THIRD AMENDMENT TO
                           SEAGULL ENERGY CORPORATION

                       OUTSIDE DIRECTORS DEFERRED FEE PLAN

         WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL ENERGY CORPORATION OUTSIDE DIRECTORS DEFERRED
FEE PLAN (the "Plan"); and

         WHEREAS, the Company desires to amend the Plan;

         NOW, THEREFORE,  the Plan shall be amended as follows,  effective as of
the date of adoption hereof:

         1. The following sentence shall be added to Paragraph 3(b) of the Plan:

         "Finally, a Participant may elect to defer Senior Advisory Council fees
         to be earned by such  Participant for services  rendered by filing with
         the  Committee  an  election  to defer  receipt of all or a  designated
         portion of such fees."

         2. Paragraph 4(d) of the Plan shall be deleted and the following  shall
be substituted therefor:

                  "(d)     Crediting Election.

                  (1) Prior to the first  day of each  quarter  during a Service
         Period  or prior  to the  first  day of each  quarter  subsequent  to a
         Service Period upon which a Participant  has a balance  credited to his
         Plan Accounts,  a Participant may elect to have amounts credited to his
         Elective  Deferral  Account and, if the  Participant has ceased to be a
         member of the Board,  his  Required  Deferral  Account,  credited  with
         Phantom Stock  pursuant to Paragraph  (c) above for such  quarter.  Any
         such election shall be effective until revoked by the Participant. If a
         Participant  fails to make  any  election  under  this  Paragraph,  his
         Elective  Deferral Account shall be credited with interest  equivalents
         pursuant to Paragraph (b) above.

                  (2)  Prior to the first  day of any  quarter  during a Service
         Period or prior to the first day of any quarter subsequent to a Service
         Period  upon which a  Participant  has a balance  credited  to his Plan
         Accounts,  a Participant may revoke his election  pursuant to Paragraph
         (d)(1) above to have amounts credited to his Elective  Deferral Account
         credited with Phantom Stock pursuant to Paragraph (c) above and, if the
         Participant has ceased to be a member of the Board, revoke his election
         pursuant to  Paragraph  (d)(1)  above to have  amounts  credited to his
         Required  Deferral  Account  credited  with Phantom  Stock  pursuant to
         Paragraph  (c)  above or elect to have his  Required  Deferral  Account
         credited  with  interest  equivalents  pursuant to Paragraph (b) above,
         effective as of the first day of such quarter.  If the Participant is a
         member

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         of the Board when he revokes his election  pursuant to Paragraph (d)(1)
         above, any amounts previously  credited to such Participant's  Elective
         Deferral  Account which have been credited with Phantom Stock  pursuant
         to  Paragraph  (c) above  shall  remain  so  credited  and any  amounts
         subsequently  credited to such Participant's  Elective Deferral Account
         shall be credited with interest  equivalents  pursuant to Paragraph (b)
         above.   Notwithstanding   any  Plan  provision  to  the  contrary,   a
         Participant  who has  ceased to be a member of the Board may revoke his
         election  pursuant to Paragraph (d)(1) above with respect to amounts of
         Phantom Stock credited to his Elective  Deferral  Account and may elect
         to  have  his  Required   Deferral   Account   credited  with  interest
         equivalents  pursuant to Paragraph (b) above, prior to and effective as
         of the first day of the first month  following the date he ceased to be
         a member of the Board.  If a Participant  who has ceased to be a member
         of the Board  revokes or makes an election  pursuant to this  Paragraph
         (d)(2),  such Participant's  Account or Accounts shall be credited with
         the value of the number of shares of  Phantom  Stock  credited  to such
         Account or Accounts as of the preceding  day, based upon the average of
         the closing prices of common stock of the Company on the twenty trading
         days preceding such date."

         3. Paragraph 5(a) of the Plan shall be deleted and the following  shall
be substituted therefor:

                  "(a) Payment Election  Generally.  A Participant  shall elect,
         subject to the  provisions  of Paragraphs  (b), (c) and (d) below,  the
         time  (which  may not be prior to the later of (i) the date on which he
         ceases  to be a member of the Board or (ii) the date on which he ceases
         to be a member of the  Senior  Advisory  Council  to the Board) and the
         mode (which may either be a lump sum payment or monthly,  quarterly, or
         annual installment  payments over a specified term certain) for payment
         of amounts  credited to his Plan Accounts during each Service Period. A
         Participant  may revise  his  election  regarding  the time and mode of
         payment of amounts  credited  to his Plan  Accounts,  but such  revised
         election  shall not be  effective  until the later of (A) the January 1
         following the date of such revised election or (B) the date that is six
         months  after the date of such  revised  election.  In the  absence  of
         direction  by a  Participant  regarding  the time or mode of payment of
         amounts  credited to his Plan Accounts  during a Service  Period,  such
         amounts shall be distributed in monthly  installments  over a period of
         ten  years,  beginning  on the first day of the first  month  after the
         later of (i) the date on which he ceases to be a member of the Board or
         (ii) the date on which he ceases to be a member of the Senior  Advisory
         Council to the Board."

         4. Paragraph 5(e) of the Plan shall be deleted and the following  shall
be substituted therefor:

                  "(e)  Conversion of Plan Accounts for Purposes of Payment.  If
 a Participant has elected to receive payment of his Plan Accounts in a lump sum

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         pursuant to Paragraph (a) above,  the value of his Plan Accounts  shall
         be determined as of the last day of the month  preceding the time which
         he has  elected to receive  such  payment  and an amount  equal to such
         value shall be paid to the Participant. If such Participant has elected
         to have his Plan Accounts  credited  based on Phantom Stock pursuant to
         Paragraph  4(d), the value of his Plan Accounts shall be based upon the
         average of the  closing  prices of common  stock of the  Company on the
         twenty trading days  preceding such date. If a Participant  has elected
         to receive  payment of his Plan  Accounts in any other mode pursuant to
         Paragraph  (a) above and his Plan  Accounts  are  being  credited  with
         Interest  Equivalents pursuant to Paragraph 4(b), the value of his Plan
         Accounts shall be determined as of the last day of the month  preceding
         the date of any such payment and each subsequent  interval  thereafter,
         and an amount equal to the value of such Plan Accounts  multiplied by a
         fraction, the numerator of which is one and the denominator of which is
         the remaining number of payments which the Participant  elected,  shall
         be  paid  as of  each  interval  such  Participant  elected;  provided,
         however,  that any balance credited to such Participant's Plan Accounts
         shall  continue to be credited  with Interest  Equivalents  pursuant to
         Paragraph 4(b), except that the Interest  Equivalents so credited shall
         be paid  directly to the  Participant.  If a  Participant  has elected,
         pursuant  to  Paragraph  (a)  above,  to  receive  payment  of his Plan
         Accounts  in a mode other  than a lump sum and has  elected to have his
         Plan Accounts  credited  based on Phantom  Stock  pursuant to Paragraph
         4(d),  the  number of  shares of  Phantom  Stock  credited  to his Plan
         Accounts shall be determined as of the last day of the month  preceding
         the date of any such payment and each subsequent  interval  thereafter,
         and such number shall be  multiplied  by a fraction,  the  numerator of
         which is one and the  denominator  of which is the remaining  number of
         payments  which the  Participant  elected,  and an amount  equal to the
         value of the resulting  number of shares of Phantom  Stock,  based upon
         the average of the closing prices of common stock of the Company on the
         twenty  trading  days  preceding  such  date,  shall  be  paid  to such
         Participant.  If Paragraphs (b), (c) or (d) above apply, the value of a
         Participant's  Plan  Accounts  shall  be  determined  as  of  the  date
         specified in the applicable Paragraph and an amount equal to such value
         shall  be  paid  to  the  Participant  or his  designated  beneficiary;
         provided, however, that if the Participant has elected to have his Plan
         Accounts  credited based on Phantom Stock  pursuant to Paragraph  4(d),
         the value of his Plan  Accounts  shall be based upon the average of the
         closing  prices of common  stock of the  Company on the twenty  trading
         days preceding such date."

         5. As amended hereby, the Plan is specifically ratified and reaffirmed.

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         EXECUTED this 13th day of May, 1998.

                           SEAGULL ENERGY CORPORATION

                           By /s/ William L. Transier
                               William L. Transier
                               Senior Vice President
                               and Chief Financial
                               Officer
VEHOU02:104496.1

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