SEVERANCE AGREEMENT

         AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation
(the "Company"), and Gerald R. Colley ("Executive"),

                              W I T N E S S E T H :

         WHEREAS,  the Company desires to retain certain key employee  personnel
and,  accordingly,  the Board of  Directors  of the Company  (the  "Board")  has
approved the Company entering into a severance agreement with Executive in order
to encourage his continued service to the Company; and

         WHEREAS,  Executive  is prepared to commit such  services in return for
specific arrangements with respect to severance compensation and other benefits;

         NOW,  THEREFORE,  in  consideration of the foregoing and for other good
and valuable consideration, the Company and Executive agree as follows:

         1.       Definitions.

                  (a) "Change in Duties" shall mean the  occurrence,  within two
years after the date upon which a Change of Control  occurs,  of any one or more
of the following:

                           (i)  A   significant   reduction  in  the  duties  of
         Executive from those applicable to him immediately prior to the date on
         which a Change of Control occurs;

                           (ii) A  reduction  in  Executive's  annual  salary or
         target opportunity under any applicable bonus or incentive compensation
         plan from that provided to him immediately prior to the date on which a
         Change of Control occurs;

                           (iii) Receipt of employee benefits (including but not
         limited to medical,  dental,  life insurance,  accidental,  death,  and
         dismemberment,  and  long-term  disability  plans) and  perquisites  by
         Executive that are materially  inconsistent  with the employee benefits
         and  perquisites  provided by the Company to executives with comparable
         duties; or

                           (iv)  A  change  in  the   location  of   Executive's
         principal place of employment by the Company by more than 50 miles from
         the location where he was principally employed immediately prior to the
         date on which a Change of Control occurs.

                  (b) "Change of Control"  means the occurrence of either of the
following events:

                           (i) The Company (A) shall not be the surviving entity
         in any merger,  consolidation or other reorganization (or survives only
         as a  subsidiary  of an entity  other  than a  previously  wholly-owned
         subsidiary  of the Company) or (B) is to be dissolved  and  liquidated,
         and as a result of or in connection such  transaction,  the persons who
         were

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         directors of the Company before such transaction  shall cease to 
         constitute a majority of the Board; or

                           (ii) Any  person or  entity,  including  a "group" as
         contemplated  by Section  13(d)(3) of the  Securities  Exchange  Act of
         1934, as amended,  acquires or gains  ownership or control  (including,
         without  limitation,  power to vote) of 20% or more of the  outstanding
         shares of the Company's voting stock (based upon voting power),  and as
         a result of or in  connection  with such  transaction,  the persons who
         were  directors of the Company before such  transaction  shall cease to
         constitute a majority of the Board.

                  (c) "Code"  shall mean the Internal  Revenue Code of 1986,  as
amended.

                  (d)      "Compensation" shall mean the greater of:

                           (i)  Executive's  annual salary plus his Targeted EIP
         Award  immediately  prior  to the date on  which a  Change  of  Control
         occurs, or

                           (ii) Executive's  annual salary plus his Targeted EIP
         Award at the time of his Involuntary Termination.

                  (e) "EIP" shall mean the Seagull Energy Corporation  Executive
Incentive Plan or any successor thereto.

                  (f)  "Involuntary  Termination"  shall mean any termination of
Executive's employment with the Company which:

                           (i) does not result from a  resignation  by Executive
         (other than a resignation  pursuant to clause (ii) of this subparagraph
         (f) or a resignation at the request of the Company); or

                           (ii)  results from a  resignation  by Executive on or
         before the date which is sixty days after the date upon which Executive
         receives notice of a Change in Duties;

provided,  however,  the term  "Involuntary  Termination"  shall  not  include a
Termination for Cause or any termination as a result of death,  disability under
circumstances entitling him to benefits under the Company's long-term disability
plan, or Retirement.

                  (g)  "Retirement"  shall mean  Executive's  resignation  on or
after the date he reaches age sixty-five.

                  (h)  "Severance  Amount"  shall  mean an amount  equal to 2.99
times Executive's Compensation.

                  (i)  "Targeted  EIP Award"  shall mean  Executive's  Incentive
Target as set forth  under the EIP in effect for the year with  respect to which
such award is being determined, if any, or

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<PAGE>



for the last preceding year in which an EIP was in effect, expressed as a dollar
amount based on such Executive's annual salary for such year.

                  (j)   "Termination   for  Cause"  shall  mean  termination  of
Executive's  employment  by the  Company  (or its  subsidiaries)  by  reason  of
Executive's (i) gross negligence in the performance of his duties,  (ii) willful
and continued failure to perform his duties, (iii) willful engagement in conduct
which is materially injurious to the Company or its subsidiaries  (monetarily or
otherwise)  or (iv)  conviction  of a felony or a  misdemeanor  involving  moral
turpitude.

                  (k)  "Welfare  Benefit  Coverages"  shall  mean  the  medical,
dental,  life  insurance,  accidental  death  and  dismemberment  and  long-term
disability coverages provided by the Company to its active employees.

         2.  Services.  Executive  agrees  that he will  render  services to the
Company (as well as any  subsidiary  thereof or  successor  thereto)  during the
period  of his  employment  to the  best of his  ability  and in a  prudent  and
businesslike manner and that he will devote substantially the same time, efforts
and dedication to his duties as heretofore devoted.

         3. Severance Benefits. If Executive's  employment by the Company or any
subsidiary  thereof or  successor  thereto  shall be  subject to an  Involuntary
Termination  which occurs within two years after the date upon which a Change of
Control  occurs,  then  Executive  shall be entitled to receive,  as  additional
compensation for services rendered to the Company  (including its subsidiaries),
the following severance benefits:

                  (a) A lump sum cash payment in an amount equal to  Executive's
Severance Amount.

                  (b) A  lump  sum  cash  payment  in an  amount  equal  to  the
remaining portion of any award to Executive under any prior years' EIP. Further,
if Executive's  Involuntary Termination occurs on or after the date an award has
been earned under the EIP,  but prior to the date such award is paid,  Executive
shall  receive an  additional  lump sum cash  payment in an amount  equal to his
Targeted EIP Award.

                  (c)  Executive  shall be  entitled  to  continue  the  Welfare
Benefit  Coverages for himself and, where  applicable,  his eligible  dependents
following his Involuntary  Termination for up to thirty-six  months,  as long as
Executive  continues  either to pay the premiums paid by active employees of the
Company for such  coverages  or to pay the actual  (nonsubsidized)  cost of such
coverages for which the Company does not subsidize  for active  employees.  Such
benefit  rights shall apply only to those Welfare  Benefit  Coverages  which the
Company has in effect from time to time for active employees, and the applicable
payments shall adjust as premiums for active  employees of the Company or actual
costs,  whichever is  applicable,  change.  Welfare  Benefit  Coverage(s)  shall
immediately  end upon  Executive's  obtainment of new employment and eligibility
for  similar  Welfare  Benefit   Coverage(s)  (with  Executive  being  obligated
hereunder to promptly  report such  eligibility to the Company).  Nothing herein
shall be deemed to  adversely  affect in any way the  additional  rights,  after
consideration of this extension period, of Executive and his eligible dependents
to health care

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continuation  coverage as required pursuant to Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended.

                  (d)  Executive  shall be  entitled  to  receive  out-placement
services in connection  with  obtaining  new  employment up to a maximum cost of
$6,000.

                  (e) The severance  benefits payable under this Agreement shall
be paid to an  Executive  on or  before  the  fifth  day  after  the last day of
Executive's employment with the Company. Any severance benefits paid pursuant to
this Paragraph will be deemed to be a severance payment and not compensation for
purposes of determining  benefits under the Company's  qualified plans and shall
be subject to any required tax withholding.

         4. Interest on Late Benefit  Payments.  If any payment  provided for in
Paragraph  3(a) or 3(b) hereof is not made when due,  the  Company  shall pay to
Executive  interest on the amount payable from the date that such payment should
have been made under such paragraph  until such payment is made,  which interest
shall be  calculated  at the prime or base rate of interest  announced  by Chase
Bank of Texas,  N.A.  (or any  successor  thereto)  at its  principal  office in
Houston,  Texas and shall  change  when and as any such  change in such prime or
base rate shall be announced by such bank.

         5. Certain Additional Payments by the Company. Notwithstanding anything
in this  Agreement to the contrary,  if the severance  benefits  provided for in
Paragraph 3, together with any other payments  which  Executive has the right to
receive from the Company, would constitute a "parachute payment " (as defined in
Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall
be either (a) reduced  (but not below  zero) so that the  present  value of such
total amounts  received by Executive from the Company will be one dollar ($1.00)
less than three times Executive's base amount (as defined in Section 280G of the
Code) and so that no portion of such  amounts  received  by  Executive  shall be
subject  to the excise  tax  imposed by Section  4999 of the Code or (b) paid in
full,  whichever produces the better net after-tax position to Executive (taking
into account any  applicable  excise tax under  Section 4999 of the Code and any
applicable  income  tax).  The  Company  and  Executive  shall  make an  initial
determination  as to whether a reduction is required  and, if so  required,  the
amount of any such reduction.  Executive shall notify the Company immediately in
writing of any claim by the Internal Revenue Service which, if successful, would
require  the Company to make a reduction  (or a further  reduction  in excess of
that, if any,  initially  determined by the Company and  Executive)  within five
days of the receipt of such claim. The Company shall notify Executive in writing
at least five days prior to the due date of any response  required  with respect
to such  claim if it plans to  contest  the  claim.  If the  Company  decides to
contest such claim,  Executive  shall  cooperate  fully with the Company in such
action; provided, however, the Company shall bear and pay directly or indirectly
all costs and expenses (including additional interest and penalties) incurred in
connection  with  such  action.  If, as a result of the  Company's  action  with
respect to a claim,  the amount of the reduction is found to have been in excess
of the correct reduction amount, the Company shall promptly pay to Executive the
difference between such amounts with respect to such claim.

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<PAGE>



         6.       General.

                  (a) Term.  The effective  date of this Agreement is January 1,
1998. The initial term of this Agreement  shall be the period  beginning on said
effective date and ending on the two-year anniversary of said effective date. At
any time during the initial  term of this  Agreement  or within sixty days after
the  expiration  thereof and within  sixty days after each  successive  two-year
period of time  thereafter  that this Agreement is in effect,  the Company shall
have the right to  review  this  Agreement,  and in its sole  discretion  either
continue  and extend this  Agreement,  terminate  this Agree ment,  and/or offer
Executive a different  agreement.  The Board  (excluding any member of the Board
who is covered by this  Agreement  or by a similar  agreement  with the Company)
will vote on whether to so extend, terminate, and/or offer Executive a different
agreement  and will  notify  Executive  of such  action  before  the end of said
sixty-day time period  mentioned  above.  This Agreement  shall remain in effect
until so terminated and/or modified by the Company. Failure of the Board to take
any action within said sixty-day time period shall be considered as an extension
of this  Agreement for an additional  two-year  period of time.  Notwithstanding
anything to the contrary contained in this "sunset provision," it is agreed that
if a Change of Control  occurs  while  this  Agreement  is in effect,  then this
Agreement shall not be subject to termination or modification under this "sunset
provision,"  and shall  remain in force  for a period  of two years  after  such
Change of Control,  and if within said two years the  contingency  factors occur
which would entitle Executive to the benefits as provided herein, this Agreement
shall remain in effect in accordance  with its terms.  If, within such two years
after a Change of Control,  the contingency factors that would entitle Executive
to said benefits do not occur,  thereupon this two-year "sunset provision" shall
again be  applicable  with  the  sixty-day  time  period  for  Board  action  to
thereafter  commence  at the  expiration  of said two years after such Change of
Control and on each two-year anniversary date thereafter.

                  (b)  Indemnification.  If  Executive  shall  obtain  any money
judgment  or  otherwise  prevail  with  respect  to any  litigation  brought  by
Executive or the Company to enforce or interpret any provision contained herein,
the  Company,  to  the  fullest  extent  permitted  by  applicable  law,  hereby
indemnifies  Executive  for his  reasonable  attorneys'  fees and  disbursements
incurred in such  litigation  and hereby agrees (i) to pay in full all such fees
and  disbursements  and (ii) to pay  prejudgment  interest on any money judgment
obtained by  Executive  from the  earliest  date that payment to him should have
been made under this Agreement until such judgment shall have been paid in full,
which  interest  shall  be  calculated  at the  prime or base  rate of  interest
announced  by Chase  Bank of  Texas,  N.A.  (or any  successor  thereto)  at its
principal office in Houston, Texas, and shall change when and as any such change
in such prime or base rate shall be announced by such bank.

                  (c) Payment Obligations Absolute.  The Company's obligation to
pay (or cause one of its  subsidiaries to pay) Executive the amounts and to make
the arrangements  provided herein shall be absolute and  unconditional and shall
not be  affected  by  any  circumstances,  including,  without  limitation,  any
set-off,  counterclaim,  recoupment,  defense or other  right  which the Company
(including  its  subsidiaries)  may have against him or anyone else. All amounts
payable by the Company  (including  its  subsidiaries  hereunder)  shall be paid
without  notice or  demand.  Executive  shall  not be  obligated  to seek  other
employment in mitigation of the amounts payable or  arrangements  made under any
provision of this  Agreement,  and, except as provided in Paragraph 3(c) hereof,
the  obtaining  of any  such  other  employment  shall in no  event  effect  any
reduction of the Company's

                                       -5-


<PAGE>



obligations to make (or cause to be made) the payments and arrangements required
to be made under this Agreement.

                  (d) Successors. This Agreement shall be binding upon and inure
to the benefit of the Company and any  successor  of the  Company,  by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit of
Executive  and his  estate.  If  Executive  shall die prior to full  payment  of
amounts due pursuant to this Agreement,  such amounts shall be payable  pursuant
to the terms of this Agreement to his estate.

                  (e)  Severability.  Any provision in this  Agreement  which is
prohibited or  unenforceable  in any  jurisdiction  by reason of applicable  law
shall,  as to such  jurisdiction,  be  ineffective  only to the  extent  of such
prohibition or unenforceability  without invalidating or affecting the remaining
provisions  hereof,  and  any  such  prohibition  or   unenforceability  in  any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

                  (f)  Non-Alienation.  Executive  shall  not have any  right to
pledge,  hypothecate,   anticipate  or  assign  this  Agreement  or  the  rights
hereunder, except by will or the laws of descent and distribution.

                  (g) Notices. Any notices or other communications  provided for
in this Agreement  shall be sufficient if in writing.  In the case of Executive,
such notices or communications shall be effectively  delivered if hand delivered
to Executive at his  principal  place of  employment or if sent by registered or
certified  mail to  Executive at the last address he has filed with the Company.
In the case of the Company,  such notices or communications shall be effectively
delivered  if  sent by  registered  or  certified  mail  to the  Company  at its
principal executive offices.

                  (h) Controlling  Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas. Further, Executive
agrees that any legal  proceeding to enforce the  provisions  of this  Agreement
shall be brought in Houston,  Harris County,  Texas, and hereby waives his right
to any pleas regarding subject matter or personal jurisdiction and venue.

                  (i)  Release.  As a  condition  to the  receipt of any benefit
under Paragraph 3 hereof,  Executive shall first execute a release,  in the form
established by the Company,  releasing the Company, its shareholders,  partners,
officers,  directors,  employees and agents from any and all claims and from any
and all causes of action of any kind or character,  including but not limited to
all claims or causes of action  arising out of Executive's  employment  with the
Company or the termination of such employment.

                  (j) Full Settlement.  If Executive is entitled to and receives
the benefits provided  hereunder,  performance of the obligations of the Company
hereunder will  constitute  full  settlement of all claims that Executive  might
otherwise   assert  against  the  Company  on  account  of  his  termination  of
employment.

                  (k) Unfunded  Obligation.  The obligation to pay amounts under
this  Agreement  is  an  unfunded  obligation  of  the  Company  (including  its
subsidiaries), and no such obligation shall

                                       -6-


<PAGE>


create a trust or be deemed to be secured by any  pledge or  encumbrance  on any
property of the Company (including its subsidiaries).

                  (l) Not a Contract of Employment.  This Agreement shall not be
deemed to constitute a contract of  employment,  nor shall any provision  hereof
affect (i) the right of the Company (or its subsidiaries) to discharge Executive
at will or (ii) the terms and  conditions  of any other  agreement  between  the
Company and Executive except as provided herein.

                  (m) Number and Gender. Wherever appropriate herein, words used
in the  singular  shall  include  the plural and the plural  shall  include  the
singular. The masculine gender where appearing herein shall be deemed to include
the feminine gender.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on
the 24th day of March, 1998.

                                          "EXECUTIVE"

                                          /s/ Gerald R. Colley

                                          "COMPANY"

                                          SEAGULL ENERGY CORPORATION

                                          By:    /s/ Jack M. Robertson
                                          Name:  Jack M. Robertson
                                          Title: Vice President, Human Resources

VEHOU02:102307.1

                                       -7-




<PAGE>


                                  AMENDMENT TO
                               SEVERANCE AGREEMENT

     WHEREAS,  SEAGULL ENERGY  CORPORATION  (the "Company") and Gerald R. Colley
("Executive") have entered into a severance agreement effective as of January 1,
1998 (the "Agreement"); and

     WHEREAS, the Company and Executive desire to amend the Agreement in certain
respects;

         NOW, THEREFORE, the Agreement shall be amended as follows, effective as
of July 15, 1998:

         1.  Paragraph 5 of the  Agreement  shall be deleted  and the  following
shall be substituted therefor:

                  "5.    Certain    Additional    Payments   by   the   Company.
         Notwithstanding  anything  to the  contrary in this  Agreement,  in the
         event that any  payment or  distribution  by the  Company to or for the
         benefit  of  Executive,  whether  paid or  payable  or  distributed  or
         distributable  pursuant to the terms of this  Agreement or otherwise (a
         "Payment"),  would be subject to the excise tax imposed by Section 4999
         of the Code or any  interest or  penalties  with respect to such excise
         tax (such excise tax, together with any such interest or penalties, are
         hereinafter  collectively referred to as the "Excise Tax"), the Company
         shall pay to Executive an additional payment (a "Gross-up  Payment") in
         an amount such that after payment by Executive of all taxes  (including
         any  interest  or  penalties  imposed  with  respect  to  such  taxes),
         including  any Excise Tax imposed on any  Gross-up  Payment,  Executive
         retains  an amount of the  Gross-up  Payment  equal to the  Excise  Tax
         imposed  upon the  Payment.  The  Company and  Executive  shall make an
         initial  determination as to whether a Gross-up Payment is required and
         the amount of any such  Gross-up  Payment.  Executive  shall notify the
         Company in writing of any claim by the Internal  Revenue Service which,
         if successful, would require the Company to make a Gross-up Payment (or
         a Gross-up Payment in excess of that, if any,  initially  determined by
         the  Company  and  Executive)  within  ten days of the  receipt of such
         claim.  The Company shall notify Executive in writing at least ten days
         prior to the due date of any  response  required  with  respect to such
         claim if it plans to  contest  the  claim.  If the  Company  decides to
         contest such claim, Executive shall cooperate fully with the Company in
         such action; provided, however, the Company shall bear and pay directly
         or indirectly all costs and expenses (including additional interest and
         penalties)  incurred in connection with such action and shall indemnify
         and hold Executive harmless,  on an after-tax basis, for any Excise Tax
         or income tax,  including  interest and penalties with respect thereto,
         imposed  as a result of the  Company's  action.  If, as a result of the
         Company's action with respect to a claim,  Executive  receives a refund
         of any amount paid by the Company with respect to such claim, Executive
         shall promptly pay such refund to the

                                       -1-


<PAGE>


         Company.  If the Company  fails to timely notify  Executive  whether it
         will contest such claim or the Company  determines  not to contest such
         claim,  then the Company shall immediately pay to Executive the portion
         of such claim, if any, which it has not previously paid to Executive."

         2. As amended  hereby,  the  Agreement  is  specifically  ratified  and
reaffirmed.

         EXECUTED this 1 day of August, 1998.

                                                     "EXECUTIVE"
                                                     /s/ Gerald R. Colley

                                                     "COMPANY"

                           SEAGULL ENERGY CORPORATION

                            By: /s/ Jack M. Robertson
                            Name: Jack M. Robertson
                            Title: Vice President,
                                   Human Resources

VEHOU02:114735.1

                                       -2-


<PAGE>


                               SECOND AMENDMENT TO
                               SEVERANCE AGREEMENT

     WHEREAS,  SEAGULL ENERGY  CORPORATION  (the "Company") and Gerald R. Colley
("Executive") have entered into a severance agreement effective as of January 1,
1998 (the "Agreement"); and

         WHEREAS, the Company and Executive desire to amend the Agreement in 
certain respects;

         NOW, THEREFORE, the Agreement shall be amended as follows, effective as
of September 16, 1998:

         1. Paragraph  1(b) of the Agreement  shall be deleted and the following
shall be substituted therefor:

                  "(b)    'Change of Control' means the occurrence of one of the
following events:

                           (i) The Company (A) shall not be the surviving entity
                  in any  merger,  consolidation  or  other  reorganization  (or
                  survives  only  as a  subsidiary  of an  entity  other  than a
                  previously  wholly-owned  subsidiary of the Company) or (B) is
                  to be  dissolved  and  liquidated,  and as a  result  of or in
                  connection such transaction, the persons who were directors of
                  the Company before such transaction  shall cease to constitute
                  a majority of the Board;

                           (ii) Any  person or  entity,  including  a 'group' as
                  contemplated  by Section  13(d)(3) of the Securities  Exchange
                  Act of  1934,  as  amended,  acquires  or gains  ownership  or
                  control (including,  without limitation, power to vote) of 20%
                  or more of the  outstanding  shares  of the  Company's  voting
                  stock  (based  upon  voting  power),  and as a result of or in
                  connection  with  such  transaction,   the  persons  who  were
                  directors of the Company before such  transaction  shall cease
                  to constitute a majority of the Board; or

                           (iii) The Company sells all or  substantially  all of
                  the assets of the Company to any other person or entity (other
                  than  a   wholly-owned   subsidiary   of  the  Company)  in  a
                  transaction that requires shareholder approval pursuant to the
                  Texas Business Corporation Act."

                                       -1-


<PAGE>



         2. Paragraph  1(g) of the Agreement  shall be deleted and the following
shall be substituted therefor:

                  "(g) 'Retirement' shall mean Executive's voluntary resignation
         on  or  after  the  date  he  reaches  age  sixty-five  (other  than  a
         resignation  within sixty days after the date Executive receives notice
         of a Change in Duties or a resignation at the request of the Company)."

         3. Paragraph  1(j) of the Agreement  shall be deleted and the following
shall be substituted therefor:

                  "(j)   'Termination  for  Cause'  shall  mean  termination  of
         Executive's  employment by the Company (or its  subsidiaries) by reason
         of Executive's gross negligence, gross neglect or willful misconduct in
         the  performance  of his duties or  Executive's  final  conviction of a
         felony  or  of  a  misdemeanor  involving  moral  turpitude,  excluding
         misdemeanor convictions relating to the operation of a motor vehicle."

         4. Paragraph  3(d) of the Agreement  shall be deleted and the following
shall be substituted therefor:

                  "(d)  Executive  shall be  entitled  to receive  out-placement
         services in connection  with  obtaining new  employment up to a maximum
         cost of $6,000, or an equivalent cash payment,  if Executive either has
         or is not seeking new employment."

         5.  Paragraph 4 of the  Agreement  shall be deleted  and the  following
shall be substituted therefor:

                  "4. Interest on Late Benefit Payments. If any payment provided
         for in Paragraph  3(a) or 3(b) hereof is not made when due, the Company
         shall pay to  Executive  interest on the amount  payable  from the date
         that such payment should have been made under such paragraph until such
         payment is made,  which interest shall be calculated at a rate equal to
         two percentage points over the prime or base rate of interest announced
         by  Chase  Bank of  Texas,  N.A.  (or  any  successor  thereto)  at its
         principal  office in  Houston,  Texas and shall  change when and as any
         such  change in such  prime or base  rate  shall be  announced  by such
         bank."

         6. Paragraph  6(b) of the Agreement  shall be deleted and the following
shall be substituted therefor:

                  "(b)     Indemnification.  If Executive shall obtain any money
         judgment or otherwise prevail with respect to any litigation brought by
         Executive or the Company to enforce or interpret any provision 
         contained herein, the Company, to the fullest

                                       -2-


<PAGE>


         extent  permitted by applicable law, hereby  indemnifies  Executive for
         his  reasonable  attorneys'  fees and  disbursements  incurred  in such
         litigation  and  hereby  agrees  (i) to pay in full all  such  fees and
         disbursements  and  (ii)  to pay  prejudgment  interest  on  any  money
         judgment  obtained by Executive  from the earliest date that payment to
         him  should  have been made under this  Agreement  until such  judgment
         shall have been paid in full,  which  interest shall be calculated at a
         rate  equal to two  percentage  points  over the  prime or base rate of
         interest  announced  by Chase  Bank of Texas,  N.A.  (or any  successor
         thereto) at its principal  office in Houston,  Texas,  and shall change
         when  and as any  such  change  in such  prime  or base  rate  shall be
         announced by such bank."

         7. As amended  hereby,  the  Agreement  is  specifically  ratified  and
reaffirmed.

         EXECUTED this 26th day of October, 1998.

                                                     "EXECUTIVE"
                                                     /s/ Gerald R. Colley

                                                     "COMPANY"

                           SEAGULL ENERGY CORPORATION

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

VEHOU02:121318.1

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