SOUTHWESTERN ENERGY COMPANY
                           NON-QUALIFIED STOCK OPTION

                               (Not Transferable)

                THIS CERTIFIES,  that SOUTHWESTERN  ENERGY COMPANY,  an Arkansas
corporation (the "Company"),  has, as of the ____ day of _____, 2000, granted to
________________  (the "Participant"),  a Non-Qualified Stock Option to purchase
______ shares (the  "Optioned  Shares") of the Company's  Common Stock ($.10 par
value)  on the terms  and  conditions  attached  hereto  and made a part  hereof
("Terms").

                This  Non-Qualified  Stock Option is granted  separate and apart
from the  Southwestern  Energy Company 2000 Stock Incentive Plan, and any shares
issued to the  Participant  upon  exercise of this  option  shall be issued from
treasury shares.

                This  Non-Qualified  Stock Option shall be  exercisable  only in
accordance  with  the  provisions  of  this  Certificate  and  the  Terms.  This
Non-Qualified  Stock  Option is not  transferable  except by Will or the laws of
descent and distribution.

                The exercise price of the Optioned  Shares shall be $_______ per
share.

                This Non-Qualified Stock Option shall be exercisable in whole or
in part;  provided,  that no partial exercise shall be for an aggregate exercise
price of less than  $1,000.  The partial  exercise of this  Non-Qualified  Stock
Option  shall not cause  the  expiration,  termination  or  cancellation  of the
remaining portion hereof.

                This Non-Qualified Stock Option shall be exercised by delivering
notice to the Company's principal office, to the attention of its Secretary,  no
less than one  business  day in advance of the  effective  date of the  proposed
exercise.  Such notice shall be accompanied by this  Certificate,  shall specify
the number of Optioned  Shares with  respect to which this  Non-Qualified  Stock
Option is being  exercised and the effective  date of the proposed  exercise and
shall be signed by the Participant.  The Participant may withdraw such notice at
any time  prior  to the  close  of  business  on the  business  day  immediately
preceding the effective date of the proposed exercise.

                Payment for Optioned Shares  purchased upon the exercise of this
Non-Qualified  Stock Option shall be made on the effective date of such exercise
in accordance with the Terms.

                THIS  NON-QUALIFIED  STOCK OPTION SHALL FIRST BECOME EXERCISABLE
WITH RESPECT TO THE FOLLOWING  PERCENTAGE OF THE TOTAL SHARES  SUBJECT HERETO ON
THE FOLLOWING DATES:

<PAGE>

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

                                           First Date on Which Such Percentage
     Percentage of Total Shares            of Total Shares Becomes Exercisable
=======================================  =======================================

              33 1/3 %
=======================================  =======================================

              33 1/3 %
=======================================  =======================================

              33 1/3 %
=======================================  =======================================

                THIS NON-QUALIFIED STOCK OPTION SHALL BECOME FULLY VESTED AT THE
EARLIER  OF  ___________,   _____  OR  UPON  PARTICIPANT'S  RETIREMENT  PROVIDED
PARTICIPANT HAS REACHED NORMAL  RETIREMENT AGE (SIXTY-FIVE  (65)), AS DEFINED IN
THE  SOUTHWESTERN  ENERGY  COMPANY  PENSION PLAN.  PROVIDED,  HOWEVER,  UPON THE
OCCURRENCE OF A CHANGE IN CONTROL, IF AND TO THE EXTENT IT STILL IS OUTSTANDING,
THIS NON-QUALIFIED  STOCK OPTION SHALL BECOME FULLY AND IMMEDIATELY  EXERCISABLE
AND SHALL REMAIN  EXERCISABLE UNTIL ITS EXPIRATION,  TERMINATION OR CANCELLATION
PURSUANT TO THE TERMS.

                THIS  NON-QUALIFIED  STOCK  OPTION  SHALL EXPIRE AND BE VOID AND
SHALL NOT BE EXERCISABLE AFTER THE EXPIRATION OF TEN (10) YEARS FROM THE DATE AS
OF WHICH IT WAS GRANTED AND MAY BE EXERCISED ONLY IN THE MANNER  PROVIDED IN THE
TERMS. THIS NON-QUALIFIED STOCK OPTION SHALL BE SUBJECT TO EARLIER  TERMINATION,
EXPIRATION OR CANCELLATION AS PROVIDED IN THE TERMS.

                IN WITNESS  WHEREOF,  the Company has issued this  Non-Qualified
Stock Option  Certificate by its undersigned  duly authorized  officer as of the
____day of _____, 2000.

                                           SOUTHWESTERN ENERGY COMPANY


ATTEST:   (Seal)                           By:_____________________________
                                                   President and Chief
                                                    Executive Officer

By:____________________________
   Executive Vice President and
     Chief Financial Officer

                                              _____________________________
                                                      (Participant)

                                       2
<PAGE>

                            NQO TERMS AND CONDITIONS

1.       Definitions

         As used herein, the following  definitions apply to the terms indicated
below:

                  (a) "Cause" when used in connection  with the termination of a
         Participant's  employment with the Company,  shall mean the termination
         of the  Participant's  employment  by the Company on account of (i) the
         willful  and  continued  failure by the  Participant  to  substantially
         perform the Participant's  duties and obligations  (other than any such
         failure resulting from the Participant's  incapacity due to physical or
         mental illness), after a written demand for substantial performance has
         been   delivered  to  the   Participant   by  the  Company  or  by  the
         Participant's supervisor,  which demand identifies in reasonable detail
         the  manner  in  which  the   Participant   is  believed  to  have  not
         substantially  performed  his or her  duties,  (ii)  the  Participant's
         willful  and  serious   misconduct  which  has  resulted  in  or  could
         reasonably  be expected to result in material  injury to the  business,
         financial   condition  or   reputation   of  the  Company,   (iii)  the
         Participant's  conviction of, or entering of a plea of nolo  contendere
         to, a crime that  constitutes a felony or serious  misdemeanor  or (iv)
         the breach by the Participant of any written covenant or agreement with
         the Company not to disclose any  information  pertaining to the Company
         or not to compete or interfere with the Company.

                  (b) "Change in Control"  shall mean the  occurrence  of any of
         the following:

                      (i) any "person" (as such term  is used in  Sections 13(d)
                  and  14(d)  of  the  Securities  Exchange  Act  of  1934  (the
                  "Exchange   Act"),   an   "Acquiring   Person")   becomes  the
                  "beneficial  owner"  (as such term is  defined  in Rule  13d-3
                  promulgated  under the Exchange Act),  directly or indirectly,
                  of securities of Southwestern  representing 20% or more of the
                  combined  voting  power  of  Southwestern's  then  outstanding
                  securities,  provided,  however,  that any  acquisition by (A)
                  Southwestern  or  any  of its  subsidiaries,  or any  employee
                  benefit plan (or related  trust)  sponsored or  maintained  by
                  Southwestern or any of its subsidiaries or (B) any corporation
                  with respect to which, immediately following such acquisition,
                  more than 60% of, respectively, the then outstanding shares of
                  Common Stock of such corporation and the combined voting power
                  of the then outstanding  voting securities of such corporation
                  entitled to vote  generally  in the  election of  directors is
                  then  beneficially  owned,  directly  or  indirectly,  in  the
                  aggregate by all or  substantially  all of the individuals and
                  entities who were the beneficial owners, respectively,  of the
                  outstanding  Southwestern Common Stock and Southwestern voting
                  securities   immediately   prior   to  such   acquisition   in
                  substantially the same proportion

                                      3
<PAGE>

                  as their ownership,  immediately prior to such acquisition, of
                  the  outstanding  Southwestern  Common Stock and  Southwestern
                  voting securities,  as the case may be, shall not constitute a
                  Change in Control;

                      (ii) consummation  by  Southwestern  of a  reorganization,
                  merger or  consolidation (a "Business  Combination"),  in each
                  case,  with respect to which all or  substantially  all of the
                  individuals and entities who were their respective  beneficial
                  owners  of  the  outstanding  Southwestern  Common  Stock  and
                  Southwestern  voting  securities  immediately  prior  to  such
                  Business  Combination  do not in  the  aggregate,  immediately
                  following  such  Business   Combination,   beneficially   own,
                  directly or indirectly,  more than 60% of,  respectively,  the
                  then  outstanding  shares  of Common  Stock  and the  combined
                  voting  power  of  the  then  outstanding   voting  securities
                  entitled to vote  generally in the election of  directors,  as
                  the  case  may be,  of the  corporation  resulting  from  such
                  Business  Combination in substantially  the same proportion as
                  their ownership immediately prior to such Business Combination
                  of the outstanding  Southwestern Common Stock and Southwestern
                  voting securities, as the case may be;

                      (iii) any individual who is  nominated  by the  Board  for
                  election  to the Board on any date fails to be so elected as a
                  direct or  indirect  result of any  proxy  fight or  contested
                  election for positions on the Board;

                      (iv) a "change in  control" of  Southwestern  of a  nature
                  that would be required to be reported in response to Item 6(e)
                  of  Schedule  14A of  Regulation  14A  promulgated  under  the
                  Exchange Act occurs;

                      (v) (A)  a  complete   liquidation   or   dissolution   of
                  Southwestern  or (B) a sale  or  other  disposition  of all or
                  substantially  all of the assets of both the  Exploration  and
                  Production and the Utility  business  segments of Southwestern
                  other than to a corporation with respect to which, immediately
                  following  such  sale  or  disposition,   more  than  80%  of,
                  respectively,  the then outstanding shares of Common Stock and
                  the  combined  voting  power  of the then  outstanding  voting
                  securities  entitled  to vote  generally  in the  election  of
                  directors is then beneficially owned,  directly or indirectly,
                  in  the  aggregate  by  all  or   substantially   all  of  the
                  individuals  and  entities  who  were the  beneficial  owners,
                  respectively, of the outstanding Southwestern Common Stock and
                  Southwestern voting securities  immediately prior to such sale
                  or disposition in  substantially  the same proportion as their
                  ownership  of the  outstanding  Southwestern  Common Stock and
                  Southwestern   voting   securities,   as  the   case  may  be,
                  immediately prior to such sale or disposition;

                                       4
<PAGE>

                      (vi) other than with  respect to a person who is  employed
                  in the Utility business  segment of Southwestern,  the sale or
                  other  disposition of all or  substantially  all the assets of
                  the Exploration and Production  business segment other than to
                  a  corporation  with respect to which,  immediately  following
                  such sale or disposition, more than 80% of, respectively,  the
                  then  outstanding  shares  of Common  Stock  and the  combined
                  voting  power  of  the  then  outstanding   voting  securities
                  entitled to vote  generally  in the  election of  directors is
                  then  beneficially  owned,  directly  or  indirectly,  in  the
                  aggregate by all or  substantially  all of the individuals and
                  entities who were the beneficial owners, respectively,  of the
                  outstanding  Southwestern Common Stock and Southwestern voting
                  securities  immediately  prior to such sale or  disposition in
                  substantially  the same  proportion as their  ownership of the
                  outstanding  Southwestern Common Stock and Southwestern voting
                  securities, as the case may be, immediately prior to such sale
                  or disposition; or

                      (vii) a  majority  of the  Board  determines  in its  sole
                  and  absolute  discretion  that  there  has been a  Change  in
                  Control  of  Southwestern  or that  there  will be a Change in
                  Control  of  Southwestern   upon  the  occurrence  of  certain
                  specified events and such events occur.

                  (c) "Code" shall mean the Internal Revenue Code of 1986.

                  (d) "Committee"  shall mean the Compensation  Committee of the
         Board of  Directors  or such other  committee as the Board of Directors
         shall  appoint from time to time to  administer  this  agreement and to
         otherwise  exercise and perform the authority and functions assigned to
         the Committee under the terms of the agreement.

                  (e) "Common  Stock" shall mean  Southwestern's  Common  Stock,
         $.10 par value per share,  or any other  security into which the common
         stock shall be changed pursuant to the adjustment provisions of Section
         5 hereto.

                  (f) "Company"  shall   mean   Southwestern  and  each  of  its
         Subsidiaries.

                  (g) "Disability"   shall   mean  a   condition   entitling   a
         Participant   to  benefits  under  the  long-term   disability   policy
         maintained by the Company and applicable to the Participant.

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

                  (i) the "Fair  Market  Value"  shall mean,  with  respect to a
         share of Common Stock, as of the applicable date of  determination  (i)
         the closing sales price

                                       5
<PAGE>

         on the immediately preceding business day of a share of Common Stock as
         reported on the principal securities exchange on which shares of Common
         Stock  are  then  listed  or  admitted  to  trading  or  (ii) if not so
         reported,  the  average  of the  closing  bid  and  ask  prices  on the
         immediately   preceding  business  day  as  reported  on  the  National
         Association of Securities  Dealers Automated  Quotation System or (iii)
         if  not  so  reported,  as  furnished  by any  member  of the  National
         Association of Securities Dealers,  Inc. selected by the Committee.  In
         the event  that the price of a share of  Common  Stock  shall not be so
         reported,  the Fair  Market  Value of a share of Common  Stock shall be
         determined by the Committee in its absolute discretion.

                  (j) "Incentive Stock Option" shall mean an Option granted to a
         Participant  which,  at  the  date  of  grant,  is  intended  to  be an
         "incentive  stock option" within the meaning of Section 422 of the Code
         and which is identified  as an Incentive  Stock Option in the agreement
         by which it is evidenced.

                  (k) "Non-Qualified  Stock Option" shall mean an Option granted
         to a Participant which is not an Incentive Stock Option.

                  (l) "Option" shall mean an option to purchase shares of Common
         Stock granted pursuant to Section 3 hereof.

                  (m) "Person"  shall mean a "person,"  as such term  is used in
         sections 13(d) and 14(d) of the Exchange Act.

                  (n) "Securities Act" shall mean the Securities Act of 1933, as
         amended.

                  (o) "Subsidiary"  shall   mean  any  "subsidiary  corporation"
         within the meaning of Section 425(f) of the Code.

2.       Administration

         The  Agreement  shall be  administered  by a Committee  of the Board of
Directors  consisting of two or more persons,  at least two of whom qualify as a
"disinterested  person,"  within the  meaning of Rule  16b-3  promulgated  under
Section 16 of the Exchange Act, and an "outside director," within the meaning of
Treasury  Regulation  Section  1.162-27(e)(2).  The  Committee  shall  have full
authority to administer  this  agreement,  including  authority to interpret and
construe any provision of this  agreement.  Decisions of the Committee  shall be
final and binding on all parties.

         The Committee  may, in its absolute  discretion,  without  amendment to
this  agreement,  accelerate  the date on which  any  Option  granted  hereunder
becomes exercisable or otherwise adjust any of the terms of such Option.

                                       6
<PAGE>

         The Committee shall determine  whether an authorized  leave of absence,
or absence in military or government  service,  shall constitute  termination of
employment.

         No member of the Committee shall be liable for any action, omission, or
determination  relating to the Agreement,  and Southwestern  shall indemnify and
hold harmless  each member of the Committee and each other  director or employee
of the  Company  to whom any duty or power  relating  to the  administration  or
interpretation  of the Agreement has been delegated  against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination  relating to the Agreement,  unless,  in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without  reasonable belief that it was in the best interests of
the Company.

3.       Options

         (a) Term and Exercise of Options

         (1) Each Option  shall be  exercisable  in whole or in part;  provided,
that no partial  exercise of an Option shall be for an aggregate  exercise price
of less than  $1,000.  The  partial  exercise  of an Option  shall not cause the
expiration,  termination or cancellation of the remaining portion thereof.  Upon
the partial exercise of an Option, the agreements  evidencing such Option marked
with such  notations as the  Committee  may deem  appropriate  to evidence  such
partial  exercise,  shall  be  returned  to the  Participant  together  with the
delivery of the certificates described in Section 3(a)(4) hereof.

         (2) An Option shall be exercised by delivering  notice to the Company's
principal office, to the attention of its Secretary, no less than three business
days in advance of the  effective  date of the  proposed  exercise.  Such notice
shall  specify  the number of shares of Common  Stock with  respect to which the
Option is being  exercised and the effective  date of the proposed  exercise and
shall be signed by the Participant.  The Participant may withdraw such notice at
any time  prior  to the  close  of  business  on the  business  day  immediately
preceding the  effective  date of the proposed  exercise.  Payment for shares of
Common  Stock  purchased  upon the  exercise  of an Option  shall be made on the
effective  date of such exercise  either (i) in cash, by certified  check,  bank
cashier's check or wire transfer or (ii) through a directed  brokerage  service,
if any is made available to  Participants of the Company or (iii) subject to the
approval of the Committee, in shares of Common Stock that have been owned by the
Participant  for a least six months prior to the effective  date of exercise and
valued at their Fair Market Value on the  effective  date of such  exercise,  or
partly in shares of Common Stock with the balance in cash,  by certified  check,
bank  cashier's  check or wire  transfer.  Any payment in shares of Common Stock
shall  be  effected  by  the  delivery  of  such  shares  to  the  Secretary  of
Southwestern,  duly  endorsed  in blank or  accompanied  by  stock  powers  duly
executed  in blank,  together

                                       7
<PAGE>

with any other documents  and  evidences  as the Secretary of Southwestern shall
require from time to time.

         (3) During the lifetime of the Participant,  each Option granted to the
Participant  shall be exercisable  only by the  Participant.  No Option shall be
assignable or transferable  otherwise than by will or by the laws of descent and
distribution,  nor shall any option be  permitted  to be pledged in any  manner.
Notwithstanding  the  foregoing,  with the prior consent of the  Committee,  any
Option,  including the right to exercise such Option,  may be  transferred  by a
Participant during the Participant's lifetime, but only to: (i) one or more of a
Participant's spouse or natural or adopted lineal descendants;  or (ii) a trust,
partnership, or corporation or other similar entity which is owned solely by one
or more of the Participant's  spouse or natural or adopted lineal descendants or
which  will hold such  options  solely  for the  benefit  of one or more of such
persons.

         (4) Certificates for shares of Common Stock purchased upon the exercise
of an Option shall be issued in the name of the Participant and delivered to the
Participant  as soon as  practicable  following the effective  date on which the
Option is exercised.

         (b) Effect of Termination of Employment

         (1) In the event that the employment of a Participant  with the Company
shall  terminate for any reason other than  Disability,  Retirement,  Cause,  or
death (i)  Options  granted to such  Participant,  to the extent  that they were
vested and exercisable at the time of such termination, shall remain exercisable
until the expiration of ninety days after such  termination,  on which date they
shall expire,  and (ii) Options granted to such Participant,  to the extent that
they were not exercisable at the time of such  termination,  shall expire at the
close of business on the date of such termination;  provided,  however,  that no
Option shall be exercisable after the expiration of its term.

         (2) In the event that the employment of a  articipant  with the Company
shall  terminate on account of the  Disability or Retirement of the  Participant
such Participant  shall be entitled to exercise at any time or from time to time
after such  termination  and until the first  anniversary  of such  termination,
Options  granted to the  Participant  hereunder  to the extent that such Options
were vested and exercisable at the time of such termination  provided,  however,
that no Option shall be exercisable after the expiration of its original term.

         (3) In the event that the employment of a Participant  with the Company
shall terminate on account of the death of the Participant,  such  Participant's
estate  or  beneficiary  under  the  Participant's  will  shall be  entitled  to
exercise,  at any time or from time to time until the first  anniversary of such
termination,  Options  granted to the  Participant  hereunder to the extent that
such  Options  were  exercisable  at the  time  of such  termination;  provided,
however,  that no  Option  shall be  exercisable  after  the  expiration  of its
original term.

                                       8
<PAGE>

Options  that  are  not  exercised  prior  to  the  first  anniversary  of  such
termination shall expire on such anniversary date.

         (4) In the event of the termination of a  Participant's  employment for
Cause,  all outstanding  Options granted to the Participant  shall expire at the
commencement  of business on the date of such  termination;  provided,  however,
that no Participant shall be deemed to have been terminated for Cause during the
two year period following any Change in Control.

         (5) For purposes of this Section  3(b), an Option shall be deemed to be
exercisable  on the date of the  termination  of the employment of a Participant
with the Company to the extent,  if any, it becomes  exercisable by acceleration
by the Committee.

         (c) Acceleration of Exercise Date Upon Change in Control

         Upon the  occurrence  of a  Change  in  Control,  each  Option  granted
hereunder  and  outstanding  at such time  shall  become  fully and  immediately
exercisable and shall remain  exercisable  until its expiration,  termination or
cancellation pursuant to the terms hereof.

4.       Adjustment Upon Changes in Common Stock

         (a) Adjustment upon Certain Events

         In the event of any change in the shares of Common Stock outstanding by
reason of any stock dividend or split, recapitalization,  merger, consolidation,
combination,  spin-off,  reclassification  or  exchange  of  shares  or  similar
corporate  change,  the  number  of  options  granted  the  Participant  may  be
appropriately  adjusted as the Committee shall determine to prevent  enlargement
or  dilution  of the  rights  of  Participants  hereunder  and  the  Committee's
determination hereunder shall be conclusive.

         (b) Outstanding Options - Certain Transactions

         Notwithstanding  any  other  provisions  hereto,  in the event of (i) a
dissolution or liquidation of Southwestern,  (ii) a sale of all or substantially
all of  Southwestern's  assets  or (iii) a  merger  or  consolidation  involving
Southwestern, the Committee shall have the power to:

                  (A) cancel,  effective  immediately prior to the occurrence of
         such event,  each Option  outstanding  immediately  prior to such event
         (whether or not then  exercisable),  and, in full consideration of such
         cancellation,  pay to the Participant an amount in cash, for each share
         of Common  Stock  subject to such Option equal to the excess of (A) the
         value,  as determined by the Committee in its absolute  discretion,  of
         the  property  (including  cash)  received  by the holder of a share of

                                       9
<PAGE>

         Common Stock as a result of such event over (B) the  exercise  price of
         such Option; or

                  (B) provide  for   the  exchange  of each  Option  outstanding
         immediately  prior to such event (whether or not then  exercisable) for
         equivalent  options  covering  securities of the  acquiring  entity (or
         ultimate  parent  thereof)  and,  incident  thereto,  make an equitable
         adjustment as determined by the Committee in the exercise price of such
         option  or,  if  appropriate,   provide  for  a  cash  payment  to  the
         Participant in partial consideration for the exchange of the Option.

         (c) No Other Rights

         Except as expressly provided herein, the Participant shall not have any
rights by reason of any subdivision or  consolidation  of shares of stock of any
class,  the payment of any  dividend,  any increase or decrease in the number of
shares  of  stock  of any  class  or any  dissolution,  liquidation,  merger  or
consolidation  of the  Company  or any other  corporation.  Except as  expressly
provided herein, no issuance by Southwestern of shares of stock of any class, or
securities  convertible into shares of stock of any class,  shall affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to the exercise price of any Option.

5.       Rights as a Stockholder

         No person  shall have any rights as a  stockholder  with respect to any
shares of Common Stock  covered by or relating to any Option  granted  hereunder
until the date of the  issuance  of a stock  certificate  with  respect  to such
shares.  Except  as  otherwise  expressly  provided  in  Section  4  hereof,  no
adjustment  to any Option  shall be made for  dividends or other rights for with
the record date occurs prior to the date such stock certificate is issued.

6.       No Special Employment Rights; No Right to Options

         Nothing contained herein shall confer upon a Participant any right with
respect to the  continuation  of a  Participant's  employment  by the Company or
interfere in any way with the right of the Company,  subject to the terms of any
separate  employment  agreement to the contrary,  at any time to terminate  such
employment or to increase or decrease the compensation of a Participant from the
rate in existence at the time of the grant hereunder.

         The Participant  shall have no claim or right to receive any additional
Options hereunder.  The Committee's  granting of Options to a Participant at any
time shall neither  require the Committee to grant Options to the Participant at
any time nor  preclude  the  Committee  from  making  subsequent  grants  to the
Participant.

                                       10
<PAGE>

7.       Securities Matters

         (a) Southwestern   shall  be   under  no   obligation   to  effect  the
registration  pursuant to the  Securities  Act of any interests in any shares of
Common Stock to be issued  hereunder or to effect similar  compliance  under any
state laws. Notwithstanding anything herein to the contrary,  Southwestern shall
not be obligated to cause to be issued or delivered any certificates  evidencing
shares of Common Stock pursuant to this agreement unless and until  Southwestern
is advised by its counsel that the issuance and delivery of such certificates is
in compliance with all applicable  laws,  regulations of governmental  authority
and the  requirements  of the New York Stock  Exchange and any other  securities
exchange on which shares of Common Stock are traded.  The Committee may require,
as a condition of the issuance and delivery of certificates evidencing shares of
Common Stock  pursuant to the terms  hereof,  that the  recipient of such shares
make such covenants, agreements and representations,  and that such certificates
bear such legends, as the Committee deems necessary or desirable.

         (b) The  exercise of any Option  granted  hereunder  shall be effective
only at such time as counsel to  Southwestern  shall  have  determined  that the
issuance and delivery of shares of Common Stock  pursuant to such exercise is in
compliance with all applicable laws,  regulations of governmental  authority and
the  requirements  of the New  York  Stock  Exchange  and any  other  securities
exchange on which  shares of Common Stock are traded.  Southwestern  may, in its
sole  discretion,  defer the  effectiveness of any exercise of an Option granted
hereunder or the issuance or transfer of shares of Common Stock pursuant thereto
or ensure compliance under federal or state securities laws.  Southwestern shall
inform the Participant in writing of its decision to defer the  effectiveness of
the  exercise of an Option or the issuance or transfer of shares of Common Stock
granted  hereunder.  During the period that the effectiveness of the exercise of
an Option has been deferred,  the Participant  may, by written notice,  withdraw
such exercise and obtain the refund of any amount paid with respect thereto.

8.       Withholding Taxes

         (a) Cash Remittance

         Whenever  shares of Common  Stock are to be issued upon the exercise of
an Option, Southwestern shall have the right to require the Participant to remit
to Southwestern in cash an amount sufficient to satisfy federal, state and local
withholding tax requirements,  if any,  attributable to such exercise,  prior to
the delivery of any certificate or certificates for such shares.

         (b) Stock Remittance

         Subject to Section  8(d)  hereof at the  election  of the  Participant,
subject to the approval of the Committee,  when shares of Common Stock are to be
issued upon the

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<PAGE>

exercise  of an Option,  in lieu of the  remittance  required  by  Section  8(a)
hereof,  the Participant may tender to Southwestern a number of shares of Common
Stock  owned by the  Participant  for at least six months  having a Fair  Market
Value at the tender date determined by the Committee to be sufficient to satisfy
the federal, state and local withholding tax requirements,  if any, attributable
to such exercise,  and not greater than  Participant's  estimated total federal,
state and local tax obligations associated with such exercise.

         (c) Stock Withholding

         Southwestern  shall have the right,  when shares of Common Stock are to
be issued upon the exercise of an Option,  in lieu of requiring  the  remittance
required by Section 8(a) hereof,  to withhold a number of such shares,  the Fair
Market  Value of which at the  exercise  date  the  Committee  determines  to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any,  attributable  to such exercise,  and is not greater than  Participant's
estimated total federal,  state and local tax  obligations  associated with such
exercise.

         (d) Timing and Method of Elections

         If the Participant is subject to Section 16(b) of the Exchange Act, the
Participant may only make such election  described in Section 8(b) hereof if the
Participant is in compliance with the Southwestern  Energy Company  Statement of
Company  Policy on Insider  Trading and the  Southwestern  Energy Company Policy
Regarding Special Trading Procedures.

9.       No Obligation to Exercise

         The grant to the  Participant  of an Option shall impose no  obligation
upon such Participant to exercise such Option.

10.      Transfers Upon Death

         Upon the death of a Participant,  outstanding  Options may be exercised
only by the  executors or  administrators  of a  Participant's  estate or by any
person or persons who shall have  acquired  such right to exercise by Will or by
the laws of descent and distribution. No transfer by Will or the laws of descent
and  distribution of any Option,  or the right to exercise any Option,  shall be
effective to bind  Southwestern  unless the Committee  shall have been furnished
with (a) written notice thereof and with a copy of the Will and/or such evidence
as the  Committee  may deem  necessary to establish the validity of the transfer
and (b) an  agreement  by the  transferee  to  comply  with  all the  terms  and
conditions  of this  agreement  that are or would  have been  applicable  to the
Participant  and to be bound by the  acknowledgments  made by the Participant in
connection with the grant of the Option.

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<PAGE>

Except as provided  in this  Section 10, no Option  shall be  transferable,  and
shall be exercisable only by a Participant during the Participant's lifetime.

11.      Failure to Comply

         In addition to the  remedies of  Southwestern  elsewhere  provided  for
herein,  failure by the Participant  (or  beneficiary) to comply with any of the
terms and conditions hereof,  unless such failure is remedied by the Participant
(or  beneficiary)  within ten days after having been notified of such failure by
the  Committee,  shall be grounds for the  cancellation  and  forfeiture of such
Option, in whole or in part, as the Committee,  in its absolute discretion,  may
determine.

12.      Applicable Law

         Except to the extent  preempted by any  applicable  federal  law,  this
agreement will be construed and  administered in accordance with the laws of the
State of Arkansas, without reference to the principles of conflicts of law.




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