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                                                                     EXHIBIT 4.6


                               OCEAN ENERGY, INC.
                         1999 LONG-TERM INCENTIVE PLAN


SECTION 1.   Purpose of the Plan.

The Ocean Energy, Inc. 1999 Long-Term Incentive Plan (the "Plan") is intended
to promote the interests of Ocean Energy, Inc., a Texas corporation (the
"Company"), by encouraging employees of the Company, its subsidiaries and
affiliated entities and Directors (as defined below) to acquire or increase
their equity interest in the Company and to provide a means whereby employees
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company
thereby advancing the interests of the Company and its shareholders. The Plan
is also contemplated to enhance the ability of the Company, its subsidiaries
and affiliated entities to attract and retain the services of individuals who
are essential for the growth and profitability of the Company.

SECTION 2.   Definitions.

As used in the Plan, the following terms shall have the meanings set forth
below:

         "Affiliate" shall mean (i) any entity that, directly or through one or
         more intermediaries, is controlled by the Company and (ii) any entity
         in which the Company has a significant equity interest, as determined
         by the Committee.

         "Award" shall mean any Option, Stock Appreciation Right, Restricted
         Stock, Performance Award, Phantom Shares, Bonus Shares or Cash Award.

         "Award Agreement" shall mean any written agreement, contract, or other
         instrument or document evidencing any Award, which may, but need not,
         be executed or acknowledged by a Participant.

         "Board" shall mean the Board of Directors of the Company.

         "Bonus Shares" shall mean an award of Shares granted pursuant to
         Section 6(e) of the Plan.

         "Cash Award" shall mean an award payable in cash granted pursuant to
         Section 6(g) of the Plan.

         "Code" shall mean the Internal Revenue Code of 1986, as amended from
         time to time, and the rules and regulations thereunder.


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         "Committee" shall mean the Compensation Committee of the Board, which
         shall be comprised solely of two or more Directors who are "outside
         directors" within the meaning of section 162(m) of the Code and
         "Non-Employee Directors" within the meaning of Rule 16b-3.

         "Director" shall mean a member of the Board who is not also an
         Employee.

         "Employee" shall mean any employee of the Company or an Affiliate.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
         amended.

         "Fair Market Value" shall mean, with respect to Shares, the closing
         price of a Share quoted on the New York Stock Exchange Composite Tape,
         or if the Shares are not listed on the New York Stock Exchange, on the
         principal United States securities exchange registered under the
         Exchange Act on which such stock is listed, or if the Shares are not
         listed on any such stock exchange, the last sale price, or if none is
         reported, the highest closing bid quotation on the National
         Association of Securities Dealers, Inc., Automated Quotations System
         or any successor system then in use on the Date of Grant, or if none
         are available on such day, on the next preceding day on which the
         Shares were publicly traded. In the event the Shares are not publicly
         traded at the time a determination of its fair market value is
         required to be made hereunder, the determination of fair market value
         shall be made in good faith by the Committee.

         "Incentive Stock Option" or "ISO" shall mean an option granted under
         Section 6(a) of the Plan that is intended to qualify as an "incentive
         stock option" under Section 422 of the Code or any successor provision
         thereto.

         "Non-Qualified Stock Option" or "NQO" shall mean an option granted
         under Sections 6(a) or 6(h) of the Plan that is not intended to be an
         Incentive Stock Option.

         "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
         Option.

         "Participant" shall mean any individual granted an Award under the
         Plan.

         "Performance Award" shall mean any right granted under Section 6(d) of
         the Plan.

         "Person" shall mean individual, corporation, partnership, association,
         joint-stock company, trust, unincorporated organization, government or
         political subdivision thereof or other entity.

         "Phantom Shares" shall mean an Award of the right to receive Shares
         issued at the end of a Restricted Period which is granted pursuant to
         Section 6(f) of the Plan.


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         "Restricted Period" shall mean the period established by the Committee
         with respect to an Award during which the Award either remains subject
         to forfeiture or is not exercisable by the Participant.

         "Restricted Stock" shall mean any Share, prior to the lapse of
         restrictions thereon, granted under Section 6(c) of the Plan.

         "Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
         Exchange Act, or any successor rule or regulation thereto as in effect
         from time to time.

         "SEC" shall mean the Securities and Exchange Commission, or any
         successor thereto.

         "Shares" or "Common Shares" or "Common Stock" shall mean the common
         stock of the Company, $0.10 par value, and such other securities or
         property as may become the subject of Awards of the Plan.

         "Spread" shall mean, in the case of a Stock Appreciation Right, an
         amount equal to the excess, if any, of the Fair Market Value of a
         Share on the date such right is exercised over the exercise price of
         such Stock Appreciation Right.

         "Stock Appreciation Right" or "Right" shall mean any right to receive
         the spread of Shares granted under Section 6(b) of the Plan.

         "Substitute Award" shall mean Awards granted in assumption of, or in
         substitution for, outstanding awards previously granted by (i) a
         company acquired by the Company or one or more of its Affiliates, or
         (ii) a company with which the Company or one or more of its Affiliates
         combines. To the extent reasonably practical, as determined by the
         Committee in its sole discretion, Substitute Awards shall contain the
         same terms and conditions as the award they replace.

SECTION 3.  Administration.

The Plan shall be administered by the Committee. A majority of the Committee
shall constitute a quorum, and the acts of the members of the Committee who are
present at any meeting thereof at which a quorum is present, or acts
unanimously approved by the members of the Committee in writing, shall be the
acts of the Committee. Subject to the terms of the Plan and applicable law, and
in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards to be
granted to an eligible Participant; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights, or other matters are to
be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award, including such terms and conditions as shall be
requisite in the judgment of the Committee to cause designated Options to
qualify as Incentive Stock Options; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other


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Awards or other property, or canceled, forfeited, or suspended and the method
or methods by which Awards may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Awards, other property, and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award Agreement
in the manner and to the extent it shall deem expedient to carry it into
effect. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any shareholder, any Employee and any Director.

SECTION 4.  Shares Available for Awards.

(a) Shares Available. Subject to adjustment as provided in Section 4(c) and
below, the number of Shares with respect to which Awards may be granted under
the Plan shall be 3,000,000. If any Shares covered by an Award granted under
the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates or is canceled without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such Award
relates, or the number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the extent of any
such forfeiture, termination or cancellation, shall again be, or shall become,
Shares with respect to which Awards may be granted.

(b) Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant
to an Award may consist, in whole or in part, of authorized and unissued Shares
or of treasury Shares. Any of such Shares which remain unissued and which are
not subject to outstanding Awards at the termination of the Plan shall cease to
be subject to the Plan but, until termination of the Plan, the Company shall at
all times make available a sufficient number of shares to meet the requirements
of the Plan.

(c) Adjustments. In the event that the Committee determines that any dividend
or other distribution (whether in the form of cash, Shares, other securities,
or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares
such that an adjustment is determined by the Committee in its discretion to be
appropriate in order to


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prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or property) with respect to which Awards may be
granted, (ii) the number and type of Shares (or other securities or property)
subject to outstanding Awards, and (iii) the grant or exercise price with
respect to any Award or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award; provided, in each case, that
with respect to Awards of Incentive Stock Options and Awards intended to
qualify as performance based compensation under Section 162(m)(4)(C) of the
Code, no such adjustment shall be authorized to the extent that such authority
would cause the Plan to violate Section 422(b)(1) of the Code or would cause
such Award to fail to so qualify under Section 162(m) of the Code, as the case
may be, or any successor provisions thereto; and provided, further, that the
number of Shares subject to any Award denominated in Shares shall always be a
whole number.

SECTION 5.   Eligibility and Award Limits.

Other than Awards granted to Directors pursuant to Section 6(h) of the Plan,
any Employee shall be eligible to be designated a Participant. However, no
Employee may receive Share-denominated Awards during the term of the Plan that,
in the aggregate, are with respect to more than 33-1/3% of all Shares that may
be made subject to Awards under the Plan. The maximum amount of compensation
(including the Fair Market Value of any Shares) that may be paid to any
Participant with respect to any single Performance Award or Cash Award in any
calendar year shall be $1.5 million. With respect to any Restricted Stock
Award, Phantom Stock Award, or Cash Award granted in tandem with, and expressed
as a percentage of, a Share-denominated Award which is intended to qualify as
"performance-based compensation," the maximum payment to any Participant with
respect to such Award in any calendar year shall be an amount (in cash and/or
in Shares) equal to the Fair Market Value of the number of Shares subject to
such Award. The limitations set forth in the preceding sentences shall be
applied in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of section 162(m) of
the Code, including, without limitation, counting against such maximum number
of Shares, to the extent required under Section 162(m) of the Code and
applicable interpretive authority thereunder, any Shares subject to Options
that are canceled or repriced. Further, Restricted Stock, Performance Awards,
Phantom Shares and Bonus Shares paid in Shares may not, in the aggregate,
exceed 20% of all Shares that may be the subject of Awards under the Plan.

SECTION 6.   Awards.

(a) Options. Subject to the provisions of the Plan, the Committee shall have
the authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the purchase price therefor and
the conditions and limitations applicable to the exercise of the Option,
including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine, that are not inconsistent with
the provisions of the Plan.


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         (i) Exercise Price. The purchase price per Share purchasable under an
         Option shall be determined by the Committee at the time each Option is
         granted, but shall not be less than the Fair Market Value of a Share
         on such date, unless such Option is a Substitute Award.

         (ii) Time and Method of Exercise. The Committee shall determine the
         time or times at which an Option may be exercised in whole or in part,
         and the method or methods by which, and the form or forms (which may
         include, without limitation, cash, already-owned Shares, outstanding
         Awards, Shares that would otherwise be acquired upon exercise of the
         Option, a "cashless-broker" exercise (through procedures approved by
         the Company), other securities or other property, or any combination
         thereof, having a Fair Market Value on the exercise date equal to the
         relevant exercise price) in which payment of the exercise price with
         respect thereto may be made or deemed to have been made.

         (iii) Special Limitations on Incentive Stock Options. Incentive Stock
         Options may be granted only to employees of the Company and its
         subsidiaries, within the meaning of Section 424(f) of the Code. To the
         extent that the aggregate Fair Market Value (determined at the time
         the respective Incentive Stock Option is granted) of Shares with
         respect to which Incentive Stock Options granted after 1986 are
         exercisable for the first time by an individual during any calendar
         year under all incentive stock option plans of the Company and its
         parent and subsidiary corporations exceeds $100,000, such Incentive
         Stock Options shall be treated as Options which do not constitute
         Incentive Stock Options. The Committee shall determine, in accordance
         with applicable provisions of the Code, Treasury regulations and other
         administrative pronouncements, which of a Participant's Incentive
         Stock Options will not constitute Incentive Stock Options because of
         such limitation and shall notify the Participant of such determination
         as soon as practicable after such determination. No Incentive Stock
         Option shall be granted to an individual if, at the time the Option is
         granted, such individual owns stock possessing more than 10% of the
         total combined voting power of all classes of stock of the Company or
         of its parent or subsidiary corporation, within the meaning of Section
         422(b)(6) of the Code, unless (1) at the time such Option is granted
         the option price is at least 110% of the Fair Market Value of the
         Shares subject to the Option and (2) such Option by its terms is not
         exercisable after the expiration of five years from the date of grant.

         (iv) Expiration. Except as provided in Section 6(a)(iii), each Option
         shall expire ten (10) years from the date of grant thereof, and,
         unless provided otherwise in the Award Agreement, shall be subject to
         earlier termination as follows: Options, to the extent exercisable as
         of the date a Participant ceases to be an Employee, must be exercised
         within three (3) months of such date unless such event results from
         death, disability or retirement, in which case all outstanding Options
         held by such Participant may be exercised in full by the optionee, the
         optionee's legal representative, heir or devisee, as the case may be,
         within two (2) years from the date of the Participant's death,
         disability or retirement; provided, however, that no such event shall
         extend the


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         expiration date of an Option beyond the 10th anniversary of its date
         of grant. Options that are not exercisable on termination of
         employment shall be automatically canceled on termination of
         employment. For purposes hereof, (x) "disability" means the
         Participant is receiving benefits under a long-term disability plan of
         the Company or, if the Company does not maintain such a plan, a
         determination by the Committee, upon the basis of medical evidence
         satisfactory to it, that the Participant is totally disabled, whether
         due to a physical or mental condition, such that he is expected to be
         unable to continue his employment for a continuous period of 12 or
         more months, and (y) "retirement" means a termination of employment on
         or after the Participant has reached age 65 or, with the consent of
         the Committee, on or after reaching age 55.

         (b) Stock Appreciation Rights. Subject to the provisions of the Plan,
         the Committee shall have the authority to determine the Employees to
         whom Stock Appreciation Rights shall be granted, the number of Shares
         to be covered by each Stock Appreciation Right Award, the grant price
         thereof and the conditions and limitations applicable to the exercise
         thereof. A Stock Appreciation Right may be granted in tandem with
         another Award, in addition to another Award, or freestanding and
         unrelated to another Award. A Stock Appreciation Right granted in
         tandem with or in addition to another Award may be granted either at
         the same time as such other Award or at a later time.

         (i) Grant Price. The grant price of a Stock Appreciation Right shall
         be determined by the Committee on the date of grant, but shall not be
         less than the Fair Market Value of a Share on such date (or such
         greater exercise price as may be required if such Stock Appreciation
         Right is granted in connection with an Incentive Stock Option that
         must have an exercise price equal to 110% of the Fair Market Value of
         a Share on the date of grant pursuant to Section 6(a)(iii)), unless
         such Stock Appreciation Right is a Substitute Award.

         (ii) Other Terms and Conditions. Subject to the terms of the Plan and
         any applicable Award Agreement, the Committee shall determine, at or
         after the grant of a Stock Appreciation Right, the term, methods of
         exercise, methods of settlement, and any other terms and conditions of
         any Stock Appreciation Right. Any such determination by the Committee
         may be changed by the Committee from time to time and may govern the
         exercise of Stock Appreciation Rights granted or exercised prior to
         such determination as well as Stock Appreciation Rights granted or
         exercised thereafter. The Committee may impose such conditions or
         restrictions on the exercise of any Stock Appreciation Right as it
         shall deem appropriate.

         (iii) Expiration. Each Stock Appreciation Right shall expire ten (10)
         years from the date of grant thereof, or, if granted in tandem with
         another Award, upon the expiration of such tandem Award, if earlier,
         and, unless provided otherwise in the Award Agreement, shall be
         subject to earlier termination as follows: Stock Appreciation Rights,
         to the extent exercisable as of the date a Participant ceases to be an
         Employee, must be exercised within three (3) months of such date
         unless such event results from death, disability or retirement, in
         which case all outstanding Stock Appreciation


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         Rights held by such Participant may be exercised in full by the
         Participant, the Participant's legal representative, heir or devisee,
         as the case may be, within two (2) years from the date of the
         Participant's death, disability or retirement; provided, however, that
         no such event shall extend the expiration date of a Stock Appreciation
         Right beyond the 10th anniversary of its date of grant. Stock
         Appreciation Rights that are not exercisable on termination of
         employment shall be automatically canceled on termination of
         employment. For purposes hereof, "disability" and "retirement" shall
         have their respective meanings as set forth in Section 6(a)(iv).

         (c) Restricted Stock. Subject to the provisions of the Plan, the
         Committee shall have the authority to determine the Employees to whom
         Restricted Stock shall be granted, the number of Shares of Restricted
         Stock to be granted to each such Participant, the duration of the
         Restricted Period during which, and the conditions, including
         performance goals, if any, under which, the Restricted Stock may be
         forfeited to the Company, and the other terms and conditions of such
         Awards.

         (i) Dividends. Dividends paid on Restricted Stock may be paid directly
         to the Participant, may be subject to risk of forfeiture and/or
         transfer restrictions during any period established by the Committee
         or sequestered and held in a bookkeeping cash account (with or without
         interest) or reinvested on an immediate or deferred basis in
         additional shares of Common Stock, which credit or shares may be
         subject to the same restrictions as the underlying Award or such other
         restrictions, all as determined by the Committee in its discretion.

         (ii) Registration. Any Restricted Stock may be evidenced in such
         manner as the Committee shall deem appropriate, including, without
         limitation, book-entry registration or issuance of a stock certificate
         or certificates. In the event any stock certificate is issued in
         respect of Restricted Stock granted under the Plan, such certificate
         shall be registered in the name of the Participant and shall bear an
         appropriate legend referring to the terms, conditions, and
         restrictions applicable to such Restricted Stock.

         (iii) Forfeiture and Restrictions Lapse. Except as otherwise
         determined by the Committee or the terms of the Award that granted the
         Restricted Stock, upon termination of a Participant's employment (as
         determined under criteria established by the Committee) for any reason
         during the applicable Restricted Period, all Restricted Stock shall be
         forfeited by the Participant and re-acquired by the Company. The
         Committee may, when it finds that a waiver would be in the best
         interests of the Company and not cause such Award, if it is intended
         to qualify as performance-based compensation under Section 162(m) of
         the Code, to fail to so qualify under Section 162(m) of the Code,
         waive in whole or in part any or all remaining restrictions with
         respect to such Participant's Restricted Stock. Unrestricted Shares,
         evidenced in such manner as the Committee shall deem appropriate,
         shall be issued to the holder of Restricted Stock promptly after the
         applicable restrictions have lapsed or otherwise been satisfied.


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         (iv) Transfer Restrictions. During the Restricted Period, Restricted
         Stock will be subject to the limitations on transfer as provided in
         Section 6(i)(iii).

(d) Performance Awards. The Committee shall have the authority to determine the
Employees who shall receive a Performance Award, which shall be denominated as
a cash amount at the time of grant and confer on the Participant the right to
receive payment of such Award, in whole or in part, upon the achievement of
such performance goals during such performance periods as the Committee shall
establish with respect to the Award.

         (i) Terms and Conditions. Subject to the terms of the Plan and any
         applicable Award Agreement, the Committee shall determine the
         performance goals to be achieved during any performance period, the
         length of any performance period, the amount of any Performance Award
         and the amount of any payment or transfer to be made pursuant to any
         Performance Award.

         (ii) Payment of Performance Awards. Performance Awards may be paid (in
         cash and/or in Shares, in the sole discretion of the Committee) in a
         lump sum or in installments following the close of the performance
         period, in accordance with procedures established by the Committee
         with respect to such Award.

(e) Bonus Shares. The Committee shall have the authority, in its discretion, to
grant Bonus Shares to eligible Employees. Each Bonus Share shall constitute a
transfer of an unrestricted Share to the Participant, without other payment
therefor, as additional compensation for the Participant's services to the
Company.

(f) Phantom Shares. The Committee shall have the authority to grant Awards of
Phantom Shares to eligible Employees upon such terms and conditions as the
Committee may determine.

         (i) Terms and Conditions. Each Phantom Share Award shall constitute an
         agreement by the Company to issue or transfer a specified number of
         Shares or pay an amount of cash equal to the Fair Market Value of a
         specified number of Shares, or a combination thereof to the
         Participant in the future, subject to the fulfillment during the
         Restricted Period of such conditions, including performance goals, if
         any, as the Committee may specify at the date of grant. During the
         Restricted Period, the Participant shall not have any right to
         transfer any rights under the subject Award, shall not have any rights
         of ownership in the Phantom Shares and shall not have any right to
         vote such shares.

         (ii) Dividends. Any Phantom Share award may provide that any or all
         dividends or other distributions paid on Shares during the Restricted
         Period be credited in a cash bookkeeping account (without interest) or
         that equivalent additional Phantom Shares be awarded, which account or
         shares may be subject to the same restrictions as the underlying Award
         or such other restrictions as the Committee may determine.


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(g) Cash Awards. The Committee shall have the authority to determine the
Employees to whom Cash Awards shall be granted, the amount, and the terms or
conditions, if any, as additional compensation for the Employee's services to
the Company or its Affiliates. A Cash Award may be granted (simultaneously or
subsequently) separately or in tandem with another Award and may entitle a
Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.

(h) Granting of Options to Directors. Each individual who serves as a Director
on the date the Plan is approved by the shareholders of the Company (the
"Approval Date") or who is elected or appointed as a Director for the first
time after such date shall receive, as of the Approval Date of the Plan or
the date of his election or appointment, whichever is applicable, and without
the exercise of the discretion of any person or persons, a Non-Qualified
Stock Option (an "Initial Grant") exercisable for 10,000 Shares (subject
to adjustment in the same manner as provided in Section 7 hereof with
respect to Shares subject to Options then outstanding). As of the date of the
annual meeting of the shareholders of the Company ("Annual Meeting") in each
year after 1999 that the Plan is in effect, each Director who is in office
immediately after such meeting and who is not then entitled to receive an
Initial Grant pursuant to the preceding provisions of this Section 6(h) shall
receive, without the exercise of the discretion of any person or persons, a
Non-Qualified Stock Option exercisable for 6,000 Shares (an "Annual Grant")
(subject to adjustment in the same manner as provided in Section 7 hereof with
respect to shares of Stock subject to Options then outstanding).

         (i) Other Terms and Conditions. The following provisions are
         applicable to Options granted pursuant to this Section 6(h):

         A. Subject to the following provisions, (1) an Initial Grant shall
         become exercisable for 50% of the Shares covered thereby on the date
         of grant, and for the remaining 50% thereof on the first Annual
         Meeting following its date of grant and (2) an Annual Grant shall
         become exercisable for one-third of the Shares covered thereby on the
         first Annual Meeting following the date of grant, and thereafter, for
         an additional one-third of the Shares covered thereby on each of the
         second and third Annual Meetings following the date of grant.

         B. The purchase price of a Share covered under an Option granted under
         this Section 6(h) shall be the Fair Market Value of a Share on the
         date of grant.

         C. To the extent that the right to exercise an Option has accrued and
         is in effect, the Option may be exercised in full at one time or in
         part from time to time by giving written notice, signed by the
         optionee exercising the Option, to the Company, stating the number of
         Shares with respect to which the Option is being exercised,
         accompanied by payment in full for such Shares, which payment may be
         in cash,


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         already-owned Shares, a "cashless-broker" exercise (through procedures
         approved by the Company), or any combination thereof, having a Fair
         Market Value on the exercise date equal to the relevant exercise price
         in which payment of the exercise price with respect thereto may be
         made or deemed to have been made; provided however, that (i) no Option
         shall be exercisable after ten (10) years from the date on which it
         was granted, and (ii) there shall be no such exercise at any one time
         for fewer than one hundred (100) Shares or for all of the remaining
         Shares then purchasable by the optionee exercising the Option, if
         fewer than one hundred (100) Shares.

         D. Each Option shall expire ten (10) years from the date of grant
         thereof, subject to earlier termination as follows: Options, to the
         extent exercisable as of the date a Director optionee ceases to serve
         as a director of the Company, must be exercised within three (3)
         months of such date unless such event results from death, disability
         or retirement, as determined by the Committee, in which case all
         outstanding Options held by such Director may be exercised in full by
         the optionee, the optionee's legal representative, heir or devisee, as
         the case may be, within two (2) years from the date of death,
         disability or retirement; provided, however, that no such event shall
         extend the normal expiration date of such Options. Options not
         exercisable on termination as provided above shall be automatically
         canceled on termination.

         E. Upon exercise of the Option, delivery of a certificate for fully
         paid and nonassessable Shares shall be made at the corporate office of
         the Company to the optionee exercising the Option either at such time
         during ordinary business hours after fifteen (15) days but not more
         than thirty (30) days from the date of receipt of the notice by the
         Company as shall be designated in such notice, or at such time, place
         and manner as may be agreed upon by the Company and the optionee
         exercising the Option.

         (ii) Number of Available Shares. In the event that the number of
         Shares available for grants under the Plan is insufficient to make all
         grants provided for in this Section 6(h) hereby made on the applicable
         date, then all Directors who are entitled to a grant on such date
         shall share ratably in the number of Shares then available for grant
         under the Plan, and shall have no right to receive a grant with
         respect to the deficiencies in the number of available Shares and the
         grants under this Section 6(h) shall terminate.

         (i)      General.

         (i) Awards May Be Granted Separately or Together. Awards to Employees
         may, in the discretion of the Committee, be granted either alone or in
         addition to, in tandem with, or in substitution for any other Award
         granted under the Plan or any award granted under any other plan of
         the Company or any Affiliate. Awards granted in addition to or in
         tandem with other Awards or awards granted under any other plan of the
         Company or any Affiliate may be granted either at the same time as or
         at a different time from the grant of such other Awards or awards.


                                       11

<PAGE>   12


         (ii) Forms of Payment by Company Under Awards. Subject to the terms of
         the Plan and of any applicable Award Agreement, payments or transfers
         to be made by the Company or an Affiliate upon the grant, exercise or
         payment of an Award may be made in such form or forms as the Committee
         shall determine, including, without limitation, cash, Shares, other
         securities, other Awards or other property, or any combination
         thereof, and may be made in a single payment or transfer, in
         installments, or on a deferred basis, in each case in accordance with
         rules and procedures established by the Committee. Such rules and
         procedures may include, without limitation, provisions for the payment
         or crediting of reasonable interest on installment or deferred
         payments.

         (iii) Limits on Transfer of Awards.

         (A) Except as provided in (C) below, each Award, and each right under
         any Award, shall be exercisable only by the Participant during the
         Participant's lifetime, or, if permissible under applicable law, by
         the Participant's guardian or legal representative or by a transferee
         receiving such Award pursuant to a qualified domestic relations order
         (a "QDRO") as determined by the Committee.

         (B) Except as provided in (C) below, no Award and no right under any
         such Award may be assigned, alienated, pledged, attached, sold or
         otherwise transferred or encumbered by a Participant otherwise than by
         will or by the laws of descent and distribution (or, in the case of
         Restricted Stock, to the Company) or, if permissible under applicable
         law, pursuant to a QDRO and any such purported assignment, alienation,
         pledge, attachment, sale, transfer or encumbrance shall be void and
         unenforceable against the Company or any Affiliate.

         (C) Notwithstanding anything in the Plan to the contrary, except to
         the extent specifically provided otherwise by the Committee in an
         Award Agreement, Non-Qualified Stock Options may be transferred by the
         optionee to one or more permitted transferees; provided that (i) there
         may be no consideration given for such transfer, (ii) the optionee (or
         such optionee's estate or representative) shall remain obligated to
         satisfy all employment tax and other withholding tax obligations
         associated with the exercise of the transferred Options, (iii) the
         optionee shall notify the Company in writing that such transfer has
         occurred, the identity and address of the permitted transferee and the
         relationship of the permitted transferee to the optionee, and (iv)
         such transfer shall be effected pursuant to transfer documents
         approved from time to time by the Company. Any permitted transferee
         may not further assign or transfer the transferred Option otherwise
         than by will or the laws of descent and distribution. Following any
         permitted transfer, any such Options shall continue to be subject to
         the same terms and conditions as were applicable to the Option
         immediately prior to the transfer, provided that the term "optionee"
         as used in the Plan shall be deemed to refer also to each permitted
         transferee where required by the context. A transferred Option may
         only be exercised by a transferee to the same


                                       12
<PAGE>   13

         extent such Option could, at such time, be exercised by the optionee
         "but for" such transfer. The term "permitted transferees" shall mean
         one or more of the following: (i) any member of the optionee's
         immediate family; (ii) a trust established for the exclusive benefit
         of one or more members of such immediate family; (iii) a partnership
         in which such immediate family members are the only partners; or
         (iv) any other person approved from time to time by the Committee. The
         term "immediate family" is defined for such purpose as spouses,
         children, stepchildren and grandchildren, including relationships
         arising from adoption.

         (iv) Term of Awards. The term of each Award (other than pursuant to
         Section 6(h)) shall be for such period as may be determined by the
         Committee; provided, that in no event shall the term of any Award
         exceed a period of ten (10) years from the date of its grant.

         (v) Share Certificates. All certificates for Shares or other
         securities of the Company or any Affiliate delivered under the Plan
         pursuant to any Award or the exercise thereof shall be subject to such
         stop transfer orders and other restrictions as the Committee may deem
         advisable under the Plan or the rules, regulations, and other
         requirements of the SEC, any stock exchange upon which such Shares or
         other securities are then listed, and any applicable Federal or state
         laws, and the Committee may cause a legend or legends to be put on any
         such certificates to make appropriate reference to such restrictions.

         (vi) Consideration for Grants. Awards may be granted for no cash
         consideration or for such consideration as the Committee determines
         including, without limitation, such minimal cash consideration as may
         be required by applicable law.

         (vii) Delivery of Shares or other Securities and Payment by
         Participant of Consideration. No Shares or other securities shall be
         delivered pursuant to any Award until payment in full of any amount
         required to be paid pursuant to the Plan or the applicable Award
         Agreement is received by the Company, including without limitation,
         all applicable withholding taxes. Such payment may be made by such
         method or methods and in such form or forms as the Committee shall
         determine, including, without limitation, cash, Shares, other
         securities, other Awards or other property, withholding of Shares,
         cashless exercise with simultaneous sale, or any combination thereof;
         provided that the combined value, as determined by the Committee, of
         all cash and cash equivalents and the Fair Market Value of any such
         Shares or other property so tendered to the Company, as of the date of
         such tender, is at least equal to the full amount required to be paid
         pursuant to the Plan or the applicable Award Agreement to the Company.

         (viii) Performance Goals. Where necessary, the Committee shall
         establish performance goals applicable to those Awards the payment of
         which is intended by the Committee to qualify as "performance-based
         compensation" as described in Section 162(m)(4)(C) of the Code. Until
         changed by the Committee, the performance


                                       13

<PAGE>   14


         goals shall be based upon the attainment of such target levels of
         Share price, net income, cash flows, reserve additions or revisions,
         acquisitions, total capitalization, total or comparative shareholder
         return, assets, exploration successes, production volumes, findings
         and development costs, costs reductions and savings, reportable
         incidents in safety or environmental matters, return on equity, profit
         margin or sales, and/or earnings per share as may be specified by the
         Committee. The performance goals may be made subject to adjustment for
         specified unusual and nonrecurring events and may be absolute,
         relative to one or more other companies, or relative to one or more
         indices. Which factor or factors to be used with respect to any grant,
         and the weight to be accorded thereto if more than one factor is used,
         shall be determined by the Committee at the time of grant.

SECTION 7.   Amendment and Termination.

Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:

         (a) Amendments to the Plan. The Board may amend, alter, suspend,
         discontinue, or terminate the Plan without the consent of any
         shareholder, Participant, other holder or beneficiary of an Award, or
         other Person; provided, however, notwithstanding any other provision
         of the Plan or any Award Agreement, without the approval of the
         shareholders of the Company no such amendment, alteration, suspension,
         discontinuation, or termination shall be made that would (i) increase
         the total number of Shares available for Awards under the Plan, except
         as provided in Section 4(c) of the Plan; (ii) increase the class of
         eligible Participants; or (iii) amend the eligibility requirements for
         Awards under the Plan.

         (b) Amendments to Awards. The Committee may waive any conditions or
         rights under, amend any terms of, or alter any Award theretofore
         granted (other than Initial Grants or Annual Grants under Section
         6(h)), provided no change, other than pursuant to Section 7(c), in any
         Award shall reduce the benefit to Participant without the consent of
         such Participant. Notwithstanding the foregoing, with respect to any
         Award intended to qualify as performance-based compensation under
         Section 162(m) of the Code, no adjustment shall be authorized to the
         extent such adjustment would cause the Award to fail to so qualify.

         (c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
         Nonrecurring Events. The Committee is hereby authorized to make
         adjustments in the terms and conditions of, and the criteria included
         in, Awards in recognition of unusual or nonrecurring events
         (including, without limitation, the events described in Section 4(c)
         of the Plan) affecting the Company, any Affiliate, or the financial
         statements of the Company or any Affiliate, or of changes in
         applicable laws, regulations, or accounting principles, whenever the
         Committee determines that such adjustments are appropriate in order to
         prevent dilution or enlargement of the benefits or potential benefits
         intended to be made available under the Plan. Notwithstanding


                                       14
<PAGE>   15


         the foregoing, with respect to any Award intended to qualify as
         performance-based compensation under Section 162(m) of the Code, no
         adjustment shall be authorized to the extent such adjustment would
         cause the Award to fail to so qualify.

SECTION 8.   Change in Control.

Notwithstanding any other provision of this Plan to the contrary, in the event
of a Change in Control of the Company, all outstanding Awards granted prior to
the date of the Change in Control automatically shall become fully vested on
such Change in Control, all restrictions, if any, with respect to such Awards
shall lapse, and all performance goals, if any, with respect to such Awards
shall be deemed to have been met in full (at the maximum performance level).
For purposes of this Plan, a "Change in Control" shall be deemed to occur:

         (i) if any person (as such term is used in sections 13(d) and 14(d)(2)
         of the Exchange Act), other than the Company, any parent corporation
         or subsidiary corporation of the Company or any employee benefit plan
         of the Company or any such entity, is or becomes the "beneficial
         owner" (as defined in Rule 13d-3 of the Exchange Act), directly or
         indirectly, of securities of the Company representing 25% or more of
         the combined voting power of the Company's then outstanding
         securities,

         (ii) upon the first purchase of the Company's common stock pursuant to
         a tender or exchange offer (other than a tender or exchange offer made
         by the Company),

         (iii) on the date of consummation of a merger, consolidation,
         recapitalization, reorganization, sale or disposition of all or a
         substantial portion of the Company's assets, or the issuance of shares
         of stock of the Company in connection with the acquisition of the
         stock or assets of another entity, provided, however, that a Change in
         Control shall not occur under this clause (iii) if consummation of the
         transaction would result in at least two-thirds of the total voting
         power represented by the voting securities of the Company (or, if not
         the Company, the entity that succeeds to all or substantially all of
         the Company's business) outstanding immediately after such transaction
         being beneficially owned (within the meaning of Rule 13d-3 promulgated
         pursuant to the Exchange Act) by at least two-thirds of the holders of
         outstanding voting securities of the Company immediately prior to the
         transaction, with the voting power of each such continuing holder
         relative to other such continuing holders not substantially altered in
         the transaction, or

         (iv) if, during any period of two consecutive years, individuals who
         at the beginning of such period constitute the Board cease for any
         reason to constitute at least a majority thereof, unless the election
         or nomination for the election by the Company's shareholders of each
         new director was approved by a vote of at least two-thirds of the
         directors then still in office who were directors at the beginning of
         the period.


                                       15
<PAGE>   16


SECTION 9.  Parachute Tax Gross-Up.

To the extent that the grant, payment, or acceleration of vesting or payment,
whether in cash or stock, of any Award made to a Participant under the Plan is
subject to an excise tax under Section 4999(a) of the Code, or any similar or
successor provision (a "Parachute Tax"), the Company shall pay such Participant
an additional amount of cash (the "Gross-up Amount") such that the "net"
after-tax benefit received by the Participant, after paying all applicable
Parachute Taxes with respect to such Awards (including those on the Gross-up
Amount) and any federal or state taxes on the Gross-up Amount, shall be equal
to the net after-tax benefit that such Participant would have received if such
Parachute Tax had not been applicable.

SECTION 10.   General Provisions.

(a) No Rights to Awards. No Employee, Participant or other Person shall have
any claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants, or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each
recipient.

(b) Withholding. The Company or any Affiliate is authorized to withhold from
any Award, from any payment due or transfer made under any Award or under the
Plan or from any compensation or other amount owing to a Participant the amount
(in cash, Shares, other securities, Shares that would otherwise be issued
pursuant to such Award, other Awards or other property) of any applicable taxes
payable in respect of an Award, its exercise, the lapse of restrictions
thereon, or any payment or transfer under an Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes. Any Participant who is
subject to Rule 16b-3 may direct the Company to withhold Shares or may tender
Shares to the Company to satisfy his tax withholding obligations.

(c) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement. Nothing contained in the Plan shall confer on any Director any right
with respect to continuation of membership on the Board.

(d) Governing Law. The validity, construction, and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Texas and applicable Federal law.

(e) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if


                                       16

<PAGE>   17


it cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Person or Award and the
remainder of the Plan and any such Award shall remain in full force and effect.

(f) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary
in connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.

(g) No Trust or Fund Created. Neither the Plan nor the Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any
other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any general unsecured creditor of the
Company or any Affiliate.

(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.

(i) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

(j) No Restriction on Corporate Action. Nothing contained in the Plan shall be
construed to prevent the Company or any Affiliate from taking any action that
is deemed by the Company or such Affiliate to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the Plan
or any Award made under the Plan. No Employee, Participant, or other Person
shall have any claim against the Company or any Affiliate as a result of any
such action.

(k) Facsimile Signature. Any Award Agreement or related document may be
executed by facsimile signature. If any officer who shall have signed or whose
facsimile signature shall have been placed upon any such Award Agreement or
related document shall have ceased to be such officer before the related Award
is granted by the Company, such Award may


                                       17

<PAGE>   18


nevertheless be issued by the Company with the same effect as if such person
were such officer at the date of grant.

SECTION 11.   Effective Date of the Plan.

The Plan shall be effective as of the date of its approval by the Board,
provided the Plan is subsequently approved by the shareholders of the Company
within 12 months thereafter. Notwithstanding any provision in the Plan or in
any Award Agreement, no Option or Stock Appreciation Right shall be exercisable
and no Award shall vest or become satisfiable prior to such shareholder
approval.

SECTION 12.   Term of the Plan.

No Award shall be granted under the Plan after the tenth anniversary of the
date the Plan was adopted by the Board or approved by the shareholders,
whichever is earlier. However, unless otherwise expressly provided in the Plan
or in an applicable Award Agreement, any Award theretofore granted may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond such date.


                                       18