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and their marketing affiliates, and national and local gas gatherers, brokers,
marketers and distributors of varying sizes, financial resources and
experience. Certain competitors, such as major oil and gas production
companies, have financial and other resources substantially in excess of those
available to the Company.
 
  Governmental Regulation. Because its producing properties are located on the
federally controlled Gulf Coast portions of the Outer Continental Shelf,
various aspects of the production and sale of the Company's oil and gas are
regulated by federal authorities. Offshore operations and attendant government
royalty matters are within the jurisdiction of the Minerals Management Service,
an agency within the Department of the Interior. Historically, all of the
Company's domestic natural gas was sold in so-called "first sales" and was
subject to certain of the pricing and other provisions of the Natural Gas
Policy Act of 1978 (the "NGPA"), the Natural Gas Act (the "NGA"), and the
regulations and orders issued by the FERC in implementing those Acts. Under the
Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol Act"), all remaining
natural gas wellhead pricing, sales certificate and abandonment regulation of
first sales by the FERC was terminated on January 1, 1993. Prior to statutory
deregulation, the Company utilized the procedures contained in FERC Order No.
490, issued in early 1988, to achieve the required abandonment of some of its
previous gas sales, and subsequently used the automatic FERC certificate
authority of that order to sell those volumes for resale in interstate
commerce. Order No. 490 has been on appeal to the U.S. Court of Appeals for the
Sixth Circuit for a considerable length of time; however, in light of favorable
Supreme Court review of relevant portions of other analogous FERC rulemakings,
motions have been filed at the Sixth Circuit seeking termination of that
appeal. Further action on those motions is pending. The Company cannot predict
whether Order No. 490 will be upheld, if reviewed by the appellate court, but
does not anticipate any material adverse effect upon the marketing of the
Company's natural gas production as a result of that review.
 
  The FERC also regulates interstate natural gas pipeline transportation rates
and service conditions, which affect the marketing of gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. This regulation is pursuant to the NGA, the NGPA and, to the
extent of operations on the Outer Continental Shelf, the Outer Continental
Shelf Lands Act (the "OCSLA"). Under the OCSLA, all gathering and transporting
of gas on the Outer Continental Shelf must be performed on an "open and
nondiscriminatory" basis. While the NGA and NGPA do not contain precisely the
same standard, since the latter part of 1985, through its Order No. 436 and
Order No. 500 rulemakings, the FERC has endeavored to make on-shore natural gas
transportation more accessible to gas buyers and sellers on an open and
nondiscriminatory basis, and the FERC's efforts have significantly altered the
marketing and pricing of natural gas. The FERC has also taken action to require
those interstate pipelines which operate offshore on the Outer Continental
Shelf to operate in a manner consistent with the FERC's regulations governing
onshore operations. Another related effort has been made with respect to
intrastate pipeline operations pursuant to the FERC's NGPA 311 authority, under
which the FERC establishes rules by which intrastate pipelines may participate
in certain interstate activities without becoming subject to full NGA
jurisdiction. These Orders have gone through various permutations, due in part
to the FERC's response to court review, but have generally remained intact as
promulgated. Parts of Order No. 500 pertaining to the FERC's abandonment
authority remain subject to court review, however, and the Company is unable to
predict the impact on the Company's natural gas operations of further judicial
action concerning that Order. The FERC's jurisdiction over natural gas
transportation is unaffected by the Decontrol Act.
 
  On April 8, 1992, the FERC issued Order No. 636 requiring further
restructuring of the sales and transportation services provided by interstate
pipeline companies. Order 636 amended certain existing regulations and adopted
certain new regulations governing all interstate pipelines that perform open
access transportation (defined to include storage), under either the NGA or the
NGPA within Part 284 of the FERC's regulations. The FERC considered the changes
necessary to improve the competitive structure of the interstate natural gas
pipeline industry and to create a regulatory framework that will put gas
sellers into more direct contractual relations with gas buyers than has
historically been the case. Order 636 reflected the FERC's finding that under
the preexisting regulatory structure, such interstate pipelines and other gas
merchants, including producers, did not compete on an equal basis. Order 636
was designed to equalize that
 
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