THIRD AMENDMENT TO
                           SEAGULL ENERGY CORPORATION

                            SUPPLEMENTAL BENEFIT PLAN

         WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL ENERGY CORPORATION SUPPLEMENTAL BENEFIT PLAN (the
"Plan"); and

         WHEREAS, the Company desires to amend the Plan;

         NOW, THEREFORE,  the Plan shall be amended as follows,  effective as of
August 24, 1998:

         1. The  following new Section 3.3A shall be added to Article III of the
Plan:

                  "3.3A Amount of  Additional  Benefits.  As of any day during a
         Plan  Year,  a  Participant's  Accounts  shall be  credited  with  such
         additional  amounts as may be  determined  by the Committee in its sole
         discretion  or as shall be otherwise  contemplated  by the terms of any
         written  agreement  between  a  Participant  and  the  Company  that is
         approved by the Committee or the Directors."

         2.  Article V of the Plan shall be deleted and the  following  shall be
substituted therefor:

                                   "ARTICLE V

                           FORM AND TIMING OF BENEFITS

                  Upon the  termination  of a  Participant's  employment  or, if
         later, the termination of a Participant's  consulting relationship with
         the Company,  his benefit  under this Plan shall be paid to him (or his
         beneficiary)  in a lump  sum in cash as soon as  practicable  following
         such termination.  Notwithstanding the preceding sentence, in the event
         of a change of control that is not approved,  recommended and supported
         by at least  two-thirds of the Directors that were also Directors prior
         to the  occurrence of any such change of control in actions taken prior
         to, and with  respect to, such  change of control,  each  Participant's
         benefit under this Plan shall be paid to him (or his  beneficiary) in a
         lump sum in cash as soon as practicable,  but no later than thirty days
         following  the  date on which  such  change  of  control  occurs.  If a
         Participant  has elected to have his  Accounts  credited  with  Phantom
         Stock  pursuant to Section  3.4(c),  the  Participant  shall be paid an
         amount  equal to the  value of his  Accounts  as of the last day of the
         calendar  month  preceding his  termination or the change of control as
         described  in the  preceding  sentence,  based upon the  average of the
         closing  prices of common  stock of the  Company on the twenty  trading
         days preceding such date. If

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         a  Participant's  termination  occurs by reason of death,  his  benefit
         under this Plan shall be paid to the same  recipient or  recipients  as
         are paid his benefits under the Thrift Plan."

         3. Section 6.4 of the Plan shall be deleted.

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

         EXECUTED effective as of August 24, 1998.

                                            SEAGULL ENERGY CORPORATION

                                            By:    /s/ William L. Transier
                                            Name:  William L. Transier
                                            Title: Executive Vice President and
                                                   Chief Financial Officer
VEHOU02:123720.1

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