LONG TERM INCENTIVE OPTION PLAN

                            PEASE OIL AND GAS COMPANY

         1. Purpose of Plan. The purpose of this Long Term Incentive Option Plan
("Plan") is to secure and retain the key  employees and  consultants  who are or
will be responsible for the success of Pease Oil and Gas Company ("Company"), to
motivate such persons to provide their best efforts on behalf of the Company, to
encourage   stock   ownership  and  to  provide  such  persons  with  additional
proprietary  interests  in, and a greater  concern  for,  the welfare of, and an
incentive to remain a full time employee of, the Company over a long term

         For  purposes of this Plan,  the term  "Company"  shall  include  where
appropriate  in  the  context  used  any  "parent  corporation"  or  "subsidiary
corporation"  of the Company,  as those terms are defined in Sections 424(e) and
(f) of the Code,  whether in  existence  on the date of  adoption of the Plan or
formed after the adoption of this Plan.

         Options issued pursuant to this Plan will constitute nonqualified stock
options  within the meaning of the  Internal  Revenue  Code of 1986,  as amended
("Nonstatutory  Stock  Options"),  and the term  "Option" in this Plan refers to
Nonstatutory Stock Options.

         2.  Stock  Subject to the Plan.  The number of shares of the  Company's
$0.10 par value  common  stock  ("Common  Stock")  which shall be  reserved  for
issuance  upon exercise of Options  issued under this Plan is 1,000,000  shares.
Such shares may  consist,  in whole or in part,  of unissued  shares or treasury
shares.  The maximum number of shares of Common Stock issuable  pursuant to this
Plan,  including  shares  subject to  outstanding  options,  shall be subject to
adjustment as provided in Section 6 of this Plan.

         For purposes of this Plan,  market value of shares subject to an option
shall be determined as follows:

                  (i) If the Common Stock is listed on a national stock exchange
         or another securities exchange designated by the Committee, or admitted
         to unlisted trading  privileges on any such exchange,  or if the Common
         Stock is quoted on a National  Association of Securities Dealers,  Inc.
         system that reports closing prices,  the fair market value shall be the
         closing  price of the Common Stock as reported by NASDAQ,  or if not so
         reported  then as reported by the Wall Street  Journal,  on the day the
         fair market value is to be determined,  or if no such price is reported
         for such day, then the  determination of such closing price shall be as
         of the last immediately  preceding day on which the closing price is so
         reported; or

                  (ii) If the  Common  Stock is not so  listed  or  admitted  to
         unlisted trading  privileges or so quoted,  the fair market value shall
         be the average of the last  reported  highest bid and the lowest  asked
         prices quoted on the NASDAQ or, if not so quoted,  then by the National
         Quotation Bureau,  Inc. on the day the fair market value is determined;
         or

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                  (iii) If the  Common  Stock is not so  listed or  admitted  to
         unlisted trading  privileges or so quoted, and bid and asked prices are
         not  reported,  the  fair  market  value  shall be  determined  in such
         reasonable manner as may be prescribed by the Committee.

         If any outstanding  Option under this Plan for any reason expires or is
terminated,  the shares of Common Stock allocable to the unexercised  portion of
such Option may again be optioned  under this Plan  subject to the  limitations,
terms and conditions of this Plan. The Company,  and the proper  officers of the
Company,  shall from time to time take appropriate  action required for delivery
of Common Stock, upon any exercise of Options under this Plan.

         3. Administration.  Administration of the Plan shall be administered by
the Compensation Committee of the Board of Directors of the Company, hereinafter
referred to as the  "Committee."  The  Committee  shall  consist of at least two
members of the Board of Directors  (hereafter  "Board")  appointed by the Board,
none of whom is or has been an employee of the Company during the one year prior
to acting under the Plan.

         Once  appointed,  the Committee shall continue to serve until otherwise
directed by the Board. From time to time, the Board may increase the size of the
Committee  and appoint  additional  members  thereof,  remove  members  (with or
without cause) and appoint new members in substitution therefor,  fill vacancies
however caused,  or remove all members of the Committee and thereafter  directly
administer the Plan.

         Members of the Board who are either  eligible  for  Options or who have
been granted Options may vote on any matters affecting the administration of the
Plan or the  grant of any  Options  pursuant  to the Plan,  except  that no such
member shall act upon the granting of an Option to himself,  but any such member
may be counted in  determining  the  existence of a quorum at any meeting of the
Board  during  which  action is taken with respect to the granting of Options to
such member.

         The  decision  of a majority  of those  present  at any  meeting of the
Committee  where a quorum  consisting  of a majority of the Committee is present
shall constitute the decision of the Committee.

         The  Committee  is  authorized  and  empowered to  administer  the Plan
insofar as it relates to Options and,  consistent with the terms of the Plan, to
(a) select the key  employees or  consultants  to whom Options are to be granted
and to fix the number of shares and other terms and conditions of the Options to
be  granted,  subject to the  requirements  and  limitations  of this Plan;  (b)
determine  the date  upon  which  Options  shall be  granted  and the  terms and
conditions of the granted Options in a manner  consistent  with the Plan,  which
terms need not be identical as between  Options or Optionees;  (c) interpret the
Plan and the Options granted under the Plan; (d) adopt,  amend and rescind rules
and  regulations  for the  administration  of the Plan  insofar as it relates to
Options;  (e)  determine  whether and the extent to which,  if at all,  exercise
price of outstanding  options  should be reduced;  and (f) direct the Company to
execute Stock Option agreements pursuant to the Plan.

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         The Committee  shall  determine in its  discretion  whether  applicable
laws,  regulations or  requirements  of securities  trading  exchanges where the
Company's  securities  are traded  make it  necessary  or  appropriate  that the
adoption of this Plan be approved by stockholders  of the Company.  In the event
that  stockholders  approval is sought,  options may be granted  subject to such
approval.

         All  such  actions  of  the   Committee   shall  be  binding  upon  all
participants in the Plan.

         4. Eligibility.  The persons who shall be eligible to receive grants of
Options under this Plan shall be those key employees  and  consultants,  who may
not be  employees,  who may be officers or directors of the Company,  who are or
who will be responsible for the  management,  growth and success of the business
of the Company over the long term and who shall be selected by the Committee.

         The persons to receive  Options  under the Plan shall be selected  from
time to time by the Committee, with the approval of the Board, and the Committee
shall determine,  in its sole discretion,  the number of shares to be covered by
the Options to be granted to each person  selected.  No person may be granted an
Option if such person, at the time the Option is granted,  owns shares of Common
Stock possessing more than 10% of the total combined voting power of all classes
of  stock  of the  Company  on a fully  diluted  basis  (i.e.,  considering  all
outstanding shares of Common Stock and all shares which the Company is obligated
to issue within three years at the time of action).  For purposes of calculating
such stock  ownership,  the beneficial  ownership  rules of stock  ownership set
forth in  regulations  adopted  under the  Securities  Exchange Act of 1934,  as
amended ("1934 Act") shall apply.

         5. Terms and  Conditions.  The Plan  shall  become  effective  upon the
approval and adoption by the Board of Directors. It shall continue in effect for
a period of ten years from the date of its effectiveness.

         All Options  granted  under this Plan shall be subject to the terms and
conditions of this Plan, including all of the following:

                  (a)  Option  Price.  The  Option  price  per  share  shall  be
         determined  by the Committee but shall not be less than 90% of the fair
         market value of such shares at the time the Option is granted.

                  (b)  Limitations  on  Grant of  Options.  No  Option  shall be
         granted  which may be  exercised  sooner than three years nor more than
         ten years after the date it was granted. Subject to Section 5(q) below,
         Options  may not  become  exercisable  (i.e.,  "vest")  as to more than
         one-third  of the total  shares  represented  by an Option grant in any
         year and no Option  shall  vest  before  three  years  from the date of
         grant.


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                  (c) Limitations on Exercise of Option.  No Optionee granted an
         Option  under  this Plan may  exercise  an  Option  unless at all times
         during the period  beginning  on the date of the granting of the Option
         and ending on the day three  months  before  the date of such  exercise
         such  Optionee  was  employed  by  the  Company  or  a  corporation  or
         subsidiary  thereof  issuing or  assuming  the Option in a  transaction
         referred to in Section 6 of this Plan,  provided  that if the  Optionee
         was an employee at the time of grant of the Option and  continues to be
         employed  through  the time that the Option is fully  vested,  then the
         Option may be exercised  for one year from  termination  of  employment
         unless the Optionee  takes action  which is  materially  adverse to the
         best  interests of the Company,  determined  in the  discretion  of the
         Committee, prior to exercise of the Option..

                  (d)  Payment for Shares.  Payment in full,  in cash,  shall be
         made for all  shares  issued  pursuant  to the  exercise  of an Option,
         provided that the  Committee may permit  payment to be made with shares
         of the Company's Common Stock owned by the Optionee to be valued at the
         fair  market  value  at the  date of  exercise.  All  Options  shall be
         exercised for 100 shares, or a multiple thereof, or for the full number
         of shares for which the Option is then  exercisable.  No Optionee shall
         have the  right to  dividends  or other  rights of a  stockholder  with
         respect to shares  subject to an Option  until the  Optionee  has given
         written  notice of exercise of the  Optionee's  Option and paid in full
         for such shares.

                  (e) Manner of Exercise.  Any Option  granted  pursuant to this
         Plan may be exercised at such time or times as set forth in the Option,
         by the delivery of written notice to any officer of the Company,  other
         than the  Optionee,  together  with payment in full,  for the number of
         shares to be purchased pursuant to such exercise. Such notice (i) shall
         state the election to exercise the Option,  (ii) shall state the number
         of shares in  respect  of which the  Option is being  exercised,  (iii)
         shall state the  Optionee's  address,  (iv) shall state the  Optionee's
         social  security  number,  (v) shall contain such  representations  and
         agreements concerning Optionee's investment intent with respect to such
         shares  of  Common  Stock  as shall be  satisfactory  to the  Company's
         counsel,  (vi) shall state that the  certificate  evidencing the shares
         may be stamped with a  restrictive  legend and the shares  evidenced by
         such certificate will constitute "restricted  securities" as defined in
         Rule 144 promulgated  under the Securities Act of 1933, as amended (the
         "Act") (unless the shares to be acquired are registered  under the Act)
         and (vii) shall be signed and dated by Optionee.

                  (f)  Conditions  of  Issuance of Shares.  Shares  shall not be
         issued  pursuant to the  exercise of an Option  unless the  exercise of
         such Option and the  issuance  and  delivery  of such  Shares  pursuant
         thereto shall comply with all relevant  provisions  of law,  including,
         without  limitation,  the Act, the 1934 Act, the rules and  regulations
         promulgated  thereunder,  applicable  state  securities  law,  and  the
         requirements of any stock exchange or automated  quotation  system upon
         which the Share may be listed or  quoted,  and shall be  subject to the
         approval  of  legal  counsel  for  the  Company  with  respect  to such
         compliance.


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<PAGE>



                  (g)  Limitation  on Transfer of Shares.  Unless  shares issued
         upon exercise are at the time of exercise registered under the Act, all
         shares of Common  Stock  acquired  by an Optionee  upon  exercise of an
         Option  granted  under  this Plan  shall be  deemed  to be  "restricted
         securities"  as defined in Rule 144  promulgated  under the Act and the
         certificate evidencing such shares shall contain a legend as follows:

                  "The  securities  represented by this  certificate  may not be
                  offered  for  sale,  sold  or  otherwise   transferred  except
                  pursuant  to an  effective  registration  statement  under the
                  Securities Act of 1933 (the `Act') or pursuant to an exemption
                  from registration  under the Act, the availability of which is
                  to be established to the satisfaction of the Company."

                  (h)  Other   Representations  or  Warranties.   As  a  further
         condition to the exercise of any Option  granted  under this Plan,  the
         Company  may  require  each  Optionee  to make any  representation  and
         warranty to the Company as may be  required  by any  applicable  law or
         regulation,  including making arrangements,  approved by the Committee,
         for payment of any applicable withholding taxes.

                  (i) Death of Optionee.  If an Optionee (or a transferee of the
         Option) dies,  any Option  previously  granted to the Optionee shall be
         exercisable by the personal  representa  tive or  administrator  of the
         deceased  Optionee's  estate,  or by  any  trustee,  heir,  legatee  or
         beneficiary  (collectively  referred to for  convenience  as the "legal
         representative")  who shall have acquired the Option  directly from the
         Optionee by will or by the laws of descent and distribution at any time
         within one year after his death,  but not more than ten years after the
         date of granting of the Option,  provided  the  deceased  Optionee  was
         entitled to exercise such Option at the time of his death. Prior to the
         exercise of any such Option,  the legal  representative of the deceased
         Optionee shall furnish to the Company  written notice of such exercise,
         together with a certified copy of letters  testamentary  or other proof
         deemed   sufficient  by  the  Committee  of  the  right  of  the  legal
         representative   to  exercise  such  Option  in  accordance   with  the
         provisions of this Plan.

                  (j) Retirement.  If an Optionee's  employment with the Company
         terminates by reason of retirement,  any Option  previously  granted to
         him shall be  exercisable  as determined in the sole  discretion of the
         Committee  at any  time  within  three  months  after  the date of such
         termination,  but not more than ten years after the date of granting of
         the Option,  and then only to the extent to which it was exercisable at
         the time of such termination by retirement;  provided, however, that if
         the Optionee dies within three months after  termination by retirement,
         any  unexercised  Option,  to the extent to which it was exercisable at
         the time of his death,  shall  thereafter be  exercisable  for one year
         after the date of his death, but not more than ten years after the date
         of granting of the Option.


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<PAGE>



                  (k)  Disability.  If an Optionee  becomes  disabled within the
         meaning  of  Section  22(e)(3)  of the  Code,  and at the  time of such
         disability the Optionee is entitled to exercise an Option, the Optionee
         shall have the right to exercise such Option within one year after such
         disability  provided that the Optionee  exercises the Option within ten
         years after the date of grant,  and then only to the extent to which it
         was exercisable at the time of such disability.

                  (l) Optionee's Termination.  If an Optionee ceases to serve an
         employee  of the Company or a  subsidiary,  as the case may be, for any
         reason  other  than  death,   retirement  or  disability,   any  Option
         previously granted to the Optionee which was exercisable at the time of
         termination  shall  terminate  three  months  after  the  date  of such
         termination  or at such  earlier  time as  provided in the terms of the
         Option  granted to the  Optionee.  To the extent  that an Option is not
         exercised within the time specified herein, the Option shall terminate.
         Options which were not  exercisable  on the date of  termination  shall
         terminate upon termination.

                  (m)  Leave of  Absence.  For the  purposes  of this Plan (i) a
         leave of  absence,  duly  authorized  in  writing  by the  Company  for
         military service or sickness,  or for any other purpose approved by the
         Board,  if the  period of such leave does not exceed 90 days and (ii) a
         leave of absence in excess of 90 days,  duly  authorized  in writing by
         the  Company   provided  the  Optionee's   right  to  re-employment  is
         guaranteed  either by  statute  or by  contract,  shall not be deemed a
         termination of employment.

                  (n) Option Agreement. Any Option granted under this Plan shall
         be in  accordance  with the Plan and  shall be in the form of the Stock
         Option Agreement attached as Exhibit A attached hereto.

                  (o) Transferability of Options.  Except by will or the laws of
         descent and distribution, an Option may not be sold, pledged, assigned,
         hypothecated,  transferred,  or  disposed  of in any manner  during the
         period  ending  two  years  from the date of  grant of the  Option  and
         thereafter  only (i)  after  written  notice to the Board and (ii) in a
         manner which is in  compliance  with all  applicable  provisions of the
         Act, as amended and the 1934 Act to the reasonable written satisfaction
         of the Company,  given before transfer is effected.  Upon any permitted
         sale or other  transfer,  the  transferee  shall remain  subject to all
         terms and conditions of the Plan and the Stock Option  Agreement.  Upon
         any permitted transfer of an Option, the written Stock Option Agreement
         shall be delivered to the Company for  registration  of the transfer to
         any transferee.

                  (p)  Exercisability of Options.  No Optionee granted an Option
         under this Plan shall be entitled  to exercise  such Option at any time
         after the  expiration  of such Option as  specified in the Stock Option
         Agreement evidencing the Option.


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<PAGE>



                  (q) Vesting Upon Change of Control.  An Option  granted  under
         this Plan to an employee  shall become  exercisable  (i.e.,  "vest") in
         full if the employee to whom an Option has been granted is  terminated,
         has his or her salary involuntarily reduced by more than 10% or has his
         or her  duties,  authority  and  responsibility  materially  reduced or
         restricted  within  one year  following  a  change  of  control  of the
         Company.  For purposes of this Section  5(q), a change of control shall
         mean  any of the  following:  (i) at any time  the  Board of  Directors
         includes a majority of directors  who have served as directors for less
         than one year,  or (ii)  within  one year  following  a merger or other
         combination  of the  principal  business  of the Company  with  another
         entity,  one or more of the four most highly paid executive officers of
         the  Company is  discharged  or  reassigned  to  substantially  reduced
         responsibilities  with the surviving  entity,  or the Optionee's salary
         has been  voluntarily  reduced by 10% or more,  or  Optionee's  duties,
         authority  and   responsibilities   have  been  materially   reduce  or
         restricted..

         6. Adjustments Upon  Recapitalization,  Merger, Etc. If the outstanding
shares of Common Stock of the Company  shall at any time be changed or exchanged
by  declaration  of a stock  dividend,  split-up,  subdivision or combination of
shares,    recapitalization,    merger,   consolidation   or   other   corporate
reorganization   in  which  the   Company   (including   a  merger  or   similar
reorganization  which  effects a  reincorporation  of the Company in a different
county or province) is the surviving corporation,  the number and kind of shares
subject to this Plan or  subject  to any  Options  previously  granted,  and the
Option prices, shall be appropriately and equitably adjusted,  so as to maintain
the proportionate  number of shares without changing the aggregate Option price.
In the  event of a  dissolution  or  liquidation  of the  Company,  or a merger,
consolidation,  sale  of  all or  substantially  all of  its  assets,  or  other
corporate  reorganization in which the Company is not the surviving  corporation
and the holder of Common Stock receives securities of another corporation,  then
any  outstanding  Options  hereunder shall terminate as of the effective date of
such event;  provided that  immediately  prior to such event each Optionee shall
have the right to exercise any  unexpired  Option in whole or in part whether or
not the Option would  otherwise be  exercisable.  The Company  shall afford each
person who holds an Incentive Stock Option under this Plan with at least 30 days
advance  written  notice of such event.  The  existence of this Plan,  or of any
Options  hereunder,  shall not in any way prevent any  transaction  described in
this section, nor shall anything contained in this Plan prevent the substitution
of a new Option by a surviving corporation.

         7. Use of Proceeds. Proceeds from the sale of stock pursuant to Options
granted  under this Plan shall  constitute  general  funds of the Company may be
used for such general corporate purposes as the Board shall determine.

         8.  Reservation  of Issuance of Shares.  The Company shall at all times
during the  duration  of this Plan  reserve  and keep  available  such number of
shares of Common Stock as will be sufficient to satisfy the  requirements of all
Options  granted  pursuant to this Plan,  and shall pay all  original  issue and
transfer taxes with respect to the issuance of shares pursuant to the exercise

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of such Options, and shall pay all of the fees and expenses necessarily incurred
in connection with the exercise of such Options and the issuance of such shares.

         9. Amendments.  The Board of Directors may amend, alter, or discontinue
this Plan, but no amendment,  alteration or discontinuation  shall be made which
would impair the rights of any Optionee  under any Options  previously  granted,
without the Optionee's consent.

         Any such  amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and effect as if the
Plan had not been  amended  or  terminated,  unless  mutually  agreed  otherwise
between the Optionee and the Company in a writing signed by both parties.

         10.   Indemnification.   In   addition   to  such   other   rights   of
indemnification as they may have as directors,  the members of the Committee and
the Board shall be  indemnified  by the  Company  against  reasonable  expenses,
including  attorneys'  fees actually  incurred in connection with the defense of
any action, suit or proceeding,  or in connection with any appeal therefrom,  to
which  they or any of them  may be a party  by  reason  of any  action  taken or
failure  to act under or in  connection  with this  Plan or any  Option  granted
hereunder,  or shares  purchased  pursuant to the exercise of Options under this
Plan, and against all amounts paid by them in settlement  thereof (provided such
settlement is approved by independent  legal counsel selected by the Company) or
paid by them in  satisfaction  of judgment in any  action,  suit or  proceeding,
except in relation  to matters as to which it shall be adjudged in such  action,
suit or  proceeding,  that such member of the Board of  Directors  is liable for
gross  negligence,  fraud  or  willful  misconduct  in  the  performance  of the
director's  duties  so long as  within  60 days  after  institution  of any such
action, suit or proceeding,  the director shall in writing offer the Company the
opportunity,  at its own  expense,  to handle and defend  such  action,  suit or
proceeding.

         11.  Miscellaneous.   Unless  the  context  requires  otherwise,  words
denoting  the  singular  may be  construed  as denoting  the  plural,  and words
denoting the plural may be construed as denoting the singular,  and words of one
gender may be construed as denoting such other gender

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as is appropriate. Paragraph headings are not to be considered part of this Plan
and are  included  solely for  convenience  and are not  intended  to be full or
accurate descriptions of the contents thereof.

Adopted by Directors:

                                          PEASE OIL AND GAS COMPANY
                                          organized under the laws of Nevada
ATTEST:

                                          By __________________________________
                                              Willard H. Pease, Jr., Chairman
--------------------------------------
Patrick J. Duncan, Secretary

S E A L

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