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                                                                    Exhibit 10.5


                          MATADOR PETROLEUM CORPORATION
                       2001 SHARE PRICE APPRECIATION PLAN



                                    SECTION 1
                                  INTRODUCTION

1.1      ESTABLISHMENT. Matador Petroleum Corporation, a Texas corporation
(hereinafter referred to, together with its Affiliated Corporations
[as defined in Section 2.1 hereof], as the "Company" except where the context
otherwise requires), hereby establishes the Matador Petroleum Corporation 2001
Share Price Appreciation Plan (the "Plan") for certain key employees of the
Company.

1.2      PURPOSES. The primary purpose of the Plan is to provide the
participating key employees of the Company with added incentives to focus
their energies on achieving significant stock price appreciation over the next
three years by providing a meaningful performance plan which provides specific
incentives to Participants (as defined in Section 2.1 below) to attain the
price of $50 per share of Matador Petroleum Corporation common stock before
January 1, 2004. The Plan provides for the Committee (as defined in Section
2.1 below) to extend the Plan for two one-year extensions beyond January 1,
2004, and to award lesser amounts if the target price of $50 per share is
reached before the expiration of such extension(s). The additional purposes of
this Plan include the retention of existing key employees and as an additional
inducement in the recruitment of talented personnel in a competitive
environment.

1.3      EFFECTIVE DATE. The Effective Date of the Plan (the "Effective Date")
shall be March 1, 2001. The Committee may award Conditional Grants (as defined
in Section 2.1 below) the entitlement to which shall be expressly subject to
the condition that the Plan shall have been approved by the Board (as defined
in Section 2.1 below).

1.4      PUBLIC OFFERING OR SALE OF COMPANY. The award of any Conditional
Grants and the payment of any Award Amounts (as defined in Section 2.1 below)
hereunder are expressly subject to the condition that: (a) the Company shall
have completed an initial public offering ("IPO") and be a duly qualified
entity listed and traded on a national or regional stock exchange or on the
NASDAQ National Market System (any of which hereinafter called a "stock
exchange") prior to January 1, 2004. In the event that the Company has not
completed an IPO and/or is not listed on a stock exchange by January 1, 2004,
the Committee may extend the duration of the Plan and make such other
amendments to the Plan as the Committee, in its sole discretion, may deem
appropriate. The sale or the merger of the Company into another company listed
on a national stock exchange, pursuant to which Company shareholders received
registered securities of the surviving entity, prior to January 1, 2004, shall
be deemed as if the Company had completed a qualifying IPO.

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                                    SECTION 2
                                   DEFINITIONS


2.1      DEFINITIONS. The following terms shall have the meanings set forth
         below:

         "Affiliated Corporation" means any corporation or other entity
         (including but not limited to a partnership) which is affiliated with
         Matador Petroleum Corporation through stock ownership or otherwise and
         is treated as a common employer under the provisions of Section 414(b)
         and (c) or any successor sections(s) of the Internal Revenue Code.

         "Award Amount" means any amount granted pursuant to a First Level Award
         Amount, a Second Level Award Amount, or a Third Level Award Amount.
         Award Amounts may be payable in cash, Stock, or a combination of cash
         and Stock as determined by the Committee.

         "Base Salary" means, with regard to any Participant, the average of
         such Participant's base compensation as an employee of the Company
         calculated as of January 1, 2001, and each successive January 1st of
         each year that the Plan is in effect, or, in the event a Participant
         began employment after January 1, 2001, that Participant's base
         compensation as of the first day of employment and such Participant's
         base compensation as of January 1st of each year of the Plan. Base
         compensation shall be calculated without regard to any bonus, pension,
         profit sharing, stock option, life insurance or salary continuation
         plan which the Participant either receives or is otherwise entitled to
         have paid on his or her behalf.

         "Board" means the Board of Directors of the Company.

         "Committee" means a committee of the Board which is empowered hereunder
         to administer the Plan. The Committee shall be constituted at all times
         so as to permit the Plan to be administered by "outside directors" (as
         defined in Section 162(m) or any successor sections(s) of the Internal
         Revenue Code and the regulations promulgated thereunder) and
         "non-employee directors" (as defined in Rule 16b-3 of the Securities
         Exchange Act of 1934, as amended) and may be the Compensation and
         Planning Committee of the Board, provided it meets the aforementioned
         requirements.

         "Company" has the meaning set forth in Section 1.1 hereof.

         "Conditional Grant" means the conditional entitlement, evidenced by an
         executed Conditional Grant Agreement between the Company and a
         Participant, to receive all or a portion of an Award Amount, subject to
         and in accordance with the provisions of Section 7 and the other
         provisions of this Plan.

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         "Conditional Grant Agreement" has the meaning set forth in Section 7.1
         hereof.

         "Effective Date" has the meaning set forth in Section 1.3 hereof.

         "Eligible Employees" means those key employees (including, without
         limitation, officers and directors who are also employees) of the
         Company or any division thereof, upon whose judgement, initiative and
         efforts the Company is, or will become, largely dependent for the
         successful conduct of its business.

         "Fair Market Value" means the closing price of the Stock as reported on
         a stock exchange on which the stock is listed for a particular date. If
         there are no Stock transaction on such date, the Fair Market Value
         shall be determined as of the immediately preceding date on which there
         were Stock transactions.

         "First Level Award Amount" means with regard to any Participant, an
         amount which equals up to 25% of such Participant's Base Salary, or the
         Stock equivalent thereof.

         "First Price Threshold Date" means the first to occur of (i) the last
         of any thirty (30) trading days (which need not be consecutive) during
         any period of ninety (90) consecutive trading days occurring prior to
         January 1, 2004, but not thereafter, on each of which thirty (30) days
         the closing price of the Stock as reported on the a stock exchange
         listing the Stock has equaled or exceeded $50 per share, or (ii) the
         date upon which a Sale of the Company is consummated with respect to
         which the cash price per share paid to the shareholders of the Company
         exceeds $50 per share. If the above trading criteria specified under
         subsection (i) above is met more than once, the first occurrence shall
         be deemed to be the First Price Threshold Date.

         "Internal Revenue Code" means the Internal Revenue Code of 1986, as it
         may be amended from time to time.

         "Participant" means an Eligible Employee designated by the Committee
         from time to time during the term of the Plan to receive a Conditional
         Grant under the Plan.

         "Plan" has the meaning set forth in Section 1.1 hereof.

         "Sale of the Company" means the closing of a transaction pursuant to
         which every shareholder of the Company is afforded the opportunity to
         sell or dispose all of such shareholders' stock in the Company for
         cash, or stock equivalent immediately convertible into cash, including
         merger transactions and tender offers.

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         "Second Level Award Amount" means with regard to any Participant, an
         amount which equals up to 17.5% of such Participant's Base Salary, or
         the Stock equivalent thereof. "Second Price Threshold Date" means the
         first to occur of (i) the last of any thirty (30) trading days (which
         need not be consecutive) during any period of ninety (90) consecutive
         trading days occurring after January 1, 2004, but prior to January 1,
         2005, but not thereafter, on each of which thirty (30) days the closing
         price of the Stock as reported on the national stock exchange listing
         the Stock has equaled or exceeded $50 per share, or (ii) the date,
         after January 1, 2004, but prior to January 1, 2005, upon which a Sale
         of the Company is consummated with respect to which the cash price per
         share paid to the shareholders of the Company exceeds $50 per share. If
         the above trading criteria specified under Subsection (i) above is met
         more than once, the first occurrence shall be deemed to be the Second
         Price Threshold Date.

         "Third Level Award Amount" means with regard to any Participant, an
         amount which equals up to 10% of such Participant's Base Salary, or the
         Stock equivalent thereof.

         "Third Price Threshold Date" means the first to occur of (i) the last
         of any thirty (30) trading days (which need not be consecutive) during
         any period of ninety (90) consecutive trading days occurring prior to
         January 1, 2006, but not thereafter, on each of which thirty (30) days
         the closing price of the Stock as reported on the national stock
         exchange listing the Stock has equaled or exceeded $50 per share, or
         (ii) the date, after January 1, 2005, but prior to January 1, 2006,
         upon which a Sale of the Company is consummated with respect to which
         the cash price per share paid to the shareholders of the Company
         exceeds $50 per share. If the above trading criteria specified under
         Subsection (i) above is met more than once, the first occurrence shall
         be deemed to be the Third Price Threshold Date.

         "Stock" means the common stock, $.10 par value per share, of the
         Company.

2.2      HEADINGS: GENDER AND NUMBER. The headings contained in the Plan are
for reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.







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                                    SECTION 3
                               PLAN ADMINISTRATION


The Plan shall be administered by the Committee. In accordance with the
provisions of the Plan, the Committee shall, in its sole discretion, select the
Participants from among the Eligible Employees, determine and approve the
Conditional Grants to be awarded pursuant to the Plan, the time at which such
Conditional Grants are to be awarded, and establish such other terms and
requirements as the Committee may deem necessary or desirable and consistent
with the terms of the Plan. The Committee shall determine the form or forms of
the Conditional Grant Agreements with Participants which shall evidence the
particular provisions, terms, conditions, rights and duties of the Company and
the Participants with respect to Conditional Grants awarded pursuant to the
Plan, which provisions need not be identical except as may be provided herein.
The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem appropriate and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, or in any agreement entered
into hereunder, in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. Members of the Committee
shall not be liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.

The Plan is intended to comply with the requirements of Section 162(m) or any
successor sections(s) of the Internal Revenue Code ("Section 162(m)") as to any
"covered employee" as defined in Section 162(m), and shall be administered,
interpreted and construed consistently therewith. The Committee is authorized to
take such additional action, if any, that may be required to ensure that the
Plan satisfies the requirements of Section 162(m) and the regulations
promulgated or revenue rulings published thereunder.



                                    SECTION 4
                            STOCK SUBJECT TO THE PLAN

4.1      NUMBER OF SHARES. Subject to Section 7.1 and Section 4.3, _____________
shares of Stock are authorized for issuance under the Plan in accordance with
its terms and subject to such restrictions or other provisions as the
Committee may from time to time deem necessary. This authorization may be
increased from time to time by approval of the Board and the stockholders of
the Company if, in the opinion of counsel for the Company, such stockholder
approval is required. Shares of Stock which may be issued pursuant to the
terms of the Conditional Grants awarded hereunder shall be applied to reduce
the maximum number of shares of Stock remaining available for use under the
Plan. The Company shall at all times during the term of the Plan and while any
Conditional Grants are outstanding retain as authorized and unissued Stock
and/or Stock in the Company's treasury, at least the number of shares from
time to time required under

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the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder.

4.2      OTHER SHARES OF STOCK. Any shares of Stock that are subject to a
Conditional Grant which expire, are forfeited, are canceled, or for any reason
are terminated, and any shares of Stock that for any other reason are not
issued to a Participant or are forfeited shall automatically become available
for use under the Plan.

4.3      CERTAIN ADJUSTMENTS. If the Company shall at any time increase or
decrease the number of its outstanding shares of Stock or change in any way
the rights and privileges of such shares by means of a Stock dividend or any
other distribution upon such shares payable in Stock, or through a Stock
split, subdivision, consolidation, combination, reclassification or
recapitalization involving the Stock (hereinafter a "capital restructuring"),
then for purposes of determining the entitlement to Award Amounts under
Section 7, the share prices triggering the various price threshold dates and
the resulting Award Amounts shall be equitably and, if deemed appropriate,
proportionally adjusted to take into account any such capital restructuring.
Any adjustment under this Section shall be made by the Committee, whose
determination with regard thereto shall be final and binding upon all parties.

4.4      AWARD CAP. Notwithstanding any other provision contained in the Plan
to the contrary, the total awards granted hereunder shall not exceed five
percent (5%) of the total value increase attributable to shareholders'
interests at the time of the applicable Price Threshold Date ("Award Cap"). In
the event that the Award Cap is exceeded, all Award Amounts granted hereunder
shall be proportionately reduced to the amount of the Award Cap.



                                    SECTION 5
                          REORGANIZATION OR LIQUIDATION

In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 40 percent (40%) of the outstanding voting stock of
the Company is acquired by any other corporation, business entity or person, or
in case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
8 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Conditional Grants either (i) make appropriate provision for the
adoption and continuation of the Plan by the acquiring or successor corporation
and for the protection of any such outstanding Conditional Grants, provided that
no additional benefits shall be conferred upon the Participants holding such
Conditional Grants as a result of such substitution, or (ii) provided that a
Price Threshold Date has occurred, upon written notice to the Participants, the
Committee may accelerate the vesting and payment dates of the outstanding
Conditional Grants so that all such existing entitlements are paid prior to any
such event. In the later event, such acceleration shall only apply to
entitlements payable as the result of the occurrence of the most recent Price
Threshold


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Date and shall not by such acceleration, deem the occurrence of a Price
Threshold Date that has not occurred by the date of the notice.



                                    SECTION 6
                                  PARTICIPATION

Participation in the Plan shall be those Eligible Employees who, in the judgment
of the Committee, are performing, or during the term of their incentive
arrangement are expected to perform, vital services in the management, operation
and development of the Company or an Affiliated Corporation, and significantly
contribute, or are expected to significantly contribute, to the achievement of
the Company's long term corporation economic objectives. Upon determination by
the Committee that a Conditional Grant is to be awarded to a Participant,
written notice shall be given to such person, specifying the terms, conditions,
rights and duties related thereto. Conditional Grants shall be deemed to be
awarded as of the date specified in the granting resolution of the Committee,
which date shall be the date of the Conditional Grant Agreement with the
Participant. In the event of any inconsistency between the provisions of the
Plan and any Conditional Grant Agreement, the provisions of the Plan shall
govern. Notwithstanding any other provisions herein, the Committee may, in its
sole and absolute discretion, award a Conditional Grant to any Eligible Employee
whether or not such employee was employed before or after the Effective Date.



                                    SECTION 7
                               CONDITIONAL GRANTS

7.1      GRANTS. Each Participant may be awarded only one Conditional Grant
under this Plan subject to Paragraph 9.1. Each Conditional Grant awarded by
the Committee shall be evidenced by a written agreement entered into by the
Company and the Participant to whom the Conditional Grant is awarded (the
"Conditional Grant Agreement"), which shall contain the terms and conditions
set out in this Section 7, as well as such other terms and conditions, not
inconsistent herewith, as the Committee may consider appropriate. All
Conditional Grant Agreements are expressly subject to Sections 1.4, 4.4, 9.1
and 9.2 herein.

7.2      CONDITIONAL GRANT AGREEMENTS. Each Conditional Grant Agreement
entered into by the Company and the Participants shall contain at least the
following terms and conditions.

         7.2.1    CONDITIONAL GRANT TERMS. Each Conditional Grant Agreement
                  evidencing conditional Grant shall entitle the Participant to
                  a conditional payment of cash and/or stock following the
                  occurrence of a Price Threshold Date, as set forth below.



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                  (a)      If at any time prior to January 1, 2004, a Price
                           Threshold Date occurs, the Participant may become
                           entitled to receive a portion or all of the Award
                           Amount payable in accordance with Section 7.2.2.

                  (b)      In the event the First Price Threshold Date is
                           attained, the First Level Award Amount shall vest. In
                           the event, and only in the event, that the Committee
                           elects to extend the Plan to January 1, 2005, and the
                           Second Price Threshold Date is attained, the First
                           Level Award Amount shall be divested, and the Second
                           Level Award Amount shall vest. In the event, and only
                           in the event, that the Committee elects to extend the
                           Plan to January 1, 2006, and the Third Price
                           Threshold Date is attained, the Second Level Award
                           Amount shall be divested and the Third Level Award
                           Amount shall vest. In no event shall more that one
                           Award Amount vest and be payable.

         7.2.2    PAYMENTS.

                  (a)      Subject to the provisions of Section 7.2.2(b) and
                           7.3, the Award Amount vesting on the applicable Price
                           Threshold Date shall be payable on or before the
                           December 31, 2004, in the event the First Price
                           Threshold Amount is vested, and the December 31st
                           next following a subsequent Price Threshold Date, in
                           the event that the Committee extends the Plan beyond
                           January 1, 2004. No Award Amount shall be payable
                           under this Section 7.2.2 if a Price Threshold Date
                           has not occurred prior to January 1, 2006.

                  (b)      Award Amounts shall be paid in cash and/or Stock of
                           the Company, as the Committee in its sole discretion
                           shall determine. To the extent that any portion of an
                           Award Amount is to be paid in the form of shares of
                           Stock, the number of shares of Stock to be issued
                           shall be determined based upon the average share
                           price of the Stock over the last 90 days preceding
                           January 1st of the year a Price Threshold Date
                           occurs. The Company shall withhold such cash from the
                           Award Amount as is reasonably required to satisfy
                           applicable tax withholding requirements with the
                           remainder if any, paid in the form of a Company
                           check, payable to the order of the Participant.

                  (c)      The Committee may, in its sole discretion, issue
                           Stock to Participants subject to share transfer
                           restrictions applicable to the Stock such that
                           Participant may not sell or otherwise transfer the
                           Stock for a period not to exceed one (1) year from
                           the date of issuance.


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7.3      TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as set
forth below, each Conditional Grant Agreement shall state that each
Conditional Grant and the right to receive any payment thereunder shall be
subject to the condition that the Participant has remained a full-time
employee of the Company from the initial award of a Conditional Grant until
the applicable vesting date as follows:

         a)   If the Participant voluntarily leaves the employment of the
              Company, or if the employment of the Participant is terminated by
              the Company for cause or otherwise, any portion of any Conditional
              Grant not previously vested in accordance with Section 7.2.1 shall
              thereafter be void for all purposes.

         b)   If the Participant retires from employment with the Company on or
              after attaining age 60, the retired Participant, or the person
              designated in clause (c) below, in the case of Participant's
              death, shall be entitled to receive payments in accordance with
              Section 7.2.2, provided that (i) such Participant has certified in
              writing to the Committee his or her commitment not to enter into
              full-time employment or a consulting arrangement with a competitor
              of the Company, and (ii) A Price Threshold Date has occurred prior
              to his or her last day of employment with the Company. Such
              retired Participant shall not be entitled to any payment which may
              arise due to the occurrence of a Price Threshold Date after the
              effective date of such Participant's retirement. A failure of the
              Participant to comply with the undertaking of clause (i) above
              shall void such Participant's right to payments hereunder.

         c)   If the Participant dies, or if the Participant becomes disabled
              (as determined pursuant to the Company's Long-Term Disability Plan
              or any successor plan), while still employed, payment in
              accordance with Section 7.2.2 shall be made to the disabled
              Participant or to those entitled under the Participant's will or
              in the absence of a will, by the laws of descent and distribution,
              provided that a Price Threshold Date has occurred prior to the
              earlier of such Participant's disability or death. There shall be
              no entitlement to any payment which may arise due to the
              occurrence of a Price Threshold Date after the earlier of such
              Participant's disability or death.

7.4      TRANSFERABILITY. Each Conditional Grant Agreement shall state that
the Conditional Grant awarded thereunder is not transferable by the
Participant, except by will or pursuant to the laws of descent and
distribution, and that during the Participant's lifetime, such Conditional
Grant is payable during the Participant's lifetime only to him or her, or in
the event of the Participant's disability or incapacity, to his or her
guardian or legal representative.

7.5.     TAX WITHHOLDING. Each Conditional Grant Agreement shall provide that,
upon payment of any entitlement under a Conditional Grant, the Participant
shall make appropriate arrangements with the Company to provide for the amount
of additional tax withholding required by Sections 3102 and 3402 or any
successor section(s) of the Internal Revenue Code and applicable state income
tax laws.


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7.6.     SUBSEQUENT CONDITIONAL GRANT AGREEMENTS. Following the award of
Conditional Grants to Eligible Employees employed by the Company as of March
1, 2001, additional Participants may be designated by the Committee for grant
of Conditional Grants thereafter subject to the same terms and conditions set
forth above for initial grants except that the Committee, in its sole
discretion, may reduce the value of an Award Amount to which subsequent
Participants may become entitled and the applicable Conditional Grants
Agreement shall be modified to reflect such reduction.



                                    SECTION 8
                                CHANGE IN CONTROL

8.1      IN GENERAL. In the event of a change in control of the Company as
defined in Section 8.3 hereof, then the Committee may, in its sole discretion,
without obtaining stockholder approval, to the extent permitted in Section 12
hereof, take any or all of the following actions assuming the occurrence of a
Price Threshold Date: (a) accelerate the vesting and payment dates under any
outstanding Conditional Grants so that all existing entitlements become fully
payable, which acceleration may be conditional upon the occurrence of
subsequent events including, without limitation, a change in control, and may
be irrevocable, either conditionally or unconditionally; (b) make payment to
any or all Participants, in exchange for the cancellation of their outstanding
Conditional Grants; and (c) make any other adjustments or amendments to the
outstanding Conditional Grants as the Committee deems appropriate.

8.2      LIMITATION ON PAYMENTS. If the provisions of this Section 8 would
result in the receipt by any Participant of a payment within the meaning of
Section 280G or any successor section(s) of the Internal Revenue Code, and the
regulations promulgated thereunder, and if the receipt of such payment by any
Participant would, in the opinion of independent tax counsel of recognized
standing selected by the Company, result in the payment by such Participant of
any excise tax provided for in Sections 280G and 4999 or any successor
section(s) of the Internal Revenue Code, then the amount of such payment shall
be reduced to the extent required, in the opinion of independent tax counsel,
to prevent the imposition of such excise tax; provided, however, that the
Committee, in its sole discretion, may authorize the payment of all or any
portion of the amount of such reduction to the Participant.

8.3      CHANGE IN CONTROL. For purposes of the Plan, a "change in control"
shall mean:


         a)       An Event such that the holders of stock immediately prior to
                  the consummation of such event shall, as a result of such
                  event, cease to hold sufficient stock to elect a majority of
                  the Board of Directors;

         b)       An event such that, after giving effect to such event, the
                  nature of the business engaged in by the Company, taken as a
                  whole, shall differ


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                  materially from the business engaged in by the Company
                  immediately prior to such event; or

         c)       The acquisition by any individual or entity of all or
                  substantially all of the assets of the Company.



                                    SECTION 9
                        RIGHTS OF EMPLOYEES, PARTICIPANTS

9.1      EMPLOYMENT. Nothing contained in the Plan or in any Conditional Grant
granted under this Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment by the Company or any
Affiliated Corporation, or interfere in any way with the right of the Company
or any Affiliated Corporation, 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 level of the Participant's compensation from the
level in existence at the time of the award of a Conditional Grant. The
determination of an authorized leave of absence or absence in military or
government service shall constitute a termination of employment shall be made
by the Committee at the time of occurrence.

9.2      NONTRANSFERABILITY. The right or interest of any Participant in a
Conditional Grant granted pursuant to the Plan shall not be assignable or
transferable during the lifetime of the Participant, either voluntarily or
involuntarily, and shall not be subject to any lien, directly or indirectly,
by operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy. In the event of a Participant's death, a
Participant's rights and interests in a Conditional Grant shall, to the extent
provided in Section 7.3 hereof, be transferable by testamentary will or in the
absence of a will, by the laws of descent and distribution, and payment of any
entitlement due under the Plan shall be made to the Participant's legal
representatives, heirs or legatees. If in the opinion of the Committee, a
person entitled to the payments or to exercise rights with respect to the Plan
is unable to care for his or her affairs because of mental condition, physical
condition or age, payment due such person may be made to, and such rights
shall be exercised by, such person's guardian, conservator or other legal
personal representative upon furnishing the Committee with evidence
satisfactory to the Committee of such status.



                                   SECTION 10
                              GENERAL RESTRICTIONS

10.1     INVESTMENT REPRESENTATIONS. The Company may require a Participant, as
a condition of receiving payment under a Conditional Grant, to give written
assurances in substance and form satisfactory to the Company and its counsel
to the effect that such person is acquiring the Stock subject to the
Conditional Grant for his/her account for personal investment and not with any
present intention of selling or otherwise distributing

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the same, and to such other effects as the Company deems necessary or
appropriate in order to comply with federal and applicable state securities
laws.

10.2     COMPLIANCE WITH SECURITIES LAWS. Each Conditional Grant shall be
subject to the requirement that, if at any time counsel to the Company shall
determine that the listing, registration or qualification of the shares of
Stock subject to such Conditional Grant upon any securities exchange or under
any state or federal law, or the consent or approval of any governmental or
regulatory body, is necessary as a condition of, or in connection with, the
issuance of shares of Stock thereunder, such Conditional Grant may not be
payable in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained on conditions
acceptable to the Committee. Nothing herein shall be deemed to require the
Company to apply for or to obtain such listing, registration, qualification,
consent or approval.



                                   SECTION 11
                             OTHER EMPLOYEE BENEFITS

The amount of any compensation deemed to be received by a Participant as a
result of the payment under a Conditional Grant shall not constitute "earnings"
with respect to which any other employee benefits of such Participant are
determined, including without limitation benefits under any pension, profit
sharing, severance, life insurance or salary continuation plan.



                                   SECTION 12
                  PLAN AMENDMENT, MODIFICATION AND TERMINATION

The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the Company's
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory regulatory requirements, or if the Company, on the
advice of its counsel, determines that stockholder approval is otherwise
necessary. Any amendment, modification or termination of the Plan shall not in
any manner adversely affect any Conditional Grant previously awarded under the
Plan, without the consent of the Participant holding such Conditional Grant.



                                   SECTION 13
                                   WITHHOLDING

The Company's obligations to make payments pursuant to the terms of a
Conditional Grant shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.



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                                   SECTION 14
                               REQUIREMENTS OF LAW


14.1     REQUIREMENTS OF LAW. The issuance of Stock and payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.

14.2     FEDERAL SECURITIES LAWS REQUIREMENTS. If a Participant is an officer
or director of the Company within the meaning of Section 16, Conditional
Grants awarded hereunder shall be subject to all conditions required under
Rule 16b-3, or any successor rule(s) promulgated under the Securities Exchange
Act of 1934, as amended, to qualify the Conditional Grant for any exemption
from the provisions of Section 16 available under such Rule. Such conditions
are hereby incorporated herein by reference and shall be set forth in the
agreement with the Participant which describes the Conditional Grant.

14.3     GOVERNING LAW. The Plan and all Conditional Grant Agreements
hereunder shall be construed in accordance with and governed by the laws of
the State of Texas.



                                   SECTION 15
                              DURATION OF THE PLAN

The Plan shall terminate at such time as may be determined by the Committee, and
Conditional Grants shall not be awarded after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on January 1, 2006. Conditional Grants outstanding at the time of
the Plan termination shall continue in accordance with the Conditional Grant
Agreement pertaining to such Conditional Grant.



MATADOR PETROLEUM CORPORATION




------------------------                     -----------------------------------
Joseph Wm. Foran                             Eugene C. Fiedorek, Chairman
Chairman & CEO                               Compensation and Planning
                                             Committee








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