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                                                                   EXHIBIT 10.18


                    [NATIONAL ENERGY GROUP, INC. LETTERHEAD]


                                October 31, 1997



VIA HAND DELIVERY

Mr. Robert A. Imel
10110 Gaywood Road
Dallas, Texas 75229

         Re:  Separation Agreement

Dear Mr. Imel:

National Energy Group, Inc. (the "Company") recognizes your service to the
Company.  This letter confirms the discussions we have held concerning the
resignation of your employment from the Company, and the Company's offer and
your acceptance of this proposed separation agreement (this "Separation
Agreement") on the terms set forth below.

1.       Resignation; Termination of Employment.  You agree to resign as an
         officer of the Company and its Chief Financial Officer effective
         October 31, 1997.  Your employment with the Company, where you have
         been employed as a Senior Vice President and Chief Financial Officer,
         is terminated effective December 6, 1997 (hereinafter the "Separation
         Date"), at which time your Employment Agreement dated January 1, 1996
         and any other agreements regarding your employment with the Company
         shall also terminate.

2.       Salary and Benefits.  In accordance with the Company's existing
         policies, you have received, will receive, or are receiving with this
         letter the following payments and benefits pursuant to your employment
         with the Company and your participation in the Company's benefit
         plans:

         (a)     Payment of your regular base salary of $15,000.00 per month
                 through December 6, 1997, less all legally required
                 deductions; and

         (b)     Payment of accrued and unused vacation leave, if any, through
                 December 6, 1997, less all legally required deductions.
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Mr.Robert A. Imel
October 31, 1997
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         The amounts paid in accordance with subparagraphs (a) and (b) of this
         Paragraph are gross amounts, subject to lawful deductions, including
         any deductions you have previously authorized or authorize prior to
         your Separation Date.

         Your paid group health insurance benefits shall continue through
         December 31, 1997.  After the Separation Date, you are entitled at
         your option to continue your group health insurance coverage at your
         expense (but subject to the provisions of Paragraph 3 (b) below), in
         accordance with applicable law.  Please complete the COBRA election
         form, which will be furnished to you, and return it to Ms. Patti
         Davis-Sebastian at your earliest convenience, if you elect to continue
         such insurance coverage.

         Payment of any benefits to which you have vested entitlement under the
         terms of the employee benefit plans established by the Company,
         including but not limited to the Company 401(k) Plan, shall be paid to
         you in accordance with the provisions of such plans.

3.       Special Separation Benefits.  In consideration of the General Release,
         the Confidentiality of Separation Agreement and Nondisparagement
         provision, and the Agreement Regarding Solicitation of Employees set
         forth in this Agreement, and contingent upon your acceptance of the
         terms of this Agreement, the Company offers you the following Special
         Separation Benefits, in addition to the benefits you will receive
         pursuant to Paragraph 2; provided that the Special Separation Benefits
         described in this Paragraph 3 shall be subject to and not become due
         and payable until such time that you have made actual payment of
         amounts owed to the Company for loans, salary advances and/or
         non-reimbursable expense advances, which you and the Company agree to
         be an amount equal to Thirty-Three Thousand Five Hundred Eighty
         Dollars and 93/100 Cents ($33,580.93):

         (a)     Termination Allowance.  A termination allowance in the amount
                 of Eighty-Five Thousand Dollars ($85,000.00), which is
                 equivalent to your base salary for a period of five (5) months
                 from your Separation Date through April 30, 1998 payable on
                 execution and delivery of this Separation Agreement and
                 subject to all legally required or authorized deductions; and

         (b)     Extension of Health Care Benefits.  Reimbursement to you on a
                 monthly basis of eighty-five percent (85%) of the cost of your
                 COBRA premium for group health insurance coverage for a period
                 of eighteen (18) months commencing January 1, 1998 up through
                 and including June 30, 1999, provided you elect to continue
                 and/or convert to COBRA coverage for such eighteen (18) month
                 period under the
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Mr.Robert A. Imel
October 31, 1997
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                 Company's group health insurance policy and furnish the
                 Company an invoice for each such payment actually made by you
                 or on your behalf.

         (c)     Personal Leave.  From and after October 30, 1997 until your
                 Separation Date, the Company shall grant you a personal leave
                 of absence, during which time you shall receive your full
                 salary and benefits; provided that you shall make your
                 services available to the Company from time to time during
                 such period as may be requested to assist the Company with its
                 business and operations.

         (d)     Stock Options.  The Company agrees that it shall help you
                 facilitate a "cashless option" of any stock options granted to
                 you by the Company which have vested in accordance with their
                 terms, whereby payment for the exercise of such options shall
                 be made to the Company concurrently with their exercise and
                 sale; provided that such "cashless option" shall apply only to
                 any such stock options which are exercised by you and the
                 underlying shares immediately sold in a transaction where the
                 Company receives its exercise option payment within a period
                 following such "cashless option" exercise not to exceed five
                 (5) days.

         (e)     Redemption Right.  The Company agrees to amend that certain
                 Letter Agreement by and between the Company and Robert a. Imel
                 dated January 14, 1996 pertaining to the redemption on or
                 before December 15, 1997 of certain shares of the Company's
                 common stock to provide that such redemption date be extended
                 for a period of time through June 30, 1998.

         (f)     Executive Committee Meeting.  Robert A. Imel shall be invited
                 and attend the Company's next regularly scheduled Executive
                 Committee meeting to address his desire to make a presentation
                 to the Company's Board of Directors on December 5, 1997.  Mr.
                 Miles A. Bender agrees to recommend to the Executive Committee
                 that it place Robert A. Imel on the agenda for such Company's
                 December 5, 1997 Board of Directors meeting.

         By execution of this Separation Agreement and payment of the Special
         Separation Benefits described in subparagraph 3(a) hereof, you
         acknowledge and agree that for purposes of unemployment compensation
         benefits, the amounts to be paid as specified in this Paragraph 3
         constitute wages in lieu of notice for the period from the Separation
         Date through April 30, 1997.  Accordingly, you agree not to seek,
         qualify for nor receive unemployment compensation benefits for the
         period from December 7, 1997 through April 30, 1998
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Mr.Robert A. Imel
October 31, 1997
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4.       Return of Property.  You agree to return to the Company any and all
         items of its property, including without limitation:  a 1997 Chevrolet
         Suburban automobile, office keys, security access cards, computers,
         equipment, credit cards, forms, files, manuals, correspondence,
         business records, personnel data, lists of employees, salary and
         benefits information, work product, maps, data and files relating to
         wells, leases, partners and/or contractors, seismic data and files,
         contracts, contract information, Prospect information and plans for
         future Prospects, brochures, catalogs, computer tapes and diskettes,
         and data processing reports, and any and all other documents or
         property which you have had possession of or control over during the
         course of your employment, and which you have not already returned to
         the Company.  You agree that you will return such property to the
         Company by no later than the close of business on or before your
         Separation Date, or as soon thereafter as is possible with respect to
         any items not then immediately available or which you later find in
         your possession.  The provisions of this Paragraph 4 do not prohibit
         the maintenance by you of copies of any non-confidential,
         non-proprietary information, such as reading files, work papers,
         calculations, flowcharts and other similar information reflecting the
         performance of your job duties and responsibilities.

5.       Use of Confidential Information.  You acknowledge and agree that,
         except for your knowledge and training to compete in the marketplace
         and except for information which is now or in the future becomes
         available in the public domain, all of the non-public documents and
         information to which you have had access during your employment,
         including but not limited to all information pertaining to any
         specific business transactions in which the Company or any other
         Company Released Parties (as defined in Paragraph 6 below) were, are,
         or may be involved, all information concerning salary and benefits
         paid to employees of the Company or any of the other Company Released
         Parties, all personnel information relating in any way to current or
         former employees of the Company or any of the other Company Released
         Parties, all non-public information obtained in the course of
         employment pertaining to acquisitions, divestitures, wells, Prospects
         and development plans of the Company or any of the other Company
         Released Parties, lease holdings and lease block bid information and
         strategies, all financial budgetary information, all other information
         specified in Paragraph 4 above, and in general, the business and
         operations of the Company or any of the other Company Released Parties
         in addition to any other work product, calculations, files, maps,
         logs, flowcharts and other related and/or similar information to which
         you had access through the Company, its partners or consultants are
         considered confidential and are not to be disseminated or disclosed by
         you to any other parties, except as may be required by law or judicial
         process.  In the event you are required to disclose such information
         to any other party, you shall provide the Company immediate
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Mr.Robert A. Imel
October 31, 1997
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         written notice to enable the Company to seek, at the Company's
         discretion and expense, a protective order or take other such action
         as the Company in its sole discretion deems advisable or necessary.
         You further agree that in the event it appears that you will be
         compelled by law or judicial process to disclose such confidential
         information, you will notify Mr. Philip D. Devlin, General Counsel, in
         writing at 4925 Greenville Avenue, Suite 1400, Dallas, Texas, 75206,
         immediately upon your receipt of any such notice, a subpoena or other
         legal process.

6.       General Release.

         (a)     Except for the obligations of the Company and the Company
                 Released Parties to be performed hereunder and in
                 consideration of the Special Separation Benefits described
                 above, you and your family members, heirs, successors, and
                 assigns (collectively, the "Imel Released Parties") hereby
                 release, acquit, and forever discharge any and all claims and
                 demands of whatever kind or character, whether vicarious,
                 derivative, or direct, that you or they, individually,
                 collectively, or otherwise, may have or assert against (i)
                 National Energy Group, Inc. or (ii) any officer, director,
                 stockholder, fiduciary, agent, employee, representative,
                 insurer, attorney, or any successors and assigns of National
                 Energy Group, Inc. or the individuals referenced in (ii) above
                 (collectively, the "Company Released Parties").  This
                 Separation Agreement includes but is not limited to any claim
                 or demand based on any federal, state, or local statutory or
                 common law that applies or is asserted to apply, directly or
                 indirectly, to the formation of your employment relationship,
                 your employment relationship, or the termination of your
                 employment relationship with the Company.  Thus, you and the
                 other Imel Released Parties agree not to make any claims or
                 demands against the Company or any of the other Company
                 Released Parties such as for wrongful discharge; unlawful
                 employment discrimination; retaliation; breach of contract
                 (express or implied); breach of the duty of good faith and
                 fair dealing; violation of the public policy of the United
                 States, the State of Texas, or any other state; intentional or
                 negligent infliction of emotional distress; tortious
                 interference with contract; promissory estoppel; detrimental
                 reliance; defamation of character; duress; negligent
                 misrepresentation; intentional misrepresentation or fraud;
                 invasion of privacy; loss of consortium; assault; battery;
                 conspiracy; bad faith; negligent hiring or supervision; any
                 intentional or negligent act of personal injury; any alleged
                 act of harassment or intimidation; or any other intentional or
                 negligent tort; or any alleged violation of the Age
                 Discrimination in Employment Act of 1967; Title VII of the
                 Civil Rights Act of 1964; the Americans with Disabilities Act
                 of 1990; the Employee Retirement Income Security Act of
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Mr.Robert A. Imel
October 31, 1997
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                 1974; the Fair Labor Standards Act; the Fair Credit Reporting
                 Act;  the Texas Commission on Human Rights Act; or the Texas
                 Wage Payment Statute, Tex. Rev. Civ. Stat. Ann. art. 5155.

         (b)     Except for your obligations to be performed hereunder, the
                 Company and the other Company Released Parties hereby release,
                 acquit, and forever discharge any and all claims and demands
                 of whatever kind or character, whether vicarious, derivative,
                 or direct, that it or they, individually, collectively, or
                 otherwise may have or assert against you or any of the other
                 Imel Released Parties.  This Separation Agreement includes,
                 but is not limited to, any claim or demand based on any
                 federal, state, or local statutory or common law that applies
                 or is asserted to apply, directly or indirectly, to the
                 formation of your employment relationship, your employment, or
                 the termination of your employment relationship with the
                 Company.

         (c)     Except as otherwise provided herein, the effect of this
                 Separation Agreement is to mutually release, acquit, and
                 forever discharge any and all claims and demands of whatever
                 kind or character, that either party, the Imel Released
                 Parties, or the Company Released Parties may now have, or
                 hereafter have or assert against each other arising out of the
                 employment relationship (including the formation and
                 termination thereof) which has existed between you and the
                 Company.  It is further agreed that each of you and the
                 Company agree to indemnify and hold harmless the other for any
                 breach of the provisions of this Separation Agreement by the
                 respective Imel Released Parties or Company Released Parties
                 which results in damage to the other or to the respective
                 parties hereto.  This mutual general release does not include:
                 (i) the executory obligations of either party yet to be
                 performed, or (ii) any rights, claims or obligations which may
                 accrue as between the parties after the date of this
                 Separation Agreement.

7.       Confidentiality of this Separation Agreement and Nondisparagement.  In
         consideration of the Special Separation Benefits described above, each
         of the Company and you agree that the terms of this Separation
         Agreement shall be and remain confidential, and shall not be disclosed
         by you and the other Imel Release Parties or the Company and the other
         Company Released Parties to any party other than your spouse,
         attorney, accountant or tax return preparer; provided such persons
         have agreed to keep such information confidential, and except as may
         be required by law or judicial process.  Each of the Company and you
         further agree, except as compelled by law or judicial process, not to
         cooperate or supply information of any kind in any proceeding,
         investigation, or inquiring raising issues under the Age
         Discrimination in Employment Act of 1967, Title VII of the Civil
         Rights Act of 1964, the
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Mr.Robert A. Imel
October 31, 1997
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         Americans with Disabilities Act of 1990, the Employee Retirement
         Income Security Act of 1974, the Fair Labor Standards Act, the Fair
         Credit Reporting Act, the Texas Commission on Human Rights Act, or the
         Texas Wage Payment Statute, Tex. Rev. Civ. Stat. Ann. art. 5155, or
         any other federal, state, or local law, involving the formation of
         your employment relationship, your employment relationship, the
         termination of your employment relationship, or the employment of
         other persons by the Company or any of the Company Released Parties.
         In the event it appears that either party hereto shall be compelled by
         law or judicial process to disclose the terms and conditions of this
         Separation Agreement, such party shall immediately notify the other
         party in writing and provide a copy of any notice that such disclosure
         is being requested or required so that such party at its sole
         discretion and expense may seek a protective order or take other such
         action as such party in its sole discretion deems advisable or
         necessary.

         You and the other Imel Release Parties further agree not to make any
         statement, oral or written, which directly or indirectly impugns the
         quality or integrity of the Company's or any of the Company Released
         Parties' business practices, or to make any other disparaging or
         derogatory remarks or statements, oral or written, about the Company
         or any of the Company Released Parties, their officers, directors,
         stockholders, managerial personnel, or other employees or their
         partners and consultants to any other parties.

         In consideration of the General Release, the Confidentiality of
         Separation Agreement and Nondisparagement provision, and the Agreement
         Regarding Solicitation of Employees and Consultants, set forth herein,
         the Company and the Company Released Parties agree that it and they,
         respectively, shall instruct its officers, directors, managerial
         personnel, or other employees not to make any statement, oral or
         written, which directly or indirectly impugns the quality or integrity
         of you or any of the Imel  Released Parties' business practices, or to
         make any other disparaging or derogatory remarks or statements, oral
         or written, about you or any of the Imel Released Parties to any other
         parties., and nothing shall be contained in personnel files of the
         Company pertaining to you of a derogatory or denigrating nature or
         disseminated by the Company or the Company Released Parties to third
         parties.

8.       Agreement Regarding Solicitation of Employees.  In consideration of
         the monetary payments and other benefits provided to you or on your
         behalf by the Company in this Separation Agreement, you acknowledge
         and agree that for a period of  one (1) year following the termination
         of your employment with the Company, you will not, directly or
         indirectly, for your own account or for the benefit of any other
         person or party, solicit, induce, entice, or attempt to entice any
         employee, or independent contractor of the Company to terminate his or
         her employment relationship, agreements or contracts with the Company.
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Mr.Robert A. Imel
October 31, 1997
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9.       Nonadmission of Liability and Wrongdoing.  It is acknowledged that
         this Separation Agreement does not in any manner constitute an
         admission of liability or wrongdoing on the part of the Company or
         you, but that each of the Company and you expressly deny any such
         liability or wrongdoing, and enter into this Separation Agreement for
         the sole purpose of avoiding further trouble and expense; and that,
         except to the extent necessary to enforce this Separation Agreement,
         neither this Separation Agreement, nor any part of it may be
         construed, used, or admitted into evidence in any judicial,
         administrative, or arbitral proceedings as an admission of any kind by
         the Company or you or any of the Company Released Parties or the Imel
         Released Parties.

10.      Authority to Execute.  Each of the parties hereto warrants and agrees
         that it (i) has full power and authority to execute, deliver and
         perform the obligations contained in this Separation Agreement, (ii)
         is a legally binding and enforceable agreement in accordance with its
         terms and conditions, (iii) has the power and authority to bind its
         respective Released Parties, (iv) does not violate, conflict with or
         constitute a breach or default under any statute, rule, ordinance,
         regulation or administrative order of any federal, state, county or
         municipal court, board, office, agency or commission, and (v) is not
         contemplating, nor are any bankruptcy or insolvency proceedings
         threatened against such party of which it is aware.

11.      GOVERNING LAW AND INTERPRETATION.  THIS SEPARATION AGREEMENT AND THE
         RIGHTS AND DUTIES OF THE PARTIES UNDER IT SHALL BE GOVERNED BY AND
         CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
         PERFORMED IN DALLAS COUNTY, TEXAS.  If any provision of this
         Separation Agreement is held to be unenforceable, such provision shall
         be considered separate, distinct, and severable from the other
         remaining provisions and shall not affect the validity or
         enforceability of such other remaining provisions, and that, in all
         other respects, this Separation Agreement shall remain in full force
         and effect.  If any provision of this Separation Agreement is held to
         be unenforceable as written and may be made to be enforceable by
         limitation thereof, then such provision shall be enforceable to the
         maximum extent permitted by applicable law and to the extent the
         remaining provisions further accomplish the goals, benefits and intent
         of this Separation Agreement.  The language of all parts of this
         Separation Agreement shall in all cases be construed as a whole,
         according to its fair meaning, and not strictly for or against any of
         the parties.

12.      Expiration of Offer.  The Company's offer of the proposed Special
         Separation Benefits will expire at 4:00 P.M.  local Dallas time on
         October 31, 1997.  You may accept this offer at any
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Mr.Robert A. Imel
October 31, 1997
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         time before the Expiration of Offer by executing this Separation
         Agreement and returning it to the designated representative of the
         Company.

13.      The Effective Date.  This Separation Agreement will become effective
         as of the date of execution hereof.

14.      Consultation With Counsel.  You have the right to consult, and are
         encouraged to consult, an attorney before executing this Separation
         Agreement.

15.      Voluntary Agreement.  You and the Company acknowledge that execution
         of this Separation Agreement is knowing and voluntary, that you and
         the Company have had reasonable time to deliberate regarding its
         terms, and that you and the Company have had the right to consult with
         an attorney.

16.      Legal Fees.  Each of the Company and you agree to pay its own legal
         fees and expenses with respect to the preparation, negotiation,
         execution and delivery of this Separation Agreement, and further agree
         to indemnify and hold harmless the other with respect thereto.

17.      Entire Agreement.  This Separation Agreement contains and constitutes
         the entire understanding and agreement between you and the Company and
         may be modified only by a writing of contemporaneous or subsequent
         date executed by both you and an authorized officer of the Company.

18.      Press Release.  The parties hereto agree that any statement and/or
         press release regarding your employment with the Company and/or
         separation or resignation therefrom shall be limited to the effect
         that you have resigned to pursue personal or other interests.

19.      ARBITRATION/MEDIATION.  IN THE EVENT OF A DISPUTE BETWEEN THE PARTIES
         TO THIS AGREEMENT, THE PARTIES AGREE TO PARTICIPATE IN GOOD FAITH IN A
         MINIMUM OF FOUR (4) HOURS OF MEDIATION IN DALLAS, TEXAS WITH AN
         ATTORNEY- MEDIATOR TRAINED AND CERTIFIED BY THE AMERICAN ARBITRATION
         ASSOCIATION, THE UNITED STATES ARBITRATION AND MEDIATION SERVICE, OR
         ANY COMPARABLE ORGANIZATION, AND TO ABIDE BY THE MEDIATION PROCEDURES
         AND DECISION OF SUCH ORGANIZATION.  THE PARTIES AGREE TO EQUALLY BEAR
         THE COSTS OF THE MEDIATION.  IN THE EVENT THE PARTIES CANNOT RESOLVE
         THEIR DISPUTE THROUGH MEDIATION AS DESCRIBED 
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Mr. Robert A. Imel
October 31, 1997
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         HEREIN, THE PARTIES AGREE TO PARTICIPATE IN BINDING ARBITRATION
         PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION OR
         MUTUALLY AGREEABLE SIMILAR ORGANIZATION.  SUCH ARBITRATION SHALL BE
         HELD IN DALLAS, TEXAS, SHALL BE BINDING AND NONAPPEALABLE AND A
         JUDGMENT ON THE AWARD TO THE PREVAILING PARTY (INCLUSIVE OF REASONABLE
         ATTORNEY'S FEES AND COSTS) MAY BE ENTERED IN ANY COURT HAVING COMPETENT
         JURISDICTION.

If you are in agreement with the foregoing provisions, please execute the
attached duplicate copy of this letter in the space provided below.  This
Separation Agreement shall then constitute a valid and binding agreement by and
between the Company and you enforceable in accordance with its terms as of the
date of your and the Company's execution hereof and delivery to the Company and
you.

Sincerely,

National Energy Group, Inc.            ACCEPTED AND AGREED THIS
                                       31ST DAY OF OCTOBER, 1997.
                                       
By: /s/ MILES D. BENDER                 /s/ ROBERT A. IMEL
   --------------------------          ---------------------------------------
Name: Miles D. Bender                  Name: Robert A. Imel,
Title:   President and CEO                      an Individual