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                                                                    EXHIBIT 10.2


                           PURCHASE AND SALE AGREEMENT

         THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), effective as of
July 15, 1999 is by and between OCEAN ENERGY, INC., a Texas corporation
("Seller"), and SEMCO ENERGY, INC., a Michigan corporation ("Purchaser").
Capitalized terms used herein shall have the meanings ascribed to them in
Article XI, unless otherwise provided.

                              W I T N E S S E T H:

         WHEREAS, Seller owns the APC Shares and the Distribution Assets;

         WHEREAS, Seller owns the APC Debt;

         WHEREAS, Purchaser desires to purchase, and Seller desires to sell, the
APC Shares, the Distribution Assets and the APC Debt, subject in all respects to
the provisions of this Agreement; and

         WHEREAS, the closing of the transactions contemplated by this Agreement
is subject to obtaining certain governmental approvals, including the approval
of the RCA, which the parties desire to obtain.

         NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

                                    ARTICLE I

                                Sale and Purchase

         Section 1.1. Sale and Purchase of APC Shares. Subject to all of the
terms and conditions of this Agreement, at the Closing, Seller shall sell,
transfer and deliver to Purchaser the APC Shares; and Purchaser shall purchase
and accept delivery from Seller of the APC Shares at the Closing.

         Section 1.2. Sale and Purchase of Distribution Assets. Subject to all
of the terms and conditions of this Agreement, at the Closing, Seller shall
sell, transfer and deliver to Purchaser the Distribution Assets; and Purchaser
shall purchase and accept delivery from Seller of the Distribution Assets at the
Closing.

         Section 1.3. Sale and Purchase of APC Debt. Subject to all of the terms
and conditions of this Agreement, at the Closing, Seller shall sell, transfer
and deliver to Purchaser the APC Debt; and Purchaser shall purchase and accept
delivery from Seller of the APC Debt at the Closing.


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                                   ARTICLE II

                                 Purchase Price

         Section 2.1. Stock Purchase Price. The purchase price for the APC
Shares shall be $70,000,000, as adjusted pursuant to Section 2.4 ("Stock
Purchase Price").

         Section 2.2 Assets Purchase Price. The cash consideration to be paid
for the Distribution Assets shall be $161,500,000, as adjusted pursuant to
Section 2.4 ("Assets Purchase Price").

         Section 2.3. APC Debt Purchase Price. The purchase price for the APC
Debt shall be equal to the principal amount thereof on the Closing Date, not to
exceed $58,700,000, together with accrued interest thereon (the "APC Debt
Purchase Price").

         Section 2.4 Purchase Price Adjustment.

                  (a) Adjustment Mechanism. The Purchase Price is based on the
         understanding that on the Closing Date, the working capital of the
         Natural Gas Business shall be $2,000,000 (the "Target Working Capital
         Amount"). For purposes of this Section 2.4, working capital shall be
         determined in accordance with GAAP, applied on a basis consistent with
         the manner in which the Base Financial Statements are prepared;
         provided, however, that the current portion of any long-term debt shall
         not be included in such calculation. If the working capital of the
         Natural Gas Business is not at the Target Working Capital Amount, the
         Purchase Price shall be adjusted as follows:

                           (i) On the date five days before the Closing Date,
                  Seller will provide Purchaser with an estimate of the working
                  capital of the Natural Gas Business as of the Closing Date,
                  and if such estimate is below or above the Target Working
                  Capital Amount, the Purchase Price payable on the Closing Date
                  shall be adjusted downward or upward, as the case may be, as
                  provided in Section 2.4(a)(iii), subject to the provisions
                  thereof.

                           (ii) If either party believes that an adjustment to
                  the Purchase Price is required in addition to the adjustment,
                  if any, provided in Section 2.4(a)(i), Purchaser will cause to
                  be prepared and delivered to Seller no later than 60 days
                  after the Closing Date an audited balance sheet of the Natural
                  Gas Business, as at the Closing Date, which balance sheet
                  shall present fairly, in conformity with GAAP, the assets and
                  liabilities of the Natural Gas Business as at the close of
                  business on the Closing Date and shall be prepared in a manner
                  consistent with the Base Financial Statements and shall set
                  forth the working capital. If such balance sheet shows that
                  the working capital of the Natural Gas Business is below or
                  above the Target Working Capital Amount, the Purchase Price
                  shall be adjusted downward or upward, as the case may be, as
                  provided in Section 2.4(a)(iii).


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                           (iii) In the event that the working capital of the
                  Natural Gas Business determined pursuant to either the
                  estimate or the audited balance sheet prepared pursuant to
                  Section 2.4(a)(i) or (ii) above is less than or greater than
                  the Target Working Capital Amount, the Purchase Price shall be
                  adjusted downward or upward, as the case may be, by an amount
                  equal to such difference; provided, however, that in no event
                  shall the net effect of such adjustment be to increase the
                  Purchase Price by more than $2,000,000. The party required to
                  make a payment to the other party pursuant to this paragraph
                  shall make any such payment pursuant to clause (ii) within 30
                  business days after receipt of the applicable audited balance
                  sheet by Seller. Any adjustment shall adjust prorata the Stock
                  Purchase Price and the Asset Purchase Price.

                  (b) Dispute Procedures. During the 30-day period following
         Seller's receipt of the audited balance sheet for the Natural Gas
         Business, Seller and its independent auditors will be permitted to
         review the working papers of the auditors relating to the audited
         balance sheet. The audited balance sheet shall become final and binding
         upon the parties on the thirtieth day following receipt thereof by
         Seller unless Seller gives Purchaser written notice of its disagreement
         prior to such date. Any notice of disagreement shall specify in
         reasonable detail the nature of any disagreement so asserted and shall
         be accompanied by a certificate of Seller's independent auditors that
         they concur with each of the positions taken by Seller in the notice of
         disagreement. If a notice of disagreement is received by Purchaser in a
         timely manner, then the audited balance sheet (as revised in accordance
         with clauses (i) or (ii) below) shall become final and binding upon the
         parties on the earlier of (i) the date the parties hereto resolve in
         writing any differences they have with respect to any matter specified
         in the notice of disagreement or (ii) the date any disputed matters are
         finally resolved in writing by the arbitrator referred to below. During
         the 30-day period following the delivery of a notice of disagreement,
         Seller and Purchaser shall seek in good faith to resolve in writing any
         differences that they may have with respect to any matter specified in
         the notice of disagreement. At the end of such 30-day period, Seller
         and Purchaser shall submit to an arbitrator for review and resolution
         any and all matters arising under this Section 2.4(b) which remain in
         dispute. The arbitrator shall be a nationally recognized independent
         public accounting firm as shall be agreed upon by the parties hereto in
         writing. The arbitrator shall render a decision resolving the matters
         submitted to the arbitrator within 30 days following submission
         thereto. The cost of any arbitration (including the fees of the
         arbitrator) pursuant to this Section 2.4 shall be borne 50% by
         Purchaser and 50% by Seller. The fees and disbursements of Seller's
         independent auditors incurred in connection with their review of the
         audited balance sheet shall be borne by Seller, and the fees and
         disbursements of Purchaser's independent auditors incurred in
         connection with their preparation and review of the audited balance
         sheet shall be borne by Purchaser.

         Section 2.5. Letter of Credit. Concurrently with the execution of this
Agreement, Purchaser has delivered to Seller an irrevocable standby letter of
credit from Bank of America, in


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an amount equal to $10,000,000, a copy of which is attached to this Agreement as
Exhibit B (the "Letter of Credit").

                                   ARTICLE III

                    Representations and Warranties of Seller

         Seller represents and warrants to Purchaser that, except as set forth
or disclosed in Seller's Disclosure Schedule:

         Section 3.1. Corporate Status and Authority.

                  (a) Seller is a corporation duly organized, validly existing,
         and in good standing under the laws of the State of Texas. Seller has
         all the requisite corporate power and corporate authority to execute
         and deliver this Agreement and the other Operative Documents to which
         it is a party and to perform its obligations hereunder and thereunder,
         and the execution, delivery and performance of this Agreement and the
         other Operative Documents to which Seller is a party have been duly
         authorized by all necessary corporate action on the part of Seller.
         Seller has all the requisite corporate power and corporate authority to
         carry on the Distribution Business as it is now being conducted and to
         own or lease and operate the Distribution Assets as and in the place
         where the Distribution Business is now conducted or where the
         Distribution Assets are now owned or leased and operated. Seller has
         the corporate power to own the APC shares. Section 3.1(a) of Seller's
         Disclosure Schedule lists all charter documents that, as of the date
         hereof, constitute the Articles of Incorporation, as amended, of Seller
         and APC, respectively. Prior to the date of this Agreement, Seller has
         delivered to Purchaser true, correct and complete copies of the
         Articles of Incorporation and Bylaws of Seller and APC.

                  (b) APC is a corporation duly organized, validly existing and
         in good standing under the laws of the State of Alaska. APC has all the
         requisite corporate power and corporate authority to carry on its
         business as it is now being conducted and to own or lease and operate
         its properties as, and in the places where, such business is now
         conducted and where such properties are now owned or leased and
         operated. APC has the corporate power to own the APC Assets and to own,
         lease and operate the Transmission Business as and in the place where
         such business is now conducted and where such properties are now owned
         or leased and operated. APC owns no equity security of any other entity
         and, as a result, has no subsidiaries.

         Section 3.2. Duly Executed. This Agreement has been duly executed and
delivered on behalf of Seller, and, when executed and delivered at the Closing
in accordance with this Agreement, each of the other Operative Documents to
which Seller is a party shall have been duly executed and delivered on behalf of
Seller. This Agreement does, and, when executed and delivered at the Closing in
accordance with this Agreement, each of the other Operative Documents to which
Seller is a party


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shall, constitute a legal, valid and binding obligation of Seller enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and general principles of equity.

         Section 3.3. Qualification. Seller and APC are duly qualified and in
good standing, as foreign corporations authorized to do business in all
jurisdictions (including, without limitation, with respect to Seller, the State
of Alaska) where failure to so qualify would materially adversely affect the
Natural Gas Business.

         Section 3.4 Governmental Consent. Except for those consents or
approvals set forth in Section 3.4 of Seller's Disclosure Schedule (the
"Seller's Required Governmental Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is or has been required on the part of Seller or APC in connection
with the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby.

         Section 3.5. Capitalization of APC; Title to APC Shares and APC Debt.
The authorized capital stock of APC consists of (i) 2,850,000 shares of common
stock, par value $1.00 per share, of which 1,900,000 shares are duly authorized,
validly issued and outstanding, fully paid and nonassessable, and 150,000 shares
of Preferred Stock, of which no shares are outstanding. All such outstanding
common stock, as well as all of the APC Debt, is owned by Seller. By delivery of
payment for the APC Shares and the APC Debt and by delivery of the certificates
representing the APC Shares and the instruments representing the APC Debt, in
each case, as provided for in this Agreement, Purchaser shall acquire good title
to the APC Shares and the APC Debt, free and clear of all liens, mortgages,
charges, security interests, encumbrances and other restrictions or limitations
of any kind whatsoever. There are no outstanding subscriptions, options,
warrants, conversion rights, outstanding convertible securities, preemptive
rights, preferential rights, or other rights (contractual or otherwise) or
agreements of any kind for the purchase or acquisition from (or the purchase,
sale or issuance by) Seller of any APC Debt or any shares of capital stock of
APC, or other equity or ownership interest in APC, and no outstanding
authorization therefor has been given.

         Section 3.6. Title to Distribution Assets and APC Assets; Liens. Seller
has good and indefeasible title to the Distribution Assets and APC has good and
indefeasible title to the APC Assets, except, in each case, those that in the
aggregate are not material to the Natural Gas Business and those disposed of
since the date of the Base Financial Statements in the ordinary course of
business or otherwise disposed of in accordance with this Agreement. None of the
Distribution Assets nor any of the APC Assets are subject to any mortgage,
pledge, lien, security interest, charge or encumbrance except (i) liens created
by or pursuant to the Existing Loan Documents, all of which shall be released at
or prior to the Closing to the extent not in favor of the holders of
indebtedness to be acquired by Purchaser in accordance with the provisions of
this Agreement, (ii) liens securing any indebtedness referred to in clause
(d)(iv) of Section 3.9 hereof and covering only the assets and properties
securing such indebtedness at the time of its renewal, extension, rearrangement
or refunding as contemplated by such clause (d)(iv), all of which shall be
released at or prior to the


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Closing to the extent not in favor of the holders of indebtedness to be acquired
by Purchaser in accordance with the provisions of this Agreement, (iii)
Permitted Encumbrances and (iv) other liens incidental to the conduct of the
Natural Gas Business or the ownership of the Distribution Assets or the APC
Assets that were not incurred in connection with the borrowing of money or the
obtaining of advances for credit and that do not in the aggregate materially
impair the value of the assets affected thereby or materially impair the use of
such assets in the operation of the Natural Gas Business. Seller enjoys peaceful
and undisturbed possession under all material real property leases included in
the Distribution Assets, and all such leases are valid and subsisting and in
full force and effect. APC enjoys peaceful and undisturbed possession under all
material leases of real property on which the facilities operated by it are
situated, and all such leases are valid and subsisting and in full force and
effect.

         Section 3.7. No Breach, Etc. The execution, delivery and performance of
this Agreement and the Operative Document to which Seller is a party by Seller
and the consummation by Seller of the transactions contemplated hereby will not
result in (a) any conflict with or breach or violation of or default under the
Articles of Incorporation or by-laws of Seller or APC, or (b) subject to
obtaining those consents or approvals described in Sections 3.4 and Section 3.7
of Seller's Disclosure Schedule (the "Seller's Required Approvals", which term
shall not include any Seller's Required Governmental Consents), any material
conflict with or breach or violation of or default under or right to terminate,
cancel or accelerate under any Material Contract, or the creation of imposition
of any lien, charge, pledge or encumbrance on any of the Distribution Assets or
the APC Assets whatsoever, except for such conflicts, breaches, violations,
defaults, or rights of termination, cancellation or acceleration, liens ,
charges, pledges or encumbrances that individually or in the aggregate would not
result in a Material Adverse Effect on the Natural Gas Business. Seller has no
knowledge of any Material Permits that are currently required in connection with
its and APC's ownership and operation of the Natural Gas Business other than
those that either have been obtained or will be obtained in due course. The
Natural Gas Business is not being operated in violation of any of the provisions
of Seller's or APC's Material Permits or any applicable Legal Requirement except
for such violations, if any, which will not have, individually or in the
aggregate, a Material Adverse Effect on the Natural Gas Business.

         Section 3.8. Financial Statements; Material Liabilities.

                  (a) Seller has heretofore delivered to Purchaser complete and
         correct copies of (i) its annual report to shareholders for the fiscal
         year ended December 31, 1998, (ii) its Annual Report on Form 10-K for
         such fiscal year, as filed with the Securities and Exchange Commission,
         (iii) audited combined financial statements of the Distribution
         Division and APC for each of the three fiscal years ended December 31,
         1998, accompanied by the report thereon of KPMG LLP, certified
         accountants, and (iv) the unaudited combined financial statements of
         the Distribution Division and APC as of March 31, 1999 ("Base Financial
         Statements"). The audited and unaudited financial statements referred
         to in clause (iii) above and the Base Financial Statements are referred
         to herein as the "Natural Gas Business Financial Statements." All
         Natural Gas Business Financial Statements were prepared in


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         accordance with generally accepted accounting principles applied on a
         consistent basis, except for changes concurred in by said accountants
         and disclosed in said financial statements, throughout the periods
         specified, and present fairly in all material respects the financial
         condition and the results of operations for the Natural Gas Business as
         of the dates thereof and for the periods then ended (subject, in the
         case of unaudited financial statements, to normal year-end audit
         adjustments).

                  (b) On the date hereof Seller is not aware of any matter that
         has or is reasonably likely to have a Material Adverse Effect on the
         Natural Gas Business or (so far as Seller can now reasonably foresee)
         has a substantial likelihood in the future of having a Material Adverse
         Effect on the Natural Gas Business (taken as a whole) other than (i)
         general economic conditions, (ii) the matters referred to or set forth
         in the annual report to shareholders of Seller referenced in Section
         3.8(a), the annual report on Form 10-K of Seller referenced in Section
         3.8(a), the Natural Gas Business Financial Statements or in any
         Material Contracts furnished to Purchaser by Seller and (iii) matters
         and conditions not relating specifically to the Distribution Division
         or APC that are generally known to the public or to those in the oil
         and gas industry, the natural gas or electric utility industry in the
         State of Alaska or the natural gas transmission and distribution
         industry.

         Section 3.9. Changes, etc. Since the date of the Base Financial
Statements:

                  (a) no Material Adverse Effect has occurred in respect of the
         Natural Gas Business;

                  (b) except for those actions taken in compliance with this
         Agreement, the Natural Gas Business has been conducted in substantially
         the same manner in which it had been previously conducted;

                  (c) (i) the Distribution Assets, the APC Assets and related
         real property have been and are being operated in all material respects
         in compliance with Environmental Law and Seller has disclosed to
         Purchaser all past or present conditions of the real property, and all
         matters and issues in any way pertinent or related to the acquisition,
         operation or management of the Distribution Assets or the APC Assets
         which could, individually or in the aggregate, lead to imposition of a
         Material Liability on APC or the Distribution Division. Seller has
         received no notice or claim or information requests from any federal,
         state or local governmental or regulatory authority with jurisdiction
         over Seller (with respect to the Distribution Division), APC or the
         Distribution Assets or the APC Assets or from any third party alleging
         non-compliance with Environmental Law.

                      (ii) there are no present or past conditions arising from
         or relating to the Distribution Assets or the APC Assets involving or
         resulting from a past or present spill, discharge, leak, emission,
         injection, escape, dumping, migration, seepage, or release of any kind
         whatsoever (other than on-site or off-site) of any substance or
         exposure of any type of


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         any workplace or to any medium, including, but not limited to, air,
         land, surface waters or underground waters, or from any past or present
         generation, transportation, treatment, storage or disposal of any
         hazardous or toxic waste materials, raw materials, products or other
         substances of any kind or from the storage, use or handling of any such
         materials, products or substances that may lead to imposition of a
         Material Liability on APC or the Distribution Division.

                  (d) no indebtedness for borrowed money has been incurred or
         committed to be incurred by the Distribution Division or APC, except
         such indebtedness that has been incurred (i) in the ordinary course of
         business, (ii) pursuant to the Credit Agreement between APC and First
         National Bank (the "First National Credit Agreement"), (iii) pursuant
         to advances made by Seller to the Distribution Division or APC,
         including pursuant to the Intercompany Line of Credit Agreement, or
         (iv) in connection with any renewal, extension, rearrangement or
         refunding of any indebtedness of the Distribution Division or APC
         reflected on the Base Financial Statements or incurred after the date
         thereof pursuant to the Credit Agreement referred to in subclause (ii)
         above;

         Section 3.10. Personal Property. To Seller's knowledge, all material
items of personal property and fixtures constituting a part of the Distribution
Assets and APC Assets that are used or useful in the normal operations of the
Distribution Business or the Transmission Business, as the case may be, have
been maintained in all material respects in a state of repair (normal wear and
tear excepted) that Seller believes to be adequate for the normal use of such
item in the ordinary conduct of the Distribution Division or the Transmission
Business, as the case may be, it being understood and agreed, however, that
Seller is making no representation herein with respect to any item of property
that the management of the Natural Gas Business has determined to be not
necessary or desirable for the continued efficient and profitable operation of
the Distribution Business or the Transmission Business, as the case may be.

         Section 3.11. Regulatory Commission of Alaska.

                  (a) Section 3.11(a) of Seller's Disclosure Schedule lists all
         currently effective certificates, permits and authorizations heretofore
         issued by the RCA to APC or Seller in connection with the Natural Gas
         Business.

                  (b) Section 3.11(b) of Seller's Disclosure Schedule reflects
         all of the currently operative tariffs heretofore authorized and
         approved by the RCA that are currently in effect and specifically
         applicable to the Natural Gas Business and all of the currently pending
         rate, certificate or other filings heretofore made by Seller or APC
         before the RCA and the status of each such filing on the date hereof.

                  (c) All currently effective material filings heretofore made
         by Seller or APC with the RCA were made in compliance with Legal
         Requirements then applicable thereto and


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         the information contained therein was true and correct in all material
         respects as of the respective dates of such filings.

         Section 3.12. Material Contracts. Section 3.12 of Seller's Disclosure
Schedule contains a complete and correct list of all Material Contracts as of
the date hereof. There are no defaults by Seller, APC or the Distribution
Division under any contracts listed in such section that, individually or in the
aggregate, will materially and adversely impair the Natural Gas Business. To
Seller's knowledge, there are no defaults by any other party to any contracts
listed in such section that, individually or in the aggregate, will materially
and adversely impair the Natural Gas Business. Except for the First National
Credit Agreement, the Existing Loan Documents, the Intercompany Line of Credit
Agreement and as otherwise disclosed in Seller's Disclosure Schedule, no
Material Contract listed therein contains any restriction on the incurrence by
the Seller or APC of additional long-term debt.

         Section 3.13. Gas Purchase Contracts and Responsibilities.

                  (a) Section 3.13(a) of Seller's Disclosure Schedule accurately
         lists all currently effective material gas purchase contracts
         heretofore entered into by Seller or APC with respect to the Natural
         Gas Business pursuant to which either Seller or APC is obligated as a
         purchaser of natural gas.

                  (b) As to each such gas purchase contract, neither Seller nor
         APC (i) has, since January 1, 1998, made any payments (and no such
         payments have become due to sellers of gas thereunder for gas not
         taken) pursuant to any "take or pay" or similar arrangements; (ii) is
         obligated to pay any material amount (net of any applicable offsets and
         adjustments) for gas taken or not taken prior to the date of the Base
         Financial Statements other than as reflected in the Base Financial
         Statements; or (iii) has received gas that is to be paid for in the
         future other than in the normal cycle of billing in the ordinary course
         of business or as otherwise reflected in the Base Financial Statements,
         in each case except to the extent that such matters would not have a
         Material Adverse Effect.

                  (c) Section 3.13(c) of Seller's Disclosure Schedule accurately
         lists all hedges, swaps and other financial or physical commodity
         positions of the Natural Gas Business on the date hereof and the net
         open commodity position of the Natural Gas Business on such date.

         Section 3.14. Litigation. Section 3.14 of Seller's Disclosure Schedule
lists all actions, suits, proceedings or governmental investigations pending or,
to the knowledge of Seller, threatened against Seller or APC which (i) could
reasonably be expected to have a Material Adverse Effect on the Natural Gas
Business or (ii) challenges or may challenge the validity of this Agreement or
any of the Operative Documents or seeks to enjoin or otherwise restrain the
transactions contemplated herein.


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         Section 3.15. Rights-of-Way. Seller and APC own or possess all
rights-of-way necessary for the conduct of the Distribution Business and the
Transmission Business, respectively, as now being conducted without any known
conflict with the rights of others, in each case except to the extent that the
failure to own or possess such rights-of-way would not have a Material Adverse
Effect on the Natural Gas Business.

         Section 3.16. Gas Transportation and Sales Contracts. Section 3.16 of
Seller's Disclosure Schedule lists all Material Contracts pursuant to which
either the Distribution Division or APC (a) is legally obligated to transport
natural gas owned by a third party or (b) is legally obligated to undertake any
such transportation. There are no agreements or other legally binding
arrangements that constitute Material Contracts pursuant to which either Seller,
with respect to the Distribution Business, or APC is a seller of natural gas to
any third party other than pursuant to tariffs or similar arrangements approved
or authorized by the RCA.

         Section 3.17. Employment Agreements and Benefits, Etc.

                  (a) Employment Agreements. Section 3.17(a) of Seller's
         Disclosure Schedule lists all currently effective employment,
         management, consulting or similar agreements and all currently
         effective labor contracts and collective bargaining agreements
         heretofore entered into by APC or Seller with respect to the Natural
         Gas Business and neither Seller nor APC has any commitment or
         obligation to establish or enter into any such agreement not disclosed
         in Section 3.17(a) of Seller's Disclosure Schedule other than those, if
         any, that do not constitute a Material Employment Contract.

                  (b) Officers and Directors. Section 3.17(b) of Seller's
         Disclosure Schedule contains a complete and accurate list of each
         officer of the Distribution Division and each director and officer of
         APC on the date hereof.

                  (c) Employee Relations. Neither Seller nor APC is a party to
         any collective bargaining agreements covering any of the Employees.
         There is not occurring on the date hereof any slowdowns, pickets, work
         stoppages or other similar disruptive labor activities on the part of
         Seller's or APC's employees with respect to the Natural Gas Business.
         To Seller's knowledge, no grievance, unfair labor practice charge or
         any arbitration proceeding arising out of or under any collective
         bargaining agreement relating to the Natural Gas Business exists or is
         pending on the date hereof that would materially hinder the Natural Gas
         Business from performing its operations in a manner consistent with
         past practice or result in a material increase in the Natural Gas
         Business's aggregate compensation expense.

                  (d) ERISA Plans.

                             (i) Except for (a) the ENSTAR Natural Gas Company
                  Retirement Plan for Operating Unit Employees and Clerical Unit
                  Employees (the "Operating Plan") and the ENSTAR Natural Gas
                  Company Retirement Plan For Salaried Employees,



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                  but only as it covers non-union Natural Gas Business employees
                  (the "Salaried Plan") (collectively, the Operating Plan and
                  the Salaried Plan are herein referred to as the "Pension
                  Plans"), (b) the ENSTAR Natural Gas Company Thrift Investment
                  Plan (the "Thrift Plan"), (c) the ENSTAR Natural Gas Company
                  Profit by Service Plan for Classified Employees and the ENSTAR
                  Natural Gas Company Profit by Service Plan for Salaried
                  Employees (the "Profit Sharing Plans"), (d) the ENSTAR Natural
                  Gas Company Supplemental Executive Retirement Plan (the
                  "SERP"), and (e) the other employee benefit plans listed in
                  Section 3.17(d)(i) of Seller's Disclosure Schedule (the
                  employee benefit plans referred to in (a) through (e) hereof
                  are hereinafter collectively referred to as the "Plans"),
                  neither APC, Seller nor any affiliates thereof, currently
                  sponsors or maintains any employee benefit plan within the
                  meaning of Section 3(3) of ERISA or has at any time within the
                  six years prior to the Closing Date sponsored or maintained
                  any employee pension benefit plan within the meaning of
                  Section 3(2) of ERISA for the benefit of any employees of APC
                  or employees of Seller performing services in connection with
                  the Natural Gas Business ("Employees"). Specifically, neither
                  APC, Seller nor any entity under common control with Seller
                  within the meaning of Code ss. 414 currently contributes to or
                  has at any time within the six years prior to the Closing Date
                  contributed to any multiemployer plan within the meaning of
                  Section 3(37) of ERISA and Purchaser shall have no liability
                  for any such multiemployer plan.

                             (ii) APC and Seller have in all material respects
                  performed all material obligations required to be performed by
                  them or under or in connection with the Plans, and Seller has
                  no knowledge of any material default or violation (including
                  but not limited to fiduciary violations) by any other party to
                  the Plans.

                             (iii) Reports and disclosures relating to the Plans
                  required to be filed with or furnished to governmental
                  agencies, Plan participants or Plan beneficiaries prior to the
                  date hereof have been filed or furnished in accordance with
                  applicable law in a timely manner.

                             (iv) Each of the Thrift Plan, the Pension Plans and
                  the Profit Sharing Plans (a) satisfies in form the
                  requirements of Section 401 of the Code, except to the extent
                  amendments are not required by law to be made until a date
                  after the Closing Date, (b) has received a favorable
                  determination letter from the Internal Revenue Service
                  regarding such qualified status, and (c) has not, since
                  receipt of the most recent favorable determination letter been
                  amended or operated in a way that would, to the knowledge of
                  Seller, materially adversely affect such qualified status.

                             (v) There are no actions, suits or claims pending
                  (other than routine claims for benefits) or, to the knowledge
                  of Seller, threatened against any of the Plans or against the
                  assets of any of the Thrift Plan, Pension Plans or the Profit
                  Sharing Plans.


                                       11
<PAGE>   12


                             (vi) All contributions required to the be made
                  prior to the date hereof to the Thrift Plan, the Profit
                  Sharing Plans and the Pension Plans pursuant to their terms
                  and the provisions of ERISA, the Code or any other applicable
                  Legal Requirement have been timely made.

                             (vii) As to each Pension Plan, (a) there has been
                  no event or condition which presents the material risk of Plan
                  termination, (b) no accumulated funding deficiency, whether or
                  not waived, within the meaning of Section 302 of ERISA or
                  Section 412 of the Code has been incurred, (c) no reportable
                  event within the meaning of Section 4043 of ERISA (for which
                  the disclosure requirements of Regulation section 4043.1 et
                  seq., promulgated by the Pension Benefit Guaranty Corporation
                  ("PBGC"), have not been waived) has occurred, (d) no notice of
                  intent to terminate the Plan has been given under Section 4041
                  of ERISA, (e) no proceeding has been instituted under Section
                  4042 of ERISA to terminate the Plan, (f) no material liability
                  to the PBGC has been incurred, and (g) the fair market value
                  of the assets of such Plan equals or exceeds the present value
                  of accumulated benefits under such Plan based upon the
                  actuarial assumptions used for purposes of the most recent
                  actuarial valuation.

                             (viii) The Base Financial Statements reflect
                  contribution liability accruals made in accordance with past
                  practices reflecting the estimated 1999 contribution liability
                  of APC and the Distribution Division to the Pension Plans, the
                  Thrift Plan and the Profit Sharing Plans as of March 31, 1999.

                             (ix) No act, omission or transaction has occurred
                  that would result in imposition on the APC, Seller or any
                  affiliates thereof of (A) breach of fiduciary duty liability
                  damages under Section 409 of ERISA, (B) a civil penalty
                  assessed pursuant to subsections (c), (i) or (l) of Section
                  502 of ERISA, or (C) a tax imposed pursuant to Chapter 43 of
                  Subtitle D of the Code.

                             (x) There is no action pending with respect to any
                  of the Plans before the Internal Revenue Service, the
                  Department of Labor or the Pension Benefit Guaranty
                  Corporation, or, to the knowledge of Seller, before any state
                  or local governmental agency.

                             (xi) Each Plan subject to the requirements of
                  Section 601 of ERISA has been operated in material compliance
                  therewith. Seller has not contributed to a nonconforming group
                  health plan (as defined in Code Section 5000(c)) and no person
                  under common control with Seller within the meaning of Section
                  414 of the Code has incurred a tax liability under Code
                  Section 5000(a) that is or could reasonably be expected to be
                  a liability of Seller.


                                       12
<PAGE>   13


                             (xii) Except for amounts with respect to which
                  Seller has sole responsibility to pay, no amounts payable
                  under any Plan or other agreement, contract, or arrangement
                  with respect to any Employees will fail to be deductible for
                  federal income tax purposes by virtue of Section 280G or
                  Section 162(m) of the Code.

                             (xiii) Complete and correct copies of the following
                  documents have been made available to Purchaser as of the date
                  of this Agreement: (i) all Plans and any related trust
                  agreements or insurance contracts, (ii) the most current
                  summary descriptions of each Plan subject to ERISA, (iii) the
                  three most recent Form 5500s and Schedules thereto for each
                  Plan subject to such reporting, (iv) the most recent
                  determination of the IRS with respect to the qualified status
                  of each Plan that is intended to qualify under Section 401(a)
                  of the Code, (v) the most recent accountings with respect to
                  Plan funded through a trust and (vi) the most recent actuarial
                  report of the qualified actuary of each Plan with respect to
                  which actuarial valuations are conducted.

                  (e) Other Employee Benefit Plans. Section 3.17(e) of Seller's
         Disclosure Schedule lists, in addition to the Plans, all bonus,
         profit-sharing, incentive compensation, stock option, pension,
         retirement, deferred compensation and other plans, agreements, trusts,
         funds and arrangements for the benefit of the Employees other than
         those, if any, which do not constitute a Material Employment Contract.

         Section 3.18. Insurance. Seller, in connection with the Distribution
Business, and APC have been continuously since January 1, 1995, insured in such
amounts and against such risks and losses as are customary for companies
conducting businesses similar to the Natural Gas Business during such time
period. Neither Seller, in connection with the Distribution Business, nor APC
has received any notice of cancellation or termination with respect to any
material insurance policy thereof.

         Section 3.19. Patents, Trademarks, Etc. To Seller's knowledge, the
Natural Gas Business is conducted without conflict with or infringement of
asserted patent, trade names, trademark, copyright, trade secret, know-how or
other industrial property rights of others.

         Section 3.20. APC Debt. The principal amount outstanding under the APC
Debt as of June 1, 1999, is $58,700,000. There is no default by the obligor
under the APC Debt with respect to payments of principal and interest required
to be made thereunder.

         Section 3.21. Brokers. Except for Chase Securities, Inc., no broker or
finder has acted for or on behalf of Seller or any affiliate of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or


                                       13
<PAGE>   14


on behalf of Seller or any affiliate of Seller for which Purchaser, APC or the
Distribution Division has or will have any liabilities or obligations
(contingent or otherwise).

         Section 3.22 Year 2000 Compliance. The Natural Gas Business has adopted
a Year 2000 compliance program (the "Y2K Program"), a copy of which is attached
as Section 3.22 of Seller's Disclosure Schedule, and has filed the Y2K Program
with the RCA. APC and the Distribution Division are in compliance with the Y2K
Program in all material respects and have substantially performed the tasks
required to be performed thereby on or prior to any date as of which this
representation is made or deemed to have been made, in each case except to the
extent that such failure would not, or could not reasonably be expected to have,
a Material Adverse Effect on the Natural Gas Business.

                                   ARTICLE IV

                   Representations and Warranties of Purchaser

         Purchaser represents and warrants to Seller that, except as set forth
or disclosed in Purchaser's Disclosure Schedule:

         Section 4.1. Corporate Status and Authority. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan. Purchaser has all the requisite corporate power and corporate
authority to execute and deliver this Agreement and the other Operative
Documents to which it is a party and to perform its obligations hereunder and
thereunder, and the execution, delivery and performance of this Agreement and
the other Operative Documents to which Purchaser is a party have been duly
authorized by Purchaser's Board of Directors, which constitutes all necessary
corporate action required on the part of the Purchaser for such authorization.
Purchaser has heretofore delivered to Seller true and complete copies of its
Certificate or Articles of Incorporation and bylaws, in each case as amended.

         Section 4.2. Power; Duly Executed. Subject to those matters set forth
in this Agreement, Purchaser has full right, power and authority to enter into
this Agreement and the other Operative Documents to which Purchaser is a party,
and Purchaser has full, right, power and authority to purchase and receive the
APC Shares and the Distribution Assets pursuant hereto. This Agreement has been
duly executed and delivered on behalf of Purchaser, and, when executed and
delivered at the Closing in accordance with this Agreement, each of the other
Operative Documents to which Purchaser is a party shall have been duly executed
and delivered on behalf of Purchaser. This Agreement does, and, when executed
and delivered at the Closing in accordance with this Agreement, each of the
other Operative Documents to which Purchaser is a party shall, constitute a
legal, valid and binding obligation of Purchaser enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and general
principles of equity.


                                       14
<PAGE>   15


         Section 4.3. Qualification. Purchaser is duly qualified and in good
standing, as a foreign corporation authorized to do business in all
jurisdictions where the failure to so qualify would materially adversely affect
the business or properties of Purchaser. Prior to the Closing, Purchaser shall
become duly qualified and in good standing to do business in the State of
Alaska.

         Section 4.4. Governmental Consent. Except for those consents or
approvals set forth in Section 4.4 of Purchaser's Disclosure Schedule (the
"Purchaser's Required Government Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with any governmental
authority is or has been required on the part of Purchaser in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

         Section 4.5. Brokers. Except for Banc of America Securities LLC and
Charlevoix Energy Partners, no broker or finder has acted for or on behalf of
Purchaser or any affiliate of Purchaser in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled to
any brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Purchaser or
any affiliate of Purchaser for which Seller or any affiliate thereof has or will
have any liabilities or obligations (contingent or otherwise).

         Section 4.6. Litigation. There are no actions, suits, proceedings or
governmental investigations pending or, to the knowledge of Purchaser,
threatened against Purchaser or any of the its subsidiaries which (a) will have
a Material Adverse Effect or can reasonably be expected to have a Material
Adverse Effect on the ability of Purchaser to consummate the transactions
contemplated in the Agreement, or (b) challenges or may challenge the validity
of this Agreement or any of the Operative Documents to be executed at Closing or
seeks to enjoin or otherwise restrain the transactions contemplated herein.

         Section 4.7 No Breach, Etc. The execution, delivery and performance of
this Agreement and the Operative Documents to which Purchaser is a party by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not result in (a) any conflict with or breach or violation of or
default under the Certificate or Articles of Incorporation or by-laws of
Purchaser, or (b) subject to obtaining those consents or approvals described in
Sections 4.4 and 4.7 of the Purchaser's Disclosure Schedule (the "Purchaser's
Required Approvals", which term shall not include any Purchaser's Required
Governmental Consents), any material conflict with or breach or violation of or
default under or right to terminate, cancel or accelerate under any material
indenture, contract, agreement, license, lease or other instrument to which
Purchaser is a party or the creation of imposition of any lien, charge, pledge
or encumbrance on any of the material assets of the Purchaser. With respect to
the credit agreement related to the Purchaser's Required Approval described in
Section 4.7 of the Purchaser's Disclosure Schedule, such credit agreement is
subject to renewal no later than September 30, 1999, and upon such renewal the
credit agreement will be amended or otherwise modified so that no consent to the
transactions contemplated by this Agreement is required thereunder. Upon such
renewal the Purchaser's Disclosure Schedule shall


                                       15
<PAGE>   16


be deemed to be modified so that the requirement to obtain such consent is no
longer disclosed thereon.

         Section 4.8. Financial Arrangements of Purchaser. Purchaser presently
has and will at all times have adequate sources of funds to provide at the
Closing, and at the Closing will have, sufficient funds in order to timely pay
the Purchase Price and any adjustments thereto.

         Section 4.9. Financial Statements. Purchaser has heretofore delivered
to Seller complete and correct copies of (a) its annual report to shareholders
of its most recently ended fiscal year, (b) its Annual Report on Form 10-K for
the same fiscal year, as filed with the Securities and Exchange Commission, (c)
its proxy statement relating its most recent Annual Meeting of Shareholders and
(d) its quarterly reports on Form 10-Q for any fiscal quarters ended after the
fiscal year described in clause (a). The consolidated financial statements of
the Purchaser contained therein were prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except for changes
concurred in by the Purchaser's accountants and disclosed in said financial
statements, throughout the periods specified, and present fairly in all material
respects the financial condition and results of operations of the businesses of
Purchaser as of the dates thereof and for the periods then ended (subject, in
the case of unaudited financial statements, to normal year-end audit
adjustments) and the absence of footnote disclosure.

         Section 4.10. Purchase for Investment. Purchaser is acquiring the APC
Shares for its own account, for investment only, without a view to distribution,
as that phrase has meaning under the Securities Act of 1933, as amended (the
"Act") and rules and regulations of the Securities and Exchange Commission.
Purchaser understands that the effect of the representation and warranty made
herein is that the APC Shares must be held by it indefinitely unless
subsequently registered under the Act or unless an exemption from registration
is available at the time of any proposed sale or other transfer thereof.
Purchaser agrees to indemnify and hold harmless Seller against all liabilities,
costs and expenses, including reasonable attorneys' fees, and other Losses
incurred by Seller as a result of any sale, transfer or other disposition by
Purchaser of all or any part of the APC Shares in violation of the Act or
applicable state securities laws.

                                    ARTICLE V

                  Covenants and Certain Actions of the Parties

         Section 5.1. Obligations of Seller.

         Section 5.1.1. Conduct of Business, Etc.

         From the date of this Agreement and until the Closing ("Interim
Period"), except as is otherwise approved by Purchaser in writing (which
approval shall not be unreasonably withheld or delayed), Seller shall:


                                       16
<PAGE>   17


                  (a) except as permitted or contemplated by this Agreement,
         carry on the Distribution Business in the ordinary course consistent
         with past practice and, to the extent consistent with such business,
         use all reasonable efforts to preserve intact the present business
         organization and to preserve its relationship with customers, suppliers
         and others having business dealings with the Distribution Division;

                  (b) except as permitted or contemplated by this Agreement,
         cause APC to carry on the Transmission Business in the ordinary course
         consistent with past practice and, to the extent consistent with such
         business, use all reasonable efforts to preserve intact the present
         business organization and to preserve its relationships with customers,
         suppliers and others having business dealings with APC;

                  (c) maintain its corporate existence and, to the extent within
         the control of Seller, maintain all qualifications of Seller that are
         required for it to carry on the Distribution Business as set forth in
         clause (a) above; and cause APC to maintain its corporate existence
         and, to the extent within the control of Seller, cause APC to maintain
         all qualifications of APC that are required for it to carry on the
         Transmission Business as set forth in clause (b) above;

                  (d) not permit APC to amend its Articles of Incorporation or
         bylaws;

                  (e) except as permitted or contemplated by this Agreement and
         except for proposed transactions that are disclosed in Seller's
         Disclosure Schedule, not enter into or amend or permit APC to enter
         into or amend in any bonus, incentive compensation, deferred
         compensation, profit sharing, retirement, pension, group insurance,
         death benefit or other fringe benefit plan, trust agreement, or
         arrangement affecting any Employees, or any compensation, severance or
         consulting agreement with any such officer or employee other than in
         the ordinary course of business or otherwise consistent with past
         practice or as required by law or any presently existing collective
         bargaining agreement;

                  (f) not permit APC or the Distribution Division, other than in
         the ordinary course of business, to create, incur, assume, guarantee or
         otherwise become liable with respect to any indebtedness for money
         borrowed except (i) pursuant to the First National Credit Agreement,
         (ii) pursuant to advances made by Seller to the Distribution Division
         or APC, including under the Intercompany Line of Credit Agreement,
         (iii) in compliance with the provisions of this Agreement, or (iv) in
         connection with any renewal, extension, rearrangement or refunding of
         any indebtedness of the Distribution Division or APC reflected in the
         Base Financial Statements or incurred after the date thereof pursuant
         to the First National Credit Agreement;

                  (g) except for proposed transactions described in Section
         5.1.1(g) of Seller's Disclosure Schedule, refrain from disposing of any
         material Distribution Assets or material APC Assets other than in the
         ordinary course of business;


                                       17
<PAGE>   18


                  (h) except for any proposed transactions described in Section
         5.1.1(h) of Seller's Disclosure Schedule, not permit APC to merge or
         consolidate with any other corporation or acquire any stock,
         securities, property or assets of any other Person; provided, however,
         that the foregoing restriction shall not prohibit any acquisition of
         property or assets to be used by the Natural Gas Business in the
         ordinary course of business or for capital expenditures permitted by
         Section 5.1.1(k);

                  (i) not permit APC to issue any shares of any class of its
         capital stock, or enter into any contract, or grant any option, warrant
         or right, calling for the issuance of any such shares, or create or
         issue any securities convertible into any such shares or convertible
         into securities in turn so convertible, or enter into any contract, or
         grant any option, warrant or right, calling for the issuance of any
         such convertible securities;

                  (j) advise and consult, and cause APC to advise and consult,
         with Purchaser in advance of any material actions (including, without
         limitation, rate filings) to be taken with respect to regulatory
         matters or other contested matters;

                  (k) except as contemplated by the Natural Gas Business's
         capital budget or as set forth in Section 5.1.1(k) of Seller's
         Disclosure Schedule, not make or commit to make, or permit APC to make
         or commit to make, any capital expenditures, capital additions or
         capital improvements with respect to the Natural Gas Business in an
         amount in excess of $1,000,000 with respect to all such capital
         projects and except for repairs to the Natural Gas Business's property
         required for safety and/or the continued operation of the Natural Gas
         Business in accordance with past practice.

                  (l) use all reasonable efforts to obtain waivers of all
         preferential rights to purchase all or any part of the Distribution
         Assets and use all reasonable efforts to obtain, and cause APC to use
         all reasonable efforts to obtain, any consent of third parties
         necessary to complete the transactions contemplated by this Agreement;

                  (m) use all reasonable efforts to provide substantially in
         accordance with past practices under that certain Agreement For
         Services, dated January 1, 1993, as amended, between Seller, the
         Distribution Division and APC, all material corporate general and
         administrative services to APC and the Distribution Division of the
         type previously provided by Seller and cooperate with Purchaser in the
         transition of the performance of such services to Purchaser at the
         Closing. Seller will, and will cause the Distribution Division and APC
         to, terminate such Agreement For Services at Closing at no cost to the
         Distribution Division or APC;

                  (n) not take undertake any hedging activity that is
         inconsistent with net open commodity position, if any, described in
         Section 3.13(c) of Seller's Disclosure Schedule; and


                                       18
<PAGE>   19


                  (o) enter into or amend any Material Contract or any other
         contract listed on Section 3.12 of Seller's Disclosure Schedule, in
         each case except to the extent related to any capital expenditure
         permitted by Section 5.1.1(k).

         Section 5.1.2. Access and Information. APC and Seller have given and,
during the Interim Period, Seller shall give, or shall cause to be given, to
Purchaser and its employees, agents and representatives full access, at all
reasonable times and at Purchaser's expense, to the properties, books, files,
records and officers of APC and of Seller, as such relate to the Natural Gas
Business, and will furnish or shall cause to be furnished, at Purchaser's
expense, all information and documents relating to the Natural Gas Business as
Purchaser may reasonably request, and permit Purchaser to contact and meet with
the employees of APC and Seller, as such are involved in the Natural Gas
Business, and others having business relations with such, at such place or
places and at such times as reasonably designated by Purchaser, provided that no
such investigation shall unreasonably interfere with the Natural Gas Business,
or relationships with employees or customers of Seller or APC. During the
Interim Period, Seller shall permit Purchaser to make copies of information
relating to the Natural Gas Business contained in the books, files and records
of Seller and APC. Purchaser will cause all information regarding Seller, the
Distribution Division, APC or the Natural Gas Business obtained or acquired by
Purchaser or Purchaser's representatives, employees, consultants, independent
contractors, attorneys and financing sources and other advisors (the "Purchaser
Parties") pursuant to this Agreement to be used and maintained by the Purchaser
Parties in accordance with the terms of the confidentiality agreement dated June
3, 1999, by and between Seller and Purchaser (the "Confidentiality Agreement").
Notwithstanding the foregoing provisions of this Section 5.1.2, Seller shall not
be required to disclose information to the extent that the disclosure thereof is
prohibited under confidentiality agreements currently in effect on the date
hereof.

         (b) Purchaser hereby agrees to defend, indemnify, release, protect,
save and hold harmless the Seller Indemnitees from and against any and all
Losses (including injury or death of any person or damage to property) arising
out of or relating to Purchaser's access to the properties, books, files and
records of APC or the Natural Gas Business in connection with this Section
5.1.2, including without limitation any Losses resulting, in whole or in part,
from the actions of Purchaser's officers, employees, agents, representatives or
affiliates.

         Section 5.1.3. Hart-Scott-Rodino.

                  (a) Seller will prepare and submit to the Federal Trade
         Commission and the Department of Justice, in a timely manner, all
         necessary filings for Seller in connection with the transactions
         contemplated by this Agreement under the Hart-Scott-Rodino Antitrust
         Improvements Act or 1976 and the rules and regulations of the Federal
         Trade Commission thereunder (collectively, the "Hart-Scott-Rodino
         Act").

                  (b) In the event that a request for additional information is
         made of Seller pursuant to the Hart-Scott-Rodino Act, Seller shall use
         all reasonable efforts to comply with such request as soon as
         practicable after receipt of such request.


                                       19
<PAGE>   20


         Section 5.1.4 Limit on Indebtedness For Borrowed Money. At or prior to
the Closing, Seller shall take such action as shall be necessary such that, at
the Closing, (i) the aggregate indebtedness of the Natural Gas Business for
borrowed money or evidenced by leases required to be capitalized for financial
reporting purposes in accordance with GAAP does not exceed $58,700,000
(including the APC Debt), and (ii) the outstanding principal balance of the APC
Debt does not exceed $58,700,000.

         Section 5.2. Obligations of Purchaser.

         Section 5.2.1. Hart-Scott-Rodino.

                  (a) Purchaser will prepare and submit to the Federal Trade
         Commission and the Department of Justice, in a timely manner, all
         necessary filings for Purchaser in connection with the transactions
         contemplated by this Agreement under the Hart-Scott-Rodino Act.

                  (b) In the event that a request for additional information is
         made of Purchaser pursuant to the Hart-Scott-Rodino Act, Purchaser
         shall use all reasonable efforts to comply with such request as soon as
         practicable after receipt of such request.

         Section 5.2.2. Employee Matters. On or before the Closing Date,
Purchaser will offer employment to each Employee as of the Closing Date who
meets Purchaser's normal employment criteria for similar classifications of
employees. Except as hereinafter provided, and subject to the provisions of any
presently existing collective bargaining agreement, Purchaser shall have full
discretion in determining the terms, conditions and benefits relating to such
employment, provided however, that the salaries and other employment benefits,
taken as a whole, and the positions of responsibility offered by Purchaser shall
be consistent in all material respects with the salary ranges and other
employment benefits, taken as a whole, and the levels of responsibility of such
Employees in effect on the Closing Date.

         Section 5.2.3. Access to Information. After Closing, Purchaser will,
and will cause its counsel and independent public accountants to, afford to
representatives of Seller, including its counsel and accountants, reasonable
access to all books, records, files and documents related to the Distribution
Division, APC or the Natural Gas Business in order to permit Seller to prepare
and file its tax returns and to prepare for and participate in any investigation
with respect thereto, to prepare for and participate in any other investigation
and defend any litigation relating to or involving the Seller, Distribution
Division, APC or the Natural Gas Business for which Seller may be responsible,
to discharge its obligations under this Agreement and the other Operative
Documents to which it is a party and for other reasonable purposes and will
afford Seller reasonable assistance in connection therewith. Purchaser will
cause such records to be maintained for not less than seven years from the date
of Closing and will not dispose of such records without first offering in
writing to deliver them to Seller; provided, however, that in the event that
Purchaser transfers all or a portion of the Natural Gas Business to any third
party during such period, Purchaser may transfer to such third party all or a
portion of the books, records, files and documents related thereto, provided
such third party transferee expressly assumes in writing the obligations of
Purchaser under this Section 5.2.3.


                                       20
<PAGE>   21


Following the Closing Date, and to the extent reasonably necessary to permit
Seller or any of its Affiliates to defend (including, without limitation, any
related investigation, appeal or settlement) any lawsuit, mediation, enforcement
action, arbitration, administrative hearing or other adjudicative proceeding
relating to the Natural Gas Business, Purchaser agrees to afford Seller and its
Affiliates and their respective accountants and counsel, during normal business
hours, at no cost to Seller other than reasonable out-of-pocket expenses, (i)
reasonable access to all employees of Purchaser or any of its Affiliates and all
witnesses subject to the control or direction of Purchaser or any of its
Affiliates and (ii) reasonable access to all documents and records within the
custody or subject to the control of Purchaser or any of its Affiliates;
provided, however, that in the event of any litigation nothing herein shall
limit either party's rights of discovery under applicable law.

         Section 5.3. Joint Obligations.

                  (a) Purchaser and Seller will, as soon as reasonably possible
         following the execution of this Agreement, prepare and file with
         appropriate governmental authorities such requests for approval as may
         be necessary to obtain any Seller's Required Governmental Consents and
         Seller's Required Approvals. Purchaser and Seller will diligently
         pursue such authorizations and will cooperate with each other in
         seeking such authorizations.

                  (b) Seller, APC and Purchaser mutually agree and covenant as
         follows with respect to the disposition of the Plans:

                             (i) Effective as of Closing, Purchaser shall adopt,
                  or cause the appropriate affiliate of Purchaser to adopt,
                  those plans listed on Section 5.3(b)(i) of Seller's Disclosure
                  Schedule. Seller (or its insurer) will be liable for benefits
                  incurred by the Employees under such plans, as a result of
                  events occurring prior to Closing.

                             (ii) Effective as of Closing, Purchaser shall also
                  adopt, or cause the appropriate affiliate of Purchaser to
                  adopt, those plans listed on Section 5.3(b)(ii) of Seller's
                  Disclosure Schedule (together with the plans listed on Section
                  5.3(b)(i) of Seller's Disclosure Schedule, the "Scheduled
                  Plans") as a successor employer of the Employees who are
                  participants therein, without gap or interruption of coverage.
                  Further, effective as of the Closing Date, Purchaser shall
                  assume Seller's obligations under any presently existing
                  collective bargaining agreement affecting the Natural Gas
                  Business.

                             (iii) Subject to the provisions of any presently
                  existing collective bargaining agreement and subject to the
                  provisions of applicable law, Purchaser shall have the right
                  to amend or terminate any Scheduled Plan following the Closing
                  Date; provided, however, that the overall level of benefits
                  provided to the Employees of the Natural Gas Business shall be
                  comparable to the benefits provided to such Employees on the
                  date hereof for at least two years after the Closing Date.
                  With respect to any employee benefit plan that is not a
                  Scheduled Plan, Purchaser shall not


                                       21
<PAGE>   22


                  assume any obligations thereunder and Seller shall continue to
                  be liable therefor; provided, however, that Seller may amend
                  or terminate any such plan at any time.

                             (iv) Effective as of Closing, Purchaser shall cause
                  APC or the appropriate affiliate of Purchaser to assume the
                  Severance Agreement between Seller and Richard F. Barnes
                  ("Barnes"), a true and correct copy of which has been
                  furnished to Purchaser. Prior to Closing, Purchaser shall
                  enter into severance agreements with each of the other
                  officers of APC, which are identified on Section 5.3(b) of
                  Seller's Disclosure Schedule, providing benefits substantially
                  similar to the benefits provided to such persons under the
                  MSP. In the event Barnes' or any other such officer's
                  employment is subject to an Involuntary Termination (as such
                  term is defined in the applicable severance agreement) within
                  six months following Closing, Seller shall reimburse Purchaser
                  for the cost of any severance benefits provided to such
                  officer in accordance with the applicable severance agreement.
                  Purchaser shall provide severance benefits to each of the
                  other Employees as of Closing (but not including Employees
                  subject to any collective bargaining agreement) in accordance
                  with the terms of the Resource Group Plan set forth in Section
                  5.3(b)(iv) of Purchaser's Disclosure Schedule. Purchaser will
                  continue to provide severance benefits to such Employees
                  substantially similar to those set forth in such Resource
                  Group Plan for a period of at least three years after the
                  Closing Date.

                             (v) APC, Seller and Purchaser shall cooperate in
                  exchanging information (including pertinent employment
                  records, benefit information, financial statements and other
                  data) or in taking actions respecting the interests of the
                  Employees in each of the plans described in this Section so as
                  to secure an orderly and effective transition of benefit
                  arrangements for the Employees. APC, the Seller and Purchaser
                  agree to use all reasonable efforts to accomplish the purposes
                  of this Section 5.3(b), subject to such changes as may be
                  required by any governmental agency of proper jurisdiction or
                  other regulatory authority.

                  (c) During the Interim Period, neither Purchaser nor Seller
         shall make, nor permit any of its affiliates or representatives to
         make, any news release or other public disclosure pertaining to this
         Agreement or the transactions contemplated hereby without the prior
         written approval of the other as to both form and content, which
         approval shall not be unreasonably withheld. Notwithstanding the
         foregoing, either party may make such news release or other public
         disclosure which, in the opinion of such party's outside counsel, is
         required to be made by such party pursuant to applicable securities
         laws or securities exchange rules.


                                       22
<PAGE>   23


                                   ARTICLE VI

                          Approvals, Reasonable Efforts

         The parties recognize the importance of obtaining the Seller's Required
Governmental Consents, the Seller's Required Approvals, the Purchaser Required
Governmental Consents and the Purchaser's Required Approvals and, in this
regard, agree to give priority to seeking such approvals. The parties shall
apply for and diligently prosecute all applications for, and shall use all
reasonable efforts promptly to obtain, such approvals or forebearances from all
applicable federal, state and local authorities, and such other governmental
authorities as shall be necessary to permit the consummation of the transactions
contemplated this Agreement, and shall use all reasonable efforts to bring about
the satisfaction as soon as practicable of the transactions contemplated by this
Agreement. To this end, the parties agree to make available the personnel and
other resources of their respective organizations in order to accomplish actions
reasonably required by them to obtain all such approvals.

                                   ARTICLE VII

                              Conditions Precedent

         Section 7.1. Preamble. The respective obligations set forth herein of
Seller and Purchaser to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or before the Closing Date, in the case of
Seller, of the conditions set forth in Sections 7.2 and 7.3, and in the case of
Purchaser, of the conditions set forth in Sections 7.2 and 7.4. Any of the
following conditions may be waived in whole or in part by the party whose
obligation to perform at Closing is subject to such condition.

         Section 7.2 Hart-Scott-Rodino Compliance. The applicable waiting period
under the Hart-Scott Rodino Act shall have expired or terminated.

         Section 7.3. Conditions to Obligations of Seller.

         Section 7.3.1. Representations and Warranties of Purchaser. The
representations and warranties of Purchaser contained in Article IV of this
Agreement shall be accurate in all respects (provided that, for purposes of this
Section 7.3.1 any representation or warranty contained in Article IV that is
qualified by a materiality standard or a Material Adverse Effect qualification
shall be read without regard to any such qualifications as if such
qualifications were not contained therein) as of the Closing Date, except for
such failures which, individually or in the aggregate, have not had and could
not reasonably be expected to have, a Material Adverse Effect on Seller.
Purchaser shall have duly performed and complied in all material respects with
all agreements contained herein required to be performed or complied with by it
at or before the Closing.


                                       23
<PAGE>   24


         Section 7.3.2. Officer's Certificate. Purchaser shall have delivered to
Seller a certificate, dated the Closing Date and signed by its Chairman,
President or a Vice President, as to the fulfillment of the conditions set forth
in Section 7.3.1 hereof.

         Section 7.3.3 Seller's Required Governmental Consents. All of Seller's
Required Governmental Consents shall have been obtained by Final Order.

         Section 7.3.4 Seller's Required Approvals. All of Seller's Required
Approvals, the absence of which would have a Material Adverse Effect on Seller
or its businesses other than the Natural Gas Business after the Closing, and all
of Purchaser's Required Approvals, the absence of which would have a Material
Adverse Effect on Purchaser, in each case other than those consents and
approvals that are customarily obtained after the closing of a transaction of
the nature of the transaction contemplated by this Agreement, have been obtained
and are in full force and effect.

         Section 7.3.5. Actions at Closing. Purchaser shall have taken the
respective actions to be taken by it at the Closing pursuant to Section 8.1
hereof.

         Section 7.3.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute, rule
or regulation and no injunction, order, decree or judgment of any court or
governmental authority of competent jurisdiction shall be in effect that could
reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.

         Section 7.4. Conditions to Obligations of Purchaser.

         Section 7.4.1. Representations and Warranties of Seller. The
representations and warranties of Seller contained in Article III and Section
10.1 of this Agreement shall be accurate in all respects (provided that, for
purposes of this Section 7.4.1 any representation or warranty contained in
Article III or Section 10.1 that is qualified by a materiality standard or a
Material Adverse Effect qualification shall be read without regard to any such
qualifications as if such qualifications were not contained therein) as of the
Closing Date, except for such failures which, individually or in the aggregate,
have not had and could not reasonably be expected to have, a Material Adverse
Effect on the Natural Gas Business. Seller shall have duly performed and
complied in all material respects with all agreements contained herein required
to be performed or complied with by it at or before the Closing.

         Section 7.4.2. Officer's Certificate. Seller shall have delivered to
Purchaser a certificate, dated the Closing Date and signed by its Chairman,
President or Vice President, as to the fulfillment of the conditions set forth
in Section 7.4.1 hereof.

         Section 7.4.3 Governmental Consents. All of Seller's Required
Governmental Consents and Purchaser's Required Governmental Consents shall have
been obtained by Final Order.


                                       24
<PAGE>   25


         Section 7.4.4 Other Approvals. All of Seller's Required Approvals, the
absence of which would have a Material Adverse Effect on Purchaser and on the
Natural Gas Business after the Closing, and all of Purchaser's Required
Approvals, the absence of which would have a Material Adverse Effect on
Purchaser, in each case other than consents and approvals that are customarily
obtained after the closing of a transaction of this nature, have been obtained
and are in full force and effect.

         Section 7.4.5. Actions at Closing. Seller shall have taken the actions
to be taken by Seller at the Closing pursuant to Section 8.1. hereof.

         Section 7.4.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute, rule
or regulation and no injunction, order, decree or judgment of any court or
governmental authority of competent jurisdiction shall be in effect that could
reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.

         Section 7.4.7. Maintenance of Material Qualifications. Prior to
Closing, Seller shall have maintained all material qualifications of Seller that
are required for it to carry on the Distribution Business and shall have
maintained all material qualifications of APC that are required for it to carry
on the Transmission Business.

                                  ARTICLE VIII

                                     Closing

         Section 8.1. Closing. The closing of the purchase and sale of the APC
and the Distribution Assets (the "Closing") will take place at the offices of
Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin, Houston, Texas on
the first business day following five calendar days after all of the conditions
specified in Section 7.3 and 7.4 have been satisfied, unless another time, date
and place is agreed to in writing by the parties. The date of the Closing is
referred to in this Agreement as the "Closing Date." At the Closing the
following events shall occur, each event being deemed to have occurred
simultaneously with the other events:

                  (a) Seller will deliver to Purchaser the APC Shares and the
         APC Debt, by delivering the certificates representing the APC Shares
         and the instruments representing the APC Debt, in each case endorsed or
         accompanied by stock or bond powers, as applicable (in form reasonably
         satisfactory to counsel for Purchaser), in favor of Purchaser; and

                  (b) Purchaser will pay the Purchase Price, as adjusted, by
         wire transferring such amount, in lawful money of the United States of
         America in immediately available funds, to such account as Seller shall
         have designated by notice to Purchaser; and

                  (c) Seller and Purchaser shall execute and deliver a General
         Assignment and Bill of Sale ("General Assignment") substantially in the
         form of Exhibit A attached hereto,


                                       25
<PAGE>   26


         it being understood and agreed that the schedules attached to the
         General Assignment as so executed and delivered shall be appropriately
         modified and amended to reflect dispositions and acquisitions of
         Distribution Assets after the date hereof;

                  (d) To the extent consistent with the other provisions of this
         Agreement, Seller shall execute and deliver at Closing such other
         conveyances, certificates of title and bills of sale reasonably
         requested by Purchaser that are necessary in order to satisfy any
         applicable Legal Requirement relating to the transfer of the
         Distribution Assets to Purchaser or which are customarily given in
         Alaska to accomplish transfers of assets of the type involved;
         provided, however, that nothing in this clause (e) shall obligate
         Seller to execute or deliver any document that affects, in a manner
         adverse to Seller, Seller's liability to Purchaser as expressed herein
         and in the General Assignment.

                  (e) Seller shall have delivered to Purchaser the original
         Letter of Credit.

                                   ARTICLE IX

                                   Termination

         Section 9.1. Termination. Subject to Section 9.2 hereof, this Agreement
and the transactions contemplated hereby may be terminated and abandoned:

                  (a) at any time prior to the Closing Date by mutual consent of
         Purchaser and Seller; or

                  (b) by Purchaser or Seller at any time after December 31, 1999
         (the "Termination Date") if the Closing shall not have occurred on or
         prior to such date; provided, however, that either party may extend the
         Termination Date for an additional three months from such originally
         scheduled Termination Date if all the conditions to consummation of the
         transactions contemplated hereby set forth in Article VII hereof have
         either been satisfied or are then capable of being satisfied by such
         date, other than the conditions set forth in Sections 7.3.3 and 7.4.3;
         and provided further, that the right to terminate this Agreement under
         this Section 9.1(b) shall not be available to any party whose failure
         to fulfill any obligation under this Agreement has been the cause of,
         or resulted in, the failure of the Closing to occur on or before the
         Termination Date;

                  (c) by Purchaser or Seller at any time within 30 days
         following the issuance of a ruling by the RCA to the effect that the
         transactions contemplated by this Agreement to occur at Closing will
         not be authorized to occur; or

                  (d) at any time on or before the Closing Date, by Purchaser if
         Seller shall have failed to perform, satisfy and comply with, in any
         material respect, on the date specified, any material term, condition
         or provision herein required of Seller on or before the Closing Date;


                                       26
<PAGE>   27


                  (e) at any time on or before the Closing Date, by Seller if
         Purchaser shall have failed to perform, satisfy and comply with, in any
         material respect, on the date specified any material term, condition or
         provision herein required of Purchaser on or before the Closing Date;
         or

                  (f) by Purchaser at any time on or before the Closing Date,
         upon the immediate payment by Purchaser to Seller of a termination fee
         of $10 million, upon receipt of which by Seller (i) such termination
         shall become effective and (ii) Seller shall promptly return the
         original Letter of Credit to Purchaser.

         The power of termination and abandonment of the transactions
contemplated by this Agreement pursuant to this Section 9.1 will be effective
only after written notice thereof, signed on behalf of the party for which it is
given by a duly authorized officer, shall have been given to the other party
hereto.

         Section 9.2 Limitation on Right to Terminate; Effect of Termination.

                  (a) A party shall not be allowed to exercise any right of
         termination pursuant to Section 9.1 if the event giving rise to the
         termination right shall be due to the willful failure of such party
         seeking to terminate this Agreement to perform or observe in any
         material respect any of the covenants, or agreements hereof to be
         performed or observed by such party.

                  (b) If this Agreement is terminated as permitted under Section
         9.1 hereof, such termination shall be without liability of or to any
         party to this Agreement, or any shareholder, director, officer,
         employee, agent, servant, consultant or representative of such party;
         provided, however, that if such termination shall result from the
         willful failure of any party to fulfill a condition to the performance
         of any other party or to perform a covenant of this Agreement or from a
         material and willful breach by any party to this Agreement, then such
         party shall (subject to the limitation set forth in the last sentence
         of this Section 9.2(b)) be fully liable for any and all damages
         sustained or incurred by the other party. If either party to this
         Agreement resorts to legal proceedings to enforce this Agreement, the
         prevailing party in such proceedings shall be entitled to recover all
         costs incurred by such party including reasonable attorney's fees, in
         addition to any other relief to which such party may be entitled;
         provided, however, and notwithstanding anything to the contrary in this
         Agreement, in no event shall either party be entitled to receive any
         punitive, indirect or consequential damages.

                  (c) Notwithstanding anything in Section 9.2(b) to the
         contrary, if Seller terminates this Agreement pursuant to Section
         9.1(e) or as the result of any default or breach by Purchaser of
         Purchaser's obligations hereunder, then Seller shall be entitled to
         receive an amount equal to $10,000,000 as liquidated damages, and as
         Seller's sole remedy in connection therewith, free of any claims by
         Purchaser or any other Person with respect thereto (the parties hereby
         acknowledging that the extent of damages to Seller occasioned by such
         breach or default by Purchaser would be impossible or extremely
         difficult


                                       27
<PAGE>   28


         to ascertain and that the amount of such liquidated damages is a fair
         and reasonable estimate of such damages under the circumstances).

                  (d) Upon the election by Seller to terminate this Agreement
         pursuant to Section 9.1(e) hereof because of Purchaser being in default
         or breach of its obligations under this Agreement (collectively, the
         "Breach Event"), Seller shall give notice of the Breach Event and its
         decision to terminate this Agreement to Purchaser. If Purchaser fails
         to cure such Breach Event within one Business Day after such notice is
         received by Purchaser, then Seller shall have the right to give notice
         to Purchaser of the failure to cure the Breach Event and demand payment
         from Purchaser of the $10 million liquidated damages. If Purchaser
         fails to pay to Seller the $10 million liquidated damages, in cash or
         by wire transfer to an account designated by Seller within one Business
         Day after the notice demanding payment of the liquidated damages is
         received by Purchaser, then Seller shall have the right to draw on the
         Letter of Credit in the full amount of $10 million for the full payment
         of the $10 million liquidated damages. If it is finally determined
         (which determination is no longer subject to further review or appeal)
         in accordance with the dispute resolution mechanisms permitted by this
         Agreement that Seller was not entitled to receive liquidated damages,
         then Seller shall, within 10 business days after such final
         determination, remit such liquidated damages, together with interest at
         the annual rate equal to the prime rate of Bank of America plus 2% from
         the date of payment to Seller until the date of payment to Purchaser.


                                    ARTICLE X

                                      Taxes

         Section 10.1 Seller Tax Representations and Warranties.

                  (a) Seller represents and warrants with respect to APC and the
         Distribution Division that, except as set forth or disclosed in Section
         10.1(a) of Seller's Disclosure Schedule (i) all Tax Returns required to
         be filed have been filed or requests for extensions have been timely
         filed, (ii) all such Tax Returns are true and correct in all material
         respects, and (iii) all Taxes shown to be due on such Tax Returns have
         been paid in full. Except as set forth in Section 10.1(a) of Seller's
         Disclosure Schedule, no notice of deficiency or assessment has been
         received from any taxing authority with respect to liabilities for
         Taxes of APC or the Distribution Division which have not been fully
         paid or finally settled, and any such deficiency shown in Section
         10.1(a) of Seller's Disclosure Schedule is being contested in good
         faith through appropriate proceedings. Except as set in Section 10.1(a)
         of Seller's Disclosure Schedule, there are no outstanding agreements or
         waivers extending the applicable statutory periods of limitation for
         Taxes of APC or the Distribution Division for any period of time.
         Except as set forth in Section 10.1(a) of Seller's Disclosure Schedule,
         no audits or other administrative proceedings or court proceedings are
         presently pending with regard to any Taxes or Tax Returns of APC or the
         Distribution Division, and neither the


                                       28
<PAGE>   29


         Seller nor APC has any knowledge of any threatened action, audit, or
         administrative or court proceeding with respect to any Taxes or Tax
         Returns of APC or the Distribution Division.

                  (b) Seller and APC are and will be members of an "affiliated
         group" within the meaning of Section 1504 of the Code as of the Closing
         Date.

                  (c) Except as set forth in Section 10.1(c) of Seller's
         Disclosure Schedule, neither Seller nor APC is a party to any
         allocation or sharing agreement regarding Taxes with any person.

                  (d) Seller is not a resident alien individual or foreign
         corporation within the meaning of Section 897 of the Code and Purchaser
         is not required to withhold Tax on the Purchase Price by reason of
         Section 1445 of the Code or any other provision.

                  (e) Except as set forth in Section 10.1(e) of Seller's
         Disclosure Schedule, there are no powers of attorney in effect relating
         to Taxes of Seller or APC.

                  (f) Except as set forth in Section 10.1(f) of Seller's
         Disclosure Schedule, there is no dispute or claim as to the Tax
         liability of any other person as to which Seller or APC has an
         indemnification obligation.

         10.2 Tax Covenants and Indemnification

                  (a) Code Section 338(h)(10) Election; Purchase Price
         Allocation. Upon consummation of the transactions contemplated by this
         Agreement, Seller and Purchaser shall join in making a timely election
         under Section 338(h)(10) of the Code (a "Section 338(h)(10) Election")
         with respect to the purchase of the APC Shares and shall make similar
         elections under state and local law to the fullest extent possible.
         Purchaser will be responsible for preparing and filing all documents
         and materials necessary in connection with making the Section
         338(h)(10) Election and any similar elections under state and local
         law. Not later than 120 days after the Closing Date, Purchaser shall
         prepare and deliver to Seller a proposed allocation of the Purchase
         Price for purposes of the Section 338(h)(10) Election. Purchaser and
         Seller shall timely complete and file Form 8023 and any similar form
         under applicable state law. If Purchaser and Seller cannot agree on
         such allocation, Purchaser and Seller will select a nationally
         recognized accounting firm or other recognized expert to appraise the
         assets of APC. The cost of such appraisal will be divided between
         Purchaser and Seller equally. Purchaser and Seller agree not to take
         any position inconsistent with any such allocation for Tax reporting
         purposes. Purchaser and Seller will file all Tax Returns in a manner
         consistent with the Section 338(h)(10) Election and the valuation of
         APC's assets determined as provided above.

                  (b) Transfer Taxes. Seller shall be liable for all sales, use,
         documentary, recording, stamp, transfer or similar Taxes, assessments
         or fees arising from the transaction contemplated by this Agreement;
         provided, however, that if and to the extent that the



                                       29
<PAGE>   30


         aggregate amount thereof exceed $150,000, then Purchaser shall pay 50%
         of the amount of such excess, up to a maximum payment with respect
         thereto by Purchaser of $50,000.

                  (c) Information. Seller and Purchaser will make available to
         each other, and to any taxing authority, all information, records, or
         documents relating to the liability or potential liability for
         Pre-Closing Taxes that may be reasonably requested by a party and will
         preserve such information, records or documents until the expiration of
         any applicable statute of limitations or extensions thereof, provided
         Seller and Purchaser shall reserve the confidentiality of any such
         information, records or documents.

                  (d) Seller Indemnification. Seller shall be responsible for
         and shall indemnify and hold harmless Purchaser, its subsidiaries and
         APC from and against any and all Tax claims resulting from, arising out
         of or relating to: (i) any and all Taxes imposed on or incurred by
         Purchaser or APC as a result of a breach of the representations and
         warranties made in Section 10.1 of this Article; (ii) any and all
         Pre-Closing Taxes imposed on, incurred by or attributed to APC or the
         Distribution Division, including any federal, state or local Taxes
         incurred as a result of making the Section 338(h)(10) Election, except
         to the extent any such Taxes are taken into account in determining the
         adjustment to the Purchase Price pursuant to Section 2.4, and (iii) any
         liability resulting from, arising out of or relating to, in the nature
         of, or caused by any liability of APC for Taxes of any person other
         than APC under Treas. Reg. ss. 1.1502-6 (or any similar provision of
         state, local or foreign law).

                  (e) Purchaser Indemnification. Purchaser shall be responsible
         for and shall indemnify and hold harmless Seller from and against any
         and all Tax claims resulting from, arising out of or relating to any
         and all Post-Closing Taxes imposed on or incurred by APC or the
         Distribution Division.

                  (f) Procedures for Indemnification. The procedures for
         indemnification pursuant to this Article 10 shall be conducted in a
         manner consistent with Section 12.2 hereof.

                  (g) Proration of Tax Items. The Parties agree that for
         purposes of allocating tax items of APC and the Distribution Division
         between Seller and Purchaser for the Tax year that includes the Closing
         Date, such tax items for such Tax year shall be apportioned between
         Seller and Purchaser based upon the actual operations of APC and the
         Distribution Division during the portion of such period ending on the
         Closing Date and the portion of such period beginning on the day
         following the Closing Date, and each portion of such period shall be
         deemed to be a taxable period (whether or not it is in fact a taxable
         period); provided, that ad valorem Taxes shall be prorated on a daily
         basis.

                  (h) Filing Responsibility. Purchaser and APC shall be
         responsible for filing all Tax Returns and paying all Taxes due with
         respect to periods ending after the Closing Date. To the extent the law
         permits or requires a short period return for the period or portion
         thereof ending on or before the Closing Date, Seller shall be
         responsible for filing such


                                       30
<PAGE>   31


         returns and paying all Taxes due with respect to such period. Purchaser
         will take such steps as are reasonably requested by Seller so that
         Seller will have the authority necessary for Seller to be able to
         execute and timely file the Tax Returns required to be filed by Seller.

                  (i) Tax Refunds and Tax Benefits. Any Tax refunds that are
         received by Purchaser or APC, and any amounts credited against Tax to
         which Purchaser or APC become entitled, that relate to Tax periods or
         portions thereof ending on or before the Closing Date shall be for the
         account of Seller, and Purchaser shall pay over to Seller any such
         refund or the amount of any such credit within fifteen (15) days after
         receipt or entitlement thereto. In addition, to the extent that a claim
         for refund or a proceeding results in a payment or credit against any
         Tax by a taxing authority to the Purchaser or APC of any amount accrued
         as of the Closing Date, Purchaser shall pay such amount to Seller
         within fifteen (15) days after receipt or entitlement thereto.

                  (j) Control of Tax Audits. Seller shall have the right, at its
         own expense, to control any audit or examination by any taxing
         authority ("Tax Audit"), initiate any claim for refund, contest,
         resolve and defend against any assessment, notice of deficiency, or
         other adjustment or proposed adjustment relating to any and all Taxes
         for any taxable period ending on or before the Closing Date and
         relating to APC or the Distribution Division. With respect to the items
         described in the preceding sentence, Seller shall consult with
         Purchaser with respect to the resolution of any such issue that would
         adversely affect Purchaser, and with respect to Taxes other than income
         Taxes will not settle any such issue, or file any amended return
         relating to such issue, without the consent of Purchaser, which consent
         shall not be unreasonably withheld. Seller will not enter into any
         binding agreement with any Tax Authority with respect to Taxes (other
         than income Taxes) for Tax periods ending or beginning after the
         Closing Date. Purchaser shall have the right, at its own expense, to
         control any other Tax Audit, initiate any other claim for refund, and
         contest, resolve and defend against any other assessment, notice of
         deficiency, or other adjustment or proposed adjustment relating to any
         Taxes for any taxable period beginning before the Closing Date and
         ending after the Closing Date, provided, that Purchaser shall consult
         with Seller with respect to the resolution of any issue that would
         adversely affect Seller, and, with respect to Taxes, other than income
         Taxes, will not settle any such issue, or file any amended return
         relating to any such issue, without the consent of Seller, which
         consent shall not unreasonably be withheld. Where consent to a
         settlement is withheld by the other party pursuant to this Section,
         such other party may continue or initiate any further proceedings at
         its own expense, provided that the liability of the first party, after
         giving effect to this Agreement, shall not exceed the liability that
         would have resulted from the settlement or amended return.

                  (k) Cooperation on Tax Matters.

                              (i) Purchaser, APC and Seller shall cooperate
                  fully, as and to the extent reasonably requested by the other
                  party, in connection with the filing of Tax Returns pursuant
                  to this Agreement and any audit, litigation or other
                  proceeding with respect

                                       31
<PAGE>   32


                  to Taxes. Such cooperation shall include the retention and
                  (upon the other party's request) the preservation of records
                  and information which are reasonably relevant to any such
                  audit, litigation or other proceeding and making employees
                  available on a mutually convenient basis to provide additional
                  information and explanation of any material provided
                  hereunder. The Seller agrees (A) to retain all books and
                  records in its possession with respect to Tax matters
                  pertinent to APC and the Distribution Assets relating to any
                  taxable period beginning before the Closing Date until the
                  expiration of the statute of limitations (and, to the extent
                  notified by Purchaser or Seller, any extensions thereof) of
                  the respective taxable periods, and to abide by all record
                  retention requirements or agreements entered into with any
                  taxing authority, and (B) to give the other party reasonable
                  written notice prior to transferring, destroying or discarding
                  any such books and records and, if the other party so
                  requests, Seller shall allow Purchaser to take possession of
                  such books and records.

                           (ii) Purchaser and Seller further agree, upon
                  request, to provide the other party with all information that
                  either party may be required to report pursuant to Section
                  6043 of the Code and all Treasury Regulations promulgated
                  thereunder with respect to the transactions contemplated by
                  this Agreement.

                  (l) Survival of Obligations. The obligations of the parties
         set forth in this Article X shall be unconditional and absolute and
         shall remain in effect until the expiration of the applicable
         statute(s) of limitations.

                                   ARTICLE XI

                                   Definitions

         As used herein, the following terms have the following meanings:

         AAA: As defined in Section 13.11(b)(ii).

         Act: As defined in Section 4.10.

         Agreement: This Purchase and Sale Agreement, dated as of July 15, 1999,
between Seller and Purchaser, as the same may be amended or modified in writing
by the parties from time to time.

         APC: Alaska Pipeline Company, an Alaska corporation.

         APC Assets: All assets, properties and rights of APC.

         APC Debt: The (i) debt of APC owned by Seller and described in the
Seller's Disclosure Schedule and (ii) indebtedness under the Intercompany Line
of Credit.

         APC Debt Purchase Price: As defined in Section 2.3.


                                       32
<PAGE>   33


         APC Shares: All the outstanding shares of capital stock of APC.

         Assets Purchase Price: As defined in Section 2.2.

         Barnes: As defined in 5.3(b)(iv).

         Base Financial Statements: As defined in Section 3.8.

         Business Day: Any day except Saturday, Sunday and any other day on
which banking institutions located in the City of New York, New York are
required or authorized to close.

         Board of Directors: Either of the respective boards of directors of
Seller and Purchaser or any duly authorized committee of that board.

         Claim Notice: A written notice of claim given by a party seeking
indemnification pursuant to the terms of this Agreement that specifies in
reasonable detail the specific nature of the Losses and the estimated amount of
such Losses.

         Closing: As defined in Section 8.1.

         Closing Date: As defined in Section 8.1.

         Code: The Internal Revenue Code of 1986, as amended.

         Contracts: In the case of Seller, all agreements, contracts, notes and
other legally binding commitments to which Seller is a party and which relate to
the Distribution Division and, in the case of APC, all agreements, contracts,
notes and other legally binding commitments to which APC is a party.

         Distribution Assets: The "Assets," as defined in the General
Assignment.

         Distribution Business: The business carried on and conducted by the
Distribution Division.

         Distribution Division: Seller's Alaskan natural gas distribution
division generally known as "ENSTAR Natural Gas Company."

         Environmental Laws: Any and all federal, state and local laws,
statutes, regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural resources
in effect in any and all jurisdictions in which the APC Assets and Distribution
Assets are located, including, without limitation, the Clean Air Act, as
amended, and the Federal Water Pollution Control Act, as amended, the Rivers and
Harbors Act of 1899, as amended, the Safe Drinking Water Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Resource Conservation and Recovery Act, as amended, The Hazardous and


                                       33
<PAGE>   34


Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control
Act, as amended, the Occupational Safety and Health Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Natural Gas Pipeline
Safety Act of 1968, as amended and the Hazardous Liquid Pipeline Safety Act of
1979, as amended.

         Employees: As defined in Section 3.17(d)(i).

         ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time.

         Existing Loan Documents: The mortgages, indentures, security agreements
and other instruments listed in Seller's Disclosure Schedule, together with any
mortgages, indentures, security agreements or other instruments executed and
delivered by Seller or APC after the date hereof in connection with the renewal,
extension, rearrangement or refunding of the indebtedness evidenced or secured
by any of such listed mortgages, indentures, security agreements or other
instruments to the extent accomplished in compliance with this Agreement.

         Final Order: An action by the relevant regulatory authority that has
not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.

         First National Credit Agreement: As defined in Section 3.9(d).

         General Assignment: As defined in Section 8.1(c).

         Hart-Scott-Rodino Act: As defined in Section 5.1.3.

         Indemnified Party: As defined in Section 12.2(e).

         Indemnifying Party: As defined in Section 12.2(e).

         Intercompany Line of Credit Agreement: The Revolving Credit Agreement
dated as of July 1, 1998, between the Distribution Division and Seller.

         Interim Period: As defined in Section 5.1.1.

         knowledge: When used in the phrases "to Seller's knowledge," "to the
knowledge of Seller" or similar phases with respect to Seller, means, and shall
be limited to, the actual knowledge of the executive officers of Seller or APC
or the senior employee of Seller or APC who are responsible for the area of
operation of the Natural Gas Business to which such person's knowledge relates.


                                       34
<PAGE>   35


         Legal Requirements: Any and all applicable (i) federal, state, local
and foreign laws (statutory and administrative), ordinances and regulations,
(ii) judgments, orders, writs, injunctions, decrees and (iii) contracts with any
federal, state or foreign court, arbitrator or administrative or governmental
authority, bureau or agency relating to compliance with matters described in (i)
or (ii) above.

         Losses: As defined in Section 12.2(a).

         Material Adverse Effect: With respect to any Person, an occurrence or
condition that has a material adverse effect on the condition (financial or
otherwise) of operations, business, property or prospects of such Person, taken
as a whole, or materially hinders or impedes the consummation of the
transactions contemplated by this Agreement; provided, however, that an
occurrence or condition shall not constitute a Material Adverse Effect to the
extent that the Distribution Division or APC realizes the benefit of insurance
maintained by or for the benefit of the Natural Gas Business or is recoverable
by the Natural Gas Business through operation of current tariffed rates;
provided further that any action or threatened action from the RCA, either in
connection with its consideration of the approval of the transactions
contemplated by this Agreement or otherwise, shall not form the basis, directly
or indirectly, for a Material Adverse Effect with respect to the Distribution
Division, APC or the Natural Gas Business.

         Material Contract: Any Contract which (a) calls for payments to or from
Seller or APC, on the one hand, and any third party, on the other hand, of an
amount in excess of $1,250,000 for any 12-month period commencing on or after
the date hereof and (b) is not terminable solely at the option of Seller or APC,
as the case may be, without penalty on no more than 90 days notice.

         Material Employment Contract: Any employment, management, consulting or
similar agreements or any labor contracts or collective bargaining agreement
that (a) calls for payments from Seller or APC of an amount in excess of $50,000
for any 12-month period commencing on or after the date hereof and (b) is not
terminable solely at the option of Seller or APC, as the case may be, without
penalty on no more than 90 days notice.

         Material Liability: In the case of any Person, any material liability
of such Person; provided however, such term shall not include any material
liability the cost or expense associated with which insurance proceeds have been
recovered by such Person or is recoverable by such Person through operation of
current tariffed rates.

         Material Permits: All Permits relating to the Natural Gas Business
other than those the absence of which would not have a Material Adverse Effect.

         MSP: As defined in Section 5.3(b)(i).

         Natural Gas Business: The Distribution Business and the Transmission
Business, taken together.


                                       35
<PAGE>   36


         Natural Gas Business Financial Statements: As defined in Section 3.8.

         Notice Period: As defined in Section 12.2(e)

         Operating Plan: As defined in Section 3.17(d)(i).

         Operative Documents: This Agreement, the General Assignment, the Tax
Agreement and all other documents executed and delivered by Seller or Purchaser
at Closing.

         Pension Plans: As defined in Section 3.17(d).

         Permits: Any and all permits, authorizations, certificates, approvals,
registrations, legal status, variances, franchises, orders or other approvals
and licenses (i) under any Legal Requirement or (ii) granted by any federal,
state, local or foreign administrative authority, bureau or agency.

         Permitted Encumbrances: As applied to Seller or APC:

                  (a) liens for taxes, assessments and governmental charges not
         yet delinquent or, if delinquent, that are being contested in good
         faith in the ordinary course of business and for which adequate
         reserves have been established;

                  (b) carriers', warehousemen's, materialmen's, mechanics',
         repairmen's, employees' or other similar liens or charges for
         liquidated amounts arising in the ordinary course of business (i) if
         securing amounts that have not yet become due and payable or payment is
         being withheld as provided by law or (ii) if their validity is being
         contested in good faith in the ordinary course of business by
         appropriate action and for which adequate reserves have been
         established;

                  (d) liens incurred or deposits made in the ordinary course of
         business in connection with workmen's compensation, unemployment
         insurance and other social security, or to secure the performance of
         leases, tenders, statutory obligations, surety and appeal bonds,
         performance and return-of-money bonds and other similar obligations
         (exclusive of obligations incurred in connection with the borrowing of
         money or the obtaining of advances or credit);

                  (e) any judgment lien relating to a judgment for not more than
         $50,000, unless the judgment it secures shall not, within 30 days after
         the entry thereof, have been discharged or execution thereof stayed
         pending appeal, or shall not have been discharged within 30 days after
         the expiration of any such stay;

                  (f) leases granted in the ordinary course of business or
         leases to which any property acquired in connection with the Natural
         Gas Business in the ordinary course of business is subject;


                                       36
<PAGE>   37


                  (g) any encumbrances (other than to secure the payment of
         money), easements, rights-of-way, permits, reservations, leases, rights
         in respect of gravels, minerals, oil, gases or water or in respect of
         grazing, logging, mining, canals, ditches, reservoirs or the like,
         conditions, covenants, and restrictions, provided that such
         encumbrances, easements, rights-of-way, permits, reservations, leases,
         rights, conditions, covenants, and restrictions are such that they will
         not either individually or in the aggregate, if exercised or availed
         of, interfere materially with the use or operation of the property of
         Seller or APC affected thereby for the purpose for which such property
         is currently used;

                  (h) all Legal Requirements and rights reserved to or vested in
         any municipality or public authority to control, regulate or use any
         property of Seller or APC;

                  (i) other than any consents of any governmental authority, any
         required third party consents to assignment and similar agreements and
         obligations with respect to which prior to Closing (A) waivers or
         consents have been obtained from the appropriate Person, (B) the
         applicable period of time for asserting such rights has expired without
         any exercise of such rights or (C) arrangements reasonably satisfactory
         to Purchaser have been made by the parties to allow Purchaser to
         receive substantially the same economic benefits as if all such waivers
         and consents had been obtained;

                  (j) all rights to consent by, required notices to, filings
         with, or other actions by any governmental authority in connection with
         the transactions contemplated hereby;

                  (k) reservations and other matters relating to titles to
         leases and leasehold interests in oil and gas properties and the lands
         covered thereby, if such reservations and other matters do not, in the
         aggregate, do not materially impair the use of such leases or leasehold
         interests for the purposes for which they are held or the value of the
         interest therein;

                  (l) any liens, mortgages or encumbrances given by the
         Distribution Division and/or APC for the benefit of the other securing
         indebtedness owing from one of the foregoing to the other; and

                  (m) any other liens, charges, encumbrances, contracts,
         agreements, instruments, obligations, defects or irregularities of any
         kind whatsoever (but not including liens to securing indebtedness for
         borrowed money) affecting the APC Assets or the Distribution Assets
         that individually or in the aggregate do not, in the aggregate,
         materially impair the use of such assets for the purposes for which
         they are held or the value of the interest therein.

         Person: An individual, corporation, limited liability company,
partnership, joint venture, bank, trust, unincorporated organization and/or a
government or any department or agency thereof. Such term shall also include the
Distribution Division.

         PBGC: As defined in Section 3.17(d)(vii).


                                       37
<PAGE>   38


         Plans: As defined in Section 3.17(d)(i).

         Post-Closing Taxes: Any taxable period beginning after the Closing
Date, and, for any taxable period beginning before the Closing Date and ending
after the Closing Date, Taxes relating to the portion of such taxable period
after but not including the Closing Date.

         Pre-Closing Taxes: Any taxable period ending on or prior to the Closing
Date, and, for any taxable period beginning before the Closing Date and ending
after the Closing Date, Taxes relating to the portion of such taxable period up
to and including the Closing Date.

         Profit Sharing Plans: As defined in Section 3.17(d)(i).

         Purchase Price: The Stock Purchase Price, the Assets Purchase Price and
the APC Debt Purchase Price, taken together.

         Purchaser: SEMCO ENERGY, Inc., a Michigan corporation.

         Purchaser Indemnitees: Purchaser and its officers, directors,
employees, agents, representatives, affiliates, subsidiaries (including, from
and after the Closing, APC), successors and assigns.

         Purchaser's Disclosure Schedule: The disclosure schedule of Purchaser
attached hereto; and the phrase disclosed in Purchaser's Disclosure Schedule
shall mean as set forth or referred to in Purchaser's Disclosure Schedule.

         Purchaser's Required Approvals: As defined in Section 4.7.

         Purchaser's Required Governmental Consents: As defined in Section 4.4.

         RCA: The Regulatory Commission of Alaska, together with any predecessor
commission or agency (including, without limitation, the Alaska Public Utilities
Commission) or any successor commission or agency.

         Salaried Plan: As defined in Section 3.17(d)(i).

         Section 338(h)(10) Election:  As defined in Section 10.2(a).

         Seller: Ocean Energy, Inc., a Texas corporation.

         Seller's Disclosure Schedule: The disclosure schedule of Seller
attached hereto; and the phrase "disclosed in Seller's Disclosure Schedule"
shall mean as set forth or referred to in Seller's Disclosure Schedule.

         Seller's Required Approvals: As defined in Section 3.7.


                                       38
<PAGE>   39


         Seller's Required Governmental Consents: As defined in Section 3.4.

         Seller Indemnitees: Seller and its officers, directors, employees,
agents, representatives, affiliates, subsidiaries, successors and assigns.

         SERP: As defined in Section 3.17(d)(i).

         Stock Purchase Price: As defined in Section 2.1.

         Tax Agreement: As defined in Section 8.1(e).

         Taxes means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local foreign taxing authority,
including but not limited to, income, excise, real or personal property, sales,
transfer, franchise, payroll, withholding, social security, gross receipts,
license, stamp, occupation, employment or other taxes, including any interest,
penalties or additions attributable thereto.

         Tax Return: Any return, report, information return, declaration, claim
for refund or other document (including any schedule or related or supporting
information) required to be supplied to any taxing authority with respect to
Taxes including amendments thereto.

         Termination Date:  As defined in Section 9.1(b).

         Thrift Plan: As defined in Section 3.16(d)(i).

         Transmission Business: The business carried on and conducted by APC.


                                   ARTICLE XII

                         Assumption and Indemnification

         12.1 Assumption. Subject to Section 5.1.4 and Seller's indemnification
obligation set forth in Section 12.2(b), at the Closing, Purchaser shall assume
all liabilities, duties and obligations of every kind whatsoever of Seller
relative to the ownership or operation of the Natural Gas Business, including,
without limitation, the obligation to pay all trade and other accounts payable
relative to the Natural Gas Business.


                                       39
<PAGE>   40


         12.2 Indemnification .

                  (a) Subject to Section 12.2(c), and except for those matters
         set forth in Article X which shall be governed by the terms of Article
         X, Purchaser shall indemnify, defend and hold harmless the Seller
         Indemnitees from and against any and all claims, liabilities, losses,
         causes of actions, costs and expenses (including, without limitation,
         involving theories of negligence or strict liability and including
         court costs and attorneys' fees) ("Losses") asserted against, resulting
         from, imposed upon or incurred by any of the Seller Indemnitees as a
         result of, or arising out of, the breach of any of the representations,
         warranties, covenants or agreements of Purchaser contained in this
         Agreement, or as a result of, or arising out of, the ownership or
         operation of the Natural Gas Business, the Distribution Assets or the
         APC Assets, regardless in each case whether known or unknown, or
         whether attributable to periods of time before or after the Closing
         Date; provided, however, that Purchaser shall have no obligation to
         indemnify any of the Seller Indemnitees with respect to any matter to
         the extent Seller is indemnifying Purchaser for such matter pursuant to
         Section 12.2(b).

                  (b) Subject to Section 12.2(d), and except for those matters
         set forth in Article X which shall be governed by the terms of Article
         X, Seller shall indemnify, defend and hold harmless the Purchaser
         Indemnitees from and against all Losses asserted against, resulting
         from, imposed upon or incurred by any of the Purchaser Indemnitees as a
         result of, or arising out of (i) the breach of any of the
         representations, warranties, covenants or agreements of Seller
         contained in this Agreement, (ii) the litigation described under Item
         Nos. 1 and 2 on Section 3.14 of Seller's Disclosure Schedule or (iii)
         any oral or written representations or other actions by Seller, APC or
         the Distribution Division prior to the Closing Date to any Employee not
         subject to collective bargaining agreements, if and to the extent such
         representations or actions are a significant cause of such Employee's
         employment status being other than at-will; provided, however, that
         with respect to the matters set forth in clause (iii) above, the amount
         of Losses attributable to an Employee's not having at-will status shall
         only be the amount by which Purchaser suffers Losses in excess of the
         amount, if any, that Purchaser would otherwise be obligated to pay such
         Employee upon termination under the terms of a severance agreement
         referred to in Section 5.3(b)(iv) hereof or the Resource Group Plan
         described in Section 5.3(b)(iv) hereof. Notwithstanding any provision
         in this Agreement to the contrary, the indemnification for Losses
         described in clauses (ii) and (iii) shall not be subject to the
         threshold set forth in Section 12.2(d)(iv) hereof. Notwithstanding any
         provision in this Agreement to the contrary, Seller's obligation to
         indemnify Purchaser with respect to any litigation proceeding described
         in clause (ii) above shall terminate upon a final, nonappealable
         judgment is obtained with respect to such proceeding or such proceeding
         is dismissed with prejudice, whichever is earlier. Notwithstanding any
         provision in this Agreement to the contrary, Seller's obligation to
         indemnify Purchaser with respect to the matters set forth in clause
         (iii) above shall terminate on the third anniversary of the Closing
         Date.


                                       40
<PAGE>   41


                  (c) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
         AGREEMENT, IN NO EVENT SHALL PURCHASER BE LIABLE TO SELLER INDEMNITEES
         FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE
         OR SPECULATIVE DAMAGES; provided, however, that if a Seller Indemnitee
         is held liable to a third party for any of such damages and Purchaser
         is obligated to indemnify such Seller Indemnitee for the matter that
         gave rise to such damages, then Purchaser shall be liable for, and
         obligated to reimburse such Seller Indemnitee for, such damages.

                  (d) Notwithstanding anything to the contrary in this
         Agreement, but subject to the last two sentences of Section 12.2(b),
         the liability of Seller under this Agreement and any documents
         delivered in connection herewith or contemplated hereby shall be
         limited as follows:

                             (i) IN NO EVENT SHALL SELLER BE LIABLE TO PURCHASER
                  INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
                  CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided,
                  however, that if a Purchaser Indemnitee is held liable to a
                  third party for any of such damages and Seller is obligated to
                  indemnify such Purchaser Indemnitee for the matter that gave
                  rise to such damages, then Seller shall be liable for, and
                  obligated to reimburse such Purchaser Indemnitee for, such
                  damages.

                             (ii) In no event shall any amounts be recovered
                  from Seller under Section 12.2(b) or otherwise for any matter
                  for which a Claim Notice is not delivered to Seller; (A) in
                  the case of indemnity for breach of a representation or
                  warranty, prior to the close of business on the date of
                  termination of such representation or warranty pursuant to
                  Section 12.2(d)(iii), (B) in the case of any covenant or
                  agreement of Seller, other than those covenants or agreements
                  set forth in Section 5.2.2 or 5.3(b)(i), prior to the close of
                  business on the 18-month anniversary of the Closing Date, and
                  (C) in the case of the covenants or agreements of Seller set
                  forth in Sections 5.2.2 or Section 5.3(b)(i), prior to the end
                  of any applicable statute of limitations; provided, however,
                  that such indemnities shall survive with respect only to the
                  specific matter that is the subject of any Claim Notice
                  delivered in good faith in compliance with the requirements of
                  this Section 12.2(d)(ii) until the earlier to occur of (A) the
                  date on which a final nonappealable resolution of the matter
                  described in such Claim Notice has been reached or (B) the
                  date on which the matter described in such Claim Notice has
                  otherwise reached final resolution.

                             (iii) The representations and warranties of Seller
                  (i) set forth in Section 3.10 shall survive the Closing for a
                  period of 180 days, and such representations and warranties of
                  Seller shall terminate at 5:00 p.m., local time in Alaska, on
                  the 180th day after the Closing Date, and (ii) the
                  representations and warranties of Seller set forth in Section
                  3.17 shall survive the Closing for the full period of any
                  applicable statute of limitation. Except as set forth in the
                  preceding


                                       41
<PAGE>   42

                  sentence, the representations, warranties, covenants and
                  agreements of Seller set forth in this Agreement shall survive
                  the Closing for a period of 18 months, and all
                  representations, warranties, covenants and agreements of
                  Seller under this Agreement shall terminate at 5:00 p.m.,
                  local time in Alaska, on the 18 month anniversary of the
                  Closing Date; provided, however, that any such representation,
                  warranty, covenant or agreement that is the subject of a
                  proper Claim Notice delivered in good faith shall survive with
                  respect only to the specific matter described in such Claim
                  Notice until the earlier to occur of (A) the date on which a
                  final nonappealable resolution of the matter described in such
                  Claim Notice has been reached or (B) the date on which the
                  matter described in such Claim Notice has otherwise reached
                  final resolution.

                             (iv) Notwithstanding anything to the contrary in
                  this Agreement, in no event shall Seller indemnify the
                  Purchaser Indemnitees, or be otherwise liable in any way
                  whatsoever to the Purchaser Indemnitees, for any Losses until
                  the Purchaser Indemnitees have suffered Losses in the
                  aggregate in excess of a deductible in an amount equal to
                  $3,000,000, after which point Seller will be obligated only to
                  indemnify the Purchaser Indemnitees from and against further
                  Losses in excess of such deductible.

                             (v) Notwithstanding anything to the contrary
                  herein, in no event shall Seller indemnify the Purchaser
                  Indemnitees, or be otherwise liable in any way whatsoever to
                  the Purchaser Indemnitees, for any Losses in excess of an
                  amount equal to the Purchase Price (before giving effect to
                  any adjustments provided for pursuant to this Agreement).

                             (vi) Seller may (but will not be required to), from
                  time to time prior to or at the Closing, by notice in
                  accordance with this Agreement, supplement or amend the
                  Seller's Disclosure Schedule, including without limitation one
                  or more supplements or amendments to correct any matter which
                  would constitute a breach of any representation, warranty or
                  covenant herein contained; provided, however, that subject to
                  the following sentence, no such supplement or amendment will
                  affect the rights or obligations of the parties to this
                  Agreement (including without limitation the right to assert a
                  breach of a representation or warranty as a failed closing
                  condition) until after the Closing Date. Notwithstanding any
                  other provision hereof, if the Closing occurs, any such
                  supplement or amendment of any Schedule will be effective to
                  cure and correct for indemnification purposes any breach of
                  any representation, warranty or covenant which would have
                  existed by reason of Seller not having made such supplement or
                  amendment.

                             (vii) Seller shall have no liability for any claim
                  (A) to the extent that such claim is covered by insurance
                  maintained by or for the benefit of Seller (including any such
                  insurance coverage applicable to the Natural Gas Business the
                  benefit of which the Distribution Division or APC will
                  realize) and Purchaser or APC actually receive the proceeds of
                  such insurance or (B) that, in the case of a claim against or


                                       42
<PAGE>   43


                  affecting the Distribution Division or APC, is recoverable by
                  the Distribution Division or APC (consistent with the prior
                  practices of the RCA) through the operation of current
                  tariffed rates.

                  (e) All claims for indemnification under Sections 12.2(a) or
         12.2(b) shall be asserted and resolved pursuant to this Section
         12.2(e). Any Person claiming indemnification hereunder is hereinafter
         referred to as the "Indemnified Party" and any Person against whom such
         claims are asserted hereunder is hereinafter referred to as the
         "Indemnifying Party." In the event that any Losses are asserted against
         or sought to be collected from an Indemnified Party by a third party,
         said Indemnified Party shall with reasonable promptness provide to the
         Indemnifying Party a Claim Notice. The Indemnifying Party shall not be
         obligated to indemnify the Indemnified Party with respect to any such
         Losses if the Indemnified Party fails to notify the Indemnifying Party
         thereof in accordance with the provisions of this Agreement in
         reasonably sufficient time so that the Indemnifying Party's ability to
         defend against the Losses is not prejudiced. The Indemnifying Party
         shall have 30 days from the personal delivery or receipt of the Claim
         Notice (the "Notice Period") to notify the Indemnified Party (i)
         whether or not it disputes the liability of the Indemnifying Party to
         the Indemnified Party hereunder with respect to such Losses and/or (ii)
         whether or not it desires, at the sole cost and expense of the
         Indemnifying Party, to defend the Indemnified Party against such
         Losses; provided, however, that any Indemnified Party is hereby
         authorized prior to and during the Notice Period to file any motion,
         answer or other pleading that it shall deem necessary or appropriate to
         protect its interests or those of the Indemnifying Party (and of which
         it shall have given notice and opportunity to comment to the
         Indemnifying Party) and not prejudicial to the Indemnifying Party. In
         the event that the Indemnifying Party notifies the Indemnified Party
         within the Notice Period that it desires to defend the Indemnified
         Party against such Losses, the Indemnifying Party shall have the right
         to defend all appropriate proceedings, and with counsel of its own
         choosing, which proceedings shall be promptly settled or prosecuted by
         them to a final conclusion. If the Indemnified Party desires to
         participate in, but not control, any such defense or settlement it may
         do so at its sole cost and expense. If requested by the Indemnifying
         Party, the Indemnified Party agrees to cooperate with the Indemnifying
         Party and its counsel in contesting any Losses that the Indemnifying
         Party elects to contest or, if appropriate and related to the claim in
         question, in making any counterclaim against the Person asserting the
         third party Losses, or any cross-complaint against any Person. No claim
         may be settled or otherwise compromised without the prior written
         consent of the Indemnifying Party.

                  (f) The rights, remedies and obligations of the Purchaser
         Indemnitees and the Seller Indemnitees set forth in this Section 12.2
         and Article X will be the exclusive rights, remedies and obligations of
         such Persons after the Closing with respect to this Agreement, the
         events giving rise to this Agreement and the transactions provided for
         herein or contemplated hereby or thereby.

                  (g) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE
         INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN


                                       43
<PAGE>   44


         INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN
         ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR
         CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF
         THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY,
         VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED
         PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS
         LEGEND.

         12.3 Independent Investigation. Purchaser represents and acknowledges
that it is knowledgeable of with respect to the transmission and distribution of
natural gas and of the usual and customary practices of natural gas local
distribution companies such as the Natural Gas Business and that it has had
access to the Natural Gas Business, the officers and employees of Seller, the
Distribution Division and APC, and the books, records and files of Seller, the
Distribution Division and APC, relating to the Natural Gas Business and in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Purchaser has relied solely on the basis of its own
independent due diligence investigation of the Natural Gas Business and upon the
representations and warranties made in Article III. Accordingly, Purchaser
acknowledges that Seller has not made, and Seller hereby expressly disclaims and
negates any representation or warranty (other than those express representations
and warranties made in Article III), express, implied, at common law, by statute
or otherwise, relating to the Natural Gas Business.

         12.4 Disclaimer Regarding Natural Gas Business. Except as otherwise
expressly provided in Article III above, Purchaser ACKNOWLEDGES THAT SELLER HAS
NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY REAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY CONSTITUTING
PART OF THE NATURAL GAS BUSINESS (INCLUDING, WITHOUT LIMITATION, (A) ANY IMPLIED
OR EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER
APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM VICES OR
DEFECTS, WHETHER KNOWN OR UNKNOWN, (f) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (g) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, AND (h) ANY
IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR HEALTH) IT
BEING THE EXPRESS INTENTION OF PURCHASER AND SELLER THAT (EXCEPT TO THE EXTENT
EXPRESSLY PROVIDED IN ARTICLE 3) THE DISTRIBUTION ASSETS AND THE APC ASSETS
SHALL BE CONVEYED (DIRECTLY OR INDIRECTLY, AS APPLICABLE) TO PURCHASER "AS IS,"
"WHERE IS" AND IN THEIR PRESENT CONDITION AND STATE OF


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<PAGE>   45


REPAIR AND PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS MADE OR CAUSED TO
BE MADE SUCH INSPECTIONS WITH RESPECT TO THE DISTRIBUTION ASSETS AND THE APC
ASSETS AS PURCHASER DEEMS APPROPRIATE AND PURCHASER WILL ACCEPT THE DISTRIBUTION
ASSETS AND THE APC ASSETS "AS IS," "WHERE IS" AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR.

                                  ARTICLE XIII

                                  Miscellaneous

         Section 13.1. Modification; Waiver. This Agreement may be modified,
amended or supplemented in any manner and at any time only by a written
instrument executed by purchaser and Seller.

         Section 13.2. Entire Agreement. This Agreement supersedes any and all
other agreements, oral or written, among the parties hereto in respect of the
subject matter of this Agreement.

         Section 13.3. Expenses. Whether or not the transactions contemplated
herein shall be consummated, each party shall (except as otherwise specifically
provided herein) pay its own expenses incident to the preparation and
performance of this Agreement, including broker's fees and commissions; and each
party shall indemnify and hold harmless the other party with respect to
brokerage fees and commissions incurred by the indemnifying party in connection
with the transactions contemplated by this Agreement.

         Section 13.4 Further Actions. Each party shall execute and deliver such
other certificates, agreements, conveyances, certificates of title, and other
documents and take such other actions as may reasonably be requested by the
other parties in order to consummate or implement the transactions contemplated
by this Agreement.

         Section 13.5. Notices. Any and all notices or other communications
required or permitted under this Agreement shall be given in writing and
delivered in person or sent by United States certified or registered mail,
postage prepaid, return receipt requested, or by overnight express mail, or by
telex, facsimile or telecopy to the address of such party set forth below. Any
such notice shall be effective upon receipt or three days after placed in the
mail, whichever is earlier.

         If to Purchaser:

         SEMCO ENERGY, Inc.
         405 Water Street, P.O. Box 5026
         Port Huron, Michigan 48061-5026
         Attention:  Sebastian Coppola
         Telecopy Number: (810) 989-4099

         with copies to:




                                       45
<PAGE>   46


         Arnold R. Madigan
         303 E. 17th Avenue, Suite 780
         Denver, Colorado 80203-1260
         Telecopy Number: (303) 894-0756

         and

         LeBouef, Lamb, Greene & MacRae, LLP
         633 17th Street, Suite 2000
         Denver, Colorado 80202
         Attention:  Thomas J. Moore
         Telecopy Number:  (303) 297-0422

         If to Seller:

         Ocean Energy, Inc.
         1001 Fannin, Suite 1600
         Houston, Texas 77002
         Attention:  Robert K. Reeves
         Telecopy Number: (713) 265-8840

         with a copy to:

         Vinson & Elkins L.L.P.
         2300 First City Tower
         1001 Fannin
         Houston, Texas 77002
         Attention:  J. Mark Metts
         Telecopy Number: (713) 615-5605

Any party may, by notice so delivered, change its address for notice purposes
hereunder.

         Section 13.6. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned, by
operation of law or otherwise, by any party hereto without the prior written
consent of the other party; provided, however, in the event of any such
assignment by a party by operation of law without the consent of the other party
as required above, such other party may consent to such assignment after it has
occurred and, in such event, this Agreement and all the provisions hereof shall
be binding upon the Person receiving such assignment by operation of law.

         Section 13.7. No Third Party Beneficiaries. Nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party


                                       46
<PAGE>   47


beneficiary contract; provided, however, that the indemnification provisions in
Section 12.2 shall inure to the benefit of the Purchaser Indemnitees and the
Seller Indemnitees as provided therein.

         Section 13.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to either Party. Upon such determination that any term or other
provisions is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.

         Section 13.9. Counterparts. This Agreement may be executed in multiple
counterparts, all of which shall constitute one and the same instrument.

         Section 13.10. Construction. Any section headings in this Agreement are
for convenience of reference only, and shall be given no effect in the
construction or interpretation of this Agreement or any provisions thereof. No
provision of this Agreement will be interpreted in favor of, or against, any
party by reason of the extent to which any such party or its counsel
participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.

         Section 13.11. Applicable Law; Alternative Dispute Resolution.

                  (a) This Agreement shall be governed by and construed in
         accordance with the domestic laws of the State of Texas without giving
         effect to any choice or conflict of law provision or rule (whether of
         the State of Texas or any other jurisdiction) that would cause the
         application of the laws of any jurisdiction other than the State of
         Texas.

                  (b) Any dispute arising under this Agreement or otherwise in
         connection with or relating to the transactions contemplated hereby
         shall be resolved pursuant to this Section 13.11(b):

                           (i) Any party has the right to request the other to
                  meet to discuss a dispute. The party requesting the meeting
                  will give at least 10 business days notice in writing of the
                  subject it wishes to discuss, provide a written statement of
                  the dispute, and designate an officer of the party with
                  complete power to resolve the dispute to attend the meeting.
                  Within three business days after receipt to such request, the
                  party receiving the request will provide a responsive written
                  statement and will designate an officer of the party who will
                  attend the meeting with complete power to resolve the dispute.

                           (ii) If the meeting fails to resolve the dispute by a
                  signed agreement among the officers, the dispute shall be
                  submitted for binding arbitration


                                       47
<PAGE>   48


                  administered by the AAA under its Commercial Arbitration Rules
                  before a single arbitrator, and judgment on the award rendered
                  by the arbitrator may be entered in any court having
                  jurisdiction thereof.

                           (iii) The parties agree to make discovery and
                  disclosure of all matters relevant to the dispute to the
                  extent and in the manner provided by the Federal Rules of
                  Civil Procedure. The arbitrator will rule on all requests for
                  discovery and disclosure and discovery shall be completed
                  within 90 days of the date of the first notice pursuant to
                  Section 13.11(b)(i). The arbitrator may consider any matter
                  relevant to the subject to the dispute and shall follow the
                  statutes and decisions of the substantive law of Texas
                  relevant to the subject. The arbitrator shall not have the
                  authority or power to alter, amend or modify any of the terms
                  and conditions of the agreement of the parties. The arbitrator
                  shall issue a final ruling within 180 days of the date of the
                  first notice pursuant to Section 13.11(b)(i).

                           (iv) The ruling of the arbitrator shall be in writing
                  and signed and shall be final and binding upon the parties.
                  The fees and expenses of counsel, witnesses and employees of
                  the parties and all other costs and expenses incurred
                  exclusively for the benefit of the party incurring the same
                  shall be borne by the party incurring such fees and expenses.
                  All other fees and expenses including, without limitation,
                  compensation for the judge, shall be divided equally between
                  the parties. All meetings and arbitrations held pursuant to
                  this Section 13.11 shall take place in the Borough of
                  Manhattan, New York, New York.

         Section 13.12. Disclosure Schedules. With respect to the disclosure
schedules delivered pursuant to this Agreement, the disclosures made on any
section of a disclosure schedule with respect to any representation or warranty
shall be deemed to be made with respect to any other representation or warranty
requiring the same or similar disclosure only if the relevance of such
disclosure to other representations and warranties is evident from the face of
the applicable section of the such disclosure schedule. The inclusion of any
matter on any disclosure schedule will not be deemed an admission by any party
that such listed matter is material or that such listed matter has or would have
Material Adverse Effect or constitutes a Material Liability or Material
Contract, as the case may be.

         Section 13.13. General Assignment. The parties acknowledge that
Schedule A to the General Assignment describing the real property included in
the Distribution Assets has not yet been prepared. Such schedule shall include
all of the real property located in the State of Alaska that is owned or used by
the Distribution Division in connection with the Distribution Business and such
schedule shall be prepared by Seller and shall be delivered to Purchaser prior
to the Closing. Upon such delivery, such schedule shall be deemed to be
incorporated into the General Assignment and this Agreement by this reference.
Until such schedule is prepared, the General Assignment shall be deemed to cover
all of the real property located in the State of Alaska that is owned or used by
the Distribution Division in connection with the Distribution Business.


                                       48
<PAGE>   49


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.


                                       OCEAN ENERGY, INC.



                                       By
                                          --------------------------------------
                                          James T. Hackett
                                          President and Chief Executive Officer


                                       SEMCO ENERGY, INC.



                                       By
                                          --------------------------------------
                                          William L. Johnson
                                          Chairman of the Board, President and
                                               Chief Executive Officer