10-Q

Securities And Exchange Commission
Washington, D.C. 20549

Form 10-Q

(Mark One)

X                             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                          
SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 2001

OR

__                            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-8094

Ocean Energy, Inc.
(Exact name of registrant as specified in its charter)

               Delaware                            74-1764876
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)             Identification No.)

1001 Fannin, Suite 1600, Houston, Texas 77002-6714
(Address of principal executive offices)                        (Zip code)

(713) 265-6000
(Registrant's telephone number, including area code)

         None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .

As of July 30, 2001, 171,254,609 shares of Common Stock, par value $0.10 per share, were outstanding.

Ocean Energy, Inc.

Index

	Page Number
Part I. Financial Information
Item 1. Unaudited Consolidated Financial Statements
Consolidated Statements of Operations for the Three Months and Six
Months Ended June 30, 2001 and 2000	1
Consolidated Balance Sheets – June 30, 2001 and December 31, 2000	2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000	3
Consolidated Statements of Comprehensive Income for the Three
Months and Six Months Ended June 30, 2001 and 2000	4
Notes to Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risks	17
Part II. Other Information	18
Signatures	20

(i)

Item. 1 Unaudited Consolidated Financial Statements

Ocean Energy, Inc.
Consolidated Statements Of Operations
(Amounts in Thousands, Except Per Share Data)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001			2000
Revenues	$	355,841		$	241,874		$	759,096		$	493,282
Costs of Operations:
Operating expenses		78,557			63,335			153,120			125,495
Depreciation, depletion and amortization		93,547			72,952			176,002			153,032
General and administrative		8,363			5,950			14,506			15,072
		180,467			142,237			343,628			293,599
Operating Profit		175,374			99,637			415,468			199,683
Other (Income) Expense:
Interest expense		17,182			18,866			34,127			38,094
Merger and integration costs		--			--			--			3,273
Interest income and other		1,989			(93	)		806			(832	)
Income Before Income Taxes		156,203			80,864			380,535			159,148
Income Tax Expense		72,196			35,371			173,144			70,677
Income Before Extraordinary Loss		84,007			45,493			207,391			88,471
Extraordinary Loss, Net of Income Taxes		2,600			--			2,600			--
Net Income		81,407			45,493			204,791			88,471
Preferred Stock Dividends		812			812			1,625			1,625
Net Income Available to Common Shareholders	$	80,595		$	44,681		$	203,166		$	86,846
Basic Earnings Per Common Share:
Income Before Extraordinary Loss	$	0.49		$	0.27		$	1.22		$	0.52
Extraordinary Loss, Net of Income Taxes		(0.02	)		--			(0.02	)		--
Net Income to Common Shareholders	$	0.47		$	0.27		$	1.20		$	0.52
Diluted Earnings Per Common Share:
Income Before Extraordinary Loss	$	0.47		$	0.26		$	1.16		$	0.50
Extraordinary Loss, Net of Income Taxes		(0.01	)		--			(0.01	)		--
Net Income	$	0.46		$	0.26		$	1.15		$	0.50
Cash Dividends Declared Per Common Share	$	0.04		$	--		$	0.08		$	--
Weighted Average Number of Common Shares Outstanding:
Basic		169,853			167,217			169,111			167,022
Diluted		178,012			177,484			177,528			176,057

See accompanying Notes to Consolidated Financial Statements.

1

Ocean Energy, Inc.
Consolidated Balance Sheets
(Amounts in Thousands, Except Share Data)
(Unaudited)

	June 30, 2001			December 31, 2000
Assets
Current Assets:
Cash and cash equivalents	$	57,077		$	23,039
Accounts receivable, net		200,505			222,478
Other current assets		111,755			79,037
Total Current Assets		369,337			324,554
Property, Plant and Equipment, at cost, full cost method for oil and gas properties:
Evaluated oil and gas properties		4,701,907			4,167,993
Unevaluated oil and gas properties excluded from amortization		679,180			556,276
Other		164,963			157,258
		5,546,050			4,881,527
Accumulated Depreciation, Depletion and Amortization		(2,646,286	)		(2,513,577	)
		2,899,764			2,367,950
Deferred Income Taxes		--			143,820
Other Assets		56,117			54,076
Total Assets	$	3,325,218		$	2,890,400
Liabilities And Shareholders’ Equity
Current Liabilities:
Accounts and notes payable	$	342,425		$	338,172
Accrued liabilities		92,948			55,685
Total Current Liabilities		435,373			393,857
Long-Term Debt		1,194,924			1,032,564
Deferred Revenue		131,169			146,043
Deferred Income Taxes		76,406			45,761
Other Noncurrent Liabilities		101,986			119,487
Commitments and Contingencies		--			--
Shareholders’ Equity:
Preferred stock, $1.00 par value; authorized 10,000,000 shares;
issued 50,000 shares		50			50
Common stock, $.10 par value; authorized 520,000,000 and
230,000,000 shares,respectively; issued 173,512,640 and      170,069,114 shares, respectively		17,351			17,007
Additional paid-in capital		1,560,341			1,517,064
Accumulated deficit		(154,426	)		(343,962	)
Less - treasury stock, at cost; 2,638,640 and 2,754,566 shares,      respectively		(35,454	)		(35,354	)
Accumulated other comprehensive income		4,506			--
Other		(7,008	)		(2,117	)
Total Shareholders’ Equity		1,385,360			1,152,688
Total Liabilities and Shareholders’ Equity	$	3,325,218		$	2,890,400

See accompanying Notes to Consolidated Financial Statements.

2

Ocean Energy, Inc.
Consolidated Statements Of Cash Flows
(Amounts in Thousands)
(Unaudited)

	Six Months Ended June 30,
	2001			2000
Operating Activities:
Net income	$	204,791		$	88,471
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization		176,002			153,032
Deferred income taxes		129,859			56,003
Extraordinary loss, net of taxes		2,600			--
Other		14,152			3,453
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable		35,129			(28,310	)
Decrease (increase) in inventories, prepaid expenses and other		(37,329	)		148
Decrease in accounts and notes payable		(886	)		(50,039	)
Amortization of deferred revenue		(14,874	)		(12,395	)
Increase in accrued expenses and other		13,337			2,614
Net Cash Provided by Operating Activities		522,781			212,977
Investing Activities:
Capital expenditures		(398,073	)		(251,348	)
Acquisition costs, net of cash acquired		(234,451	)		(309	)
Proceeds from sales of property, plant and equipment		591			92,655
Net Cash Used in Investing Activities		(631,933	)		(159,002	)
Financing Activities:
Proceeds from borrowings		1,129,900			672,583
Principal payments on borrowings		(991,334	)		(698,540	)
Proceeds from exercise of common stock options		28,747			11,518
Dividends paid		(15,118	)		(1,625	)
Premiums paid on debt buy back		(3,167	)		--
Purchase of treasury stock		(5,838	)		(19,173	)
Other		--			1,212
Net Cash Provided by (Used in) Financing Activities		143,190			(34,025	)
Increase in Cash and Cash Equivalents		34,038			19,950
Cash and Cash Equivalents at Beginning of Period		23,039			64,889
Cash and Cash Equivalents at End of Period	$	57,077		$	84,839

See accompanying Notes to Consolidated Financial Statements.

3

Ocean Energy, Inc.
Consolidated Statements Of Comprehensive Income
(Amounts in Thousands)
(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2001		2000		2001			2000
Net income	$	81,407	$	45,493	$	204,791		$	88,471
Other comprehensive income (loss), net of tax:
Cumulative effect of accounting change for
derivative financial instruments		--		--		(14,262	)		--
Net change in fair value of derivative financial instruments		11,561		--		7,666			--
Financial derivative settlements taken to income		3,496		--		11,113			--
Other		113		--		(11	)		--
		15,170		--		4,506			--
Comprehensive income	$	96,577	$	45,493	$	209,297		$	88,471

See accompanying Notes to Consolidated Financial Statements.

4

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Presentation of Financial Information

     The consolidated financial statements of Ocean Energy, Inc. (“Ocean”, “OEI”or “the Company”), a Delaware corporation, included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Although certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, management believes that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation.

     The accompanying consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2000.

     Property, Plant and Equipment – The Company capitalizes interest expense and certain employee-related costs that are directly attributable to oil and gas operations. For the three months ended June 30, 2001 and 2000, the Company capitalized interest expense in the amount of $10 million and $11 million, respectively, and certain employee-related costs in the amount of $15 million and $11 million, respectively. For the six months ended June 30, 2001 and 2000, the Company capitalized interest expense in the amount of $20 million and $23 million, respectively, and certain employee-related costs in the amount of $29 million and $21 million, respectively.

     Revenue Recognition – Revenues associated with sales of crude oil and natural gas are recorded when delivery to the customer has occurred (i.e. when production has been delivered to the pipeline or a tanker lifting has occurred). Oil and gas sales revenues from properties in which the Company has an interest with other producers are recognized following the entitlements method of accounting for production, in which any excess amount received above the Company’s share is treated as a liability. If less than the Company’s entitlement is received, the underproduction is recorded as an asset.

      Earnings Per Share – The following table provides a reconciliation between basic and diluted earnings per share:

				Weighted
	Net Income Available to Common			Average Common Shares			Earnings Per Share
	Shareholders			Outstanding			Amount
		(amounts in thousands)
Three Months Ended June 30, 2001:
Basic		$	80,595		169,853	$	0	.47
Effect of dilutive securities:
Stock options			--		4,754
Convertible preferred stock			812		3,405
Diluted		$	81,407		178,012	$	0	.46

5

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

				Weighted
	Net Income Available to Common			Average Common Shares			Earnings Per Share
	Shareholders			Outstanding			Amount
		(amounts in thousands)
Three Months Ended June 30, 2000:
Basic		$	44,681		167,217	$	0	.27
Effect of dilutive securities:
Stock options			--		6,880
Convertible preferred stock			812		3,387
Diluted		$	45,493		177,484	$	0	.26
Six Months Ended June 30, 2001:
Basic		$	203,166		169,111	$	1	.20
Effect of dilutive securities:
Stock options			--		5,012
Convertible preferred stock			1,625		3,405
Diluted		$	204,791		177,528	$	1	.15
Six Months Ended June 30, 2000:
Basic		$	86,846		167,022	$	0	.52
Effect of dilutive securities:
Stock options			--		5,648
Convertible preferred stock			1,625		3,387
Diluted		$	88,471		176,057	$	0	.50

     Weighted average options to purchase 4.7 million shares of common stock at $18.37 to $36.54 per share were outstanding for both the first three months and first six months of 2001, and weighted average options to purchase 6.9 million shares of common stock at $14.88 to $36.54 per share and 7.7 million shares of common stock at $12.19 to $36.54 per share were outstanding during the first three months and first six months of 2000, respectively, but were not included in the computation of diluted earnings per share because the options’exercise prices were greater than the average market price of the common shares. These options expire at various dates through 2011.

     Treasury Stock – The Company follows the average cost method of accounting for treasury stock transactions.

     Change in Accounting Method – Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded at fair market value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception of a derivative. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the statement of operations. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the

6

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

hedge is effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, is recognized immediately in earnings.

     Adoption of SFAS 133 at January 1, 2001 resulted in the recognition of $1 million of additional derivative assets included in other current assets and $23 million of derivative liabilities, $11 million of which were included in current liabilities and $12 million of which were included in other noncurrent liabilities in the Company’s Consolidated Balance Sheet, and $14 million, net of taxes, of deferred hedging expense, included in accumulated other comprehensive income as the effect of the change in accounting principle. The cumulative effect of the accounting change did not have a material effect on the Company’s net income and had no effect on earnings per share amounts. Amounts were determined as of January 1, 2001 based on quoted market values, the Company’s portfolio of derivative instruments, and the Company’s measurement of hedge effectiveness. Through December 31, 2000, gains and losses from these financial instruments were recognized in revenues during the periods to which the derivative financial instruments related.

     From time to time, the Company has utilized and expects to continue to utilize derivative financial instruments with respect to a portion of its oil and gas production to achieve a more predictable cash flow by reducing its exposure to price fluctuations. These transactions generally are swaps, collars or options and are entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce the Company’s exposure to declines in the market price of crude oil and natural gas. Certain of these derivative financial instruments have been designated and have qualified as cash flow hedges. The Company utilizes additional financial instruments which have not been designated as cash flow hedges even though they do protect the Company from changes in commodity prices. These instruments are marked to market quarterly with the resulting changes in fair value recorded in revenues.

     Reclassification of Transportation Expense – As a result of the consensus on Emerging Issues Task Force Issue 00-10, Accounting for Shipping and Handling Fees and Costs, the Company reclassified prior periods to reflect transportation expenses incurred as operating expenses, instead of a deduction from revenues as previously recorded. While this reclassification had no effect on net income, it did increase revenues and operating expenses by $11 million and $5 million for the first six months and second quarter of 2000, respectively. Transportation expense totaled $13 million and $7 million for the first six months and second quarter of 2001, respectively.

      Accounting Pronouncements – In July 2001, the Financial Accounting Standards Board issued new pronouncements: Statement 141, Business Combinations, Statement 142, Goodwill and Other Intangible Assets, and Statement 143, Accounting for Asset Retirement Obligations.

7

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Statement 141, which requires the purchase method of accounting for all business combinations, applies to all business combinations initiated after June 30, 2001 and to all business combinations accounted for by the purchase method that are completed after June 30, 2001. Statement 142 requires that goodwill as well as other intangible assets be tested annually for impairment and is effective for fiscal years beginning after December 15, 2001. Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Statement 143 is effective for fiscal years beginning after June 15, 2002. Statements 141 and 142 will not apply to the Company unless it enters into a future business combination. The Company is currently assessing the impact of Statement 143 on its financial condition and results of operations.

Note 2. Acquisition and Disposition of Assets

      Acquisition of Texoil, Inc. – During March 2001, the Company acquired Texoil, Inc. (“Texoil”) for a cash purchase price of approximately $115 million before assumed bank debt of $15 million. Texoil was an independent oil and gas company engaged in the acquisition of oil and gas reserves through a program, which included purchases of reserves, development and exploration activities in Texas and Louisiana.

      Acquisition of Texas and Louisiana Assets – During April 2001, the Company acquired certain oil and gas assets located primarily in East Texas and North Louisiana for a purchase price of approximately $118 million.

      Disposition of Oil and Gas Assets – On March 31, 2000, the Company completed the sale of its East Bay Complex receiving net proceeds of approximately $78 million. The East Bay Complex contributed revenues of $23 million and operating profit of $10 million for the three months ended March 31, 2000. The proceeds were used to repay amounts outstanding under the Company’s existing credit facility.

Note 3. Supplemental Disclosures of Cash Flow Information

     Supplemental disclosures of cash flow information are as follows:

	Six Months Ended June 30,
	2001		2000
	(amounts in thousands)
Cash paid during the period for:
Interest	$	54,102	$	60,733
Income taxes	$	8,792	$	22,075

8

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 4. Financial Instruments

     As of June 30, 2001, the Company has in place put options that place an annual floor price of $25.00 per Bbl on 20 MBbl of crude oil per day and annual floor prices of $4.00 and $5.00 per Mcf each on 100 MMcf of natural gas per day for the remainder of 2001. The Company has also entered into two crude oil basis swap contracts to fix the sales price differential between WTI and Brent. The contracts, which extend through May 2002 and relate to 10,000 barrels per day each, provide that the Company receives a net settlement of WTI less Brent less $1.29.

     In addition, a related trust has a swap agreement covering 14,500 Mcf of gas per day at a price of $4.77 per Mcf for the remainder of 2001 and covering various amounts at various prices through 2005. Although the Company is not a party to this financial instrument, under SFAS 133 the Company is required to account for this swap as an embedded derivative financial instrument.

     As discussed in Note 1, the Company began accounting for qualifying derivative instruments as cash flow hedges in accordance with SFAS 133. As a result, changes in the fair value of these cash flow hedges are recognized in other comprehensive income until the hedged item is recognized in earnings, and any change in fair value resulting from ineffectiveness is recognized immediately in earnings.

     The change in fair value of derivative financial instruments, currently designated as cash flow hedges, included in revenues comprises the following:

	Three Months Ended				Six Months Ended
	June 30, 2001				June 30, 2001
	(amounts in thousands)
Financial derivative settlements transferred from
other comprehensive income	$	(8,919	)	$	(21,675	)
Change in time and intrinsic value of put options		2,119			(9,244	)
Ineffective portion of derivative financial instruments
qualifying as cash flow hedges		703			1,360
	$	(6,097	)	$	(29,559	)

     The related results of other derivative financial instruments not designated as cash flow hedges included as a reduction in revenues totaled approximately $2 million for the three months and six months ended June 30, 2001.

     As of June 30, 2001, the Company expects to transfer approximately $1.5 million of the initial transition adjustment recorded in accumulated other comprehensive income to reduce earnings during the remainder of 2001. The Company expects to transfer approximately $6

9

Ocean Energy, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

million of net deferred gains in accumulated other comprehensive income as of June 30, 2001 to earnings during the next twelve months when the forecasted transactions actually occur. All forecasted transactions currently being hedged are expected to occur by December 2005.

Note 5. Debt Repurchase

     During the second quarter of 2001, the Company repurchased on the open market approximately $22 million of its 8.375% senior subordinated notes due July 2008 and $25 million of its 8.875% senior subordinated notes due July 2007. In connection with the repurchase, the Company recorded an after-tax extraordinary loss of approximately $2.6 million, or ($0.01) per diluted share. The extraordinary loss included a current tax benefit of approximately $1.4 million. The repurchase of these notes was funded with available cash balances and borrowings under the Company’s existing credit facility.

10

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

     The following discussion is intended to assist in understanding the Company’s financial position, results of operations and cash flows for each of the periods indicated.

     The Company’s accompanying unaudited consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2000 contain detailed information that should be referred to in conjunction with the following discussion.

Results Of Operations
(Amounts in Thousands)

	Three Months Ended June 30,							Six Months Ended June 30,
	2001				2000			2001			2000
Oil and gas operations:
Revenues:
Natural gas	$	199,065		$	111,732		$	470,880		$	209,965
Oil and NGL		156,776			130,142			288,216			283,317
		355,841			241,874			759,096			493,282
Operating expenses		78,557			63,335			153,120			125,495
Depreciation, depletion and amortization		91,726			71,369			172,325			149,867
Operating profit		185,558			107,170			433,651			217,920
Corporate		(10,184	)		(7,533	)		(18,183	)		(18,237	)
Total operating profit	$	175,374		$	99,637		$	415,468		$	199,683

     Following the 22% increase in daily equivalent production over the second quarter of 2000 and higher realized natural gas prices, revenues increased 47% and operating profit increased 76% for the second quarter of 2001 as compared to the second quarter of 2000. Average daily production for the quarter was 157,000 barrels of oil equivalent, 10% higher than the first quarter of 2001. For the first six months of 2001, revenues increased 54% and operating profit more than doubled as compared to the same period in 2000.

     Revenues – Natural gas revenues increased $261 million, or 124%, to $471 million for the six months ended June 30, 2001, from $210 million for the six months ended June 30, 2000. Gas revenues increased $87 million, or 78%, to $199 million for the second quarter of 2001 as compared to $112 million for the second quarter of 2000. These increases are due to higher average gas prices realized during the period as well as increases in production. The average realized price for natural gas excluding the effects of financial derivatives increased 93% to $5.75 per Mcf for the first six months of 2001 as compared to $2.98 for the first six months of 2000 and increased 32% to $4.53 for the second quarter of 2001 compared to $3.44 for the second quarter of 2000. Daily natural gas production for the first six months of 2001 was 451 MMcf as compared to 400 MMcf per day for the first six months of 2000. Daily production for the second quarter of 2001 totaled 472 MMcf, an increase of 24% from second quarter of 2000 volumes and 10% from first quarter of 2001. The increases were due primarily to production from exploitation in the Gulf of Mexico.

11

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

     Oil revenues totaled $288 million for the six months ended June 30, 2001, as compared to revenues of $283 million for the six months ended June 30, 2000. For the second quarter of 2001, oil revenues increased $27 million, or 21%, to $157 million compared to $130 million for the second quarter of 2000. These increases are primarily the result of increases in production. The average realized price for oil excluding the effects of financial derivatives decreased 7% to $23.64 for the first six months of 2001 compared to $25.32 for the same period in 2000. The average realized oil price decreased to $23.76 for the second quarter of 2001 compared to $24.99 for the second quarter of 2000. Daily oil production increased 9% to 75 MBbl for the first six months of 2001 as compared to 69 MBbl for the same period in 2000. For the second quarter of 2001, daily oil production was 78 MBbl, an increase of 22% from the second quarter of 2000 and 10% from the first quarter of 2001. These increases were primarily related to increased production in Equatorial Guinea.

     Outlook – During late 2000 and early 2001, natural gas prices reached extraordinarily high levels. While lagging behind natural gas’ phenomenal rise, crude prices were also strong throughout this period. In the last few months, commodity prices have begun to decrease. Natural gas prices in particular, although remaining above the comparable period last year, have decreased considerably from the first quarter as the effects of such factors as the economic slowdown, increasing gas inventory levels, and cooler than anticipated summer weather are felt. As operating profits and discretionary cash flow follow changes in commodity prices, such changes are watched closely by management. The Company will evaluate its level of capital spending throughout the year based upon drilling results, commodity prices, cash flows from operations and property acquisitions.

     Reclassification of Transportation Expense – The Company has reclassified the 2000 financial statements to reflect transportation expenses incurred as operating expenses, instead of as a deduction from revenues as previously recorded. While this reclassification had no effect on net income, it did increase revenues and operating expenses by $11 million and $5 million for the first six months and second quarter of 2000, respectively. Transportation expense totaled $13 million and $7 million for the first six months and second quarter of 2001, respectively.

12

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

Operating Data

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001		2000
Net Daily Natural Gas Production (MMcf):
Domestic		444			344		423		359
Cote d'Ivoire		21			29		21		31
Other International		7			9		7		10
Total		472			382		451		400
Average Natural Gas Prices ($ per Mcf):
Domestic		$4.6	3		$3.	53	$5.	93	$3.	03
Cote d'Ivoire		$2.4	6		$2.	47	$2.	43	$2.	23
Other International		$4.6	0		$3.	44	$5.	05	$3.	45
Weighted Average		$4.5	3		$3.	44	$5.	75	$2.	98
Average Natural Gas Prices Including the Impact
of Financial Derivatives ($ per Mcf)		$4.6	4		$3.	21	$5.	76	$2.	89
Net Daily Oil and NGL Production (MBbl):
Domestic		28			25		28		29
Equatorial Guinea		32			21		30		22
Cote d'Ivoire		4			4		4		4
Egypt		9			9		8		9
Other International		5			5		5		5
Total		78			64		75		69
Average Oil and NGL Prices ($ per Bbl):
Domestic		$23.	73		$23	.98	$25	.19	$25	.30
Equatorial Guinea		$24.	32		$27	.27	$23	.19	$26	.81
Cote d'Ivoire		$24.	38		$24	.07	$23	.43	$23	.91
Egypt		$25.	28		$27	.20	$24	.34	$26	.67
Other International		$17.	51		$16	.49	$16	.90	$17	.46
Weighted Average		$23.	76		$24	.99	$23	.64	$25	.32
Average Oil and NGL Prices Including the Impact
of Financial Derivatives ($ per Bbl)		$21.	99		$22	.20	$21	.26	$22	.66
Wells Drilled:
Gross		64			90		163		134
Net		32			50		64		68
Success Rate		83	%		72	%	87	%	78	%

All price information excludes the impact of financial derivatives, unless otherwise stated.

     Operating Expenses – Total operating expenses increased $28 million, or 22%, to $153 million for the six months ended June 30, 2001 compared to $125 million for the comparable 2000 period. For the second quarter of 2001, total operating expenses increased $16 million, or 25%, to $79 million compared to $63 million for the second quarter of 2000. The increase in operating expenses is attributable primarily to increases in production taxes and to additional lease operating expense incurred as a result of increases in production. Operating expenses per

13

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

BOE were $5.63 per BOE for the first six months of 2001 compared to $5.10 per BOE for the comparable 2000 period and $5.50 per BOE for the second quarter of 2001 compared to $5.43 per BOE for the second quarter of 2000. The increase in operating expenses per BOE is attributable primarily to increases in production taxes.

     Depreciation, Depletion and Amortization Expense – Total depreciation, depletion and amortization (DD&A) expense for oil and gas operations increased $22 million to $172 million for the six months ended June 30, 2001 from $150 million for the same period in 2000. DD&A expense for oil and gas operations increased $21 million to $92 million for the second quarter of 2001 compared to $71 million for the second quarter of 2000. The increases in expense were due primarily to increased production. DD&A expense per BOE related to oil and gas operations increased 4% to $6.34 per BOE for the six months ended June 30, 2001, from $6.09 per BOE for the comparable period in 2000. DD&A expense per BOE related to oil and gas operations increased 5% to $6.42 per BOE for the second quarter of 2001 as compared to $6.12 per BOE for the second quarter of 2000. These increases are due primarily to changes in estimated future development costs.

      General and Administrative Expenses – General and administrative expenses totaled $15 million for the six months ended June 30, 2001 and for the same period in 2000. General and administrative expense for the second quarter of 2001 increased 33%, or $2 million, to $8 million, as compared to $6 million for the second quarter of 2000 primarily due to the incurrence of severance costs and the timing of certain travel–related and other corporate expenditures.

Other

      Interest Expense – Interest expense decreased $4 million, or 11%, to $34 million for the six months ended June 30, 2001 from $38 million in the comparable 2000 period. Interest expense for the second quarter of 2001 decreased $2 million, or 11%, to $17 million from $19 million for the second quarter of 2000. These decreases are the result of the Company’s debt reduction program.

      Merger and Integration Costs – Merger and integration costs of $3 million relating primarily to severance costs were recorded in the first six months of 2000.

     Income Tax Expense – Income tax expense of $173 million was recognized for the six months ended June 30, 2001 compared to an income tax expense of $71 million for the six months ended June 30, 2000. The effective income tax rate was approximately 46% and 44% for the first six months of 2001 and 2000, respectively.

Liquidity And Capital Resources

      Liquidity – As of June 30, 2001, the Company’s credit facility consists of a $500 million five-year revolving facility due in 2004. The credit facility bears interest, at the Company’s

14

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

option, at LIBOR or prime rates plus applicable margins ranging from zero to 1.7% or at a competitive bid. As of June 30, 2001, borrowings outstanding against the credit facility totaled $210 million and letters of credit totaled $34 million, leaving $256 million of available credit. The Company’s long-term debt totaled $1.2 billion and its debt to total capitalization ratio was 46% at June 30, 2001.

     During the second quarter of 2001, the Company repurchased on the open market approximately $47 million of its higher interest rate debt. In connection with the repurchase, the Company recorded an after-tax extraordinary loss of approximately $2.6 million, or ($0.01) per diluted share. The repurchase of these notes was funded with available cash balances and borrowings under the credit facility.The Company may from time to time take advantage of favorable market conditions and repurchase some of its higher interest rate debt.

     On June 26, 2001, the Company’s Board of Directors declared a quarterly common stock dividend of four cents per share payable on July 20, 2001, to stockholders of record at the close of business on July 6, 2001. The amount of future dividends on OEI common stock will be determined on a quarterly basis and will depend on earnings, financial condition, capital requirements and other factors.

Capital Expenditures
(Amounts in Thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2001		2000		2001		2000
Oil and Gas Operations:
Leasehold acquisitions	$	12,451	$	13,574	$	33,966	$	28,998
Exploration costs		74,715		35,218		135,576		83,975
Development costs		120,318		75,291		220,630		132,264
		207,484		124,083		390,172		245,237
Corporate		4,291		3,781		7,901		6,111
Total Capital Expenditures	$	211,775	$	127,864	$	398,073	$	251,348
Acquisitions	$	114,877	$	23	$	238,677	$	309

     The Company’s revised capital expenditure budget totals approximately $1 billion including acquisition costs. The spending will be funded primarily from the Company’s cash flows from operations and is subject to change if market conditions shift or new opportunities are identified. The Company will evaluate its level of capital spending throughout the year based upon drilling results, commodity prices, cash flows from operations and property acquisitions.

      During the second quarter of 2001, the Company was successful bidder on two deepwater blocks offshore Brazil. The Company will have a 65% working interest in Block BM-C-15, which it will operate, and a 20% working interest in Block BM-S-22. In addition, the Company completed its acquisition of certain oil and gas assets located primarily in East Texas and North Louisiana for a purchase price of approximately $118 million. During March 2001, the Company acquired Texoil, Inc. for a cash purchase price of approximately $115 million before assumed

15

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

bank debt of $15 million. These acquisitions were funded with cash flows from operations and borrowings under the credit facility.

      The Company makes, and will continue to make, substantial capital expenditures for the acquisition, exploration, development, production and abandonment of its oil and natural gas reserves. The Company has historically funded its expenditures from cash flows from operating activities, bank borrowings, sales of equity and debt securities, sales of non-strategic oil and natural gas properties, sales of partial interests in exploration concessions and project finance borrowings. The Company intends to finance 2001 capital expenditures primarily with funds provided by operations.

Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board issued new pronouncements: Statement 141, Business Combinations, Statement 142, Goodwill and Other Intangible Assets, and Statement 143, Accounting for Asset Retirement Obligations. Statement 141, which requires the purchase method of accounting for all business combinations, applies to all business combinations initiated after June 30, 2001 and to all business combinations accounted for by the purchase method that are completed after June 30, 2001. Statement 142 requires that goodwill as well as other intangible assets be tested annually for impairment and is effective for fiscal years beginning after December 15, 2001. Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Statement 143 is effective for fiscal years beginning after June 15, 2002. Statements 141 and 142 will not apply to the Company unless it enters into a future business combination. The Company is currently assessing the impact of Statement 143 on its financial condition and results of operations.

Environmental

      Compliance with applicable environmental and safety regulations by the Company has not required any significant capital expenditures or materially affected its business or earnings. The Company believes it is in substantial compliance with environmental and safety regulations and foresees no material expenditures in the future; however, the Company is unable to predict the impact that compliance with future regulations may have on capital expenditures, earnings and competitive position.

Defined Terms

      Natural gas is stated herein in thousand cubic feet (“Mcf”) or million cubic feet (“MMcf”). Oil, condensate and natural gas liquids (“NGL”) are stated in barrels (“Bbl”) or thousand barrels (“MBbl”). Oil, condensate and NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. MBOE and BOE represent one thousand barrels

16

Ocean Energy, Inc.

Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations

and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid.

Forward-Looking Statements May Prove Inaccurate

     This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and information that is based on management’s belief and assumptions based on currently available information. All statements other than statements of historical fact included in this document are Forward-looking statements. When used in this document, words such as “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “intend”, “project” and similar expressions serve to identify forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that these expectations will prove correct. Our forward-looking statements are subject to risks, uncertainties and assumptions. Should one of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those expected. Among the key factors that may have a direct bearing on our results of operations and financial condition are:

• volatility of energy commodity prices, generally, and fluctuations in the commodity prices for crude oil and natural gas that have not been effectively hedged, in particular;
• operational and systems risk incident to the drilling and operation of oil and gas wells;
• competitive conditions in the oil and gas industry;
• general economic and capital markets conditions, including fluctuations in interest rates;
• the impact of current and future laws and governmental regulations, particularly environmental regulations, affecting the energy industry in general, and our oil and gas operations, in particular;
• environmental liabilities that are not covered by insurance or indemnity;
• the political and economic climate in the foreign jurisdictions in which we conduct oil and gas operations; and
• the effect on our results of operations and financial condition associated with implementing various accounting rules and regulations.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

     To mitigate a portion of its exposure to fluctuations in commodity prices, the Company entered into various derivative financial instruments for its oil and gas production. See Note 4 to the Company’s Consolidated Financial Statements for a discussion of activities involving derivative financial instruments during 2001. To calculate the potential effect of the derivatives contracts on future revenues, the Company applied the average NYMEX oil and gas strip prices

17

Ocean Energy, Inc.

as of June 30, 2001 to the quantity of the Company’s oil and gas production covered by those derivative contracts as of that date. The following table shows the estimated potential effects of the derivative financial instruments on future revenues:

					Estimated Increase
	Estimated Increase in		Estimated Increase in		(Decrease)in
	Revenues at		Revenues with 10%		Revenues with 10%
	Current Prices		Decrease in Prices		Increase in Prices
	(amounts in millions)
Oil and gas puts		$4		$9		$(1	)
Gas swap of related trust		3		4		2

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

     At the Annual Meeting of Shareholders of the Company held on May 9, 2001, the shareholders elected certain directors to serve until the 2004 Annual Meeting of Shareholders, approved the merger of the Company into a wholly-owned subsidiary incorporated in the state of Delaware in order to effect the change of the state of incorporation, approved the Company's 2001 Long-Term Incentive Plan and Employee Stock Purchase Plan, and ratified the appointment of KPMG LLP as independent auditors of the Company for the fiscal year ended December 31, 2001.

Votes cast were as follows:

					Broker
	For		Against		Non-Votes		Abstained
Election as a Director of the Company of:
John B. Brock		149,440,211		--		--		1,264,827
Milton Carroll		149,429,003		--		--		1,276,034
James T. Hackett		149,456,627		--		--		1,248,411
Approval of reincorporation merger to
effect the change of the Company's
state of incorporation from Texas to    Delaware		116,340,671		6,956,536		27,211,293		197,150
Approval of 2001 Long-Term    Incentive Plan		107,814,684		42,645,109		--		245,244
Approval of 2001 Employee Stock
Purchase Plan		145,181,572		5,381,726		--		141,739
Ratify Appointment of KPMG LLP as
Independent Auditors for 2001		150,248,643		345,997		--		110,397

18

Ocean Energy, Inc.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

3.1 Certificate of Incorporation of Ocean Energy, Inc., a Delaware corporation, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on May 14, 2001.

3.2 Bylaws of Ocean Energy, Inc., a Delaware corporation, incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on May 14, 2001.

3.3 Certificate of Designations relating to Series B Convertible Preferred Stock of Ocean Energy, Inc., a Delaware corporation, incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the SEC on May 14, 2001.

*#10.1 Outside Directors Deferred Fee Plan as Amended and Restated Effective July 1, 2001, filed herewith.

*#10.2 Supplemental Benefit Plan as Amended and Restated Effective July 1, 2001, filed herewith.

*#10.3 Severance Agreement between the Company and Stephen A. Thorington dated June 16, 2001, filed herewith.

* Filed herewith.

# Identifies management contracts and compensatory plans or arrangements.

b) Reports on Form 8-K:

     On May 10, 2001, the Company filed a Current Report on Form 8-K dated May 10, 2001 concerning the Company's current estimates of its operating statistics for the second quarter of 2001 and full year ended December 31, 2001. The item reported in such Current Report was Item 9 (Regulation FD Disclosure).

     On May 14, 2001, the Company filed a Current Report on Form 8-K dated May 9, 2001 with respect to its reincorporation from the state of Texas to the state of Delaware and to the Amendment and Restatement of the Company's Rights Agreement. The items reported in such Current Report were Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits).

19

Ocean Energy, Inc.

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Ocean Energy, Inc.

By:   /s/ William L. Transier
       William L. Transier
       Executive Vice President and
       Chief Financial Officer
       (Principal Financial Officer)

Date: August 2, 2001

By:   /s/ Robert L. Thompson
       Robert L. Thompson
       Vice President and Controller
       (Principal Accounting Officer)

Date: August 2, 2001

20

EX-10.1

                                                                                                       Exhibit 10.1
                                                OCEAN ENERGY, INC.

                                        OUTSIDE DIRECTORS DEFERRED FEE PLAN
                                 (As Amended and Restated Effective July 1, 2001)


                                        1. History and Purposes of the Plan

         The Ocean Energy,  Inc.  Outside  Directors  Deferred Fee Plan ("Plan") was originally  adopted on May 16,
1983 by Ocean Energy,  Inc., a Delaware  corporation (the "Company"),  formerly known as Ocean Energy, Inc, a Texas
corporation,  Seagull Energy Corporation and Seagull Pipeline Corporation,  and is intended to provide a method for
attracting  and retaining  qualified  outside  directors for the Company and to encourage them to devote their best
efforts to the business of the  Company,  thereby  advancing  the  interests  of the Company and its  shareholders.
Effective as of March 30, 1999,  the Company  merged the Ocean  Energy,  Inc.  Outside  Directors Fee Plan with and
into the Plan and  amended  and  restated  the Plan in order to  reflect  the plan  merger  and the merger of Ocean
Energy,  Inc., a Delaware  corporation with and into Seagull Energy Corporation.  Effective as of July 1, 2001 (the
"Effective  Date"),  the Company has again  restated the Plan for the purpose of  incorporating  previously-adopted
amendments into the text of the Plan and for the purpose of further amending the Plan in certain respects.

                                           2. Administration of the Plan

         Except as otherwise  specifically  provided  herein,  the Plan shall be administered by the Organization &
Compensation  Committee (the  "Committee")  of the Board of Directors of the Company (the  "Board").  The Committee
is  authorized to interpret the Plan and may from time to time adopt such rules and  regulations,  consistent  with
the  provisions of the Plan, as it may deem  advisable to carry out the Plan.  All decisions  made by the Committee
shall be final.  All expenses  incurred in  connection  with the  administration  of the Plan shall be borne by the
Company.  In certain  cases  arising  under the Plan,  action or approval must be taken by either the full Board or
by a committee of  "Non-Employee  Directors"  as described in Rule 16b-3  promulgated  by the  Securities  Exchange
Commission (such board or committee being referred to herein as the "Rule 16b-3 Committee").

                                           3. Participation in the Plan

         (a)  Participation.  Each  outside  director  who was a  participant  in the Plan  ("Participant")  on the
Effective Date shall remain a Participant  in this  restatement  of the Plan as of the Effective  Date.  Each other
director  shall become a Participant  on the later of (1) the Effective  Date or (2) the date he becomes an outside
director.  For purposes of this  Paragraph,  an "outside  director" is an  individual  who is a validly  elected or
appointed  director of the Company and who does not perform any services  for the Company in a common-law  employee
capacity.

         (b) Deferral of  Director's  Fees. A  Participant  may elect to defer  director's  fees  (whether  annual,
periodic or special)  to be earned by such  Participant  for  services  rendered  under the Plan by filing with the
Committee an election to defer receipt of all or a designated portion of such fees.

         (c) Time and Manner of Making  Elections.  Any deferral  election that may be made by a Participant  under
the Plan shall be made with respect to the period  commencing on January 1 (or, if later,  the date the Participant
is first  elected or  appointed  to the Board) and ending on December  31 of each year  ("Service  Period")  during
which  services are rendered by such  Participant  and must be made prior to the first day of such Service  Period;
provided,  however,  that the deferral election with respect to a Participant's  initial Service Period may be made
no later than thirty days after the date the  Participant  is first  elected or appointed to the Board and shall be
prospective  only.  All  deferral  elections  shall be made in the manner  and form  prescribed  by the  Committee.
Deferral  elections  made prior to the  Effective  Date with  respect  to the  Service  Period  that  includes  the
Effective Date shall remain in effect for the remainder of such Service Period.

         (d) Nature of  Elections.  A  Participant's  election to defer  receipt of all or a designated  portion of
his fees for a Service  Period shall continue in force and effect for future  Service  Periods  unless  modified or
revoked by such  Participant.  Any such  modification or revocation  shall be effective only as of the first day of
a Service Period and must be made prior to the first day of such Service  Period.  A modification  or revocation of
an existing  deferral  election  shall be made in the manner and form  prescribed  by the  Committee.  Any deferral
election (whether in the nature of an initial election,  an unrevised  continuing  election or a revised continuing
election)  with respect to a Service  Period shall be irrevocable as of the first day of such Service Period or, if
later,  the day  following  the last day upon  which an  election  may be made with  respect  to a Service  Period.
Notwithstanding  the foregoing,  in the event that the Rule 16b-3  Committee,  in its sole  discretion,  determines
that a Participant has an unforseeable  emergency  pursuant to Paragraph 6, the Rule 16b-3 Committee may revoke the
Participant's  deferral  election then in effect,  if any, in  connection  with such  determination.  A Participant
whose  deferral  election is so revoked may make a new deferral  election in the manner and form  prescribed by the
Committee prior to the first day of any subsequent Service Period.

                                  4. Crediting of Deferred Fees to Plan Accounts

         (a)  Establishment  of Plan  Accounts.  The Committee  shall  establish a memorandum  bookkeeping  account
(the "Plan  Account") for each  Participant  in the Plan.  The Committee  shall credit to each  Participant's  Plan
Account the  Participant's  deferred  fees as soon as  practicable  after such fees are earned by the  Participant.
Further,  the Committee shall credit to each  Participant's  Plan Account such additional  amounts at such times as
may be determined by the Committee in its sole discretion;  provided,  however,  that the Committee shall credit to
the Plan  Account of each  Participant  who is a member of the Board during the period  beginning on the  Effective
Date and ending on December 31, 2001 (the "Benefit  Period") an additional  amount of $17,500 (the "2001 Additional
Amount") as soon as practicable after the Benefit Period.

         (b)  Deemed Investment of Funds.

                  (1) The  amounts  credited  to each  Participant's  Plan  Account  shall be deemed to be
         invested in the Fidelity  Money  Market  Trust:  Retirement  Money  Market  Portfolio  until such
         Participant  designates,  in accordance with the procedures  established from time to time by the
         Committee,  the  manner  in which  amounts  credited  to his Plan  Account  shall be deemed to be
         invested from among the  investment  funds made  available from time to time by the Committee for
         the  deemed  investment  of  Plan  Accounts  (the  "Investment  Funds"),  which  may  include  an
         Investment  Fund (an "OEI Stock Fund")  investing  in the common stock of the Company,  par value
         $.10 per share ("Company  Stock").  A Participant may designate one of such Investment  Funds for
         the  deemed  investment  of all the  amounts  credited  to his Plan  Account  or he may split the
         deemed  investment  of the amounts  credited to his Plan Account among such  Investment  Funds in
         such increments as the Committee may prescribe.  The deemed  investment of amounts  credited to a
         Participant's  Plan Account  shall be based on the value of the  applicable  Investment  Funds at
         the time such  amounts  are  credited or  subsequently  converted  pursuant to an initial  deemed
         investment  designation or pursuant to Paragraph  (b)(2) below.  Deemed  investment  elections in
         effect  immediately  prior to the Effective  Date shall remain in effect  following the Effective
         Date unless and until changed or converted pursuant to Paragraph (b)(2) below.

                  (2) A Participant  may (i) change his deemed  investment  designation for future amounts
         to be  credited  to his Plan  Account or (ii)  convert  his deemed  investment  designation  with
         respect to the  amounts  already  credited to his Plan  Account;  provided,  however,  that (I) a
         Participant  may change his deemed  investment  designation  of an OEI Stock Fund only for future
         amounts  to be  credited  to his Plan  Account  and (II) in the  event of a change  described  in
         clause (I),  any amounts  already  credited to the  Participant's  Plan  Account that were deemed
         invested in an OEI Stock Fund shall remain so invested  until paid to such  Participant  pursuant
         to Paragraph 5. Any such change or  conversion  shall be made in accordance  with the  procedures
         established  by  the  Committee,  and  the  frequency  of  such  changes  may be  limited  by the
         Committee;  provided,  however,  that a change described in clause (I) of the preceding  sentence
         must be made prior to the beginning of a calendar  quarter and shall become  effective only as of
         the first day of such calendar quarter.

Notwithstanding  the  foregoing,  if the Committee  credits an additional  amount to a  Participant's  Plan Account
pursuant  to  Paragraph  (a)  above,  the  Committee  may  designate  one or more  Investment  Funds for the deemed
investment  of  such  additional  amount;  provided  however,  that  the  2001  Additional  Amount  credited  to  a
Participant's  Plan  Account  pursuant to  Paragraph  (a) above shall be deemed to be invested in an OEI Stock Fund
until paid to the Participant pursuant to Paragraph 5.

         (c)  Allocation  of Net Income or Net Loss  Equivalents.  The balance of each  Participant's  Plan Account
shall be adjusted at such times and in such manner as the Committee  deems  appropriate to reflect the value of the
Investment  Funds,  including  any net income (or net loss) thereto  resulting  from  interest,  dividends or other
distributions.  A  Participant's  Plan  Account  shall  continue  to be so adjusted as long as there is any balance
credited to such account.

         (d) Matching  Deferrals.  Effective as of January 1, 2002, if a  Participant  designates an OEI Stock Fund
for the deemed  investment  of all or a portion of the  deferred  fees to be credited to his Plan  Account,  at the
same time as such  deferred  fees are  credited to his Plan  Account and deemed  invested in an OEI Stock Fund (the
"Deemed OEI Stock Fund  Investment"),  an additional  amount equal to the OEI Deemed Stock Fund Investment shall be
credited to the Participant's Plan Account and deemed invested in an OEI Stock Fund.

                                            5. Payment of Deferred Fees

         (a) Payment  Election  Generally.  A  Participant  shall elect,  subject to the  provisions  of Paragraphs
(b),  (c) and (d) below,  the time (which may not be prior to the latest of (i) the date on which he ceases to be a
member  of the  Board or (ii) the date on which he ceases to be a member  of the  Senior  Advisory  Council  to the
Board and the mode (which may either be a lump sum payment or monthly,  quarterly,  or annual installment  payments
over a specified  term certain) for payment of amounts  credited to his Plan Account  during a Service  Period (and
the income  credited  thereto).  A  Participant  may revise his election  regarding the time and mode of payment of
amounts  credited to his Plan  Account  only if, and at such time as, such  revised  election is approved by a Rule
16b-3 Committee;  provided,  however,  that such revised election shall not be effective until the later of (A) the
January 1 following  the date such  revised  election is approved or (B) the date that is six months after the date
such revised  election is approved.  In the absence of direction  by a  Participant  regarding  the time or mode of
payment of amounts  credited to his Plan Account during a Service Period (and the income  credited  thereto),  such
amounts  shall be  distributed  in a lump sum  payment  as soon as  practicable  after the later of (i) the date on
which he ceases  to be a member  of the  Board or (ii) the date on which he  ceases  to be a member  of the  Senior
Advisory Council to the Board.

         (b) Payment Upon Death.  In the event of a Participant's  death,  the balance of such  Participant's  Plan
Account,  computed as of the date of his death, shall be paid in one lump sum to his designated  beneficiary within
the first four months following the date of such  Participant's  death. A Participant,  by written instrument filed
with the  Committee  in such  manner and form as it may  prescribe,  may  designate  one or more  beneficiaries  to
receive  payment of the  amounts  credited  to his Plan  Account in the event of his  death.  Any such  beneficiary
designation  may be  changed  from  time to time  prior  to the  death  of the  Participant.  In the  absence  of a
beneficiary  designation  on file  with the  Committee  at the  time of a  Participant's  death,  the  executor  or
administrator of the Participant's estate shall be deemed to be his designated beneficiary.

         (c) Payment Upon Plan  Termination.  In the event the Plan is  terminated by the Company,  the  Committee,
in its sole  discretion,  may elect to pay the balance of each  Participant's  Plan Account to such  Participant in
one lump sum as soon as practicable after the date of such Plan termination.

         (d) Payment  Upon Change of Control.  With respect to any  Participant  (1) who ceases to be a director of
the Company (or any  successor)  as a result of or in  connection  with a change of control  that is not  approved,
recommended  and  supported  by at  least  two-thirds  of the  directors  that  were  also  directors  prior to the
occurrence  of any such change of control in actions  taken  prior to, and with  respect to, such change of control
or (2) who ceased to be a member of the Board or of the Senior  Advisory  Council to the Board prior to such change
of control but who is entitled to receive (or is receiving)  payments  under the Plan at the time of such change of
control,  the balance of such  Participant's  Plan  Account,  computed as of the date of such change of control or,
for  Participants  described  in clause (1), the date such  Participant  ceases to be a director of the Company (or
any successor),  if later,  shall be paid to such Participant in one lump sum as soon as practicable,  but no later
than  thirty days  following  such date.  For  purposes  of the Plan,  "change of control"  shall be deemed to have
occurred  if (i) any  person  (other  than  Participant  or the  Company)  including  a "group"  as  determined  in
accordance with Section  13(d)(3) of the Securities  Exchange Act of 1934,  becomes the beneficial  owner of shares
of the Company  having 40% or more of the total number of votes that may be cast for the election of directors;  or
(ii) as a result  of,  or in  connection  with,  any cash  tender  or  exchange  offer,  merger  or other  business
combination,  sale  of  assets  or  contested  election,  or any  combination  of  the  foregoing  transactions  (a
"Transaction"),  the persons who were directors before the Transaction  shall cease to constitute a majority of the
Board or any  successor  thereto.  The  determinations  of whether a change of control has  occurred,  whether such
change of control was not approved,  recommended  or supported by the Directors in actions taken prior to, and with
respect to, such change of control and whether any  Participant  ceased to be a director of the Company as a result
of or in  connection  with such change of control  shall be made by the  Committee  as existing at least six months
prior to the occurrence of such change of control and its determination shall be final.

         (e)  Conversion of Plan Accounts for Purposes of Payment.

                  (1) If a  Participant  has elected to receive  payment of his Plan Account in a lump sum
         pursuant to Paragraph  (a) above,  the value of his Plan Account  shall be  determined  as of the
         last day of the month  preceding  the time that he has  elected to receive  such  payment  and an
         amount equal to such value shall be paid to the Participant.

                  (2) If a  Participant  has  elected to receive  payment of his Plan  Account in any mode
         other than lump sum  pursuant to  Paragraph  (a) above,  the value of his Plan  Account  shall be
         determined  as of the last day of the  month  preceding  the  date of any such  payment  and each
         subsequent  interval  thereafter,  and an  amount  equal  to  the  value  of  such  Plan  Account
         multiplied  by a fraction,  the  numerator  of which is one and the  denominator  of which is the
         remaining  number of payments  that the  Participant  elected,  shall be paid as of each interval
         such Participant elected.

                  (3) If  Paragraphs  (b),  (c) or (d)  above  apply,  the value of a  Participant's  Plan
         Account shall be determined as of the date  specified in the  applicable  Paragraph and an amount
         equal to such value shall be paid to the Participant or his designated beneficiary.
         (f) Form of  Payment.  Payments  under the Plan shall be in the form of cash,  except  that if any portion
of a  Participant's  Plan Account is deemed invested in an OEI Stock Fund, any payment with respect to such portion
shall be in the form of shares of Company  Stock.  Without  limiting the  generality of the  foregoing,  nothing in
the Plan shall be  construed as giving any  Participant  any rights as a holder of common stock or any other equity
security of the Company as a result of such  Participant's  participation in this Plan or his designation of an OEI
Stock Fund for the deemed investment of amounts credited to his Plan Account.

         (g) Debiting of Plan  Accounts.  Once an amount has been paid to a Participant  or his  beneficiary,  such
amount shall be debited from the Participant's Plan Account.

                                    6. Distributions for Unforseeable Emergency

         In the event the Rule 16b-3  Committee,  in its sole  discretion,  determines  that a  Participant  has an
unforseeable  emergency,  the Rule 16b-3  Committee  may direct  that such  portion of the  amounts  credited  to a
Participant's  Plan Account as it determines is reasonably  needed to satisfy such  unforseeable  emergency be paid
to the  Participant  in one  lump  sum  payment  as  soon as  practicable  following  the  Rule  16b-3  Committee's
determination  of the existence and extent of such  unforseeable  emergency.  For purposes of this  Paragraph 6, an
unforseeable  emergency  shall mean  severe  financial  hardship  to a  Participant  that  arises from a sudden and
unexpected  illness or accident of the  Participant or of a dependent of a Participant,  loss of the  Participant's
property due to casualty,  or similar  extraordinary and unforeseeable  circumstances arising as a result of events
beyond the  control of such  Participant.  Further,  no payment  may be made  pursuant  to this  Paragraph 6 to the
extent such severe  financial  hardship may be relieved (i) through  reimbursement  or compensation by insurance or
otherwise,  (ii) by liquidation of the  Participant's  assets,  to the extent the  liquidation of such assets would
not itself cause severe  financial  hardship,  or (iii) by cessation of deferrals  under the Plan.  For purposes of
this  Paragraph 6, the  purchase of a house or  education  expenses for  children,  shall not be  considered  to be
unforseeable  emergencies.  The decision of the Rule 16b-3 Committee  regarding the existence or nonexistence of an
unforseeable  emergency  of a  Participant  shall be final and  binding.  The Rule 16b-3  Committee  shall have the
authority to require a  Participant  to provide such proof as it deems  necessary to establish  the  existence  and
nature of the Participant's  unforseeable emergency. The foregoing  notwithstanding,  a Participant who is a member
of the Rule 16b-3  Committee  shall not  participate in the  deliberations  or decision of the Rule16b-3  Committee
regarding a hardship distribution to such Participant.

                                 7. Prohibition Against Assignment or Encumbrance

         No right,  title,  interest or benefit hereunder shall ever be liable for or charged with any of the torts
or  obligations  of a  Participant  or a person  claiming  under a  Participant,  or be  subject  to seizure by any
creditor of a Participant  or any person  claiming  under a  Participant.  No  Participant  or any person  claiming
under a  Participant  shall  have the power to  anticipate  or dispose of any  right,  title,  interest  or benefit
hereunder in any manner until same shall have been  actually  distributed  free and clear of the terms of the Plan.
The  preceding  notwithstanding,  the  Committee  shall  comply  with the terms  and  provisions  of an order  that
satisfies  the  requirements  for a "qualified  domestic  relations  order" as defined in section  206(d) of ERISA,
including  an  order  that  requires  distributions  to an  alternate  payee  prior  to a  Participant's  "earliest
retirement age" as such term is defined in section 206(d)(3)(E)(ii) of ERISA.

                                               8. Nature of the Plan

         The Plan and any election agreements executed  thereunder  constitute an unfunded,  unsecured liability of
the Company to make payments in accordance  with the provisions  hereof,  and neither a Participant  nor any person
claiming  under the  Participant  shall have any security or other  interest in any specific  assets of the Company
by virtue of this Plan.  Neither the  establishment  of the Plan, the crediting of amounts to Plan Accounts nor the
setting  aside of any funds  shall be deemed to create a trust.  The Company at its  election  may fund the payment
of benefits  under the Plan by setting aside and  investing,  in an account on the Company's  books,  such funds as
the Company may from time to time  determine.  Legal and equitable  title to any funds so set aside shall remain in
the Company,  and no Participant  shall have any security or other  interest in such funds.  Any funds so set aside
shall remain subject to the claims of the creditors of the Company, present and future.

         The  preceding  paragraph  to the  contrary  notwithstanding,  the  Company  may  fund  all or part of its
obligations  hereunder by  transferring  assets to a trust if the provisions of the trust  agreement  creating such
trust require the use of such trust's  assets to satisfy  claims of the Company's  general  unsecured  creditors in
the event of the  Company's  insolvency  or  bankruptcy  and provide that no  Participant  shall at any time have a
prior  claim to such  assets  and that such  trust  shall not cause the Plan to be other  than  "unfunded"  for the
Internal  Revenue  Code of 1986,  as  amended.  The assets of such  trust  shall not be deemed to be assets of this
Plan.

                                       9. Amendment and Termination of Plan

         The  Company  shall  have the  right to alter or amend  the Plan or any part  thereof  from  time to time,
except the Company shall not make any  alteration or amendment  that would impair the rights of a Participant  with
respect to amounts  theretofore  credited to that  Participant's  Plan Account.  The Company may terminate the Plan
at any time. If not sooner  terminated  under the provisions of this paragraph,  the Plan shall terminate as of the
date on which all amounts theretofore credited to Plan Accounts have been paid.

                                                10. Indemnification

         The Company  shall  indemnify  and hold  harmless  each member of the Committee and each employee who is a
delegate  of the  Committee  against  any  and all  expenses  and  liabilities  arising  out of his  administrative
functions or fiduciary  responsibilities,  including any expenses and liabilities that are caused by or result from
an act or omission  constituting  the  negligence  of such  individual  in the  performance  of such  functions  or
responsibilities,  but excluding  expenses and liabilities that are caused by or result from such  individual's own
gross  negligence or willful  misconduct.  Expenses  against which such individual  shall be indemnified  hereunder
shall include,  without  limitation,  the amounts of any settlement or judgment,  costs,  counsel fees, and related
charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.

                                               11. No Tax Guarantee

         Neither the Plan nor any  representation  made in connection with it shall be construed to be an assurance
or guarantee of a deferral of income for income tax purposes of any amount to be paid pursuant to the Plan.

                                               12. Number and Gender

         Wherever  appropriate  herein,  words used in the singular shall be considered to include the plural,  and
words used in the plural shall be considered to include the singular.  The  masculine  gender,  where  appearing in
the Plan, shall be deemed to include the feminine gender.

                                                13. Laws Governing

         The Plan and any documents  executed in  connection  therewith  shall be construed in accordance  with and
governed by the laws of the State of Texas.

         EXECUTED this _________ day of _______________, 2001.

                                                     OCEAN ENERGY, INC.


                                                     By:      ______________________________
                                                              Name:    ________________________
                                                              Title:   ________________________

EX-10.2

                                                                                                       Exhibit 10.2



















                                                OCEAN ENERGY, INC.

                                             SUPPLEMENTAL BENEFIT PLAN

















                                              As Amended and Restated

                                              Effective July 1, 2001




                                                         (i)
                                                OCEAN ENERGY, INC.

                                             SUPPLEMENTAL BENEFIT PLAN



                                                    WITNESSETH:



         WHEREAS,  OCEAN ENERGY,  INC. (the "Company") has heretofore adopted the OCEAN ENERGY,  INC.  SUPPLEMENTAL
BENEFIT PLAN (the "Plan") for the benefit of certain of its eligible employees; and

         WHEREAS,  the  Company  desires to  restate  the Plan and amend the Plan in  several  respects,  intending
thereby to provide an uninterrupted and continuing program of benefits; and

         NOW,  THEREFORE,  the Plan is hereby  restated in its  entirety as follows with no  interruption  in time,
effective as of July 1, 2001, except as otherwise indicated herein:







                                                     ARTICLE I

                                           DEFINITIONS AND CONSTRUCTION



         1.1  Definitions.  Where  the  following  words  and  phrases  appear in the  Plan,  they  shall  have the
respective meanings set forth below, unless their context clearly indicates otherwise:

(1)      Account:  A memorandum  bookkeeping  account  established on the records of the Employer for a Participant
         which is credited with amounts  determined  pursuant to Article III of the Plan.  Each  Participant  shall
         have the following Accounts:  a Bonus Deferral Account, a Compensation  Deferral Account, an ESOP Account,
         an ORS Excess  Account and a Pre-2001  Account.  As of any  determination  date, a  Participant's  benefit
         under this Plan shall be equal to the amount credited to his Accounts as of such date.

(2)      Board:  The Board of Directors of the Company.

(3)      Bonus:  With  respect  to any  Participant  for a Plan Year,  amounts  considered  as annual or  incentive
         bonuses.

(4)      Bonus Deferral  Account:  An Account  credited with amounts  determined  pursuant to Sections 3.2, 3.5 (if
         any) and 3.6 of the Plan.

(5)      Code:  The Internal Revenue Code of 1986, as amended.

(6)      Committee:  The Organization & Compensation Committee of the Board.

(7)      Company:  Ocean Energy, Inc., a Delaware corporation.

(8)      Company Stock:  The common stock of the Company, par value $.10 per share.

(9)      Compensation:  With  respect  to any  Participant  for a Plan Year,  amounts  considered  as  compensation
         pursuant to Section  1.1(11) of the ORS Plan,  determined  without  regard to the  limitations  imposed by
         section 401(a)(17) of the Code.

(10)     Compensation  Deferral  Account:  An Account  credited with amounts  determined  pursuant to Sections 3.1,
         3.5 (if any) and 3.6 of the Plan.

(11)     Compensation  Limitation:  The maximum amount of  Compensation  that can be considered by the ORS Plan for
         a Plan Year pursuant to section 401(a)(17) of the Code.

(12)     Effective Date:  July 1, 2001 as to this restatement of the Plan.

(13)     Employer:  The  Company  and each  other  entity  that  has been  designated  to  participate  in the Plan
         pursuant to the provisions of Section 6.9.

(14)     Employer  Contributions:  Contributions  made to the ESOP by the Employer  with  respect to a  Participant
         pursuant to Section 21.6 of the ORS Plan.

(15)     Employer  Discretionary  Contributions:  Contributions  made  to  the  ORS  Plan  by  the  Employer  on  a
         Participant's behalf pursuant to Section 3.3 of the ORS Plan.

(16)     Employer  Matching  Contributions:  Contributions  made to the ORS Plan by the Employer on a Participant's
         behalf pursuant to Section 3.2 of such ORS Plan.

(17)     ERISA:  The Employee Retirement Income Security Act of 1974, as amended.

(18)     ESOP:  The "ESOP" established under Article XXI of the ORS Plan.

(19)     ESOP  Account:  An Account  credited  with amounts  determined  pursuant to Sections 3.4, 3.5 (if any) and
         3.6 of the Plan.

(20)     Investment  Funds:  The  investment  funds  designated  from  time to time for the  deemed  investment  of
         Accounts under Section 3.6.

(21)     Limitations:  Benefit  limitations  imposed  on the  ESOP  and  the  ORS  Plan by  ERISA  and by  sections
         401(a)(17), 401(k)(3), 401(m)(2), 402(g) and 415 of the Code.

(22)     OEI Stock Fund:  An Investment Fund investing in Company Stock.

(23)     ORS Excess Account:  An Account  credited with amounts  determined  pursuant to Sections 3.3, 3.5 (if any)
         and 3.6 of the Plan.

(24)     ORS Plan:  The Ocean Retirement Savings Plan.

(25)     Participant:  Any employee of the Employer who has become a  Participant  in the Plan in  accordance  with
         Section 2.1 of the Plan.

(26)     Plan:  The Ocean Energy, Inc. Supplemental Benefit Plan.

(27)     Plan Year:  The twelve-consecutive month period commencing January 1 of each year.

(28)     Pre-2001 Account:  An Account credited with the amount,  if any,  credited to the  Participant's  Accounts
         under the Plan as of December 31, 2000.

         1.2  Construction.  The  masculine  gender,  where  appearing in the Plan,  shall be deemed to include the
feminine gender;  the singular shall include the plural,  and vice versa;  unless the context clearly  indicates to
the contrary.  The headings of Articles and Sections  herein are indicated  solely for  convenience and if there is
any conflict between such headings and the text of the Plan, the text shall control.






                                                    ARTICLE II

                                                   PARTICIPATION



         2.1  Eligibility.  Any  employee  of the  Employer  shall  become  a  Participant  on the date  that  such
employee's Compensation on an annualized basis exceeds the Compensation  Limitation.  Once an employee has become a
Participant,  he shall  remain a  Participant  as long as a balance is  credited  to his  Accounts  under the Plan;
provided,  however,  that a Participant  shall be eligible to defer receipt of his Compensation  and/or Bonus under
the Plan only until the  earlier of (a) the date his  Compensation  on an  annualized  basis no longer  exceeds the
Compensation  Limitation,  (b) the date he ceases to be an employee of the  Employer or (c) the date the  Committee
notifies him that he is no longer eligible to defer receipt of his Compensation and/or Bonus under the Plan.

         2.2  Compensation  Deferral  Election.  Any  Participant  may  elect  to  defer  receipt  of  an  integral
percentage of from 1% to 14% of his  Compensation  for any calendar year under this Plan. A Participant's  election
to defer  receipt of  Compensation  for any  calendar  year under this Plan shall be made prior to the January 1 of
such calendar year and shall be irrevocable  for such calendar year.  Notwithstanding  the preceding  sentence,  in
the case of an employee who first becomes a Participant  after the beginning of a calendar year,  such  Participant
may elect  prospectively  to defer receipt of an integral  percentage of from 1% to 14% of his Compensation for the
remaining  portion of such  calendar  year under this Plan;  provided,  however,  that such  election  must be made
within  thirty  days  after the date he  becomes a  Participant.  The  reduction  in a  Participant's  Compensation
pursuant  to his  election  shall be effected by  Compensation  reductions  as of each  payroll  period  within the
election  period.  Notwithstanding  the  foregoing,  in the  event  that the  Committee,  in its  sole  discretion,
determines that a Participant has an unforseeable  emergency  pursuant to Section 5.5, the Committee may revoke the
Participant's  Compensation  deferral  election then in effect,  if any, in connection with such  determination.  A
Participant  whose  Compensation  deferral  election  has  been so  revoked  may make a new  Compensation  deferral
election prior to the January 1 of any subsequent calendar year.

         2.3 Bonus  Deferral  Election.  Any  Participant  may elect to defer receipt of an integral  percentage of
from 1% to 100% of his Bonus for any calendar  year under this Plan. A  Participant's  election to defer receipt of
a percentage  of his Bonus under this Plan shall be made prior to January 1 of the calendar  year during which such
Bonus is paid and shall be  irrevocable  for such calendar year.  Notwithstanding  the preceding  sentence,  in the
case of an employee who first becomes a Participant  after the beginning of a calendar year,  such  Participant may
elect to defer  receipt of an integral  percentage  of his Bonus for such  calendar  year under this Plan,  but (a)
such election must be made within thirty days after the date he becomes a Participant  and (b) such election  shall
apply  only to that  portion  of his Bonus  for such  calendar  year  determined  by  multiplying  such  Bonus by a
fraction,  the  numerator of which is the number of complete  months  remaining in the calendar year after the date
of such  election and the  denominator  of which is the number of complete  months  during such  calendar year that
such  Participant  is employed by the Employer.  The reduction of a  Participant's  Bonus pursuant to this election
shall be effected at the time such Bonus is paid.






                                                    ARTICLE III

                                                     BENEFITS



         3.1  Amount  of  Compensation  Deferral  Benefit.  For each  payroll  period  during  each  Plan  Year,  a
Participant's  Compensation  Deferral Account shall be credited with an amount equal to the  Compensation  deferred
under this Plan pursuant to an election by the Participant described in Article II for such payroll period.

         3.2 Amount of Bonus Deferral  Benefit.  For the Plan Year in which a  Participant's  Bonus would otherwise
be paid, a  Participant's  Bonus  Deferral  Account  shall be credited  with an amount equal to the Bonus  deferred
under this Plan pursuant to an election by the Participant described in Article II.

         3.3  Amount of Supplemental ORS Benefit.

         (a) For each payroll  period during each Plan Year, the ORS Excess  Account of any  Participant  who makes
the maximum  allowable  contribution  under the ORS Plan but, as a result of the Limitations,  such contribution is
less than the percentage of Compensation  such Participant  actually elected under such Plan shall be credited with
an amount equal to the excess, if any, of (1) over (2) where:

         (1)      equals the Employer  Matching  Contributions to which such  Participant  would have been
                  entitled under the ORS Plan based upon the percentage of Compensation  such  Participant
                  actually  elected to defer under such Plan for such payroll period  assuming none of the
                  Limitations were imposed; and

         (2)      equals  the  Employer  Matching   Contributions   that  were  made  on  behalf  of  such
                  Participant under the ORS Plan for such payroll period.

Notwithstanding the foregoing,  if additional  Employer Matching  Contributions are made on behalf of a Participant
pursuant to Section 3.2(b) of the ORS Plan for a Plan Year, any amounts credited to such  Participant's  ORS Excess
Account  pursuant to this section for such Plan Year shall be adjusted as  appropriate  to reflect such  additional
Employer Matching Contributions under the ORS Plan.

         (b) For each Plan Year,  a  Participant's  ORS Excess  Account  shall be credited  with an amount equal to
the excess, if any, of (1) over (2) where:

         (1)      equals  the  amount  of  Employer  Discretionary  Contributions  that  would  have  been
                  allocated to such Participant's  Employer  Discretionary  Contribution Account under the
                  ORS Plan assuming none of the Limitations were imposed; and

         (2)      equals the amount of Employer  Discretionary  Contributions that were actually allocated
                  to such Participant's Employer Discretionary Contribution Account under the ORS Plan.

         3.4 Amount of  Supplemental  ESOP  Benefit.  For each Plan Year, a  Participant's  ESOP  Account  shall be
credited with an amount equal to the excess, if any, of (a) over (b) where:

         (a)      is the amount of Employer  Contributions  which would have been  allocated to such  Participant's
ESOP Account under the ESOP assuming none of the Limitations were imposed; and

         (b)      is the amount of Employer  Contributions  actually  allocated to such  Participant's ESOP Account
under the ESOP.

         3.5 Amount of  Additional  Benefits.  A  Participant's  Accounts  shall be credited  with such  additional
amounts at such  times as may be  determined  by the  Committee  in its sole  discretion  or as shall be  otherwise
contemplated by the terms of any written  agreement  between a Participant and the Employer that is approved by the
Committee or the Directors.

         3.6  Crediting of Income.

         (a)  Deemed Investment of Funds.

                  (1)  The  amounts  credited  to  each  Participant's  Accounts  shall  be  deemed  to be
         invested in the Fidelity  Money  Market  Trust:  Retirement  Money  Market  Portfolio  until such
         Participant  designates,  in accordance with the procedures  established from time to time by the
         Committee,  the manner in which amounts  credited to his Accounts  shall be deemed to be invested
         from  among  the  Investment  Funds  made  available  from time to time for such  purpose  by the
         Committee.  A Participant  may designate one of such Investment  Funds for the deemed  investment
         of all the  amounts  credited  to his  Accounts  or he may split  the  deemed  investment  of the
         amounts  credited  to his  Accounts  among  such  Investment  Funds  in  such  increments  as the
         Committee may prescribe.  The deemed  investment of amounts credited to a Participant's  Accounts
         shall be based on the  value of the  applicable  Investment  Funds at the time such  amounts  are
         credited or  subsequently  converted  pursuant to an initial  deemed  investment  designation  or
         pursuant to Paragraph (a)(2) below.  Deemed investment  elections in effect  immediately prior to
         the Effective  Date shall remain in effect  following the Effective Date unless and until changed
         or converted pursuant to Paragraph (a)(2) below.

                  (2) A Participant  may (i) change his deemed  investment  designation for future amounts
         to be credited to his Accounts or (ii)  convert his deemed  investment  designation  with respect
         to the amounts already credited to his Accounts;  provided,  however,  that (I) a Participant may
         change  his deemed  investment  designation  of an OEI Stock  Fund only for future  amounts to be
         credited to his Accounts  and (II) in the event of a change  described in clause (I), any amounts
         already  credited to the  Participant's  Accounts that were deemed  invested in an OEI Stock Fund
         shall remain so invested  until paid to such  Participant  pursuant to Article V. Any such change
         or conversion shall be made in accordance with the procedures  established by the Committee,  and
         the frequency of such changes may be limited by the Committee;  provided,  however, that a change
         described  in clause  (I) of the  preceding  sentence  must be made prior to the  beginning  of a
         calendar quarter and shall become effective only as of the first day of such calendar quarter.

         (b) Allocation of Net Income or Net Loss  Equivalents.  The balance of each  Participant's  Accounts shall
be  adjusted  at such times and in such  manner as the  Committee  deems  appropriate  to reflect  the value of the
Investment  Funds,  including  any net income (or net loss) thereto  resulting  from  interest,  dividends or other
distributions.  A  Participant's  Accounts  shall  continue  to be so  adjusted  as long as  there  is any  balance
credited to such account.








                                                    ARTICLE IV

                                                    FORFEITURES



         If any portion of a Participant's  Employer  Contribution Accounts under the ORS Plan is forfeited for any
reason,  amounts equal to the  percentages  of his ESOP, ORS Excess and/or  Pre-2001  Accounts under this Plan that
correspond to the  percentages of his Employer  Contribution  Accounts under the ORS Plan that were forfeited shall
be debited from such ESOP, ORS Excess and/or Pre-2001  Accounts.  Notwithstanding  the preceding  sentence,  in the
event of a change of  control  that is not  approved,  recommended  and  supported  by at least  two-thirds  of the
directors  that were also  directors  prior to the  occurrence of any such change of control in actions taken prior
to, and with  respect  to,  such  change of control (a  "Nonapproved  Change of  Control"),  amounts  credited to a
Participant's  Accounts shall be  nonforfeitable  as of the date of such change of control.  Further,  in the event
of a change of control other than a Nonapproved  Change of Control,  amounts  credited to a Participant's  Accounts
shall be nonforfeitable  upon involuntary  termination of employment  within the twelve-month  period following the
date of such change of control.  For purposes of the Plan, a "change of control"  shall be deemed to have  occurred
if (i) any person  (other than  employee or an  Employer)  including a "group" as  determined  in  accordance  with
Section  13(d)(3) of the Securities  Exchange Act of 1934,  becomes the  beneficial  owner of shares of the Company
having  40% or more of the total  number of votes  that may be cast for the  election  of  directors,  or (ii) as a
result of, or in connection  with, any cash tender or exchange offer,  merger or other business  combination,  sale
of assets or contested election,  or any combination of the foregoing  transactions (a "Transaction"),  the persons
who were  directors  before the  Transaction  shall cease to constitute a majority of the Board of Directors of the
Company or any  successor  thereto.  The  determinations  of whether a change of control has  occurred  and whether
such change of control was a  Nonapproved  Change of Control  shall be made by the  Committee  as existing at least
six months prior to the occurrence of such change of control and its determination shall be final.






                                                     ARTICLE V

                                            FORM AND TIMING OF BENEFITS



         5.1 In-Service  Payments of Compensation  and/or Bonus  Deferrals.  A Participant may elect to have all or
a  portion  of the  Compensation  and/or  Bonus  deferred  under  this  Plan  during  any Plan  Year paid in annual
installment  payments  for a  specified  term not to exceed ten years  commencing  at least one year after the Plan
Year of deferral but prior to the date such  amounts  would  otherwise  be payable  pursuant to Section 5.2. In the
absence of an election by a Participant  with respect to the payment of  Compensation  and/or Bonus  deferred under
this Plan during a Plan Year,  such amounts shall be paid in accordance  with Section 5.2. If a Participant  elects
to have  Compensation  and/or Bonus  deferred under this Plan during a Plan Year paid in annual  installments,  the
value of such  Compensation  and/or Bonus  deferrals  shall be determined as of the last day of the calendar  month
preceding  the time  which he has  elected  to  commence  receiving  such  payments  and each  subsequent  interval
thereafter,  and an amount equal to the then value of such Compensation  and/or Bonus deferrals,  including any net
income or net loss equivalents  credited thereto,  multiplied by a fraction,  the numerator of which is one and the
denominator  of which is the remaining  number of payments  which the  Participant  elected,  shall be paid to such
Participant.  The appropriate  Accounts of the  Participant  shall be debited for any amounts paid pursuant to this
Section 5.1. If a Participant's  employment or consulting  relationship  with the Company  terminates  prior to the
commencement  or  completion  of the annual  installment  payments  elected by such  Participant  pursuant  to this
Section  5.1,  the  remaining  amounts  credited to his Accounts  under the Plan shall be paid in  accordance  with
Section 5.2.

         5.2  Termination  Payments.  Upon  the  termination  of a  Participant's  employment  or,  if  later,  the
termination of a Participant's  consulting  relationship with the Employer, the Participant or, in the event of the
death of the  Participant  while  employed by the Employer,  the  Participant's  designated  beneficiary,  shall be
entitled to payment of the amounts  credited  to his  Accounts  under the Plan  commencing  as soon as  practicable
following  such  termination.  A  Participant  shall  elect the form of  payment  (which  may  either be a lump sum
payment or monthly,  quarterly  or annual  installment  payments  over a specified  term  certain not to exceed ten
years) for the amounts credited to his Accounts under the Plan at the time he elects to defer  Compensation  and/or
Bonus  under the Plan.  In the  absence of  direction  by a  Participant  regarding  the form of payment of amounts
credited to his Accounts  under the Plan,  such  amounts  shall be  distributed  in a lump sum. In the event of the
death of a Participant,  the amounts  credited to such  Participant's  Accounts under the Plan shall be paid or, if
the Participant was receiving  payments under the Plan at the time of his death,  shall continue to be paid, to his
designated  beneficiary in the form of payment  elected by the Participant or, in the absence of any such election,
in a lump sum.  Further,  notwithstanding  the  foregoing,  in the event of a Nonapproved  Change of Control,  each
Participant's  benefit under this Plan shall be paid to him (or his designated  beneficiary)  in a lump sum as soon
as  practicable,  but no later than thirty days  following  the date on which such change of control  occurs.  If a
Participant  elects the annual  installment  form of payment,  the value of amounts  credited to his Accounts under
the Plan shall be determined as of the last day of the calendar  month  preceding the date upon which such payments
commence and each subsequent interval thereafter,  and an amount equal to such value multiplied by a fraction,  the
numerator of which is one and the  denominator of which is the remaining  number of payments which the  Participant
elected,  shall be paid to such Participant.  If a Participant  elects the lump sum form of payment or in the event
of a Nonapproved  Change of Control,  the value of amounts  credited to the  Participant's  Accounts under the Plan
shall be  determined  as of the last day of the  calendar  month  preceding  the date of payment.  The  appropriate
Accounts of the Participant shall be debited for amounts paid pursuant to this Section 5.2.

         5.3  Changes  in Payment  Elections.  A  Participant  may revise his  election  under  Section  5.1 and/or
Section 5.2 only if, and at such time as, such revised  election is approved by the Committee;  provided,  however,
that such  revised  election  shall not be effective  until the later of (a) the January 1 following  the date such
revised election is approved or (b) the date that is six months after the date such revised election is approved.

         5.4 Form of  Payment.  Payments  under the Plan shall be in the form of cash,  except  that if any portion
of a  Participant's  Accounts is deemed  invested in an OEI Stock Fund,  any payment  with  respect to such portion
shall be in the form of shares of Company  Stock.  Without  limiting the  generality of the  foregoing,  nothing in
the Plan shall be  construed as giving any  Participant  any rights as a holder of common stock or any other equity
security of the Company as a result of such  Participant's  participation in this Plan or his designation of an OEI
Stock Fund for the deemed investment of amounts credited to his Accounts.

         5.5  Distributions  for  Unforseeable  Emergency.  In the event  the  Committee,  in its sole  discretion,
determines  that a Participant  has an  unforseeable  emergency,  the Committee may direct that such portion of the
amounts  credited to a Participant's  Accounts as it determines is reasonably  needed to satisfy such  unforseeable
emergency be paid to the  Participant  in one lump sum payment as soon as  practicable  following  the  Committee's
determination  of the existence  and extent of such  unforseeable  emergency.  For purposes of this Section 5.5, an
unforseeable  emergency  shall mean  severe  financial  hardship  to a  Participant  that  arises from a sudden and
unexpected  illness or accident of the  Participant or of a dependent of a Participant,  loss of the  Participant's
property due to casualty,  or similar  extraordinary and unforeseeable  circumstances arising as a result of events
beyond the  control of such  Participant.  Further,  no payment  may be made  pursuant  to this  Section 5.5 to the
extent such severe  financial  hardship may be relieved (a) through  reimbursement  or compensation by insurance or
otherwise,  (b) by liquidation of the Participant's  assets, to the extent the liquidation of such assets would not
itself  cause  severe  financial  hardship,  or (c) by  cessation of  Compensation  deferrals  under the Plan.  For
purposes of this Section 5.5, the purchase of a house or education  expenses for children,  shall not be considered
to be  unforseeable  emergencies.  The decision of the  Committee  regarding the  existence or  nonexistence  of an
unforseeable  emergency of a  Participant  shall be final and binding.  The  Committee  shall have the authority to
require a  Participant  to provide such proof as it deems  necessary to establish  the  existence and nature of the
Participant's unforseeable emergency.

         5.6  Designation  of  Beneficiaries.  A  Participant,  by written  instrument  filed with the Committee in
such  manner and form as it may  prescribe,  may  designate  one or more  beneficiaries  to receive  payment of the
amounts credited to his Accounts in the event of his death.  Any such  beneficiary  designation may be changed from
time to time prior to the death of the  Participant.  In the absence of a beneficiary  designation on file with the
Committee at the time of a Participant's  death, the executor or administrator  of the  Participant's  estate shall
be deemed to be his designated beneficiary.





                                                    ARTICLE VI

                                                   MISCELLANEOUS



         6.1  Administration.  This Plan shall be  administered  by the  Committee as an unfunded plan which is not
intended to meet the  qualification  requirements  of section 401 of the Code. The Committee  shall have full power
and  authority  to  interpret,   construe  and  administer  this  Plan  and  the  Committee's  interpretations  and
construction  hereof, and actions hereunder,  including the timing,  form, amount or recipient of any payment to be
made  hereunder,  shall be binding and conclusive on all persons for all purposes.  In the event that a Participant
or  beneficiary's  claim for a benefit under the Plan is denied or modified,  the Committee shall furnish a written
notice to such  claimant  within  ninety  days (or  within  180 days if  additional  information  requested  by the
Committee  necessitates  an extension of the ninety-day  period) that (a) states the specific reason or reasons for
such denial or modification,  (b) provides  specific  reference to pertinent Plan provisions on which the denial or
modification  is based,  (c) provides a description  of any additional  material or  information  necessary for the
Participant,  his beneficiary,  or  representative  to perfect the claim and an explanation of why such material or
information  is  necessary  and  (d)  explains  the  Plan's  claim  review  procedure.  If  the  Participant,   his
beneficiary,  or a representative  of such  Participant or beneficiary  desires to have such denial or modification
reviewed,  he must,  within sixty days  following  receipt of the notice of such denial or  modification,  submit a
written  request  for review by the  Committee  of its initial  decision.  In  connection  with such  request,  the
Participant,  his beneficiary,  or the  representative  of such Participant or beneficiary may review any pertinent
documents upon which such denial or  modification  was based and may submit issues and comments in writing.  Within
sixty days following such request for review the Committee  shall,  after providing a full and fair review,  render
its final decision in writing to the  Participant,  his beneficiary or the  representative  of such  Participant or
beneficiary  stating  specific  reasons  for such  decision  and  making  specific  references  to  pertinent  Plan
provisions  upon which the decision is based.  If special  circumstances  require an  extension  of such  sixty-day
period, the Committee's  decision shall be rendered as soon as possible,  but not later than 120 days after receipt
of the request for review.  If an extension of time for review is required,  written notice of the extension  shall
be furnished to the Participant,  beneficiary,  or the  representative  of such Participant or beneficiary prior to
the  commencement  of the  extension  period.  Members  of the  Committee  shall not  participate  in any action or
determination regarding their own benefits hereunder.

         6.2  Indemnification.  The Company  shall  indemnify  and hold  harmless  each member of the Committee and
each employee who is a delegate of the Committee  against any and all expenses and  liabilities  arising out of his
administrative functions or fiduciary  responsibilities,  including any expenses and liabilities that are caused by
or result from an act or omission  constituting  the  negligence  of such  individual  in the  performance  of such
functions  or  responsibilities,  but  excluding  expenses and  liabilities  that are caused by or result from such
individual's  own gross  negligence  or  willful  misconduct.  Expenses  against  which  such  individual  shall be
indemnified  hereunder  shall  include,  without  limitation,  the amounts of any  settlement  or judgment,  costs,
counsel fees, and related charges  reasonably  incurred in connection with a claim asserted or a proceeding brought
or settlement thereof.

         6.3 Amendment or Termination.  The Board may, in its sole discretion,  terminate,  suspend,  or amend this
Plan at any time or from time to time,  in whole or in part,  by means of thirty days written  notice given to each
Participant.  If the Board should  amend or suspend this Plan,  no such  amendment or  suspension  shall reduce any
amounts  credited  to a  Participant's  Accounts  which  are  nonforfeitable  as of the date of such  amendment  or
suspension.  Notwithstanding  any  provision  to the  contrary,  if the Board  terminates  this Plan,  all  amounts
credited to the  Participants'  Account  shall become  nonforfeitable  as of the date of such  termination  and the
Committee, in its sole discretion, may elect to pay all such amounts as soon as practicable following such date.

         6.4  Nonguarantee  of  Employment.  Nothing  contained  in this Plan shall be  construed  as a contract of
employment  between the  Employer and any  Participant,  or as a right to have  benefits  which are provided by the
Employer  maintained,  or as a right of any Participant to be continued in the employment of the Employer,  or as a
limitation of the right of the Employer to discharge any of its Participants, with or without cause.

         6.5 Rights to Employer's  Assets.  No  Participant  shall have any right to, or interest in, any assets of
the Employer upon  termination  of  employment or otherwise,  except as provided from time to time under this Plan,
and then only to the extent of the  benefits  payable  under the Plan to such  Participant.  This Plan is unfunded,
and all  payments of benefits  as provided  for in this Plan shall be made solely out of the general  assets of the
Employer on a current  disbursements  basis. The preceding sentence to the contrary  notwithstanding,  the Employer
may fund all or part of its  obligations  hereunder  by  transferring  assets to a trust if the  provisions  of the
trust  agreement  creating such trust require the use of such trust's  assets to satisfy  claims of the  Employer's
general  unsecured  creditors in the event of the Employer's  insolvency or bankruptcy and provide that no Employee
shall at any time have a prior  claim to such  assets and that such trust shall not cause the Plan to be other than
"unfunded" for the purposes of ERISA.  The assets of such trust shall not be deemed to be assets of this Plan.

         6.6  Nonalienation  of  Benefits.  Subject to income tax  withholding,  benefits  payable  under this Plan
shall not be subject in any manner to anticipation,  alienation, sale, transfer,  assignment,  pledge, encumbrance,
charge,  garnishment,  execution,  or levy of any  kind,  either  voluntary  or  involuntary,  including  any  such
liability  which is for alimony or other  payments for the support of a spouse or former  spouse,  or for any other
relative of the  Participant,  prior to actually being  received;  and any attempt to anticipate,  alienate,  sell,
transfer,  assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder,  shall
be void.  The  Employer  shall not in any manner be liable for, or subject to, the debts,  contracts,  liabilities,
engagements or torts of any person entitled to benefits  hereunder.  The preceding  notwithstanding,  the Committee
shall comply with the terms and provisions of an order that satisfies the  requirements  for a "qualified  domestic
relations  order" as defined in section  206(d) of ERISA,  including  an order that  requires  distributions  to an
alternate  payee  prior  to a  Participant's  "earliest  retirement  age"  as  such  term  is  defined  in  section
206(d)(3)(E)(ii) of ERISA.

         6.7  Withholding  Taxes.  The Employer  shall have the right to deduct from all  payments  made under this
Plan, any federal, state or local taxes required by law to be withheld with respect to such payments.

         6.8  Severability.  If any  provision of this Plan shall be held  illegal or invalid for any reason,  said
illegality or invalidity shall not affect the remaining provisions hereof;  instead,  each provision shall be fully
severable  and the Plan shall be  construed  and enforced as if said  illegal or invalid  provision  had never been
included herein.

         6.9  Participating  Employers.  The Committee may designate any entity or organization  eligible by law to
participate  in this Plan as an Employer by written  instrument  delivered to the  Secretary of the Company and the
designated  Employer.  Such written  instrument shall specify the effective date of such designated  participation,
may incorporate  specific  provisions  relating to the operation of the Plan which apply to the designated Employer
only and shall become,  as to such  designated  Employer and its  employees,  a part of the Plan.  Each  designated
Employer  shall be  conclusively  presumed to have consented to its  designation  and to have agreed to be bound by
the terms of the Plan and any and all  amendments  thereto upon its  submission  of  information  to the  Committee
required  by the  terms of or with  respect  to the  Plan;  provided,  however,  that the  terms of the Plan may be
modified so as to increase the  obligations  of an Employer only with the consent of such  Employer,  which consent
shall be  conclusively  presumed to have been given by such Employer upon its submission of any  information to the
Committee  required  by the terms of or with  respect  to the Plan.  Except as  modified  by the  Committee  in its
written instrument,  the provisions of this Plan shall be applicable with respect to each Employer separately,  and
amounts payable hereunder shall be paid by the Employer which employs the particular Participant.

         6.10  Jurisdiction.  The situs of the Plan hereby  created is Texas.  All  provisions of the Plan shall be
construed in accordance with the laws of Texas except to the extent preempted by federal law.






         EXECUTED this ____ day of ___________________________,2001.



                                                     OCEAN ENERGY, INC.



                                                     By:      ______________________________
                                                              Name:    ________________________
                                                              Title:   ________________________

EX-10.3

Exhibit 10.3

                                                SEVERANCE AGREEMENT


         AGREEMENT  between OCEAN ENERGY,  INC., a Texas  corporation  (the  "Company")  and Stephen A.  Thorington
("Executive"),

                                               W I T N E S S E T H:
         WHEREAS,  the  Company  desires  to retain  certain  key  employee  personnel  and  wishes to enter into a
severance agreement with Executive in order to encourage his continued service to the Company; and

         WHEREAS,  Executive is prepared to commit such services in return for specific  arrangements  with respect
to severance compensation and other benefits;

         NOW,  THEREFORE,  in  consideration  of the foregoing and for other good and valuable  consideration,  the
Company and Executive agree as follows:






         1.       Definitions.

                  (a)  "Average  Bonus"  shall  mean  the  average  of the  bonus  payments,  if any,  received  by
Executive for the two immediately  preceding fiscal years of the Company;  provided,  however, that for purposes of
computing  such  Average  Bonus,  if  Executive  was not  employed by the Company in either of the two  immediately
preceding  fiscal years of the Company,  Executive shall be deemed to have received a bonus payment equal to 35% of
Executive's annual salary at the time he commenced employment with the Company for such fiscal year.

                  (b)      "Change  in  Duties"  shall mean the  occurrence,  within two years  after the date upon
which a Change of Control occurs, of any one or more of the following:

                           (i)      A  significant  reduction in the duties of Executive  from those  applicable to
         him immediately prior to the date on which a Change of Control occurs;

                           (ii)     A  reduction  in  Executive's  annual  salary  or bonus  opportunity  under any
         applicable bonus or incentive  compensation  plan from that provided to him immediately  prior to the date
         on which a Change of Control occurs;

                           (iii)    Receipt of employee  benefits  (including  but not limited to medical,  dental,
         life insurance,  accidental death and  dismemberment,  and long-term  disability plans) and perquisites by
         Executive that are materially  inconsistent  with the employee  benefits and  perquisites  provided by the
         Company to executives with comparable duties; or

                           (iv)     A change in the location of  Executive's  principal  place of employment by the
         Company by more than 50 miles from the location where he was  principally  employed  immediately  prior to
         the date on which a Change of Control occurs.

                  (c)      "Change of Control" means the  occurrence,  after the effective date of this  Agreement,
of one of the following events:

                           (i)      The Company (A) shall not be the surviving entity in any merger,  consolidation
         or  other  reorganization  (or  survives  only  as a  subsidiary  of an  entity  other  than a  previously
         wholly-owned  subsidiary of the Company) or (B) is to be dissolved and  liquidated,  and as a result of or
         in  connection  with  such  transaction,  the  persons  who were  directors  of the  Company  before  such
         transaction shall cease to constitute a majority of the Board;

                           (ii)     Any person or entity,  including a "group" as contemplated by Section  13(d)(3)
         of the Securities  Exchange Act of 1934, as amended,  acquires or gains  ownership or control  (including,
         without  limitation,  power to vote) of 20% or more of the  outstanding  shares  of the  Company's  voting
         stock (based upon voting power),  and as a result of or in connection with such  transaction,  the persons
         who were  directors of the Company  before such  transaction  shall cease to  constitute a majority of the
         Board; or

                           (iii)    The Company sells all or substantially  all of the assets of the Company to any
         other  person or entity  (other than a  wholly-owned  subsidiary  of the  Company) in a  transaction  that
         requires shareholder approval pursuant to the Texas Business Corporation Act.

                  (d)      "Code" shall mean the Internal Revenue Code of 1986, as amended.

                  (e)      "Compensation" shall mean the greater of:

                           (i)      Executive's  annual salary plus his Average Bonus immediately prior to the date
         on which a Change of Control occurs, or

                           (ii)     Executive's   annual  salary  plus  his  Average  Bonus  at  the  time  of  his
         Involuntary Termination.

                  (f)      "Involuntary  Termination"  shall mean any  termination of Executive's  employment  with
the Company which:

                           (i)  does  not  result  from a  resignation  by  Executive  (other  than  a  resignation
         pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or

                           (ii)  results  from a  resignation  by  Executive  on or before  the date which is sixty
         days after the date upon which Executive receives notice of a Change in Duties;

provided,  however, the term "Involuntary  Termination" shall not include a Termination for Cause, a termination of
Executive's  employment  occurring  as a result  of or in  connection  with the  sale or other  divestiture  by the
Company of a division,  subsidiary,  or other business segment  (including,  without  limitation,  a divestiture by
sale of shares of stock or of  assets)  if  Executive  is  offered  continued  employment  on terms  that would not
constitute a Change in Duties by the acquiror of such business  segment  immediately upon such sale or divestiture,
or any  termination  as a result of death,  disability  under  circumstances  entitling  him to benefits  under the
Company's long-term disability plan, or Retirement.

                  (g)      "Retirement"  shall  mean  Executive's  voluntary  resignation  on or after  the date he
reaches age sixty-five  (other than a resignation  within sixty days after the date Executive  receives notice of a
Change in Duties or a resignation at the request of the Company).

                  (h)      "Severance Amount" shall mean an amount equal to 2.00 times Executive's Compensation.

                  (i)      "Termination  for  Cause"  shall  mean  termination  of  Executive's  employment  by the
Company (or its  subsidiaries) by reason of Executive's gross  negligence,  gross neglect or willful  misconduct in
the  performance  of his duties or Executive's  final  conviction of a felony or of a misdemeanor  involving  moral
turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle.

                  (j)      "Welfare  Benefit  Coverages"  shall  mean  the  medical,  dental,  life  insurance  and
accidental death and dismemberment coverages provided by the Company to its active employees.

         2.       Services.  Executive  agrees  that  he  will  render  services  to the  Company  (as  well as any
subsidiary  thereof or successor  thereto)  during the period of his employment to the best of his ability and in a
prudent and  businesslike  manner and that he will devote  substantially  the same time,  efforts and dedication to
his duties as heretofore devoted.

         3.       Severance  Benefits.  If  Executive's  employment  by the  Company or any  subsidiary  thereof or
successor thereto shall be subject to an Involuntary  Termination which occurs within two years after the date upon
which a Change of Control  occurs,  then Executive  shall be entitled to receive,  as additional  compensation  for
services rendered to the Company (including its subsidiaries), the following severance benefits:

                  (a)      A lump sum cash payment in an amount equal to Executive's Severance Amount.

                  (b)      Executive shall be entitled to continue the Welfare  Benefit  Coverages for himself and,
where applicable,  his eligible dependents following his Involuntary  Termination for up to twenty four months (the
"Continuation  Period"),  as long as Executive continues either to pay the premiums paid by active employees of the
Company for such coverages or to pay the actual  (nonsubsidized)  cost of such coverages for which the Company does
not  subsidize  for active  employees.  Such benefit  rights shall apply only to those  Welfare  Benefit  Coverages
which the Company has in effect from time to time for active  employees,  and the applicable  payments shall adjust
as  premiums  for active  employees  of the Company or actual  costs,  whichever  is  applicable,  change.  Welfare
Benefit  Coverage(s)  shall  immediately  end upon  Executive's  obtainment of new employment and  eligibility  for
similar Welfare Benefit  Coverage(s) (with Executive being obligated  hereunder to promptly report such eligibility
to the  Company).  Nothing  herein  shall be deemed to adversely  affect in any way the  additional  rights,  after
consideration  of the Continuation  Period,  of Executive and his eligible  dependents to health care  continuation
coverage as required  pursuant to Part 6 of Title I of the Employee  Retirement  Income  Security  Act of 1974,  as
amended.  If, for any reason,  Company is unable to continue any of the Welfare Benefit  Coverages  during a period
in which  Executive would  otherwise be entitled to continue such Welfare  Benefit  Coverage(s),  Company shall pay
Executive an amount equal to the economic value of such Welfare Benefit Coverage(s).

                  (c)      Executive  shall be  entitled  to receive  out-placement  services  in  connection  with
obtaining new employment up to a maximum cost of $6,000,  or an equivalent  cash payment,  if Executive  either has
or is not seeking new employment.

                  (d)      The severance  benefits  payable under this  Agreement  shall be paid to Executive on or
before the tenth business day after the last day of Executive's  employment  with the Company;  provided,  however,
that such severance  benefits shall not be paid earlier than the day after expiration of the revocation  period for
the release  required by Paragraph  6(i). Any severance  benefits paid pursuant to this Paragraph will be deemed to
be a severance  payment and not  compensation  for purposes of determining  benefits under the Company's  qualified
plans and shall be subject to any required tax withholding.

         4.       Interest on Late Benefit  Payments.  If any payment provided for in Paragraph 3(a) or 3(b) hereof
is not made when due,  the Company  shall pay to Executive  interest on the amount  payable from the date that such
payment should have been made under such paragraph  until such payment is made,  which interest shall be calculated
at a rate  equal to two  percentage  points  over the prime or base rate of  interest  announced  by Chase  Bank of
Texas, N.A. (or any successor  thereto) at its principal office in Houston,  Texas and shall change when and as any
such change in such prime or base rate shall be announced by such bank.

         5.       Certain  Additional  Payments by the  Company.  Notwithstanding  anything to the contrary in this
Agreement,  in the event that any  payment or  distribution  by the  Company  to or for the  benefit of  Executive,
whether paid or payable or  distributed  or  distributable  pursuant to the terms of this Agreement or otherwise (a
"Payment"),  would be subject to the excise tax imposed by Section  4999 of the Code or any  interest or  penalties
with respect to such excise tax (such excise tax,  together with any such interest or  penalties,  are  hereinafter
collectively  referred to as the "Excise  Tax"),  the  Company  shall pay to  Executive  an  additional  payment (a
"Gross-up  Payment")  in an amount such that after  payment by Executive  of all taxes  (including  any interest or
penalties  imposed  with  respect  to such  taxes),  including  any Excise Tax  imposed  on any  Gross-up  Payment,
Executive  retains an amount of the  Gross-up  Payment  equal to the  Excise  Tax  imposed  upon the  Payment.  The
Company and  Executive  shall make an initial  determination  as to whether a Gross-up  Payment is required and the
amount of any such  Gross-up  Payment.  Executive  shall notify the Company in writing of any claim by the Internal
Revenue Service which, if successful,  would require the Company to make a Gross-up  Payment (or a Gross-up Payment
in excess of that, if any,  initially  determined by the Company and  Executive)  within ten days of the receipt of
such  claim.  The  Company  shall  notify  Executive  in  writing  at least  ten days  prior to the due date of any
response  required with respect to such claim if it plans to contest the claim.  If the Company  decides to contest
such claim, Executive shall cooperate fully with the Company in such action;  provided,  however, the Company shall
bear and pay directly or indirectly all costs and expenses  (including  additional interest and penalties) incurred
in connection  with such action and shall indemnify and hold Executive  harmless,  on an after-tax  basis,  for any
Excise Tax or income tax,  including  interest  and  penalties  with  respect  thereto,  imposed as a result of the
Company's  action.  If, as a result of the Company's  action with respect to a claim,  Executive  receives a refund
of any amount paid by the Company  with  respect to such claim,  Executive  shall  promptly  pay such refund to the
Company.  If the  Company  fails to timely  notify  Executive  whether it will  contest  such claim or the  Company
determines  not to contest such claim,  then the Company  shall  immediately  pay to Executive  the portion of such
claim, if any, which it has not previously paid to Executive.

         6.       General.

                  (a)      Term.    The   effective    date   of   this   Agreement   is   January   16,   2001.
The  initial  term of this  Agreement  shall be the  period  beginning  on said  effective  date and  ending on the
three-year  anniversary of said effective  date.  Within sixty days following the expiration of the initial term of
this  Agreement  and within  sixty  days  after each  successive  three-year  period of time  thereafter  that this
Agreement  is in effect,  the Company  shall have the right to review this  Agreement,  and in its sole  discretion
either  continue  and extend  this  Agreement,  terminate  this  Agreement,  and/or  offer  Executive  a  different
agreement.  The  Company  will  notify  Executive  of such  action  before the end of said  sixty-day  time  period
mentioned  above.  This  Agreement  shall  remain in effect  until so  terminated  and/or  modified by the Company.
Failure of the Company to take any action  within said  sixty-day  time period shall be  considered as an extension
of  this  Agreement  for an  additional  three-year  period  of  time.  Notwithstanding  anything  to the  contrary
contained in this "sunset  provision,"  it is agreed that if a Change of Control  occurs while this Agreement is in
effect,  then this Agreement  shall not be subject to termination or  modification  under this "sunset  provision,"
and shall  remain in force for a period of two years  after such  Change of  Control,  and if within said two years
the  contingency  factors occur which would entitle  Executive to the benefits as provided  herein,  this Agreement
shall  remain in effect in  accordance  with its terms.  If,  within such two years after a Change of Control,  the
contingency  factors that would entitle Executive to said benefits do not occur,  thereupon this three-year "sunset
provision"  shall again be applicable  with the sixty-day time period for Company action to thereafter  commence at
the expiration of said two years after such Change of Control and on each three-year anniversary date thereafter.

                  (b)      Indemnification.  If  Executive  shall obtain any money  judgment or  otherwise  prevail
with  respect to any  litigation  brought by  Executive  or the  Company to  enforce  or  interpret  any  provision
contained  herein,  the Company,  to the fullest extent permitted by applicable law, hereby  indemnifies  Executive
for his reasonable  attorneys' fees and  disbursements  incurred in such litigation and hereby agrees (i) to pay in
full all such fees and  disbursements  and (ii) to pay  prejudgment  interest  on any money  judgment  obtained  by
Executive  from the  earliest  date that  payment to him should  have been made  under  this  Agreement  until such
judgment  shall have been paid in full,  which  interest  shall be  calculated  at a rate  equal to two  percentage
points over the prime or base rate of interest  announced by Chase Bank of Texas,  N.A. (or any successor  thereto)
at its  principal  office in  Houston,  Texas,  and shall  change when and as any such change in such prime or base
rate shall be announced by such bank.

                  (c)      Payment  Obligations  Absolute.  The  Company's  obligation  to pay (or cause one of its
subsidiaries  to pay)  Executive  the amounts and to make the  arrangements  provided  herein shall be absolute and
unconditional  and  shall not be  affected  by any  circumstances,  including,  without  limitation,  any  set-off,
counterclaim,  recoupment,  defense or other right which the Company  (including its subsidiaries) may have against
him or anyone  else.  All amounts  payable by the Company  (including  its  subsidiaries  hereunder)  shall be paid
without notice or demand.  Executive  shall not be obligated to seek other  employment in mitigation of the amounts
payable or  arrangements  made under any provision of this  Agreement,  and,  except as provided in Paragraph  3(b)
hereof,  the  obtaining  of any such other  employment  shall in no event  effect any  reduction  of the  Company's
obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement.

                  (d)      Successors.  This  Agreement  shall be  binding  upon and  inure to the  benefit  of the
Company and any successor of the Company,  by merger or otherwise.  This  Agreement  shall also be binding upon and
inure to the benefit of  Executive  and his estate.  If  Executive  shall die prior to full  payment of amounts due
pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate.

                  (e)      Severability.  Any provision in this Agreement which is prohibited or  unenforceable  in
any jurisdiction by reason of applicable law shall, as to such  jurisdiction,  be ineffective only to the extent of
such prohibition or  unenforceability  without  invalidating or affecting the remaining  provisions hereof, and any
such  prohibition  or  unenforceability  in any  jurisdiction  shall not  invalidate or render  unenforceable  such
provision in any other jurisdiction.

                  (f)      Non-Alienation.  Executive shall not have any right to pledge,  hypothecate,  anticipate
or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution.

                  (g)      Notices.  Any notices or other  communications  provided for in this Agreement  shall be
sufficient  if in  writing.  In the  case of  Executive,  such  notices  or  communications  shall  be  effectively
delivered  if hand  delivered to  Executive  at his  principal  place of  employment  or if sent by  registered  or
certified  mail to Executive at the last  address he has filed with the Company.  In the case of the Company,  such
notices or  communications  shall be  effectively  delivered if sent by registered or certified mail to the Company
at its principal executive offices.

                  (h)      Controlling  Law.  This  Agreement  shall be governed by, and  construed  in  accordance
with,  the laws of the State of  Texas.  Further,  Executive  agrees  that any  legal  proceeding  to  enforce  the
provisions of this  Agreement  shall be brought in Houston,  Harris County,  Texas,  and hereby waives his right to
any pleas regarding subject matter or personal jurisdiction and venue.

                  (i)      Release.  As a  condition  to the  receipt  of any  benefit  under  Paragraph 3  hereof,
Executive  shall first  execute a release,  in the form  established  by the Company,  releasing  the Company,  its
affiliates,  predecessors,  successors,  shareholders, partners, officers, directors, employees and agents from any
and all claims and from any and all causes of action of any kind or  character,  including  but not  limited to all
claims or causes of action  arising  out of  Executive's  employment  with the Company or the  termination  of such
employment.

                  (j)      Full  Settlement.  If  Executive  is  entitled to and  receives  the  benefits  provided
hereunder,  performance of the  obligations of the Company  hereunder will constitute full settlement of all claims
that Executive might otherwise assert against the Company on account of his termination of employment.

                  (k)      Unfunded  Obligation.  The  obligation  to  pay  amounts  under  this  Agreement  is  an
unfunded  obligation of the Company  (including its  subsidiaries),  and no such obligation shall create a trust or
be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries).

                  (l)      Not a  Contract  of  Employment.  This  Agreement  shall not be deemed to  constitute  a
contract of employment,  nor shall any provision  hereof affect (i) the right of the Company (or its  subsidiaries)
to  discharge  Executive  at will or (ii) the  terms and  conditions  of any  signed  written  agreement  hereafter
executed by Company and Executive.  This Agreement  constitutes the entire  agreement of the parties with regard to
the subject matter hereof,  and contains all the covenants,  promises,  representations,  warranties and agreements
between the parties with respect to any termination of Executive's  employment with the Company.  Without  limiting
the scope of the preceding sentence,  all prior  understandings and agreements among the parties hereto relating to
the subject  matter hereof are hereby null and void and of no further force and effect.  Any  modification  of this
Agreement will be effective only if it is in writing and signed by the party to be charged.

                  (m)      Number  and  Gender.  Wherever  appropriate  herein,  words used in the  singular  shall
include the plural and the plural shall include the singular.  The masculine  gender where  appearing  herein shall
be deemed to include the feminine gender.

                  (n)      Counterparts.  This  Agreement  may be  executed  in one or more  counterparts,  each of
which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 18th day of June, 2001.

                                                     "EXECUTIVE"



                                                     ------------------------------------------
                                                     Stephen A. Thorington

                                                     "COMPANY"

                                                     OCEAN ENERGY, INC.



                                                     By:      ____________________________________
                                                     Name:    Peggy T. d'Hemecourt
                                                     Title:   Vice President, Human Resources