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                                                                   Exhibit 10.27



                               February 17, 1997



name
The Houston Exploration Company
1331 Lamar, Suite 1065
Houston, Texas 77010

         Re:     Grant of Phantom Stock Rights

Dear sal:

         As indicated in the Company's memorandum to you as of December 26,
1996,  The Houston Exploration Company (the "Company")  has granted you shares
Phantom Stock Rights ("PSRs"), each of which represents the right, subject to
the conditions set forth in this letter agreement, to receive a cash payment
determined by reference to the fair market value of one share  of the common
stock, par value $0.01 per share, of the Company ("Company Stock").  The
definitive terms and conditions of the PSRs are as follows:

         1.      Except as provided below, 20% of the PSRs shall become payable
on December 16th of each of the years 1997 through 2001.

         2.      As soon as reasonably practicable following each date on which
PSRs are payable, the Company shall pay you an amount of cash equal to (i) the
average of the closing prices per share of Company Stock as reported on The New
York Stock Exchange (the "Closing Price") for the five trading days on which
Company Stock was traded immediately preceding the date on which such PSRs are
payable, multiplied by (ii) the number of PSRs payable on such date. The
Company shall withhold any federal, state, or other taxes as required by law
from such payments.

         3.      The PSRs are not transferable by you, other than by will or
the laws of descent and distribution, and may not be pledged, assigned,
encumbered or anticipated in any manner.

         4.      In the event you voluntarily terminate your employment with
the Company (otherwise than upon your retirement at age 65 or later) or the
Company terminates your employment for Cause,  all PSRs then outstanding shall
automatically be canceled unpaid as of the date of termination. As used in this
Agreement, "Cause" shall mean (i) any material failure by you to perform the
duties assigned to you in connection with your employment by the Company
(other than any such failure resulting from your incapacity due to illness or
other disability) after written





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name
February 17, 1997
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notice of such failure has been given to you  by the Company and such failure
shall have continued for 30 days after receipt of such notice, (ii) gross or
willful negligence or intentional wrongdoing or misconduct on your behalf,
(iii) a material breach by you of any agreement with the Company, (iv) any
disclosure or use by you of confidential or proprietary information of the
Company otherwise than in accordance with your duties to the Company, or (v)
your conviction of a felony offense involving moral turpitude.

         5.      In the event the Company terminates your employment for any
reason other than for Cause or your employment with the Company is terminated
by reason of your voluntary retirement at age 65 or later, your death or your
becoming entitled to receive disability benefits under the Company's long-term
disability plan, all PSRs then outstanding shall be immediately payable in
full, based on the Closing Price of the Company Stock on the date of
termination.

         6.      In the event of Change of Control of the Company (as defined
below), all PSRs then outstanding shall be automatically paid as of the date
such Change of Control becomes effective based on the greater of (i) the
Closing Price of the Company Stock on the date such Change of  Control becomes
effective or (ii) the highest price per share paid for Company Stock in
connection with such Change of Control.  As used in this Agreement, a "Change
of Control" shall mean:

                 (i)      the acquisition after the date of this Agreement by
         any individual, entity or group (within the meaning of Section
         13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
         amended) (a "Person") of beneficial ownership of 20% or more of either
         (i) the then outstanding shares of Company Stock (the "Outstanding
         Common Stock") or (ii) the combined voting power of the then
         outstanding voting securities of the Company entitled to vote
         generally in the election of directors (the  "Outstanding Voting
         Securities"), provided that for purposes of this subsection (i), the
         following acquisitions shall not constitute a Change of Control:  (A)
         any acquisition directly from the Company, (B) any acquisition by the
         Company, (C) any acquisition by any employee benefit plan (or related
         trust) sponsored or maintained by the Company or any corporation
         controlled by the Company, or (D) any acquisition by any corporation
         pursuant to a transaction which complies with clauses (A), (B) and (C)
         of subsection (iii) hereof; or

                 (ii)     individuals, who, as of the date of this Agreement,
         constitute the Company's Board of Directors (the "Incumbent Board")
         cease for any reason to constitute at least a majority of the
         Company's Board of Directors, provided that any individual becoming a
         director subsequent to date of this Agreement whose election, or
         nomination for election by the Company's shareholders, was approved by
         a vote of at least a majority of the directors then comprising the
         Incumbent Board shall be considered as though such individual was a
         member of the Incumbent Board, but excluding, for this purpose, any
         such individual whose





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name
February 17, 1997
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         initial assumption of office occurs as a result of an actual or
         threatened election contest with respect to the election or removal of
         directors or other actual or threatened solicitation of proxies or
         consents by or on behalf of a Person other then the Board of
         Directors; or

                 (iii)    consummation after the date of this Agreement of a
         reorganization, merger or consolidation or sale or other disposition
         of all or substantially all of the assets of the Company (a "Corporate
         Transaction") in each case, unless, following such Corporate
         Transaction, (A) (1) all or substantially all of the persons who were
         the beneficial owners of the Outstanding Common Stock immediately
         prior to such Corporate Transaction beneficially own, directly or
         indirectly, more than 60 percent of the then outstanding shares of
         common stock of the corporation resulting from such Corporate
         Transaction, and (2) all or substantially all of the persons who were
         the beneficial owners of the Outstanding Voting Securities immediately
         prior to such Corporate Transaction beneficially own, directly or
         indirectly, more than 60 percent of the combined voting power of the
         then outstanding voting securities entitled to vote generally in the
         election of directors of the corporation resulting from such Corporate
         Transaction (including, without limitation, a corporation which as a
         result of such transaction owns the Company or all or substantially
         all of the Company's  assets either directly or through one or more
         subsidiaries) in substantially the same proportions as their ownership
         of the Outstanding Common Stock and the Outstanding Voting Securities
         immediately prior to such Corporate Transaction, as the case may be,
         (B) no Person (excluding (1) any corporation resulting from such
         Corporate Transaction or any employee benefit plan (or related trust)
         of the Company or such corporation resulting from such Corporate
         Transaction and (2) any Person approved by the Incumbent Board)
         beneficially owns, directly or indirectly, 20 percent or more of the
         then outstanding shares of common stock of the corporation resulting
         from such Corporate Transaction or the combined voting power of  the
         then outstanding voting securities of such corporation except to the
         extent that such ownership existed prior to such Corporate Transaction
         and (C) at least a majority of the members of the board of directors
         of the corporation resulting from such Corporate Transaction were
         members of the Incumbent Board at the time of the execution of the
         initial agreement or the action of the Board providing for such
         Corporate Transaction.

         7.      If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of Company Stock outstanding,
without receiving compensation for it in money, services or property, the
number of PSRs then outstanding shall be appropriately adjusted by the Company
on the same basis as the outstanding shares of Company Stock are adjusted as a
result of such event.

         8.      Nothing in the Agreement shall confer on you any right to
continue your employment with the Company nor restrict the Company from the
termination of your employment at any time.





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name
February 17, 1997
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         Please execute and return this Agreement to the undersigned.  The
attached copy is for your records.


                                        THE HOUSTON EXPLORATION COMPANY



                                        By:
                                           -----------------------------
                                            James G. Floyd, President

EMPLOYEE


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