July 22, 1997



VIA FACSIMILES (918) 584-4220, (713) 496-3555
AND FEDERAL EXPRESS

Mr. R. J. Sullivan, Jr., Manager
Sullivan and Company 3 D Program I, L.L.C.
3031 First Place Tower
15 East Fifth Street
Tulsa, OK  74103-4331

Mr. Buzz Bainbridge, President
Willisco, Inc.
15995 North Barker's Landing
Suite 200
Houston, TX  77079-2418

Re:  Letter of Agreement
       Bayou Sorrel Prospect
       Iberville Parish, Louisiana

Gentlemen:

This Letter Agreement shall evidence the mutual  understanding  and agreement of
National  Energy Group,  Inc.  ("NEG"),  and Sullivan and Company 3 D Program I,
L.L.C.  ("Sullivan")  and Willisco,  Inc.  ("Willisco")  with respect to various
discussions,  proposals  and  agreements  among the  parties  relating  to a 3 D
seismic  survey,  known as the Bayou Sorrel 3 D Survey Project (the  "Project").
Sullivan and  Willisco are  sometimes  hereinafter  collectively  referred to as
("Sullivan / Willisco").

         NOW THEREFORE,  in consideration of the mutual covenants and agreements
herein  contained  and  good  and  valuable   consideration,   the  receipt  and
sufficiency  of  which is  hereby  acknowledged,  the  parties  hereto  agree as
follows:

         (1)      The Project  shall be  comprised of an  approximate  55 square
                  mile area  encompassing  the lands and  leaseholds  more fully
                  described  on the map  designated  as  Exhibit  "A",  attached
                  hereto and incorporated herein.




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Mr. R. J. Sullivan, Jr., Manager
Sullivan and Company 3 D Program I, L.L.C.
Mr. Buzz Bainbridge, President
Willisco, Inc.
July 22, 1997
Page Two


         (2)      Sullivan and Willisco shall assign to NEG 100% of all permits,
                  leasehold agreements,  options and/or other forms of interests
                  relating to ownership  and/or authority to conduct the Project
                  survey (the  "Permits")  more fully  described on Exhibit "B",
                  attached hereto and incorporated  herein,  which are presently
                  controlled   by  Sullivan   and/or   Willisco  or  at  anytime
                  hereinafter acquired;  provided that  Sullivan/Willisco  agree
                  that as of the date of execution hereof, neither shall execute
                  any additional  Permits without the express written consent of
                  NEG.

         (3)      In  consideration  hereof,  NEG shall  make a cash  payment to
                  Sullivan / Willisco in the aggregate amount of $625,000 (which
                  amount  shall be  subject  to audit  by NEG and  supported  by
                  actual,  direct third party  charges  paid by Sullivan  and/or
                  Willisco), together with assignment of a 3% overriding royalty
                  interest  (the  "ORRI") up to and  including  an amount  which
                  shall not  exceed  $625,000,  net of  severance  taxes,  to be
                  derived from  production  attributable  to all leases owned of
                  record on June 6,  1997,  and  those  leases  acquired  and or
                  renewed  between June 6, 1997 and June 30, 2000 in the Project
                  area,  except for and excluding  those  certain  leases in the
                  East  Bayou  Sorrel  Field and  existing,  current  production
                  attributable to the Bayou Sorrel Field,  all of which are more
                  fully   described   on  Exhibit  "C",   attached   hereto  and
                  incorporated herein.

         (4)      NEG shall own all data  acquired and  processed in the Project
                  area (the "Data")  until the earlier of (i) a period of thirty
                  (30) months  following  completion  of the field survey by the
                  seismic  crews  accessing  the Data or (ii) a period of thirty
                  (30) months  after July 1, 1998,  at which time the Data shall
                  become an undivided  joint ownership of NEG in an amount equal
                  to 50% and to Sullivan / Willisco in an aggregate amount equal
                  to 50%;  provided  that  Sullivan / Willisco  acknowledge  and
                  agree  that the  ownership  interest  acquired  by NEG  and/or
                  Sullivan  /  Willisco  may be in the form of a license  in the
                  event NEG shall  determine  that it is in its best interest to
                  participate in a speculative 3-D seismic survey, rather than a
                  proprietary 3-D seismic survey over the Project.

         (5)      NEG shall have a fourteen (14) day period following receipt of
                  a fully  executed copy of this Letter  Agreement to review all
                  materials,  maps,  financial records,  Permits,  Data or other
                  information (the  "Information")  related to the Project which
                  it deems  necessary  and proper to conduct  its due  diligence
                  investigation of the Project (the "Due Diligence Review").

         (6)      Neither  party  shall  engage in any  activities,  directly or
                  indirectly,  which  shall act to  circumvent  the  other  with
                  respect to the subject matter hereof,  and Sullivan / Willisco
                  specifically  agree  that for a period of two (2) years  after
                  January  1,  1998  it  shall  not  engage  in any  activities,
                  directly or indirectly,  which compete with NEG in the Project
                  area;  provided that following  execution and delivery of this
                  Letter  Agreement,  NEG shall be  permitted to contact any and
                  all parties within the Project area,  including  those parties
                  which have  executed  Permits with Sullivan / Willisco or have
                  been  contacted  by  Sullivan / Willisco  with  respect to the
                  Project.





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Mr. R. J. Sullivan, Jr., Manager
Sullivan and Company 3 D Program I, L.L.C.
Mr. Buzz Bainbridge, President
Willisco, Inc.
July 22, 1997
Page Three


         (7)      Subject only to the Due  Diligence  Review of NEG, the parties
                  hereto agree to execute,  deliver and perform as  contemplated
                  herein, including, but not limited to, the execution, delivery
                  and performance of such documents and take such actions as the
                  other party or parties may reasonably request in order to more
                  effectively consummate the transaction's  contemplated hereby;
                  provided that in the event NEG shall  discover  during its Due
                  Diligence  Review a material  fact or facts which shall have a
                  material effect on the Project as contemplated herein, then in
                  such event,  NEG shall have the right,  upon written notice to
                  Sullivan / Willisco,  to terminate  this Letter  Agreement and
                  any obligations  contained herein,  except with respect to the
                  confidentiality of the Information as provided herein.

         (8)      MISCELLANEOUS.

          a. This Letter Agreement and the Information described herein shall be
          confidential and shall remain  confidential and shall not be disclosed
          to any third party, except as otherwise contemplated herein; as may be
          mutually  agreed in writing,  or to the extent  required by law, rule,
          regulation of governmental agencies or court order.

          b. THIS LETTER  AGREEMENT AND ALL OF THE RIGHTS AND OBLIGATIONS OF THE
          PARTIES  ARISING FROM OR RELATING TO THE SUBJECT  MATTER HEREOF OR THE
          TRANSACTIONS  CONTEMPLATED  HEREBY SHALL BE GOVERNED BY, CONSTRUED AND
          ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,  EXCLUDING
          THE CONFLICT OF LAWS AND RULES OF SUCH STATE.

          c. This Letter Agreement  supersedes any prior agreements  between the
          parties with respect to the subject matter of hereof.

          d. In the event any dispute  regarding this Letter Agreement cannot be
          reconciled by the parties, then they shall attempt to resolve any such
          dispute through (i) mediation,  using a mutually acceptable  mediator,
          and, if necessary, through (ii) binding arbitration,  using a mutually
          acceptable  arbitrator.  No dispute  related  hereto  shall be brought
          before any court of law or equity.  Any arbitration  will be conducted
          in Dallas  County,  Texas using the  commercial  rules of the American
          Arbitration Association.






<PAGE>


Mr. R. J. Sullivan, Jr., Manager
Sullivan and Company 3 D Program I, L.L.C.
Mr. Buzz Bainbridge, President
Willisco, Inc.
July 22, 1997
Page Four


If the foregoing reflects our mutual  understanding and agreement of the subject
matter  contained  herein,  please so indicate by executing  in the  appropriate
space below. This Letter Agreement shall be effective as of June 6, 1997.

Sincerely,

NATIONAL ENERGY GROUP, INC.

By:
         Miles D. Bender
         President and CEO

MDB:ljg



ACCEPTED AND AGREED to
this               day of July, 1997.


SULLIVAN AND COMPANY 3 D PROGRAM I, L.L.C.

By:
         R. J. Sullivan, Jr.
         Program Manager

WILLISCO, INC.

By:
         Buzz Bainbridge
         President