SEAGULL ENERGY CORPORATION

                             1981 STOCK OPTION PLAN
                                   (RESTATED)

I.  History and Purpose of the Plan

     The Seagull  Energy  Corporation  1981 Stock  Option  Plan(the  "Plan") was
originally  adopted by Seagull  Energy  Corporation,  a Texas  corporation  (the
"Company"),  on December  31,1981 and was  approved by the  shareholders  of the
Company on May28,  1982. The Plan  isintended to provide a means whereby certain
employees   of  the  Company  and  its   subsidiaries   maydevelop  a  sense  of
proprietorship and personal involvement in the development and financial success
of the  Company,  and to  encourage  them to remain  with and devote  their best
efforts to the business of the Company,  thereby  advancing the interests of the
Company  and its  shareholders.  Accordingly,  the  Company may grant to certain
employees  the option  ("Option")to  purchase  shares of the common stock of the
Company("Stock"),  as hereinafter set forth.  Options granted under the Plan may
be either incentive stock options,  within the meaning of section 422A(b) of the
Internal  Revenue  Code of 1986,  as amended  (the  "Code"),  ("Incentive  Stock
Options")  oroptions  which  do  not  constitute  Incentive  Stock  Options.  On
September  20, 1988,  the Company  restated the Plan in the form of this Seagull
Energy  Corporation  1981  Stock  Option  Plan  (Restated)  for the  purpose  of
incorporating  certain  amendments  previously  adopted with respect to the Plan
into the  text of the  Plan and for  purposes  of  amending  the Plan  incertain
respects. The terms and provisions of this restatement of the Plan are effective
only with  respect  to  Options  granted  from and after  September20,  1988 and
Options  granted  prior to such date shall  continue to be governed by the terms
and  provisions of the Plan (and  amendments  thereto) as in effect on September
20, 1988.

II.  Administration

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

III.  Option Agreements

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

     (b)  Paragraph  (a)  above  to  the  contrary  notwithstanding,  an  Option
Agreement evidencing an Option granted underthe Plan shall include the following
specific provisions:

     (i)  A provision  restricting  exercise of theOption until the Optionee has
          performed  one year  ofemployment  with the  Company  or any parent or
          subsidiary  corporation  (as defined in section 425 ofthe Code) of the
          Company following the date ofgrant of the Option;A

     (ii) A provision restricting exercise of theOption following termination of
          employment  byreason of retirement or disability to an  exerciseperiod
          of three months  following the date of  suchtermination  of employment
          and  further  restrictingsuch  exercise  to the extent such Option was
          exercisable at the date of such termination of employment; andA

     (iii)A provision  restricting  exercise of theOption  upon  termination  of
          employment  by  reason  ofdeath  to an  exercise  period  of one  year
          followingthe date of such death and further  restricting  suchexercise
          to  the  extent  that  the  Option  was  exercisable  as of  the  date
          immediately preceding suchdeath.A

     IV.  Eligibility of Optionee

     Options may be granted only to individuals who are keyemployees  (including
officers and directors who are also  keyemployees)  of the Company or any parent
or  subsidiary  corporation  (as  defined  in  section425  of the  Code)  of the
Companyat the time the Option is granted and who, as of such  time,are  employed
on a fulltime  basis and who are  compensated  forsuch  employment  by a regular
salary.  Options may be grantedto the same individual on more than one occasion.
No Incentive  Stock Option shall be granted to an individual  if, atthe time the
Option is granted,  such  individual owns  stockpossessing  more than 10% of the
total  combined  voting  powerof  all  classes of stock of the Company or of its
parent orsubsidiary corporation,  within the meaning of section422A(b)(6) of the
Code,  unless (i)at the time such Option  isgranted the option price is at least
110% of the fair  marketvalue  of the Stock  subject to the Option and  (ii)such
Optionby its terms is not  exercisable  after the expiration of fivebyears  from
the  date  of  grant.  To the  extent  that  the  aggregate  fair  market  value
(determined  at the time the  respectiveIncentive  Stock  Option is  granted) of
stock with  respect  towhich  Incentive  Stock  Options  granted  after 1986 are
exercisable  for the first time by an individual  during any calendar year under
all  incentive  stock option plans of the Company and its parent and  subsidiary
corporations  exceeds$100,000,  such  Incentive  Stock  Options shall be treated
asoptions which do not constitute  Incentive Stock Options.  TheCommittee  shall
determine,  in  accordance  with  applicableprovisions  of  the  Code,  Treasury
Regulations  and other  administrative  pronouncements,  which of an  optionee's
IncentiveStock  Options will not constitute  Incentive Stock  Optionsbecause  of
such  limitation and shall notify the optionee ofsuch  determination  as soon as
practicable after such determination.

V.  Shares Subject to the Plan

     The aggregate  number of shares which may be issued under  Options  granted
under the Plan shall not exceed 250,000 shares of Stock. Such shares may consist
of authorized  butunissued  shares of Stock or previously issued shares of Stock
reacquired  by the Company.  Any of such shares which remain  unissued and which
are not subject to outstanding Options atthe termination of the Plan shall cease
to be subject to the Plan, but, until termination of the Plan, the Company shall
at all  times  make  available  a  sufficient  number  of  shares  to  meet  the
requirements of the Plan.  Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan.  The aggregate  number of shares
which may be issued  under the Plan shall be subject to  adjustment  in the same
manner as provided  in  Paragraph  VIII  hereof with  respect to shares of Stock
subject  to  Options  then  outstanding.  Exercise  of an Option in any  manner,
including an exercise  involving a Stock  Appreciation  Right, shall result in a
decrease in the number of shares of Stock  which may  thereafter  be  available,
both for purposes ofthe Plan and for sale to any one  individual,  by the number
of shares as to which the Option is exercised. Separate stock certificates shall
be issued by the Company for those shares  acquired  pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option which does not constitute an Incentive Stock Option.

 VI. Option Price

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

VII.  Term of Plan

     The Plan became  effective upon December 31, 1981,  thedate of its adoption
by the Board.  Except with  respect to Options then  outstanding,  if not sooner
terminated  under the provisions of Paragraph IX, the Plan shall  terminate upon
and no further  Options shall be granted after the  expiration  often years from
the date of its adoption by the Board.

VIII.  Recapitalization or Reorganization

     (a) The existence of the Plan and the Options  granted  hereunder shall not
affect  in any way the right or power of the  Board or the  shareholders  of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital  structure or its business,  any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting  Stock or the rights  thereof,  the  dissolution or liquidation of the
Company or any sale,  lease,  exchange or other disposition ofall or any part of
its assets or business or any other corporate act or proceeding.

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

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

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

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

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

IX.  Amendment or Termination of the Plan

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