PEASE OIL AND GAS COMPANY
                          751 Horizon Court, Suite 203
                                 P.O. Box 60219
                      Grand Junction, Colorado 81506-8758


                                December __, 1998



Mr. Patrick J. Duncan
[home address]

                  Re:      Confirmation of Employment Contract

Dear Pat:

         This letter is intended to reconfirm  the  existence of, and our mutual
obligations  under, the Employment  Agreement  between you and Pease Oil and Gas
Company ("Company") dated as of December 27, 1994 ("Employment Agreement").

         As you know, the Company is presently considering one or more potential
transactions  in which the Company might be merged with or into another  entity,
acquired  directly  or  indirectly  by another  entity,  or  involved in another
similar type of  transaction,  all of which would require  shareholder  approval
(hereafter referred to as a "Merger Transaction").

         In order to induce you to continue  to serve as the  interim  President
and as a director of the  Company  through at least the  completion  of a Merger
Transaction, the Company, acting through the Executive Committee of the Board of
Directors,  hereby reconfirms and acknowledges the Com pany's obligations to you
as set forth in the Employment Agreement.

         The following clarifications and understandings apply to our respective
rights and obligations under the Employment Agreement:

         1.  Duties.  Since  November  2, 1998,  you have  served as the interim
President,  reporting to the  Executive  Committee of the Board of Directors and
the Board of Directors.  Your duties under the  Employment  Agreement  have been
deemed to be revised accordingly.

         2.  Compensation.  Your  present  level  of  compensation  is  $105,000
annually,  payable at the same time as other  employees of the Company are paid.
Exhibit C to the  Employment  Agreement  is deemed to be revised  to  accurately
reflect your current level of compensation.

         3.  Termination  Upon  Change  of  Control.  Under  Section  3.7 of the
Employment Agreement,  the Company is obligated to pay certain amounts to you if
you are  terminated as a direct or indirect  result of a change in control.  The
Company and you, by signing below, hereby confirm that our respective rights and
obligations  as set forth in Section 3.7 are in full force and effect.  Further,
we hereby agree that if you do not choose to be employed by any successor entity
following a Merger  Transaction,  then the  Company's  obligations  to you under
Section 3.7 of the Employment  Agreement shall apply.  Furthermore,  the Company
hereby confirms and agrees that all amounts


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Patrick J. Duncan
December __, 1998
Page 2

which will be owed to you under  Section 3.7 shall be paid to you in cash at the
time of closing of any Merger Transaction.

         4. Reaffirm Employment Agreement.  The Executive Committee of the Board
of Directors expects that clarification of the Company's obligation to you under
the Employment  Agreement will provide additional  incentive for you to continue
to  serve  as  the  interim   President  through  the  completion  of  a  Merger
Transactions.  While it is not our understanding that this clarification  amends
or changes our respective  rights or obligations  as they  presently  exist,  by
signing below, the Company and you mutually agree that the Employment  Agreement
is in full force and effect and that our respective rights and obligations shall
include the understandings and acknowledgments set forth in this letter.

         Please  sign and  return  the  extra  copy of this  letter in the place
indicated below to acknowledge your  understanding  and agreement of the matters
set forth in this letter.

                                            Sincerely,

                                            PEASE OIL AND GAS COMPANY



                                             By /s/ William F. Warnick
                                                -------------------------------
                                                William F. Warnick, Chairman

The matters set forth above are understood and agreed to:


/s/ Patrick J. Duncan
---------------------------------------
Patrick J. Duncan