SEAGULL ENERGY CORPORATION
                             1986 STOCK OPTION PLAN
                                   (RESTATED)


I.  History and Purpose of the Plan

     The Seagull  Energy  Corporation  1986 Stock  Option Plan (the  "Plan") was
originally  adopted by Seagull  Energy  Corporation,  a Texas  corporation  (the
"Company"),  on  February3,  1986 and was  approved by the  shareholders  of the
Company on May 13, 1986. The Plan is intended to provide a means whereby certain
employees  of  the  Company  and  its   subsidiaries  may  develop  a  sense  of
proprietorship and personal involvement in the development and financial success
of the  Company,  and to  encourage  them to remain  with and devote  their best
efforts to the business of the Company,  thereby  advancing the interests of the
Company  and its  shareholders.  Accordingly,  the  Company may grant to certain
employees  the option  ("Option")  to purchase  shares ofthe common stock of the
Company ("Stock"),  as hereinafter set forth. Options granted under the Plan may
be either incentive stock options,  within the meaning  ofsection 422A(b) of the
Internal  Revenue  Code of  1986,  as  amended  (the  "Code"),("Incentive  Stock
Options")  or  options  which do not  constitute  Incentive  Stock  Options.  On
September  20, 1988,  the Company  restated the Plan in the form of this Seagull
Energy  Corporation  1986  Stock  Option  Plan  (Restated)  for the  purpose  of
incorporating  certain  amendments  previously  adopted with respect to the Plan
into the  text of the Plan and for  purposes  of  amending  the Plan in  certain
respects. The terms and provisions of this restatement of the Plan are effective
only with  respect to Options  granted  from and after  September  20,  1988 and
Options  granted  prior to such date shall  continue to be governed by the terms
and  provisions of the Plan (and  amendments  thereto) as in effect on September
20, 1988.

II.  Administration

     The  Plan  shall  be  administered  by  the  Compensation   Committee  (the
"Committee") of the Board of Directors of the Company (the "Board").  Members of
the  Committee  shall not be eligible,  and shall not have been  eligible at any
time within one year prior to their appointment to the Committee, to participate
in the Plan or in any other  stock,  stock option or stock  appreciation  rights
plan  of the  Company  or any of its  affiliates  ("Company  Stock  Plan").  The
Committee  shall have sole  authority  to select the  individuals  who are to be
granted Options from among those eligible  hereunder and to establish the number
of shares which may be issued under each Option.  TheCommittee  is authorized to
interpret  the Plan and may from time to time adopt such rules and  regulations,
consistent  with the  provisions of the Plan, as it may deem  advisable to carry
out the Plan. All decisions  made by the Committee in selecting the  individuals
to whom Options shall be granted, in establishing the number of shares which may
be issued under each Option and in construing  the  provisions of the Plan shall
befinal.

III.  Option Agreements

     Each Option  shall be evidenced by an Option  Agreement  and shall  contain
such terms and conditions,  and may be exercisable  for such periods,  as may be
approved by the Committee.  The terms and  conditions of the  respective  Option
Agreements need not be identical.  Specifically, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return for
a  payment  in cash or shares of Stock or a  combination  of cash and  shares of
Stock equal in value to the excess of the fair  market  value of the shares with
respect to which the right to  purchase  is  surrendered  over the option  price
therefor  ("Stock  Appreciation  Rights"),  on such terms and  conditions as the
Committee in its sole discretion may prescribe;  provided,  that with respect to
Stock Appreciation  Rights granted to employees who are subject to Section 16 of
the  Securities  Exchange  Act of 1934 (the "1934  Act"),  except as provided in
Subparagraph  VIII(c) hereof,  the Committee shall retain final authority (i) to
determine  whether  an  optionee  shall  be  permitted,  or (ii) to  approve  an
electionby an optionee,  to receive cash in full or partial  settlement of Stock
Appreciation Rights.  Moreover,  an Option Agreement may provide for the payment
of the option price,  in whole or in part, by the delivery of a number of shares
of Stock (plus cash ifnecessary) having a fair market value equal to such option
price.  Finally,  an Option  Agreement  may  provide  for cash less  exercise by
permitting an Optionee to withhold from shares of Stock acquirable upon exercise
of such Option  shares of Stock equal in value to all or a specified  portion of
the Option Price;  all on such terms and subject to such  conditions as shall be
established from time to time by the Committee. For all purposes under the Plan,
the fair market value of a share of Stock on a particular date shall be equal to
the closing price of the Stock on the New York Stock Exchange  Composite Tape on
that date, or if no prices are reported on that date, on the last preceding date
on which such  prices of the Stock are so  reported.  Each Option and all rights
granted  thereunder shall not be transferable  other than by will or the laws of
descentand distribution, and shall be exercisable during the optionee's lifetime
only by the optionee or the optionee's guardian or legal representative.

IV.  Eligibility of Optionee

     Options may be granted only to individuals who are key employees (including
officers and directors who are also key  employees) of the Company or any parent
orsubsidiary  corporation (as defined in section 425 of the Code) of the Company
at the time the Option is granted. Options may be granted to the same individual
on more than one  occasion.  No  Incentive  Stock  Option shall be granted to an
individual  if,  atthe time the Option is granted,  such  individual  owns stock
possessing  more than 10%of the total  combined  voting  power of all classes of
stock of the  Company or of its  parent or  subsidiary  corporation,  within the
meaning of section  422A(b)(6) of the Code, unless (i)at the time such Option is
granted the option  price is at least 110% of thefair  market value of the Stock
subject to the Option and (ii)such Option by its terms is not exercisable  after
the  expiration  of five  years from the date of grant.  To the extent  that the
aggregate fair market value  (determined  at the time the  respective  Incentive
Stock Option is granted) of stock with respect to which  Incentive Stock Options
granted after 1986 are  exercisable  for the first time by an individual  during
any calendar year under all incentive  stock option plans of the Company and its
parent andsubsidiary corporations exceeds $100,000, such Incentive Stock Options
shall be treatedas options which do not constitute  Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury  Regulations  and  other  administrative  pronouncements,  which  of an
optionee's  Incentive Stock Options will not constitute  Incentive Stock Options
because of such  limitation and shall notify the optionee of such  determination
as soon as practicable after such determination.

V.  Shares Subject to the Plan

     The aggregate  number of shares which may be issued under  Options  granted
under the Plan shall not exceed 300,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously  issued shares of Stock
reacquired  by the Company.  Any of such shares which remain  unissued and which
are not  subject to  outstanding  Options at the  termination  of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times  make  available  a  sufficient  number of shares to meet the
requirements of the Plan. Should any Option here under expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan.  The aggregate  number of shares
which may be issued  under the Plan shall be  subjectto  adjustment  in the same
manner as provided  in  Paragraph  VIII  hereof with  respect to shares of Stock
subject  to  Options  then  outstanding.  Exercise  of an Option in any  manner,
including an exercise  involving a Stock  Appreciation  Right, shall result in a
decrease in the number of shares of Stock  which may  thereafter  be  available,
both for purposes of the Plan and for sale to any one individual,  by the number
of shares as to which the Option is exercised. Separate stock certificates shall
be issued by the Company for those shares  acquired  pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option which does not constitute an Incentive Stock Option.

VI.  Option Price

     The purchase price of Stock issued under each Option shall be determined by
the Committee, but in the case of an Incentive Stock Option, such purchase price
shall not be less than the fair market  value of Stock  subject to the Option on
the date the Option is granted.

VII.  Term of Plan

     The Plan became  effective  upon February 3, 1986, the date of its adoption
by the Board.  Except with  respect to Options then  outstanding,  if not sooner
terminated  under the provisions of Paragraph IX, the Plan shall  terminate upon
and no further  Options shall be granted after the  expiration of ten years from
the date of its adoption by the Board.

VIII.  Recapitalization or Reorganization

     (a) The  existence  of the Plan and the  Options  granted  hereunder  shall
notaffect in any way the right or power of the Board or the  shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change inthe Company's  capital  structure or its business,  any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting  Stock or the rights  thereof,  the  dissolution or liquidation of the
Company or any sale, lease,  exchange or other disposition of all or any part of
its assets or business or any othercorporate act or proceeding.

     (b) The shares with  respect to which  Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option  theretofore  granted,  the  Company  shall  effect a  subdivision  or
consolidation  of shares of Stock or the  payment of a stock  dividend  on Stock
without receipt of consideration  by the Company,  the number of shares of Stock
with respect to which such Option may thereafter be exercised (i)in the event of
an  increase  in the  number  of  outstanding  shares  shall be  proportionately
increased, and the purchase price per shareshall be proportionately reduced, and
(ii)in the event of a reduction  in the number of  outstanding  shares  shall be
proportionately   reduced,   and  the   purchase   price   per   shareshall   be
proportionately increased.

     (c)  If  the  Company   recapitalizes  or  otherwise  changes  its  capital
structure,  thereafter  upon any exercise of an Option  theretofore  granted the
optionee shall be entitled to purchase under such Option,  in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stockand securities to which the optionee would have been
entitled pursuant to the terms of the  recapitalization if, immediately prior to
such recapitalization,  the optionee had been the holder of record of the number
of  shares of Stock as to which  such  Option  is then  exercisable.  If (i) the
Company shall not be the  surviving  entity in any merger or  consolidation  (or
survives only as a subsidiary of an entity other than a previously  wholly owned
subsidiary  of the  Company),  (ii) the Company  sells,  leases or  exchanges or
agrees to sell, lease or exchange all or substantially  all of its assets to any
other person or entity  (other than a  wholly-owned  subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated,  (iv) any person or entity,
including  a  "group"  as  contemplated  by  Section  13(d)(3)  of the 1934 Act,
acquires or gains ownership or control (including,  without limitation, power to
vote) of more than 40% of the outstanding shares of Stock, or (v) as a result of
or in connection  with a contested  election of directors,  the persons who were
directors  of the Company  before such  election  shall  cease to  constitute  a
majority  of the Board  (each such event is  referred  to herein as  a"Corporate
Change"),  then, upon the occurrence of any such Corporate  Change,  each Option
then  outstanding  shall become  fully  exercisable  and  effective as of a date
(selected  by the  Committee)  within  (a) ten days  after the  approval  by the
shareholders  of the  Company  of such  merger,  consolidation,  sale,  lease or
exchange of assets or  dissolution  or such  election of directors or (b) thirty
days of such change of control,  the  Committee,  acting in its sole  discretion
without the consent or approval of any optionee, shall effect one or more of the
following alternatives, which may vary among individual optionees: (1) establish
a limited  period of time on or before a  specified  date  (beforeor  after such
Corporate  Change) fixed by the Committee during which such outstanding  Options
may be  exercised,  after  which  specified  date all  unexercised  Options  and
allrights of optionees  thereunder  shall  terminate,  (2) require the mandatory
surrender tothe Company by selected  optionees of some or all of the outstanding
Options  held by such  optionees  as of a date,  before or after such  Corporate
Change, specified by the Committee, in which event the Committee shall thereupon
cancel such  Options and pay to each  optionee an amount of cash per share equal
to the excess of the amount calculated in Subparagraph (d) below (the "Change of
Control Value") of the shares subject to such Option over the exercise  price(s)
under such Options for such shares,  (3) make such  adjustments  to Options then
outstanding as the Committee deems  appropriate to reflect such Corporate Change
(provided,  however, that the Committee may determinein its sole discretion that
no  adjustment  is  necessary  to Options  then  outstanding)  (4) provide  that
thereafter upon any exercise of an Option theretofore granted the optionee shall
be entitled to purchase  under such  Option,  in lieu of the number of shares of
Stock as to which such Option shall then be exercisable, the number and class of
shares of stock or other securities or property to which the optionee would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale  of  assets  and  dissolution  if,   immediately   prior  to  such  merger,
consolidation or sale of assets and dissolution the optionee had been the holder
of record of the  number  of  shares  of Stock as to which  such  Option is then
exercisable.

     (d) For the purposes of clause (2) in Subparagraph  (c) above,  the "Change
of Control  Value"  shall equal the amount  determined  in clause  (i),  (ii) or
(iii),  whichever is applicable,  as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, sale of assets or
dissolution transaction, (ii) the price per share offered to shareholders of the
Company in any tender offer or exchange  offer whereby a Corporate  Change takes
place, or (iii) if such Corporate  Change occurs other than pursuant to a tender
or exchange offer,  the fair market value per shareof the shares into which such
Options being surrendered are exercisable,  as determined by the Committee as of
the  date  determined  by the  Committee  to be the  date  of  cancellation  and
surrender  of such  Options.  In the event  that the  consideration  offered  to
shareholders  of the Company in any transaction  described in this  Subparagraph
(d) or  Subparagraph  (c) above  consists  of  anything  other  than  cash,  the
Committee  shall  determine  the fair  cash  equivalent  of the  portion  of the
consideration offered which is other than cash.

     (e) Any adjustment  provided for in  Subparagraphs(b) or (c) above shall be
subject to any required shareholder action.

     (f) Except as herein before expressly provided, the issuance by the Company
of shares of stock of any class or securities  convertible  into shares of stock
of any class, for cash, property,  labor or services, upon direct sale, upon the
exercise of rights or warrants to  subscribe  therefor,  or upon  conversion  of
shares or  obligations  of the  Company  convertible  into such  shares or other
securities,  and in any case whether or notfor fair value, shall not affect, and
no  adjustment  by reason  thereof  shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.

IX.  Amendment or Termination of the Plan

     "The  Board in its  discretion  may  terminate  the  Plan at any time  with
respect to any shares for which Options have not theretofore  been granted.  The
Board shall have the right to alter or amend the Plan or any part  thereof  from
time to time; provided,  that no change in any Option theretofore granted may be
made which would impair the rights of the  optionee  without the consent of such
optionee;  and provided,  further, that the Board may not make any alteration or
amendment which would materially  increase the benefits accruing to participants
under the Plan,  increase  the  aggregate  number of shares  which may be issued
pursuant to the provisions of the Plan, change the class of individuals eligible
to receive  Options  under the Plan or extend the term of the Plan,  without the
approval of the shareholders of the Company.