overnight
courier) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):

(a) if to Company, to

El Paso Natural Gas Company
1001 Louisiana Street
Houston, Texas 77062
Attention: Judy A. Vandagriff
Vice President, Tax
Facsimile No.: (713) 757-8269

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<PAGE> 46

with copies to:

Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Ave., N.W.
Suite 800
Washington, D.C. 20004-2505
Attention: Alan S. Kaden
Facsimile No.: (202) 639-7003

(b) if to Offshore or DeepFlex, to

Tatham Offshore, Inc.
7400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: President
Facsimile No.: (713) 224-7574

with copies to:

Akin, Gump, Strauss, Hauer & Feld, P.C.
711 Louisiana Street
Suite 1900
Houston, TX 77002
Attention: Rick L. Burdick
Facsimile No.: (713) 236-0822

Section 8.11 Application to Present and Future Subsidiaries. This
Agreement is being entered into by Company, Offshore and DeepFlex on behalf of
themselves and each member of the Company Group, the Offshore Group, and the
DeepFlex Group, respectively. This Agreement shall constitute a direct
obligation of each such member and shall be deemed to have been readopted and
affirmed on behalf of any corporation which becomes a member of the Company
Group, the Offshore Group or the DeepFlex

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<PAGE> 47

Group in the future. Company, Offshore and DeepFlex hereby guarantee the
performance of all actions, agreements and obligations provided for under this
Agreement of each member of the Company Group, the Offshore Group and the
DeepFlex Group respectively. Company, Offshore and DeepFlex shall, upon the
written request of the other, cause any of their respective group members
formally to execute this Agreement. This Agreement shall be binding upon, and
shall inure to the benefit of, the successors, assigns and persons controlling
any of the corporations bound hereby.

Section 8.12 Term. This Agreement shall commence on the date of
execution indicated above and shall continue in effect until otherwise agreed
to in writing by Company and Offshore, or their successors.

Section 8.13 Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part or to affect the meaning or interpretation of this Agreement.

Section 8.14 Singular and Plural. As used herein, the singular shall
include the plural and vice versa.

Section 8.15 Governing Law. This Agreement shall be governed, and
construed in accordance with, the laws of the State of Texas, without regard to
its rules of conflicts of laws thereof.

Section 8.16 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become a binding agreement when one or more counterparts have been
signed by each party and delivered to the other parties.

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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.

[ ]

By:
-----------------------------------
Title:

[ ]

By:
-----------------------------------
Title:

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<PAGE> 1
EXHIBIT 10.29

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

REDEMPTION AGREEMENT

by and between

TATHAM OFFSHORE, INC.,

and

FLEXTREND DEVELOPMENT COMPANY, L.L.C.

FEBRUARY 27, 1998

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

<PAGE> 2

TABLE OF CONTENTS

1. Transfer of the Properties...............................................1

2. Delivery of Senior Preferred Stock.......................................1

3. Representations and Warranties of the Company............................1
3.1. Organization....................................................1
3.2. Authority and Conflicts.........................................1
3.3. Authorization...................................................2
3.4. Enforceability..................................................2
3.5. Title...........................................................2
3.6. Contracts.......................................................2
3.7. Litigation and Claims...........................................2
3.8. Approvals and Preferential Rights...............................3
3.9. Compliance with Law and Permits.................................3
3.10. Status of Contracts............................................3
3.11. Production Burdens, Taxes, Expenses and Revenues...............3
3.12. Production Balances............................................3
3.13. Expenditure Commitments........................................3
3.14. Payout Balances................................................4
3.15. Qualification..................................................4
3.16. Absence of Certain Changes.....................................4
3.17. Disclaimer.....................................................4

4. Representations and Warranties of Flextrend..............................4
4.1. Organization....................................................4
4.2. Authority and Conflicts.........................................4
4.3. Authorization...................................................5
4.4. Enforceability..................................................5
4.5. Qualification...................................................5
4.6. Senior Preferred Stock..........................................5

5. Closing..................................................................5
5.1. The Closing.....................................................5
5.2. Deliveries by Company at Closing................................6
5.3. Possession......................................................7
5.4. Deliveries by Flextrend At Closing..............................7

6. Assumption by Flextrend..................................................7

7. Production, Proceeds, Expenses and Taxes.................................7
7.1. Division of Substances..........................................7
7.2. Division of Expenses............................................7
7.3. Division of Proceeds............................................8

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<PAGE> 3

7.4. Property Tax Prorations.........................................8
7.5. Adjustments.....................................................8

8. Negative Covenants.......................................................8

9. Survival and Indemnification.............................................9
9.1. Survival and Notice.............................................9
9.2. The Company's Indemnification...................................9
9.3. Flextrend's Indemnification....................................10

10. Further Assurances.....................................................10

11. Notice.................................................................10

12. Assignment.............................................................11

13. Governing Law..........................................................11

14. Expenses and Fees......................................................12

15. Integration............................................................12

16. Waiver or Modification.................................................12

17. Headings...............................................................12

18. Invalid Provisions.....................................................12

19. Multiple Counterparts..................................................13

20. Termination............................................................13

21. Guarantee..............................................................13

22. Certain Definitions....................................................13

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<PAGE> 4

EXHIBITS

Exhibit 1 - Oil and Gas Properties
Exhibit 3.6 - Contracts
Exhibit 3.7 - Litigation and Claims
Exhibit 3.8 - Approvals and Preferential Rights
Exhibit 3.13 - Commitments
Exhibit 3.14 - Payout Balances
Exhibit 21 - Form of Guarantee

ANNEXES

Annex IA - Assignment of Leases and Bill of Sale [State Filing Form]
Annex IB - Assignment of Leases and Bill of Sale [MMS Filing Form]

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REDEMPTION AGREEMENT

This Redemption Agreement is made and entered into on this the 27th day
of February, 1998, by and between Tatham Offshore, Inc., a Delaware corporation
(the "Company"), and Flextrend Development Company, L.L.C., a Delaware limited
liability company ("Flextrend").

1. TRANSFER OF THE PROPERTIES. Subject to the terms and conditions herein set
forth, in consideration of (i) redemption of the 7,500 shares of 9% Senior
Convertible Preferred Stock, par value $0.01 per share, of the Company (the
"Senior Preferred Stock"), owned or beneficially owned by the Partnership and
(ii) all accrued and unpaid dividends on the shares of Senior Preferred Stock
due to the Partnership, the Company agrees to sell, assign, convey and deliver
to Flextrend, and Flextrend agrees to acquire from the Company, effective as of
7:00 a.m. at the location of each of the Oil and Gas Properties on the date of
Closing (as defined in Section 5.1(a)) all of the interest of the Company in
and to the Properties as they exist on such date as such Properties are more
specifically described on Exhibit 1.

2. DELIVERY OF SENIOR PREFERRED STOCK. In consideration for the transfer of
the Properties to Flextrend, Flextrend shall cause the Partnership to agree
that all accrued and unpaid dividends on the shares of Senior Preferred Stock
shall conclusively be deemed to have been satisfied and paid in full, and the
shares of Senior Preferred Stock owned or beneficially owned by the Partnership
shall be redeemed, and Flextrend shall cause the Partnership to deliver to the
Company the shares of Senior Preferred Stock, free and clear of all
Encumbrances.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to Flextrend as follows:

3.1. ORGANIZATION. The Company is a corporation validly existing and
in good standing under the laws of the State of Delaware and is qualified to do
business in and is in good standing under the laws of Texas, Louisiana and
Alabama.

3.2. AUTHORITY AND CONFLICTS. The Company has full corporate power and
authority to carry on its business as presently conducted, to enter into this
Agreement and any agreements contemplated hereby to which it is a party and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and any agreement contemplated hereby does not,
and the consummation of the transactions contemplated hereunder and thereunder
shall not, (a) violate or be in conflict with, or require the consent of any
person or entity under, any provision of the Company's governing documents, (b)
conflict with, result in a breach of, constitute a default (or an

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event that with the lapse of time or notice, or both would constitute a
default) under, or require any consent, authorization or approval under any
agreement or instrument to which the Company is a party or to which any of the
Properties or the Company is bound, except as disclosed in Exhibit 3.8, (c)
violate any provision of or require any consent, authorization or approval
under any judgment, decree, judicial or administrative order, award, writ,
injunction, statute, rule or regulation applicable to the Company, or (d)
result in the creation of any Encumbrance on any of the Properties other than
those contemplated by either this Agreement or any related agreements and
documents.

3.3. AUTHORIZATION. The execution and delivery of this Agreement and
the agreements contemplated hereby have been, and the performance of this
Agreement and the agreements contemplated hereby and the transactions
contemplated hereby and thereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action on the
part of the Company.

3.4. ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of the Company and constitutes the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by Equitable Limitations. All documents and
instruments required hereunder to be executed and delivered by the Company
shall be duly executed and delivered and shall constitute legal, valid and
binding obligations of the Company enforceable in accordance with their terms,
except as enforceability may be limited by Equitable Limitations.

3.5. TITLE. The Company has (i) Marketable Title to the Oil and Gas
Properties and (ii) defensible title to all of the Properties other than the
Oil and Gas Properties.

3.6. CONTRACTS. Exhibit 3.6 contains a complete list of all contracts
that constitute a part of the Properties or by which the Properties are bound
or subject (collectively, the "Contracts").

3.7. LITIGATION AND CLAIMS. Except as set forth on Exhibit 3.7, no
claim, demand, filing, cause of action, administrative proceeding, lawsuit or
other litigation is pending or, to the best knowledge of the Company,
threatened that could now or hereafter adversely affect the ownership,
development or operation of any of the Properties, other than proceedings
relating to the industry generally and as to which the Company is not a named
party. No written or oral notice from any governmental body or any other person
has been received by the Company (i) claiming any violation or repudiation of
the Oil and Gas Properties or any violation of any law, ordinance, code, rule
or regulation with respect to the Oil and Gas Properties or (ii) requiring, or
calling attention to, the need for any work, repairs, construction, alterations
or installations on or in connection with the Properties with which the Company
has not complied.

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3.8. APPROVALS AND PREFERENTIAL RIGHTS. Exhibit 3.8 contains a
complete and accurate list of all approvals required to be obtained by the
Company for the assignment of the Properties to Flextrend and all preferential
purchase rights that affect the Properties.

3.9. COMPLIANCE WITH LAW AND PERMITS. The Properties have been
operated in compliance with the provisions and requirements of all laws,
orders, regulations, rules and ordinances issued or promulgated by all
governmental authorities having jurisdiction with respect to the Properties,
noncompliance with which reasonably may be expected to have a material adverse
effect on the Properties. All necessary governmental authorizations with regard
to the ownership, development or operation of the Properties have been obtained
where the failure to obtain such authorizations reasonably may be expected to
have a material adverse effect on the Properties, and no material violations
exist in respect of such licenses, permits or authorizations.

3.10. STATUS OF CONTRACTS. (i) To the Company's knowledge, all of the
Contracts and the rights and obligations of the Company thereunder are in full
force and effect, and (ii) the Company is not in breach of or default, or with
the lapse of time or the giving of notice, or both, would be in breach or
default, with respect to any of its obligations thereunder to the extent that
such breaches or defaults reasonably may be expected to have a material adverse
effect on the Properties.

3.11. PRODUCTION BURDENS, TAXES, EXPENSES AND REVENUES. All rents,
royalties, excess royalty, overriding royalty interests and other payments due
under or with respect to the Oil and Gas Properties have been properly and
timely paid; and all ad valorem, property, production, severance and other
taxes based on or measured by the ownership of the Properties or the production
of Substances therefrom, have been properly and timely paid. All expenses due
and payable as of the date hereof under the terms of the Contracts have been
properly and timely paid. All of the proceeds from the sale of Substances have
been properly and timely paid to the Company by the purchasers of production
without suspense or indemnity other than standard division order indemnities.

3.12. PRODUCTION BALANCES. None of the purchasers under any
production sales contracts are entitled to "make-up" or otherwise receive
deliveries of Substances at any time on or after January 1, 1998, without
paying at such time the full contract price therefor. No person is entitled to
receive any portion of the interest of the Company in any Substances or to
receive cash or other payments to "balance" any disproportionate allocation of
Substances under any operating agreement, gas balancing and storage agreement,
gas processing or dehydration agreement, or other similar agreements.

3.13. EXPENDITURE COMMITMENTS. Exhibit 3.13 contains a complete and
accurate list of (i) all authorities for expenditures ("AFE") to drill, rework
or plug and

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abandon Wells or for other capital expenditures pursuant to any of the
Contracts that have been proposed by any person on or after January 1, 1998,
whether or not accepted by the Company or any other person, and (ii) all AFE
and oral or written commitments to drill, rework or plug and abandon Wells or
for other capital expenditures pursuant to any of the Contracts for which all
of the activities anticipated in such AFE or commitments have not been
completed by the date of this Agreement.

3.14. PAYOUT BALANCES. Exhibit 3.14 contains a complete and accurate
list of the status of cost recovery or other "payout" balance, as of the dates
shown in Exhibit 3.14, for each Well that is subject to a reversion or other
adjustment at some level of cost recovery or payout.

3.15. QUALIFICATION. To the extent required with respect to the
ownership, development and operation of the Properties, the Company is properly
qualified by the MMS to own and operate the Properties.

3.16. ABSENCE OF CERTAIN CHANGES. Since January 1, 1998, the
Properties have not suffered any material destruction, damage or loss; provided
that no representation or warranty is made in this Section 3.16 relating to
Viosca Knoll Block 817.

3.17. DISCLAIMER. Except as set forth herein, the Properties are
being transferred to Flextrend hereunder "as is", "where is" and "with all
faults" without any representations or warranties of any kind, including,
without limitation, those relating to merchantability, fitness for purpose,
quality, condition, value or otherwise.

4. REPRESENTATIONS AND WARRANTIES OF FLEXTREND. Flextrend represents and
warrants to the Company that:

4.1. ORGANIZATION. Flextrend is a limited liability company validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business in and is in good standing under the laws of Texas,
Louisiana, and Alabama.

4.2. AUTHORITY AND CONFLICTS. Flextrend has full limited liability
company power and authority to carry on its business as presently conducted, to
enter into this Agreement and any agreements contemplated hereby to which it is
a party, and to perform its obligations hereunder and thereunder. Flextrend has
full corporate or similar power and authority to purchase the Properties on the
terms described in this Agreement. The execution and delivery of this Agreement
by the Company and any agreement contemplated hereby does not, and the
consummation of the transactions contemplated hereunder and thereunder shall
not, (a) violate or be in conflict with, or require the consent of any person
or entity under, any provision of Flextrend's governing documents, (b) conflict
with, result in a breach of, constitute a default (or an event that with the
lapse of time or notice, or both, would constitute a default) under, or require
any consent,

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authorization or approval under any agreement or instrument to which Flextrend
is a party or is bound, (c) violate any provision of or require any consent
(except for qualifying with and filing the appropriate bonds and transfer
documents with the MMS), authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Flextrend, or (d) result in the creation of any
Encumbrance on the Senior Preferred Stock.

4.3. AUTHORIZATION. The execution and delivery of this Agreement and
the agreements contemplated hereby have been and the performance of this
Agreement and the transactions contemplated thereby shall be at the time
required to be performed hereunder, duly and validly authorized by all
requisite partnership action on the part of Flextrend.

4.4. ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of Flextrend and constitutes a legal, valid and binding
obligation of Flextrend enforceable in accordance with its terms, except as
enforceability may be limited by Equitable Limitations. All documents and
instruments required hereunder to be executed and delivered by Flextrend shall
be duly executed and delivered and shall constitute legal, valid and binding
obligations of Flextrend enforceable in accordance with their terms, except as
enforceability may be limited by Equitable Limitations.

4.5. QUALIFICATION. To the extent required with respect to the
ownership, development and operation of the Properties, Flextrend is properly
qualified by the MMS to own and, upon the MMS' acceptance of the required bond
from Flextrend, operate the Properties.

4.6. SENIOR PREFERRED STOCK. The shares of Senior Preferred Stock are
owned by the Partnership free and clear of all Encumbrances.

5. CLOSING.

5.1. THE CLOSING. (a) The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place, South Tower, 711 Louisiana
Street, Suite 1900, Houston, Texas 77002 on the later of (i) July 1, 1998 or
(ii) such later date which shall be one business day following the Completion
Date (as defined in the Contribution Agreement); provided that, should the
Completion Date fall on or after October 1, 1998, the Company may, at its
option, elect to close the transactions contemplated by this Agreement on any
date on or after October 1, 1998, with ten (10) days' prior notice to
Flextrend, in which case, the Closing shall be deemed to occur on a date
specified by the Company. Time shall be of the essence in this Agreement.

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(b) The obligation of each of the parties hereto to effect the
transactions contemplated hereby is subject to the satisfaction or waiver of the
following conditions: (i) the representations and warranties made by the other
party in this Agreement shall be true and correct on and as of the date hereof
(unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date), but only if the failure to be true would,
after giving effect to any indemnification rights, have a material adverse
effect on the value or operation of the Properties and the other party shall
have performed its covenants and agreements herein to be performed prior to the
Closing, except where the failure to perform such covenants and agreements would
not, individually or in the aggregate, have a material adverse effect on the
value or operation of any of the Properties or the ability of such other party
to consummate the transactions contemplated hereby, and an executive officer of
the other party shall have provided a certificate to such effect, dated the date
hereof; (ii) all material consents and filings required in connection with the
transactions contemplated hereby shall have been obtained or made; and (iii) the
other party shall have made the deliveries required to be made by it pursuant to
this Section 5.

5.2. DELIVERIES BY COMPANY AT CLOSING. The Company shall have
delivered to Flextrend the following instruments, properly executed and
acknowledged:

5.2.1. Counterparts of the following: (i) State Assignment;
and (ii) MMS Assignment.

5.2.2. Such other instruments as are necessary to effectuate
the conveyance of the Properties to Flextrend.

5.2.3. With respect to any leases in which the Company owns
less than all of the operating rights or leasehold interests and is designated
as the operator under the applicable operating or other similar agreement, (i)
letters to all working interest owners in which the Company resigns as the
operator and recommends Flextrend or an affiliate of Flextrend as the successor
operator and (ii) any forms promulgated by the appropriate governmental
authority and necessary for the resignation by the Company as operator, which
forms shall be completed and executed by the Company and shall designate
Flextrend or an affiliate of Flextrend as the operator under the applicable
operating or other similar agreement. With respect to any leases in which the
Company owns all of the leasehold interests or operating rights and is
designated as the operator, any forms promulgated by the appropriate
governmental authority and necessary for the resignation by the Company as
operator, which forms shall be completed and executed by the Company and shall
designate Flextrend or an affiliate of Flextrend as the operator under the
applicable operating or other similar agreement.

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5.3. POSSESSION. At the Closing, the Company shall deliver to
Flextrend at Flextrend's offices all of the Data and shall deliver to Flextrend
possession of the other Properties.

5.4. DELIVERIES BY FLEXTREND AT CLOSING. Against delivery of the
documents and materials described in Section 5.2, Flextrend shall cause the
Partnership to deliver to the Company, free and clear of all Encumbrances, a
duly executed certificate or certificates representing the 7,500 shares of
Senior Preferred Stock owned or beneficially owned by the Partnership, together
with transfer powers endorsed in blank relating to such certificates.

6. ASSUMPTION BY FLEXTREND. At Closing, Flextrend shall assume all of the
costs, obligations and liabilities of the Company relating to the Properties
that arise from or relate to (i) the period beginning on January 1, 1998, (ii)
plugging, abandonment or similar restoration operations relating to any Wells,
platforms or other facilities on or related to the Properties necessary or
appropriate to comply with all contracts, and any rules, laws, regulations or
orders of any governmental authority relating to such plugging, abandonment and
similar restoration operations and (iii) that certain (a) Production Payment
Agreement dated September 19, 1995 between the Company and J. Ray McDermott
Properties, Inc. and (b) Production Payment Agreement dated September 19, 1995
between the Company and F-W Oil Interests, Inc. Except to the extent provided
in clause (ii) and (iii) of the immediately preceding sentence, Flextrend shall
not assume any costs, obligations or liabilities (including negligence and
strict liability) that relate to the Properties and arise from or relate to the
period ending prior to January 1, 1998; or any obligation of the Company or any
other person to pay and discharge any refunds, including interest and
penalties, if any, that may be imposed by any governmental agency arising from
the sale of the Substances prior to January 1, 1998. Notwithstanding anything
to the contrary herein, the Company expressly reserves and retains any and all
of its rights and interests in and to that certain (a) Exchange Agreement dated
September 19, 1995 between the Company and J. Ray McDermott Properties, Inc.
and (b) Exchange Agreement dated September 19, 1995 between the Company and F-W
Oil Interests, Inc.

7. PRODUCTION, PROCEEDS, EXPENSES AND TAXES.

7.1. DIVISION OF SUBSTANCES. After the Closing, all Substances
produced from the Oil and Gas Properties on or after January 1, 1998 shall be
owned by Flextrend. All Substances produced and sold from the Oil and Gas
Properties prior to January 1, 1998 shall be owned by the Company.

7.2. DIVISION OF EXPENSES. Subject to Section 9 hereof, all costs,
expenses incurred and other expenditures incurred in connection with the
Properties and attributable to the period ending prior to January 1, 1998 shall
be borne by the Company.

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Subject to Section 9 hereof, all costs, expenses and other expenditures
incurred in connection with the Properties and attributable to the period
beginning on January 1, 1998 other than costs and expenses not assumed by
Flextrend under Section 6 shall be borne by Flextrend.

7.3. DIVISION OF PROCEEDS. All net proceeds earned in connection with
the Properties attributable to the period ending prior to January 1, 1998 shall
be deemed to be owned by the Company. All proceeds earned in connection with
the Properties attributable to the period beginning on January 1, 1998 shall be
deemed to be owned by Flextrend.

7.4. PROPERTY TAX PRORATIONS. Real and personal property taxes for
the Properties for the year in which Closing occurs shall be prorated between
Flextrend and the Company as of January 1, 1998. If the actual taxes are not
known as of the Closing Date, the Company's share of such taxes shall be
determined by using (i) the rates and mileages for the year prior to the year
in which the Closing occurs, with appropriate adjustments for any known and
verifiable changes thereto, and (ii) the assessed values for the year in which
Closing occurs.

7.5. ADJUSTMENTS. At the Closing, the Company or Flextrend, as
appropriate, shall make a cash payment to the other to give effect to the
provisions of Section 7 to the extent then determinable and promptly after such
amount is finally determinable, the Company or Flextrend shall make such
payments as may be necessary to make final settlement. If, after the Closing,
the Company receives any proceeds that pursuant to this Section 7 belong to
Flextrend, then the Company shall deliver such proceeds to Flextrend within
five Business Days after receipt of such proceeds. If, after the Closing,
Flextrend receives any proceeds that pursuant to this Section 7 belong to the
Company, then such proceeds shall be returned to the Company within five
Business Days after receipt of such proceeds. If after Closing either party
hereto receives invoices for costs or expenses that pursuant to the terms of
this Section 7 are the responsibility of the other party, the party receiving
such invoices shall immediately deliver them to the other party.

8. NEGATIVE COVENANTS.

Except as Flextrend may otherwise consent in writing, between
the date of this Agreement and the date of Closing and except as contemplated by
this Agreement, the Company shall not:

(a) sell, transfer, assign, convey or otherwise dispose of any
Properties other than (i) oil, gas and other hydrocarbons produced, saved and
sold in the ordinary course of business, and (ii) personal property and
equipment which is replaced with

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property and equipment of comparable or better value and utility in the
ordinary and routine maintenance and operation of the Properties;

(b) create or permit the creation of any Encumbrance on the
Properties, other than Permitted Encumbrances;

(c) grant any preferential right to purchase or similar right
or agree to require the consent of any party to the transfer and assignment of
the Properties to Flextrend;

(d) designate any Person, other than Flextrend, as an
operator of the Properties;

(e) incur or agree to incur any contractual obligation or
liability, whether absolute, contingent, matured or unmatured, which would
constitute an assumed liability by Flextrend as provided in Section 6 above;
provided that, the Company may incur such obligations or liabilities in the
ordinary course of business or in the ordinary and routine maintenance and
operation of the Properties with the consent of Flextrend which consent shall
not be unreasonably withheld or delayed; provided that any such obligation or
liability would not, either individually or in the aggregate, have a material
adverse effect on any of the Properties;

(f) enter into any transaction the effect of which, considered
as a whole, would be to cause the Company's ownership interest in any of the
Working Interests to be altered from its ownership interest as of the date
hereof; or

(g) agree or commit to do any of the foregoing.

9. SURVIVAL AND INDEMNIFICATION.

9.1. SURVIVAL AND NOTICE. The liability of Flextrend and the Company
under each of their respective representations, warranties and covenants
contained in this Agreement shall survive the Closing and execution and
delivery of the assignments contemplated hereby. Any assertion by any party to
this Agreement that any party is liable for the inaccuracy of any
representation or warranty or the breach of any covenant (except in Section
7.5, which shall survive until the closing of the applicable statute of
limitations) must be made in writing and must be given to the other party not
later than the first Business Day occurring eighteen months after the date of
Closing. The notice shall state the facts known to the person providing such
notice that give rise to such notice in sufficient detail to allow the
receiving person to evaluate the claim.

9.2. THE COMPANY'S INDEMNIFICATION. To the extent permitted by law,
the Company, from and after Closing, shall defend, indemnify and hold Flextrend
harmless

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from and against any and all damage, loss, cost, expense, obligation, claim or
liability, including reasonable counsel fees and reasonable expenses of
investigating, defending arid prosecuting litigation (collectively, the
"Liability"), suffered by Flextrend as a result of (i) any cost, liability or
obligation that was not assumed by Flextrend pursuant to Section 6 (other than
Liability resulting from the inaccuracy of any representation or warranty or
the breach of a covenant by Flextrend contained in this Agreement); (ii) the
failure of the Company to comply with the bulk sales laws of Texas or any other
jurisdiction in connection with the transactions provided for in this
Agreement; (iii) any brokers' or finders' fees or commissions arising with
respect to brokers or finders retained or engaged by the Company and resulting
from or relating to the transactions contemplated in this Agreement; (iv) the
inaccuracy of any representation or warranty of the Company set forth in this
Agreement; and (v) the breach of, or failure to perform or satisfy, any of the
covenants of the Company set forth in this Agreement.

9.3. FLEXTREND'S INDEMNIFICATION. To the extent permitted by law,
Flextrend, from and after Closing, shall defend, indemnify and hold the Company
harmless from and against any and all Liability suffered by the Company as a
result of (i) any cost, liability or obligation that was assumed by Flextrend
pursuant to Section 6 (other than Liability resulting from the inaccuracy of
any representation or warranty or the breach of a covenant of the Company
contained in this Agreement); (ii) the failure of Flextrend to comply with the
bulk sales laws of Texas or any other jurisdiction in connection with the
transactions provided for in this Agreement; (iii) any brokers or finders' fees
or commissions arising with respect to brokers or finders retained or engaged
by Flextrend and resulting from or relating to the transactions contemplated in
this Agreement; (iv) the inaccuracy of any representation or warranty of
Flextrend set forth in this Agreement; and (v) the breach of, or failure to
perform or satisfy any of the covenants of Flextrend set forth in this
Agreement.

10. FURTHER ASSURANCES. After the Closing, the Company and Flextrend shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
The Company and Flextrend, as applicable, shall cooperate and use their best
efforts to obtain all approvals and consents required by or necessary for the
transactions contemplated by this Agreement that are customarily obtained after
Closing.

11. NOTICE. All notices required or permitted under this Agreement shall be in
writing and, (a) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (b) if by telegram, shall be
deemed to have been given one Business Day after delivered to the wire service,
(c) if by telex, provided a confirmation is received and

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such notice is also sent by U.S. mail, shall be deemed to have been given when
such telex is sent, (d) if mailed, shall be deemed to have been given three
Business Days after the date when sent by registered or certified mail, postage
prepaid, and (e) if sent by telecopier, provided a confirmation is received and
such notice is also sent by U.S. mail, shall be deemed to have been given when
such telecopy is sent, addressed as follows:

The Company: Tatham Offshore, Inc.
7400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: Chief Executive Officer
Telecopier: (713) 224-7574

with a copy to: Rick L. Burdick
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002

Flextrend: Flextrend Development Company, L.L.C.
7200 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: President
Telecopier: (713) 547-5151

or to such other address as either party hereto may from time to time designate
by notice in writing to the other.

12. ASSIGNMENT. This Agreement and any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other party;
provided that, in the case of any assignment as described above, no such
assignment shall relieve the assigning party of any of its obligations under
this Agreement and the non-assigning party shall have the right to seek
remedies directly from the assigning party without seeking the same from the
assignee. Subject to the preceding sentence, this Agreement will be binding
upon and inure to the benefit of, and be enforceable by, the parties and their
respective successors and permitted assigns.

13. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to any
principles of conflicts of laws. The validity of the various conveyances
affecting the title to real property shall be governed by and construed in
accordance with the laws of the jurisdiction in which such

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property is situated. The representations and warranties contained in such
conveyances and the remedies available because of a breach of such
representations and warranties shall be governed by and construed in accordance
with the laws of the State of Texas without giving effect to the principles of
conflict of laws.

14. EXPENSES AND FEES. (i) Each of the parties hereto shall pay the fees and
expenses of their respective counsel, accountants and other experts incident to
the negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby, (ii) Flextrend and the Company shall each pay
one half of (x) the cost of all fees for the recording of transfer documents
described in Section 5.2 and (y) any sales, transfer, stamp or other excise
taxes resulting from the transfer of the Properties to Flextrend, and (iii) all
other costs shall be borne by the party incurring such costs.

15. INTEGRATION. This Agreement, the exhibits hereto and the other agreements
to be entered into by the parties under the provisions of this Agreement set
forth the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements, prior
arrangements and prior understandings relating to the subject matter hereof.

16. WAIVER OR MODIFICATION. This Agreement may be amended, modified,
superseded or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of Flextrend and the Company, or, in the
case of a waiver or consent, by or on behalf of the party or parties waiving
compliance or giving such consent. No waiver by any party of any condition, or
of any breach of any covenant, agreement, representation or warranty contained
in this Agreement, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
waiver of any other condition or of any breach of any other covenant,
agreement, representation or warranty.

17. HEADINGS. The Section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.

18. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from
this Agreement.

-12-
<PAGE> 17

19. MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed as
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.

20. TERMINATION. This Agreement may be terminated by mutual written consent of
the parties hereto.

21. GUARANTEE. All obligations of Flextrend hereunder shall be unconditionally
guaranteed by the Partnership pursuant to that certain form of Guarantee
attached hereto as Exhibit 21.

22. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:

"AFEs" shall have the meaning set out in Section 3.13 above.

"Agreement" shall mean this Redemption Agreement, as the same may from
time to time be amended or supplemented.

"Business Day" shall mean a day other than the days that banking
institutions are required or permitted to be closed under the laws of the State
of Texas.

"Closing" shall have the meaning set out in Section 5.1(a) above.

"Contracts" shall have the meaning set out in Section 3.6.

"Contribution Agreement" shall mean the Contribution and Distribution
Agreement made as of the date hereof among DeepTech International Inc., a
Delaware corporation, the Company, DeepFlex Production Services, Inc., a
Delaware corporation, and El Paso Natural Gas Company, a Delaware corporation.

"Data" shall mean all (i) abstracts, title opinions, title reports,
title policies, lease and land files, surveys, analyses, compilations,
correspondence, filings with regulatory agencies, other documents and
instruments that relate to the Properties; (ii) geological, engineering,
exploration, production, and other technical data, magnetic field recordings,
digital processing tapes, field prints, summaries, reports and maps, whether
written or in an electronically reproducible form, that are in the possession or
control of the Company, and relate to the Oil and Gas Properties; and (iii) all
other books, records, files and magnetic tapes containing financial, title or
other information that are in the possession or control of the Company, or any
affiliate of the Company (excluding Flextrend), and in any manner relate to the
Properties; provided that "Data" shall not include any of the foregoing

-13-
<PAGE> 18

to the extent such Data is subject to a licensing agreement that does not
permit access to Flextrend.

"Employee" shall mean any current, former, or retired employee,
consultant or director of the Company whose duties relate or related to the
business conducted with the Properties.

"Encumbrances" shall refer to each and all of the following items:
mortgages, claims, charges, security interests, liens, obligations,
encumbrances, imperfections of title or other matters affecting title, and any
rights of third parties whatsoever.

"Equipment" shall mean all equipment, fixtures, physical facilities or
interests therein of every type and description to the extent that the same are
used or held for use in connection with the ownership, development or operation
of the Properties, whether located on or off the Properties.

"Equitable Limitations" shall mean applicable bankruptcy,
reorganization or moratorium statutes, equitable principles or other similar
laws affecting the rights of creditors generally.

"Laws" shall refer to each and all of the following: domestic
(federal, state or local) or foreign laws, statutes, ordinances, rules,
regulations, decrees or orders.

"Liability" shall have the meaning set out in Section 9.2.

"Liens" shall mean all encumbrances, liens, claim, easements, rights,
agreements, instruments, obligations, burdens or defects.

"Marketable Title" shall mean such title as (i) will enable Flextrend,
as the Company's successor in title, to receive from a particular Oil and Gas
Property at least the Net Revenue Interests for the leases identified in Exhibit
1, without reduction, suspension or termination throughout the term of such
lease, except for any reduction, suspension or termination (a) caused by
Flextrend, any of its affiliates (other than the Company), successors in title
or assigns, (b) caused by orders of the appropriate regulatory agency having
jurisdiction over such Oil and Gas Property that are promulgated after January
1, 1998 and that concern pooling, unitization, communitization or spacing
matters affecting such Oil and Gas Property, (c) or otherwise set forth in
Exhibit 1; (ii) will obligate Flextrend, as the Company's successor in title, to
bear no greater Working Interests other than the Working Interests for each of
the leases identified in Exhibit 1, without increase throughout the term of such
lease, except for any increase (a) caused by Flextrend, any of its affiliates
(other than the Company), successors in title or assigns, (b) that also results
in the Net Revenue Interests associated with such lease being proportionately
increased, (c) caused by contribution requirements provided for under provisions
similar to those

-14-
<PAGE> 19

contained in Article VII.B. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement, (d) caused by orders of the appropriate regulatory agency having
jurisdiction over an Oil and Gas Property that are promulgated after January 1,
1998, and that concern pooling, unitization, communitization or spacing matters
affecting a particular Oil and Gas Property, or (e) otherwise set forth in
Exhibit 1; and (iii) is free and clear of all Liens except for Permitted
Encumbrances.

"MMS" shall mean the Minerals Management Service.

"MMS Assignment" shall mean both the Assignment of Leases and Bill of
Sale for filing with the MMS in the form of Annex IB.

"Net Revenue Interest" shall mean that interest in the gross production
of oil and gas and other minerals from the Properties subject to the oil, gas
and mineral leases to which Flextrend will be entitled to by virtue of its
acquisition of the Working Interests after deducting all landowner royalties,
overriding royalties and similar burdens attributable to the Working Interest.

"Oil and Gas Properties" shall mean all properties described in Exhibit
1 whether such properties are in the nature of fee interests, leasehold
interests, working interests, farmout rights, royalty, overriding royalty or
other non-working or carried interests, operating rights or other mineral rights
of every nature and any rights that arise by operation of law or otherwise in
all properties and lands pooled, unitized, communitized or consolidated with
such properties.

"Partnership" shall mean Leviathan Gas Pipeline Partners, L.P. and any
affiliate or subsidiary thereof.

"Payment Rights" shall mean all (i) accounts, instruments and general
intangibles (as such terms are defined in the Uniform Commercial Code of Texas)
attributable to the Properties with respect to any period of time on or after
January 1, 1998 and (ii) liens and security interests in favor of the Company,
whether choate or inchoate, under any law, rule or regulation or under the
Contracts (a) arising from the ownership, operation, sale or other disposition
on or after January 1, 1998 of any of the Properties and (b) arising in favor of
the Company as the operator of certain of the Oil and Gas Properties.

"Permitted Encumbrances" shall mean (i) liens for taxes not yet
delinquent, (ii) lessors' royalties, overriding royalties, division orders,
reversionary interests, and similar burdens that do not operate to reduce the
net revenue interests of the Company in any of the Oil and Gas Properties to
less than the amount set forth therefor in Exhibit 1, (iii) the consents and
rights described in Exhibit 3.8, (iv) the Contracts, (v) except to the extent
any amounts related thereto are due and payable, any mechanic and materialmen,
operator, non-operator, contractor and subcontractor or similar liens created by
the

-15-
<PAGE> 20

Contracts or operation of law, and (vi) the Liens created by the documents
contemplated hereby.

"Person" shall include an individual, a partnership, a limited
liability company, a corporation, a trust, an unincorporated organization, a
government or any department or agency thereof and any other entity.

"Properties" shall mean the Oil and Gas Properties, Wells, Substances,
Equipment, Data, Contracts and Payment Rights. "Properties" shall include any
additional interests acquired by Flextrend in a particular operation as a result
of one or more working interest owners electing to go non-consent under the
applicable operating agreements.

"State Assignment" shall mean an Assignment of Leases and Bill of Sale
for recordation in the appropriate real property records of the appropriate
parishes and/or counties in Louisiana, Alabama and Mississippi where the
Assignment needs to be recorded in the form of Annex IA.

"Substances" shall mean all severed crude oil, natural gas, casinghead
gas, drip gasoline, natural gasoline, petroleum, natural gas liquids,
condensate, products, liquids and other hydrocarbons and other minerals or
materials of every kind and description produced from the Oil and Gas Properties
on or after January 1, 1998.

"Wells" shall mean all oil, condensate or natural gas wells, water
source wells, and water and other types of injection wells either located on the
Oil and Gas Properties or held for use in connection with the Oil and Gas
Properties, whether producing, operating, shut-in or temporarily abandoned.

"Working Interest" shall mean the interest that Flextrend will be
acquiring pursuant to the terms of this Agreement upon which will be calculated
Flextrend's proportionate share of the costs, expenses and liabilities
attributable to the oil, gas and mineral leases described herein.

-16-
<PAGE> 21

This Agreement has been executed as of the date first set forth above.

FLEXTREND DEVELOPMENT COMPANY, L.L.C.

By:
----------------------------------
Name:
Title:

TATHAM OFFSHORE, INC.

By:
----------------------------------
Name:
Title:

-17-

<PAGE> 1
EXHIBIT 21.1

TATHAM OFFSHORE, INC.

SUBSIDIARIES
(formed under the laws of the
United States unless otherwise indicated)

DeepFlex Production Services, Inc.
Tatham Offshore (Jersey) Ltd.
Tatham Offshore Canada Limited*
North Atlantic Pipeline Company, L.L.C.

FPS II, Inc.
FPS III, Inc.
FPS IV, Inc.
FPS V, Inc.
DeepFlex Holdings, L.L.C.
North Atlantic Pipeline, ULC*
North Atlantic Pipeline Partners, LP

RIGCO North America, L.L.C.
DeepFlex Production Partners, L.P.
North Atlantic Pipeline Partners, LP+

___________________________________________
* Formed under the laws of Nova Scotia.
+ Formed under the laws of Newfoundland.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS

We hereby consent to the filing of our report, Tatham Offshore, Inc.,
Estimated Net Reserves and Income Data Attributable to Certain Leasehold and
Royalty Interests, dated as of June 30, 1997, and all references to our report
and our firm in the Registration Statement, and any and all amendments thereto
(pre and post-effective) filed after the date hereof.

RYDER SCOTT COMPANY
PETROLEUM ENGINEERS

Houston, Texas
March 30, 1998

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Tatham Offshore, Inc. of our report dated
September 19, 1997, except as to the reverse stock split described in Notes 2
and 5 which is as of November 13, 1997 and except as to the restatement of
earnings per share information described in Note 2 which is as of March 18,
1998, relating to the financial statements of Tatham Offshore, Inc., and our
report dated March 18, 1998, relating to the financial statements of DeepFlex
Production Services, Inc., which appear in such Prospectus. We also consent to
the reference to us under the heading of "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Houston, Texas
March 31, 1998

<PAGE> 1

EXHIBIT 99.1

- ----------------------------- ------------------------
RIGHTS CERTIFICATE NUMBER CUSIP NUMBER

- ----------------------------- ------------------------
COMMON STOCK TO SUBSCRIBE RECORD DATE SHARES

- -----------------------------
SERIES A PREFERRED TO SUBSCRIBE

RIGHTS CERTIFICATE FOR RIGHTS OFFERING
FOR HOLDERS OF RECORD ON ____________, 1998
TATHAM OFFSHORE, INC.

Tatham Offshore, Inc. (the "Company") is conducting a rights offering
(the "Rights Offering") which entitles each holder of DeepTech International
Inc. common stock, $.01 par value per share (the "DeepTech Stock"), as of the
close of business on _____________, 1998 (the "Record Date") to receive one
transferable right (a "Right") for each share of DeepTech Stock held of record
on the Record Date. Each Right entitles the holder thereof to subscribe for and
purchase 1.12654 shares of the Company's common stock, par value, $0.01 per
share (the "Underlying Common Shares") and 0.18744 shares of the Company's
Series A 12% Convertible Exchangeable Preferred Stock, par value $0.01 per share
(the "Underlying Preferred Shares" and, together with the Underlying Common
Shares, the "Underlying Shares") (the "Subscription Privilege"), at a
subscription price of $3.25 for the Underlying Shares. If there remain any
Underlying Shares unsubscribed, Tatham Brothers, LLC ("TBL") will purchase those
remaining Underlying Shares at $3.25 for the Underlying Shares comprising each
Right. Fractional shares will be rounded down, with cash issued in lieu of
fractional shares. Your ownership of DeepTech common stock is listed above as of
the record date as is the number of Underlying Shares to which you are entitled
to subscribe pursuant to the Subscription Privilege.

FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE
RIGHTS OFFERING, PLEASE REFER TO THE PROSPECTUS DATED _______________, 1998 (THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CHASEMELLON SHAREHOLDER SERVICES,
L.L.C. AT 1-800-777-3674. UNDEFINED CAPITALIZED TERMS USED HEREIN ARE DEFINED IN
THE PROSPECTUS.

CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT")
MUST RECEIVE THE SUBSCRIPTION ORDER FORM WITH PAYMENT IN FULL BY 5:00 P.M., NEW
YORK CITY TIME, ON ____________, 1998 (UNLESS EXTENDED IN THE SOLE DISCRETION OF
THE COMPANY) (AS IT MAY BE EXTENDED, THE "EXPIRATION DATE"), ANY RIGHTS NOT
EXERCISED PRIOR TO THE EXPIRATION DATE WILL BE NULL AND VOID. ANY SUBSCRIPTION
FOR THE UNDERLYING SHARES IN THE RIGHTS OFFERING MADE HEREBY IS IRREVOCABLE
UNLESS THE TERMS OF THE RIGHTS OFFERING ARE SUBSEQUENTLY MATERIALLY AMENDED.

The Rights represented by this Rights Certificate may be exercised by
duly completing Form 1; and may be transferred, assigned, exercised or sold
through a bank or broker by duly completing Form 2; and may be sold through the
Subscription Agent by duly completing Form 3; Rights holders are advised to
review the Prospectus and instructions, copies of which are available from the
Subscription Agent, before exercising or selling their Rights.

SUBSCRIPTION PRICE: $3.25 FOR THE UNDERLYING SHARES COMPRISING EACH RIGHT

The registered owner whose name is inscribed hereon or assigns, is entitled to
subscribe for the Underlying Common Shares and the Underlying Preferred Shares
of Tatham Offshore, Inc. upon the terms and subject to the conditions set forth
in the Prospectus and instructions relating to the use thereof.

TATHAM OFFSHORE, INC.

THIS RIGHTS CERTIFICATE IS TRANSFERRABLE AND MAY BE COMBINED OR DIVIDED (BUT
ONLY INTO RIGHTS CERTIFICATES EVIDENCING FULL RIGHTS) AT THE SUBSCRIPTION
AGENT'S OFFICE.

RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER ONLY
PART OF THEIR RIGHTS, THEY MAY NOT RECEIVE A NEW RIGHTS CERTIFICATE IN
SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY.

<PAGE> 2

________________________________________________________________________________

FORM 1

EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises one or
more Rights to subscribe for the Underlying Common Shares and the Underlying
Preferred Shares as indicated below, on the terms and conditions specified in
the Prospectus, receipt of which is hereby acknowledged.
(a) Number of Rights exercised pursuant to the Subscription
____ x $3.25 = $______ payment.
METHOD OF PAYMENT (CHECK AND
COMPLETE APPROPRIATE BOX(ES):
[ ] Check, bank draft, or money order payable to "ChaseMellon
Shareholder Services, L.L.C., as Subscription Agent" or
[ ] Wire transfer directed to The Chase Manhattan Bank, New York,
NY, ABA No. 021 000 021, Credit Account No. 323-213057 (Tatham
Subs. Offer), ChaseMellon Shareholder Services, L.L.C.,
Attention: Evelyn O'Connor
(b) If the Rights being exercised pursuant the Subscription Privilege do
not account for all of the Rights represented by this Rights
Certificate (check only one)
[ ] Deliver to the undersigned a new Rights Certificate evidencing
the remaining rights to which the undersigned is entitled.
[ ] Deliver a new Rights Certificate in accordance with the
undersigned's Form 2 instructions (which include any required
signature guarantees).
[ ] Sell the remaining unexercised Rights in accordance with the
undersigned's Form 3 instructions.
[ ] Check here if Rights are being exercised pursuant to a Notice
of Guaranteed Delivery delivered to the Subscription Agent
prior to the date hereof and complete the following:
Name(s) of Registered Holder(s)
-------------------------------

---------------------------------------------------------------
Window Ticket Number (if any)
---------------------------------

---------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------

---------------------------------------------------------------
Name of Institution Which Guaranteed Delivery
-----------------

---------------------------------------------------------------
If the Subscription Price enclosed or transmitted is insufficient to purchase
the total number of shares included in line (a), or if the number of shares
being subscribed for is not specified, the Rights Holder exercising this Rights
Certificate shall be deemed to have subscribed for the maximum amount of shares
that could be subscribed for upon payment of such amount. To the extent any
portion of the Subscription Price enclosed or transmitted exceeds the amount
required for the Subscription, such excess funds shall be mailed to the
subscriber without interest or deduction as soon as practicable.

---------------------------------------------
Subscriber's Signature

Telephone No. ( )
--------------------------------

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

________________________________________________________________________________

________________________________________________________________________________
FORM 2

TO TRANSFER YOUR RIGHTS CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS, OR TO
EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received, Rights
represented by this Rights Certificate are hereby assigned to (please print name
and address and Taxpayer Identification Number or Social Security Number of
transferee in full):

Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------

- --------------------------------------------------------------------------------
Social Security Number or Taxpayer Identification Number

- --------------------------------------------------------------------------------
Signature(s) of Transferor(s)

Signatures Guaranteed by:

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

Proceeds from the sale of Rights may be subject to withholding of U.S. taxes
unless the Seller's certificate U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent and
the seller is not otherwise subject to U.S. backup withholding.

________________________________________________________________________________

FORM 3

TO SELL SOME OR ALL OF YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT:
The undersigned hereby authorizes the Subscription Agent to sell Rights
represented by this Rights Certificate but not exercised hereby and to deliver
to the undersigned a check for the proceeds, if any, from the sale thereof, less
any applicable brokerage commissions, taxes or other direct expenses of sale.
The Subscription Agent's obligation to execute orders is subject to its
inability to find buyers for the Rights.

- --------------------------------------------------------------------------------
Subscriber's Signature

To sell Rights through the Subscription Agent, you must complete and
sign the substitute Form W-9 as provided in Section 8 of the instructions.

________________________________________________________________________________

FORM 4

DELIVERY INSTRUCTIONS: Address for mailing of stock or new Subscription
Certificate or any cash payment in accordance with the Prospectus if other
than shown on the reverse hereof:

Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------

________________________________________________________________________________

<PAGE> 1

EXHIBIT 99.2

NOTICE OF GUARANTEED DELIVERY
FOR RIGHTS CERTIFICATES ISSUED BY

TATHAM OFFSHORE, INC.

This form, or one substantially equivalent hereto, must be used to
exercise Rights pursuant to the Rights Offering described in the Prospectus
dated [__________], 1998 (the "Prospectus") of Tatham Offshore, Inc., a
Delaware corporation (the "Company"), if a holder of Rights cannot deliver the
certificated rights (the "Rights Certificate(s)"), to the Subscription Agent
listed below (the "Subscription Agent") at or prior to 5:00 p.m. New York City
time, on [__________], 1998, unless extended (the "Expiration Date"). Such form
must be delivered by hand or sent by facsimile transmission or mail to the
Subscription Agent, and must be received by the Subscription Agent on or prior
to the Expiration Date. See "The Offering - How You Can Exercise Your Rights"
in the Prospectus. Payment of the Subscription Price of $3.25 for the shares of
Common Stock and Series A Preferred Stock comprising each Right subscribed for
upon exercise of each Right must be received by the Subscription Agent in the
manner specified in the Prospectus at or prior to 5:00 p.m., New York City
time, on the Expiration Date even if the Rights Certificate evidencing such
Rights is being delivered pursuant to the procedure for guaranteed delivery
thereof.

The Subscription Agent is
ChaseMellon Shareholder Services, L.L.C.

By Mail: By Hand:
Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway/13th Floor
South Hackensack, New Jersey 07606 New York, NY 10271

By Overnight Delivery: Facsimile Transmission:
Reorganization Department (201) 329-8936
85 Challenger Road - Mail Drop - Reorg Confirm by Telephone:
Ridgefield Park, New Jersey 07660 (201) 296-4860

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.

GUARANTEE OF DELIVERY
(Not to be used for Subscription Certificate signature guarantee)

The undersigned, a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States, guarantees that the undersigned will deliver to the Subscription
Agent the Rights Certificate(s) representing the Rights being exercised hereby,
with any required signature guarantees and any other required documents, all
within three New York Stock Exchange trading days after the date hereof.

Dated: 199
- ---------------------------------- ---------------------------- -

- ---------------------------------- ----------------------------------------
(Name of Firm)

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

- ---------------------------------- ----------------------------------------
(Area Code and Telephone Number) (Authorized Signature)

The institution which completes this form must communicate the guarantee
to the Subscription Agent and must deliver the Rights Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
<PAGE> 2

Ladies and Gentlemen:

The undersigned hereby represents that he or she is the holder of Rights
Certificate(s) representing Rights and that such Rights
Certificate(s) cannot be delivered to the Subscription Agent at or before 5:00
p.m., New York City time, on the Expiration Date. Upon the terms and subject to
the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to exercise the Subscription
Privilege to purchase 1.12654 shares of Common Stock (the "Underlying Common
Shares") and 0.18744 shares of Series A Preferred Stock (the "Underlying
Preferred Shares" and, together with the Underlying Common Shares, the
"Underlying Shares") per Right with respect to each of Rights
represented by such Rights Certificate. The undersigned understands that
payment of the Subscription Price of $3.25 for the Underlying Shares comprising
each Right subscribed for pursuant to the Subscription Privilege must be
received by the Subscription Agent at or before 5:00 p.m., New York City time,
on the Expiration Date and represents that such payment, in the aggregate
amount of $ , either (check appropriate box):

[ ] is being delivered to the Subscription Agent herewith; or

[ ] has been delivered separately to the Subscription Agent;

and is or was delivered in the manner set forth below (check appropriate box
and complete information relating thereto):

[ ] wire transfer of funds

- name of transferor institution
---------------------------------------

- date of transfer
-----------------------------------------------------

- confirmation number (if available)
-----------------------------------

[ ] uncertified check (payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such date.)

[ ] certified check

[ ] bank draft (cashier's check)

[ ] money order

- name of maker
--------------------------------------------------------

- date of check, draft or money order
----------------------------------

- check, draft or money order number
-----------------------------------

- bank on which check is
drawn or issuer of money order
---------------------------------------

Signature(s) Address
--------------------------- ------------------------------

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

Name(s)
-------------------------------- -------------------------------------

Area Code and
Tel. No(s).
- --------------------------------------- ------------------------
(Please Type or Print)

Rights Certificate
No(s). (if available)
---------------------------------------------------------