EXHIBIT 10.6

                            MONTEREY RESOURCES, INC.
                          INCENTIVE COMPENSATION PLAN

I.       OBJECTIVES

         The objectives of the Incentive Compensation Plan (the "Plan") are:

                 --     To communicate and focus management's attention on
                        significant business goals.
                 --     To identify and reward superior performance.
                 --     To provide a competitive compensation package to
                        attract and retain high quality key employees.

         The Plan is intended to encourage key management to achieve and
         surpass Company, group and individual objectives through establishing
         annual objectives, reviewing performance and awarding cash bonuses
         based on the achievement of such objectives.

         The purposes of the Plan are to achieve strong business performance,
         equitable compensation and a staff of high quality, motivated key
         employees.

II.      ADMINISTRATION

         The Plan shall be under the direction of the Compensation and Benefits
         Committee ("Committee") of the Board of Directors of Monterey
         Resources, Inc. (the "Company").

         However, the responsibility for ensuring that administrative
         procedures are established for Plan operation, that the Plan is
         managed in a timely and effective manner and that periodic analyses of
         the Plan's effectiveness are undertaken shall be the duty of a Plan
         Administrator appointed by the Committee, who need not be a member of
         the Committee.  The Plan Administrator shall report his findings,
         conclusions and recommendations regarding the Plan's operation and
         effectiveness to the Committee from time to time.

         The Committee shall have such discretionary authority to administer
         the Plan, to construe and interpret the Plan, to decide all questions
         of eligibility, to determine the amount, manner and time of payment of
         any benefits hereunder and to make all other determinations deemed
         necessary or advisable for the administration of the Plan.  The
         attached Administrative Guidelines have been adopted by the Committee
         and may be changed at any time by the Committee in its discretion.

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III.     ELIGIBILITY

         Eligible employees under the Plan are those key employees of the
         Company and its subsidiaries who may have a substantial impact on the
         operating performance of the Company and its subsidiaries.

         Employment positions eligible for participation in the Plan each Plan
         Year, and the assigned levels of participation for such positions,
         shall be determined by the Committee based upon the recommendation of
         the Plan Administrator.  However, the Committee may modify such
         recommendations in any manner it deems appropriate.

IV.      INCENTIVE OPPORTUNITIES

         The incentive award opportunity with respect to an eligible employment
         position shall be designed to reflect the overall impact of the
         position on Company performance and to provide a total cash
         compensation package for such position that is in line with key
         competitors of the Company.

V.       BASIS FOR DETERMINING THE INCENTIVE AWARD

         The incentive award may be based upon a combination of Company,
         operating unit and/or individual results, in the Committee's
         discretion.

         The combination of factors, and the respective weights, used in
         determining the maximum award for an eligible position will be
         established by the Committee on an annual basis.  The maximum award
         with respect to an eligible position shall be expressed as a
         percentage (which shall not be less than 20% or more than 100%) of the
         participant's base salary at the beginning of the Plan Year.  The
         percentage applicable to an eligible position shall be determined by
         the Committee.  A participant's basis of participation in the Plan
         will be communicated to him in writing as early as possible in the
         Plan Year.  However, incentive awards may be increased by up to 25% at
         the discretion of the Committee or reduced or eliminated in certain
         instances pursuant to Article VII and/or VIII.

VI.      PERFORMANCE OBJECTIVES

         Performance objectives are intended to support the strategic mission
         of the Company and shall be:

                 --       Specific and based upon measurable results,
                 --       Challenging, but attainable, and
                 --       Tailored to each position.





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         The basis and amount of the incentive award to be provided for
         different levels of performance will be established at the beginning
         of the Plan Year for each participating position.  A performance
         schedule for each specific objective shall be established by the
         Committee to indicate the award payable at varying levels of
         performance.  Performance objectives may be revised at any time by the
         Committee in light of unanticipated or extraordinary events.

         Specific objectives will be based primarily on the Company's business
         plans and competitive levels of performance.  For any specific
         performance objective, the award payable (as a percent of the maximum)
         for a given level of performance will be consistent throughout the
         Plan.

         The Committee may assign objectives, based upon the recommendation of
         the Plan Administrator, which are appropriate to the managerial impact
         of each participant's position.  As appropriate, the individual
         objectives may include departmental, district or combined operating
         unit performance objectives.

         Performance objectives may include, among others:

                 --       Earnings per share,
                 --       Pre-tax Income and Cash Flow,
                 --       Operating Expenses Control,
                 --       Capital Spending Control,
                 --       Reserve Additions,
                 --       Reservoir Management,
                 --       Prospect Development, and
                 --       Land Management.

VII.     PERFORMANCE

         Performance will be reviewed at appropriate intervals as financial and
         operating results are available.  At the end of each Plan Year, the
         determination of the achievement of the objectives for such Plan Year
         and the payment of awards earned will occur as soon as practicable
         after the compilation of the year-end financial and operating results.
         All financial and operating results will be reviewed by the Controller
         of the Company and the achievement of all individual objectives shall
         be approved by the Chief Executive Officer of the Company prior to the
         recommendation to the Committee of the payment of awards by the Plan
         Administrator.  The Committee has the authority to approve all awards
         recommended for payment.

         At the discretion of the Committee, incentive awards, either
         individually or collectively, may be increased, decreased, or
         completely eliminated at any time during a Plan Year or after the end
         of the Plan Year but before payment on the basis of the following
         considerations:

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                 --       Company performance relative to its competitors,
                 --       Balancing of long-term versus short-term
                          considerations,
                 --       Handling of unforeseen opportunities and obstacles, or
                 --       Overall individual performance.

VIII.    AWARD PAYMENTS

         Payment of earned awards will be made as soon as possible after the
         close of each Plan Year upon the approval of the Committee and may
         include the receipt of a stock-based award under a stock plan of the
         Company in lieu of cash under this Plan.  Payments will be subject to
         all applicable tax withholding requirements.

         If a participant's employment terminates during a Plan Year, whether
         voluntarily or involuntarily, the participant shall forfeit all rights
         to any incentive award for the Plan Year, unless the Committee, in its
         discretion, elects to pay all or a portion of the award.  If a
         participant voluntarily resigns after the Plan Year-end, but before
         award payout, the participant shall be entitled to the incentive award
         payment, if any, he would be eligible to receive pursuant to Article
         VII.

         In the discretion of the Committee and the election of the participant
         - made irrevocably prior to the beginning of the applicable Plan Year
         - all or a portion of an incentive award for a Plan Year may be
         deferred until a future date or event.  The methods of deferment and
         subsequent payment shall be determined by the Committee.

IX.      COMMUNICATIONS

         The effectiveness of the Plan depends upon participants fully
         understanding the purpose of the Plan, the performance objectives and
         the administration of the Plan.  It shall be the responsibility of the
         Plan Administrator to ensure that all aspects of the Plan are
         presented to and understood by the participants.

X.       CHANGE IN CONTROL

         A "Change in Control" shall be deemed to have occurred if:

         (a)     any "person," as such term is used in Section 13(d) and 14(d)
                 of the Securities Exchange Act of 1934, as amended (the
                 "Exchange Act") (other than any trustee or other fiduciary
                 holding securities under an employee benefit plan of Santa Fe
                 Energy Resources, Inc. ("SFER"), or any affiliate thereof, or
                 any company owned, directly or indirectly, by the stockholders
                 of SFER in substantially the same proportions as their
                 ownership of stock of SFER), is or becomes the "beneficial
                 owner" (as defined in Rule 13d-3 under the Exchange Act),
                 directly or indirectly, of securities of SFER





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                 representing 25% or more of the combined voting power of
                 SFER's then outstanding securities;

         (b)     during any period of two consecutive years (not including any
                 period prior to the effective date of this provision),
                 individuals who at the beginning of such period constitute the
                 Board of Directors of SFER, and any new director (other than a
                 director designated by a person who has entered into an
                 agreement with SFER to effect a transaction described in
                 clause (a), (c) or (d) of this definition) whose election by
                 the Board of Directors of SFER or nomination for election by
                 SFER's stockholders was approved by a vote of at least
                 two-thirds (2/3) of the directors then still in office who
                 either were directors at the beginning of the period or whose
                 election or nomination for election was previously so
                 approved, cease for any reason to constitute at least a
                 majority thereof;

         (c)     the stockholders of SFER approve a merger or consolidation of
                 SFER with any other company other than (i) a merger or
                 consolidation which would result in the voting securities of
                 SFER outstanding immediately prior thereto continuing to
                 represent (either by remaining outstanding or by being
                 converted into voting securities of the surviving entity) more
                 than 65% of the combined voting power of the voting securities
                 of SFER (or such surviving entity) outstanding immediately
                 after such merger or consolidation, or (ii) a merger or
                 consolidation effected to implement a recapitalization of SFER
                 (or similar transaction) in which no "person" (as hereinabove
                 defined) acquires more than 25% of the combined voting power
                 of SFER's then outstanding securities; or

         (d)     the stockholders of SFER adopt a plan of complete liquidation
                 of SFER or approve an agreement for the sale or disposition by
                 the Company of all or substantially all of SFER's assets.  For
                 purposes of this clause (d), the term "the sale or disposition
                 by SFER of all or substantially all of SFER's assets" shall
                 mean a sale or other disposition transaction or series of
                 related transactions involving assets of SFER or of any direct
                 or indirect subsidiary of SFER (including the stock of any
                 direct or indirect subsidiary of SFER) in which the value of
                 the assets or stock being sold or otherwise disposed of (as
                 measured by the purchase price being paid therefor or by such
                 other method as the Board of Directors of SFER determines is
                 appropriate in a case where there is no readily ascertainable
                 purchase price) constitutes more than two-thirds of the fair
                 market value of SFER (as hereinafter defined).  For purposes
                 of the preceding sentence, the "fair market value of SFER"
                 shall be the aggregate market value of the outstanding shares
                 of common stock of SFER (on a fully diluted basis) plus the
                 aggregate market value of SFER's other outstanding equity
                 securities. The aggregate market value of the shares of common
                 stock of SFER shall be determined by multiplying the number of
                 shares of SFER's common stock (on a fully diluted basis)
                 outstanding on the date of the execution and delivery of a
                 definitive agreement with respect to the transaction or series
                 of related transactions (the





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                 "Transaction Date") by the average closing price of the shares
                 of common stock of SFER for the ten trading days immediately
                 preceding the Transaction Date.  The aggregate market value of
                 any other equity securities of SFER shall be determined in a
                 manner similar to that prescribed in the immediately preceding
                 sentence for determining the aggregate market value of the
                 shares of common stock of SFER or by such other method as the
                 Board of Directors of SFER shall determine is appropriate.

         (e)     If SFER ceases to own 80% of the combined voting power of the
                 then outstanding voting securities of the Company, the term
                 "Company" shall be substituted for SFER as used in this
                 definition of "Change in Control;" provided, however, as long
                 as SFER owns 35% or more of the combined voting power of the
                 voting securities of the Company, the above "Change in
                 Control" definition shall be applied separately with respect
                 to SFER and with respect to the Company as substituted for
                 SFER in the definition, and a Change in Control with respect
                 to either SFER or the Company in such situation shall be a
                 Change in Control for purposes of this Plan.  Notwithstanding
                 anything herein to the contrary, a distribution by SFER to its
                 stockholders of its interest in such voting securities of the
                 Company shall not constitute a Change in Control.

         In the event that a Change in Control occurs, the performance
         objectives established pursuant to Section VI hereof for the year
         during which the Change in Control occurred shall be deemed to have
         been met in full at the maximum performance level so established, and
         each participant shall be entitled to receive a bonus in respect of
         the year in which such Change in Control occurs; provided, however,
         that if a participant's employment is terminated prior to December 31
         of such year, such participant shall be entitled to a prorated bonus,
         the amount of which shall be determined by multiplying the bonus which
         he would have been entitled had he remained employed until December 31
         by a fraction, the numerator of which is the number of days in such
         year through the date of the participant's termination of employment,
         and the denominator of which is 365.

XI.      TERMINATIONS OR AMENDMENT

         The Plan may be terminated or amended at any time by the Board of
         Directors of the Company.

XII.     EFFECTIVE DATE

         This Plan is effective as of January 1, 1997.





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                                  ATTACHMENT A


ADMINISTRATIVE GUIDELINES

1.       An employee's participation in the Plan will be based upon the
         calendar months in which the employee held a position eligible for
         participation during a Plan Year.

2.       The employee must be in an eligible position on the 1st day of the
         month in order to participate in the Plan for that month.

3.       Except as provided for in the Plan, an employee must be on the active
         payroll on the last day of the Plan Year in order to participate for
         any portion of that year.

4        If a participant transfers between eligible positions under the Plan
         during the Plan Year, his/her participation will be based on full
         months of participation in each position at the participation levels
         established for each position.

5.       New hires or employees who first assume an eligible position on
         October 1st or later in a given Plan Year are not eligible for
         participation in that Plan Year.

6.       Nothing contained in these Administrative Guidelines will take
         precedence over specific decisions rendered by the Committee
         concerning eligibility, participation, or other Plan administration
         policies and practices.

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