<PAGE>
 
                      FIRST AMENDMENT TO CREDIT AGREEMENT


     THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
made as of January 1, 1997 by and between KEY PRODUCTION COMPANY, INC., a
Delaware corporation ("Borrower"), and NATIONSBANK OF TEXAS, N.A. ("Lender"),

                              W I T N E S S E T H:

   WHEREAS, Borrower and Lender have entered into that certain Credit Agreement
dated as of April 25, 1994 (the "Credit Agreement"), as amended by that Letter
Agreement dated March 29, 1996 (the "Letter Agreement" and together with Credit
Agreement, the "Original Agreement") for the purposes and consideration therein
expressed, pursuant to which Lender became obligated to make loans to Borrower
as therein provided; and

   WHEREAS, Borrower and Lender desire to amend the Original Agreement as
provided herein;

   NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Original Agreement, in consideration of
the loans which may hereafter be made by Lender to Borrower, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:

                                   ARTICLE I.

                           Definitions and References
                           --------------------------

   (S) 1.1  Terms Defined in the Original Agreement.  Unless the context
            ---------------------------------------                     
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.

   (S) 1.2.  Other Defined Terms.  Unless the context otherwise requires, the
             -------------------                                             
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.

             "Amendment" means this First Amendment to Credit Agreement.
              ---------                                                 

             "Amendment Documents" means this Amendment and the Renewal Note.
              -------------------                                            

             "Credit Agreement" means the Original Agreement as amended hereby.
              ----------------                                                 

             "Original Note" means the "Note" referred to and defined as such
              -------------
    in the Original Agreement.
<PAGE>
 
                                  ARTICLE II.
                         Amendments to Original Agreement
                         --------------------------------

   (S) 2.1.  Defined Terms.  The definition of "Commitment Period" in Section
             -------------                                                   
1.1 of the Original Agreement is hereby amended in its entirety to read as
follows:

             "Commitment Period" means the period from and including the date
              -----------------  
       hereof until and including January 1, 2000 (or, if earlier, the day on
       which the Note first becomes due and payable in full).

       The definition of "Conversion Date" in Section 1.1 of the Original
       Agreement is hereby amended in its entirety to read as follows:

             "Conversion Date" means January 1, 2000.
              ---------------                        

   (S) 2.2.  Regular Payments. Section 2.8 of the Original Agreement is hereby
             ----------------                                                 
amended in its entirety to read as follows:

             "Section 2.8.  Regular Payments.  Beginning April 1, 2000, and on
                            ----------------   
   the first day of each consecutive Fiscal Quarter thereafter until the
   maturity date of the Note, Borrower will, in addition to paying any interest
   then due on the Loan, repay a portion of the principal thereof equal to one-
   twelfth (1/12) of the unpaid principal balance of the Loan at the end of the
   Commitment Period; provided, however, that if the Borrowing Base is reduced
   after an Evaluation Date or if the amount equal to the sum of the Loan
   balance plus the LC Balance at any time exceeds the Borrowing Base, Lender
   may adjust the amounts of the remaining quarterly principal payments to equal
   such amounts as Lender may decide in Lender's sole discretion."

   (S) 2.3.  Replacement of Exhibit A.  Exhibit A to the Original Agreement
             ------------------------                                      
is hereby amended in its entirety to read as set forth in Exhibit A-1 attached
hereto.

                                  ARTICLE III.

                          Conditions of Effectiveness
                          ---------------------------

   (S) 3.1.  Effective Date.  This Amendment shall become effective as of the
             --------------                                                  
date first above written when and only when Lender shall have received, at
Lender's office, all of the following documents, each document (unless otherwise
indicated) being dated the date of receipt thereof by Lender, duly authorized,
executed and delivered, and in form and substance satisfactory to Lender:

       (a)  Amendment.  A counterpart of this Amendment executed by Borrower;
            ---------                                                        

       (b)  Renewal Note.  Borrower's promissory note with appropriate 
            ------------      
insertions in the form attached hereto as Exhibit A-1 payable to the order of
Lender (such note being 
<PAGE>
 
herein called the "Renewal Note"), duly executed on behalf of Borrower, dated
the date hereof, and expressly renewing the Original Note;

       (c)  Opinion of Counsel for Borrower.  A written opinion of Barbara 
            -------------------------------
Schaller, counsel for Borrower, dated as of the date of this Amendment,
addressed to Lender, to the effect that this Amendment and the Renewal Note have
been duly authorized, executed and delivered by Borrower and that the Credit
Agreement and the Renewal Note constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their terms (subject, as
to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency
and similar laws and to general principles of equity);

       (d)  Officer's Certificate. A certificate of a duly authorized officer of
            --------------------- 
Borrower dated the date of this Amendment certifying: (i) that all of the
representations and warranties set forth in Article IV hereof are true and
correct at and as of the time of such effectiveness; and (ii) as to such other
corporate matters as Lender shall deem necessary; and

       (e)  Other Documents.  Such other supporting documents as Lender may
            ---------------                                                
reasonably request.

                                  ARTICLE IV.

                         Representations and Warranties
                         ------------------------------

   (S) 4.1.  Representations and Warranties of Borrower.  In order to induce
             ------------------------------------------                     
Lender to enter into this Amendment, Borrower represents and warrants to Lender
that:

       (a) Except for the representations and warranties contained in subsection
     5.1(b) of the Original Agreement regarding the Guarantor and the
     Subsidiaries of Guarantor, the representations and warranties contained in
     subsections (a), (b), (c), (d), (e), (f) and (g) of Section 5.1 of the
     Original Agreement are true and correct at and as of the time of the
     effectiveness hereof.

       (b) Borrower is duly authorized to execute and deliver this Amendment and
     the Renewal Note and is and will continue to be duly authorized to borrow
     and to perform its obligations under the Credit Agreement.  Borrower has
     duly taken all corporate action necessary to authorize the execution and
     delivery of this Amendment and the Renewal Note and to authorize the
     performance of the obligations of Borrower hereunder and thereunder.

       (c) The execution and delivery by Borrower of this Amendment and the
     Renewal Note, the performance by Borrower of its obligations hereunder and
     thereunder and the consummation of the transactions contemplated hereby and
     thereby do not and will not conflict with any provision of law, statute,
     rule or regulation or of the articles of incorporation and bylaws of
     Borrower, or of any material agreement, judgment, license, order or permit
     applicable to or binding upon Borrower, or result in the creation of any
     lien, charge or encumbrance upon any assets or properties of Borrower.
     Except for those 
<PAGE>
 
     which have been duly obtained, no consent, approval, authorization or order
     of any court or governmental authority or third party is required in
     connection with the execution and delivery by Borrower of this Amendment
     and the Renewal Note or to consummate the transactions contemplated hereby
     and thereby.

       (d) When duly executed and delivered, each of this Amendment, the Credit
     Agreement and the Renewal Note will be a legal and binding instrument and
     agreement of Borrower, enforceable in accordance with its terms, except as
     limited by bankruptcy, insolvency and similar laws applying to creditors'
     rights generally and by principles of equity applying to creditors' rights
     generally.

       (e) The audited annual financial statements of Borrower dated as of
     December 31, 1995 and the unaudited quarterly financial statements of
     Borrower dated as of September 30, 1996 fairly present the financial
     position at such dates and the statement of operations and the changes in
     financial position for the periods ending on such dates for Borrower.
     Copies of such financial statements have heretofore been delivered to
     Lender.  Since September 30, 1996, no material adverse change has occurred
     in the financial condition or businesses of Borrower.

                                   ARTICLE V.

                                 Miscellaneous
                                 -------------

   (S) 5.1.  Ratification of Agreements.  The Original Agreement as hereby
             --------------------------                                   
amended is hereby ratified and confirmed in all respects.  Any reference to the
Credit Agreement in any Loan Document shall be deemed to refer to this Amendment
also.  Any reference to the Note in any other Loan Document shall be deemed to
be a reference to the Renewal Note issued and delivered pursuant to this
Amendment.  The execution, delivery and effectiveness of this Amendment and the
Renewal Note shall not, except as expressly provided herein or therein, operate
as a waiver of any right, power or remedy of Lender under the Credit Agreement
or any other Loan Document nor constitute a waiver of any provision of the
Credit Agreement or any other Loan Document.

   (S) 5.2.  Survival of Agreements.  All representations, warranties,
             ----------------------                                   
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loan and the issuance and delivery of
the Renewal Note, and shall further survive until all of the Obligations are
paid in full.  All statements and agreements contained in any certificate or
instrument delivered by any Related Person hereunder or under the Credit
Agreement to Lender shall be deemed to constitute representations and warranties
by, or agreements and covenants of, Borrower under this Amendment and under the
Credit Agreement.

   (S) 5.3. Loan Documents.  This Amendment and the Renewal Note are each a
            --------------                                                 
Loan Document, and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto and thereto.
<PAGE>
 
   (S) 5.4 Governing Law.  This Amendment shall be governed by and construed
           -------------                                                    
in accordance with the laws of the State of Texas and any applicable laws of the
United States of America in all respects, including construction, validity and
performance.

   (S) 5.5. Counterparts.  This Amendment may be separately executed in
            ------------                                               
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.

   THIS AMENDMENT 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.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.

   IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.

                                         KEY PRODUCTION COMPANY, INC.



                                         By:      /s/ Monroe W. Robertson
                                              -----------------------------
                                                  Monroe W. Robertson,
                                                  Senior Vice President



                                         NATIONSBANK OF TEXAS, N.A.



                                         By:      /s/ Rick Stults
                                              -----------------------------
                                                  Rick Stults,
                                                  Vice President