TATHAM OFFSHORE INC, 424B1, 1998-07-17

TATHAM OFFSHORE INC
424B1, 1998-07-17
OIL & GAS FIELD EXPLORATION SERVICES

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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-49859

PROSPECTUS

28,073,450 SHARES OF COMMON STOCK

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

TATHAM OFFSHORE, INC.
[TATHAM OFFSHORE, INC. LOGO]
DeepTech International Inc., a Delaware corporation ("DeepTech"), is
granting at no cost to you or any of the other holders of its common stock,
transferable rights (the "Rights") to purchase an aggregate of 28,073,450 shares
of common stock, $0.01 par value per share ("Common Stock"), and 4,670,957
shares of Series A 12% Convertible Exchangeable Preferred Stock, $0.01 par value
per share ("Series A Preferred Stock"), of Tatham Offshore, Inc., a Delaware
corporation (the "Company"). In this Rights offering (the "Offering"), you will
receive one Right for each share of DeepTech common stock that you own of record
as of June 12, 1998 entitling you to purchase 1.046357 shares of Common Stock
("Underlying Common Shares"), and 0.174096 shares of Series A Preferred Stock
("Underlying Preferred Shares," and, together with the Underlying Common Shares,
the "Underlying Shares") at a subscription price of $3.25 for the Underlying
Shares purchasable under each Right. If any Underlying Shares remain
unsubscribed after the exercise of Rights, Tatham Brothers, LLC, a Delaware
limited liability company ("TBL"), and an affiliate of Mr. Thomas P. Tatham,
Chairman of the Board and Chief Executive Officer of the Company and DeepTech,
will purchase such number of unsubscribed Underlying Shares as will result in
DeepTech receiving net proceeds from the Offering of not less than $75 million.
To the extent any Underlying Shares remain unsubscribed after TBL's purchase of
such Underlying Shares, the Company has agreed to purchase such remaining
Underlying Shares, and DeepTech, subject to certain limitations, will contribute
the proceeds from such purchase to the Company.

The exercise period for the Rights will expire at 12:00 p.m., New York City
time, on August 14, 1998 unless extended for a specified period by DeepTech's
Board of Directors, provided, however, that the expiration will not be extended
past October 1, 1998 (as extended, the "Expiration Date").

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

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

We have filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") covering the Underlying Shares. Our Common Stock is
listed on The Nasdaq Stock Market's National Market and our Series A Preferred
Stock is traded on the OTC Bulletin Board Service under the trading symbols
"TOFF" and "TOFFL," respectively. The closing prices for our Common Stock and
Series A Preferred Stock on June 12, 1998, were $3.00 and $1.50 per share,
respectively. We have filed an application to have the Rights approved for
quotation on the OTC Bulletin Board under the symbol "TOFFR".

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

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

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

The date of this Prospectus is July 16, 1998.

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[MAP OF ATLANTIC CANADA]

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TATHAM OFFSHORE, INC. ORGANIZATIONAL CHART

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

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and pro forma and consolidated financial statements, including notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, (i)
all current and prospective information in this Prospectus gives effect to the
Reorganization Transactions (as defined), including the sale of substantially
all of Tatham Offshore's existing assets, the related retirement of certain
amounts of Tatham Offshore's Preferred Stock, the contribution to Tatham
Offshore of two semisubmersible drilling rigs, and the assumption of certain
debt which was completed on June 25, 1998, (ii) all references to "Tatham
Offshore" are to Tatham Offshore, Inc. and its subsidiaries, (iii) all
references to the "Company" are to Tatham Offshore, Inc. and its subsidiaries
and DeepFlex Production Services, Inc. and its subsidiaries ("DeepFlex"), and
(iv) all financial information and per share data in this Prospectus gives
effect to the one for ten reverse stock split Tatham Offshore completed on
November 24, 1997. In this Prospectus there are numerous references to
DeepTech's rights, plans and responsibilities with respect to this Offering.
Such rights, plans and responsibilities are DeepTech's and the Company hereby
disclaims any obligation to exercise, effect or comply with any such rights,
plans or responsibilities. Certain industry and other terms herein are defined
in "Defined Terms."

Historically, Tatham Offshore has been in the oil and gas exploration and
development business, primarily in the Gulf of Mexico. In connection with
DeepTech's impending merger (the "Merger") with El Paso Natural Gas Company ("El
Paso") discussed below, the Company is refocusing its business from the oil and
gas exploration and production business in the Gulf of Mexico to an integrated
frontier investment strategy targeting Atlantic Canada with an initial emphasis
on the offshore contract drilling business. The Company transferred its
ownership of Tatham Offshore Development, Inc., which owns oil and gas producing
properties to DeepTech on June 25, 1998 and will transfer its remaining oil and
gas properties to Leviathan Gas Pipeline Partners, L.P., a New York Stock
Exchange-listed master limited partnership in which DeepTech owns an effective
23.2% interest (the "Partnership"). In connection with the Merger and this
Offering, DeepTech transferred its ownership of DeepFlex and therefore the FPS
Laffit Pincay (the "Pincay") and the FPS Bill Shoemaker (the "Shoemaker" and,
together with the Pincay, the "Rigs") to the Company on June 25, 1998.

THE COMPANY

The Company provides offshore contract drilling services to the oil and gas
industry in the Gulf of Mexico and Atlantic Canada and is currently pursuing
other opportunities in Atlantic Canada. The Company owns two semisubmersible
drilling rigs, the Pincay and the Shoemaker. The Shoemaker is capable of
conducting drilling operations in cold weather, hostile environments and
currently satisfies all of the requirements to operate in Atlantic Canada
waters. The Shoemaker is one of only two semisubmersible drillings rigs
currently qualified to operate in Canadian waters. The Shoemaker currently
operates and is under contract in the Gulf of Mexico. The Pincay, which was not
under contract while certain upgrades and routine maintenance was performed at a
shipyard in Texas, was put under contract in July 1998. The Rigs generated
revenue totaling $51.3 million for the nine months ended March 31, 1998.

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

The Company's semisubmersible rigs are floating platforms that consist of
an upper working and living deck resting on vertical columns connected to lower
hull members. These Rigs operate in a semisubmerged

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position, remaining afloat, off bottom in a position in which the lower hull is
from about 55 to 90 feet below the water line and the upper deck protrudes well
above the surface. The Rigs are positioned by chain mooring lines with anchors
on the seafloor and remain stable for drilling in the semisubmerged floating
position due in part to their wave transparency characteristics at the water
line. The Rigs are able to change draft through a water ballasting system that
permits them to be submerged to a predetermined depth so that a portion of the
hulls are below the water surface during drilling operations.

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

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

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

During recent routine maintenance and certain upgrades, the Pincay was
not under contract. In July 1998, however, Ocean Energy, Inc. contracted
the Pincay to conduct a one-well (with 3 one-well options) program.

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

BUSINESS STRATEGY

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

POSSIBLE ATLANTIC CANADA PROJECTS

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

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

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

To date, North Atlantic Partners has obtained nonbinding letters of intent
for the use of its system to deliver gas to the United States which total
approximately 500 MMcf per day. The Company believes that there is significant
reserve potential from the areas offshore Atlantic Canada and as that reserve
potential is developed, a second pipeline into the United States will be
required to meet increased demand for natural gas on the east coast of the
United States.

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 process the natural gas from the
Grand Banks area. In addition, the Company is evaluating opportunities to
maximize economic value from potential processing operations, including
exploring opportunities 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.

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

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

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

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

THE REORGANIZATION TRANSACTIONS

On February 27, 1998, El Paso, El Paso Acquisition Company, a wholly owned
subsidiary of El Paso ("Merger Sub"), and DeepTech executed an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which DeepTech will merge
into El Paso or, under certain circumstances, Merger Sub. The material terms of
the Merger and the transactions contemplated by the Merger Agreement and other
agreements related to the Company (the "Reorganization Transactions") are: (i)
DeepTech sold to the Company approximately $8.0 million of the intercompany debt
DeepFlex owed to DeepTech (the "DeepFlex Debt") in exchange for (x) the delivery
by the Company to DeepTech of all of the outstanding shares of capital stock of
Tatham Offshore Development, Inc. ("TODI"), which owns the working interests in
Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday Silence Project") located
in the Gulf of Mexico, and (y) cancellation of a reversionary interest in
certain oil and gas properties; (ii) in satisfaction of $12.0 million of the
DeepFlex Debt, DeepFlex delivered to DeepTech all of the Tatham Offshore Common
Stock and Series A Preferred Stock held by DeepFlex; (iii) the balance of the
DeepFlex Debt was contributed to the capital of DeepFlex; (iv) DeepTech
contributed all of the outstanding shares of capital stock of DeepFlex, which
owns the Rigs, to Tatham Offshore (together with the transactions described in
subsections (i) through (iii), the "Contribution," as described in
"Business -- General -- Description of Reorganization Transactions -- The
Contribution and Distribution Agreement); (v) the Company, through DeepFlex,
assumed approximately $60 million of third party debt owed by DeepFlex; (vi)
DeepTech will merge with and into El

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Paso or, under certain circumstances, with Merger Sub; and (vii) the Company
will transfer the oil and gas properties it owns together with all related
liabilities (other than TODI's) to the Partnership in consideration of
redemption by the Company of 7,500 shares (including satisfaction of unpaid
dividends) of the Company's Series B 9% Senior Convertible Preferred Stock (the
"Series B Senior Preferred Stock") owned by the Partnership. See
"Business -- General -- Description of Reorganization Transactions."

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

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

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

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

THE OFFERING

Description of the Rights
Offering................. DeepTech will issue to you and the other record
holders of DeepTech common stock as of 5:00 p.m.,
New York City time, on the Record Date (June 12,
1998), Rights entitling you and the other holders
of the Rights to subscribe for and purchase (the
"Subscription Privilege") an aggregate of
28,073,450 shares (the "Underlying Common Shares")
of common stock, $0.01 par value per share ("Common
Stock"), and 4,670,957 shares (the "Underlying
Preferred Shares" and, together with the Underlying
Common Shares, the "Underlying Shares") of Series A
12% Convertible Exchangeable Preferred Stock, par
value $0.01 ("Series A Preferred Stock") of the
Company. For each share of DeepTech common stock
you hold on June 12, 1998, you will receive one
Right to subscribe to purchase 1.046357 shares of
Underlying Common Stock and 0.174096 Underlying
Preferred Shares (the "Subscription") at a
subscription price of $3.25 for the Underlying
Shares comprising each Right (the "Subscription
Price"). For a discussion of the allocation of the
Subscription Price between the Underlying Common
Shares and the Underlying Preferred Shares, see
"Federal Income Tax Consequences --
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Exercise of Rights." The partial exercise of a
Right is prohibited, and in exercising a Right, you
must purchase both the Underlying Common Shares and
the Underlying Preferred Shares purchasable on
exercise of the Right. If the total number of
Rights you exercise allows you to purchase a
fraction of a share, the number of shares you will
be entitled to purchase upon exercise will be
rounded down to the nearest whole number, with cash
to be issued in lieu of fractional shares.

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

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

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

The Subscription Price on
Exercise of the Rights... $3.25 for the Underlying Shares contained in each
Right (1.046357 shares of Common Stock and 0.174096
shares of Series A Preferred Stock).

When You Can Exercise Your
Rights................... July 16, 1998 and ending on August 14, 1998 at
12:00 p.m., New York City time, unless extended for
a specified period; provided, however, that the
expiration will not extend past October 1, 1998,
(the "Expiration Date").

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

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

Description of the Series A
Preferred Stock and
Common Stock............. Each Right is exercisable for both Common Stock and
Series A Preferred Stock of the Company. Taking the
Reorganization Transactions into account, each
share of the Series A Preferred Stock will be

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

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

Stock to be Outstanding
After the Offering......... Depending on the number of shares of Common Stock
and Series A Preferred Stock purchased in the
Offering, we will have between 24,044,803 and
30,001,026 shares of Common Stock and between
16,566,631 and 17,557,648 shares of Series A
Preferred Stock outstanding. This excludes 136,500
shares of Common Stock issuable upon the exercise
of outstanding stock options and warrants, at a
weighted average exercise price of $4.85 per share,
of which options and warrants to purchase 31,500
shares of Common Stock, at a weighted average
exercise price of $10.20 per share, were
exercisable as of June 12, 1998. In addition, at
June 12, 1998, pro forma for the Reorganization
Transactions, the Company had outstanding shares of
Preferred Stock (other than the Underlying
Preferred Shares) convertible into 4,917,851 shares
of Common Stock and a potential obligation to issue
Common Stock upon conversion of approximately $11.3
million under a production payment agreement. See
"Certain Transactions -- Historical -- Other."

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

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

Our Common Stock and Series A Preferred Stock are
traded on The Nasdaq National Market and the OTC
Bulletin Board, respectively, under the symbols
"TOFF" and "TOFFL," respectively. On June 12, 1998,
the closing sale price of our Common Stock and
Series A Preferred Stock was $3.00 and $1.50 per
share, respectively.

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

Procedure for Exercising
Rights................... To exercise your Rights, you should properly
complete and sign the Rights Certificate and
forward it (or follow the Guaranteed Delivery
Procedures), with payment of the Subscription Price
for the Underlying Shares to be purchased, to the
Rights Agent. The Rights Agent must receive your
Rights Certificate or Notice of Guaranteed Delivery
with

7
<PAGE> 11

payment of the Subscription Price on or prior to
the Expiration Date. If you use the mail to forward
Rights Certificates, we urge you to use insured,
registered mail, return receipt requested. See "The
Offering -- How You Can Exercise Your Rights."

If paying by uncertified personal check, please
note that the funds paid thereby may take at least
five (5) business days to clear. Accordingly,
Rights' holders who wish to make payment by means
of uncertified personal checks are urged to make
payment sufficiently in advance of the Expiration
Date to ensure that such check is received and
clears by the Expiration Date and are urged to
consider paying the Subscription Price by means of
certified or cashier's check or money order.

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

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

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

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

No Board Recommendation.... An investment in the Underlying Shares must be made
pursuant to your evaluation of your best interests.
Accordingly, neither the Company's

8
<PAGE> 12

Board of Directors nor DeepTech's Board of
Directors makes any recommendation to you regarding
whether you should exercise your Rights.

Exercise of Rights......... You may exercise your Rights by forwarding the
attached Subscription Exercise Notice, with payment
in full of the Subscription Price, to the Rights
Agent prior to 12:00 p.m., New York City time, on
the Expiration Date to any of the following
addresses:

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

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

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

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

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

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
SIGNIFICANT EVENT DATE
----------------- ----
<S> <C>
Record Date................. June 12, 1998
Expiration Date............. August 14, 1998
</TABLE>

9
<PAGE> 13

RISK FACTORS

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

FORWARD-LOOKING STATEMENTS

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

10
<PAGE> 14

SUMMARY PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA

<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 1995
------------ ----------- ----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <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 8,054
-------- ------- ------- ------- -------- -------- --------
Total revenue.............. 51,257 19,057 9,276 16,508 20,723 16,070 8,054
-------- ------- ------- ------- -------- -------- --------
COSTS AND EXPENSES:
Production, operating and
exploration expenses............. 25,224 10,840 4,253 6,412 9,007 13,840 25,204
Depreciation, depletion and
amortization..................... 3,914 1,723 3,125 3,500 5,364 1,758 1,210
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 7,112
-------- ------- ------- ------- -------- -------- --------
Total operating costs...... 35,838 19,478 11,742 13,862 60,891 29,873 33,526
-------- ------- ------- ------- -------- -------- --------
Operating income (loss)............ 15,419 (421) (2,466) 2,646 (40,168) (13,803) (25,472)
Gain on sale of oil and gas
properties....................... -- -- -- -- -- 22,641 1,496
Interest and other financing costs,
net.............................. (7,205) (124) (1,538) (5,892) (7,803) (8,048) (10,795)
-------- ------- ------- ------- -------- -------- --------
Net income (loss).................. 8,214 (545) (4,004) (3,246) (47,971) 790 (34,771)
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 $(34,771)
======== ======= ======= ======= ======== ======== ========
Basic net income (loss) per common
share............................ $ 0.45 $ (1.42) $ (0.52) $ (2.34) $ (19.47) $ 0.20 $ (13.91)
======== ======= ======= ======= ======== ======== ========
Diluted net income (loss) per
common share..................... $ 0.33 $ (1.42) $ (0.52) $ (2.34) $ (19.47) $ 0.09 $ (13.91)
======== ======= ======= ======= ======== ======== ========
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 70,829
Total assets....................... 151,605 (a) 41,314 (a) 42,485 97,130 94,720
Notes payable...................... 64,841 (a) -- (a) -- 1,734 10,468
Long term debt..................... -- (a) -- (a) 60,000 60,000 60,000
Stockholders' equity (deficit)..... 78,910 (a) 30,558 (a) (27,696) 18,862 (20,020)
</TABLE>

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

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

11
<PAGE> 15

RISK FACTORS

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

RIGHTS MAY BECOME WORTHLESS

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

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. If either of the Rigs is not employed for any
extended period of time, the absence of associated revenues would have a
material adverse effect on the Company, including limiting the Company's ability
to raise capital from external sources. 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."

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

12
<PAGE> 16

alternative uses and, because of their nature and the environment in which they
work, have relatively high maintenance costs whether employed or unemployed. See
"-- Dependence on Oil and Gas Industry."

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

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

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

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

SUBSTANTIAL LEVERAGE

Upon consummation of the Contribution, the Company incurred 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.

POTENTIAL LACK OF LIQUIDITY

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

13
<PAGE> 17

NUMBER OF RIGS

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

In addition, the Pincay 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 be decreased for such
period as compared to the previous quarter.

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
the 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 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 short-term demand for offshore drilling rigs and consequently pressure on
current dayrates, as a result of price declines.

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

14
<PAGE> 18

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.

RISK OF NEW VENTURE; LACK OF PRIOR OPERATING HISTORY

Tatham Offshore was organized in 1988, but started operations as an
offshore drilling rig owner as of the closing of the Contribution which was
completed on June 25, 1998. Prior to such closing, Tatham Offshore was engaged
in the development, exploration and production of oil and gas properties,
primarily in the Gulf of Mexico and had no prior history in operating drilling
rigs. Therefore, the Company's success must be considered in light of the risks,
expenses and difficulties companies frequently encounter in their early stage of
development, especially companies in a highly competitive industry. Although, as
part of the Reorganization Transactions, the Company will be hiring
substantially all of DeepTech's management that has been responsible for the
management of the Rigs, and DeepTech's relationship with Sedco Forex will
continue, the Company and its operations are subject to all of the risks
inherent in the establishment of a new business enterprise. There can be no
assurance that the Company will be able to operate its new business on a
profitable basis. The historical financial results of DeepFlex cover periods
when it was not under the Company's control, and therefore, may not be
indicative of the Company's future financial performance. The inability of the
Company to operate the Rigs successfully would have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company's limited operating history as an owner of offshore drilling
rigs makes the prediction of future operating results difficult or impossible.
Future operating results will depend on 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, both Rigs are under contract,
although the Pincay was not under contract during its recent maintenance and
certain upgrades.

15
<PAGE> 19

POSSIBLE ADVERSE EFFECT OF FUTURE SALES OF SECURITIES ON MARKET PRICE

DeepTech is offering 28,073,450 shares of Common Stock and 4,670,957 shares
of Series A Preferred Stock, all of which are currently issued and outstanding
and will be eligible for immediate resale in the public market without
restriction unless an affiliate of the Company owns them (as will be the case
with respect to any Underlying Shares the Company's affiliates purchase in this
Offering (generally, Mr. Tatham, the Company's directors and senior officers,
and 10% stockholders, possibly including TBL)). Any shares TBL beneficially owns
as a result of this Offering will be restricted securities. Such shares may be
resold publicly only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as Rule 144. In
addition, certain other parties have the right to convert $11.3 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" and "Shares Eligible for Future Sale."
Sales of a substantial amount of Common Stock or Series A Preferred Stock, or a
perception that such sales could occur, could adversely affect the prevailing
market price, of the Common Stock or the Series A Preferred Stock. Because the
Series A Preferred Stock is convertible into Common Stock, changes in the Common
Stock's trading price may affect the trading price of the Series A Preferred
Stock.

CONCENTRATION OF OWNERSHIP; INFLUENCE OF THOMAS P. TATHAM

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

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

16
<PAGE> 20

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

AVAILABILITY OF QUALIFIED RIG PERSONNEL

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

GOVERNMENT REGULATION

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

17
<PAGE> 21

UNCERTAIN MARKET FOR THE RIGHTS

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

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

The holders of DeepTech common stock will recognize ordinary income for
U.S. federal income tax purposes equal to the fair market value of the Rights
received, to the extent of the current and accumulated earnings and profits of
DeepTech. If the value of the Rights exceeds the earnings and profits of
DeepTech, such excess will be treated first as a return of basis and then as
capital gain. A holder of DeepTech common stock will have a tax basis in the
Rights equal to the fair market value of the Rights received. In general, shares
acquired pursuant to the Offering will have a tax basis to the acquirer equal to
the sum of the cash paid for such shares and the acquirer's tax basis in the
exercised Rights. Rights which are acquired and expire unexercised will result
in a capital loss equal to the tax basis in the expired Rights. Such capital
loss may not be available to offset the ordinary income recognized upon receipt
of the Rights. However, in general, any capital loss which is not used in the
year the Rights expire may be carried over for possible use in a limited number
of subsequent years and, in the case of a corporation, may be carried back.

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

DETERMINATION OF SUBSCRIPTION PRICES; POSSIBLE VOLATILITY OF SECURITY PRICE

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

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

NO PROCEEDS FROM OFFERING

The Company will receive no proceeds from the Offering unless DeepTech
stockholders and/or TBL purchase Underlying Shares in the Subscription which
generate net proceeds to DeepTech in excess of $75 million. In such event, the
Company will receive any amounts in excess of $75 million (which will be
approximately $12.2 million at the most), which amounts will be used first to
satisfy certain estimated tax liabilities and second for general corporate
purposes. See "Business -- General -- Description of Reorganization
Transactions."

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

The Company's Restated Certificate of Incorporation as amended (the
"Certificate") and By-laws contain provisions which may have the effect of
delaying, deferring or preventing a change in control of the Company. For
example, the Certificate and By-laws provide for, among other things, the
prohibition of
18
<PAGE> 22

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.

NO DIVIDENDS

To date, the Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash or other dividends on its Common
Stock in the foreseeable future. In addition, the Series A Preferred Stock, the
Series B 8% Convertible Exchangeable Preferred Stock, par value $0.01 per share
("Series B Preferred Stock"), the Series C 4% Convertible Exchangeable Preferred
Stock, par value $0.01 per share ("Series C Preferred Stock"), and the Series B
9% Senior Convertible Preferred Stock, par value $0.01 per share ("Series B
Senior Preferred Stock"), rank senior to the Common Stock, with the Series A
Preferred Stock ranking senior in rights to receive dividends to the Series B
Preferred Stock, which ranks senior to the Series C Preferred Stock. Pro forma
for the Reorganization Transactions, at May 15, 1998, there will be $5,530,659
of accrued but unpaid dividends on the Series A Preferred Stock, $8,925 of
accrued but unpaid dividends on the Series B Preferred Stock, and $8,030 on the
Series C Preferred Stock. In connection with the Reorganization Transaction, the
Company's Series B Senior Preferred Stock and all related unpaid dividends will
be redeemed in full. See "Price Range of Securities and Dividend Policy."

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

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

YEAR 2000

While the Company believes that all of its software and equipment is year
2000 compliant, it is substantially dependent on vendor compliance. In addition
to its own computer systems, in connection with its business activities, the
Company interacts with suppliers, customers, creditors and financial service
organizations which use computer systems. Although the Company intends to
interact only with those third parties that have year 2000 compliant computer
systems, it is impossible for the Company to monitor all such systems. There can
be no assurances that such third party systems are year 2000 compliant. If not,
such lack of compliance may have an adverse material impact on the Company's
business and operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Year 2000."

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<PAGE> 23

THE OFFERING

WHY DEEPTECH IS SELLING SHARES THROUGH A RIGHTS OFFERING

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

YOU CAN EXERCISE OR SELL YOUR RIGHTS

Until 12:00 p.m. on August 14, 1998 unless extended, provided, however that
the expiration will not extend past October 1, 1998 (as extended, the
"Expiration Date"), you may purchase 1.046357 shares of our Common Stock and
0.174096 shares of our Series A Preferred Stock for each Right you receive, or
you may sell your Rights in the market. We have applied to have the Rights
listed on the OTC Bulletin Board under the symbol "TOFFR."

WHAT WILL BE DONE WITH RIGHTS TO PURCHASE FRACTIONAL SHARES

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

WHEN YOU CAN EXERCISE YOUR RIGHTS

You can exercise your Rights at any time during the period beginning on
July 16, 1998 and ending at 12:00 p.m., New York City time, on the Expiration
Date. After that date, your Rights will expire and you will not be able to
exercise or transfer your Rights and they will be worthless. DeepTech does not
intend to honor any Rights that the Rights Agent receives after the Expiration
Date, regardless of when you sent your Rights to the Rights Agent for exercise.

HOW YOU CAN TRANSFER YOUR RIGHTS

You may transfer all or a portion of your Rights by endorsing and
delivering your Rights Certificate to the Rights Agent at the address set forth
below. You must properly endorse the Certificate for transfer, a bank or
securities broker must guarantee your signature, and your Certificate must be
accompanied by instructions to reissue the Rights you want to transfer in the
name of the person purchasing the rights. The Rights Agent will reissue
Certificates for the transferred Rights to the purchaser, and will reissue a
Certificate for the balance, if any, to you if it is able to do so four (4) OTC
Bulletin Board trading days before the Expiration Date. You will be responsible
for the payment of any commissions, fees and other expenses (including brokerage
commissions and any transfer taxes) incurred in connection with the purchase or
sale of your Rights. We believe that a market for the Rights may develop during
the period in which the Rights may be exercised. To facilitate the market, we
have applied with the OTC Bulletin Board to have the Rights approved for
quotation from July 16, 1998 through the Expiration Date. We have applied to
reserve "TOFFR" as the OTC Bulletin Board symbol under which the Rights will
trade. If you have any questions regarding the transfer of Rights, you should
contact the Rights Agent at P.O. Box 3301, South Hackensack, New Jersey 07606,
Attention: Reorganization Department, telephone number (800) 777-3674.

HOW YOU CAN EXERCISE YOUR RIGHTS

To exercise your Rights, you should properly complete and sign the Rights
Certificate and forward it (or follow the Guaranteed Delivery Procedures), with
payment in full of the Subscription Price for the Underlying Shares to be
purchased, to the Rights Agent. The Rights Agent must receive these documents
and the payment of the Subscription Price by 12:00 p.m., New York City time, on
the Expiration Date. DeepTech does not intend to honor any exercise of Rights
that the Rights Agent receives after the Expiration Date.

DeepTech will, however, accept your exercise if the Rights Agent has
received full payment of the Subscription Price for the Underlying Shares, and
has received a letter or telegraphic notice from a bank, trust

20
<PAGE> 24

company or member firm of the New York Stock Exchange or the American Stock
Exchange setting forth your name, address and taxpayer identification number,
the number of Underlying Shares you wish to purchase, and guaranteeing that a
properly completed and signed election to purchase form will be delivered to the
Rights Agent by 12:00 p.m., New York City time, on the Expiration Date. If the
properly executed documents are not received by 12:00 p.m. on the Expiration
Date, DeepTech will not accept your subscription.

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

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

You must pay the Subscription Price in U.S. dollars by check or money order
payable to the "DeepTech Escrow Account." If paying by uncertified personal
check, please note that the funds paid thereby may take at least five (5)
business days to clear. Accordingly, subscribers who wish to make payment by
means of uncertified personal checks are urged to make payment sufficiently in
advance of the Expiration Date to ensure that such check is received and clears
by the Expiration Date and are urged to consider paying the Subscription Price
by means of certified or cashier's check or money order. Until this Offering is
closed, the Rights Agent, as the escrow agent of the DeepTech Escrow Account,
will hold your payment in escrow.

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

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

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

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

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<PAGE> 25

HOW YOU CAN OBTAIN ADDITIONAL INFORMATION

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

WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELED

DeepTech has the right to cancel the Offering if certain conditions,
including the failure of the Merger to close, are not satisfied or if certain
circumstances exist prior to the closing date of this Offering. IN SUCH EVENT,
ALTHOUGH DEEPTECH INTENDS TO COMPLETE THE OFFERING IF THE MERGER IS NOT
COMPLETED, DEEPTECH MAY CANCEL THIS OFFERING AND THE RIGHTS WILL EXPIRE AND BE
WORTHLESS, AND ALL OF THE TRADES WILL BE CANCELED. If you exercise Rights and
the Offering is canceled, the Rights Agent will promptly return to you, without
interest, any payment received in respect of the Subscription Price and you will
not receive any Underlying Shares. DeepTech has established an escrow account
with the Rights Agent to hold funds received prior to the closing date of this
Offering. Trades in the Rights and the when-issued shares of Common Stock and
Series A Preferred Stock in the market will be canceled and unwound if this
Offering is not consummated.

SUBSCRIPTION PRIVILEGES

Subscription Privilege. Each Right will allow you to receive, upon payment
of the Subscription Price, 1.046357 shares of Underlying Common Shares and
0.174096 shares of Underlying Preferred Shares. The certificates representing
shares of Common Stock and Series A Preferred Stock purchased pursuant to your
exercise will be delivered to you as soon as practicable after the Expiration
Date and after all prorations and adjustments contemplated by the terms of the
Offering have been effected. To the extent you exercise Rights to purchase
fractional Underlying Shares and you have made funds available, your
subscription will be rounded down to the nearest whole number, with cash issued
in lieu of fractional shares.

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

NO REVOCATION

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

PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS

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

DESCRIPTION OF SERIES A PREFERRED STOCK AND COMMON STOCK

Each Right is comprised of both Common Stock and Series A Preferred Stock
of the Company. Taking the Reorganization Transactions into account, each share
of the Series A Preferred Stock will be senior to all

22
<PAGE> 26

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

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

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

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

FOREIGN AND CERTAIN OTHER STOCKHOLDERS

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

OTHER MATTERS

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

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

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<PAGE> 27

USE OF PROCEEDS

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

PRICE RANGE OF SECURITIES AND DIVIDEND POLICY

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

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

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

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

As of June 12, 1998, there were approximately 157 and 8 holders of record
of our Common Stock and Series A Preferred Stock, respectively. On June 12,
1998, the closing sale price of the Common Stock and the Series A Preferred
Stock was $3.00 and $1.50 per share, respectively.

Tatham Offshore has never declared or paid any cash dividends on the Common
Stock. The Company intends to retain any future earnings to fund growth and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. In connection with the Reorganization Transactions, the Series B Senior
Preferred Stock and all related unpaid dividends will be redeemed in full. The
outstanding Preferred Stock has priority as to dividends and liquidation over
the Common Stock, with the Series A Preferred Stock having priority over the
Series B Preferred Stock as to dividends and liquidation, which has priority
over the Series C Preferred Stock. Depending on availability of cash and the
Company's options with respect to such cash, the Company may make dividend
payments on its Preferred Stock. No dividends may be paid unless all accrued and
unpaid dividends on such Preferred Stock have been paid or declared and set
aside for payment. As of June 12, 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.

24
<PAGE> 28

CAPITALIZATION

The following table sets forth the capitalization of Tatham Offshore as of
March 31, 1998, and of the Company as adjusted to reflect the Reorganization
Transactions. This table should be read in conjunction with "Use of Proceeds,"
"Selected Pro Forma and Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto listed on page F-1.

<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Notes payable............................................... $ -- $ 64,841
--------- ---------
Stockholders' equity:
Preferred stock (par value $0.01 per share, 110,000,000
shares authorized and 24,335,255 shares issued and
outstanding)...........................................
Senior Convertible Preferred Stock (par value of $0.01 per
share, 7,500 shares authorized and issued)............. -- --
Series A Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 17,623,210 shares
issued)................................................ 176 176(3)
Series B Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 74,379 shares
issued)................................................ 1 1
Series C Preferred Stock (par value of $0.01 per share,
25,120,948 shares authorized(1) and 321,205 shares
issued)................................................ 3 3
Common stock (par value of $0.01 per share, 250,000,000
shares authorized and 29,982,808 shares issued)........ 300(2) 300(2)(3)
Additional paid in capital................................ 146,520 198,437(3)
Accumulated deficit....................................... (116,442) (120,007)
--------- ---------
Total stockholder's equity........................... 30,558 78,910(4)
--------- ---------
Total capitalization.............................. $ 30,558 $ 143,751
========= =========
</TABLE>

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

(1) 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 June 12, 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.

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

(3) To the extent that no more than $75 million of proceeds are received from
this Offering, Tatham Offshore has agreed to purchase the remaining
unsubscribed shares of 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 3,926,756 shares and 653,347 shares,
respectively. After the purchase by Tatham Offshore, DeepTech, subject to
certain limitations, will contribute the proceeds from such purchase to the
Company.

(4) The Company will receive no proceeds from the Offering unless DeepTech
stockholders and/or TBL purchase Underlying Shares in the Subscription which
generate net proceeds to DeepTech in excess of $75 million. In such event,
the Company will receive any amounts in excess of $75 million (which will be
approximately $12.2 million at the most), which amounts will be used, first,
to satisfy certain estimated tax liabilities and, second, for general
corporate purposes.

25
<PAGE> 29

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

TATHAM OFFSHORE -- HISTORICAL
-----------------------------

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

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

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

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

26
<PAGE> 30

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 reflect 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 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

27
<PAGE> 31

both) or enter into other arrangements to allow the Company to generate
operating cash flow to fund on-going activities and operations. If either of the
Rigs is not employed for any extended period of time, the absence of associated
revenues would have a material adverse effect on the Company, including limiting
the Company's ability to raise capital from external sources. Commencing in
April 1998 when routine maintenance and certain upgrades to the Pincay began
until July 1998, the Pincay was not generating any revenue.

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, assumed 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, (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.

Effective as of June 16, 1998, RIGCO and its lenders amended the
Third-Party Credit Facility to, among other things, (i) permit the change of
control resulting from the contribution of DeepFlex to the Company and the
subsequent spin-off of the Company from DeepTech pursuant to the Rights Offering
and (ii) effect the step-up in the tax basis of the Pincay.

Additionally, 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 continue

28
<PAGE> 32

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 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 Tatham Offshore's consolidated financial statements on page F-14. 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 Securities Act. With the exception of the North Atlantic
Partners pipeline project, all of the historical business and operations of
Tatham Offshore will be transferred to DeepTech and the Partnership who will
also assume all future liability related to these assets and operations as part
of the Reorganization Transaction. Such information, although important for an
understanding of Tatham Offshore's historical financial results and business, is
of little relevance to the Company's business and operations on a going forward
basis. See "Business -- Prospective Business" and
"Business -- General -- Description of Reorganization Transactions."

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.

29
<PAGE> 33

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 of $0.4 million is primarily a result of a
$0.8 million net reduction in abandonment expense as a result of Tatham Offshore
assigning its working interest in Ship Shoal Block 331 to a third party for the
assumption of the abandonment obligations offset by additional depletion at
Viosca Knoll Block 817 and West Delta Block 35 of $0.1 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.

30
<PAGE> 34

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

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

Impairment, abandonment and other for the year ended June 30, 1997 totaled
$41.7 million as compared with $8.0 million for the year ended June 30, 1996.
Impairment, abandonment and other for the year ended June 30, 1997 consisted of
a charge to reserve Tatham Offshore's investment in its Ewing Bank 914 #2 well,
certain adjacent leases and Ship Shoal Block 331 property, to accrue Tatham
Offshore's abandonment obligations associated with the Ewing Bank 914 #2 and 915
#4 wells and the Ship Shoal Block 331 property and to expense Tatham Offshore's
net prepaid demand charges related to obligations under certain transportation
agreements. See "Note 3--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
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#2 well was shut-in approximately six weeks during which Tatham Offshore
completed repair operations on the flow lines.

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

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

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

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

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compared with a net loss available to common stockholders for the year ended
June 30, 1995 of $34.8 million, or $13.91 per share.

LIQUIDITY AND CAPITAL RESOURCES -- HISTORICAL

Sources of Cash. Tatham Offshore satisfied its immediate capital
requirements and other working capital needs primarily from cash on hand and
cash generated from operations. At 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 these 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 projects. 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

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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 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. If either of the Rigs is not
employed for any extended period of time, the absence of associated revenues
would have a material adverse effect on the Company, including limiting the
Company's ability to raise capital from external sources. Commencing in April
1998 when routine maintenance and certain upgrades to the Pincay began until
July 1998, the Pincay was not generating any revenue. Tatham Offshore generated
approximately $0.9 million in positive operating cash flow for the nine months
ended March 31, 1998.

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 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
Prospectus. 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.

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 affect on the Company's internal operations. Although the Company
intends to interact only with those third parties that have year 2000 compliant
computer systems, it is impossible for the Company to monitor all such systems.
Currently, the Company has no information concerning the year 2000 compliance
status of its customers and vendors. There can be no assurances that such
systems will not have a material adverse impact on the Company's business and
operations. See "Risk Factors -- Year 2000."

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BUSINESS

SUMMARY

The Company provides offshore contract drilling services to the oil and gas
industry in the Gulf of Mexico and Atlantic Canada and is currently pursuing an
integrated investment strategy in Atlantic Canada. The Company owns two
semisubmersible drilling rigs, the Pincay and the Shoemaker. The Shoemaker is
capable of conducting drilling operations in cold weather, hostile environments
and currently satisfies all of the requirements to operate in Atlantic Canada
waters. The Shoemaker is one of only two semisubmersible drillings rigs
currently qualified to operate in Canadian waters. The Shoemaker currently
operates and is under contract in the Gulf of Mexico. The Pincay, which has not
been under contract since April 1998 in order to undergo certain upgrades and
routine maintenance at a shipyard in Texas, is under contract as of July 1998.
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 leveraging initially on the cash flow
from, and utilization of, the Rigs. The Company believes that the Atlantic
Canada region offers significant investment opportunities. The Company's plans
include expanding its drilling rig fleet's cold weather, hostile environment
capabilities as well as diversifying its business to include substantial natural
gas gathering and transmission facilities, related gas processing facilities, a
facility for the generation of electricity and other related investments. In
Atlantic Canada, as with any frontier region, there will be substantial risks
associated with investments in such projects. Further, if recent declines in the
price of crude oil are sustained for some period, the pace of development within
the area could be affected and materially extend the time frame for the projects
discussed herein to commence or become operational. However, the Company
believes that by using an integrated investment approach related to the
development of the region's hydrocarbon reserves, the potential for investment
returns is maximized. The Company is contemplating pursuing the development of
the projects described below. Each of these projects is in a preliminary,
conceptual phase. In addition, (i) the Company does not currently possess the
capital necessary to implement its business strategy completely and there can be
no assurances that the Company will be able to obtain sufficient capital for any
or all of the projects, (ii) there can be no assurances that these projects and
other opportunities will prove to be economic or that they will occur, and (iii)
many of these projects will require governmental approvals, almost all of which
the Company has yet to receive. Moreover, if there are developments that the
Company determines to be indicative of a lack of reasonable opportunity to
realize benefits for the Company's stockholders, then the Company will pursue
other opportunities, wherever located.

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

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

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

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

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

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

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

Hydrocarbon Marketing Company. As part of its activities in the region, the
Company has formed North Atlantic Hydrocarbons Marketing, Inc. ("North Atlantic
Marketing") to buy natural gas and NGLs contained in the natural gas stream in
the production. North Atlantic Marketing would assume the marketing risk related
to the natural gas stream, purchasing the natural gas and entrained liquids from
producers and finding a market for those hydrocarbons. North Atlantic Marketing
is in the process of finalizing a proposal to

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purchase the associated gas reserves produced from the Hibernia Field and plans
to submit additional gas purchase proposals to the owners of the Terra Nova and
White Rose development projects. As currently contemplated, the proposal would
provide for approximately $30 million of U.S. letters of credit or advanced
payments or contribution.

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

THE PROSPECTIVE BUSINESS

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

GENERAL

Since the closing of the Contribution, the Company conducts 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 semisubmerged 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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1,500 feet and has a drilling variable load of approximately 3,850 short tons, a
VARCO TDS-4S top-drive drilling system, a 10,000 psi blow-out prevention system,
2,000 barrel mud pits and eight 80,000 pound riser tensioners. This rig was
built in 1976 and was extensively refurbished, repaired, renovated and upgraded
in 1997 at a cost of approximately $56 million. The upgrades included installing
a new heliport, 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.

During recent routine repairs and certain upgrades the Pincay was not under
contract. In July 1998, Ocean Energy, Inc. contracted the Pincay to conduct a
one-well (with 3 one-well options) program.

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

RIG MANAGEMENT

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

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

DRILLING CONTRACTS

Most drilling contracts are structured on a dayrate, footage or turnkey
basis. They usually extend over a period covering either the drilling of a
single well, a group of wells (a "well-to-well contract") or a stated term (a
"term contract") and are terminable if the drilling unit is destroyed or lost,
drilling operations are

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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. During recent routine repairs and certain upgrades,
the Pincay was not under contract. In July 1998, however, Ocean Energy, Inc.
contracted the Pincay to conduct a one-well (with three one-well options)
program.

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 the above discussed two customers, through contracts with Sedco
Forex, 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> 43

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> 44

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> 45

THE HISTORICAL BUSINESS

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

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

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

Viosca Knoll Block 817. Viosca Knoll Block 817 is a producing property with
eight wells, comprised of 5,760 gross (1,440 net) acres located 40 miles off the
coast of Louisiana in approximately 650 feet of water. Tatham Offshore owns a
25% working interest in the Viosca Knoll Block 817 acreage, which interest is
burdened by a convertible production payment of 25% of the production proceeds
from such interest. See "Certain Transactions -- Historical -- Other." The
Viosca Knoll Block 817 project is currently producing an aggregate of
approximately 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.

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<PAGE> 46

Ewing Bank Blocks 914 and 915. Tatham Offshore owns a 100% working interest
in each of Ewing Bank Blocks 914 and 915, which are both in approximately 1,000
feet of water. From the inception of production through June 30, 1997, the Ewing
Bank 914 #2 well has produced a total of 1.2 million barrels of oil and
condensate and 3.4 Bcf of gas. In May 1997, the Ewing Bank 914 #2 well was
shut-in as a result of a downhole mechanical problem 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 all future
production; if any, from Tatham Offshore's Viosca Knoll Block 817, Garden Banks
Block 72, Garden Banks Block 117 and Ship Shoal Block 331 project areas and, in
certain cases, additional acreage contained in adjoining areas of mutual
interest.

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

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

OIL AND GAS RESERVES

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

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
these estimates, Ryder Scott used prices of $17.20 per barrel of oil and $2.39
per Mcf of gas as of June 30, 1997.

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<PAGE> 47

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

PRODUCTION, UNIT PRICES AND COSTS

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

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

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

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

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

ACREAGE

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

OIL AND GAS DRILLING ACTIVITY

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>

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<PAGE> 48

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

DESCRIPTION OF REORGANIZATION TRANSACTIONS

On February 27, 1998, El Paso, El Paso Acquisition Company, a wholly owned
subsidiary of El Paso ("Merger Sub"), and DeepTech executed an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which DeepTech will merge
into El Paso or, under certain circumstances, Merger Sub. The material terms of
the Merger and the transactions contemplated by the Merger Agreement and other
agreements related to the Company (the "Reorganization Transactions") are: (i)
DeepTech sold to the Company approximately $8.0 million of the intercompany debt
DeepFlex owed to DeepTech (the "DeepFlex Debt") in exchange for (x) the delivery
by the Company to DeepTech of all of the outstanding shares of capital stock of
Tatham Offshore Development, Inc. ("TODI"), which owns the working interests in
Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Sunday Silence Project") located
in the Gulf of Mexico, and (y) cancellation of a reversionary interest in
certain oil and gas properties; (ii) in satisfaction of approximately $12.0
million of the DeepFlex Debt, DeepFlex delivered to DeepTech all of the Tatham
Offshore Common Stock and Series A Preferred Stock held by DeepFlex; (iii) the
balance of the DeepFlex Debt was contributed to the capital of DeepFlex; (iv)
DeepTech contributed all of the outstanding shares of capital stock of DeepFlex,
which owns the Rigs, to Tatham Offshore (together with the transactions
described in subsections (i) through (iii), the "Contribution," as described in
"Business -- General -- Description of Reorganization Transactions -- The
Contribution and Distribution Agreement"); (v) the Company, through DeepFlex,
assumed approximately $60 million of third party debt owed by DeepFlex; (vi)
DeepTech will merge with and into El Paso or, under certain circumstances, with
Merger Sub; and (vii) the Company will transfer the oil and gas properties it
owns together with all related liabilities (other than TODI's) to the
Partnership in consideration of redemption by the Company of 7,500 shares
(including satisfaction of unpaid dividends) of the Company's Series B 9% Senior
Convertible Preferred Stock (the "Series B Senior Preferred Stock") owned by the
Partnership. See "Business -- General -- Description of Reorganization
Transactions."

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

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<PAGE> 49

The Contribution and Distribution Agreement

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

Under the Contribution Agreement, at least seven days prior to the date of
the distribution of the Rights to the holders of record on June 12, 1998, the
Record Date, of DeepTech's common stock: (i) the Company conveyed its interest
in TODI and canceled certain oil and gas reversionary rights in exchange for
approximately $8 million of DeepFlex Debt held by DeepTech; (ii) DeepTech
disposed 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 delivered to DeepTech all of the
outstanding shares of the Company's Common Stock and Series A Preferred Stock
owned by DeepFlex in satisfaction of $12 million of the DeepFlex Debt; and (iv)
the remaining balance of approximately $65.0 million of the DeepFlex Debt was
contributed to the capital of DeepFlex.

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

Pursuant to the Contribution Agreement, the Company had the option to
require DeepTech to cause RIGCO North America, L.L.C. ("RIGCO"), the owner of
the Rigs and wholly owned subsidiary of DeepFlex, to effectuate a step-up
transaction in the tax basis of either the Pincay or the Shoemaker. On June 16,
1998, RIGCO caused the tax basis of the Pincay to be increased by approximately
$36.0 million.

The Contribution Agreement also sets forth certain indemnification terms
among the parties. Under the Contribution Agreement, from and after the closing
of the Merger, the Company will indemnify El Paso and its subsidiaries and any
of its officers, directors and employees of each such entity (the "El Paso
Group") against all losses, expenses, claims, damages and liabilities (other
than income tax liabilities, which are the subject of the Tax Sharing Agreement)
to which El Paso may be or become subject that relate to (i) the assets,
business, operations, debts or liabilities of DeepFlex, the Company or its
subsidiaries (other than TODI) (collectively, the "Company Group"), whether
arising prior to, concurrent with or after the Contribution or this Offering,
(ii) the failure to obtain all necessary third party consents to the
Contribution or this Offering (other than the failure to obtain all necessary
consents under the DeepTech Indenture and DeepTech's Senior Subordinated Notes
due 2000 in connection with the Contribution and this Offering, or the failure
to obtain any other necessary third party consents as to which the Company will
notify El Paso to the extent the failure to obtain the consent is a result of El
Paso's election to unreasonably withhold or delay

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<PAGE> 50

its consent under the Merger Agreement (the "Third Party Consents")), or (iii)
any filing by any member of the Company Group under the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including,
without limitation, this Prospectus), or any information relating to the Company
Group contained in any filing made by any member of the DeepTech Group, in each
case whether made prior to or concurrent with the closing of the Merger. The
"DeepTech Group" includes DeepTech and its subsidiaries other than the Company
Group.

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

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

The Standby Agreement

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

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membership units, and (ii) Mr. Tatham has the right, but not the obligation, to
lend to TBL all sums necessary for TBL to fulfill its obligations under the
Standby Commitment.

The Purchase Commitment Agreement

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

The Redemption Agreement

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

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

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

The Tax Sharing Agreement

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

Under the Tax Sharing Agreement, the parties will be responsible for the
payment of various Taxes either arising from the Reorganization Transactions or
regular business operations. The Company will pay (i) all Taxes attributable to
the Company and its subsidiaries, including under certain circumstances, Taxes
arising from the transfer of the Rigs to the Company, (ii) Taxes of TODI for
periods prior to the transfer by the
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<PAGE> 52

Company of the outstanding shares of TODI to DeepTech pursuant to the
Contribution Agreement, and (iii) Taxes of DeepTech attributable to the
Contribution and this Offering (but not to the extent such Taxes exceed the sum
of $7 million and any Taxes attributable to the value of the Company being in
excess of a notional amount to be determined according to a formula set forth in
the Tax Sharing Agreement). DeepTech will pay all other Taxes attributable to
DeepTech other than those described in the preceding sentence. Both the Company
and DeepFlex will cooperate with DeepTech in the filing of any consolidated tax
return covering the Taxes to be paid by DeepTech.

The Tax Sharing Agreement provides for the allocation of any net operating
losses and other available Tax attributes. Pursuant to the Tax Sharing
Agreement, DeepTech's net operating losses and other Tax attributes are
allocated first to offset DeepTech's income (other than income arising from this
Offering and the Contribution), second to offset DeepFlex's operating income
(for the period ending June 30, 1998 and (if different) the period ending on the
date the Contribution is effected), third to offset gain DeepTech may recognize
on the Contribution and this Offering, and fourth, to offset RIGCO's gain on the
distribution of one of the Rigs to the Company. Finally, under the Tax Sharing
Agreement, El Paso will pay the Company for the 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, since the Company exercised its right to step-up the tax basis of
one of the Rigs, both the Company and DeepTech (or El Paso as successor to
DeepTech) are required to provide the other party with letters of credit, to be
provided at the closing of the Merger, in the amount of $7.5 million to secure
certain of their payment obligations under the Tax Sharing Agreement. The
letters of credit are to expire after five years (but may be extended for an
additional three years under certain circumstances described in the Tax Sharing
Agreement).

EMPLOYEES

Tatham Offshore and DeepFlex currently have no employees. To date, all
individuals, including executive officers, necessary to meet the financial,
geological, engineering and other technical and administrative requirements have
been provided by DeepTech pursuant to management agreements with DeepTech. For
the year ended June 30, 1997 and for the 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 closing of the Merger, the management agreements will terminate
and the Company will directly employ all of its executive officers and other
employees necessary to meet its financial, technical and administrative
requirements. See "Management."

OFFICE SPACE LEASE

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

LEGAL PROCEEDINGS

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

AVAILABLE INFORMATION

The Company is required to make periodic filings with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). You may
inspect and copy these filings at the public reference facilities the SEC
maintains at: (i) Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004; (ii) Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and

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(iii) 7 World Trade Center, 13th Floor, New York, New York 10048. You may also
obtain copies of such materials at prescribed rates from the SEC's Public
Reference Section at its principal office at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549-1004. You also may access the Company's filings on
the Internet at http://www.sec.gov. In addition, the Company's Common Stock is
listed for quotation on The Nasdaq National Market and the Company's Series A
Preferred Stock is listed on the OTC Bulletin Board and reports and other
information concerning the Company may also be inspected at the offices of The
Nasdaq Stock Market, Inc., Nasdaq Regulatory Filings, 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company has filed the Registration Statement related to this Prospectus
with the SEC. This Prospectus, which is a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the SEC. You may obtain such additional information from the
SEC's principal office in Washington, D.C. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete (but are accurate statements of those matters considered by
the Company to be material to the Company stockholders in connection with this
Prospectus). You may find more information with respect to such documents by
looking to the exhibits, and each such statement is qualified in its entirety by
such reference. You may inspect the Registration Statement, without charge, at
the offices discussed above.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

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

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

Thomas P. Tatham has served as Chairman of the Board and a Director of the
Company since 1988. In addition, Mr. Tatham has served as Chairman of the Board,
Chief Executive Officer and a Director of DeepTech and Chairman of the Board of
the general partner of the Partnership since October 1989 and February 1989,
respectively. Mr. Tatham also served as Chief Executive Officer of the general
partner of the Partnership from February 1989 until June 1995. Mr. Tatham has
over 27 years experience in the oil and gas industry. He founded Mid American
Oil Company in 1970 and served as Chairman of the Board and Chief Executive
Officer until he sold his interest therein to Centex Corporation in 1979. In
1979, Mr. Tatham founded Tatham Corporation to acquire Sugar Bowl Gas
Corporation ("Sugar Bowl"), the second largest intrastate pipeline system in
Louisiana. He served as Chairman of the Board of Tatham Corporation from 1979 to
December 1983, at which time it sold the assets of Sugar Bowl to a joint venture
between MidCon

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Corp. and Texas Oil and Gas, Inc. From 1984 to 1988, Mr. Tatham pursued personal
investments in various industries, including the oil and gas industry. Mr.
Tatham served as a director of J. Ray McDermott, S.A. from its inception in
February 1995 through August 1997.

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

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

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

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

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

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

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

Harvey O. Fleisher will serve as Senior Vice President of Marine Services
of the Company. Mr. Fleisher has served as Executive Vice President of DeepFlex
since April 1995. From June 1988 to April 1995, Mr. Fleisher held various
engineering and operations positions with DeepTech entities. Mr. Fleisher has
over 25 years experience in the offshore oil and gas industry primarily in the
floating drilling and production areas. Prior to joining DeepTech in 1988, Mr.
Fleisher worked for two years as an independent consultant and

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14 years with Sonat Offshore Drilling, Inc. (formerly The Offshore Company). Mr.
Fleisher is a Registered Professional Engineer and holds MS and BS degrees in
Industrial Engineering from Texas A&M University.

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

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

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

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

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

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

James G. Niven has served as a Director of the Company since June 1994 and
as a General Partner of Pioneer Associates, a venture capital investment
company, since 1982. Mr. Niven has been a Senior Vice President of Sotheby's
Inc. since November 1996 and is currently a Director of The Lynton Group, Inc.,
Lincoln Snacks Company, and HealthPlan Services. He is a member of the Board of
Managers of Memorial Sloan-Kettering Cancer Center, and a Trustee of the Museum
of Modern Art, and the National Center for Learning Disabilities, Inc.

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

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

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

BOARD OF DIRECTORS AND COMMITTEES

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

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

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

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

The Company's directors are entitled to reimbursement for their reasonable
out-of-pocket expenses in connection with their travel to and from, and
attendance at, meetings of the Board of Directors or committees

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thereof. The Company's Directors who are not officers or affiliates of the
Company are paid an annual fee of $30,000 plus $2,000 per meeting attended. See
"-- Non-Employee Director Stock Option Plan."

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

EXECUTIVE COMPENSATION

Summary Compensation Table

Historically DeepTech has compensated Tatham Offshore's executive officers
and they have not received compensation from Tatham Offshore for their services
as such except for amounts that may be paid to them under the Incentive Plan (as
defined). See "-- Incentive Plan." DeepTech has charged Tatham Offshore an
annual management fee in exchange for operational, financial, accounting and
administrative services which is intended to reimburse DeepTech for the
estimated costs of the services provided to Tatham Offshore. DeepTech charged
Tatham Offshore $3,279,000 and $3,305,000 under this management agreement for
the year ended June 30, 1997 and the nine months ended March 31, 1998,
respectively.

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

PLANNED COMPENSATION

<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED STOCK(1)
NAME/PRINCIPAL POSITION SALARY ($) OPTIONS(1) (SERIES A PREFERRED STOCK)
- ------------------------------------------ ---------- ------------ ---------------------------
<S> <C> <C> <C>
Dennis A. Kunetka......................... 200,000 100,000 50,000
Chief Financial Officer, 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.

55
<PAGE> 59

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

ANNUAL COMPENSATION BY DEEPTECH

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NAME/PRINCIPAL OTHER ANNUAL AWARDS
POSITION WITH FISCAL SALARY(1) BONUS(1) COMPENSATION OPTIONS
TATHAM OFFSHORE YEAR ($) ($) ($) (#)
--------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas P. Tatham(2) 1997 1,000,000(3) -- 1,400,000(3) --(4)
Chief Executive Officer 1996 2,731,750(5) 600,000(5) 39,178(6) 300,000(7)(10)
1995 600,000 600,000(8) 107,714(9) 100,000(10)
Antoine Gautreaux, Jr(11) 1997 200,000 -- -- 10,000(12)
Chief Operating Officer 1996 162,500 -- -- 75,000(10)
1995 31,248 -- -- 2,500(12)
Dennis A. Kunetka(13) 1997 140,000 -- -- --
Senior Vice President- 1996 120,000 -- -- 30,000(10)
Corporate Finance & 1995 120,000 15,000 -- --
Investor Relations
Kenneth E. Beeney(11) 1997 140,000 -- -- 10,000(12)
Vice President- 1996 110,000 -- -- 75,000(10)
Chief Geophysicist 1995 90,000 50,000 -- --
Edward J. Gibbon, Jr.(11) 1997 125,000 -- -- 10,000(12)
Vice President- 1996 106,660 -- -- 50,000(10)
Reservoir Engineering 1995 100,000 15,000 -- --
Jeffrey K. Lucas(11) 1997 100,000 -- -- 7,000(12)
Vice President- 1996 95,000 -- -- 50,000(10)
Land Manager 1995 95,000 50,000 -- --
</TABLE>

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

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

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

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

56
<PAGE> 60

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

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

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

(6) Represents dues for club memberships.

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

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

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

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

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

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

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

57
<PAGE> 61

SAR Grants Table

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

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

Option Exercises and Year-End Value Tables

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

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

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

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

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

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

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

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

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

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

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

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

58
<PAGE> 62

Incentive Plan

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

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

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

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

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

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

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

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

Non-Employee Director Stock Option Plan

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

All non-employee directors of Tatham Offshore are eligible to participate
in the Director Plan. The Director Plan provides for (i) automatic one-time
grants of Stock Options to Tatham Offshore's non-
59
<PAGE> 63

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

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

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

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

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

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

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

60
<PAGE> 64

CERTAIN TRANSACTIONS

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

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

PROSPECTIVE

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

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<PAGE> 65

Subordinated Notes Restructuring Option Agreement

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

Marketing Agreements

Tatham Offshore and Offshore Marketing entered into purchase agreements
whereby Offshore Marketing has agreed to purchase all of the gas, oil and
condensate produced by Tatham Offshore from its properties on a month to month
basis. During the year ended June 30, 1997, Tatham Offshore sold 99% of its
production to Offshore Marketing. The agreement with Offshore Marketing provides
Offshore Marketing fees equal to 2% 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
62
<PAGE> 66

to provide transportation services with respect to such production. These
agreements are generally in effect for the productive life of the reserves.
Tatham Offshore agreed to pay certain fees for transportation services and
facilities access provided under the Master Gas Dedication Agreement. Pursuant
to the terms of the purchase and sale agreement discussed above, the Partnership
assumed all of Tatham Offshore's obligations under the Master Gas Dedication
Agreement and certain ancillary agreements with respect to the Subject
Properties. Tatham Offshore paid the Partnership $4,126,000 under these
agreements during the year ended June 30, 1997.

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

Dover Services Agreement

Effective November 1, 1995, Dover Technology, Inc. ("Dover"), an affiliate
of DeepTech, entered into a Technology Services Agreement with Tatham Offshore
(the "Dover Services Agreement") which expired on 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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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, as of June 12, 1998, the beneficial
ownership of the outstanding Common Stock and Series A Preferred Stock by (i)
each person who is known to the Company to beneficially own more than 5% of the
outstanding Common Stock or Series A Preferred Stock, or any combination
thereof, of the Company, (ii) each director of the Company and (iii) all
executive officers and directors of the Company as a group as of the date of
this Prospectus.

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

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

* Less than 1%

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

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

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

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

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<PAGE> 68

(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) Does not include 1,266,296 shares of Common Stock assumed acquired as a
result of the conversion of 4,670,957 shares of Series A Preferred Stock.

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

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

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<PAGE> 69

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 June 12, 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 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 June 12, 1998, 7,500 shares of the Series B Senior Preferred Stock were
issued and outstanding to the Partnership. All of the Series B Senior Preferred
Stock will be retired as part of the Reorganization Transactions.

Each outstanding share of Series B Senior Preferred Stock may be converted,
at any time and from time to time, into such number of whole shares of Series A
Preferred Stock as is equal to (i) the sum of $1,000 and any accrued and unpaid
dividends thereon through the date of conversion divided by (ii) $0.9375 (the
"Trading Reference Price"). The Trading Reference Price is subject to adjustment
for certain events,
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<PAGE> 70

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 June 12, 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, and a distribution of assets. To
convert the Series B Preferred Stock, the holder of such shares must deliver to

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<PAGE> 71

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 June 12, 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 June 12, 1998, 321,205 shares of Series C Preferred Stock were issued
and outstanding and each share of Series C Preferred Stock had approximately
$0.03 of accrued and unpaid dividends for a total of $8,030.

RIGHTS

DeepTech is granting the Rights on the date hereof to the holders of its
Common Stock. The Rights, subject to minimum exercise requirements, are each
exercisable for 1.046357 Underlying Common Shares and 0.174096 Underlying
Preferred Shares at a Subscription Price of $3.25 for such Underlying Shares.
Rights may be transferred, in whole or in part, by endorsing and delivering to
the Rights Agent a Rights Certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the expiration date of the Rights. This Offering will
terminate and the Rights will expire at 5:00 p.m., New York City time, on the
Expiration Date, which is , 1998. After the expiration date,
unexercised Rights will be null and void. For more information about the Rights
and the Offering process, see "The Offering" and "Risk Factors -- Cancellation
of Rights Offering."

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PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS

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

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

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

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

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

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

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<PAGE> 73

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

LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION

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

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

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

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SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Common Stock and Series A Preferred Stock by existing
stockholders, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock and the Series A Preferred Stock.
Currently, the Company has 30,001,026 shares of Common Stock and 17,557,648
shares of Series A Preferred Stock outstanding, and of which are freely
tradeable without restriction except for shares purchased by affiliates of the
Company. As of June 12, 1998, approximately 28,335,026 shares of the outstanding
Common Stock (the "Restricted Common Shares") and 6,464,657 shares of Series A
Preferred Stock (the "Restricted Preferred Shares") were "restricted securities"
within the meaning of Rule 144. Such shares may be resold publicly only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. Directors and officers of the
Company held approximately 1% of the Restricted Common Shares and 28% of the
Restricted Preferred Shares and directors of the Company held vested options
exercisable for approximately 29,000 shares of Common Stock as of May 15, 1998.

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

FEDERAL INCOME TAX CONSEQUENCES

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

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

DISTRIBUTION OF RIGHTS TO HOLDERS OF DEEPTECH SHARES

The Rights, representing the right to acquire the Underlying Shares from
DeepTech, can be considered as constituting "property" within the meaning of
Section 317(a) of the Code. Assuming the Rights are treated
71
<PAGE> 75

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

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

EXERCISE OF RIGHTS

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

TRANSFER OF RIGHTS

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

NON-EXERCISE OF RIGHTS

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

72
<PAGE> 76

CONVERSION OF SERIES A PREFERRED STOCK

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

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

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

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

POTENTIAL TAXATION OF HOLDERS OF SERIES A PREFERRED STOCK

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

73
<PAGE> 77

LEGAL MATTERS

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

EXPERTS

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

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

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

DEFINED TERMS

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

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

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

"exploratory well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.

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

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

"MMcf" means million cubic feet.

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

"working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations.

74
<PAGE> 78

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> 79

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> 80

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> 81

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> 82

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> 83

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.

(2) To record DeepTech's contribution to the capital of DeepFlex all of
the remaining amounts due to DeepTech under an intercompany line of
credit, except for $8,000,000. See note (b) below.
F-6
<PAGE> 84
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 3,926,756 and 653,347,
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 $12.2 million), which
amounts will be used, first, to satisfy certain estimated tax liabilities
and, second, for general corporate purposes.

F-7
<PAGE> 85
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.

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)(1) --
Interest income........................................ 231 -- 231
Interest expense....................................... (7,641) -- (7,641)
Interest expense -- affiliates......................... (8,145) 8,145(2) --
------- ------- -------
Net income............................................. $15,668 $(3,355) $12,313(3)
======= ======= =======
</TABLE>

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

(1) Exclude non-recurring gains related to an investment in Tatham Offshore
as this gain would not have been recorded had the Transaction described
in (1) on page F-2 occurred at the beginning of the period presented.
See footnote (g)(4) on page F-9.

(2) Affiliate interest expense was eliminated as had the Transaction
described in (1) on page F-2 occurred on July 1, 1997, DeepFlex would
not have incurred these charges. As a condition precedent to closing,
all of DeepFlex' affiliate debt payable to DeepTech will be eliminated.

(3) 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> 86
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 as had DeepFlex acquired 100% of
the drilling rig activity at the beginning of the period presented (see
footnote (g)(2) below), this activity would not have been recorded.
Additionally, DeepFlex would not have had any affiliate indebtedness
due to it by 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 Transaction
described in (1) on page F-2 occurred on July 1, 1996, DeepFlex would
not have incurred these charges. As a condition precedent to closing,
all of DeepFlex' affiliate debt payable to DeepTech will be eliminated.

(4) Exclude non-recurring losses related to an investment in Tatham
Offshore as this loss would not have been recorded had the Transaction
described in (1) on page F-2 occurred at the beginning of the period
presented. Also, see footnote (a)(1) on page F-8.

(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> 87

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> 88

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> 89

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> 90

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> 91

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> 92
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> 93
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> 94
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> 95
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
Qualification Panel (the "Nasdaq Panel") has determined to continue 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> 96

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> 97

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> 98

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> 99

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> 100

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> 101

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> 102
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> 103
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........................................... $ 5,446 $ 5,446
Unproved properties......................................... 2,143 2,143
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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........................... 8,950 93,138
Revisions of previous estimates.......................... 3 (7,146)
Production............................................... (333) (1,505)
Sales of reserves in place............................... (2,733) (50,156)
------- -------
Proved reserves -- June 30, 1995........................... 5,887 34,331
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........................... 5,699 54,981
Revisions of previous estimates(a)....................... (5,440) (36,049)
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 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 (ii) 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 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

F-36
<PAGE> 114
TATHAM OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $240,358 $159,516
Future production costs............................. 16,750 74,996 48,694
Future development costs............................ 2,096 44,624 44,401
Future income tax expenses.......................... -- 431 --
------- -------- --------
Future net cash flows............................... 12,666 120,307 66,421
Annual discount at 10% rate......................... 1,623 30,313 21,415
------- -------- --------
Standardized measure of discounted future net cash
flows............................................. $11,043 $ 89,994 $ 45,006
======= ======== ========
</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> 115
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.......................................... $ 89,994 $ 45,006 $100,802
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............... (35,355) 26,798 (38,561)
Extensions, discoveries and improved recovery, less
related costs......................................... 627 3,746 --
Changes in estimated future development costs............ 28,959 2,587 (7,732)
Previously estimated development costs incurred during
the year.............................................. 2,976 1,987 13,000
Revisions of previous quantity estimates................. (47,259)(1) (3,198) (6,917)
Purchase of reserves in place............................ -- 18,200 --
Sales of reserves in place............................... -- -- (25,298)
Net change in income taxes............................... -- -- 18,410
Accretion of discount.................................... 8,999 4,501 8,239
Changes in production rates, timing and other............ (24,127) (955) (13,781)
-------- -------- --------
End of year(2)............................................. $ 11,043 $ 89,994 $ 45,006
======== ======== ========
</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 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 (ii) 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> 116

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> 117

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> 118

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> 119

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> 120

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> 121

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> 122
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> 123
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> 124
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> 125
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> 126
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

F-49
<PAGE> 127
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

F-50
<PAGE> 128
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> 129
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> 130
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> 131
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
<PAGE> 132

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
The Offering.......................... 20
Use of Proceeds....................... 24
Price Range of Securities and Dividend
Policy.............................. 24
Capitalization........................ 25
Selected Pro Forma and Historical
Consolidated Financial Data......... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 35
Management............................ 51
Certain Transactions.................. 61
Principal and Selling Stockholders.... 64
Description of Capital Stock.......... 66
Shares Eligible for Future Sale....... 71
Federal Income Tax Consequences....... 71
Legal Matters......................... 74
Experts............................... 74
Defined Terms......................... 74
Financial Statements.................. F-1
</TABLE>

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TATHAM OFFSHORE, INC.

28,073,450 SHARES

COMMON STOCK

4,670,957 SHARES

SERIES A 12% CONVERTIBLE

EXCHANGEABLE PREFERRED STOCK

------------------------------
PROSPECTUS
------------------------------

JULY 16, 1998

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