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                                                                 EXHIBIT 10.1

                               OCEAN ENERGY, INC.

                          1999 LONG-TERM INCENTIVE PLAN





         SECTION 1. Purpose of the Plan.

         The Ocean Energy, Inc. 1999 Long-Term Incentive Plan (the "Plan") is
intended to promote the interests of Ocean Energy, Inc., a Texas corporation
(the "Company"), by encouraging employees of the Company, its subsidiaries and
affiliated entities and Directors (as defined below) to acquire or increase
their equity interest in the Company and to provide a means whereby employees
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company thereby
advancing the interests of the Company and its shareholders. The Plan is also
contemplated to enhance the ability of the Company, its subsidiaries and
affiliated entities to attract and retain the services of individuals who are
essential for the growth and profitability of the Company.

         SECTION 2. Definitions.

         As used in the Plan, the following terms shall have the meanings set
forth below:

                  "Affiliate" shall mean (i) any entity that, directly or
         through one or more intermediaries, is controlled by the Company and
         (ii) any entity in which the Company has a significant equity interest,
         as determined by the Committee.

                  "Award" shall mean any Option, Stock Appreciation Right,
         Restricted Stock, Performance Award, Phantom Shares, Bonus Shares or
         Cash Award.

                  "Award Agreement" shall mean any written agreement, contract,
         or other instrument or document evidencing any Award, which may, but
         need not, be executed or acknowledged by a Participant.

                  "Board" shall mean the Board of Directors of the Company.


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                  "Bonus Shares" shall mean an award of Shares granted pursuant
         to Section 6(e) of the Plan.

                  "Cash Award" shall mean an award payable in cash granted
         pursuant to Section 6(g) of the Plan.

                  "Code" shall mean the Internal Revenue Code of 1986, as
         amended from time to time, and the rules and regulations thereunder.

                  "Committee" shall mean the Compensation Committee of the
         Board, which shall be comprised solely of two or more Directors who are
         "outside directors" within the meaning of section 162(m) of the Code
         and "Non-Employee Directors" within the meaning of Rule 16b-3.

                  "Director" shall mean a member of the Board who is not also an
         Employee.

                  "Employee" shall mean any employee of the Company or an
         Affiliate.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
         as amended.

                  "Fair Market Value" shall mean, with respect to Shares, the
         closing price of a Share quoted on the New York Stock Exchange
         Composite Tape, or if the Shares are not listed on the New York Stock
         Exchange, on the principal United States securities exchange registered
         under the Exchange Act on which such stock is listed, or if the Shares
         are not listed on any such stock exchange, the last sale price, or if
         none is reported, the highest closing bid quotation on the National
         Association of Securities Dealers, Inc., Automated Quotations System or
         any successor system then in use on the Date of Grant, or if none are
         available on such day, on the next preceding day on which the Shares
         were publicly traded. In the event the Shares are not publicly traded
         at the time a determination of its fair market value is required to be
         made hereunder, the determination of fair market value shall be made in
         good faith by the Committee.

                  "Incentive Stock Option" or "ISO" shall mean an option granted
         under Section 6(a) of the Plan that is intended to qualify as an
         "incentive stock option" under Section 422 of the Code or any successor
         provision thereto.


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                  "Non-Qualified Stock Option" or "NQO" shall mean an option
         granted under Sections 6(a) or 6(h) of the Plan that is not intended to
         be an Incentive Stock Option.

                  "Option" shall mean an Incentive Stock Option or a
         Non-Qualified Stock Option.

                  "Participant" shall mean any individual granted an Award under
         the Plan.

                  "Performance Award" shall mean any right granted under Section
         6(d) of the Plan.

                  "Person" shall mean individual, corporation, partnership,
         association, joint-stock company, trust, unincorporated organization,
         government or political subdivision thereof or other entity.

                  "Phantom Shares" shall mean an Award of the right to receive
         Shares issued at the end of a Restricted Period which is granted
         pursuant to Section 6(f) of the Plan.

                  "Restricted Period" shall mean the period established by the
         Committee with respect to an Award during which the Award either
         remains subject to forfeiture or is not exercisable by the Participant.

                  "Restricted Stock" shall mean any Share, prior to the lapse of
         restrictions thereon, granted under Section 6(c) of the Plan.

                  "Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC
         under the Exchange Act, or any successor rule or regulation thereto as
         in effect from time to time.

                  "SEC" shall mean the Securities and Exchange Commission, or
         any successor thereto.


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                  "Shares" or "Common Shares" or "Common Stock" shall mean the
         common stock of the Company, $0.10 par value, and such other securities
         or property as may become the subject of Awards of the Plan.

                  "Spread" shall mean, in the case of a Stock Appreciation
         Right, an amount equal to the excess, if any, of the Fair Market Value
         of a Share on the date such right is exercised over the exercise price
         of such Stock Appreciation Right.

                  "Stock Appreciation Right" or "Right" shall mean any right to
         receive the spread of Shares granted under Section 6(b) of the Plan.

                  "Substitute Award" shall mean Awards granted in assumption of,
         or in substitution for, outstanding awards previously granted by (i) a
         company acquired by the Company or one or more of its Affiliates, or
         (ii) a company with which the Company or one or more of its Affiliates
         combines. To the extent reasonably practical, as determined by the
         Committee in its sole discretion, Substitute Awards shall contain the
         same terms and conditions as the award they replace.

         SECTION 3.  Administration.

         The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to an eligible Participant; (iii) determine the number of Shares to be covered
by, or with respect to which payments, rights, or other matters are to be
calculated in connection with, Awards; (iv) determine the terms and conditions
of any Award, including such terms and conditions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan;


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(viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (ix) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award Agreement in the manner and to the
extent it shall deem expedient to carry it into effect. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or beneficiary of any Award,
any shareholder, any Employee and any Director.

         SECTION 4.  Shares Available for Awards.

         (a) Shares Available. Subject to adjustment as provided in Section 4(c)
and below, the number of Shares with respect to which Awards may be granted
under the Plan shall be 3,000,000. If any Shares covered by an Award granted
under the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates or is canceled without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such Award
relates, or the number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the extent of any such
forfeiture, termination or cancellation, shall again be, or shall become, Shares
with respect to which Awards may be granted.

         (b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares. Any of such Shares which remain unissued
and which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to meet
the requirements of the Plan.

         (c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee in its discretion to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust


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any or all of (i) the number and type of Shares (or other securities or
property) with respect to which Awards may be granted, (ii) the number and type
of Shares (or other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that with respect to Awards of Incentive Stock
Options and Awards intended to qualify as performance based compensation under
Section 162(m)(4)(C) of the Code, no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section 422(b)(1) of
the Code or would cause such Award to fail to so qualify under Section 162(m) of
the Code, as the case may be, or any successor provisions thereto; and provided,
further, that the number of Shares subject to any Award denominated in Shares
shall always be a whole number.

         SECTION 5.   Eligibility and Award Limits.

         Other than Awards granted to Directors pursuant to Section 6(h) of the
Plan, any Employee shall be eligible to be designated a Participant. However, no
Employee may receive Share-denominated Awards during the term of the Plan that,
in the aggregate, are with respect to more than 33-1/3% of all Shares that may
be made subject to Awards under the Plan. The maximum amount of compensation
(including the Fair Market Value of any Shares) that may be paid to any
Participant with respect to any single Performance Award or Cash Award in any
calendar year shall be $1.5 million. With respect to any Restricted Stock Award,
Phantom Stock Award, or Cash Award granted in tandem with, and expressed as a
percentage of, a Share-denominated Award which is intended to qualify as
"performance-based compensation," the maximum payment to any Participant with
respect to such Award in any calendar year shall be an amount (in cash and/or in
Shares) equal to the Fair Market Value of the number of Shares subject to such
Award. The limitations set forth in the preceding sentences shall be applied in
a manner which will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of Shares,
to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any Shares subject to Options that are
canceled or repriced. Further, Restricted Stock, Performance Awards, Phantom
Shares and Bonus Shares paid in Shares may not, in the aggregate, exceed 20% of
all Shares that may be the subject of Awards under the Plan.

         SECTION 6.   Awards.

         (a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Employees to whom Options shall be granted,
the number of Shares to be covered by each Option, the purchase price therefor
and the


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conditions and limitations applicable to the exercise of the Option, including
the following terms and conditions and such additional terms and conditions, as
the Committee shall determine, that are not inconsistent with the provisions of
the Plan.

                  (i) Exercise Price. The purchase price per Share purchasable
         under an Option shall be determined by the Committee at the time each
         Option is granted, but shall not be less than the Fair Market Value of
         a Share on such date, unless such Option is a Substitute Award.

                  (ii) Time and Method of Exercise. The Committee shall
         determine the time or times at which an Option may be exercised in
         whole or in part, and the method or methods by which, and the form or
         forms (which may include, without limitation, cash, already-owned
         Shares, outstanding Awards, Shares that would otherwise be acquired
         upon exercise of the Option, a "cashless-broker" exercise (through
         procedures approved by the Company), other securities or other
         property, or any combination thereof, having a Fair Market Value on the
         exercise date equal to the relevant exercise price) in which payment of
         the exercise price with respect thereto may be made or deemed to have
         been made.

                  (iii) Special Limitations on Incentive Stock Options.
         Incentive Stock Options may be granted only to employees of the Company
         and its subsidiaries, within the meaning of Section 424(f) of the Code.
         To the extent that the aggregate Fair Market Value (determined at the
         time the respective Incentive Stock Option is granted) of Shares with
         respect to which Incentive Stock Options granted after 1986 are
         exercisable for the first time by an individual during any calendar
         year under all incentive stock option plans of the Company and its
         parent and subsidiary corporations exceeds $100,000, such Incentive
         Stock Options shall be treated as Options which do not constitute
         Incentive Stock Options. The Committee shall determine, in accordance
         with applicable provisions of the Code, Treasury regulations and other
         administrative pronouncements, which of a Participant's Incentive Stock
         Options will not constitute Incentive Stock Options because of such
         limitation and shall notify the Participant of such determination as
         soon as practicable after such determination. No Incentive Stock Option
         shall be granted to an individual if, at the time the Option is
         granted, such individual owns stock possessing more than 10% of the
         total combined voting power of all classes of stock of the Company or
         of its parent or subsidiary corporation, within the meaning of Section
         422(b)(6) of the Code, unless (1) at the time such Option is granted
         the option price is at least 110% of the Fair Market Value of the
         Shares subject to the Option and (2) such Option by its terms is not
         exercisable after the expiration of five years from the date of grant.


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                  (iv) Expiration. Except as provided in Section 6(a)(iii), each
         Option shall expire ten (10) years from the date of grant thereof, and,
         unless provided otherwise in the Award Agreement, shall be subject to
         earlier termination as follows: Options, to the extent exercisable as
         of the date a Participant ceases to be an Employee, must be exercised
         within three (3) months of such date unless such event results from
         death, disability or retirement, in which case all outstanding Options
         held by such Participant may be exercised in full by the optionee, the
         optionee's legal representative, heir or devisee, as the case may be,
         within two (2) years from the date of the Participant's death,
         disability or retirement; provided, however, that no such event shall
         extend the expiration date of an Option beyond the 10th anniversary of
         its date of grant. Options that are not exercisable on termination of
         employment shall be automatically canceled on termination of
         employment. For purposes hereof, (x) "disability" means the Participant
         is receiving benefits under a long-term disability plan of the Company
         or, if the Company does not maintain such a plan, a determination by
         the Committee, upon the basis of medical evidence satisfactory to it,
         that the Participant is totally disabled, whether due to a physical or
         mental condition, such that he is expected to be unable to continue his
         employment for a continuous period of 12 or more months, and (y)
         "retirement" means a termination of employment on or after the
         Participant has reached age 65 or, with the consent of the Committee,
         on or after reaching age 55.

         (b) Stock Appreciation Rights. Subject to the provisions of the Plan,
the Committee shall have the authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. A Stock Appreciation Right may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. A Stock Appreciation Right granted
in tandem with or in addition to another Award may be granted either at the same
time as such other Award or at a later time.

                  (i) Grant Price. The grant price of a Stock Appreciation Right
         shall be determined by the Committee on the date of grant, but shall
         not be less than the Fair Market Value of a Share on such date (or such
         greater exercise price as may be required if such Stock Appreciation
         Right is granted in connection with an Incentive Stock Option that must
         have an exercise price equal to 110% of the Fair Market Value of a
         Share on the date of grant pursuant to Section 6(a)(iii)), unless such
         Stock Appreciation Right is a Substitute Award.

                  (ii) Other Terms and Conditions. Subject to the terms of the
         Plan and any applicable Award Agreement, the Committee shall determine,
         at or


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         after the grant of a Stock Appreciation Right, the term, methods of
         exercise, methods of settlement, and any other terms and conditions of
         any Stock Appreciation Right. Any such determination by the Committee
         may be changed by the Committee from time to time and may govern the
         exercise of Stock Appreciation Rights granted or exercised prior to
         such determination as well as Stock Appreciation Rights granted or
         exercised thereafter. The Committee may impose such conditions or
         restrictions on the exercise of any Stock Appreciation Right as it
         shall deem appropriate.

                  (iii) Expiration. Each Stock Appreciation Right shall expire
         ten (10) years from the date of grant thereof, or, if granted in tandem
         with another Award, upon the expiration of such tandem Award, if
         earlier, and, unless provided otherwise in the Award Agreement, shall
         be subject to earlier termination as follows: Stock Appreciation
         Rights, to the extent exercisable as of the date a Participant ceases
         to be an Employee, must be exercised within three (3) months of such
         date unless such event results from death, disability or retirement, in
         which case all outstanding Stock Appreciation Rights held by such
         Participant may be exercised in full by the Participant, the
         Participant's legal representative, heir or devisee, as the case may
         be, within two (2) years from the date of the Participant's death,
         disability or retirement; provided, however, that no such event shall
         extend the expiration date of a Stock Appreciation Right beyond the
         10th anniversary of its date of grant. Stock Appreciation Rights that
         are not exercisable on termination of employment shall be automatically
         canceled on termination of employment. For purposes hereof,
         "disability" and "retirement" shall have their respective meanings as
         set forth in Section 6(a)(iv).

         (c) Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Employees to whom Restricted
Stock shall be granted, the number of Shares of Restricted Stock to be granted
to each such Participant, the duration of the Restricted Period during which,
and the conditions, including performance goals, if any, under which, the
Restricted Stock may be forfeited to the Company, and the other terms and
conditions of such Awards.

                  (i) Dividends. Dividends paid on Restricted Stock may be paid
         directly to the Participant, may be subject to risk of forfeiture
         and/or transfer restrictions during any period established by the
         Committee or sequestered and held in a bookkeeping cash account (with
         or without interest) or reinvested on an immediate or deferred basis in
         additional shares of Common Stock, which credit or shares may be
         subject to the same restrictions as the underlying Award or such other
         restrictions, all as determined by the Committee in its discretion.


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                  (ii) Registration. Any Restricted Stock may be evidenced in
         such manner as the Committee shall deem appropriate, including, without
         limitation, book-entry registration or issuance of a stock certificate
         or certificates. In the event any stock certificate is issued in
         respect of Restricted Stock granted under the Plan, such certificate
         shall be registered in the name of the Participant and shall bear an
         appropriate legend referring to the terms, conditions, and restrictions
         applicable to such Restricted Stock.

                  (iii) Forfeiture and Restrictions Lapse. Except as otherwise
         determined by the Committee or the terms of the Award that granted the
         Restricted Stock, upon termination of a Participant's employment (as
         determined under criteria established by the Committee) for any reason
         during the applicable Restricted Period, all Restricted Stock shall be
         forfeited by the Participant and re-acquired by the Company. The
         Committee may, when it finds that a waiver would be in the best
         interests of the Company and not cause such Award, if it is intended to
         qualify as performance-based compensation under Section 162(m) of the
         Code, to fail to so qualify under Section 162(m) of the Code, waive in
         whole or in part any or all remaining restrictions with respect to such
         Participant's Restricted Stock. Unrestricted Shares, evidenced in such
         manner as the Committee shall deem appropriate, shall be issued to the
         holder of Restricted Stock promptly after the applicable restrictions
         have lapsed or otherwise been satisfied.

                  (iv) Transfer Restrictions. During the Restricted Period,
         Restricted Stock will be subject to the limitations on transfer as
         provided in Section 6(i)(iii).

         (d) Performance Awards. The Committee shall have the authority to
determine the Employees who shall receive a Performance Award, which shall be
denominated as a cash amount at the time of grant and confer on the Participant
the right to receive payment of such Award, in whole or in part, upon the
achievement of such performance goals during such performance periods as the
Committee shall establish with respect to the Award.

                  (i) Terms and Conditions. Subject to the terms of the Plan and
         any applicable Award Agreement, the Committee shall determine the
         performance goals to be achieved during any performance period, the
         length of any performance period, the amount of any Performance Award
         and the amount of any payment or transfer to be made pursuant to any
         Performance Award.


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                  (ii) Payment of Performance Awards. Performance Awards may be
         paid (in cash and/or in Shares, in the sole discretion of the
         Committee) in a lump sum or in installments following the close of the
         performance period, in accordance with procedures established by the
         Committee with respect to such Award.

         (e) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to eligible Employees. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor, as additional compensation for the Participant's services to
the Company.

         (f) Phantom Shares. The Committee shall have the authority to grant
Awards of Phantom Shares to eligible Employees upon such terms and conditions as
the Committee may determine.

                  (i) Terms and Conditions. Each Phantom Share Award shall
         constitute an agreement by the Company to issue or transfer a specified
         number of Shares or pay an amount of cash equal to the Fair Market
         Value of a specified number of Shares, or a combination thereof to the
         Participant in the future, subject to the fulfillment during the
         Restricted Period of such conditions, including performance goals, if
         any, as the Committee may specify at the date of grant. During the
         Restricted Period, the Participant shall not have any right to transfer
         any rights under the subject Award, shall not have any rights of
         ownership in the Phantom Shares and shall not have any right to vote
         such shares.

                  (ii) Dividends. Any Phantom Share award may provide that any
         or all dividends or other distributions paid on Shares during the
         Restricted Period be credited in a cash bookkeeping account (without
         interest) or that equivalent additional Phantom Shares be awarded,
         which account or shares may be subject to the same restrictions as the
         underlying Award or such other restrictions as the Committee may
         determine.

          (g) Cash Awards. The Committee shall have the authority to determine
the Employees to whom Cash Awards shall be granted, the amount, and the terms or
conditions, if any, as additional compensation for the Employee's services to
the Company or its Affiliates. A Cash Award may be granted (simultaneously or
subsequently) separately or in tandem with another Award and may entitle a
Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.


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         (h) Granting of Options to Directors. Each individual who serves as a
Director on the date the Plan is approved by the shareholders of the Company
(the "Approval Date") or who is elected or appointed as a Director for the first
time after such date shall receive, as of the Approval Date of the Plan or the
date of his election or appointment, whichever is applicable, and without the
exercise of the discretion of any person or persons, a Non-Qualified Stock
Option (an "Initial Grant") exercisable for 10,000 Shares (subject to adjustment
in the same manner as provided in Section 7 hereof with respect to Shares
subject to Options then outstanding). As of the date of the annual meeting of
the shareholders of the Company ("Annual Meeting") in each year after 1999 that
the Plan is in effect, each Director who is in office immediately after such
meeting and who is not then entitled to receive an Initial Grant pursuant to the
preceding provisions of this Section 6(h) shall receive, without the exercise of
the discretion of any person or persons, a Non-Qualified Stock Option
exercisable for 6,000 Shares (an "Annual Grant") (subject to adjustment in the
same manner as provided in Section 7 hereof with respect to shares of Stock
subject to Options then outstanding).

                  (i) Other Terms and Conditions. The following provisions are
         applicable to Options granted pursuant to this Section 6(h):

                  A. Subject to the following provisions, (1) an Initial Grant
         shall become exercisable for 50% of the Shares covered thereby on the
         date of grant, and for the remaining 50% thereof on the first Annual
         Meeting following its date of grant and (2) an Annual Grant shall
         become exercisable for one-third of the Shares covered thereby on the
         first Annual Meeting following the date of grant, and thereafter, for
         an additional one-third of the Shares covered thereby on each of the
         second and third Annual Meetings following the date of grant.

                  B. The purchase price of a Share covered under an Option
         granted under this Section 6(h) shall be the Fair Market Value of a
         Share on the date of grant.

                  C. To the extent that the right to exercise an Option has
         accrued and is in effect, the Option may be exercised in full at one
         time or in part from time to time by giving written notice, signed by
         the optionee exercising the Option, to the Company, stating the number
         of Shares with respect to which the Option is being exercised,
         accompanied by payment in full for such Shares, which payment may be in
         cash, already-owned Shares, a "cashless-broker" exercise (through
         procedures approved by the Company), or any combination thereof, having
         a Fair Market Value on the exercise date equal to the relevant exercise
         price in which payment of the exercise price


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         with respect thereto may be made or deemed to have been made; provided
         however, that (i) no Option shall be exercisable after ten (10) years
         from the date on which it was granted, and (ii) there shall be no such
         exercise at any one time for fewer than one hundred (100) Shares or for
         all of the remaining Shares then purchasable by the optionee exercising
         the Option, if fewer than one hundred (100) Shares.

                  D. Each Option shall expire ten (10) years from the date of
         grant thereof, subject to earlier termination as follows: Options, to
         the extent exercisable as of the date a Director optionee ceases to
         serve as a director of the Company, must be exercised within three (3)
         months of such date unless such event results from death, disability or
         retirement, as determined by the Committee, in which case all
         outstanding Options held by such Director may be exercised in full by
         the optionee, the optionee's legal representative, heir or devisee, as
         the case may be, within two (2) years from the date of death,
         disability or retirement; provided, however, that no such event shall
         extend the normal expiration date of such Options. Options not
         exercisable on termination as provided above shall be automatically
         canceled on termination.

                  E. Upon exercise of the Option, delivery of a certificate for
         fully paid and nonassessable Shares shall be made at the corporate
         office of the Company to the optionee exercising the Option either at
         such time during ordinary business hours after fifteen (15) days but
         not more than thirty (30) days from the date of receipt of the notice
         by the Company as shall be designated in such notice, or at such time,
         place and manner as may be agreed upon by the Company and the optionee
         exercising the Option.

                  (ii) Number of Available Shares. In the event that the number
         of Shares available for grants under the Plan is insufficient to make
         all grants provided for in this Section 6(h) hereby made on the
         applicable date, then all Directors who are entitled to a grant on such
         date shall share ratably in the number of Shares then available for
         grant under the Plan, and shall have no right to receive a grant with
         respect to the deficiencies in the number of available Shares and the
         grants under this Section 6(h) shall terminate.

         (i)      General.

                  (i) Awards May Be Granted Separately or Together. Awards to
         Employees may, in the discretion of the Committee, be granted either
         alone or in addition to, in tandem with, or in substitution for any
         other Award granted under the Plan or any award granted under any other
         plan of the Company or any Affiliate. Awards granted in addition to or
         in tandem with other Awards


<PAGE>   14


         or awards granted under any other plan of the Company or any Affiliate
         may be granted either at the same time as or at a different time from
         the grant of such other Awards or awards.

                  (ii) Forms of Payment by Company Under Awards. Subject to the
         terms of the Plan and of any applicable Award Agreement, payments or
         transfers to be made by the Company or an Affiliate upon the grant,
         exercise or payment of an Award may be made in such form or forms as
         the Committee shall determine, including, without limitation, cash,
         Shares, other securities, other Awards or other property, or any
         combination thereof, and may be made in a single payment or transfer,
         in installments, or on a deferred basis, in each case in accordance
         with rules and procedures established by the Committee. Such rules and
         procedures may include, without limitation, provisions for the payment
         or crediting of reasonable interest on installment or deferred
         payments.

                  (iii) Limits on Transfer of Awards.

                  (A) Except as provided in (C) below, each Award, and each
         right under any Award, shall be exercisable only by the Participant
         during the Participant's lifetime, or, if permissible under applicable
         law, by the Participant's guardian or legal representative or by a
         transferee receiving such Award pursuant to a qualified domestic
         relations order (a "QDRO") as determined by the Committee.

                  (B) Except as provided in (C) below, no Award and no right
         under any such Award may be assigned, alienated, pledged, attached,
         sold or otherwise transferred or encumbered by a Participant otherwise
         than by will or by the laws of descent and distribution (or, in the
         case of Restricted Stock, to the Company) or, if permissible under
         applicable law, pursuant to a QDRO and any such purported assignment,
         alienation, pledge, attachment, sale, transfer or encumbrance shall be
         void and unenforceable against the Company or any Affiliate.

                  (C) Notwithstanding anything in the Plan to the contrary,
         except to the extent specifically provided otherwise by the Committee
         in an Award Agreement, Non-Qualified Stock Options may be transferred
         by the optionee to one or more permitted transferees; provided that (i)
         there may be no consideration given for such transfer, (ii) the
         optionee (or such optionee's estate or representative) shall remain
         obligated to satisfy all employment tax and other withholding tax
         obligations associated with the exercise of the transferred Options,
         (iii) the optionee shall notify the Company in writing that


<PAGE>   15


         such transfer has occurred, the identity and address of the permitted
         transferee and the relationship of the permitted transferee to the
         optionee, and (iv) such transfer shall be effected pursuant to transfer
         documents approved from time to time by the Company. Any permitted
         transferee may not further assign or transfer the transferred Option
         otherwise than by will or the laws of descent and distribution.
         Following any permitted transfer, any such Options shall continue to be
         subject to the same terms and conditions as were applicable to the
         Option immediately prior to the transfer, provided that the term
         "optionee" as used in the Plan shall be deemed to refer also to each
         permitted transferee where required by the context. A transferred
         Option may only be exercised by a transferee to the same extent such
         Option could, at such time, be exercised by the optionee "but for" such
         transfer. The term "permitted transferees" shall mean one or more of
         the following: (i) any member of the optionee's immediate family; (ii)
         a trust established for the exclusive benefit of one or more members of
         such immediate family; (iii) a partnership in which such immediately
         family members are the only partners; or (iv) any other person approved
         from time to time by the Committee. The term "immediate family" is
         defined for such purpose as spouses, children, stepchildren and
         grandchildren, including relationships arising from adoption.

                  (iv) Term of Awards. The term of each Award (other than
         pursuant to Section 6(h)) shall be for such period as may be determined
         by the Committee; provided, that in no event shall the term of any
         Award exceed a period of ten (10) years from the date of its grant.

                  (v) Share Certificates. All certificates for Shares or other
         securities of the Company or any Affiliate delivered under the Plan
         pursuant to any Award or the exercise thereof shall be subject to such
         stop transfer orders and other restrictions as the Committee may deem
         advisable under the Plan or the rules, regulations, and other
         requirements of the SEC, any stock exchange upon which such Shares or
         other securities are then listed, and any applicable Federal or state
         laws, and the Committee may cause a legend or legends to be put on any
         such certificates to make appropriate reference to such restrictions.

                  (vi) Consideration for Grants. Awards may be granted for no
         cash consideration or for such consideration as the Committee
         determines including, without limitation, such minimal cash
         consideration as may be required by applicable law.

                  (vii) Delivery of Shares or other Securities and Payment by
         Participant of Consideration. No Shares or other securities shall be
         delivered pursuant to any Award until payment in full of any amount
         required to be paid pursuant to the Plan or the applicable Award
         Agreement is received by the


<PAGE>   16


         Company, including without limitation, all applicable withholding
         taxes. Such payment may be made by such method or methods and in such
         form or forms as the Committee shall determine, including, without
         limitation, cash, Shares, other securities, other Awards or other
         property, withholding of Shares, cashless exercise with simultaneous
         sale, or any combination thereof; provided that the combined value, as
         determined by the Committee, of all cash and cash equivalents and the
         Fair Market Value of any such Shares or other property so tendered to
         the Company, as of the date of such tender, is at least equal to the
         full amount required to be paid pursuant to the Plan or the applicable
         Award Agreement to the Company.

                  (viii) Performance Goals. Where necessary, the Committee shall
         establish performance goals applicable to those Awards the payment of
         which is intended by the Committee to qualify as "performance-based
         compensation" as described in Section 162(m)(4)(C) of the Code. Until
         changed by the Committee, the performance goals shall be based upon the
         attainment of such target levels of Share price, net income, cash
         flows, reserve additions or revisions, acquisitions, total
         capitalization, total or comparative shareholder return, assets,
         exploration successes, production volumes, findings and development
         costs, costs reductions and savings, reportable incidents in safety or
         environmental matters, return on equity, profit margin or sales, and/or
         earnings per share as may be specified by the Committee. The
         performance goals may be made subject to adjustment for specified
         unusual and nonrecurring events and may be absolute, relative to one or
         more other companies, or relative to one or more indices. Which factor
         or factors to be used with respect to any grant, and the weight to be
         accorded thereto if more than one factor is used, shall be determined
         by the Committee at the time of grant.

         SECTION 7.   Amendment and Termination.

         Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:

                  (a) Amendments to the Plan. The Board may amend, alter,
         suspend, discontinue, or terminate the Plan without the consent of any
         shareholder, Participant, other holder or beneficiary of an Award, or
         other Person; provided, however, notwithstanding any other provision of
         the Plan or any Award Agreement, without the approval of the
         shareholders of the Company no such amendment, alteration, suspension,
         discontinuation, or termination shall be made that would (i) increase
         the total number of Shares available for Awards under the Plan, except
         as provided in Section 4(c) of the


<PAGE>   17


         Plan; (ii) increase the class of eligible Participants; or (iii) amend
         the eligibility requirements for Awards under the Plan.

                  (b) Amendments to Awards. The Committee may waive any
         conditions or rights under, amend any terms of, or alter any Award
         theretofore granted (other than Initial Grants or Annual Grants under
         Section 6(h)), provided no change, other than pursuant to Section 7(c),
         in any Award shall reduce the benefit to Participant without the
         consent of such Participant. Notwithstanding the foregoing, with
         respect to any Award intended to qualify as performance-based
         compensation under Section 162(m) of the Code, no adjustment shall be
         authorized to the extent such adjustment would cause the Award to fail
         to so qualify.

                  (c) Adjustment of Awards Upon the Occurrence of Certain
         Unusual or Nonrecurring Events. The Committee is hereby authorized to
         make adjustments in the terms and conditions of, and the criteria
         included in, Awards in recognition of unusual or nonrecurring events
         (including, without limitation, the events described in Section 4(c) of
         the Plan) affecting the Company, any Affiliate, or the financial
         statements of the Company or any Affiliate, or of changes in applicable
         laws, regulations, or accounting principles, whenever the Committee
         determines that such adjustments are appropriate in order to prevent
         dilution or enlargement of the benefits or potential benefits intended
         to be made available under the Plan. Notwithstanding the foregoing,
         with respect to any Award intended to qualify as performance-based
         compensation under Section 162(m) of the Code, no adjustment shall be
         authorized to the extent such adjustment would cause the Award to fail
         to so qualify.

         SECTION 8.   Change in Control.

         Notwithstanding any other provision of this Plan to the contrary, in
the event of a Change in Control of the Company, all outstanding Awards granted
prior to the date of the Change in Control automatically shall become fully
vested on such Change in Control, all restrictions, if any, with respect to such
Awards shall lapse, and all performance goals, if any, with respect to such
Awards shall be deemed to have been met in full (at the maximum performance
level). For purposes of this Plan, a "Change in Control" shall be deemed to
occur:

                  (i) if any person (as such term is used in sections 13(d) and
         14(d)(2) of the Exchange Act), other than the Company, any parent
         corporation or subsidiary corporation of the Company or any employee
         benefit plan of the Company or any such entity, is or becomes the
         "beneficial owner" (as defined


<PAGE>   18


         in Rule 13d-3 of the Exchange Act), directly or indirectly, of
         securities of the Company representing 25% or more of the combined
         voting power of the Company's then outstanding securities,

                  (ii) upon the first purchase of the Company's common stock
         pursuant to a tender or exchange offer (other than a tender or exchange
         offer made by the Company),

                  (iii) on the date of consummation of a merger, consolidation,
         recapitalization, reorganization, sale or disposition of all or a
         substantial portion of the Company's assets, or the issuance of shares
         of stock of the Company in connection with the acquisition of the stock
         or assets of another entity, provided, however, that a Change in
         Control shall not occur under this clause (iii) if consummation of the
         transaction would result in at least two-thirds of the total voting
         power represented by the voting securities of the Company (or, if not
         the Company, the entity that succeeds to all or substantially all of
         the Company's business) outstanding immediately after such transaction
         being beneficially owned (within the meaning of Rule 13d-3 promulgated
         pursuant to the Exchange Act) by at least two-thirds of the holders of
         outstanding voting securities of the Company immediately prior to the
         transaction, with the voting power of each such continuing holder
         relative to other such continuing holders not substantially altered in
         the transaction, or

                  (iv) if, during any period of two consecutive years,
         individuals who at the beginning of such period constitute the Board
         cease for any reason to constitute at least a majority thereof, unless
         the election or nomination for the election by the Company's
         shareholders of each new director was approved by a vote of at least
         two-thirds of the directors then still in office who were directors at
         the beginning of the period.

         SECTION 9.  Parachute Tax Gross-Up.

         To the extent that the grant, payment, or acceleration of vesting or
payment, whether in cash or stock, of any Award made to a Participant under the
Plan is subject to an excise tax under Section 4999(a) of the Code, or any
similar or successor provision (a "Parachute Tax"), the Company shall pay such
Participant an additional amount of cash (the "Gross-up Amount") such that the
"net" after-tax benefit received by the Participant, after paying all applicable
Parachute Taxes with respect to such Awards (including those on the Gross-up
Amount) and any federal or state taxes on the Gross-up Amount, shall be equal to
the net after-tax benefit that such Participant would have received if such
Parachute Tax had not been applicable.


<PAGE>   19


         SECTION 10.   General Provisions.

         (a) No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.

         (b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or under
the Plan or from any compensation or other amount owing to a Participant the
amount (in cash, Shares, other securities, Shares that would otherwise be issued
pursuant to such Award, other Awards or other property) of any applicable taxes
payable in respect of an Award, its exercise, the lapse of restrictions thereon,
or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. Any Participant who is subject to
Rule 16b-3 may direct the Company to withhold Shares or may tender Shares to the
Company to satisfy his tax withholding obligations.

         (c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement. Nothing contained in the Plan shall confer on any Director any right
with respect to continuation of membership on the Board.

         (d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Texas and applicable Federal law.

         (e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without , in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or


<PAGE>   20


Award and the remainder of the Plan and any such Award shall remain in full
force and effect.

         (f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole discretion,
it determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.

         (g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any general unsecured creditor of the
Company or any Affiliate.

         (h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.

         (i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

         (j) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any Affiliate from taking any
action that is deemed by the Company or such Affiliate to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No Employee, Participant, or other
Person shall have any claim against the Company or any Affiliate as a result of
any such action.

         (k) Facsimile Signature. Any Award Agreement or related document may be
executed by facsimile signature. If any officer who shall have signed or whose


<PAGE>   21


facsimile signature shall have been placed upon any such Award Agreement or
related document shall have ceased to be such officer before the related Award
is granted by the Company, such Award may nevertheless be issued by the Company
with the same effect as if such person were such officer at the date of grant.

         SECTION 11.   Effective Date of the Plan.

         The Plan shall be effective as of the date of its approval by the
Board, provided the Plan is subsequently approved by the shareholders of the
Company within 12 months thereafter. Notwithstanding any provision in the Plan
or in any Award Agreement, no Option or Stock Appreciation Right shall be
exercisable and no Award shall vest or become satisfiable prior to such
shareholder approval.

         SECTION 12.   Term of the Plan.

         No Award shall be granted under the Plan after the tenth anniversary of
the date the Plan was adopted by the Board or approved by the shareholders,
whichever is earlier. However, unless otherwise expressly provided in the Plan
or in an applicable Award Agreement, any Award theretofore granted may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond such date.

         Dated: April 26, 1999