ENSERCH EXPLORATION INC, S-2, 1995-06-21

ENSERCH EXPLORATION INC
S-2, 1995-06-21
NATURAL GAS TRANSMISISON & DISTRIBUTION

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1995

REGISTRATION NO. 33-

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

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

TEXAS 1311 75-2556975
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CODE IDENTIFICATION NUMBER)
ORGANIZATION) NUMBER)

4849 GREENVILLE AVENUE M. G. FORTADO, ESQ.
SUITE 1200 300 S. ST. PAUL
DALLAS, TEXAS 75206-4186 DALLAS, TEXAS 75201
(214) 369-7893 (214) 670-2649
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)

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

COPIES TO:

FRED W. FULTON, ESQ. DAVID N. BROWN, ESQ. JAMES D. PHYFE, ESQ.
JACKSON & WALKER, L.L.P. COVINGTON & BURLING DAVIS POLK & WARDWELL
901 MAIN STREET, SUITE 1201 PENNSYLVANIA AVENUE, N.W. 450 LEXINGTON AVENUE
6000 WASHINGTON, D.C. 20044-2494 NEW YORK, NY 10017
DALLAS, TEXAS 75202-3797 (202) 662-6000 (212) 450-4000
(214) 953-6000
--------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soonas
practicable after this Registration Statement becomes effective.

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

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

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If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>

PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
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<S> <C> <C>
Common Stock, par value $1.00 per share......... $345,000,000 $118,966
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.

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

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<PAGE>
ENSERCH EXPLORATION, INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM
NO. ITEM NUMBER AND CAPTION IN FORM S-2 LOCATION IN PROSPECTUS
---- ----------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................... Prospectus Summary; Risk Factors
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Underwriters
6. Dilution.............................. Not Applicable
7. Selling Security Holders.............. Not Applicable
8. Plan of Distribution.................. Outside and Inside Front Cover Pages of
Prospectus; Underwriters
9. Description of Securities to be
Registered............................ Description of the Capital Stock
10. Interests of Named Experts and
Counsel............................... Not Applicable
11. Information with Respect to the
Registrant............................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Market Price of Common Stock
and Dividend Policy; Capitalization; Pro Forma
Financial Information; Selected Financial and
Operating Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; The Reorganization; Certain Transactions;
Relationship Between EEX and ENSERCH;
Description of the Capital Stock; Financial Statements

12. Incorporation of Certain Information
by Reference.......................... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical in all respects
except for the front cover page.

The form of the U.S. Prospectus is included herein. The form of the alternate
front cover page for the International Prospectus follows the U.S. Prospectus.
The front cover page of the International Prospectus included herein is labeled
"Alternate Cover Page for International Prospectus."
<PAGE>

PROSPECTUS (Subject to Completion)
Issued June 21, 1995

[LOGO OF ENSERCH EXPLORATION INC. APPEARS HERE]

COMMON STOCK
------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE
BEING OFFERED FOR SALE IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND SHARES ARE BEING OFFERED CONCURRENTLY FOR SALE OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." THE
COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "EEX." ON
JUNE 20, 1995, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE WAS $14 1/2 PER SHARE. PRIOR TO THIS OFFERING, HOWEVER, ONLY A
LIMITED NUMBER OF SHARES HAVE TRADED PUBLICLY. FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE PRICE OF THE COMMON STOCK IN THIS OFFERING, SEE
"UNDERWRITERS."

------------
SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------

PRICE $ A SHARE

------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- ------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
and proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1995 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in New York funds.
------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
HOWARD, WEIL, LABOUISSE, FRIEDRICHS, INC.
SMITH BARNEY INC.

, 1995

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

<PAGE>

[MAPS TO COME]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EEX OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EEX SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES UNDER ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 11
Market Price of Common Stock and Dividend Policy.......................... 11
Capitalization ........................................................... 12
Pro Forma Financial Information........................................... 13
Selected Financial and Operating Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 27
Management................................................................ 47
Security Ownership of Certain Beneficial Owners and Management............ 51
Relationship Between EEX and ENSERCH...................................... 51
The Reorganization........................................................ 53
Certain Transactions...................................................... 54
Description of the Capital Stock.......................................... 55
Certain United States Tax Consequences to Non-United States Holders....... 56
Underwriters.............................................................. 58
Legal Matters............................................................. 61
Experts................................................................... 61
Certain Definitions....................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>

AVAILABLE INFORMATION

EEX is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by EEX can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can also be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549,
at prescribed rates. The Common Stock is listed on the New York Stock Exchange
("NYSE"). Reports, proxy statements and other information concerning EEX can
be inspected and copied at the offices of the NYSE at 20 Broad Street, New
York, New York 10005.

EEX has filed a Registration Statement with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
distribution of securities described herein (the "Registration Statement").
This Prospectus does not contain all of the information set forth in or
incorporated by reference in the Registration Statement. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of a prescribed fee or may be
examined without charge at the Public Reference Section of the Commission,
Washington, D.C.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Incorporated by reference in this Prospectus as of the date of its filing,
and subject in each case to information contained in this Prospectus, are the
following documents filed by EEX with the Commission pursuant to the Exchange
Act: (i) EEX's Annual Report on Form 10-K for the fiscal year ended December
31, 1994; (ii) EEX's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1995; and (iii) EEX's Current Reports on Form 8-K dated April
13, 1995 and June 21, 1995.

Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

EEX will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of the documents incorporated in this
Prospectus by reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Written or telephone requests for such
documents should be directed to M. G. Fortado, Esq., Enserch Exploration,
Inc., 300 S. St. Paul, Dallas, Texas 75201, (214) 670-2649.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, references in this Prospectus to (i) historical financial
and operating data of EEX reflect EEX following completion of the
Reorganization (see "The Reorganization"), (ii) pro forma financial and
operating data reflect the preceding and the DALEN Acquisition and the Garden
Banks and Green Canyon Transactions (see "Business--Recent Developments") and
(iii) pro forma as adjusted financial and operating data reflect the preceding
and the issuance of Common Stock offered hereby (assuming no exercise of the
U.S. Underwriters' over-allotment option) and the application of the net
proceeds therefrom. References to the "Offering" refer to the shares being
offered in the United States and Canada by the U.S. Underwriters and the shares
being offered concurrently outside the United States and Canada by the
International Underwriters. Certain terms relating to the gas and oil industry
are defined in "Certain Definitions."

THE COMPANY

Enserch Exploration, Inc. ("EEX"), a 99.2% owned subsidiary of ENSERCH
Corporation ("ENSERCH"), is an independent energy company that through its
predecessors has been engaged in the exploration for and the development,
production and sale of natural gas and crude oil since 1918. EEX is one of the
largest independent exploration and production companies in the United States,
with a reserve base of approximately 1,779.0 Bcfe at December 31, 1994, on a
pro forma basis. Approximately 77.1% of EEX's reserves on an energy equivalent
basis consist of natural gas. EEX has grown through exploration, development
and acquisition activities concentrated in major production basins located
offshore in the Gulf of Mexico, and onshore in East Texas, North Central Texas
and the U.S. Gulf Coast.

EEX's primary objective is to increase production, reserves and cash flows
through the full exploitation of its large portfolio of developed and
undeveloped acreage. EEX plans to achieve this objective by pursuing the
following strategy:

. Pursue balanced growth through a combination of low risk development
projects, high potential exploration activities and strategic
acquisitions.

. Apply technology to development and exploration projects to reduce risks
and efficiently produce reserves.

. Emphasize efficient exploitation of producing properties through low cost
operations.

. Utilize tight sands and subsea operating experience to expand operations
both domestically and internationally.

. Maintain a strong balance sheet to provide flexibility to pursue future
growth.

EEX has extensive experience in reservoir management and believes it has
particular competence in the exploitation and development of tight sands
reservoirs. EEX's successful completion of subsea development operations in the
deep water Gulf of Mexico using bundled flow lines to tie back to conventional
shallow water production facilities, coupled with the use of technology such as
3-D seismic, has enabled it to become one of the few independent gas and oil
companies to successfully develop deep water Gulf of Mexico reserves as well as
operate such fields. EEX's two most recent deep water Gulf of Mexico
development projects, the Garden Banks and Green Canyon projects, are currently
under development. Initial production from the Garden Banks project is expected
to commence in the third quarter of 1995 and from the Green Canyon project in
the next three to four years.

4
<PAGE>

EEX is beginning to realize the benefits of its strategy, as evidenced by the
recent developments described below, each of which involves one or more
elements of EEX's strategic plan.

RECENT DEVELOPMENTS

DALEN ACQUISITION

On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation
("DALEN"), an independent gas and oil company engaged in the exploration for
and the development and production of natural gas and crude oil (the "DALEN
Acquisition"). Through the DALEN Acquisition, EEX acquired proved reserves
totaling 377.5 Bcfe and other assets for a purchase price of $340 million and
refinanced DALEN's $115 million of bank debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." DALEN's activities have been oriented primarily toward
natural gas and are concentrated in selected major production regions,
including the Gulf Coast, the Gulf of Mexico and the Mid-Continent. DALEN was
an attractive acquisition for EEX because several of DALEN's operations are
located in fields that are either near or producing from formations from which
EEX is also producing. EEX believes that DALEN's property base has significant
exploitation and development potential. The DALEN Acquisition is a key step in
EEX's growth plan from which EEX expects to realize near term benefits. The
geologic similarity and proximity of DALEN's major producing properties to
EEX's properties permit EEX to apply its expertise, particularly with respect
to tight sands reservoirs, to these properties, from which EEX expects enhanced
production and cash flows. At the same time, EEX will realize cost savings
through the integration of the companies' operations. Synergistic opportunities
for operating efficiencies and cost reductions are expected to result in
improved financial results for the combined companies.

GREEN CANYON PROJECT

On May 15, 1995, an affiliate of Mobil Corporation ("Mobil") signed a letter
of intent to purchase a 40% interest in EEX's Green Canyon project. An
affiliate of Reading & Bates Corp. had previously signed a letter of intent to
purchase a 20% interest in the project. Upon the completion of these
transactions (collectively, the "Green Canyon Transaction"), EEX will own a 40%
working interest and remain the operator of the project. DeGolyer and
MacNaughton, independent petroleum consultants ("D&M"), has initially estimated
gross reserves, including royalty interests, at the Green Canyon project to be
85.5 MMBbls of oil and 149.5 Bcf of natural gas, of which 49.2 MMBbls of oil
and 102.2 Bcf of gas are in the proved category. EEX's initial interest in the
Green Canyon reserves, excluding royalty interests, amounted to 42.5 MMBbls of
oil and 88.4 Bcf of gas, for a total of 343.4 Bcfe; after completion of the
Green Canyon Transaction, EEX's interest in the Green Canyon reserves will be
137.4 Bcfe. Based upon its experience and results to date in the Green Canyon
Block 254 area, EEX intends to expand its holdings in this area. On May 10,
1995, EEX, on behalf of its Green Canyon co-venturers, submitted the highest
bids on six blocks within ten miles of the proposed location of the Green
Canyon production facility and to date has been awarded exploration and
development rights on five of them. EEX believes it is advantageously
positioned to fully develop its Green Canyon holdings with the backing of its
partners, each of which has considerable offshore experience.

GARDEN BANKS PROJECT

The progress of EEX's deep water Gulf of Mexico strategy is evidenced by
another recently announced transaction. On April 12, 1995, after evaluating
EEX's development plans for Garden Banks Block 388, another affiliate of Mobil
exercised its option to acquire a 40% interest in EEX's Garden Banks project
(the "Garden Banks Transaction"). EEX's interest in the Garden Banks reserves,
excluding royalty interests, is 34.2 Bcf of proved gas reserves and 28.1 MMBbls
of proved oil and gas liquids reserves. Both the Garden Banks and Green Canyon
transactions illustrate EEX's strategy of reducing its risk by limiting its
working interest participation in high-risk ventures. These arrangements also
enable EEX to reduce its capital commitments with respect to these projects
while still participating in the potential rewards from bringing these
properties to production.

5
<PAGE>

INTERNATIONAL OPERATIONS

EEX is focused on expanding its activities in areas where its experience and
technical competencies can be exploited. EEX believes that international
exploration and development activities will be an important source of growth.
On June 12, 1995, EEX announced the conclusion of a Memorandum of Understanding
to form a joint venture with ONGC Videsh Limited, a wholly-owned subsidiary of
the Oil & Natural Gas Corporation Limited of New Delhi, India, to explore and
develop hydrocarbon resources in India and other countries. Joint ventures such
as the one planned with ONGC Videsh Limited enable EEX to broaden the
utilization of its expertise in the exploitation of mature natural gas and oil
fields and to develop offshore geologic structures utilizing its experience in
subsea completion technology and floating production technology. By combining
with co-venturers that have a high degree of knowledge and experience with
geologic conditions in their local regions, EEX believes that it can reduce the
risks inherent in expanding beyond its core operations in the United States.

EEX acquired all of its currently owned international properties in June 1995
when it purchased all the international gas and oil operations of ENSERCH,
which consisted of concessions in Indonesia, Malaysia and Israel. The
Indonesian properties contain proved reserves of 4.1 MMBbls of oil. EEX had
previously managed these properties for ENSERCH for several years.

A major effect of the above-described recent developments has been to
increase EEX's net proved reserves, net production and present value of
estimated future net revenues as of December 31, 1994, as set forth in the
following table. See "Business--Recent Developments."

<TABLE>
<CAPTION>
1994
NET PROVED RESERVES NET PRODUCTION PRESENT VALUE
--------------------------- ----------------- OF ESTIMATED
OIL AND OIL AND FUTURE NET
GAS GAS LIQUIDS TOTAL GAS GAS LIQUIDS REVENUES
(BCF) (MMBBLS) (BCFE) (BCF) (MMBBLS) (IN MILLIONS)
------- ----------- ------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
EEX(1).................. 1,063.4 56.3 1,401.5 67.1 2.2 $1,135.3
DALEN................... 307.4 11.7 377.5 54.4 2.6 286.3
------- ---- ------- ----- --- --------
Pro forma combined...... 1,370.8 68.0 1,779.0 121.5 4.8 $1,421.6
======= ==== ======= ===== === ========
</TABLE>
- --------
(1) Includes reserves of (i) EEX in its corporate form following completion of
the Reorganization and (ii) the effects of the Garden Banks and Green
Canyon Transactions.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered............. 20,000,000 shares (1)
Common Stock to be outstanding
after the Offering.............. 125,684,389 shares (1)(2)
Use of Proceeds.................. To repay debt incurred in connection with the DALEN
Acquisition and for other corporate purposes.
New York Stock Exchange ("NYSE")
symbol.......................... EEX
</TABLE>
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(2) Includes the issuance of 1,075,147 shares of Common Stock in connection
with the acquisition of the international gas and oil operations of
ENSERCH, which number of shares is subject to adjustment upon completion of
this Offering and excludes the 2,000,000 shares of Common Stock issuable
under the 1994 Stock Incentive Plan. See "Underwriters," "Management,"
"Relationship Between EEX and ENSERCH" and "Certain Transactions." After
the Offering, ENSERCH will own beneficially 83.4% of the outstanding Common
Stock. See "Security Ownership of Certain Beneficial Owners and
Management."

6
<PAGE>

SUMMARY FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
EEX, EXCLUDING DALEN PRO FORMA AS ADJUSTED(1)
------------------------------------------------ ----------------------------
THREE
THREE MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED ENDED
----------------------------- ----------------- DECEMBER 31, MARCH 31,
1992 1993 1994 1994 1995 1994 1995
-------- --------- -------- -------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND RESERVE DATA)
STATEMENT OF INCOME DA-
TA:
Gas and oil revenues... $170,257 $ 187,366 $177,807 $ 50,584 $41,567 $ 321,098 $ 70,365
Other revenues......... 1,287 2,430 1,333 153 94 1,438 163
-------- --------- -------- -------- ------- ------------- -----------
Total revenues......... 171,544 189,796 179,140 50,737 41,661 322,536 70,528
Total expenses......... 173,730 174,175 146,396 39,494 41,097 269,559 71,447
-------- --------- -------- -------- ------- ------------- -----------
Operating income (loss)
...................... (2,186) 15,621 32,744 11,243 564 52,977 (919)
Income (loss) before
income taxes.......... 3,635 15,301 39,669 12,758 961 48,117 (3,466)
Net income (loss)...... 2,640 8,255 25,808 8,294 624 32,031 (1,927)
Net income (loss) per
share................. .02 .08 .24 .08 .01 .25 (.02)
Weighted average shares
outstanding........... 105,656 105,656 105,656 105,656 105,658 125,656 125,658
CASH FLOW DATA (IN THOU-
SANDS):
Net cash provided by
operating activities.. $ 98,442 $ 102,312 $ 90,671 $ 48,651 $10,610 $ 173,032 $ 19,281
Net cash provided by
(used in) investing
activities(2)......... (58,702) (129,083) (108,784) (37,106) 30,507 (184,589) 46,420
Net cash provided by
(used in) financing
activities(2)......... (38,879) 26,143 18,004 (11,540) (40,696) 24,687 (38,215)
EBITDA (3)............. 91,050 104,917 105,187 32,358 19,633 199,729 35,828
OPERATING DATA:
Sales volumes:
Natural gas (Bcf)...... 65.2 70.0 67.1 18.4 14.4 121.5 26.4
Oil and condensate
(MMBbls).............. 2.3 2.1 2.0 .5 .5 4.1 1.0
NGLs (MMBbls).......... .5 .3 .2 -- .1 .7 .2
Total (Bcfe).......... 82.2 84.9 80.5 21.7 18.0 150.2 33.9
Average sale prices:
Natural gas (per Mcf).. $ 1.82 $ 2.09 $ 2.15 $ 2.31 $ 2.22 $ 2.06 $ 1.93
Oil and condensate (per
Bbl).................. 19.20 17.24 15.38 14.80 16.79 15.80 16.89
NGLs (per Bbl)......... 13.38 12.09 10.85 9.80 11.14 9.28 8.63
Total (per Mcfe)...... 2.07 2.21 2.21 2.33 2.32 2.14 2.08
Costs and expenses (per
Mcfe):
Production and operat-
ing (4)............... $ .36 $ .34 $ .38 $ .35 $ .47 $ .42 $ .50
Exploration............ .14 .10 .11 .10 .17 .06 .09
Depreciation and amor-
tization.............. .93 .93 1.00 .97 1.06 1.03 1.08
General, administrative
and other............. .29 .37 .25 .22 .39 .25 .33
Taxes, other than in-
come.................. .19 .19 .17 .17 .20 .15 .18
GAS AND OIL PROVED RE-
SERVE DATA (AT YEAR
END):
Gas (Bcf).............. 1,101.4 1,086.5 1,041.7 1,370.8
Oil (MMBbls)........... 39.2 39.3 50.6 68.0
Total (Bcfe)........... 1,336.6 1,322.3 1,345.3 1,779.0
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
EEX, EXCLUDING DALEN AS ADJUSTED(1)
----------------------- --------------
DECEMBER 31, MARCH 31,
1994 1995 MARCH 31, 1995
------------ ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Property, plant and equipment--net..... $1,254,014 $1,282,717 $1,638,703
Total assets........................... 1,381,235 1,338,949 1,771,122
Long-term debt, including current por-
tion.................................. 155,855 155,179 151,179
Shareholders' equity................... 736,008 736,642 1,036,642
</TABLE>
- --------
(1) See "Pro Forma Financial Information" included elsewhere in this
Prospectus.
(2) Pro forma cash flow amounts exclude the $340 million in cash used to
acquire DALEN and the refinancing of its $115 million bank debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Long-term Debt and Bridge
Loan."
(3) EBITDA is earnings before interest, income taxes, depreciation and
amortization, (sale) writedown on inactive pipeline and write-off of gas
and oil assets. EBITDA is presented here to provide additional information
about EEX's ability to meet its future requirements for debt service,
capital expenditures and working capital. EBITDA should not be considered
as an alternative to net income as an indicator of operating performance or
as an alternative to cash flows as a measure of liquidity.
(4) Excludes production, severance and ad valorem taxes.

7
<PAGE>

RISK FACTORS

In addition to the other information set forth elsewhere in this Prospectus,
the following factors relating to EEX and the Offering should be considered
when evaluating an investment in the shares of Common Stock offered hereby.

UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET CASH FLOWS

There are numerous uncertainties inherent in estimating quantities and
values of proved gas and oil reserves and in projecting future rates of
production and net revenues and the timing of development expenditures,
including factors involving reservoir engineering, pricing and both operating
and regulatory constraints. The reserve data included in this Prospectus
represent estimates only and should not be considered exact. Reserve
assessment is a subjective process of estimating the recovery from underground
accumulations of natural gas and other hydrocarbons that cannot be measured in
an exact way. Accordingly, reserve estimates are often different from the
quantities of natural gas and other hydrocarbons ultimately recovered. Any
downward adjustment could adversely affect EEX's future prospects and the
market value of its securities.

RESERVE REPLACEMENT UNCERTAINTIES

EEX's gas and oil exploration, development and production operations involve
numerous risks that could result in the failure to find new reserves or fully
produce existing reserves. EEX's prospects for growth and profitability depend
predominately on its ability to replace present reserves through exploration,
development and acquisition. The rate of production from gas and oil
properties generally declines as reserves are depleted. Without successful
exploration and development activities or reserve acquisitions, the proved
reserves of EEX will decline as gas and oil are produced from its existing
proved developed reserves. There can be no assurance that EEX's exploration,
development and acquisition activities will result in significant additional
reserves or that EEX will continue to be able to drill productive wells at
acceptable costs. If prevailing gas and oil prices were to increase
significantly, EEX's costs to add reserves could also be expected to increase.
While the gradual depletion of producing reserves and the need for
recompletion of wells that have multiple reservoirs with limited volume, or
workover of wells that develop mechanical problems, is neither unusual nor
unexpected in the gas and oil industry, the timing and extent of production
declines and recompletion requirements for wells cannot be predicted with any
certainty.

EXPLORATION, DEVELOPMENT, PRODUCTION AND SELLING RISKS

EEX's operations are subject to the risks and uncertainties associated with
finding, acquiring and developing gas and oil properties, and producing,
transporting and selling gas and oil. EEX incurs significant expenditures in
connection with the identification and acquisition of properties and the
drilling and completion of wells. EEX's operations may be materially
curtailed, delayed or cancelled as a result of numerous factors, including
accidents, title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment. Drilling
may involve unprofitable efforts, not only with respect to dry wells, but also
with respect to wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion and operating costs. Various field operating conditions
may adversely affect EEX's production from successful wells. Close well
supervision and effective maintenance operations can contribute to maximizing
production rates over time, but production delays and declines from normal
field operating conditions cannot be eliminated and can be expected to affect
adversely revenue and cash flow levels to varying degrees. Most wells can be
expected to require recompletions or workovers during their productive lives.
In addition, EEX's ability to sell its gas and oil production is dependent on
the availability and capacity of gas and oil gathering systems, pipelines and
other forms of transportation. Federal and state regulation of gas and oil
production and transportation, general economic conditions, quality of the
hydrocarbons and changes in supply and demand all could materially adversely
affect EEX's ability to sell its gas and oil production. See "Business--Sales"
and "--Government Regulation."

8
<PAGE>

OPERATING HAZARDS

EEX's operations are subject to the hazards inherent in the gas and oil
industry, including fires, explosions, blow-outs, pipe failures, abnormally
pressured formations and environmental accidents such as gas leaks, oil spills,
ruptures or discharges of toxic gasses, the occurrence of any of which could
result in substantial losses to EEX due to injury or loss of life, severe
damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. In accordance with
customary industry practice, EEX maintains insurance against some, but not all,
of the hazards described above. There can be no assurance that any insurance
will be adequate to cover any losses or liabilities. EEX cannot predict the
continued availability of insurance, or availability at commercially acceptable
premium levels. See "Business-- Government Regulation."

DEEP WATER RISKS

EEX's offshore Gulf of Mexico gas and oil reserves include properties located
in water depths of 1,400 to 3,200 feet. Drilling operations in these depths are
by their nature more difficult than drilling operations conducted in shallower
water because they require the application of more advanced drilling
technologies, inevitably resulting in significantly higher drilling costs.
EEX's deep water wells are completed utilizing subsea completion techniques
that involve the installation of subsea wellheads and the use of bundled flow
lines to tie back to production facilities. The installation of these subsea
wellheads and bundled flow lines requires the use of advanced remote
installation mechanics. Such operations involve a higher risk of encountering
mechanical difficulties and equipment failures which, if encountered, could
result in significant cost overruns. See "Business--Significant Properties and
Exploration and Development Activities--Gulf of Mexico Region."

EFFECTS OF CHANGES IN GAS AND OIL PRICES AND VOLATILITY OF GAS AND OIL MARKETS

The revenues generated by EEX's operations are highly dependent upon the
prices of, and demand for, gas and oil and the costs of acquiring, developing
and producing reserves. Gas and oil prices have historically been volatile and
are likely to continue to be volatile in the future. Prices for gas and oil are
subject to fluctuations in response to relatively minor changes in supply,
market uncertainty and a variety of additional factors that are beyond the
control of EEX, including economic conditions in the United States and
elsewhere and the world political situation as it affects OPEC, the Middle East
and other producing countries, the actions of OPEC, government regulation and
taxes, the level of consumer demand, the price and availability of alternative
fuels and overall economic development. EEX engages in hedging activities with
respect to some of its projected gas and oil production through a variety of
financial arrangements designed to protect against price declines, including
swaps, collars and futures agreements. To the extent EEX engages in such
activities, it may be prevented from realizing the benefits of price increases
above the levels of the hedges. Because EEX's reserve base is approximately 77%
natural gas on an energy equivalent basis, it is more sensitive to fluctuations
in the price of natural gas than to fluctuations in the price of oil. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Liquidity and Capital Resources--Hedging
Activities."

GOVERNMENT REGULATION

EEX's business is subject to certain federal, state and local laws and
regulations relating to the drilling for and production of gas and oil, as well
as environmental and safety matters. Such laws and regulations have generally
become more stringent in recent years, often imposing greater liability on an
increasing number of parties. Because the requirements imposed by such laws and
regulations are frequently changed, EEX is unable to predict the effect or cost
of compliance with such requirements or their effects on gas and oil use or
prices. In addition, a number of legislative proposals have been introduced in
Congress and state legislatures which, if enacted, would significantly affect
the gas and oil industry. Such proposals involve, among other things, the
imposition of land use controls and certain measures designed to prevent gas
and oil companies from acquiring assets in other energy areas. In view of the
many uncertainties that exist with respect to these proposals, management
cannot predict the effect on EEX of any legislation that might be enacted. See
"Business--Government Regulation."

9
<PAGE>

ENVIRONMENTAL MATTERS

EEX believes that its properties and operations are in substantial compliance
with applicable environmental laws and regulations. The construction and
operation of facilities for drilling, transporting, processing and storing gas
and oil are subject to federal, state and local environmental laws and
regulations, including those that can impose obligations to clean up hazardous
substances at facilities EEX owns or operates or to which it has sent wastes
for disposal. In most instances, the applicable regulatory requirements relate
to water and air pollution control and solid waste management measures.
Environmental regulation can increase the cost of planning, designing,
installing and operating such facilities. Expenditures for environmental
control equipment and for remediation have not been significant in relation to
the results of operations of EEX. EEX believes, however, that it is reasonably
likely that the trend in environmental legislation and regulations will
continue to be toward stricter standards. See "Business--Government
Regulation."

COMPETITION

The oil and gas industry is highly competitive in all its phases. EEX
competes in the acquisition of properties, the search for and development of
reserves, the production and sale of oil and gas, and the securing of the labor
and equipment required to conduct operations. EEX's competitors include major
oil and gas companies, other independent oil and gas concerns and individual
producers and operators. Many of these competitors have financial and other
resources that substantially exceed those available to EEX. Oil and gas
producers also compete with other industries that supply energy and fuel.

CONTROL BY ENSERCH

After the Offering, ENSERCH will own beneficially 83.4% of the outstanding
Common Stock (or 81.5% if the U.S. Underwriters exercise their over-allotment
option in full), enabling it to elect all directors of EEX. Through its ability
to elect all directors of EEX, ENSERCH will retain the ability to control all
matters relating to the management of EEX, the future issuance of Common Stock
and other securities of EEX and the payment of dividends on the Common Stock.
ENSERCH will also retain effective control over the outcome of all matters upon
which EEX shareholders vote. Certain of EEX's directors and officers are also
directors and/or officers of ENSERCH or its other subsidiaries. See
"Relationship between EEX and ENSERCH."

CONFLICTS OF INTEREST

As a result of ENSERCH's control of EEX, certain conflicts of interest arise
in relations between EEX and ENSERCH and its other subsidiaries and affiliates
(collectively, the "ENSERCH Companies"), including conflicts with respect to
the issuance of Common Stock and other voting securities of EEX, the election
of directors of EEX, the payment of dividends by EEX and various transactions
between ENSERCH and EEX. For example, certain ENSERCH Companies purchase and
market natural gas produced by EEX. The interests of the ENSERCH Companies with
respect to the pricing, terms of delivery and other aspects of these
transactions are not the same as those of EEX. However, EEX believes that the
terms of these transactions have been at least as favorable to EEX as could
have been obtained from unaffiliated third parties. A number of specific types
of transactions and relationships between EEX and the ENSERCH Companies are
contemplated and permitted by Article Eleven of EEX's Restated Articles of
Incorporation. For example, Article Eleven permits EEX to enter into contracts
with any ENSERCH Company (including entities in which ENSERCH has a direct or
indirect interest) as long as the transaction is authorized or ratified by a
majority of the Board of Directors of EEX. In determining whether this majority
vote has been achieved, the vote of a director of ENSERCH who is also a
director of EEX may be counted toward the authorization or ratification. The
nature of the respective businesses of EEX and the ENSERCH Companies may also
give rise to conflicts of interest. ENSERCH has advised EEX that it does not
currently intend to engage in the acquisition or development of, or exploration
for, gas and oil except through its beneficial ownership of Common Stock of
EEX. However, as part of ENSERCH's business strategy, it may from time to time
acquire businesses primarily engaged in other activities that also include gas
and oil operations. In addition, consistent with Article Eleven, an ENSERCH
Company may engage in direct competition with EEX without first being obligated
to offer the transaction or other opportunity to EEX. See "Relationship Between
EEX and ENSERCH--Conflicts of Interest" and "Certain Transactions."

10
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

EEX is authorized to issue additional equity and debt securities, including
shares of preferred stock. Under the current rules of the NYSE, EEX may not
issue shares of Common Stock equal to 20% or more of the then outstanding
shares in connection with any single future transaction, other than a public
sale for cash, without shareholder approval. The future sale of a substantial
number of shares of Common Stock or preferred stock in the public market could
adversely affect the shareholders' equity interest in EEX and the market price
of the Common Stock, and their interests in the assets, liabilities, results of
operations and cash flows of EEX represented by the issued and outstanding
shares of Common Stock may be diluted. The shares of Common Stock sold in the
Offering will be eligible for immediate resale in the public market without
restriction, except to the extent shares are acquired by an affiliate of EEX.
If EEX or the ENSERCH Companies should sell a substantial amount of Common
Stock after the Offering, the prevailing market price of the Common Stock could
be adversely affected. The ENSERCH Companies have agreed not to sell Common
Stock for 180 days after the date of this Prospectus, subject to certain
limited exceptions. See "Underwriters" and "Security Ownership of Certain
Beneficial Owners and Management."

LIMITED TRADING MARKET

Prior to the Offering, there has been a limited trading market for the Common
Stock. See "Underwriters--Pricing of the Offering." Although the Common Stock
is listed on the NYSE, there can be no assurance that an active trading market
for the Common Stock will develop subsequent to the Offering. After the
completion of the Offering, the market price of the Common Stock may be
influenced by many factors, including the depth and liquidity of the market for
the Common Stock, investor perceptions of EEX and general economic and other
conditions.

USE OF PROCEEDS

The net proceeds from the sale of Common Stock offered hereby will be used to
repay debt incurred in connection with the DALEN Acquisition and for other
corporate purposes. For a description of the terms of the debt to be repaid see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Long-term Debt and Bridge Loan."

MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock began trading on the NYSE on January 3, 1995, under the
symbol "EEX." There were no trades in the Common Stock in any market prior to
that date. The following table sets forth for the periods indicated the high
and low sales prices of the Common Stock as reported on the NYSE Composite
Tape.

<TABLE>
<CAPTION>
MONTH OF 1995 HIGH LOW
------------- ------- -------
<S> <C> <C>
January................................. $11 1/8 $ 9 3/4
February................................ 10 1/4 9 3/8
March................................... 10 1/2 9 5/8
April................................... 13 3/4 10 1/8
May..................................... 14 3/8 13 1/2
June (through June 20).................. 14 7/8 14
</TABLE>

A recent reported last sale price per share for the Common Stock on the NYSE
is set forth on the cover page of this Prospectus. At June 15, 1995, there were
approximately 2,100 holders of record of the Common Stock.

Prior to the Offering, only a limited number of shares of Common Stock have
traded publicly. For a discussion of the factors considered in determining the
price of the Common Stock in the Offering, see "Underwriters--Pricing of the
Offering."

No dividends have been paid on the Common Stock and EEX does not anticipate
paying any cash dividends in the foreseeable future. EEX instead intends to
retain its earnings to support the growth of EEX's business. For example, EEX
is engaged in several offshore development projects that will require
significant capital investment over the next several years. Future cash
dividends will depend on EEX's earnings, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors.

11
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of EEX
as of March 31, 1995, (a) on an historical basis after giving effect to the
acquisition of the international and SACROC operations of ENSERCH, (b) on a pro
forma basis to reflect the financing of the DALEN Acquisition and completion of
the Garden Banks and Green Canyon Transactions, and (c) on a pro forma basis,
as adjusted to give effect to the Offering and the application of the estimated
$300 million of net proceeds therefrom. The table below should be read in
conjunction with "Business--Recent Developments," "Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "The Reorganization" and EEX's financial statements and
notes thereto included in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1995
--------------------------------
PRO FORMA
AS
EEX PRO FORMA ADJUSTED
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Temporary advances from ENSERCH.... $ 65,449 $ 20,449 $ 20,449
Bridge loan due November 15, 1995
(1)............................... -- 150,000 150,000
-------- ---------- ----------
Total short-term debt............ $ 65,449 $ 170,449 $ 170,449
======== ========== ==========
Long-term debt:
Capital lease obligations (2)...... $155,179 $ 101,179 $ 101,179
Bank revolving credit facility..... -- 350,000 50,000
-------- ---------- ----------
Total long-term debt............. 155,179 451,179 151,179
-------- ---------- ----------
Common shareholders' equity:
Common stock--$1.00 par value,
authorized 200,000,000 shares,
issued and outstanding 105,684,389
shares, 125,684,389 shares as
adjusted.......................... 105,684 105,684 125,684
Paid in capital.................... 630,618 630,618 910,618
Retained earnings.................. 624 624 624
Unamortized restricted stock
compensation...................... (284) (284) (284)
-------- ---------- ----------
Total common shareholders'
equity.......................... 736,642 736,642 1,036,642
-------- ---------- ----------
Total capitalization........... $891,821 $1,187,821 $1,187,821
======== ========== ==========
</TABLE>
- --------
(1) EEX expects to refinance the bridge loan before its maturity on a long-term
basis through an asset-based financing. See "Pro Forma Financial
Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Long-
term Debt and Bridge Loan."
(2) Includes current portion of $4.8 million; $54.0 million will be repaid upon
completion of the Garden Banks Transaction. See "Business--Recent
Developments."

12
<PAGE>

PRO FORMA FINANCIAL INFORMATION

The following unaudited condensed pro forma financial statements give effect
to the DALEN Acquisition and related financing, the completion of the Garden
Banks and Green Canyon Transactions and the Offering (including the application
of the estimated net proceeds as described under "Use of Proceeds"). See
"Business--Recent Developments" and "Use of Proceeds." The condensed pro forma
financial statements for the year ended December 31, 1994, and for the three
months ended March 31, 1995, have been prepared from the historical financial
statements of EEX and DALEN after adjustments as described below. The EEX
financial information as presented herein is based on the historical results of
operations of Enserch Exploration Partners, Ltd. ("EP"), after certain
eliminations and adjustments, including a pro forma provision for income taxes,
combined with the results of operations of the properties acquired from ENSERCH
in 1995. See "The Reorganization" and "Certain Transactions." The unaudited
condensed pro forma balance sheet as of March 31, 1995, has been presented as
if the above-described transactions occurred on that date. The unaudited
condensed pro forma statements of income assume that the DALEN Acquisition
occurred at the beginning of each period presented. The unaudited pro forma, as
adjusted, financial information includes the adjustments made to reflect the
Offering and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."

These unaudited condensed pro forma financial statements should be read in
conjunction with the financial statements of EEX and DALEN included elsewhere
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The unaudited condensed pro forma
statements of income are not necessarily indicative of the financial results
that would have occurred had the above-described events been consummated on the
indicated dates, nor are they necessarily indicative of future results.

EEX will account for the DALEN Acquisition as a purchase. All acquired
assets, consisting principally of gas and oil properties, will be evaluated
following the acquisition for purposes of assigning the excess of the purchase
price over DALEN's book value. It is anticipated that essentially all of the
valuation adjustments will be assigned to gas and oil properties, and the
condensed pro forma financial statements have been prepared on that basis.
DALEN followed the successful efforts method of accounting for gas and oil
properties, whereby unsuccessful exploratory costs are charged to expense as
incurred. Costs applicable to productive wells and development dry holes are
capitalized and amortized on the units-of-production method based on estimated
proved reserve quantities. EEX follows the full-cost method of accounting for
gas and oil properties, whereby all exploratory costs, including costs of both
successful and unsuccessful exploratory wells, are capitalized and amortized on
the units-of-production method based on estimated proved reserve quantities.
For purposes of presenting the unaudited condensed pro forma financial
statements of the combined entities, DALEN's statements of operations have been
converted to the full-cost method of accounting.

EEX borrowed $350 million under a bank revolving credit facility to fund the
purchase of DALEN and to reduce advances from ENSERCH. A $150 million bridge
loan was used to refinance DALEN's $115 million bank debt and reduce advances
from ENSERCH. The bridge loan is expected to be repaid later this year with the
proceeds of a $150 million asset-based financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Long-term Debt and Bridge Loan."

Although EEX expects to reduce the general and administrative expenses for
the combined operations of EEX and DALEN with the elimination of duplicative
functions, the amount of such reduction cannot be reasonably determined at this
time.

13
<PAGE>

ENSERCH EXPLORATION, INC.

UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
MARCH 31, 1995

<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
EEX DALEN ADJUSTMENTS(A) SUB-TOTAL ADJUSTMENTS(B) AS ADJUSTED
---------- -------- -------------- ---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............. $ 655 $ 5,653 $ 32,300(c) $ 38,608 $ 38,608
Accounts receivable--trade........ 13,988 18,673 32,661 32,661
Accounts receivable--affiliates... 18,225 14,708 32,933 32,933
Other............................. 7,106 4,313 11,419 11,419
---------- -------- --------- ---------- ----------
Total........................... 39,974 43,347 32,300 115,621 115,621
---------- -------- --------- ---------- ----------
Net property, plant and equipment... 1,282,717 427,283 (71,297) 1,638,703 1,638,703
---------- -------- --------- ---------- ----------
Other assets........................ 16,258 540 16,798 16,798
---------- -------- --------- ---------- ----------
Total........................... $1,338,949 $471,170 $ (38,997) $1,771,122 $1,771,122
========== ======== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bridge loan....................... $ $ $ 150,000 $ 150,000 $ 150,000
Accounts payable--trade........... 55,554 11,954 67,508 67,508
Accounts payable--ENSERCH
Companies........................ 3,481 3,481 3,481
Temporary advances--ENSERCH
Companies (net).................. 65,449 (45,000) 20,449 20,449
Current portion of capital lease
obligations...................... 4,760 4,760 4,760
Other............................. 3,407 10,255 13,662 13,662
---------- -------- --------- ---------- ----------
Total........................... 132,651 22,209 105,000 259,860 259,860
---------- -------- --------- ---------- ----------
Capital lease obligations........... 150,419 (54,000) 96,419 96,419
---------- -------- --------- ---------- ----------
Long-term debt...................... 115,000 235,000 350,000 (300,000) 50,000
---------- -------- --------- ---------- -------- ----------
Deferred income taxes............... 286,342 73,845 (73,845) 286,342 286,342
---------- -------- --------- ---------- ----------
Other liabilities................... 32,895 8,964 41,859 41,859
---------- -------- --------- ---------- ----------
Common shareholders' equity......... 736,642 251,152 (251,152) 736,642 300,000 1,036,642
---------- -------- --------- ---------- -------- ----------
Total........................... $1,338,949 $471,170 $ (38,997) $1,771,122 $ -- $1,771,122
========== ======== ========= ========== ======== ==========
</TABLE>

(footnotes on page 17)

14
<PAGE>

ENSERCH EXPLORATION, INC.

UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
PROPERTIES
DIVESTED PRO FORMA SUB- OFFERING PRO FORMA
EEX DALEN IN 1994(D) ADJUSTMENTS TOTAL ADJUSTMENTS AS ADJUSTED
-------- -------- ---------- ----------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Natural gas........... $144,550 $115,593 $(10,271) $249,872 $249,872
Oil and condensate.... 30,880 45,814 (11,677) 65,017 65,017
Natural gas liquids... 2,377 5,240 (1,408) 6,209 6,209
Other................. 1,333 2,341 (2,236) 1,438 1,438
-------- -------- -------- -------- --------
Total............... 179,140 168,988 (25,592) 322,536 322,536
-------- -------- -------- -------- --------
Costs and expenses:
Production and
operating............ 30,963 32,008 (9,558) 53,413 53,413
Exploration........... 9,136 24,886 (22) (24,864)(e) 9,136 9,136
Depreciation and
amortization......... 80,308 101,151 (14,826) (12,581)(e) 154,052 154,052
Sale of inactive
pipeline............. (7,551) (7,551) (7,551)
General,
administrative and
other................ 20,022 18,057 (598) 37,481 37,481
Taxes, other than
income............... 13,518 11,525 (2,015) 23,028 23,028
-------- -------- -------- -------- -------- --------
Total............... 146,396 187,627 (27,019) (37,445) 269,559 269,559
-------- -------- -------- -------- -------- --------
Operating income (loss). 32,744 (18,639) 1,427 37,445 52,977 52,977
Other income (expense)--
net.................... (314) 2,845 (2,280) 251 251
Interest income......... 7,239 3,656 (3,656)(f) 7,239 7,239
Interest expense........ -- (6,002) (25,848)(f) (31,850) 19,500(b) (12,350)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes........... 39,669 (18,140) (853) 7,941 28,617 19,500 48,117
Income taxes (benefit).. 13,861 (15,206) (299) 10,905 (g) 9,261 6,825(g) 16,086
-------- -------- -------- -------- -------- ------- --------
Net income (loss)....... $ 25,808 $ (2,934) $ (554) $ (2,964) $ 19,356 $12,675 $ 32,031
======== ======== ======== ======== ======== ======= ========
Net income per share.... $ .24 $ .18 $ .25
======== ======== ========
Weighted average shares
outstanding............ 105,656 105,656 125,656
======== ======== ========
</TABLE>

(footnotes on page 17)

15
<PAGE>

ENSERCH EXPLORATION, INC.

UNAUDITED CONDENSED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995

<TABLE>
<CAPTION>
PRO FORMA SUB- OFFERING PRO FORMA
EEX DALEN ADJUSTMENTS TOTAL ADJUSTMENTS AS ADJUSTED
------- ------- ----------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Natural gas .......... $31,885 $19,140 $51,025 $ 51,025
Oil and condensate.... 8,947 8,537 17,484 17,484
Natural gas liquids... 735 1,121 1,856 1,856
Other................. 94 69 163 163
------- ------- ------- --------
Total............... 41,661 28,867 70,528 70,528
------- ------- ------- --------
Costs and expenses:
Production and
operating............ 8,393 6,154 14,547 14,547
Exploration........... 2,991 2,695 (2,695)(e) 2,991 2,991
Depreciation and
amortization......... 19,093 19,603 (2,069)(e) 36,627 36,627
General,
administrative and
other................ 7,042 4,280 11,322 11,322
Taxes, other than
income............... 3,578 2,382 5,960 5,960
------- ------- ------- ------- --------
Total............... 41,097 35,114 (4,764) 71,447 71,447
------- ------- ------- ------- --------
Operating income (loss). 564 (6,247) 4,764 (919) (919)
Other income (expense)-
net.................... (24) 144 120 120
Interest income......... 1,026 155 (155)(f) 1,026 1,026
Interest expense........ (605) (2,119) (5,844)(f) (8,568) 4,875(b) (3,693)
------- ------- ------- ------- ------ --------
Income (loss) before
income taxes........... 961 (8,067) (1,235) (8,341) 4,875 (3,466)
Income taxes (benefit).. 337 (4,411) 829 (g) (3,245) 1,706(g) (1,539)
------- ------- ------- ------- ------ --------
Net income (loss)....... $ 624 $(3,656) $(2,064) $(5,096) $3,169 $ (1,927)
======= ======= ======= ======= ====== ========
Net income (loss) per
share.................. $ .01 $ (.05) $ (.02)
======= ======= ========
Weighted average shares
outstanding............ 105,658 105,658 125,658
======= ======= ========
</TABLE>

(footnotes on next page)

16
<PAGE>

NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS

(a) Adjusts the DALEN balance sheet to include in gas and oil properties the
purchase price in excess of book value, eliminate DALEN's deferred income
taxes and shareholder's equity and include the borrowings to finance the
DALEN Acquisition. Also adjusts the EEX balance sheet to reflect the
completion of the Garden Banks and Green Canyon Transactions.

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Adjustments to gas and oil properties:
Purchase price............................................ $340,000
Less--DALEN shareholder's equity.......................... (251,152)
DALEN deferred income taxes............................ (73,845)
--------
Remainder................................................. 15,003
Completion of Garden Banks and Green Canyon Transactions
(see Note (c)):
Reduction of capital lease obligations.................. (54,000)
Cash receipts........................................... (32,300)
--------
Total................................................. $(71,297)
========
Borrowings:
Bridge loan............................................... $150,000
Borrowing under bank revolving credit facility............ 350,000
--------
Total................................................. $500,000
========
Used for:
Payment of DALEN purchase price........................... $340,000
Repay DALEN bank debt..................................... 115,000
Reduce advances from ENSERCH.............................. 45,000
--------
Total................................................. $500,000
========
Changes in long-term debt:
Borrowing under bank revolving credit facility............ $350,000
Less DALEN bank debt repaid from proceeds of bridge loan.. (115,000)
--------
Increase in long-term debt............................ $235,000
========
</TABLE>

The DALEN Acquisition will be recorded based on the balance sheet as of the
closing date, June 8, 1995. It is anticipated that essentially all of the
valuation adjustments will be assigned to gas and oil properties, and the
condensed pro forma financial statements have been prepared on that basis.

(b) Adjusts the EEX balance sheet to reflect the assumed sale of the Common
Stock offered hereby and use of the estimated $300 million of net proceeds
therefrom to repay debt incurred in connection with the DALEN Acquisition.

(c) Reduces property and capital lease obligations by $54 million as of July 1,
1995, when an affiliate of Mobil is expected to complete the acquisition of
a partial interest in the Garden Banks project. Also, as consideration for
the sale of partial interests in the Garden Banks and Green Canyon
projects, EEX expects to receive cash of $32.3 million, an interest in a
gas and oil property and future work commitments related to the projects.
The cash consideration will be recorded as a reduction of the carrying
value of gas and oil properties. The conveyance of an interest in the gas
and oil property and the future work commitments do not require recording
in the financial statements of EEX.

(d) Eliminates revenues, expenses and a gain of $2.3 million in other income,
all as attributable to properties divested by DALEN in the third quarter of
1994.

17
<PAGE>

(e) Adjusts the DALEN statements of operations from the successful efforts to
the full-cost method of accounting for gas and oil properties by
eliminating DALEN's exploratory costs from Costs and Expenses and adjusting
depreciation and amortization as follows:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1994 1995
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Eliminate successful efforts depreciation and
amortization................................ $(86,325) $(19,603)
Add full cost amortization................... 73,744 17,534
-------- --------
Net........................................ $(12,581) $ (2,069)
======== ========
</TABLE>

(f) Adjusts interest income and interest expense to reflect EEX's financing of
a portion ($155 million) of the DALEN purchase price and refinancing of
DALEN bank debt in connection with the DALEN Acquisition.

(g) Provides income taxes on pro forma adjustments to income before income
taxes at the applicable statutory federal rate of 35%. Eliminates Section
29 tight gas sands credits and permanent differences recorded by DALEN and
reduces state income taxes incurred by DALEN to the rate applicable to the
ENSERCH Companies; the eliminations and reductions total $8.1 million for
the year ended December 31, 1994, and $1.3 million for the three months
ended March 31, 1995.

18
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA

The following tables set forth selected historical and pro forma as adjusted
financial and operating data for EEX and its predecessor, EP. The selected
historical financial and operating data for 1990 and 1991 have been derived
from the audited financial statements of EP not included herein. The
historical financial data for the years ended December 31, 1992, 1993, and
1994, and the three months ended March 31, 1994, are unaudited and have been
derived from the historical audited financial statements of EP for the years
ended December 31, 1992, 1993 and 1994, and the unaudited financial statements
for the three months ended March 31, 1994, after certain eliminations and
adjustments related to the Reorganization, including a pro forma provision for
income taxes. The historical financial data for the three months ended March
31, 1995, are unaudited and have been derived from the consolidated financial
statements of EEX. In the opinion of management, the financial data for the
three months ended March 31, 1994 and 1995, include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
information set forth herein. This information is not necessarily indicative
of EEX's future performance. The following information should be read in
conjunction with the financial statements of EEX and predecessor and "Pro
Forma Financial Information" included in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"The Reorganization" and "Certain Transactions."

PRO FORMA AS ADJUSTED
EP(1) EEX, EXCLUDING DALEN ----------------------
-------------------- -------------------------------------------------- THREE
THREE MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED ENDED
---------------------------------------------------- ------------------ DECEMBER 31, MARCH 31,
1990 1991 1992 1993 1994 1994 1995 1994 1995
--------- --------- -------- --------- --------- -------- -------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Natural gas revenues. $141,287 $122,164 $118,639 $146,355 $144,550 $42,524 $31,885 $249,872 $51,025
Oil and condensate
revenues............ 58,721 49,344 45,064 36,863 30,880 7,609 8,947 65,017 17,484
Natural gas liquids
revenues............ 1,695 1,503 6,554 4,148 2,377 451 735 6,209 1,856
Other revenues....... 332 1,479 1,287 2,430 1,333 153 94 1,438 163
--------- --------- -------- --------- --------- -------- -------- --------- --------
Total revenues...... 202,035 174,490 171,544 189,796 179,140 50,737 41,661 322,536 70,528
--------- --------- -------- --------- --------- -------- -------- --------- --------
Production and
operating expenses.. 31,383 31,543 29,392 28,960 30,963 7,700 8,393 53,413 14,547
Exploration.......... 11,317 11,046 11,163 8,668 9,136 2,251 2,991 9,136 2,991
Depreciation and
amortization........ 71,552 72,550 76,742 79,105 80,308 21,115 19,093 154,052 36,627
(Sale) writedown of
inactive pipeline... -- -- 16,500 -- (7,551) -- -- (7,551) --
Write-down of
domestic (in 1991)
and non-U.S. (in
1993) gas and oil
properties.......... -- 51,480 -- 10,191 -- -- -- -- --
General,
administrative and
other............... 35,418 21,566 23,950 31,035 20,022 4,778 7,042 37,481 11,322
Taxes, other than in-
come................ 15,908 16,490 15,983 16,216 13,518 3,650 3,578 23,028 5,960
--------- --------- -------- --------- --------- -------- -------- --------- --------
Total expenses...... 165,578 204,675 173,730 174,175 146,396 39,494 41,097 269,559 71,447
--------- --------- -------- --------- --------- -------- -------- --------- --------
Operating income
(loss) ............. 36,457 (30,185) (2,186) 15,621 32,744 11,243 564 52,977 (919)
Other income (ex-
pense)--net......... (87) 2 (6) -- (314) -- (24) 251 120
Interest income...... -- -- 5,946 7,884 7,239 1,807 1,026 7,239 1,026
Interest expense..... (10,377) (19,461) (119) (8,204) -- (292) (605) (12,350) (3,693)
--------- --------- -------- --------- --------- -------- -------- --------- --------
Income (loss) before
income taxes........ 25,993 (49,644) 3,635 15,301 39,669 12,758 961 48,117 (3,466)
Income taxes......... -- -- 995 7,046 13,861 4,464 337 16,086 (1,539)
--------- --------- -------- --------- --------- -------- -------- --------- --------
Net income (loss).... $ 25,993 $ (49,644) $ 2,640 $ 8,255 $ 25,808 $ 8,294 $ 624 $ 32,031 $ (1,927)
========= ========= ======== ========= ========= ======== ======== ========= ========
Net income (loss) per
share............... $ .25 $ (.48) $ .02 $ .08 $ .24 $ .08 $ .01 $ .25 $ (.02)
========= ========= ======== ========= ========= ======== ======== ========= ========
Weighted average
shares outstanding.. 102,500 102,500 105,656 105,656 105,656 105,656 105,658 125,656 125,658
========= ========= ======== ========= ========= ======== ======== ========= ========
CASH FLOW DATA:
Net cash provided by
operating
activities.......... $ 81,294 $ 75,702 $ 98,442 $ 102,312 $ 90,671 $ 48,651 $ 10,610 $ 173,032 $ 19,281
Net cash provided by
(used in) investing
activities(2)....... (116,905) (105,175) (58,702) (129,083) (108,784) (37,106) 30,507 (184,589) 46,420
Net cash provided by
(used in) financing
activities(2)....... 35,641 29,436 (38,879) 26,143 18,004 (11,540) (40,696) 24,687 (38,215)
EBITDA (3)........... 107,922 93,847 91,050 104,917 105,187 32,358 19,633 199,729 35,828
</TABLE>

(table continued on next page)

19
<PAGE>

PRO FORMA
AS ADJUSTED
EP(1) EEX, EXCLUDING DALEN ----------------------
--------------- --------------------------------------- THREE
THREE MONTHS YEAR MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED ENDED
--------------------------------------- --------------- DECEMBER 31, MARCH 31,
1990 1991 1992 1993 1994 1994 1995 1994 1995
------- ------- ------- ------- ------- ------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales volumes:
Natural gas (Bcf)...... 76.8 70.0 65.2 70.0 67.1 18.4 14.4 121.5 26.4
Oil and condensate
(MMBbls).............. 2.7 2.4 2.3 2.1 2.0 .5 .5 4.1 1.0
NGLs (MMBbls).......... .1 .1 .5 .3 .2 -- .1 .7 .2
Total (Bcfe).......... 93.3 85.2 82.2 84.9 80.5 21.7 18.0 150.2 33.9
Average sales prices:
Natural gas (per Mcf).. $ 1.86 $ 1.76 $ 1.82 $ 2.09 $ 2.15 $ 2.31 $ 2.22 $ 2.06 $ 1.93
Oil and condensate (per
Bbl).................. 22.29 20.36 19.20 17.24 15.38 14.80 16.79 15.80 16.89
NGLs (per Bbl)......... 17.84 18.79 13.38 12.09 10.85 9.80 11.14 9.28 8.63
Total (per Mcfe)...... 2.16 2.03 2.07 2.21 2.21 2.33 2.32 2.14 2.08
Costs and expenses (per
Mcfe):
Production and
operating (4)......... $ .34 $ .37 $ .36 $ .34 $ .38 $ .35 $ .47 $ .42 $ .50
Exploration............ .12 .13 .14 .10 .11 .10 .17 .06 .09
Depreciation and
amortization.......... .77 .85 .93 .93 1.00 .97 1.06 1.03 1.08
General, administrative
and other............. .38 .25 .29 .37 .25 .22 .39 .25 .33
Taxes, other than
income................ .17 .19 .19 .19 .17 .17 .20 .15 .18
GAS AND OIL PROVED
RESERVE DATA
(AT YEAR END):
Gas (Bcf).............. 1,223.2 1,167.3 1,101.4 1,086.5 1,041.7 1,370.8
Oil (MMBbls)........... 28.7 38.0 39.2 39.3 50.6 68.0
Total (Bcfe).......... 1,395.4 1,395.3 1,336.6 1,322.3 1,345.3 1,779.0
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
EP(1)(5) EEX, EXCLUDING DALEN AS ADJUSTED
------------------------------------------- --------------------------- -----------
DECEMBER 31,
------------------------------------------- DECEMBER 31, MARCH 31, MARCH 31,
1990 1991 1992 1993 1994 1995 1995
---------- ---------- ---------- ---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and
equipment--net........ $1,043,673 $1,030,653 $ 993,038 $1,030,311 $1,254,014 $1,282,717 $1,638,703
Total assets........... 1,109,203 1,077,619 1,039,185 1,086,303 1,381,235 1,338,949 1,771,122
Capital lease
obligations, including
current
portion............... -- -- -- -- 155,855 155,179 101,179
Long-term debt......... 202,000 234,000 266,000 298,000 -- -- 50,000
Common shareholders'
equity................ -- -- -- -- 736,008 736,642 1,036,642
Common shareholders'
equity per share...... -- -- -- -- 6.98 6.99 8.26
Partnership capital.... 777,210 696,505 645,179 610,237 -- -- --
</TABLE>
- --------
(1) Historical data of EP, a partnership, predecessor to EEX. The weighted
average shares data and net income (loss) data is for partnership units.
Distributions declared were $.30 per unit for 1990 and 1991.
(2) Pro forma cash flow amounts exclude the $340 million acquisition of DALEN
and the refinancing of its $115 million of bank debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Long-term Debt and Bridge Loan."
(3) EBITDA is earnings before interest, income taxes, depreciation and
amortization, (sale) writedown of inactive pipeline and write-off of gas
and oil assets. EBITDA is presented here to provide additional information
about EEX's ability to meet its future requirements for debt service,
capital expenditures and working capital. EBITDA should not be considered
as an alternative to net income as an indicator of operating performance or
as an alternative to cash flows as a measure of liquidity.
(4) Excludes production, severance and ad valorem taxes.
(5) EEX succeeded to the gas and oil business of EP on December 30, 1994;
balance sheet information for preceeding years represents the balance sheet
information of EP, its predecessor.

20
<PAGE>

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

OVERVIEW

EEX, through its predecessors, has been engaged in the exploration for and
the development, production and sale of natural gas and crude oil since 1918.
On December 30, 1994, EEX succeeded to the gas and oil business of EP through
the Reorganization. All references to 1994 and prior periods in this discussion
reflect the results of EEX, after giving effect to the Reorganization. See "The
Reorganization", "Certain Transactions" and the financial statements of EEX in
this Prospectus. The pro forma as adjusted financial information gives effect
to the DALEN Acquisition, the completion of the Garden Banks and Green Canyon
Transactions, and the Offering. See "Pro Forma Financial Information."

As an independent gas and oil producer, EEX's results of operations are
dependent upon the difference between the prices received for gas and oil
produced and the costs of finding and producing gas and oil. Revenue, operating
profit and earnings for EEX closely follow fluctuations in product prices and
production volumes. On an energy equivalent basis, gas reserves at December 31,
1994, constituted 77.4% of total reserves and gas production accounted for
83.4% of total production for 1994. Accordingly, variations in gas prices have
a more significant impact on EEX's results of operations than variations in oil
prices. As EEX's production of oil increases from the development of its Gulf
of Mexico properties and from production from certain DALEN properties,
Management expects gas production to decrease as a percentage of total
production. EEX manages a portion of the risk associated with fluctuations in
the price of natural gas and oil through the use of hedging techniques such as
gas and oil swaps, collars and futures agreements. Normally, 30% to 70% of
anticipated gas and oil production is hedged.

EEX's production has fluctuated over the last three years, increasing from
82.2 Bcfe in 1992 to 84.9 Bcfe in 1993 and declining to 80.5 Bcfe in 1994.
Production varies with the timing of development of proved reserves, the
completion of major development projects, and the success of the exploration
program. These factors may offset or exceed the natural decline in production
from mature fields. Primarily as a result of the start up of production from
the Mississippi Canyon project, 1993 production increased over the prior year.
In 1994, as a result of a relatively unfavorable natural gas price environment,
EEX reduced capital expenditures related to the development of certain gas
properties, resulting in lower total production.

Operating results for 1995 are expected to be affected by the third quarter
commencement of production from the Garden Banks project. Revenues from the
initial production of the two existing wells may not be sufficient to cover
operating costs, amortization and the equipment lease costs on the floating
production platform and related facilities. Some operating costs and
amortization vary with production, but other costs and the equipment lease
costs are essentially fixed and decline on a per unit basis as production
increases. Management believes operating results will improve in 1996 as
production begins from several additional development wells in the Garden Banks
project, and as the related equipment lease and other fixed costs are spread
over greater production.

EEX follows the full-cost method of accounting for gas and oil properties.
Product prices are subject to seasonal and other fluctuations. A decline in
prices from March 1995 levels or other factors, without mitigating
circumstances, could cause a future write-down of capitalized costs and a non-
cash charge against income.

21
<PAGE>

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1995 TO THREE MONTHS ENDED MARCH 31,
1994

OPERATING RESULTS

Net income for the three months ended March 31, 1995, was $.6 million ($.01
per share), compared with net income of $8.3 million ($.08 per share) for the
three months ended March 31, 1994. Operating income for the same period in 1995
was $.6 million, compared with $11.2 million for the prior year period. First
quarter 1995 results included a $.8 million after-tax ($1.2 million pre-tax)
charge for the deductible portion of injury and damage claims, while first
quarter 1994 results included a $.2 million after-tax ($.4 million pre-tax)
reduction of reserves for such claims no longer required. Excluding these
unusual items, net income for the three months ended March 31, 1995, was $1.4
million ($.01 per share), compared with net income of $8.1 million ($.08 per
share) for the three months ended March 31, 1994. Operating income for the same
period in 1995 was $1.8 million, compared with $10.9 million for the prior year
period.

REVENUES

Total revenues declined from $50.7 million for the three months ended March
31, 1994, to $41.7 million for the three months ended March 31, 1995, or 17.9%,
primarily as a result of lower natural gas production and prices, partially
offset by increases in oil production and prices. Natural gas revenue decreased
$10.6 million as production decreased from 18.4 Bcf to 14.4 Bcf, or 21.8%. This
reduction reflects lower output from Gulf of Mexico properties, partially due
to maintenance work; lower sales volumes recognized from East Texas fields,
primarily due to timing differences on annual delivery requirements on reserves
sold in 1988; and reduced development expenditures for replacing gas production
due to the relatively low gas price environment. Natural gas prices declined
from an average of $2.31 per Mcf to $2.22 per Mcf, including the effects of
hedging transactions. As a result of gas price hedging activities, EEX realized
revenue of approximately $3.0 million, or $0.21 per Mcf, in the first quarter
of 1995, compared with virtually no impact on revenue from hedging activities
in 1994. Oil revenue increased by $1.3 million as production increased slightly
and prices increased from $14.80 per Bbl in 1994 to $16.79 per Bbl in 1995. Oil
price hedging activity reduced first quarter 1995 oil revenue by $.1 million
($.14 per Bbl) and added $.7 million ($1.30 per Bbl) in the first quarter of
1994.

EXPENSES

Depreciation and amortization ("D&A") decreased 9.6% from $21.1 million in
1994 to $19.1 million in 1995. The decrease was due to the decline in
production, partially offset by a higher per unit amortization of capitalized
costs caused by higher onshore exploratory expenditures and the conversion of
the Mississippi Canyon project from an operating to a capital lease. On a per
unit basis, D&A increased from $.97 per Mcfe to $1.06 per Mcfe.

Production and operating costs increased by $.7 million, from $7.7 million to
$8.4 million, primarily due to higher maintenance costs associated with work on
an onshore well. On a unit of production basis, production and operating costs
increased from $.35 per Mcfe to $.47 per Mcfe, reflecting the impact of fixed
costs on a lower level of production.

Exploration expense increased $.7 million, or 32.9%, to $3.0 million as a
result of increased international exploration activity.

General and administrative costs ("G&A") increased from $4.8 million to $7.0
million, or 47.4%, primarily due to the year-to-year variance in the provision
for the deductible portion of injury and damage claims. Excluding the
provisions for injury and damage claims discussed above, G&A costs increased
from $5.2 million, or $.24 per Mcfe, in 1994 to $5.8 million, or $.32 per Mcfe,
in 1995, with the per Mcfe rate for the 1995 period increased by a temporarily
lower level of production.

Interest income decreased $.8 million to $1.0 million as a result of the
collection of an intercompany note receivable from an ENSERCH Company in
February 1995. Interest expense increased from $.3 million in 1994 to $.6
million in the 1995 period as a result of higher intercompany debt.

22
<PAGE>

COMPARISON OF FISCAL YEAR 1994 TO FISCAL YEAR 1993

OPERATING RESULTS

Net income increased from $8.3 million in 1993 to $25.8 million in 1994, or
212.6%, as operating income increased from $15.6 million to $32.7 million, or
109.6%, over the same period. Results for 1994 included a $4.9 million after-
tax ($7.6 million pre-tax) gain from the sale of an inactive offshore pipeline
that was written-down by $10.9 million after-tax ($16.5 million pre-tax) in
1992 and a $1.3 million after-tax ($2.0 million pre-tax) credit associated with
litigation. Results for 1993 included a $6.6 million after-tax ($10.2 million
pre-tax) write-off of non-U.S. gas and oil assets and a $4.6 million after-tax
($7.1 million pre-tax) charge relating to litigation. Excluding these unusual
items, net income increased from $19.5 million in 1993 to $19.6 million in
1994, and operating income decreased from $32.9 million in 1993 to $23.2
million in 1994, or 29.6%.

REVENUES

Total revenues declined from $189.8 million in 1993 to $179.1 million in
1994, or 5.6%, primarily as a result of lower natural gas and oil production
and lower oil prices, partially offset by higher natural gas prices. Natural
gas revenue decreased $1.8 million as production decreased 4.2% to 67.1 Bcf in
1994, principally due to reduced production from two fields in South Texas.
Natural gas prices increased from $2.09 per Mcf in 1993 to $2.15 per Mcf in
1994, as gas price hedging activities added $5.0 million, or $.07 per Mcf, to
1994 revenue compared with a net decrease in revenue of $4.1 million, or $.06
per Mcf, from hedging activities in 1993. Oil revenue decreased $6.0 million as
production decreased 6.0% to 2.0 MMBbls, primarily due to the natural decline
in production. Oil prices declined from $17.24 per Bbl to $15.38 per Bbl, or
10.8%, from 1993 to 1994. Oil price hedging activities decreased 1994 revenue
by $.7 million ($.34 per Bbl) and increased 1993 revenue by $.4 million ($.18
per Bbl).

EXPENSES

D&A expense increased slightly from $79.1 million in 1993 to $80.3 million in
1994, or 1.5%, due to higher per unit amortization of capitalized costs related
to the conversion of the Mississippi Canyon project from an operating to a
capital lease and higher onshore exploration expenditures, partially offset by
the effects of lower production. On a per unit of production basis, D&A expense
increased from $.93 per Mcfe to $1.00 per Mcfe.

Production and operating costs increased by $2.0 million, or 6.9%, from $29.0
million in 1993 to $31.0 million in 1994. On a unit of production basis,
production and operating costs increased from $.34 per Mcfe to $.38 per Mcfe.

Exploration expenses increased $.5 million, or 5.4%, to $9.1 million as a
result of increased international exploration activity.

Expenses in 1993 were impacted by a $10.2 million write-off of unsuccessful
exploration costs associated with the international operations.

G&A costs decreased from $31.0 million to $20.0 million, or 35.5%. Excluding
amounts associated with the litigation, G&A costs decreased from $23.9 million
to $22.0 million, or 7.9%, as a result of a corporate reorganization and the
consolidation of job functions. On a per unit basis, G&A costs declined from
$.28 per Mcfe in 1993 to $.27 per Mcfe in 1994.

Taxes, other than income, decreased $2.7 million, or 16.7%, to $13.5 million
as a result of a decline in gas and oil production.

Interest income decreased $.6 million to $7.2 million in 1994. Interest
expense incurred in 1993 was $8.2 million; no interest expense was incurred in
1994. Interest expense in 1993 included a provision of $6.0 million for
interest due royalty owners.

The effective income tax rate was 35% in 1994. The 46% effective rate in 1993
varies from the expected rate because of the 1% increase in the federal
statutory rate in 1993.

23
<PAGE>

COMPARISON OF FISCAL YEAR 1993 TO FISCAL YEAR 1992

OPERATING RESULTS

Net income increased from $2.6 million in 1992 to $8.3 million in 1993, or
212.7%, as operating results improved from a loss of $2.2 million to income of
$15.6 million over the same period. Results in 1993 included a $6.6 million
after-tax ($10.2 million pre-tax) write-off of unsuccessful foreign exploration
costs and a $4.6 million after-tax ($7.1 million pre-tax) charge relating to
litigation. Results in 1992 included a $10.9 million after-tax ($16.5 million
pre-tax) writedown of an inactive pipeline. Excluding these unusual items, net
income increased 44.2% from $13.5 million in 1992 to $19.5 million in 1993.
Operating income increased from $14.3 million to $32.9 million over the same
period.

REVENUES

Total revenues increased from $171.5 million in 1992 to $189.8 million in
1993, or 10.6%, primarily from increased volumes and prices of natural gas,
partially offset by lower oil volumes and prices. Natural gas revenue increased
$27.7 million as production increased 7.4% to 70.0 Bcf as a result of the
start-up of production from the Mississippi Canyon project. Natural gas prices
increased from $1.82 per Mcf in 1992 to $2.09 per Mcf. As a result of gas price
hedging activities, EEX incurred a net decrease of $4.1 million, or $.06 per
Mcf, in gas revenue in 1993 and a decrease of $.7 million, or $.01 per Mcf, in
1992. Oil revenue decreased $8.2 million as production decreased 8.9% to 2.1
MMBbls, primarily due to decreased production in the North Texas area. Oil
prices declined 10.2%, from $19.20 per Bbl to $17.24 per Bbl. Oil price hedging
activities increased 1993 revenue by $.4 million, or $.18 per Bbl; no hedging
activities applied to oil production in 1992.

EXPENSES

D&A expense increased from $76.7 million in 1993 to $79.1 million, or 3.1%,
due to an increase in production. On a unit of production basis, D&A remained
flat from year to year at $.93 per Mcfe.

Production and operating expenses decreased $.4 million, or 1.5%, to $29.0
million in 1993. In addition, exploration expenses decreased by $2.5 million,
or 22.4%, to $8.7 million in 1993. This decrease resulted from a cost control
and reduction program implemented in 1993. On a unit of production basis,
production and operating costs were reduced from $.36 per Mcfe in 1992 to $.34
per Mcfe in 1993.

G&A costs increased from $24.0 million in 1992 to $31.0 million in 1993, or
30.0%. Excluding the charge for litigation in 1993, G&A costs were $23.9
million in both years, and on a unit of production basis, G&A costs decreased
from $.29 per Mcfe in 1992 to $.28 per Mcfe in 1993.

Taxes, other than income, increased slightly from $16.0 million in 1992 to
$16.2 million in 1993 as onshore revenue increased.

Interest income increased from $5.9 million in 1992 to $7.9 million in 1993
due to a higher level of intercompany notes receivable. EEX incurred $.1
million of interest expense in 1992 compared with $8.2 million in 1993.
Interest expense in 1993 included a provision of $6.0 million for interest due
royalty owners.

The 46% effective income tax in 1993 varies from the expected rate because of
the 1% increase in the federal statutory rate in 1993. The 27% effective rate
in 1992 reflects permanent differences for statutory depletion.

LIQUIDITY AND CAPITAL RESOURCES

EEX has funded its activities through cash provided from operations,
borrowings from ENSERCH, and both operating and capital lease arrangements with
an ENSERCH Company.

24
<PAGE>

CASH FLOWS

For the first quarter of 1995, EEX had net cash flows from operating
activities of $10.6 million, compared with $48.7 million for the first quarter
of 1994. Changes in current operating assets and liabilities required $2.9
million in the first quarter of 1995, but provided $8.3 million in the prior
first quarter. In the first quarter of 1994, reimbursements of expenditures for
project equipment through the Garden Banks leasing arrangement exceeded
disbursements by $10.1 million. In the first quarter of 1995, deferred lease
operating and interest expenses were $7.8 million, compared with $.8 million in
the first quarter of 1994. Also, net income was $7.7 million less than in 1994
and D&A was $2.0 million less than in 1994. Investing activities provided $30.5
million during the first quarter of 1995, which included $86.1 million from the
collection of the note receivable from an ENSERCH Company, compared with a
$37.1 million requirement for investing activities in the first quarter of
1994. The net cash provided by operating and investing activities of $41.1
million was primarily used to reduce temporary advances from ENSERCH Companies.

Net cash flows from operating activities for the year ended December 31,
1994, were $90.7 million, $11.6 million less than the $102.3 million in 1993,
principally due to an increase in operating assets and liabilities. Investing
activities in 1994 required net cash flows of $108.8 million versus $129.1
million in 1993, with a higher level of capital spending more than offset by an
increase in cash provided from the sale of properties and other investing
activities. In addition, disbursements in 1994 for the construction of the
Garden Banks facilities exceeded advances under leasing arrangements by $32.8
million. In 1994, $50.5 million was provided by temporary advances from ENSERCH
Companies.

For the year ended December 31, 1993, net cash flows from operating
activities were $102.3 million versus $98.4 million in 1992. Investing
activities in 1993 were $129.1 million, compared with $58.7 million in 1992,
with property additions $53.9 million higher than in 1992. The net financing
requirement in 1993 of $26.8 million was provided by temporary advances from
ENSERCH Companies and advances under leasing arrangements that temporarily
exceeded disbursements for facilities under construction.

LEASES

The equipment and facilities used in developing and producing reserves in the
Mississippi Canyon and Garden Banks projects were financed by a predecessor
company under lease arrangements with financial institutions guaranteed by
ENSERCH. In connection with the Reorganization, the leases were assigned to and
assumed by Enserch Exploration Holdings, Inc. ("EEH"), a wholly owned
subsidiary of ENSERCH. EEX then entered into three sublease arrangements with
EEH for the offshore facilities. For accounting purposes, one of the leases is
an operating lease, and two are capital leases. The operating lease is for
twelve years, with an option to purchase the equipment under lease at the end
of the lease term at a fixed price equal to its estimated fair value. See "The
Reorganization" and Note 6 to EEX's financial statements in this Prospectus.

Costs for the Garden Banks facilities and equipment, including costs related
to the recent discovery on Block 387, are expected to be approximately $350
million. EEX's lease arrangements with EEH have been modified to cover the
additional costs, and also include financing costs incurred by the ENSERCH
Companies prior to the sublease to EEX.

The Garden Banks and Green Canyon Transactions will upon completion provide
cash of approximately $32 million in the third quarter of 1995. EEX will also
receive an interest in a gas and oil property and future work commitments on
the Garden Banks and Green Canyon projects. In addition, EEX will be relieved
of capital and operating lease obligations of approximately $140 million, as
well as future capital expenditure requirements on the Garden Banks and Green
Canyon projects, to the extent of the interests sold. See "Business--
Significant Properties and Exploration and Development Activities--Gulf of
Mexico Region."

25
<PAGE>

LONG-TERM DEBT AND BRIDGE LOAN

On June 8, 1995, EEX acquired all the capital stock of DALEN for $340 million
and refinanced DALEN's $115 million of bank debt. Earlier, EEX had arranged a
$350 million revolving credit facility maturing May 1, 1999, with a group of
banks and a $150 million bridge financing facility maturing November 15, 1995
with a separate group of banks. These facilities limit total borrowings to the
lesser of 60% of capitalization, as defined, or $750 million, and prohibit
liens on property except under certain circumstances. Interest is charged at
variable rates depending upon the consolidated capitalization ratio, as
defined. The LIBOR-based rates to be paid range from LIBOR plus .35% to LIBOR
plus .75% per annum for the $350 million facility, and LIBOR plus .25% to LIBOR
plus .65% per annum for the $150 million facility, plus in each case a facility
fee ranging from .15% per annum to .25% per annum. In connection with the DALEN
Acquisition, EEX borrowed $350 million under the revolving credit facility to
pay the purchase price and reduce advances from ENSERCH by $10 million. In
addition, EEX borrowed $150 million under the bridge financing facility to
repay DALEN's bank debt of $115 million and reduce advances from ENSERCH by $35
million. The bridge loan is expected to be repaid later this year with the
proceeds of a $150 million asset-based financing.

EEX intends to utilize substantially all of its internally generated cash
flows for growth of the business. Internally generated cash flows may be
supplemented by borrowings to fund temporary cash deficiencies. The net
proceeds from the sale of the Common Stock in the Offering will be used to
repay debt incurred in connection with the DALEN Acquisition and for other
corporate purposes. Assuming the net proceeds of the Offering are $300 million,
long-term debt remaining after the Offering will consist of $50 million of the
$350 million capacity of the bank revolving credit facility due May 1, 1999,
and capital lease obligations of $101 million. In addition, EEX has a $100
million borrowing arrangement with ENSERCH to meet short-term cash needs, of
which $65 million was outstanding as of March 31, 1995. The balance fluctuates
based on EEX's short-term cash needs and was reduced by $45 million from
borrowings in connection with the DALEN Acquisition. The borrowing arrangement
is expected to be reduced to $50 million upon the conclusion of the Offering.
This borrowing arrangement was formalized by a letter agreement between EEX and
ENSERCH effective as of January 1, 1995. See "Certain Transactions" and
"Capitalization." EEX does not anticipate paying any cash dividends in the
foreseeable future.

CAPITAL BUDGET

EEX currently expects capital expenditures for 1995 to be approximately $200
million. Capital expenditures excluding DALEN are expected to be $145 million,
compared with expenditures of $133 million in 1994 and $119 million in 1993.
Planned EEX expenditures for 1995 have been reduced about $15 million from the
originally planned level of $160 million because of low natural gas prices.
Capital expenditures for 1995 exploration and development of DALEN properties
after the acquisition are estimated to be in the $50 million range. The
expenditures exclude costs of the floating production platform and related
facilities for the Garden Banks project, which are being provided through lease
arrangements with EEH.

HEDGING ACTIVITIES

At March 31, 1995, EEX had outstanding swaps, collars and futures agreements
extending through June 1996 to exchange payments on approximately 13.3 Bcf of
gas and 1.2 MMBbls of oil, on which EEX had $1.4 million of net unrealized
gains. At March 31, 1995, realized gains on hedging activities of $.6 million
were deferred. At December 31, 1994, EEX had outstanding swaps, collars and
futures agreements extending through December 1995 to exchange payments on
approximately 17.8 Bcf of gas and 1.2 MMBbls of oil, on which EEX had $4.1
million of net unrealized gains. At December 31, 1994, realized gains on
hedging activities of $.9 million were deferred.

26
<PAGE>

BUSINESS

GENERAL

EEX's operations represent the gas and oil exploration and production
business of ENSERCH. EEX, including its predecessors, has been engaged in the
exploration for and the development, production and sale of natural gas, crude
oil and natural gas liquids since 1918, with an original focus on augmenting
its natural gas supply in Texas for its natural gas distribution operations.
Exploration activities gradually expanded to a wide geographic area, including
limited international activity. In 1985, substantially all of ENSERCH's
domestic gas and oil exploration and production business was transferred to EP,
a publicly traded limited partnership. Pursuant to the Reorganization, on
December 30, 1994, EEX acquired all of the operating properties of EP in
exchange for Common Stock, EP was dissolved and the Common Stock held by EP was
distributed to EP's limited and general partners in accordance with their
partnership interests. Trading of EEX shares began on the New York Stock
Exchange on January 3, 1995. See "The Reorganization."

EEX's domestic activities are focused in four regions: the Gulf of Mexico;
East Texas; North Central Texas; and the Gulf Coast Region of Texas, Louisiana,
Mississippi and Alabama. EEX's operations have been oriented primarily toward
natural gas, which in 1994 accounted for 80.9% of production on an energy
equivalent basis. EEX had total proved reserves of approximately 1.8 Tcfe on a
pro forma basis as of December 31, 1994.

Unless otherwise indicated, references in this Prospectus to reserves,
production, drilling activity, acreage and other operating data refer to the
pro forma combined data of (i) EEX following completion of the Reorganization,
(ii) the Dalen Acquisition and (iii) the Garden Banks and Green Canyon
Transactions.

The principal offices of EEX are located at 4849 Greenville Avenue, Suite
1200, Dallas, Texas 75206, and its telephone number is (214) 369-7893.

STRATEGY

. Pursue balanced growth through a combination of low risk development
projects, high potential exploration activities and strategic
acquisitions.

. Apply technology to development and exploration projects to reduce risks
and efficiently produce reserves.

. Emphasize efficient exploitation of producing properties through low cost
operations.

. Utilize tight sands and subsea operating experience to expand operations
both domestically and internationally.

. Maintain a strong balance sheet to provide flexibility to pursue future
growth.

EXPLORATION

EEX plans to concentrate its exploration activities primarily in areas in
which Management believes EEX has a competitive advantage. This advantage may
be derived from operating experience, technological expertise, geological or
geophysical knowledge, and/or an acreage position. EEX's current exploration

27
<PAGE>

program is focused primarily in areas of current operations including: the Gulf
of Mexico; the North Central Texas region, including the Hardeman Basin and
Bend Arch; the Delaware Basin in Southwest New Mexico and the Anadarko Basin in
Oklahoma; and in the Gulf Coast Region, concentrating on the tertiary plays and
the Smackover Trend in Alabama. EEX plans to pursue growth through a balanced
mix of prospects that include high risk, high reserve potential prospects, as
well as prospects with lower risks and more modest reserve potential. EEX
intends to manage its risk by generally limiting its participation in high risk
ventures to a 50% or less working interest. EEX plans to deviate from this
strategy only when Management believes the potential rewards are commensurate
with the risks.

EEX's plans to make substantial use of 3-D seismic technology in its
exploration activities. EEX has successfully used this technology to discover
and develop reserves both onshore and offshore.

DEVELOPMENT

EEX's portfolio of properties includes a range of fields in various stages of
development. Many of these fields are mature properties facing natural declines
in production. EEX has developed expertise in the management of these mature
fields and through active reservoir management and application of technology
has reversed or slowed the natural decline. EEX continually monitors its
producing fields in an attempt to maximize present value.

A critical component of exploiting these fields fully is cost control. EEX's
strategy is to maintain low operating costs while minimizing capital costs.
EEX's integrated approach to exploiting these fields enables it to apply
techniques and technology developed in its other operations to its mature
fields, thereby improving operating efficiency and lowering costs. The constant
monitoring of a field's response to the application of production enhancement
techniques allows EEX to design the proper combination of infill drilling,
reworking of existing wells, recompletions and enhanced recovery techniques
that is expected to improve the production of its existing fields.

EEX recently entered into a joint program with the Los Alamos National
Laboratory to study the impact of hydraulic fracturing in the Opelika Field
located in EEX's East Texas Region. This exemplifies EEX's willingness to apply
the latest technology toward enhancing field production. A successful program
at Opelika could enable EEX to apply similar technology at its other fields.

ACQUISITIONS AND DIVESTITURES

EEX plans to continuously upgrade its portfolio of properties through a
combination of acquisitions and divestitures. EEX will pursue selective
acquisitions of reserves that complement existing operations and provide an
opportunity to apply its operating and technological experience to enhance the
value of the acquired properties. Acquisitions may consist of both large
strategic acquisitions, such as the DALEN Acquisition, and smaller acquisitions
that increase EEX's ownership in core properties. Following the DALEN
Acquisition, EEX has a concentrated portfolio of reserves, with the 30 largest
onshore fields accounting for 75 percent of EEX's reserves. Of these 30 onshore
fields, 29 are operated by EEX.

At the same time, EEX will continuously review its portfolio of properties to
identify marginal, remote and non-strategic fields. These fields will be
targeted for disposition. At the time of the DALEN Acquisition, EEX had reduced
its number of fields from 400 in 1988 to 270. This process allows EEX to focus
in areas where it has existing infrastructure, control of operations, and can
achieve the lowest operating costs.

RECENT DEVELOPMENTS

DALEN ACQUISITION

On June 8, 1995, EEX acquired all the capital stock of DALEN, an independent
gas and oil company engaged in the exploration for and the development and
production of natural gas and crude oil. Through the DALEN Acquisition, EEX
acquired proved reserves totaling 377.5 Bcfe and other assets for a purchase
price of $340 million and refinanced DALEN's $115 million of bank debt. See
"Management's Discussion

28
<PAGE>

and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." DALEN's activities have been oriented primarily toward
natural gas and are concentrated in selected major production regions,
including the Gulf Coast, the Gulf of Mexico and the Mid-Continent. DALEN was
an attractive acquisition for EEX because several of DALEN's operations are
located in fields that are either near or producing from formations from which
EEX is also producing. EEX believes that DALEN's property base has significant
exploitation and development potential. The DALEN Acquisition is a key step in
EEX's growth plan from which EEX expects to realize near term benefits. The
geologic similarity and proximity of DALEN's major producing properties to
EEX's properties permit EEX to apply its expertise, particularly with respect
to tight sands reservoirs, to these properties, from which EEX expects enhanced
production and cash flows. At the same time, EEX will realize cost savings
through the integration of the companies' operations. Synergistic opportunities
for operating efficiencies and cost reductions are expected to result in
improved financial results for the combined companies.

GREEN CANYON PROJECT

On May 15, 1995, an affiliate of Mobil signed a letter of intent to purchase
a 40% interest in EEX's Green Canyon project. An affiliate of Reading & Bates
Corp. had previously signed a letter of intent to purchase a 20% interest in
the project. Upon the completion of the Green Canyon Transaction, EEX will own
a 40% working interest in the Green Canyon project and remain the operator of
the project. D&M has initially estimated gross reserves, including royalty
interests, at the Green Canyon project to be 85.5 MMBbls of oil and 149.5 Bcf
of natural gas, of which 49.2 MMBbls of oil and 102.2 Bcf of gas are in the
proved category. EEX's initial interest in the Green Canyon reserves, excluding
royalty interests, amounted to 42.5 MMBbls of oil and 88.4 Bcf of gas, for a
total of 343.4 Bcfe; after completion of the Green Canyon Transaction, EEX's
interest in the Green Canyon reserves will be 137.4 Bcfe. Based upon its
experience and results to date in the Green Canyon project, EEX intends to
expand its holdings in this area. On May 10, 1995, EEX, on behalf of its Green
Canyon co-venturers, submitted the highest bids on six blocks within ten miles
of the proposed location of the Green Canyon production facility and to date
has been awarded exploration and development rights on five of them. EEX
believes it is advantageously positioned to fully develop its Green Canyon
holdings with the backing of its partners, each of which has considerable
offshore experience.

GARDEN BANKS PROJECT

The progress of EEX's deep water Gulf of Mexico strategy is evidenced by
another recently-announced transaction. On April 12, 1995, after evaluating
EEX's development plans for Garden Banks Block 388, another affiliate of Mobil
exercised its option to acquire a 40% interest in the Garden Banks project.
EEX's interest in the Garden Banks reserves, excluding royalty interests, is
34.2 Bcf of proved gas reserves and 28.1 MMBbls of proved oil and gas liquids
reserves. Both the Garden Banks and Green Canyon Transactions illustrate EEX's
strategy of reducing its risk by limiting its working interest participation in
high-risk ventures. These arrangements also enable EEX to reduce its capital
commitments with respect to these projects while still participating in the
potential rewards from bringing these properties to production.

INTERNATIONAL OPERATIONS

29
<PAGE>

A major effect of the above-described recent developments has been to
increase EEX's net proved reserves. The following table sets forth EEX's net
proved reserves as of December 31, 1994, on a pro forma basis, as restated to
give effect to the recent developments described above.

<TABLE>
<CAPTION>
NATURAL OIL AND
GAS GAS LIQUIDS TOTAL
(BCF) (MMBBLS) (BCFE)
------- ----------- -------
<S> <C> <C> <C>
EEX reserves as originally reported(1)........ 1,041.7 46.1 1,318.5
Acquisition of DALEN reserves(2).............. 307.4 11.7 377.5
Acquisition of ENSERCH's international re-
serves(1).................................... -- 4.1 24.6
Acquisition of ENSERCH's SACROC reserves(1)... -- .3 2.1
Initial estimation of reserves for Green Can-
yon project(1)(3)(4)......................... 88.4 42.5 343.4
Sale of a 60% interest in Green Canyon proj-
ect(1)....................................... (53.0) (25.5) (205.9)
Sale of a 40% interest in Garden Banks proj-
ect(1)....................................... (13.7) (11.2) (81.2)
------- ----- -------
Adjusted reserves........................... 1,370.8 68.0 1,779.0
======= ===== =======
</TABLE>
- --------
(1)As estimated by D&M.
(2) As estimated by Netherland, Sewell & Associates, Inc., independent
petroleum engineers ("Netherland, Sewell").
(3)Net of royalty interests as of March 1, 1995.
(4)See "The Reorganization".

SIGNIFICANT PROPERTIES AND EXPLORATION AND DEVELOPMENT ACTIVITIES

EEX's domestic activities are focused in four regions; the Gulf of Mexico;
East Texas; North Central Texas; and the Gulf Coast Region of Texas, Louisiana
and Alabama. The following table sets forth estimated pro forma net proved
reserves of EEX by region at December 31, 1994:

<TABLE>
<CAPTION>
NATURAL OIL AND % OF TOTAL
GAS GAS LIQUIDS TOTAL PROVED
REGION (BCF) (MMBBLS) (BCFE) RESERVES
------ ------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Gulf of Mexico........................ 126.3 35.4 338.6 19.0%
East Texas............................ 849.5 7.9 897.2 50.4
North Central Texas and Other......... 238.8 14.4 325.3 18.3
Gulf Coast............................ 156.2 6.2 193.3 10.9
------- ---- ------- -----
Total domestic...................... 1,370.8 63.9 1,754.4 98.6
International......................... -- 4.1 24.6 1.4
------- ---- ------- -----
Total............................... 1,370.8 68.0 1,779.0 100.0%
======= ==== ======= =====
</TABLE>

GULF OF MEXICO REGION

The Gulf of Mexico Region conducts exploration and development activities
offshore in the Gulf of Mexico. Much of EEX's recent activity has been in the
deep water (greater than 600 feet) areas of the Gulf of Mexico, which
represented 83.6% of total proved reserves in this region at December 31, 1994,
and 33.2% of 1994 production. Management believes EEX is one of the few
independent exploration and development companies with the expertise to develop
fields in deep water. The Gulf of Mexico properties typically are characterized
by high initial production rates and high capital costs.

30
<PAGE>

Total proved reserves in the Gulf of Mexico are 338.6 Bcfe, which represent
19.0% of EEX's total proved reserves. The DALEN Acquisition added 27.8 Bcfe of
total proved reserves in this region.

<TABLE>
<CAPTION>
PROVED RESERVES 1994
AT DECEMBER 31, 1994 PRODUCTION
PROPERTY (BCFE) (BCFE)
-------- -------------------- ----------
<S> <C> <C>
Green Canyon project(1)...................... 137.4 --
Garden Banks project......................... 121.8 --
Mississippi Canyon project................... 23.9 8.2
Other:
EEX........................................ 27.7 8.8
DALEN...................................... 27.8 7.7
----- ----
Total.................................... 338.6 24.7
===== ====
</TABLE>
- --------
(1)As of March 1, 1995.

Mississippi Canyon Project. Mississippi Canyon, the first deep water
development project in the federal waters of the Gulf of Mexico that EEX has
operated, reflects EEX's use of technology, including specialized 3-D seismic
processing and remote completion and production techniques. EEX operates and
owns a 37.5% working interest in this two-block unit located approximately 50
miles south of Grand Isle, Louisiana. The field is located in 1,410 to 1,520
feet of water just off the Outer Continental Shelf. A shipping fairway, the
Louisiana Offshore Oil Port (or LOOP), covers the eastern three-fourths of the
unit. Therefore, the field was developed utilizing clustered high angle subsea
wells that flow to a remote platform located outside the shipping fairway in
380 feet of water. The field was placed on production in early 1993 and is
currently producing from four wells. This project has been fully developed and
although there may be deeper exploratory potential, no additional drilling is
currently planned.

Exploration activities in the Mississippi Canyon project were undertaken
based on a 3-D seismic program conducted prior to field development. The
program confirmed that the majority of the reservoir lies beneath the shipping
fairway. A production program was developed that involved drilling highly
deviated wells under the shipping fairway, subsea completing the wells and
tying them back to a conventional shallow water production platform using
bundled flowlines. The development program was completed as planned and, after
two years of production, the field has been essentially maintenance free.
Production from the field, which declined from initial levels due to
anticipated water encroachment, has stabilized at approximately 35 MMcf of
natural gas and 150 Bbls of gas liquids per day. The 3-D seismic data on
Mississippi Canyon Block 441 is being reprocessed, using depth migration and
other state-of-the-art techniques to aid in the identification of deeper
exploratory targets, which, if successfully drilled, could add to the field
reserves.

Garden Banks Project. EEX is the operator and following completion of the
Garden Banks Transaction, will own a 60% working interest in this six-block
unit located 200 miles southwest of New Orleans, Louisiana in 2,200 feet of
water. Final facility installation is currently underway. Two wells have been
completed and first production is slated for the third quarter of 1995. A total
of 17 wells comprise the current development plan.

Field development plans for the Garden Banks project incorporate subsea well
completions producing to a floating production facility tied back to a
traditional production facility in shallow water. Throughout 1994, EEX worked
on the conversion of a semi-submersible drilling rig to a floating drilling and
production facility for the development of the Garden Banks project. The
modification work has been completed and the facility has been moored on
location. A 24-slot subsea template has been installed, and the two 12-inch gas
and oil gathering lines have been installed and tied back to the shallow water
production facility located 54 miles away. Completion operations on the two
existing wells on Garden Banks Block 388 commenced in early 1995 and these
wells will be brought on-stream after the production riser is installed. The
initial well was completed in mid-March and tested at rates that indicate the
well will likely flow at an initial daily rate

31
<PAGE>

of 6,000 Bbls of oil equivalent. The second well has been completed with
initial daily production rates anticipated to be between 2,500 and 3,000 Bbls
of oil equivalent. Proved reserves on Garden Banks Block 387 established by an
exploratory well drilled last year will be developed utilizing a three-slot
template connected to the main template by bundled flowlines. First production
from this template is scheduled for the second quarter of 1996.

In the Garden Banks Transaction, EEX announced that an affiliate of Mobil has
recently exercised its option to acquire a 40% working interest in the Garden
Banks project. The option was earned as a result of an agreement by an
affiliate of Mobil to: (i) pay a disproportionately larger share of the cost of
drilling an exploratory well in EEX's Garden Banks unit on Block 387; (ii)
conduct a long cable 3-D seismic survey over the unit to further assess the
deeper horizon correlative to the nearby Auger field discovery; and (iii)
perform certain future work on the project at its sole risk and expense. EEX
expects to consummate this transaction, which is subject only to the
finalization of formal documentation, on or about July 1, 1995.

EEX's Garden Banks project has attracted a great deal of industry attention
because concepts successfully used in the Mississippi Canyon project are being
further expanded to apply to a floating drilling and production environment.
EEX generated the Garden Banks Block 388 prospect and successfully acquired
Blocks 387 and 388 in the 1984 Western Gulf federal lease sale. EEX originally
held a 25% working interest and through subsequent transactions acquired a 100%
working interest in 1991. At that point, five wells and one sidetrack had been
drilled, with four of the wells commercially successful. EEX then drilled the
Garden Banks 388 No. 4 well, formed a four-block unit, and submitted a
development plan for approval. The unit has been enlarged recently to six
blocks by the addition of Garden Banks Blocks 345 and 389 through a farm-in
from Shell Oil Company ("Shell"). Those blocks have the potential of
stratigraphically trapped reservoirs based on amplitude anomalies.

To date, eight sands have been penetrated on the Garden Banks Block 388
prospect, all of which are hydrocarbon bearing. There are two separate salt
structures that form traps on the unit. One is the salt dome centered on Block
388 and the other is the salt wall located in Block 387. D&M estimates gross
reserves for these eight sands to be 47 MMBbls of oil and 62 Bcf of gas, of
which 33 MMBbls of oil and 40 Bcf of gas are proved reserves.

EEX believes there is potential for reserve addition on the Garden Banks
prospect. First, deeper objectives, geographically correlative to the main pay
zones in Shell's Auger field, have yet to be penetrated by EEX. Based on
current 3-D seismic interpretation, EEX believes it has at least two potential
areas where significant reserves may be identified. Second, reserves may be
identified by drilling through sands that do not exhibit an amplitude response
using current seismic data. To date, 40% to 50% of the productive sands
encountered did not exhibit a corresponding seismic amplitude. Third, prospects
identified by 3-D seismic in the 13,100 foot and 14,200 foot sands have yet to
be drilled and could potentially contain productive zones. Lastly, objectives
identified by 3-D seismic are located east of a salt dome and could contain
sands trapped stratigraphically. EEX cannot predict whether or to what extent
it will be successful in identifying commercial reserves from these sources.

Green Canyon Project. EEX is the operator and after completion of the Green
Canyon Transaction will own a 40% working interest in the Green Canyon project,
which is located approximately 150 miles south of New Orleans, Louisiana. The
field is in water depths of 2,200 to 3,400 feet. Two wells and one sidetrack
have been drilled to date on this project, with another confirmation well
spudded in June 1995. Provided that EEX's expectations as to the presence of
commercial reserves is confirmed, production is expected to commence in the
next three to four years. Proposed field development incorporates clusters of
subsea wells, which would flow through bundled flowlines to a remote floating
production facility ("FPF"). Full-well stream production will be processed
onboard the FPF to sales specifications, and export gas and oil lines will
carry these products to market. Currently, a nine well development plan is
anticipated.

32
<PAGE>

Between 1991 and early 1995, EEX, through a series of transactions,
increased its working interest in the Green Canyon project from 25% to
approximately 100%. EEX had a 25% working interest in the project prior to
assuming a 100% working interest in the Green Canyon 254 well No. 4 sidetrack
in 1994. The sidetrack well was an appraisal well to the discovery well
drilled in 1991 that encountered multiple pay sands with a combined thickness
of more than 300 feet of net pay. The sidetrack operation, which was
undertaken by EEX on a "sole-risk" basis at a 100% working interest,
encountered more than 400 feet of net pay.

After the sidetrack operation, EEX acquired for cash the remaining working
interests in the project, which were subject to substantial penalties to the
partners as a result of the "sole-risk" provisions governing sidetrack
operations. In the Green Canyon Transaction, EEX entered into letters of
intent with an affiliate of Mobil and an affiliate of Reading & Bates Corp. to
sell a 40% working interest and a 20% working interest, respectively, in the
project. These transactions are expected to be completed on or about July 1,
1995.

During the first quarter of 1995, EEX completed its research on production
schemes for this development and submitted that information, along with the
well data, to D&M for reserve evaluation. D&M has estimated gross reserves at
the Green Canyon project to be 86 MMBbls of oil and 149 Bcf of natural gas, of
which 49 MMBbls of oil and 102 Bcf of gas are in the proved category,
including royalty interests.

Based on preliminary 3-D seismic analysis, EEX believes there are several
other prospects in the Green Canyon area. Based on this analysis, EEX, on
behalf of its Green Canyon Block 254 partners, submitted the highest bids on
six additional blocks located within 10 miles of the proposed location of the
Green Canyon FPF. To date, EEX has been awarded five of the six blocks.
Because EEX believes it has already identified sufficient reserves to justify
installation of a FPF, EEX may be able to develop satellite fields that would
be uneconomic otherwise.

Additional Exploration in the Gulf of Mexico. Other recent discoveries in
the Gulf of Mexico have been made at Vermilion Block 273, South Timbalier
Block 252, and East Cameron Block 356. EEX believes that these discoveries
merit development and anticipates pursuing development drilling and/or the
installation of production equipment to facilitate the project development.

Exploration in the Gulf of Mexico is an important part of EEX's exploratory
program. A total of over 200 leases (over 790,000 gross acres and 390,000 net
acres) are currently held in the Gulf of Mexico. Typically, successful wells
in the Gulf produce at high rates compared with onshore wells, which is
important in increasing cash flow and improving the ratio of production to
reserves. State-of-the-art technology, including specialized 3-D seismic
processing and innovative production techniques, is being utilized to help
achieve these objectives.

EEX plans further drilling on undeveloped acreage but at this time cannot
specify the extent of the drilling or predict how successful it will be in
establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms, under which the undeveloped acreage can be
retained by the payment of delay rentals without the establishment of gas and
oil reserves, expire as follows:

<TABLE>
<CAPTION>
GULF OF MEXICO
TOTAL LEASEHOLD
ACRES EXPIRING
---------------
GROSS NET
------- -------
<S> <C> <C>
1995....................................................... 43,260 17,313
1996....................................................... 62,106 29,438
1997....................................................... 51,700 24,598
1998....................................................... 19,651 14,892
1999 and later (1)......................................... 612,283 303,759
</TABLE>
- --------
(1)Includes acreage held by production.

A portion of the undeveloped acreage may be allowed to expire prior to the
expiration of primary terms specified in this schedule by nonpayment of delay
rentals.

33
<PAGE>

EAST TEXAS REGION

The East Texas Region conducts exploration and development in East Texas and
Northern Louisiana. The Management of EEX believes that it has proprietary
knowledge based on its experience in tight reservoirs in East Texas which gives
EEX a competitive advantage relative to its peers. EEX operates approximately
550 wells and controls approximately 65,000 acres by virtue of its Travis Peak,
Hosston and Cotton Valley production in the region.

Historically, EEX's activities have been focused on six major fields. Since
discovery, the six fields have produced a total of 1.8 Tcf of gas and 40 MMBbls
of oil and gas liquids. The East Texas fields are characterized by reservoirs
with large sections of interbedded, low porosity sands and shales. EEX has
combined its experience with workovers, recompletions and development drilling
in these fields with the latest hydraulic fracturing and computer technology to
offset the natural declines in these fields. The profitability of performing
these operations is sensitive to product prices. EEX is currently conducting a
joint program with Los Alamos National Laboratory to determine more efficient
methods to fracture the reservoir and potentially enhance gas production. In
East Texas, EEX's objective is to accelerate production while preserving or
increasing reserves and net present value of the fields.

The DALEN acquisition added 59.5 Bcfe of total proved reserves to this
region. The East Texas properties acquired in the DALEN Acquisition exhibit
similar reservoir characteristics to EEX's existing properties. EEX management
believes that pursuing a similar exploitation strategy on the DALEN properties
will enhance the production from those fields.

Total proved reserves in the East Texas Region are 897.2 Bcfe, which
represent 50.4% of EEX's total proved reserves. Within the region, reserves are
concentrated in the top eight fields, which represent approximately 97.7% of
EEX's total proved reserves in the region.

<TABLE>
<CAPTION>
PROVED RESERVES 1994
AT DECEMBER 31, 1994 PRODUCTION
PROPERTY (BCFE) (BCFE)
-------- -------------------- ----------
<S> <C> <C>
Opelika...................................... 241.7 6.6
Whelan....................................... 222.7 5.1
Tri-Cities................................... 174.2 4.3
North Lansing................................ 80.6 2.8
Freestone.................................... 58.4 3.3
Willow Springs............................... 52.1 1.8
Logansport (DALEN)........................... 35.0 2.4
Bald Prairie (DALEN)......................... 11.9 2.7
Other:
EEX........................................ 8.0 1.2
DALEN...................................... 12.6 2.7
----- ----
Total.................................... 897.2 32.9
===== ====
</TABLE>

Opelika. This field, located near Athens in Henderson County, Texas, was
discovered in 1935. EEX controls approximately 15,000 acres and operates 230
wells in this field with a 100% working interest. EEX has actively developed
this field over the past ten years. Since 1984, EEX has drilled and completed
approximately 100 wells to further develop the field. The field produces from
multiple pay zones, including the Rodessa, James Lime, Pettit, Travis Peak and
Cotton Valley formations which occur over a 4,000 foot interval. Many pay zones
remain behind pipe and will be completed at later dates. In a joint program
with the Los Alamos National Laboratory, EEX has been performing tests to
determine the induced fracture orientation within the field. This data could
allow EEX to more efficiently produce the reserves within this and other
fields.

34
<PAGE>

Whelan. Located 20 miles northeast of Longview, Texas, Whelan is a long-lived
gas field producing from the Travis Peak and Pettit formations. This field was
discovered in 1949 and purchased by EEX in 1967. EEX is the operator and has a
100% working interest in 73 wells covering an area of 14,000 acres. Development
plans for 1995 include reworking eight wells and drilling four development
wells.

Tri-Cities. Located near Athens in Henderson County, Texas, EEX controls in
excess of 6,500 acres and operates 80 wells currently producing in the field
with a 100% working interest. In 1990, EEX successfully explored and developed
the deeper Cotton Valley formation. With the successful completion of the
Cotton Valley sands, the field produces from multiple pay zones that occur over
a 2,500 foot interval. EEX currently operates eight Cotton Valley wells (four
net) with a 50% working interest and is negotiating to acquire the remaining
interests in these wells. All other wells are completed in the Travis Peak and
Pettit formations. EEX currently plans to drill an additional Cotton Valley
well and may drill an additional Travis Peak well during 1995.

North Lansing. Located near Longview, Texas, this field has an areal extent
of 10,000 acres. EEX operates 39 gas wells with a 97% working interest, which
are producing mainly from the Travis Peak, Cotton Valley and Pettit formations.
Development plans for 1995 include drilling two wells and reworking six
existing wellbores.

Freestone. Located near Freestone, in Freestone County, Texas, EEX operates
32 gas wells with a 75% average working interest in this field, which are
currently producing from the Travis Peak, Pettit, Cotton Valley Lime and
Bossier formations. Over the past three years, EEX has successfully reworked
six wells and drilled 22 others, with four wells remaining to be drilled in
1995. EEX's share of the gas produced from this field is dedicated until 2001
to a long-term gas contract at above market prices. EEX recently began testing
the deeper potential in this field and has established commercial production in
the Cotton Valley Sand, Bossier and the Cotton Valley Lime. Full development in
these three horizons is currently being deferred.

Willow Springs. Located partially under the townsite of Longview, Texas, this
field encompasses over 15,000 acres. EEX operates 40 wells in the field, with
production predominately from the Travis Peak formation. EEX has a 6,000 acre
position, with a working interest of 50%. In 1995, EEX plans to drill three
additional wells and rework three existing wells.

Logansport. This northern Louisiana property is considered to have
significant remaining multiple pay zone development potential. EEX controls
4,500 acres in this field and operates 14 gas wells with a 95% average working
interest. Based on a successful recompletion in 1993, three wells were
recompleted and five wells were drilled in 1994, all with successful results.
Subsequently, an aggressive acquisition plan was undertaken and additional
working interests in the field were added. As a result of the expanded position
in the field, EEX anticipates drilling nine gas development wells in 1995.

Bald Prairie. EEX controls 4,500 acres in this East Texas field and operates
27 gas wells with a 60% average working interest. An active drilling program
was successfully conducted in 1991 and 1992 to qualify wells for the federal
income tax credits available for gas from tight sands. Based on experience and
log characteristics, EEX believes that substantial upside potential may exist
in this field. If preliminary work is validated, a substantial development
program will be undertaken. Gas produced from this property is dedicated
through 1998 under a contract at fixed prices above current market levels.

NORTH CENTRAL TEXAS AND OTHER REGION

The North Central Texas and Other Region conducts exploration and development
activities in North Central Texas, West Texas, Oklahoma, New Mexico and in the
Rocky Mountain Area, primarily Southwest Wyoming and Northeast Utah. EEX has a
total of 262 fields and operates properties containing approximately 74% of its
reserves in this region.

35
<PAGE>

The fields in this region consist primarily of more mature fields which,
similar to other EEX fields, respond well to active reservoir management,
ongoing development drilling and workovers, and enhanced recovery techniques.
EEX is actively using 3-D seismic to pursue an exploration program in this
region designed to yield more modest oil reserve additions with lower risk and
cost than its offshore exploration program.

DALEN's total proved reserves of 198.1 Bcfe in this region accounted for
52.5% of the DALEN Acquisition's total proved reserves and are located
primarily in the Rocky Mountain area. EEX plans to conduct a thorough
engineering evaluation of these reserves and use its experience with similar
reservoirs to enhance the production from these fields.

Total proved reserves in the North Central Texas and Other Region are 325.3
Bcfe, which represents 18.3% of EEX's total proved reserves.

<TABLE>
<CAPTION>
PROVED RESERVES 1994
AT DECEMBER 31, 1994 PRODUCTION
PROPERTY (BCFE) (BCFE)
-------- -------------------- ----------
<S> <C> <C>
Boonsville................................... 52.6 5.3
Wamsutter (DALEN)............................ 48.8 6.4
Fontenelle (DALEN)........................... 43.5 4.1
River Bend (DALEN)........................... 29.8 4.7
West Cheyenne (DALEN)........................ 10.4 2.8
Pleasant Valley (DALEN)...................... 10.2 .8
Hardeman County Area......................... 9.5 1.6
Other:
EEX......................................... 65.1 11.9
DALEN....................................... 55.4 13.2
----- ----
Total...................................... 325.3 50.8
===== ====
</TABLE>

Boonsville. EEX currently operates 260 wells with a 100% working interest and
currently controls 40,000 acres in this field located in North Central Texas.
EEX has been actively developing this field over the past 15 years. Recent
activity has proven the economic viability of down spacing the field to 80 acre
spacing. Also, EEX, in partnership with the Bureau of Economic Geology, is
using 3-D seismic data to more accurately map the Bend and Caddo conglomerates.
EEX plans to continue development drilling and has an inventory of
approximately 80 locations.

Wamsutter. EEX drilled three development wells in this field located in
southwest Wyoming in 1994, following a ten-well drilling program that commenced
in late 1992. No drilling is planned for 1995. EEX operates 27 wells with a 90%
average working interest and currently owns 9,000 acres in this field.

Fontenelle. This long-lived gas field, located in Wyoming, is largely
developed on 160-acre spacing. Offset operators have developed portions of
their productive area at 80 acres indicating the potential for future
downspacing on EEX acreage. In 1994, EEX drilled eight development wells. EEX
operates 104 wells with a 75% average working interest and currently owns
16,000 acres in this field.

River Bend. In 1994, one development well was drilled on this non-operated
Utah field, bringing the total to 169 wells. Future development is also being
evaluated for the Green River formation above the currently producing Wasatch
formation. EEX has a 37.5% average working interest in 16,000 acres in this
field.

West Cheyenne. EEX controls 5,383 acres in this Oklahoma field and has
interests in 22 wells of which it operates nine with an average working
interest of 78%. In 1993, one well was drilled to the Red Fork formation that
qualified for the federal income tax credits available for gas from tight
sands. EEX has identified an additional drilling location; however, no wells
are planned for 1995.

36
<PAGE>

Pleasant Valley. EEX controls approximately 25,000 acres and operates 49
wells with an 85% average working interest in this Utah field. In 1994, eight
wells were completed and one well was a dry hole. Five development wells are
planned for 1995. EEX has made an agreement with another operator to drill ten
wells on EEX acreage, which will allow the operator to earn one-half of EEX's
interest in those ten sections. EEX has received regulatory approval for its
Wells Draw water flood unit for the Green River formation and began injection
in January 1995. A significant increase in oil recovery is anticipated from
this water flood unit. EEX is also negotiating with another operator to
participate in one additional water flood unit and is evaluating other
opportunities.

Hardeman County Area. EEX currently operates 23 of the 45 wells in which it
has an interest in this area located in Central Texas. Production in Hardeman
County is primarily from the Chapel Dolomite, with secondary production found
in the Mississippian Limestone and stray conglomerates. The Chapel Dolomite's
high permeability and extremely active water drive allows wells to flow at the
maximum allowable rate per day. EEX is successfully utilizing 3-D seismic data
to increase its drilling success rate in the area. EEX drilled seven
successful wells in 1994 and has drilled four successful wells in 1995. EEX
has plans for an additional ten wells by year end. EEX's interest in wells in
this area varies from 50 to 100%.

Exploration in the North Central Texas and Other Region. EEX's exploration
program in the North Central Texas and Other Region is focused primarily on
Mississippian age reefs in the Hardeman Basin and Bend Arch Area, both in
Texas. EEX has extensive exploration and production experience and maintains a
production base and infrastructure in these areas.

EEX is using 3-D seismic technology to delineate smaller Mississippian age
reefs that were bypassed by earlier exploration efforts in this part of Texas,
which has long been dominated by small independents. While the reserves
targeted are relatively small (100 to 500 MBbls of oil equivalent), the
drilling success rate to date, the relatively low drilling costs and the
multiple prospects identified, justifies expenditures on large 3-D seismic
projects used to delineate the numerous, but relatively smaller features.

The use of 3-D seismic has significantly improved the drilling success rate
in both the Hardeman Basin and the Bend Arch Area. Using 2-D seismic to
identify prospects, EEX drilled approximately 120 wells between 1975 and the
late 1980's in these areas with a drilling success rate of approximately 28%.
The use of 3-D seismic has improved the drilling success rate in the Hardeman
Basin to 48% and in the Bend Arch Area to 93%.

In the Hardeman Basin, for the balance of 1995, EEX plans to drill 10
additional wells and add additional prospects to its inventory. Since 1992,
EEX has acquired over 160 square miles of 3-D seismic data in the area, a
large portion of which remains to be evaluated by drilling. EEX plans to
acquire an additional 70 square miles of 3-D seismic data in 1995 and will
continue to add to its 96,000 net leasehold acres.

In the Bend Arch Area, EEX plans to drill additional wells and also obtain
additional 3-D seismic data and acreage in 1995. EEX's land position and
seismic inventory in this area consists of 64,000 net leasehold acres and 165
square miles of 3-D seismic, of which a large portion remains to be fully
interpreted or evaluated by drilling. In 1995, EEX plans to acquire an
additional 40 square miles of 3-D seismic data in this area.

Management believes that EEX's successful history in the North Central Texas
area, its financial strength and its technological capabilities give it a
competitive advantage over its primary competition, the small, local
independents. EEX plans to continue its efforts in the Mississippian reef
plays and continue its evaluation of the shallow Palo Pinto play, also in the
Bend Arch.

Other plays of interest in the North Central Texas and Other Region are the
Delaware and Strawn Plays in Southeastern New Mexico, which are being pursued
using 2-D seismic and the Anadarko Basin in Oklahoma, where EEX has a
substantial acreage position and an extensive 2-D seismic base as a result of
the DALEN Acquisition.

37
<PAGE>

GULF COAST REGION

The Gulf Coast Region conducts exploration and development activities in the
onshore Gulf Coast areas of Texas, Louisiana, Mississippi and Alabama. EEX has
a total of 126 fields and operates fields containing 72% of its reserves in
this region.

EEX has a combination of long-lived, tight sands and high production rate
fields. EEX also has an active exploration program based on 3-D seismic that is
focused on high potential prospects.

In addition to adding 92.1 Bcfe of proved reserves to this region, the DALEN
Acquisition included the Destec fee acreage. This fee acreage is located
primarily in Louisiana and consists of approximately 60,000 gross acres.
Existing fields and the fee acreage provide many high potential exploration
prospects to EEX.

Total proved reserves in the Gulf Coast Region are 193.3 Bcfe, which
represents 10.9% of EEX's total proved reserves.

<TABLE>
<CAPTION>
PROVED RESERVES 1994
AT DECEMBER 31, 1994 PRODUCTION
PROPERTY (BCFE) (BCFE)
-------- -------------------- ----------
<S> <C> <C>
Fashing...................................... 53.0 8.3
Los Indios (DALEN)........................... 17.4 1.9
North Turtle Bayou Area (DALEN).............. 15.9 7.7
Riceville (DALEN)............................ 11.5 3.3
Provident City Area (DALEN).................. 9.0 .2
Katz (DALEN)................................. 6.0 2.2
Lake Arthur (DALEN).......................... 5.3 1.4
Guerra (DALEN)............................... 4.1 1.8
Sheridan..................................... 4.1 .8
Rancho Viejo................................. 3.4 .6
Other:
EEX........................................ 40.7 9.9
DALEN...................................... 22.9 3.7
----- ----
Total...................................... 193.3 41.8
===== ====
</TABLE>

Fashing Field. Located approximately 60 miles south of San Antonio, Texas,
the field was discovered by EEX in 1956. The areal extent of the reservoir is
approximately 7,100 acres. The field is divided into the Edwards Lime "A" and
"B" zones. There are currently 58 "A" zone completions and 22 "B" zone
completions throughout the field, of which EEX operates 43. EEX owns a 100%
working interest in the operated wells and a 47% working interest in the non-
operated wells. Net interest in the entire field is 63%. Production rates in
the field have increased almost 30% over the last few years as a result of a
successful drilling campaign. Development drilling activities, including
horizontal drilling, are currently ongoing in Fashing field.

Los Indios. EEX operates 65 wells in this South Texas field and has a 100%
working interest. Utilizing a recently completed 3-D seismic survey, an
exploratory well was drilled in 1994 to test the deeper Vicksburg formation,
which has been a prolific producing formation in several nearby fields. This
well, in which EEX has a 50% working interest, was completed in October 1994.
In 1994, three additional development wells were drilled for the shallower Frio
formation. In 1995, additional drilling is planned to develop the Vicksburg
formation discovery. EEX owns 4,893 acres in this area.

North Turtle Bayou Area. Three fields located in southeast Louisiana make up
this prolific area--North Turtle Bayou, Kent Bayou and Turtle Bayou. EEX has
interests in ten wells of which it operates five wells and has under lease
10,144 acres, with an average working interest of 92%. Production has been
established

38
<PAGE>

in six different pay zones. A 3-D seismic survey has been acquired over this
area and three development wells and one exploratory well were drilled in 1994.
Two development wells were completed as gas wells, and the one exploratory well
has been temporarily abandoned. Drilling plans for 1995 include one exploratory
well and one development well.

Riceville. In this southwest Louisiana property, EEX has two non-operated,
high rate, condensate rich gas wells producing from the Cib Op reservoir at a
depth of 13,000 feet. EEX's average working interest in this field is 33%.

Provident City Area. Four fields in the Wilcox trend of South Texas make up
this area--Allen Ranch, Provident City, North Provident City and Northeast
Provident City. EEX controls 6,580 acres and operates nine wells with an
average working interest of 91.6%. Further drilling in this area awaits
interpretation of a recently acquired 3-D seismic survey.

South Lake Arthur. EEX controls 993 acres and has an interest in six wells in
this Miogyp field in South Louisiana. Three wells are operated by EEX with a
working interest of 37.7%.

Katz. EEX has an interest in three producing Strawn waterflood units. Two
units are operated by EEX, consisting of 73 wells with an average working
interest of 55.2%. In 1993, EEX initiated a polymer flood in the Southwest
River unit and is studying expansion to adjacent units. In 1994, a fracture
stimulation program was undertaken to increase productivity from the middle
lobe of the Strawn sand. Based on the success of that program, an additional 12
stimulation candidates have been identified. EEX controls 6,627 acres in this
field.

Guerra. Producing from the Elvella member of the Wilcox series in South
Texas, EEX has 1,671 acres under lease and operates four wells with an average
working interest of 84.4% in this field. EEX has interests in an additional
nine non-operated wells in this field.

Sheridan. This field is located in Colorado County, Texas, 80 miles west of
Houston. The field was discovered by Shell in 1940. An anticlinal feature
covering 14,900 acres provides the structural trap for hydrocarbons in the
field. More than 8,000 acres are proven productive, with production primarily
from Wilcox age sandstones. The Wilcox sands range in gross thickness from
1,200 to 1,700 feet. EEX acquired additional interests in the field in 1992,
resulting in the current 22.8% working interest. There are presently 39 wells
producing from the Wilcox and Frio reservoirs. Exploration and development
activities, including a 3-D seismic survey, are underway to exploit Lower
Wilcox, Yequa and Frio reservoirs within the anticline. All of these formations
have produced hydrocarbons on this structure.

Rancho Viejo. The Rancho Viejo field, located in South Texas, was discovered
in 1982. The field lies at the southeastern downdip edge of the Lobo sand trend
in Webb County, approximately 30 miles east of Laredo. The Lobo section is a
sequence of sandstones and shales at a depth of 9,700 feet, with individual
sand units forming laterally continuous lobes varying from 10 to 50 feet in
thickness. Permeabilities within the sand are generally low but hydraulic
fracturing treatments have been effective in stimulating production. In 1993,
EEX acquired additional interest in and operational control of the field. EEX
currently owns interests in 25 wells, with a total working interest of 51.7%
and has under lease 3,291 acres.

Exploration in the Gulf Coast Region. In the Gulf Coast Region, EEX is using
computer technology to evaluate subsurface logs, seismic amplitudes, amplitude
versus offset and 3-D seismic surveys to create additional value and reduce
exploration risk when drilling for new production or acquiring additional
prospects or production. The 3-D seismic surveys are limited to areas large
enough to economically support 3-D acquisition costs. Presently, EEX has
interests in 16 3-D seismic surveys covering 310 square miles.

During 1995, activity in the Gulf Coast Region will be concentrated in the
Smackover Play in Alabama, the Planulina and Miocene Plays in South Louisiana,
the Yegua, Frio and Wilcox Trends of South Texas.

39
<PAGE>

In addition, EEX plans to exploit its interest in approximately 60,000 gross
(52,000 net) acres in South Louisiana acquired in the DALEN Acquisition. This
acreage represents fee mineral acres predominately in the Atchafalaya Basin of
South Louisiana. The majority of these fee mineral interests are currently
unleased and have had only a limited amount of 3-D seismic coverage.
Approximately 8,600 net acres are held by production with the majority of the
acreage considered prospective at this time. This asset provides EEX with the
competitive advantage of fee mineral ownership in a prospective area.

INTERNATIONAL

EEX's international activities are concentrated in areas which are intended
to broaden the utilization of its expertise in the exploitation of mature
natural gas and oil fields and to develop offshore properties utilizing its
experience in subsea completion technology and floating production technology.
EEX has concessions in Indonesia, Malaysia and Israel.

All of EEX's international reserves are in the Mudi discovery on the island
of Java in Indonesia. A plan of development will be submitted later this year
to the Indonesian government so that development and production may begin. To
date, three wells have been drilled and tested with flow rates between 1,350
and 5,024 Bbls of oil per day. A fourth well is currently being drilled. First
production is expected in 1997. EEX currently has a 25% non-operating working
interest, which will be reduced after cost recovery to 12.5% by government
participation.

Enserch India, Inc., an affiliate of EEX, has entered into a Memorandum of
Understanding with ONGC Videsh Limited, a wholly-owned subsidiary of the Oil &
Natural Gas Corporation Limited ("ONGC") of New Delhi, India, which is intended
to result in the formation of a joint venture company to explore and develop
hydrocarbon resources in India and other countries. The joint venture company
would be equally owned by EEX and ONGC.

GAS AND OIL RESERVES

Reserve volumes for EEX are estimated by D&M. The present value of proved
reserves for EEX has been determined by EEX using EEX's December 1994 weighted
average sales prices of $14.05 per Bbl for oil and $2.29 per Mcf for natural
gas. Reserve volumes and the present value of proved reserves for DALEN were
estimated by Netherland, Sewell using DALEN's December 31, 1994, weighted
average sales prices of $14.33 per Bbl for oil and $1.57 per Mcf for natural
gas.

During 1994, EEX filed Form EIA-23 with the Department of Energy reflecting
reserve estimates for the year 1993. Such reserve estimates were not materially
different from the 1993 reserve estimates reported in Note 7 to the EEX
Financial Statements included in this Prospectus.

The following table sets forth estimated net proved reserves and the present
value of proved reserves related thereto on a pro forma basis at December 31,
1994.

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- --------
<S> <C> <C> <C>
Natural gas (Bcf)............................ 961.5 409.3 1,370.8
Oil and gas liquids (MMBbls)................. 25.6 42.4 68.0
Total reserves (Bcfe)...................... 1,114.9 664.1 1,779.0
Present value of estimated future net reve-
nues (in millions).......................... $1,068.0 $353.6 $1,421.6
</TABLE>

40
<PAGE>

DRILLING ACTIVITY

Drilling activity for the years ended December 31, 1992, 1993 and 1994, is
set forth below:

<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Productive................................ 5 3.2 7 3.8 21 13.8
Dry....................................... 23 11.0 33 15.6 56 30.5
--- ---- --- ---- --- ----
Total................................... 28 14.2 40 19.4 77 44.3
=== ==== === ==== === ====
Development wells:
Productive................................ 108 47.4 131 86.6 90 63.0
Dry....................................... 15 6.3 9 4.5 15 7.5
--- ---- --- ---- --- ----
Total................................... 123 53.7 140 91.1 105 70.5
=== ==== === ==== === ====
</TABLE>

Through the first five months of 1995, EEX had completed 49 wells (31.6 net)
and at June 1, 1995, was participating in 42 wells (24.5 net) that were either
being drilled or in some stage of completion.

The number of wells drilled is not a significant measure or indicator of the
relative success or value of a drilling program because the significance of the
reserves and economic potential may vary widely for each project. It is also
important to recognize that reported completions may not necessarily correspond
to capital expenditures, since the Commission guidelines do not allow a well to
be reported as completed until it is ready for production. In the case of
offshore wells, this may be several years following initial drilling because of
the timing of construction of platforms, pipelines and other necessary
facilities.

ACQUISITION, DEVELOPMENT AND EXPLORATION EXPENDITURES

Acquisition, development and exploration expenditures for the years ended
December 31, 1993 and 1994, are set forth below:

<TABLE>
<CAPTION>
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property acquisitions:
Proved............................................... $ 9,180 $ 15,654
Unproved............................................. 17,862 43,712
Development costs...................................... 117,068 127,817
Exploration costs...................................... 50,604 88,402
-------- --------
Total................................................ $194,714 $275,585
======== ========
</TABLE>

See Note 7 to EEX's financial statements included in this Prospectus for
acquisition, development and exploration expenditures of EEX for the three
years ended December 31, 1994.

ACREAGE DATA AND PRODUCTIVE WELLS

Developed and undeveloped lease acreage as of December 31, 1994, are set
forth below:

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------- -------------------
GROSS NET GROSS NET
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic:
Offshore............................... 118,729 36,497 437,756 204,159
Onshore................................ 578,218 357,464 1,571,809 920,174
------- ------- --------- ---------
Total................................ 696,947 393,961 2,009,565 1,124,333
International............................ -- -- 932,811 229,448
------- ------- --------- ---------
Total................................ 696,947 393,961 2,942,376 1,353,781
======= ======= ========= =========
</TABLE>

41
<PAGE>

EEX plans further drilling on undeveloped acreage but at this time cannot
specify the extent of the drilling or predict how successful it will be in
establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms, under which the undeveloped acreage can be retained
by the payment of delay rentals without the establishment of gas and oil
reserves, expire as follows:

<TABLE>
<CAPTION>
UNDEVELOPED ACRES EXPIRING
-------------------------------
DOMESTIC INTERNATIONAL
--------------- ---------------
GROSS NET GROSS NET
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995......................................... 275,542 171,146 -- --
1996......................................... 445,354 259,177 547,896 136,974
1997 and later............................... 706,633 420,298 384,915 92,474
</TABLE>

Drilling rights with regard to a portion of the undeveloped acreage may be
allowed to expire before the expiration of primary terms specified in this
schedule by nonpayment of delay rentals.

At December 31, 1994, EEX owned interests in 4,554 wells, of which 3,028
(1,365 net) were natural gas and 1,526 (444 net) were oil. Of these, 249 were
completed and are producing from more than one horizon.

PRODUCTION AND SALES

Production and sales data for the years ended December 31, 1993 and 1994 are
set forth below:

<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Production data:
Natural gas (Bcf)........................................... 137.5 121.5
Oil and gas liquids (MMBbls)................................ 5.4 4.8
Total production (Bcfe)................................... 170.1 150.2
Sales (in millions):
Natural gas(1).............................................. $281.9 $249.9
Oil and gas liquids(1)...................................... 88.9 71.2
Average sales price:
Natural gas (per Mcf)(1).................................... $ 2.05 $ 2.06
Oil (per Bbl)(1)(2)......................................... 17.26 15.80
</TABLE>
- --------
(1) Reflects the net effects of price hedging activities.
(2) Excludes gas liquids.

See the financial statements of EEX included elsewhere in this Prospectus for
production and sales information for EEX for the three years ended December 31,
1994.

SALES

Enserch Gas Company ("EGC"), an ENSERCH subsidiary, provides marketing
services for substantially all of EEX's gas production, other than gas sold
under long-term contracts. Presently the majority of the gas production is sold
by EGC under short-term (90 days or less) agreements at market responsive
prices. EGC is continually in search of long-term markets that meet the price
expectations of EEX and will make such commitments with approval of Management.
In addition, EEX, through EGC, attempts to maintain a portfolio of customer
types and contract terms that maximizes value, provides dependable outlets for
EEX's production and minimizes purchaser nonperformance and credit risk. In
1994, approximately 14.0% of EEX's natural gas volumes (exclusive of DALEN's
production) was sold to Lone Star Gas Company, a division of ENSERCH, under a
fixed-price service contract. See "Risk Factors," "Relationship Between EEX and
ENSERCH," "Certain Transactions" and Note 5 to the EEX Financial Statements
included in this Prospectus.

42
<PAGE>

Oil sales contracts are for one year or less, and prices generally are based
upon field posted prices plus negotiated bonuses.

EEX utilizes futures contracts, commodity price swaps and other financial
instruments to reduce exposure of EEX's gas and oil production to price
volatility. No material exposures exist with respect to hedging activities at
this time. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Hedging Activities" and
Notes 2 and 7 to the EEX financial statements included in this Prospectus.

COMPETITION

The oil and gas industry is highly competitive in all its phases. EEX
competes in the acquisition of properties, the search for and development of
reserves, the production and sale of gas and oil, and the securing of the labor
and equipment required to conduct operations. EEX's competitors include major
gas and oil companies, other independent gas and oil concerns and individual
producers and operators. Many of these competitors have financial and other
resources that substantially exceed those available to EEX. Gas and oil
producers also compete with other industries that supply energy and fuel.

TITLE TO PROPERTIES

EEX believes that it has satisfactory title to its properties in accordance
with standards generally accepted in the oil and gas industry, subject to such
exceptions which, in the opinion of EEX, are not so material as to detract
substantially from the use or value of its properties. EEX performs extensive
title review in connection with acquisitions of proved reserves and has
obtained title opinions on substantially all of its material producing
properties. As is customary in the oil and gas industry, only a perfunctory
title examination is performed in connection with acquisition of leases
covering undeveloped properties. Generally, prior to drilling a well, a more
thorough title examination of the drill site tract is conducted and curative
work is performed with respect to significant title defects, if any, before
proceeding with operations.

ROYALTIES AND OTHER INTERESTS

EEX's gas and oil properties are subject to royalty, overriding royalty,
carried, net profits, working and other similar interests and contractual
arrangements customary in the oil and gas industry. Except as otherwise
indicated, all information presented in this Prospectus is presented net of
such interests. EEX's properties are also subject to liens for current taxes
not yet due and other encumbrances. EEX believes that such burdens do not
materially detract from the value of such properties or from the respective
interests therein or materially interfere with their use in the operation of
the business.

GOVERNMENT REGULATION

The gas and oil industry is extensively regulated by federal, state and local
authorities. Legislation affecting the gas and oil industry is under constant
review for amendment or expansion. Numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the gas and oil
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the gas and oil industry
increases its cost of doing business and, consequently affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, EEX is unable to predict the future cost or impact of complying
with such regulations.

FEDERAL INCOME TAXATION

EEX's operations are significantly affected by certain provisions of the
federal income tax laws applicable to the gas and oil industry. The principal
provisions affecting EEX are those that permit EEX, subject to certain
limitations, to deduct as incurred, rather than to capitalize and amortize, a
portion of its domestic "intangible drilling and development costs" and to
claim depletion on a portion of its domestic gas and oil

43
<PAGE>

properties based on l5% of its gas and oil gross income from such properties
(up to an aggregate of l,000 Bbls per day of domestic crude oil and/or energy
equivalent units of domestic natural gas) even though EEX may have little or no
basis in such properties. Under certain circumstances, however, a portion of
such intangible drilling and development costs and the percentage depletion
allowed in excess of basis will be tax preference items that will be taken into
account in computing the alternative minimum tax. EEX will be included in
ENSERCH's consolidated federal income tax returns. See "Relationship Between
EEX and ENSERCH--Tax Sharing Agreements."

ENVIRONMENTAL MATTERS

Gas and oil operations are subject to extensive federal and state laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") also known as the "Superfund Law," and similar
state statutes, and, with respect to federal leases, to interruption or
termination by governmental authorities on account of environmental and other
considerations. Regulations of the Department of the Interior currently impose
absolute liability upon the lessee under a federal lease for the costs of
clean-up of pollution resulting from a lessee's operations, and such lessee may
also be subject to possible legal liability for pollution damages. EEX
maintains insurance against costs of clean-up operations, but is not fully
insured against all such risks. A serious incident of pollution may result in
the Department of the Interior requiring lessees under federal leases to
suspend or cease operation in the affected area.

The Oil Pollution Act of l990 (the "OPA") and regulations thereunder impose a
variety of regulations on "responsible parties" (which includes owners and
operators of offshore facilities) related to the prevention of oil spills and
liability for damages resulting from such spills in United States waters. In
addition, it imposes ongoing requirements on responsible parties, including
proof of financial responsibility to cover at least some costs in a potential
spill. On August 25, 1993, the Mineral Management Service (the "MMS") published
an advance notice of its intention to adopt a rule under OPA that would require
owners and operators of offshore gas and oil facilities to establish $l50.0
million in financial responsibility. Under the proposed rule, financial
responsibility could be established through insurance, guaranty, indemnity,
surety bond, letter of credit, qualification as a self-insurer or a combination
thereof. There is substantial uncertainty as to whether insurance companies or
underwriters will be willing to provide coverage under OPA because the statute
provides for direct lawsuits against insurers who provide financial
responsibility coverage, and most insurers have strongly protested this
requirement. The financial tests or other criteria that will be used to judge
self-insurance are also uncertain. Recently, certain members of Congress and
industry representatives have raised substantial objections to the rules as
proposed by the MMS. Various proposals have been made to resolve the objections
of industry while satisfying environmental concerns. EEX cannot predict the
final form of the financial responsibility rule that will be adopted by the
MMS, but such rule has the potential to result in the imposition of substantial
additional annual costs on EEX or otherwise materially adversely affect EEX.
The impact of the rule, however, should not be any more adverse to EEX than it
would be to other similarly situated owners or operators in the Gulf of Mexico.

EEX has numerous applications pending before the Environmental Protection
Agency (the "EPA") for National Pollution Discharge Elimination System water
discharge permits with respect to offshore drilling and production operations.
These permits cover effluent discharges from each facility. The operations of
EEX are also subject to the Clean Air Act, as amended, and comparable state
statutes. The EPA is currently implementing regulations pursuant to the Clean
Air Act, and the states are also implementing programs. EEX may be required to
incur certain capital expenditures over the next five to ten years for air
pollution control equipment.

EEX's onshore operations are subject to numerous United States federal, state
and local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment,
including CERCLA. Such regulations, among other things, impose absolute
liability on the lessee under a lease for the cost of clean-up of pollution
resulting from a lessee's operations, subject the lessee to liability for
pollution damages, may require suspension or cessation of operations in
affected areas,

44
<PAGE>

and impose restrictions on the injection of liquids into subsurface aquifers
that may contaminate groundwater. In particular, CERCLA imposes liability,
without regard to fault on persons that are considered to have contributed to
the release of a "hazardous substance" into the environment. These persons
include the owner or operator of the disposal site or sites where the release
occurred and companies that disposed or arranged for the disposal of hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the remediation and clean-up costs and for damages to natural
resources. EEX and its former operating units have been named as potentially
responsible parties at certain Superfund sites. However, EEX does not believe
that any of these proceedings will have a material adverse effect on its
business or results of operations.

In addition, the recent trend toward stricter standards in environmental
legislation and regulation may continue. For instance, if exploration and
production wastes were to be reclassified as "hazardous wastes", it would make
such wastes subject to more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of EEX, as well as the gas and oil
industry in general. Initiatives to further regulate the disposal of gas and
oil wastes are also pending in certain states, and these initiatives could have
a similar impact on EEX.

OTHER LAWS AND REGULATIONS

Various laws and regulations require permits for drilling wells and the
maintenance of bonding requirements in order to drill or operate wells, and
also regulate the spacing and location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells
are drilled, the plugging and abandoning of wells, the prevention of waste of
gas and oil, the maintenance of certain gas/oil ratios, and other matters.
EEX's operations are also subject to various conservation requirements. These
include the regulation of the size and shape of drilling and spacing units or
proration units and the density of wells which may be drilled and the
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely on voluntary pooling of lands and leases. In addition,
state conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of natural gas and impose
certain requirements regarding the ratability of production. The effect of
these regulations is to limit the amounts of gas and oil EEX can produce from
its wells and limit the number of wells or the locations at which EEX can
drill. The effect of these laws and regulations, as well as other regulations
that could be promulgated by the jurisdictions in which EEX operates could be
to limit allowable production from EEX's properties and thereby limit its
profitability.

EEX has oil and gas leases in the Gulf of Mexico, which were granted by the
federal government and are administered by the Minerals Management Service (the
"MMS"), a federal agency. Such leases are issued through competitive bidding,
contain relatively standardized terms and require compliance with detailed MMS
regulations and orders (which are subject to change by the MMS). For offshore
operations, lessees must obtain MMS approval for exploration, development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies (such as the Coast Guard, the Army Corps
of Engineers and the EPA), lessees must obtain a permit from the MMS prior to
the commencement of drilling. The MMS has promulgated regulations requiring
offshore production facilities located on the outer continental shelf to meet
stringent engineering and construction specifications. Similarly, the MMS has
promulgated other regulations governing the plugging and abandoning of wells
located offshore and the removal of all production facilities. With respect to
any EEX operations conducted on offshore federal leases, liability may
generally be imposed under the Outer Continental Shelf Lands Act for costs of
clean-up and damages caused by pollution resulting from such operations, other
than damages caused by acts of war or the negligence of third parties. Under
certain circumstances, including but not limited to, conditions deemed to be a
threat or harm to the environment, the MMS may also require any EEX operations
on federal leases to be suspended or terminated in the affected area.

45
<PAGE>

Prior to January l, l993, various aspects of EEX's natural gas operations
were subject to regulations by the Federal Energy Regulatory Commission (the
"FERC") under the Natural Gas Act of l938 (the "NGA") and the Natural Gas
Policy Act of l978 (the "NGPA") with respect to "first sales" of natural gas,
including price controls and certificate and abandonment authority regulations.
However, as a result of the enactment of the Natural Gas Decontrol Act of l989,
the remaining "first sales" restrictions imposed by the NGA and the NGPA
terminated on January l, l993.

FERC continues to regulate generally the transportation and sale for resale
of natural gas. Commencing in late l985, the FERC has issued a series of orders
that have had a major impact on natural gas pipeline operations, services and
rates and thus have significantly altered the marketing and price of natural
gas. Order 636, issued by the FERC in April l992 ("Order 636"), requires each
pipeline company, among other things, to "unbundle" its traditional wholesale
services and create and make available on an open and nondiscriminatory basis
numerous constituent services (such as gathering services, storage services,
firm and interruptible transportation services, and stand by sales services)
and to adopt a new ratemaking methodology to determine appropriate rates for
those services. To the extent the pipeline company or its sales affiliate makes
gas sales as a merchant in the future, it will do so in direct competition with
all other sellers pursuant to private contracts; however, pipeline companies
and their affiliates are not required to remain "merchants" of gas, and some of
the interstate pipeline companies have or will become "transporters only." In
subsequent orders, the FERC largely affirmed Order 636 and denied a stay of the
implementation of the new rules pending judicial review. In addition, the FERC
has generally accepted rate filings implementing Order 636 on substantially all
interstate pipelines as of the end of l994. Order 636, as well as the FERC
orders approving the individual pipeline rate filings implementing Order 636,
are the subject of numerous appeals to the United States Court of Appeals. EEX
cannot predict whether the latest orders will be affirmed on appeal or what the
effects of any resolution will be on its business.

EMPLOYEES

Prior to the acquisition, EEX and DALEN had 373 and 241 employees,
respectively. After realizing some of the synergies of the acquisition, the
combined employee count of the two companies immediately following the
acquisition is 542. After further integration of financial and other support
staff is fully implemented, an additional reduction in the number of employees
is expected.

LEGAL PROCEEDINGS

See Note 6 to the EEX Financial Statements included in this Prospectus and
Note 9 to the DALEN Financial Statements included in this Prospectus for
information on legal proceedings. In addition, EEX is a party to lawsuits
arising in the ordinary course of its business. EEX believes, based on its
current knowledge and the advice of counsel, that all lawsuits and claims would
not have a material adverse effect on its financial condition.

46
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information concerning the directors and executive
officers of EEX:

<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
D. W. Biegler........... 48 Chairman and Director
J. T. Williams.......... 57 Vice Chairman, Chief Executive Officer and Director
Gary J. Junco........... 45 President, Chief Operating Officer and Director
Frederick S. Addy....... 63 Director
B. A. Bridgewater, Jr... 61 Director
B. K. Irani............. 44 Senior Vice President, Production and Engineering Division
R. L. Kincheloe......... 64 Senior Vice President, Offshore and International
J. P. McCormick......... 53 Senior Vice President and Chief Financial Officer
Randall B. Wilson....... 46 Vice President and General Counsel
</TABLE>

Mr. Biegler has served EEX as Chairman and Director since September 1994 and
served as Chief Executive Officer of EEX until June 1995. He began his career
in 1966 as a staff engineer with the exploration and production company of
ENSERCH that later became the managing general partner of EP and is referred to
herein as "EEH" and served in various positions with EEH until assigned to
other ENSERCH affiliates in 1978. He served Lone Star Gas Company, the utility
division of ENSERCH, as President from 1985 and as Chairman from 1989 and was
elected President and Chief Operating Officer of ENSERCH in 1991. He also began
serving as Chairman and Chief Executive Officer of EEH in 1992. In May of 1993,
he was made Chairman and President, Chief Executive Officer of ENSERCH. Mr.
Biegler is a Director of ENSERCH, Texas Commerce Bancshares National
Association and Trinity Industries, Inc.

Mr. Williams has been Vice Chairman, Chief Executive Officer and a Director
of EEX since June 1995. Mr. Williams was President and Chief Executive Officer
of DALEN from March 1989 to June 1995. Mr. Williams previously had been with
Lear Petroleum Corporation and its subsidiaries from 1983 to 1989, where he
last held the position of President, Chief Executive Officer and Chairman. From
1981 to 1983, he was with Sovran Energy Corp., a company he founded, and from
1978 to 1981, Mr. Williams served as Senior Vice President, Acquisitions, and
later President, Administrative Division, of Mitchell Energy and Development
Corp. Prior to that, Mr. Williams had been with Chevron Corporation for 18
years where he last held the position of General Manager, Operations, for
Chevron Petroleum (U.K. Ltd.).

Mr. Junco has been President, Chief Operating Officer and Director of EEX
since September 1994. He also served EEH as President, Chief Operating Officer
since January 1991 and Director since 1985 and was Senior Vice President, Land
and Marketing Division, from July 1985 to December 1990. Mr. Junco held various
positions with EEH from 1977 to July 1985.

Mr. Addy has been a Director of EEX since January 1995. He is the retired
Executive Vice President and Chief Financial Officer, and Director of Amoco
Corporation, an international integrated gas and oil company. Mr. Addy was
elected to such position with Amoco in 1990 and retired as an officer and
Director effective April 1, 1994. He is a Director of ENSERCH; Baker, Fentress
& Company; and The Pierpont Funds.

Mr. Bridgewater has been a Director of EEX since January 1995. He is
Chairman, President and Chief Executive Officer, and a Director of Brown Group,
Inc., a consumer products company with operations in footwear. He is a Director
of ENSERCH, Boatmen's Bancshares, Inc., FMC Corporation and McDonnell Douglas
Corporation.

Mr. Irani was elected Senior Vice President, Production and Engineering
Division, of EEX in June 1995. He had been Vice President, Production and
Engineering Division from September 1994 to June 1995. He also served as Vice
President, Production and Engineering of EEH since September 1988 and a Vice
President of EEH since August 1984.

47
<PAGE>

Mr. Kincheloe has been Senior Vice President, Offshore and International, of
EEX since September 1994. He also served EEH as Senior Vice President, Offshore
and International since January 1992 and was Senior Vice President, Drilling
and Production Operations, from April 1985 to January 1992.

Mr. McCormick has been Senior Vice President and Chief Financial Officer of
EEX since June 1995. Mr. McCormick served Lone Star Gas Company, a division of
ENSERCH, as a Director from July 1991 to June 1993 and as Senior Vice
President, Transmission, from February 1993 to June 1995, and Senior Vice
President, Finance, from July 1991 to February 1993. Prior to joining Lone Star
Gas Company, Mr. McCormick practiced public accounting for 26 years and was a
partner in KPMG Peat Marwick and KMG Main Hurdman and served in management
positions and as a Director in each Firm.

Mr. Wilson has been Vice President and General Counsel of EEX since June
1995. He was Vice President and General Counsel of DALEN from June 1990 to June
1995. Mr. Wilson was a partner with the law firm of Jenkens & Gilchrist, P.C.
in Dallas, Texas from 1987 to 1990. He served as Vice President, General
Counsel and Secretary of Lear Petroleum Corporation from 1984 to 1987. Mr.
Wilson was with Turner, Hitchins, Webb, Hicks & Wilson and predecessor firms
from 1974 to 1984.

There are no family relationships between any of the above officers and
directors. Directors are elected at the annual meeting of shareholders.
Officers are elected annually by the Board of Directors and may be removed by
the Board of Directors whenever, in its judgment, the best interests of EEX
will be served thereby.

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee functions include: meeting periodically with the
independent and internal auditors; reviewing annual financial statements and
the independent auditors' work and report thereon; reviewing the independent
auditors' report on internal controls and related matters; selecting and
recommending to the Board of Directors the appointment of the independent
auditors; reviewing the letter of engagement and statement of fees that pertain
to the scope of the annual audit and certain special audit and non audit work,
which may be required or suggested by the independent auditors; receiving and
reviewing information pertaining to internal audits; directing and supervising
special investigations; authorizing and reviewing certain transactions between
EEX and ENSERCH, its subsidiaries and EC Companies; and performing any other
function deemed appropriate by the Board of Directors. Mr. Bridgewater is the
Chairman and Mr. Addy is a member of the Audit Committee.

The Compensation Committee establishes, approves or recommends to the Board
of Directors, in those instances where their approval is required, the
compensation and major items related to compensation of directors and of
officers. The Committee also administers the EEX 1994 Stock Incentive Plan. Mr.
Addy is the Chairman and Mr. Bridgewater is a member of the Compensation
Committee.

DIRECTOR COMPENSATION

Directors are compensated by an annual retainer fee of $16,000 plus $1,000
for each Board or committee meeting attended, with a maximum of $1,500 if more
than one meeting is held on the same day. In addition, a $1,500 per annum fee
is paid for services on a committee of the Board of Directors, with an
additional $750 per annum paid to the chairman of a committee. Directors who
are also officers of EEX do not receive any fees.

48
<PAGE>

EXECUTIVE COMPENSATION

COMPENSATION TABLE

The following table sets forth the annual salary of the Chief Executive
Officer and the four other most highly compensated executive officers (the
"named executive officers") who devote substantially their full time to EEX.

<TABLE>
<CAPTION>
NAME SALARY TITLE
---- -------- -----
<S> <C> <C>
J. T. Williams... $400,000 Vice Chairman and Chief Executive Officer
Gary J. Junco.... 325,000 President and Chief Operating Officer
R. L. Kincheloe.. 240,000 Senior Vice President, Offshore and International
J. P. McCormick.. 195,000 Senior Vice President, Chief Financial Officer
B. K. Irani...... 210,000 Senior Vice President, Production and Engineering
</TABLE>

During 1995, Messrs. Junco and Irani received bonuses for services rendered
during 1994 of $141,883 and $51,804, respectively. Mr. McCormick and Mr.
Williams began employment with EEX in June 1995. Mr. Williams has an employment
contract with EEX for five years providing for a minimum salary as above
stated, bonus provisions and future awards of stock options and restricted
stock (or the cash value thereof).

D. W. Biegler, Chairman of EEX, is employed as Chairman, President and Chief
Executive Officer of ENSERCH and is directly paid all of his compensation by
ENSERCH. It is anticipated that in 1996, approximately $150,000 of Mr.
Biegler's compensation will be allocated from ENSERCH to EEX under a management
cost allocation arrangement. See "Certain Transactions."

THE 1994 STOCK INCENTIVE PLAN

The 1994 Stock Incentive Plan (the "Plan") provides for the issuance of stock
options ("Options") to officers and other key employees to purchase shares of
Common Stock and the award to officers of shares that are subject to vesting
based on the achievement of performance criteria ("Restricted Stock"). Under
the Plan, (a) the option price may not be less than the fair market value of
the shares on the date of grant, (b) options are exercisable in stages of 25%
after one year to 100% after four years and (c) options may not be exercised
after ten years from the date of grant.

The Plan covers a maximum of 2,000,000 shares of Common Stock, subject to
adjustment in the event of certain changes in the capital structure of EEX.
Such shares may be authorized but unissued shares or shares held in EEX's
treasury. If an Option or an award of Restricted Stock is forfeited (where the
forfeiting participant received no benefits of ownership), expires or
terminates before being exercised, the shares covered thereby will be available
for subsequent Option or Restricted Stock awards within the maximum number
stated above.

An award of Restricted Stock may be granted under the Plan, either at no cost
to the recipient or for such cost as may be required by law or otherwise as
determined by the Compensation Committee of the Board of Directors. The terms
and conditions of the Restricted Stock will be specified at the time of the
grant. Restricted Stock may not be disposed of by the recipient until the
restrictions specified in the award expire. The Compensation Committee will
determine at the time of the award what rights, if any, the person to whom an
award of Restricted Stock is made will have with respect to Restricted Stock
during the restriction period, including the right to vote the shares and the
right to receive any dividends or other distributions applicable to the shares.
Awards made during 1995 to certain named executive officers and Mr. Biegler of
EEX are:

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<PAGE>

<TABLE>
<CAPTION>
STOCK OPTIONS RESTRICTED STOCK(1)
------------- -------------------
<S> <C> <C>
D. W. Biegler............................. 15,000 10,000
J. T. Williams............................ 35,000(2) 25,000(2)
Gary J. Junco............................. 25,000 15,000
B. K. Irani............................... 10,000 0
R. L. Kincheloe........................... 4,000 0
</TABLE>
- --------
(1) Performance-based restricted shares will be earned after a three-year
performance period ending December 31, 1997 (June 30, 1998 for Mr.
Williams), based upon the three year total shareholder return of EEX
compared to the Dow Jones Oil-Secondary Index. All shares are earned if the
total is 110% of the Index, decreasing to no shares below 85% of the Index.
Shares earned at the end of a performance period remain restricted, subject
to continued employment for two additional years.
(2) Pursuant to an employment contract Mr. Williams will receive an equal or
greater grant of stock options and awards of restricted stock (or the cash
value thereof) each year during the five-year term of the employment
contract.

COMPENSATION PLANS

EEX has no compensation plans other than the Plan and a bonus plan entitled
the Performance Incentive Plan--Calendar Year 1995. However, executive officers
participate in the ENSERCH Employee Stock Purchase and Savings Plan and in the
Retirement and Death Benefit Program of ENSERCH and Participating Subsidiaries
(the "Program"), the cost of which is charged to EEX.

The following table illustrates the amount of annual compensation benefits
payable on a normal retirement basis beginning at normal retirement age to a
person in specified average salary and years-of-service classifications under
the Program, an income restoration plan, and any annuities previously purchased
in satisfaction of pension obligations.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40 45
--------------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$275,000. $ 69,452 $ 92,603 $ 115,754 $ 138,905 $ 162,056 $ 168,931 $ 175,806
350,000. 89,140 118,853 148,567 178,280 207,993 216,743 225,493
425,000. 108,827 145,103 181,379 217,655 253,931 264,556 275,181
500,000. 128,515 171,353 214,192 257,030 299,868 312,368 324,868
575,000. 148,202 197,603 247,004 296,405 345,806 360,181 374,556
650,000. 167,890 223,853 279,817 335,780 391,743 407,993 424,243
725,000. 187,577 250,103 312,629 375,155 437,681 455,806 473,931
</TABLE>
- --------
(1) Highest average covered compensation over any consecutive five year period.

Covered compensation under the Program includes base wages and annual-
performance based bonuses. The credited years of service under the Program, as
of June 1, 1995, for Messrs. Biegler, Williams, Junco, McCormick, Kincheloe,
and Irani are 26.9, 0, 18.1, 3.9, 36.7, and 20.4, years, respectively, and the
highest average covered compensation during any consecutive five-year period
for each of them is $598,296, $0, $306,009, $198,656, $229,484, and $172,618,
respectively. The normal retirement benefit is in the form of a benefit
guaranteed for ten years and life thereafter and is not subject to any
deduction for Social Security or other offset amounts.

50
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The beneficial ownership of Common Stock by certain beneficial owners and
each director, the named executive officers and all directors and executive
officers as a group (ten persons) as of June 20, 1995, is as follows:

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING(1) OFFERING(1)
-------------------------- ----------------
NAME NUMBER PERCENT NUMBER PERCENT
---- --------------- ---------- -------- -------
<S> <C> <C> <C> <C>
ENS Holdings Limited Partnership
(2)(5)......................... 53,336,434 50.5% 53,336,434 42.4%
Enserch Exploration Holdings,
Inc. (3)(5).................... 13,883,529 13.1% 13,883,529 11.0%
ENSERCH Corporation (4)(5)...... 37,630,512 35.6% 37,630,512 29.9%
D. W. Biegler................... 11,000 * 11,000 *
J. T. Williams.................. 25,000 * 25,000 *
Gary J. Junco................... 15,100 * 15,100 *
Frederick S. Addy............... 2,000 * 2,000 *
B. A. Bridgewater, Jr. ......... 1,000 * 1,000 *
J. P. McCormick................. 0 0
R. L. Kincheloe................. 0 0
B. K. Irani..................... 0 0
All directors and executive
officers as a group............ 54,100 * 54,100 *
</TABLE>
- --------
* Less than 1%

(1) The number of shares owned by directors and named executive officers
includes shares of Restricted Stock awarded under the Plan, where
applicable. The percentages shown assume no exercise of the U.S.
Underwriters' over-allotment option.

(2) ENS Holdings Limited Partnership, a Texas limited partnership, is trustee
(the "Trustee") of the ENS Holdings Trust, a Texas trust (the "Trust") of
which ENSERCH is the beneficiary. ENS Holdings I, Inc., the general partner
(the "Trustee GP") of the Trustee and ENS Holdings II, Inc., the sole
limited partner of the Trustee, are each wholly owned subsidiaries of
ENSERCH. The Trustee has voting and dispositive power with respect to the
53,336,434 shares of the outstanding Common Stock owned by the Trust and
may be deemed to beneficially own those shares. ENSERCH has the power to
revoke the Trust by giving not less than 90 days' prior notice of
revocation. Upon termination of the Trust, the assets in the Trust
(including any shares of Common Stock in the Trust at that time) would be
distributed to ENSERCH. Actions of the Trustee are effected by the Trustee
GP in its capacity as general partner of the Trustee.

(3) A wholly owned subsidiary of ENSERCH.

(4) ENSERCH has sole voting and dispositive power with respect to 37,630,512
shares of the Common Stock and, by virtue of its ownership of the
securities of EEH, the Trustee and the Trustee GP, may be deemed to share
voting and dispositive power with respect to the 67,219,963 shares of
Common Stock shown in the table as owned by EEH and the Trust. ENSERCH,
therefore, may be deemed to own beneficially, directly or indirectly,
104,850,475 shares of the Common Stock shown.

(5) The address for each party is 300 S. St. Paul, Dallas, Texas 75201.

RELATIONSHIP BETWEEN EEX AND ENSERCH

CONTROL OF EEX

After the Offering, ENSERCH will own beneficially approximately 83.4% of the
outstanding Common Stock (or 81.5% if the U.S. Underwriters exercise their
over-allotment option in full), enabling it to elect all

51
<PAGE>

directors of EEX. Through its ability to elect all directors of EEX, ENSERCH
has the ability to control all matters relating to the management of EEX, the
future issuance of Common Stock and other securities of EEX and the payment of
dividends on the Common Stock. ENSERCH also has the ability to control EEX's
drilling, development, capital, operating and acquisition expenditure plans. In
addition, ENSERCH effectively controls the outcome of all matters upon which
EEX shareholders vote. Certain of EEX's directors and officers are also
directors and/or officers of ENSERCH or its subsidiaries. There is no agreement
between ENSERCH and any other party, including EEX, that would prevent ENSERCH
from acquiring additional Common Stock.

TAX SHARING AGREEMENT

EEX is and after the Offering will continue to be included in ENSERCH's
consolidated federal income tax returns, and EEX's federal income tax liability
will therefore be included in the consolidated federal income tax liability of
ENSERCH and its subsidiaries. EEX and ENSERCH have entered into a tax-sharing
agreement with respect to EEX's share of that tax liability. Pursuant to the
agreement, EEX and ENSERCH will make payments between them generally calculated
so that the amount of taxes to be paid by EEX with respect to any period will
be determined as though EEX and its subsidiaries filed a separate consolidated
federal income tax return.

Pursuant to the agreement, ENSERCH will be the sole and exclusive agent for
EEX in any and all matters relating to the income tax liability of EEX and its
subsidiaries, will have sole and exclusive responsibility for the preparation
and filing of consolidated federal income tax returns for the consolidated
group, and will have the power, in its sole discretion, to contest or
compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on behalf of EEX and its subsidiaries.

Each member of an affiliated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of its affiliated group. Accordingly, each of EEX and its subsidiaries will
have joint and several liability for the federal income tax liability of the
ENSERCH affiliated group, including that attributable to ENSERCH.

CONFLICTS OF INTEREST

As a result of ENSERCH's control of EEX and the other subsidiaries of
ENSERCH, certain conflicts of interest arise in relations between EEX and the
ENSERCH Companies, including conflicts with respect to the issuance of Common
Stock and other voting securities of EEX, the election of directors of EEX, the
payment of dividends by EEX and various transactions between ENSERCH Companies
and EEX.

EEX and ENSERCH Companies have in the past entered into significant
transactions and agreements incident to their respective businesses. Such
transactions and agreements have related to, among other things, the purchase
and sale of natural gas, the financing of acquisition, development and sales
activities of EEX and the provision of certain corporate services. See "Certain
Transactions" and Note 5 of the EEX Financial Statements in this Prospectus.
The terms of previous transactions between EEX and the ENSERCH Companies were
not established on an arm's-length basis and involved conflicts of interest.
Nonetheless, EEX believes that these transactions were on terms at least as
favorable to EEX as could have been obtained from unaffiliated third parties.
It is anticipated that ENSERCH Companies and EEX will enter into material
transactions and agreements from time to time in the future. EEX intends that
the terms of any future transactions and agreements between EEX and ENSERCH
Companies will be at least as favorable to EEX as could be obtained from
unaffiliated third parties.

In addition, a number of specific types of transactions and relationships
between EEX and any ENSERCH Company (including entities in which ENSERCH has a
direct or indirect interest) are contemplated and permitted by Article Eleven
of the Restated Articles of Incorporation of EEX, including the following:

. Any ENSERCH Company may lend funds to EEX at interest rates not greater
than the lesser of the ENSERCH Company's actual average interest cost of
the funds or the rate that EEX would be

52
<PAGE>

charged by unrelated lenders on comparable loans. EEX may lend funds to
ENSERCH Companies at rates not less than would be charged by unrelated
lenders on comparable loans.

. ENSERCH Companies may sell gas, oil, goods and services to, and may
purchase gas, oil, goods and services from, EEX on terms comparable to
those effected with unaffiliated persons.

Transactions on terms at variance with the terms above, and transactions not
specifically provided for in these and other provisions of Article Eleven,
including transactions that have not previously been determined to be fair, may
occur if authorized or ratified by a majority of EEX shareholders or a majority
of the EEX Board of Directors or a Board committee. ENSERCH controls a majority
of the shares of EEX. In determining whether a majority vote of the EEX Board
or a Board committee has been achieved, the vote of a director of ENSERCH who
is also a director of EEX may be counted toward the authorization or
ratification.

THE REORGANIZATION

EEX's gas and oil operations represent the gas and oil exploration and
production business of ENSERCH. From 1985 through December 30, 1994, this
business was conducted primarily through EP, a limited partnership in which a
minority interest (less than 1%) was held by the public. At year-end 1994,
pursuant to a plan for the reorganization of EP, EEX, acquired through a series
of transactions, all of the operating properties of EP's 99%-owned operating
partnership in exchange for shares of Common Stock. On December 30, 1994, the
Reorganization was consummated, EP was liquidated, and the Common Stock held by
EP was distributed to EP's limited and general partners in accordance with
their partnership interests.

In connection with the Reorganization, EEH (which was, prior to the
Reorganization, named Enserch Exploration, Inc. and the Managing General
Partner of EP) received EP's interests in and assumed EP's obligations under
certain equipment lease arrangements relative to the Garden Banks project and
the Mississippi Canyon project, with the equipment being simultaneously
subleased to EEX. ENSERCH Companies also assumed approximately $395 million
principal amount of EP's indebtedness, plus accrued interest. Upon the
liquidation of EP and distribution of Common Stock, public unitholders of EP
received 805,914 shares (.77%) of Common Stock, and ENSERCH Companies received
103,775,328 shares (99.23%) of EEX's 104,581,242 shares then outstanding.

In 1995, EEX acquired the international gas and oil properties of ENSERCH in
exchange for 1,075,147 shares of Common Stock and acquired the SACROC Unit,
Kelly Field, Scurry County, Texas properties ("SACROC") from ENSERCH for
approximately $1.65 million in cash. See "Certain Transactions."

As used in this Prospectus, the "Reorganization" means the series of
transactions by which EEX acquired all of the operating properties of EP's 99%-
owned operating partnership and the acquisition by EEX of the international gas
and oil properties and the SACROC properties of ENSERCH.

The financial information of EEX for periods prior to December 31, 1994, is
derived from the adjusted financial statements of EP and the operating results
of the ENSERCH international properties and SACROC. The statement of income of
EEX includes EP data adjusted to reflect (a) the assumption by ENSERCH
Companies of $395 million of EP's debt, (b) the .6% general partner interest in
EP's operating partnership previously not included in EP's operating results,
(c) the changes in lease terms, (d) the allocation to EEX of costs incurred by
ENSERCH for the provision of certain services to EEX and (e) a provision for
corporate income taxes that were not payable by EP as a partnership. See
"Certain Transactions" and the EEX financial statements included in this
Prospectus.

53
<PAGE>

CERTAIN TRANSACTIONS

The equipment and facilities used in developing and producing reserves in the
Mississippi Canyon project and the Garden Banks project were financed under
lease agreements between certain financial institutions and EPO that were
guaranteed by ENSERCH. In connection with the Reorganization, all rights and
obligations under the leases were assigned to and assumed by EEH, with EEX
entering into sublease arrangements with EEH for such equipment and facilities.
The Mississippi Canyon sublease has a term of five years, with EEX having an
option to purchase the subleased equipment at the end of the term. The Garden
Banks equipment is subleased under two subleases: one covers the floating
production facility, which has a term of 20 years, and the other covers the
subsea equipment, pipelines and the shallow-water production facility, which
has an initial term of 12 years. For additional information concerning the
subleases, see Note 6 to the EEX financial statements included in this
Prospectus.

In March 1995, EEX purchased ENSERCH's interest in SACROC, which represented
ENSERCH's only other domestic gas and oil property. The purchase price of
approximately $1.65 million included $1.25 million for the fair market value of
the properties, as estimated by D&M, and approximately $.40 million for the net
book value of related assets acquired and liabilities assumed.

In June 1995, EEX acquired all of the international gas and oil operations of
ENSERCH for 1,075,147 shares of Common Stock, subject to adjustment. The shares
represent a purchase price of approximately $12.6 million, including $10
million for the fair market value of the properties, as estimated by D&M, and
$2.6 million for the net book value of the other assets acquired and
liabilities assumed. The final number of shares to be issued to ENSERCH will be
determined by dividing the purchase price by the net proceeds per share
received by EEX for the Common Stock in the Offering, as shown on the cover
page of this Prospectus.

EEX and ENSERCH have entered into a letter agreement dated effective as of
January 1, 1995, to formalize borrowing arrangements between EEX and ENSERCH.
Funds may be drawn under the terms of the letter agreement until March 31,
1999, pursuant to certain limitations. The agreement provides for automatic one
year extensions beginning March 31, 1998, unless a cancellation notice has been
given by one of the parties. The aggregate amount of borrowing is limited to
$100 million outstanding at any time between May 1, 1995, and the date EEX
concludes a public offering of Common Stock and $50 million thereafter.
Beginning May 1, 1995, EEX pays interest on the daily net balance of loans from
ENSERCH at a per annum rate equal to the average rate of all loans EEX has
outstanding under its bank facilities or if no such loans are outstanding the
current one month LIBOR rate plus the spread specified in EEX's bank
facilities. If the rate payable by EEX exceeds the rate specified by the
formula in EEX's Restated Articles of Incorporation, the rate calculated
pursuant to the Restated Articles of Incorporation will be charged. See
"Relationship Between EEX and ENSERCH." ENSERCH pays interest on loans from EEX
at the rate it would have to pay on one month commercial paper as of the first
day of the month in which the borrowing is outstanding. For each entity, the
interest rate on any overdue amounts is the applicable interest rate plus 2%
per annum.

ENSERCH charges EEX for the general and administrative staff costs incurred
by ENSERCH in performing accounting, treasury, internal audit, income tax
planning and compliance, legal, information systems, human resources and other
functions for EEX. Costs are determined on a basis reasonably calculated to
reflect the actual costs of the services performed for EEX and may include
allocations based on such factors as net capital employed, the number of
employees or the percentage of time spent on projects or services. See Note 5
to the EEX Financial Statements included in this Prospectus.

For a discussion of other transactions between EEX and its affiliates, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Major Customers", "Relationship Between EEX and
ENSERCH" and Note 5 to the EEX Financial Statements included in this
Prospectus. EEX believes that all of the transactions described above were on
terms at least as favorable to EEX as could have been obtained from
unaffiliated third parties.

54
<PAGE>

DESCRIPTION OF THE CAPITAL STOCK

The following description of the capital stock does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the more complete statements thereof set forth in EEX's Restated Articles of
Incorporation and its Bylaws. EEX is currently authorized by its Restated
Articles of Incorporation to issue 200,000,000 shares of Common Stock, par
value $1.00 per share, and 2,000,000 shares of Preferred Stock, of no par
value.

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock that may be
outstanding from time to time and except as otherwise provided by law, holders
of Common Stock are entitled to receive such dividends as are declared by the
Board of Directors from any funds legally available therefor, to one vote for
each share on all matters voted upon by shareholders, including election of
directors (cumulative voting being prohibited), and to share ratably in assets
available for distribution upon any liquidation. Holders of Common Stock have
no preemptive rights and are not subject to any further call or assessment and
the Common Stock is not subject to redemption.

Generally, holders of the Common Stock are entitled to elect all members of
the Board of Directors and vote upon all corporate matters put to shareholder
vote. However, any Preferred Stock that may be issued in the future may have
voting rights. Cumulative voting is prohibited by EEX's Restated Articles of
Incorporation.

The Common Stock is listed on the New York Stock Exchange under the symbol
"EEX."

The Transfer Agent and Registrar of the Common Stock is Harris Trust Company
of New York, New York.

PREFERRED STOCK

There are no shares of Preferred Stock currently outstanding. Preferred Stock
may be issued in one or more series as the Board of Directors may from time to
time determine. The Common Stock will be subject and subordinate to the rights
(including voting rights), privileges and preferences of any series of
Preferred Stock to the extent set forth in the resolutions adopted by the Board
of Directors establishing such series. The Board of Directors may establish
series of Preferred Stock by fixing and determining the designations,
preferences, limitations and relative rights of the shares of the series,
subject to and within the limitations of the Texas Business Corporation Act and
the Restated Articles of Incorporation.

STOCK OWNERSHIP RESTRICTIONS

The Mineral Lands Leasing Act of 1920, as amended, provides that citizens of
another country, the laws, customs or regulations of which deny similar or like
privileges to citizens or corporations of the United States, shall not by stock
ownership, stock holding or stock control, own any interest in any gas, oil or
other lease acquired thereunder. EEX is not aware of any country to which this
restriction would be applicable. Nevertheless, the Bylaws of EEX contain
provisions that restrict transfers of EEX capital stock to, and suspend voting,
dividend and distribution rights of, any persons who would cause EEX to be
disqualified under any applicable federal or state law from owning or leasing
interests in lands or leases or otherwise conducting its business.

55
<PAGE>

CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a discussion of the principal United States federal income
and estate tax consequences of the ownership and disposition of the Common
Stock applicable to Non-United States Holders of such Common Stock. For the
purpose of this discussion, a "Non-United States Holder" is a person other than
(i) an individual who is a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the law of the United States or any state or (iii) an estate or trust, the
income of which is includable in gross income for United States federal income
tax purposes regardless of its source. This discussion does not deal with all
aspects of United States federal income and estate taxation and does not deal
with foreign, state and local tax consequences that may be relevant to Non-
United States Holders in light of their particular circumstances. Furthermore,
the following discussion is based on current provisions of the Internal Revenue
Code of 1986 (the "Code") and administrative and judicial interpretations as of
the date hereof, all of which may be changed either retroactively or
prospectively.

Prospective foreign investors are urged to consult their tax advisors
regarding the United States federal, state and local, and Non-United States,
income and other tax consequences of owning and disposing of the Common Stock.

DIVIDENDS

Generally, any dividend paid to a Non-United States Holder of the Common
Stock will be subject to United States income tax which is collected through
withholding at a rate of 30% of the gross amount of the dividend or lesser
applicable income tax treaty rate. Dividends received by a Non-United States
Holder that are effectively connected with a United States trade or business
conducted by such holder are subject to tax at ordinary federal income tax
rates, and will be exempt from the withholding tax if the Non-United States
Holder files Internal Revenue Service Form 4224 with the payor. A non-United
States corporation receiving such effectively connected dividends may also be
subject to an additional "branch profits tax" which is imposed, under certain
circumstances, at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) of the Non-United States corporation's effectively connected
earnings and profits, subject to certain adjustments.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country absent knowledge of the status of the shareholder to the contrary for
purposes of the withholding discussed above. However, under proposed United
States Treasury regulations not currently in effect, a Non-United States Holder
of Common Stock who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.

Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding at the rate of 31% if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payor.

DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the disposition of his Common
Stock unless (i) such gain is effectively connected with a United States trade
or business of the Non-United States Holder, (ii) in the case of a non-
corporate Non-United States Holder, such holder is present in the United States
for a period or periods aggregating 183 days or more during the taxable year in
which such disposition occurs, or (iii) subject to the exception discussed
below, EEX is or has been a "United States real property holding corporation"
within the meaning of section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such holder's
holding period.

56
<PAGE>

EEX believes it currently is and may remain a U.S. real property holding
corporation. However, gain realized on a disposition of Common Stock by a Non-
U.S. Holder that is not deemed to own more than five percent of the Common
Stock during such period will not be subject to U.S. federal income tax except
as provided in the following paragraph.

The preceding discussion with respect to the tax consequences to a Non-U.S.
Holder where the Company is a U.S. real property holding corporation assumes
that the Common Stock is and always will be listed on the New York Stock
Exchange and hence will be "regularly traded" on an established securities
market (within the meaning of section 897(c)(3) of the Code) located in the
United States at the time of disposition. However, it may be possible to
interpret the Temporary U.S. Treasury regulations that define "regularly
traded" for this purpose as providing that the Common Stock will not be
"regularly traded" for any calendar quarter during which 100 or fewer persons
(treating related persons as one person) in the aggregate own 50% or more of
the Common Stock. Because the ENSERCH Companies currently own and may continue
to own at least 50% of the Common Stock, in the event that this interpretation
is determined to be correct, a Non-U.S. Holder (without regard to its ownership
percentage of Common Stock) may be subject to U.S. federal income tax with
respect to gain realized on any sale or other disposition of Common Stock as
well as to withholding tax (generally at a rate of 10% of the cash proceeds).
Any amount withheld pursuant to such withholding tax will be creditable against
such holder's U.S. federal income tax liability.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Under Treasury regulations, EEX must report annually to the IRS the amount of
dividends paid to each Non-United States Holder, the name and address of the
recipient and the federal income tax, if any, withheld with respect to such
dividends. A similar report is sent to the holder. Such information may be made
available by the IRS to the tax authorities in a foreign country under the
provisions of an applicable tax treaty or information exchange agreement.

Payments of dividends to a Non-United States Holder at an address outside the
United States will generally not be subject to backup withholding. The payment
of the proceeds of the disposition of Common Stock to or through the United
States office of a broker may be subject to information reporting and backup
withholding at a rate of 31% unless the owner certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a Non-United States Holder of
Common Stock to or through a foreign office of a broker generally will not be
subject to backup withholding. However, information reporting will apply to
such payments of proceeds to or through a foreign office of a broker that is a
United States person or a United States-related person unless such broker has
documentary evidence in its files of the owner's Non-United States status or
the owner otherwise establishes an exemption.

Amounts withheld under the backup withholding rules do not constitute a
separate United States federal income tax. Rather, such amounts withheld from a
payment to a Non-United States Holder will be allowed as a credit against such
Non-United States Holder's federal income tax liability and any amounts
withheld in excess of such federal income tax liability may be refunded to such
Non-United States Holder.

ESTATE TAX

Common Stock owned, or treated as owned, by an individual who is a Non-United
States Holder at the time of his death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.

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<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc., Dean Witter Reynolds Inc., Howard, Weil, Labouisse,
Friedrichs, Inc. and Smith Barney Inc. are serving as U.S. Representatives,
have severally agreed to purchase, and EEX has agreed to sell to them, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, Howard, Weil, Labouisse, Friedrichs, Inc., Smith Barney
Inc., UBS Limited and S.G. Warburg Securities Ltd. are serving as International
Representatives, have severally agreed to purchase, and EEX has agreed to sell
to them, the respective number of shares of Common Stock set forth opposite the
names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Bear, Stearns & Co. Inc.......................................
Dean Witter Reynolds Inc......................................
Howard, Weil, Labouisse, Friedrichs, Inc......................
Smith Barney Inc..............................................
----------
Subtotal....................................................
----------
International Underwriters:
Morgan Stanley & Co. International Limited....................
Howard, Weil, Labouisse, Friedrichs, Inc......................
Smith Barney Inc..............................................
UBS Limited...................................................
S.G. Warburg Securities Ltd...................................
----------
Subtotal....................................................
----------
Total.....................................................
==========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Common Stock offered hereby (other
than those shares covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined

58
<PAGE>

below) for the account of anyone other than a United States or Canadian Person
(as defined below) and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any U.S. Shares or distribute any prospectus
relating to the U.S. Shares outside the United States or Canada or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. and International Underwriters, each International Underwriter has
represented and agreed that, with certain exceptions, (x) it is not purchasing
any International Shares (as defined below) for the account of any United
States or Canadian Person and (y) it has not offered or sold, and will not
offer or sell, directly or indirectly, any International Shares or distribute
any prospectus relating to the International Shares within the United States or
Canada or to any United States or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of
the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside the United States and Canada of any United States or Canadian Person)
and includes any United States or Canadian branch of a person who is otherwise
not a United States or Canadian Person. All shares of Common Stock to be
purchased by the U.S. Underwriters and the International Underwriters under the
Underwriting Agreement are referred to herein as the U.S. Shares and the
International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the price to public set forth on the cover page herein,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof in which such offer or sale is made and, without
limiting the quality of the foregoing, has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance
that, by purchasing such shares of Common Stock, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such shares of Common Stock in Canada or to, or for the
benefit of, any resident of Canada in contravention of the securities laws of
Canada or any province or territory thereof in which such offer or sale is made
and, without limiting the quality of the foregoing, that any offer of shares of
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares of Common Stock a notice to the foregoing
effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it (a) has not
offered or sold and will not offer or sell any shares of Common Stock in the
United Kingdom by means of any document (other than in circumstances which do
not constitute an offer to the public within the meaning of the Companies Act
(1985)), (b) has complied and will comply with all applicable provisions of the
Financial Services Act (1986) with respect to anything done by it in relation
to the shares of Common Stock offered hereby in, from or otherwise involving
the United Kingdom, and (c) has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock, other than any
document which consists of, or is part of, listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by listing rules under Part IV of the Financial Services Act (1986), if that
person is of a kind described in Article 9(3) of the Financial Services Act
(1986) (Investment Advertisements) (Exemptions) Order 1988, or to any person to
whom the document may lawfully be issued or passed on.

59
<PAGE>

The Underwriters initially propose to offer part of the Common Stock directly
to the public at the price to public set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess
of $ a share under the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain dealers. After the initial offering of the
Common Stock, the offering price and other selling terms may be varied from
time to time by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable at any time for 30 days from the date of
the Underwriting Agreement, to purchase up to 3,000,000 additional shares of
Common Stock at the price to public set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
offered by the U.S. Underwriters hereby.

EEX has agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated, it will not (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
(b) enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of the Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of such Common Stock or such other securities, in cash or otherwise,
for a period of 180 days after the date of this Prospectus, other than (i) the
shares of Common Stock offered hereby, or (ii) any shares of Common Stock
issued or sold by EEX pursuant to stock plans of EEX or ENSERCH existing at the
closing of the Offering. In addition, the ENSERCH Companies, which hold
substantially all of the outstanding Common Stock, have agreed, subject to
certain limited exceptions, not to (a) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
(b) enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of the Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated.

EEX has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to the Offering, less than 900,000 shares of Common Stock have been
held by persons unaffiliated with EEX or ENSERCH and only a limited number of
shares have traded publicly. Therefore, although the Common Stock is listed and
traded on the NYSE, its current market price is not considered dispositive in
determining the price of the Common Stock in the Offering. The Offering price
will be determined by negotiations between EEX and the Representatives. Among
the factors to be considered in such negotiations are the sales, earnings and
certain other financial and operating information of EEX in recent periods, the
future prospects of EEX and its industry in general, certain ratios, market
prices of securities and financial and operating information of companies
engaged in activities similar to those of EEX and the general condition of the
securities markets. For certain recent market prices of the Common Stock, see
"Market Price of Common Stock and Dividend Policy."

60
<PAGE>

LEGAL MATTERS

The validity of the issuance of the Common Stock will be passed upon for EEX
by Jackson & Walker, L.L.P., Dallas, Texas. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The consolidated balance sheet of EEX as of December 31, 1994, and the
related statements of operations, cash flows and changes in partners' capital
and common shareholders' equity of EEX and its predecessor for each of the
three years in the period ended December 31, 1994, included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.

With respect to the unaudited interim financial information of EEX for the
period ended March 31, 1995, which is included in this Prospectus, Deloitte &
Touche LLP have applied limited procedures in accordance with professional
standards for a review of such information. However, as stated in their report
included in this Prospectus, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the
Securities Act.

The audited consolidated financial statements of DALEN and its subsidiaries
included in this Prospectus, to the extent and for the period indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report. Reference is made to said
report, which includes an explanatory paragraph with respect to the change in
method of accounting for income taxes as of January 1, 1993, as discussed in
Note 2 to the DALEN Financial Statements included in this Prospectus.

The estimates of the proved reserves of gas and oil of EEX made by DeGolyer
and MacNaughton, independent petroleum consultants, have been included herein
in reliance upon such estimates given upon such firm's authority as experts
with respect to the matters contained therein.

Information relating to the estimated proved reserves of gas and oil of
DALEN and the related estimates of future net cash flows and present values
thereof for certain periods included herein and in the Notes to the DALEN
Financial Statements included in this Prospectus have been audited by
Netherland, Sewell & Associates, Inc., independent petroleum engineers, and
are included herein and incorporated by reference herein in reliance upon the
authority of such firm as an expert in petroleum engineering.

61
<PAGE>

CERTAIN DEFINITIONS

Amplitude Anomalies--A change in seismic reflection signal strength of a
specific geologic layer, especially if attributable to an accumulation of
hydrocarbons, sometimes called "bright spots".

Areal--Pertaining to area.

Barrel or Bbl--The unit of volume measurement used for petroleum products. One
barrel = 42 U.S. gallons.

MBbls: thousand barrels
MMBbls: million barrels

Basin--A synclinal structure in the subsurface, once the bed of a prehistoric
sea. Regarded as a good prospect for gas and oil exploration.

Behind Pipe--Oil and gas reservoirs penetrated by wells but not perforated
which therefore remain behind the pipe.

Block--Numerical designation of a specific location in an offshore area, or, an
onshore acreage "block".

Btu--British thermal unit, the quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.

MMBtu: million Btus

Condensate--A hydrocarbon mixture that becomes liquid and separates from
natural gas when the gas is produced; similar to crude oil.

Confirmation well--A well drilled to validate an initial discovery.

Cubic Foot--The amount of natural gas that occupies one cubic foot under
standard temperature and pressure conditions; standard volume measurement
for natural gas.

Mcf: thousand cubic feet
MMcf: million cubic feet
Bcf: billion cubic feet
Tcf: trillion cubic feet

Cubic Foot of Natural Gas Equivalent--The amount of oil, condensate or natural
gas liquids necessary to equal an amount of natural gas based on a
conversion ratio of one Bbl of oil, condensate or natural gas liquids to six
Mcf of gas.

Mcfe: thousand cubic feet of natural gas equivalent
MMcfe: million cubic feet of natural gas equivalent
Bcfe: billion cubic feet of natural gas equivalent
Tcfe: trillion cubic feet of natural gas equivalent

Development Drilling--The drilling-related activities to recover gas and oil
after initial discovery.

Development Well--A well drilled into a reservoir of gas or oil that contains
proved reserves.

Exploitation--The development of an existing producing area in order to
increase production, usually characterized by the drilling of infill
development wells and the reworking of old wells.

Exploratory Well--A well drilled into a previously untested geologic structure
or formation to determine the presence of gas or oil.

62
<PAGE>

Gross Acres/Gross Wells--Total acreage or total wells in which a company holds
varying interests.

Leasehold--Property or acreage offered under contract for the exploration and
production of gas, oil or other minerals.

NGL--Natural gas liquids.

Net Acres/Net Wells--Proportionate company interest in gross acres or gross
wells.

Operator--The individual or company responsible for the exploration and
production of a gas or oil well or lease. The operator typically holds the
largest working interest in the well or lease.

Overriding Royalty Interest--A royalty interest created from the working
interest which entitles the holder to a specific fractional share of gross
gas or oil production.

Proved Reserves--Reserves which can be estimated with reasonable certainty to
be recoverable under current economic conditions.

Proved Developed/Undeveloped Reserves--Proved reserves which are expected to be
recovered from existing wells (including reserves behind pipe).

Production--The phase of the petroleum industry that deals with bringing the
gas and well fluids to the surface, separating them and storing, gauging and
otherwise preparing the product for the pipeline. Also, the amount of gas or
oil produced in a given period.

Productive Wells--Either producing wells or wells capable of commercial
production, although currently shut-in.

Recompletion--A workover in which a previously productive formation or interval
is abandoned and a different interval is completed for production.

Reserves--Amount of gas or oil believed to be economically recoverable under
existing conditions.

Royalty--Mineral owner's share of the gross gas or oil production on his
property.

Spudded--The beginning of the actual drilling of a well, which involves using a
spudding bit to drill down several hundred feet to accommodate the surface
pipe.

Standardized Measure of Discounted Future Net Cash Flows After Tax--Net present
value of the estimated future revenue stream from proved gas and oil
reserves using current period prices plus contractual escalations, less
future costs to develop and produce the reserves, discounted at the
prescribed 10% rate and adjusted for income-tax effects.

3-D Seismic--Three-dimensional, computer-aided imaging of underground
formations based on acoustical data.

2-D Seismic--Two-dimensional, computer-aided imaging of underground formations
based on acoustical data.

Working Interest--Represents a share of the ownership in drilling and
production of gas and oil.

Workover--One or more of a variety of remedial operations on a producing well
to restore or increase production by reconditioning or stimulating the
reservoir or by a recompletion.

63
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enserch Exploration, Inc.:
As of or for the Three Years Ended December 31, 1994:
Unaudited Statements of Income -- Adjusted for the Reorganization ...... F-2
Unaudited Statements of Cash Flows -- Adjusted for the Reorganization... F-3
Notes to Unaudited Statements of Income and Cash Flows.................. F-4
Independent Auditors' Report............................................ F-5
Consolidated Balance Sheet as of December 31, 1994...................... F-6
Statements of Changes in Partners' Capital and Common Shareholders'
Equity................................................................. F-7
Statements of Operations of Predecessor................................. F-8
Statements of Cash Flows of Predecessor................................. F-9
Notes to Financial Statements........................................... F-10
Enserch Exploration, Inc. (Unaudited):
Independent Accountants' Report......................................... F-20
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1995 and 1994................................................ F-21
Condensed Statement of Cash Flows for the Three Months Ended March 31,
1995 and 1994.......................................................... F-22
Condensed Consolidated Balance Sheets as of March 31, 1995 and December
31, 1994............................................................... F-23
Notes to Condensed Consolidated Financial Statements.................... F-24
DALEN Corporation:
As of or for the Three Years Ended December 31, 1994:
Report of Independent Public Accountants................................ F-25
Consolidated Statements of Operations................................... F-26
Consolidated Balance Sheets............................................. F-27
Consolidated Statements of Stockholder's Equity......................... F-28
Consolidated Statements of Cash Flows................................... F-29
Notes to Consolidated Financial Statements.............................. F-30
DALEN Corporation (Unaudited):
Consolidated Statements of Operations for the Three Months Ended March
31, 1995 and 1994...................................................... F-39
Consolidated Balance Sheets as of March 31, 1995 and December 31, 1994.. F-40
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1995 and 1994...................................................... F-41
Notes to Financial Statements........................................... F-42
</TABLE>

F-1
<PAGE>

ENSERCH EXPLORATION, INC.

UNAUDITED STATEMENTS OF INCOME--ADJUSTED FOR THE REORGANIZATION

The unaudited statements of income and cash flows of EEX, adjusted for the
Reorganization, are presented based on the historical results of operations and
cash flows of EP (after certain eliminations and adjustments, including a pro
forma provision for income taxes) combined with the results of operations and
cash flows of the properties acquired from ENSERCH in 1995. See "The
Reorganization," "Certain Transactions" and "Business--Recent Developments."
These statements should be read in conjunction with the historical statements
of operations and cash flows of EP.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Natural gas..................... $ 144,550 $ 146,355 $ 118,639
Oil and condensate.............. 30,880 36,863 45,064
Natural gas liquids............. 2,377 4,148 6,554
Other........................... 1,333 2,430 1,287
------------- ------------- -------------
Total......................... 179,140 189,796 171,544
------------- ------------- -------------
Costs and Expenses
Production and operating........ 30,963 28,960 29,392
Exploration..................... 9,136 8,668 11,163
Depreciation and amortization... 80,308 79,105 76,742
(Sale) write-down of inactive
pipeline....................... (7,551) -- 16,500
Writeoff of unsuccessful foreign
exploration costs.............. -- 10,191 --
General, administrative and
other.......................... 20,022 31,035 23,950
Taxes, other than income........ 13,518 16,216 15,983
------------- ------------- -------------
Total......................... 146,396 174,175 173,730
------------- ------------- -------------
Operating Income (Loss)........... 32,744 15,621 (2,186)
Other Income (Expense)-Net........ (314) -- (6)
Interest Income................... 7,239 7,884 5,946
Interest Expense.................. -- (8,204) (119)
------------- ------------- -------------
Income Before Income Taxes........ 39,669 15,301 3,635
Income Taxes...................... 13,861 7,046 995
------------- ------------- -------------
Net Income........................ $ 25,808 $ 8,255 $ 2,640
============= ============= =============
Net Income Per Share of Common
Stock............................ $ .24 $ .08 $ .02
============= ============= =============
Weighted Average Common Shares
Outstanding...................... 105,656 105,656 105,656
============= ============= =============
</TABLE>

See Note to Unaudited Statements of Income and Cash Flows.

F-2
<PAGE>

ENSERCH EXPLORATION, INC.

UNAUDITED STATEMENTS OF CASH FLOWS--ADJUSTED FOR THE REORGANIZATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income................................... $ 25,808 $ 8,255 $ 2,640
Depreciation and amortization................ 80,308 79,105 76,742
Writeoff of unsuccessful foreign exploration
costs....................................... -- 10,191 --
Deferred income tax expense (benefit)........ 15,127 393 (8,749)
(Sale) write-down of inactive pipeline....... (7,551) -- 16,500
Other........................................ (10,332) 8,994 (9,659)
Changes in current operating assets and
liabilities................................. (12,689) (4,626) 20,968
--------- --------- --------
Net cash flows from operating activities... 90,671 102,312 98,442
--------- --------- --------
Investing Activities
Additions of property, plant and equipment... (132,590) (118,759) (64,831)
Retirements of property, plant and equipment. 13,051 (598) 9,532
Other........................................ 10,755 (9,726) (3,403)
--------- --------- --------
Net cash flows used for investing
activities................................ (108,784) (129,083) (58,702)
--------- --------- --------
Financing Activities
Change in temporary advances with ENSERCH
Companies................................... 50,500 12,555 (56,531)
(Decrease) increase in advances under leasing
arrangements--net........................... (32,771) 13,588 17,652
Other........................................ 275 -- --
--------- --------- --------
Net cash flows from (used for) financing
activities................................ 18,004 26,143 (38,879)
--------- --------- --------
Net (Decrease) Increase in Cash................ $ (109) $ (628) $ 861
========= ========= ========
</TABLE>

See Note to Unaudited Statements of Income and Cash Flows.

F-3
<PAGE>

ENSERCH EXPLORATION, INC.

NOTE TO UNAUDITED STATEMENTS OF INCOME AND CASH FLOWS

The following table reconciles net income (loss) of EP to net income of EEX
adjusted for the Reorganization. The unaudited statements of cash flows include
the cash flow effects of these adjustments.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) reported by EP.................. $11,966 $ (3,881) $(20,265)
Add 1% minority interest in EPO (1):
Revenues........................................ 1,768 1,869 1,676
Cost and expenses............................... 1,433 1,597 1,671
------- -------- --------
Operating income adjustment..................... 335 272 5
Other income (expense)-net...................... (3) (56) 5
Interest income-net............................. 57 -- --
Add international and SACROC operations(2):
Revenues........................................ 2,270 2,935 3,960
Cost and expenses............................... 3,412 14,408 5,081
------- -------- --------
Operating income (loss) adjustment.............. (1,142) (11,473) (1,121)
Other income (expense)-net...................... -- -- (3)
Interest income-net............................. 254 1,737 3,151
Effects of changes in lease terms (3):
Operating expenses.............................. 704 2,123 --
Depreciation and amortization................... 511 (687) --
Interest expense................................ 357 (768) --
Management cost allocation from ENSERCH (4)....... (500) (1,000) (1,000)
Interest income on notes receivable-ENSERCH
Companies (5).................................... 6,211 4,209 2,213
Eliminate interest expense on debt of EP (6)...... 20,919 24,825 20,650
------- -------- --------
Income before income taxes........................ 39,669 15,301 3,635
Provision for income taxes (7).................... 13,861 7,046 995
------- -------- --------
Net income of EEX................................. $25,808 $ 8,255 $ 2,640
======= ======== ========
</TABLE>
- --------
(1) To include revenues and costs attributable to the 1% general partner
interest in EP Operating Limited Partnership (EPO), EP's operating
partnership.
(2) To include revenues and costs attributable to the international operations
and SACROC properties acquired from ENSERCH in 1995. See "Certain
Transactions" and Note 9 of Notes to Financial Statements of EEX included
in this Prospectus.
(3) Certain ENSERCH Companies assumed EPO's interests in and obligations
related to certain offshore equipment and facilities leases, and EEX
entered into subleases for the equipment and facilities with ENSERCH
Companies.
(4) To provide for the management cost allocation to be charged by ENSERCH for
management of certain services. EP was charged and EEX is charged for
indirect costs (principally general and administrative costs) applicable to
gas and oil operations. Prior to July 1, 1994, EP was not charged for
management by ENSERCH of its operations, including supervision of finance,
accounting, tax and legal functions. EEX is charged approximately $1
million annually to cover the cost of these functions. See "Certain
Transactions" and Note 5 of Notes to Financial Statements of EEX included
in this Prospectus.
(5) To include interest income on the notes receivable--ENSERCH Companies at
average balances at 7.5% interest per annum.
(6) To eliminate interest expense on long-term borrowings by EP from ENSERCH
Companies that were not assumed by EEX.
(7) To provide for income taxes on income before taxes at the applicable
statutory federal rate and, for the international and SACROC operations,
the 1% increase in the federal statutory rate in 1993 and permanent
differences for statutory depletion in 1992.

F-4
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of Enserch Exploration, Inc.

We have audited the accompanying consolidated balance sheet of Enserch
Exploration, Inc. and subsidiaries (the "Company") as of December 31, 1994, and
the related statements of operations, cash flows, and changes in partners'
capital and common shareholders' equity of the Company and its predecessor (See
Note 1) for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31,
1994, and the results of operations and cash flows of the Company and its
predecessor for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Dallas, Texas
February 10, 1995 (June 21, 1995 as
to the second paragraph of Note 1
and Note 9)

F-5
<PAGE>

ENSERCH EXPLORATION, INC.

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<S> <C>
ASSETS
Current Assets
Cash.............................................................. $ 234
Accounts receivable-trade (net of allowance for possible losses of
$670)............................................................ 16,828
Accounts receivable-affiliated companies.......................... 11,581
Notes receivable-affiliated companies............................. 86,077
Materials and supplies, at average cost........................... 2,168
Other............................................................. 3,049
----------
Total current assets............................................ 119,937
----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method, $172,604 excluded from
amortization base)............................................... 2,094,494
Other............................................................. 15,582
----------
Total........................................................... 2,110,076
Less accumulated depreciation and amortization.................... 856,062
----------
Net property, plant and equipment............................... 1,254,014
----------
Other Assets........................................................ 7,284
----------
Total........................................................... $1,381,235
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable-trade............................................ $ 58,593
Accounts payable-affiliated companies............................. 7,060
Temporary advances-affiliated companies (net)..................... 105,469
Current portion of capital lease obligations...................... 4,760
Other............................................................. 1,728
----------
Total current liabilities....................................... 177,610
----------
Capital Lease Obligations........................................... 151,095
----------
Other Liabilities
Deferred income taxes............................................. 284,299
Deferred royalties................................................ 25,536
Other............................................................. 6,687
----------
Total other liabilities......................................... 316,522
----------
Commitments and Contingent Liabilities (Note 6)
Common Shareholders' Equity......................................... 736,008
----------
Total........................................................... $1,381,235
==========
</TABLE>

See Notes to Financial Statements.

F-6
<PAGE>

ENSERCH EXPLORATION, INC.

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ENSERCH EXPLORATION PARTNERS, LTD.
------------------------------------ ENSERCH
GENERAL LIMITED EXPLORATION,
PARTNERS PARTNERS TOTAL INC.
------------------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, December 31, 1991.. $ 15,396 $ 681,109 $ 696,505 $ --
Net loss.................. (203) (20,062) (20,265)
Distributions declared.... (311) (30,750) (31,061)
---------- ----------- -----------
Balance, December 31, 1992.. 14,882 630,297 645,179
Net loss.................. (39) (3,842) (3,881)
Distributions declared.... (311) (30,750) (31,061)
---------- ----------- -----------
Balance, December 31, 1993.. 14,532 595,705 610,237
Net income................ 120 11,846 11,966
Liquidation of
partnership.............. (14,652) (607,551) (622,203) 622,203
---------- ----------- -----------
Balance, December 31, 1994.. $ -- $ -- $ --
========== =========== ===========
</TABLE>

<TABLE>
<S> <C>
Reorganization Adjustments:
Assumption by ENSERCH Companies:
Assets and obligations of offshore facilities and leases........ (24,418)
EP's notes payable to other ENSERCH Companies and EPO........... 395,077
Accrued interest on notes payable............................... 12,566
General partners' 1% interest in EPO.............................. 10,156
Assumption of deferred income taxes by EEX........................ (289,703)
Acquisition of international and SACROC operations from ENSERCH:
ENSERCH carrying value of international operations................ 7,530
Excess of ENSERCH carrying value of SACROC operations over cash
paid by EEX...................................................... 2,597
---------
Common Shareholders' Equity at December 31, 1994.................... $ 736,008
=========
Common Stock--$1.00 par value, authorized 200 million shares, issued
and outstanding
105,656,389 shares................................................. $ 105,656
Paid in Capital..................................................... 630,352
---------
Common Shareholders' Equity at December 31, 1994.................... $ 736,008
=========
</TABLE>

See Notes to Financial Statements.

F-7
<PAGE>

ENSERCH EXPLORATION, INC.

STATEMENTS OF OPERATIONS OF PREDECESSOR

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
Revenues
Natural gas..................... $ 143,099 $ 144,889 $ 117,418
Oil and condensate.............. 28,578 33,920 41,179
Natural gas liquids............. 2,106 3,790 6,037
Other........................... 1,319 2,393 1,274
------------- ------------- -------------
Total......................... 175,102 184,992 165,908
------------- ------------- -------------
Costs and Expenses
Production and operating........ 29,648 28,627 26,581
Exploration..................... 8,323 7,526 9,674
Depreciation and amortization... 79,663 77,256 75,600
(Sale) write-down of inactive
pipeline....................... (7,475) -- 16,335
General, administrative and
other.......................... 18,932 29,387 22,275
Taxes, other than income........ 13,175 15,810 15,513
------------- ------------- -------------
Total......................... 142,266 158,606 165,978
------------- ------------- -------------
Operating Income (Loss)........... 32,836 26,386 (70)
Other Income (Expense)-Net........ (311) -- (3)
Interest Expense.................. (20,559) (30,267) (20,192)
------------- ------------- -------------
Net Income (Loss)................. 11,966 (3,881) (20,265)
Less 1% General Partners'
Interest......................... 120 (39) (203)
------------- ------------- -------------
Income (Loss) Applicable to
Limited Partners' Interest....... $ 11,846 $ (3,842) $ (20,062)
============= ============= =============
Net Income (Loss) Per Unit........ $ .12 $ (.04) $ (.20)
============= ============= =============
Weighted Average Units
Outstanding...................... 102,500 102,500 102,500
============= ============= =============
Distributions Declared Per Unit... $ -- $ .30 $ .30
============= ============= =============
</TABLE>

See Notes to Financial Statements.

F-8
<PAGE>

ENSERCH EXPLORATION, INC.

STATEMENTS OF CASH FLOWS OF PREDECESSOR

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net income (loss)............................ $ 11,966 $ (3,881) $(20,265)
Depreciation and amortization................ 79,663 77,256 75,600
(Sale) write-down of inactive pipeline....... (7,475) -- 16,335
Other........................................ (11,402) 9,326 (10,356)
Changes in current operating assets and
liabilities
Accounts receivable........................ 3,655 (2,382) 10,737
Other current assets....................... (25,889) (15,890) (165)
Accounts payable........................... 12,596 14,768 5,437
Other current liabilities.................. (984) (3,136) (533)
--------- --------- --------
Net cash flows from operating activities... 62,130 76,061 76,790
--------- --------- --------
Investing Activities
Additions of property, plant and equipment... (128,885) (113,380) (63,223)
Retirements of property, plant and equipment. 12,929 (593) 9,437
Other........................................ 10,647 (9,864) (3,369)
--------- --------- --------
Net cash flows used for investing
activities................................ (105,309) (123,837) (57,155)
--------- --------- --------
Financing Activities
Change in temporary advances with ENSERCH
Companies................................... 72,305 32,756 (37,201)
Proceeds from long-term notes payable to
ENSERCH Companies........................... 11,000 32,000 32,000
(Decrease) increase in advances under leasing
arrangements-net............................ (32,443) 13,453 17,475
Cash distributions paid...................... (7,765) (31,061) (31,061)
--------- --------- --------
Net cash flows from (used for) financing
activities................................ 43,097 47,148 (18,787)
--------- --------- --------
Net (Decrease) Increase in Cash and
Equivalents................................... (82) (628) 848
Cash and Equivalents at Beginning of Year...... 309 937 89
--------- --------- --------
Cash and Equivalents at End of Year............ $ 227 $ 309 $ 937
========= ========= ========
Interest Paid (Net of amounts capitalized)..... $ 20,559 $ 24,791 $ 20,192
========= ========= ========
</TABLE>

See Notes to Financial Statements.

F-9
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS
All dollar amounts, except per share and per unit amounts, in the notes to
financial statements are stated in thousands unless otherwise indicated.

1. ORGANIZATION AND BASIS OF PRESENTATION

On December 30, 1994, Enserch Exploration, Inc. ("EEX") acquired all of the
partnership interests of EP Operating Limited Partnership ("EPO"), the 99%
owned operating partnership of Enserch Exploration Partners, Ltd. ("EP"), and
EP received common stock of EEX. EPO was then merged into EEX and thereafter
EP was liquidated, and its partners received one share of EEX common stock for
each limited and general partnership interest held. Certain affiliates of
ENSERCH other than EEX (collectively, the "ENSERCH Companies") also received
EP's interest in and assumed EP's obligations under certain equipment leases
(the equipment was simultaneously subleased to EEX) and assumed approximately
$395 million principal amount of EP's indebtedness, plus accrued interest.

In 1995, EEX acquired the international gas and oil operations of ENSERCH by
the issuance of 1,075,147 shares of common stock and acquired the SACROC
operations from ENSERCH for $1,650 in cash. The financial statements of EEX at
December 31, 1994 have been restated in a manner similar to a pooling-of-
interests to reflect the acquisition of these operations under common control.

The financial statements presented herein represent the historical
consolidated balance sheet of EEX, after the acquisition of the EP operating
properties and the transactions described above, and the historical statements
of operations, cash flows and changes in partners' capital of EP as the
predecessor operating entity to EEX. Prior to the acquisition, EEX had no
operations. In the notes that follow, "the Company" is used to refer to either
EEX or EP, or both, when a distinction is not required. EP followed the
proportional consolidation method whereby the financial statements reflected
EP's 99% interest in EPO's assets, liabilities and operations. The components
of Costs and Expenses in the Statements of Operations have been reclassified to
conform with the 1995 presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Gas and Oil Properties--The full-cost accounting method prescribed by the
Securities and Exchange Commission (SEC), is followed for gas and oil
properties. Costs directly associated with the acquisition and evaluation of
unproved gas and oil properties are excluded from the amortization base until
the related properties are evaluated. Such unproved properties are assessed
periodically and a provision for impairment is made to the full-cost
amortization base when appropriate. Amortization of evaluated gas and oil
properties is computed on the unit-of-production method using estimated proved
gas and oil reserves quantified on the basis of their equivalent energy
content. Amortization of gas and oil properties was approximately 5.7% in 1994,
6.0% in 1993 and 5.7% in 1992. Depreciation of other property, plant and
equipment is provided principally by the straight-line method over the
estimated service lives of the related assets. At December 31, 1994, estimates
of future site restoration, dismantlement and abandonment costs, as assessed on
an overall cost center basis, were less than estimates of future salvage
values. Therefore, no accruals were required.

Natural Gas and Oil Hedging Activities--Gas and oil swaps, collars and
futures agreements are used to hedge volatile product prices for a portion
(normally 30 to 70 percent) of anticipated future gas and oil production. The
purpose of these hedging activities is to fix the prices to be received. Under
these agreements, payments are received or made based on the differential
between a fixed and a variable product price. These agreements are settled in
cash at or prior to expiration or exchanged for physical delivery contracts.
Realized gains and losses on hedging activities are deferred and included in
revenues during the month that the related physical sale occurs. In the event
of nonperformance by counterparties, the Company is exposed to price risk. The
Company does not obtain collateral to support the agreements but monitors the
financial viability of counterparties. The Company has no off-balance sheet
risk of accounting loss.

Income Taxes--EP was a partnership and, as a result, the income or loss of
the partnership, which reflected differences in the timing of the deduction of
certain gas and oil drilling and development costs for federal income-tax
purposes, was includable in the tax returns of the individual partners.
Accordingly, no recognition was given to income taxes in the financial
statements of EP. EEX, as a corporation, is a taxable

F-10
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
entity. The deferred tax effect of the difference in financial accounting basis
and income tax basis of EEX's assets and liabilities is as follows:

<TABLE>
<CAPTION>
1994
-------------------------------
TOTAL CURRENT NONCURRENT
-------- ------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Reserves for injury and damage claims..... $ 663 $ -- $ 663
All other................................. 1,190 420 770
-------- ----- --------
Total................................... 1,853 420 1,433
-------- ----- --------
Deferred tax liabilities:
Property-related differences.............. 56,919 -- 56,919
Exploration and intangible development
costs.................................... 234,637 -- 234,637
-------- ----- --------
Total................................... 291,556 -- 291,556
-------- ----- --------
Net deferred tax liability (asset) recorded
on formation of EEX ....................... 289,703 (420)(a) 290,123
Deferred tax asset applicable to property
related differences of international and
SACROC operations acquired from ENSERCH.... (5,824) (5,824)
-------- ----- --------
Total................................... $283,879 $(420) $284,299
======== ===== ========
</TABLE>
- --------
(a) Included in other current assets in the balance sheet.

Fair Value of Financial Instruments--The fair value of financial instruments,
consisting primarily of cash, accounts receivable, investments, accounts
payable, temporary advances payable and other accrued liabilities, approximates
carrying value.

3. SHAREHOLDERS' EQUITY

EEX is authorized to issue 200 million shares of common stock at $1.00 par
value and 2 million shares of preferred stock.

The Company has a stock option plan that provides for the granting of stock
options to officers and key employees to purchase shares of EEX Common Stock
and has provisions for awarding restricted stock to officers, which are subject
to vesting based on the achievement of certain performance criteria. Options
granted under the plan have an exercise price of not less than the fair market
value of the common stock on the grant date. Options become exercisable in
stages of 25% after one year to 100% after four years and expire after ten
years. The plan covers a maximum of 2 million shares of EEX Common Stock. No
options or restricted stock were granted or awarded in 1994.

4. EMPLOYEE BENEFIT PLANS

Substantially all personnel associated with the Company are covered by an
ENSERCH pension plan and some retirees are eligible for varying levels of
health care and life insurance benefits. Employees hired after July 1, 1989 are
not eligible for medical benefits when they retire. The allocation of the costs
of these plans is actuarially determined. Total pension costs allocated to the
Company were $1,208, $867 and $1,054 in 1994, 1993 and 1992, respectively.
Postretirement health care and life insurance benefit costs allocated to the
Company were $816, $821 and $550 in 1994, 1993 and 1992, respectively.

F-11
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

ENSERCH pension plan information:

<TABLE>
<CAPTION>
1994
-------
<S> <C>
Valuation Assumptions:
Discount rate.................................................... 9.0%
Rate of increase in compensation levels.......................... 4.0%
Expected long-term rate of return on assets...................... 9.5%
Amounts Recognized (in millions):
Actuarial present value of pension benefit obligation:
Vested benefit obligation...................................... $(237.4)
=======
Accumulated benefit obligation................................. $(249.6)
=======
Projected pension benefit obligation........................... $(271.4)
Plan assets at fair value.......................................... 231.7
-------
Projected benefit obligation in excess of plan assets.............. (39.7)
Unrecognized net asset at transition............................... (8.0)
Unrecognized prior service credit.................................. (2.2)
Unrecognized net actuarial gain.................................... (3.7)
-------
ENSERCH accrued pension cost....................................... $ (53.6)
=======
EEX accrued pension cost........................................... $ (3.9)
=======
ENSERCH postretirement benefit information:
Valuation Assumptions:
Discount rate.................................................. 9.0%
Medical cost trend rate........................................ 12.0%
Amounts Recognized (in millions):
Accumulated postretirement benefit obligation.................. $ (82.9)
Unrecognized obligation at transition.......................... 62.1
Unrecognized net actuarial loss................................ 15.1
-------
ENSERCH accrued postretirement benefit cost........................ $ (5.7)
=======
EEX accrued postretirement benefit cost............................ $ (.5)
=======
</TABLE>

The assumed health care cost trend rate is 12.0% for 1994, declining
gradually to 6.0% in 2003, and remaining at that level thereafter. If the
health care cost trend rate were increased by 1%, the accumulated
postretirement benefit obligation of ENSERCH as of December 31, 1994 would be
increased by $4.8 million and the net periodic postretirement benefit cost for
1994 by $.4 million.

Investment Plan--ENSERCH provides a voluntary contributory investment plan
that is available to substantially all employees and matches a portion of
employee's contribution with ENSERCH common stock. The Company's share of costs
under the plan was $236, $254 and $260 in 1994, 1993 and 1992, respectively.

5. RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company engages in various
transactions with ENSERCH and its affiliates. The Company was charged for
direct costs incurred by ENSERCH Companies that were associated with managing
the Company's business and operations. Additionally, ENSERCH charged EP and

F-12
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
will charge EEX for indirect costs. Prior to July 1, 1994, EP was charged for
the general and administrative staff costs incurred by ENSERCH in performing
accounting, treasury, internal audit, income tax planning and compliance, legal
and other functions, but was not charged for the cost of higher level
management (i.e. all of the elected officers of ENSERCH) of these functions.
Effective July 1, 1994, ENSERCH began charging all of its affiliates, including
EP, for the cost of management by higher level ENSERCH personnel of these
functions. ENSERCH charges for all indirect costs amounted to $2,032, $2,026
and $1,927 in 1994, 1993 and 1992, respectively.

The Company had sales to certain ENSERCH Companies (Enserch Gas Company, Lone
Star Gas Company and Enserch Processing Company) of $108,936, $108,916 and
$32,508 in 1994, 1993 and 1992, respectively. In March 1993, the Company
entered into new contracts to sell essentially all gas production not committed
under existing contracts to Enserch Gas Company.

The notes receivable from ENSERCH Companies had an interest rate of 7.5%.
Interest on the temporary advance from ENSERCH Companies was based on the 30-
day commercial paper rate available to ENSERCH and was 6.1% at December 31,
1994. In February 1995, the receivable and the obligation were settled. Net
interest costs incurred on borrowings from ENSERCH Companies were $24,266,
$27,120 and $25,336 in 1994, 1993 and 1992, respectively.

See Note 6 for information concerning lease commitments with ENSERCH
Companies.

6. COMMITMENTS AND CONTINGENT LIABILITIES

Legal Proceedings--On March 23, 1994, a lawsuit was brought in the 299th
District Court of Harris County, Texas against EPO (a predecessor of the
Company) and five other defendants by 19 royalty owners under leases contained
within the Corby Gas Unit in Leon County, Texas. Defendants are working
interest owners and lessees under the leases. The Company owned a 7.1% interest
in these leases. The plaintiffs allege causes of action involving breach of
express and implied obligations under the leases, drainage, failure to explore
and develop for gas and oil under the leases, civil conspiracy, tortious
interference with contractual relationships, specific performance, negligence
and conversion. The plaintiffs seek to recover alleged actual damages in excess
of $5.4 million, punitive damages of at least ten times the actual damages, if
any, found by a jury, interest and attorneys' fees.

A lawsuit was filed against ENSERCH, its utility division, EPO and EPO's
managing general partner in the 348th Judicial District Court of Tarrant County
in May 1989. Plaintiffs seek unspecified actual damages and punitive damages in
the amount of $5 million. Plaintiffs allege royalties were not fully paid,
certain expenses were improperly charged against the amount of royalties due,
negligence in the venting of gas and liquid hydrocarbons into the air, and
breach of duty of good faith and fair dealing by wrongfully concealing certain
material facts concerning sales of gas from the subject leases to the utility
division.

A lawsuit was filed on February 24, 1987, in the 112th Judicial District of
Sutton County, Texas, against certain subsidiaries and affiliates of ENSERCH,
as well as its utility division. The plaintiffs have claimed that defendants
failed to make certain production and minimum purchase payments under a gas-
purchase contract. In this connection, the plaintiffs have alleged a conspiracy
to violate purchase obligations, improper accounting of amounts due, fraud,
misrepresentation, duress, failure to properly market gas and failure to act in
good faith. Plaintiffs seek actual damages in excess of $5 million and punitive
damages in an amount equal to 0.5% of the consolidated gross revenues of
ENSERCH for the years 1982 through 1986 (approximately $85 million), interest,
costs and attorneys' fees.

F-13
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Management believes that the named defendants have meritorious defenses to
the claims made in these and other actions brought in the ordinary course of
business. In the opinion of management, the Company will incur no liability
from these and all other pending claims and suits that would be considered
material for financial reporting purposes.

Leases--The equipment and facilities used in developing and producing
reserves in the Mississippi Canyon project and Garden Banks project were
financed under equipment leases between certain financial institutions and EPO.
In connection with the merger of EPO into EEX, the leases were assigned to and
assumed by Enserch Exploration Holdings, Inc. ("EEH"). EEX entered into three
subleases with EEH for such offshore facilities. For accounting purposes, one
of the leases is an operating lease, and two are capital leases, with the lease
obligations and related assets totaling approximately $156 million. The
operating lease is for twelve years, with an option to purchase the equipment
under lease at the end of the lease term at a fixed price equal to its
estimated fair value.

A component of the payments to be made by EEX under the subleases is based on
a floating interest rate of LIBOR plus 1.75% per annum.

Estimated future minimum lease payments for the leases, based on a LIBOR rate
at December 31, 1994 of 5.625% for the Garden Banks project and 5.9375% for the
Mississippi Canyon project, are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1995.................................................. $ 15,784 $ 14,667
1996.................................................. 18,793 17,021
1997.................................................. 18,794 17,021
1998.................................................. 18,794 17,021
1999.................................................. 18,794 17,021
Thereafter............................................ 136,044 199,528
-------- --------
Total................................................. $227,003 282,279
========
Less interest factor.................................. 126,424
--------
Capital lease obligations............................. $155,855
========
</TABLE>

The cost for the Garden Banks facilities and equipment will exceed the $300
million cost that is the basis for current lease obligations, primarily due to
the recent discovery on Block 387. The total cost of these facilities and
equipment is expected to be approximately $350 million, including $20 million
of capitalized financing costs. The Company anticipates that the leases will be
modified for the additional costs.

The Company bears an allocated share of rental expenses incurred by ENSERCH
Companies under noncancelable long-term operating leases, principally for
office space. The Company's allocated share of rental expenses totaled $3,071,
$4,985 and $3,547 in 1994, 1993 and 1992, respectively.

Environmental Matters--The Company is subject to federal, state and local
environmental laws and regulations that regulate the discharge of materials
into the environment. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. The level of future expenditures
for environmental matters, including costs of obtaining operating permits,
enhanced equipment monitoring and modifications under the Clean Air Act and
cleanup obligations, cannot be fully ascertained until the regulations that
implement the applicable laws have been approved and adopted. However, the
capital expenditures required to achieve compliances with the Clean Air Act
regulations, in their current form, have

F-14
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
been estimated to be less than $1 million. It is management's opinion that all
such costs, when finally determined, will not have a material adverse effect on
the financial position or results of operations of the Company.

7. SUPPLEMENTARY GAS AND OIL INFORMATION

Gas and Oil Producing Activities--The following tables set forth information
relating to gas and oil producing activities of EP, excluding properties
acquired in 1995. See Note 9 for information regarding the 1995 transactions.
Reserve data for natural gas liquids attributable to leasehold interests owned
by the Company are included in oil and condensate.

<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CAPITALIZED COSTS:
Proved gas and oil properties....................... $1,897,447 $1,721,345
Unproved gas and oil properties..................... 172,604 82,236
---------- ----------
Total............................................. $2,070,051 $1,803,581
========== ==========
Accumulated depreciation and amortization............. $ 829,188 $ 775,570
========== ==========
</TABLE>

<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
COSTS INCURRED:
Property acquisition costs:
Proved................................... $ 1,546 $ 8,179 $ 886
Unproved................................. 20,386 12,429 8,969
Exploration costs.......................... 58,163 36,397 35,030
Development costs.......................... 83,346 62,401 16,355
---------- ---------- ----------
Total.................................. $ 163,441 $ 119,406 $ 61,240
========== ========== ==========
Amortization (per MMBtu)(a)................ $ .96 $ .91 $ .91
========== ========== ==========
</TABLE>
- --------
(a) Amortization expense per unit of production converted to a common unit of
measure, millions of British thermal units (MMBtu).

COSTS EXCLUDED from the amortizable base as of December 31, 1994:

<TABLE>
<CAPTION>
TOTAL AT
PRIOR DECEMBER 31,
1994 1993 1992 YEARS 1994
YEAR INCURRED -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs..... $ 20,591 $11,369 $ 4,178 $10,506 $ 46,644
Exploration costs.............. 16,991 3,797 6,794 9,021 36,603
Development costs.............. 77,380 -- -- -- 77,380
Interest capitalized........... 4,530 3,394 3,062 991 11,977
-------- ------- ------- ------- --------
Total...................... $119,492 $18,560 $14,034 $20,518 $172,604
======== ======= ======= ======= ========
</TABLE>

Approximately 65% of excluded costs relates to offshore activities in the
Gulf of Mexico and the remainder relates to domestic onshore exploration
activities. The anticipated timing of the inclusion of these costs in the
amortization computation will be determined by the rate at which exploratory
and development activities continue, which are expected to be accomplished
within ten years.

F-15
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following information is required and defined by the Financial Accounting
Standards Board. The disclosure does not represent the results of operations
based on historical financial statements. In addition to requiring different
determinations of revenues and costs, the disclosure excludes the impact of
interest expense and corporate overheads.

<TABLE>
<CAPTION>
1994 1993 1992
RESULTS OF OPERATIONS: -------- -------- --------
<S> <C> <C> <C>
Revenues............................................ $169,487 $186,224 $164,634
Less:
Production costs (a).............................. 41,564 43,114 40,649
Exploration costs (b)............................. 8,323 7,526 9,674
Depreciation and amortization..................... 78,123 75,917 74,378
-------- -------- --------
Net producing activities........................ $ 41,477 $ 59,667 $ 39,933
======== ======== ========
</TABLE>
- --------
(a) Includes severance, ad valorem and production taxes.
(b) Includes internal costs that cannot be directly identified with
acquisition, exploration or development activities.

Hedging Activities--At December 31, 1994, the Company had outstanding swaps,
collars and futures agreements extending through December 31, 1995 to exchange
payments on 17.8 Bcf of natural gas and 1.2 MMBbls of oil on which the Company
had $4.1 million of net unrealized gains based on the difference between the
strike price and the NYMEX futures price for the applicable trading month. At
December 31, 1994, realized gains on hedging activities of $.9 million were
deferred. The weighted average strike price and market price per Mcf of natural
gas was $2.06 and $1.84, respectively, and the weighted average strike price
and market price per barrel of oil was $17.98 and $17.82, respectively.

Gas and Oil Reserves (Unaudited)--The following table of estimated proved and
proved developed reserves of gas and oil has been prepared utilizing estimates
of year-end reserve quantities provided by DeGolyer and MacNaughton,
independent petroleum consultants. Reserve estimates are inherently imprecise
and estimates of new discoveries are more imprecise than those of producing gas
and oil properties. Accordingly, the reserve estimates are expected to change
as additional performance data become available. All reserves are located in
the United States.

<TABLE>
<CAPTION>
GAS (MMCF) OIL (MBBL)(A)
------------------------------- ----------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
At January 1............ 1,085,466 1,100,419 1,167,284 38,218 37,939 38,037
Changes in reserves
Revisions of previous
estimates............ (24,104) 20,179 (7,054) 141 1,331 1,023
Extension, discoveries
and additions........ 47,580 34,549 20,817 9,877 1,292 1,444
Purchase of minerals
in place............. 787 4,379 198 14 3 102
Sales of minerals in
place................ (894) (4,042) (15,665) (28) (40) (42)
Production.............. (67,102) (70,018) (65,161) (2,081) (2,307) (2,625)
--------- --------- --------- ------ ------ ------
At December 31.......... 1,041,733 1,085,466 1,100,419 46,141 38,218 37,939
========= ========= ========= ====== ====== ======
Proved Developed Re-
serves:
At January 1.......... 734,077 675,844 974,031 14,249 13,552 17,763
At December 31........ 698,640 734,077 675,844 14,092 14,249 13,552
</TABLE>
- --------
(a) Includes condensate and natural gas liquids attributable to leasehold
interests of 854 MBbl for 1994, 931 MBbl for 1993 and 789 MBbl for 1992.

F-16
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Gas and Oil Reserve Quantities (Unaudited)--has been prepared using estimated
future production rates and associated production and development costs.
Continuation of economic conditions existing at the balance sheet date was
assumed. Accordingly, estimated future net cash flows were computed by applying
prices and contracts in effect in December to estimated future production of
proved gas and oil reserves, estimating future expenditures to develop proved
reserves and estimating costs to produce the proved reserves based on average
costs for the year. Average prices used in the computations were: Gas (per Mcf)
$2.29 in 1994, $2.38 in 1993 and $2.18 in 1992; Oil (per barrel) $14.05 in
1994, $11.68 in 1993 and $18.16 in 1992.

Because reserve estimates are imprecise and changes in the other variables
are unpredictable, the standardized measure should be interpreted as indicative
of the order of magnitude only and not as precise amounts.

<TABLE>
<CAPTION>
1994 1993 1992
STANDARDIZED MEASURE (IN MILLIONS): -------- -------- --------
<S> <C> <C> <C>
Future cash inflows.............................. $3,006.9 $3,031.6 $3,056.4
Future production and development costs.......... 1,045.0 1,042.8 1,039.3
-------- -------- --------
Future net cash flows............................ 1,961.9 1,988.8 2,017.1
Less 10% annual discount......................... 821.2 886.4 908.7
-------- -------- --------
Discounted future net cash flows before income
tax............................................. 1,140.7 $1,102.4 $1,108.4
======== ========
Future income-tax expense........................ (524.6)
Plus 10% annual discount on income taxes......... 240.4
--------
Standardized measure of discounted future net
cash flows...................................... $ 856.5
========
CHANGE IN STANDARDIZED MEASURE (IN MILLIONS):
Sales and transfers of gas and oil produced, net
of production costs............................. $ (120.5) $ (135.6) $ (114.5)
Changes in prices, net of production and future
development costs............................... (33.9) 3.6 20.7
Extensions, discoveries, and improved recovery,
less related costs.............................. 125.4 41.4 22.3
Other purchases of minerals in place............. 1.6 9.4 .9
Revisions of previous quantity estimates......... (26.5) (29.6) 16.4
Sale of minerals in place........................ (1.3) -- (4.9)
Accretion of discount............................ 102.7 105.1 102.4
Net change in income taxes....................... (284.2) -- --
Other............................................ (9.2) (.3) 4.7
-------- -------- --------
Total........................................ $ (245.9) $ (6.0) $ 48.0
======== ======== ========
</TABLE>

F-17
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. SUPPLEMENTAL FINANCIAL INFORMATION

Quarterly Results (Unaudited)--The results of operations by quarters for EP
are summarized below. In the opinion of the Company's management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been made. The historical financial statements of EP include
interest charges on the debt now assumed by certain ENSERCH Companies and do
not include provisions for income taxes as discussed in Note 2.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994:
Revenues......................... $49,709 $43,427 $40,404 $41,562
Operating Income................. 11,122 8,692 3,268 9,754
Net Income (Loss)................ 4,917 5,185 (2,082) 3,946
Net Income (Loss) Per Unit....... .05 .05 (.02) .04
1993:
Revenues......................... $39,755 $47,709 $47,638 $49,890
Operating Income................. 5,118 9,160 7,267 4,841
Net Income (Loss)................ (640) 2,743 548 (6,532)
Net Income (Loss) Per Unit....... (.01) .03 .01 (.06)

Interest Costs--are summarized below:

<CAPTION>
1994 1993 1992
------- ------------ -----------
<S> <C> <C> <C>
Interest costs incurred................... $25,270 $34,481(a) $25,454
Interest capitalized...................... (4,711) (4,214) (5,262)
------- ------- -------
Interest charged to expense............... $20,559 $30,267 $20,192
======= ======= =======
</TABLE>
- --------
(a) Includes $6 million provision for interest due royalty owners.

9. 1995 ACQUISITIONS FROM ENSERCH

In 1995, EEX acquired the international gas and oil operations of ENSERCH by
the issuance of 1,075,147 shares of Common Stock and acquired the SACROC
operations from ENSERCH for $1.65 million in cash. The financial statements of
EEX at December 31, 1994 have been restated in a manner similar to a pooling-
of-interests to reflect the acquisition of these operations under common
control.

Accordingly, ENSERCH's historical carrying value of the assets acquired and
liabilities assumed has been recorded by EEX. The excess of ENSERCH's carrying
value over the purchase price of the SACROC properties has been credited to
paid in capital. Both transactions were based on the fair value of the
underlying properties as determined by independent petroleum engineers. The
number of shares issued to acquire the international operations were determined
using an estimated value per share of EEX Common Stock of $14.50. The number of
shares will be adjusted at the closing based on the net proceeds per share
received by EEX in a public offering of Common Stock and the final reserve
estimates of DeGolyer and MacNaughton.

In 1994, the international operations had reserve discoveries that resulted
in 4,105 MBbl of oil at December 31, 1994. Net capitalized costs were $2.3
million at December 31, 1994 with discounted future net cash flows of $33.3
million.

The SACROC properties had proved reserves of 345 MBbl of oil and 3 MMcf of
gas at December 31, 1994. Net capitalized costs were $5.2 million at December
31, 1994 with discounted future net cash flows of $1.0 million.

F-18
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The combined results of operations of the international and SACROC operations
for the three years ended December 31, 1994 were as follows:

<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Revenues........................................... $ 2,270 $ 2,935 $ 3,960
Operating expenses................................. (3,412) (4,217) (5,081)
Write-off of unsuccessful foreign exploration
costs............................................. -- (10,191) --
------- -------- -------
Operating loss..................................... $(1,142) $(11,473) $(1,121)
======= ======== =======
</TABLE>

F-19
<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

Enserch Exploration, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of
Enserch Exploration, Inc. as of March 31, 1995, and the related condensed
consolidated statements of income and cash flows for the three months then
ended. These financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Enserch Exploration, Inc., as of
December 31, 1994, (not presented herein); and in our report dated February 10,
1995 (June 21, 1995 as to the second paragraph of Note 1 and Note 9), we
expressed an unqualified opinion on that balance sheet. In our opinion, the
information set forth in the accompanying condensed balance sheet as of
December 31, 1994, is fairly stated in all material respects, in relation to
the consolidated balance sheet from which it has been derived.

Deloitte & Touche LLP

Dallas, Texas
April 26, 1995 (June 21,
1995 as to the second
paragraph of Note 1)

F-20
<PAGE>

ENSERCH EXPLORATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
ADJUSTED
FOR THE
REORGANIZATION
1995 1994
-------- --------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues
Natural gas.......................................... $ 31,885 $42,524
Oil and condensate................................... 8,947 7,609
Natural gas liquids.................................. 735 451
Other................................................ 94 153
-------- -------
Total.............................................. 41,661 50,737
-------- -------
Costs and Expenses
Production and operating............................. 8,393 7,700
Exploration.......................................... 2,991 2,251
Depreciation and amortization........................ 19,093 21,115
General, administrative and other.................... 7,042 4,778
Taxes, other than income............................. 3,578 3,650
-------- -------
Total.............................................. 41,097 39,494
-------- -------
Operating Income....................................... 564 11,243
Other Income (Expense)-Net............................. (24) --
Interest Income........................................ 1,026 1,807
Interest Expense....................................... (605) (292)
-------- -------
Income Before Income Taxes............................. 961 12,758
Income Taxes........................................... 337 4,464
-------- -------
Net Income............................................. $ 624 $ 8,294
======== =======
Net Income Per Share of Common Stock................... $ .01 $ .08
======== =======
Average Common Shares Outstanding...................... 105,658 105,656
======== =======
</TABLE>

See accompanying Notes.

F-21
<PAGE>

ENSERCH EXPLORATION, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
ADJUSTED FOR THE
REORGANIZATION
1995 1994
-------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities
Net income........................................ $ 624 $ 8,294
Depreciation and amortization..................... 19,093 21,115
Deferred income-tax expense....................... 2,043 3,858
Other............................................. (8,292) 7,059
Changes in current operating assets and
liabilities
Accounts receivable............................. (3,804) 1,248
Other current assets............................ (1,889) (1,648)
Accounts payable................................ 1,156 8,732
Other current liabilities....................... 1,679 (7)
-------- --------
Net cash flows from operating activities........ 10,610 48,651
-------- --------
Investing Activities
Additions of property, plant and equipment........ (47,948) (26,925)
Retirements of property, plant and equipment...... 152 377
Collection of note receivable from affiliated
company.......................................... 86,077 --
Other............................................. (7,774) (10,558)
-------- --------
Net cash flows from investing activities........ 30,507 (37,106)
-------- --------
Financing Activities
Change in temporary advances with ENSERCH
Companies........................................ (40,020) 9,163
Decrease in advances under leasing arrangements... -- (20,703)
Payments of capital lease obligations............. (676) --
-------- --------
Net cash flows used for financing activities.... (40,696) (11,540)
-------- --------
Net Increase in Cash................................ 421 5
Cash at Beginning of Period......................... 234 343
-------- --------
Cash at End of Period............................... $ 655 $ 348
======== ========
</TABLE>

See accompanying Notes.

F-22
<PAGE>

ENSERCH EXPLORATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(MARCH 31, 1995 UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash.................................................. $ 655 $ 234
Accounts receivable-trade............................. 13,988 16,828
Accounts receivable-affiliated companies.............. 18,225 11,581
Note receivable-affiliated company.................... -- 86,077
Other................................................. 7,106 5,217
---------- ----------
Total current assets................................ 39,974 119,937
---------- ----------
Property, Plant and Equipment (at cost):
Gas and oil properties (full-cost method)............. 2,143,138 2,094,494
Other................................................. 13,135 15,582
---------- ----------
Total............................................... 2,156,273 2,110,076
Less accumulated depreciation and amortization........ 873,556 856,062
---------- ----------
Net property, plant and equipment................... 1,282,717 1,254,014
---------- ----------
Other Assets............................................ 16,258 7,284
---------- ----------
Total............................................... $1,338,949 $1,381,235
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable-trade................................ $ 55,554 $ 58,593
Accounts payable-affiliated companies................. 3,481 7,060
Temporary advances-affiliated companies (net)......... 65,449 105,469
Current portion of capital lease obligations.......... 4,760 4,760
Other................................................. 3,407 1,728
---------- ----------
Total current liabilities........................... 132,651 177,610
---------- ----------
Capital Lease Obligations............................... 150,419 151,095
---------- ----------
Deferred Income Taxes................................... 286,342 284,299
---------- ----------
Other Liabilities....................................... 32,895 32,223
---------- ----------
Common Shareholders' Equity
Common stock (200,000,000 shares authorized;
105,684,389 and 105,656,389 shares outstanding)...... 105,684 105,656
Paid in capital....................................... 630,618 630,352
Retained earnings..................................... 624 --
Unamortized restricted stock compensation............. (284) --
---------- ----------
Common shareholders' equity......................... 736,642 736,008
---------- ----------
Total............................................... $1,338,949 $1,381,235
========== ==========
</TABLE>

See accompanying Notes.

F-23
<PAGE>

ENSERCH EXPLORATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. On December 30, 1994, through a series of transactions, EEX acquired all of
the operating properties of EP and EP received common stock of EEX. EP was then
liquidated, and its partners received one share of EEX common stock for each
limited and general partnership interest held. Certain ENSERCH Companies also
received EP's interests in and assumed EP's obligations under certain equipment
leases (the equipment was simultaneously subleased to EEX) and assumed
approximately $395 million principal amount of EP's indebtedness, plus accrued
interest.

In March and June 1995, EEX acquired the international gas and oil operations
of ENSERCH by the issuance of 1,075,147 shares of Common Stock and acquired the
SACROC operations from ENSERCH for approximately $1.65 million in cash. The
accompanying financial statements have been restated in a manner similar to a
pooling-of-interests to reflect the acquisition of these operations under
common control. The number of shares issued to effect the acquisition of the
international operations will be adjusted at the closing based on the net
proceeds per share received by EEX in a public offering of Common Stock and the
final reserve estimates of DeGolyer and MacNaughton.

EEX had no operations in 1994. The pro forma statements of income of EEX for
1994 represent EP's results adjusted to reflect (1) the assumption by ENSERCH
Companies of $395 million of EP's debt, (2) the 1% general partner interest
previously not included in EP's results, (3) the changes in offshore facilities
and equipment lease terms, (4) the cost allocation for management of certain
corporate services, and (5) a provision for corporate income taxes that were
not payable by EP as a partnership.

2. Earnings per share applicable to common stock are based on the weighted
average number of common shares outstanding during the period, including common
equivalent shares when dilutive.

3. In April 1995, EEX entered into a definitive agreement to acquire 100% of
the capital stock of DALEN for $340 million, and DALEN had $115 million of bank
debt outstanding that was refinanced by EEX. Also in April 1995, a Mobil
Corporation affiliate exercised its option to acquire a 40% working interest in
EEX's Garden Banks project.

4. Components of current liabilities in the December 1994 balance sheet have
been reclassified.

5. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for the interim periods included herein have been made.

F-24
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
DALEN Corporation:

We have audited the accompanying consolidated balance sheets of DALEN
Corporation (formerly DALEN Resources Corp.) and subsidiaries as of December
31, 1994 and 1993 (as restated, see note 1), and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1994. 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DALEN Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.

As explained in Note 2 to the financial statements, effective January 1, 1993,
DALEN Corporation and subsidiaries adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Prior year financial
statements have not been restated.

Arthur Andersen LLP

Dallas, Texas
February 24, 1995

F-25
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(STATED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Natural gas.................................... $115,593 $152,488 $111,779
Oil and gas liquids............................ 51,054 73,852 82,003
Other.......................................... 2,341 5,144 5,822
-------- -------- --------
168,988 231,484 199,604
-------- -------- --------
OPERATING EXPENSES:
Lease operating................................ 43,533 56,367 52,389
General and administrative..................... 18,057 17,783 18,788
Depreciation, depletion and amortization....... 101,151 128,364 109,294
Exploration.................................... 24,886 19,453 25,278
-------- -------- --------
187,627 221,967 205,749
-------- -------- --------
OPERATING INCOME (LOSS).......................... (18,639) 9,517 (6,145)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income................................ 3,656 1,360 1,848
Interest expense............................... (6,002) (7,255) (6,885)
Other, net..................................... 2,845 85 1,105
-------- -------- --------
499 (5,810) (3,932)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE....................................... (18,140) 3,707 (10,077)
INCOME TAX BENEFIT (EXPENSE):
Current........................................ 21,859 18,997 25,656
Deferred....................................... (6,653) (13,153) (22,125)
-------- -------- --------
15,206 5,844 3,531
-------- -------- --------
NET EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.................. (2,934) 9,551 (6,546)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE....................................... -- 7,958 --
-------- -------- --------
NET EARNINGS (LOSS).............................. $ (2,934) $ 17,509 $ (6,546)
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1994 AND 1993
(STATED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 10,888 $ 48,117
Accounts receivable:
Oil and gas............................................. 20,009 29,934
Trade................................................... 6,030 5,537
Affiliates.............................................. 7,616 11,154
Inventories.............................................. 2,125 3,802
Prepaid expenses......................................... 3,635 6,310
-------- --------
Total current assets................................... 50,303 104,854
-------- --------
PROPERTY AND EQUIPMENT:
Oil and gas properties, based on successful efforts
method.................................................. 787,579 916,354
Other property and equipment............................. 6,671 5,808
-------- --------
794,250 922,162
Less: Accumulated depreciation, depletion and
amortization............................................ (362,548) (353,455)
-------- --------
Net property and equipment............................. 431,702 568,707
-------- --------
OTHER ASSETS............................................... 655 1,745
-------- --------
TOTAL ASSETS............................................... $482,660 $675,306
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 15,394 $ 25,641
Interest payable......................................... 67 954
Accrued liabilities...................................... 10,998 12,937
-------- --------
Total current liabilities.............................. 26,459 39,532
-------- --------
DEFERRED INCOME TAXES...................................... 72,529 65,876
ABANDONMENT, DISMANTLEMENT AND OTHER LIABILITIES........... 13,864 15,156
LONG-TERM DEBT............................................. 115,000 130,000
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized;
100 shares issued and outstanding....................... 1 1
Additional paid-in capital............................... 335,470 502,470
Accumulated deficit...................................... (80,663) (77,729)
-------- --------
Total stockholder's equity............................. 254,808 424,742
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................. $482,660 $675,306
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(STATED IN THOUSANDS OF DOLLARS, EXCEPT COMMON SHARES)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTALS
------ ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992...... 100 $ 1 $ 637,470 $(88,692) $ 548,779
Dividends to Parent........... -- -- (135,000) -- (135,000)
Net loss...................... -- -- -- (6,546) (6,546)
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1992.... 100 1 502,470 (95,238) 407,233
Net earnings.................. -- -- -- 17,509 17,509
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1993.... 100 1 502,470 (77,729) 424,742
Dividends to Parent........... -- -- (167,000) -- (167,000)
Net loss...................... -- -- -- (2,934) (2,934)
--- --- --------- -------- ---------
BALANCE AT DECEMBER 31, 1994.... 100 $ 1 $ 335,470 $(80,663) $ 254,808
=== === ========= ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(STATED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................... $ (2,934) $ 17,509 $ (6,546)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization.... 101,151 128,364 109,424
Surrendered leases and impairments.......... 9,461 9,344 12,983
Dry hole expense............................ 9,352 4,143 7,482
Deferred income taxes....................... 6,653 13,153 22,125
Loss (gain) on sale of assets............... (2,509) 146 (365)
Cumulative effect of change in accounting
principle.................................. -- (7,958) --
Other....................................... (769) (2,630) (737)
--------- -------- ---------
120,405 162,071 144,366
--------- -------- ---------
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.. 8,563 34,869 (13,141)
Decrease (increase) in prepaid expenses..... 2,534 54 (1,461)
Decrease in accounts payable................ (9,842) (11,985) (22,279)
Increase (decrease) in interest payable..... (887) (529) 556
Decrease in accrued liabilities and other... (3,629) (544) (4,183)
--------- -------- ---------
Net cash provided by operating activities.. 117,144 183,936 103,858
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........... (108,105) (94,442) (89,892)
Proceeds from sales of property and equipment. 135,732 1,540 1,907
Receivable related to acquisition............. -- -- 5,573
--------- -------- ---------
Net cash provided by (used in) investing
activities................................ 27,627 (92,902) (82,412)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to Parent........................... (167,000) -- (135,000)
Long-term debt borrowing...................... 15,000 -- 111,000
Repayment of long-term debt................... (30,000) (60,007) (6)
--------- -------- ---------
Net cash used in financing activities...... (182,000) (60,007) (24,006)
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (37,229) 31,027 (2,560)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 48,117 17,090 19,650
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 10,888 $ 48,117 $ 17,090
========= ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

1. ORGANIZATION:

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include the
accounts of DALEN Corporation (formerly DALEN Resources Corp.) and its wholly-
owned subsidiaries (the "Company"). All significant intercompany balances and
transactions are eliminated in consolidation. The Company is a wholly-owned
subsidiary of PG&E Enterprises ("Parent"), which is 100% owned by Pacific Gas
and Electric Company ("PG&E"). The Company's primary business activity is the
exploration, development and production of natural gas and crude oil reserves
in the continental United States.

During 1994, the Parent determined that the Company did not fit within its
long-term corporate strategy. As a result, the Parent intends to sell its 100%
ownership interest in the Company through an initial public offering of the
Company's common stock or by other means. A registration statement was filed on
Form S-1 with the Securities and Exchange Commission during 1994 to effect the
disposition. The accompanying prior year financial statements were restated in
connection with the filing of the Form S-1, resulting in an increase in 1993
net earnings and stockholder's equity of $24.2 million.

2. ACCOUNTING POLICIES:

Property and Equipment

The Company uses the successful efforts method of accounting for oil and gas
properties. Under the successful efforts method, lease acquisition costs are
capitalized when incurred. Unproved leasehold costs are periodically assessed
on a property-by-property basis, and a loss is recognized when assessment
indicates a permanent impairment in value has occurred. Any remaining unproved
leasehold costs are charged to expense upon abandonment of the respective
leases.

Exploratory costs, excluding successful exploratory wells, are charged to
expense as incurred. Costs of drilling exploratory wells are initially
capitalized pending determination of whether the wells have found proved
reserves which justify commercial development. If proved reserves are not
found, the drilling costs are charged to expense. Costs applicable to
productive wells and development dry holes are capitalized and amortized on the
units-of-production method based on estimated proved reserve quantities.

The Company periodically reviews the carrying value of its proved oil and gas
properties for impairment in value on a company-wide basis by comparing
capitalized costs of proved oil and gas properties with undiscounted future net
cash flows, after income taxes. Under this policy, no impairment in carrying
value has been required during 1994, 1993, or 1992. However, in November 1993
the Financial Accounting Standards Board issued an exposure draft "Accounting
for the Impairment of Long-Lived Assets." Under this proposed standard, an
assessment of fair value of oil and gas properties will be required to be
performed using certain groupings of property costs. Fair value is to be
measured by market value, if an active market exists. If the market value is
not readily determinable, discounted future net cash flows, after income taxes,
are to be used to estimate fair value. The impact of adoption of this proposed
statement on the consolidated financial statements of the Company has not been
determined.

Other property and equipment are depreciated on a straight-line basis over
their estimated useful lives ranging from 5 to 20 years. Major renewals and
betterments, which improve or extend the life of the asset, are capitalized.
The costs of repairs and maintenance are charged to expense as incurred.

F-30
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Abandonment and Dismantlement Costs

Estimated abandonment and dismantlement costs of offshore wells and platforms
are accrued as liabilities on the units-of-production method based on estimated
proved reserves of the property. At December 31, 1994, total estimated future
abandonment and dismantlement costs associated with proved developed properties
were $11.3 million, of which $6.2 million was accrued.

Inventories

Inventories, consisting principally of equipment and oil field supplies, are
recorded at cost which approximates market value.

Gas Balancing Arrangements

The Company only recognizes revenue associated with volumes sold to which it is
entitled under respective property divisions of interest. Proceeds received for
natural gas volumes in excess of entitlements are deferred and recognized as
revenue when the gas is made up to the other interest owners. Accounts
receivable and payable resulting from gas balancing arrangements were not
significant at December 31, 1994 or 1993.

Hedging Transactions

The Company periodically enters into oil and natural gas hedging transactions
to minimize the risk of price decreases. Such hedging transactions also limit
revenues which might result from potential price increases. Under the hedging
transactions, the Company receives or makes payments based on the differential
between a specified price and the actual quote market price of oil and natural
gas. The Company does not use derivative financial instruments for trading
purposes.

Gains and losses resulting from hedging activities are recognized in the same
period that revenues on hedged volumes are recorded. Net gains (losses) of $2.4
million, ($8.9) million and ($12.8) million resulting from such transactions
are included in oil and natural gas revenues for the years ended December 31,
1994, 1993 and 1992, respectively. The Company had no open hedging positions at
December 31, 1994.

Income Taxes

The operations of the Company are ultimately included in the consolidated tax
return of PG&E. A tax-sharing agreement between PG&E and the Parent provides
that the Parent pay its proportionate share of state and federal income taxes
and that PG&E reimburse the Parent for related tax benefits to the extent
realized in the consolidated tax return. The Parent then allocates its
proportionate share of income taxes to the Company based on its contribution to
the consolidated tax liability or benefit.

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statement or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates. The
cumulative effect of adopting SFAS No. 109 at January 1, 1993 resulted in an
increase in gas and oil properties and deferred income taxes of $22.0 million
and $14.0 million, respectively, and a cumulative gain of $8.0 million. The
financial statements for 1992 have not been restated.

Prior to 1993, the provision for income taxes was based on income and expenses
included in the consolidated statements of operations. Differences between
taxes computed on financial earnings and taxes currently payable under
applicable state and federal statutes and regulations were classified as
deferred taxes.

F-31
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The Company's financial
instruments are comprised of short-term investments, accounts receivable,
accounts payable and long-term debt. The carrying amount of the Company's
financial instruments approximate fair value because of the short maturity of
the instruments or because the interest rates of the instruments are based on
current market rates.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers all highly
liquid cash investments with an original maturity of three months or less to be
cash equivalents.

Supplemental cash flow information is as follows (stated in thousands of
dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest during the year............... $ 6,889 $ 7,656 $ 6,329
======= ======= =======
Cash received from Parent for income tax benefit..... $25,196 $25,041 $14,433
======= ======= =======
</TABLE>

3. RELATED PARTY TRANSACTIONS:

The Company sells natural gas to PG&E and to other affiliates. These sales were
made on terms approximating spot market prices at the time of the transactions.
During 1994, 1993 and 1992, such sales totaled approximately $1.2 million, $1.7
million and $2.8 million, respectively.

The Company's employee benefit plans and insurance programs are administered or
combined with affiliated companies under the Parent's control. The Company has
paid its proportionate share of related costs (administration fees to third
parties and premiums) which approximates the cost of obtaining such programs
from non-affiliates.

PG&E and the Parent perform certain other administrative functions, including
cash management services, for the Company. Costs associated with such services
for 1994, 1993 and 1992 were not significant. At December 31, 1994 and 1993,
$8.9 million and $46.1 million, respectively, of the Company's cash was held by
PG&E, at the Company's option, for cash management purposes. The average
interest rate received by the Company on such cash investments was 4.9% in 1994
and 3.8% in 1993, which approximates market rates.

Accounts receivable from affiliates at December 31, 1994 and 1993 result
primarily from income tax benefits due from the Parent, and are liquidated upon
the filing of the annual consolidated tax return of PG&E. Other accounts
receivable and payable to affiliates resulting from the above activities are
liquidated by receipts and payments in the normal course of business.

4. LONG-TERM DEBT:

The Company's credit agreement (the "Agreement"), as amended February 22, 1995,
provides for a two-year revolving loan (expiring February 1997), which is
convertible at the Company's option, to a five year term loan. The revolving
loan may be extended annually by consent of the banks. The Agreement has a
maximum commitment from the banks of $200 million, with actual commitment
amounts potentially limited

F-32
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
by the periodic determination of a "Borrowing Base" (determined based on
discounted future net revenues expected from the Company's proved oil and gas
reserves, using various parameters set forth in the Agreement). The Borrowing
Base at December 31, 1994, was approximately $168.5 million, of which $115
million in loans was outstanding.

The Agreement, at the request of the banks, shall be secured by the Company's
interest in the Borrowing Base assets, including all related property and
equipment.

Interest on loans outstanding is based on the Agent Bank's Reference Rate, as
defined, or on the Agent Bank's CD Rate, or an adjusted Offshore Rate, and is
payable quarterly. At December 31, 1994, the interest rate in effect was 7.0%.
The Company is also required to pay certain fees in connection with the
facility, as well as comply with various covenants set forth in the Agreement.

The aggregate maturities of long-term debt outstanding as of December 31, 1994
are as follows (stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1995.......................... $ --
1996.......................... --
1997.......................... 23,000
1998.......................... 23,000
1999.......................... 23,000
Thereafter...................... 46,000
--------
$115,000
========
</TABLE>

5. INCOME TAXES:

The components of the income tax benefit (expense), before cumulative effect of
change in accounting principle, are as follows (stated in thousands of
dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Federal....................................... $19,368 $ 17,216 $ 21,982
State......................................... 2,491 1,781 3,674
------- -------- --------
21,859 18,997 25,656
------- -------- --------
Deferred income taxes:
Federal....................................... (5,455) (11,176) (18,619)
State......................................... (1,198) (1,977) (3,506)
------- -------- --------
(6,653) (13,153) (22,125)
------- -------- --------
Total income tax benefit........................ $15,206 $ 5,844 $ 3,531
======= ======== ========
</TABLE>

F-33
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of income tax benefit computed by applying the federal
statutory income tax rate to earnings (loss) before income taxes is as follows
(stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Expected federal tax benefit (expense) at
statutory rate................................... $ 6,349 $(1,297) $ 3,426
State tax benefit (expense)....................... 1,097 (224) 619
Section 29 tight sands gas tax credits............ 6,112 7,434 2,128
Permanent differences arising from acquisitions
and other........................................ 1,648 (69) (2,642)
------- ------- -------
Total income tax benefit.......................... $15,206 $ 5,844 $ 3,531
======= ======= =======
</TABLE>

The sources of deferred tax benefit (expense) and their tax effect are as
follows (stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Sale of gas and oil properties................ $ 16,498 $ -- $ --
Oil and gas property impairments.............. 4,782 2,250 5,694
Depreciation, depletion and amortization...... 1,779 13,079 1,392
Intangible drilling costs..................... (29,712) (28,482) (29,211)
-------- -------- --------
Total deferred income tax expense............. $ (6,653) $(13,153) $(22,125)
======== ======== ========
</TABLE>

The net deferred tax liability reflected in the Company's consolidated balance
sheet at December 31, 1994 and 1993 results primarily from temporary
differences in the treatment of costs of oil and gas properties for financial
and income tax reporting purposes.

6. OVERRIDING ROYALTY INTEREST:

The Company's interest in certain gas properties acquired in 1991 is subject to
a previously existing undivided overriding royalty interest ("ORRI") held by an
unaffiliated party. The ORRI entitles the holder to receive natural gas
production (aggregating 4.0 Bcf at December 31, 1994) through March 1996,
subject to various daily and annual limitations. Shortfalls in production from
the wells subject to the ORRI must be made up by the Company with production
from other properties or through purchases on the spot market. At December 31,
1994, $1.6 million in accrued liabilities has been provided for future lease
operating expenses on the subject properties and for potential production
shortfalls.

7. EMPLOYEE BENEFIT PLAN:

The Company participates in a 401(k) savings plan ("Plan") sponsored by the
Parent. Under the Plan, eligible employees are permitted to defer receipt of up
to 7% of their compensation (subject to certain limitations by the Internal
Revenue Code of 1986, as amended). After one year of service, the Company will
contribute an amount equal to 5% of an employee's salary into the Plan, and the
Company will match employee contributions on a 100% basis, up to 5% of the
employee's salary. Amounts held under the Plan are invested among various
investment funds at the direction of the individual employee. Employee
contributions are 100% vested at the date of contribution. Company
contributions are vested 100% after five years of employment. For the years
ended December 31, 1994, 1993 and 1992, the Company expensed $1.1 million, $1.2
million and $1.2 million, respectively, for contributions made under the Plan.

F-34
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MAJOR CUSTOMERS:

The Company markets its oil and gas production to numerous purchasers under a
combination of short and long-term contracts. One customer accounted for 11.1%
of the Company's consolidated revenues in 1993. There were no individual
customers which accounted for more than 10% of total revenues in 1994 or 1992.
Management believes that the loss of any major customers would not have a
material adverse effect on the Company due to the availability of other
purchasers for the Company's production.

9. COMMITMENTS AND CONTINGENCIES:

The Company leases office space under noncancelable leases, which extend
through 2002. In addition, certain office space no longer in use is being
subleased.

The future minimum rental payments required under the leases, net of sublease
income, are as follows (stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
1995............................... $ 1,990
1996............................... 2,075
1997............................... 1,998
1998............................... 1,703
1999............................... 1,479
Thereafter........................... 3,822
-------
$13,067
=======
</TABLE>

The Company has established a $1.9 million reserve as of December 31, 1994 for
rent payments on office space no longer in use. The reserve is net of expected
sublease proceeds of $2.5 million under sublease agreements currently in
effect.

The Company has sublet certain of the unused office space to PG&E for which
payments received aggregated $.4 million for each of the three years in the
period ended December 31, 1994. As of December 31, 1994, future sublease
payments from PG&E are expected to aggregate $1.5 million through 1998.

The Company has entered into an agreement to acquire 3-D seismic data in 1995
and 1996 for payments aggregating $3.9 million.

The Company's revenues are derived principally from uncollateralized sales to
customers in the oil and gas industry. The concentration of credit risk in a
single industry affects the Company's overall exposure to credit risk because
customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.

The Company is directly or indirectly involved in various pending lawsuits and
claims. Reserves for lawsuits and claims are provided for when a loss is
determined to be probable and the amount can be reasonably estimated. In the
opinion of management, the ultimate outcome of such claims will not have a
material impact on the results of operations of the Company.

F-35
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OIL AND GAS PROPERTIES:

The following table sets forth certain information with respect to costs
incurred in connection with the Company's oil and gas producing activities
(stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Property acquisitions:
Proved........................................... $ 14,119 $ 1,001 $ 14,308
Unproved......................................... 23,477 4,944 3,665
Development costs.................................. 49,050 76,099 70,771
Exploratory costs.................................. 26,921 9,653 11,263
-------- ------- --------
$113,567 $91,697 $100,007
======== ======= ========
</TABLE>

Capitalized costs for oil and gas properties are as follows (stated in
thousands of dollars):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Oil and gas properties:
Proved............................................... $ 739,361 $ 880,198
Unproved............................................. 48,218 36,156
--------- ---------
787,579 916,354
Accumulated depreciation, depletion and amortization... (359,331) (351,105)
--------- ---------
$ 428,248 $ 565,249
========= =========
</TABLE>

In the third quarter of 1994, the Company sold certain oil and gas properties
(the "Non-Strategic Properties") that did not fit within the Company's current
business strategy. The Company sold the Non-Strategic Properties, which had a
net book value of $131.7 million, to unrelated third parties for $134.0 million
in cash, resulting in a pre-tax gain of $2.3 million, which is included in
other income in the accompanying consolidated statement of operations.

In October and November 1994, the Company acquired producing and non-producing
oil and gas properties located in Louisiana, Texas and offshore Gulf of Mexico
for approximately $28.1 million in cash.

11. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED):

The estimates of proved oil and gas reserves utilized in the preparation of the
consolidated financial statements were prepared by independent petroleum
engineers at December 31, 1994. Such estimates are in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board, which require that reserve reports be
prepared under existing economic and operating conditions with no provision for
price and cost escalations except by contractual arrangements. All of the
Company's reserves are located in the United States.

The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. In addition, a portion of the Company's proved reserves is
undeveloped, which increases the imprecision inherent in estimating reserves
which may ultimately be produced.

F-36
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Proved oil and gas reserve information, together with the changes therein, are
as follows (oil in MBbls, gas in MMcf):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
OIL GAS OIL GAS OIL GAS
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year......... 20,074 364,181 23,861 414,099 23,255 406,332
Revisions................. (25) (27,253) (740) (15,631) 3,257 (11,110)
Extensions and
discoveries.............. 3,960 80,850 1,582 39,644 1,633 71,300
Purchases and minerals-in-
place.................... 557 12,529 74 2,656 433 16,900
Sales of minerals-in-
place.................... (9,346) (62,722) -- -- -- --
Production................ (3,525) (60,223) (4,703) (76,587) (4,717) (69,323)
------ ------- ------ ------- ------ -------
End of year............... 11,695 307,362 20,074 364,181 23,861 414,099
====== ======= ====== ======= ====== =======
Proved developed reserves:
Beginning of year......... 17,508 335,476 21,670 390,830 19,944 352,285
====== ======= ====== ======= ====== =======
End of year............... 11,134 262,819 17,508 335,476 21,670 390,830
====== ======= ====== ======= ====== =======
</TABLE>

The standardized measure of discounted future net cash flows relating to proved
reserves is as follows (stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Future cash inflows...................... $ 651,143 $1,073,395 $1,322,489
Future costs:
Production............................. (185,726) (313,606) (335,634)
Development............................ (45,437) (42,604) (41,961)
Income taxes........................... (74,250) (111,229) (186,259)
--------- ---------- ----------
Future net cash flows.................... 345,730 605,956 758,635
10% discount factor...................... (83,691) (156,009) (204,473)
--------- ---------- ----------
Standardized measure of discounted future
net cash flows.......................... $ 262,039 $ 449,947 $ 554,162
========= ========== ==========
</TABLE>

F-37
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
Changes in the standardized measure of discounted future net cash flows
relating to proved reserves are as follows (stated in thousands of dollars):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Standardized measure, beginning of year.. $ 449,947 $ 554,162 $ 531,868
Net changes in sales prices, net of
production costs........................ (105,808) (64,251) 59,647
Revisions of quantity estimates.......... (22,467) (21,132) 10,585
Changes in future development costs,
including development costs incurred.... 12,722 8,155 15,504
Accretion of discount.................... 47,490 62,254 56,310
Extension and discoveries................ 69,331 44,267 91,800
Purchases of minerals-in-place........... 12,848 1,814 19,695
Sales of minerals-in-place............... (82,300)
Sales, net of production costs........... (121,457) (180,775) (156,480)
Net change in income taxes............... 679 43,429 (37,149)
Changes in timing and other.............. 1,054 2,024 (37,618)
--------- --------- ---------
Standardized measure, end of year........ $ 262,039 $ 449,947 $ 554,162
========= ========= =========
</TABLE>

F-38
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(STATED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1995 1994
------- -------
<S> <C> <C>
REVENUES:
Natural gas................................................. $19,140 $38,516
Oil and gas liquids......................................... 9,658 13,611
Other....................................................... 69 885
------- -------
28,867 53,012
------- -------
OPERATING EXPENSES:
Lease operating............................................. 8,536 13,689
General and administrative.................................. 4,280 4,761
Depreciation, depletion and amortization.................... 19,603 28,889
Exploration................................................. 2,695 3,770
------- -------
35,114 51,109
------- -------
OPERATING INCOME (LOSS)....................................... (6,247) 1,903
------- -------
OTHER INCOME (EXPENSE)
Interest expense............................................ (2,119) (1,392)
Interest income............................................. 155 525
Other, net.................................................. 144 140
------- -------
(1,820) (727)
------- -------
EARNINGS (LOSS) BEFORE TAXES.................................. (8,067) 1,176
INCOME TAX BENEFIT (EXPENSE):
Current..................................................... 5,727 5,439
Deferred.................................................... (1,316) (4,574)
------- -------
4,411 865
------- -------
NET EARNINGS (LOSS)........................................... $(3,656) $ 2,041
======= =======
</TABLE>

F-39
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
(STATED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 5,653 $ 10,888
Accounts receivable
Oil and gas.......................................... 11,875 20,009
Trade................................................ 6,798 6,030
Affiliates........................................... 14,708 7,616
Inventories........................................... 1,876 2,125
Prepaid expenses...................................... 2,437 3,635
--------- ---------
Total current assets............................... 43,347 50,303
--------- ---------
PROPERTY AND EQUIPMENT
Oil and gas properties, based on successful efforts
method.............................................. 802,337 787,579
Other property and equipment......................... 6,700 6,671
--------- ---------
809,037 794,250
Less: Accumulated depreciation, depletion and
amortization........................................ (381,754) (362,548)
--------- ---------
Net property and equipment.......................... 427,283 431,702
--------- ---------
OTHER ASSETS........................................... 540 655
--------- ---------
TOTAL ASSETS........................................... $ 471,170 $ 482,660
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 11,954 $ 15,394
Interest payable..................................... 65 67
Accrued liabilities.................................. 10,190 10,998
--------- ---------
Total current liabilities.......................... 22,209 26,459
--------- ---------
DEFERRED INCOME TAXES.................................. 73,845 72,529
ABANDONMENT, DISMANTLEMENT AND OTHER LIABILITIES....... 8,964 13,864
LONG-TERM DEBT......................................... 115,000 115,000
STOCKHOLDER'S EQUITY
Common stock......................................... 1 1
Additional paid-in capital........................... 335,470 335,470
Accumulated deficit.................................. (84,319) (80,663)
--------- ---------
Total stockholder's equity......................... 251,152 254,808
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $ 471,170 $ 482,660
========= =========
</TABLE>

F-40
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(STATED IN THOUSANDS DOLLARS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $ (3,656) $ 2,041
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, depletion and amortization................. 19,603 28,889
Deferred income taxes.................................... 1,316 4,574
Dry hole expense......................................... 933 952
Surrendered leases and other impairments................. 584 1,381
Loss (gain) on sale of assets............................ (3) (10)
Other.................................................... (1,309) (532)
-------- --------
17,468 37,295
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............... (3,540) 5,211
Decrease in prepaid expenses............................. 1,198 798
Increase (decrease) in accounts payable.................. (3,413) 170
Decrease in interest payable............................. (2) (30)
Decrease in accrued liabilities and other................ (559) (4,360)
-------- --------
Net cash provided by operating activities.............. 11,152 39,084
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (16,350) (12,358)
Decrease in drilling well accrual......................... (60) (1,576)
Proceeds from sale of property and equipment.............. 23 207
-------- --------
Net cash used in investing activities.................. (16,387) (13,727)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (5,235) 25,357
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 10,888 48,117
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 5,653 $ 73,474
======== ========
</TABLE>

F-41
<PAGE>

DALEN CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

1. The accompanying consolidated financial statements of DALEN Corporation and
Subsidiaries (the "Company") have not been audited by independent public
accountants. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the interim periods included herein have been made. Certain
information and footnote disclosures normally included in the consolidated
financial statements have been omitted. These consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included elsewhere herein.

2. In April 1995, Enserch Exploration, Inc., 99.2% owned by ENSERCH, entered
into a definitive agreement to acquire 100% of the capital stock of the Company
for $340 million plus the assumption of $115 million of bank debt.

3. In the third quarter of 1994, the Company sold certain oil and gas
properties that did not fit within the Company's current business strategy. The
Company sold the properties, which had a net book value of $131.7 million, to
unrelated third parties for $134.0 million in cash, resulting in a pre-tax gain
of $2.3 million. As a result of the sale, operating results for the three
months ended March 31, 1995 are not comparable to the three months ended March
31, 1994.

F-42
<PAGE>

[LOGO OF ENSERCH EXPLORATION INC. APPEARS HERE]

<PAGE>

[Alternate Cover Page for International Prospectus]

PROSPECTUS (Subject to Completion)
Issued June 21, 1995
Shares

[LOGO OF ENSERCH EXPLORATION INC. APPEARS HERE]

COMMON STOCK

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

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING OFFERED
FOR SALE OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS
AND SHARES ARE BEING OFFERED CONCURRENTLY FOR SALE IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." THE COMMON STOCK IS LISTED
ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "EEX." ON JUNE 20, 1995, THE
REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS
$14 1/2 PER SHARE. PRIOR TO THIS OFFERING, HOWEVER, ONLY A LIMITED NUMBER OF
SHARES HAVE TRADED PUBLICLY. FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE PRICE OF THE COMMON STOCK IN THIS OFFERING SEE "UNDERWRITERS."

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

SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.

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

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

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

PRICE $ A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- ------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
and proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."

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

The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1995 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in New York funds.

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

MORGAN STANLEY & CO.
International
HOWARD, WEIL, LABOUISSE, FRIEDRICHS, INC.
SMITH BARNEY INC.
UBS LIMITED
S.G. WARBURG SECURITIES
, 1995

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The table below sets forth the expenses expected to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock to be registered hereby, other than underwriting discounts and
commissions. All amounts shown are estimates except [ ].

<TABLE>
<S> <C>
Commission Registration Fee......................................... $118,966
NASD Filing Fee..................................................... *
NYSE Fee............................................................ *
Transfer Agent and Registrar Fees and Expenses...................... *
Printing and Engraving Expenses..................................... *
Blue Sky Fees and Expenses.......................................... *
Legal Fees and Expenses............................................. *
Engineering Fees and Expenses....................................... *
Accounting Fees and Expenses........................................ *
Miscellaneous....................................................... *
--------
Total............................................................... *
========
</TABLE>
- --------
* To be filed by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Restated Articles of Incorporation provide that, to the
fullest extent permitted by Texas law, directors of the Registrant will not be
liable to the Registrant or its shareholders for monetary damages for any act
or omission occurring in their capacity as a director. Texas law does not
currently authorize the elimination or limitation of the liability of a
director to the extent the director is found liable for (i) any breach of the
director's duty of loyalty to the Registrant or its shareholders, (ii) acts or
omissions not in good faith that constitute a breach of duty of the director
to the Registrant or which involve intentional misconduct or a knowing
violation of law, (iii) transactions from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office or (iv) acts or omissions for which
the liability of a director is expressly provided by an applicable statute.

The Registrant's Bylaws grant mandatory indemnification to directors and
officers of the Registrant to the fullest extent authorized under the Texas
Business Corporation Act (the "TBCA"). Under the TCBA, a Texas corporation may
in general indemnify a director or officer who was, is or is threatened to be
made a named defendant or respondent in a proceeding by virtue of his position
in the corporation if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, in the case of criminal proceedings, had no reasonable cause to believe
his conduct was unlawful. Further, a Texas corporation may indemnify a
director or officer in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and
reasonably entitled to indemnity for such expenses as the court deems proper,
within statutory limits.

The above discussion of the Registrant's Restated Articles of Incorporation
and Bylaws and of the TBCA is not intended to be exhaustive and is qualified
in its entirety by the Restated Articles of Incorporation and Bylaws and the
TBCA.

Reference is made to the Form of Underwriting Agreement filed as Exhibit
1.1, which provides for indemnification in certain instances by the
Underwriters of the directors and officers of the Registrant signing the
Registration Statement, and of certain controlling persons of the Registrant,
against certain liabilities, including certain liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").

II-1
<PAGE>

The Registrant maintains director and officer liability insurance providing
insurance protection for specified liabilities under specified terms.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement (1)
4.1 Form of Common Stock Certificate (2)
5 Opinion of Jackson & Walker, L.L.P. (1)
10.1 Enserch Exploration, Inc. 1994 Stock Incentive Plan (2)
10.2 Assignment and Conveyance from Enserch Exploration Partners, Ltd.
Operating Limited Partnership, "Grantor", to Encogen One Partners,
Ltd., "Grantee", dated February 29, 1988, filed as Exhibit 10.1 to
Enserch Exploration Partners, Ltd.'s Form 10-K for the fiscal year
ended December 31, 1987
10.3 Lease Agreement for Garden Banks 388-1 between Registrant and Enserch
Exploration, Inc. (Delaware) (2)
10.4 Lease Agreement for Garden Banks 388-2 between Registrant and Enserch
Exploration, Inc. (Delaware) (2)
10.5 Lease Agreement for Mississippi Canyon 441 between Registrant and
Enserch Exploration, Inc. (Delaware) (2)
10.6 Participation Agreement between EP Operating Limited Partnership and
Mobil Producing Texas & New Mexico Inc. (2)
10.7 Stock Purchase Agreement dated as of April 12, 1995, By and Between
PG&E Enterprises, as Seller, and Registrant, as Buyer (3)
10.8 Letter Agreement regarding intercompany loans effective January 1,
1995, between Registrant and ENSERCH Corporation
10.9 Natural Gas Sales and Purchase Contract between EP Operating Limited
Partnership and Enserch Gas Company, each effective March 1, 1993
10.10 Natural Gas Sales and Purchase Contract between EP Operating Limited
Partnership and Enserch Gas Company, effective March 1, 1993, and
amendment effective November 1, 1994
10.11 Agency Agreement between EP Operating Limited Partnership and Enserch
Gas Company effective March 1, 1993
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Jackson & Walker, L.L.P. (to be included in its opinion
filed as Exhibit 5)
23.4 Consent of DeGolyer and MacNaughton
23.5 Consent of Netherland, Sewell & Associates, Inc.
24.1 Powers of Attorney--included on page II-4 of this Registration
Statement
27.1 Restated Financial Data Schedule (1)
</TABLE>
- --------
(1) To be filed by amendment.
(2) Filed as an exhibit to the Registrant's Registration Statement No. 33-56791
on Form S-4 and incorporated herein by reference.
(3) Filed as an exhibit to the ENSERCH Corporation Current Report on Form 8-K
dated May 26, 1995, and incorporated herein by reference.

II-2
<PAGE>

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED IN THE CITY OF DALLAS, STATE OF TEXAS ON THE 21ST DAY OF JUNE,
1995.
Enserch Exploration, Inc.

By /s/ D.W. Biegler
-----------------------------------
D.W. BIEGLER, CHAIRMAN
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
D.W. Biegler, J.T. Wiliams and J.P. McCormick as his true and lawful attorney-
in-fact and agent, each acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURES TITLE DATE
---------- ----- ----

/s/ D.W. Biegler Chairman and June 21, 1995
- ------------------------------------ Director
D.W. BIEGLER

/s/ J.T. Williams Vice Chairman, June 21, 1995
- ------------------------------------ Chief Executive
J.T. WILLIAMS Officer and
Director
(Principal
Executive Officer)

/s/ Gary J. Junco President, Chief June 21, 1995
- ------------------------------------ Operating Officer
GARY J. JUNCO and Director

/s/ F.S. Addy Director June 21, 1995
- ------------------------------------
F. S. ADDY

/s/ B.A. Bridgewater, Jr. Director June 21, 1995
- ------------------------------------
B. A. BRIDGEWATER, JR.

/s/ J.P. McCormick Senior Vice June 21, 1995
- ------------------------------------ President and
J.P. MCCORMICK Chief Financial
Officer Principal
Financial Officer

/s/ J.W. Pinkerton Vice President and June 21, 1995
- ------------------------------------ Controller,Principal
J.W. PINKERTON Accounting Officer

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement (1)
4.1 Form of Common Stock Certificate (2)
5 Opinion of Jackson & Walker, L.L.P. (1)
10.1 Enserch Exploration, Inc. 1994 Stock Incentive Plan (2)
10.2 Assignment and Conveyance from Enserch Exploration
Partners, Ltd. Operating Limited Partnership, "Grantor",
to Encogen One Partners, Ltd., "Grantee", dated February
29, 1988, filed as Exhibit 10.1 to Enserch Exploration
Partners, Ltd.'s Form 10-K for the fiscal year ended
December 31, 1987
10.3 Lease Agreement for Garden Banks 388-1 between Registrant
and Enserch Exploration, Inc. (Delaware) (2)
10.4 Lease Agreement for Garden Banks 388-2 between Registrant
and Enserch Exploration, Inc. (Delaware) (2)
10.5 Lease Agreement for Mississippi Canyon 441 between
Registrant and Enserch Exploration, Inc. (Delaware) (2)
10.6 Participation Agreement between EP Operating Limited
Partnership and Mobil Producing Texas & New Mexico Inc.
(2)
10.7 Stock Purchase Agreement dated as of April 12, 1995, By
and Between PG&E Enterprises, as Seller, and Registrant,
as Buyer (3)
10.8 Letter Agreement regarding intercompany loans effective
January 1, 1995, between Registrant and ENSERCH
Corporation
10.9 Natural Gas Sales and Purchase Contract between EP
Operating Limited Partnership and Enserch Gas Company,
each effective March 1, 1993
10.10 Natural Gas Sales and Purchase Contract between EP
Operating Limited Partnership and Enserch Gas Company,
effective March 1, 1993, and amendment effective November
1, 1994
10.11 Agency Agreement between EP Operating Limited Partnership
and Enserch Gas Company effective March 1, 1993
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Jackson & Walker, L.L.P. (to be included in
its opinion filed as Exhibit 5)
23.4 Consent of DeGolyer and MacNaughton
23.5 Consent of Netherland, Sewell & Associates, Inc.
24.1 Powers of Attorney--included on page II-4 of this
Registration Statement
27.1 Restated Financial Data Schedule (1)
</TABLE>
- --------
(1) To be filed by amendment.
(2) Filed as an exhibit to the Registrant's Registration Statement No. 33-56791
on Form S-4 and incorporated herein by reference.
(3) Filed as an exhibit to the ENSERCH Corporation Current Report on Form 8-K
dated May 26, 1995, and incorporated herein by reference.

<PAGE>

Exhibit 10.8

Effective as of January 1, 1995

Enserch Exploration, Inc.
4849 Greenville Avenue
Suite 1500
Dallas, Texas 75206-4186

This letter is to confirm and formalize a borrowing arrangement between
ENSERCH Corporation ("ENSERCH") and Enserch Exploration, Inc., ("EEX"), a Texas
corporation, by which ENSERCH may advance funds to EEX and/or EEX may advance
funds to ENSERCH at any time between the date hereof and the Final Availability
Date (defined below). The terms and conditions of this arrangement are as
follows:

Amount: The aggregate amount of loans from ENSERCH to EEX or from EEX to
ENSERCH shall not exceed $100 million outstanding at any one time
between May 1, 1995 and the date EEX concludes a public offering
of EEX's common stock and $50,000,000 thereafter.

Availability: Amounts may be drawn hereunder between the date hereof and March
31, 1999 (the Final Availability Date). On March 31, 1998 (the
Extension Notice Date) and on each March 31 thereafter, the Final
Availability Date and the Final Maturity Date as later defined
are extended by one year unless one party has given one year's
prior written notice of cancellation to the other party prior to
the Extension Notice Date.

Term: This arrangement shall remain in effect from the date hereof
until the maturity date of the last advance made hereunder. No
advance made hereunder shall mature on a date later than April 1,
1999 (the Final Maturity Date) unless the Final Maturity Date is
extended pursuant to the terms of this agreement whereupon no
advance made hereunder shall mature on a date later than the
extended Final Maturity Date.

Interest Rate: Prior to May 1, 1995 , EEX will pay interest on the daily net
balance of loans from ENSERCH at a per annum rate equal to one
month LIBOR + .425%, with this rate set at the first business day
of each month for that month. Likewise, ENSERCH will pay interest
at this same rate on the daily net balance of short-term loans
from EEX to ENSERCH. On May 1,
<PAGE>

Enserch Exploration, Inc.
Effective as of January 1, 1995
Page 2

1995 and thereafter, EEX will pay interest on the daily net
balance of loans from ENSERCH at a per annum rate equal to the
average rate of all loans EEX has outstanding under its bank
facilities or the one month LIBOR rate plus the spread specified
in the bank facilities with this rate set at the first business
day of each month for the month. If this rate exceeds the rate
specified by the formula in EEX's Articles of Incorporation, the
rate calculated pursuant to the Articles of Incorporation will be
charged. If ENSERCH is required to pay interest to EEX pursuant
to terms of this agreement after May 1, 1995, the interest rate
to be paid by ENSERCH will be the rate it would have paid on one
month commercial paper as of the first day of the month in which
the borrowing is outstanding. The interest rate on any overdue
amounts shall be the interest rate then applicable to such
amount(s) plus 2% per annum.

Repayment: Interest on all loans made hereunder shall be payable monthly.
Principal, along with any accrued and unpaid interest, shall be
repaid in a lump sum on Final Maturity Date.

Prepayment: Prepayment in whole or in part is permitted on any loan without
penalty, premium, or fee.

Promissory Note: Borrowings under this arrangement will be evidenced by the
promissory note ("Note") of ENSERCH or EEX, as the case may
be, substantially in the form of Exhibit A-1 or A-2 attached
hereto, as appropriate, with a grid schedule to indicate
amount(s) outstanding and the maturity date of each loan.

Representations
and Warranties: Each acceptance of a loan shall constitute a representation
and warranty by the borrower that this letter is valid and
legally enforceable in accordance with its terms except to
the extent that enforcement thereof may be limited by
bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally.

The obligations of EEX or ENSERCH, as the case may
<PAGE>

Enserch Exploration, Inc.
Effective as of January 1, 1995
Page 3

be, under this arrangement and the respective Note rank and will
rank at least pari passu in priority of payment with all other
----------
senior debt of EEX or ENSERCH, as the case may be.

Events of
Default: An Event of Default means any of the following events:

(a) Failure of EEX or ENSERCH, as the case may be, to pay
principal when due or interest within (5) calendar days after the
due date; or
<PAGE>

Enserch Exploration, Inc.
Effective as of January 1, 1995
Page 4

(b) Any of EEX's or ENSERCH's, as the case may be,
representations or warranties made herein shall prove to have
been incorrect in any material adverse respect when made;

(c) EEX or ENSERCH, as the case may be, shall make an assignment
for the benefit of creditors or admit in writing its inability to
pay its debts as they mature or a receiver or trustee or similar
official is appointed for it or substantially all of its property
and if such appointment is made without its consent, such
appointment is not stayed or discharged within 90 days; or
proceedings under any law relating to bankruptcy, insolvency or
the relief of debtors be instituted by or against it, and if
contested by it, such proceedings are not stayed or dismissed
within 90 days; or a writ of attachment or similar process is
issued or levied against a substantial part of its property which
is not released, stayed, bonded or vacated within 90 days after
issue or levy.

Governing Law: This arrangement shall be governed by, and construed in
accordance with the laws of the State of Texas.

If the foregoing correctly expresses our mutual understanding on these
advances, please signify by executing the original and copy of this letter and
returning the copy for our files.

Very truly yours,

ENSERCH Corporation

/s/ A. E. Gallatin
-----------------------------
A. E. Gallatin
Vice President and Treasurer

Agreed and Accepted:

ENSERCH EXPLORATION, INC.

/s/ J. W. Pinkerton
- ----------------------------------
J. W. Pinkerton
Vice President and Controller

<PAGE>

EXHIBIT 10.9

AMENDMENT
---------

THIS AMENDMENT, is made and entered into to be effective the first day of
March, 1993, by and between EP OPERATING LIMITED PARTNERSHIP, a Texas limited
partnership, and ENSERCH GAS COMPANY, a division of Lone Star Energy Company,
a Texas corporation.

WITNESSETH
----------

WHEREAS, a Natural Gas Sales and Purchase Contract has been entered into
by and between EP Operating Limited Partnership ("EPO") and Enserch Gas
Company ("EGC") effective March 1, 1993 ("Offsystem Contract"); and

WHEREAS, an Agency Agreement has been entered into by and between EPO and
EGC effective March 1, 1993 ("Agency Agreement"); and

WHEREAS, the parties desire to amend the Offsystem Contract and Agency
Agreement to provide the basis for determining the sales price under the
Offsystem Contract and the agency fee under the Agency Agreement when sales
are made from the same field during the same month pursuant to the Offsystem
Contract and the Agency Agreement.

NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00) to each in hand paid by the other party hereto, the receipt and
sufficiency of which is hereby acknowledged and the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:

Notwithstanding anything to the contrary contained in the Offsystem
Contract and Agency Agreements, said agreements are amended as set forth below:
<PAGE>

(1) For the purpose of this Amendment, "Aggregate Average Daily Volume"
shall mean the total of the average daily volume under the Offsystem Contract
and the average daily volume under the Agency Agreement on a field by field
basis.

(2) For purposes of determining the volumes to which the various
percentages shall apply to Buyer's weighted average sales price ("WASP") under
the Offsystem Contract, the applicable volumes referenced in paragraphs A, B
and C in the Price provision of the Offsystem Contract shall be calculated on a
field by field basis, and the volume for any field from which EGC has both
purchased gas under the Offsystem Contract and marketed gas for EPO under the
Agency Agreement shall be multiplied by a fraction, the numerator of which is
the average daily volume delivered to Buyer under the Offsystem Contract from
any such field, and the denominator of which is the Aggregate Average Daily
Volume from any such field.

(3) For purposes of determining the volumes to be applied to the various
fees under the Agency Agreement, the applicable volumes referenced in
paragraphs A, B and C of the Fee and Payment provision of the Agency Agreement
shall be calculated on a field by field basis and the volume for any field from
which EGC has both purchased gas under the Offsystem Contract and marketed gas
for EPO under the Agency Agreement shall be multiplied by a fraction, the
numerator of which is the average daily volume delivered to a third party or
parties pursuant to the Agency Agreement, and the denominator of which is the
Aggregate Average Daily Volume.

- --------------------------------------------------------------------------------
Amendment - Page 2 of 6
<PAGE>

II.
EXAMPLE

In one month, in the same field, there are sales to EGC under the
Offsystem Contract and sales to a third party pursuant to the Agency Agreement.
The Aggregate Average Daily Volume is 8,000 MMBtu/day. The Offsystem Contract
average daily volume is 6,000 MMBtu/day and the Agency Agreement average daily
volume is 2,000 MMBtu/day.

Offsystem Contract
------------------

A. Volumes Sold for 98% of EGC's WASP
----------------------------------
1,000 x 6,000/8,000 = 750 MMBtu/day

B. Volumes Sold for 99% of EGC's WASP
----------------------------------
4,000 x 6,000/8,000 = 3,000 MMBtu/day

C. Volumes Sold for 99 1/2% of EGC's WASP
--------------------------------------
3,000 x 6,000/8,000 = 2,250 MMBtu/day

=====================
Total 6,000 MMBtu/day

Agency Agreement
----------------

A. Volumes with Fee Based on 2% of Net Amount
------------------------------------------
1,000 x 2,000/8,000 = 250 MMBtu/day

B. Volumes with Fee Based on 1% of New Amount
------------------------------------------
4,000 x 2,000/8,000 = 1,000 MMBtu/day

C. Volumes with Fee Based on 1/2% of Net Amount
------------------------------------------
3,000 x 2,000/8,000 = 750 MMBtu/day

=====================
Total 2,000 MMBtu/day

- --------------------------------------------------------------------------------
Amendment - Page 3 of 6
<PAGE>

IN WITNESS WHEREOF, this Amendment has been executed in duplicate
originals effective as of the day and year first herein written.

"EPO"

ATTEST: EP Operating Limited Partnership
by Enserch Exploration, Inc.,
Managing General Partner

BY: /s/ F. W. Fraleym By: /s/ Gary J. Junco
------------------------- --------------------------
Gary J. Junco
President

"EGC"

ATTEST: Enserch Gas Company, a division of
Lone Star Energy Company,
a Texas corporation

BY: /s/ F. W. Fraleym By: /s/ G. Marc Lyons
------------------------- --------------------------
G. Marc Lyons
Sr. Vice President

- --------------------------------------------------------------------------------
Amendment - Page 4 of 6
<PAGE>

STATE OF TEXAS

COUNTY OF DALLAS

This instrument was acknowledged before me on the 8th day of April,
1993, by Gary J. Junco, President of ENSERCH EXPLORATION, INC., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation in its capacity as Managing General
Partner of EP OPERATING Limited PARTNERSHIP.

/s/ Tammy Sue Anderson
----------------------------------
Notary Public in and for
the State of Texas

TAMMY SUE ANDERSON
COMMISSION EXPIRES My commission expires: 6-11-93
JUNE 11 1993 Printed name:Tammy Sue Anderson

- --------------------------------------------------------------------------------
Amendment - Page 5 of 6
<PAGE>

STATE OF TEXAS

COUNTY OF DALLAS

This instrument was acknowledged before me on the 8th day of April, 1993,
by G. Marc Lyons Sr., Vice President of ENSERCH GAS COMPANY, a division of Lone
Star Energy Company, a Texas corporation, known to me to be the person whose
name is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in the
capacity therein stated, and as the act and deed of said corporation.

/s/ Tammy Sue Anderson
----------------------------------
Notary Public in and for
the State of Texas

TAMMY SUE ANDERSON My commission expires: 6-11-93
COMMISSION EXPIRES
JUNE 11 1993 Printed name: Tammy Sue Anderson

- --------------------------------------------------------------------------------
Amendment - Page 6 of 6
<PAGE>

NATURAL GAS SALES AND PURCHASE CONTRACT

Enserch Gas Company

SELLER BUYER

NAME: EP Operating Limited Partnership NAME: Enserch Gas Company

ADDRESS: P.O. Box 2649 ADDRESS: 10375 Richmond Ave., Suite 300
Dallas, Texas 76011 Houston, Texas 77042-4166

ATTN: Gas Contract Administration ATTN: Off-System Volume Control

PHONE: (214) 670-2946 FAX: (713) 954-4439
FAX: (214) 670-1549 PHONE: (713) 954-4440

SEND PAYMENTS BY WIRE SEND INVOICES TO:
TRANSFER TO:
Same As Above
EP Operating Limited Partnership
Texas Commerce Bank - Dallas
ABA No. 111001150
Account No. 08805017306

QUANTITY (MMBTU): Seller shall give Buyer written notice ten (10) days prior
to the commencement of each month during which Seller anticipates delivering
gas to Buyer of the volumes of gas, on a field-by-field basis, that Seller
estimates shall be available for delivery to Buyer during each such month.
Seller shall provide Buyer with as much advance notice as possible of any
changes in any of the estimated volumes.

TERM: Subject to the other terms and provisions hereof, this Contract shall
be effective for a primary term commencing March 1, 1993 and shall continue
in full force and effect through and including December 31, 1996 and year
to year thereafter until cancelled by either party by giving written notice
to the other party at least six (6) months prior to January 1 of the year
such cancellation shall be effective.

PRICE PER MMBTU (AS MEASURED AND CALCULATED AT EACH DELIVERY POINT): Buyer
shall pay and Seller shall accept prices calculated as follows: The prices
payable under this Contract shall be calculated each month, on a field-by-field
basis, and, for each field, shall be equal to the following percents of
Buyer's weighted average sales price for gas produced from each such field
and delivered to Buyer's customers during any such month, from which weighted
average sales price shall first be deducted the transportation expense incurred
by Buyer in transporting such gas to Buyer's customers. For the purposes
of this Contract, "Average Daily Volume" shall mean the total volume delivered
in any given month divided by the number of days in such month.

A. For any month during which the Average Daily Volume is less than one
thousand (1,000) MMBtu per day, the price shall be equal to ninety-eight
percent (98%) of Buyer's weighted average sales price for such month.

B. For any month during which the Average Daily Volume is greater than
or equal to one thousand (1,000) MMBtu per day, but less than five
thousand (5,000) MMBtu per day, the price shall be equal to (i)
ninety-eight percent (98%) of Buyer's weighted average sales price for
such month for one thousand (1,000) MMBtu per day and (ii) ninety-nine
percent (99%) of Buyer's weighted average sales price for such month for
those volumes in excess of one thousand (1,000) MMBtu per day.

C. For any month during which the Average Daily Volume is greater than
or equal to five thousand (5,000) MMBtu per day, the price shall be equal
to (i) ninety-eight percent (98%) of Buyer's weighted average sales price
for such month for the first one thousand (1,000) MMBtu per day; (ii)
ninety-nine percent (99%) of Buyer's weighted average sales price for such
month for the next four thousand (4,000) MMBtu per day; and (iii)
ninety-nine and one-half percent (99 1/2%) of Buyer's weighted average
sales price for such month for those volumes in excess of five thousand
(5,000) MMBtu per day.

The parties agree that the amount of severance, production or similar tax,
fee or other levy on the production of gas (not including income, excess
profits, capital stock, franchise or general property tax) levied, assessed
or fixed in respect of or applicable to the gas to be delivered by Seller
to Buyer hereunder is included in this price.

DELIVERY POINT(S): Mutually agreeable point(s) to be evidenced in writing.

THIS CONTRACT IS SUBJECT TO THE TERMS AND CONDITIONS ON THE REVERSE SIDE
HEREOF.

We acknowledge that this represents the agreement reached between Buyer
and Seller:

SELLER: EP OPERATING LIMITED PARTNERSHIP BY ENSERCH EXPLORATION,
INC., ITS MANAGING PARTNER
/s/ Gary J. Junco
--------------------------------------------------------
PRINTED NAME: Gary J. Junco
4/8/93
--------------------------------------------------------
TITLE: President Date
--------------------------------------------------------------------------
BUYER: ENSERCH GAS COMPANY
/s/ G. Marc Lyons
--------------------------------------------------------
4/8/93
--------------------------------------------------------
TITLE: Sr. Vice President Date
<PAGE>

TERMS AND CONDITIONS

1. SUBJECT MATTER AND QUANTITY: During each month during the term of this
Contract, Seller may sell and Buyer may purchase the quantity of natural gas
that Seller has notified Buyer, in accordance with this Contract, may be
available for delivery during any such month; provided, however, neither party
is obligated to sell or to purchase any specific amount of gas. Buyer will
endeavor to (i) accept each day that Seller has gas available for delivery and
(ii) provide Seller with as much advance notice as reasonably possible of
interruption of Buyer's ability to accept gas.

2. PRICE: Buyer agrees to pay and Seller agrees to accept the Price established
as set forth on the front of this Contract for all gas actually delivered in
accordance with this Contract.

3. DELIVERY POINT(S), TRANSPORTATION AND PRESSURE: The Delivery Point(s)
hereunder may vary from time to time and shall be those points mutually agreed
upon by Buyer and Seller during the term of this Contract, which agreement shall
be evidenced in writing signed by Buyer and Seller. Seller shall arrange and pay
for transportation of the gas to the Delivery Point(s), and Buyer shall arrange
and pay for transportation of the gas thereafter. The gas shall be delivered at
a pressure sufficient to enter the receiving pipeline's facilities at the
existing pressure from time to time; provided, however, neither party shall be
required to compress gas in order to effect delivery. Buyer shall nominate and
Seller shall confirm daily dispatch volumes for the coming month at least 24
hours prior to the transporting pipeline(s) deadline. Changes in nomination
shall be made at least 48 hours prior to scheduled delivery or prior to the
applicable pipeline's deadline, whichever is sooner. Any pipeline charges
related to imbalances or changes shall be paid by the party whose failure or
change caused the charge.

4. TERM: The term of this Contract is three (3) years commencing March 1, 1993
and year-to-year thereafter until cancelled as set out on the front of this
Contract.

5. QUALITY AND MEASUREMENT: Measurement of volume (Mcf) or heating value (MMBtu)
of the natural gas purchased and sold hereunder shall be made at the Delivery
Point(s) in accordance with the receiving pipeline's tariff or other procedures.
Buyer shall not be obligated to purchase any gas which does not meet all
specifications of the receiving pipeline.

6. BILLINGS AND PAYMENT: Seller shall invoice Buyer on or before the fifteenth
(15th) day of the month following actual deliveries. Buyer shall pay Seller by
wire transfer on or before the last day of the month following deliveries. If
Buyer fails to make full payment to Seller when payment is due, interest shall
accrue at the prime rate of NationsBank, Dallas, Texas. Each party shall have
the right at reasonable times to examine the records of the other party to the
extent necessary to verify the accuracy of any statement or payment made
pursuant hereto, which right may be exercised monthly. No adjustment or
repayment shall be made after the lapse of twenty-five (25) months from the date
the payment was due.

7. FORCE MAJEURE: In the event either party hereto is rendered unable, wholly or
in part, by reason of force majeure to carry out any obligation under this
Contract, other than to make payments due, it is agreed that, upon timely
notice, such inability shall not be the basis of claims for damages sustained by
either party or for breach of contract. The term "force majeure: shall mean acts
of God or government authority; the elements; labor troubles; fires; accidents;
breakage, repair or change of or obstruction in pipelines, equipment or
machinery; fluctuations in gas pressure; demands in excess of the capacity of
Seller's equipment or pipelines; failure of performance by any third party
transporter that is not caused by the party claiming force majeure; or other
causes or contingencies reasonably beyond the control of the party claiming
force majeure.

8. TITLE: Title to the natural gas sold hereunder shall pass at the Delivery
Point(s). In any event, Seller will pay or cause to be paid all royalties,
taxes and other sums due on production and transportation of the natural gas
prior to delivery. Seller shall be in full control and possession of the natural
gas and shall be fully responsible and shall indemnify Buyer for any damage or
injuries caused thereby until the natural gas is delivered to Buyer at the
Delivery Point(s), except for injuries and damage which shall be caused by the
negligence of Buyer. Buyer shall pay all taxes or other sums due on or after
delivery of gas to Buyer and shall be fully responsible and shall indemnify
Seller for damage or injury occurring after the natural gas is delivered to the
Delivery Point(s), except for injuries and damages caused by the negligence of
Seller.

9. WARRANTIES AND LIMITATIONS OF LIABILITIES: Seller warrants that it has the
right to sell all gas delivered and that such gas is free from liens and adverse
claims of any kind. Seller shall save and hold Buyer harmless against all loss,
damage and expense of every character due to adverse claims on gas delivered. In
the event of a dispute concerning Seller's title or right to the proceeds of the
sale of gas delivered under this Contract, Buyer may suspend payments for any
disputed amount, without interest, until the problem is corrected to Buyer's
satisfaction or Seller furnishes security satisfactory to Buyer.

10. ASSIGNMENT: No assignment of this Contract or of any right or obligation
hereunder shall be made without the written consent of the other party, which
consent shall not be unreasonably withheld or delayed. This Contract shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto.

11. APPLICABLE LAW AND REGULATIONS: THIS CONTRACT IS GOVERNED BY THE LAWS OF THE
STATE OF TEXAS NOT INCLUDING ANY CONFLICT OF LAW PRINCIPLES THAT MIGHT REQUIRE
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. This sale is subject to
all applicable governmental laws, orders, directives, rules and regulations. The
parties agree that all natural gas sold hereunder is not subject to any maximum
lawful price under the Natural Gas Policy Act.

12. ENTIRE AGREEMENT: This document shall constitute the entire agreement
between the parties and supersedes all previous agreements. No other promises,
agreements or warranties additional to this Contract shall be deemed a part
hereof nor shall any alteration or amendment of this Contract be effective
without the written consent of each party.

13. CONFIDENTIALITY: The parties shall keep the terms of this Contract
confidential except as may be required to effectuate transportation of the gas
or to meet the requirements of a regulatory agency having jurisdiction over the
matter for which information is sought.

14. WAIVER OF DEFAULT: No waiver of one or more defaults by either party shall
operate as a waiver of any future default(s) whether of a like or different
nature.

15. NOTICE: Any notice required hereunder shall be deemed properly served when
delivered personally, when deposited in the U.S. mail if sent to the addresses
stated on the face hereof by mail, or when actually received at the receiver's
facsimile machine during regular business hours (8:00 a.m. to 5:00 p.m c.s.t.,
Monday through Friday) if by facsimile.

<PAGE>

EXHIBIT 10.10

AMENDMENT TO NATURAL GAS SALES AND PURCHASE CONTRACT
----------------------------------------------------

This Amendment to Natural Gas Sales and Purchase Contract, made and entered
into to be effective the 1st day of November, 1994, by and between EP OPERATING
LIMITED PARTNERSHIP, a Texas limited partnership, hereinafter referred to as
"Seller" and ENSERCH GAS COMPANY, a Texas corporation, hereinafter referred to
as "Buyer".

W I T N E S S E T H:

WHEREAS, Seller and Enserch Gas Company, a division of Lone Star Energy
Company, a Texas corporation, made and entered into a Natural Gas Sales and
Purchase Contract (Subject Contract) effective March 1, 1993, as amended, which
provided for the sale of gas to be delivered on Lone Star Gas Company's pipeline
system, reference to which is hereby made for all purposes; and

WHEREAS, Buyer has succeeded to the interests of Enserch Gas Company, a
division of Lone Star Energy Company; and

WHEREAS, Seller and Buyer desire to further amend the Subject Contract
effective November 1, 1994 making certain modifications thereto.

NOW THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
cash in hand paid to Seller by Buyer, the receipt and sufficiency of which are
hereby acknowledged, and of the covenants and agreements herein contained,
Seller and Buyer do hereby contract and agree with each other as follows:

I. Effective November 1, 1994, Paragraphs 3.1 B, C, D and E and lines 9
through 20 on page 4 of Article III entitled PRICE, PAYMENT AND MEASUREMENT
------------------------------
shall be deleted in their entirety and the following substituted therefor:

"B. Average Daily Volume Greater Than or Equal to Ten Thousand (10,000)
MMBTU

For any month during which the Average Delivered Volume is greater
than or equal to ten thousand (10,000) MMBTU per day, the price for
the volume
<PAGE>

-2-

delivered on any one day during such month shall be equal to the
arithmetic average of the high and low postings as published in the
Gas Daily for Lone Star, East Texas - Carthage for such day of such
---------
calendar month multiplied by the total volume delivered on such day.
For those days of the calendar month for which a Gas Daily posting is
---------
not published, the price used in such weighted arithmetic average
shall be the most recent published posting and shall continue to be
used until a new posting is published."

II. As hereby amended, the Subject Contract shall remain in full force and
effect. The terms and provisions hereof shall be binding upon and inure to the
benefit of the parties hereto, their heirs, representatives and assigns.

IN WITNESS WHEREOF, this Amendment of Gas Purchase Contract has been
executed in duplicate originals as of the day and year first herein written.

BUYER: SELLER:

AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS
21st DAY OF FEBRUARY, 1995. 30th DAY OF JANUARY, 1995.
- ---- -------- -- ---- ------- --
ENSERCH GAS COMPANY, EP OPERATING LIMITED PARTNERSHIP
a Texas Corporation by ENSERCH EXPLORATION, INC.
Managing General Partner

BY /s/G. MARC LYONS BY /s/GARY J. JUNCO
-------------------------- -------------------------
PRINTED NAME G. MARC LYONS PRINTED NAME GARY J. JUNCO
---------------- ----------------
TITLE Sr. Vice President TITLE President
----------------------- -----------------------
<PAGE>

NATURAL GAS SALES AND PURCHASE CONTRACT
---------------------------------------

THIS CONTRACT, made and entered into to be effective the 1st day of March,
1993, by and between EP OPERATING LIMITED PARTNERSHIP, a Texas limited
partnership, hereinafter referred to as "Seller" and ENSERCH GAS COMPANY, a
division of Lone Star Energy Company, a Texas corporation, hereinafter referred
to as "Buyer".

W I T N E S S E T H:

In consideration of the sum of Ten Dollars ($10.00) cash in hand paid to
Seller by Buyer, the receipt and sufficiency of which are hereby acknowledged,
and of the covenants and agreements herein contained, Seller and Buyer do hereby
contract and agree with each other as follows:

I.
DELIVERY POINT AND TITLE
------------------------

1.1 The Point(s) of Delivery for all gas delivered hereunder shall be at
mutually agreeable point(s) on the natural gas pipeline system of Lone Star Gas
Company ("Transporter") located in the State of Texas, which mutual agreement
shall be evidenced in writing signed by Buyer and Seller. Title to all gas (and
liquid hydrocarbons contained therein) delivered hereunder shall pass from
Seller to Buyer at said Point(s) of Delivery. The gas will be delivered at a
pressure sufficient to enter Transporter's line(s) at the Point(s) of Delivery.

1.2 Seller shall be in control and possession of the gas sold and purchased
hereunder and shall be responsible for and shall indemnify and hold Buyer and
Transporter harmless from any damage or injury caused thereby until the same
shall have been delivered to Buyer or Transporter at the Point(s) of Delivery,
except for injuries and damages caused by the negligence of Buyer. Buyer shall
be in control and possession of the gas sold and purchased hereunder and shall
be responsible for and shall indemnify and hold Seller harmless from any damage
or injury caused thereby after the same has been delivered to Buyer or
Transporter at the Point(s) of Delivery, except for injuries and damages caused
by the negligence of Seller.
<PAGE>

II.
TERM
----
Subject to the other terms and provisions hereof, this Contract shall be
effective March 1, 1993 and shall thereafter continue in full force and effect
through and including December 31, 1996 and year to year thereafter until
cancelled by either party by giving written notice to the other party at least
six (6) months prior to January 1 of the year such cancellation shall be
effective.

III.
PRICE, PAYMENT AND MEASUREMENT
------------------------------

3.1 The price payable under this Contract may vary from month to month and
shall be calculated as provided below. As used herein, "Average Delivered
Volume" shall mean the total volume delivered in any given month divided by the
total number of days during which Seller actually delivers gas to Buyer during
any such month. "Average Daily Volume" shall mean the total volume delivered in
any given month divided by the number of days in such month. For all of Seller's
gas delivered to Buyer or Transporter at the Point(s) of Delivery and purchased
hereunder, Buyer agrees to pay Seller and Seller agrees to accept prices
calculated as follows:

A. Average Delivered Volume Less Than Ten Thousand (10,000) MMBtu

For any month during which the Average Delivered Volume is less than
ten thousand (10,000) MMBtu per day, the price shall be the
"nondiscriminatory price" Buyer offers to pay other sellers for gas
purchased by Buyer during such month. The "nondiscriminatory price"
shall be the price published in EGC's Non-Discriminatory Proposed Term
Sheet, which is forwarded monthly to sellers of gas to EGC.

B. Average Daily Volume Less Than Ten Thousand (10,000) MMBtu

For any month during which the Average Delivered Volume is greater than
or equal to ten thousand (10,000) MMBtu

2
<PAGE>

per day, but the Average Daily Volume is less than ten thousand
(10,000) MMBtu per day, the price shall be equal to ninety-six percent
(96%) of Buyer's Average Sales Price for such month.

C. Average Daily Volume Between Ten Thousand (10,000) MMBtu and Twenty
Thousand (20,000) MMBtu

For any month during which the Average Daily Volume is greater than or
equal to ten thousand (10,000) MMBtu per day, but less than twenty
thousand (20,000) MMBtu per day, the prices shall be equal to (i)
ninety-six percent (96%) of Buyer's Average Sales Price for such month
for the first ten thousand (10,000) MMBtu per day and (ii) ninety-eight
percent (98%) of Buyer's Average Sales Price for such month for those
volumes in excess of ten thousand (10,000) MMBtu per day.

D. Average Daily Volume Between Twenty Thousand (20,000) MMBtu and Forty
Thousand (40,000) MMBtu

For any month during which the Average Daily Volume is greater than or
equal to twenty thousand (20,000) MMBtu per day, but less than forty
thousand (40,000) MMBtu per day, the prices shall be equal to (i)
ninety-six percent (96%) of Buyer's Average Sales Price for such month
for the first ten thousand (10,000) MMBtu per day; (ii) ninety-eight
percent (98%) of Buyer's Average Sales Price for such month for the
next ten thousand (10,000) MMBtu per day; and (iii) ninety-nine percent
(99%) of Buyer's Average Sales Price for such month for those volumes
in excess of twenty thousand (20,000) MMBtu per day.

E. Average Daily Volume Equal To or Greater Than Forty Thousand
(40,000) MMBtu

For any month during which the Average Daily Volume is greater than or
equal to forty thousand (40,000) MMBtu per day, the prices shall be
equal to (i) ninety-six percent (96%) of Buyer's Average Sales Price
for such month for the first ten thousand (10,000) MMBtu per day;

3
<PAGE>

(ii) ninety-eight percent (98%) of Buyer's Average Sales Price for
such month for the second ten thousand (10,000) MMBtu per day; (iii)
ninety-nine percent (99%) of Buyer's Average Sales Price for such month
for the next twenty thousand (20,000) MMBtu per day; and (iv) ninety-
nine and one-half percent (99 1/2%) of Buyer's Average Sales Price for
such month for those volumes in excess of forty thousand (40,000) MMBtu
per day.

For the purposes of this Contract, "Buyer's Average Sales Price" shall be
defined as the volume weighted price received by Buyer during any month for
sales of natural gas to industrial and electric generation customers connected
to Transporter's natural gas pipeline system located in the State of Texas from
which amount shall be deducted transportation expenses incurred by Buyer during
such month in transporting gas to such customers under contracts with a term of
one (1) year or less or which provide for price renegotiation or price
redetermination at intervals of one (l) year or less. Seller shall have the
right, upon prior request to Buyer, to review Buyer's calculations establishing
Buyer's Average Sales Price for any month or months.

Notwithstanding anything herein contained to the contrary, Buyer shall not
pay any price in excess of any maximum lawful price which may, in the future, be
established by the Federal Energy Regulatory Commission ("FERC") or other
governmental agency asserting jurisdiction over the gas covered hereby.

3.2 Heating value shall be calculated at a pressure of 14.65 pounds per
square inch absolute ("psia"), water vapor as delivered, and a temperature of
sixty degrees (60/degrees/) Fahrenheit. For purposes of payment under this
Contract, gas with a water vapor content of seven (7) pounds or more shall be
deemed water vapor saturated and gas with a water vapor content of less than
seven (7) pounds shall be deemed dry. The unit of measurement shall be one (1)
cubic foot of gas at 14.65 psia and sixty degrees (60/degrees/) Fahrenheit, as
corrected pursuant to the A.G.A.'s G.M.C. Report No. 3, and Transporter's meters
and other measurements shall be conclusive

4
<PAGE>

except for variations in meter accuracy of greater than one percent (1%). The
quantity of gas delivered while the meters were inaccurate or failed to register
shall be determined by correcting the error if the percentage of error is
ascertainable by calibration test or mathematical calculation. If not so
ascertainable, then the quantity shall be determined by using the registration
of Seller's check meter, if installed and registering accurately. If no check
meter is installed and registering accurately, such quantity shall be
established, for any period that is verifiable or agreed upon, by estimating
such quantity on the basis of deliveries under similar conditions when the
meters were registering accurately. In the event the period is not verifiable or
agreed upon, such correction shall be for a period of one-half (1/2) of the time
elapsed since the date of the last test of any such inaccurate meter. Following
any test, metering equipment found to be inaccurate will immediately be restored
by Buyer or Transporter to, as nearly as possible, a condition of accuracy.

3.3 In the event the FERC or federal, state or other governmental agency
otherwise having jurisdiction (herein called "Agency") disallows any portion of
the amounts paid by Buyer to Seller pursuant to this Contract, Seller agrees to
reimburse Buyer for that amount so disallowed and, within thirty (30) days of
the date of such Agency's Order, Seller shall pay Buyer the full amount,
including all interest ordered by Agency.

3.4 Prior to the tenth (10th) day of each month during the term hereof,
Buyer may, if required for volume allocation purposes, provide to Seller's
Representative a statement for gas delivered the previous month. Buyer shall pay
Seller's Representative the amount of the statement by the last day of the month
following the month that said gas deliveries occurred. If Buyer fails to make
full payment to Seller, except as permitted under paragraph 6.1 hereof, when
payment is due, interest shall accrue at the prime rate of NationsBank, Dallas,
Texas. No party receiving proceeds under this Contract may request any
adjustment or correction of any statement or payment unless written notice of
such request for

5
<PAGE>

adjustment or correction is furnished to Buyer within twenty-five (25) months of
the due date of the statement or payment for which such adjustment or correction
is requested.

IV.
QUALITY
-------

4.1 Seller shall deliver for receipt by Buyer or Transporter natural gas
which is of merchantable quality and free of water, hydrocarbon liquids,
hazardous substances, bacteria, and any objectionable gases, liquids and/or
solids. Seller shall be liable for all damage to Buyer's and Transporter's
facilities and/or for all costs arising out of environmental claims, issues,
orders and rulings caused by delivery of the above objectionable substances. In
addition, except as may be mutually agreed upon, the gas shall specifically (a)
be free of oxygen; (b) contain not more than three percent (3.0%) by volume of
carbon dioxide (CO\\2\\), and contain not more than a total of six percent
(6.0%) by volume of nonhydrocarbon gases; (c) contain not more than five (5)
grains of total sulphur per one hundred (100) cubic feet of gas, which sulphur
content shall consist of not more than one quarter (0.25) grain of hydrogen
sulphide (H\\2\\S) nor more than one half (1/2) grain of mercaptan sulphur
(RSH); (d) contain not more than seven (7) pounds of water vapor per one million
(1,000,000) cubic feet of gas; (e) have a heat content of not less than nine
hundred fifty (950) British Thermal Units (Btu) nor more than one thousand one
hundred (1100) Btu per cubic foot under the conditions of measurement contained
herein provided, however, for gas transported thru systems designated by
Transporter as a gathering system the heat content of the gas shall not be less
than one thousand (1000) British Thermal Units per cubic foot (there shall not
be a maximum heat content for gas transported through a gathering system); and
(f) be at a temperature not in excess of one hundred and twenty degrees
(120/degrees/) Fahrenheit nor less than forty degrees (40/degrees/) Fahrenheit.

6
<PAGE>

4.2 The gas delivered under this Contract shall have a stable heating value
and relative density within ranges that will permit utilization thereof by Buyer
in the usual conduct of its business. Buyer shall not be obligated to take any
gas tendered to it under this Contract which, in the judgement of Buyer or
Transporter, is not interchangeable with the gas in that portion of
Transporter's pipeline system to which Seller's delivery line is connected.

4.3 Any distillates, condensates and/or liquid hydrocarbons accumulating in
the drips, lease separators and/or lines from the respective wells to Buyer's
or Transporter's respective meters shall belong to and be owned by Seller. Any
distillates, condensates and/or liquid hydrocarbons accumulating in Buyer's or
Transporter's drips and/or lines after the same have passed through Buyer's or
Transporter's meters shall belong to and be owned by the Buyer.

4.4 The gas delivered under this Contract shall have a hydrocarbon dew
point not to exceed ten degrees (10/degrees/) Fahrenheit at a pressure of four
hundred pounds per square inch gauge (400 psig).

V.
QUANTITY
--------

5.1 Subject to the terms and conditions herein, Buyer shall have the right
to purchase and receive such quantities of gas that Seller has available for
sale at the Point(s) of Delivery hereunder on any given day during the term
hereof; provided, however, Seller shall only deliver gas under this Contract
which is attributable to Seller's interest (which shall include gas being
marketed by Seller on behalf of its non-operating working interest owners) in
the lands and leases from which such gas is produced and all gas delivered under
this Contract shall be attributable to Seller's interest in such lands and
leases. The quantities of gas which Seller has available for sale to Buyer shall
be determined solely by Seller and shall be the quantity of gas which Seller
delivers each day to Transporter at the Point(s) of Delivery hereunder for
Buyer's account. Seller shall give Buyer notice five (5) days prior to the
commencement of each month during which Seller

7
<PAGE>

anticipates delivering gas to Buyer of the volume of gas Seller estimates shall
be available for delivery to Buyer during each such month and, in the event
Seller's estimated volume should vary during the course of any month, Seller
shall notify Buyer of the change in volume as soon as reasonably practicable
prior to the occurrence of any such change in estimated delivery volume. Buyer
or Transporter shall have the right at all reasonable times to inspect Seller's
wells and delivery line and to cause Seller to test same in the presence of
Buyer. Buyer or Transporter shall also have the right, but not the obligation,
to regulate the delivery of gas into Transporter's pipeline and neither Buyer
nor Transporter shall be liable for the resulting effect thereof.

5.2 Buyer will endeavor to purchase all gas which Seller has notified Buyer
that Seller has available for delivery during any month provided that the
operational capabilities of Transporter, as determined by Transporter in its
sole discretion, are sufficient at the time of Seller's tender of gas to enable
Transporter to accept delivery of such tendered gas for Buyer's account. Buyer
is not obligated to take any volumes under this Contract, but Buyer shall pay
Seller for any volumes taken during the term hereunder.

5.3 In no event shall the volumes of gas that Seller sells and delivers to
Buyer or that Buyer purchases and receives from Seller under the terms of this
Contract ever exceed the volumes of gas which can be legally produced under the
applicable rules and regulations of the Railroad Commission of Texas in the
course of reasonably prudent operations.

VI.
WARRANTY
--------

6.1 Seller hereby warrants to Buyer that at the time of delivery of gas
hereunder it will have the right to sell such gas, and that such gas shall be
free and clear of all liens and adverse claims. Seller agrees, with respect to
the gas delivered by it, to indemnify Buyer against all suits, actions, debts,
accounts, damages, costs (including attorney's fees), losses, expenses, or
claims that Buyer may sustain as a result of having made payments

8
<PAGE>

under this Contract. In the event of any dispute, question, or litigation at
anytime concerning Seller's right to sell the gas or to the proceeds of the sale
thereof, Buyer shall be entitled to suspend payment for that amount due Seller
which is in dispute, without interest, until such dispute, defect, or question
is corrected or removed to Buyer's satisfaction, or until Seller furnishes
security conditioned to save Buyer harmless in form and with surety satisfactory
to Buyer. Buyer shall not be unreasonable with regard to its satisfaction in
such matters.

6.2 Each party warrants to the other that its (or its transporter's)
facilities utilized for the delivery and acceptance of gas hereunder are wholly
intrastate facilities and are not subject to the Natural Gas Act of 1938
("NGA"), as heretofore amended. As a material representation, without which
neither party would have been willing to execute this Contract, each party
warrants to the other party that it will take no action nor commit any act of
omission which will subject its facilities, this transaction, the other party's
facilities, or either party's transporter's facilities to jurisdiction of the
FERC or its successor governmental agency under the terms of the NGA. The gas
delivered and accepted hereunder shall not have been nor shall be sold,
transported or otherwise utilized in interstate commerce in a manner which will
subject either party or either party's transporter to the terms of the NGA. In
addition to and without excluding any remedy the aggrieved party may have at law
or in equity, the party who breaches the above warranties and representations
shall be liable to the aggrieved party for all damages, injury and reasonable
expense the aggrieved party may sustain by reason of any breach thereof.
Further, should either party perform any act, or cause any act to be performed,
at any time during the term hereof, that results in any gas covered hereunder
becoming regulated by or subject to jurisdictional consequences of the FERC or
successor governmental authority contrary to this Contract, this Contract shall
be deemed of its own terms to terminate on the day before the date of such
occurrence;

9
<PAGE>

provided, however, such termination shall never be construed to impair any right
arising under this paragraph. Should either party perform any act, or cause any
act to be performed, at any time during the term hereof, that results in any gas
covered hereunder becoming subject to state authority which materially impacts
either party in the continued performance of the Contract, then either party may
terminate this Contract upon ten (10) days' prior written notice.

VII.
FORCE MAJEURE
-------------

Inability or failure of Seller to deliver or of Buyer to receive gas or of
either party to perform under this Contract, except the obligation to pay monies
due hereunder, shall not be the basis of claims for damages sustained by either
party or for breach of contract when due to Acts of God or governmental
authority; the elements; labor disputes; fires; accidents; breakage, repair or
change of or obstruction in pipelines, equipment or machinery; partial or entire
depletion or failure of gas supply or markets; fluctuations in gas pressure;
demands in excess of the capacity of Transporter's equipment or pipelines;
failure of performance by Transporter; any act or omission (including failure to
take gas) of a purchaser of gas from Buyer which is excused by any event or
occurrence of the character herein defined as constituting force majeure, or
other causes or contingencies reasonably beyond the control of either party
hereto. Any such event of force majeure shall, so far as possible, be remedied
with all reasonable dispatch.

VIII.
TAXES
-----

Seller shall be liable for, and shall timely pay, all severance, production
and other taxes applicable to the gas sold and delivered under this Contract
prior to delivery to Buyer. Buyer and Seller hereby acknowledge and agree (i)
that the amount of severance, production or similar tax, fee or other levy on
the production of gas (not including income, excess profits, capital

10
<PAGE>

stock, franchise or general property taxes) levied, assessed or fixed in the
State of Texas in respect of or applicable to the gas to be delivered by Seller
to Buyer hereunder and for which Seller is liable is, as of the date of this
Contract, equal to seven and one-half percent (7 1/2%) of the purchase price
(said percentage may vary by state and over time) and is included, during the
term of this Contract, in the price provided in Article III above and (ii) that
Buyer shall have no obligation to pay to Seller, for the gas sold and delivered
under this Contract, any amount in excess of the price set forth for such gas in
Article III above. In view of the fact that gas to be delivered hereunder may
come from various sources and will be commingled, Seller agrees to make all
reports with respect to gross production taxes applicable to such production and
to pay such gross production taxes, all within the time and manner provided by
law. Seller agrees to make such reports and payments promptly and hereby agrees
to indemnify and hold Buyer harmless from all losses, costs and expenses,
including tax payments, penalty and interest, Buyer may suffer as a result of
Seller's failure to pay taxes as required by the State Comptroller of Public
Accounts. However, nothing contained herein shall prevent Buyer from making such
payments direct to the taxing authorities on behalf of Seller in the event of
Seller's failure to do so and, in such event, Buyer shall have the right to
deduct the amount of such taxes, including any assessed penalty and interest,
from its payments to Seller hereunder. Buyer agrees to pay, or cause to be paid,
all taxes and assessments lawfully levied and imposed upon Buyer with respect to
the gas delivered hereunder after its receipt by Buyer. Neither party shall be
responsible or liable for any taxes or other statutory charges levied or
assessed against any of the facilities of the other party.

IX.
SELLER'S REPRESENTATIVE
-----------------------

Seller hereby agrees to serve and represents that it is authorized to serve
as Seller's Representative for all parties having an interest in the proceeds of
the gas delivered under this

11
<PAGE>

Contract to give and receive all invoices, notices (including notice of price
change) as may be necessary, and payments required under this Contract and to
allocate, prorate and distribute such payments among the various parties
entitled thereto. All notices shall be in writing, with such notices and
payments deemed to be delivered when properly addressed to the following
addresses and deposited in the U. S. mail, postage prepaid or to such address as
either party may from time to time designate as the address for such purpose by
like notice addressed to the other party, or when actually received at the
receiver's facsimile machine during regular business hours (8:00 a.m. to 5:00
p.m. C.S.T. Monday through Friday) if by facsimile.

SELLER: BUYER:
- ------ -----
Notices: Notices:
EP Operating Limited Partnership Enserch Gas Company
P. O. Box 2649 301 South Harwood Street
Dallas, Texas 76011 Dallas, Texas 75201
ATTN: Gas Contract Administration ATTN: Contract
Phone: (214) 670-2946 Administration
FAX: (214) 670-1549 Phone: (214) 573-5144
FAX: (214) 573-5145

and

Enserch Gas Company
10375 Richmond Ave., Suite 300
Houston, Texas 77042-4166
ATTN: Off-System Volume Control
Phone: (713) 954-4440
FAX: (713) 954-4439

All payments shall be made to Seller by wire transfer of funds to:

EP Operating Limited Partnership
Texas Commerce Bank - Dallas
ABA No. 111001150
Account No. 08805017306

12
<PAGE>

X.
ASSIGNMENT
----------

All the covenants, stipulations, terms, conditions and provisions of this
Contract shall extend to and be binding upon the parties hereto and their
respective successors, assigns, heirs, personal representatives and
representatives in bankruptcy. Neither party shall assign this Contract without
the prior written consent of the non-assigning party, which consent shall not be
unreasonably withheld. No assignment of this Contract, in whole or in part,
shall affect or impair the rights of the non-assigning party nor in any case
increase the non-assigning party's obligations under this Contract. Any complete
or partial assignment of this Contract by either party shall contain a provision
obligating the assignee to recognize and perform the assigning party's
obligations under this Contract. No conveyance or transfer of any interest of
Seller shall be binding upon Buyer until Buyer has been furnished with written
notice thereof including a true copy of such conveyance or transfer or with
other proof that the claimant is legally entitled to such interest, all to the
satisfaction of Buyer's attorneys.

XI.
IN GENERAL
----------

11.1 Waiver by Buyer or Seller of a particular right or default hereunder
shall not be deemed a waiver of other rights or defaults whether similar or
dissimilar.

11.2 BUYER AND SELLER AGREE THAT THIS CONTRACT WILL BE CONSTRUED ACCORDING
TO THE LAWS OF THE STATE OF TEXAS, EXCEPT THOSE LAWS REGARDING THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION. BUYER AND SELLER FURTHER AGREE THAT THE
VENUE FOR ANY DISPUTE ARISING BETWEEN THEM AND INVOLVING THIS CONTRACT IN ANY
WAY, SHALL BE IN DALLAS COUNTY, TEXAS.

11.3 This Contract is solely for the benefit of the parties hereto and in
no event may this Contract be deemed to inure to the benefit of Transporter or
any third party.

13
<PAGE>

IN WITNESS WHEREOF, this Contract has been executed in duplicate originals
effective as of the day and year first herein written.

ATTEST: EP OPERATING LIMITED PARTNERSHIP,
a Texas Limited Partnership
By Enserch Exploration, Inc.,
Its Managing Partner

BY: F. N. Fraleym BY: /s/ GARY J. JUNCO
-------------------------- --------------------------------
Corporate Secretary Gary J. Junco
President

"SELLER"

ENSERCH GAS COMPANY, a division of
Lone Star Energy Company, a Texas
ATTEST: Corporation

BY: F. N. Fraleym BY: /s/ W. F. WEIDLER, JR.
-------------------------- --------------------------------
Secretary W. F. Weidler, Jr.
Sr. Vice President

"BUYER"

14
<PAGE>

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

BEFORE ME, the undersigned authority, a Notary Public in and for said
County, and State, on this day personally appeared Gary J. Junco, President of
Enserch Exploration, Inc., Managing Partner of EP Operating Limited Partnership,
a Texas limited partnership, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein stated, and as the act and deed of said partnership.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --

/s/ Tammy Sue Anderson
---------------------------
Notary Public in and for
Dallas County, Texas
[SEAL] ------ -----
My commission expires the 11
--
day of June, 1993.
---- --

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

BEFORE ME, the undersigned authority, a Notary Public in and for the State
of Texas, on this day personally appeared W. F. Weidler, Jr., Senior Vice
President of Enserch Gas Company, a division of Lone Star Energy Company, a
Texas corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --

/s/ Tammy Sue Anderson
[SEAL] ---------------------------
Notary Public in and for
the State of Texas

<PAGE>

EXHIBIT 10.11

AGENCY AGREEMENT
----------------

THIS AGREEMENT, made and entered into to be effective the 1st day of March,
1993, by and between EP OPERATING LIMITED PARTNERSHIP ("EPO") of 1817 Wood
Street, City of Dallas, County of Dallas, State of Texas, a Texas limited
partnership and ENSERCH GAS COMPANY, a division of Lone Star Energy Company, a
Texas corporation, ("EGC").

W I T N E S S E T H:
-------------------

In consideration of the sum of Ten Dollars ($10.00) cash in hand paid to
EPO by EGC, the receipt and sufficiency of which are hereby acknowledged, and of
the covenants and agreements herein contained, EPO hereby appoints EGC its agent
and EGC hereby agrees to act as EGC's agent in accordance with the following
terms and conditions and for the following purposes:

1. To market, negotiate for the sale of and sell to third parties certain
natural gas owned and controlled by EPO. The natural gas to be marketed
by EGC under this Agreement shall be those volumes of gas which are in
excess of those volumes of gas that EPO elects to sell and EGC elects
to purchase under either or both of that certain Natural Gas Sales and
Purchase Contract between EGC and EPO dated to be effective March 1,
1993 for gas delivered to EGC at points of delivery located on EGC's
Transporter's natural gas pipeline system, as therein described, or
that certain Natural Gas Sales and Purchase Contract between EGC and
EPO dated to be effective March 1, 1993, for gas delivered to EGC at
points of
<PAGE>

delivery that are not located on such natural gas pipeline system, that
EPO makes available for sale.

2. To effect any of the above-described transactions to any person for
such price or prices and on such terms as EGC may deem proper and, in
the name of EPO, to make and deliver any documents necessary to sell
such natural gas; provided, however, that no such documents shall be
binding upon EPO until executed by a duly-authorized representative of
EPO.
TERM:
- ----

The authority of EGC to exercise the powers granted above will commence on
March 1, 1993 and shall thereafter continue in full force and effect through and
including December 31, 1996 and year to year thereafter until cancelled by
either party by giving written notice to the other party at least six (6) months
prior to January 1 of the year such cancellation shall be effective.

FEE AND PAYMENT:
- ---------------

As consideration to EGC for its exercise of the powers hereinabove
described, EPO shall pay EGC and EGC shall accept an agency fee calculated each
month, on a contract-by-contract basis, for the contracts entered into by EPO
for the natural gas marketed by EGC for and on behalf of EPO during any month
during the term of this Agreement and for each such contract, shall be equal to
the following:

A. For any month during which the Average Daily Volume under any such
contract is less than one thousand

2
<PAGE>

(1,000) MMBtu per day, the fee shall be equal to two percent (2%) of
the net amount for such month. "Average Daily Volume" shall mean the
total volume delivered in any given month divided by the number of days
in such month.

B. For any month during which the Average Daily Volume under any such
contract is greater than or equal to one thousand (1,000) MMBtu per
day, but less than five thousand (5,000) MMBtu per day, the fee shall
be equal to (i) two percent (2%) of the net amount for such month for
the first one thousand (1,000) MMBtu per day and (ii) one percent (1%)
of the net amount for such month for those volumes in excess of one
thousand (1,000) MMBtu per day.

C. For any month during which the Average Daily Volume under any such
contract is greater than or equal to five thousand (5,000) MMBtu per
day, the fee shall be equal to (i) two percent (2%) of the net amount
for such month for the first one thousand (1,000) MMBtu per day; (ii)
one percent (1%) of the net amount for such month for the next four
thousand (4,000) MMBtu per day; and (iii) one-half percent (1/2%) of
the net amount for such month for those volumes in excess of five
thousand (5,000) MMBtu per day.

3
<PAGE>

For the purposes of this Agreement, "net amount" for each contract shall
mean the gross proceeds received by EPO for the sale of gas under any such
contract during any such month less transportation costs paid by EPO for the
transportation of such gas during such month. The agency fee for each contract
shall be calculated and paid to EGC each month during which gas has been sold
under any such contract. EPO shall pay EGC on or before the tenth (10th) day
following the date EPO receives payment under any contract for gas marketed by
EGC for EPO under this Agreement. If EPO fails to make full payment to EGC when
payment is due, interest shall accrue at the prime rate of NationsBank, Dallas;
provided, however, in the event of a bona fide dispute between EGC and EPO
concerning any amount due under this Agreement, EPO may withhold payment of the
amount in dispute, without penalty, until resolution of the dispute. Each party
shall have the right at reasonable times to examine the records of the other
party to the extent necessary to verify the accuracy of any statement or payment
made pursuant hereto.

CONTRACT PROVISIONS:
- -------------------

Each gas sales agreement entered into by EGC on behalf of EPO shall contain
such provisions as are reasonable and customary for the type of sale and shall
provide:

(a) Payment shall be made directly to EPO.

(b) All notices and correspondence shall be sent to EPO.

4
<PAGE>

(d) All invoicing and collection of amounts due shall be the
responsibility of EPO.

(e) The following provision:

"It is expressly understood and agreed between the parties that the
amount of severance, production or similar tax, fee or other levy on
the production of gas (not including income, excess profits, capital
stock, franchise or general property taxes) levied, assessed or fixed
in respect of or applicable to the gas to be delivered by Seller to
Buyer hereunder and for which Seller is liable during any month
currently amount to seven and one-half (7 1/2%) of the purchase price
in Texas (said percentage may vary by state and over time) and is
included in the price provided under the pricing article at all times
during the term hereof. Buyer has no obligation, therefore, to pay any
more to Seller for the gas hereunder than the prices stated for such
gas in the pricing article."

EPO acknowledges and agrees (i) that EGC's inclusion of the above-described
provisions in gas sales agreements for the sale of EPO's gas is at the direction
and under the control of EPO, (ii) that EGC shall have no liability to EPO or
any third party for claims, damages, losses or causes of action arising out of
the inclusion of such provisions in such gas sales agreements and (iii)

5
<PAGE>

that EPO shall indemnify and hold harmless EGC from and against any and all such
claims, damages, losses and causes of action.

GOVERNING LAW:
- -------------

The interpretation and performance of this Agreement will be construed in
accordance with the laws of the State of Texas.

NOTICES:
- -------

Except as otherwise provided in this Agreement, any notice, request,
demand, statement, bill, or payment required by this Agreement, or any notice
which any party may desire to give to the other, will be in writing and will be
considered duly delivered when mailed by registered mail, return receipt
requested, to the address of the parties as listed below or when actually
received at the receiver's facsimile machine during regular business hours (8:00
a.m. to 5:00 p.m. C.S.T. Monday through Friday) if by facsimile.

EP Operating Limited Partnership Enserch Gas Company
P. O. Box 2649 301 South Harwood Street
Dallas, Texas 76011 Dallas, Texas 75201
Attn: Contract Administration Attn: Contract Administration
Phone: (214) 670-2946 Phone: (214) 573-5144
FAX: (214) 670-1549 FAX: (214) 573-5145

and

Enserch Gas Company
10375 Richmond Ave., Suite 300
Houston, Texas 77042-4166
Attn: Off-System Volume Control
Phone: (713) 954-4440
FAX: (713) 954-4439

ASSIGNMENT:
- ----------

The provisions of this Agreement will be binding upon and inure to the
benefit of the successors and assigns of each of the

6
<PAGE>

parties hereto. Neither party will assign any of its rights or obligations
hereunder without the consent of the other party.

ENTIRETIES:
- ----------

This Agreement contains the entire agreement between the parties, hereto
with respect to the subject matter hereof and supercedes any prior oral or
written or contemporaneous oral agreements or understandings. No representations
of any kind, other than those set forth herein, have been made by either party
hereto.

ATTEST: EP OPERATING LIMITED PARTNERSHIP,
by Enserch Exploration, Inc.,
its Managing Partner

/s/ F. W. Fraleym By: /s/ Gary J. Junco
- --------------------------------- -----------------------------------
Gary J. Junco
President

ATTEST: ENSERCH GAS COMPANY, a division of
Lone Star Energy Company

/s/ F. W. Fraleym By: /s/ G. Marc Lyons
- --------------------------------- -----------------------------------
G. Marc Lyons
Sr. Vice President

7
<PAGE>

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

BEFORE ME, the undersigned authority, a Notary Public in and for said
County, and State, on this day personally appeared Gary J. Junco, President of
Enserch Exploration, Inc., Managing Partner of EP operating Limited Partnership,
a Texas limited partnership, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein stated, and as the act and deed of said partnership.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --

/s/ Tammy Sue Anderson
---------------------------
[SEAL] Notary Public in and for
Dallas County, Texas
------ -----
My commission expires the 11
--
day of June, 1993.
---- --

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

BEFORE ME, the undersigned authority, a Notary Public in and for the state
of Texas, on this day personally appeared G. Marc Lyons, Sr. Vice President of
Enserch Gas Company, a division of Lone Star Energy Company, a Texas
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --
/s/ Tammy Sue Anderson
---------------------------
[SEAL] Notary Public in and for
the State of Texas

<PAGE>

AGENCY AGREEMENT
----------------

W I T N E S S E T H:
-------------------

1. To market, negotiate for the sale of and sell to third parties certain
natural gas owned and controlled by EPO. The natural gas to be marketed
by EGC under this Agreement shall be those volumes of gas which are in
excess of those volumes of gas that EPO elects to sell and EGC elects
to purchase under either or both of that certain Natural Gas Sales and
Purchase Contract between EGC and EPO dated to be effective March l,
1993 for gas delivered to EGC at points of delivery located on EGC's
Transporter's natural gas pipeline system, as therein described, or
that certain Natural Gas Sales and Purchase Contract between EGC and
EPO dated to be effective March 1, 1993, for gas delivered to EGC at
points of

<PAGE>

delivery that are not located on such natural gas pipeline system, that
EPO makes available for sale.

TERM:
- ----

FEE AND PAYMENT:
- ---------------

A. For any month during which the Average Daily Volume under any such
contract is less than one thousand

2
<PAGE>

3
<PAGE>

CONTRACT PROVISIONS:
- -------------------

Each gas sales agreement entered into by EGC on behalf of EPO shall contain
such provisions as are reasonable and customary for the type of sale and shall
provide:

(a) Payment shall be made directly to EPO.

(b) All notices and correspondence shall be sent to EPO.

4
<PAGE>

(d) All invoicing and collection of amounts due shall be the
responsibility of EPO.

(e) The following provision:

5
<PAGE>

that EPO shall indemnify and hold harmless EGC from and against any and all such
claims, damages, losses and causes of action.

GOVERNING LAW:
- -------------

The interpretation and performance of this Agreement will be construed in
accordance with the laws of the State of Texas.

NOTICES:
- -------

and

Enserch Gas Company
10375 Richmond Ave., Suite 300
Houston, Texas 77042-4166
Attn: Off-System Volume Control
Phone: (713) 954-4440
FAX: (713) 954-4439

ASSIGNMENT:
- ----------

The provisions of this Agreement will be binding upon and inure to the
benefit of the successors and assigns of each of the

6
<PAGE>

parties hereto. Neither party will assign any of its rights or obligations
hereunder without the consent of the other party.

ENTIRETIES:
- ----------

ATTEST: EP OPERATING LIMITED PARTNERSHIP,
by Enserch Exploration, Inc.,
its Managing Partner

/s/ F. W. Fraleym By: /s/ Gary J. Junco
- --------------------------------- -----------------------------------
Gary J. Junco
President

ATTEST: ENSERCH GAS COMPANY, a division of
Lone Star Energy Company

/s/ F. W. Fraleym By: /s/ G. Marc Lyons
- --------------------------------- -----------------------------------
G. Marc Lyons
Sr. Vice President

7
<PAGE>

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --

/s/ Tammy Sue Anderson
---------------------------
[SEAL] Notary Public in and for
Dallas County, Texas
------ -----
My commission expires the 11
--
day of June, 1993.
---- --

STATE OF TEXAS (Section)

COUNTY OF DALLAS (Section)

BEFORE ME, the undersigned authority, a Notary Public in and for the State
of Texas, on this day personally appeared G. Marc Lyons, Sr. Vice President of
Enserch Gas Company, a division of Lone Star Energy Company, a Texas
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 8th
---
day of April, A.D. 1993.
----- --
/s/ Tammy Sue Anderson
---------------------------
[SEAL] Notary Public in and for
the State of Texas

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Enserch Exploration,
Inc. on Form S-2 of our report dated February 10, 1995 (June 21, 1995, as to
the second paragraph of Note 1 and Note 9) appearing in the Prospectus, which
is part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.

Deloitte & Touche LLP
Dallas, Texas
June 21, 1995

Enserch Exploration, Inc.:

We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Enserch Exploration, Inc. and subsidiaries for the
period ended March 31, 1995, as indicated in our report dated April 26, 1995
(June 21, 1995 as to the second paragraph of Note 1); because we did not
perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, is being used in this
Registration Statement and included in the Prospectus which is a part of this
Registration Statement.

We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

Deloitte & Touche LLP
Dallas, Texas
June 21, 1995

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report on
the consolidated financial statements of DALEN Corp. and subsidiaries and to all
references to our firm included in or made a part of this registration statement
of Enserch Exploration, Inc. on Form S-2.

[Signature appears here]
-------------------------------------
ARTHUR ANDERSEN LLP

Dallas, Texas
June 21, 1995

<PAGE>

Exhibit 23.4

DeGOLYER AND MacNAUGHTON
ONE ENERGY SQUARE
Dallas, Texas 75206

June 21, 1995

Enserch Exploration, Inc.
4849 Greenville Avenue
Dallas, Texas 75206

Gentlemen:

We hereby consent to the use in the Registration Statement on Form S-2 and
related Prospectus of Enserch Exploration, Inc., of information from the
following: (1) "Report as of January 1, 1995 on Proved and Probable Reserves of
Certain Properties owned by Enserch Exploration, Inc."; (2) "Report as of March
1, 1995 on the Gross Reserves of the Green Canyon Block 254 Field owned by
Enserch Exploration, Inc."; (3) "Report as of January 1, 1995 on the Proved,
Probable, and Possible Reserves of the Mudi Field in East Java, Republic of
Indonesia, attributable to Enserch Far East, Ltd."; (4) "Report as of January 1,
1995 on Proved Reserves of the SACROC Unit, Kelly Snyder Field in Scurry County,
Texas owned by ENSERCH Corporation"; and (5) our letter dated February 3, 1995,
regarding the fair market value of the interest owned by Enserch Exploration,
Inc., in the SACROC Unit, Kelly Snyder field, Scurry County, Texas, and our
letter dated June 21, 1995, regarding the fair market value of the interest
owned by Enserch Exploration, Inc., in the SACROC Unit, Kelly Snyder field,
Scurry County, Texas and our letter dated dated June 21, 1995, regarding the
fair market value of the interest owned by Enserch Far East, Ltd., in the Mudi
field, East Java, Republic of Indonesia. We also consent to the references to us
in the "Prospectus Summary," "Business," "Certain Transactions," "Experts," and
"Notes to Financial Statements" sections of such Registration Statement and
Prospectus.

Very truly yours,

[signature appears here]

DeGOLYER and MacNAUGHTON

<PAGE>

Exhibit 23.5

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

We hereby consent to the use in the Registration Statement on Form S-2 and
related Prospectus of Enserch Exploration, Inc. of information contained in our
reports relating to the oil and gas reserves and revenue of DALEN Resources
Corp. We also consent to all references to our firm included in or made a part
of such Registration Statement and Prospectus.

NETHERLAND, SEWELL & ASSOCIATES, INC.

/s/ CLARENCE M. NETHERLAND
-------------------------------------

Clarence M. Netherland
Chairman

Dallas, Texas
June 20, 1995