SEVERANCE AGREEMENT

         AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation
(the "Company"), and James T. Hackett ("Executive"),

                              W I T N E S S E T H :

         WHEREAS,  the Company desires to retain certain key employee  personnel
and,  accordingly,  the Board of  Directors  of the Company  (the  "Board")  has
approved the Company entering into a severance agreement with Executive in order
to encourage his continued service to the Company; and

         WHEREAS,  Executive  is prepared to commit such  services in return for
specific arrangements with respect to severance compensation and other benefits;

         NOW,  THEREFORE,  in  consideration of the foregoing and for other good
and valuable consideration, the Company and Executive agree as follows:

         1.       Definitions.

                  (a) "Change in Duties" shall mean the  occurrence,  within two
years after the date upon which a Change of Control  occurs,  of any one or more
of the following:

                           (i)  A   significant   reduction  in  the  duties  of
         Executive from those applicable to him immediately prior to the date on
         which a Change of Control occurs;

                           (ii) A  reduction  in  Executive's  annual  salary or
         target opportunity under any applicable bonus or incentive compensation
         plan from that provided to him immediately prior to the date on which a
         Change of Control occurs;

                           (iii) Receipt of employee benefits (including but not
         limited to medical,  dental,  life insurance,  accidental,  death,  and
         dismemberment,  and  long-term  disability  plans) and  perquisites  by
         Executive that are materially  inconsistent  with the employee benefits
         and  perquisites  provided by the Company to executives with comparable
         duties;

                           (iv)  A  change  in  the   location  of   Executive's
         principal place of employment by the Company by more than 50 miles from
         the location where he was principally employed immediately prior to the
         date on which a Change of Control occurs; or

                           (v) A termination  encompassed by paragraph 2.3(i) of
         the Employment  Agreement dated August 25, 1998,  between Executive and
         the Company.

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                  (b) "Change of Control"  means the occurrence of either of the
following events:

                           (i) The Company (A) shall not be the surviving entity
         in any merger,  consolidation or other reorganization (or survives only
         as a  subsidiary  of an entity  other  than a  previously  wholly-owned
         subsidiary  of the Company) or (B) is to be dissolved  and  liquidated,
         and as a result of or in connection such  transaction,  the persons who
         were  directors of the Company before such  transaction  shall cease to
         constitute a majority of the Board;

                           (ii) Any  person or  entity,  including  a "group" as
         contemplated  by Section  13(d)(3) of the  Securities  Exchange  Act of
         1934, as amended,  acquires or gains  ownership or control  (including,
         without  limitation,  power to vote) of 20% or more of the  outstanding
         shares of the Company's voting stock (based upon voting power),  and as
         a result of or in  connection  with such  transaction,  the persons who
         were  directors of the Company before such  transaction  shall cease to
         constitute a majority of the Board; or

                           (iii) The Company sells all or  substantially  all of
         the assets of the Company to any other  person or entity  (other than a
         wholly-owned  subsidiary of the Company) in a transaction that requires
         shareholder approval pursuant to the Texas Business Corporation Act.

                  (c) "Code"  shall mean the Internal  Revenue Code of 1986,  as
amended.

                  (d)      "Compensation" shall mean the greater of:

                           (i)  Executive's  annual salary plus his Targeted EIP
         Award  immediately  prior  to the date on  which a  Change  of  Control
         occurs, or

                           (ii) Executive's  annual salary plus his Targeted EIP
         Award at the time of his Involuntary Termination.

                  (e) "EIP" shall mean the Seagull Energy Corporation  Executive
Incentive Plan or any successor thereto.

                  (f)  "Involuntary  Termination"  shall mean any termination of
Executive's employment with the Company which:

                           (i) does not result from a  resignation  by Executive
         (other than a resignation  pursuant to clause (ii) of this subparagraph
         (f) or a resignation at the request of the Company); or

                           (ii)  results from a  resignation  by Executive on or
         before the date which is sixty days after the date upon which Executive
         receives notice of a Change in Duties;

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provided,  however,  the term  "Involuntary  Termination"  shall  not  include a
Termination for Cause or any termination as a result of death,  disability under
circumstances entitling him to benefits under the Company's long-term disability
plan, or Retirement.

                  (g) "Retirement" shall mean Executive's  voluntary resignation
on or after the date he reaches age sixty-five (other than a resignation  within
sixty days after the date Executive  receives  notice of a Change in Duties or a
resignation at the request of the Company).

                  (h)  "Severance  Amount"  shall  mean an amount  equal to 2.99
times  Executive's  Compensation,  reduced  by the  present  value of any salary
continuation  or  bonus  amounts  payable  to  Executive  under  the  Employment
Agreement  between the Company and the  Executive  dated  August 25, 1998 or any
successor  thereto.  Such present  value shall be  determined  using the rate of
interest  referred to in  Paragraph  4 hereof as of the last day of  Executive's
employment with the Company.

                  (i)  "Targeted  EIP Award"  shall mean  Executive's  Incentive
Target as set forth  under the EIP in effect for the year with  respect to which
such award is being determined,  if any, or for the last preceding year in which
an EIP was in effect,  expressed as a dollar  amount  based on such  Executive's
annual salary for such year.

                  (j)   "Termination   for  Cause"  shall  mean  termination  of
Executive's  employment  by the  Company  (or its  subsidiaries)  by  reason  of
Executive's  gross  negligence,  gross  neglect  or  willful  misconduct  in the
performance  of his duties or Executive's  final  conviction of a felony or of a
misdemeanor  involving  moral  turpitude,   excluding  misdemeanor   convictions
relating to the operation of a motor vehicle.

                  (k)  "Welfare  Benefit  Coverages"  shall  mean  the  medical,
dental,  life  insurance,  accidental  death  and  dismemberment  and  long-term
disability coverages provided by the Company to its active employees.

         2.  Services.  Executive  agrees  that he will  render  services to the
Company (as well as any  subsidiary  thereof or  successor  thereto)  during the
period  of his  employment  to the  best of his  ability  and in a  prudent  and
businesslike manner.

         3. Severance Benefits. If Executive's  employment by the Company or any
subsidiary  thereof or  successor  thereto  shall be  subject to an  Involuntary
Termination  which occurs within two years after the date upon which a Change of
Control  occurs,  then  Executive  shall be entitled to receive,  as  additional
compensation for services rendered to the Company  (including its subsidiaries),
the following severance benefits:

                  (a) A lump sum cash payment in an amount equal to  Executive's
Severance Amount.

                  (b) A  lump  sum  cash  payment  in an  amount  equal  to  the
remaining portion of any award to Executive under any prior years' EIP.
Further, if Executive's Involuntary Termination 

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occurs on or after the date an award has been earned under the EIP, but prior to
the date such award is paid, Executive shall receive an additional lump sum cash
payment in an amount equal to his Targeted EIP Award.

                  (c)  Executive  shall be  entitled  to  continue  the  Welfare
Benefit  Coverages for himself and, where  applicable,  his eligible  dependents
following his Involuntary  Termination for up to thirty-six  months,  as long as
Executive  continues  either to pay the premiums paid by active employees of the
Company for such  coverages  or to pay the actual  (nonsubsidized)  cost of such
coverages for which the Company does not subsidize  for active  employees.  Such
benefit  rights shall apply only to those Welfare  Benefit  Coverages  which the
Company has in effect from time to time for active employees, and the applicable
payments shall adjust as premiums for active  employees of the Company or actual
costs,  whichever is  applicable,  change.  Welfare  Benefit  Coverage(s)  shall
immediately  end upon  Executive's  obtainment of new employment and eligibility
for  similar  Welfare  Benefit   Coverage(s)  (with  Executive  being  obligated
hereunder to promptly  report such  eligibility to the Company).  Nothing herein
shall be deemed to  adversely  affect in any way the  additional  rights,  after
consideration of this extension period, of Executive and his eligible dependents
to health care  continuation  coverage as required pursuant to Part 6 of Title I
of the Employee Retirement Income Security Act of 1974, as amended.

                  (d)  Executive  shall be  entitled  to  receive  out-placement
services in connection  with  obtaining  new  employment up to a maximum cost of
$6,000, or an equivalent cash payment, if Executive either has or is not seeking
new employment.

                  (e) The severance  benefits payable under this Agreement shall
be paid to an  Executive  on or  before  the  fifth  day  after  the last day of
Executive's employment with the Company. Any severance benefits paid pursuant to
this Paragraph will be deemed to be a severance payment and not compensation for
purposes of determining  benefits under the Company's  qualified plans and shall
be subject to any required tax withholding.

         4. Interest on Late Benefit  Payments.  If any payment  provided for in
Paragraph  3(a) or 3(b) hereof is not made when due,  the  Company  shall pay to
Executive  interest on the amount payable from the date that such payment should
have been made under such paragraph  until such payment is made,  which interest
shall be calculated at a rate equal to two  percentage  points over the prime or
base rate of interest  announced by Chase Bank of Texas,  N.A. (or any successor
thereto) at its principal office in Houston,  Texas and shall change when and as
any such change in such prime or base rate shall be announced by such bank.

         5. Certain Additional Payments by the Company. Notwithstanding anything
to the contrary in this Agreement, in the event that any payment or distribution
by the Company to or for the benefit of  Executive,  whether  paid or payable or
distributed  or  distributable  pursuant  to the  terms  of  this  Agreement  or
otherwise (a  "Payment"),  would be subject to the excise tax imposed by Section
4999 of the Code or any  interest or  penalties  with respect to such excise tax
(such excise tax, together with any such interest or penalties,  are hereinafter
collectively  referred  to as  the  "Excise  Tax"),  the  Company  shall  pay to
Executive an  additional  payment (a "Gross-up  Payment") in an amount such that
after  payment by  Executive of all taxes  (including  any interest or penalties
imposed

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with  respect to such taxes),  including  any Excise Tax imposed on any Gross-up
Payment, Executive retains an amount of the Gross-up Payment equal to the Excise
Tax imposed upon the Payment.  The Company and  Executive  shall make an initial
determination as to whether a Gross-up Payment is required and the amount of any
such  Gross-up  Payment.  Executive  shall  notify the Company in writing of any
claim by the Internal  Revenue Service which,  if successful,  would require the
Company to make a Gross-up  Payment (or a Gross-up Payment in excess of that, if
any,  initially  determined by the Company and Executive) within ten days of the
receipt of such claim.  The Company  shall notify  Executive in writing at least
ten days prior to the due date of any  response  required  with  respect to such
claim if it plans to contest the claim.  If the Company  decides to contest such
claim,  Executive  shall  cooperate  fully  with  the  Company  in such  action;
provided,  however,  the Company shall bear and pay directly or  indirectly  all
costs and expenses  (including  additional  interest and penalties)  incurred in
connection with such action and shall indemnify and hold Executive harmless,  on
an after-tax  basis,  for any Excise Tax or income tax,  including  interest and
penalties with respect thereto, imposed as a result of the Company's action. If,
as a result of the Company's action with respect to a claim,  Executive receives
a refund of any amount paid by the Company with respect to such claim, Executive
shall  promptly pay such refund to the Company.  If the Company  fails to timely
notify  Executive  whether it will contest such claim or the Company  determines
not to contest such claim,  then the Company shall  immediately pay to Executive
the  portion  of  such  claim,  if any,  which  it has  not  previously  paid to
Executive.

         6.       General.

                  (a) Term.  The effective  date of this Agreement is August 25,
1998. The initial term of this Agreement  shall be the period  beginning on said
effective date and ending on the two-year  anniversary  of said effective  date.
Within sixty days after the  expiration of this  Agreement and within sixty days
after each successive  two-year period of time thereafter that this Agreement is
in effect, the Company shall have the right to review this Agreement, and in its
sole  discretion  either  continue  and extend this  Agreement,  terminate  this
Agreement,  and/or offer Executive a different  agreement.  The Board (excluding
any  member  of the  Board  who is  covered  by this  Agreement  or by a similar
agreement with the Company) will vote on whether to so extend, terminate, and/or
offer Executive a different  agreement and will notify  Executive of such action
before the end of said sixty-day  time period  mentioned  above.  This Agreement
shall  remain in effect  until so  terminated  and/or  modified by the  Company.
Failure of the Board to take any action within said  sixty-day time period shall
be  considered  as an extension of this  Agreement  for an  additional  two-year
period of time.  Notwithstanding  anything  to the  contrary  contained  in this
"sunset  provision,"  it is agreed that if a Change of Control occurs while this
Agreement is in effect,  then this Agreement shall not be subject to termination
or modification  under this "sunset  provision," and shall remain in force for a
period of two years after such  Change of Control,  and if within said two years
the contingency  factors occur which would entitle  Executive to the benefits as
provided  herein,  this Agreement  shall remain in effect in accordance with its
terms.  If,  within such two years after a Change of  Control,  the  contingency
factors that would entitle  Executive to said  benefits do not occur,  thereupon
this two-year  "sunset  provision"  shall again be applicable with the sixty-day
time period for Board action to  thereafter  commence at the  expiration of said
two years  after such Change of Control and on each  two-year  anniversary  date
thereafter.

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                  (b)  Indemnification.  If  Executive  shall  obtain  any money
judgment  or  otherwise  prevail  with  respect  to any  litigation  brought  by
Executive or the Company to enforce or interpret any provision contained herein,
the  Company,  to  the  fullest  extent  permitted  by  applicable  law,  hereby
indemnifies  Executive  for his  reasonable  attorneys'  fees and  disbursements
incurred in such  litigation  and hereby agrees (i) to pay in full all such fees
and  disbursements  and (ii) to pay  prejudgment  interest on any money judgment
obtained by  Executive  from the  earliest  date that payment to him should have
been made under this Agreement until such judgment shall have been paid in full,
which interest shall be calculated at a rate equal to two percentage points over
the prime or base rate of interest  announced  by Chase Bank of Texas,  N.A. (or
any successor  thereto) at its  principal  office in Houston,  Texas,  and shall
change when and as any such change in such prime or base rate shall be announced
by such bank.

                  (c) Payment Obligations Absolute.  The Company's obligation to
pay (or cause one of its  subsidiaries to pay) Executive the amounts and to make
the arrangements  provided herein shall be absolute and  unconditional and shall
not be  affected  by  any  circumstances,  including,  without  limitation,  any
set-off,  counterclaim,  recoupment,  defense or other  right  which the Company
(including  its  subsidiaries)  may have against him or anyone else. All amounts
payable by the Company  (including  its  subsidiaries  hereunder)  shall be paid
without  notice or  demand.  Executive  shall  not be  obligated  to seek  other
employment in mitigation of the amounts payable or  arrangements  made under any
provision of this  Agreement,  and, except as provided in Paragraph 3(c) hereof,
the  obtaining  of any  such  other  employment  shall in no  event  effect  any
reduction  of the  Company's  obligations  to make (or  cause  to be  made)  the
payments and arrangements required to be made under this Agreement.

                  (d) Successors. This Agreement shall be binding upon and inure
to the benefit of the Company and any  successor  of the  Company,  by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit of
Executive  and his  estate.  If  Executive  shall die prior to full  payment  of
amounts due pursuant to this Agreement,  such amounts shall be payable  pursuant
to the terms of this Agreement to his estate.

                  (e)  Severability.  Any provision in this  Agreement  which is
prohibited or  unenforceable  in any  jurisdiction  by reason of applicable  law
shall,  as to such  jurisdiction,  be  ineffective  only to the  extent  of such
prohibition or unenforceability  without invalidating or affecting the remaining
provisions  hereof,  and  any  such  prohibition  or   unenforceability  in  any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

                  (f)  Non-Alienation.  Executive  shall  not have any  right to
pledge,  hypothecate,   anticipate  or  assign  this  Agreement  or  the  rights
hereunder, except by will or the laws of descent and distribution.

                  (g) Notices. Any notices or other communications  provided for
in this Agreement  shall be sufficient if in writing.  In the case of Executive,
such notices or communications shall be effectively  delivered if hand delivered
to Executive at his  principal  place of  employment or if sent by registered or
certified  mail to  Executive at the last address he has filed with the Company.
In the

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case of the  Company,  such  notices  or  communications  shall  be  effectively
delivered  if  sent by  registered  or  certified  mail  to the  Company  at its
principal executive offices.

                  (h) Controlling  Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas. Further, Executive
agrees that any legal  proceeding to enforce the  provisions  of this  Agreement
shall be brought in Houston,  Harris County,  Texas, and hereby waives his right
to any pleas regarding subject matter or personal jurisdiction and venue.

                  (i)  Release.  As a  condition  to the  receipt of any benefit
under Paragraph 3 hereof,  Executive shall first execute a release,  in the form
established by the Company,  releasing the Company, its shareholders,  partners,
officers,  directors,  employees and agents from any and all claims and from any
and all causes of action of any kind or character,  including but not limited to
all claims or causes of action  arising out of Executive's  employment  with the
Company or, with the exception of rights provided in any other agreement between
the Company and Executive, the termination of such employment.

                  (j) Full Settlement.  If Executive is entitled to and receives
the benefits provided  hereunder,  performance of the obligations of the Company
hereunder will  constitute  full  settlement of all claims that Executive  might
otherwise   assert  against  the  Company  on  account  of  his  termination  of
employment,  except  such  claims  as  may be  asserted  pursuant  to any  other
agreement between the Company and Executive.

                  (k) Unfunded  Obligation.  The obligation to pay amounts under
this  Agreement  is  an  unfunded  obligation  of  the  Company  (including  its
subsidiaries),  and no such  obligation  shall create a trust or be deemed to be
secured by any pledge or encumbrance  on any property of the Company  (including
its subsidiaries).

                  (l) Not a Contract of Employment.  This Agreement shall not be
deemed to constitute a contract of  employment,  nor shall any provision  hereof
affect (i) the right of the Company (or its subsidiaries) to discharge Executive
at will, subject to the terms of any other agreement between the Company (or its
subsidiaries)  and  Executive,  or (ii) the  terms and  conditions  of any other
agreement between the Company and Executive except as provided herein.

                  (m) Number and Gender. Wherever appropriate herein, words used
in the  singular  shall  include  the plural and the plural  shall  include  the
singular. The masculine gender where appearing herein shall be deemed to include
the feminine gender.

                  (n)  Counterparts.  This  Agreement  may be executed in one or
more counterparts,  each of which shall be deemed to be an original,  but all of
which together will constitute one and the same Agreement.

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         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on
the 25th day of August, 1998.

                                             "EXECUTIVE"

                                                  /s/James T. Hackett


                                             "COMPANY"

                                              SEAGULL ENERGY CORPORATION

                                              By: /s/William L. Transier
                                              Name:  William L. Transier
                                              Title: Senior Vice President and
                                                     Chief Financial Officer

VEHOU02:117215.1

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