EMPLOYMENT AGREEMENT

     THIS  AGREEMENT is effective as of December 27, 1994,  by and between Pease
Oil and Gas Company, a Nevada corporation ("Corporation"), and Patrick J. Duncan
("Employee").

     The Corporation  desires to employ the Employee and the Employee desires to
be employed by the  Corporation  upon the terms and conditions set forth in this
Agreement.

     The Parties hereby enter into this Agreement (i) setting forth their mutual
promises and  understandings  and (ii)  Mutually  acknowledging  the receipt and
sufficiency  of  consideration  to enter  into  this  Agreement  and the  mutual
promises, conditions and understandings set forth below.

                                   ARTICLE I

                     EMPLOYMENT DUTIES AND RESPONSIBILITIES

     Section 1.1.  Employment.  The  Corporation  hereby employs the Employee as
Chief  Financial  Officer.  The Employee  accepts such  employment and agrees to
abide by the  Articles of  Incorporation,  Bylaws and  decisions of the Board of
Directors of the Corporation.

     Section 1.2. Duties and Responsibilities. The Employee is employed pursuant
to the terms of this  Agreement and agrees to render  full-time  services to the
Corporation under this Agreement.  The Employee shall perform such duties as (i)
are specified by the Bylaws of the  Corporation  and (ii) may be determined  and
assigned to him from time to time by the Board of Directors of the  Corporation.
Initially,  Employee  shall  perform  the  duties  set forth on  Exhibit  A~ The
Employee may not pursue any other material business activities on his own behalf
unless the Board of Directors in a formal written statement expressly authorizes
the Employee to do so, provided that Employee shall be authorized to continue to
manage and operate various  personal and family assets unrelated to the business
of the Corporation.

     Section 1.3. Working  Facilities,  The Employee shall be based in the Grand
Junction,  Colorado  metropolitan  area  where  the  Corporation  shall  provide
reasonable  office  facilities.  The  Employee  agrees to  travel to the  extent
necessary  to perform  his duties  hereunder,  including  travel to the  various
properties and field offices of the Corporation.  The Corporation  shall provide
reasonable  transportation  to  perform  these  duties.  Corporation  agrees  to
provide, at Corporation's cost, adequate  transportation for Employee to perform
his duties in the field and to reimburse Employee for such costs,  subject to an
accounting of such costs by Employee.

     Section  1.4.  Vacations.  The  Employee  shall be  entitled  to  vacations
totaling  at least  three weeks per year.  Each  vacation  shall be taken by the
Employee  over a period  meeting  with the approval of the Board of Directors of
the  Corporation  and no  one  vacation  shall  be so  long  as to  disturb  the
operations of the Corporation.  Should the business of the Corporation  preclude
the  Employee  from taking all vacation  earned  during a year,  then,  with the
consent of the Board of Directors,  the vacation  shall be accrued and available
to be taken by the Employee in subsequent  years. If the Board of Directors does
not consent to such accrual of vacation time, the Corporation shall pay the

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<PAGE>


Employee  an amount  equal to the  number of days of unused  vacation  times the
Employee's  equivalent daily  compensation.  Employee may accrue a maximum of 20
unused vacation days per year.

     Section 1.5. Expenses.

          A. Employee  Reimbursed for Expenses.  During the period of employment
     pursuant to this Agreement,  the Employee will be reimbursed for reasonable
     expenses incurred for the benefit of the Corporation in accordance with the
     general  policy  of the  Corporation  as  adopted  from time to time by the
     Corporation's Board of Directors,  and specifically  approved beforehand by
     the Board of Directors.  Those  reimbursable  expenses shall  include,  but
     shall  not  be  limited  to,   entertainment   and  promotional   expenses,
     transportation  expenses,  and the expenses of  membership in certain civic
     groups and business organizations. Any other reimbursable expenses shall be
     set forth on Exhibit B.

          B. Additional Expenses. In addition to such reimbursable expenses, the
     Employee  may incur in the  course  of the  employment  by the  Corporation
     certain other necessary expenses of the business which the Employee will be
     required  to pay  personally  but which the  Corporation  shall be under no
     obligation to reimburse or otherwise  compensate  the Employee,  including,
     but not  limited  to,  the cost of  maintaining  office  facilities  in the
     Employee's  home or  similar  items of  reasonable  and  necessary  expense
     incurred by the Employee in the course of employment.  However,  nothing in
     this  Section  shall  prevent  the  Corporation  from  assuming  to  pay or
     reimbursing  the Employee for any such expense if the Board of Directors so
     determines.

          C. Employee Shall Account for Expenses to Corporation. With respect to
     any expenses which are to be reimbursed by the Corporation to the Employee,
     the Employee  agrees to make an itemized  accounting to the Corporation (1)
     for proper  accounting by the Corporation and (ii) in detail  sufficient to
     entitle  the  Corporation  to an income  tax  deduction  for paid  items if
     deductible.

     Section 1.6. Review of Work. The Employee's  performance shall at all times
be subject to review by the Board of Directors, in its sole discretion.

[change initialed by PJD and WPJ--words "President and/or added before
 "Board of Directors" and "its" changed to "their."]

                                      -2 -
<PAGE>


                                   ARTICLE 11

                                  COMPENSATION

     Section  2.1.  Salary.  The  Corporation  shall  pay a base  salary  to the
Employee  during the term of this  Agreement  as  described on Exhibit C of this
Agreement.

     Section 2.2. Death During Employment.  In the event of the Employee's death
during the term of this  Agreement the  Corporation  shall pay to the Employee's
surviving souse or, if there is no surviving spouse, to Employee's children on a
pro-rata basis to each child, bi~weekly,  the compensation which otherwise would
be payable to the Employee for a six month period following the Employee's death
at the rate of compensation described in Exhibit C.

     Section 2.3. Benefits. In addition to all other compensation,  the Employee
shall be entitled to  participate  in any pension  plans,  profit sharing plans,
medical or dental reimbursement plans, group term Or other life insurance plans,
medical or hospitalization  insurance plans and any other group employee benefit
plan which may be established by the Corporation. Such participation shall be in
accordance with the terms of any such plan. The  Corporation  shall pay premiums
for and shall  include the  Employee,  his spouse,  and  dependents in any major
medical or  hospitalization  insurance  program  established  or utilized by the
Corporation  on  behalf  of its  executive  officers  if  requested  to do so by
Employee.

     Section 2.4. Life and Disability Insurance.  The Corporation may obtain for
its own benefit such amounts of key executive term life insurance on the life of
the Employee as it may deem necessary or advisable.  The proceeds of this may be
used to pay Corporation obligations under Sections 2.2 and 3.6 of this contract;
but the Corporation's obligations thereunder shall be absolute.

                                  ARTICLE III

                       TERM OF EMPLOYMENT AND TERMINATION

     Section 3.1.  Term.  This  Agreement  shall be in effect for a period until
termination in accordance with this Article III (the "Term").

     Section 3.2.  Termination by the  Corporation  Without Cause.  The Board of
Directors,  without cause, may terminate this Agreement at any time upon 30 days
written  notice to the Employee,  unless  Section 3.7 applies in which case this
Section 3.2 shall be inapplicable.  In such event, the Employee, if requested by
the Board of Directors,  shall  continue to render the services  required  under
this Agreement for 30 days. Upon  termination  under this Section 3.2, except as
provided in Section 3.7, the Employee shall continue to be paid  compensation as
set forth in Exhibit C of this  Agreement  up to a date which is 12 months after
the Employee receives written notice of termination,  plus all outstanding stock
options will be extended for a period of two years from the date of termination.

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<PAGE>


     Section 3.3.  Termination  by the Employee  Without  Cause.  The  Employee,
without  cause,  may terminate this Agreement upon 90 days written notice to the
Corporation. In such event, the Employee shall, if requested by the Corporation,
continue  to render  the  services  required  under this  Agreement  to the date
identified in the Employee's  written notice.  The Employee shall continue to be
paid  compensation  at the rate set forth in Exhibit C of this  Agreement for at
least 30 days and thereafter  through the earlier of (i) the date  identified in
the  Employee's  written  notice or (ii) the date  through  which  the  Employee
furnishes  services at the request of the  Corporation,  and no further payments
shall be made by the Corporation unless agreed to by the Board of Directors.

     Section 3.4. Termination by the Corporation With Cause. The Corporation may
terminate the  Employee's  employment  for cause,  which shall be limited to the
following:  (a) the Employee's knowing and willful or reckless  commission of an
act of gross misconduct which the Employee knows or reasonably should have known
at the time would be injurious to the Corporation; or (b) the Employee's refusal
to devote  substantially  all his time and  efforts  to his  duties  under  this
Agreement  after the Board of Directors  has notified the Employee in writing of
his noncompliance; or (c) the Employee's continued refusal, after written notice
from the Board of Directors to follow the specific  instructions of the Board of
Directors.  Termination  pursuant to this subsection  shall result in no further
compensation  being due or payable to the Employee  hereunder from and as of the
date of such termination.

     Section 3.5.  Termination Upon Death of Em . Subject to Section 2.2 of this
Agreement,  this  Agreement  shall be terminated in the event of the  Employee's
death.

     Section 3.6. Termination Upon Disability of - Employee. The Corporation may
terminate the Employee's  employment  if, during the Term, the Employee  becomes
physically  or mentally  disabled,  whether  totally or  partially,  so that the
Employee is unable  substantially  to perform his services  under this Agreement
(i)  for a  period  of two  consecutive  months  or  (ii)  for  shorter  periods
aggregating four months during any twelve month period, by written notice to the
Employee. Notwithstanding any such disability, the Corporation shall continue to
pay the Employee the greater of (a) his full salary up to and including the date
of such termination and for six months thereafter, or (b) any amounts payable to
Employee under any disability or similar insurance.

     Section  3.7.  Termination  Upon  Change of  Control.  Notwithstanding  the
provisions of Section 3.2, if the Employee is terminated as a direct or indirect
result of either  (i)  actions  taken by the Board of  Directors  following  the
replacement  of at least  40% of the  members  of the  Board of  Directors  with
persons who are not also  employees  of the  Corporation  in any 15 month period
which were opposed by a majority of the directors before the replacement or (ii)
a  shareholder  or group  of  shareholders  or a  person  acting  on  behalf  of
shareholders  increasing his, hers, their or its ownership of the  Corporation's
outstanding  stock  by  more  than  10%  within  24  months  of  the  Employee's
termination,  then the Employee shall, as of the date of termination, be paid in
a lump sum an amount  equal to two  years  annual  compensation  at the rate set
forth in  Exhibit C of this  Agreement  as then in effect,  and all  outstanding
options will be extended for a period of two years from the date of termination.
Upon such a change of control, at Employee's option, Corporation shall

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<PAGE>

immediately  repurchase any outstanding shares of the Corporation's  stock which
are held by  Employee  at the per share  price equal to the greater of the price
paid per share by Employee or the fair market  value of the stock at the date of
termination.  If the  Corporation  does  not pay the  amount  specified  by this
Section 3.7 on a timely  basis,  the unpaid  amount  shall bear  interest at the
greater of 10% per annum or the prime rate at Colorado National Bank on the date
of such  termination  until  paid and the  Corporation  shall  pay all costs and
expenses,  including attorney's fees, incurred by the Employee in collecting all
amounts owed under this Section 3.7.

                                   ARTICLE IV

                           DISCLOSURE OF INFORMATION

     Section 4.1. Definitions.

          4. 1. 1. As used herein, the term "proprietary information" shall mean
     technical information and know-how concerning the Corporation's oil and gas
     exploration, development, production and servicing business and its related
     equipment,  books,  maps and records  developed  by or  otherwise  owned or
     controlled by the Corporation.

          4.1.2.  As used  herein,  the  term  "trade  secrets"  shall  mean any
     proprietary  information and any other  non-public  information used by the
     Corporation,  including such matters as geologic  records,  maps,  surveys,
     documents  evidencing  interests in real  property,  patented or unpatented
     technology,  supplier information,  books,  processes,  concepts,  methods,
     formulae or technique know-how,  customer or vendor lists or information or
     development  plans or strategy,  owned or controlled by the  Corporation or
     otherwise subject to an obligation or intent of the Corporation to maintain
     the confidentiality  thereof which is of a proprietary or secret nature and
     which is or may be applicable to, or related to the business,  equipment or
     services,  present  or  future,  of the  Corporation  or the  oil  and  gas
     exploration and development business of the Corporation, or the contractual
     relationships of the Corporation with customers or clients.

          4.1.3. As used herein, the term "document" shall mean any data, notes,
     drafts,  manuals,  blueprints,  maps,  notebooks,   reports,   photographs,
     drawings,  sketches or other  records,  in any  tangible  form  whatsoever,
     whether originals, copies, reproductions, or excerpts, produced or obtained
     from the  Corporation  by the Employee or any other  representative  of the
     Corporation which relates to trade secrets of the Corporation.

          4.1.4. As used herein, the term "Corporation invention" shall mean any
     invention,  discovery,  improvement, or trade secret, whether patentable or
     not and whether or not  reduced to  practice,  conceived  or learned by the
     Employee  either  alone or  Jointly  with  others,  while  employed  by the
     Corporation,  which  relates to or results  from the actual or  anticipated
     investigation,  research, development, or production of the Corporation, or
     which results to any extent from use of the Corporation's facilities.


                                     - 5 -
<PAGE>


          4.1.5. As used herein, the term "Corporation"  shall mean not only the
     Corporation as first defined above, but also the Corporation's subsidiaries
     and all affiliates of the Corporation.

     Section 4.2. Employee Shall Not Disclose  Proprietary  Information or Trade
Secrets.  The Employee recognizes that the trade secrets of the Corporation,  as
they may exist from time to time,  are a valuable,  special and unique  asset of
the  Corporation.  The  Employee  will not,  during or for a period of 24 months
after  termination  of  the  Employee's   employment   relationship  under  this
Agreement,  disclose  or confirm  the  Corporation's  trade  secrets or any part
thereof to any person,  firm,  corporation,  association or other entity for any
reason or purpose whatsoever,  without the prior written  authorization to do so
from the Corporation.

     Further,  all  documents  shall  be  property  of the  Corporation  and the
Employee shall not remove these  documents upon  termination of employment  with
the Corporation except pursuant to a specific  authorization in writing from the
Board of Directors  of the  Corporation.  The Employee  agrees that any document
produced or obtained by the Employee while employed by the Corporation  shall be
the sole and  exclusive  property of the  Corporation.  The  Employee  agrees to
return any such document to the  Corporation  immediately  upon  termination  of
employment with the Corporation, or upon request of the Corporation.

     In no event shall the Employee  copy or remove any documents of any person,
company or  association  with whom the Employee  did not directly  work while an
Employee of the Corporation.

     The Employee  recognizes and acknowledges  that much of the information and
knowledge which he has received or will receive by virtue of his employment with
the  Corporation is or will be proprietary  information  and trade secrets which
have unique,  special  value to the  successful  operation of the  Corporation's
business.  The Employee  agrees not to disclose any  proprietary  information or
trade  secrets  to any  other  person  for any  purpose,  for his own  direct or
indirect  benefit or the benefit of any other  employer or affiliate  during the
term of this Agreement or for a period of 24 months thereafter without the prior
written consent of the Corporation.

     The  aforesaid  noncompetition  covenant  shall remain in any effect at all
times while the Employee is in the employ of the Corporation and for a period of
24 months after termination of the Employee's  relationship with the Corporation
in  any  capacity  whatsoever,  regardless  of the  reason  for  termination  or
cessation of the Employee's relationship.  The aforesaid covenant is intended to
be a  reasonable  restriction  on the  Employee.  If all,  or any portion of the
covenant is held unreasonable or unenforceable by a court or agency having valid
Jurisdiction,  the Employee  expressly agrees to be bound by any lesser covenant
subsumed  within  the terms of such  covenant  that  imposes  the  maximum  duty
permitted by law, as if the  resulting  covenant were  separately  stated in and
made apart of this Article IV.

     Section 4.3. Duty of Loyalty;  Conflicts of Interest.  'The Employee agrees
that he will  not,  while  employed  by the  Corporation  and for a period of 24
months thereafter,  be an employee or consultant,  or assist in any way, or work
directly  or  indirectly  on behalf of, any person,  corporation,  firm or other
entity engaged in, or proposing to engage in, a line of business which would

                                      - 6 -



<PAGE>


directly compete or conflict with the Corporation's business,  without the prior
express  written  consent of the  Corporation.  Notwithstanding  the  foregoing,
however,  the Corporation and the Employee acknowledge that at the present time,
the  Employee  individually  owns  various  interests  in  certain  oil  and gas
properties  in which  the  Corporation  also  owns  interests  and/or  which are
operated by the Corporation;  and the parties agree that in such  circumstances,
where  the Board of  Directors  is fully  informed  about  and  approves  of the
Employee's individual interest in a business opportunity of the Corporation,  it
shall not be  considered a violation  of this  Section 4.3. The Employee  agrees
that  he will  not use any  assets  of the  Corporation  for his own  individual
projects  and  that  he  will  not  use  any  proprietary   information  to  the
disadvantage of the Corporation.  The Employee agrees that he will not interfere
with the right of the  Corporation to do business with any person,  corporation,
firm or other entity.

     Section 4.4.  Enforcement.  The Employee acknowledges that monetary damages
would not adequately or fairly  compensate the  Corporation for breach of any of
the  obligations  of the Employee  under Article IV of this Agreement and agrees
that in the event of any breach or threatened  breach the  Corporation  shall be
entitled  to  seek  appropriate  injunctive  relief  from a court  of  competent
jurisdiction, in addition to any other relief or damages which may be available.

                                   ARTICLE V

                                 MISCELLANEOUS

     Section 5.1.  Colorado Law. It is the intention of the parties  hereto that
this Agreement and its performance hereunder be construed in accordance with and
pursuant to the laws of the state of Colorado and that,  in any action,  special
proceedings,  or  other  proceeding  that  may be  brought  arising  out of,  in
connection  with,  or by  reason  of this  Agreement,  the law of the  state  of
Colorado  shall be  applicable  and shall govern to the  exclusion of any forum,
without regard to the Jurisdiction in which any action or special proceeding may
be instituted.

     Section 5.2. No Waiver. No provision of this Agreement may be waived except
by an agreement in writing  signed by the waiving party. A waiver of any term or
provision shall not be construed as a waiver of any other term or provision.

     Section 5.3. Amendment.  This Agreement may be amended,  altered or revoked
at any time,  in whole or in part,  by  filing  with  this  Agreement  a written
instrument setting forth such changes, signed by all of the parties.

     Section 5.4.  Effect of  Agreement.  The terms of this  Agreement  shall be
binding upon and inure to the benefit of the Employee  and the  Corporation  and
their heirs, personal representatives, successors and assigns to the extent that
any such benefits survive or may be assigned under the terms of this Agreement.

     Section 5.5.  Construction.  Throughout  this  Agreement the singular shall
include the plural, the plural shall include the singular, and the masculine and
neuter shall include the feminine, wherever the context so requires.


                                     - 7 -

<PAGE>



     Section  5.6.  Text to Control.  The  headings of articles and sections are
included  solely for  convenience  or reference.  ff any  conflicts  between any
headings and the text of this Agreement exists, the text shall control.

     Section 5.7.  Severability.  If any provision of this Agreement is declared
by any court of  competent  jurisdiction  to be  invalid  for any  reason,  such
invalidity  shall not affect the remaining  provisions.  On the  contrary,  such
remaining  provisions  shall be fully  severable,  and this  Agreement  shall be
construed and enforced as if such invalid  provisions never had been inserted in
the Agreement.

     Section  5.8.  Complete  Agreement.  This  Agreement  contains the complete
agreement  concerning the employment  arrangement between the parties and shall,
as of the  effective  date hereto,  supersede all other  agreements  between the
parties,  whether oral or written.  The parties acknowledge that neither of them
has  made  any  representations  with  respect  to the  subject  matter  of this
Agreement,   including   the  execution   and  delivery   hereof,   except  such
representations  as are specifically  set forth herein,  and each of the parties
hereto  acknowledges  that he or it has  relied  on his or its own  judgment  in
entering into this Agreement.  The parties hereto further  acknowledge  that any
statement or representation that may have heretofore been made by either of them
to the other are of no effect and that  neither  of them has  relied  thereon in
connection with his or its dealings with the other.







                                     - 8 -



<PAGE>



     This Agreement is effective as of the date first above written.

BOARD OF DIRECTORS:                          PEASE OIL AND GAS COMPANY,
                                             a Nevada corporation


/s/ James N. Burhalter                       By: /s/ Willard Pease, Jr.
---------------------------------                -------------------------------

/s/ Willard Pease, Jr.
---------------------------------            EMPLOYEE

/s/ William F. Warnick                       /s/ Patrick J. Duncan
---------------------------------            -----------------------------------
                                             Patrick J. Duncan

---------------------------------


---------------------------------


---------------------------------


---------------------------------



                                     - 9 -


<PAGE>


                                   EXHIBIT A

                               OUTLINE OF DUTIES


Position Title:                           Chief Financial Officer

Reports to:                               President and Board of Directors

Duties of Employee:                       As determined from time to time by the
                                          President and/or Board of Directors


<PAGE>


                                   EXHIBIT B

                        ADDITIONAL REIMBURSABLE EXPENSES

1.       40 hours of continuing professional education per year

2.       Professional Association dues (AICPA and CSCPA)

3.       Bookcliff Country Club Monthly Dues

4.       Other expenses as determined from time to time by the President  and/or
         the Board of Directors



<PAGE>


                                   EXHIBIT C

                            OUTLINE OF COMPENSATION

     The  Corporation  shall  pay the  Employee  a base  salary of not less than
Sixty-Two  Thousand  Dollars  ($62,000)  per year or such  larger  amount  as is
determined  by the  Compensation  Committee of the Board of  Directors,  payable
bi-weekly.