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                                                                    Exhibit 10.1


                          MATADOR PETROLEUM CORPORATION
                        1987 INCENTIVE STOCK OPTION PLAN

         THIS 1987 INCENTIVE STOCK OPTION PLAN originally entered into and
effective as of _________________, 1987 is amended and restated in its entirety
as follows, effective _____________, 1990, by Matador Petroleum Corporation for
the benefit of its eligible employees.

         1.       PURPOSE. The 1987 Incentive Stock Option Plan (the "Plan") is
intended to advance the interests of Matador Petroleum Corporation (the
"Company"). its Subsidiaries and its shareholders by encouraging and enabling
selected officers and key employees upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock so as to provide additional incentive for such individuals to promote the
success of its business through sharing in the future growth of such business.
Options granted under the Plan are intended to be options that meet the
requirements of incentive stock options contained in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").

         2.       DEFINITIONS. For the purposes of the Plan, the following terms
when used herein shall have the indicated meaning:

                  (a)      "Board" means the Board of Directors of the Company.

                  (b)      "Committee" means the compensation committee which
         may be appointed by the Board to administer all or a part of the Plan.

                  (c)      "Common Stock" means the Company's $.10 par value
         Common Stock.

                  (d)      "Date of Grant" means the date on which an Option is
         granted under the Plan.

                  (e)      "Expiration Date" means the date on which an Option
         expires.

                  (f)      "Major Shareholder-Employee" means an officer or
         employee who owns stock possessing more than ten percent ( 10% ) of the
         total combined voting power of all classes of stock of the Company, or
         the Company's parent, or a Subsidiary.

                  (g)      "Option" means an option granted under the Plan.

                  (h)      "Option Contracts" means the contracts to be entered
         into from time to time between the Company and each of the Optionees.

                  (i)      "Option Price" shall mean the price per share of
         Common Stock that is required to be paid by an Optionee in order to
         exercise his right to acquire the share of Common Stock under the terms
         of the Option.


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                  (j)      "Optionee" means A person to whom an Option, which
         has not expired, has been granted under the Plan.

                  (k)      "SAR" shall mean a stock appreciation right as
         defined in Section 9 hereof.

         (l)      "SAR Spread" shall mean with respect to each SAR, an amount as
defined in Section 9 hereof.

                  (m)      "Subsidiary" or "Subsidiaries" means a subsidiary
         corporation or corporations of the Company as defined in Section 425 of
         the Code.

                  (n)      "Successor" means the legal representative of the
         estate of a deceased or disabled Optionee or the person or persons who
         acquire the right to exercise an Option by bequest or inheritance or by
         reason of the death of any Optionee.

         3.       ADMINISTRATION OF PLAN. The Board shall have the authority to
administer the Plan including, without limitation, the authority to (i)
determine the individuals to whom and the time or times at which Options shall
be granted and the number of shares and the purchase price of Common Stock
covered by each Option; (ii) determine the terms and provisions of the
respective Option Contracts, which need not be identical, including, without
limitation, terms covering the time and method of payment of the Option price,
provided that payment for the exercise of such Options shall be made only by
cash, cashier's check, or certified check, (iii) impose such limitations on any
Optionee's right to sell shares of Common Stock to third parties, without first
offering to sell such shares of Common Stock to the Company on the same terms
and conditions, as it may deem appropriate; (iv) adopt such rules and
regulations for carrying out this Plan as it may deem proper and in the best
interests of the Company; and (v) make all other determinations and take all
other actions deemed necessary or advisable for the proper administration of the
Plan. The Board may appoint a Committee and may delegate to it the authority to
make any or all determinations or take any or all actions of the Board arising
under the Plan. All determinations and actions with respect to the Plan by the
Board or by a Committee acting within the scope of its authority shall be
conclusively binding for all purposes and upon all persons.

         4.       COMMON STOCK SUBJECT TO OPTIONS. The aggregate number of
shares of the Company's Common Stock that may be issued upon the exercise of
Options granted under the Plan is 200,000 shares, subject to adjustment under
the provisions of Section 7 hereof. The shares to be delivered upon exercise of
the Options granted under the Plan shall be made available, at the discretion of
the Board, from either the authorized but unissued shares of Common Stock or any
treasury shares of Common Stock held by the Company. In the event any Option
shall, for any reason, terminate or expire or be surrendered without having been
exercised in full, the shares subject to such Option but not purchased
thereunder shall again be available for Options to be granted under the Plan.

         5.       PARTICIPANTS. Options may he granted under the Plan to any
person who, at the time of grant of the Option, is an employee (including
officers and directors who are also employees) of the Company or any of its
Subsidiaries. Options to purchase shares of Common Stock shall be granted under
this Plan only to those individuals selected by the Board from time


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to time who, in the sole discretion of the Board, have made material
contributions in the past, or who are expected to make material contributions in
the future, to the successful performance of the Company and its Subsidiaries.

         6.       TERMS AND CONDITIONS OF OPTIONS. Any Option granted under the
Plan shall be evidenced by an Option Contract executed by the Company and the
Optionee and shall contain such terms and be in such form as the Board may from
time to time approve, subject to the following limitations and conditions:

                  (a)      OPTION PRICE. The exercise price per share with
         respect to each Option shall be determined by the Board but shall in no
         instance be less than 100% of the fair market value of a share of the
         Common Stock on the Date of Grant. Notwithstanding the foregoing,
         however, with respect to Options to be granted to a Major
         Shareholder-Employee, the exercise price per share with respect to each
         such Option shall in no instance be less than 110% of the fair market
         value of a share of the Common Stock on the Date of Grant. For the
         purposes hereof, fair market value shall be as determined by the Board
         in its sole discretion and such determination shall be binding upon the
         Company and upon the Optionee. The Board may make such determination
         (i) in case the Common Stock shall not then be listed and traded upon a
         recognized securities exchange, upon the basis of the mean between the
         bid and asked quotations for such stock on the Date of Grant (as
         reported by a recognized stock quotation service) or, in the event that
         there shall be no bid or asked quotations on the Date of Grant, then
         upon the basis of the mean between the bid and asked quotations on the
         date nearest preceding the Date of Grant, or (ii) in case the Common
         Stock shall then be listed and traded upon a recognized securities
         exchange, upon the basis of the mean between the highest and lowest
         selling prices at which shares of the Common Stock were traded on such
         recognized securities exchange on the Date of Grant or, in the event
         that the Common Stock was not traded on the Date of Grant, upon the
         basis of the mean of such prices on the date nearest preceding the Date
         of Grant, or (iii) upon any other factors which the Board shall deem
         appropriate.

                  (b)      PERIOD OF OPTION. Subject to the provisions of
         Sections 6(g) and 6(h) hereof with respect to the termination of
         employment or death of an Optionee, each Option shall expire on the
         date (the "Expiration Date") fixed by the Board, but, notwithstanding
         any provision of the Plan to the contrary, such Expiration Date shall
         not be more than five (5) years from the Date of Grant with respect to
         Major Shareholder-Employees, nor more than ten (10) years from the Date
         of Grant with respect to other officers or employees of the Company.

                  (c)      MAXIMUM AMOUNT TO BE EXERCISED. The aggregate fair
         market value (determined as of the time the Option is granted) of the
         Common Stock with respect to which Options are exercisable for the
         first time by an Optionee during any calendar year (under the Plan and
         all similar plans of the Company, any parent of the Company, or a
         Subsidiary) shall not exceed $100,000. Notwithstanding the foregoing,
         however, such exercise shall be permitted if and to the extent that the
         right to first exercise such Options shall have accumulated over a
         number of years rather than having first occurred in the year of
         exercise.


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                  (d)      VESTING OF SHAREHOLDER RIGHTS. Neither an Optionee
         nor his Successor shall have any of the rights of a shareholder of the
         Company until the certificates evidencing the shares purchased are
         properly issued and delivered to such Optionee or his Successor.

                  (e)      EXERCISE OF OPTION. Each Option shall be exercisable
         from time to time over a period commencing on the Date of Grant and
         ending upon the Expiration Date or termination of the Option; provided,
         however, the Board may, by the provisions of any Option Contract, limit
         the number of shares purchasable thereunder in any period or periods of
         time during which the Option is exercisable. Any Option granted under
         this Plan may be exercised by the Optionee only by (i) delivering to
         the Company written notice of the number of shares with respect to
         which he is exercising his Option rights, (ii) paying in full the
         exercise price for the purchased shares by payment of cash, and (iii)
         furnishing to the Company representations in writing signed by the
         Optionee that he is familiar with the business and financial condition
         of the Company, is purchasing the shares of Common Stock in good faith
         for himself for investment purposes and not with a view towards the
         sale or distribution thereof, and will not effect any sale in violation
         of any laws or regulations of the United States or any state.

                  (f)      NONTRANSFERABILITY OF OPTION. No option shall be
         transferable or assignable by an Optionee, otherwise than by will or
         the laws of descent and distribution and each Option shall be
         exercisable, during the Optionee's lifetime, only by the Optionee. No
         Option shall be subject to execution, attachment, or similar process
         except with the express consent of the Board.

                  (g)      TERMINATION OF EMPLOYMENT. Upon termination of an
         Optionee's employment with the Company or with any of its Subsidiaries
         other than by reason of death, his Option privileges shall be limited
         to the shares which were immediately purchasable by him at the date of
         such termination and such Option privileges shall expire unless
         exercised by the Optionee within three months after the date of such
         termination; PROVIDED, HOWEVER, THAT UPON AN OPTIONEE'S TERMINATION OF
         EMPLOYMENT WITH THE COMPANY FOR MISCONDUCT INVOLVING MORAL TURPITUDE,
         HIS OPTION PRIVILEGES SHALL IMMEDIATELY EXPIRE. The granting of an
         Option to an eligible person does not alter in any way the Company's or
         the relevant Subsidiary's existing rights to terminate such person's
         employment at any time for any reason, nor does it confer upon such
         person any rights or privileges except as specifically provided for in
         the Plan. NOTWITHSTANDING THE PROVISIONS OF THIS SECTION 6(g) TO THE
         CONTRARY, THE OPTION PRIVILEGES OF AN OPTIONEE WHOSE EMPLOYMENT WITH
         THE COMPANY HAS BEEN TERMINATED WILL IMMEDIATELY EXPIRE UPON THE
         DISCLOSURE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, BY SUCH
         OPTIONEE OF ANY PROPRIETARY OR CONFIDENTIAL INFORMATION RELATING TO THE
         COMPANY.

                  (h)      DEATH OR DISABILITY OF OPTIONEE. If an Optionee dies
         or is disabled while in the employ of the Company or any Subsidiary,
         his Option privileges shall be limited to the shares that were
         immediately purchasable by him at the date of death or disability and
         such Option privileges shall expire unless exercised by his Successor
         within 180 days after the date of death or disability.


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                  (i)      DELIVERY OF CERTIFICATES. As soon as practicable
         after receipt by the Company of the notice and representations
         described in Section 6(e) hereof, and of payment in full of the
         exercise price for all of the shares being purchased pursuant to an
         Option granted under the Plan, a certificate or certificates
         representing such shares of Common Stock shall be registered in the
         name of the Optionee and shall be delivered to the Optionee. However,
         no certificate for fractional shares of Common Stock shall be issued by
         the Company notwithstanding any request therefor. All stock
         certificates issued upon the exercise of any Options granted pursuant
         to the Plan may bear such legend as the Board shall deem appropriate
         regarding restrictions upon the transfer or sale of the shares
         evidenced thereby.

         7.       ADJUSTMENTS.

                  (a)      In the event that the outstanding shares of Common
         Stock of the Company are hereafter increased or decreased or changed
         into or exchanged for a different number or kind of shares or other
         securities of the Company or of another corporation, by reason of a
         recapitalization, reclassification, stock split-up, combination of
         shares, or dividend or other distribution payable in capital stock,
         appropriate adjustment shall be made by the Board in the number and
         kind of shares for the purchase of which Options may be granted under
         the Plan. In addition, the Board shall make appropriate adjustment in
         the number and kind of shares as to which outstanding Options, or
         portions thereof then unexercised, shall be exercisable, to the end
         that the proportionate interest of the holder of the Option shall, to
         the extent practicable, be maintained as before the occurrence of such
         event. Such adjustment in outstanding Options shall be made without
         change in the total price applicable to the unexercised portion of the
         Option but with a corresponding adjustment in the exercise price per
         share.

                  (b)      In the event of the dissolution or liquidation of the
         Company, any Option granted under the Plan shall terminate as of a date
         to be fixed by the Board, provided that not less than 30 days written
         notice of the date so fixed shall be given to each Optionee and each
         such Optionee shall have the right during such period to exercise his
         Option as to all or any part of the shares covered thereby.

                  (c)      In the event of the reorganization, consolidation, or
         merger of the Company with any other entity or entities, then the Board
         may determine either to:

                           (i)      terminate any Option granted under the Plan
                  as of the date of such reorganization, consolidation or
                  merger, provided that not less than 30 days' written notice of
                  the date so fixed shall be given to each Optionee, and each
                  such Optionee shall have the right during such period to
                  exercise his Option as to all or any part of the shares
                  covered thereby; or

                           (ii)     substitute for the shares of the Company
                  subject to any Option a corresponding number of shares of the
                  reorganized, consolidated or merged corporation, provided that
                  all such substituted options shall be subject to the Option
                  Contract in the same proportions as any Options which the
                  substituted options replaced.


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                  (d)      Adjustments and determinations under this Section 7
         shall be made by the Board, whose decisions as to what adjustments or
         determinations shall be made, and the extent thereof, shall be final,
         binding, and conclusive on all persons.

         8.       RESTRICTIONS ON ISSUING SHARES. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration, or qualification of
any shares otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the consent or approval of any
regulatory body, is necessary or desirable as a condition of, or in connection
with, such exercise or the delivery or purchase of shares pursuant thereto, then
in any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.

         9.       STOCK APPRECIATION RIGHTS. (a) The Board shall have authority
to grant an SAR with respect to all or some of the shares of Common Stock
covered by any Option ("Related Option"). An SAR must be granted together with
the Related Option.

                  (b)      For the purposes of this Section 9, the following
         definitions shall apply:

                           (i)      The term "SAR" shall mean a right granted
                  under this Plan that shall entitle the holder thereof to
                  receive an amount in cash or shares of Common Stock equal to
                  the SAR Spread.

                           (ii)     The term "SAR Spread" shall mean with
                  respect to each SAR an amount equal to the product of (1) the
                  excess of (A) the fair market value per share of Common Stock
                  on the date of exercise, DETERMINED IN THE SAME MANNER AS
                  DESCRIBED IN SECTION 6(a) HEREOF, over (B) the Option Price
                  per share of the Related Option, multiplied by (2) the number
                  of shares of Common Stock with respect to which such SAR is
                  being exercised; provided, however, that in no event shall the
                  SAR Spread exceed the amount permitted to be treated as the
                  SAR Spread under applicable Treasury Regulations or other
                  lega1 authority without disqualifying the Related Option as an
                  incentive stock option pursuant to Section 422A of the Code.

                  (c) To exercise an SAR, the Optionee shall:

                           (i)      Give written notice thereof to the Company,
                  specifying the SAR being exercised and the number or shares
                  with respect to which such SAR is being exercised, and

                           (ii)     If requested by the Company, deliver within
                  a reasonable time the agreement evidencing the SAR being
                  exercised, to the Secretary of the Company who shall endorse
                  or cause to be endorsed thereon a notation of such exercise
                  and return the agreement to the Optionee.

                  (d)      As soon as practicable after the exercise of an SAR,
         the Company IN ITS SOLE DISCRETION SHALL DETERMINE THE FORM IN WHICH
         PAYMENT OF THE SAR SPREAD SHALL BE


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         MADE AND shall pay to the Optionee (i) cash, (ii) shares of Common
         Stock, or (iii) a combination of cash and shares of Common Stock,
         having a fair market value equal to the SAR Spread; provided, however,
         the Company may in its sole discretion withhold from any such cash any
         amount necessary to satisfy the Company's obligation for federal and
         state withholding taxes with respect to such exercise.

                  (e)      An SAR may be exercised only if and to the extent
         that its Related Option is eligible to be exercised.

                  (f)      Upon the exercise of an SAR, the shares of Common
         Stock under the Related Option to which such exercised SAR relate shall
         be released, but such released shares of Common Stock shall never again
         be available for Options to be granted under the Plan.

                  (g)      Upon the exercise or termination of a Related Option,
         the SAR with respect to such Related Option likewise shall terminate.

                  (h)      An SAR shall be transferable only to the extent, if
         any, that the Related Option is transferable, and under the same
         conditions.

                  (i)      An SAR may be exercised only when the fair market
         value of the shares of Common Stock exceeds the Option Price.

                  (j)      Each SAR shall be on such terms and conditions not
         inconsistent with this Plan as the Board may determine and shall be
         evidenced by a written agreement.

                  (k)      The Optionee shall have no rights as a stockholder
         with respect to the related shares of Common Stock as a result of the
         grant of an SAR.

         10.      USE OF PROCEEDS. The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of Options granted under the Plan
shall be added to the Company's general funds and used for general corporate
purposes.

         11.      AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board may
at any time suspend or terminate the Plan or may amend it from time to time in
such respects as the Board may deem advisable in order that the Options granted
thereunder may conform to any changes in the law or in any other respect that
the Board may deem to be in the best interests of the Company, except that
approval of the shareholders of the Company shall be required for any of the
following amendments:

                  (a)      Increasing the maximum number of shares as to which
         Options may be granted under the Plan either to all persons
         participating in the Plan or to any one person;

                  (b)      Decreasing, directly or indirectly, the minimum
         exercise price applicable to any Option either for all persons
         participating in the Plan or for any one person;

                  (c)      Extending the term of the Plan beyond ten (10) years
         after its effective date;


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                  (d)      Extending the maximum term of Options granted beyond
         the period specified in Section 6(b) hereof; or

                  (e)      Altering any outstanding Option contract to the
         detriment of the Optionee without his consent.

Unless the Plan shall theretofore have been terminated by the Board, the Plan
shall terminate ten (10) years after the effective date of the Plan. No Option
may be granted during any suspension or after the termination of the Plan.
Except as otherwise provided herein, no amendment, suspension, or termination of
the Plan shall, without an Optionee's consent, alter or impair any of the rights
or obligations under any Option theretofore granted to such Optionee under the
Plan.

         12.      EFFECTIVE DATE OF PLAN. The Plan shall be effective
immediately upon adoption by the Board, subject to approval by the shareholders
of the Company.

         13.      TERMINATION OF OLD OPTION CONTRACT AND GRANT OF NEW OPTION
CONTRACT. An Option may be granted under this Plan that may be conditioned upon
the termination of an Option previously granted to the Optionee that has not yet
been terminated or been exercised.


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