364-DAY CREDIT AGREEMENT

                               $300,000,000 CREDIT

                          AND COMPETITIVE BID FACILITY

                                      AMONG

                               OCEAN ENERGY, INC.,

                   CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
                    Individually and as Administrative Agent,

                            THE CHASE MANHATTAN BANK,
                        as Auction Administrative Agent,

             BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
                     Individually, and as Syndication Agent,

                             BANK ONE, TEXAS, N.A.,
                    Individually, and as Documentation Agent,

                       SOCIETE GENERALE, SOUTHWEST AGENCY,
                      Individually, and as Managing Agent,

                                BANK OF MONTREAL,
                      Individually, and as Managing Agent,

                                       AND

                        THE OTHER BANKS SIGNATORY HERETO

                                 March 30, 1999

                                -----------------

                             CHASE SECURITIES INC.,

                     as Lead Arranger and Sole Book Manager

<PAGE>

                                TABLE OF CONTENTS

<TABLE>

<S>                 <C>                                                                                          <C>
Section 1.          Definitions and Accounting Matters.........................................................   1
         1.1        Certain Defined Terms......................................................................   1
         1.2        Accounting Terms and Determinations........................................................  19
         1.3        Types of Loans.............................................................................  19
         1.4        Miscellaneous..............................................................................  19

Section 2.          Commitments; Competitive Bid Facility......................................................  19
         2.1        Committed Loans............................................................................  19

                    (a)    Revolving Loans.....................................................................  19
                    (b)    Term Loans..........................................................................  19

         2.2        Extension of Revolving Commitment Termination Date

                    and Revolving Commitments..................................................................  20
         2.3        Reductions and Changes of Commitments......................................................  22
         2.4        Fees.......................................................................................  23
         2.5        Affiliates; Lending Offices................................................................  23
         2.6        Several Obligations........................................................................  23
         2.7        Repayment of Loans; Evidence of Debt.......................................................  24
         2.8        Use of Proceeds............................................................................  24
         2.9        Competitive Bid Procedure..................................................................  24

Section 3.          Borrowings, Prepayments and Selection of Interest Rates....................................  26
         3.1        Borrowings.................................................................................  26
         3.2        Prepayments................................................................................  27
         3.3        Selection of Interest Rates................................................................  27

Section 4.          Payments of Principal and Interest.........................................................  27
         4.1        Repayment of Loans.........................................................................  27
         4.2        Interest...................................................................................  28

Section 5.          Payments; Pro Rata Treatment; Computations, Etc............................................  28
         5.1        Payments...................................................................................  28
         5.2        Pro Rata Treatment.........................................................................  29
         5.3        Computations...............................................................................  29
         5.4        Minimum and Maximum Amounts................................................................  29
         5.5        Certain Actions, Notices, Etc..............................................................  30
         5.6        Non-Receipt of Funds by Administrative Agent...............................................  31
         5.7        Sharing of Payments, Etc...................................................................  31

Section 6.          Yield Protection and Illegality............................................................  32
</TABLE>

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<TABLE>

<S>                 <C>                                                                                          <C>        
         6.1        Additional Costs.............................................................................32
         6.2        Limitation on Types of Loans.................................................................33
         6.3        Illegality...................................................................................34
         6.4        Substitute Alternate Base Rate Loans.........................................................34
         6.5        Compensation.................................................................................35
         6.6        [Intentionally omitted]......................................................................35
         6.7        Capital Adequacy.............................................................................35
         6.8        Limitation on Additional Charges; Substitute Banks; Non-Discrimination.......................36

Section 7.          Conditions Precedent.........................................................................36
         7.1        Initial Loans................................................................................36
         7.2        Initial and Subsequent Loans.................................................................39

Section 8.          Representations and Warranties...............................................................40
         8.1        Corporate Existence..........................................................................40
         8.2        Corporate Power and Authorization............................................................40
         8.3        Binding Obligations..........................................................................40
         8.4        No Legal Bar or Resultant Lien...............................................................40
         8.5        No Consent...................................................................................40
         8.6        Financial Condition..........................................................................41
         8.7        Investments and Guaranties...................................................................41
         8.8        Liabilities and Litigation...................................................................41
         8.9        Taxes and Governmental Charges...............................................................42
         8.10       Title to Properties..........................................................................42
         8.11       Defaults.....................................................................................42
         8.12       Location of Businesses and Offices...........................................................42
         8.13       Compliance with Law..........................................................................42
         8.14       Margin Stock.................................................................................43
         8.15       Subsidiaries.................................................................................43
         8.16       ERISA........................................................................................43
         8.17       Investment Company Act.......................................................................43
         8.18       Public Utility Holding Company Act...........................................................44
         8.19       Environmental Matters........................................................................44
         8.20       Claims and Liabilities.......................................................................45
         8.21       Solvency.....................................................................................45
         8.22       Year 2000....................................................................................45

Section 9.          Affirmative Covenants........................................................................46
         9.1        Financial Statements and Reports.............................................................46
         9.2        Officers' Certificates.......................................................................47
         9.3        Taxes and Other Liens........................................................................48
         9.4        Maintenance..................................................................................48
</TABLE>

                                                      (2)

<PAGE>

<TABLE>

<S>                 <C>                                                                                          <C>
         9.5        Further Assurances...........................................................................48
         9.6        Performance of Obligations...................................................................48
         9.7        Reimbursement of Expenses....................................................................48
         9.8        Insurance....................................................................................49
         9.9        Accounts and Records.........................................................................50
         9.10       Notice of Certain Events.....................................................................50
         9.11       ERISA Information and Compliance.............................................................51

Section 10.         Negative Covenants...........................................................................52
         10.1       Debts, Guaranties and Other Obligations......................................................52
         10.2       Liens........................................................................................55
         10.3       Dividend Payment Restrictions................................................................58
         10.4       Mergers and Sales of Assets..................................................................58
         10.5       Proceeds of Loans............................................................................59
         10.6       ERISA Compliance.............................................................................59
         10.7       Total Leverage Ratio.........................................................................59
         10.8       Senior Leverage Ratio........................................................................59
         10.9       Minimum Net Worth............................................................................59
         10.10      Nature of Business...........................................................................60
         10.11      Covenants in Other Agreements................................................................60

Section 11.         Defaults.....................................................................................60
         11.1       Events of Default............................................................................60
         11.2       [Intentionally omitted]......................................................................63
         11.3       [Intentionally omitted]......................................................................63
         11.4       Right of Setoff..............................................................................63

Section 12.         Agents.......................................................................................63
         12.1       Appointment, Powers and Immunities...........................................................63
         12.2       Reliance by Agents...........................................................................64
         12.3       Defaults.....................................................................................64
         12.4       Rights as a Bank.............................................................................65
         12.5       Indemnification..............................................................................65
         12.6       Non-Reliance on Agents and Other Banks.......................................................65
         12.7       Failure to Act...............................................................................66
         12.8       Resignation or Removal of Administrative Agent...............................................66

Section 13.         Miscellaneous................................................................................67
         13.1       Waiver.......................................................................................67
         13.2       Notices......................................................................................67
         13.3       Indemnification..............................................................................67
         13.4       Amendments, Etc..............................................................................68
</TABLE>

                                                      (3)

<PAGE>

<TABLE>

<S>                 <C>                                                                                          <C> 
         13.5       Successors and Assigns.......................................................................69
         13.6       Limitation of Interest.......................................................................71
         13.7       Survival.....................................................................................72
         13.8       Captions.....................................................................................72
         13.9       Counterparts.................................................................................73
         13.10      GOVERNING LAW; FORUM SELECTION;

                    CONSENT TO JURISDICTION......................................................................73
         13.11      WAIVER OF JURY TRIAL; PUNITIVE DAMAGES.......................................................74
         13.12      Severability.................................................................................74
         13.13      Chapter 15 Not Applicable....................................................................74
         13.14      Confidential Information.....................................................................74
         13.15      Tax Forms....................................................................................75
         13.16      Entire Agreement.............................................................................75
</TABLE>

                                                      (4)

<PAGE>

EXHIBITS:

Exhibit A           Unrestricted Subsidiaries
Exhibit B           Form of Request for Extension of Credit
Exhibit C           Subsidiaries (with Addresses)
Exhibit D           Form of Compliance Certificate
Exhibit E           Assignment and Acceptance
Exhibit F           Form of Competitive Bid Request
Exhibit G           Form of Notice to Banks of Competitive Bid Request
Exhibit H           Form of Competitive Bid
Exhibit I           Form of Competitive Bid Administrative Questionnaire
Exhibit J           Form of Certificate of Extension
Exhibit K           Form of Guaranty Agreement
Exhibit L           Disclosure Statement
Exhibit M           Commitments





                                                      (5)

<PAGE>

                            364-DAY CREDIT AGREEMENT

         This  364-DAY  CREDIT  AGREEMENT,  dated  as of  March  30,  1999  (the
"Effective  Date"),  is by and among  OCEAN  ENERGY,  INC.  (the  "Company"),  a
corporation  duly organized and validly  existing under the laws of the State of
Texas,  each of the  banks  which is or which  may  from  time to time  become a
signatory hereto (individually,  a "Bank" and, collectively,  the "Banks"), BANK
OF AMERICA  NATIONAL  TRUST AND  SAVINGS  ASSOCIATION  ("Bank of  America"),  as
Syndication  Agent for the Banks (in such capacity,  the  "Syndication  Agent"),
BANK ONE, TEXAS,  N.A. ("Bank One"),  as  Documentation  Agent for the Banks (in
such capacity, the "Documentation  Agent"),  SOCIETE GENERALE,  SOUTHWEST AGENCY
("Societe  Generale")  and BANK OF MONTREAL  ("Bank of  Montreal"),  as Managing
Agents  for the Banks  (in such  capacity,  the  "Managing  Agents"),  THE CHASE
MANHATTAN BANK, as Auction Administrative Agent for the Banks (in such capacity,
the  "Auction   Administrative  Agent"),  and  CHASE  BANK  OF  TEXAS,  NATIONAL
ASSOCIATION ("Chase"),  as Administrative Agent for the Banks (in such capacity,
together with its successors in such capacity, "Administrative Agent").

         The parties hereto agree as follows:

         Section 1.        Definitions and Accounting Matters.

         1.1 Certain  Defined Terms.  As used herein,  the following terms shall
have the  following  meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):

         "Accepting Banks" shall have the meaning set forth in Section 2.2(c).

         "Additional  Costs"  shall have the  meaning  ascribed  to such term in
Section 6.1 hereof.

         "Affiliate"  shall  mean,  as to any  Person,  any other  Person  which
directly  or  indirectly  controls,  or is  under  common  control  with,  or is
controlled by, such Person and, if such Person is an  individual,  any member of
the  immediate  family   (including   parents,   siblings,   spouse,   children,
stepchildren,  grandchildren,  nephews  and nieces) of such  individual  and any
trust whose  principal  beneficiary is such individual or one or more members of
such  immediate  family and any Person who is  controlled  by any such member or
trust.  As used in  this  definition,  "control"  (including,  with  correlative
meanings,   "controlled   by"  and  "under  common  control  with")  shall  mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies  (whether through  ownership of securities or partnership
or other ownership interests, by contract or otherwise).

         "Agents"   shall   mean   the   Administrative   Agent,   the   Auction
Administrative  Agent, the  Documentation  Agent, the Syndication  Agent and the
Managing Agents, together with any successors in any such capacities.

                                                         1

<PAGE>

         "Agreement" shall mean this 364-Day Credit Agreement, as such agreement
from  time to  time  may be  amended,  amended  and  restated,  supplemented  or
otherwise modified.

         "Alternate  Base Rate" shall mean,  for any day, a rate per annum equal
to the  higher of (a)the  Prime Rate in effect on such day or (b) 1/2 of 1% plus
the Federal Funds Rate in effect for such day (rounded upwards, if necessary, to
the nearest 1/16th of 1%). For purposes hereof, "Federal Funds Rate" shall mean,
for any period, a fluctuating  interest rate per annum equal for each day during
such period to the  weighted  average of the rates on  overnight  Federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next  preceding  Business Day) by the Federal  Reserve Bank of New York,
or, if such rate is not so  published  for any day which is a Business  Day, the
average  of the  quotations  for  such  day on  such  transactions  received  by
Administrative  Agent from three Federal  funds  brokers of recognized  standing
selected by it. For purposes of this Agreement, any change in the Alternate Base
Rate due to a change  in the  Federal  Funds  Rate  shall  be  effective  on the
effective  date of such  change in the  Federal  Funds  Rate.  If for any reason
Administrative  Agent  shall  have  determined  (which  determination  shall  be
conclusive and binding,  absent  manifest  error) that it is unable to ascertain
the  Federal  Funds Rate for any  reason,  including,  without  limitation,  the
inability  or  failure  of  Administrative  Agent to obtain  sufficient  bids or
publications in accordance with the terms hereof,  the Alternate Base Rate shall
be the Prime Rate  until the  circumstances  giving  rise to such  inability  no
longer exist. For the purposes hereof, "Prime Rate" shall mean the prime rate as
announced from time to time by Administrative  Agent, and thereafter  entered in
the minutes of  Administrative  Agent's  Loan and  Discount  Committee.  Without
notice  to the  Company  or any  other  Person,  the  Prime  Rate  shall  change
automatically  from time to time as and in the  amount by which  said prime rate
shall  fluctuate.  The Prime Rate is a reference  rate and does not  necessarily
represent   the  lowest  or  best  rate   actually   charged  to  any  customer.
Administrative  Agent  may make  commercial  loans  or  other  loans at rates of
interest at, above or below the Prime Rate.  For purposes of this  Agreement any
change in the  Alternate  Base Rate due to a change in the Prime  Rate  shall be
effective on the date such change in the Prime Rate is announced.

         "Alternate  Base Rate Loans" shall mean Loans which bear  interest at a
rate based upon the Alternate Base Rate.

         "APC" shall mean Alaska  Pipeline  Company,  an Alaska  corporation,  a
Subsidiary of the Company.

         "Applicable Lending Office" shall mean, for each Bank and for each Type
of Loan, such office of such Bank (or of an affiliate of such Bank) as such Bank
may from time to time  specify to  Administrative  Agent and the  Company as the
office  by  which  its  Loans  of such  Type are to be made  and/or  issued  and
maintained.

         "Applicable  Margin"  shall  mean,  on any  day,  with  respect  to any
Alternate Base Rate Loan or Eurodollar Loan, the applicable per annum percentage
set forth at the appropriate intersection in

                                                         2

<PAGE>

the table  shown  below,  based on the Rating as of the close of business on the
preceding Business Day:

<TABLE>

<S>                              <C>                               <C>    

                                        Alternate Base Rate               Eurodollar Loan

            Rating                    Loan Applicable Margin             Applicable Margin

            ------                    ----------------------             -----------------
BBB-/Baa3 and higher                          0.000%                          1.075%
BB+/Ba1                                       0.250%                          1.250%
BB/Ba2                                        0.500%                          1.500%
BB-/Ba3 and lower                             0.750%                          1.750%
===============================  ================================= =============================
</TABLE>

         "Bankruptcy  Code" shall mean the United  States  Bankruptcy  Code,  as
amended, and any successor statute.

         "Business Day" shall mean any day other than a day on which  commercial
banks are  authorized  or required to close in Houston,  Texas or New York,  New
York, and where such term is used in the definition of "Quarterly  Date" in this
Section 1.1 or if such day relates to a borrowing of, a payment or prepayment of
principal of or interest on, or an Interest  Period for, a Eurodollar  Loan or a
notice by the Company with respect to any such borrowing, payment, prepayment or
Interest  Period, a day which is also a day on which dealings in Dollar deposits
are carried out in the relevant interbank market.

         "Capital  Lease   Obligations"  shall  mean,  as  to  any  Person,  the
obligations  of such  Person to pay rent or other  amounts  under a lease of (or
other agreement  conveying the right to use) real and/or personal property which
obligations  are required to be classified  and accounted for as a capital lease
on a  balance  sheet  of such  Person  under  GAAP  and,  for  purposes  of this
Agreement,  the  amount  of such  obligations  shall be the  capitalized  amount
thereof, determined in accordance with GAAP.

         "Certificate  of  Extension"  shall  mean  a  certificate  of  Company,
executed by a Responsible Officer and delivered to the Administrative  Agent, in
substantially  the form of Exhibit J, which  requests an  extension  of the then
scheduled Revolving Commitment Termination Date pursuant to Section 2.2.

         "Change of Control"  shall mean a change  resulting  when any Unrelated
Person or any Unrelated  Persons acting together which would  constitute a Group
together  with any  Affiliates  or Related  Persons  thereof  (in each case also
constituting  Unrelated  Persons) shall at any time either (i)  Beneficially Own
more than 35% of the  aggregate  voting  power of all classes of Voting Stock of
the  Company or (ii)  during any period of two  consecutive  years  ending on or
after the  Effective  Date,  as  determined  as of the last day of each calendar
quarter after the Effective  Date, the individuals  (the "Incumbent  Directors")
who at the beginning of such period constituted the Board

                                                         3

<PAGE>

of Directors of the Company (other than additions thereto or removals  therefrom
from time to time  thereafter  approved by a vote of the Board of  Directors  in
accordance with the Company's  by-laws) shall cease for any reason to constitute
51% or  more  of  the  Board  of  Directors  of  the  Company.  As  used  herein
(a)"Beneficially  Own" means  "beneficially own" as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, or any successor provision thereto;
provided,  however, that, for purposes of this definition, a Person shall not be
deemed to Beneficially Own securities  tendered pursuant to a tender or exchange
offer  made by or on behalf of such  Person or any of such  Person's  Affiliates
until such tendered securities are accepted for purchase or exchange; (b)"Group"
means a "group" for purposes of Section 13(d) of the Securities  Exchange Act of
1934, as amended;  (c)"Unrelated Person" means at any time any Person other than
the Company or any Subsidiary and other than any trust for any employee  benefit
plan of the Company or any  Subsidiary of the Company;  (d) "Related  Person" of
any Person shall mean any other Person owning (1) 5% or more of the  outstanding
common  stock  of such  Person  or (2) 5% or more of the  Voting  Stock  of such
Person;  and (e) "Voting  Stock" of any Person shall mean capital  stock of such
Person which  ordinarily  has voting  power for the  election of  directors  (or
persons performing  similar  functions) of such Person,  whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.

         "Chapter  1D" shall mean Chapter 1D of Article 5069 of the Texas Credit
Title,  Title 79, Vernon's Texas Civil Statutes,  as amended  (formerly  Article
5069-1.04, Vernon's Texas Civil Statutes, as amended).

         "Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute,  together with all regulations,  rulings and  interpretations
thereof or thereunder by the Internal Revenue Service.

         "Commitment  Percentage"  shall mean,  as to any Bank,  the  percentage
equivalent  of a fraction  the  numerator  of which is the amount of such Bank's
Commitment  and  the  denominator  of  which  is  the  aggregate  amount  of the
Commitments of all Banks.

         "Commitment"  shall  mean,  as  to  any  Bank,  such  Bank's  Revolving
Commitment or Term Commitment then in effect, as the case may be.

         "Committed  Loans"  shall mean the  Revolving  Loans and the Term Loans
provided for in Section 2.1 hereof.

         "Competitive  Bid" shall mean an offer by a Bank to make a  Competitive
Loan pursuant to Section 2.9 hereof.

         "Competitive   Bid   Administrative   Questionnaire"   shall   mean   a
questionnaire substantially in the form of Exhibit I hereto.

                                                         4

<PAGE>

         "Competitive  Bid Rate" shall mean, as to any Competitive Bid made by a
Bank pursuant to Section 2.9 hereof,  the fixed rate of interest,  in each case,
offered by the Bank making such Competitive Bid.

         "Competitive  Bid Request" shall have the meaning ascribed to such term
in Section 2.9 hereof.

         "Competitive Loans" shall mean loans provided for in Section 2.9 
hereof.

         "Consolidated  Net Worth"  means,  with  respect to the Company and its
Subsidiaries,  the sum of preferred  stock (if any),  par value of common stock,
capital  in  excess of par value of common  stock and  retained  earnings,  less
treasury  stock (if any),  goodwill,  cost in excess of fair value of net assets
acquired and all other assets that are properly classified as intangible assets,
but plus any expenses associated with the Merger occurring prior to December 31,
1999 and not in  excess  of  $30,000,000  in the  aggregate,  and the  amount of
noncash write downs occurring on or after January1, 1999 of long-lived assets in
compliance  with GAAP or SEC  guidelines,  and  excluding any  extraordinary  or
non-recurring  net gains or losses together with any related provision for taxes
on  such  gain or  loss,  realized  in  connection  with  any  extraordinary  or
nonrecurring  gains  or  losses,  and plus or  minus,  as  appropriate,  foreign
currency translation adjustments, all as determined on a consolidated basis.

         "Credit  Obligations"  shall  mean,  as at any  date  of  determination
thereof, the aggregate principal amount of Loans outstanding hereunder.

         "Declining Banks" shall have the meaning set forth in Section 2.2(c).

         "Default"  shall mean an Event of Default or an event which with notice
or lapse of time or both  would,  unless  cured or  waived,  become  an Event of
Default.

         "Disclosure Statement" shall mean the Disclosure Statement delivered to
Administrative Agent by the Company and attached as Exhibit L hereto.

         "Dividend  Payment" shall mean,  with respect to any Person,  dividends
(in cash,  property or obligations)  on, or other payments or  distributions  on
account of, or the redemption of, or the setting apart of money for a sinking or
other  analogous  fund  for  the  purchase,  redemption,   retirement  or  other
acquisition of, any shares of any class of capital stock of such Person,  or the
exchange  or  conversion  of any  shares of any class of  capital  stock of such
Person for or into any  obligations  of or shares of any other  class of capital
stock of such  Person or any other  property,  but  excluding  dividends  to the
extent  payable in, or exchanges or  conversions  for or into,  shares of common
stock of the  Company or options or warrants  to  purchase  common  stock of the
Company.

         "Dollars" and "$" shall mean lawful money of the United States of
America.

                                                         5

<PAGE>

         "EBITDAX" shall mean net earnings  (excluding material gains and losses
on sales and retirement of assets,  non-cash write downs, charges resulting from
accounting  convention  changes and deductions for exploration  expenses) before
deduction for federal and state taxes,  interest expense (including  capitalized
interest),  operating lease rentals or depreciation,  depletion and amortization
expense,  all determined in accordance  with GAAP;  provided,  however,  for the
purpose of any  calculation,  that (i) for the fiscal  quarter  ending March 31,
1998, EBITDAX shall be deemed to equal $159,765,000, (ii) for the fiscal quarter
ending June 30, 1998, EBITDAX shall be deemed to equal  $142,023,000,  (iii) for
the fiscal quarter ending  September 30, 1998,  EBITDAX shall be deemed to equal
$107,171,000,  and (iv) for the fiscal quarter ending December31,  1998, EBITDAX
shall be deemed to equal $122,134,000.

         "ENSTAR Alaska" shall collectively mean (i) the gas distribution system
in south-central  Alaska known as ENSTAR Natural Gas Company,  a division of the
Company, and (ii) APC.

         "Environmental  Claim"  means any third party  (including  Governmental
Authorities  and  employees)  action,  lawsuit,  claim or proceeding  (including
claims or proceedings at common law or under the Occupational  Safety and Health
Act or similar  laws  relating  to safety of  employees)  which  seeks to impose
liability for (i) noise;  (ii) pollution or  contamination  of the air,  surface
water,  ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation,  handling,  treatment, storage,
disposal or  transportation;  (iv)  exposure to  Hazardous  Substances;  (v) the
safety or health of employees or (vi) the manufacture,  processing, distribution
in commerce or use of Hazardous  Substances.  An "Environmental Claim" includes,
but is not limited to, a common law action,  as well as a  proceeding  to issue,
modify or terminate an Environmental  Permit,  or to adopt or amend a regulation
to the  extent  that such a  proceeding  attempts  to redress  violations  of an
applicable  permit,  license,  or  regulation  as  alleged  by any  Governmental
Authority.

         "Environmental  Liabilities"  includes all liabilities arising from any
Environmental  Claim,  Environmental  Permit or Requirement of Environmental Law
under  any  theory  of  recovery,  at law or in  equity,  and  whether  based on
negligence,  strict  liability  or  otherwise,  including  but not  limited  to:
remedial,  removal, response,  abatement,  investigative,  monitoring,  personal
injury and damage to property or  injuries  to  persons,  and any other  related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs  and  expenses  necessary  to cause the  issuance,  reissuance  or
renewal of any  Environmental  Permit including  reasonable  attorneys' fees and
court costs.

         "Environmental  Permit"  means any permit,  license,  approval or other
authorization  under any applicable Legal  Requirement  relating to pollution or
protection of health or the  environment,  including laws,  regulations or other
requirements relating to emissions,  discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water,  ground water or land, or otherwise relating to
the manufacture,  processing,  distribution,  use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.

                                                         6

<PAGE>

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules,  regulations and interpretations by
the Internal Revenue Service or the Department of Labor thereunder.

         "ERISA  Affiliate"  shall mean any trade or  business  (whether  or not
incorporated)  which is a member of a group of which any Obligor is a member and
which is under  common  control  within  the  meaning of the  regulations  under
Section 414 of the Code.

         "Eurodollar  Base Rate" shall mean, with respect to any Interest Period
for any Eurodollar Loan, the lesser of (A) the rate per annum (rounded  upwards,
if necessary,  to the nearest  1/16th of 1%) equal to the average of the offered
quotations  appearing on Telerate  Page 3750 (or if such Telerate Page shall not
be  available,   any  successor  or  similar  service  as  may  be  selected  by
Administrative Agent and the Company) as of 11:00 a.m., Houston,  Texas time (or
as soon  thereafter  as  practicable)  on the day two Business Days prior to the
first day of such Interest  Period for Dollar  deposits having a term comparable
to such Interest Period and in an amount  comparable to the principal  amount of
the  Eurodollar  Loan to which such Interest  Period  relates or (B) the Highest
Lawful Rate.  If none of such  Telerate  Page 3750 nor any  successor or similar
service is available,  then the "Eurodollar  Base Rate" shall mean, with respect
to any Interest Period for any applicable Eurodollar Loan, the lesser of (A) the
rate per annum  (rounded  upwards,  if necessary,  to the nearest  1/16th of 1%)
determined by Administrative  Agent to be the average of the rates quoted by the
Reference Banks at  approximately  11:00 a.m.,  Houston,  Texas time (or as soon
thereafter as  practicable)  on the day two Business Days prior to the first day
of such  Interest  Period for the  offering by such  Reference  Banks to leading
banks in the London interbank market of Dollar deposits having a term comparable
to such Interest Period and in an amount  comparable to the principal  amount of
the  Eurodollar  Loan to which such Interest  Period  relates or (B) the Highest
Lawful  Rate.  If any  Reference  Bank  does not  furnish  a  timely  quotation,
Administrative  Agent shall determine the relevant interest rate on the basis of
the quotation or quotations  furnished by the remaining Reference Bank or Banks;
if none of such  quotations  is available on a timely basis,  the  provisions of
Section 6.2 shall apply. Each determination of the Eurodollar Base Rate shall be
conclusive and binding,  absent  manifest  error,  and may be computed using any
reasonable averaging and attribution method.

         "Eurodollar Loans" shall mean Loans the interest on which is determined
on the basis of rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.1.

         "Eurodollar   Rate"  shall  mean,  for  any  Interest  Period  for  any
Eurodollar Loan, a rate per annum determined by Administrative Agent to be equal
to the Eurodollar Base Rate for such Loan for such Interest Period.

         "Event of  Default"  shall have the  meaning  assigned  to such term in
Section11 hereof.

         "Existing  Seagull Credit Facility" shall mean that certain Amended and
Restated Credit Agreement,  dated as of December 24, 1997, by and among Seagull,
each of the banks which is or

                                                         7

<PAGE>

which may from time to time become a signatory  thereto,  Morgan  Guaranty Trust
Company of New York, as  Documentation  Agent,  NationsBank  of Texas,  N.A., as
Syndication  Agent,  and The Chase Manhattan Bank, as  Administrative  Agent, as
such  agreement  from  time  to  time  may be  amended,  amended  and  restated,
supplemented or otherwise modified.

         "Existing  Old Ocean Bridge  Facility"  shall mean that certain  Letter
Agreement,  dated  February  3, 1999,  among The Chase  Manhattan  Bank,  Morgan
Guaranty  Trust Company of New York, Old Ocean Energy,  the Guarantor,  and Lion
GPL, S.A. and the "Security Instruments" as defined therein, as each is amended,
waived or otherwise modified to the date hereof.

         "Existing  Old Ocean Credit  Facility"  shall mean that certain  Second
Amended and Restated Global Credit Agreement,  dated as of November 20, 1998, by
and among Old Ocean Energy,  each of the lenders which is or which may from time
to time become a signatory  thereto,  Morgan Guaranty Trust Company of New York,
as Syndication Agent, Bank of America National Trust & Savings  Association,  as
Documentation  Agent,  Barclays Bank PLC, as Managing  Agent,  Paribas,  Societe
Generale,  Southwest Agency,  and Credit Suisse First Boston, as Co-Agents,  and
Chase Bank of Texas,  National  Association,  as  Administrative  Agent, as such
agreement from time to time may be amended,  amended and restated,  supplemented
or otherwise modified.

         "Facility  Amount" shall mean the aggregate  amount of the  Commitments
(which amount shall  initially be  $300,000,000),  as such amount may be reduced
from time to time pursuant to the terms of this Agreement.

         "Facility Fee  Percentage"  shall mean, on any date, the applicable per
annum  percentage set forth at the  appropriate  intersection in the table shown
below, based on the Rating as of the close of business on the preceding Business
Day:

              Rating                      Facility Fee Percentage
BBB-/Baa3 and higher                              0.175%
BB+/Ba1 and lower                                 0.250%

=================================== ==================================

         "Financial   Statements"   shall  mean  the   financial   statement  or
statements, together with the notes and schedules thereto, described or referred
to in Sections8.6 and 9.1.

         "GAAP" shall mean as to a particular Person,  such accounting  practice
as, in the  opinion of KPMG Peat  Marwick or other  independent  accountants  of
recognized  national  standing  retained  by such Person and  acceptable  to the
Majority  Banks,   conforms  at  the  time  to  generally  accepted   accounting
principles, consistently applied. Generally accepted accounting principles means
those principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board, (b) which are applied for all periods after the date
hereof in a manner  consistent  with the  manner in which  such  principles  and
practices were applied to the most recent audited financial

                                                         8

<PAGE>

statements of the relevant Person  furnished to the Banks,  except only for such
changes in principles and practices with which the applicable independent public
accountants  concur and which are  disclosed  to the Banks in  writing,  and (c)
which are  consistently  applied for all periods  after the date hereof so as to
reflect  properly the  financial  condition  and results of  operations  of such
Person.

         "Governmental   Authority"   shall  mean  any  sovereign   governmental
authority,  the United States of America, any State of the United States and any
political  subdivision  of any of the foregoing,  and any central bank,  agency,
instrumentality,  department,  commission,  board, bureau,  authority,  court or
other tribunal or  quasi-governmental  authority in each case whether executive,
legislative,  judicial,  regulatory or administrative,  having jurisdiction over
the  Company,  any  of  its  Subsidiaries,  any of  their  respective  property,
Administrative Agent or any Bank.

         "Guarantee"  by  any  Person  means  any   obligation,   contingent  or
otherwise,   of  any  such  Person  directly  or  indirectly   guaranteeing  any
Indebtedness  of any other Person and,  without  limiting the  generality of the
foregoing, any obligation,  direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or  advance or supply  funds for the  purchase or
payment  of)  such  Indebtedness  (whether  arising  by  virtue  of  partnership
arrangements,  by agreement to keep-well,  to purchase assets, goods, securities
or services,  to take-or-pay,  or to maintain financial statement  conditions or
otherwise,  other than  agreements  to purchase  assets,  goods,  securities  or
services at an arm's length  price in the  ordinary  course of business) or (ii)
entered  into for the purpose of assuring in any other manner the holder of such
Indebtedness  of the payment  thereof or to protect such holder  against loss in
respect thereof (in whole or in part),  provided that the term "Guarantee" shall
not include  endorsements  for  collection or deposit in the ordinary  course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

         "Guarantor" shall mean Ocean Energy, Inc., a Louisiana corporation.

         "Guaranty Agreement" shall mean the guaranty agreement substantially in
the form of Exhibit K, with appropriate insertions and deletions, executed or to
be  executed  by the  Guarantor,  as such  agreement  from  time to time  may be
amended, amended and restated, supplemented or otherwise modified.

         "Havre"  shall  mean  Havre  Pipeline  Company,  LLC,  a Texas  limited
liability company.

         "Hazardous Substance" shall mean petroleum products,  and any hazardous
or toxic waste or  substance  defined or  regulated as such from time to time by
any law, rule,  regulation or order described in the definition of "Requirements
of Environmental Law".

         "Highest  Lawful Rate" shall mean, on any day, the maximum  nonusurious
rate of interest  permitted for that day by whichever of  applicable  federal or
Texas law permits the higher interest rate,  stated as a rate per annum. On each
day, if any, that Chapter 1D  establishes  the Highest  Lawful Rate, the Highest
Lawful  Rate shall be the  "applicable  interest  rate  ceiling"  (as defined in
Chapter1D) for that day.

                                                         9

<PAGE>

         "Hydrocarbons"  shall mean oil, gas,  casinghead  gas,  drip  gasoline,
natural  gasoline,  condensate and all other liquid or gaseous  hydrocarbons and
related minerals, in each case whether in a natural or a processed state.

         "Indebtedness"  shall mean, as to any Person:  (i) indebtedness of such
Person for  borrowed  money  (whether by loan or the  issuance  and sale of debt
securities)  or for the deferred  purchase or  acquisition  price of property or
services, including, without limitation,  obligations payable out of Hydrocarbon
production;  (ii)  obligations,  whether fixed or contingent,  of such Person in
respect  of  letters of credit,  acceptances  or similar  instruments  issued or
accepted  by banks and other  financial  institutions  for the  account  of such
Person or any other Person; (iii) Capital Lease Obligations of such Person; (iv)
Redemption  Obligations  of such Person and other  obligations of such Person to
redeem or otherwise  retire  shares of capital stock of such Person or any other
Person,  in each case to the extent that the redemption  obligations  will arise
prior to the stated maturity of the  Obligations;  (v) indebtedness of others of
the type described in clause (i), (ii), (iii) or (iv) above secured by a Lien on
the property of such Person, whether or not the respective obligation so secured
has been assumed by such Person,  to the extent of the fair market value of such
property;  and (vii) indebtedness of others of the type described in clause (i),
(ii),  (iii) or (iv)  above  Guaranteed  by such  Person,  to the extent of such
Guarantee.

         "Interest Period" shall mean:

         (a) With respect to any Eurodollar  Loan, the period  commencing on (i)
the date such Loan is made or converted  into or continued as a Eurodollar  Loan
or (ii) in the case of a roll-over to a successive Interest Period, the last day
of the  immediately  preceding  Interest  Period and  ending on the  numerically
corresponding  day  in  the  first,   second,  third  or  sixth  calendar  month
thereafter,  as the Company may select as provided in Section 5.5 hereof, except
that each such Interest  Period which commences on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month shall
end on the last Business Day of the appropriate subsequent calendar month.

         (b) With respect to any other  Competitive  Loan, the period commencing
on the  date  such  Loan  is  made  and  ending  on the  date  specified  in the
Competitive  Bid in which the offer to make the  Competitive  Loan was extended;
provided,  however, that each such period shall have a duration of not less than
seven calendar days or more than 180 calendar days.

Notwithstanding  the  foregoing:  (i)  no  Interest  Period  applicable  to  any
Eurodollar  Loan or any  Competitive  Loan may commence before and end after the
date of any  scheduled  reduction in the  Commitments  if,  after giving  effect
thereto,  the aggregate  principal amount of the Eurodollar Loans or Competitive
Loans which have Interest  Periods which end after such  reduction date shall be
greater than the aggregate  principal amount of the Commitments  scheduled to be
in effect  after such  reduction  date;  (ii) each  Interest  Period which would
otherwise  end on a day  which  is not a  Business  Day  shall  end on the  next
succeeding  Business Day (or, in the case of an Interest  Period for  Eurodollar
Loans,  if such  next  succeeding  Business  Day  falls in the  next  succeeding
calendar month,

                                                        10

<PAGE>

on the next  preceding  Business  Day);  (iii) with  respect  to each  Bank,  no
Interest Period  applicable to any Eurodollar Loan or any Competitive Loan shall
extend beyond the then scheduled  Stated  Maturity Date  applicable to each such
Bank, and (iv)no Interest Period for any Eurodollar  Loans shall have a duration
of less than one month and, if the Interest Period therefor would otherwise be a
shorter period, such Loans shall not be available hereunder.

         "Investments"  shall mean with respect to any Person any advance,  loan
or other  extension  of credit  or  capital  contribution  (other  than  prepaid
expenses  in the  ordinary  course of  business)  to (by means of  transfers  of
property  or assets or  otherwise)  purchase or own any  stocks,  bonds,  notes,
debentures or other securities of, or incur contingent liability with respect to
(except for the  endorsement  of checks in the  ordinary  course of business and
except for the Indebtedness and Liens permitted under this Agreement), any other
Person.

         "Legal  Requirement"  shall mean any law, statute,  ordinance,  decree,
requirement,  order, judgment, rule, regulation (or interpretation of any of the
foregoing)  of,  and  the  terms  of  any  license  or  permit  issued  by,  any
Governmental Authority, now or hereafter in effect.

         "Lien"  shall mean,  with  respect to any asset,  any  mortgage,  lien,
pledge, charge,  collateral assignment,  security interest or encumbrance of any
kind in respect of such  asset.  For the  purposes of this  Agreement,  a Person
shall be deemed to own  subject  to a Lien any asset  which it has  acquired  or
holds subject to the interest of a vendor or lessor under any  conditional  sale
agreement,  capital lease or other title  retention  agreement  relating to such
asset.

         "Loan Documents" shall mean this Agreement, the Guaranty Agreement, all
instruments,  certificates and agreements now or hereafter executed or delivered
to  Administrative  Agent or any Bank pursuant to any of the foregoing,  and all
amendments,  modifications,  renewals, extensions,  increases and rearrangements
of, and substitutions for, any of the foregoing.

         "Loans" shall mean Committed Loans and Competitive Loans.

         "Majority  Banks"  shall  mean  (a)  prior  to the  termination  of the
Commitments,  Banks  having  greater  than 50% of the  aggregate  amount  of the
Commitments  and (b) after the  termination  of the  Commitments,  Banks  having
greater than 50% of the aggregate principal amount of the Loans.

         "Margin Regulations" shall mean, as applicable,  Regulations U and X of
the Board of Governors of the Federal  Reserve  System,  as from time to time in
effect.

         "Material  Adverse Effect" shall mean a material  adverse effect on the
business,   condition   (financial  or  otherwise),   operations  or  properties
(including  proven oil and gas  reserves)  of the Company and its  Subsidiaries,
taken as a whole,  or on the  ability of the  Company to  perform  its  material
obligations under any Loan Document to which it is a party.

         "Merger" shall have the meaning set forth in Section 7.1(j).

                                                        11

<PAGE>

         "Merger Agreement" shall have the meaning set forth in Section 7.1(j).

         "Net Cash  Proceeds"  shall mean the cash or cash  equivalent  proceeds
received by the Company or any  Subsidiary  as a result of a sale of property or
other asset of Company or any  Subsidiary,  in each case after  deducting all of
the  following,  as  applicable,  (i) all  brokerage  commissions,  legal  fees,
accounting fees and other fees,  costs and expenses paid,  reimbursed or accrued
by the Company or any of its  Subsidiaries  and  allocable to such  transaction,
(ii) all taxes and  governmental  charges  paid,  reimbursed  or  accrued by the
Company or any of its  Subsidiaries in connection with such  transaction,  (iii)
payment of any outstanding  obligations  secured by such property or asset, (iv)
payment in satisfaction of all minority interests in such property or asset, and
(v) any reserves  maintained by the Company or any of its  Subsidiaries  for any
purchase price adjustments, closing adjustments,  indemnity or other obligations
in connection with such transaction. Proceeds of any such transaction consisting
of notes,  stock,  securities or other non-cash  assets or property shall not be
included as Net Cash Proceeds;  provided,  however, any cash or cash equivalents
received as a result of the sale,  pledge or  transfer of any such note,  stock,
securities or other non-cash assets or property or as a payment on account of or
otherwise  realized  on account  of  principal  or  capital of any note,  stock,
securities or other non-cash assets or property (but not dividends,  interest or
operating  income in respect of any assets or property) shall be treated as cash
or cash  equivalent  proceeds  received by Company or any Subsidiary at the time
such cash or cash equivalent is received by Company or any Subsidiary.

         "95 Indenture" shall mean that certain  Indenture among the Company (as
successor by merger to Old Ocean Energy), as issuer,  Guarantor (as successor by
merger to UMC), as initial  subsidiary  guarantor,  and U.S. Bank Trust National
Association (formerly known as First Bank of New York, National Association), as
trustee,  dated as of  October  30,  1995,  providing  for the  issuance  of the
Company's $150,000,000 10-3/8% Senior Subordinated Notes due 2005, as amended by
(i) the First Supplemental  Indenture thereto dated as of November 4, 1997, (ii)
the Second  Supplemental  Indenture thereto dated as of March 27, 1998 and (iii)
the Third  Supplemental  Indenture  thereto dated as of March 30, 1999,  and all
notes or securities issued under any of the foregoing, any subsidiary guarantees
issued  pursuant to the terms of any of the  foregoing,  and all  amendments and
supplements to the foregoing permitted hereunder.

         "96 Indenture" shall mean that certain  indenture dated as of September
26, 1996 among the  Company (as  successor  by merger to Old Ocean  Energy),  as
issuer, the subsidiary  guarantor named therein, and State Street Bank and Trust
Company,  as trustee,  providing for the issuance of the Company's  $160,000,000
9-3/4%  Senior  Subordinated  Notes  due  2006,  as  amended  by (i)  the  First
Supplemental  Indenture  thereto  dated as of March 27, 1998 and (ii) the Second
Supplemental  Indenture  thereto  dated as of March 30,  1999,  and all notes or
securities issued under any of the foregoing,  any subsidiary  guarantees issued
pursuant  to the  terms  of  any  of  the  foregoing,  and  all  amendments  and
supplements to the foregoing permitted hereunder.

         "97 Indenture"  shall mean that certain  Indenture  dated as of July 2,
1997 among the Company (as successor by merger to Old Ocean Energy),  as issuer,
the subsidiary guarantor named

                                                        12

<PAGE>

therein, and State Street Bank and Trust Company, as trustee,  providing for the
issuance of the  Company's  $200,000,000  8-7/8% Senior  Subordinated  Notes due
2007,  as amended by (i) the First  Supplemental  Indenture  thereto dated as of
March 27, 1998 and (ii) the Second  Supplemental  Indenture  thereto dated as of
March 30, 1999,  and all notes or securities  issued under any of the foregoing,
any subsidiary  guarantees issued pursuant to the terms of any of the foregoing,
and all amendments and supplements to the foregoing permitted hereunder.

         "98 Senior  Subordinated  Indenture" shall mean that certain  Indenture
dated as of July 8, 1998 among the Company (as  successor by merger to Old Ocean
Energy),  as issuer,  the subsidiary  guarantor  named therein,  U.S. Bank Trust
National  Association,  as trustee,  providing for the issuance of the Company's
$250,000,000  8-3/8% Senior Subordinated Notes due 2008, as amended by the First
Supplemental  Indenture  thereto  dated as of March 30,  1999,  and all notes or
securities issued under any of the foregoing,  any subsidiary  guarantees issued
pursuant  to the  terms  of  any  of  the  foregoing,  and  all  amendments  and
supplements to the foregoing permitted hereunder.

         "Obligations" shall mean, as at any date of determination  thereof, the
sum of the following:  (i) the aggregate  principal amount of Loans  outstanding
hereunder plus (ii) all other  liabilities,  obligations and indebtedness of the
Company,  any  Subsidiary  of the  Company or any other  Obligor  under any Loan
Document.

         "Obligor" shall mean the Company and the Guarantor.

         "Old Ocean Energy" shall mean Ocean Energy, Inc., a Delaware
corporation.

         "Organizational  Documents"  shall mean, with respect to a corporation,
the certificate of  incorporation,  articles of incorporation and bylaws of such
corporation;   with  respect  to  a  partnership,   the  partnership   agreement
establishing  such  partnership;  with  respect  to a joint  venture,  the joint
venture  agreement  establishing  such joint venture;  with respect to a limited
liability  company,  the  certificate  of formation and operating  agreement (or
comparable  documents) of such limited liability company;  and with respect to a
trust,  the instrument  establishing  such trust; in each case including any and
all modifications  thereof as of the date of the Loan Document referring to such
Organizational Document.

         "Original Revolving Commitment Termination Date" means March 28, 2000.

         "PBGC"  shall mean the  Pension  Benefit  Guaranty  Corporation  or any
entity succeeding to any or all of its functions under ERISA.

         "Person" shall mean an individual, a corporation,  a company, a bank, a
voluntary association, a partnership,  a trust, an unincorporated  organization,
any Governmental Authority or any other entity.

                                                        13

<PAGE>

         "Plan" shall mean an employee  pension benefit plan which is covered by
TitleIV of ERISA or subject to the minimum funding standards under Section412 of
the Code and is either  (a)maintained  by the Company or any ERISA Affiliate for
employees of the Company or any ERISA Affiliate or (b) maintained  pursuant to a
collective  bargaining  agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any ERISA Affiliate
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.

         "Post-Default Rate" shall mean, in respect of any principal of any Loan
or any other  amount  payable by the Company  under this  Agreement or any other
Loan  Document  which is not paid  when due  (whether  at  stated  maturity,  by
acceleration,  or otherwise),  a rate per annum during the period  commencing on
the due date  until  such  amount is paid in full equal to the lesser of (a) the
sum of (x) with respect to Eurodollar  Loans,  2% per annum plus the  applicable
Eurodollar Rate then in effect plus the Applicable  Margin for Eurodollar  Loans
until the  expiration of the  applicable  Interest  Period,  (y) with respect to
Competitive  Loans,  2% per annum plus the applicable  fixed rate offered by the
applicable  Bank and  accepted by the  Company in  accordance  with  Section 2.9
hereof,  and (z) with respect to  Alternate  Base Rate Loans and with respect to
Eurodollar  Loans after the  expiration of the applicable  Interest  Period (and
also with respect to indebtedness  other than Loans), 2% plus the Alternate Base
Rate as in effect  from time to time plus the  Applicable  Margin for  Alternate
Base Rate Loans or (b) the Highest Lawful Rate.

         "Principal Office" shall mean the principal office of Administrative
Agent, presently located at 1 Chase Manhattan Plaza, 8th Floor, New York, 
New York 10081, Attention: Agent Services.

         "Quarterly  Dates"  shall  mean  the  last  day of  each  March,  June,
September and December,  provided  that, if any such date is not a Business Day,
then the relevant Quarterly Date shall be the next succeeding Business Day.

         "Rating"  shall mean the senior  unsecured  debt rating for the Company
publicly  announced  by  Standard & Poor's  Ratings  Group or Moody's  Investors
Service, Inc., or their respective successors.  In the event the ratings are not
equivalent,  the  higher  rating  shall be treated  as the  "Rating"  hereunder;
provided,  that if such  ratings  differ by more than one (1) level,  the Rating
shall be the average,  rounded  upwards,  of the two ratings.  In the event that
there is no  Rating  published  by either  Standard  & Poor's  Ratings  Group or
Moody's Investors Service, Inc. or their respective successors,  then the Rating
shall be deemed to be BB-/Ba3.

         "Redemption  Obligations"  shall  mean with  respect  to any Person all
mandatory redemption  obligations of such Person with respect to preferred stock
or other equity  securities  issued by such Person or put rights in favor of the
holder of such preferred  stock or other equity  securities,  to the extent that
such  redemption  obligations  or put  rights  will  arise  prior to the  stated
maturity of the Obligations. Notwithstanding the foregoing, customary redemption
obligations and put rights associated with a Change of Control or sale of assets
shall not constitute Redemption Obligations.

                                                        14

<PAGE>

         "Reference  Banks"  shall  mean  Chase  and such  other  Banks (up to a
maximum  of two (2)  additional  Banks) as the  Company,  with the  approval  of
Administrative  Agent (which approval shall not be unreasonably  withheld),  may
from time to time designate.

         "Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time and any successor or other regulation relating to reserve requirements.

         "Regulatory Change" shall mean, with respect to any Bank, any change on
or after the date of this Agreement in Legal Requirements  (including Regulation
D) or the  adoption  or  making  on or after  such  date of any  interpretation,
directive or request  applying to a class of banks including such Bank under any
Legal Requirements  (whether or not having the force of law) by any Governmental
Authority.

         "Relevant  Party" shall mean the Company and each other party to any of
the Loan Documents other than (a) the Banks and (b) the Agents.

         "Replacement Banks" shall have the meaning set forth in Section 2.2(c)
(ii).

         "Request for Extension of Credit" shall mean a request for extension of
credit duly executed by any  Responsible  Officer of the Company,  appropriately
completed and substantially in the form of ExhibitB attached hereto.

         "Requirements of Environmental  Law" means all requirements  imposed by
any law (including for example and without limitation The Resource  Conservation
and Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability  Act),  rule,  regulation,  or  order of any  federal,  state or local
executive, legislative,  judicial, regulatory or administrative agency, board or
authority  in effect at the  applicable  time which  relate to (i)  noise;  (ii)
pollution,  protection or clean-up of the air,  surface  water,  ground water or
land;  (iii) solid,  gaseous or liquid  waste  generation,  treatment,  storage,
disposal or transportation; (iv)exposure to Hazardous Substances; (v) the safety
or  health of  employees  or (vi)  regulation  of the  manufacture,  processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.

         "Reserve  Requirement"  shall  mean,  for any  Eurodollar  Loan for any
Interest Period  therefor,  the stated maximum rate for all reserves  (including
any  marginal,  supplemental  or emergency  reserves)  required to be maintained
during such Interest Period under Regulation D by any member bank of the Federal
Reserve System or any Bank against  "Eurocurrency  liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement  shall  reflect  and  include  any  other  reserves  required  to be
maintained by such member banks by reason of any  Regulatory  Change against (i)
any category of liabilities  which  includes  deposits by reference to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of  extensions  of credit or
other assets which include Eurodollar Loans. Any determination by Administrative
Agent of the Reserve

                                                        15

<PAGE>

Requirement  shall be conclusive and binding,  absent manifest error, and may be
made using any reasonable averaging and attribution method.

         "Responsible  Officer"  shall  mean  the  chairman  of the  board,  the
president,  any  executive  vice  president,  the vice  president of finance and
administration,  the chief executive  officer or the chief operating  officer or
any equivalent officer (regardless of title) and in the case of the Company, any
other vice president,  and in respect of financial or accounting matters,  shall
also include the chief  financial  officer,  the treasurer and the controller or
any equivalent officer (regardless of title).

         "Restricted Subsidiary" shall mean each Subsidiary of the Company that,
at the particular time in question,  (i)owns directly or indirectly any material
assets or any  interest  in any other  Restricted  Subsidiary  and (ii) has been
designated as a Restricted  Subsidiary by the Company or has not been designated
as an  Unrestricted  Subsidiary  by the Company  either (a)on Exhibit A attached
hereto or (b) in accordance with the terms and provisions of this Agreement. The
Unrestricted Subsidiaries on the Effective Date are listed on Exhibit A attached
hereto and each other  Subsidiary of Company as of the Effective Date shall be a
Restricted Subsidiary.  A Restricted Subsidiary shall remain such (even if it no
longer owns directly or indirectly any interest in any of the material assets or
any  interest  in  any  other  Restricted  Subsidiary)  until  designated  as an
Unrestricted  Subsidiary  in  accordance  with the terms and  provisions of this
Agreement.

         "Revolving  Commitment" shall mean, as to any Bank, the obligation,  if
any, of such Bank to make Revolving  Loans in an aggregate  principal  amount at
any one time  outstanding up to but not exceeding the amount,  if any, set forth
opposite  such Bank's name on Exhibit M under the caption  "Commitment"  (as the
same may be reduced from time to time pursuant to Section2.3).

         "Revolving Commitment Termination Date" shall mean the earliest of:

                    (a) the Original Revolving  Commitment  Termination Date, or
         such other later date as may result  from any  extension  requested  by
         Company and consented to by the Banks pursuant to Section2.2;

                    (b) the date on which the Facility  Amount is  terminated in
         full or reduced to zero pursuant to Section 2.3; and

                    (c)  the  date  on  which  the  Commitments   otherwise  are
         terminated  in full  and  reduced  to zero  pursuant  to the  terms  of
         Section11.1.

Upon the  occurrence of any event  described in clause (b) or (c), the Revolving
Commitments shall terminate automatically and without any further action.

         "Revolving  Credit  Agreement" shall mean that certain Revolving Credit
Agreement  of even date  herewith  by and among the  Company,  each of the banks
which is or which  may from time to time  become a  signatory  thereto,  Bank of
America National Trust and Savings Association, as

                                                        16

<PAGE>

Documentation  Agent,  Bank One,  Texas,  N.A., as  Syndication  Agent,  Societe
Generale,  Southwest  Agency and Bank of  Montreal,  as Managing  Agents for the
Banks, The Chase Manhattan Bank, as Auction  Administrative Agent for the Banks,
and Chase Bank of Texas, National Association,  as Administrative Agent, as such
agreement from time to time may be amended,  amended and restated,  supplemented
or otherwise modified.

         "Revolving Loans" shall mean the loans provided for in Section 2.1(a)
hereof.

         "Seagull" shall mean Seagull Energy Corporation, a Texas corporation.

         "Senior Debt" shall mean Total Debt, other than Subordinated
Indebtedness.

         "Senior  Leverage Ratio" shall mean the ratio of (a) Senior Debt to (b)
EBITDAX of the Company and its Restricted  Subsidiaries on a consolidated  basis
for the last four rolling fiscal quarters.

         "Specified Assets" shall have the meaning set forth in Section 10.4.

         "Stated Maturity Date" shall mean the date occurring 364 days after the
Term Commitment Termination Date.

         "Subordinated  Indebtedness"  shall mean all unsecured  Indebtedness of
the Company which is subordinated, upon terms satisfactory to the Administrative
Agent, in right of payment to the payment in full in cash of all Obligations.

         "Subsidiary" shall mean, with respect to any Person (the "parent"), (a)
any corporation of which at least a majority of the outstanding  shares of stock
having by the terms  thereof  ordinary  voting  power to elect a majority of the
board of directors of such  corporation  (irrespective  of whether or not at the
time stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any  contingency) is at the time
directly or  indirectly  owned or controlled by the parent or one or more of the
Subsidiaries of the parent or by the parent and one or more of the  Subsidiaries
of the parent, and (b) any partnership,  limited  partnership,  joint venture or
other form of entity, the majority of the legal or beneficial ownership of which
is at the time directly or  indirectly  owned or controlled by the parent or one
or more of the  Subsidiaries  of the  parent or by the parent and one or more of
the Subsidiaries of the parent.

         "Tangible  Net Worth"  shall mean with respect to any Person the sum of
the redemption price of preferred  stock, par value of common stock,  capital in
excess of par value of common stock  (additional  paid-in  capital) and retained
earnings, less treasury stock, goodwill, deferred development costs, franchises,
licenses,  patents,  trademarks  and  copyrights  and all other assets which are
properly  classified  as  intangible  assets  in  accordance  with GAAP less any
Redemption Obligations.

                                                        17

<PAGE>

         "Term Commitment" shall mean, as to any Bank, such Bank's obligation to
make Term Loans  pursuant to Section  2.1(b) of this  Agreement  in an aggregate
principal  amount  equal to the  lesser  of (i) the  aggregate  Revolving  Loans
outstanding to all Banks as of the Revolving Commitment Termination Date or (ii)
the Revolving  Commitments in effect as of the Revolving Commitment  Termination
Date.

         "Term Commitment Termination Date" shall mean the earlier of

                    (a)  the  Business   Day   after  the  Revolving Commitment 
         Termination Date; and

                    (b)  the  date  on  which  the  Commitments   otherwise  are
         terminated  in full  and  reduced  to zero  pursuant  to the  terms  of
         Section11.1.

Upon the occurrence of any event  described in clause (b), the Term  Commitments
shall terminate automatically and without any further action.

         "Term Loans" shall mean the loans provided for in Section 2.1(b)
hereof.

         "Total  Debt"  shall  mean  all  Indebtedness  of the  Company  and its
Restricted  Subsidiaries on a consolidated basis, but excluding (i) Indebtedness
of the Company or any  Restricted  Subsidiary of the types  described in Section
10.1,  part (i),  clauses (c) through (g),  (j), (k) and (l), (ii) fifty percent
(50%) of the  amount of (A)  obligations  in  respect  of  letters  of credit or
similar  instruments  not  supporting  indebtedness  for borrowed  money and (B)
obligations  in  connection  with bank  guarantees,  bonds,  surety  or  similar
obligations required or requested by Governmental Authorities in connection with
the  usual  and  customary  operation  of  and  the  obtaining  of oil  and  gas
properties, and (iii)Indebtedness of the Company or any Restricted Subsidiary of
the types  described in  Section10.1,  part (i),  clause (h), up to an aggregate
amount of $10,000,000.

         "Total  Leverage  Ratio"  shall mean the ratio of (a) Total Debt to (b)
EBITDAX of the Company and its Restricted  Subsidiaries on a consolidated  basis
for the last four rolling fiscal quarters.

         "Type"  shall have the  meaning  assigned  to such term in Section  1.3
hereof.

         "Unfunded  Liabilities"  shall mean,  with respect to any Plan,  at any
time,  the amount (if any) by which (a) the present value of all benefits  under
such Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits,  all determined as of the then most recent actuarial  valuation report
for such Plan,  but only to the extent that such excess  represents  a potential
liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.

         "United States" or "U.S." shall mean the United States of America,  its
fifty states and the District of Columbia.

                                                        18

<PAGE>

         "Unrestricted  Subsidiary"  shall mean each  Subsidiary  of the Company
which is (i)designated as an Unrestricted Subsidiary on ExhibitA attached hereto
or (ii)  designated  as an  Unrestricted  Subsidiary  by the Company at any time
after the Effective Date and either (A) such Subsidiary has a Tangible Net Worth
of less than $25,000,000 or (B) with the consent of the Administrative Agent and
the  Majority  Banks.  An  Unrestricted   Subsidiary  shall  remain  such  until
designated  as  a  Restricted  Subsidiary  in  accordance  with  the  terms  and
provisions of this Agreement.

         1.2 Accounting Terms and  Determinations.  Unless  otherwise  specified
herein,   all   accounting   terms  used  herein  shall  be   interpreted,   all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be delivered  hereunder shall be prepared,  in accordance with GAAP.
To enable the ready  determination of compliance with the provisions hereof, the
Company  will not  change  from  December31  in each  year the date on which its
fiscal year ends, nor from March 31, June 30 and September 30 the dates on which
the first three fiscal quarters in each fiscal year end.

         1.3 Types of Loans.  Loans hereunder are  distinguished by "Type".  The
"Type" of a Loan refers to the  determination  whether such Loan is a Eurodollar
Loan, a Competitive Loan or an Alternate Base Rate Loan.

         1.4  Miscellaneous.  The words  "hereof",  "herein" and "hereunder" and
words  of  similar  import  when  used in this  Agreement  shall  refer  to this
Agreement as a whole and not to any particular provision of this Agreement.  Any
reference to Sections shall refer to Sections of this Agreement.

         Section 2.        Commitments; Competitive Bid Facility.

         2.1 Committed  Loans.  From time to time on or after the date hereof on
the terms and subject to the conditions of this Agreement,  each Bank shall make
Committed Loans described in this Section 2.1.

         (a) Revolving Loans.  From time to time on or after the date hereof and
prior to the  Revolving  Commitment  Termination  Date,  each  Bank  shall  make
Revolving  Loans  under this  Section to the Company in an  aggregate  principal
amount  at  any  one  time  outstanding  up to but  not  exceeding  such  Bank's
Commitment  Percentage  of the amount by which the Facility  Amount  exceeds the
aggregate  unpaid principal  balance of all Competitive  Loans from time to time
outstanding.  Subject to the conditions  herein,  any such Revolving Loan repaid
prior to the Revolving Commitment Termination Date may be reborrowed pursuant to
the terms of this Agreement.

         (b) Term Loans. On the Revolving  Commitment  Termination  Date (unless
such date shall occur as a result of clause (c) of the definition thereof), each
Bank will  make one Term Loan to the  Company  equal to such  Bank's  Commitment
Percentage  of the Term  Commitment.  No amounts paid or prepaid with respect to
the Term Loan may be reborrowed. Eurodollar Loans and

                                                        19

<PAGE>

Competitive  Loans for which the Interest Period shall not have terminated as of
the Revolving Commitment Termination Date shall be continued as Eurodollar Loans
or Competitive Loans, as the case may be, for the applicable Interest Period and
Alternate  Base Rate Loans shall be continued as Alternate Base Rate Loans after
the Revolving Commitment Termination Date, unless the Company shall have elected
otherwise  by delivery  of a Request  for  Extension  of Credit.  Any  principal
repayments received on the Revolving  Commitment  Termination Date for Revolving
Loans not  converted  into Term Loans shall be applied  first to Alternate  Base
Rate  Loans and,  after  Alternate  Base Rate  Loans have been paid in full,  to
either  Eurodollar  Loans and Competitive  Loans,  unless the Company shall have
otherwise  instructed the  Administrative  Agent in writing.  Upon a Bank making
such Term Loan, its Term Commitment shall terminate and it shall have no further
Commitment to make Loans.

         2.2   Extension of Revolving Commitment Termination Date and Revolving
Commitments.

         (a) Subject to the other  provisions of this  Agreement,  the Revolving
Commitments shall be effective for an initial period from the date hereof to the
Original  Revolving  Commitment  Termination  Date;  provided that the Revolving
Commitment Termination Date, and concomitantly the Revolving Commitments, may be
extended for successive  364 day periods  expiring on the date which is 364 days
from the then scheduled Revolving Commitment  Termination Date. If Company shall
request in a Certificate of Extension delivered to the Administrative  Agent not
more than 60 days and not less than 45 days  prior to the  Revolving  Commitment
Termination Date that the Revolving Commitment  Termination Date be extended for
364 days from the then scheduled  Revolving  Credit  Termination  Date, then the
Administrative  Agent shall  promptly  notify each Bank of such request and each
Bank shall notify the  Administrative  Agent, no later than 30 days prior to the
Revolving  Credit  Termination  Date,  whether such Bank, in the exercise of its
sole discretion,  will extend the Revolving Commitment Termination Date for such
364 day period. Any Bank which shall not timely notify the Administrative  Agent
whether it will extend the Revolving Commitment Termination Date shall be deemed
to not have agreed to extend the Revolving Commitment  Termination Date. No Bank
shall have any obligation whatsoever to agree to extend the Revolving Commitment
Termination Date. Any agreement to extend the Revolving  Commitment  Termination
Date by any Bank shall be irrevocable,  except as provided in clause (c) of this
Section.

         (b) If all Banks notify the Administrative Agent pursuant to clause (a)
of  this  Section  of  their  agreement  to  extend  the  Revolving   Commitment
Termination  Date, then the  Administrative  Agent shall so notify each Bank and
Company,  and such extension shall be effective  without other or further action
by any party hereto for such additional 364 day period.

         (c) If Banks  constituting  at least the  Majority  Banks  approve  the
extension of the then  scheduled  Revolving  Commitment  Termination  Date (such
Banks agreeing to extend the Revolving Commitment Termination Date herein called
the  "Accepting  Banks") and if one or more Banks shall notify,  or be deemed to
notify,  the  Administrative  Agent  pursuant to clause (a) of this Section that
they will not extend the then scheduled  Revolving  Commitment  Termination Date
(such Banks

                                                        20

<PAGE>

herein called the "Declining  Banks"),  then (A) the Administrative  Agent shall
promptly so notify  Company and the Accepting  Banks,  (B) the  Accepting  Banks
shall, upon Company's election to extend the then scheduled Revolving Commitment
Termination  Date in accordance  with clause (i) or (ii) below,  extend the then
scheduled Revolving Commitment  Termination Date and (C)Company shall,  pursuant
to a notice delivered to the  Administrative  Agent, the Accepting Banks and the
Declining  Banks, no later than the tenth (10th) day following the date by which
each Bank is  required,  pursuant to clause (a) of this  Section,  to approve or
disapprove the requested extension of the Revolving Commitment Termination Date,
either:

                    (i) elect to extend  the  Revolving  Commitment  Termination
         Date with respect to the Accepting Banks and direct the Declining Banks
         to terminate  their  Revolving  Commitments,  which  termination  shall
         become  effective  on the date  which  would  have  been the  Revolving
         Commitment  Termination  Date except for the operation of this Section.
         On such date,  (x) Company shall deliver a notice of the  effectiveness
         of the termination of the Revolving Commitments of such Declining Banks
         to the Declining Banks with a copy to the Administrative  Agent and (y)
         Company shall request a Term Loan from such Declining Banks (other than
         Declining  Banks that are  replaced by  Replacement  Banks  pursuant to
         paragraph (ii) below) pursuant to the terms of Section 2.1(b) (and each
         such  Declining  Bank  shall  make  such Term  Loan),  and (z) upon the
         payment in full in immediately  available  funds of all  Obligations of
         Company  owing to such  Declining  Banks in  connection  with such Term
         Loans on the  Stated  Maturity  Date in  effect  at the time  each such
         Declining Bank made its election to be a Declining Bank (i.e., 364 days
         after the date of such  Term  Loan),  including  any  amounts  required
         pursuant to Section6,  the Declining Banks shall each cease to be Banks
         hereunder for all  purposes,  other than for purposes of Sections 6 and
         13,  and  shall  cease  to  have  any  obligations  or  any  Commitment
         hereunder,  other than to the Agents  pursuant  to Section  12, and the
         Administrative  Agent shall  promptly  notify the  Accepting  Banks and
         Company of the new Revolving Commitment  Termination Date applicable to
         such Accepting Banks; or

                    (ii) elect to extend the  Revolving  Commitment  Termination
         Date with respect to the Accepting Banks and, prior to or no later than
         the  then  scheduled  Revolving  Commitment  Termination  Date,  (A) to
         replace  one or more of the  Declining  Banks  with  another  lender or
         lenders reasonably acceptable to the Administrative Agent (such lenders
         herein  called the  "Replacement  Banks") and (B) Company  shall pay in
         full in immediately available funds all Obligations of Company owing to
         any  Declining  Bank  that  is not  being  replaced  pursuant  to  this
         paragraph  (other than  Obligations  being purchased by the Replacement
         Banks);  provided that (x) the  Replacement  Bank or Replacement  Banks
         shall  purchase,  and the Declining Bank or Declining Banks shall sell,
         the  Declining  Bank's  or  Declining  Banks'  rights  and  obligations
         hereunder  without  recourse  or  expense  to,  or  warranty  by,  such
         Declining  Bank or Declining  Banks being replaced for a purchase price
         equal to the aggregate  outstanding principal amount of the Obligations
         payable to such Declining Bank or Declining  Banks plus any accrued but
         unpaid  interest  on such  Obligations  and  accrued but unpaid fees or
         other amounts owing in respect of such Declining Bank's or

                                                        21

<PAGE>

         Declining  Banks'  Loans and  Commitments  hereunder,  and (y) upon the
         payment of such amounts  referred to in clause(x)  and the execution of
         an  Assignment  and  Acceptance  agreement by the  Replacement  Bank or
         Replacement Banks and the Declining Bank or Declining Banks (which each
         such Declining Bank agrees to execute  promptly),  the Replacement Bank
         or  Replacement  Banks shall each  constitute a Bank  hereunder and the
         Declining  Bank or  Declining  Banks being so replaced  shall no longer
         constitute a Bank (other than for  purposes of  Sections6  and 13), and
         shall no  longer  have any  obligations  hereunder,  other  than to the
         Agents pursuant to Section 12; or

                    (iii)  elect to revoke and cancel the  extension  request in
         such  Certificate of Extension by giving notice of such  revocation and
         cancellation to the  Administrative  Agent (which shall promptly notify
         the Banks  thereof) no later than the tenth  (10th) day  following  the
         date by which  each Bank is  required,  pursuant  to clause (a) of this
         Section,  to approve  or  disapprove  the  requested  extension  of the
         Revolving  Commitment  Termination  Date, and  concomitantly  the total
         Revolving Commitments.

         If Company fails to timely provide the election  notice  referred to in
this  clause(c),  Company  shall be  deemed to have  revoked  and  canceled  the
extension  request in the  Certificate  of Extension  and to have elected not to
extend the Revolving Commitment Termination Date.

         2.3        Reductions and Changes of Commitments.

         (a)        Mandatory.

         (i) On the Stated Maturity Date, all Commitments shall be terminated in
their entirety unless terminated at an earlier date pursuant to Section11.1.

         (ii)  Upon  the  sale,  transfer,  conveyance  or  assignments  of  any
properties  or other assets of Company or its  Subsidiaries  (other than a sale,
transfer,  conveyance or assignment (A) in the ordinary course of business,  (B)
to the  Company  or any of its  Subsidiaries  or (C) of any  Specified  Assets),
(i)the Revolving Commitment or the Term Commitment, as applicable, automatically
and  permanently  shall be  reduced  by,  and (ii) the  Commitment  of each Bank
automatically  and permanently shall be reduced on a pro-rata basis in an amount
sufficient to reduce the  aggregate  amount of such  Commitments  by, 75% of the
amount by which Net Cash Proceeds exceeds  $100,000,000 in the aggregate for all
such  sales  during  any  calendar  year  received  by  Company  or  any  of its
Subsidiaries  in connection with such sale,  transfer,  assignment or conveyance
and the Company shall make  mandatory  prepayments on the Loans on or within ten
(10) days after  receipt of such Net Cash  Proceeds to the extent  necessary  so
that after  giving  effect to such  mandatory  prepayments  the sum of all Loans
(including  any Loan to be made  but not yet  made  pursuant  to a  Request  for
Extension  of  Credit)  outstanding  at any time  would  not  exceed  the  total
Commitments.

         (b)  Optional.  The Company shall have the right to terminate or reduce
the unused portion of the Commitments at any time or from time to time, provided
that: (i) the Company shall

                                                        22

<PAGE>

give notice of each such  termination  or reduction to  Administrative  Agent as
provided in  Section5.5  hereof and (ii) each such  partial  reduction  shall be
permanent and in an aggregate amount equal to an integral multiple of $1,000,000
which equals or exceeds $5,000,000.

         (c)  No   Reinstatement.   Any  reduction  in  or  termination  of  the
Commitments may not be reinstated  without the approval of Administrative  Agent
and any Bank whose  Commitment  (or the  applicable  part  thereof)  is to be so
reinstated.

         2.4        Fees.

         (a) The Company  shall pay to  Administrative  Agent for the account of
each Bank a facility fee accruing from the Effective Date, computed for each day
at a rate per annum equal to the Facility Fee  Percentage  times such Bank's pro
rata share (based on its respective  Commitment) of the Facility  Amount on such
day.  Such  facility  fees shall be payable  on the  Quarterly  Dates and on the
earlier of the date the  Commitments  are  terminated  in their  entirety or the
Stated Maturity Date.

         (b) The Company agrees to pay to Administrative  Agent fees as provided
in the separate letter agreements executed by and between  Administrative  Agent
and the Company.

         2.5        Affiliates; Lending Offices.

         (a) Any Bank may,  if it so elects,  fulfill any  obligation  to make a
Eurodollar Loan or Competitive  Loan by causing a branch,  foreign or otherwise,
or Affiliate of such Bank to make such Loan and may transfer and carry such Loan
at, to or for the  account  of any  branch  office or  Affiliate  of such  Bank;
provided  that, in such event for the purposes of this Agreement such Loan shall
be deemed to have been made by such Bank and the  obligation  of the  Company to
repay  such Loan  shall  nevertheless  be to such Bank and shall be deemed to be
held by such Bank and,  to the  extent of such  Loan,  to have been made for the
account of such branch or Affiliate.

         (b)  Notwithstanding  any provision of this  Agreement to the contrary,
each Bank shall be entitled to fund and  maintain its funding of all or any part
of its Loans hereunder in any manner it sees fit, it being understood,  however,
that for the purposes of this Agreement all  determinations  hereunder  shall be
made as if such Bank had actually  funded and maintained  each  Eurodollar  Loan
during each Interest  Period through the purchase of deposits  having a maturity
corresponding  to such Interest Period and bearing an interest rate equal to the
Eurodollar Rate for such Interest Period.

         2.6 Several Obligations. The failure of any Bank to make any Loan to be
made by it on the date  specified  therefor  shall not relieve any other Bank of
its obligation to make its Loan on such date, but neither  Administrative  Agent
nor any Bank shall be  responsible  for the  failure of any other Bank to make a
Loan to be made by such other Bank.

                                                        23

<PAGE>

         2.7        Repayment of Loans; Evidence of Debt.

         (a) Each Bank shall  maintain in accordance  with its usual practice an
account  or  accounts  evidencing  the  indebtedness  of  Company  to such  Bank
resulting  from each Loan made by such Bank,  including the amounts of principal
and interest payable and paid to such Bank from time to time hereunder.

         (b)  Administrative  Agent  shall  maintain  accounts in which it shall
record  (i)the  amount of each Loan  made  hereunder  and,  if  applicable,  the
Interest Period applicable thereto,  (ii)the amount of any principal or interest
due and payable or to become due and payable from Company to each Bank hereunder
and (iii)the  amount of any sum received by  Administrative  Agent hereunder for
the account of the Banks and each Bank's share thereof.

         (c)  The  entries   made  in  the  accounts   maintained   pursuant  to
paragraph(a)  or(b)  of this  Section  shall  be  prima  facie  evidence  of the
existence and amounts of the  obligations  recorded  therein;  provided that the
failure of any Bank or  Administrative  Agent to maintain  such  accounts or any
error therein  shall not in any manner  affect the  obligation of any Obligor to
repay  the  Loans or other  Obligations  in  accordance  with the  terms of this
Agreement or the other Loan Documents.

         (d) Any  Bank may  request  that  Loans  made by it be  evidenced  by a
promissory  note. In such event,  Company shall prepare,  execute and deliver to
such Bank  promissory  notes payable to the order of such Bank (or, if requested
by such Bank, to such Bank and its registered  assigns and in a form approved by
Administrative Agent).  Thereafter, the Loans evidenced by such promissory notes
and interest thereon may (including  after assignment  pursuant to Section 13.5)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein.

         2.8 Use of  Proceeds.  The  proceeds  of the  Loans  shall  be used for
general corporate purposes.

         2.9        Competitive Bid Procedure.

         (a) In order to  request  Competitive  Bids,  the  Company  shall  hand
deliver,  telex or telecopy  to Auction  Administrative  Agent a duly  completed
request  substantially  in the form of Exhibit F, with the blanks  appropriately
completed   (a   "Competitive   Bid   Request"),   to  be  received  by  Auction
Administrative  Agent not later than 11:00 a.m.,  Houston,  Texas time, five (5)
Business  Days before the date  specified  for a proposed  Competitive  Loan. No
Alternate  Base Rate Loan shall be requested in, or, except  pursuant to Section
6, made pursuant to, a Competitive  Bid Request.  A Competitive Bid Request that
does not  conform  substantially  to the format of Exhibit F may be  rejected at
Auction Administrative Agent's sole discretion, and Auction Administrative Agent
shall  promptly  notify  the  Company  of such  rejection  by  telecopier.  Each
Competitive  Bid Request shall in each case refer to this  Agreement and specify
(x) the date of such  Competitive  Loans (which shall be a Business Day) and the
aggregate  principal amount thereof (which shall not be less than $25,000,000 or
greater than the unused portion of the Facility Amount on such date and shall be
an

                                                        24

<PAGE>

integral  multiple of  $5,000,000)  and (y) the  Interest  Period  with  respect
thereto (which may not end after the  termination  of the then scheduled  Stated
Maturity Date).  Promptly after its receipt of a Competitive Bid Request that is
not  rejected  as  aforesaid,  Auction  Administrative  Agent  shall  invite  by
telecopier (in  substantially  the form set forth in Exhibit H hereto) the Banks
to bid, on the terms and conditions of this Agreement, to make Competitive Loans
pursuant to such Competitive Bid Request. Notwithstanding the foregoing, Auction
Administrative  Agent  shall  have no  obligation  to invite  any Bank to make a
Competitive  Bid  pursuant  to this  Section  until  such Bank has  delivered  a
properly  completed  Competitive  Bid  Administrative  Questionnaire  to Auction
Administrative Agent.

         (b) Each Bank may, in its sole discretion, make one or more Competitive
Bids to the Company responsive to each Competitive Bid Request. Each Competitive
Bid by a Bank must be received by Auction  Administrative  Agent via telecopier,
in the form of Exhibit H hereto, not later than 11:00a.m.,  Houston, Texas time,
four (4)  Business  Days before the date  specified  for a proposed  Competitive
Loan.  Competitive  Bids  that do not  conform  substantially  to the  format of
Exhibit H may be rejected by Auction Administrative Agent after conferring with,
and upon the instruction of, the Company, and Auction Administrative Agent shall
notify the Bank of such rejection as soon as practicable.  Each  Competitive Bid
shall refer to this Agreement and (x) specify the principal  amount (which shall
be in a minimum  principal  amount of $5,000,000 and in an integral  multiple of
$1,000,000  and which may equal the  entire  aggregate  principal  amount of the
Competitive Loan requested by the Company) of the Competitive Loan that the Bank
is willing to make to the Company, (y) specify the Competitive Bid Rate at which
the Bank is prepared to make the  Competitive  Loan and  (z)confirm the Interest
Period with  respect  thereto  specified by the Company in its  Competitive  Bid
Request.  A Competitive  Bid submitted by a Bank pursuant to this  paragraph (b)
shall be irrevocable.

         (c) Auction  Administrative Agent shall, by 2:00 p.m. four (4) Business
Days  before the date  specified  for a proposed  Competitive  Loan,  notify the
Company by telecopier of all the Competitive Bids made, the Competitive Bid Rate
and the maximum  principal amount of each Competitive Loan in respect of which a
Competitive  Bid was made and the  identity  of the Bank  that  made  each  bid.
Auction  Administrative  Agent shall send a copy of all Competitive  Bids to the
Company for its records as soon as practicable  after  completion of the bidding
process set forth in this Section 2.9.

         (d) The Company may in its sole and absolute  discretion,  subject only
to the provisions of this Section  2.9(d),  accept or reject any Competitive Bid
referred to in Section 2.9(c);  provided,  however, that the aggregate amount of
the  Competitive  Bids so accepted  by the Company may not exceed the  principal
amount of the  Competitive  Loan  requested  by the Company.  The Company  shall
notify Auction  Administrative Agent by telecopier whether and to what extent it
has  decided to accept or reject any or all of the bids  referred  to in Section
2.9(c), not later than 11:00 a.m., Houston,  Texas time, three (3) Business Days
before the date specified for a proposed  Competitive Loan;  provided,  however,
that (w) the failure by the Company to give such notice  shall be deemed to be a
rejection of all the bids referred to in Section  2.9(c) and (x) no bid shall be
accepted for a

                                                        25

<PAGE>

Competitive Loan unless such  Competitive Loan is in a minimum  principal amount
of  $5,000,000  and an integral  multiple  of  $1,000,000.  Notwithstanding  the
foregoing,  if the  Company  accepts  more  than one bid made in  response  to a
Competitive Bid Request and the available  principal amount of Competitive Loans
to be allocated among the Banks is not sufficient to enable Competitive Loans to
be allocated to each Bank in a minimum  principal  amount of  $5,000,000  and in
integral multiples of $1,000,000,  then the Company shall select the Banks to be
allocated such Competitive  Loans and shall round  allocations up or down to the
next higher or lower  multiple of  $1,000,000 as it shall deem  appropriate.  In
addition,  the Company  shall be permitted  under the  foregoing  procedures  to
accept a bid or bids in a principal  amount of less than $5,000,000 (i) in order
to enable  the  Company  to  accept  bids  equal to (but not in  excess  of) the
principal  amount of the  Competitive  Loan  requested by the Company or (ii) in
order to enable the Company to accept all remaining  bids, or all remaining bids
at a particular Competitive Bid Rate. A notice given by Company pursuant to this
paragraph(d) shall be irrevocable.

         (e) Auction  Administrative  Agent shall  promptly  notify each bidding
Bank whether or not its  Competitive  Bid has been  accepted (and if so, in what
amount and at what  Competitive Bid Rate) by telex or telecopier sent by Auction
Administrative  Agent,  and each successful  bidder will thereupon become bound,
subject to the other applicable  conditions hereof, to make the Competitive Loan
in  respect  of  which  its  bid  has  been  accepted.   After   completing  the
notifications  referred  to  in  the  immediately  preceding  sentence,  Auction
Administrative  Agent shall (i) notify  Administrative Agent of each Competitive
Bid that has been  accepted,  the amount  thereof and the  Competitive  Bid Rate
therefor  and (ii) notify  each Bank of the  aggregate  principal  amount of all
Competitive Bids accepted.

         (f) No Competitive  Loan shall be made within five (5) Business Days of
the  date  of any  other  Competitive  Loan,  unless  the  Company  and  Auction
Administrative Agent shall mutually agree otherwise.

         (g) If  Administrative  Agent  shall  at  any  time  have a  Commitment
hereunder and shall elect to submit a Competitive Bid in its capacity as a Bank,
it shall  submit such bid directly to the Company one quarter of an hour earlier
than the latest time at which the other Banks are  required to submit their bids
to Auction Administrative Agent pursuant to paragraph (b) above.

         (h)  All  notices  required  by  this  Section  2.9  shall  be  made in
accordance with Section13.2 and the Competitive Bid Administrative Questionnaire
most recently placed on file by each Bank with Auction Administrative Agent.

         Section 3.     Borrowings, Prepayments and Selection of Interest Rates.

         3.1 Borrowings.  The Company shall give Administrative  Agent notice of
each  borrowing to be made hereunder as provided in Sections 2.9 and 5.5 hereof.
Not later than 2:00 p.m. Houston, Texas time on the date specified for each such
borrowing  hereunder,  each Bank shall make available the amount of the Loan, if
any, to be made by it on such date to Administrative Agent, at

                                                        26

<PAGE>

its Principal  Office,  in immediately  available  funds, for the account of the
Company.  The amount so received by Administrative  Agent shall,  subject to the
terms and  conditions  of this  Agreement,  be made  available to the Company by
depositing the same, in immediately available funds, in an account designated by
the Company maintained with Administrative Agent at the Principal Office.

         3.2        Prepayments.

         (a) Optional Prepayments. Subject to the provisions of Sections4, 5 and
6, the Company shall have the right to prepay,  on any Business Day, in whole or
in part,  without the  payment of any penalty or fee,  Loans at any time or from
time to time, provided that, the Company shall give Administrative  Agent notice
of each such prepayment as provided in Section 5.5 hereof.  Eurodollar Loans and
Competitive  Loans  may  be  prepaid  on the  last  day  of an  Interest  Period
applicable  thereto.  Neither  Eurodollar  Loans  nor  Competitive  Loans may be
otherwise   prepaid   unless   prepayment  is  accompanied  by  payment  of  all
compensation required by Section 6.

         (b) Mandatory Prepayments.  Subject to Section 2.3(a)(ii),  the Company
shall from time to time on demand by  Administrative  Agent  prepay the Loans in
such  amounts  as  shall  be  necessary  so  that  at all  times  the  aggregate
outstanding principal amount of all Credit Obligations shall not be in excess of
the aggregate amount of the  Commitments,  as reduced from time to time pursuant
to Section 2.3 hereof.

         3.3 Selection of Interest Rates. Subject to the terms and provisions of
this Agreement,  the Company shall have the right either to convert any Loan (in
whole or in part) into a Loan of another Type (provided that no such  conversion
of Eurodollar  Loans or Competitive  Loans shall be permitted  other than on the
last day of an Interest Period applicable  thereto) or to continue such Loan (in
whole or in part) as a Loan of the same Type.  In the event the Company fails to
so give such  notice  prior to the end of the  applicable  Interest  Period with
respect to any Eurodollar  Loan or Competitive  Loan,  such Loan shall become an
Alternate   Base   Rate  Loan  on  the  last  day  of  such   Interest   Period.
Notwithstanding  any other provision of this Agreement,  if a Default shall have
occurred and be continuing on the last day of an Interest Period applicable to a
Eurodollar Loan or Competitive Loan, such Loan shall  automatically be converted
to an Alternate Base Rate Loan.

         Section 4.        Payments of Principal and Interest.

         4.1 Repayment of Loans. The Company hereby unconditionally  promises to
pay to  Administrative  Agent for the account of each Bank (a) each Loan in full
at the end of the Interest  Period  applicable  to such Loan unless such Loan is
continued or  converted in  accordance  with the terms  hereof,  and (b)the then
unpaid  principal  amount of all outstanding  Loans on the then scheduled Stated
Maturity Date.

                                                        27

<PAGE>

         4.2        Interest.

         (a)  Subject  to   Section13.6   hereof,   the  Company   will  pay  to
Administrative  Agent  for the  account  of each  Bank  interest  on the  unpaid
principal amount of each Loan made by such Bank for the period commencing on the
date of such Loan to but  excluding the date such Loan shall be paid in full, at
the lesser of (I) the following rates per annum:

                    (i)   if such Loan is an Alternate Base Rate Loan, the 
Alternate Base Rate plus the Applicable Margin,

                    (ii)  if such  Loan is a  Eurodollar  Loan,  the  applicable
Eurodollar Rate plus the Applicable Margin, and

                    (iii) if such Loan is a  Competitive  Loan,  the  applicable
fixed  rate  offered  by the  applicable  Bank and  accepted  by the  Company in
accordance with Section 2.9 hereof,

or (II) the Highest Lawful Rate.

         (b)  Notwithstanding  any of the  foregoing but subject to Section 13.6
hereof,  the Company  will pay to  Administrative  Agent for the account of each
Bank interest at the applicable  Post-Default  Rate on any principal of any Loan
made by such Bank and on any other amount payable by the Company hereunder to or
for the  account  of such Bank (but,  if such  amount is  interest,  only to the
extent  legally  allowed),  which shall not be paid in full when due (whether at
stated maturity, by acceleration or otherwise), for the period commencing on the
due date thereof until the same is paid in full.

         (c) Accrued  interest on each Alternate Base Rate Loan shall be payable
on each Quarterly Date.  Accrued interest on each Eurodollar Loan or Competitive
Bid Loan shall be payable on the last day of each Interest  Period for such Loan
(and, if such Interest Period exceeds three months' duration, on the last day of
each three month period, commencing on the first three month anniversary of such
Interest Period). Notwithstanding the foregoing, (i) accrued interest payable at
the  Post-Default  Rate shall be due and payable  from time to time on demand of
Administrative  Agent or the Majority Banks (through  Administrative  Agent) and
(ii)accrued  interest on any amount  prepaid or converted  pursuant to Section 6
hereof shall be paid on the amount so prepaid or converted.

         Section 5.        Payments; Pro Rata Treatment; Computations, Etc.

         5.1        Payments.

         (a) Except to the extent  otherwise  provided  herein,  all payments of
principal,  interest  and other  amounts to be made by the  Company or any other
Obligor hereunder shall be made in Dollars,  in immediately  available funds, to
Administrative Agent at the Principal Office (or in the

                                                        28

<PAGE>

case of a  successor  Administrative  Agent,  at the  principal  office  of such
successor Administrative Agent in the United States), not later than 11:00 a.m.,
Houston,  Texas time on the date on which such  payment  shall  become due (each
such  payment  made  after  such time on such due date to be deemed to have been
made on the next succeeding Business Day).

         (b) The Company or such other Obligor shall, at the time of making each
payment  hereunder,  specify to Administrative  Agent the Loans or other amounts
payable by the Company or such  Obligor  hereunder or  thereunder  to which such
payment  is to  be  applied.  Each  payment  received  by  Administrative  Agent
hereunder  or any other Loan  Document  for the  account of a Bank shall be paid
promptly to such Bank, in  immediately  available  funds for the account of such
Bank's Applicable Lending Office.

         (c) If the due date of any payment hereunder or any other Loan Document
falls  on a day  which is not a  Business  Day,  the due  date for such  payment
(subject to the  definition  of Interest  Period)  shall be extended to the next
succeeding  Business  Day and  interest  shall be payable for any  principal  so
extended for the period of such extension.

         5.2 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Banks under Section 2.1 hereof shall be made ratably
from the Banks on the basis of their respective  Commitments and each payment of
commitment or facility fees shall be made for the account of the Banks, and each
termination  or  reduction  of the  Commitments  of the Banks under  Section 2.3
hereof  shall  be  applied,   pro  rata,  according  to  the  Banks'  respective
Commitments;  and (b) each payment by the Company of principal of or interest on
Loans of a particular Type shall be made to Administrative Agent for the account
of the Banks pro rata in accordance with the respective unpaid principal amounts
of such Loans held by the Banks.

         5.3  Computations.  Interest on Competitive Loans and interest based on
the Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis
of a year of 360 days and  actual  days  elapsed  (including  the  first day but
excluding the last day)  occurring in the period for which  payable,  unless the
effect of so  computing  shall be to cause the rate of  interest  to exceed  the
Highest  Lawful Rate, in which case interest shall be calculated on the basis of
the actual  number of days elapsed in a year composed of 365 or 366 days, as the
case may be. All other  interest  and fees shall be  computed  on the basis of a
year of 365 (or 366) days and actual days elapsed  (including  the first day but
excluding the last day) occurring in the period for which payable.

         5.4 Minimum and Maximum  Amounts.  Except for prepayments made pursuant
to Section  3.2(b)  hereof,  and subject to the provisions of Section 2.9 hereof
with respect to Competitive  Loans, each borrowing and repayment of principal of
Loans,  each termination or reduction of Commitments,  each optional  prepayment
and each conversion of Type shall be in an aggregate  principal  amount at least
equal to (a)in the case of Eurodollar Loans and Competitive  Loans,  $5,000,000,
and (b)in the case of  Alternate  Base Rate  Loans,  $1,000,000  (borrowings  or
prepayments of Loans of different Types or, in the case of Eurodollar  Loans and
Competitive Loans,  having different Interest Periods at the same time hereunder
to be deemed separate borrowings and

                                                        29

<PAGE>

prepayments  for  purposes  of the  foregoing,  one for  each  Type or  Interest
Period).  Upon any mandatory  prepayment that would reduce  Eurodollar  Loans or
Competitive  Loans,  respectively,  having the same Interest Period to less than
$5,000,000 such Loans shall  automatically be converted into Alternate Base Rate
Loans  on the  last  day  of the  applicable  Interest  Period.  Notwithstanding
anything to the contrary contained in this Agreement, there shall not be, at any
one time,  more than  eight (8)  Interest  Periods  in effect  with  respect  to
Eurodollar Loans or Competitive Loans, in the aggregate.

         5.5 Certain Actions,  Notices,  Etc. Notices to Administrative Agent of
any  termination or reduction of  Commitments,  of borrowings  and  prepayments,
conversions and  continuations  of Loans and of the duration of Interest Periods
shall be irrevocable  and shall be effective only if received by  Administrative
Agent not later than 11:00 a.m.,  Houston,  Texas time on the number of Business
Days prior to the date of the relevant termination,  reduction, borrowing and/or
repayment, conversion or continuance specified below:

<TABLE>

<S>                                                   <C>    

                    Notice                            Number of Business Days Prior

                    ------                            -----------------------------
Termination or Reduction of                                         2
Commitments
Borrowing or prepayment of or                                   same day
conversion into Alternate Base Rate
Loans
Borrowing or prepayment of or                                       3
conversion into or continuance of
Eurodollar Loans
=============================================== =========================================
</TABLE>

Each such notice of  termination  or reduction  shall  specify the amount of the
Commitments  to be  terminated  or  reduced.  Each such notice of  borrowing  or
prepayment  shall  specify  the amount and Type of the Loans to be  borrowed  or
prepaid  (subject to Sections  3.2(a) and 5.4 hereof),  the date of borrowing or
prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans,
the duration of the  Interest  Period  therefor  (subject to the  definition  of
"Interest  Period").  Each such  notice of  conversion  of a Loan into a Loan of
another Type shall identify such Loan (or portion  thereof) being  converted and
specify  the Type of Loan into which such Loan is being  converted  (subject  to
Section 5.4 hereof) and the date for conversion  (which shall be a Business Day)
and,  unless such Loan is being  converted into an Alternate Base Rate Loan, the
duration (subject to the definition of "Interest Period") of the Interest Period
therefor  which is to commence as of the last day of the then  current  Interest
Period therefor (or the date of conversion, if such Loan is being converted from
an Alternate  Base Rate Loan).  Each such notice of  continuation  of a Loan (or
portion  thereof) as the same Type of Loan shall  identify such Loan (or portion
thereof)  being  continued  (subject to Section  5.4  hereof)  and the  duration
(subject to the definition of "Interest Period") of the Interest Period therefor
which is to commence as of the last day of the then current

                                                        30

<PAGE>

Interest  Period  therefor.  Administrative  Agent  shall  promptly  notify  the
affected  Banks of the  contents of each such notice.  Notice of any  prepayment
having been given, the principal amount specified in such notice,  together with
interest  thereon to the date of  prepayment,  shall be due and  payable on such
prepayment date. Section 2.9 hereof shall control the time periods applicable to
Competitive Loans.

         5.6 Non-Receipt of Funds by Administrative Agent. Unless Administrative
Agent shall have been notified by a Bank or the Company (the  "Payor")  prior to
the date on which such Bank is to make  payment to  Administrative  Agent of the
proceeds  of a Loan to be  made  by it  hereunder  or the  Company  is to make a
payment to Administrative  Agent for the account of one or more of the Banks, as
the case may be (such payment being herein called the "Required Payment"), which
notice shall be effective  upon receipt,  that the Payor does not intend to make
the Required Payment to Administrative  Agent,  Administrative  Agent may assume
that  the  Required  Payment  has  been  made and may,  in  reliance  upon  such
assumption (but shall not be required to), make the amount thereof  available to
the  intended  recipient on such date and, if the Payor has not in fact made the
Required Payment to  Administrative  Agent on or before such date, the recipient
of such payment shall, on demand,  pay to  Administrative  Agent the amount made
available  to it  together  with  interest  thereon  in  respect  of the  period
commencing on the date such amount was so made available by Administrative Agent
until the date  Administrative  Agent  recovers  such amount at a rate per annum
equal to the Federal Funds Rate for such period.

         5.7 Sharing of  Payments,  Etc. If a Bank shall  obtain  payment of any
principal of or interest on any Loan made by it under this Agreement,  or on any
other  obligation then due to such Bank  hereunder,  through the exercise of any
right of set-off, banker's lien, counterclaim or similar right, or otherwise, it
shall promptly  purchase from the other Banks  participations in the Loans made,
or other  obligations  held, by the other Banks in such  amounts,  and make such
other  adjustments  from time to time as shall be  equitable to the end that all
the Banks shall share the benefit of such payment (net of any expenses which may
be incurred by such Bank in obtaining or  preserving  such  benefit) pro rata in
accordance with the unpaid principal and interest on the Obligations then due to
each of them (provided,  however, that the foregoing shall not apply to payments
of Competitive Loans made prior to the termination of the Commitments  following
the  occurrence  of an Event of  Default).  To such end all the Banks shall make
appropriate  adjustments among themselves (by the resale of participations  sold
or  otherwise) if such payment is rescinded or must  otherwise be restored.  The
Company agrees,  to the fullest extent it may effectively do so under applicable
law,  that any Bank so  purchasing a  participation  in the Loans made, or other
obligations  held,  by other Banks may exercise all rights of set-off,  bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct  holder  of Loans  and  other  obligations  in the
amount of such participation. Nothing contained herein shall require any Bank to
exercise any such right or shall  affect the right of any Bank to exercise,  and
retain the  benefits  of  exercising,  any such right with  respect to any other
Indebtedness or obligation of any Obligor.

                                                        31

<PAGE>

         Section 6.        Yield Protection and Illegality.

         6.1        Additional Costs.

         (a) Subject to Section 13.6,  the Company  shall pay to  Administrative
Agent,  on demand for the account of each Bank from time to time such amounts as
such Bank may determine to be necessary to compensate it for any costs  incurred
by such Bank  which  such Bank  determines  are  attributable  to its  making or
maintaining  of any  Eurodollar  Loan or any  Competitive  Loan hereunder or its
obligation  to make any such Loan  hereunder,  or any  reduction  in any  amount
receivable  by such  Bank  hereunder  in  respect  of any of such  Loans or such
obligation  (such increases in costs and reductions in amounts  receivable being
herein called  "Additional  Costs"),  in each case resulting from any Regulatory
Change which:

                    (i) subjects  such Bank (or makes it apparent that such Bank
         is subject) to any tax (including  without limitation any United States
         interest   equalization  tax),  levy,  impost,   duty,  charge  or  fee
         (collectively,  "Taxes"), or any deduction or withholding for any Taxes
         on or from the payment due under any Eurodollar Loan or any Competitive
         Loan or other  amounts due  hereunder,  other than income and franchise
         taxes of each  jurisdiction (or any subdivision  thereof) in which such
         Bank has an office or its Applicable Lending Office; or

                    (ii) changes the basis of taxation of any amounts payable to
         such Bank under this  Agreement  in respect of any of such Loans (other
         than changes  which affect taxes  measured by or imposed on the overall
         net income or franchise taxes of such Bank or of its Applicable Lending
         Office for any of such Loans by each  jurisdiction  (or any subdivision
         thereof)  in which such Bank has an office or such  Applicable  Lending
         Office); or

                    (iii)  imposes or modifies or increases or deems  applicable
         any  reserve,  special  deposit  or  similar  requirements  (including,
         without  limitation,  any  such  requirement  imposed  by the  Board of
         Governors of the Federal Reserve System)  relating to any extensions of
         credit or other  assets of, or any deposits  with or other  liabilities
         of, such Bank or loans made by such Bank,  or against any other  funds,
         obligations or other property owned or held by such Bank (including any
         of  such  Loans  or  any  deposits  referred  to in the  definition  of
         "Eurodollar  Base Rate" in Section 1.1  hereof) and such Bank  actually
         incurs such additional costs.

Each Bank (if so requested  by the Company  through  Administrative  Agent) will
designate a different  available  Applicable  Lending  Office for the Eurodollar
Loans or the  Competitive  Loans of such Bank or take such  other  action as the
Company  may request if such  designation  or action will avoid the need for, or
reduce the amount of, such  compensation  and will not,  in the sole  opinion of
such Bank  exercised in good faith,  be  disadvantageous  to such Bank (provided
that such Bank shall have no obligation  so to designate an  Applicable  Lending
Office for Eurodollar Loans located in the United States of America).  Each Bank
will furnish the Company with a statement  setting forth the basis and amount of
each request by such Bank for compensation under this Section 6.1(a);

                                                        32

<PAGE>

subject to Section6.8,  such  certificate  shall be conclusive,  absent manifest
error,  and may be  prepared  using any  reasonable  averaging  and  attribution
methods.

         (b) Without  limiting the effect of the  foregoing  provisions  of this
Section 6.1, in the event that,  by reason of any  Regulatory  Change,  any Bank
either (i) incurs  Additional  Costs based on or measured by the excess  above a
specified level of the amount of a category of deposits or other  liabilities of
such Bank which  includes  deposits by reference  to which the interest  rate on
Eurodollar  Loans is determined  as provided in this  Agreement or a category of
extensions  of credit or other  assets of such Bank  which  includes  Eurodollar
Loans or Competitive Loans or (ii) becomes subject to restrictions on the amount
of such a category of  liabilities  or assets which it may hold,  then,  if such
Bank so elects by notice to the Company (with a copy to  Administrative  Agent),
the obligation of such Bank to make  Eurodollar  Loans or Competitive  Loans, as
the case may be,  hereunder  shall be suspended  until the date such  Regulatory
Change ceases to be in effect (in which case the provisions of Section6.4 hereof
shall be applicable).

         (c) Good faith  determinations and allocations by any Bank for purposes
of this  Section6.1  of the  effect  of any  Regulatory  Change  on its costs of
maintaining its  obligations to make Loans or of making or maintaining  Loans or
on amounts  receivable by it in respect of Loans, and of the additional  amounts
required to compensate  such Bank in respect of any Additional  Costs,  shall be
conclusive, absent manifest error.

         (d) The Company's  obligation to pay Additional  Costs and compensation
with regard to each  Eurodollar  Loan and each  Competitive  Loan shall  survive
termination of this Agreement.

         6.2  Limitation  on Types of Loans.  Anything  herein  to the  contrary
notwithstanding, if, with respect to any Eurodollar Loans:

         (a) Administrative  Agent determines in good faith (which determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the  definition of  "Eurodollar  Base Rate" in Section 1.1 hereof
are not being provided by the Reference Banks in the relevant amounts or for the
relevant  maturities for purposes of  determining  the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or

         (b) the Majority  Banks  determine  in good faith (which  determination
shall be conclusive) and notify  Administrative Agent that the relevant rates of
interest  referred to in the definition of "Eurodollar Base Rate" in Section 1.1
hereof  upon the basis of which the rates of  interest  for such Loans are to be
determined  do not  accurately  reflect  the  cost to such  Banks of  making  or
maintaining such Loans for Interest Periods therefor; or

         (c) Administrative  Agent determines in good faith (which determination
shall be  conclusive)  that by reason of  circumstances  affecting the interbank
Dollar  market  generally,  deposits in United  States  dollars in the  relevant
interbank Dollar market are not being offered for the

                                                        33

<PAGE>

applicable Interest  Period   and  in  an  amount  equal  to  the amount of the 
Eurodollar Loan requested by the Company;

then  Administrative  Agent  shall  promptly  notify the  Company  and each Bank
thereof,  and, so long as such condition  remains in effect,  the Banks shall be
under no obligation to make  Eurodollar  Loans (but shall maintain until the end
of the Interest Period then in effect the Eurodollar Loans then outstanding).

         6.3 Illegality.  Notwithstanding  any other provision of this Agreement
to the  contrary,  if (x)by  reason  of the  adoption  of any  applicable  Legal
Requirement  or  any  change  in  any  applicable  Legal  Requirement  or in the
interpretation  or  administration  thereof  by any  Governmental  Authority  or
compliance by any Bank with any request or directive  (whether or not having the
force  of law)  of any  central  bank or  other  Governmental  Authority  or (y)
circumstances  affecting the relevant interbank Dollar market or the position of
a Bank therein shall at any time make it unlawful or  impracticable  in the sole
discretion  of a Bank  exercised  in good faith for such Bank or its  Applicable
Lending  Office  to (a)  honor  its  obligation  to  make  Eurodollar  Loans  or
Competitive  Loans  hereunder,  or (b) maintain  Eurodollar Loans or Competitive
Loans  hereunder,  then such Bank  shall  promptly  notify the  Company  thereof
through  Administrative  Agent and such  Bank's  obligation  to make or maintain
Eurodollar  Loans or Competitive  Loans, as the case may be,  hereunder shall be
suspended  until such time as such Bank may again make and  maintain  Eurodollar
Loans or Competitive  Loans, as the case may be (in which case the provisions of
Section 6.4 hereof shall be  applicable).  Before giving such notice pursuant to
this  Section 6.3,  such Bank will  designate a different  available  Applicable
Lending Office for the Eurodollar  Loans or the  Competitive  Loans, as the case
may be, of such Bank or take such other  action as the  Company  may  request if
such designation or action will avoid the need to suspend such Bank's obligation
to make Eurodollar Loans or Competitive Loans, as the case may be, hereunder and
will  not,  in the  sole  opinion  of such  Bank  exercised  in good  faith,  be
disadvantageous to such Bank (provided,  that such Bank shall have no obligation
so to designate an Applicable Lending Office for Eurodollar Loans located in the
United States of America).

         6.4 Substitute Alternate Base Rate Loans. If the obligation of any Bank
to make or maintain  Eurodollar Loans or Competitive  Loans, as the case may be,
shall be suspended  pursuant to Section 6.1, 6.2 or 6.3 hereof,  all Loans which
would otherwise be made by such Bank as Eurodollar  Loans or Competitive  Loans,
as the case may be, shall be made instead as Alternate  Base Rate Loans (and, if
an event  referred to in Section 6.1(b) or 6.3 hereof has occurred and such Bank
so requests by notice to the Company with a copy to  Administrative  Agent, each
Eurodollar Loan or each Competitive  Loan, as the case may be, of such Bank then
outstanding shall be automatically converted into an Alternate Base Rate Loan on
the  date  specified  by such  Bank in such  notice)  and,  to the  extent  that
Eurodollar  Loans or Competitive  Loans,  as the case may be, are so made as (or
converted into) Alternate Base Rate Loans, all payments of principal which would
otherwise be applied to such Eurodollar Loans or such Competitive  Loans, as the
case may be, shall be applied instead to such Alternate Base Rate Loans.

                                                        34

<PAGE>

         6.5 Compensation. Subject to Section 13.6 hereof, the Company shall pay
to  Administrative  Agent for the account of each Bank, within four (4) Business
Days after  demand  therefor by such Bank  through  Administrative  Agent,  such
amount or  amounts as shall be  sufficient  (in the  reasonable  opinion of such
Bank) to compensate  it for any loss,  cost or expense  actually  incurred by it
(exclusive of any lost profits or opportunity costs) as a result of:

         (a) any payment,  prepayment or  conversion  of a Eurodollar  Loan or a
Competitive  Loan  made by such  Bank on a date  other  than  the last day of an
Interest Period for such Loan; or

         (b) any  failure  by the  Company  to  borrow  a  Eurodollar  Loan or a
Competitive  Loan to be  made  by such  Bank  on the  date  for  such  borrowing
specified in the relevant  notice of borrowing  under Section 5.5 or Section 2.9
hereof;

such compensation to include,  without limitation,  any loss or expense actually
incurred  (exclusive of any lost profits or opportunity  costs) by reason of the
liquidation  or  reemployment  of  deposits  or  other  funds  acquired  by  the
applicable  Bank  to  fund  or  maintain  its  share  of any  Loan.  Subject  to
Section6.8,  each  determination  of the amount of such  compensation  by a Bank
shall be conclusive  and binding,  absent  manifest  error,  and may be computed
using any reasonable averaging and attribution method.

         6.6        [Intentionally omitted].

         6.7  Capital  Adequacy.  If  any  Bank  shall  have  determined  that a
Regulatory   Change   resulting  in  the  adoption  after  the  date  hereof  or
effectiveness after the date hereof (whether or not previously announced) of any
applicable law, rule,  regulation or treaty regarding capital  adequacy,  or any
change  therein after the date hereof,  or any change in the  interpretation  or
administration  thereof  after  the date  hereof by any  Governmental  Authority
charged with the interpretation or administration  thereof, or compliance by any
Bank (or its Applicable  Lending Office) with any request or directive after the
date hereof regarding  capital adequacy (whether or not having the force of law)
of any such Governmental  Authority has or would have the effect of reducing the
rate  of  return  on  such  Bank's  capital  as a  consequence  of  such  Bank's
obligations hereunder and under the Loans made by it to a level below that which
such Bank  could  have  achieved  but for such  adoption,  change or  compliance
(taking  into  consideration  such  Bank's  policies  with  respect  to  capital
adequacy)  by an amount  deemed by such Bank to be  material,  then from time to
time, upon  satisfaction  of the conditions  precedent set forth in this Section
6.7, upon demand by such Bank (with a copy to Administrative Agent), the Company
(subject to Section 13.6 hereof) shall pay to such Bank such  additional  amount
or amounts as will compensate such Bank for such reduction.  A certificate as to
such amounts,  submitted to the Company and  Administrative  Agent by such Bank,
setting forth the basis for such Bank's  determination  of such  amounts,  shall
constitute  a demand  therefor  and  shall be  conclusive  and  binding  for all
purposes,  absent manifest error.  The Company shall pay the amount shown as due
on any such  certificate  within four (4) Business  Days after  delivery of such
certificate.  Subject to Section6.8,  in preparing such certificate,  a Bank may
employ

                                                        35

<PAGE>

such assumptions and allocations of costs and expenses as it shall in good faith
deem reasonable and may use any reasonable averaging and attribution method.

         6.8  Limitation on Additional Charges; Substitute Banks; 
Non-Discrimination.  Anything in this Section 6 notwithstanding:

         (a) the Company shall not be required to pay to any Bank  reimbursement
with regard to any costs or expenses,  unless such Bank  notifies the Company of
such costs or expenses within 90 days after the date paid or incurred;

         (b) none of the Banks shall be permitted to pass through to the Company
charges and costs under this Section 6 on a  discriminatory  basis (i.e.,  which
are not also  passed  through  by such  Bank to  other  customers  of such  Bank
similarly  situated  where such  customer is subject to documents  providing for
such pass through); and

         (c) if any Bank  elects to pass  through to the  Company  any  material
charge or cost under this Section 6 or elects to terminate the  availability  of
Eurodollar  Loans for any material  period of time,  the Company may,  within 60
days after the date of such event and so long as no Default  shall have occurred
and be continuing,  elect to terminate  such Bank as a party to this  Agreement;
provided  that,  concurrently  with such  termination  the Company  shall (i) if
Administrative  Agent and each of the other Banks shall  consent,  pay that Bank
all  principal,  interest  and fees and other  amounts owed to such Bank through
such date of termination or (ii) have arranged for another financial institution
approved by Administrative Agent (such approval not to be unreasonably withheld)
as of such  date,  to  become a  substitute  Bank for all  purposes  under  this
Agreement in the manner provided in Section 13.5;  provided  further that, prior
to  substitution  for any Bank,  the Company shall have given written  notice to
Administrative  Agent of such intention and the Banks shall have the option, but
no obligation, for a period of 60 days after receipt of such notice, to increase
their  Commitments  in  order  to  replace  the  affected  Bank  in lieu of such
substitution.

         Section 7.        Conditions Precedent.

         7.1  Initial  Loans.  The  obligation  of each Bank to make its initial
Loans on or  after  the date  hereof  is  subject  to the  following  conditions
precedent, each of which shall have been fulfilled or waived to the satisfaction
of the Administrative Agent:

         (a)  Corporate  Action  and  Status.  Administrative  Agent  shall have
received from the appropriate  Governmental  Authorities certified copies of the
Organizational  Documents  (other than bylaws) of the Company and the Guarantor,
and evidence  satisfactory to Administrative Agent of all corporate action taken
by the  Company  and the  Guarantor  authorizing  the  execution,  delivery  and
performance  of the Loan  Documents  and all  other  documents  related  to this
Agreement to which it is a party (including,  without limitation,  a certificate
of the secretary of each such party setting forth the  resolutions  of its Board
of Directors  authorizing the transactions  contemplated thereby and attaching a
copy of its bylaws),  together with such  certificates  as may be appropriate to
demonstrate

                                                        36

<PAGE>

the  qualification  and good standing of and payment of taxes by the Company and
the Guarantor in Texas, Louisiana, Montana, Oklahoma, New Mexico and Wyoming, as
applicable.

         (b)  Incumbency.  The Company,  the Guarantor  and each other  Relevant
Party shall have delivered to  Administrative  Agent a certificate in respect of
the name and  signature of each of the officers  (i)who is authorized to sign on
its behalf the applicable Loan Documents  related to any Loan and (ii) who will,
until replaced by another  officer or officers duly authorized for that purpose,
act as its  representative  for the  purposes  of signing  documents  and giving
notices and other  communications  in connection  with any Loan.  Administrative
Agent  and each  Bank may  conclusively  rely on such  certificates  until  they
receive  notice in writing from the Company,  the  Guarantor or the  appropriate
Relevant Party to the contrary.

         (c)  Revolving  Credit  Agreement.   Administrative  Agent  shall  have
received  counterparts of the Revolving Credit Agreement  executed and delivered
by or on behalf of each of the parties thereto or the Administrative Agent shall
have received evidence  satisfactory to it of the execution and delivery by each
such Person of a counterpart of such Revolving Credit Agreement.

         (d) Loan  Documents.  The Company and each other  Relevant  Party shall
have duly executed and delivered the other Loan Documents to which it is a party
(in such number of copies as Administrative Agent shall have requested) and each
such Loan Document shall be in form  satisfactory to the  Administrative  Agent.
Each such Loan  Document  shall be in  substantially  the form  furnished to the
Banks prior to their  execution of this  Agreement,  together  with such changes
therein as the Administrative Agent may approve.

         (e) Fees and Expenses.  The Company  shall have paid to  Administrative
Agent for the account of each Bank all accrued  and unpaid  commitment  fees and
other fees in the amounts  previously  agreed upon in writing  among the Company
and  Administrative  Agent;  and shall have in  addition  paid to each Agent all
amounts payable under the letter agreements referred to in Section2.4(b)  hereof
and under Section 9.7 hereof on or before the date of this Agreement.

         (f) Opinions of Counsel.  Administrative  Agent shall have received (1)
an opinion of Akin, Gump, Strauss,  Hauer & Feld, L.L.P., counsel to the Company
and the Guarantor,  in form and substance reasonably satisfactory to the Agents,
and (2) such  opinions of counsel to the Company and other  Relevant  Parties as
the Agents shall reasonably  request with respect to the Company,  the Guarantor
and the Loan Documents.

         (g)  Execution  by Banks and  Agents.  Administrative  Agent shall have
received  counterparts of this Agreement  executed and delivered by or on behalf
of each of the Banks and the Agents or Administrative  Agent shall have received
evidence  satisfactory  to it of the execution and delivery by each of the Banks
and Agents of a counterpart hereof.

         (h)  Consents.   Administrative  Agent  shall  have  received  evidence
satisfactory to it that,  except as disclosed in the Disclosure  Statement,  all
material consents of each Governmental

                                                        37

<PAGE>

Authority and of each other Person,  if any,  reasonably  required in connection
with  (a) the  Loans,  (b)  the  execution,  delivery  and  performance  of this
Agreement and the other Loan Documents have been  satisfactorily  obtained,  and
(c) the consummation of the Merger and all related transactions.  All applicable
appeal  periods  shall have  expired and there shall be, in the  judgment of the
Administrative  Agent,  in its sole  discretion,  no  governmental  or  judicial
action,  actual or threatened,  restraining,  preventing or imposing  burdensome
conditions  on the  Merger  and all  related  transactions,  including,  without
limitation,  the  issuance,  closing  and  funding  of  this  Agreement  and the
facilities thereunder.

         (i) Margin  Regulations.  After giving effect to such Loan, the Company
and Banks shall be in compliance with the Margin Regulations.

         (j)  Consummation  of Merger.  The merger  among  Seagull and Old Ocean
Energy  (the  "Merger")  shall  have been  consummated  as  contemplated  by and
pursuant to that certain Agreement and Plan of Merger,  dated November 24, 1998,
as amended  by  Amendment  No. 1 to  Agreement  and Plan of Merger,  dated as of
December 9, 1998 (as amended, the "Merger  Agreement"),  among such parties, and
Administrative  Agent  shall have  received  (i)  satisfactory  evidence  of the
consummation of such Merger and (ii) a certificate from a Responsible Officer of
the Company certifying that the Merger has been consummated.

         (k)  Financial  Reports;  Filings.   Administrative  Agent  shall  have
received  copies of (i)all  financial  statements,  reports,  notices  and proxy
statements either (A) requested by the  Administrative  Agent or any Bank or (B)
sent by the Company,  Seagull or Old Ocean Energy to its  stockholders  and (ii)
all SEC filings concerning the Merger.

         (l)  Litigation.  No litigation or  administrative  proceeding or other
legal or regulatory  developments  prohibiting or enjoining the  consummation of
the Merger shall exist.

         (m) Event of Default under Existing Credit Facilities. Exclusive of the
Merger,  no "Event of  Default"  (as  defined  in the  Existing  Seagull  Credit
Facility)  for Seagull or "Event of Default"  (as  defined in the  Existing  Old
Ocean  Credit  Facility)  for  Old  Ocean  Energy  shall  have  occurred  and be
continuing.

         (n) Termination of Existing  Credit  Facilities.  Administrative  Agent
shall have received  evidence  satisfactory to it that all obligations under (i)
the  Existing  Seagull  Credit  Facility,  (ii) the  Existing  Old Ocean  Credit
Facility  and (iii) the  Existing  Old Ocean  Bridge  Facility,  have been paid,
fulfilled or satisfied in full or otherwise terminated.

         (o) Lien Searches.  Administrative  Agent shall have received certified
copies of Uniform  Commercial  Code  Requests  for  Information  or Copies (Form
UCC-11),  or a similar  search  report  certified by a party  acceptable  to the
Administrative  Agent,  dated a date  reasonably near to the date of the initial
Loan,  listing  all  effective  financing  statements  which  name the  Company,
Seagull, the Guarantor or, at the request of the Administrative Agent, any other
Subsidiary (under

                                                        38

<PAGE>

its present  name and any  previous  names) as the debtor and which are filed in
the following jurisdictions:  Delaware, Texas, Louisiana, Montana, Oklahoma, New
Mexico and Wyoming, together with copies of such financing statements.

         (p) Other  Documents.  Administrative  Agent shall have  received  such
other documents  consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as Administrative Agent may reasonably request.

         All provisions and payments required by this Section 7.1 are subject to
the provisions of Section 13.6.

         7.2 Initial and Subsequent  Loans.  The obligation of each Bank to make
any Loan  (including,  without  limitation,  its initial  Loan) to be made by it
hereunder  (excluding  conversions of Loans to Alternate Base Rate Loans or Term
Loans made  pursuant to Section  2.1(b),  in each case as to which no conditions
precedent  exist)  is  subject  to  the  additional  conditions  precedent  that
(i)Administrative  Agent shall have  received a Request for  Extension of Credit
and such other  certifications as Administrative  Agent may reasonably  require,
(ii) in the case of Competitive  Loans, the Company shall have complied with the
provisions  of Section  2.9  hereof  and (iii) as of the date of such Loan,  and
after giving effect thereto:

         (a)        no Default shall have occurred and be continuing;

         (b) except for facts timely disclosed to Administrative Agent from time
to time in  writing,  which  facts (i) are not  materially  more  adverse to the
Company  and its  Subsidiaries  or any  other  Obligor,  (ii) do not  materially
decrease the ability of the Banks to collect the Obligations as and when due and
payable and (iii) do not  materially  increase the liability of any Agent or any
of the Banks,  in each case compared to those facts  existing on the date hereof
and the  material  details  of  which  have  been  set  forth  in the  Financial
Statements  delivered to Administrative Agent prior to the date hereof or in the
Disclosure  Statement,  and except for the representations set forth in the Loan
Documents which, by their terms, are expressly (or by means of similar phrasing)
made as of the  Effective  Date or as of the  date  hereof,  as the case may be,
only, the  representations  and  warranties  made in each Loan Document shall be
true and correct in all material respects on and as of the date of the making of
such Loan, with the same force and effect as if made on and as of such date;

         (c) the making of such Loan  shall not  violate  any Legal  Requirement
applicable to any Bank; and

         (d) no event or condition  shall have occurred since the  effectiveness
of this  Agreement  which  reasonably  could be expected to result in a Material
Adverse Effect.

         Each  Request for  Extension of Credit by the Company  hereunder  shall
include a representation  and warranty by the Company to the effect set forth in
Subsections 7.2(a) and (b)

                                                        39

<PAGE>

(both as of the date of such notice and, unless the Company  otherwise  notifies
Administrative Agent prior to the date of such borrowing, as of the date of such
borrowing).

         Section 8. Representations and Warranties. To induce the Banks to enter
into this Agreement and to make the Loans,  the Company  represents and warrants
(such representations and warranties to survive any investigation and the making
of the Loans) to the Banks and the Agents as follows:

         8.1 Corporate Existence. The Company, the Guarantor and each Subsidiary
of the  Company  are  corporations  duly  incorporated  and  organized,  legally
existing and in good standing under the laws of the respective  jurisdictions in
which they are incorporated,  and are duly qualified as foreign  corporations in
all jurisdictions  wherein the property owned or the business transacted by them
makes  such  qualification  necessary  and  the  failure  to  so  qualify  could
reasonably be expected to result in a Material Adverse Effect.

         8.2  Corporate  Power  and  Authorization.  Each  of the  Company,  the
Guarantor and each Subsidiary of the Company is duly authorized and empowered to
execute,  deliver,  and perform this  Agreement and the other Loan  Documents to
which it is a party;  and all corporate  action on the Company's part and on the
part of the Guarantor and each  Subsidiary of the Company for the due execution,
delivery,  and  performance  of this  Agreement and the other Loan  Documents to
which each of the Company, the Guarantor and each such Subsidiary is a party has
been duly and effectively taken.

         8.3 Binding  Obligations.  This  Agreement and the other Loan Documents
constitute  legal,  valid  and  binding  obligations  of  the  Company  and  its
Subsidiaries  and  the  Guarantor,  to  the  extent  each  is a  party  thereto,
enforceable  against the Company and its Subsidiaries and the Guarantor,  to the
extent each is a party  thereto,  in  accordance  with their  respective  terms,
except as may be  limited by any  bankruptcy,  insolvency,  moratorium  or other
similar laws or judicial  decisions  affecting  creditors'  rights generally and
general principles of equity whether considered at law or in equity.

         8.4 No Legal  Bar or  Resultant  Lien.  The  Company's  and each of its
Subsidiaries' and the Guarantor's creation,  issuance,  execution,  delivery and
performance of this Agreement and the other Loan  Documents,  to the extent they
are  parties  thereto,  do not  and  will  not  violate  any  provisions  of the
Organizational  Documents of the Company, the Guarantor or any Subsidiary of the
Company or any Legal  Requirement  to which the  Company,  the  Guarantor or any
Subsidiary  of the Company is subject or by which its  property may be presently
bound or  encumbered,  or result in the creation or  imposition of any Lien upon
any  properties of the Company,  the Guarantor or any Subsidiary of the Company,
other than those permitted by this Agreement.

         8.5 No Consent.  Except as set forth in the Disclosure  Statement,  the
Company's and each of its Subsidiaries' and the Guarantor's execution, delivery,
and  performance  of this  Agreement,  the Merger  Agreement  and the other Loan
Documents to which they are parties do not

                                                        40

<PAGE>

and will not  require  the  consent or  approval  of any Person  other than such
consents  and/or  approvals  obtained by the Company  contemporaneously  with or
prior to the execution of this Agreement,  including,  without  limitation,  any
Governmental Authorities,  other than those consents the failure to obtain which
could not be reasonably expected to have a Material Adverse Effect.

         8.6        Financial Condition.

         (a) The audited consolidated annual financial statements of Seagull and
its Subsidiaries for the year ended  December31,1998,  which have been delivered
to the Banks, have been prepared in accordance with GAAP, and present fairly the
financial   condition  and  results  of  the   operations  of  Seagull  and  its
Subsidiaries for the period or periods stated. The audited  consolidated  annual
financial statements of Old Ocean Energy and its Subsidiaries for the year ended
December31,1998,  which have been delivered to the Banks,  have been prepared in
accordance with GAAP, and present fairly the financial  condition and results of
the  operations  of Old Ocean  Energy  and its  Subsidiaries  for the  period or
periods stated. No Material Adverse Effect has occurred since December 31, 1998,
except as disclosed to the Banks in the Disclosure Statement.

         (b) The unaudited pro forma consolidated annual financial statements of
the Company and its Subsidiaries for the year ended  December31,1998,  which are
presented  to give  effect to the Merger and which  have been  delivered  to the
Banks,  have been prepared in accordance with GAAP. No material  adverse change,
either in any case or in the aggregate,  has occurred since December 31, 1998 in
the assets, liabilities,  financial condition,  business, operations, affairs or
circumstances  of the Company and its Subsidiaries  taken as a whole,  except as
disclosed to the Banks in the Disclosure Statement.

         8.7 Investments and Guaranties. As of the Effective Date, no Subsidiary
of the Company had made  Investments in or advances to, and neither the Company,
Seagull  or Old  Ocean  Energy  nor  any  Subsidiary  of any of  them  had  made
Guarantees  of, the  obligations  of any Person,  except as (a) disclosed to the
Banks in the Disclosure Statement or (b) not prohibited by applicable provisions
of Section10.

         8.8 Liabilities  and Litigation.  Neither the Company or any Subsidiary
of the Company,  Seagull or any  Subsidiary of Seagull,  nor Old Ocean Energy or
any Subsidiary of Old Ocean Energy, respectively, has any material (individually
or in the aggregate) liabilities,  direct or contingent,  except as (a)disclosed
or referred to in the  Financial  Statements,  (b) disclosed to the Banks in the
Disclosure Statement, (c) disclosed in a notice to Administrative Agent pursuant
to  Section9.10  with respect to such as could  reasonably be expected to have a
Material  Adverse  Effect or (d) not  prohibited  by  applicable  provisions  of
Section10.  Except as (a)  described in the Financial  Statements,  (b)otherwise
disclosed to the Banks in the Disclosure Statement, (c) disclosed in a notice to
Administrative  Agent  pursuant  to  Section9.10  with  respect to such as could
reasonably be expected to have a Material  Adverse  Effect or (d) not prohibited
by applicable provisions of Section10, no litigation,  legal,  administrative or
arbitral proceeding,  investigation, or other action of any nature exists or (to
the knowledge of the Company) is threatened against or affecting the

                                                        41

<PAGE>

Company or any Subsidiary of the Company,  Seagull or any Subsidiary of Seagull,
or Old Ocean Energy or any Subsidiary of Old Ocean Energy,  respectively,  which
could reasonably be expected to result in any judgment which could reasonably be
expected to have a Material Adverse Effect, or which in any manner challenges or
may challenge or draw into question the validity of this  Agreement or any other
Loan  Document,  or enjoins or threatens to enjoin or otherwise  restrain any of
the transactions contemplated by any of them.

         8.9 Taxes and Governmental  Charges.  The Company and its Subsidiaries,
Seagull  and  its  Subsidiaries,  and Old  Ocean  Energy  and its  Subsidiaries,
respectively,  have filed, or obtained extensions with respect to the filing of,
all  material  tax returns  and  reports  required to be filed and have paid all
material taxes, assessments, fees and other governmental charges levied upon any
of them or upon any of their  respective  properties or income which are due and
payable,  including  interest and penalties,  or have provided adequate reserves
for the payment thereof.

         8.10 Title to  Properties.  The  Company and its  Subsidiaries  and the
Guarantor  have  good  and  defensible  title  to  their  respective  properties
(including, without limitation, all fee and leasehold interests), free and clear
of all Liens except (a) those  referred to in the Financial  Statements,  (b) as
disclosed  to the  Banks in the  Disclosure  Statement  or (c) as  permitted  by
Section10.2.

         8.11  Defaults.  Neither the Company or any  Subsidiary of the Company,
Seagull or any  Subsidiary of Seagull nor Old Ocean Energy or any  Subsidiary of
Old Ocean Energy is in default,  which default  could  reasonably be expected to
have a Material Adverse Effect,  under any indenture,  mortgage,  deed of trust,
agreement  or other  instrument  to which the Company or any  Subsidiary  of the
Company,  Seagull  or any  Subsidiary  of  Seagull  or Old  Ocean  Energy or any
Subsidiary of Old Ocean Energy, respectively, is a party or by which the Company
or any  Subsidiary of the Company,  Seagull or any  Subsidiary of Seagull or Old
Ocean  Energy  or any  Subsidiary  of Old  Ocean  Energy,  respectively,  or the
property  of the  Company  or any  Subsidiary  of the  Company,  Seagull  or any
Subsidiary of Seagull or Old Ocean Energy or any Subsidiary of Old Ocean Energy,
respectively,  is bound,  except as (a) disclosed to the Banks in the Disclosure
Statement,  (b)  disclosed  in a notice  to  Administrative  Agent  pursuant  to
Section9.10  with  respect to such as could  reasonably  be  expected  to have a
Material Adverse Effect or (c) specifically  permitted by applicable  provisions
of  Section10.  No Default  under this  Agreement or any other Loan Document has
occurred and is continuing.

         8.12  Location of  Businesses  and  Offices.  Except to the extent that
Administrative  Agent has been  furnished  written  notice to the contrary or of
additional locations,  pursuant to Section9.10, the Company's principal place of
business and chief  executive  offices are located at the address  stated on the
signature page hereof and the principal  places of business and chief  executive
offices of the  Guarantor  and each other  Subsidiary  are described on ExhibitC
hereto.

         8.13 Compliance with Law.  Neither the Company or any Subsidiary of the
Company,  Seagull  or any  Subsidiary  of  Seagull  nor Old Ocean  Energy or any
Subsidiary  of Old Ocean  Energy  (except  as  (a)disclosed  to the Banks in the
Disclosure Statement, (b) disclosed in a notice to

                                                        42

<PAGE>

Administrative  Agent  pursuant  to  Section9.10  with  respect to such as could
reasonably be expected to have a Material  Adverse  Effect or (c) not prohibited
by applicable provisions of Section10):

         (a)        is in violation of any Legal Requirement; or

         (b) has  failed to  obtain  any  license,  permit,  franchise  or other
governmental authorization necessary to the ownership of any of their respective
properties or the conduct of their respective business;

which  violation  or failure  could  reasonably  be  expected to have a Material
Adverse Effect.

         8.14 Margin  Stock.  None of the proceeds of the Loans will be used for
the purpose of, and neither the Company, the Guarantor nor any Subsidiary of the
Company is engaged in the  business of  extending  credit for the purpose of (a)
purchasing  or carrying  any "margin  stock" as defined in  Regulation  U of the
Board of Governors  of the Federal  Reserve  System (12 C.F.R.  Part 221) or (b)
reducing or retiring any indebtedness which was originally  incurred to purchase
or carry  margin  stock,  if such  purpose  under  either (a) or (b) above would
constitute  this  transaction  a "purpose  credit"  within  the  meaning of said
Regulation U, or for any other purpose which would constitute this transaction a
"purpose credit".  Neither the Company,  the Guarantor nor any Subsidiary of the
Company is engaged principally,  or as one of its important  activities,  in the
business of extending  credit for the purpose of purchasing  or carrying  margin
stocks. Neither the Company, the Guarantor nor any Subsidiary of the Company nor
any Person acting on behalf of the Company,  the Guarantor or any  Subsidiary of
the Company has taken or will take any action  which might cause any of the Loan
Documents,  including  this  Agreement,  to  violate  RegulationU  or any  other
regulation  of the Board of  Governors  of the  Federal  Reserve  System,  or to
violate any similar provision of the Securities Exchange Act of 1934 or any rule
or regulation under any such provision thereof.

         8.15  Subsidiaries.  The Company has no  Subsidiaries as of the date of
this Agreement except those shown in ExhibitC hereto.

         8.16  ERISA.  With  respect to each Plan,  the  Company  and each ERISA
Affiliate have fulfilled  their  obligations,  including  obligations  under the
minimum  funding  standards of ERISA and the Code,  and are in compliance in all
material  respects with the provisions of ERISA and the Code. The Company has no
knowledge  of any event which could  result in a liability of the Company or any
ERISA Affiliate to the PBGC or a Plan (other than to make  contributions  in the
ordinary course).  Since the effective date of TitleIV of ERISA,  there have not
been any nor are there now  existing any events or  conditions  that would cause
the Lien  provided  under Section 4068 of ERISA to attach to any property of the
Company or any ERISA Affiliate.  There are no Unfunded  Liabilities with respect
to any Plan. No "prohibited transaction" has occurred with respect to any Plan.

         8.17  Investment   Company Act.   Neither  the  Company nor any of its 
Subsidiaries is an investment company within the meaning of the Investment 
Company Act of 1940, as amended, or,

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<PAGE>

directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said Act.

         8.18 Public Utility Holding Company Act. Neither the Company nor any of
its  Subsidiaries  (i) is subject to regulation under the Public Utility Holding
Company Act of 1935, as amended (the "PUHC Act"),  except as to Section  9(a)(2)
thereof  (15  U.S.C.A.  ss.79(i)(a)(2)),  or (ii)is in  violation  of any of the
provisions, rules, regulations or orders of or under the PUHC Act. Further, none
of  the  transactions  contemplated  under  this  Agreement,  including  without
limitation,  the making of the Loans,  shall cause or  constitute a violation of
any of the provisions, rules, regulations or orders of or under the PUHC Act and
the  PUHC  Act  does  not  in  any  manner  impair  the  legality,  validity  or
enforceability of this Agreement. The Company has duly filed with the Securities
and Exchange  Commission good faith  applications  (each a "PUHCA  Application")
under  Section  2(a)(8)  of the  PUHC  Act (15  U.S.C.A.  ss.79(b)(a)(8))  for a
declaration  of  non-subsidiary  status  pursuant to such  Section  2(a)(8) with
respect to each Person (each a "Specified  Shareholder") which owns, controls or
holds with power to vote,  directly or indirectly,  a sufficient quantity of the
voting securities of the Company to be construed as a "holding company", as such
term  is  defined  in the  PUHC  Act,  in  respect  of the  Company.  All of the
information contained in such PUHCA Applications, as amended, was true as of the
most recent  filing date with respect  thereto  (provided  that the Company may,
unless it has actual current knowledge to the contrary, rely solely upon written
information  furnished by any Specified  Shareholder  with respect to background
information  about the Specified  Shareholder and the nature of the ownership by
such Specified  Shareholder  or its  Affiliates of the voting  securities of the
Company), and the Company knows of no reason why each such PUHCA Application, if
acted upon by the  Securities  and Exchange  Commission,  would not be approved.
True and  correct  copies  of each such  PUHCA  Application  and any  amendments
thereto, as filed, have been furnished to Administrative  Agent. The Company has
not received any written notice from the Securities and Exchange Commission with
respect to any such PUHCA  Application  other  than as  disclosed  in writing to
Administrative Agent.

         8.19  Environmental  Matters.  Except as  disclosed  in the  Disclosure
Statement,  (i) the Company and its Subsidiaries have obtained and maintained in
effect all  Environmental  Permits  (or has  initiated  the  necessary  steps to
transfer the  Environmental  Permits into its name), the failure to obtain which
could reasonably be expected to have a Material Adverse Effect, (ii) the Company
and its Subsidiaries and their properties,  assets, business and operations have
been and are in compliance with all applicable Requirements of Environmental Law
and  Environmental  Permits  failure to comply  with which could  reasonably  be
expected  to  have  a  Material  Adverse  Effect,  (iii)  the  Company  and  its
Subsidiaries  and their  properties,  assets,  business and  operations  are not
subject to any (A)  Environmental  Claims or (B) Environmental  Liabilities,  in
either case direct or contingent,  and whether known or unknown, arising from or
based upon any act,  omission,  event,  condition or  circumstance  occurring or
existing on or prior to the date hereof  which could  reasonably  be expected to
have a Material Adverse Effect,  and (iv) no Responsible  Officer of the Company
or any of its  Subsidiaries  has received any notice of any violation or alleged
violation of any  Requirements of Environmental  Law or Environmental  Permit or
any Environmental Claim in connection with its assets,  properties,  business or
operations which could reasonably be expected

                                                        44

<PAGE>

to have a Material Adverse Effect.  The liability  (including without limitation
any  Environmental  Liability and any other damage to persons or  property),  if
any, of the Company and its Subsidiaries  and with respect to their  properties,
assets,  business  and  operations  which  is  reasonably  expected  to arise in
connection with Requirements of Environmental Laws currently in effect and other
environmental  matters  presently known by a Responsible  Officer of the Company
will not have a Material Adverse Effect.  No Responsible  Officer of the Company
knows of any event or  condition  with  respect to  Environmental  Matters  with
respect to any of its  properties or the  properties of any of its  Subsidiaries
which  could  reasonably  be  expected to have a Material  Adverse  Effect.  For
purposes  of this  Section  8.19,  "Environmental  Matters"  shall mean  matters
relating to pollution  or  protection  of the  environment,  including,  without
limitation,  emissions, discharges, releases or threatened releases of Hazardous
Substances into the environment  (including,  without  limitation,  ambient air,
surface  water or ground  water,  or land surface or  subsurface),  or otherwise
relating to the manufacture,  processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.

         8.20  Claims  and  Liabilities.  Except  as  disclosed  to the Banks in
writing,  neither the Company or any of its  Subsidiaries  nor the Guarantor has
accrued any liabilities under gas purchase  contracts for gas not taken, but for
which it is liable to pay if not made up and  which,  if not paid,  would have a
Material Adverse Effect.  Except as disclosed to the Banks in writing, no claims
exist  against  the  Company  or its  Subsidiaries  or  the  Guarantor  for  gas
imbalances  which claims if adversely  determined  would have a Material Adverse
Effect.  No  purchaser  of  product  supplied  by  the  Company  or  any  of its
Subsidiaries  or the  Guarantor  has any claim against the Company or any of its
Subsidiaries  for product paid for, but for which  delivery was not taken as and
when paid for, which claim if adversely determined would have a Material Adverse
Effect.

         8.21  Solvency.  Neither the Company, the Guarantor nor the Company and
its Subsidiaries, on a consolidated basis, is "insolvent", as such term is used 
and defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent 
Transfer Act, Tex. Bus. & Com. Code Ann. ss.24.001 et seq.

         8.22  Year  2000.  Any  reprogramming  required  to permit  the  proper
functioning,  in and following the year 2000, of (i) the computer systems of the
Company and its Subsidiaries and (ii)equipment  containing  embedded  microchips
(including  systems and  equipment  supplied by others or with which the systems
interface  of the  Company  and its  Subsidiaries)  and the  testing of all such
systems and equipment,  as so  reprogrammed,  will be completed by September 30,
1999. The cost to the Company and its  Subsidiaries  of such  reprogramming  and
testing  and of the  reasonably  foreseeable  consequences  of year  2000 to the
Company  and its  Subsidiaries  (including,  without  limitation,  reprogramming
errors and the  failure of others'  systems or  equipment)  will not result in a
Default  or a Material  Adverse  Effect.  Except  for such of the  reprogramming
referred to in the  preceding  sentence as may be  necessary,  the  computer and
management information systems of the Company and its Subsidiaries are and, with
ordinary course  upgrading and  maintenance,  will continue for the term of this
Agreement  to be,  sufficient  to permit the  Company to  conduct  its  business
without Material Adverse Effect.

                                                        45

<PAGE>

         Section 9.  Affirmative  Covenants.  A deviation from the provisions of
this  Section9  will not  constitute  a Default  under  this  Agreement  if such
deviation is consented  to in writing by the Majority  Banks.  Without the prior
written consent of the Majority Banks, the Company agrees with the Banks and the
Agents that, so long as any of the Commitments is in effect and until payment in
full of all Obligations:

         9.1 Financial Statements and Reports. The Company will promptly furnish
to any Bank  from time to time  upon  request  such  information  regarding  the
business and affairs and financial condition of the Company and its Subsidiaries
and the Guarantor as such Bank may reasonably  request,  and will furnish to the
Agents and each of the Banks:

         (a) Annual Reports - promptly after becoming available and in any event
within 100days after the close of each fiscal year of the Company:

                    (i)    the audited consolidated balance sheet of the Company
                           and its Subsidiaries as of the end of such year;

                    (ii)   the audited consolidated statement of earnings of the
                           Company and its Subsidiaries for such year;

                    (iii)  the audited  consolidated  statement of cash flows of
                           the Company and its Subsidiaries for such year;

setting forth in each case in comparative form the corresponding figures for the
preceding  fiscal year,  and, in the case of the audited  Financial  Statements,
audited and  accompanied  by the related  opinion of KPMG Peat  Marwick or other
independent   certified  public  accountants  of  recognized  national  standing
acceptable  to the Majority  Banks,  which opinion shall state that such audited
balance  sheets  and  statements  have been  prepared  in  accordance  with GAAP
consistently  followed  throughout  the period  indicated and fairly present the
consolidated  financial  condition and results of  operations of the  applicable
Persons as at the end of, and for, such fiscal year; and

         (b) Quarterly Reports - as soon as available and in any event within 50
days after the end of each of the first three  quarterly  periods in each fiscal
year of the Company:

                    (i)    the unaudited consolidated balance sheet of the
                           Company and its Subsidiaries as of the end of such 
                           quarter;

                    (ii)   the unaudited  consolidated  statement of earnings of
                           the Company and its Subsidiaries for such quarter and
                           for the period from the  beginning of the fiscal year
                           to the close of such quarter;

                                                        46

<PAGE>

                    (iii)  the unaudited consolidated statement of cash flows of
                           the Company and its Subsidiaries for such quarter and
                           for the period from the  beginning of the fiscal year
                           to the close of such quarter;

all of  items  (i)  through  (iii)  above  prepared  on  substantially  the same
accounting basis as the annual reports described in Subsection9.1(a), subject to
normal changes resulting from year-end adjustments; and

         (c)        [Intentionally omitted]; and

         (d) SEC and Other  Reports -  promptly  upon  their  becoming  publicly
available,  one copy of each financial statement,  report,  notice or definitive
proxy statement sent by the Company or any Subsidiary to shareholders generally,
and  of  each  regular  or  periodic  report  and  any  registration  statement,
prospectus or written  communication (other than transmittal letters) in respect
thereof filed by the Company or any of its Subsidiaries with, or received by the
Company or any of its Subsidiaries in connection  therewith from, any securities
exchange or the Securities and Exchange Commission or any successor agency.

         All of the balance sheets and other financial statements referred to in
this  Section9.1  will be in such detail as any Bank may reasonably  request and
will conform to GAAP applied on a basis  consistent  with those of the Financial
Statements as of December31,1998. In addition, if GAAP shall change with respect
to any matter relative to determination  of compliance with this Agreement,  the
Company  will also  provide  financial  information  necessary  for the Banks to
determine compliance with this Agreement.

         9.2        Officers' Certificates.

         (a) Concurrently with the furnishing of the annual financial statements
pursuant to  Subsection9.1(a),  commencing with the annual financial  statements
required  to be  delivered  in 1999,  the  Company  will  furnish or cause to be
furnished to Administrative Agent certificates of compliance, as follows:

                    (i)    a certificate signed by the principal financial
                           officer of the Company in the form of ExhibitD; and

                    (ii)   a certificate from the independent public accountants
                           stating  that  their  audit  has  not  disclosed  the
                           existence  of  any  condition  which   constitutes  a
                           Default,   or  if  their  audit  has   disclosed  the
                           existence  of  any  such  condition,  specifying  the
                           nature and period of existence.

         (b)  Concurrently  with  the  furnishing  of  the  quarterly  financial
statements   pursuant  to   Subsection9.1(b),   the  Company   will  furnish  to
Administrative Agent a principal financial officer's  certificate in the form of
Exhibit D.

                                                        47

<PAGE>

         9.3  Taxes  and Other  Liens.  The  Company  will and will  cause  each
Subsidiary of the Company to pay and discharge  promptly all taxes,  assessments
and governmental  charges or levies imposed upon the Company or such Subsidiary,
or upon the income or any property of the Company or such Subsidiary, as well as
all claims of any kind (including claims for labor,  materials,  supplies,  rent
and  payment of proceeds  attributable  to  Hydrocarbon  production)  which,  if
unpaid,  might result in or become a Lien upon any or all of the property of the
Company or such Subsidiary; provided, however, that neither the Company nor such
Subsidiary  will be required to pay any such tax,  assessment,  charge,  levy or
claims if the  amount,  applicability  or validity  thereof  will  currently  be
contested in good faith by appropriate  proceedings  diligently conducted and if
the Company or such Subsidiary will have set up reserves therefor adequate under
GAAP.

         9.4  Maintenance.  Except as  referred to in  Sections8.1  and 8.13 and
except as  permitted  under  Section  10.4 the Company  will and will cause each
Subsidiary of the Company to: (i)maintain its corporate existence; (ii) maintain
its rights and franchises,  except for any mergers or  consolidations  otherwise
permitted by this  Agreement and except to the extent failure to so maintain the
same would not have a Material Adverse Effect;  (iii) observe and comply (to the
extent that any failure  would have a Material  Adverse  Effect)  with all valid
Legal Requirements  (including without limitation  Requirements of Environmental
Law);  and (iv) maintain  (except to the extent  failure to so maintain the same
would not have a Material  Adverse  Effect) its  properties  (and any properties
leased by or consigned to it or held under title retention or conditional  sales
contracts) consistent with the standards of a reasonably prudent operator at all
times  and  make  all  repairs,   replacements,   additions,   betterments   and
improvements  to its  properties  consistent  with the standards of a reasonably
prudent operator.

         9.5  Further  Assurances.   The  Company  will,  and  will  cause  each
Subsidiary  of the Company to, cure  promptly any defects in the  execution  and
delivery of the Loan  Documents,  including this  Agreement.  The Company at its
expense will promptly execute and deliver to  Administrative  Agent upon request
all such other and further  documents,  agreements and instruments (or cause any
of its Subsidiaries to take such action) in compliance with or accomplishment of
the covenants and  agreements of the Company or any of its  Subsidiaries  in the
Loan  Documents,  including this  Agreement,  or to correct any omissions in the
Loan Documents,  or to make any recordings,  to file any notices,  or obtain any
consents, all as may be necessary or appropriate in connection therewith.

         9.6  Performance  of  Obligations.  The  Company  will  pay  the  Loans
according to the reading,  tenor and effect of this  Agreement;  and the Company
will do and perform every act and discharge all of the  obligations  provided to
be performed and  discharged  by the Company under this  Agreement and the other
Loan Documents at the time or times and in the manner specified,  and cause each
of its Subsidiaries to take such action with respect to their  obligations to be
performed and discharged under the Loan Documents to which they respectively are
parties.

         9.7        Reimbursement of Expenses.  Whether or not any Loan is ever 

made, the Company agrees to pay or reimburse Administrative Agent for paying the
reasonable fees and expenses of

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<PAGE>

Mayer,  Brown  &  Platt,  special  counsel  to the  Agents,  together  with  the
reasonable  fees and  expenses  of  local  counsel  engaged  by the  Agents,  in
connection with the  negotiation of the terms and structure of the  Obligations,
the  preparation,  execution  and delivery of this  Agreement and the other Loan
Documents and the making of the Loans  hereunder,  as well as any  modification,
supplement  or waiver of any of the terms of this  Agreement  and the other Loan
Documents.  The Company  will  promptly  upon request and in any event within 30
days  from  the  date of  receipt  by the  Company  of a copy of a bill for such
amounts,  reimburse any Bank or any Agent for all amounts  reasonably  expended,
advanced or incurred by such Bank or such Agent to satisfy any obligation of the
Company  under  this  Agreement  or any other  Loan  Document,  to  protect  the
properties  or business  of the Company or any  Subsidiary  of the  Company,  to
collect  the  Obligations,  or to enforce  the rights of such Bank or such Agent
under this  Agreement  or any other Loan  Document,  which  amounts will include
without limitation all court costs, attorneys' fees (but not including allocated
costs of in-house counsel), any engineering fees and expenses, fees of auditors,
accountants  and  appraisers,   investigation  expenses,  all  transfer,  stamp,
documentary or similar taxes,  assessments or charges levied by any governmental
or  revenue  authority  in  respect  of any of the Loan  Documents  or any other
document referred to therein, all costs, expenses,  taxes, assessments and other
charges  incurred in  connection  with any filing,  registration,  recording  or
perfection of any lien contemplated by any of the Loan Documents or any document
referred to therein,  fees and expenses  incurred in connection with such Bank's
participation  as a member of a creditors'  committee in a case commenced  under
the  Bankruptcy  Code or other  similar  law of the  United  States or any state
thereof,  fees and expenses  incurred in  connection  with lifting the automatic
stay  prescribed  in ss.362  Title 11 of the United  States  Code,  and fees and
expenses  incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code and all other customary  out-of-pocket  expenses incurred
by such Bank or such  Agent in  connection  with  such  matters,  together  with
interest  after the expiration of the 30-day period stated above in this Section
if no Event of Default has occurred and is  continuing,  or from the date of the
request to the Company if an Event of Default has occurred and is continuing, at
either  (i)  the  Post-Default  Rate on  each  such  amount  until  the  date of
reimbursement  to such Bank or such Agent,  or (ii) if no Event of Default  will
have  occurred  and be  continuing,  the  Alternate  Base Rate plus the  highest
Applicable  Margin for  Alternate  Base Rate  Loans  (not to exceed the  Highest
Lawful  Rate) on each such  amount  until the date of the  Company's  receipt of
written  demand or request by such Bank or such Agent for the  reimbursement  of
same,  and  thereafter  at the  applicable  Post-Default  Rate until the date of
reimbursement  to such Bank or such Agent.  The obligations of the Company under
this Section are compensatory in nature, shall be deemed liquidated as to amount
upon receipt by the Company of a copy of any invoice therefor,  and will survive
the  non-assumption  of this Agreement in a case commenced  under the Bankruptcy
Code or other  similar law of the United States or any state  thereof,  and will
remain  binding on the Company and any trustee,  receiver,  or liquidator of the
Company appointed in any such case.

         9.8 Insurance.  The Company and its  Subsidiaries  will maintain,  with
financially  sound and  reputable  insurers,  insurance  with  respect  to their
respective properties and business against such liabilities,  casualties,  risks
and  contingencies  and in such types and amounts as is customary in the case of
corporations  engaged in the same or similar businesses and similarly  situated.
Upon the  request  of  Administrative  Agent  acting at the  instruction  of the
Majority Banks, the Company will

                                                        49

<PAGE>

furnish or cause to be  furnished  to  Administrative  Agent from time to time a
summary of the insurance  coverage of the Company and its  Subsidiaries  in form
and substance  satisfactory to the Majority Banks in their reasonable  judgment,
and if requested  will  furnish  Administrative  Agent copies of the  applicable
policies.  In the case of any fire,  accident or other casualty  causing loss or
damage to any properties of the Company or any of its Subsidiaries, the proceeds
of such policies will be used (i)to repair or replace the damaged property, (ii)
to prepay the  Obligations,  or (iii) so long as no Default has  occurred and is
continuing, for general corporate purposes, at the election of the Company.

         9.9  Accounts  and  Records.  The Company will keep and will cause each
Subsidiary  of the  Company  to keep books of record and  account  which  fairly
reflect all dealings or transactions in relation to their respective  businesses
and activities,  in accordance with GAAP, which books of record and account will
be maintained,  to the extent necessary to enable compliance with all provisions
of this  Agreement,  separately  for each such  Subsidiary,  the Company and any
division of the Company.

         9.10  Notice of  Certain  Events.  The  Company  will  promptly  notify
Administrative Agent (and Administrative Agent will then notify all of the Banks
and  other  Agents)  if a  Responsible  Officer  of the  Company  learns  of the
occurrence of, or if the Company causes or intends to cause, as the case may be:

                    (i) any event which  constitutes a Default,  together with a
detailed  statement by a  Responsible  Officer of the Company of the steps being
taken to cure the effect of such Default; or

                    (ii) the  receipt of any notice  from,  or the taking of any
other action by, the holder of any promissory note,  debenture or other evidence
of  indebtedness  of the  Company  or any  Subsidiary  of the  Company or of any
security (as defined in the  Securities  Act of 1933, as amended) of the Company
or any  Subsidiary  of the Company with respect to a claimed  default,  together
with a detailed statement by a Responsible Officer of the Company specifying the
notice  given or other action taken by such holder and the nature of the claimed
default and what action the Company or such  Subsidiary is taking or proposes to
take with respect thereto; or

                    (iii)  any  legal,   judicial  or   regulatory   proceedings
affecting the Company or any  Subsidiary of the Company or any of the properties
of the Company or any Subsidiary of the Company in which the amount  involved is
materially  adverse to the Company and its Subsidiaries taken as a whole, and is
not  covered  by  insurance  or which,  if  adversely  determined,  would have a
Material Adverse Effect; or

                    (iv) any dispute  between the Company or any  Subsidiary  of
the  Company  and any  Governmental  Authority  or any other  Person  which,  if
adversely  determined,  could  reasonably be expected to have a Material Adverse
Effect; or

                                                        50

<PAGE>

                    (v) the  occurrence  of a default or event of default by the
Company or any  Subsidiary of the Company under any other  agreement to which it
is a party,  which default or event of default  could  reasonably be expected to
have a Material Adverse Effect; or

                    (vi) any change in the accuracy of the  representations  and
warranties of the Company or any  Subsidiary  contained in this Agreement or any
other Loan Document; or

                    (vii) any material  violation or alleged material  violation
of  any  Requirements  of  Environmental  Law  or  Environmental  Permit  or any
Environmental Claim or any Environmental Liability; or

                    (viii) any tariff and rate cases and other material  reports
filed by the Company or any of its Subsidiaries with any Governmental  Authority
and any notice to the Company or any of its  Subsidiaries  from any Governmental
Authority concerning noncompliance with any applicable Legal Requirement; or

                    (ix)  within 10 days  after the date on which a  Responsible
Officer of the Company has actual knowledge  thereof,  the receipt of any notice
by the Company or any of its  Subsidiaries of any claim of nonpayment of, or any
attempt to collect or  enforce,  accounts  payable of the  Company or any of its
Subsidiaries  exceeding,  in the  case of any one  account  payable  at one time
outstanding, $5,000,000 and in the case of all accounts payable in the aggregate
at any one time outstanding, $10,000,000; or

                    (x) any requirement for the payment of all or any portion of
any Indebtedness of the Company or any of its  Subsidiaries  prior to the stated
maturity  thereof (whether by acceleration or otherwise) or as the result of any
failure to maintain  or the  reaching of any  threshold  amount  provided in any
promissory note, bond, debenture, or other evidence of Indebtedness or under any
credit agreement,  loan agreement,  indenture or similar  agreement  executed in
connection with any of the foregoing; or

                    (xi) any notice from the Securities and Exchange  Commission
with respect to any Application (as defined in Section 8.18 hereof).

         9.11 ERISA  Information  and  Compliance.  The  Company  will  promptly
furnish to  Administrative  Agent (i)  immediately  upon receipt,  a copy of any
notice of complete or partial  withdrawal  liability under Title IV of ERISA and
any notice  from the PBGC under Title IV of ERISA of an intent to  terminate  or
appoint a trustee to administer  any Plan,  (ii) if requested by  Administrative
Agent,  acting on the  instruction  of the Majority  Banks,  promptly  after the
filing  thereof  with the United  States  Secretary  of Labor or the PBGC or the
Internal Revenue Service, copies of each annual and other report with respect to
each Plan or any trust created thereunder,  (iii)immediately upon becoming aware
of the occurrence of any "reportable  event", as such term is defined in Section
4043 of ERISA, for which the disclosure requirements of Regulation Section2615.3
promulgated  by  the  PBGC  have  not  been  waived,   or  of  any   "prohibited
transaction",

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as such term is defined in Section 4975 of the Code, in connection with any Plan
or any trust created thereunder, a written notice signed by the President or the
principal  financial  officer of the Company or the applicable  ERISA  Affiliate
specifying the nature thereof,  what action the Company or the applicable  ERISA
Affiliate is taking or proposes to take with respect  thereto,  and, when known,
any action taken by the PBGC, the Internal  Revenue Service or the Department of
Labor with respect thereto,  (iv) promptly after the filing or receiving thereof
by the Company or any ERISA  Affiliate of any notice of the  institution  of any
proceedings  or other actions which may result in the  termination  of any Plan,
and (v) each  request for waiver of the funding  standards  or  extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code  promptly  after the request is  submitted  by the Company or any ERISA
Affiliate  to the  Secretary of the  Treasury,  the  Department  of Labor or the
Internal  Revenue  Service,  as the case may be. To the  extent  required  under
applicable statutory funding requirements,  the Company will fund, or will cause
each ERISA Affiliate to fund, all current  service  pension  liabilities as they
are incurred under the provisions of all Plans from time to time in effect,  and
comply with all  applicable  provisions of ERISA,  except to the extent that any
such  failure to comply  could not  reasonably  be  expected  to have a Material
Adverse Effect.  The Company  covenants that it shall and shall cause each ERISA
Affiliate to (1) make  contributions  to each Plan in a timely  manner and in an
amount  sufficient to comply with the contribution  obligations  under such Plan
and the minimum funding standards requirements of ERISA; (2) prepare and file in
a timely  manner  all  notices  and  reports  required  under the terms of ERISA
including but not limited to annual reports;  and (3) pay in a timely manner all
required PBGC premiums,  in each case, to the extent failure to do so would have
a Material Adverse Effect.

         Section 10. Negative Covenants. A deviation from the provisions of this
Section10  will not  constitute a Default under this Agreement if such deviation
is consented to in writing by the Majority  Banks.  The Company  agrees with the
Banks and the Agents that,  so long as any of the  Commitments  is in effect and
until payment in full of all Obligations:

         10.1       Debts, Guaranties and Other Obligations.

         (i) Of Restricted Subsidiaries.  The Company will not permit any of its
Restricted  Subsidiaries to incur, create,  assume or in any manner become or be
liable in respect of any Indebtedness  (including obligations for the payment of
rentals); and the Company will not permit any of its Restricted  Subsidiaries to
Guarantee or otherwise in any way become or be  responsible  for  obligations of
any other Person, whether by agreement to purchase the Indebtedness of any other
Person or agreement for the  furnishing of funds to any other Person through the
purchase or lease of goods,  supplies or services (or by way of stock  purchase,
capital contribution,  advance or loan) for the purpose of paying or discharging
the  Indebtedness of any other Person,  or otherwise,  except that the foregoing
restrictions will not apply to:

         (a)        Indebtedness  pursuant to (1) the Loan Documents and (2) the
                    Revolving Credit Agreement and the "Loan Documents" referred
                    to therein;

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         (b)        Indebtedness of any Restricted Subsidiary existing on the
                    date of this Agreement which is described in the 
                    Disclosure Statement, and (A)with respect to any such
                    Indebtedness which constitutes Senior Debt, any
                    extensions, renewals or replacements of such Indebtedness
                    upon terms no more onerous to such Restricted Subsidiary
                    than the terms of this Agreement or the terms of the
                    instruments evidencing such Senior Debt as of the 
                    effective date of this Agreement, and (B) with respect to 
                    any such Indebtedness which constitutes Subordinated
                    Indebtedness, any extensions, renewals or replacements of
                    such Indebtedness which (I) remains Subordinated
                    Indebtedness and (II) does not require principal
                    repayment of such Subordinated Indebtedness prior to the
                    then scheduled Stated Maturity Date;

         (c)        endorsements  of  negotiable  or  similar   instruments  for
                    collection or deposit in the ordinary course of business;

         (d)        trade payables, lease acquisition and lease maintenance 
                    obligations, extensions of credit from suppliers or 
                    contractors, liabilities incurred in exploration, 
                    development and operation of any Restricted Subsidiary's oil
                    and gas properties or similar obligations from time to
                    time incurred in the ordinary course of business, other than
                    for borrowed money, which are paid within 90 days after the 
                    invoice date (inclusive of applicable grace periods) or
                    (i) are being contested in good faith, if such reserve
                    as required by GAAP has been made therefor or (ii) trade
                    accounts payable of any Restricted Subsidiaries (with
                    respect to which no legal proceeding to enforce
                    collection has been commenced or, to the knowledge of any
                    Responsible Officer of the Company, threatened) not
                    exceeding, in the aggregate at any time outstanding,
                    $50,000,000;

         (e)        taxes, assessments or other government charges which are not
                    yet due or are being  contested in good faith by appropriate
                    action promptly initiated and diligently conducted,  if such
                    reserve  as will be  required  by GAAP  will  have been made
                    therefor;

         (f)        intercompany   Indebtedness  owed  to  the  Company  by  any
                    Restricted Subsidiary and intercompany  Indebtedness owed to
                    any   Restricted   Subsidiary   by  any   other   Restricted
                    Subsidiary;

         (g)        any  Guarantee  existing  on the date of this  Agreement  of
                    payment or  performance by any Person under any agreement so
                    long  as  the  obligation  guaranteed  does  not  constitute
                    Indebtedness for borrowed money;

         (h)        obligations of any Restricted  Subsidiary under gas purchase
                    contracts  for gas not taken,  as to which  such  Restricted
                    Subsidiary is liable to pay if not made up;

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<PAGE>

         (i)        obligations of any Restricted  Subsidiary under any contract
                    for sale for future  delivery of oil or gas  (whether or not
                    the subject oil or gas is to be  delivered) or other similar
                    agreement;

         (j)        obligations of any Restricted  Subsidiary  under any hedging
                    contract, forward contract, swap agreement, futures contract
                    or other similar agreement;

         (k)        obligations of any Restricted  Subsidiary under any interest
                    rate  or   currency   swap   agreement,   or  any   contract
                    implementing  any interest rate or currency  cap,  collar or
                    floor,  or any similar  interest  rate or  currency  hedging
                    contract;

         (l)        obligations in connection with gas imbalances arising in the
                    ordinary course of business;

         (m)        Guarantees of obligations of Havre by Guarantor in an amount
                    not  exceeding  $20,000,000  in the  aggregate in connection
                    with Indebtedness of Havre;

         (n)        liabilities  under capital leases and lease agreements which
                    do not cover oil and gas  properties  to the  extent (i) the
                    incurrence  and  existence  of such  liabilities  will still
                    enable  each  Restricted   Subsidiary  to  comply  with  all
                    requirements  of this Agreement and (ii) not  exceeding,  in
                    the aggregate at any time outstanding, $35,000,000;

         (o)        until such time as the  Guaranty  Agreement  is no longer in
                    effect,  any  Guarantee  by  Guarantor  of  the  payment  or
                    performance of the Company with respect to  Indebtedness  of
                    Company permitted by Section 10.1(iii);

         (p)        obligations  in  connection  with  bank  guarantees,  bonds,
                    surety or  similar  obligations  required  or  requested  by
                    Governmental  Authorities  in connection  with the usual and
                    customary  operation  of and  the  obtaining  of oil and gas
                    properties; and

         (q)        in addition to Indebtedness permitted by clauses (a) through
                    (p) above,  Indebtedness of any Restricted  Subsidiary in an
                    aggregate principal amount not exceeding  $10,000,000 at any
                    time outstanding.

         (ii) Of Unrestricted  Subsidiaries.  The Company will not permit any of
its  Unrestricted  Subsidiaries  to (a) incur,  create,  assume or in any manner
become or be liable in respect of any  Indebtedness  (including  obligations for
the payment of rentals),  or (b)  Guarantee or otherwise in any way become or be
responsible  for  obligations  of any other  Person,  whether  by  agreement  to
purchase the Indebtedness of any other Person or agreement for the furnishing of
funds to any other Person  through the  purchase or lease of goods,  supplies or
services (or by way of stock purchase,  capital  contribution,  advance or loan)
for the purpose of paying or discharging the Indebtedness of

                                                        54

<PAGE>

any other Person, or otherwise,  except that the foregoing restrictions will not
apply to any  Indebtedness  not exceeding  $200,000,000 in the aggregate for all
Unrestricted Subsidiaries.

         (iii) Of the Company.  The Company may incur  Indebtedness for borrowed
money only if such  Indebtedness  is at prevailing  market rates of interest and
contains covenants, conditions and events of default not materially more onerous
to the Company than the covenants,  conditions and event of default set forth in
one or more of the various  indentures and other debt instruments of the Company
in existence on the Effective Date.

         10.2  Liens.  The  Company  will  not and will  not  permit  any of its
Restricted  Subsidiaries to create, incur, assume or permit to exist any Lien on
any of its or their properties (now owned or hereafter acquired), except:

         (a)        Liens securing (i) the Loans or other  obligations under the
                    Loan  Documents,  and (ii) the  "Loans"  (as  defined in the
                    Revolving Credit  Agreement) and other obligations under the
                    Revolving Credit Agreement and the "Loan Documents" referred
                    to therein,  provided  that such Liens (A) are for the equal
                    and  ratable  benefit of the Agents and the Banks under each
                    of this Agreement and the Revolving Credit Agreement and (B)
                    cover the same collateral;

         (b)        Liens for taxes,  assessments or other governmental  charges
                    or levies not yet due or which are being  contested  in good
                    faith  by   appropriate   action   promptly   initiated  and
                    diligently conducted, if such reserve as will be required by
                    GAAP will have been made therefor;

         (c)        Liens of landlords,  vendors,  contractors,  subcontractors,
                    carriers,  warehousemen,  mechanics, laborers or materialmen
                    or  other  like  Liens  arising  by law or  contract  in the
                    ordinary  course of  business  for sums not yet due or being
                    contested  in good  faith  by  appropriate  action  promptly
                    initiated and diligently conducted,  if such reserve as will
                    be required by GAAP will have been made therefor;

         (d)        Liens  existing on  property  owned by the Company or any of
                    its  Restricted  Subsidiaries  on the date of this Agreement
                    which  have been  disclosed  to the Banks in the  Disclosure
                    Statement,   together   with   any   renewals,   extensions,
                    amendments,  refinancings,  rearrangements,   modifications,
                    restatements or supplements, but not increases, thereof from
                    time to time;

         (e)        pledges or deposits made in the ordinary  course of business
                    in  connection  with  worker's  compensation,   unemployment
                    insurance, social security and other like laws;

         (f)        inchoate  liens arising under ERISA to secure the contingent
                    liability of the Company permitted by Section9.11;

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<PAGE>

         (g)        Liens in the ordinary  course of business,  not to exceed in
                    the  aggregate   $25,000,000  as  to  the  Company  and  its
                    Restricted Subsidiaries at any time in effect, regarding (i)
                    the performance of bids, tenders,  contracts (other than for
                    the  repayment of borrowed  money or the  deferred  purchase
                    price of property or  services)  or leases,  (ii)  statutory
                    obligations,  (iii)  surety  appeal  bonds or (iv)  Liens to
                    secure  progress or partial  payments made to the Company or
                    any of its Restricted  Subsidiaries  and other Liens of like
                    nature;

         (h)        covenants,  restrictions,  easements,  servitudes,  permits,
                    conditions,  exceptions,  reservations,  minor rights, minor
                    encumbrances,  minor irregularities in title or conventional
                    rights of  reassignment  prior to  abandonment  which do not
                    materially interfere with the occupation,  use and enjoyment
                    by  the  Company  or  any   Restricted   Subsidiary  of  its
                    respective  assets  in the  normal  course  of  business  as
                    presently conducted,  or materially impair the value thereof
                    for the purpose of such business;

         (i)        Liens of  operators  under  joint  operating  agreements  or
                    similar   contractual   arrangements  with  respect  to  the
                    relevant  entity's  proportionate  share of the  expense  of
                    exploration,  development  and  operation  of  oil,  gas and
                    mineral  leasehold  or  fee  interests  owned  jointly  with
                    others,  to the extent  that same relate to sums not yet due
                    or which are being  contested  in good faith by  appropriate
                    action promptly initiated and diligently conducted,  if such
                    reserve  as will be  required  by GAAP  will  have been made
                    therefor;

         (j)        Liens  created  pursuant to the  creation of trusts or other
                    arrangements  funded solely with cash,  cash  equivalents or
                    other  marketable  investments  or  securities  of the  type
                    customarily   subject  to  such  arrangements  in  customary
                    financial  practice with respect to long-term or medium-term
                    indebtedness  for borrowed money,  the sole purpose of which
                    is to make  provision  for  the  retirement  or  defeasance,
                    without   prepayment,   of   Indebtedness   permitted  under
                    Section10.1;

         (k)        Liens in favor of the Company on the assets or properties of
                    ENSTAR Alaska;

         (l)        Liens securing purchase money  Indebtedness or Capital Lease
                    Obligations incurred in compliance with Section 10.1 of this
                    Agreement;

         (m)        Liens on the capital  stock or other equity  interest of any
                    Unrestricted   Subsidiary   securing   obligations  of  such
                    Unrestricted Subsidiary;

         (n)        any Lien  existing on any real or  personal  property of any
                    corporation   or  partnership  at  the  time  it  becomes  a
                    Restricted Subsidiary or of any other Restricted Subsidiary,
                    or existing prior to the time of  acquisition  upon any real
                    or personal  property  acquired by the Company or any of its
                    Restricted Subsidiaries;

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<PAGE>

         (o)        legal or equitable encumbrances deemed to exist by reason of
                    the existence of any litigation or other legal proceeding or
                    arising out of a judgment or award with  respect to which an
                    appeal  is being  prosecuted  in good  faith by  appropriate
                    action promptly initiated and diligently conducted,  if such
                    reserve  as will be  required  by GAAP  will  have been made
                    therefor;

         (p)        any Liens securing Indebtedness neither assumed nor 
                    guaranteed by the Company or any of its Restricted
                    Subsidiaries nor on which it customarily pays interest,
                    existing upon real estate or rights in or relating to 
                    real estate acquired by the Company or any of its
                    Restricted Subsidiaries for substation, metering station,
                    pump station, storage, gathering line, transmission line,
                    transportation line, distribution line or right-of-way
                    purposes, and any Liens reserved in leases for rent
                    and full compliance with the terms of the leases in the
                    case of leasehold estates, to the extent that any such
                    Lien referred to in this clause arises in the normal course
                    of business as presently conducted and does not materially 
                    impair the use of the property covered by such Lien for the 
                    purposes for which such property is held by the Company
                    or its applicable Restricted Subsidiary;

         (q)        rights  reserved  to  or  vested  in  any   municipality  or
                    governmental,  statutory or public authority by the terms of
                    any right, power, franchise, grant, license or permit, or by
                    any  provision  of law,  to  terminate  such  right,  power,
                    franchise, grant, license or permit or to purchase, condemn,
                    expropriate  or recapture or to designate a purchaser of any
                    of the  property  of the  Company  or any of its  Restricted
                    Subsidiaries;

         (r)        rights  reserved  to  or  vested  in  any   municipality  or
                    governmental,  statutory  or public  authority to control or
                    regulate   any  property  of  the  Company  or  any  of  its
                    Restricted Subsidiaries, or to use such property in a manner
                    which does not  materially  impair the use of such  property
                    for the  purposes for which it is held by the Company or its
                    applicable Restricted Subsidiary;

         (s)        any  obligations  or duties  affecting  the  property of the
                    Company  or  any  of  its  Restricted  Subsidiaries  to  any
                    municipality,  governmental,  statutory or public  authority
                    with respect to any franchise, grant, license or permit;

         (t)        rights of a common  owner of any  interest  in real  estate,
                    rights-of-way or easements held by the Company or any of its
                    Restricted  Subsidiaries and such common owner as tenants in
                    common or through other common ownership;

         (u)        as to assets located in Canada,  reservations,  limitations,
                    provisos and conditions in any original grant from the Crown
                    or freehold  lessor of any of the  properties of the Company
                    or its Subsidiaries;

                                                        57

<PAGE>

         (v)        other Liens  securing  Indebtedness  not  exceeding,  in the
                    aggregate, $10,000,000 at any one time outstanding;

         (w)        Liens  covering  cash   collateral   accounts   relating  to
                    obligations   pursuant  to  Letters  of  Credit   issued  in
                    connection with the Revolving Credit Agreement;

         (x)        Liens securing Indebtedness of the Company or any Restricted
                    Subsidiary  of the types  described  in  Section  10.1(i)(p)
                    covering   the  oil  and  gas   properties   to  which  such
                    Indebtedness relates,  provided that the aggregate amount of
                    all such  Indebtedness so secured under this  Section10.2(x)
                    shall not exceed  $50,000,000  in the  aggregate  at any one
                    time outstanding; and

         (y)        Liens (i) granted to or existing in favor of third parties 
                    on margin accounts of the Company or any of its 
                    Restricted Subsidiaries relating to exchange traded 
                    contracts for the delivery of natural gas pursuant to 
                    which the Company or any such Restricted Subsidiary 
                    intends to take actual delivery of such natural gas within 
                    forty (40) days from the then current date in the ordinary 
                    course of business and not for speculative purposes, and
                    (ii) on margin accounts of the Company or any of its
                    Restricted Subsidiaries relating to exchange traded 
                    contracts for the delivery of natural gas, provided,
                    however, the aggregate balance of the margin accounts
                    subject to the Liens permitted by this clause (ii) shall not
                    exceed from time to time $10,000,000.

         10.3  Dividend  Payment  Restrictions.  The Company will not declare or
make any Dividend Payment if any Default or Event of Default has occurred and is
continuing or would result therefrom.

         10.4  Mergers  and Sales of  Assets.  Except  for  sales of the  assets
described in the Disclosure Statement (the "Specified Assets"), the Company will
not (a) merge or consolidate with, or sell,  assign,  lease or otherwise dispose
of, whether in one transaction or in a series of transactions, more than (i) ten
percent (10%) in the aggregate (not including Specified Assets) of the Company's
and its Restricted Subsidiaries' consolidated total assets (whether now owned or
hereafter  acquired) to any Person or Persons  during any twelve month period or
(ii) twenty-five percent (25%) in the aggregate (not including Specified Assets)
of the Company's and its Restricted  Subsidiaries'  consolidated total assets as
of the date hereof to any Person or Persons prior to the Stated  Maturity  Date,
or permit  any  Restricted  Subsidiary  to do so (other  than to the  Company or
another  Restricted  Subsidiary or the issuance by any Restricted  Subsidiary of
any stock to the Company or another Restricted Subsidiary), or (b) sell, assign,
lease or  otherwise  dispose of,  whether in one  transaction  or in a series of
transactions,  any other properties if receiving  therefor  consideration  other
than cash or other  consideration  readily  convertible to cash or which is less
than the fair market value of the relevant properties,  or permit any Restricted
Subsidiary to do so; provided that the Company or any Restricted  Subsidiary may
merge or  consolidate  with any other Person and any  Restricted  Subsidiary may
transfer properties to any other Restricted Subsidiary or to the Company so long
as, in each

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<PAGE>

case, (i) immediately  thereafter and giving effect thereto, no event will occur
and be  continuing  which  constitutes  a Default,  (ii) in the case of any such
merger or  consolidation  to which the  Company is a party,  the  Company is the
surviving Person, (iii) in the case of any such merger or consolidation to which
any Restricted Subsidiary is a party (but not the Company),  after giving effect
to  all   transactions   closing   concurrently   relating  to  such  merger  or
consolidation,  the  surviving  Person is a Restricted  Subsidiary  and (iv) the
surviving  Person ratifies each  applicable  Loan Document and provided  further
that  any  Restricted  Subsidiary  may  merge  or  consolidate  with  any  other
Restricted  Subsidiary so long as, in each case (i)  immediately  thereafter and
giving effect thereto, no event will occur and be continuing which constitutes a
Default and (ii) the surviving Person ratifies each applicable Loan Document.

         10.5 Proceeds of Loans. The Company will not permit the proceeds of the
Loans to be used for any purpose other than those permitted by this Agreement.

         10.6 ERISA Compliance. The Company will not at any time permit any Plan
maintained by it or any Restricted Subsidiary to:

         (a)        engage in any "prohibited transaction" as such term is 
                    defined in Section 4975 of the Code;

         (b)        incur any "accumulated  funding  deficiency" as such term is
                    defined in Section 302 of ERISA; or

         (c)        terminate or be terminated in a manner which could result in
                    the  imposition  of a Lien on the property of the Company or
                    any Restricted Subsidiary pursuant to Section 4068 of ERISA,

in each  case,  to the  extent  that  permitting  the Plan to do so would have a
Material Adverse Effect.

         10.7  Total  Leverage  Ratio.  The  Company  will not  permit its Total
Leverage  Ratio to be (i) at any time through March 31, 2001,  more than 4.25 to
1.00, (ii) at any time from April 1, 2001 through March 31, 2002, more than 4.00
to 1.00, (iii) at any time on or after April 1, 2002, more than 3.75 to 1.00.

         10.8       Senior Leverage Ratio.  The Company will not permit its 
Senior Leverage Ratio to be at any time more than 3.00 to 1.00.

         10.9 Minimum Net Worth.  The Company  will not permit its  Consolidated
Net Worth as of the end of any fiscal  quarter  to be less than  (i)$770,000,000
plus (ii)an amount equal to 50% of the sum of the  Company's and its  Restricted
Subsidiaries'  consolidated net income for each calendar quarter, beginning with
the calendar quarter ending March 31, 1999,  during which such  consolidated net
income is  greater  than $0 plus  (iii) an  amount  equal to 50% of the net cash
proceeds  received  by the  Company  and its  Restricted  Subsidiaries  from the
issuance of any common stock,

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<PAGE>

preferred  stock or other equity for each calendar  quarter,  beginning with the
calendar quarter ending March 31, 1999.

         10.10 Nature of Business.  The Company will not engage in, and will not
permit any Restricted Subsidiary to engage in, businesses other than oil and gas
exploration  and  production,   gas  processing,   transmission,   distribution,
marketing and storage and gas and liquids  pipeline  operations  and  activities
related or ancillary thereto; provided, that if the Company acquires one or more
Restricted Subsidiaries in transactions otherwise permitted by the terms hereof,
any such  Restricted  Subsidiary  may be engaged in businesses  other than those
listed in this  Section  so long as the assets of such  Restricted  Subsidiaries
which are used in the conduct of such other  businesses do not  constitute  more
than  five  percent  (5%)  of the  consolidated  total  assets  of  the  Company
(inclusive of the assets of the Restricted Subsidiary so acquired).

         10.11 Covenants in Other Agreements.  The Company will not and will not
permit any of its Restricted  Subsidiaries to become a party to or to agree that
it or any of its property is bound by any agreement,  indenture,  mortgage, deed
of trust or any other  instrument  ("Instruments")  directly or  indirectly  (i)
restricting any loans, advances or any other Investments to or in the Company by
any  of  its  Restricted  Subsidiaries,  (ii)  restricting  the  ability  of any
Restricted  Subsidiary  to make tax payments or  management  fee payments to the
Company,  or  (iii)  restricting  the  ability  or  capacity  of any  Restricted
Subsidiary to make Dividend Payments to the Company,  except for (a) instruments
in existence on the date hereof and (b) instruments  entered into after the date
hereof  containing   restrictions  not  materially  more  restrictive  than  the
restrictions permitted under clause (a) above.

         Section 11.       Defaults.

         11.1 Events of Default.  If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:

         (a)  Payments - (i) the  Company or any other  Relevant  Party fails to
make any payment or  prepayment  of any  installment  of  principal on the Loans
payable under this  Agreement or the other Loan  Documents  when due or (ii) the
Company or any other  Relevant  Party fails to make any payment or prepayment of
interest with respect to the Loans or any other fee, amount or Obligation  under
this  Agreement or the other Loan  Documents  and such failure to pay  continues
unremedied for a period of five (5) Business Days; or

         (b)  Representations  and Warranties - any  representation  or warranty
made by the  Company or any other  Relevant  Party in this  Agreement  or in any
other Loan  Document or in any  instrument  executed in  connection  herewith or
therewith  proves to have been incorrect in any material  respect as of the date
thereof;  or any representation,  statement  (including  Financial  Statements),
certificate or data furnished or made by the Company or any other Relevant Party
(or any  officer  of the  Company  or any  other  Relevant  Party)  under  or in
connection  with this  Agreement or any other Loan Document,  including  without
limitation in the Disclosure Statement, proves to

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have been untrue in any material respect, as of the date as of which the facts 
therein set forth were stated or certified; or

         (c)  Affirmative  Covenants  - (i)  default  shall  be  made in the due
observance or  performance  of any of the  covenants or agreements  contained in
Sections9.10 (or in Section9.6 to the extent such default is considered an Event
of Default under the other  Subsections of this  Section11.1) or (ii) default is
made in the due  observance  or  performance  of any of the other  covenants  or
agreements  contained  in Section9 of this  Agreement  or any other  affirmative
covenant of the Company or any other Relevant Party  contained in this Agreement
or any other Loan Document and such default continues unremedied for a period of
30 days after (x) notice thereof is given by Administrative Agent to the Company
or (y) such  default  otherwise  becomes  known  to the  Company,  whichever  is
earlier; or

         (d)  Negative  Covenants  - default  is made in the due  observance  or
performance  by the Company of any of the covenants or  agreements  contained in
Section10 of this Agreement or of any other negative  covenant of the Company or
any other Relevant Party contained in this Agreement or any other Loan Document;
or

         (e)  Other  Obligations  -  default  is made in the due  observance  or
performance by the Company or any of its Restricted  Subsidiaries  (as principal
or guarantor or other surety) of any of the covenants or agreements contained in
any  bond,  debenture,  note or other  evidence  of  Indebtedness  in  excess of
$25,000,000  (singly or  aggregating  several such bonds,  debentures,  notes or
other  evidence of  Indebtedness)  which  default  gives the holder the right to
accelerate the maturity of such Indebtedness,  other than the Loan Documents, or
under any  credit  agreement,  loan  agreement,  indenture,  promissory  note or
similar  agreement  or  instrument  executed  in  connection  with  any  of  the
foregoing, to which it (respectively) is a party and such default is unwaived or
continues  unremedied beyond the expiration of any applicable grace period which
may be expressly allowed under such instrument or agreement; or

         (f) Involuntary  Bankruptcy or  Receivership  Proceedings - a receiver,
conservator, liquidator or trustee of the Company, the Guarantor, any Restricted
Subsidiary  or of any of their  property is  appointed by the order or decree of
any court or agency  or  supervisory  authority  having  jurisdiction,  and such
decree or order  remains in effect for more than 60 days;  or the  Company,  the
Guarantor or any Restricted Subsidiary is adjudicated bankrupt or insolvent;  or
any of its  property is  sequestered  by court  order and such order  remains in
effect for more than 60 days;  or a petition is filed  against the Company,  the
Guarantor or any Restricted  Subsidiary  under any state or federal  bankruptcy,
reorganization,  arrangement,  insolvency,  readjustment  of debt,  dissolution,
liquidation or receivership law of any jurisdiction, whether now or hereafter in
effect, and is not dismissed within 60 days after such filing; or

         (g) Voluntary Petitions or Consents - the Company, the Guarantor or any
Restricted  Subsidiary  commences a voluntary case or other  proceeding  seeking
liquidation,  reorganization,  arrangement,  insolvency,  readjustment  of debt,
dissolution, liquidation or other relief with respect

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to itself or its debt or other liabilities  under any bankruptcy,  insolvency or
other  similar law nor or  hereafter in effect or seeking the  appointment  of a
trustee, receiver, liquidator,  custodian or other similar official of it or any
substantial  part of its  property,  or  consents  to any such  relief or to the
appointment of or taking  possession by any such official in an involuntary case
or other proceeding  commenced against it, or fails generally to, or cannot, pay
its  debts  generally  as they  become  due or takes  any  corporate  action  to
authorize or effect any of the foregoing; or

         (h)  Assignments  for Benefit of Creditors or  Admissions of Insolvency
the Company, the Guarantor or any Restricted  Subsidiary makes an assignment for
the  benefit of its  creditors,  or admits in writing its  inability  to pay its
debts  generally  as they  become  due,  or  consents  to the  appointment  of a
receiver,  trustee, or liquidator of the Company, the Guarantor,  any Restricted
Subsidiary or of all or any part of their property; or

         (i)  Undischarged  Judgments  -  judgments   (individually  or  in  the
aggregate)  for the  payment  of money in  excess  of  $10,000,000  in excess of
insurance  coverage are rendered by any court or other governmental body against
the  Company or any of its  Restricted  Subsidiaries  or the  Guarantor  and the
Company or such  Restricted  Subsidiary or the Guarantor  does not discharge the
same or provide for its  discharge in  accordance  with its terms,  or procure a
stay of execution  thereof  within 60 days from the date of entry  thereof,  and
within  said  period of 60 days from the date of entry  thereof  or such  longer
period  during which  execution  of such  judgment  will have been  stayed,  the
Company,  such Restricted  Subsidiary or the Guarantor fails to appeal therefrom
and cause the execution  thereof to be stayed during such appeal while providing
such reserves therefor as may be required under GAAP; or

         (j) Subsidiary Defaults - the Guarantor or any Restricted Subsidiary of
the Company takes,  suffers, or permits to exist any of the events or conditions
referred to in Subsections11.1(f), (g) or (h); or

         (k) Change in Control - there should occur any Change of Control.

THEREUPON:  Administrative  Agent may (and,  if directed by the Majority  Banks,
shall) (a) declare the Commitments  terminated  (whereupon the Commitments shall
be terminated)  and/or (b) declare the principal  amount then outstanding of and
the accrued  interest on the Loans and all fees and all other  Obligations to be
forthwith  due  and  payable,   whereupon  such  amounts  shall  be  and  become
immediately due and payable, without notice (including without limitation notice
of  acceleration  and  notice  of intent to  accelerate),  presentment,  demand,
protest or other  formalities  of any kind,  all of which are  hereby  expressly
waived by the Company;  provided that in the case of the  occurrence of an Event
of Default with respect to the Company  referred to in clause (f) or (g) of this
Section  11.1 or in  clause(j)  of this  Section11.1  to the extent it refers to
clauses(f) or (g), the  Commitments  shall be  automatically  terminated and the
principal  amount then  outstanding of and the accrued interest on the Loans and
all  fees and all  other  Obligations  payable  hereunder  shall  be and  become
automatically and immediately due and payable, without notice (including but not
limited  to notice  of intent to  accelerate  and  notice of  acceleration)  and
without presentment, demand, protest or other

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formalities of any kind, all of which are hereby expressly waived by the Company
and/or  (d)exercise  any and all  other  rights  available  to it under the Loan
Documents, at law or in equity.

         11.2       [Intentionally omitted].

         11.3       [Intentionally omitted].

         11.4  Right  of  Setoff.   Upon  (i)  the  occurrence  and  during  the
continuance  of any Event of Default  referred to in clauses  (f), (g) or (h) of
Section11.1,  or in clause (j) of Section11.1 to the extent it refers to clauses
(f), (g) or (h), or upon (ii) the occurrence and  continuance of any other Event
of  Default  and upon the  making of the  notice  specified  in  Section11.1  to
authorize  Administrative Agent to declare the Loans due and payable pursuant to
the  provisions  of  this  Agreement,  or if  (iii)  the  Company  or any of its
Subsidiaries  becomes  insolvent,   however  evidenced,  the  Banks  are  hereby
authorized at any time and from time to time,  without  notice to the Company or
any of its  Subsidiaries  (any such notice being expressly waived by the Company
and its  Subsidiaries),  to setoff and apply any and all  deposits  (general  or
special,  time or  demand,  provisional  or final,  whether  or not such  setoff
results  in any  loss of  interest  or  other  penalty,  and  including  without
limitation all certificates of deposit) at any time held, and any other funds or
property at any time held, and other  Indebtedness at any time owing by any Bank
to or for the credit or the  account of the  Company  against any and all of the
Obligations  irrespective  of whether or not such Bank will have made any demand
under this Agreement and although such obligations may be unmatured.  Should the
right of any Bank to  realize  funds in any  manner  set  forth  hereinabove  be
challenged and any application of such funds be reversed, whether by court order
or otherwise, the Banks shall make restitution or refund to the Company pro rata
in accordance  with their  Commitments.  The Banks agree  promptly to notify the
Company and Administrative Agent after any such setoff and application, provided
that the failure to give such notice will not affect the validity of such setoff
and  application.  The rights of the Agents and the Banks under this Section are
in addition to other rights and remedies  (including  without  limitation  other
rights of setoff) which the Agents or the Banks may have.

         Section 12.       Agents.

         12.1 Appointment,  Powers and Immunities.  Each Bank hereby irrevocably
appoints and authorizes  each Agent to act as its agent  hereunder and under the
other Loan  Documents  with such powers as are  specifically  delegated  to such
Agent by the terms  hereof and thereof,  together  with such other powers as are
reasonably incidental thereto. Each Agent (which term as used in this Section 12
shall  include  reference to its  affiliates  and its own and their  affiliates'
officers,  directors,  employees  and  agents)  shall not (a) have any duties or
responsibilities  except those  expressly  set forth in this  Agreement  and the
other Loan  Documents,  or shall by reason of this  Agreement  or any other Loan
Document be a trustee or fiduciary for any Bank;  (b) be responsible to any Bank
for any recitals,  statements,  representations or warranties  contained in this
Agreement or any other Loan  Document,  or in any  certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or any other Loan Document, or for the value, validity, effectiveness,

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genuineness,  enforceability  or sufficiency of this Agreement or any other Loan
Document or any other document  referred to or provided for herein or therein or
any property  covered  thereby or for any failure by any  Relevant  Party or any
other Person to perform any of its obligations  hereunder or thereunder;  (c) be
required  to  initiate  or conduct  any  litigation  or  collection  proceedings
hereunder  or any other  Loan  Document  except to the  extent  such Agent is so
requested by the Majority  Banks,  or (d) be responsible for any action taken or
omitted  to be taken by it  hereunder  or any other Loan  Document  or any other
document  or  instrument  referred  to or  provided  for herein or therein or in
connection herewith or therewith,  INCLUDING,  WITHOUT  LIMITATION,  PURSUANT TO
THEIR OWN NEGLIGENCE, except for its own gross negligence or willful misconduct.
Each Agent may employ agents and  attorneys-in-fact and shall not be responsible
for the  negligence  or  misconduct  of any  such  agents  or  attorneys-in-fact
selected by it with reasonable  care. In any foreclosure  proceeding  concerning
any  collateral  for the Loans,  each  holder of a Loan if  bidding  for its own
account or for its own  account and the  accounts  of other Banks is  prohibited
from  including  in the  amount of its bid an amount to be  applied  as a credit
against  Obligations  owing to such Bank or the  Obligations  owing to the other
Banks;  instead, such holder must bid in cash only; provided that this provision
is for the sole  benefit  of the Agents and the Banks and shall not inure to the
benefit  of  the  Company  or  any of its  Subsidiaries.  However,  in any  such
foreclosure proceeding, Administrative Agent may (but shall not be obligated to)
submit a bid for all Banks  (including  itself) in the form of a credit  against
the Obligations of all of the Banks,  and  Administrative  Agent or its designee
may (but shall not be obligated to) accept title to such  collateral  for and on
behalf of all Banks.

         12.2 Reliance by Agents.  Each Agent shall be entitled to rely upon any
certification,   notice  or  other  communication   (including  any  thereof  by
telephone,  telex,  telegram or cable)  believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and  statements of legal  counsel  (which may be counsel for the
Company),  independent  accountants and other experts selected by such Agent. As
to any matters not  expressly  provided for by this  Agreement or any other Loan
Document,  each Agent  shall in all cases be fully  protected  in acting,  or in
refraining from acting, hereunder and thereunder in accordance with instructions
of the  Majority  Banks (or,  where  unanimous  consent is required by the terms
hereof or of the other Loan Documents,  all of the Banks),  and any action taken
or  failure  to act  pursuant  thereto  shall be  binding  on all of the  Banks.
Pursuant to instructions of the Majority Banks (except as otherwise  provided in
Section 13.4 hereof),  Administrative  Agent shall have the authority to execute
releases of security documents on behalf of the Banks without the joinder of any
Bank.  The  Company  and any  third-party  may  conclusively  rely upon any such
release  delivered by Administrative  Agent without  investigation as to whether
such release has been approved by the Majority Banks.

         12.3  Defaults.  Administrative  Agent  shall  not be  deemed  to  have
knowledge  of the  occurrence  of a  Default  (other  than  the  non-payment  of
principal of or interest on Loans) unless it has received  notice from a Bank or
the Company specifying such Default and stating that such notice is a "Notice of
Default".  In the event that Administrative  Agent receives such a notice of the
occurrence of a Default,  Administrative  Agent shall give prompt notice thereof
to the Banks (and

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shall give each Bank  prompt  notice of each such  non-payment).  Administrative
Agent shall  (subject to Section  12.7  hereof) take such action with respect to
such  Default as shall be directed by the  Majority  Banks and within its rights
under the Loan  Documents  and at law or in equity,  provided  that,  unless and
until Administrative  Agent shall have received such directions,  Administrative
Agent may (but shall not be  obligated  to) take such  action,  or refrain  from
taking such  action,  permitted  hereby with respect to such Default as it shall
deem  advisable  in the best  interests of the Banks and within its rights under
the Loan Documents, at law or in equity.

         12.4 Rights as a Bank.  With respect to its  Commitments  and the Loans
made, Chase,  Bank of America,  Bank One, Societe Generale and Bank of Montreal,
respectively,  each in its  capacity  as a Bank  hereunder,  shall have the same
rights  and powers  hereunder  as any other  Bank and may  exercise  the same as
though  it were not  acting as an Agent and the term  "Bank" or  "Banks"  shall,
unless the context otherwise  indicates,  include Chase,  Bank of America,  Bank
One, Societe Generale and Bank of Montreal, respectively, each in its individual
capacity.  Administrative  Agent may (without having to account  therefor to any
Bank) accept  deposits from,  lend money to and generally  engage in any kind of
banking, trust, letter of credit, agency or other business with the Company (and
any of its  Affiliates) as if it were not acting as  Administrative  Agent,  and
Administrative  Agent may accept fees and other  consideration  from the Company
and its  Affiliates  (in addition to the fees  heretofore  agreed to between the
Company and Administrative Agent) for services in connection with this Agreement
or otherwise without having to account for the same to the Banks.

         12.5  Indemnification.  The Banks agree to indemnify each Agent (to the
extent not  reimbursed  under  Section 9.7 or Section 13.3  hereof,  but without
limiting  the  obligations  of the Company  under said  Sections  9.7 and 13.3),
ratably  in  accordance  with their  respective  Commit  ments,  for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind and nature whatsoever  (INCLUDING,
BUT NOT LIMITED TO, THE  CONSEQUENCES  OF THE  NEGLIGENCE OF AGENT) which may be
imposed on, incurred by or asserted against such Agent in any way relating to or
arising out of this Agreement or any other Loan Document or any other  documents
contemplated   by  or  referred  to  herein  or  therein  or  the   transactions
contemplated  hereby or thereby (including,  without  limitation,  the costs and
expenses  which the  Company is  obligated  to pay under  Sections  9.7 and 13.3
hereof but excluding,  unless a Default has occurred and is  continuing,  normal
administrative   costs  and  expenses  incident  to  the  performance  of  their
respective  agency  duties  hereunder)  or the  enforcement  of any of the terms
hereof or thereof or of any such other documents, provided that no Bank shall be
liable  for any of the  foregoing  to the  extent  they  arise  from  the  gross
negligence or willful misconduct of the party to be indemnified. The obligations
of the Banks  under this  Section  12.5 shall  survive the  termination  of this
Agreement and the repayment of the Obligations.

         12.6  Non-Reliance on Agents and Other Banks.  Each Bank agrees that it
has received current financial  information with respect to the Company and that
it has,  independently  and without  reliance on any Agent or any other Bank and
based on such documents and information as it has deemed  appropriate,  made its
own credit analysis of the Company and decision to enter into this

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Agreement and that it will, independently and without reliance upon any Agent or
any other Bank,  and based on such  documents and  information  as it shall deem
appropriate  at the time,  continue to make its own  analysis  and  decisions in
taking or not  taking  action  under  this  Agreement  or any of the other  Loan
Documents.  Each Agent shall not be  required to keep itself  informed as to the
performance  or observance by any Relevant Party of this Agreement or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the  properties  or books of the  Company or any  Relevant
Party. Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by Administrative  Agent hereunder,  under
the other Loan Documents,  the Agents shall not have any duty or  responsibility
to provide any Bank with any credit or other information concerning the affairs,
financial  condition or business of the Company or any other  Relevant Party (or
any of their affiliates) which may come into the possession of such Agent.

         12.7  Failure  to  Act.  Except  for  action   expressly   required  of
Administrative   Agent   hereunder   and  under  the   other   Loan   Documents,
Administrative  Agent  shall in all  cases  be fully  justified  in  failing  or
refusing  to act  hereunder  and  thereunder  unless  it shall  receive  further
assurances to its satisfaction by the Banks of their indemnification obligations
under Section 12.5 hereof against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action.

         12.8  Resignation or Removal of  Administrative  Agent.  Subject to the
appointment  and  acceptance  of a  successor  Administrative  Agent as provided
below,  Administrative  Agent may resign at any time by giving notice thereof to
the Banks and the Company,  and Administrative  Agent may be removed at any time
with or  without  cause by the  Majority  Banks.  Upon any such  resignation  or
removal,  the  Majority  Banks  shall  have the  right to  appoint  a  successor
Administrative Agent (subject to the consent of the Company, which consent shall
not be unreasonably withheld), provided deposits with a successor Administrative
Agent  shall be insured by the  Federal  Deposit  Insurance  Corporation  or its
successor. If no successor  Administrative Agent shall have been so appointed by
the Majority Banks and shall have accepted such appointment within 30 days after
the  retiring  Administrative  Agent's  giving of notice of  resignation  or the
Majority Banks' removal of the retiring  Administrative Agent, then the retiring
Administrative   Agent  may,  on  behalf  of  the  Banks,  appoint  a  successor
Administrative Agent (subject to the consent of the Company, which consent shall
not be unreasonably  withheld).  Any successor  Administrative  Agent shall be a
bank which has an office in the United States and a combined capital and surplus
of  at  least  $1,000,000,000.   Upon  the  acceptance  of  any  appointment  as
Administrative  Agent  hereunder  by  a  successor  Administrative  Agent,  such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights,  powers,  privileges  and duties of the retiring  Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and  obligations  hereunder.  A successor  Administrative  Agent shall  promptly
specify by notice to the Company and the Banks its Principal  Office referred to
in Sections 3.1 and 5.1. After any retiring  Administrative  Agent's resignation
or removal hereunder as Administrative  Agent, the provisions of this Section 12
shall  continue  in effect for its  benefit in respect of any  actions  taken or
omitted to be taken by it while it was acting as an Administrative Agent.

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         Section 13.       Miscellaneous.

         13.1  Waiver.  No waiver of any Default  shall be a waiver of any other
Default.  No  failure  on the part of any Agent or any Bank to  exercise  and no
delay in exercising,  and no course of dealing with respect to, any right, power
or privilege  under any Loan  Document  shall operate as a waiver  thereof,  nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or  privilege.  The remedies  provided in the Loan  Documents  are
cumulative and not exclusive of any remedies provided by law or in equity.

         13.2 Notices. All notices and other communications  provided for herein
(including,  without  limitation,  any  modifications of, or waivers or consents
under,  this  Agreement)  shall be given or made by telex,  telegraph,  telecopy
(confirmed  by mail),  cable,  mail or other  writing and  telexed,  telecopied,
telegraphed,  cabled,  mailed or  delivered  to the  intended  recipient  at the
"Address for Notices"  specified  below its name on the signature  pages hereof;
or, as to any party,  at such other address as shall be designated by such party
in a notice to the Company,  Administrative  Agent given in accordance with this
Section  13.2.  Except  as  otherwise  provided  in  this  Agreement,  all  such
communications  shall be deemed to have been duly received when  transmitted  by
telex or telecopier during regular business hours, delivered to the telegraph or
cable office or personally  delivered or, in the case of a mailed notice,  three
(3) days after deposit in the United States mails,  postage  prepaid,  certified
mail with return receipt requested (or upon actual receipt, if earlier), in each
case given or addressed as aforesaid.

         13.3  Indemnification.  The Company  shall  indemnify  the Agents,  the
Banks,  and each Affiliate  thereof and their  respective  directors,  officers,
employees and agents from, and hold each of them harmless  against,  any and all
losses,  liabilities,  claims or damages to which any of them may become subject
(REGARDLESS  OF WHETHER CAUSED IN WHOLE OR IN PART BY THE SIMPLE (BUT NOT GROSS)
NEGLIGENCE  OF THE PERSON  INDEMNIFIED),  insofar as such  losses,  liabilities,
claims or damages  arise out of or result from any  (i)actual or proposed use by
the Company of the proceeds of any  extension  of credit by any Bank  hereunder,
(ii)breach  by the  Company  of  this  Agreement  or any  other  Loan  Document,
(iii)violation  by  the  Company  or  any  of  its  Subsidiaries  of  any  Legal
Requirement,   including  but  not  limited  to  those   relating  to  Hazardous
Substances,  (iv)Liens or security interests  previously or hereafter granted on
any real or  personal  property,  to the  extent  resulting  from any  Hazardous
Substance located in, on or under any such property,  (v) ownership by the Banks
or the Agents of any real or personal  property  following  foreclosure,  to the
extent such losses,  liabilities,  claims or damages arise out of or result from
any  Hazardous  Substance  located  in, on or under  such  property,  including,
without  limitation,  losses,  liabilities,  claims or damages which are imposed
upon Persons under laws relating to or regulating Hazardous Substances solely by
virtue of ownership,  (vi)Bank's or Agent's being deemed an operator of any such
real or  personal  property  by a court or other  regulatory  or  administrative
agency or tribunal in  circumstances  in which neither any of the Agents nor any
of the Banks is generally  operating or generally  exercising  control over such
property, to the extent such losses, liabilities, claims or damages arise out of
or result from any Hazardous Substance located

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in,  on  or  under  such  property,  (vii)investigation,   litigation  or  other
proceeding  (including any threatened  investigation or proceeding)  relating to
any of the foregoing, and the Company shall reimburse each Agent, each Bank, and
each Affiliate thereof and their respective directors,  officers,  employees and
agents,  upon  demand,  for any  expenses  (including  legal  fees)  incurred in
connection with any such  investigation or proceeding or (viii) taxes (excluding
income taxes and franchise  taxes) payable or ruled payable by any  Governmental
Authority in respect of any Loan Document, together with interest and penalties,
if any;  provided,  however,  that the  Company  shall not have any  obligations
pursuant to this  Section13.3 with respect to any losses,  liabilities,  claims,
damages or expenses (a) arising from or relating solely to events, conditions or
circumstances  which,  as to clauses  (iv),  (v) or (vi) above,  first came into
existence or which first  occurred after the date on which the Company or any of
its  Subsidiaries  conveyed to an unrelated  third party all of the Company's or
the applicable  Subsidiary's rights, titles and interests to the applicable real
or personal property (whether by deed,  deed-in-lieu,  foreclosure or otherwise)
other than a conveyance made in violation of any Loan Document,  (b) incurred by
the Person seeking  indemnification by reason of the gross negligence or willful
misconduct of such Person, or (c)asserted by one or more indemnified  parties or
stockholders  thereof against one or more  indemnified  parties.  If the Company
ever disputes a good faith claim for  indemnification  under this Section13.3 on
the basis of the proviso set forth in the preceding sentence, the full amount of
indemnification  provided  for  shall  nonetheless  be  paid,  subject  to later
adjustment  or  reimbursement  at such  time (if  any) as a court  of  competent
jurisdiction  enters  a  final  judgment  as to the  applicability  of any  such
exceptions or an agreement is reached with respect thereto.

         13.4  Amendments,  Etc. No amendment or waiver of any provision of this
Agreement or any other Loan  Document,  nor any consent to any  departure by the
Company  therefrom,  shall in any event be  effective  unless  the same shall be
agreed or  consented to by the  Majority  Banks and the  Company,  and each such
waiver or consent shall be effective  only in the specific  instance and for the
specific purpose for which given; provided, that no amendment, waiver or consent
shall, unless in writing and signed by each Bank affected thereby, do any of the
following:  (a) increase the Commitment of such Bank (it being  understood  that
the waiver of any reduction in the Commitments or any mandatory  repayment other
than (x) the  repayment  of all Loans on the  Stated  Maturity  Date and (y) the
mandatory  reductions of the Commitments  provided for in Section2.3(a)  and (z)
the mandatory  prepayments required by the terms of Section3.2(b),  shall not be
deemed  to be an  increase  in any  Commitment)  or  subject  the  Banks  to any
additional obligation;  (b) reduce the principal of, or interest on, any Loan or
fee hereunder; (c)postpone any scheduled date fixed for any payment or mandatory
prepayment  of principal  of, or interest  on, any Loan,  fee or other sum to be
paid  hereunder;  (d) change the percentage of any of the  Commitments or of the
aggregate  unpaid  principal amount of any of the Loans, or the number of Banks,
which  shall be required  for the Banks or any of them to take any action  under
this Agreement; (e)change any provision contained in Sections 9.7 or 13.3 hereof
or this Section 13.4 or Section6.7  hereof,  or (f)release all or  substantially
all of any security for the  obligations  of the Company under this Agreement or
all or substantially all of the personal  liability of any obligor created under
any of the Loan  Documents.  Anything in this Section 13.4 to the  contrary,  no
amendment,  waiver or consent  shall be made with  respect to Section 12 without
the consent of Administrative Agent.

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         13.5       Successors and Assigns.

         (a) This  Agreement  shall be binding  upon and inure to the benefit of
the  Company,  the  Agents  and the Banks and their  respective  successors  and
assigns. The Company may not assign or transfer any of its rights or obligations
hereunder  without the prior written consent of all of the Banks.  Each Bank may
sell  participations to any Person in all or part of any Loan, or all or part of
its Commitments,  in which event, without limiting the foregoing, the provisions
of Section6 shall inure to the benefit of each purchaser of a participation  and
the pro rata  treatment  of payments,  as  described  in Section  5.2,  shall be
determined  as if such  Bank had not sold such  participation.  In the event any
Bank shall  sell any  participation,  such Bank shall  retain the sole right and
responsibility  to enforce the obligations of the Company relating to the Loans,
including, without limitation, the right to approve any amendment,  modification
or  waiver  of  any  provision  of  this   Agreement   other  than   amendments,
modifications  or waivers with respect to (i) any fees payable  hereunder to the
Banks and (ii) the amount of  principal  or the rate of interest  payable on, or
the dates fixed for the scheduled repayment of principal of, the Loans.

         (b) Each Bank may assign to one or more  Banks or any other  Person all
or a portion of its  interests,  rights and  obligations  under this  Agreement,
provided,  however,  that (i) other than in the case of an assignment to another
Bank that is, at the time of such assignment,  a party hereto or an Affiliate of
such Bank, the Company must give its prior written  consent,  which consent will
not be unreasonably withheld, (ii) the aggregate amount of the Commitment and/or
Loans of the assigning  Bank subject to each such  assignment  (determined as of
the date the  Assignment  and Acceptance (as defined below) with respect to such
assignment is delivered to Administrative  Agent) shall in no event be less than
$10,000,000  (or  $5,000,000  in the case of an  assignment to an Affiliate of a
Bank or  between  Banks)  unless  either (A) if Bank's  Commitment  is less than
$10,000,000  or $5,000,000,  as applicable,  such amount is equal to all of such
Bank's  Commitment  under  this  Agreement  or (B) each of the  Company  and the
Administrative Agent otherwise consent,  (iii) notwithstanding any other term or
provision of this Agreement,  unless the Company shall have otherwise  consented
in writing (such consent not to be unreasonably withheld),  each such assignment
shall be pro rata with respect to the Loans and the  Commitment of the assignor,
and  (iv)the  parties  to each such  assignment  shall  execute  and  deliver to
Administrative  Agent,  for its  acceptance  and  recording  in the Register (as
defined  below),  an Assignment  and  Acceptance in the form of ExhibitE  hereto
(each an  "Assignment  and  Acceptance")  with blanks  appropriately  completed,
together with any note or notes subject to such  assignment and a processing and
recordation fee of $2,500 paid by the assignee (for which the Company shall have
no liability). Upon such execution, delivery, acceptance and recording, from and
after the effective date  specified in each  Assignment  and  Acceptance,  which
effective date shall be at least five Business Days after the execution thereof,
(A) the assignee  thereunder shall be a party hereto and, to the extent provided
in such  Assignment and  Acceptance,  have the rights and  obligations of a Bank
hereunder  and (B) the Bank  thereunder  shall,  to the extent  provided in such
Assignment  and  Acceptance,   be  released  from  its  obligations  under  this
Agreement. Notwithstanding anything contained in this Agreement to the contrary,
any Bank may at any time  assign all or any  portion  of its  rights  under this
Agreement

                                                        69

<PAGE>

and the notes issued to it as  collateral to a Federal  Reserve Bank;  provided,
that no such  assignment  shall  release  the  assigning  Bank  from  any of its
obligations hereunder.

         (c) By executing and delivering an Assignment and Acceptance,  the Bank
assignor  thereunder and the assignee  thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty  that it is the legal and  beneficial  owner of the interest  being
assigned  thereby free and clear of any adverse claim,  such Bank assignor makes
no representation or warranty and assumes no responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement  or  any of the  other  Loan  Documents  or the  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan  Documents or any other  instrument or document  furnished
pursuant  thereto;  (ii) such Bank assignor makes no  representation or warranty
and assumes no  responsibility  with respect to the  financial  condition of the
Company  or  the  performance  or  observance  by  the  Company  of  any  of its
obligations under this Agreement or any of the other Loan Documents or any other
instrument or document furnished  pursuant hereto;  (iii) such assignee confirms
that it has  received  a copy of this  Agreement,  together  with  copies of the
financial  statements  referred to in Section 8.6 and such other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such Assignment and Acceptance;  (iv) such assignee will,
independently  and without  reliance  upon any Agent,  such Bank assignor or any
other  Bank and  based  on such  documents  and  information  as it  shall  deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this  Agreement and the other Loan  Documents;  (v) such
assignee  appoints and authorizes each Agent to take such action as agent on its
behalf and to  exercise  such  powers  under this  Agreement  and the other Loan
Documents as are delegated to such Agent by the terms hereof, together with such
powers as are reasonably  incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this  Agreement and the other Loan  Documents are required to be performed by
it as a Bank.

         (d)  Administrative  Agent shall  maintain at its office a copy of each
Assignment and Acceptance  delivered to it and a register for the recordation of
the names and  addresses  of the Banks and the  Commitments  of,  and  principal
amount of the Loans owing to, each Bank from time to time (the "Register").  The
entries in the Register shall be conclusive,  in the absence of manifest  error,
and the  Company,  the Agents  and the Banks may treat  each  person the name of
which is recorded in the Register as a Bank  hereunder  for all purposes of this
Agreement  and the other Loan  Documents.  The Register  shall be available  for
inspection  by the Company or any Bank at any  reasonable  time and from time to
time upon reasonable prior notice.

         (e) Upon its receipt of an  Assignment  and  Acceptance  executed by an
assigning  Bank  and the  assignee  thereunder  together  with any note or notes
subject to such assignment,  the written consent to such assignment  executed by
the Company and the fee payable in respect thereto,  Administrative Agent shall,
if such  Assignment and Acceptance has been completed with blanks  appropriately
filled,  (i)accept such Assignment and  Acceptance,  (ii) record the information
contained  therein in the Register and (iii) give prompt  notice  thereof to the
Company. If applicable,

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<PAGE>

within five (5) Business Days after receipt of notice,  the Company,  at its own
expense,  shall execute and deliver to Administrative  Agent in exchange for the
surrendered  notes new notes to the order of such assignee in an amount equal to
the  Commitments  and/or  Loans  assumed by it pursuant to such  Assignment  and
Acceptance  and, if the  assigning  Bank has retained  Commitments  and/or Loans
hereunder,  new notes to the order of the  assigning  Bank in an amount equal to
the Commitment and/or Loans retained by it hereunder. Such new notes shall be in
an aggregate  principal  amount equal to the aggregate  principal amount of such
surrendered  notes,  shall be dated the effective  date of such  Assignment  and
Acceptance and shall  otherwise be in  substantially  the form of the respective
note.  Thereafter,  such surrendered  notes, if any, shall be marked renewed and
substituted and the originals  delivered to the Company (with copies,  certified
by the Company as true,  correct and complete,  to be retained by Administrative
Agent).

         (f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation  pursuant to this Section 13.5, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Company  furnished  to such Bank by or on behalf of the Company;
provided,  however,  that, prior to any such disclosure,  the Company shall have
consented thereto,  which consent shall not be unreasonably  withheld,  and each
such assignee or participant, or proposed assignee or participant, shall execute
an agreement  whereby such assignee or  participant  shall agree to preserve the
confidentiality  of any  Confidential  Information  (defined in Section13.14) on
terms substantially the same as those provided in Section13.14.

         (g) The  Company  will  have  the  right  to  consent  to any  material
intercreditor  arrangements  in connection with an assignment by any Bank of any
interest,  right or obligation  under this Agreement  which is not pro rata with
respect to the Loans and the Commitment of the assignor and the Company may deny
its consent to any such arrangements  which, in the reasonable  judgement of the
Company, would adversely affect the Company in a material respect.

         (h) The  provisions of this Section  shall not apply to the  assignment
and pledge of a Bank's rights hereunder or under any note to any Federal Reserve
Bank for collateral  purposes pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any Operating  Circular issued by such Federal
Reserve Bank;  provided that such  assignment  and pledge shall not relieve such
Bank of any of its obligations hereunder.

         13.6  Limitation  of Interest.  The  Company,  the Agents and the Banks
intend to strictly comply with all applicable laws,  including  applicable usury
laws.  Accordingly,  the provisions of this Section13.6 shall govern and control
over every other  provision of this  Agreement or any other Loan Document  which
conflicts or is inconsistent with this Section,  even if such provision declares
that it controls.  As used in this  Section,  the term  "interest"  includes the
aggregate of all charges,  fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable  law, (a) any  non-principal  payment  shall be  characterized  as an
expense or as  compensation  for something  other than the use,  forbearance  or
detention  of  money  and not as  interest,  and (b) all  interest  at any  time
contracted for, reserved,

                                                        71

<PAGE>

charged or received shall be amortized, prorated, allocated and spread, in equal
parts during the full term of the Obligations.  In no event shall the Company or
any other Person be obligated to pay, or any Bank have any right or privilege to
reserve,  receive or retain, (a) any interest in excess of the maximum amount of
nonusurious  interest  permitted  under  the  laws of the  State of Texas or the
applicable laws (if any) of the United States or of any other applicable  state,
or (b) total  interest  in excess of the amount  which such Bank could  lawfully
have contracted for,  reserved,  received,  retained or charged had the interest
been calculated for the full term of the Obligations at the Highest Lawful Rate.
On each day, if any, that the interest rate (the "Stated Rate") called for under
this  Agreement or any other Loan Document  exceeds the Highest Lawful Rate, the
rate at which interest shall accrue shall automatically be fixed by operation of
this sentence at the Highest Lawful Rate for that day, and shall remain fixed at
the  Highest  Lawful  Rate for each day  thereafter  until the  total  amount of
interest accrued equals the total amount of interest which would have accrued if
there were no such  ceiling  rate as is imposed  by this  sentence.  Thereafter,
interest  shall accrue at the Stated Rate unless and until the Stated Rate again
exceeds the Highest Lawful Rate when the provisions of the immediately preceding
sentence shall again  automatically  operate to limit the interest accrual rate.
The daily  interest  rates to be used in  calculating  interest  at the  Highest
Lawful Rate shall be determined by dividing the  applicable  Highest Lawful Rate
per annum by the number of days in the calendar year for which such  calculation
is being made.  None of the terms and provisions  contained in this Agreement or
in any other Loan Document which directly or indirectly relate to interest shall
ever be construed  without  reference to this Section  13.6,  or be construed to
create a contract to pay for the use,  forbearance  or  detention of money at an
interest  rate  in  excess  of the  Highest  Lawful  Rate.  If the  term  of any
Obligation is shortened by reason of acceleration of maturity as a result of any
Default  or by any  other  cause,  or by  reason of any  required  or  permitted
prepayment,  and if for  that  (or any  other)  reason  any  Bank  at any  time,
including but not limited to, the stated  maturity,  is owed or receives (and/or
has received)  interest in excess of interest  calculated at the Highest  Lawful
Rate,  then  and in any such  event  all of any such  excess  interest  shall be
canceled automatically as of the date of such acceleration,  prepayment or other
event which produces the excess,  and, if such excess  interest has been paid to
such Bank, it shall be credited pro tanto against the then-outstanding principal
balance of the Company's  obligations to such Bank,  effective as of the date or
dates when the event occurs which  causes it to be excess  interest,  until such
excess is exhausted or all of such  principal has been fully paid and satisfied,
whichever  occurs  first,  and any  remaining  balance of such  excess  shall be
promptly  refunded to its payor.  Chapter 346 of the Texas  Finance  Code (which
regulates certain revolving credit accounts (formerly Tex. Rev.

Civ. Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this Agreement.

         13.7 Survival. The obligations of the Company under Sections 6, 9.7 and
13.3 hereof and the  obligations  of the Banks under  Section  13.6 hereof shall
survive the repayment of the Loans and the termination of the Commitments.

         13.8  Captions.  Captions  and section  headings  appearing  herein are
included  solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

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<PAGE>

         13.9  Counterparts.  This  Agreement  may be  executed in any number of
counterparts,  all of which taken  together  shall  constitute  one and the same
agreement  and any of the parties  hereto may execute this  Agreement by signing
any such counterpart.

         13.10 GOVERNING LAW; FORUM  SELECTION;  CONSENT TO  JURISDICTION.  THIS
AGREEMENT  AND  (EXCEPT  AS  THEREIN  PROVIDED)  THE OTHER  LOAN  DOCUMENTS  ARE
PERFORMABLE IN HARRIS COUNTY,  TEXAS, WHICH SHALL BE A PROPER PLACE OF VENUE FOR
SUIT ON OR IN RESPECT  THEREOF.  THE COMPANY  IRREVOCABLY  AGREES THAT ANY LEGAL
PROCEEDING  IN RESPECT OF THIS  AGREEMENT OR THE OTHER LOAN  DOCUMENTS  SHALL BE
BROUGHT IN THE  DISTRICT  COURTS OF HARRIS  COUNTY,  TEXAS OR THE UNITED  STATES
DISTRICT   COURT  FOR  THE  SOUTHERN   DISTRICT  OF  TEXAS,   HOUSTON   DIVISION
(COLLECTIVELY,  THE "SPECIFIED COURTS").  THE COMPANY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF
TEXAS. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION  WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUIT,  ACTION OR PROCEEDING  ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT
BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS
THAT ANY SUCH  SUIT,  ACTION OR  PROCEEDING  BROUGHT  IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN  INCONVENIENT  FORUM.  THE COMPANY FURTHER (1) AGREES TO DESIGNATE
AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE CITY OF HOUSTON,  TEXAS,  IN
CONNECTION  WITH  ANY  SUCH  SUIT,  ACTION  OR  PROCEEDING  AND  TO  DELIVER  TO
ADMINISTRATIVE  AGENT  EVIDENCE  THEREOF  AND (2)  IRREVOCABLY  CONSENTS  TO THE
SERVICE OF  PROCESS  OUT OF ANY OF THE  AFOREMENTIONED  COURTS IN ANY SUCH SUIT,
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL,  RETURN
RECEIPT REQUESTED, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS AS PROVIDED IN
THIS  AGREEMENT  OR AS  OTHERWISE  PROVIDED BY TEXAS LAW.  NOTHING  HEREIN SHALL
AFFECT  THE  RIGHT OF ANY AGENT OR ANY BANK TO  COMMENCE  LEGAL  PROCEEDINGS  OR
OTHERWISE PROCEED AGAINST THE COMPANY IN ANY JURISDICTION OR TO SERVE PROCESS IN
ANY MANNER PERMITTED BY APPLICABLE LAW. THE COMPANY AGREES THAT A FINAL JUDGMENT
IN ANY SUCH  ACTION OR  PROCEEDING  SHALL BE  CONCLUSIVE  AND MAY BE ENFORCED IN
OTHER  JURISDICTIONS  BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. THIS  AGREEMENT AND (EXCEPT AS THEREIN  PROVIDED) THE OTHER LOAN  DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER
THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED  STATES OF
AMERICA FROM TIME TO TIME IN EFFECT.

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<PAGE>

         13.11 WAIVER OF JURY TRIAL;  PUNITIVE DAMAGES. THE COMPANY,  EACH AGENT
AND  EACH  BANK  HEREBY  (I)  IRREVOCABLY  WAIVES,  TO THE  MAXIMUM  EXTENT  NOT
PROHIBITED  BY LAW,  ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN  RESPECT OF ANY
LITIGATION  DIRECTLY  OR  INDIRECTLY  AT ANY TIME  ARISING  OUT OF,  UNDER OR IN
CONNECTION  WITH THE LOAN DOCUMENTS OR ANY TRANSACTION  CONTEMPLATED  THEREBY OR
ASSOCIATED THEREWITH,  BEFORE OR AFTER MATURITY; (II) IRREVOCABLY WAIVES, TO THE
MAXIMUM  EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY EXEMPLARY,  PUNITIVE OR CONSEQUENTIAL  DAMAGES; (III)
CERTIFIES  THAT NO PARTY HERETO NOR ANY  REPRESENTATIVE  OR AGENT OR COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED,  EXPRESSLY OR OTHERWISE,  OR IMPLIED THAT SUCH
PARTY  WOULD NOT,  IN THE EVENT OF  LITIGATION,  SEEK TO ENFORCE  THE  FOREGOING
WAIVERS;  AND  (IV)ACKNOWLEDGES  THAT IT HAS BEEN  INDUCED  TO ENTER  INTO  THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS  CONTAINED
IN THIS SECTION.

         13.12  Severability.  Whenever  possible,  each  provision  of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid,  illegal
or unenforceable in any respect under any applicable law, the validity, legality
and  enforceability of the remaining  provisions of such Loan Document shall not
be affected or impaired thereby.

         13.13  Chapter 15 Not  Applicable.  Chapter  15,  Subtitle 3, Title 79,
Revised  Civil  Statutes of Texas,  1925,  as  amended,  shall not apply to this
Agreement or to any Loan, nor shall this Agreement or any Loan be governed by or
be subject to the provisions of such Chapter 15 in any manner whatsoever.

         13.14      Confidential Information.  Each Agent and each Bank 
separately agrees that:

         (a) As used herein, the term  "Confidential  Information" means written
information about the Company or the transactions  contemplated herein furnished
by the Company to the Agents and/or the Banks which is  specifically  designated
as confidential by the Company;  Confidential  Information,  however,  shall not
include  information  which (i) was publicly  known or  available,  or otherwise
available on a  non-confidential  basis to any Bank,  at the time of  disclosure
from a source other than the Company,  (ii) subsequently  becomes publicly known
through no act or omission by such Bank, (iii) otherwise  becomes available on a
non-confidential  basis to any Bank other than through disclosure by the Company
or (iv) has been in the  possession  of any Bank for a period  of more  than two
years from the date on which such  information  originally was furnished to such
Bank by the Company,  unless the Company shall have requested the Agents and the
Banks in writing,  at least 30 days prior to the end of such two-year period, to
maintain the confidentiality of such

                                                        74

<PAGE>

information  for  another two (2) year  period (or for  successive  two (2) year
periods);  provided that the Company shall not unreasonably withhold its consent
to a request made after the initial two (2) year period to eliminate information
from "Confidential Information".

         (b) Each  Agent  and each Bank  agrees  that it will  take  normal  and
reasonable  precautions  to maintain  the  confidentiality  of any  Confidential
Information  furnished to such Person;  provided,  however, that such Person may
disclose  Confidential  Information (i) upon the Company's consent;  (ii) to its
auditors; (iii) when required by any Legal Requirement;  (iv) as may be required
or  appropriate  in  any  report,   statement  or  testimony  submitted  to  any
Governmental  Authority having or claiming to have  jurisdiction over it; (v) to
such  Person's  and  its  Subsidiaries'  or  Affiliates'  officers,   directors,
employees,  agents,  representatives and professional  consultants in connection
with this Agreement or  administration  of the Loans; (vi) as may be required or
appropriate,  should such Bank elect to assign or grant participations in any of
the Obligations in connection with (1) the enforcement of the Obligations to any
such Person under any of the Loan  Documents or related  agreements,  or (2) any
potential  transfer  pursuant to this Agreement of any  Obligation  owned by any
Bank  (provided  any  potential  transferee  has been approved by the Company if
required by this Agreement,  which approval shall not be unreasonably  withheld,
and has  agreed in  writing  to be bound by  substantially  the same  provisions
regarding Confidential  Information contained in this Section);  (vii) as may be
required or  appropriate in response to any summons or subpoena or in connection
with any litigation or administrative proceeding; (viii) to any other Bank; (ix)
to the extent reasonably  required in connection with the exercise of any remedy
hereunder  or under the other Loan  Documents;  or (x) to  correct  any false or
misleading   information  which  may  become  public  concerning  such  Person's
relationship to the Company.

         13.15 Tax Forms. With respect to each Bank which is organized under the
laws of a  jurisdiction  outside  the United  States,  on the day of the initial
borrowing hereunder and from time to time thereafter if requested by the Company
or Administrative  Agent, such Bank shall provide  Administrative  Agent and the
Company with the forms  prescribed by the Internal Revenue Service of the United
States certifying as to such Bank's status for purposes of determining exemption
from United States  withholding taxes with respect to all payments to be made to
such  Bank  hereunder  or  other  documents  satisfactory  to  the  Company  and
Administrative  Agent  indicating  that  all  payments  to be made to such  Bank
hereunder are subject to such tax at a rate reduced by an applicable tax treaty.
Unless the Company and  Administrative  Agent shall have  received such forms or
such  documents  indicating  that  payments  hereunder are not subject to United
States  withholding  tax or are  subject  to such  tax at a rate  reduced  by an
applicable tax treaty, the Company or Administrative  Agent shall withhold taxes
from such payments at the  applicable  statutory rate in the case of payments to
or for any Bank organized  under the laws of a  jurisdiction  outside the United
States.

         13.16      Entire Agreement.  THIS WRITTEN AGREEMENT AND THE OTHER LOAN

DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR

SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

                                                        75

<PAGE>

         THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                      [SIGNATURES BEGIN ON FOLLOWING PAGE]

                                                        76

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

                     OCEAN ENERGY, INC., a Texas corporation

                                       By:

                                         Name:  Stephen A. Thorington

                     Title: Senior Vice President - Finance,

                                                Treasury & Corporate Development

                                         Address for Notices:

                                         1001 Fannin, Suite 1700

                                         Houston, Texas  77002

                        Attention: Stephen A. Thorington
                              Phone: (713) 951-1319
                               Fax: (713) 951-4846

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 1

<PAGE>

                                       CHASE BANK OF TEXAS, NATIONAL

                                       ASSOCIATION, as a Bank and as

                                       Administrative Agent

                                       By:
                                      Name:

                                       Title:

                                       Address for Notices:

                                       1 Chase Manhattan Plaza, 8th Floor
                                       New York, New York 10081

                                       Attention:  Ms. Debbie Rockower

                                       Phone:     (212) 552-7446
                                       Fax:       (212) 552-5700

                                       with a copy to:

                    Chase Bank of Texas, National Association

                                       712 Main Street
                                       Houston, Texas  77002

                                       Attention:      Manager, Energy Division

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 2

<PAGE>

                          THE CHASE MANHATTAN BANK, as

                          Auction Administrative Agent

                                              By:                               
                                              Name:

                                              Title:

                                              Address for Notices:

                                              1 Chase Manhattan Plaza, 8th Floor

                            New York, New York 10081

                                              Attention:     Ms. Debbie Rockower

                                              Phone:         (212) 552-7446
                                              Fax:           (212) 552-5700

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 3

<PAGE>

                         BANK OF AMERICA NATIONAL TRUST

                                              AND SAVINGS ASSOCIATION, as a Bank

                            and as Syndication Agent

                                              By:                               
                                              Name:

                                              Title:

                                              Address for Notices:

                                              Attention:                        
                                              Phone:                            
                                              Fax:                              
                                              with further notice to:

                                              Phone:                            
                                              Fax:                              

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 4

<PAGE>

                     BANK ONE, TEXAS, N.A., as a Bank and as

                                         Documentation Agent

                                       By:

                                         Name:    Christine M. Macan
                                         Title:   Vice President

                                         Address for Notices:

                                         910 Travis, TX2-4330
                                         Houston, Texas 77002
                                         Attention:        Jo Linda Papadakis
                                         Phone:            (713) 751-6235
                                         Fax:              (713) 751-7894

                                         with further notice to:

                                         910 Travis, TX2-4330
                                         Houston, Texas 77002
                                         Attention:        Christine M. Macan
                                         Phone:            (713) 751-3484
                                         Fax:              (713) 751-3544

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 5

<PAGE>

                           SOCIETE GENERALE, SOUTHWEST

                                             AGENCY, as a Bank and as a Managing

                                             Agent

                                             By:                                
                                             Name:    Richard Erbert
                                             Title:   Vice President

                          Lending Office for all Loans:

                          2001 Ross Avenue, Suite 4800
                               Dallas, Texas 75201

                                             Address for Notices:

                          2001 Ross Avenue, Suite 4800
                               Dallas, Texas 75201
                         Attention: Loan Administration
                              Phone: (214) 754-0171
                               Fax: (214) 979-2792

                                             with further notice to:

                                             Societe Generale
                                             1111 Bagby, Suite 2020
                                             Houston, Texas 77002
                                             Attention:   Richard Erbert
                                             Phone:       (713) 650-0824
                                             Fax:         (713) 759-6318

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 6

<PAGE>

                      BANK OF MONTREAL, as a Bank and as a

                                            Managing Agent

                                       By:

                                            Name:    Melissa Bauman
                                            Title:   Director

                                            Address for Notices:

                           115 S. LaSalle, 11th Floor
                             Chicago, Illinois 60603
                            Attention: Craig Reynolds
                              Phone: (312) 750-6047
                               Fax: (312) 750-6061

                                            with further notice to:

                                            Melissa Bauman
                                            700 Louisiana, Suite 4400
                                            Houston, Texas 77002
                                            Phone:        (713) 546-9723
                                            Fax:          (713) 223-4007

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 7

<PAGE>

                     BANKBOSTON, N.A., as a Bank and as Co-

                                          Agent

                                       By:

                                          Name:    Terrence Ronan
                                          Title:   Director

                                          Address for Notices:

                                          100 Federal Street
                                          Boston, MA 02110
                                          Attention:        Terrence Ronan
                                          Phone:   (617) 434-5472
                                          Fax:              (617) 434-3652

                                          with further notice to:

                                          100 Federal Street
                                          Boston, MA 02110
                                          Attention:        Fidel Vasquez

                                                            Loan Officer
                                          Phone:   (617) 434-1906
                                          Fax:              (617) 434-3652

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 8

<PAGE>

                           ABN AMRO BANK N.A., HOUSTON

                        AGENCY, as a Bank and as Co-Agent

                                       By:
                                      Name:

                                            Title:

                                       By:
                                      Name:

                                            Title:

                                            Address for Notices:

                                            3 Riverway, Suite 1700
                                            Houston, Texas 77056
                                            Attention:  Jamie A. Conn
                                            Phone:      (713) 964-3356
                                            Fax:           (713) 961-1699

                                            with further notice to:

                      208 South LaSalle Street, Suite 1500
                             Chicago, IL 60604-1003
                          Attention: Karen MacAllister
                              Phone: (312) 992-5123
                               Fax: (312) 992-5111

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                      S - 9

<PAGE>

                                                CREDIT SUISSE FIRST BOSTON, as a

                              Bank and as Co-Agent

                                                By:                             
                                                Name:    Douglas E. Maher
                                                Title:   Vice President

                              Address for Notices:

                                                11 Madison Avenue, 20th Floor
                                                New York, New York 10010-3629
                                                Attention:    Douglas E. Maher
                                                Phone:        (212) 325-3641
                                                Fax:          (212) 325-8615

                             with further notice to:

                                                600 Travis Street, 30th Floor

                              Houston, Texas 77002

                                                Attention:    R. Scott Brown
                                                Phone:        (713) 220-6774
                                                Fax:          (713) 237-0325

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 10

<PAGE>

                            WELLS FARGO BANK (TEXAS),
                         NATIONAL ASSOCIATION, as a Bank

                                                 By:                            
                                                 Name:    J. Alan Alexander
                                                 Title:   Vice President

                              Address for Notices:

                                                 Wells Fargo Bank, N.A.
                                                 201 Third Street, 8th Floor
                                                 San Francisco, CA 94103
                                                 Attention:  Oscar Enriquez
                                                 Phone:      (415) 477-5425
                                                 Fax:        (415) 979-0675

                             with further notice to:

                                                 Wells Fargo Bank (Texas), N.A.
                                                 Energy Dept.
                                                 1000 Louisiana, 3rd Floor
                                                 Houston, Texas 77002
                                                 Attention:  J. Alan Alexander
                                                 Phone:      (713) 319-1368
                                                 Fax:        (713) 739-1087

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 11

<PAGE>

                                                  CREDIT LYONNAIS, NEW YORK

                                BRANCH, as a Bank

                                                  By:                           
                                                  Name:    Phillipe Soustra
                                                  Title:   Senior Vice President

                              Address for Notices:

                                                  Credit Lyonnais
                                                  1000 Louisiana, Suite 5360
                                                  Houston, Texas 77002
                                                  Attention:   Jeff Baker
                                                  Phone:       (713) 753-8711
                                                  Fax:         (713) 751-0307

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 12

<PAGE>

                       THE BANK OF NOVA SCOTIA, as a Bank

                                           and as Co-Agent

                                       By:
                                      Name:

                                           Title:

                                           Address for Notices:

                      600 Peachtree Street N.E., Suite 2700
                                Atlanta, GA 30308
                            Attention: Phyllis Walker
                              Phone: (404) 877-1552
                               Fax: (404) 888-8998

                                           with further notice to:

                                           1100 Louisiana, Suite 3000
                                           Houston, Texas 77002
                                           Attention:   Mark Ammerman
                                           Phone:       (713) 759-3442
                                           Fax:         (713) 759-2425

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 13

<PAGE>

                        SOUTHWEST BANK OF TEXAS, N.A., as

                                          a Bank

                                       By:

                                          Name:    A. Stephen Kennedy
                                          Title:   Vice President/Manager Energy

                                          Lending

                                          Address for Notices:

                                          4400 Post Oak Parkway
                                          Houston, Texas 77027
                                          Attention: Ann Greer
                                          Phone:    (713) 235-8881 ext 1792
                                          Fax:      (713) 439-5954

                                          with further notice to:

                                          4400 Post Oak Parkway
                                          Houston, Texas 77027
                                          Attention: A. Stephen Kennedy
                                          Phone:    (713) 235-8881 ext 1707
                                          Fax:      (713) 439-5925

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 14

<PAGE>

                          THE BANK OF TOKYO-MITSUBISHI,
                                 LTD., as a Bank

                                               By:                              
                                               Name:

                                               Title:

                              Address for Notices:

                                               1100 Louisiana Street, Suite 2800

                            Houston, Texas 77002-5216

                            Attention: J. M. McIntyre
                              Phone: (713) 655-3845
                               Fax: (713) 655-3855

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 15

<PAGE>

                       THE BANK OF NEW YORK, as a Bank and

                                            as Co-Agent

                                       By:

                                            Name:    John N. Watt
                                            Title:   Vice President

                                            Address for Notices:

                           One Wall Street, 19th Floor
                            New York, New York 10286
                             Attention: Terry Foran
                              Phone: (212) 635-7921
                               Fax: (212) 635-7923

                                            with further notice to:

                           One Wall Street, 19th Floor
                            New York, New York 10286
                             Attention: Peter Keller
                              Phone: (212) 635-7861
                               Fax: (212) 635-7923

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 16

<PAGE>

                                             MORGAN GUARANTY TRUST

                       COMPANY OF NEW YORK, as a Bank and

                                             as Co-Agent

                                             By:                                
                                             Name:    Kevin McCann
                                             Title:   Vice President

                                             Address for Notices:

                            60 Wall Street, 5th Floor

                            New York, New York 10260

                                             Attention:   John Kowalczuk
                                             Phone:       (212) 648-0381
                                             Fax:         (212) 648-5416

                                             with further notice to:

                            60 Wall Street, 5th Floor

                            New York, New York 10260

                                             Attention:   Philip McNeal
                                             Phone:       (212) 648-0309
                                             Fax:         (212) 648-5416

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 17

<PAGE>

                                                THE FUJI BANK LIMITED, NEW YORK
                                                BRANCH, as a Bank

                                                By:                             
                                                Name:

                                                Title:

                              Address for Notices:

                                                2 World Trade Center, 79th Floor

                            New York, New York 10048

                            Attention: Ricky Simmons
                              Phone: (212) 898-2066
                               Fax: (212) 321-9407

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 18

<PAGE>

                                              THE SANWA BANK, LIMITED, as a Bank

                                              By:                               
                                              Name:

                                              Title:

                                              Address for Notices:

                          1200 Smith Street, Suite 2670
                              Houston, Texas 77002
                            Attention: Clyde Redford
                              Phone: (713) 652-3190
                               Fax: (713) 654-1462

                 [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]

                                     S - 19

<PAGE>

                               GUARANTY AGREEMENT

                           (364-Day Credit Agreement)

         THIS GUARANTY AGREEMENT dated as of March 30, 1999 is by OCEAN ENERGY,

INC., a corporation  duly  organized and validly  existing under the laws of the
state  of  Louisiana  (the  "Guarantor"),  in  favor  of each  of the  financial
institutions  that is now or  hereafter  a party  to the  Credit  Agreement  (as
defined  below)  as a "Bank"  (individually,  a "Bank"  and,  collectively,  the
"Banks"); CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as administrative agent for
the  Banks (in such  capacity,  the  "Administrative  Agent"),  BANK OF  AMERICA
NATIONAL TRUST AND SAVINGS  ASSOCIATION,  as syndication agent for the Banks (in
such capacity, the "Syndication Agent"), BANK ONE, TEXAS, N.A., as documentation
agent for the Banks  (in such  capacity,  the  "Documentation  Agent"),  SOCIETE
GENERALE,  SOUTHWEST  AGENCY and BANK OF  MONTREAL,  as managing  agents for the
Banks (in such capacity,  the "Managing Agents"),  and THE CHASE MANHATTAN BANK,
as auction  administrative  agent for the Banks (in such capacity,  the "Auction
Administrative Agent").

                                    Recitals

         A.  Ocean  Energy,  Inc.,  a Texas  corporation  (the  "Company"),  the
Administrative  Agent,  the Syndication  Agent,  the  Documentation  Agent,  the
Managing Agents and the Auction Administrative Agent (collectively the "Agents")
and the Banks have executed that certain  364-Day Credit  Agreement of even date
herewith (such credit agreement, as amended, the "Credit Agreement").

         B. One of the terms and conditions  stated in the Credit  Agreement for
the  making of the Loans  and  extensions  of  credit  described  in the  Credit
Agreement  is the  execution  and  delivery  to the Agents and the Banks of this
Guaranty Agreement.

         D. NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the  Credit  Agreement,  (ii) to induce  the Banks to enter  into the  Credit
Agreement, and (iii) for other good and valuable consideration,  the receipt and
sufficiency  of which is hereby  acknowledged,  the  Guarantor  hereby agrees as
follows:

                                    Article I

                       Definitions and Accounting Matters

         Section  1.1  Terms  Defined  in  Recitals.  As used  in this  Guaranty
Agreement,  the terms defined in the Recitals shall have the meanings  indicated
in the Recitals.

         Section 1.2 Certain  Definitions.  As used in this Guaranty  Agreement,
including the Recitals,  the following terms shall have the following  meanings,
unless the context otherwise requires:

         "Guarantor Claims" shall have the meaning indicated in Section 4.1.

                                                         1


<PAGE>



         "Guaranty  Agreement" shall mean this Guaranty  Agreement,  as the same
may  from  time  to time be  amended,  amended  and  restated,  supplemented  or
otherwise modified.

         "Loan Document" shall mean "Loan Document" as defined in the Credit
Agreement.

         "Material  Adverse Effect" shall mean a material  adverse effect on the
business,   condition   (financial  or  otherwise),   operations  or  properties
(including  proven oil and gas reserves) of the Guarantor and its  Subsidiaries,
taken as a whole,  or on the ability of the  Guarantor  to perform its  material
obligations under the Loan Documents to which it is a party taken as a whole.

         "Obligations" shall mean (a) the payment and performance of all present
and future  "Obligations"  (as  defined in the Credit  Agreement)  and any other
obligations and liabilities of the Company to the Agents and the Banks under the
Credit Agreement, including but not limited to, the full and punctual payment of
the Loans and any and all promissory  notes given in connection  with the Credit
Agreement,  or in modification,  renewal,  extension or rearrangement thereof in
whole or in part;  (b) all  obligations  of the  Guarantor  under this  Guaranty
Agreement;  and (c) all  interest  (whether  pre- or post-  petition),  charges,
expenses,  reasonable attorneys' or other fees and any other sums payable to the
Agents  and the  Banks in  connection  with  the  execution,  administration  or
enforcement  of any of their  rights and  remedies  hereunder  or any other Loan
Document.

         Section 1.3 Credit  Agreement  Definitions.  Unless  otherwise  defined
herein,  all terms  beginning  with a capital  letter  which are  defined in the
Credit Agreement shall have the same meanings herein as therein.

                                   Article II

                                    Guaranty

         Section 2.1   Obligations Guaranteed.  The Guarantor hereby
irrevocably and unconditionally guarantees the prompt payment at maturity of the
Obligations.

         Section  2.2  Nature  of  Guaranty.   This  guaranty  is  an  absolute,
irrevocable,  completed and continuing guaranty of payment and not a guaranty of
collection,  and no notice of the Obligations or any extension of credit already
or  hereafter  contracted  by or extended  to the  Company  need be given to the
Guarantor.  This guaranty may not be revoked by the Guarantor and shall continue
to be effective  with respect to debt under the  Obligations  arising or created
after any  attempted  revocation by the Guarantor and shall remain in full force
and  effect  until  the  Obligations  are paid in full and the  Commitments  are
terminated,  notwithstanding that from time to time prior thereto no Obligations
may be  outstanding.  The Company,  the Agents and the Banks may modify,  alter,
rearrange, extend for any period and/or renew from time to time, the Obligations
and the Agents and the Banks may waive any Defaults or Events of Default without
notice to the Guarantor and in such event the Guarantor  will remain fully bound
hereunder on the Obligations. Subject to the terms of the Credit Agreement, this
Guaranty  Agreement  may be  enforced  by the  Agents  and/or  the Banks and any
subsequent  holder  of  the  Obligations  and  shall  not be  discharged  by the
assignment  or  negotiation  of all or part of the  Obligations.  The  Guarantor
hereby expressly waives

                                                         2


<PAGE>



presentment,  demand,  notice of non-payment,  protest and notice of protest and
dishonor,  notice  of Event of  Default,  notice of  intent  to  accelerate  the
maturity  and notice of  acceleration  of the  maturity  and any other notice in
connection with the Obligations,  and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of the Agents and the Banks being conclusively
presumed by their request for this  Guaranty  Agreement and delivery of the same
to the Administrative Agent.

         Section  2.3  Banks'  Rights.  Subject  to  the  terms  of  the  Credit
Agreement,  the Guarantor  authorizes the Banks (or the Administrative  Agent on
behalf of the  Banks),  without  notice  or demand  and  without  affecting  the
Guarantor's obligation hereunder,  to take and hold agreed-upon security for the
payment of the Obligations,  and exchange,  enforce,  waive and release any such
security;  and to apply  such  security  and  direct the order or manner of sale
thereof as the Agents and the Banks in their  discretion may  determine;  and to
obtain a guaranty  of the  Obligations  from any one or more  Persons and at any
time or times to enforce, waive, rearrange, modify, limit or release any of such
other Persons from their obligations under such guaranties.

         Section 2.4  Guarantor's  Waivers.  The  Guarantor  waives any right to
require the Agents and the Banks to (a) proceed against the Company or any other
Person liable on the  Obligations,  (b) enforce  their rights  against any other
guarantor of the  Obligations,  (c) proceed or enforce  their rights  against or
exhaust  any  security  given to secure the  Obligations,  (d) have the  Company
joined with the  Guarantor  in any suit arising out of this  Guaranty  Agreement
and/or the Obligations,  or (e) pursue any other remedy whatsoever.  Neither the
Agents nor the Banks shall be required to mitigate damages or take any action to
reduce,  collect or enforce the  Obligations.  The Guarantor  waives any defense
arising by reason of any  disability,  lack of corporate  authority or power, or
other  defense of the Company or any other  guarantor  of the  Obligations,  and
shall  remain  liable  hereon  regardless  of whether  the  Company or any other
guarantor be found not liable thereon for any reason.

         Section 2.5 Maturity of Obligations; Payment. The Guarantor agrees that
if the maturity of the  Obligations  is  accelerated by bankruptcy or otherwise,
such maturity shall also be deemed  accelerated for the purpose of this Guaranty
Agreement  without  demand or  notice  to the  Guarantor.  The  Guarantor  will,
forthwith upon notice from the Administrative  Agent of the Company's failure to
pay the Obligations at maturity, pay to the Administrative Agent for the benefit
of the Agents and the Banks at the Administrative  Agent's Principal Office, the
amount due and unpaid by the Company and guaranteed  hereby.  The failure of the
Administrative  Agent to give  this  notice  shall  not in any way  release  the
Guarantor hereunder.

         Section  2.6  Banks'  Expenses.  If the  Guarantor  fails  to  pay  the
Obligations after notice from the Administrative  Agent of the Company's failure
to pay any Obligations at maturity  (whether by acceleration or otherwise),  and
if the Agents or the Banks obtain the services of an attorney for  collection of
amounts owing by the Guarantor hereunder, or obtain advice of counsel in respect
of any of their rights  under this  Guaranty  Agreement,  or if suit is filed to
enforce this Guaranty  Agreement,  or if proceedings  are had in any bankruptcy,
receivership or other judicial  proceedings for the  establishment or collection
of any amount owing by the Guarantor hereunder, or if any

                                                         3


<PAGE>



amount owing by the Guarantor  hereunder is collected  through such proceedings,
the Guarantor agrees to pay to the Administrative  Agent at its Principal Office
the reasonable attorneys' fees of the Agents and the Banks.

         Section 2.7 Obligation.  It is expressly agreed that the obligation of 
the Guarantor for the payment of the Obligations guaranteed hereby shall be
primary and not secondary.

         Section 2.8 Events and  Circumstances  Not Reducing or Discharging  the
Guarantor's  Obligations.  The Guarantor hereby consents and agrees,  to each of
the following to the fullest extent permitted by law, that its obligations under
this Guaranty Agreement shall not be released, diminished,  impaired, reduced or
adversely  affected by any of the  following,  and waives any rights  (including
without  limitation  rights to notice) which it might otherwise have as a result
of or in connection with any of the following:

         (a)  Modifications,  etc.  Any  renewal,  extension,  modification,  or
increase  in the  amount of the  Commitments  as in  effect on the date  hereof,
decrease, alteration or rearrangement of all or any part of the Obligations, any
Loan  Document  or any  instrument  executed  in  connection  therewith,  or any
contract or  understanding  between the Company,  any Agent and/or the Banks, or
any other Person, pertaining to the Obligations;

         (b)  Adjustment,  etc.  Any  adjustment,   indulgence,  forbearance  or
compromise  that  might be  granted  or given by the  Agents or the Banks to the
Company, the Guarantor or any Person liable on the Obligations;

         (c)  Condition  of  the  Company  or  the  Guarantor.  The  insolvency,
bankruptcy, arrangement,  reorganization,  adjustment, composition, liquidation,
disability,  dissolution or lack of power of the Company or the Guarantor or any
other  Person  at any  time  liable  for  the  payment  of all  or  part  of the
Obligations;  or any sale,  lease or transfer of any or all of the assets of the
Company or the Guarantor,  or any changes in the  shareholders of the Company or
the Guarantor;

         (d)  Invalidity  of   Obligations.   The   invalidity,   illegality  or
unenforceability  of all or any part of the Obligations or any Loan Document for
any  reason   whatsoever,   including  without  limitation  the  fact  that  the
Obligations, or any part thereof, exceed the amount permitted by law, the act of
creating the  Obligations  or any part  thereof is ultra vires,  the officers or
representatives   executing  any  Loan   Document  or  otherwise   creating  the
Obligations  acted  in  excess  of  their  authority,  the  Obligations  violate
applicable  usury  laws,  the  Company  has valid  defenses,  claims or  offsets
(whether at law, in equity or by agreement) which render the Obligations  wholly
or  partially  uncollectible  from the Company,  the  creation,  performance  or
repayment of the Obligations (or the execution,  delivery and performance of any
Loan Document) is illegal,  uncollectible,  legally impossible or unenforceable,
or the Credit  Agreement or other Loan  Documents  have been forged or otherwise
are irregular or not genuine or authentic;

         (e)      Release of Obligors.  Any full or partial release of the
obligation of the Company on the Obligations or any part thereof, of any 
co-guarantors, or any other Person now or hereafter liable,

                                                         4


<PAGE>



whether directly or indirectly, jointly, severally, or jointly and severally, to
pay,  perform,  guarantee or assure the payment of the  Obligations  or any part
thereof, it being recognized,  acknowledged and agreed by the Guarantor that the
Guarantor may be required to pay the  Obligations in full without  assistance or
support of any other  Person,  and the  Guarantor  has not been induced to enter
into  this  Guaranty  Agreement  on  the  basis  of  a  contemplation,   belief,
understanding  or agreement  that other  parties  other than the Company will be
liable to perform the Obligations, or that the Agents and the Banks will look to
other parties to perform the Obligations;

         (f)      Security.  The taking or accepting of any security, collateral
or guaranty, or other assurance of payment, for all or any part of the 
Obligations;

         (g) Release of  Collateral,  etc.  Any  release,  surrender,  exchange,
subordination,  deterioration,  waste,  loss or  impairment  (including  without
limitation negligent,  willful, unreasonable or unjustifiable impairment) of any
collateral,  property or security,  at any time existing in connection  with, or
assuring or securing payment of, all or any part of the Obligations;

         (h) Care and  Diligence.  The  failure  of any Agent or any Bank or any
other  Person to exercise  diligence  or  reasonable  care in the  preservation,
protection,  enforcement, sale or other handling or treatment of all or any part
of such collateral, property or security;

         (i) Status of Liens.  The fact that any  collateral,  security  or Lien
contemplated  or  intended to be given,  created or granted as security  for the
repayment of the  Obligations  shall not be properly  perfected  or created,  or
shall prove to be  unenforceable  or  subordinate  to any other  Lien,  it being
recognized  and agreed by the Guarantor  that the Guarantor is not entering into
this Guaranty  Agreement in reliance on, or in contemplation of the benefits of,
the validity,  enforceability,  collectability or value of any of the collateral
for the Obligations;

         (j) Payments Rescinded. Any payment by the Company to any Agent or Bank
is held to constitute a preference  under the bankruptcy laws, or for any reason
an Agent or Bank is required  to refund  such  payment or pay such amount to the
Company or someone else; or

         (k) Other Actions  Taken or Omitted.  Any other action taken or omitted
to be taken with respect to the Credit  Agreement  or the other Loan  Documents,
the Obligations,  or the security and collateral  therefor,  whether or not such
action or omission prejudices the Guarantor or increases the likelihood that the
Guarantor will be required to pay the Obligations  pursuant to the terms hereof;
it being the  unambiguous  and  unequivocal  intention of the Guarantor that the
Guarantor  shall be obligated to pay the Obligations  when due,  notwithstanding
any occurrence,  circumstance,  event, action, or omission  whatsoever,  whether
contemplated  or  uncontemplated,  and whether or not otherwise or  particularly
described herein,  except for the full and final payment and satisfaction of the
Obligations.

         Section 2.9 Limitations on Obligation of the Guarantor  Hereunder.  The
parties  hereto (i) intend that the  obligation  of the  Guarantor  hereunder be
limited to the maximum  amount that would not result in the  obligation  created
hereby being avoidable under Section 548 of the Federal

                                                         5


<PAGE>



Bankruptcy  Code (11 U.S.C.  Section 548;  hereinafter  "Section  548") or other
applicable state fraudulent  conveyance or transfer law and (ii) agree that this
Guaranty  Agreement  shall be so construed.  Accordingly,  the obligation of the
Guarantor  hereunder  is  limited  to an amount  that is the  greater of (x) the
"reasonably equivalent value" or "fair consideration"  received by the Guarantor
in exchange for the obligation incurred hereunder, within the meaning of Section
548, as amended, or any applicable state fraudulent  conveyance or transfer law,
as amended; or (y) the lesser of (1) the maximum amount that will not render the
Guarantor  insolvent or (2) the maximum amount that will not leave the Guarantor
with any Property deemed an unreasonably small capital.  Clauses (1) and (2) are
and shall be determined pursuant to Section 548, as amended, or other applicable
state fraudulent conveyance or transfer law, as amended.

         Section 2.10  Subrogation.  The Guarantor shall not exercise any rights
which  it  may  acquire  by  way  of  subrogation,  reimbursement,  exoneration,
indemnification  or  participation,  by any  payment  made under  this  Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations have
been paid in full and the  Commitments  are  terminated.  Except as described in
this  Section,  the  Guarantor  further  waives  any  benefit  of any  right  to
participate  in any  security  now or  hereafter  held by the Agents  and/or the
Banks.

                                   Article III

                    Representations, Warranties and Covenants

         Section  3.1  Representations  and  Warranties.  In order to induce the
Agents and the Banks to accept this Guaranty Agreement, the Guarantor represents
and warrants to the Agents and Banks (which  representations and warranties will
survive the creation of the Obligations and any extension of credit  thereunder)
that:

         (a)  Benefit  to  the  Guarantor.   The  Guarantor  is  a  wholly-owned
Subsidiary of the Company and the Guarantor's guaranty pursuant to this Guaranty
Agreement  reasonably may be expected to benefit,  directly or  indirectly,  the
Guarantor;  and the Guarantor  has  determined  that this Guaranty  Agreement is
necessary  and  convenient  to the  conduct,  promotion  and  attainment  of the
business of the Guarantor and the Company.

         (b)  Corporate  Existence.  The  Guarantor:  (i) is duly  organized and
validly existing under the laws of the  jurisdiction of its formation;  (ii) has
all requisite power, and has all material governmental licenses, authorizations,
consents and approvals  necessary to own its assets and carry on its business as
now being conducted;  and (iii) is qualified to do business in all jurisdictions
in which the nature of the  business  conducted  by it makes such  qualification
necessary and where failure so to qualify would have a Material Adverse Effect.

         (c) No Breach.  The  execution  and  delivery by the  Guarantor of this
Guaranty  Agreement  and the other Loan  Documents  to which it is a party,  the
consummation  of the  transactions  herein  or  therein  contemplated,  and  the
compliance  with the terms and  provisions  hereof will not (i) conflict with or
result in a breach of, or require any  consent  under (A) the charter or by-laws
of the Guarantor,  or (B) any applicable law or regulation,  or any order, writ,
injunction or decree of any

                                                         6


<PAGE>



court or other Governmental  Authority,  or any material agreement or instrument
to  which  the  Guarantor  is a party  or by which it is bound or to which it is
subject in each case in such  manner as could  reasonably  be expected to have a
Material  Adverse Effect;  or (ii) constitute a default under any such agreement
or  instrument,  or result in the creation or imposition of any Lien upon any of
the  revenues or property of the  Guarantor in each case in such manner as could
reasonably be expected to have a Material Adverse Effect.

         (d) Corporate Action.  The Guarantor has all necessary  corporate power
and  authority  to  execute,  deliver and  perform  its  obligations  under this
Guaranty  Agreement  and the Loan  Documents  to  which  it is a party;  and the
execution,  delivery and performance by the Guarantor of this Guaranty Agreement
and the other  Loan  Documents  to which  such  Person is a party have been duly
authorized  by all  necessary  corporate  action  on  its  part.  This  Guaranty
Agreement and the Loan  Documents to which the  Guarantor is a party  constitute
the legal,  valid and binding obligation of the Guarantor,  enforceable  against
the  Guarantor  in  accordance  with  their  terms,  except as may be limited by
applicable  bankruptcy,   insolvency,   reorganization  or  other  similar  laws
affecting creditors' rights and general principals of equity.

         (e) Approvals.  Other than consents heretofore obtained or described in
the Credit  Agreement,  no  authorizations,  approvals  or  consents  of, and no
filings or registrations with, any Governmental  Authority are necessary for the
execution,  delivery or performance by the Guarantor of this Guaranty  Agreement
or  the  Loan  Documents  to  which  it  is a  party  or  for  the  validity  or
enforceability  thereof.  It is understood  that  continued  performance  by the
Guarantor of this Guaranty Agreement and the other Loan Documents to which it is
a party will require various  filings,  such as filings related to environmental
matters,  ERISA matters,  Taxes and intellectual  property,  filings required to
maintain  corporate and similar standing and existence,  filings pursuant to the
Uniform  Commercial  Code and other security  filings and recordings and filings
required by the SEC,  routine  filings in the ordinary  course of business,  and
filings  required in connection with the exercise by the Banks and the Agents of
remedies in connection with the Loan Documents.

         (f)  Solvency.  The  Guarantor  (i) is not  insolvent  and  will not be
rendered insolvent as a result of this Guaranty  Agreement,  (ii) is not engaged
in a  business  or a  transaction,  or  about  to  engage  in  a  business  or a
transaction,  for which any property or assets  remaining with the Guarantor are
unreasonably  small capital,  and (iii) does not intend to incur,  or believe it
will incur, debts that will be beyond its ability to pay as such debts mature.

         (g) No Representation  by Agents or Banks.  Neither any Agent, any Bank
nor any other Person has made any  representation,  warranty or statement to the
Guarantor in order to induce the Guarantor to execute this Guaranty Agreement.

         Section 3.2 Covenants.  The Guarantor  acknowledges that it is has read
the Credit  Agreement and hereby  covenants and agrees to comply with  covenants
and agreements set forth therein which restrict  Restricted  Subsidiaries of the
Company in so far as such covenants and agreements apply to it.

                                                         7


<PAGE>



                                   Article IV

                          Subordination of Indebtedness

         Section 4.1 Subordination of all Guarantor Claims. As used herein,  the
term  "Guarantor  Claims" shall mean all debts and obligations of the Company to
the  Guarantor,  whether such debts and  obligations  now exist or are hereafter
incurred or arise,  or whether the  obligation be direct,  contingent,  primary,
secondary, several, joint and several, or otherwise, and irrespective of whether
such debts or  obligations  be evidenced by note,  contract,  open  account,  or
otherwise,  and  irrespective of the Person or Persons in whose favor such debts
or obligations may, at their inception,  have been, or may hereafter be created,
or the  manner in which  they  have been or may  hereafter  be  acquired  by the
Guarantor.  Except for  payments  permitted by the Credit  Agreement,  until the
Obligations  shall be paid and satisfied in full, the Commitments are terminated
and the Guarantor shall have performed all of its obligations  hereunder and the
Loan  Documents  to which it is a party,  the  Guarantor  shall not  receive  or
collect, directly or indirectly,  from the Company any amount upon the Guarantor
Claims.

         Section  4.2  Claims  in  Bankruptcy.  In the  event  of  receivership,
bankruptcy,  reorganization,  arrangement,  debtor's relief, or other insolvency
proceedings  involving the Company,  the  Administrative  Agent on behalf of the
Agents  and the  Banks  shall  have  the  right  to  prove  their  claim  in any
proceeding,  so as to establish their rights hereunder and receive directly from
the receiver,  trustee or other court  custodian,  dividends and payments  which
would otherwise be payable upon Guarantor  Claims.  The Guarantor hereby assigns
such dividends and payments to the  Administrative  Agent for the benefit of the
Agents and the Banks. Should any Agent or Bank receive, for application upon the
Obligations,  any such  dividend or payment  which is  otherwise  payable to the
Guarantor, and which, as between the Company and the Guarantor, shall constitute
a credit upon the Guarantor Claims, then upon payment in full of the Obligations
and the termination of the Commitments, the Guarantor shall become subrogated to
the rights of the Agents and the Banks to the extent  that such  payments to the
Agents  and the  Banks on the  Guarantor  Claims  have  contributed  toward  the
liquidation of the Obligations,  and such  subrogation  shall be with respect to
that  proportion of the  Obligations  which would have been unpaid if the Agents
and the Banks had not received dividends or payments upon the Guarantor Claims.

         Section 4.3 Payments Held in Trust.  In the event that  notwithstanding
Sections 4.1 and 4.2, the Guarantor should receive any funds,  payments,  claims
or distributions which is prohibited by such Sections,  the Guarantor agrees (a)
to hold in trust for the Agents  and the Banks an amount  equal to the amount of
all funds, payments,  claims or distributions so received, and (b) that it shall
have absolutely no dominion over the amount of such funds,  payments,  claims or
distributions  except to pay them promptly to the Administrative  Agent, for the
benefit of the Agents and the Banks; and the Guarantor covenants promptly to pay
the same to the Administrative Agent.

         Section 4.4 Liens  Subordinate.  The Guarantor  agrees that,  until the
Obligations are paid in full and the Commitments terminated,  any Liens upon the
Company's  assets securing  payment of the Guarantor  Claims shall be and remain
inferior and subordinate to any Liens upon the Company's assets securing payment
of the Obligations, regardless of whether such encumbrances

                                                         8


<PAGE>



in favor of the Guarantor,  any Agent or Bank  presently  exist or are hereafter
created or  attach.  Without  the prior  written  consent of the  Administrative
Agent,  the  Guarantor,  during the period in which any of the  Obligations  are
outstanding or the Commitments are in effect,  shall not (a) exercise or enforce
any  creditor's  right  it may  have  against  the  Company,  or (b)  foreclose,
repossess,  sequester  or  otherwise  take  steps or  institute  any  action  or
proceeding (judicial or otherwise, including without limitation the commencement
of or joinder in any liquidation, bankruptcy,  rearrangement, debtor's relief or
insolvency proceeding) to enforce any Lien, mortgages,  deeds of trust, security
interest,  collateral  rights,  judgments or other encumbrances on assets of the
Company held by the Guarantor.

         Section 4.5 Notation of Records.  All  promissory  notes and,  upon the
request of the  Administrative  Agent, all accounts  receivable ledgers or other
evidence of the  Guarantor  Claims  accepted by or held by the  Guarantor  shall
contain a  specific  written  notice  thereon  that the  indebtedness  evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                    Article V

                                  Miscellaneous

         Section 5.1  Successors  and Assigns.  This  Guaranty  Agreement is and
shall be in every  particular  available  to the  successors  and assigns of the
Agents  and the Banks and is and shall  always be fully  binding  upon the legal
representatives,  successors and assigns of the Guarantor,  notwithstanding that
some or all of the  monies,  the  repayment  of which  this  Guaranty  Agreement
applies,   may  be  actually   advanced  after  any  bankruptcy,   receivership,
reorganization or other event affecting either the Company or the Guarantor.

         Section 5.2 Notices.  Any notice or demand to the Guarantor under or in
connection with this Guaranty  Agreement may be given and shall  conclusively be
deemed and considered to have been given and received in the manner provided for
in Section 13.2 of the Credit  Agreement and to the address of the Guarantor set
forth on the signature page to this Guaranty Agreement.

         Section  5.3   Authority  of   Administrative   Agent.   The  Guarantor
acknowledges that the rights and  responsibilities  of the Administrative  Agent
under  this  Guaranty  Agreement  with  respect  to  any  action  taken  by  the
Administrative Agent or the exercise or non-exercise by the Administrative Agent
of any option,  right,  request,  judgment or other right or remedy provided for
herein or resulting or arising out of this Guaranty  Agreement shall, as between
the Agents and the Banks, be governed by the Credit  Agreement and by such other
agreements  with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Guarantor,  the Administrative Agent
shall be conclusively presumed to be acting as agent for the Banks with full and
valid authority so to act or refrain from acting; and the Guarantor shall not be
under any  obligation,  or  entitlement,  to make any  inquiry  respecting  such
authority.

                                                         9


<PAGE>



         Section 5.4       CONSTRUCTION.

         (a)  THIS  GUARANTY  AGREEMENT  (INCLUDING,  BUT NOT  LIMITED  TO,  THE
VALIDITY  AND  ENFORCEABILITY  HEREOF)  SHALL BE GOVERNED  BY, AND  CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

         (b) ANY LEGAL  ACTION  OR  PROCEEDING  WITH  RESPECT  TO THIS  GUARANTY
AGREEMENT OR THE OTHER LOAN  DOCUMENTS TO WHICH THE  GUARANTOR IS A PARTY MAY BE
BROUGHT IN THE  COURTS OF THE STATE OF TEXAS OR OF THE UNITED  STATES OF AMERICA
FOR THE  SOUTHERN  DISTRICT OF TEXAS,  AND, BY  EXECUTION  AND  DELIVERY OF THIS
GUARANTY  AGREEMENT,  THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS.  THE GUARANTOR HEREBY  IRREVOCABLY  WAIVES
ANY OBJECTION,  INCLUDING,  WITHOUT  LIMITATION,  ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE  GROUNDS  OF  FORUM  NON  CONVENIENS,  WHICH IT MAY NOW OR
HEREAFTER  HAVE  TO THE  BRINGING  OF ANY  SUCH  ACTION  OR  PROCEEDING  IN SUCH
RESPECTIVE  JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE  AND
DOES  NOT  PRECLUDE  THE  ADMINISTRATIVE   AGENT  OR  ANY  BANK  FROM  OBTAINING
JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION.

         (c) THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO IT, AS THE
CASE MAY BE, AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
SUCH MAILING.

         (d) NOTHING  HEREIN  SHALL AFFECT THE RIGHT OF ANY AGENT OR ANY BANK OR
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE  LEGAL  PROCEEDINGS OR OTHERWISE  PROCEED  AGAINST THE GUARANTOR IN ANY
OTHER JURISDICTION.

         (e) THE GUARANTOR  AND, BY ITS ACCEPTANCE  HEREOF,  EACH AGENT AND EACH
BANK HEREBY (I)  IRREVOCABLY  AND  UNCONDITIONALLY  WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW,  TRIAL BY JURY IN ANY LEGAL ACTION OR  PROCEEDING  RELATING TO
THIS GUARANTY  AGREEMENT OR ANY LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR ANY
COUNTERCLAIM  THEREIN;  (II)  IRREVOCABLY  WAIVE,  TO  THE  MAXIMUM  EXTENT  NOT
PROHIBITED  BY LAW,  ANY  RIGHT  IT MAY HAVE TO  CLAIM  OR  RECOVER  IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL

                                                        10


<PAGE>



DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY
THAT NO PARTY  HERETO NOR ANY  REPRESENTATIVE  OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS GUARANTY AGREEMENT,  THE
LOAN DOCUMENTS AND THE  TRANSACTIONS  CONTEMPLATED  HEREBY AND THEREBY BY, AMONG
OTHER THINGS,  THE MUTUAL WAIVERS AND  CERTIFICATIONS  CONTAINED IN THIS SECTION
5.4.

         Section 5.5 Survival of Obligations. To the extent that any payments on
the  Obligations  or proceeds of any collateral  are  subsequently  invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee,  debtor in possession,  receiver or other Person under any bankruptcy
law,  common law or equitable  cause,  then to such extent,  the  Obligations so
satisfied  shall be revived and  continue as if such payment or proceeds had not
been received and the Agents' and the Banks' Liens, rights,  powers and remedies
under this  Guaranty  Agreement and each Loan  Document  shall  continue in full
force and  effect.  In such event,  each Loan  Document  shall be  automatically
reinstated  and the  Guarantor  shall  take  such  action  as may be  reasonably
requested   by  the   Administrative   Agent  and  the  Banks  to  effect   such
reinstatement.

         Section 5.6      Status as Specified or Designated Senior Indebtedness.
The Guarantor hereby acknowledges and confirms that:

         (a)  this  Guaranty  Agreement  and the  obligations  of the  Guarantor
hereunder are "Guarantor Senior  Indebtedness"  and "Specified  Guarantor Senior
Indebtedness" under and for purposes of the 95 Indenture; and

         (b)  this  Guaranty  Agreement  and the  obligations  of the  Guarantor
hereunder are "Guarantor Senior  Indebtedness" and "Designated  Guarantor Senior
Indebtedness"  under and for purposes of the 96 Indenture,  the 97 Indenture and
the 98 Senior Subordinated Indenture;

and that as such,  the  Agents  and the Banks are  entitled  to the  rights  and
privileges  afforded  holders  of  Guarantor  Senior   Indebtedness,   Specified
Guarantor Senior Indebtedness or Designated  Guarantor Senior  Indebtedness,  as
applicable, under each of such Indentures.

         Section 5.7  Interest.  It is in the interest of the  Guarantor and the
Agents  and  the  Banks  to  conform  strictly  to all  applicable  usury  laws.
Accordingly,  reference is made to Section 13.6 of the Credit Agreement which is
incorporated herein by reference for all purposes.

                                                        11

<PAGE>

        WITNESS THE  EXECUTION  HEREOF,  effective as of the date first  written
above.

                   OCEAN ENERGY, INC., a Louisiana corporation

                                     By:    
                                     Name:    James C. Flores,
                                     Title:   President

                                     Address: c/o Ocean Energy, Inc.

                             1001 Fannin, Suite 1700
                              Houston, Texas 77002

                                     Contact:          Stephen A. Thorington
                                     Telephone:        (713) 951-1319
                                     Telecopy:         (713) 951-4846

                                                      S - 1