TATHAM OFFSHORE INC, DEF 14C, 1998-06-05

TATHAM OFFSHORE INC
DEF 14C, 1998-06-05
OIL & GAS FIELD EXPLORATION SERVICES

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SCHEDULE 14C INFORMATION

INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE
SECURITIES EXCHANGE ACT OF 1934

Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement

Tatham Offshore, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

(1) Title of each class of securities to which transaction applies:

Not Applicable
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:

Not Applicable
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state below how it was determined):

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------
(5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

$23,714.75
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

Registration Statement No. 333-49859
- --------------------------------------------------------------------------------
(3) Filing Party:

Tatham Offshore, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed:

April 10, 1998
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TATHAM OFFSHORE, INC.
7400 CHASE TOWER
600 TRAVIS
HOUSTON, TEXAS 77002

Dear Stockholders:

We at Tatham Offshore, Inc., a Delaware corporation (the "Company"), want
to inform you of the coming changes to our business. In connection with the
merger of DeepTech International Inc. ("DeepTech"), with El Paso Natural Gas
Company, our ownership and business will be changing. DeepTech, the owner of
approximately 94% of our outstanding common stock, par value $0.01 per share,
and 26.5% of our outstanding Series A 12% Convertible Exchangeable Preferred
Stock, par value $0.01 per share, will offer to sell to its stockholders all of
the shares of Common Stock and Series A Preferred Stock that it owns pursuant to
a rights offering (the "Rights Offering"). Following the Rights Offering,
DeepTech will not own any shares of our stock. Also related to the merger, we
will be transferring substantially all of our oil and gas property assets to
DeepTech and Leviathan Gas Pipeline Partners, L.P. (the "Partnership") in
exchange for new assets related to the offshore contract drilling services
business. Pursuant to the Contribution and Distribution Agreement, dated as of
February 27, 1998, DeepTech will contribute to us the capital stock of DeepFlex
Production Services, Inc., which owns two semisubmersible offshore drilling
rigs. In addition, we have agreed to convey all of our interest in Tatham
Offshore Development, Inc. to DeepTech and to cancel our reversionary interests
in certain oil and gas properties owned by the Partnership. In exchange,
DeepTech will sell to us a portion of DeepFlex's outstanding debt to DeepTech
and contribute the remaining balance to DeepFlex's capital stock. We will,
however, assume through our ownership of DeepFlex approximately $60 million that
DeepFlex currently owes under its credit agreements. In addition, pursuant to
the Redemption Agreement, dated as of February 27, 1998, we agreed to convey all
of our interest in our remaining oil and gas properties in exchange for 7,500
shares of the Company's Series B 9% Senior Convertible Preferred Stock, par
value $0.01 per share (the "Series B Senior Preferred Stock") that the
Partnership owns. We will cancel the Senior Preferred Stock upon its redemption.
Together, the transfer of our assets, the redemption of our preferred stock and
the acquisition of DeepFlex are referred to as the "Reorganization
Transactions." For a more complete description of the Reorganization
Transactions, please read the attached Information Statement.

Our Common Stock is listed on the Nasdaq Stock Market's National Market
("Nasdaq National Market") under the symbol "TOFF." The high and low sale prices
of our Common Stock on February 24, 1998, the last full trading day preceding
the public announcement of the above transactions, were $3.688 and $3.56 per
share, respectively. The last reported sale price of Common Stock on June 4,
1998, the last full trading day preceding the date of this Information
Statement, was $3.125 per share.

In addition to the sale of substantially all of our oil and gas property
assets and the acquisition of new assets, we are amending our Certificate of
Incorporation (the "Certificate") to eliminate DeepTech from the provision
regarding Related Persons, as that term is defined in the Certificate's Article
II. This amendment is to reflect the fact that DeepTech will no longer own any
shares of Company stock. Following the amendment, any merger or consolidation
with DeepTech could require 75% of the outstanding voting stock to approve it if
DeepTech owns at least 10% of our outstanding stock. For a further description
of the amendment, please read the attached Information Statement.

On February 27, 1998, the Company's Board of Directors approved the sale of
substantially all of our assets and the amendment to our Certificate. In
addition, the Board of Directors approved the approval by written consent of a
majority of the stockholders of the sale of substantially all of our assets and
the amendment to our Certificate.

On February 28, 1998, in accordance with Delaware law, DeepTech, which owns
a majority of the outstanding Common Stock, executed a written consent approving
the Reorganization Transactions and the amendment to the Certificate.
ACCORDINGLY, YOU ARE NOT BEING ASKED FOR, AND ARE REQUESTED NOT TO SEND PROXIES.
THEREFORE, NO PROXY CARD HAS BEEN ENCLOSED. NO STOCKHOLDERS MEETING WILL BE HELD
TO CONSIDER APPROVAL OF REORGANIZATION TRANSACTIONS AND THE AMENDMENT TO THE
CERTIFICATE.

The attached Information Statement is being provided to you pursuant to
Rule 14c-2 under the Securities Exchange Act of 1934, as amended. The
Information Statement contains a more detailed description of the sale of
substantially all of our assets and the purchase of new assets as well as the
amendment to the Certificate. We encourage you to read the Information Statement
thoroughly.

Very truly yours,

THOMAS P. TATHAM
Chairman of the Board

Houston, Texas

June 5, 1998

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TATHAM OFFSHORE, INC.
7400 CHASE TOWER
600 TRAVIS
HOUSTON, TEXAS 77002

INFORMATION STATEMENT

This Information Statement is being furnished to you, the stockholders of
Tatham Offshore, Inc., a Delaware corporation (the "Company"), in connection
with the proposed sale of substantially of our oil and gas property assets and
an amendment to our Certificate of Incorporation. DeepTech International Inc.
("DeepTech") is merging with El Paso Natural Gas Company ("El Paso"). The merger
has resulted in an overall restructuring of our ownership and business.
DeepTech, the owner of approximately 94% of our outstanding common stock, par
value $0.01 per share ("Common Stock"), and approximately 26.5% of our
outstanding Series A 12% Convertible Exchangeable Preferred Stock, par value
$0.01 per share ("Series A Preferred Stock"), will offer to sell to its
stockholders 28,073,450 shares of Common Stock and 4,670,957 shares of Series A
Preferred Stock (the "Underlying Shares") that it owns pursuant to a rights
offering (the "Rights Offering"). If DeepTech's existing stockholders do not
purchase all of the Underlying Shares, Tatham Brothers, LLC ("TBL"), an
affiliate of Mr. Tatham, will subscribe for and purchase a sufficient number of
Underlying Shares such that DeepTech will receive no less than $75 million in
net proceeds from the Rights Offering (the "Conditional Subscription"). The
Company will purchase any Underlying Shares that remain unpurchased from
DeepTech after the exercise of the Conditional Subscription and TBL's purchase
of any additional Underlying Shares, and DeepTech, subject to certain
limitations, will contribute the proceeds from such purchase to the Company.
Following the Rights Offering, DeepTech will not own any shares of our capital
stock.

Additionally, while we have historically been engaged in the oil and gas
exploration and development business, we will dispose all of our assets related
to that business. Instead, we intend to pursue an integrated investment strategy
in Atlantic Canada. In connection with our new business strategy, we have
entered into several agreements. Pursuant to the Contribution and Distribution
Agreement, dated as of February 27, 1998, DeepTech will contribute to us the
capital stock of DeepFlex Production Services, Inc. ("DeepFlex"), which owns two
semisubmersible offshore drilling rigs. In addition, we have agreed to convey
all of our interest in Tatham Offshore Development, Inc. ("TODI") which owns the
working interest in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday
Silence Project") to DeepTech and to cancel our reversionary interests in
certain other oil and gas properties owned by Leviathan Gas Pipeline Partners,
L.P. (the "Partnership"). In exchange, DeepTech will sell to us a portion of
DeepFlex's outstanding debt to DeepTech and contribute the remaining balance to
DeepFlex's capital stock. At such transfer, DeepFlex will have approximately $60
million in debt outstanding which we will assume through our ownership of
DeepFlex. Also, pursuant to the Redemption Agreement, dated as of February 27,
1998, we agreed to convey all of our interest in our remaining oil and gas
properties in exchange for 7,500 shares of Company Series B 9% Senior
Convertible Preferred Stock, par value $0.01 per share (the "Series B Senior
Preferred Stock") that are owned by the Partnership. We will cancel the Senior
Preferred Stock upon its redemption. Together, the transfer of our oil and gas
property assets, the redemption of our preferred stock and the acquisition of
DeepFlex are known as the "Reorganization Transactions." For a more complete
description of the above transactions, see "The Reorganization Transactions."

Our Common Stock is listed on the Nasdaq Stock Market's National Market
("Nasdaq National Market") under the symbol "TOFF." The high and low sale prices
of our Common Stock on February 24, 1998, the last full trading day preceding
the public announcement of the above transactions, were $3.688 and $3.563 per
share, respectively. The last reported sale price of our Common Stock on June 4,
1998, the last full trading day preceding the date of this Information
Statement, was $3.125 per share.

In addition to the sale of substantially all of our oil and gas property
assets and the purchase of new assets, we are amending our Certificate of
Incorporation ("Certificate") to eliminate DeepTech from the provision regarding
Related Persons, as that term is defined in the Certificate's Article II. This
amendment is to reflect the fact that DeepTech will no longer own any shares of
Company stock. Following the amendment, any
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merger or consolidation with DeepTech could require 75% of the outstanding
voting stock to approve it if DeepTech owns at least 10% of our outstanding
stock. For a further description of the amendment, see "Amendment to the
Certificate of Incorporation."

THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE REORGANIZATION
TRANSACTIONS AND THE AMENDMENT TO THE CERTIFICATE IS IN THE COMPANY'S AND ITS
STOCKHOLDERS' BEST INTERESTS. ACCORDINGLY, ON FEBRUARY 6, 1998, THE CONFLICTS
COMMITTEE OF THE BOARD OF DIRECTORS APPROVED THE REORGANIZATION TRANSACTIONS AND
THE AMENDMENT TO THE CERTIFICATE AND RECOMMENDED APPROVAL BY THE FULL BOARD OF
DIRECTORS. ON FEBRUARY 27, 1998, THE BOARD OF DIRECTORS APPROVED THE
REORGANIZATION TRANSACTIONS AND THE AMENDMENT TO THE CERTIFICATE. IN ADDITION,
THE BOARD OF DIRECTORS APPROVED THE APPROVAL BY WRITTEN CONSENT OF A MAJORITY OF
THE STOCKHOLDERS OF THE SALE OF SUBSTANTIALLY ALL OF OUR ASSETS AND THE
AMENDMENT TO OUR CERTIFICATE.

As required by the Bylaws of the National Association of Securities Dealers
("NASD") and in conformance with Delaware law, the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock is required to
approve the sale of substantially all of our assets and the amendment to the
Certificate. On February 28, 1998 (the "Record Date"), in accordance with
Delaware law, DeepTech the holder of a majority of the Company's outstanding
voting stock, executed a written consent approving the sale of substantially all
of our assets and the amendment to the Certificate. ACCORDINGLY, YOU ARE NOT
BEING ASKED FOR, AND ARE REQUESTED NOT TO SEND PROXIES. THEREFORE, NO PROXY CARD
HAS BEEN ENCLOSED. NO STOCKHOLDERS MEETING WILL BE HELD TO CONSIDER APPROVAL OF
THE REORGANIZATION TRANSACTIONS AND THE AMENDMENT TO THE CERTIFICATE.

The Company is furnishing this Information Statement and first mailed it on
or about June 8, 1998 to our holders of record of Common Stock as of the close
of business on the Record Date.

The date of this Information Statement is June 5, 1998.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INTRODUCTION................................................ 1
RECENT DEVELOPMENTS......................................... 5
FORWARD-LOOKING STATEMENTS.................................. 6
RISK FACTORS................................................ 7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 13
PRICE RANGE OF SECURITIES AND DIVIDEND POLICY............... 14
THE REORGANIZATION TRANSACTIONS............................. 15
The Conveyance of TODI and Contribution of DeepFlex....... 17
The Conveyance of the Oil and Gas Properties and
Redemption of Series B Senior Preferred Stock.......... 19
AMENDMENT OF CERTIFICATE OF INCORPORATION................... 23
BUSINESS OF THE COMPANY..................................... 24
Prospective Business...................................... 26
Historical Business....................................... 31
General................................................... 34
CERTAIN TRANSACTIONS........................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION........................ 39
DESCRIPTION OF CAPITAL STOCK................................ 47
PRINCIPAL SHAREHOLDERS...................................... 52
INDEX TO PRO FORMA FINANCIAL INFORMATION, FINANCIAL
STATEMENTS AND SCHEDULES TO FINANCIAL STATEMENTS.......... F-1
</TABLE>

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INTRODUCTION

Unless otherwise indicated, (i) all current and prospective information in
this Information Statement gives effect to the Reorganization Transactions (as
defined), (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 Information Statement gives effect to the one for ten reverse stock
split Tatham Offshore completed on November 24, 1997.

THE COMPANY

Tatham Offshore historically has been engaged in the development,
exploration and production of oil and gas reserves located primarily in the Gulf
of Mexico focusing 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,
covering approximately 83,200 gross (72,500 net) acres. Tatham Offshore owns
these interests both directly and indirectly through its subsidiaries, of which
Tatham Offshore has several. Tatham Offshore Development, Inc. ("TODI"), a
Delaware corporation, was formed in 1996 and is engaged in the oil and gas
exploration and development business, primarily in the Gulf of Mexico. In order
to expand into Canada, Tatham Offshore formed Tatham Offshore Canada Limited, to
pursue certain opportunities offshore eastern Canada and to be the Canadian
representative of North Atlantic Partners, L.P. ("North Atlantic Partners"), a
subsidiary of Tatham Offshore. North Atlantic Partners is the sponsor of a
proposal to construct a substantial natural gas pipeline offshore Newfoundland
and Nova Scotia to the eastern seaboard of the United States.

In February 1998, DeepTech entered into an Agreement and Plan of Merger
with El Paso, pursuant to which DeepTech will merge with El Paso or a subsidiary
of El Paso (the "Merger"). In connection with the Merger, DeepTech, which owns
approximately 94% of the outstanding Common Stock and 26.5% of the outstanding
Series A Preferred Stock, will conduct the Rights Offering. Pursuant to the
Rights Offering, DeepTech will offer to sell 28,073,450 shares of Common Stock
and 4,670,957 shares of Series A Preferred Stock (the "Underlying Shares") to
its stockholders. If DeepTech's existing stockholders do not purchase all of the
Underlying Shares, Tatham Brothers, LLC ("TBL") will subscribe for and purchase
a sufficient number of Underlying Shares such that DeepTech will receive no less
than $75 million in proceeds from the Rights Offering (the "Conditional
Subscription"). As consideration for its commitment under the Conditional
Subscription, TBL will receive from the Company (i) certain demand registration
rights and (ii) a commitment fee of between $5,769,230 and $7,500,000. See
"Business -- General -- Description of the Reorganization Transactions -- The
Purchase Commitment Agreement." The Company will purchase any Underlying Shares
that remain unpurchased from DeepTech after the exercise of the Conditional
Subscription and TBL's purchase of any additional Underlying Shares, and
DeepTech, subject to certain limitations, will contribute the proceeds from such
purchase to the Company. In addition, to the extent the Rights Offering yields
net proceeds of greater than $75 million, the Company will receive such proceeds
which will be used first to fund certain contingent tax liabilities and second,
for general corporate purposes. Also in connection with the Rights Offering, the
Company will amend its Certificate of Incorporation ("Certificate") to reflect
the fact that DeepTech will not own any capital stock in the Company. DeepTech
will no longer be excluded from "Related Persons" as that term is defined in the
Certificate. As a result, a future merger or combination with DeepTech could
require the approval of 75% of the outstanding voting stock. See "The Amendment
to the Certificate of Incorporation."

Also related to the Merger, DeepTech will contribute to the Company all of
the capital stock of DeepFlex which owns two semisubmersible drilling rigs, the
FPS Laffit Pincay (the "Pincay") and the FPS Bill Shoemaker (the "Shoemaker and,
together with the Pincay, the "Rigs"). As a result, Tatham Offshore is
refocusing its business from the oil and gas exploration and production business
in the Gulf of Mexico to the offshore contract drilling business in order to
effectuate an integrated investment strategy in Atlantic Canada by transferring
substantially all of its assets to DeepTech and the Partnership for certain
consideration. In connection with this business change, Tatham Offshore will
convey all of its interest in TODI to DeepTech

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and will cancel its reversionary interests in certain oil and gas properties
owned by the Partnership. In exchange, DeepTech will sell to us a portion of
DeepFlex's outstanding debt to DeepTech and contribute the remaining balance to
the capital stock of DeepFlex. Although all debt owing to DeepTech by DeepFlex
will be contributed or canceled, the Company, through its ownership of DeepFlex,
will assume approximately $60 million of debt that DeepFlex currently owes under
its credit facility. In addition, the Company will convey its interest in its
remaining oil and gas properties in exchange for 7,500 shares of Company Series
B Senior Senior Preferred Stock that the Partnership owns. Upon redemption, the
Company will cancel the Series B Senior Preferred Stock. The transfer of the oil
and gas property assets, redemption of Series B Senior Preferred Stock and the
acquisition of DeepFlex are known as the Reorganization Transactions. See "The
Reorganization Transactions." After the consummation of the Reorganization
Transactions, the Company will provide offshore contract drilling services to
the oil and gas industry in the Gulf of Mexico and Atlantic Canada and will
pursue other opportunities in Atlantic Canada.

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. THE COMPANY UNDERSTANDS THAT
DEEPTECH INTENDS TO ATTEMPT TO EFFECT THE RIGHTS OFFERING EVEN IF THE MERGER
FAILS TO OCCUR. THE REORGANIZATION TRANSACTIONS MAY STILL OCCUR EVEN IF THE
RIGHTS OFFERING DOES NOT.

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. Because DeepTech holds a majority of the Company's Common
Stock, DeepTech can 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 THE RIGHTS OFFERING, THE
REORGANIZATION TRANSACTIONS OR THE AMENDMENT.

As its principal focus, after the Rights Offering, 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 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, as the Company determines to be in the
Company's best interests.

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 be designed with
heavy lift capability, be able to install subsea gathering and production
systems and
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provide repair capability for such systems as well as allowing it to repair and
maintain the pipeline system proposed by 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. 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.

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 on 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

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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.

Because DeepTech will no longer continue to operate the Company under a
management agreement as has been the case, upon the completion of the Rights
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 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 Rights 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 "The
Reorganization Transactions") 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 was formed in Delaware on October 5, 1993, as a wholly-owned
subsidiary of Tatham Offshore, Inc., a Texas corporation which was incorporated
in Texas on December 21, 1988, and was reincorporated in Delaware on February 2,
1994. The Company's Common Stock trades on the Nasdaq National Market under the
trading symbol "TOFF."

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

DEEPTECH

DeepTech, is a diversified energy company engaged, through its
subsidiaries, in offshore contract drilling services and the acquisition,
development, production, processing, transportation and marketing of, and the
exploration for, oil and gas located primarily offshore the United States in the
Gulf and offshore eastern Canada. DeepTech was formed in 1989 and, through its
subsidiaries and certain joint ventures, owns interests in (i) two second
generation semisubmersible drilling rigs, (ii) nine natural gas pipelines (the
"Gas Pipelines"), (iii) a crude oil pipeline, (iv) five strategically located
multi-purpose platforms and (v) oil and gas leases which currently cover 94,720
gross (82,580 net) acres in the Gulf.

In February 1998, DeepTech entered into an Agreement and Plan of Merger
with El Paso, pursuant to which DeepTech would merge with El Paso. In connection
with the Merger, DeepTech, which owns approximately 94% of the Company's
outstanding Common Stock and 26.5% of its outstanding Series A Preferred Stock,
will conduct the Rights Offering. Pursuant to the Rights Offering, DeepTech will
offer to sell the Underlying Shares to its stockholders. If DeepTech's existing
stockholders do not purchase all of the Underlying Shares, TBL will subscribe
for and purchase a sufficient number of Underlying Shares such that DeepTech
will receive no less than $75 million in net proceeds from the Rights Offering
(the "Conditional Subscription"). The Company will purchase any Underlying
Shares that remain unpurchased from DeepTech after the exercise of the
Conditional Subscription and TBL's purchase of any additional Underlying Shares,
and DeepTech, subject to certain limitations, will contribute the proceeds from
such purchase to the Company. Following the Rights Offering, DeepTech will not
own any capital stock of the Company.

DeepTech's principal executive offices are at 7500 Chase Tower, 600 Travis,
Houston, Texas, 77002, and its telephone number is (713) 224-7400.
4
<PAGE> 10

DEEPFLEX

DeepFlex, a wholly-owned subsidiary of DeepTech, is engaged in the business
of contract drilling oil and gas wells located primarily in the Gulf and
offshore eastern Canada. DeepFlex was formed in 1995 and, through its
subsidiaries, owns two second generation semisubmersible rigs.

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

RECENT DEVELOPMENTS

In September 1997, DeepTech and the Company entered into an option
agreement to restructure all of the $60 million principal amount of Subordinated
Convertible Promissory Notes (the "Subordinated Notes") held by DeepTech. Under
this agreement, DeepTech agreed to forgive the next two scheduled interest
payments under the Subordinated Notes, a total of $3.9 million. In exchange, the
Company permitted DeepTech to select from three options to restructure the
Subordinated Notes: (i) to convert all of the principal amount outstanding under
the Subordinated Notes into shares of the Company's Common Stock at the market
price at the time the option is exercised; (ii) to purchase shares of the
Company's 6% Senior Preferred Stock with a liquidation value of $60 million, the
proceeds from which would be used to prepay the Subordinated Notes; or (iii) to
purchase all of the outstanding capital stock of TODI for $60 million, the
proceeds from which would be used to prepay the outstanding balance of the
Subordinated Notes. In December 1997, the Company issued 26,666,667 shares of
Common Stock to DeepTech upon its election to convert the outstanding principal
of the Subordinated Notes into Common Stock. As a result, DeepTech's ownership
of the outstanding Common Stock of the Company went to approximately 94% from
approximately 36.6%.

In October 1997, The Nasdaq Stock Market, Inc. ("Nasdaq") notified the
Company 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, the Company no longer met the
listing requirements for continued inclusion on The Nasdaq National Market ("The
Nasdaq National Market"). The Company responded to Nasdaq's notification by
detailing the pro forma effect of each of the three options under the
Restructuring Option Agreement with DeepTech. Under each option, the Company's
pro forma net tangible asset value would be in excess of $4.0 million as of
December 31, 1997, the date on which DeepTech had to exercise one of the three
options. However, on November 6, 1997, Nasdaq notified the Company that its
securities were scheduled to be removed from Nasdaq effective with the opening
of business on November 13, 1997. On November 10, 1997, the Company filed a
request for an oral hearing with Nasdaq which allows the Company to maintain its
listing on Nasdaq pending the outcome of the hearing. On January 14, 1998,
Nasdaq notified the Company that, although it met all the requirements for
continued listing on Nasdaq as of the date of the hearing, it did not currently
meet the newly increased public float requirement of $5 million. Nasdaq waived
the Company's noncompliance with the public float listing requirement until May
26, 1998. On May 27, 1998 Nasdaq notified the Company that the Nasdaq Listing
Qualifications Panel (the "Nasdaq Panel") has determined to continue the
Company's listing on the Nasdaq National Market since the Company's public float
exceeds the current requirement, and based on the Nasdaq Panel's decision, the
Company will continue to be listed on The Nasdaq National Market.

Also, in October 1997, Nasdaq notified the Company that because the Company
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, the Company no
longer met the listing requirements for continued inclusion on Nasdaq. On
November 13, 1997, the Company's shareholders approved the Board of Directors
effecting a one for ten reverse stock split, which was effected November 24,
1997.

In February 1998, the Company entered into various agreements in connection
with its refocusing to the offshore contract drilling business. For a
description of these agreements, see "The Reorganization Transactions."

5
<PAGE> 11

Also, in February 1998, the Company issued 7,500 shares of its Series B
Senior Preferred Stock to the Partnership in exchange for 7,500 shares of the
Company's Senior Convertible Preferred Stock. Upon redemption, the Company
retired all 7,500 shares of the Senior Convertible Preferred Stock that were
outstanding.

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.

6
<PAGE> 12

RISK FACTORS

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."

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."

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 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

7
<PAGE> 13

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.

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 March 31, 1998, pro forma for the Reorganization
Transactions, the Company's total consolidated indebtedness would have been
$64.8 million, and its consolidated total assets would have been $151.6 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.

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 increases the risk of fluctuations in revenue.

In addition, the Pincay recently underwent routine repairs and certain
upgrades. During the performance of this maintenance work, the Pincay was not
under contract and the Company's revenue and earnings will likely be decreased
for such period as compared to the previous quarter. Currently, the Pincay is
being marketed and is expected to resume drilling activities in the Gulf of
Mexico.

SEDCO FOREX -- CONTROL OF OPERATING AND MARKETING THE RIGS

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). The
Company entered into these agreements because of its limited fleet and operating
history and due to these factors is dependent on Sedco Forex to market the Rigs
to Sedco Forex's customer base. 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 nor a
customer base to which to market the Rigs and would be forced to engage a new
marketer and operator. Nonetheless, although the Company believes that it could
find, within a reasonable

8
<PAGE> 14

period of time, an alternate company to manage, operate and market 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 demand for offshore drilling rigs and consequently pressure on dayrates, as a
result of price declines for oil and gas.

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 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.

9
<PAGE> 15

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 consummation of the Reorganization
Transactions which will take place prior to the commencement of the Rights
Offering. 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 will be assuming DeepTech's relationship with Sedco Forex as part of the
Reorganization Transactions, 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 myriad 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, the Shoemaker is under
contract and the Pincay is being marketed since its maintenance and certain
upgrades were recently 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 is 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 the Rights Offering
(generally, Mr. Tatham, the Company's directors and senior officers, and 10%
stockholders, possibly including TBL)). Any shares TBL beneficially owns as a
result of the Rights 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 $11.3 million, at
April 30, 1998, 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." 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 Information Statement, 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% of the
Company's outstanding Common Stock and 17% 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 -- Historical -- Other." 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
10
<PAGE> 16

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."

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on the services and expertise provided to
it by the Company's Chairman of the Board, and Chief Executive Officer, Mr.
Thomas P. Tatham, the loss of which could substantially impair the Company's
operations. The Company has not entered into an employment contract with Mr.
Tatham, nor has it obtained "key man" life insurance on his life.

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.

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 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.

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<PAGE> 17

AVAILABILITY OF QUALIFIED RIG PERSONNEL

Increases in worldwide drilling demand during the past two years and the
corresponding increase in the number of 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.

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."

AVAILABILITY OF FEDERAL INCOME TAX BENEFITS

As of June 30, 1997, the Company had $112.7 million of regular net
operating loss ("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. Further, the Company underwent a substantial
change in equity ownership in December 1997, which alone or in combination with
the Rights Offering may result in an additional ownership change. As a result,
the ability of the Company to use its NOL accrued through each ownership change
date will be substantially 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 (reduced for any capital contributions in
the two years preceding the date of the ownership change) (as of the ownership
change date) multiplied by the long-term tax-exempt rate at such time. Thus,
there can be no assurance the Company will receive any material tax benefit from
these net operating losses. Further, the Company can give no assurance that the
Internal Revenue Service will not further disallow the Company's NOL's for other
reasons.
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<PAGE> 18

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-9 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 nine
months ended March 31, 1998 and 1997 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
-------------------------- -----------------------------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED JUNE 30,
MARCH 31, JUNE 30, ------------------------- -------------------
1998 1997 1998 1997 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................. $ 51,257 $19,057 $ -- $ -- $ -- $ --
Oil and gas sales................. -- -- 9,276 16,508 20,723 16,070
-------- ------- ------- ------- -------- --------
Total revenue............. 51,257 19,057 9,276 16,508 20,723 16,070
-------- ------- ------- ------- -------- --------
COSTS AND EXPENSES:
Production and operating
expenses........................ 25,224 10,840 4,228 6,037 8,465 13,203
Exploration expenses.............. -- -- 25 375 542 637
Depreciation, depletion and
amortization.................... 3,914 1,723 3,125 3,500 5,364 1,758
Impairment, abandonment and
other........................... -- -- -- -- 41,674 8,000
Management fee and general and
administrative expenses......... 6,700 6,915 4,364 3,950 4,846 6,275
-------- ------- ------- ------- -------- --------
Total operating costs..... 35,838 19,478 11,742 13,862 60,891 29,873
-------- ------- ------- ------- -------- --------
Operating income (loss)........... 15,419 (421) (2,466) 2,646 (40,168) (13,803)
Gain on sale of oil and gas
properties...................... -- -- -- -- -- 22,641
Interest income................... 436 1,486 205 422 571 113
Interest and other financing
costs........................... (7,641) (1,610) (1,743) (6,314) (8,374) (8,161)
-------- ------- ------- ------- -------- --------
Net income (loss)................. 8,214 (545) (4,004) (3,246) (47,971) 790
Preferred stock dividends......... (2,323) (3,245) (2,829) (2,944) (3,920) (281)
-------- ------- ------- ------- -------- --------
Net income (loss) available to
common shareholders............. $ 5,891 $(3,790) $(6,833) $(6,190) $(51,891) $ 509
======== ======= ======= ======= ======== ========
Basic net income (loss) per common
share........................... $ 0.45 $ (1.42) $ (0.52) $ (2.34) $ (19.47) $ 0.20
======== ======= ======= ======= ======== ========
Diluted net income (loss) per
common share.................... $ 0.33 $ (1.42) $ (0.52) $ (2.34) $ (19.47) $ 0.09
======== ======= ======= ======= ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Semisubmersible drilling rigs,
net............................. $128,493 (a) $ -- (a) $ -- $ --
Oil and gas properties, net....... -- (a) 27,545 (a) 30,752 64,900
Total assets...................... 151,605 (a) 41,314 (a) 42,485 97,130
Notes payable..................... 64,841 (a) -- (a) -- 1,734
Long term debt.................... -- (a) -- (a) 60,000 60,000
Convertible redeemable preferred
stock........................... -- (a) -- (a) -- --
Stockholders' equity (deficit).... 78,910 (a) 30,558 (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.

13
<PAGE> 19

PRICE RANGE OF SECURITIES AND DIVIDEND POLICY

MARKET AND MARKET PRICES

The following table sets forth the high and low sales prices for the Common
Stock as quoted on the Nasdaq National Market under the symbol "TOFF" for the
indicated periods. The high and low sale prices of the Common Stock on February
24, 1998, the last full trading day preceding the public announcement of the
Reorganization Transactions, as reported on Nasdaq, were $3.688 and $3.563 per
share, respectively. The last reported sale price of the Common Stock on June 4,
1998, the last full trading day preceding the printing of this Information
Statement was $3.125 per share. In addition, the table is adjusted for the one
for ten reverse common stock split Tatham Offshore effected on November 24,
1997.

<TABLE>
<CAPTION>
COMMON STOCK
------------------------
LOW HIGH
--- ----
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
Period from April 1, 1998 through May 15, 1998.............. 3 1/2 4 1/4
Third Quarter............................................... 3 4 7/8
Second Quarter.............................................. 2 1/2 5 5/8
First Quarter............................................... 2 13/16 6 9/16
YEAR ENDED JUNE 30, 1997
Fourth Quarter.............................................. 5 7 1/2
Third Quarter............................................... 5 9 3/8
Second Quarter.............................................. 4 3/8 9 3/8
First Quarter............................................... 7 1/2 13 3/4
YEAR ENDED JUNE 30, 1996
Fourth Quarter.............................................. 6 1/4 21 1/4
Third Quarter............................................... 5 12 1/2
Second Quarter.............................................. 8 3/4 23 3/4
First Quarter............................................... 20 52 1/2
</TABLE>

As of May 15, 1998, there were approximately 157 holders of record of our
Common Stock.

DIVIDEND POLICY

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 9% Convertible Exchangeable Preferred Stock as to dividends and
liquidation, which has priority over the Series C 6% Convertible Exchangeable
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. In connection with the Reorganization Transactions, the Senior
Preferred Stock and related unpaid dividends will be redeemed in full. As of May
15, 1998, the amount of accrued and unpaid dividends on the Series A Preferred,
Series B Preferred, and Series C Preferred Stocks was $5,530,659, $8,925, and
$8,030, respectively.

14
<PAGE> 20

THE REORGANIZATION TRANSACTIONS

The following is a brief description of certain aspects of the proposed
sale of substantially all of Tatham Offshore's assets pursuant to the
Contribution and Distribution Agreement and the Redemption Agreement. Both
agreements have been filed with the SEC in connection with the Registration
Statement on Form S-1 (Registration Statement No. 333-49859).

BACKGROUND TO THE REORGANIZATION TRANSACTIONS

In March of 1997, Mr. Ralph Eads, who at that time was a director of
DeepTech, began discussions with senior management of El Paso regarding a
possible transaction between DeepTech and El Paso. In a subsequent discussion
with El Paso management, Mr. Eads provided El Paso with his opinion as to what
form of transaction would be best for the stockholders of DeepTech. Donaldson,
Lufkin & Jenrette Securities Corporation, Mr. Eads' employer, has an ongoing
investment banking relationship with El Paso.

On July 24, 1997, Messrs. Thomas P. Tatham and Charles M. Darling, IV of
DeepTech met with El Paso's Chairman, Mr. William Wise, and Mr. Eads. At this
meeting Mr. Wise informed Mr. Tatham that El Paso was interested in acquiring
either DeepTech or The Partnership.

DeepTech's Board of Directors (the "DeepTech Board") had considered the
state of the merger and acquisition activity in the oil and gas industry from
time to time. Following the expression of interest from El Paso, the DeepTech
Board determined that DeepTech should engage in a "market check" to determine
the value of DeepTech. Accordingly, the DeepTech Board authorized Messrs. Tatham
and Grant E. Sims to contact selected third parties to determine what interest
they would have with respect to the possible sale or merger of either DeepTech
or The Partnership (the "Possible Transaction"). In giving such authorization,
the DeepTech Board emphasized that Messrs. Tatham and Sims should concentrate on
potential purchasers that were in the energy business. Shortly thereafter,
Messrs. Tatham and Sims contacted at least five large energy companies that they
determined to be the best strategic fit for DeepTech. Three of these companies
seriously considered entering into a Possible Transaction. Two of these
companies, one being El Paso, ultimately then provided definitive proposals to
purchase either DeepTech or The Partnership.

In the fall of 1997, Mr. Wise presented Mr. Tatham with a proposal in which
El Paso would purchase all of DeepTech, including its interest in the Company.
Mr. Tatham considered such offer and discussed it with various members of the
DeepTech Board. After due consideration, the DeepTech Board determined that such
offer did not attribute sufficient value to DeepTech's two semi-submersible
drilling rigs. Therefore, Mr. Tatham informed Mr. Wise that the DeepTech Board
was not prepared to accept such an offer.

Sometime thereafter, Mr. Tatham met with Mr. Wise to discuss the Possible
Transaction and whether such Possible Transaction would include DeepTech's two
semi-submersible drilling rigs and its shares of the Company's Common Stock and
Series A Preferred Stock.

In response to this meeting, on December 18, 1997, Mr. Wise sent a letter
to Mr. Tatham proposing a Possible Transaction by which DeepTech would merge
with El Paso pursuant to a merger in which DeepTech stockholders would receive
$14.00 in El Paso Common Stock or cash after DeepTech had disposed of the two
drilling rigs and its shares of the Company's stock.

On December 19, 1997, the DeepTech Board met to discuss the latest El Paso
proposal as well as another proposal from a major industry participant. After
extensive discussion, it became apparent that the competing proposal was clearly
inferior to El Paso's in terms of both value and structure. After discussing how
best to handle the El Paso proposal, the DeepTech Board decided to appoint an
independent committee (the "DeepTech Independent Committee") headed by Ms. Nancy
Quinn as Chairperson to (i) determine if it was in the best interest of DeepTech
and its stockholders for DeepTech to continue to pursue its business strategy as
currently contemplated or to pursue a strategic alliance, a business combination
or the sale of a substantial portion of, or all or substantially all of, its
assets, including reviewing and analyzing the fairness of the proposal from El
Paso, (ii) evaluate the terms of the proposal from El Paso and any other
proposal, with a view towards obtaining the best available transaction for all
stockholders, and, if appropriate, any arrangements related to the foregoing and
(iii) report their conclusions and recommendations to the DeepTech Board
regarding any
15
<PAGE> 21

final proposal. Furthermore, the DeepTech Board instructed Mr. Tatham to
continue negotiations, and in connection therewith, to enter into an agreement
providing for an exclusive period of negotiation and a mechanism for each party
to conduct a due diligence review.

Immediately after this DeepTech Board meeting, Ms. Quinn initiated regular
discussions with Mr. Rick L. Burdick of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., DeepTech's outside counsel, and representatives of Chase Securities Inc.
("Chase Securities"), a candidate to become the DeepTech Independent Committee's
financial advisor, about the status of negotiations between DeepTech and El Paso
regarding the Possible Transaction. She reported such discussions to the other
members of the DeepTech Independent Committee.

In connection with the DeepTech Board's pending discussions with El Paso
regarding the Possible Transaction, the Company's Board of Directors authorized
a special committee of independent directors (the "Independent Board Committee")
headed by Roger Vincent and consisting of non-employee directors of the Company
to review and consider the Reorganization Transactions.

On December 22, 1997, DeepTech and El Paso entered into a letter agreement
providing for an exclusive period of negotiation, access to books and records
for due diligence and confidentiality. The letter agreement further contemplated
the negotiation of definitive merger agreements.

In late December 1997, El Paso delivered initial drafts of a contribution
and distribution agreement, a redemption agreement and other related documents
to the Company and its counsel. Beginning in early January 1998, representatives
of El Paso, the Company, DeepTech and their respective counsel engaged in
negotiations regarding the draft contribution and distribution agreement, a
redemption agreement and other related documents.

From January 29 through February 5, 1998, Mr. Tatham was in contact with
all of the members of the Independent Board Committee.

On January 30, the Independent Board Committee, consisting of Clyde Nath,
James Niven, Diana Walters and Roger Vincent, met to discuss the Reorganization
Transactions. Outside directors Phil Clarke an Jon Pollack also provided input
to the Special Committee.

Between January 30 and February 2, 1998, Mr. Vincent has numerous
discussions with Mr. Tatham and Mr. Burdick. The primary focus of these
conversations was to provide a complete understanding of the outstanding issues
of various aspects of the merger between DeepTech and El Paso and how those
outstanding issues impacted the Company, especially concerning the tax aspects
of the rig acquisition.

On February 6, 1998, the Independent Board Committee met again. At this
meeting the Independent Board Committee discussed the Company's current position
as compared to its position following the potential acquisition of the Rigs. The
Independent Board Committee reviewed updated information on the Company's oil
and gas properties to better assess the value of those properties. The
Independent Board Committee also reviewed the feedback from the market for its
oil and gas properties as well as compared offers from others for certain of the
oil and gas properties. On the recommendation of the Independent Board
Committee, the Company's Board of Directors unanimously ratified their earlier
approval and authorization of the Reorganization Transactions.

On the evening of February 27, the Company's Board of Directors met
telephonically to again ratify their approval and authorization of (i) the
Reorganization Transactions as contemplated by the final contribution and
distribution agreement, redemption agreement and other related agreements and
(ii) the execution of such final documents by the appropriate representatives of
the Company.

The Company has prepared this Information Statement to be distributed to
holders of its Common Stock as of the Record Date.

16
<PAGE> 22

THE CONVEYANCE OF TODI AND CONTRIBUTION OF DEEPFLEX

In connection with DeepTech's impending merger (the "Merger") with El Paso,
DeepTech will contribute all of the outstanding capital stock of DeepFlex (the
"DeepFlex Shares") to the Company. DeepFlex, which is in the offshore contract
drilling business, owns two semisubmersible drilling rigs, the FPS Laffit Pincay
(the "Pincay") and the FPS Bill Shoemaker (the "Shoemaker," and, together with
the Pincay, the "Rigs"). Related to the contribution of DeepFlex, 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. To effectuate this business change, Tatham Offshore agreed, pursuant
to the Contribution and Distribution Agreement to convey all of its interest in
TODI. TODI is a wholly-owned subsidiary of Tatham Offshore which owns 100% of
the working interest in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday
Silence Project"). In addition, Tatham Offshore has reversionary working
interests of 37.5% in Viosca Knoll Block 817, 25% in Garden Banks Block 72 and
25% in Garden Banks Block 117 (the "Reversionary Interests"), if certain
conditions are satisfied, which it will cancel. For a more complete description
of the Sunday Silence Project and the Reversionary Interests, see
"Business -- Historical Business."

In exchange for the conveyance of TODI and the cancellation of the
Reversionary Interests, DeepTech will sell to us approximately $8 million of the
debt owed by DeepFlex to DeepTech (the "DeepFlex Debt"). DeepFlex will also
deliver to DeepTech all of the shares of Common Stock and Series A Preferred
Stock owned by DeepFlex in satisfaction of $12 million of the DeepFlex Debt.
Additionally, DeepTech will contribute any remaining balance of the DeepFlex
Debt to the capital of DeepFlex. As a result of its acquisition of the DeepFlex
Shares, the Company, through DeepFlex, will become liable for approximately $60
million of debt DeepFlex owes under its credit agreements.

The Contribution and Distribution Agreement

The Contribution and Distribution Agreement (the "Contribution Agreement"),
dated February 27, 1998, by and among the Company, DeepTech, DeepFlex and El
Paso, sets forth the mechanics of the Rights Offering and the transfer of
DeepFlex, and therefore the Rigs, to the Company. Pursuant to the Contribution
Agreement, DeepTech will effect the Rights Offering. DeepTech will retain the
first $75 million of net proceeds of the Rights 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 the Rights 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 first, to satisfy the Estimated Tax
Amount and second, for general corporate purposes. See "-- The Standby
Agreement."

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) remaining
balance of approximately $65.0 million of the DeepFlex Debt will be contributed
to the capital of DeepFlex (the "Contribution").

The Contribution Agreement establishes certain preconditions to the
consummation of both the Contribution and the Rights Offering. The Contribution
and the completion of the Rights Offering will be subject to the satisfaction or
waiver by DeepTech and the Company of the following conditions: (i) the

17
<PAGE> 23

Contribution and the Rights Offering being in compliance with applicable federal
and state securities laws and any applicable Nasdaq regulations and the
registration statements relating to the Rights Offering having been declared
effective and no stop order being in effect; (ii) there being no injunction or
order being in effect which prevents the consummation of the Merger; and (iii)
in the case of the Rights 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 (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 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
an Indenture and Senior Subordinated Promissory Note of DeepTech in connection
with the Contribution and the Rights 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
Information Statement), 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 Rights 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.

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
18
<PAGE> 24

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 CONVEYANCE OF THE OIL AND GAS PROPERTIES AND REDEMPTION OF SERIES B SENIOR
PREFERRED STOCK

In addition to the Conveyance of TODI and its Reversionary Interests,
Tatham Offshore will also convey all of its right, title and interest in its
other oil and gas properties, pursuant to the terms of the Redemption Agreement.
Those properties consist of a 100% working interest in Viosca Knoll Blocks 772,
773 and 774 (north half), a 50% working interest in Viosca Knoll Block 774
(south half), a 25% working interest in Viosca Knoll Block 817, a 50% working
interest in Viosca Knoll Block 818 (less the well bore and all production from
the OCS-G 13063 #1 Well), a 100% working interest in the well bore and
production from the OCS-G 13063 #1 Well located on Viosca Knoll Block 818, a
100% working interest in Viosca Knoll Block 861 (from the seafloor down to the
stratigraphic equivalent of the top of the Tex (L) Formation) and a 100%
interest in Viosca Knoll Block 861 from the top of the Tex (L) Formation and
below, a 38% working interest in West Delta Block 35, a 100% working interest in
Ewing Bank Blocks 871, 914, 915 and 916 and a platform located on Ship Shoal
Block 331 (the "Oil and Gas Properties"). For a further description of the Oil
and Gas properties, see "Business -- Historical Business."

In consideration for the Oil and Gas Properties, the Partnership will
transfer to Tatham Offshore all 7,500 shares of Company Series B Senior
Preferred Stock, including all of the accrued and unpaid dividends on the Series
B Senior Preferred Stock due 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.

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 the Oil and Gas Properties for
the conveyance of 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 the Rights Offering, including the satisfaction of 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 Oil and Gas
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 Oil and Gas 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 Oil and Gas Properties, (iv) designate any
person, other than the Partnership, as the operator of the Oil and Gas
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 Oil and Gas 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 Oil and Gas Properties to the Partnership and (b) any
sales, transfer, stamp or other excise taxes resulting from the transfer of the
Oil and Gas Properties.
19
<PAGE> 25

RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS

The Company's Board of Directors believes that the terms of the
Reorganization Transactions are financially and procedurally fair to and in the
best interests of the Company and its stockholders. ACCORDINGLY, THE CONFLICTS
COMMITTEE OF THE BOARD OF DIRECTORS
APPROVED THE REORGANIZATION TRANSACTIONS AND RECOMMENDED APPROVAL BY THE FULL
BOARD OF DIRECTORS. ON FEBRUARY 27, 1998, THE FULL BOARD OF DIRECTORS APPROVED
THE REORGANIZATION TRANSACTIONS. The resulting decision to approve the
Reorganization Transactions was based upon the factors set forth under the
caption "-- Background of the Reorganization Transactions." In determining the
fairness of the Reorganization Transactions to the Company and its stockholders
from a financial standpoint, the Independent Committee and the Company's Board
of Directors considered the value of the Rigs as well as the going business of
DeepFlex as managed by Sedco Forex; the potentially increased public float of
the Company following the Rights Offering; the declining revenue from the
Company's Oil and Gas Properties and the potential investment opportunities in
Atlantic Canada.

The Independent Committee and the Company's Board of Directors also
considered other factors such as (i) the strategic, operational and financial
opportunities available to the Company in the normal course of its business
compared to those that might be available following the Reorganization
Transactions, (ii) the historical and current market prices of the Company's
Common Stock, and (iii) the proposed structure of the Reorganization
Transactions and the other terms of the Contribution Agreement, Redemption
Agreement and related agreements.

Furthermore, the Independent Committee and the Company's Board of Directors
deliberated on the potential risks and disadvantages of the Reorganization
Transactions, including the risks associated with businesses in the early stage
of their development. In the judgment of the Independent Committee and the
Company's Board of Directors, the potential benefits of the Reorganization
Transactions outweighed the potential risks and disadvantages.

The foregoing discussion of the information and factors considered and
given weight by the Independent Committee and the Company's Board of Directors
is not intended to be exhaustive but is believed to include the material factors
the Independent Committee and the Company's Board of Directors considered. In
addition, in making the determination to approve and recommend the
Reorganization Transactions, considering the wide variety of factors considered
in connection with its evaluation of the proposed Reorganization Transactions,
the Independent Committee and the Company's Board of Directors did not find it
practical to, and did not quantify or otherwise attempt to assign any relative
or specific weights to the foregoing factors, and individual directors may have
given different weights to different factors.

STOCKHOLDER APPROVAL OF THE REORGANIZATION TRANSACTIONS

The transfer of TODI and the Oil and Gas Properties may constitute a sale
of "substantially all" of the Company's assets, which is subject to the approval
of a majority of the Company's total voting power under the Delaware General
Corporation Law ("DGCL"). On February 28, 1998, DeepTech, which owns
approximately 94% of the outstanding shares of Common Stock, executed a written
consent approving the Reorganization Transactions.

INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION TRANSACTIONS

Mr. Tatham, currently a director, is also the Chairman of the Board and
Chief Executive Officer of the Company. At present, Mr. Tatham owns 0.6% of the
outstanding shares of Common Stock and could own as much as 41.4% of the
Company's outstanding Common Stock after the completion of the Rights Offering
if he exercises his rights in full. Additionally, Mr. Tatham has the right to
purchase a one-third interest in TBL for $1,000.

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CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Each of the dispositions by the Company of its assets would result in the
recognition of gain by the Company to the extent of any excess of the value of
the asset(s) transferred over the adjusted tax basis of the Company in the
asset(s). The Company believes that the values of the assets are fairly
reflected in the Reorganization Transaction and that the gain or loss recognized
will not be significant to the Company. In addition, the Company believes that
the net operating loss carryover of the Company may be available to offset any
gain from the disposition of the assets of the Company without regard to any
possible limitations on the use of the net operating loss as described in the
following paragraph. The Company believes that the contribution of the DeepFlex
stock to the Company by DeepTech should not result in gain or loss to the
Company.

ACCOUNTING TREATMENT

The Reorganization Transactions have been reflected in the unaudited pro
forma consolidated financial statements included herein, and will be accounted
for using historical cost.

APPRAISAL RIGHTS

Holders of Common Stock that did not consent to the Reorganization
Transactions will not have any appraisal rights in connection with the
Reorganization Transactions.

GOVERNMENTAL AND REGULATORY APPROVALS

The Company intends to make all necessary filings with the Department of
the Interior's Minerals Management Service (the "MMS") and to seek the MMS's
consent where necessary in connection with the conveyance of Oil and Gas
Properties. Other than any MMS filings, the Company is not aware of any other
governmental or regulatory approvals required for the consummation of the
conveyance of the Oil and Gas Properties.

OTHER AGREEMENTS

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 closing 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

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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 the Rights
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 the
Rights 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 the Rights 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 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).

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 Rights Offering as will result in DeepTech receiving net proceeds
from the Rights 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 the Rights 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 Rights 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.
The terms of the Purchase Commitment Agreement

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<PAGE> 28

were negotiated by TBL and the Company and were approved by the Company's
Conflict Committee and Board of Directors.

AMENDMENT OF THE CERTIFICATE OF INCORPORATION

THE AMENDMENT

By resolution adopted February 27, 1998, the Company's Board of Directors
voted to approve an amendment to the Company's Certificate of Incorporation's
provisions having a potential anti-takeover effect. Prior to the amendment,
DeepTech was excluded from the category of "Related Persons," as that term is
defined in the Certificate's Article II. The amendment removed DeepTech from the
list of persons or entities not to be included in the definition of "Related
Persons." Following the amendment, if DeepTech were to acquire 10% or more of
Company voting stock, any merger or consolidation with DeepTech would require
75% of the outstanding voting stock to approve such a combination.

REASONS FOR THE AMENDMENT

DeepTech was excluded from "Related Persons" when it was an affiliate of
the Company. Following the Rights Offering, DeepTech will no longer be an
affiliate of the Company. The provisions were 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 and to discourage certain tactics that may be used in proxy
fights. Since DeepTech will no longer be affiliated with the Company, the Board
of Directors believes that it is in the best interest of the Company and its
stockholders to require heightened approval requirements in any merger or
consolidation transaction with DeepTech in the future.

STOCKHOLDER APPROVAL OF THE AMENDMENT

On February 28, 1998, in accordance with Delaware law, DeepTech, which owns
approximately 94% of the outstanding shares of Common Stock, executed a written
consent approving the Amendment.

APPRAISAL RIGHTS

The stockholders do not have appraisal rights or similar rights of dissent
with respect to the Amendment.

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BUSINESS

SUMMARY

After the Reorganization Transactions, the Company will provide offshore
contract drilling services to the oil and gas industry in the Gulf of Mexico and
Atlantic Canada and will pursue an integrated investment strategy in Atlantic
Canada. The Company will own 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, which recently underwent certain upgrades and routine
maintenance at a shipyard in Texas, is being marketed and is expected to resume
contract drilling services in the near future. The Rigs generated revenue
totaling $51.3 million for the nine months ended March 31, 1998.

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. Those 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.

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Regardless of whether the joint venture is formed, however, the Company plans to
construct the Planned Rig 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 coat 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 increases on the east coast of
the United States.

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
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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. As currently contemplated, the proposal would provide for
approximately $30 million of U.S. letters of credit or advanced payments or
contribution.

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 (y) other opportunities related to or
located in Atlantic Canada. There can be no assurances that such opportunities
will prove economical, be financeable or will occur.

THE PROSPECTIVE BUSINESS

Due to the requirements of the Securities Exchange Act of 1934, as amended,
(the "Exchange 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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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 fact 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,
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 contract for the mobilization of the
Shoemaker to the Grand Banks area to conduct a two-well (with three options
permitting up to seven additional wells) 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.

Recently, the Pincay underwent routine repairs and certain upgrades. At
this time, the Pincay is being marketed and is expected 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

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(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 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 contract
for the mobilization of the Shoemaker to the Grand Banks area in Atlantic Canada
to conduct a two-well (with three options permitting up to seven additional
wells) 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. Recently, the Pincay underwent routine repairs and
certain upgrades. At this time, the Pincay is being marketed and is expected 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. See "Risk Factors -- Sedco Forex -- Control of
Operating and Marketing the Rigs."

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<PAGE> 34

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 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.
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<PAGE> 35

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
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. Both Rigs have recently
completed a total maintenance and refurbishment program, including recent
repairs and certain upgrades to the Pincay. 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> 36

THE HISTORICAL BUSINESS

The following discussion is included in this Information Statement due to
the requirements of the Exchange 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 those 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 "The Reorganization Transactions."

Tatham Offshore has historically been (and will be until the completion of
the Reorganization Transactions) 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 Reorganization Transactions. In
connection with the Reorganization Transactions, Tatham Offshore will assign
these properties to DeepTech and the Partnership. See "The 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 49 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 8 MMcf of gas and 16 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.

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
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<PAGE> 37

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 and in
May 1998, Tatham Offshore completed abandonment procedures on this well.

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 oil 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 taxes totaled $12.7 million and $11.0 million, respectively. In preparing
those estimates, Ryder Scott used prices of $17.20 per barrel of oil and $2.39
per Mcf of gas as of June 30, 1997.
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<PAGE> 38

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.

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<PAGE> 39

OIL AND GAS DRILLING ACTIVITY

The following table sets forth the gross and net number of productive, dry
and total exploratory wells and development wells that Tatham Offshore drilled
in each of the years ended June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Natural Gas............................................ -- -- -- -- -- --
Oil.................................................... -- -- -- -- 2.00 1.50
Dry.................................................... -- -- -- -- 2.00 2.00
---- ---- ---- ---- ---- ----
Total.......................................... -- -- -- -- 4.00 3.50
==== ==== ==== ==== ==== ====
DEVELOPMENT
Natural Gas............................................ 4.00 1.00 3.00 .75 1.00 1.00
Oil.................................................... -- -- 1.00 .25 -- --
Dry.................................................... -- -- 1.00 .25 -- --
---- ---- ---- ---- ---- ----
Total.......................................... 4.00 1.00 5.00 1.25 1.00 1.00
==== ==== ==== ==== ==== ====
</TABLE>

The following table sets forth Tatham Offshore's ownership in producing
wells at June 30, 1997:

<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Natural Gas................................................. 8.00 2.13
Oil......................................................... 2.00 0.63
----- ----
10.00 2.76
===== ====
</TABLE>

GENERAL

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 nine months ended March 31, 1998,
DeepTech charged (i) Tatham Offshore $3.3 million and $3.3 million,
respectively, under its Management Agreement and (ii) DeepFlex $2.5 million and
$2.3 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. After the Reorganization
Transactions, the Company's executive management will be: Thomas P.
Tatham -- Chairman of the Board and Chief Executive Officer, Dennis A.
Kunetka -- Chief Financial Officer, Senior Vice President and Secretary, Phil
German -- Vice President -- Senior Project Engineer, Harvey O.
Fleisher -- Senior Vice President -- Marine Services, Kenneth L.
Hamilton -- Vice President -- Treasurer and Assistant Secretary, and Dennis J.

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<PAGE> 40

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.

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, Senior Vice President
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.

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 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.

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<PAGE> 41

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.

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 "The Reorganization
Transactions."

The Purchase Commitment Agreement

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 nine months ended March 31, 1998, DeepTech charged Tatham Offshore
$3,279,000 and $3,305,000, 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

36
<PAGE> 42

price at the time of exercise. As a result of the conversion of the Subordinated
Notes into Common Stock, DeepTech's ownership of outstanding Common Stock
increased to approximately 94% from approximately 36.6%. In connection with the
Merger, DeepTech is granting to its stockholders rights to purchase all of the
Common Stock and Series A Preferred Stock it owns pursuant to the Rights
Offering. Following the Rights 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% 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

37
<PAGE> 43

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 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. In March 1998, Mr. Tatham acquired one-half of this convertible
production payment. At April 30, 1998, the unpaid portion of the production
payment obligation totaled approximately $11.3 million.

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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 nine months ended March 31, 1998 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 nine months ended March 31, 1998 and 1997
and for each of the historical years ended June 30, 1997, 1996 and 1995.

RESULTS OF OPERATIONS -- PRO FORMA

Pro Forma Nine Months Ended March 31, 1998

Drilling services totaled $51.3 million for the pro forma nine months ended
March 31, 1998 and represented revenue from contract drilling services provided
by the Rigs. Operating expenses, including fees payable to Sedco Forex, and
depreciation totaled $25.2 million and $3.9 million, respectively, for the pro
forma nine months ended March 31, 1998. The Pincay was under contract from July
1, 1997 through March 16, 1998, and the Shoemaker was under contract from August
1997 (in service date) through March 1998.

General and administrative expenses for the pro forma nine months ended
March 31, 1998 totaled $6.7 million and reflects salaries, rent, professional
fees and other administrative costs. Interest income for the pro forma nine
months ended March 31, 1998 totaled $0.4 million and included interest income
from available cash. Interest and other financing costs for the pro forma nine
months ended March 31, 1998 totaled $7.6 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 $2.3 million of Preferred Stock dividends in
arrears, pro forma net income available to common shareholders for the nine
months ended March 31, 1998 totaled $5.9 million, or $0.45 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 $6.9 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 $1.6 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 $3.8 million, or $1.42 per share.

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 obligations. However, as described below, the Company will need to
raise substantial capital (equity, debt or

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<PAGE> 45

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 nine months ended March 31, 1998, drilling services
operations of the Company generated $24.1 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 May 15, 1998,
Tatham Offshore Canada Limited, the Canadian representative of North Atlantic
Partners, has incurred $10.7 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, through its ownership of DeepFlex, will assume the RIGCO
credit facility. On September 30, 1996, RIGCO entered into a $65 million senior
secured credit facility with a syndicate of lenders (the "Third-Party Credit
Facility"). Proceeds from the Third-Party Credit Facility were used to acquire
the FPS Bill Shoemaker to fund significant upgrades to the FPS Bill Shoemaker,
and to retire $30.3 million of other indebtedness of the Company. In April 1997,
the RIGCO Credit Facility was amended to provide for an additional $12 million
to fund the remaining refurbishments and upgrades to the FPS Bill Shoemaker. The
Third-Party Credit Facility (i) matures on September 30, 1998, (ii) bears
interest at the prime rate plus 3% per annum (11.5% at March 31, 1998), payable
quarterly, (iii) is secured by all tangible and intangible assets of RIGCO,
including the two semisubmersible drilling rigs, and the ownership interest in
RIGCO, (iv) requires a quarterly principal payment of excess 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 minimum level of
working capital. As of March 31, 1998, amounts outstanding under the Third-Party
Credit Facility totaled $64.8 million. In connection with providing the
Third-Party Credit Facility, lending syndicate members were issued warrants to
purchase an aggregate of 5% of RIGCO's outstanding equity.

The Company is currently negotiating with its lenders to refinance its
Third-Party Credit Facility. If successful, proceeds from the refinancing would
be used: (i) to repay existing debt, (ii) to complete paying predevelopment
costs associated with pursuing the Company's strategy in Atlantic Canada and
(iii) for general corporate purposes.

The Company is refocusing its business from the development, exploration
and production of oil and gas in the Gulf to an integrated frontier investment
strategy targeting Atlantic Canada with initial emphasis on the offshore
contract drilling business. Currently, Tatham Offshore has entered into
contracts and other agreements which, if consummated, will allow the Company to
(i) divest itself of its oil and gas properties and

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<PAGE> 46

related assets located in the Gulf, (ii) operate independently of DeepTech,
(iii) acquire two semisubmersible drilling rigs and (iv) redeem its Senior
Preferred Stock. See Note 2 to the Company's Financial Statements included
elsewhere in this Information Statement. The Company believes that the Atlantic
Canada region offers significant investment opportunities and the Company plans
to expand the number of drilling rigs it will own as well as diversify its
business to include the North Atlantic pipeline project, related gas processing
facilities, a facility for the generation of electricity and other related
investments.

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 Exchange 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, 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 "The Reorganization
Transactions."

Nine Months Ended March 31, 1998 Compared With Nine Months Ended March 31,
1997

Revenue from oil and gas sales totaled $9.3 million for the nine months
ended March 31, 1998 as compared with $16.5 million for the nine months ended
March 31, 1997. During the nine months ended March 31, 1998, Tatham Offshore
sold 3,739 MMcf of gas and 14,795 barrels of oil at average prices of $2.41 per
Mcf and $17.02 per barrel, respectively. During the same period in 1997, Tatham
Offshore sold 5,354 MMcf of gas and 153,000 barrels of oil at average prices of
$2.43 per Mcf and $22.86 per barrel, respectively. The decrease in oil and gas
sales was primarily a result of the cessation of oil and gas production in May
1997 from Tatham Offshore's Ewing Bank 914 #2 well, decreased gas production
from Tatham Offshore's Viosca Knoll Block 817 lease and substantially lower
realized oil and gas prices.

Production and operating expenses for the nine months ended March 31, 1998
totaled $4.2 million as compared with $6.0 million for the same period in 1997.
The decrease of $1.8 million was primarily comprised of a decrease of $2.1
million in transportation, production, operating and workover expenses offset by
an increase of $0.3 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 nine months ended March 31, 1998 totaled
$25,000 as compared with $0.4 million for the nine months ended March 31, 1997.
Exploration expenses primarily included delay rentals and minimum royalties.

Depreciation, depletion and amortization totaled $3.1 million for the nine
months ended March 31, 1998 as compared with $3.5 million for the nine months
ended March 31, 1997. 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

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<PAGE> 47

additional depletion at Viosca Knoll Block 817 and West Delta Block 35 of $0.1
million and abandonment accruals related to West Delta Block 35 and Viosca Knoll
Blocks 817 and 818 of $0.3 million.

General and administrative expenses, including the management fee allocated
from DeepTech, for the nine months ended March 31, 1998 totaled $4.4 million as
compared with $4.0 million for the same period in 1997. 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 $1.0 million
offset by a decrease in direct general and administrative expenses of $0.6
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 nine months ended March 31, 1997.

Operating loss for the nine months ended March 31, 1998 was $2.5 million as
compared with operating income of $2.6 million for the nine months ended March
31, 1997. The change was due to the items discussed above.

Interest income totaled $0.2 million for the nine months ended March 31,
1998 as compared with $0.4 million for the same period in 1997 and included
interest income from available cash.

Interest expense for the nine months ended March 31, 1998 totaled $1.7
million as compared with $6.3 million for the nine months ended March 31, 1997
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 $2.8 million of Preferred Stock dividends in
arrears, Tatham Offshore's net loss available to common stockholders for the
nine months ended March 31, 1998 was $6.8 million, or $0.52 per share, as
compared with net loss available to common stockholders for the nine months
ended March 31, 1997 of $6.2 million, or $2.34 per share, after taking into
account $2.9 million of Preferred Stock dividends in arrears. The weighted
average shares outstanding for the purposes of calculating loss per share for
the nine months ended March 31, 1998 and 1997 were 13,082,609 shares and
2,644,396 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.

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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--Oil and Gas Properties" on pages F-26 through F-29. 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.

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.

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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 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. See "Note 3--Oil and Gas
Properties" on pages F-26 through F-29.

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.

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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 March 31, 1998, Tatham Offshore had $2.3
million of cash and cash equivalents. See "-- Liquidity Outlook."

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 nine months ended March 31, 1998, Tatham Offshore's net
revenue from this property was reduced by $1.2 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 December 1997, Tatham Offshore assigned its working interest in Ship
Shoal Block 331 to a group of other oil and gas producers. In May 1998, Tatham
Offshore completed abandonment procedures on its Ewing Bank 914 #2 well. As a
result of the actions, Tatham Offshore will no longer receive cash from the
operations of these properties. See "Note 3 Oil and Gas Properties" on pages
F-26 through F-29.

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. DeepFlex conveyed the
406,783 shares of Common Stock to DeepTech in March 1998.

Revenue from currently producing properties will need to be replaced by
revenue from other sources. Tatham Offshore will receive proceeds from the
Rights Offering, if consummated, if the net proceeds exceeds the total of (i)
$75.0 million and (ii) the amounts of certain estimated tax payments of the
Company. See "-- Liquidity Outlook."

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 Atlantic Canada project. See "-- Liquidity
Outlook."

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 nine
months ended March 31, 1998, DeepTech charged Tatham Offshore $3.3 million in
management fees pursuant to this agreement. If the transactions contemplated by
the Redemption Agreement are consummated, the management fees charged to Tatham
Offshore by DeepTech will be reduced by 50% effective retroactively to January
1, 1998. See "-- Liquidity Outlook."

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. Through March 31, 1998, Tatham Offshore Canada Limited, the Canadian
representative of North Atlantic Partners, has incurred $10.4 million of pre-
developmental costs in connection with such project and related infrastructure
projects. Tatham Offshore anticipates that pre-developmental costs associated
with the North Atlantic Partners pipeline project could ultimately reach
approximately $12.0 million by late 1998 and the ultimate capital costs of the
project, if approved, could be in excess of several billion dollars. See
"-- Liquidity Outlook."

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
45
<PAGE> 51

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 current operations. Tatham Offshore generated
approximately $0.9 million in positive operating cash flow for the nine months
ended March 31, 1998. Following the consummation of the Reorganization
Transactions, Rig revenue will fund future cash requirements.

YEAR 2000

The year 2000 issue is the result of computer programs that were written
using two digits rather than four to define the year. The Company believes that
all of its software and equipment are year 2000 compliant and that this problem
will have no effect on the Company's internal operations. Currently, the Company
has no information concerning the year 2000 compliance status of its customers
and vendors.

46
<PAGE> 52

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 May 15, 1998, there were 157 stockholders of record of Common Stock
and 30,001,026 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 9% Convertible Exchangeable Preferred Stock
("Series B Preferred Stock"), Series C 6% Convertible Exchangeable 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 May 15, 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
47
<PAGE> 53

"Trading Reference Price"). The Trading Reference Price is subject to adjustment
for certain events, 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 May 15, 1998, 17,557,648 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 $5,530,659.

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 stock dividend of Common Stock, a stock split, a reverse stock split, an
issuance of rights, warrants or options,

48
<PAGE> 54

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 May 15, 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 May 15, 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.

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.

49
<PAGE> 55

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.

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).

50
<PAGE> 56

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> 57

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of May 15, 1998, the beneficial
ownership of the outstanding Common Stock by (i) each person who is known to the
Company to beneficially own more than 5% of the outstanding Common Stock 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 Information
Statement. The address of all principal stockholders, unless otherwise
indicated, is 7400 Chase Tower, 600 Travis, Houston, Texas 77002.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK(1)(2)(3)(4)
-------------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ---------- -------
<S> <C> <C>
Kenneth E. Beeney........................................... 8,500 *
Phillip G. Clarke........................................... 6,379 *
Antoine Gautreaux, Jr. ..................................... 2,500(5) *
E. Lynn Hill................................................ 15,000(6) *
Edward L. Moses............................................. 95,558(7) *
Clyde E. Nath............................................... 8,458(8) *
James G. Niven.............................................. 9,379(9) *
Jonathon D. Pollock......................................... 1,000(10) *
Thomas P. Tatham............................................ 596,875(11) 2.0%
7500 Chase Tower
Houston, Texas 77002
Roger Vincent............................................... 2,371(12) *
Diana J. Walters............................................ 3,500(13) *
DeepTech International Inc. ................................ 28,073,450(14) 93.9%
7500 Chase Tower
Houston, Texas 77002
Elliott Associates, L.P. ................................... 1,636,843(15) 5.2%
712 5th Avenue, 36th Floor
New York, New York 10019
Martley International, L.P. ................................ 1,636,843(15) 5.2%
1086 Teaneck Road
Teaneck, New Jersey 07666
Westgate International, L.P. ............................... 1,636,843(15) 5.2%
c/o Midland Bank Trust 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(16) 2.6%
</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 Information 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 A Preferred Stock, 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
individual in the Rights Offering.

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<PAGE> 58

(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. All of
these shares will be disposed on in the Rights Offering.

(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
("Martley") as beneficial ownership interest includes (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.

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
Information Statement 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
Information Statement 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 Information Statement has been so included in reliance upon the
authority of said firm as experts with respect to the matters contained in their
report.

53
<PAGE> 59

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 March 31, 1998................................... F-3
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended March 31, 1998.... 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 March 31, 1998
(unaudited) and June 30, 1997.......................... F-10
Unaudited Consolidated Statement of Operations for the
Nine Months Ended March 31, 1998 and 1997,
respectively........................................... F-11
Unaudited Consolidated Statement of Cash Flows for the
Nine Months Ended March 31, 1998 and 1997.............. F-12
Consolidated Statement of Stockholders' Equity (Deficit)
for the Nine Months Ended March 31, 1998 (unaudited)... F-13
Notes to Consolidated Financial Statements................ F-14
HISTORICAL TATHAM OFFSHORE, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-19
Consolidated Balance Sheet as of June 30, 1997 and 1996... F-20
Consolidated Statement of Operations for the Years Ended
June 30, 1997, 1996 and 1995........................... F-21
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995........................... F-22
Consolidated Statement of Stockholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995............... F-23
Notes to Consolidated Financial Statements................ F-24
HISTORICAL DEEPFLEX PRODUCTION SERVICES, INC. AND
SUBSIDIARIES
Report of Independent Accountants......................... F-39
Consolidated Balance as of March 31, 1998 (unaudited) and
June 30, 1997 and 1996................................. F-40
Consolidated Statement of Operations for the Nine Months
Ended March 31, 1998 and 1997 (unaudited) and for the
Years Ended June 30, 1997 and 1996..................... F-41
Consolidated Statement of Cash Flows for the Nine Months
Ended March 31, 1998 and 1997 (unaudited) and for the
Years Ended June 30, 1997 and 1996..................... F-42
Consolidated Statements of Stockholder's Equity (Deficit)
for the Years Ended June 30, 1996 and 1997 and for the
Nine Months Ended March 31, 1998 (unaudited)........... F-43
Notes to Consolidated Financial Statements................ F-44
</TABLE>

F-1
<PAGE> 60

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements at and
for the nine months ended March 31, 1998 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 March 31, 1998. The statements of
operations for the nine months ended March 31, 1998 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 Atlantic Canada,
including substantial natural gas gathering and transmission facilities and
related energy 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. In March 1998, DeepFlex
conveyed 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 $12 million of the amount DeepFlex owes to DeepTech
under an intercompany line of credit. DeepTech will offer all of the shares
of Tatham Offshore common stock and Series A Preferred Stock held by
DeepTech, including the equity conveyed by DeepFlex in March 1998, 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> 61

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(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............. $ 2,309 $ 580 $ -- $ 2,889
Accounts receivable................... 916 7,441 -- 8,357
Prepaid assets........................ 116 165 -- 281
--------- -------- -------- ---------
Total current assets.......... 3,341 8,186 -- 11,527
--------- -------- -------- ---------
Property and equipment:
Oil and gas properties, at cost....... 51,919 -- (22,079)(b) --
(29,840)(c)
Semisubmersible drilling rigs......... -- 133,813 -- 133,813
--------- -------- -------- ---------
51,919 133,813 (51,919) 133,813
Less: Accumulated depreciation,
depletion, amortization and
impairment......................... 24,374 5,320 (24,374)(c) 5,320
--------- -------- -------- ---------
Property and equipment, net........ 27,545 128,493 (27,545) 128,493
--------- -------- -------- ---------
Deferred costs.......................... 10,428 -- -- 10,428
Debt issue costs, net................... -- 1,157 -- 1,157
--------- -------- -------- ---------
Total assets.................. $ 41,314 $137,836 $(27,545) $ 151,605
========= ======== ======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 3,527 $ 4,077 $ -- $ 7,604
Notes payable......................... -- 64,841 -- 64,841
Note payable to DeepTech.............. -- 8,000 (8,000)(b) --
--------- -------- -------- ---------
Total current liabilities..... 3,527 76,918 (8,000) 72,445
Other noncurrent liabilities............ 7,229 -- (400)(b) --
(6,829)(c)
--------- -------- -------- ---------
Total liabilities............. 10,756 76,918 (15,229) 72,445
--------- -------- -------- ---------
Minority interests in consolidated
subsidiaries.......................... -- 250 -- 250
--------- -------- -------- ---------
Stockholders' equity:
Preferred stock....................... 180 -- --(c) 180(d)(f)
Common stock.......................... 300 -- -- 300(e)(f)
Additional paid-in capital............ 146,520 64,976 (14,422)(b) 198,437
1,363(c)
Accumulated deficit................... (116,442) (4,308) 743(b) (120,007)
--------- -------- -------- ---------
30,558 60,668 (12,316) 78,910(g)
--------- -------- -------- ---------
Total liabilities and
stockholders' equity........ $ 41,314 $137,836 $(27,545) $ 151,605
========= ======== ======== =========
</TABLE>

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

F-3
<PAGE> 62

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
(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.............................. $ -- $51,257 $ -- $51,257
Oil and gas sales.............................. 9,276 -- (9,276)(b) --
------- ------- ------- -------
9,276 51,257 (9,276) 51,257
------- ------- ------- -------
Costs and expenses:
Production, operating and exploration
expenses.................................... 4,253 25,224 (4,196)(b) 25,224
(57)(c)
Depreciation, depletion and amortization....... 3,125 3,914 (3,125)(b) 3,914
Management fee and general and administrative
expenses.................................... 4,364 2,396 (55)(b) 6,700
(5)(c)
------- ------- ------- -------
11,742 31,534 (7,438) 35,838
------- ------- ------- -------
Operating (loss) income.......................... (2,466) 19,723 (1,838) 15,419
Interest income.................................. 205 231 -- 436
Interest and other financing costs............... -- (7,641) -- (7,641)
Interest expense -- affiliates................... (1,743) -- 1,743(d) --
------- ------- ------- -------
Net (loss) income................................ (4,004) 12,313 (95) 8,214(f)
Preferred stock dividends........................ (2,829) -- 506(e) (2,323)
------- ------- ------- -------
Net (loss) income available to common
shareholders................................... $(6,833) $12,313 $ 411 $ 5,891
======= ======= ======= =======
Weighted average number of shares outstanding.... 13,083 13,083
======= =======
Basic net (loss) income per common share......... $ (0.52) $ 0.45
======= =======
Diluted number of shares......................... 13,083 18,019
======= =======
Diluted net (loss) income per common share....... $ (0.52) $ 0.33
======= =======
</TABLE>

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

F-4
<PAGE> 63

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 2,336 (185)(b) 6,915
(82)(c)
-------- ------- -------- -------
60,891 14,899 (56,312) 19,478
-------- ------- -------- -------
Operating (loss) income................... (40,168) 4,158 35,589 (421)
Interest income........................... 571 915 -- 1,486
Interest and other financing costs........ -- (1,610) -- (1,610)
Interest expense -- affiliates............ (8,374) -- 8,374(d) --
-------- ------- -------- -------
Net (loss) income......................... (47,971) 3,463 43,963 (545)
Preferred stock dividends................. (3,920) -- 675(e) (3,245)
-------- ------- -------- -------
Net (loss) income available to common
shareholders............................ $(51,891) $ 3,463 $ 44,638 $(3,790)
======== ======= ======== =======
Weighted average number of shares
outstanding............................. 2,665 2,665
======== =======
Basic and diluted net loss per common
share................................... $ (19.47) $ (1.42)
======== =======
</TABLE>

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

F-5
<PAGE> 64

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. The
exchange Transaction amounts were based on negotiated values as determined by
DeepTech and El Paso and were generally accounted for in the pro forma financial
information at the net book value since the parties were under the common
control of DeepTech.

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
MARCH 31, 1998
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 580 $ -- $ 580
Accounts receivable................................ 7,441 -- 7,441
Prepaid assets..................................... 165 -- 165
-------- -------- --------
Total current assets....................... 8,186 -- 8,186
-------- -------- --------
Property and equipment:
Semisubmersible drilling rigs...................... 133,813 -- 133,813
Less: Accumulated depreciation..................... 5,320 -- 5,320
-------- -------- --------
Property and equipment, net........................ 128,493 -- 128,493
-------- -------- --------
Debt issue costs, net................................ 1,157 -- 1,157
-------- -------- --------
Total assets............................... $137,836 $ -- $137,836
======== ======== ========

LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY

Accounts payable and accrued liabilities............. $ 4,077 $ -- $ 4,077
Notes payable........................................ 64,841 -- 64,841
Note payable to DeepTech............................. 72,974(1) (64,974)(2) 8,000
-------- -------- --------
Total liabilities.......................... 141,892 (64,974) 76,918
-------- -------- --------
Minority interest in consolidated subsidiaries....... 250 -- 250
-------- -------- --------
Stockholder's (deficit) equity:
Common stock....................................... -- -- --
Additional paid in capital......................... 2 64,974(2) 64,976
Accumulated deficit................................ (4,308) -- (4,308)
-------- -------- --------
(4,306) 64,974 60,668
-------- -------- --------
$137,836 $ -- $137,836
======== ======== ========
</TABLE>

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

(1) Includes the results of 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 $12 million of the amount owed to DeepTech under an
intercompany line of credit.

F-6
<PAGE> 65
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

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

(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.

(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....................................... 743,000
------------
Net investment.................................... 22,422,000
Forgiveness of amount due to DeepTech....................... (8,000,000)
------------
Reduction of paid-in capital................................ $ 14,422,000
============
</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. See
Transactions described in (1) and (2) on page F-2.

<TABLE>
<S> <C>
Tatham Offshore's assets and liabilities conveyed:
Oil and gas properties.................................... $ 29,840,000
Accumulated depreciation, depletion, amortization and
impairment............................................. (24,374,000)
Other noncurrent liabilities.............................. (6,829,000)
------------
Increase in paid-in capital............................... $ (1,363,000)
============
</TABLE>

(d) The aggregate number of issued shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall not exceed 25,120,948
shares at any given time. As of May 15, 1998, the number of shares
outstanding was 17,557,648 shares of Series A Preferred Stock, 74,379
shares of Series B Preferred Stock and 321,205 shares of Series C Preferred
Stock.

(e) Excludes (i) 400,000 shares of common stock reserved for issuance under
Tatham Offshore's employee 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 (ii) 100,000 shares of common stock reserved for
issuance under Tatham Offshore's director stock option plan, pursuant to
which options covering 34,000 shares have been granted at a weighted
average of $5.86 per share.

(f) To the extent that no more than $75 million of proceeds are received from
the Rights Offering, Tatham Offshore has agreed to purchase the remaining
unsubscribed shares of Tatham Offshore common stock and Series A Preferred
Stock. The number of shares of common stock and Series A Preferred Stock
subject to this purchase agreement will not exceed 5,956,223 and 991,017,
respectively. After the purchase by Tatham Offshore, DeepTech, subject to
certain limitations, will contribute the proceeds from such purchase to
Tatham Offshore.

(g) Tatham Offshore will receive no proceeds from the Rights Offering unless
DeepTech stockholders and/or an affiliate of Tatham Offshore exercise
Rights which generate net proceeds to DeepTech in excess of $75 million. In
such event, Tatham Offshore will receive any amounts in excess of $75
million (which could reach a maximum of approximately $20.2 million), which
amounts will be used first to satisfy certain estimated tax liabilities and
second for general corporate purposes.

F-7
<PAGE> 66
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

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

STATEMENT OF OPERATIONS

(a) To adjust historical 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. Interest expense was eliminated as had the Transaction
described in footnote (1) on F-2 occurred on July 1, 1997, DeepFlex would
not have incurred these charges.

DEEPFLEX PRODUCTION SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Drilling services...................................... $51,257 $ -- $51,257
------- ------- -------
Costs and expenses:
Operating expenses................................... 25,224 -- 25,224
Depreciation......................................... 3,914 -- 3,914
General and administrative expenses.................. 2,396 -- 2,396
------- ------- -------
31,534 -- 31,534
------- ------- -------
Operating income (loss)................................ 19,723 -- 19,723
Gain on investment..................................... 11,500 (11,500) --
Interest income........................................ 231 -- 231
Interest expense....................................... (7,641) -- (7,641)
Interest expense -- affiliates......................... (8,145) 8,145 --
------- ------- -------
Net income............................................. $15,668 $(3,355) $12,313(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.

(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.

F-8
<PAGE> 67
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

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

(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(2) $19,057
-------- ------- -------
Costs and expenses:
Operating expenses.................................. 8,201 2,639(2) 10,840
Depreciation........................................ 1,219 504(2) 1,723
Losses of equity investee........................... 1,261 (1,261)(1) --
General and administrative expenses................. 2,336 -- 2,336
-------- ------- -------
13,017 1,882 14,899
-------- ------- -------
Operating income (loss)............................... 1,592 2,566 4,158
Loss on investment.................................... (10,688) 10,688(4) --
Interest income....................................... 902 13(2) 915
Interest income -- affiliates......................... 1,199 (1,199)(1) --
Interest expense...................................... (2,214) (908)(2) (1,610)
1,512(5)
Interest expense -- affiliates........................ (7,577) 7,577(3) --
-------- ------- -------
Net (loss) income..................................... $(16,786) $20,249 $ 3,463(6)
======== ======= =======
</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.

(2) 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.

(3) Exclude interest expense charged by DeepTech as had the Transactions
occurred on July 1, 1996, DeepFlex would not have incurred these
charges.

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

(5) To reverse interest expense related to other debt not related to
current operations as calculated below:

<TABLE>
<CAPTION>
DEBT INTEREST RATE PERIOD INTEREST
(IN THOUSANDS) (PER ANNUM) OUTSTANDING EXPENSE
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Wilrig Notes(1).................. $11,000 10% 206 days $ 617
Term Loan(1)..................... 12,000 12% 92 days 368
Debt issue costs primarily
related to Term Loan(1)........ (2) -- -- 504
Highwood Notes(1)................ 765 12% 92 days 23
------
Total............................ $1,512
======
</TABLE>

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

(1) See "Note 6 -- Indebtedness" on page F-47 for a further discussion
of the indebtedness of DeepFlex.

(2) Not applicable.

(6) 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-9
<PAGE> 68

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,309 $ 7,887
Accounts receivable from joint venture partners........... 213 201
Receivable from affiliates................................ 703 1,350
Prepaid assets............................................ 116 --
--------- ---------
Total current assets.............................. 3,341 9,438
--------- ---------
Oil and gas properties:
Oil and gas properties, at cost, using successful efforts
method................................................. 51,919 81,081
Less -- accumulated depreciation, depletion, amortization
and impairment......................................... 24,374 50,329
--------- ---------
Oil and gas properties, net....................... 27,545 30,752
--------- ---------
Deferred costs.............................................. 10,428 1,317
--------- ---------
Total assets...................................... $ 41,314 $ 41,507
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities.................. $ 2,016 $ 1,385
Accounts payable to affiliates............................ 1,511 155
--------- ---------
Total current liabilities......................... 3,527 1,540
Long-term debt to affiliate................................. -- 60,000
Other noncurrent liabilities................................ 7,229 7,663
--------- ---------
10,756 69,203
--------- ---------
Stockholders' equity (deficit) (Note 4):
Preferred stock, $0.01 par value, 110,000,000 shares
authorized as of March 31, 1998 and June 30, 1997,
18,026,294 shares and 24,343,931 shares issued and
outstanding at March 31, 1998 and June 30, 1997,
respectively........................................... 180 243
Common stock, $0.01 par value, 250,000,000 shares
authorized as of March 31, 1998 and June 30, 1997,
29,982,808 shares and 2,735,573 shares issued and
outstanding at March 31, 1998 and June 30, 1997,
respectively........................................... 300 274
Additional paid-in capital.................................. 146,520 84,225
Accumulated deficit......................................... (116,442) (112,438)
--------- ---------
30,558 (27,696)
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 41,314 $ 41,507
========= =========
</TABLE>

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

F-10
<PAGE> 69

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Revenue:
Oil and gas sales......................................... $ 9,276 $16,508
------- -------
Costs and expenses:
Production and operating expenses......................... 4,228 6,037
Exploration expenses...................................... 25 375
Depreciation, depletion and amortization.................. 3,125 3,500
Management fee............................................ 3,305 2,305
General and administrative expenses....................... 1,059 1,645
------- -------
11,742 13,862
------- -------
Operating (loss) income..................................... (2,466) 2,646
Interest income............................................. 205 422
Interest expense -- affiliate............................... (1,743) (6,314)
------- -------
Net loss.................................................... (4,004) (3,246)
Preferred stock dividends................................... (2,829) (2,944)
------- -------
Net loss available to common shareholders................... $(6,833) $(6,190)
======= =======
Weighted average number of shares outstanding (Note 1)...... 13,083 2,644
======= =======
Basic and diluted loss per common share (Note 5)............ $ (0.52) $ (2.34)
======= =======
</TABLE>

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

F-11
<PAGE> 70

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,004) $(3,246)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization............... 3,125 3,500
Costs and expenses settled by issuance of common
stock................................................. 389 --
Noncash interest expense related to conversion of debt
into common stock..................................... 1,709 --
Other.................................................. -- 1,859
Changes in operating working capital:
(Increase) decrease in accounts receivable from joint
venture partners.................................... (12) 475
Decrease (increase) in receivable from affiliates.... 647 (807)
(Increase) decrease in prepaid expenses.............. (116) 29
Increase (decrease) in accounts payable and accrued
liabilities......................................... 631 (2,987)
Increase (decrease) in accounts payable to
affiliates.......................................... 1,356 (2,753)
------- -------
Net cash provided by (used in) operating
activities....................................... 3,725 (3,930)
------- -------
Cash flows from investing activities:
Additions to oil and gas properties....................... (352) (2,912)
Deferred costs............................................ (9,111) --
------- -------
Net cash used in investing activities............. (9,463) (2,912)
------- -------
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........ -- 1,339
Proceeds from the issuance of common stock related to the
exercise of Exchange Warrants.......................... 2,656 --
Redemption of Mandatory Redeemable Preferred Stock........ (2,496) --
Repayment of note payable to affiliate.................... -- (867)
------- -------
Net cash provided by financing activities......... 160 12,788
------- -------
Net (decrease) increase in cash and cash equivalents........ (5,578) 5,946
Cash and cash equivalents at beginning of year.............. 7,887 4,764
------- -------
Cash and cash equivalents at end of period.................. $ 2,309 $10,710
======= =======
</TABLE>

Supplemental disclosures to the statement of cash flows -- see Note 7.

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

F-12
<PAGE> 71

TATHAM OFFSHORE, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- --------------------- ADDITIONAL
NUMBER OF NUMBER OF EXCHANGE PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE WARRANTS CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- -------- ---------- ----------- --------
<S> <C> <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 (Note 1)
(unaudited)............... -- -- (24,620) (246) -- 246 -- --
Conversion of debt into
common stock (unaudited).. -- -- 26,667 266 -- 61,443 -- 61,709
Issuance of common stock
(unaudited)............... -- -- 90 1 -- 388 -- 389
Conversion of Series A
Preferred Stock into
common stock
(unaudited)............... (310) (3) 83 1 -- 2 -- --
Conversion of Series C
Preferred Stock into
Exchange Warrants
(unaudited)............... (1,017) (10) -- -- 1,474 (1,464) -- --
Issuance of common stock
related to the exercise of
Exchange Warrants
(unaudited)............... -- -- 407 4 (1,474) 4,126 -- 2,656
Redemption of Mandatory
Redeemable Preferred Stock
(unaudited)............... (4,991) (50) -- -- -- (2,446) -- (2,496)
Net loss for the nine months
ended March 31, 1998
(unaudited)............... -- -- -- -- -- -- (4,004) (4,004)
------ ---- ------- ----- ------- -------- --------- --------
Balance, March 31, 1998
(unaudited)............... 18,026 $180 29,983 $ 300 $ -- $146,520 $(116,442) $ 30,558
====== ==== ======= ===== ======= ======== ========= ========
</TABLE>

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

F-13
<PAGE> 72

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 currently pursuing energy related opportunities in
Atlantic Canada, including offshore contract drilling services, substantial
natural gas gathering and transmission facilities and related energy
infrastructure. Historically, Tatham Offshore was 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"). Currently, 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. See Note 2.

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 March 31, 1998, Tatham Offshore Canada Limited has
incurred $10.4 million in pre-development costs associated with the North
Atlantic project and related infrastructure projects. Such costs include
engineering, survey, legal, regulatory and other costs associated with the
project.

Tatham Offshore Development, Inc. ("Tatham Development"), a Delaware
corporation and a wholly-owned subsidiary of Tatham Offshore, holds interests in
the Ewing Bank Blocks 958, 959, 1002 and 1003, the Sunday Silence prospect.

The accompanying consolidated financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission (the "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.

NOTE 2 -- RECENT EVENTS:

On March 2, 1998, DeepTech announced that its Board of Directors and
holders of a majority of its outstanding stock had approved the execution of an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which DeepTech
would merge (the "Merger") with El Paso Natural Gas Company ("El Paso") or,
under certain circumstances, one of its subsidiaries.

As a result of the Merger, some of the assets of the Company and DeepTech
will be restructured so that DeepFlex Production Services, Inc. ("DeepFlex"),
currently a wholly-owned subsidiary of DeepTech, will become a wholly-owned
subsidiary of Tatham Offshore and the Company will transfer its interest in the
Sunday Silence prospect to DeepTech. Pursuant to the Redemption Agreement
(discussed below), Tatham Offshore has agreed to transfer all of its remaining
assets located in the Gulf to Leviathan Gas Pipeline Partners, L.P. (the
"Partnership"), an affiliate of the Company. Further, DeepTech will divest
itself of its equity ownership interest in Tatham Offshore by offering all of
the shares of Tatham Offshore common stock and Series A Preferred Stock (Note 4)
currently held by DeepTech to the stockholders of DeepTech in a
F-14
<PAGE> 73
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rights Offering (discussed below). Both the Merger and the transactions
contemplated by the Redemption Agreement are subject to customary regulatory
approvals, the satisfaction of certain conditions and the consummation of
certain related transactions and are anticipated to be completed in June or July
1998.

Following the asset restructuring, the Company's business will consist of
the operation of two semisubmersible drilling rigs, the FPS Bill Shoemaker and
the FPS Laffit Pincay, currently owned by DeepFlex. In addition, the Company
will continue to pursue energy related opportunities in Atlantic Canada,
including the North Atlantic pipeline project, related gas processing
facilities, a facility for the generation of electricity and other related
investments. See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

The material terms of the Merger and the transactions contemplated by the
Merger Agreement, Redemption Agreement (discussed below) and other agreements as
these agreements relate to the Company are as follows:

(a) DeepTech will contribute all of the outstanding shares of capital
stock of DeepFlex to Tatham Offshore. As a result of this contribution by
DeepTech, the Company, through DeepFlex, will assume certain indebtedness
due to DeepTech and approximately $60.0 million of third-party debt.

(b) Tatham Offshore will convey to DeepTech all of the outstanding
shares of capital stock of Tatham Development and will cancel its
reversionary interests in certain oil and gas properties in payment of the
indebtedness owed to DeepTech discussed above.

(c) Tatham Offshore will transfer its remaining assets located in the
Gulf to the Partnership in consideration of the redemption by Tatham
Offshore of its Senior Preferred Stock (discussed in Note 4) currently
owned by the Partnership (the "Redemption Agreement"). Specifically, under
the terms of the Redemption Agreement and subject to the satisfaction of
certain conditions to closing, the Partnership has agreed to exchange 7,500
shares of Senior Preferred Stock and all related accrued and unpaid
dividends due to the Partnership as of the date of the exchange for 100% of
Tatham Offshore's right, title and interest in and to Viosca Knoll Blocks
772, 773, 774, 817, 818 and 861 (subject to an existing production payment
obligation), West Delta Block 35, Ewing Bank Blocks 871, 914, 915 and 916
and the platform located on Ship Shoal Block 331. At the closing, 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. This transaction is expected to close on the later of July 1, 1998
or one business day after the closing of the Rights Offering discussed
below. If the transactions contemplated by the Redemption Agreement are
consummated, the management fees charged to Tatham Offshore by DeepTech
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. See (f)
below.

(d) On April 10, 1998, Tatham Offshore filed a Registration Statement
on Form S-1 with the Commission, which is currently under review, relating
to the offering of rights to the DeepTech stockholders to purchase
DeepTech's 28,073,450 shares of Tatham Offshore common stock and 4,670,957
shares of Tatham Offshore's Series A Preferred Stock (the "Rights
Offering"). Tatham Offshore will receive proceeds from the Rights Offering
if the total net proceeds exceed the total of (i) $75.0 million and (ii)
the amount of certain estimated tax payments of the Company. An affiliate
of Mr. Thomas P. Tatham, Chairman of the Board and Chief Executive Officer
of the Company, has committed to purchase a sufficient number of
unsubscribed shares as to result in DeepTech receiving net proceeds from
the Rights Offering of not less than $75.0 million. In exchange, the
affiliate will receive a fee of up to $7.5 million, which will be payable
in cash or common stock of Tatham Offshore at the election of Tatham
Offshore. Such purchase commitment is secured by a guarantee from Mr.
Tatham and a letter of credit issued by a bank. To the extent any shares
remain unsubscribed, Tatham Offshore has agreed to

F-15
<PAGE> 74
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase such shares and DeepTech will contribute the proceeds from such
purchase to the Company. Upon completion of this offering, DeepTech will
not own any of Tatham Offshore's capital stock.

(e) Tatham Offshore will enter into a tax sharing agreement (the "Tax
Sharing Agreement") with DeepTech and DeepFlex in which Tatham Offshore
will pay (i) all taxes attributable to Tatham Offshore and its
subsidiaries, including under certain circumstances, taxes arising from the
conveyance to Tatham Offshore by DeepTech of the two semisubmersible
drilling rigs, (ii) taxes of Tatham Development to DeepTech pursuant to the
Merger and related transactions, and (iii) taxes of DeepTech attributable
to the Merger and related transactions and the Rights Offering (but not to
the extent such taxes exceed the sum of $7.0 million and any taxes
attributable to the value of Tatham Offshore being in excess of a notional
amount to be determined according to a formula set forth in the Tax Sharing
Agreement).

(f) Upon completion of the Merger, DeepTech will no longer operate
Tatham Offshore under its management agreement discussed in Note 3. Tatham
Offshore will hire a management team and support personnel required to
conduct its contract drilling services business and implement its Atlantic
Canada strategy. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

NOTE 3 -- 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 nine months ended March 31, 1998,
DeepTech charged Tatham Offshore $3.3 million under this agreement. The
management agreement will be terminated upon the closing of the Merger. See Note
2.

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 entering into
an option agreement to restructure the Subordinated Notes (the "Restructuring
Agreement"). Pursuant to the Restructuring Agreement, DeepTech forgave the
scheduled interest payments due in September and December 1997 under the
Subordinated Notes and on December 17, 1997, 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.

F-16
<PAGE> 75
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- STOCKHOLDERS' EQUITY:

The following table summarizes Tatham Offshore's outstanding equity as of
March 31, 1998:

<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% $1,462,500 (a)(c)
Series A Preferred Stock(b)............. 17,623,210 $ 1.50 per share 12% $5,551,311 (d)(e)
Series B Preferred Stock................ 74,379 $ 1.00 per share 8% $ 8,925 (d)(e)
Series C Preferred Stock................ 321,205 $ 0.50 per share 4% $ 8,030 (d)(e)
Common Stock (Notes 2 and 3)............ 29,982,808 -- -- $ -- $ --
</TABLE>

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

(a) In March 1998, Tatham Offshore eliminated its 9% Senior Convertible
Preferred Stock and replaced this stock with Series B 9% Senior Convertible
Preferred Stock ("Senior Preferred Stock"). 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. In connection
with the Redemption Agreement, the Senior Preferred Stock and all related
unpaid dividends will be redeemed in full. See Note 2.

(b) In March 1998, DeepFlex conveyed its 4,670,957 shares of Series A Preferred
Stock to DeepTech. See Note 2.

(c) The Senior Preferred Stock shall be convertible into Series A Preferred
Stock using a conversion ratio equal to (i) the liquidation preference
amount plus accumulated unpaid dividends divided by (ii) $0.9375, the
closing price of the Series A Preferred Stock on February 27, 1998.

(d) 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.

(e) Redeemable at the option of Tatham Offshore on or after July 1, 1997.

In February 1998, DeepFlex 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 its 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
conveyed the 406,783 shares of common stock to DeepTech in March 1998.

NOTE 5 -- EARNINGS PER SHARE:

During the three months ended December 31, 1997, Tatham Offshore 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.

F-17
<PAGE> 76
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Tatham Offshore 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 6 -- COMMITMENTS AND CONTINGENCIES:

THE NASDAQ NATIONAL MARKET

The Nasdaq Stock Market, Inc. ("Nasdaq") listing criteria requires a
company listed on The Nasdaq National Market to have a minimum dollar value
associated with the public float of its listed stock. On February 23, 1998, the
Nasdaq minimum public float requirement increased from $1.0 million to $5.0
million. Pursuant to an exception granted by Nasdaq, Tatham Offshore has until
May 26, 1998 to meet the minimum public float requirement. Since the market
value of Tatham Offshore's public float (i) has exceeded $5 million from time to
time since February 23, 1998 and (ii) is expected to be well in excess of $5
million when the Rights Offering is consummated, Tatham Offshore has requested
that Nasdaq either (i) agree that the public float requirement has been met or
(ii) agree to extend the exception period until the earlier to occur of
September 30, 1998 or the date on which the Rights Offering is consummated. On
May 27, 1998 Nasdaq notified Tatham Offshore that the Nasdaq Listing
Qualifications Panel (the "Nasdaq Panel") has determined to continue the Tatham
Offshore's listing since Tatham Offshore's public float exceeds the current
requirement, and based on the Nasdaq Panel's decision, Tatham Offshore will
continued to be listed on the Nasdaq National Market.

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 development and implementation of the North Atlantic pipeline project
and related opportunities in Atlantic Canada. Realization of the potential of
the North Atlantic pipeline project and related opportunities in Atlantic Canada
is dependent upon the ability of the Company to obtain sufficient additional
capital or project financing.

NOTE 7 -- SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:

Cash paid, net of amounts capitalized

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
----------------
1998 1997
----- -------
(IN THOUSANDS)
<S> <C> <C>
Interest.................................................... $ 9 $5,470
Taxes....................................................... $ -- $ --
</TABLE>

Supplemental disclosures of noncash investing and financing activities

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Conversion of long-term debt to common stock................ $60,000 $ --
Conversion of preferred stock to common stock............... $ 445 $1,065
Assignment of oil and gas properties and abandonment
obligations............................................... $ 1,200 $ --
</TABLE>

F-18
<PAGE> 77

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-19
<PAGE> 78

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-20
<PAGE> 79

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-21
<PAGE> 80

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-22
<PAGE> 81

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-23
<PAGE> 82

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. As of June 30, 1997, the Company was 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-24
<PAGE> 83
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-25
<PAGE> 84
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>

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>

F-26
<PAGE> 85
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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-27
<PAGE> 86
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-28
<PAGE> 87
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, fully 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
fully 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-29
<PAGE> 88
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-30
<PAGE> 89
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.

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.

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-31
<PAGE> 90
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-32
<PAGE> 91
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-33
<PAGE> 92
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-34
<PAGE> 93
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-35
<PAGE> 94
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(a)....................... (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>

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

(a) The revisions of previous estimates of proved reserves from June 30, 1996 to
June 30, 1997 were caused by (i) the elimination of 6.2 million barrels of
oil and 7,279 MMcf of gas as a result of the use of a different development
scenario for the Sunday Silence project (Ewing Bank Blocks 958, 959, 1002
and 1003), (ii) the elimination of 3.2 million barrels of oil and 24,369
MMcf of gas as a result of the assignment of the working interests in Ship
Shoal Block 331 and (iii) the elimination of 2.1 million barrels of oil and
3,178 MMcf of gas as a result of the abandonment of the Ewing Bank Block 914
#2 well.

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

F-36
<PAGE> 95
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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-37
<PAGE> 96
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)(1) (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(2)............................................. $ 11,043 $103,683 $ 47,983
======== ======== ========
</TABLE>

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

(1) The revisions of previous estimates of proved reserves from June 30, 1996 to
June 30, 1997 were caused by (i) the elimination of 6.2 million barrels of
oil and 7,279 MMcf of gas as a result of the use of a different development
scenario for the Sunday Silence project, (ii) the elimination of 3.2 million
barrels of oil and 24,369 MMcf of gas as a result of the assignment of the
working interests in Ship Shoal Block 331 and (iii) the elimination of 2.1
million barrels of oil and 3,178 MMcf of gas as a result of the abandonment
of the Ewing Bank Block 914 #2 well.

(2) 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-38
<PAGE> 97

REPORT OF INDEPENDENT ACCOUNTANTS

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-39
<PAGE> 98

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,
MARCH 31, -------------------
1998 1997 1996
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 580 $ 49 $ 5,492
Account receivable....................................... 7,441 413 2
Prepaid expenses......................................... 165 563 --
Notes receivable from affiliate.......................... -- -- 8,241
-------- -------- -------
Total current assets............................. 8,186 1,025 13,735
-------- -------- -------
Semisubmersible drilling rigs.............................. 133,813 126,287 151
Less: Accumulated depreciation............................. 5,320 1,219 --
-------- -------- -------
Semisubmersible drilling rigs, net............... 128,493 125,068 151
-------- -------- -------
Construction fund collateral account....................... -- 554 --
Note receivable from affiliate............................. -- -- 40,490
Equity investments......................................... -- -- 11,939
Debt issue costs, net...................................... 1,157 2,861 485
-------- -------- -------
Total assets..................................... $137,836 $129,508 $66,800
======== ======== =======

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities................. $ 4,077 $ 5,936 $ 643
Current portion of notes payable......................... 64,841 7,893 14,310
Note payable to DeepTech................................. 72,974 67,046 38,105
-------- -------- -------
Total current liabilities........................ 141,892 80,875 53,058
Notes payable.............................................. -- 68,357 5,931
Long-term debt............................................. -- -- 11,000
-------- -------- -------
Total liabilities................................ 141,892 149,232 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...................................... (4,308) (19,976) (3,190)
-------- -------- -------
(4,306) (19,974) (3,189)
-------- -------- -------
Total liabilities and stockholder's equity
(deficit)...................................... $137,836 $129,508 $66,800
======== ======== =======
</TABLE>

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

F-40
<PAGE> 99

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

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
------------------------- -------------------
1998 1997 1997 1996
----------- ----------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Drilling services............................. $51,257 $ 9,083 $ 14,609 $ --
Equity in earnings............................ -- 697 -- 1,310
------- ------- -------- -------
51,257 9,780 14,609 1,310
------- ------- -------- -------
Costs and expenses:
Operating expenses............................ 25,224 5,007 8,201 --
Depreciation.................................. 3,914 809 1,219 --
Losses of equity investee..................... -- -- 1,261 --
Management fee................................ 2,288 1,729 2,287 1,761
General and administrative expenses........... 108 (179) 49 712
------- ------- -------- -------
31,534 7,366 13,017 2,473
------- ------- -------- -------
Operating income (loss)......................... 19,723 2,414 1,592 (1,163)
Gain on sale of drilling rig.................... -- -- -- 562
Gain (loss) on investment....................... 11,500 -- (10,688) --
Interest income................................. 231 441 902 223
Interest income -- affiliates................... -- 1,195 1,199 6,510
Interest expense................................ (7,641) (2,344) (2,214) (2,547)
Interest expense -- affiliates.................. (8,145) (5,186) (7,577) (5,826)
------- ------- -------- -------
Net income (loss)............................... $15,668 $(3,480) $(16,786) $(2,241)
======= ======= ======== =======
</TABLE>

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

F-41
<PAGE> 100

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

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
------------------------- -------------------
1998 1997 1997 1996
----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $15,668 $ (3,480) $(16,786) $ (2,241)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of debt issue costs............. 1,730 1,474 2,046 243
Depreciation................................. 3,914 809 1,219 --
Equity in earnings........................... -- (697) -- (1,310)
Losses of equity investee.................... -- -- 1,261 --
Gain in sale of drilling rig................. -- -- -- (562)
(Gain) loss on investment.................... (11,500) -- 10,688 --
Noncash interest income...................... -- (1,195) (1,195) (5,790)
Noncash interest expense..................... 8,127 5,186 7,577 5,826
Noncash management fees...................... 2,288 1,607 2,337 1,761
Noncash general and administrative expense... -- -- -- 600
Other noncash items.......................... -- -- -- (531)
Changes in operating working capital:
(Increase) decrease in accounts
receivable.............................. (7,028) (504) (355) 220
Decrease (increase) in prepaid expenses.... 398 (191) (563) --
(Decrease) increase in accounts payable and
accrued liabilities..................... (1,859) (238) 5,293 160
------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 11,738 2,771 11,522 (1,624)
------- -------- -------- --------
Cash flows from investing activities:
Additions to semisubmersible drilling rigs...... (7,339) (46,234) (62,622) (151)
Investment in equity investees.................. (2,656) (1,017) (1,017) (1,010)
Proceeds from equity investee's redemption of
preferred stock.............................. 2,156 -- -- --
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... (7,839) (45,500) (61,888) (3,773)
------- -------- -------- --------
Cash flows from financing activities:
Decrease (increase) in restricted cash.......... 554 (280) (554) --
Proceeds from issuance of notes payable......... -- 65,992 77,992 20,241
Proceeds from note payable to DeepTech.......... 9,668 7,831 12,916 4,845
Repayment of notes payable...................... (11,409) (30,750) (31,000) (2,927)
Repayment of notes payable to affiliates........ -- -- -- (3,415)
Repayment of note payable to DeepTech........... (2,156) (1,845) (10,260) (7,127)
Debt issue costs................................ (25) (3,639) (4,171) (728)
------- -------- -------- --------
Net cash (used in) provided by financing
activities............................ (3,368) 37,309 44,923 10,889
------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 531 (5,420) (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........ $ 580 $ 72 $ 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-42
<PAGE> 101

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 nine months ended March
31, 1998 (unaudited)...................... -- -- -- 15,668 15,668
-- --- --- -------- --------
Balance, March 31, 1998 (unaudited)......... 1 $-- $ 2 $ (4,308) $ (4,306)
== === === ======== ========
</TABLE>

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

F-43
<PAGE> 102

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 nine months ended March 31, 1998 and 1997 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-44
<PAGE> 103
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.

F-45
<PAGE> 104
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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

F-46
<PAGE> 105
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

F-47
<PAGE> 106
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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
F-48
<PAGE> 107
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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

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<PAGE> 108
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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

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<PAGE> 109
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

F-51
<PAGE> 110
DEEPFLEX PRODUCTION SERVICES, INC.
AND SUBSIDIARIES
(A SUBSIDIARY OF DEEPTECH INTERNATIONAL INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<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-52
<PAGE> 111
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-53
<PAGE> 112
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-54