PW/GEODYNE
                           PRODUCTION PARTNERSHIP II-E
                            AGREEMENT OF PARTNERSHIP

       Agreement of Partnership,  dated as of September 27 , 1988, among Geodyne
Production   Company,  a  Delaware   corporation,   as  Managing  Partner,   and
PaineWebber/Geodyne  Energy Income Limited Partnership II-E, an Oklahoma limited
partnership, as General Partner.

       Whereas,  the parties hereto desire to form a general  partnership  under
the Uniform Partnership Act of the State of Oklahoma;

       Now,  Therefore,  in  consideration of the mutual promises and agreements
made  herein,  the  parties,  intending  to be legally  bound,  hereby  agree as
follows:

                                   ARTICLE ONE
                                  Defined Terms

       The  defined  terms used in this  Agreement  shall,  unless  the  context
otherwise  requires,  have the  meanings  specified  in this  Article  One.  The
singular  shall  include the plural and the  masculine  gender shall include the
feminine,  the neuter and vice versa, as the context requires. Any terms used in
this Agreement  which are defined in the Limited  Partnership  Agreement and are
not otherwise defined herein shall have the respective meanings set forth in the
Limited Partnership Agreement.

       "Accountants"  shall mean Arthur Young & Company or such other nationally
recognized firm of independent  certified public accountants as shall be engaged
from time to time by the Managing Partner for the Production Partnership.

       "Acquisitions  and  Operations  Fee"  shall  mean  the  fee  paid  by the
Production  Partnership  to the Managing  Partner  pursuant to Section 5.2(1) of
this Agreement in connection  with the Production  Partnership's  acquisition of
Producing Properties and the conduct of its business operations.

       "Acquisition Reserve Report" shall mean a Hydrocarbon reserve report made
available  to the  Production  Partnership  prepared  by a  qualified  petroleum
engineering  firm  acceptable  to the Managing  Partner in  connection  with the
proposed acquisition of a Producing Property, which shall include statements (i)
identifying  reserves  of  Hydrocarbons  referred  to in such  report  as Proved
Developed Producing Reserves,  Proved Developed Non-Producing Reserves or Proved
Undeveloped  Reserves,  as the case may be, and identifying all computations and
determinations made for purposes of such report, including,  without limitation,
the present and future prices for  Hydrocarbons and the present and future costs
to  produce  and  develop  such  Hydrocarbons  used  in  such  computations  and
determinations,  (ii) with respect to the determination of the nature and extent
of the reserves of



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Hydrocarbons  reflected  in such  report,  that  the  collection,  analysis  and
evaluation  of the basic  physical data upon which such  determination  is based
were performed by such qualified petroleum engineering firm or if such data were
collected by another Person, that such qualified petroleum  engineering firm has
made  inquiry  with respect to the methods  employed in such  collection,  (iii)
specifying the respective amounts of Proved Developed Producing Reserves, Proved
Developed  Non-Producing  Reserves,  or Proved  Undeveloped  Reserves  contained
therein, and (iv) indicating such qualified petroleum engineering firm's opinion
as to the  respective  estimated  present  values of future net revenues of each
category of reserves  contained  therein  determined in accordance with criteria
satisfactory  to the Managing  Partner and  otherwise in  accordance  with sound
engineering  and industry  practices,  including such standards and practices as
may be  promulgated  by the  Society  of  Petroleum  Engineers  of the  American
Institute of Mining and Metallurgical  Engineers. Any such report may state that
such  qualified  petroleum  engineering  firm  expresses no opinion and makes no
warranty or  representation  with  respect to the proposed  acquisition  of such
Producing Property and that such qualified petroleum engineering firm is relying
on information furnished by the Managing Partner as to the historical volumes of
any Hydrocarbons  actually produced and as to the proposed ownership interest of
the Production Partnership in such Producing Property.

       "Act sha1l mean the  Oklahoma  Uniform  Partnership  Act, as amended from
time to time.

       "Activation"  or  "Activated"  shall mean (i) with respect to the Limited
Partnership,  the date on which the Limited Partnership is formed, and (ii) with
respect to the Production Partnership, the date on which the Limited Partnership
shall have made its Capital Contribution to the Production Partnership.

       "Affiliate"  shall mean, when used with reference to a specified  Person:
(a) any Person directly or indirectly owning, controlling, or holding with power
to vote  10% or more  of the  outstanding  voting  securities  of the  specified
Person;  (b) any Person 10% or more of whose  outstanding  voting securities are
directly  or  indirectly  owned,  controlled,  or held with power to vote by the
specified Person; (c) any Person directly or indirectly controlling,  controlled
by, or under common control with, the specified Person; (d) any Person who is an
officer,  director,  partner or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director,  partner or trustee,  or with  respect to which the  specified  Person
serves in a similar  capacity;  and (e) any relative or spouse of the  specified
Person. Notwithstanding the foregoing, no Person shall be deemed



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to be an Affiliate  solely by reason of its ownership of depositary  units of or
limited partnership interests in a limited partnership.

       "Affiliated  Program" shall mean a drilling or income program (whether in
the  form of a  limited  partnership,  general  partnership,  joint  venture  or
otherwise) interests in which were offered to persons or entities not engaged in
a trade or business within the oil and gas industry (other than by virtue of its
participation in an Affiliated  Program) and of which the Managing Partner or an
Affiliate thereof serves as general partner or venturer.

       "Agreement" shall mean this Agreement of Partnership as amended from time
to time.

       "Capital Account" shall mean, as to any Partner, an account maintained on
the books of the  Production  Partnership  in accordance  with the provisions of
Section 5.3D below.

       "Capital  Contribution"  shall mean the total amount of money contributed
to the  Production  Partnership  by all Partners or any class of Partners or any
one Partner (or the  predecessor  holders of the  Interests  of such  Partner or
Partners),  as the context requires,  net of any refunds pursuant to Section 3.4
of this Agreement.

       "Code" shall mean the Internal  Revenue Code of 1986,  as amended (or any
corresponding provisions of succeeding law).

       "Commercial  Well" shall mean any  Production  Partnership  Well which is
capable of producing  Hydrocarbons  in commercial  quantities,  including  those
wells  which are  shut-in  or which  have  not.  been  abandoned  within 60 days
following  the  commencement  of  production.  For purposes of this  definition,
production  shall  refer to the  commencement  of the  commercial  marketing  of
Hydrocarbons,  and shall not include any spot sales of Hydrocarbon production as
a result of testing procedures.

       "Consent"  shall  mean the  consent  of a Person,  given as  provided  in
Section 11.1, to do the act or thing for which the consent is solicited,  or the
act of granting such consent, as the context may require.

       "Depositary  Unit"  shall  mean an  increment  of the  attributes  of the
Interest of the  Depositary  as the Limited  Partner of the Limited  Partnership
that is assigned to a Unit Holder.

       "Development  Drilling"  shall  mean  all  drilling  and  completing,  or
plugging and abandoning  (after a determination  that a well is not a Commercial
Well), of a Production Partnership Well drilled to the same reservoir from which
another well or other wells on a Lease or an offset Lease are being produced, or
the recompletion of an existing Production Partnership Well; provided,  however,
that Development Drilling shall not include any Identified Development Drilling.



                                      -3-
<PAGE>




       "Direct  Administrative Costs" shall mean the actual and necessary direct
costs attributable to services provided to the Production Partnership by parties
other than the  Managing  Partner or its  Affiliates,  whether  incurred  by the
Production  Partnership  directly  or incurred  by the  Managing  Partner or its
Affiliates,  including the annual audit fees, legal fees and expenses, the costs
of reviewing tax returns and reports,  the cost of reserve  reports  (other than
the  cost  of  Acquisition  Reserve  Reports,   Engineering  Audit  Letters  and
evaluations thereof conducted on behalf of a Production Partnership) prepared by
independent  petroleum  engineering  firms,  and all other such  costs  directly
incurred by or for the benefit of the Production Partnership.

       "Distributable   Cash"  shall  mean,   with  respect  to  the  Production
Partnership's  operations at any time, the amount of cash assets on hand at such
time less amounts  required to be retained out of such cash assets,  in the sole
judgment of the Managing  Partner,  to pay costs,  expenses or other obligations
whether then accrued or anticipated to accrue in the future.

       "Engineering  Audit Letter" shall mean a document prepared by a qualified
petroleum engineering firm acceptable to the Managing Partner in connection with
the proposed acquisition of a Producing Property, which shall include statements
indicating that (i) such qualified  petroleum  engineering  firm has reviewed an
oil  and gas  reserve  report  prepared  by the  engineering  staff  of  Geodyne
Resources, Inc. or an Affiliate, (ii) in the opinion of such qualified petroleum
engineering  firm,  the reserve  report was  prepared in  accordance  with sound
engineering  and industry  practices,  including such standards and practices as
may be  promulgated  by the  Society  of  Petroleum  Engineers  of the  American
Institute of Mining and Metallurgical  Engineers,  and (iii) with respect to the
determination of the nature and extent of the reserves of Hydrocarbons reflected
in such report, such qualified petroleum  engineering firm has made inquiry with
respect to the methods  employed in the  collection,  analysis and evaluation of
the basic physical data upon which such determination is based.

       "Farmout"  shall  mean an  arrangement  whereby  the  owner of a Lease or
Working  Interest agrees to assign his interest in certain  specific  acreage to
the assignee,  retaining some interest such as an overriding  royalty  interest,
oil and gas payment,  offset  acreage or other type of interest,  subject to the
drilling of one or more specific  wells or other  performance  as a condition of
the assignment.

       "Fiscal Year" shall mean the calendar year.

       "General and  Administrative  Costs" shall mean all customary and routine
legal,  accounting,  data  processing,  depreciation  (other  than  depreciation
relating  to real  property),  geological,  engineering,  travel,  office  rent,
telephone, secretarial, employee compensation and benefits, and other items of a
general and administrative nature, whether like or unlike the foregoing,



                                      -4-
<PAGE>



and any other  incidental  expenses  reasonably  necessary to the conduct of the
Production  Partnership's  business,  including the  acquisition,  operation and
administration of Producing Properties,  computed on a cost basis, determined by
the Managing Partner in accordance with generally accepted accounting principles
and subject to review by an independent  public  accountant or certified  public
accountant in connection with the annual audit of the Production Partnership and
its  Affiliates.  General and  Administrative  Costs shall not include any costs
includable  under the foregoing  but which are included as Property  Acquisition
Costs, Direct Administrative Costs, cost incurred in connection with Development
Drilling,  Identified  Development  Drilling and Improved Recovery projects,  or
Operating Costs.

       "General  Partner" shall mean  PaineWebber/Geodyne  Energy Income Limited
Partnership II-E, an Oklahoma limited partnership,  acting in such capacity, any
successor  in that  capacity,  and any other  General  Partner  admitted  to the
Production  Partnership  pursuant to the provisions of this Agreement subsequent
to the Activation of the Production Partnership.

       "Geodyne  Production" shall mean Geodyne Production Company, a Delaware
corporation.

       "Hydrocarbons" shall mean crude oil, natural gas, condensate, natural gas
liquids and other liquid or gaseous hydrocarbons.

       "Identified Development Drilling" shall mean all drilling and completing,
or  plugging  and  abandoning  (after  a  determination  that  a  well  is not a
Commercial  Well), of a Production  Partnership  Well drilled by or on behalf of
the  Production  Partnership  to a  reservoir  on a  Lease  or an  offset  Lease
constituting all or a portion of a Producing  Property or the recompletion of an
existing Production  Partnership Well, where (i) the drilling or recompletion of
such  Production  Partnership  Well  commences  after  the  acquisition  of such
Producing  Property by the Production  Partnership  and is conducted in order to
commence production of Hydrocarbons from Proved Undeveloped  Reserves identified
in the  Acquisition  Reserve  Report or  Engineering  Audit  Letter  prepared in
connection  with such Producing  Property,  (ii) the costs of development of the
Proved Undeveloped  Reserves were taken into account in such Acquisition Reserve
Report or Engineering Audit Letter in valuing such Proved  Undeveloped  Reserves
attributable to such Producing Property, and (iii) a portion of the cost paid by
the Production  Partnership  for such  Producing  Property is attributed by such
Acquisition   Reserve  Report  or  Engineering   Audit  Letter  to  such  Proved
Undeveloped  Reserves.  The term, Identified  Development  Drilling,  shall also
refer to any Production  Partnership Wells drilled or recompleted on a Producing
Property subsequent to the initial Identified



                                      -5-
<PAGE>



Development  Drilling  conducted on such Producing Property in order to commence
production  of  Hydrocarbons  from Proved  Undeveloped  Reserves (in addition to
those identified in the related  Acquisition Reserve Report or Engineering Audit
Letter)  which  have  been   categorized  by  the  Managing  Partner  as  Proved
Undeveloped  Reserves by virtue of  production  obtained  from prior  Identified
Development  Drilling  conducted on such  Producing  Property.  Any reference to
costs incurred in connection with Identified  Development Drilling shall include
the  interest,  commitment  fees and other  financing  charges  and  expenses of
Production  Partnership  borrowings  incurred to finance Identified  Development
Drilling.

       "Improved  Recovery"  shall  mean all  methods of  supplementing  natural
forces and mechanisms of primary  recovery or otherwise  increasing the ultimate
recovery  from a Production  Partnership  Well,  including,  but not limited to,
water flooding,  pressure  maintenance,  gas cycling,  fluid injection,  polymer
flooding, chemical flooding, and the use of miscible displacement fluids.

       "Incapacity" or "Incapacitated" shall mean the adjudication of bankruptcy
(except that, in the case of the Managing Partner,  the term "bankruptcy"  shall
mean only being  subject to Chapter 7 of the  Federal  Bankruptcy  Reform Act of
1978),  of  interdiction,  of  incompetence,  or  of  insanity,  or  the  death,
dissolution or termination  (other than by merger or  consolidation  under which
the   surviving   entity   agrees  to  assume   all  of  the   obligations   and
responsibilities  of the  merged  or  consolidated  Person  set  forth  in  this
Agreement), as the case may be, of any Person.

       "Income" shall mean the gross income of the Production Partnership (other
than Investment Income) as determined for Federal income tax purposes, including
all  capital  or Code  Section  1231 gains  (but not  losses) of the  Production
Partnership.

       "Interest"  shall mean the entire  ownership  interest (which may, either
for a Partner's Capital Account or a Partner's Profits interest, be expressed as
a percentage) of a Partner in the Production Partnership at any particular time,
including the rights and  obligations  of such Partner under this  Agreement and
the Act.

       "Investment Income" shall mean all interest and dividend income earned on
temporary  investments  of the  Production  Partnership at any time prior to the
time at which an amount  equal to the Capital  Contributions  to the  Production
Partnership  available for the acquisition of Producing Properties have been (i)
expended or (ii) returned pursuant to Section 3.4 of this Agreement.

       "Lease"  shall mean a lease,  mineral  interest,  royalty  or  overriding
royalty  covering  Hydrocarbons  (or a  contractual  right  to  acquire  such an
interest), or an undivided interest therein



                                      -6-
<PAGE>



or portion thereof, together with all easements,  permits, licenses,  servitudes
and rights--of--way  situated upon, or used or held for future use in connection
with, the exploration, development or operation of such interest.

       "Limited   Partners"  shall  mean  Geodyne   Depositary  Company  or  any
substituted limited partners of the Limited Partnership.

       "Limited  Partnership" shall mean the  PaineWebber/Geodyne  Energy Income
Limited Partnership II-E, an Oklahoma limited partnership.

       "Limited Partnership  Agreement" shall mean the agreement under which the
Limited Partnership was formed, as amended and restated.

       "Managing  Partner"  shall mean Geodyne  Production  Company,  a Delaware
corporation, and any other Person admitted as additional or Substituted Managing
Partner pursuant to Article Six of this Agreement.

       "Notification" shall mean a writing,  containing the information required
by this Agreement to be  communicated  to any Person,  hand delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, to such
Person at the last  known  address  of such  Person,  the date of the  certified
receipt (or such other  evidence of receipt)  therefor  being deemed the date of
the giving of Notification;  provided,  however,  that any written communication
containing the information sent or delivered to the Person and actually received
by the Person shall constitute Notification for all purposes of this Agreement.

       "Operation  Costs" shall mean all expenditures made and costs incurred by
the Production  Partnership  with respect to (i) the production and marketing of
Hydrocarbons from completed Production Partnership Wells, including labor, fuel,
repairs, hauling, materials,  supplies, utility charges and other costs incident
to or therefrom,  costs of maintaining  inventories incidental to the operations
of Producing  Properties,  costs of making transfers of lease and well equipment
to and from  Production  Partnership  Wells,  ad valorem  and  severance  taxes,
insurance and casualty  loss  expense,  and  compensation  to well  operators or
others for services  rendered in conducting such operations;  (ii) the interest,
commitment fees and other finance charges and expenses of Production Partnership
borrowings  incurred  in  connection  with  Development  Drilling  and  Improved
Recovery  Projects;  and  (iii)  processing  facilities,  pipelines,  gas  sales
facilities,  Improved  Recovery  projects,  and other  procedures and facilities
necessary  to produce  efficiently  the  Hydrocarbon  reserves  from a Producing
Property,  all to the  extent  such  costs  and  expenditures  are not  Property
Acquisition Costs.



                                      -7-
<PAGE>




       "Organization  and  Offering  Costs"  shall  mean all costs and  expenses
incurred by the Managing  Partner in  connection  with the  organization  of the
Production  Partnership,  including,  without limitation,  the legal,  printing,
accounting and other costs incurred in connection  with the  organization of the
Production Partnership,  and costs incurred in connection with preparing, filing
and recording this Agreement.

       "Partner"  shall mean the Managing  Partner or any General Partner of the
Production Partnership.

       "Payout" shall mean that time at which cash  distributions have been made
by the Limited Partnership to the Unit Holders (together with their predecessors
in  interest)  pursuant  to Section  5.1 of the  Limited  Partnership  Agreement
(together with any distributions to such Unit Holders pursuant to Section 3.3 of
the Limited  Partnership  Agreement),  in an aggregate  amount equal to the Unit
Holders' Subscriptions to the Limited Partnership.

       "Person" shall mean any individual,  partnership,  corporation,  trust or
other entity.

       "Prior Production Partnership" shall mean a general partner ship of which
Geodyne  Production is managing  partner,  and a limited  partnership,  of which
depositary units or units of limited partnership  interest were offered pursuant
to a public offering registered with the Securities and Exchange Commission,  is
the other general  partner,  formed prior to the  Activation  of the  Production
Partnership.

       "Producing  Property"  shall  mean  any  property  (or  interest  in such
property) with a well or wells capable of producing  Hydrocarbons  in commercial
quantities or properties unitized with such properties or properties adjacent to
such  properties  which are acquired as an incidental part of the acquisition of
such properties. The term also includes well machinery and equipment,  gathering
systems,  storage facilities or processing  installations or other equipment and
property associated with the production of Hydrocarbons. Interests in properties
may  include  Working  Interests,   production  payments,  Royalties  and  other
nonworking and nonoperating interests.

       "Production  Partnership"  shall mean the  general  partnership  governed
under and pursuant to this Agreement,  as said general partnership may from time
to time be constituted.

       "Production  Partnership Account" shall mean the bank account or accounts
maintained by the Managing Partner pursuant to Section 9.3.

       "Production  Partnership Property" shall mean any interest,  property and
right of any type owned by the Production Partnership.



                                      -8-
<PAGE>




       "Production Partnership Well" shall mean any well in which the Production
Partnership has an interest.

       "Profits" and "Losses"  shall mean the income or losses of the Production
Partnership  for Federal  income tax purposes  determined as of the close of the
Production Partnership's Fiscal Year, as well as, when the context requires, any
tax-exempt income and nondeductible expenses.

       "Property Acquisition Costs" shall mean, without duplication,  the sum of
(1) the prices paid by the Production  Partnership or the Managing Partner or an
Affiliate  to acquire a Producing  Property  ultimately  sold to the  Production
Partnership,  including the price paid to acquire a purchase option with respect
to a Producing Property, lease bonuses and equipment costs associated therewith;
(2) title insurance or examination costs, brokers' commissions and finders fees,
filing  fees,  recording  fees,  transfer  taxes,  if any,  and like  charges in
connection with the acquisition of Producing  Properties;  (3) delay rentals and
ad valorem  taxes paid by the buyer with respect to such property to the date of
its  transfer to the buyer;  (4)  interest  actually  incurred  by the  Managing
Partner or its Affiliates to acquire or maintain such Producing Properties prior
to  their  transfer  to the  Production  Partnership;  and (5)  all  reasonable,
necessary and actual expenses  incurred by the Managing  Partner or an Affiliate
in connection  with the  acquisition  of Producing  Properties and paid to third
parties who are not  Affiliates  for  geological,  geophysical,  seismic,  land,
engineering,  drafting,  accounting,  auditing,  legal and other like  services,
including the Production  Partnership's costs incurred (to the extent consistent
with generally  accepted  industry  standards) in connection with the Production
Partnership's review of proposed acquisitions of Producing  Properties,  Reports
and Engineering Audit Letters,  all allocated to the property in accordance with
the allocation procedures used by the Managing Partner, any of its Affiliates or
the Production Partnership;  provided that the portion of the Managing Partner's
or Affiliates'  expenses  allocated to the property,  as set forth in items (3),
(4) and (5),  shall  have been  incurred  not more  than 36 months  prior to the
property transaction.

       "Prospect" shall mean an area in which the Production Partnership owns or
intends  to own one or  more  oil and gas  interests,  which  is  geographically
defined on the basis of  geological  data by the  Managing  Partner and which is
reasonably  anticipated  by  the  Managing  Partner  to  contain  at  least  one
reservoir.

       "Prospectus"  shall mean the prospectus  pursuant to which the Depositary
Units were offered, and all supplements or amendments thereto, if any.

       "Proved  Reserves" shall mean those  quantities of  Hydrocarbons,  which,
upon analysis of geologic and engineering data, appear with reasonable certainty
to be recoverable in the



                                      -9-
<PAGE>



future from known  Hydrocarbon  reservoirs under existing economic and operating
conditions.  Proved  reserves are limited to those  quantities  of  Hydrocarbons
which can be expected,  with little doubt,  to be  recoverable  commercially  at
current prices and costs, under existing regulatory  practices and with existing
conventional  equipment and operating  methods.  Depending  upon their status of
development,  such  proved  reserves  shall be  subdivided  into  the  following
classifications and have the following definitions:

             (a) "Proved  Developed  Reserves"  shall mean proved reserves which
       can be expected to be  recovered  through  existing  wells with  existing
       equipment and operating methods. This classification shall include:

                   (1) "Proved  Developed  Producing  Reserves" which are proved
             developed  reserves which are expected to be produced from existing
             wells; and

                   (2)  "Proved  Developed  Non--Producing  Reserves"  which are
             proved developed reserves which exist behind the casing of existing
             wells,  or at minor depths below the present  bottom of such wells,
             which  are  expected  to be  produced  through  these  wells in the
             predictable future, where the cost of making Hydrocarbons available
             for production should be relatively small compared to the cost of a
             new well.

             Additional   Hydrocarbons  expected  to  be  obtained  through  the
       application  of  improved  recovery  techniques  are  included as "Proved
       Developed  Reserves"  only after  testing by a pilot project or after the
       operation  of an  installed  program  has  confirmed  through  production
       responses that increased recovery will be achieved.

             (b) "Proved Undeveloped Reserves" shall mean all reserves which are
       expected  to be  recovered  from new wells on  undrilled  acreage or from
       existing  wells where a  relatively  major  expenditure  is required  for
       recompletion.  Such  reserves on  undrilled  acreage are limited to those
       drilling units offsetting  productive units which are reasonably  certain
       of  production  when  drilled;  provided  that proved  reserves for other
       undrilled  units  can  be  claimed  where  it can  be  demonstrated  with
       certainty,  based on accepted  geological,  geophysical  and  engineering
       studies and data, that there is continuity of production from an existing
       productive  formation.  No estimates for Proved Undeveloped  Reserves are
       attributable to any acreage for which improved  recovery is contemplated,
       unless the techniques to be employed have been proved effective by actual
       tests in the same area and reservoir.



                                      -10-
<PAGE>




       "Remove",  "Removed"  or  "Removal"  shall mean,  with  reference  to the
removal of the Managing  Partner,  the  termination  of the  management  powers,
duties and  responsibilities of the Managing Partner pursuant to Section 6.2 and
the removal of the Managing Partner as a Partner.

       "Royalty" shall mean an interest,  including an overriding  royalty and a
net profits interest,  in gross production or the proceeds  therefrom which does
not  require  the  owner  thereof  to  bear  any  of  the  cost  of  production,
development, operation or maintenance.

       "Sale" shall mean any event or  transaction  that is, for Federal  income
tax  purposes,  considered a sale,  exchange or  abandonment  by the  Production
Partnership of any Production Partnership Property.

       "State" shall mean the State of Oklahoma.

       "Substituted  Partner"  shall mean any Person  admitted to the Production
Partnership as a Partner pursuant to Sections 7.3 and 10.2 of this Agreement.

       "Unit  Holders"  shall mean those persons who hold a Depositary  Unit and
who are  reflected on the books and records of Geodyne  Depositary  Company,  as
Depositary of the Limited Partnership,  as holders of record of Depositary Units
as of the close of business at the time of reference thereto.

       "Unit Holders'  Subscriptions" shall mean the aggregate amount subscribed
for by the initial Unit Holders to acquire their Depositary Units in the Limited
Partnership.

       "Working  Interest"  shall mean the interest  (whether  held  directly or
indirectly)  in a Lease  which is  subject  to some  portion  of the  expense of
production, development, operation or maintenance.

                                   ARTICLE TWO
                   Name, Place of Business and Office; Term

               Section 2.1. Name, Place of Business and Office

       The Production  Partnership  shall be conducted under the name PW/Geodyne
Production  Partnership  II-E. The business of the Production  Partnership  may,
however,  be conducted under any other name deemed necessary or desirable by the
Managing  Partner  in order to comply  with  applicable  laws.  The  office  and
principal place of business of the Production  Partnership  shall be c/o Geodyne
Production  Company,  320 South Boston Avenue,  The Mezzanine,  Tulsa,  Oklahoma
74103-3708. The Managing Partner shall record an assumed name or fictitious name
certificate  in the  State  and in each  state  in  which  it owns  property  or
transacts business when deemed necessary by the Managing Partner.



                                      -11-
<PAGE>




       The Managing  Partner may change the principal  place of business and the
location of such office and may establish  such  additional  offices as it deems
advisable from time to time; provided,  however, that in the event the principal
place of business of the Production  Partnership shall be changed,  the Managing
Partner shall give written notice thereof to the Unit Holders.

       Section 2.2.  Purpose

       The  business  and  purpose  of the  Production  Partnership  shall be to
acquire,  own,  hold,  operate,  explore,  develop,  trade,  sell  and  exchange
Hydrocarbon  properties and interests  therein of all kinds onshore and offshore
in the continental United States,  including,  without limitation,  interests in
general or limited partnerships,  joint ventures and other entities that hold or
are formed to acquire  interests in such  properties or interests;  to engage in
development  drilling  and enhanced  recovery  operations  thereon,  to produce,
transport,  market,  purchase and trade  Hydrocarbons and products  thereof;  to
purchase, lease, own, hold, operate, sell and exchange all equipment, machinery,
facilities, systems and plans necessary or appropriate for such purposes; and to
do any and all things  necessary or proper in connection with or incident to the
foregoing activities.

       Section 2.3.  Term

       The  Production  Partnership  shall  continue  in force and effect  until
December 31, 2001,  provided that the Managing  Partner may extend such term for
up to five  periods  of two  years  each,  or until  dissolution  prior  thereto
pursuant to the provisions hereof.

                                  ARTICLE THREE
                              Partners and Capital

       Section 3.1.  Managing Partner

       A. The name, address and Capital Contribution of the Managing Partner are
set forth in  Schedule  A  attached  hereto  and are  incorporated  herein.  The
Managing Partner shall not be required to make any Capital  Contribution  except
as set forth in Sections 3.1B, 3.4 and 8.2C.

       B.  The  Managing  Partner  shall  also  contribute  an  amount  of  cash
sufficient to pay its share of costs  allocated to it pursuant to Section 5.3 of
this  Agreement to the extent that the amount of Income  allocated to it (and/or
the amount of  Production  Partnership  borrowings  incurred  on its  behalf) is
insufficient to pay such costs.



                                      -12-
<PAGE>




       Section 3.2.  Other General Partner

       The name, address and Capital Contribution of the Limited Partnership are
set forth in Schedule A attached hereto and are hereby incorporated herein.

       Section 3.3  Application of Capital Contributions

       The Managing Partner shall deposit in the Production  Partnership Account
the Capital  Contributions  of the Limited  Partnership and the Managing Partner
and apply such Capital Contributions to the payment of Organization and Offering
Costs and the  Acquisitions  and  Operations  Fee.  The balance of such  Capital
Contributions shall be held in the Production  Partnership Account to be applied
to the payment of Property  Acquisition Costs and, to the extent not payable out
of Income or Investment  Income,  Operating  Costs,  General and  Administrative
Costs,  Direct  Administrative  Costs and other  Production  Partnership  costs;
provided,  however,  that such funds may be  temporarily  invested  prior to the
payment of such costs in accordance with Section 9.3.

       Section 3.4.  Certain Returns of Capital

       Any  portion  of the  Capital  Contribution  of the  Limited  Partnership
(except for necessary  operating  capital) that has not been expended or that is
not, or in the determination of the Managing Partner,  will not be committed for
expenditure  by the  second  anniversary  of the  Activation  of the  Production
Partnership will promptly be refunded to the Limited  Partnership as a return of
part of its Capital  Contribution  at the earlier of such  determination  or the
second anniversary of the Activation of the Production Partnership. In addition,
the Managing Partner shall contribute cash to the Production  Partnership  (with
respect to which its Capital  Accounts  will be  credited) in an amount equal to
the amount  paid to the  Managing  Partner in  respect of the  Acquisitions  and
Operations Fee attributable (on a proportionate  basis) to the unexpended amount
of Capital  Contributions  so  refunded,  which cash  shall be  refunded  to the
Limited  Partnership  together  with the  unexpended  Capital  Contributions  so
refunded.  Geodyne  Production  shall be  responsible  for the obligation of the
Managing  Partner to contribute cash to the Production  Partnership  pursuant to
this  Section  3.4.  All amounts so refunded  to the Limited  Partnership  shall
reduce dollar for dollar its Capital Account.

       Section 3.5.  Production Partnership Capital

       A. No Partner shall be paid interest on any Capital  Contribution  to the
Production Partnership or on such Partner's Capital Account, notwithstanding any
disproportion therein as between Partners.



                                      -13-
<PAGE>




       B. The Production  Partnership  shall not redeem any Partner's  Interest.
Except as provided in Sections  3.4, 6.1, 6.2 and 8.2, no Partner shall have the
right to  withdraw  or receive  any return of the  Capital  Contribution.  Under
circumstances  involving a return of any Capital Contribution,  no Partner shall
have the right to receive any property other than cash,  except as may otherwise
be provided in Sections 6.1, 6.2 and 8.2.

       Each Partner signatory hereto or subsequently  admitted to the Production
Partnership  agrees that it shall remain  generally liable for any obligation or
recourse liability of the Production  Partnership  incurred during the period in
which it is a Partner.  However,  all present and future  Partners  hereby agree
among  themselves to  contribute to each other the amount of funds  necessary to
effectuate a sharing of such  Production  Partnership  obligations  and recourse
liabilities  in  proportion  to each  Partner's  share of such  obligations  and
liabilities at the time of their accrual.


                                  ARTICLE FOUR
                          Rights, Powers and Duties of
                              The Managing Partner

       Section  4.1.   Management  and Control  of  the Production Partnership

       A. Subject to the Consent of the Limited Partnership as and when required
by this  Agreement,  the Managing  Partner,  within the authority  granted to it
under and in accordance  with the provisions of this  Agreement,  shall have the
full and  exclusive  right to manage and control the business and affairs of the
Production  Partnership and to make all decisions  regarding the business of the
Production  Partnership and shall have all of the rights, powers and obligations
of a managing  general  partner of a general  partnership  under the laws of the
State.  The Managing  Partner shall  exercise those powers as a fiduciary to the
Limited Partnership.

       B. No other Partner shall  participate  in the  management of or have any
control over the Production  Partnership's  business nor shall any other Partner
have the power to represent,  act for, sign for or bind the Managing  Partner or
the  Production  Partnership.  The Limited  Partnership  hereby  Consents to the
exercise  by  the  Managing  Partner  of  the  powers  conferred  on it by  this
Agreement.


       Section 4.2.  Authority of the Managing Partner

       A. In addition to any other rights and powers which the Managing  Partner
may possess under this Agreement and the Act, the Managing Partner shall, except
and subject to the extent otherwise provided or limited in this Agreement,  have
all specific  rights and powers required or appropriate to its management of the
Production  Partnership's  business which, by way of illustration but not by way
of limitation, shall include the following rights and powers to:



                                      -14-
<PAGE>




            (i) expend  the  Capital  Contributions  of the  Partners  and apply
      Production   Partnership  revenues,   subject  to  Section  4.3C  of  this
      Agreement, in furtherance of the business of the Production Partnership;

             (ii)  acquire,  explore,  develop,  manage and operate  hydrocarbon
      properties and interests therein (including  interests in corporations and
      partnerships  owning  Hydrocarbon  properties if in the Managing Partner's
      judgment  such  purchase is a necessary  or  advisable  step in  acquiring
      interests  in  producing  properties  held  by  any  such  corporation  or
      partnership,  provided,  no such  purchase will be made for the purpose of
      investment in the securities of any such  corporation or partnership,  the
      Production Partnership will not conduct or participate in a hostile tender
      offer,  and no such purchase  will be made unless there is assurance  that
      sufficient  control of the  corporation or partnership  can be obtained in
      the initial acquisition to liquidate it, and it is determined the purchase
      would not thereby render the Production  Partnership an investment company
      within the meaning of the  Investment  Company Act of 1940,  and  provided
      further the Production  Partnership's interest in the underlying assets of
      any such  corporation  or  partnership is distributed as soon as practical
      thereafter to the Production  Partnership in redemption for the Production
      Partnership's  interest in such  corporation or  partnership) of all kinds
      and  acquire  depositary  units or units of limited  partnership  interest
      tendered  to the  General  Partner  pursuant  to the terms of any right of
      presentment  of a Prior  Limited  Partnership  (as  defined in the limited
      partnership  agreement for such Prior Limited Partnership)  (provided that
      the Production  Partnership shall not expend an aggregate amount in excess
      of 10% of the Limited  Partnership's  Capital Contribution to acquire such
      units) and hold all such property,  interests and units in the name of the
      Production Partnership;  provided,  however, that in connection therewith,
      the Managing  Partner shall,  contemporaneously  with the acquisition of a
      Producing Property, or as soon as practicable thereafter, file or cause to
      be filed for recordation an appropriate conveyance or agreement evidencing
      the Production  Partnership's  interest in such Producing  Property in the
      jurisdiction  where such  Producing  Property is located  pursuant to such
      jurisdiction's Uniform Commercial Code and/or in the real property records
      of the clerk or recorder of the county in which the Producing  Property is
      situated;  and,  provided,  further,  that filings of such  conveyances or
      agreements shall also be made as the Managing  Partner believes  necessary
      to establish  the  Production  Partnership's  priority of  interest;  and,
      provided,  further,  Producing  Properties may be held  temporarily in the
      name of a nominee for the Production  Partnership if such action is deemed
      necessary by the Managing Partner to facilitate acquisition;



                                      -15-
<PAGE>




            (iii) execute such  instruments and agreements,  to do such acts, to
      employ  such  persons and to contract  for such  services as the  Managing
      Partner  determines are necessary or appropriate to conduct the Production
      Partnership's  business,  including the employment of the Managing Partner
      or any  Affiliate as an operator,  and the entering  into  management  and
      advisory contracts;

            (iv) execute, in the name of the Production  Partnership,  contracts
      for the sale of  Hydrocarbons  and division  orders and transfer orders as
      necessary  or  incident  to  the  sale  of  production  on  behalf  of the
      Production Partnership;

            (v)  produce,  treat,  transport  and market  Hydrocarbons,  execute
      processing contracts,  transportation  contracts, and enter into contracts
      for the marketing or sale of Hydrocarbons  and other marketing  agreements
      in the name of the Production Partnership, whether or not extending beyond
      the term of the Production Partnership;

            (vi) execute offers for United States and any state Leases on behalf
      of the Production  Partnership;  execute and file requests for approval of
      assignments  of interests in United States and any state Leases,  together
      with any and all contracts for the option, sale or purchase of such Leases
      or the sale or purchase of any products therefrom; to execute any plans of
      development  under unit  agreements,  conveyances,  subleases,  mortgages,
      deeds of trust, affidavits or reports concerning the drilling of wells and
      production,  designations of operator,  Lease bonds,  operator's bonds and
      consents of surety; and in general to do all things necessary or desirable
      on behalf of the  Production  Partnership  regarding  any United States or
      state Leases or offers therefor;

            (vii) enter into any partnership agreement,  sharing arrangement, or
      joint venture with any Person acceptable to the Managing Partner and which
      is  engaged  in any  business  or  transaction  in  which  the  Production
      Partnership  is  authorized  to  engage,   provided  that  the  Production
      Partnership shall not be deemed thereby to be an "investment  company" for
      purposes of the Investment Company Act of 1940, as amended;

            (viii)   enter  into  and  execute   drilling   contracts,   Farmout
      agreements,   operating  agreements,   unitization   agreements,   pooling
      agreements,  unit or pooling designations,  recycling contracts, dry hole,
      bottom hole and acreage contribution letters and agreements, participation
      agreements,   agreements   and   conveyances   respecting   rights-of-way,
      agreements  respecting  surface  and  subsurface  storage  and  any  other
      agreements  customarily employed in the oil and gas industry in connection
      with the acquisition,  exploration, development, operation, or abandonment
      of any Leases, and any and all other



                                      -16-
<PAGE>



      instruments  or  documents  considered  by the  Managing  Partner  to be
      necessary  or  appropriate  to conduct the  business  of the  Production
      Partnership;

            (ix) pay or elect not to pay delay rentals on Production Partnership
      Properties  as  appropriate  in the judgment of the Managing  Partner,  it
      being  understood that the Managing Partner will not be liable for failure
      to make  correct or timely  payments of delay  rentals if such failure was
      due to any reason other than negligence or lack of good faith;

            (x) subject to Section  4.3B,  abandon or  otherwise  dispose of any
      interest in Hydrocarbon properties acquired for the Production Partnership
      upon such terms and for such  consideration  as the  Managing  Partner may
      determine;

            (xi) sell production  payments payable out of all or any part of any
      one or  more  of  the  Producing  Properties  acquired  by the  Production
      Partnership and to devote and expend the proceeds of any such sale for any
      of the purposes of the  Production  Partnership  for which the proceeds of
      borrowings may be applied;

            (xii) borrow  monies from time to time,  for the purpose and subject
      to the limitations  stated in Section 4.3C of this Agreement,  in the form
      of recourse or nonrecourse borrowings, or otherwise to draw, make, execute
      and  issue   promissory   notes  and  other  negotiable  or  nonnegotiable
      instruments and evidences of  indebtedness,  and to secure the payments of
      the sums so borrowed  and to mortgage,  pledge,  or assign in trust all or
      any  part  of  Production   Partnership   Property,   including  Producing
      Properties, production and proceeds of production, or to assign any monies
      owing or to be owing to the Production  Partnership,  and to engage in any
      other means of financing  customary in the petroleum  industry;  provided,
      however,  that a creditor who makes a nonrecourse  loan to the  Production
      Partnership  shall not have or acquire,  at any time as a result of making
      the loan,  any direct or indirect  interest in the  profits,  capital,  or
      property of the Production Partnership other than as a secured creditor;

            (xiii)   invest   Capital   Contributions   temporarily   in   the
      investments set forth in Section 9.3;

            (xiv)  employ  on  behalf  of  the  Production  Partnership  agents,
      employees, accountants, lawyers, geologists,  geophysicists,  landpersons,
      clerical help, and such other assistance and consulting and other services
      as may deem necessary or convenient and to pay therefor such  remuneration
      as the Managing Partner may deem reasonable and appropriate;



                                      -17-
<PAGE>




            (xv) purchase,  lease,  rent, or otherwise acquire or obtain the use
      of machinery,  equipment,  tools, materials, and all other kinds and types
      of real or  personal  property  that may in any way be  deemed  necessary,
      convenient,  or advisable in  connection  with carrying on the business of
      the Production Partnership, purchase and establish adequate inventories of
      equipment  and material  required or expected to be required in connection
      with its operations,  dispose of tangible lease and well equipment for use
      or used in connection with Production  Partnership Property,  and to incur
      expenses for travel, telephone,  telegraph,  insurance, and for such other
      things,  whether  similar or  dissimilar,  as may be deemed  necessary  or
      appropriate  for carrying on and performing the business of the Production
      Partnership;

            (xvi) enter into such agreements and contracts with such parties and
      to give such receipts,  releases,  and discharges  with respect to any and
      all of the  foregoing  and any matters  incident  thereto as the  Managing
      Partner may deem advisable or appropriate;

            (xvii)  guarantee the payment of money or the  performance  of any
      contract or obligation by any person,  firm, or corporation on behalf of
      the Production Partnership;

            (xviii)  sue and be sued,  complain  and defend in the name and on
      behalf of the Production Partnership;

            (xix) make such  classifications  and determinations as the Managing
      Partner  deems  advisable,  having due regard for any  relevant  generally
      accepted accounting principles and oil and gas industry practices;

            (xx)  purchase  insurance,  or extend the Managing  Partner's or its
      Affiliates' insurance, at the Production Partnership's expense, to protect
      the  Production  Partnership  Property and the business of the  Production
      Partnership  against  loss,  and to protect the Managing  Partner  against
      liability  to  third  parties   arising  out  of  Production   Partnership
      activities,  such  insurance to be in such  limits,  to be subject to such
      deductibles  and to  cover  such  risks  as  the  Managing  Partner  deems
      appropriate;

            (xxi) pay all ad  valorem  taxes  levied  or  assessed  against  the
      Production  Partnership  Properties,  all taxes  upon or  measured  by the
      production  of  Hydrocarbons  therefrom,  and all other taxes  (other than
      income taxes) directly  related to operations  conducted by the Production
      Partnership;

            (xxii) enter into agreements on behalf of the Production Partnership
      with Affiliates subject to the limitations set forth in Section 4.3B;



                                      -18-
<PAGE>




             (xxiii)  sell  a  portion  or  all  or  substantially  all  of  the
       properties and other assets of the Production  Partnership to itself,  or
       any of its  Affiliates or Affiliated  Programs or any other person and to
       receive for the Production Partnership  consideration consisting of cash,
       securities,  other  property or any other form of  consideration,  or any
       combination  thereof,  at such prices and for such forms of consideration
       as it deems in the best interests of the Unit Holders; provided, however,
       that no such sale shall be  consummated  without the prior Consent of the
       Limited  Partnership  pursuant to the  provisions of Section 4.4B of this
       Agreement.  In the event of the dissolution of the Production Partnership
       followed by any such sale of the  Production  Partnership's  assets,  the
       Managing Partner shall,  subject to the provisions of Section 8.2 of this
       Agreement,   be  appointed  the  liquidating  agent  for  the  Production
       Partnership;

             (xxiv)  make,  exercise or deliver any general  assignment  for the
       benefit  of the  Production  Partnership's  creditors,  but only upon the
       prior Consent of the Limited  Partnership  pursuant to the  provisions of
       Section 4.4B;

             (xxv) take such other  action and perform such other acts as may be
       deemed   appropriate   to  carry  out  the  business  of  the  Production
       Partnership; and

             (xxvi) inform each other Partner of all administrative and judicial
       proceedings  for an adjustment at the  Production  Partnership  level for
       partnership tax items and forward to each other Partner within 30 days of
       receipt all notices received from the Internal Revenue Service  regarding
       the  commencement  of a  partnership  level audit or a final  partnership
       administrative  judgment, and Geodyne Production shall perform all duties
       imposed by Sections  6221  through  6232 of the Code as the "tax  matters
       partner" of the Production  Partnership,  including,  but not limited to,
       the   following:   (a)  the  power  to  conduct   all  audits  and  other
       administrative  proceedings  (including  windfall profit tax audits) with
       respect to Production  Partnership items; the power to extend the statute
       of  limitations  for all Partners with respect to Production  Partnership
       tax  items;  and (b) the  power to file a  petition  with an  appropriate
       federal   court  for  review  of  a  final   partnership   administrative
       adjustment.

       B. No person, firm or corporation dealing with the Production Partnership
shall be required to inquire into the authority of the Managing  Partner to take
or refrain from taking any action or make or refrain  from making any  decision,
but any person so inquiring  shall be entitled to rely upon a certificate of the
Managing Partner as to its due authorization.

       Section 4.3.  Sales,  Purchases and Operation of Producing  Properties;
Additional Financing



                                      -19-
<PAGE>




       A.  Producing  Properties  whose  purchase  price exceeds 10% of the Unit
Holders'  Subscriptions  to  the  Limited  Partnership  may be  acquired  by the
Production  Partnership  an Acquisition  Reserve Report or an Engineering  Audit
Letter has been prepared and evaluated with respect thereto.

       B. Neither the Managing Partner nor any Affiliate shall sell, transfer or
convey any or all of its  interest in  Producing  Properties  to the  Production
Partnership  or purchase or acquire any oil and gas  properties or interest from
the  Production  Partnership,   directly  or  indirectly,   except  pursuant  to
transactions  that are fair and reasonable to the Limited  Partnership under the
circumstances  at the time such  transaction is consummated.  Such  transactions
shall be further subject to the following restrictions:

             (i)  Prior to the  date on which  the  Production  Partnership  has
       acquired its final Producing  Property,  neither the Managing Partner nor
       any Affiliate of the Managing Partner (other than an Affiliated  Program)
       shall  acquire  any  Producing  Property  after  the  Activation  of  the
       Production  Partnership  unless prior thereto the Production  Partnership
       shall have been offered the right to acquire such Producing Property,  or
       an interest therein,  and the Managing Partner shall have determined that
       the acquisition of such Producing  Property,  or an interest therein,  is
       not in the best interests of the Production Partnership;

             (ii) Any  purchase or sale of a Producing  Property  from or to the
       Managing  Partner  or  any  Affiliate  shall  be  made  at  the  Property
       Acquisition Cost for such Producing  Property as adjusted for intervening
       operations,  unless the Managing Partner or such Affiliate has reasonable
       grounds to  believe  that cost is  materially  more or less than the fair
       market value of such property,  in which case such sale or purchase shall
       be made at a price equal to the fair market value  thereof as  determined
       by an independent petroleum engineer;

             (iii) If the Managing Partner sells,  transfers or conveys any oil,
       gas or other mineral interests or property to the Production Partnership,
       it must, at the same time,  sell to the  Production  Partnership an equal
       proportionate  interest in all its other property in the same Prospect. A
       Sale or conveyance to the Production  Partnership of less than the entire
       ownership  interest  of the  Managing  Partner or any  Affiliate  is only
       permitted  if: (a) the  interests  retained or  obtained by the  Managing
       Partner or  Affiliate  and  acquired by the  Production  Partnership  are
       either (x) proportionate,  uniform and undivided Working Interests if the
       Producing  Property  acquired by the Production  Partnership is a Working
       Interest or (y) proportionate, uniform and undivided Royalty Interests if
       the  Producing  Property  acquired  by the  Production  Partnership  is a
       Royalty,  (b) the  respective  obligations  of the  Managing  Partner  or
       Affiliate and the Production Partnership are



                                      -20-
<PAGE>



      substantially  the same,  and (C) the interest of the Managing  Partner or
      its Affiliate in revenues does not exceed the amount  proportionate to its
      interest.  The Managing Partner and its Affiliate may not retain or obtain
      any overrides or other burdens on the interest  obtained by the Production
      Partnership,  and may not enter  into any  Farmouts  with  respect  to its
      retained  interest,  except  to  nonaffiliated  third  parties  or  to  an
      Affiliated Program;

            (iv) In the event the Managing Partner or any Affiliate  proposes to
      acquire an interest in a Prospect in which the Production  Partnership has
      an  interest  or in a Prospect  abandoned  by the  Production  Partnership
      within one year preceding such proposed acquisition,  the Managing Partner
      or Affiliate shall offer the interest to the Production  Partnership;  and
      if cash or financing is not  available to the  Production  Partnership  to
      purchase such interest,  neither the Managing  Partner nor Affiliate shall
      acquire an interest in such  Prospect.  The term "abandon" for the purpose
      of this  subparagraph  shall mean the termination,  either voluntary or by
      operation  of  the  Lease  or   otherwise,   of  all  of  the   Production
      Partnership's  interest in the Prospect.  This subsection  shall not apply
      after  the  lapse  of  five  years  of the  Activation  of the  Production
      Partnership  or to  any  Affiliated  Program  where  the  interest  of the
      Managing  Partner is less than or equal to its interest in the  Production
      Partnership, there are no duplication of tees to the Managing Partner, and
      the Managing  Partner does not obtain a greater  benefit from  purchase of
      the interest by the Affiliated  Program than it would if the interest were
      purchased by the Production Partnership;

            (v) During the existence of the Production Partnership and before it
      has ceased  operations,  neither the  Managing  Partner nor any  Affiliate
      (excluding  any  Affiliated  Program  where the  interest of the  Managing
      Partner  is  less  than  or  equal  to  its  interest  in  the  Production
      Partnership)  shall  acquire,  retain or drill for its own account any oil
      and gas interest in any  Prospect  upon which the  Production  Partnership
      possesses an interest,  except for transactions  which comply with Section
      4.3B(iii)  or 4.8.  The  geological  limits  of a  Prospect  owned  by the
      Production  Partnership  shall be enlarged or  contracted  on the basis of
      subsequently acquired geological data to define the productive limits of a
      reservoir and must include all of the acreage determined by the subsequent
      data to be encompassed by such  reservoir.  If the geological  limits of a
      Prospect,  as so enlarged,  encompass  any  interest  held by the Managing
      Partner or an Affiliate of the Managing  Partner  (excluding an Affiliated
      Program where the interest of the Managing Partner is identical to or less
      than its interest in the Production  Partnership),  such interest shall be
      sold to the Production  Partnership  in accordance  with the provisions of
      Section 4.3B(iv) and any net income



                                      -21-
<PAGE>



      previously  received by the Managing  Partner or  Affiliate  shall be paid
      over to the  Production  Partnership.  If the  Managing  Partner  acquires
      additional   acreage  or  interests  in  a  Prospect  of  the   Production
      Partnership,  it must  sell  such  to the  Production  Partnership  and is
      prohibited from retaining any such interest, except as may be permitted by
      Section 4.3B.  Notwithstanding the foregoing,  the Production  Partnership
      will not be  required  to  expend  additional  funds to  acquire  any such
      interest unless funds are available from the Capital  Contributions of the
      Partners;

            (vi)  Producing  Properties  may be sold,  Farmed--out  or otherwise
      transferred from or to an Affiliated Program only pursuant to transactions
      that comply with Sections  4.3B(iii),  4.3B(iv) or 4.8,  provided that the
      compensation  arrangement  or any other  interest or right of the Managing
      Partner or any  Affiliate is the same in the  Production  Partnership  and
      Affiliated  Program,  or, if different,  the  compensation of the Managing
      Partner  does not  exceed  the lower of the.  compensation  it would  have
      received in the Production Partnership or the Affiliated Program;

            (vii) Any Sale of  inventory or other  materials  by the  Production
      Partnership  to the  Managing  Partner or  Affiliate  shall be made at the
      applicable  rates  set  forth  in the  standard  form  of  the  accounting
      procedure  then  recommended  by  the  Council  of  Petroleum  Accountants
      Societies of North America;

            (viii)  Any  operating  agreements  pursuant  to which the  Managing
      Partner or any Affiliate acts as operator of Producing Properties shall be
      of a nature customary in the industry and payments to the Managing Partner
      or any Affiliate for acting as operator shall not exceed the  compensation
      which would be paid by  unaffiliated  third parties in the same geographic
      area  for  similar  goods  and  services.  Reimbursement  of the  Managing
      Partner's  overhead  pursuant  to such  operating  agreement  will  not be
      duplicative of any reimbursement of General and Administrative  Costs made
      pursuant to Section 5.2; and

            (ix) To the extent the Managing Partner or any Affiliate acquires an
      interest  in a  Producing  Property  in which the  Production  Partnership
      acquires an  interest,  the Managing  Partner or  Affiliate  shall pay its
      allocable  portion  of the  cost  of the  preparation  of the  Acquisition
      Reserve Report or Engineering Audit Letter, as the case may be, respecting
      such Producing Property.

       C.  The  Managing  Partner  may  not  expend  any  amount  of  Production
Partnership funds over the term of the Production Partnership for the payment of
Production  Partnership  costs  (other  than  recompletion  costs)  incurred  in
connection  with  Development  Drilling and Identified  Development  Drilling in
excess of 10% of the sum of: (i) the amount of the Unit Holders'



                                      -22-
<PAGE>



Subscriptions to the Limited Partnership,  plus (ii) the Production  Partnership
permissible  borrowings.  If the  Managing  Partner  determines  that  funds  in
addition to the Capital Contributions to the Production Partnership are required
for the payment of Production Partnership costs (other than Property Acquisition
Costs),  the Managing  Partner may apply or reserve Income or Investment  Income
for the payment of such Production Partnership costs and/or the Managing Partner
may  cause  the  Production  Partnership  to borrow  funds  for the  payment  of
Production  Partnership costs incurred in connection with Development  Drilling,
Identified  Development  Drilling and Improved  Recovery  operations;  provided,
however,  that the aggregate  outstanding  principal  amount of such  borrowings
shall not at any one time  exceed an  amount  equal to 20% of the Unit  Holders'
Subscriptions to the Limited Partnership.

       D. The Managing Partner shall have the authority to secure the payment of
borrowings  incurred  by it for its own  account or for  purposes  of paying its
allocable share of Production  Partnership  costs by assigning to lenders all or
part of its interest in Profits and  Distributable  Cash,  and by granting  such
lenders  a  security  interest  or  mortgage  in an  undivided  interest  in any
Production Partnership Property not to exceed its percentage interest in Income;
provided, however, that the Managing Partner, shall retain unencumbered at least
a  1%  interest  in  each  of  Production  Partnership  Property,   Profits  and
Distributable Cash.  Notwithstanding anything to the contrary in this Agreement,
in the event of any sale or  foreclosure of the Managing  Partner's  interest in
full or partial satisfaction of such borrowings,  appropriate  adjustments shall
be made in the  Capital  Accounts  of the  Partners  and in the  method by which
Income  and costs are  allocated  to the  Partners  to assure  that the  Limited
Partnership  will  not  bear  any of the  costs  attributable  to  such  sold or
foreclosed  interest and that the Managing Partner will not share or participate
in any of the capital, Income, costs or distributions  attributable to such sold
or  foreclosed  interest  except  to the  extent  of the  unencumbered  interest
retained by the Managing  Partner.  The Managing  Partner  shall  indemnify  the
Limited Partnership against any expenses resulting from a sale or foreclosure of
the Managing Partner's interest.

       Section 4.4.  Prohibited Transactions

       A.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary, the following transactions are expressly prohibited:

            (i) the  Production  Partnership  shall  not make any loans to the
      Managing Partner or any Affiliate;

            (ii) neither the Managing  Partner nor any Affiliate  shall make any
      loans to the  Production  Partnership  except at a rate of interest not in
      excess of the interest cost



                                      -23-
<PAGE>



      incurred by the Managing  Partner or  Affiliates or the amount of interest
      that would be charged to the Production Partnership (without regard to the
      Managing  Partner's or Affiliate's  financial  abilities or guarantees) by
      unrelated  banks on comparable  loans for the same  purpose,  whichever is
      lower, and the Managing Partner and Affiliates shall not receive points or
      financing charges or fees regardless of the amount;

            (iii) except as expressly  contemplated hereby, no agent,  attorney,
      accountant  or other  independent  consultant  or  contractor  who is also
      employed on a full--time  basis by the Managing  Partner or any  Affiliate
      shall  be  compensated  by  the  Production  Partnership  for  his  or her
      services;

            (iv) other than those  received  for the  account of the  Production
      Partnership,  no rebates may be received  by the  Managing  Partner or any
      Affiliate  in  connection  with  Production   Partnership   operations  or
      expenditures, nor may the Managing Partner or any Affiliate participate in
      any  reciprocal  business  arrangement  that would  circumvent  any of the
      provisions of this Agreement;

            (v) on a monthly  basis,  costs paid and  revenues  received  by the
      Managing  Partner  or an  Affiliate  for  the  account  of the  Production
      Partnership  shall be determined  and the net amount  resulting  from such
      monthly  settlement  shall  be  deposited  into a  Production  Partnership
      Account and no funds which, after such monthly settlement,  are determined
      to be held for the account of the Production  Partnership shall be kept in
      any account other than a Production  Partnership Account, and the Managing
      Partner shall not employ, or permit any other Person to employ, such funds
      in any manner  except for the benefit of the  Production  Partnership;  it
      being  understood  that  the  Managing   Partner  may  invest   Production
      Partnership  funds temporarily in the investments set forth in Section 9.3
      of this Agreement pending their use by the Production  Partnership.  After
      such  monthly  settlement,   Production   Partnership  funds  may  not  be
      commingled  with  separate  funds of the  Managing  Partner  or any  other
      entity; and

            (vi) the Limited  Partnership  shall not make any advance payment to
      the Managing  Partner or its Affiliates,  except where necessary to secure
      tax benefits of prepaid drilling costs.

       B. Notwithstanding any other provision of this Agreement to the contrary,
without the prior  Consent of the Limited  Partnership  granted  pursuant to the
provisions of Article Eleven of this Agreement and the provisions of the Limited
Partnership Agreement, the Managing Partner shall not:

             (i) lease,  sell, or dispose of all or  substantially  all of the
       Production Partnership's assets;



                                      -24-
<PAGE>




             (ii) make,  exercise or deliver any  general  assignment  for the
       benefit of the Production Partnership's creditors;

             (iii) except as set forth in Section  10.1A,  amend any provision
       of this Agreement; or

             (iv) dissolve the Production Partnership.

       Section 4.5.  Other Agreements of the Managing Partner

       A.    Anything in this  Agreement to the contrary  notwithstanding,  it
is agreed that:

             (i) the  Managing  Partner  and its  Affiliates  shall not take any
       action  with  respect  to  the  assets  or  property  of  the  Production
       Partnership   which  does  not   benefit   exclusively   the   Production
       Partnership, including:

                   (a)   the  utilization of Production  Partnership  funds as
             compensating  balances for the benefit of the Managing Partner or
             an Affiliate of the Managing Partner; and

                   (b) the commitment of future production;

             (ii)   all   benefits   from   marketing   arrangements   or  other
       relationships affecting property of the Managing Partner or its Affiliate
       and the Production  Partnership shall be fairly and equitably apportioned
       according to the respective interests of each;

             (iii)  neither the Managing  Partner nor any  Affiliate  may profit
       itself  by  Development  Drilling,  Identified  Development  Drilling  or
       Improved Recovery operations in contravention of its fiduciary obligation
       to the Limited Partnership; and

             (iv) neither the Managing Partner nor any Affiliate shall render to
       the Production  Partnership any oil field, equippage or drilling services
       nor sell or lease to the Production  Partnership any equipment or related
       supplies unless:

                   (a) such Person is engaged,  independently  of the Production
             Partnership  and  as an  ordinary  and  ongoing  business,  in  the
             business of  rendering  such  services  or selling or leasing  such
             equipment and supplies to a substantial  extent to other Persons in
             the oil  and gas  industry  in  addition  to  drilling  and  income
             programs in which such Person has an interest;



                                      -25-
<PAGE>




                   (b) the compensation, price or rental therefor is competitive
             with the compensation, price or rental of other Persons in the area
             engaged in the business of rendering comparable services or selling
             or leasing comparable equipment and supplies which could reasonably
             be made available to the Production Partnership;

                   (c)   the  drilling  services  are  billed  on either a per
             foot, per day or per hour rate, or some combination thereof; and

                   (d)  provided  that,  if  such  Person  is not  engaged  in a
             business   within  the  meaning  of  subdivision   (a),  then  such
             compensation,  price or rental shall be the cost of such  services,
             equipment or supplies to such Person or the competitive  rate which
             could be obtained in the area, whichever is less.

       Section 4.6.  Construction of Gas Gathering Lines

       The Managing  Partner may cause the  Production  Partnership to construct
gas  gathering  lines if, in the opinion of the  Managing  Partner,  it would be
economically  feasible and otherwise  consistent with prudent operating practice
to do so. The costs of any such  gathering  lines will be deemed to be Operating
Costs and shall be charged to the accounts of the Partners as such. The Managing
Partner may, in its discretion, construct, or cause an Affiliate of the Managing
Partner  or  other  person  to  construct,   gathering   lines  from  Production
Partnership  Wells to gas  transmission  systems.  Whenever the Managing Partner
constructs,  or causes an  Affiliate  of the Managing  Partner to  construct,  a
gathering line from a Production  Partnership Well to a gas transmission system,
the Production  Partnership  shall pay the Managing Partner or such Affiliate an
amount that is not greater than the  compensation  that an unrelated party could
have reasonably  charged in an arm's-length  transaction for similar services in
the area as a  transmission  fee for the  transmission  of all gas  through  the
gathering system so constructed,  and no other transmission fee shall be paid to
the Managing Partner or to any Affiliate.

       Section    4.7.    Contracts    with   the    Managing    Partner   and
Affiliates

       All  services  provided to the  Production  Partnership  by the  Managing
Partner or any  Affiliate  for which it is  compensated  shall be  embodied in a
written  contract  precisely  setting  forth the services to be rendered and the
compensation  to be paid.  Each contract  relating to a transaction  between the
Production Partnership and the Managing Partner or any Affiliate shall contain a
provision  which shall  permit  termination  of the  contract by the  Production
Partnership  without  penalty on 30 days'  prior  written  notice.  The  Limited
Partnership  shall have the power to terminate,  without  cause or penalty,  any
such contract on behalf of the Production Partnership.



                                      -26-
<PAGE>




       Section 4.8.  Farmouts

       The  Managing  Partner may  dispose of  Producing  Properties  by Sale or
Farmout when it, exercising the standard of a prudent operator,  determines that
(a) the Production  Partnership  lacks sufficient  funds to conduct  Development
Drilling, Identified Development Drilling or Improved Recovery operations on the
properties and cannot obtain suitable alternative financing for such Development
Drilling,  Identified Development Drilling or Improved Recovery operations;  (b)
the properties have been downgraded by events  occurring after assignment to the
Production  Partnership  to the  point  that  additional  Development  Drilling,
Identified  Development  Drilling,  improved  Recovery  operations  or continued
production  would no longer be  desirable  to the  Production  Partnership;  (c)
Development  Drilling,  Identified  Development  Drilling or  Improved  Recovery
operations  on the  properties  would  result in an excessive  concentration  of
Production Partnership funds on a Producing Property creating, in the opinion of
the Managing Partner, undue risk to the Production Partnership;  or (d) the best
interests of the Production  Partnership would be served by the Sale or Farmout.
The  Production  Partnership  shall not conduct any drilling of wells other than
Development Drilling and Identified  Development  Drilling;  provided,  however,
that the  drilling  of wells  other than  Development  Drilling  and  Identified
Development  Drilling may be performed on behalf of the  Production  Partnership
pursuant  to  Farmouts.  Any Sale,  Farmout or  similar  agreement  between  the
Production Partnership and the Managing Partner, Affiliate or Affiliated Program
will be permitted under the restrictions set forth in this Article Four and will
be subject to the following conditions:

             (i) the  Managing  Partner,  exercising  the  standard of a prudent
       operator,  shall determine that the Sale, Farmout or similar agreement is
       in the best interests of the Production Partnership; and

             (ii) the  terms of the  Sale,  Farmout  or  similar  agreement  are
       consistent  with and in any case no less favorable than those utilized in
       the same geographic area for similar arrangements.

Except as required by Section 4.3B(iii) or (iv), a Production  Partnership shall
acquire only those Leases that are reasonably required for the operations of the
Production  Partnership,  and no Leases  shall be  acquired  for the  purpose of
subsequent  sale or Farmout,  unless  such  Leases are a part of an  acquisition
which is sold as a package only, or unless the acquisition of undeveloped Leases
by the  Production  Partnership  is made after a well has been drilled nearby by
third Parties to a depth  sufficient to indicate that such an  acquisition is in
the best interests of the Production Partnership.



                                      -27-
<PAGE>




       Section 4.9.  Other Operations

       The Managing Partner shall devote such time to the Production Partnership
as is reasonably required to carry on the Production  Partnership business,  and
the Managing Partner and its Affiliates  shall at all times be free,  subject to
any restrictions  contained herein, to engage in all aspects of the Hydrocarbons
and natural  resources  business  for their own accounts and for the accounts of
others.  Without limiting the generality of the foregoing,  the Managing Partner
and  its  Affiliates  shall  have  the  right  to  organize  and  operate  other
partnerships, joint ventures or other oil and gas investment programs similar to
the Limited Partnership and the Production Partnership.

       Section   4.10.   Prosecution,   Defense  and   Settlement  of  Claims;
Indemnification

       A. The Managing  Partner shall arrange to  prosecute,  defend,  settle or
compromise  actions  at  law  or in  equity  at the  expense  of the  Production
Partnership  as may be  necessary  to enforce or protect  the  interests  of the
Production Partnership. The Managing Partner shall satisfy any judgment, decree,
decision or settlement, first, out of any insurance proceeds available therefor,
next, out of the Production  Partnership assets and Income, and, finally, out of
the assets of the  Managing  Partner  and the  general  partner  of the  Limited
Partnership.

       B.  The  Managing  Partner  shall  have no  liability  to the  Production
Partnership  or to any  Partner or Unit  Holders  for any loss  suffered  by the
Production  Partnership  which  arises  out of any  action  or  inaction  of the
Managing Partner if the Managing  Partner,  in good faith,  determined that such
course of conduct was in the best  interests of the Production  Partnership  and
such  course of conduct  did not  constitute  negligence  or  misconduct  of the
Managing  Partner.  The Managing  Partner shall be indemnified by the Production
Partnership  against any losses,  judgments,  liabilities,  expenses and amounts
paid  in  settlement  of any  claims  sustained  by it in  connection  with  the
Production Partnership, provided that the same were not the result of negligence
or misconduct on the part of the Managing  Partner.  Any  indemnification  under
this Section 4.10 shall be satisfied  solely out of the Assets and Income of the
Production  Partnership.  All amounts payable under this Section 4.10 shall be a
liability  of the  Production  Partnership  only and no Unit  Holders or Limited
Partners will have any liability therefor.

       C.   Notwithstanding  the  above,  the  Managing  Partner  shall  not  be
indemnified  for  liabilities  arising under federal and state  securities  laws
unless (1) there has been a successful  adjudication on the merits of each count
involving  securities law violations and the court approves such indemnification
and time litigation  costs thereof;  or (2) such claims have been dismissed with
prejudice  on the  merits  by a court of  competent  jurisdiction  and the court
approves such  indemnification  and the litigation  costs  thereof.  in any such
case, the Managing Partner



                                      -28-
<PAGE>



shall  apprise  the court of the  current  published  positions,  if any, of the
federal and applicable state securities administrators regarding indemnification
of  program   sponsors   prior  to   obtaining   court   approval  of  any  such
indemnification.

       D. The Production  Partnership  shall not incur the costs of that portion
of insurance  which  insures the Managing  Partner for any liability as to which
the Managing Partner is prohibited from being indemnified under Section 4.10.


                                  ARTICLE FIVE
                       Distributions, Fees and Allocations

       Section  5.1.    Distributions  of  Production  Partnership Funds

       The Distributable Cash of the Production Partnership shall be distributed
simultaneously  to the Limited  Partnership  and the Managing  Partner within 45
days after the close of each calendar quarter. Each Partner's share of each such
distribution of  Distributable  Cash shall be determined  after giving effect to
the  allocations  set  forth  in  Sections  5.3  and 5.4 for  such  period.  All
distributions of Distributable Cash shall reduce dollar-for--dollar the balances
of the Partners' Capital Accounts.

       Section  5.2.  Fees  and  Reimbursement  of  Expenses  to the  Managing
Partner

       Geodyne   Production   shall  receive  as  Managing   Partner  (1)  on  a
nonrecurring  basis,  the  Acquisitions and Operations Fee in an amount equal to
3.5% of the  Unit  Holders'  Subscriptions;  and (2)  reimbursement  for  Direct
Administrative  Costs billed  directly to the  Managing  Partner and General and
Administrative  Costs  incurred  by  the  Managing  Partner  or  its  Affiliates
allocable to the Production Partnership,  except to the extent that the Managing
Partner or its  Affiliate is  otherwise  reimbursed  for such costs  through the
payment  of  Property  Acquisition  Costs,  Operating  Costs or  otherwise.  The
aggregate amount of General and  Administrative  Costs allocable to the accounts
of the Unit Holders for which the Managing  Partner  will be  reimbursed  by the
Production  Partnership and the General Partner by the Limited  Partnership will
not  (a)  in  the  first  12  months  following  Activation  of  the  Production
Partnership,  exceed an amount equal to 2.5% of the Unit Holders' Subscriptions,
and (b) in any  succeeding 12 month period,  exceed an amount equal to 1% of the
Unit Holders' Subscriptions.

       Section  5.3.   Allocation   of  Income,   Investment   Income,   Costs
and Deductions



                                      -29-
<PAGE>




       A. The Income,  Investment Income, Profits,  Production Partnership costs
and losses of the Production  Partnership shall he determined and allocated with
respect to each Fiscal Year of the  Production  Partnership  as of and within 75
days after the end of such Fiscal Year.

       B. Except as otherwise provided in this Article Five

             (i)   100% of  Investment  Income,  Property  Acquisition  Costs,
                   costs incurred in connection  with  Identified  Development
                   Drilling  (including  any  interest,  commitment  fees  and
                   other finance  charges with respect to borrowings  incurred
                   in  connection   therewith)   and  the   Acquisitions   and
                   Operations  Fee referred to in Section  5.2(1) shall all be
                   allocated to, and borne by, the Limited  Partnership.  100%
                   of  Organization  and Offering Costs shall be allocated to,
                   and borne by, the  Managing  Partner.  Except as  otherwise
                   provided in Sections  5.3B(ii) and (iii),  Income,  General
                   and Administrative  Costs,  Operating Costs, costs incurred
                   in  connection   with   Development   Drilling  and  Direct
                   Administrative  Costs shall be allocated  among,  and borne
                   by, the Partners in the following percentages:
                   (a)   Until Payout:
                         Limited Partnership                    95.9596%

                         Geodyne Production                      4.0404%

                   (b)   After Payout:
                         Limited Partnership                    85.8586%

                         Geodyne Production                     14.1414%

             (ii)  As used in this subsection,  the "Property Investment Period"
                   shall mean that period which begins with the first day of the
                   calendar  quarter  following  either (i) the calendar quarter
                   during  which  90% of the  Production  Partnership's  capital
                   available for  purchasing  Producing  Properties  has been so
                   expended,  or (ii) the  calendar  quarter in which 50% of the
                   Production  Partnership's  capital  available for  purchasing
                   Producing  Properties  has been so expended,  as the Managing
                   Partner shall elect. Notwithstanding anything to the contrary
                   contained  herein,  if, at Payout,  the total  amount of cash
                   distributions by the Limited  Partnership to the Unit Holders
                   from the commencement of the Property  Investment Period have
                   averaged on a twelve-month basis an amount that is less than



                                      -30-
<PAGE>



                  12% of the Unit  holders'  Subscriptions,  the  percentage  of
                  Income,  and costs which are shared in the same proportions as
                  Income,  allocated to the Managing and General  Partners  will
                  increase to only 10% and the Unit  Holders  will be  allocated
                  90% thereof until such time, if ever,  that the  distributions
                  to the Unit  Holders  from the  commencement  of the  Property
                  Investment  Period reaches a twelve-month  average equal to at
                  least 12% of the Unit  Holders'  Subscriptions,  at which time
                  Income and costs shared in the same proportions as Income will
                  be allocated  14.1414% to the Managing Partner and 85.8586% to
                  the Limited Partnership.

           (iii)   Notwithstanding  anything to the contrary contained herein,
                   if on  the  seventh  anniversary  of  the  last  day of the
                   Fiscal Year in which the Production  Partnership  commences
                   Development Drilling,  or Identified  Development Drilling,
                   and in each  Fiscal  Year  thereafter,  (a)  the  aggregate
                   amount of Income less the aggregate  amount of direct lease
                   operating  expenses  and  severance,  ad valorem,  windfall
                   profits,  excise and other  taxes  (hut not  income  taxes)
                   allocated  to the Limited  Partnership  pursuant to Section
                   5.3(B)(i)   attributable   to  production   resulting  from
                   Development  Drilling and Identified  Development  Drilling
                   on  Producing  Properties  is less  than (b) the  aggregate
                   amount  of  costs  allocated  to  the  Limited  Partnership
                   pursuant to Section  5.3(B)(i)  incurred in connection with
                   Development  Drilling and Identified  Development  Drilling
                   on  Producing  Properties  during  each  Fiscal Year ending
                   seven or more years  prior  thereto,  then Income and costs
                   otherwise  allocable  to the Managing  Partner  pursuant to
                   Section  5.3B(i)  shall  thereafter  be  allocated  to  the
                   Limited  Partnership  until  such  deficiency  in Income is
                   eliminated.

             (iv) For purposes of the allocations set forth in Section  5.3B(ii)
                  of this  Agreement,  the  amount  of cash  distributed  to the
                  Limited  Partnership for purposes of determining the return on
                  the Unit  Holders'  Subscriptions  to the Limited  Partnership
                  shall not include any amounts  attributable  to the Production
                  Partnership's payment of any windfall profits tax.

       C. All items of Income,  gain,  loss,  deduction and credit allowable for
federal income tax purposes and all recapture of any such deductions and credits
shall be  allocated  and charged or credited to the  Partners in the same manner
that the revenues, costs or expenses giving rise to such items of income,



                                      -31-
<PAGE>



gain, loss,  deduction and credit are allocated and charged.  Federal income tax
deductions  for cost or  percentage  depletion  with  respect  to any  Producing
Property  shall be  determined  at the Partner level amid shall be determined in
the case of  percentage  depletion  on the same basis  that the Income  from the
Producing Property is allocated;  and the Production Partnership shall allocate,
under Section  6l2A(c)(7)(D)  of the Code,  its adjusted basis in each Producing
Property to the Partners in proportion to the interest of each in the Production
Partnership capital ultimately used to acquire that property. If such allocation
of basis is not permitted  under the Code, the basis of each such property shall
be allocated in the manner  which the Managing  Partner  deems will most closely
achieve the result intended above.

       D. Capital  Accounts shall be established and maintained for each Partner
in accordance with tax accounting  principles and with valid regulations  issued
by the U.S.  Treasury  Department under subsection  704(b) of the Code (the "704
Regulations").  To the  extent  that  tax  accounting  principles  and  the  704
Regulations  may conflict,  the latter shall  control.  In  connection  with the
establishment and maintenance of such Capital Accounts, the following provisions
shall apply:

             (i) Each  Partner's  Capital  Account shall be (i) increased by the
       amount of its Capital  Contribution,  the fair  market  value of property
       contributed  by it to the  Production  Partnership  (net  of  liabilities
       securing such  contributed  property that the  Production  Partnership is
       considered  to assume or take  subject to under  section 752 of the Code)
       and  allocations  to it of Income and gain  (except  to the  extent  such
       Income or gain has previously  been  reflected in its Capital  Account by
       adjustments  thereto) and (ii)  decreased by the amount of  Distributable
       Cash distributed to it, the fair market value of property  distributed to
       it by the  Production  Partnership  (net  of  liabilities  securing  such
       distributed  property  that such Partner is  considered to assume or take
       subject  to under  section  752 of the  Code)  and  allocations  to it of
       Production Partnership loss, deduction (except to the extent such loss or
       deduction  has  previously  been  reflected  in its  Capital  Account  by
       adjustments  thereto) and expenditures  described in section 705(a)(2)(B)
       of the Code.

             (ii) In the event Production Partnership Property is distributed to
       a Partner,  then,  before the Capital Account of such Partner is adjusted
       as required by clause (i) of this Section 5.3D,  the Capital  Accounts of
       the  Partners  shall be  adjusted  to  reflect  the  manner  in which the
       unrealized  income,  gain, loss and deduction inherent in such Production
       Partnership  Property  (that  has not  been  reflected  in  such  Capital
       Accounts  previously) would be allocated among the Partners if there were
       a taxable  disposition of such  Production  Partnership  Property for its
       fair market value on the date of distribution.



                                      -32-
<PAGE>




            (iii)  If,  pursuant  to  this  Agreement,   Production  Partnership
      Property is reflected on the books of the Production Partnership at a book
      value  that  differs  from  the  adjusted  tax  basis  of such  Production
      Partnership  Property,  then  the  Partners'  Capital  Accounts  shall  be
      adjusted in accordance  with the 704  Regulations  for  allocations to the
      Partners of depreciation,  depletion,  amortization,  and gain or loss, as
      computed for book purposes,  with respect to such  Production  Partnership
      Property.

            (iv) The Partners'  Capital Accounts shall be reduced by a simulated
      depletion  allowance computed on each oil or gas property using either the
      cost depletion  method or the percentage  depletion method (without regard
      to the  limitations  under  the Code  which  could  apply to less than all
      Partners);  provided,  however, that the choice between the cost depletion
      method  and  the   percentage   depletion   method  shall  be  made  on  a
      property-by-property  basis  and  such  choice  shall be  binding  for all
      Production Partnership taxable years during which such oil or gas property
      is held by the Production Partnership. Such reductions for depletion shall
      not exceed the aggregate adjusted basis allocated to the Partners and Unit
      Holders  with respect to such oil or gas  property.  Such  reductions  for
      depletion shall be allocated among the Partners'  Capital  Accounts in the
      same  proportions  as the  adjusted  basis in the  particular  property is
      allocated to each Partner.  Upon the taxable  disposition of an oil or gas
      property  by the  Production  Partnership,  the  Production  Partnership's
      simulated  gain or loss shall be determined by  subtracting  its simulated
      adjusted  basis  (aggregate  adjusted  tax  basis  of  the  Partners  less
      simulated depletion  allowances) in such property from the amount realized
      on such disposition and the Partners'  Capital Accounts shall be increased
      or  reduced,  as the case may be, by the amount of the  simulated  gain or
      loss on such  disposition in proportion to the Partners'  allocable shares
      of the total amount realized on such disposition.

            (v) For purposes of determining  the Capital  Account balance of any
      Partner  as of the end of any  Production  Partnership  taxable  year  for
      purposes of Subsection 5.3I hereto,  such Partner's  Capital Account shall
      be reduced by:

                  (a) Adjustments  that, as of the end of such year,  reasonably
            are expected to be made to such Partner's  Capital Account  pursuant
            to paragraph  (b)(2)(iv)(k)  of the 704  Regulations  for  depletion
            allowances  with respect to oil and gas properties of the Production
            Partnership, and

                   (b)  Distributions   that,  as  of  the  end  of  such  year,
             reasonably are expected to be made to such Partner pursuant to Code
             section 704(e)(2), Code section 706(d), and paragraph (b)(2)(ii) of
             section 1.751--1 of regulations promulgated under the Code, and



                                      -33-
<PAGE>




                   (c)  Distributions   that,  as  of  the  end  of  such  year,
             reasonably  are  expected to be made to such  Partner to the extent
             they exceed offsetting  increases to such Partner's Capital Account
             that  reasonably  are  expected  to occur  during (or prior to) the
             Production  Partnership  taxable years in which such  distributions
             are expected to be made.

       E. The Capital  Accounts  of those  Partners  which are  charged  with an
expense of the Production Partnership shall be credited with any portion of that
expense  which is finally  determined,  judicially  or  administratively,  to be
nondeductible  for  Federal  income  tax  purposes,  less  any  amortization  or
depreciation thereof incurred prior to the date that the credit is made.

       F. In allocating  Income and costs for any Fiscal Year in which the ratio
for  sharing  Income  and  costs  changes  pursuant  to  Section  5.3B(i),   the
allocations  of Income and costs shall be made,  and the books of the Production
Partnership  shall be  closed,  as soon as  practicable  after  the date  Payout
occurs,  to determine each Partner's  share of pre--change  Income and costs and
each Partner's share of post-change Income and costs for that Fiscal Year.

       C. Proceeds  received from the Sale or transfer of all or any part of the
Production  Partnership's Producing Properties shall be allocated to the Limited
Partnership  and the Managing  Partner to the extent of their  adjusted basis in
such sold or transferred Production Partnership Property.  Proceeds in excess of
said amount shall be allocated in accordance  with the  percentages set forth in
Section 5.3B(i), except that, notwithstanding the provisions of Section 5.3F and
solely for purposes of this Section 5.3G,  where the proceeds from such Sale are
distributed to the Partners and a portion of the Distributable Cash attributable
to such Sale  proceeds  is  sufficient  in  amount  to cause  Payout to occur in
accordance with the allocation  percentages in effect until Payout, Payout shall
be deemed to occur such that Income amid  Distributable Cash attributable to the
portion  of such  Sale  proceeds  in  excess of the  portion  of Sales  proceeds
sufficient  in amount to cause Payout to occur shall be allocated in  accordance
with the allocation percentages in effect after Payout.

       H.  Notwithstanding any other provision of this Agreement,  if, under any
provision of this  Agreement,  the Capital Account of any Partner is adjusted to
reflect  the  difference  between  the basis to the  Production  Partnership  of
Production  Partnership Property and such Production Partnership Property's fair
market value,  then all items of Income,  gain, loss, and deduction with respect
to such Production Partnership Property shall be allocated among the Partners so
as to take  account  of the  variation  between  the  basis  of such  Production
Partnership  Property and its fair market value at the time of the adjustment to
such Partner's Capital Account in accordance with the requirements of subsection
704(c) of the Code, or in the same manner as provided under subsection 704(c) of
the Code.



                                      -34-
<PAGE>




       I. Notwithstanding anything to the contrary stated herein,

             (i) There shall be allocated to the Managing  Partner,  any item of
       loss,  deduction,  credit or allowance  that,  but for this Section 5.3I,
       would  have been  allocated  to the  other  General  Partner  that is not
       obligated  to  restore  any  deficit  balance in such  Partner's  Capital
       Account and would have thereupon caused or increased a deficit balance in
       such  Partner's   Capital  Account  as  of  the  end  of  the  Production
       Partnership's taxable year to which such allocation related (after taking
       into consideration the provisions of Subsection 5.3D(v) hereof);

             (ii) Any  General  Partner  that is not  obligated  to restore  any
       deficit  balance  in such  Partner's  Capital  Account  who  unexpectedly
       receives  an  adjustment,   allocation  or   distribution   specified  in
       Subsection  5.3D(v) hereof shall be allocated items of Income and gain in
       an amount and manner  sufficient  to eliminate  such  deficit  balance as
       quickly as possible; and

             (iii) In the event any  allocations of loss,  deduction,  credit or
       allowance are made to the Managing Partner pursuant to clause (i) of this
       Subsection 5.3I, the Managing Partner shall be subsequently allocated all
       items of Income and gain until the aggregate  amount of such  allocations
       of  Income  and  gain  is  equal  to the  aggregate  amount  of any  such
       allocations  of loss,  deduction,  credit or allowance  allocated to such
       Partners pursuant to clause (i) of this Subsection 5.3I.

       Section 5.4.   Determinations of Allocations and Distributions

       Distributable Cash, Income, Investment Income, costs, deductions, Profits
and Losses  allocable to the Partners shall be distributed or allocated,  as the
case may be, to the Persons who were Partners,  as of the last day of the fiscal
period for which the  distribution  or allocation is to be made,  except that in
any fiscal period in which a Partner sells, assigns or transfers all or any part
of such  Partner's  Interest  to any Person  who  during  the  fiscal  period is
admitted as a Substituted  Partner,  the Distributable Cash, Income,  Investment
Income,  costs,  deductions,  Profits and Losses attributable to the Interest so
sold,  assigned or transferred shall,  subject to the provisions of Section 10.2
of this Agreement, be allocated between the transferor and the transferee on the
basis of the number of days in the fiscal  period before the  admission,  and on
and after the admission,  of the transferee as a Substituted Partner;  provided,
however,  that the  Distributable  Cash  attributable  to a Sale of a  Producing
Property shall be distributed to those Partners who are Partners on the day the



                                      -35-
<PAGE>



distribution  of such  Distributable  Cash occurs.  The Managing  Partner  shall
inform the other  Partners of the  occurrence  and terms of any such Sale by the
Production  Partnership  as  soon  as  practicable  after  such  Sale  has  been
consummated.


                                   ARTICLE SIX
                  Withdrawal or Removal of Managing Partner

       Section 6.1.  Transferability of Managing Partner's Interest

       A.  Upon 120 days  written  notice to all other  Partners,  the  Managing
Partner  may retire or  withdraw  from the  Production  Partnership  as Managing
Partner, subject to its obligation to pay all costs and expenses incurred by the
Production Partnership by virtue of such retirement or withdrawal.  In addition,
there may be substituted  in its stead as Managing  Partner any entity that has,
by  merger,  consolidation  or  otherwise,  acquired  substantially  all  of the
Managing Partner's assets or capital stock and continued its business.

       B.  Subject to Section  11.1 of this  Agreement,  upon the Consent of the
Limited Partnership,  which shall be given if the Consent of Unit holders owning
more than 50% of the  outstanding  Depositary  Units is  obtained,  the Managing
Partner may assign or transfer its Managing Partner Interest; provided, however,
that no such  consent  shall be required in  connection  with an  assignment  or
transfer   pursuant  to  the  merger,   consolidation  or  transfer  of  all  or
substantially all of the assets of the Managing Partner.

       C. The Managing Partner may, upon at least 90 days' written notice to the
Limited Partnership,  cause the Production Partnership to distribute, in partial
liquidation  of its  Interest in the  Production  Partnership,  to the  Managing
Partner  fractional,  undivided  interests in the  Producing  Properties  of the
Production  Partnership  (such  interest of the Managing  Partner in a Producing
Property distributed is hereinafter  referred to as the "Distributed  Interest")
up to an aggregate  interest equal in value to 75% of the value of the Producing
Properties  of the  Production  Partnership  that it would have been entitled to
upon a hypothetical  liquidation of the Production Partnership after application
of the  provisions of Section 8.2 (the  interest in a Producing  Property of the
Managing Partner retained in the Production  Partnership is hereinafter referred
to as the "Retained  Interest");  provided,  however,  that no such distribution
shall occur (i) more than once,  (ii) prior to seven years after the  Activation
of the Production  Partnership and (iii) unless the Managing  Partner obtains an
opinion  of  counsel  to the  Production  Partnership  to the  effect  that such
distribution  will not result in army material  adverse tax  consequence  to the
Unit Holders. Notwithstanding anything to the contrary in this Agreement, in the
event that any such distribution is made, the Managing Partner shall:



                                      -36-
<PAGE>




       (1)   make  appropriate  adjustments  in  the  Capital  Accounts  of  the
             Partners and in the allocation of Production Partnership Income and
             costs  to  assure  that the  Managing  Partner  will  not  share or
             participate in any of the capital,  costs, Income, or distributions
             attributable   to  the  Producing   Properties  of  the  Production
             Partnership  except to the extent of the  Retained  Interest of the
             Managing Partner;

       (2)   not voluntarily or otherwise  dispose of its  Distributed  Interest
             unless the undivided interest of the Production Partnership in such
             Producing   Properties   is  also  sold  or   disposed   of  for  a
             proportionately equivalent consideration;

       (3)   ensure  that  the  Limited   Partnership's  share  of  General  and
             Administrative  Costs  does  not  increase  as  a  result  of  such
             withdrawal; and

       (4)   indemnify the Limited  Partnership  against any expenses  resulting
             from such withdrawal.

       Section 6.2.  Removal of the Managing Partner

       The power  shall be vested in the  Limited  Partnership  to remove at any
time the Managing Partner.  The power shall be vested in the Limited Partnership
to consent to the  admission  of a  successor  Managing  Partner  following  the
removal of the Managing Partner by the Limited Partnership. A successor Managing
Partner  shall be selected  pursuant to the  provisions  of Section 6.3C of this
Agreement.

       Section 6.3.  Successor Managing Partner

       A. (i) If the Managing  Partner is Removed or  withdraws  and a successor
       Managing  Partner is to be admitted to the  Production  Partnership,  the
       departing  Managing  Partner  shall not  withdraw  or be Removed  until a
       successor   Managing   Partner  has  been  admitted  to  the   Production
       Partnership pursuant to Article Ten of this Agreement.

             (ii) In the event the Managing  Partner  withdraws or is Removed by
       the  Limited  Partnership  and  a  successor  Managing  Partner  is to be
       admitted,  the  incoming  Managing  Partner  and the  departing  Managing
       Partner  shall,  by mutual  agreement,  select an  independent  petroleum
       consultant  to value the  departing  Managing  Partner's  Interest in the
       Production Partnership.  The incoming Managing Partner, or the Production
       Partnership,  shall  have the  option  to  purchase  at least  20% of the
       Interest of the departing  Managing  Partner for the value  determined by
       the independent  appraisal.  The departing Managing Partner's Interest in
       the Production Partnership shall be transferred to the successor Managing
       Partner, and the successor Managing Partner shall assign to the departing
       Managing Partner a portion of Production Partnership Income, costs



                                      -37-
<PAGE>



      and   Distributable   Cash  as  and  when  such  items  are  allocated  or
      distributed,  as the case may be, by the Production  Partnership  equal to
      the  percentage   interest  of  the  departing  Managing  Partner  in  the
      Production  Partnership  prior to withdrawal or Removal,  less the portion
      purchased by the successor Managing Partner or the Production Partnership.

       B. Notwithstanding  Section 3.6, the Managing Partner, upon withdrawal or
removal  shall  be  released  by the  other  Partners  from  all  liability  for
Production   Partnership  debts  and  obligations  incurred  by  the  Production
Partnership prior to the date of such withdrawal or Removal.

       C. Under circumstances in which the Limited  Partnership  Consents to the
admission  of a successor  Managing  Partner,  such  admission  shall not become
effective unless the Production  Partnership  shall have received a certificate,
duly executed by or on behalf of such proposed successor Managing Partner to the
effect  that  it is  experienced  in  the  performance  (or  employs  sufficient
personnel who are experienced in performing) of functions of the type then being
performed by the departing Managing Partner.


                                  ARTICLE SEVEN
           Transferability of Limited Partnership's Interest

       Section 7.1.   Transferability of Limited Partnership's Interest.

       No Sale,  exchange,  transfer or assignment of the Limited  Partnership's
Interest  may  be  made  if,  in  the  opinion  of  counsel  to  the  Production
Partnership,  such Sale,  exchange,  transfer  or  assignment,  would  cause the
Production  Partnership  to lose its status as a partnership  for Federal income
tax purposes.  In addition,  the Managing  Partner may require an opinion of the
transferor's  counsel,  satisfactory  to the Managing  Partner,  that such Sale,
exchange,  transfer or assignment  would not violate the Securities Act of 1933,
as amended, or any state securities or "blue sky" laws.

       Section 7.2  Incapacity of Partners

       If a Partner (including the Managing Partner) becomes Incapacitated,  the
Person  who is its legal  representative  shall have all the rights of a Partner
for the  purpose  of  settling  or  managing  its  estate  and such power as the
Incapacitated Partner possessed to assign all or any part of its Interest and to
join with such  assignee in  satisfying  conditions  precedent to such  assignee
becoming a Substituted  Partner. The Incapacity of a Partner shall riot dissolve
the Production Partnership.



                                      -38-
<PAGE>




       Section 7.3.  Assignees and Substituted Partners

       A. The  Production  Partnership  shall not  recognize for any purpose any
purported sale, assignment or transfer of all or any fraction of the Interest of
the Limited  Partnership  unless the  provisions  of Section 7.1 shall have been
complied with and there shall have been filed with the Production  Partnership a
dated  Notification  of  such  sale,   assignment  or  transfer,   executed  and
acknowledged  by both the seller,  assignor  or  transferor  and the  purchaser,
assignee or transferee and such  Notification (i) contains the acceptance by the
purchaser,  assignee or  transferee  of all of the terms and  provisions of this
Agreement and (ii) represents that such sale, assignment or transfer was made in
accordance with all applicable  laws and  regulations.  Any sale,  assignment or
transfer shall be recognized by the  Production  Partnership as effective on the
date of such  Notification if the date of such Notification is within 30 days of
the date on which such  Notification  is filed with the Production  Partnership,
and otherwise shall be recognized as effective on the date such  Notification is
filed with the Production Partnership.

       B.  If the  Limited  Partnership  assigns  all of  its  Interest  to an
assignee, the Limited Partnership shall cease to be a Partner.

       C. A Person who is the assignee of all or any fraction of the interest of
the Limited  Partnership  shall be subject to all the provisions of this Article
Seven to the same  extent  and in the same  manner  as the  Limited  Partnership
desiring to make an assignment of its Interest.

       D. Any purchaser,  assignee,  transferee,  donee,  heir, legatee or other
recipient of an Interest  shall be admitted to the  Production  Partnership as a
Substituted  Partner only with the Consent of the other Partners,  which Consent
may be  granted  or  withheld  by such  Partners  at  their  sole  and  absolute
discretion.  The  admission  of such Person as a  Substituted  Partner  shall be
evidenced  by the  execution  by the Partners of a  certificate  evidencing  the
admission  of such  Person  as a  Partner  and an  amendment  to this  Agreement
executed by the Managing Partner on its own behalf, as well as on behalf of each
other  Partner,  pursuant to the power of attorney  granted  pursuant to Section
12.5.

       E. No Person shall become a  Substituted  Partner until such Person shall
have satisfied the requirements of Section 10.2; provided, however, that for the
purpose of allocating Income,  Investment Income,  Profits,  Losses,  costs, and
Distributable Cash, a Person shall be treated as having become, and as appearing
in the records of the Production  Partnership  as, a Partner on such date as the
sale,  assignment or transfer to such Person was  recognized  by the  Production
Partnership pursuant to Section 7.3A.




                                      -39-
<PAGE>




       Section 7.4.  Incapacity of the Limited Partnership

       Upon the  Incapacity of the Limited  Partnership or upon the seizure of a
Limited Partnership's Interest in the Production  Partnership,  the successor to
such Limited Partnership's Interest ("Successor") shall be deemed an assignee of
such Limited  Partnership's  Interest in the Production  Partnership and neither
the  Production  Partnership  nor the  Successor  shall have the right to demand
immediate valuation and payment of such Limited Partnership's interest.

                                  ARTICLE EIGHT
                   Dissolution, Liquidation and Termination
                          of the Production Partnership

       Section 8.1.  Events Causing Dissolution

       A. The Production  Partnership shall be dissolved upon the happening of
any of the following events:

             (i)   the  expiration  of its term,  unless  its term  shall have
       been extended by the Managing Partner pursuant to Section 2.4;

             (ii) the  Incapacity  of the Managing  Partner.  However,  within
       ninety  days   thereafter   the   remaining   Partners   may  elect  to
       reconstitute  the  Production  Partnership  prior to application of the
       liquidation provisions of Section 8.2;

             (iii)  the  Sale  or  other  disposition  at one  time  of all or
       substantially all of the assets of the Production  Partnership existing
       at the time of such Sale;

             (iv) the election to dissolve the Production Partnership (a) by the
       Managing  Partner  (which  election  shall be Consented to by the Limited
       Partnership),  or (b) by the  Consent  of all  Partners  other  than  the
       Managing Partner;

             (v) ninety days after the Removal or withdrawal (unless the Limited
       Partnership  Consents  to a  Successor  pursuant  to Section  6.2) of the
       Managing Partner;

             (vi) the  happening of any other event causing the  dissolution  of
       the Production  Partnership under the laws of the State,  except that the
       Incapacity  of any Partner  (other than the Managing  Partner)  shall not
       dissolve the  Production  Partnership  and the seizure of the Interest of
       any Partner shall not dissolve the Production Partnership.

       B.  Dissolution of the Production  Partnership  shall be effective on the
day on which the event occurs giving rise to the dissolution, but the Production
Partnership shall not terminate until the Managing Partner has recorded a notice
of dissolution of the Production Partnership in the proper records



                                      -40-
<PAGE>



of any  jurisdiction  in which this  Agreement  has been recorded and shall have
complied with the laws of the states in which it does business and the assets of
the Production Partnership have been distributed as provided in Section 8.2.

       C. Nothing  contained in this Agreement  shall impair,  restrict or limit
the rights and powers of the Partners under the laws of the State of Oklahoma or
any other jurisdiction in which the Production  Partnership is doing business to
reform  and  reconstitute   themselves  as  a  general   partnership   following
dissolution of the Production  Partnership either under provisions  identical to
those set forth herein or under any other provisions.

       Section 8.2.  Liquidation  of the Production  Partnership;  Liquidation
of a Partner's Interest

       A. Upon dissolution of the Production Partnership,  its liabilities shall
be  paid in the  order  provided  herein.  The  Managing  Partner  shall  either
distribute in kind or sell the  Production  Partnership's  property so that such
disposition  is in the best  interests  of the  Limited  Partnership,  and shall
execute all amendments  terminating  the Production  Partnership.  In connection
with any such Sale, the Managing Partner shall attempt to obtain the best prices
for such property. Pending such Sales, the Managing Partner shall have the right
to  continue  to  operate  and  otherwise  to deal with  Production  Partnership
property. In the event the Production Partnership is dissolved on account of the
Incapacity or Removal of the Managing Partner, the Production  Partnership shall
elect,  in  accordance  with the  provisions  of Article  Eleven,  a person (the
"Liquidating   Agent")  to  perform  the  function  of  a  Managing  Partner  in
liquidating the assets of the Production Partnership and winding up its affairs,
and  shall  pay to such  Liquidating  Agent  its  reasonable  fees and  expenses
incurred in connection therewith.  In the event of a distribution in kind of any
Production Partnership Property (including a Producing Property), each Partner's
Capital  Account  shall  first be  credited  or  debited  with its  share of the
unrealized  appreciation  of  depreciation  in the  fair  market  value  of such
Production  Partnership  Property.  Each  Partner's  share  of  said  unrealized
appreciation  or  depreciation  shall  be  equivalent  to its  share  (allocated
pursuant to Sections  5.3 and 5.4) of the gain or loss on an actual Sale of such
Production  Partnership Property.  The Capital Account of each Partner to whom a
Production  Partnership  Property is distributed  shall be debited with the fair
market  value of the  Production  Partnership  Property  distributed  to it. The
Capital Account of each Partner to whom a Producing Property or an interest in a
Producing Property is distributed shall be debited with the fair market value of
the Producing  Property  distributed  to it. Any  liquidation  of the Production
Partnership  shall take place out of court and  without  application  being made
therefor to the Secretary of State of the State of Oklahoma.



                                      -41-
<PAGE>




       B. In settling accounts after  dissolution,  the assets of the Production
Partnership  shall  be paid  out in the  following  order:  (i) to  third  party
creditors,  in the order or priority as  provided by law;  (ii) to the  Managing
Partner and any Liquidating Agent for any expenses of the Production Partnership
paid by or-  payable to them to the extent they are  entitled  to  reimbursement
therefor  pursuant to this  Agreement;  (iii) to the Limited  Partnership in the
amount  equivalent to the amount of its positive  Capital  Account  balances (as
adjusted  pursuant  to Section  8.2A) on the date of  distribution;  (iv) to the
Managing Partner in the amount  equivalent to the amount of its positive Capital
Account  balances  (as  adjusted  pursuant  to  Section  8.2A)  on the  date  of
distribution; and (v) the balance shall be paid to the Partners in proportion to
and to the extent of the positive balances in the Partners' Capital Accounts.

       C. If the Managing  Partner has a deficit  balance in its Capital Account
following the distribution(s)  provided for in Section 8.2B above, as determined
after taking into account all adjustments to its Capital Account for the taxable
year of the Production  Partnership during which such distribution(s)  occur, it
shall restore the amount of such deficit  balance to the Production  Partnership
within 90 days and such amount  shall be  distributed  to the other  Partners in
accordance with their positive Capital Account balances.

       D. Upon the liquidation or partial  liquidation of the Managing Partner's
Interest  pursuant to Article  Six  hereof,  any  distribution  to the  Managing
Partner  shall be made pro rata to such  Partner in  accordance  with and to the
extent of its positive  Capital  Account  balance  after the  Partners'  Capital
Accounts are  adjusted as if all of the  Production  Partnership's  property had
been sold at its fair market value  immediately  prior to such  distribution and
the gain or loss  realized on such Sale  charged or  credited  to the  Partners'
Capital  Accounts in  accordance  with the  provisions  of Article  Five hereof,
provided,  however,  that if such  Partner has a deficit  balance in its Capital
Account  following such  distribution  (or adjustment of such Partner's  Capital
Account pursuant to this Section 8.2D), such Partner shall restore the amount of
such deficit  balance to the  Production  Partnership by the later of the end of
the  Production  Partnership  taxable  year in  which  the  liquidation  of such
Partner's Interest occurs or 90 days after the date of such liquidation.

                                  ARTICLE NINE
           Books and Records; Accounting; Tax Elections; etc.

Section 9.1.  Books and Records

       The  books  and  records  of  the   Production   Partnership,   including
information  relating to the sale by the Managing  Partner or any  Affiliates of
goods or services  to the  Production  Partnership,  and a list of the names and
addresses  and  Interests of all  Partners,  shall be maintained by the Managing
Partner at



                                      -42-
<PAGE>



the principal  office of the Production  Partnership  for a period of five years
following  the  close of the  Fiscal  Year to which  they  relate  and  shall be
available  for  examination  there by any  Partner  or Unit  Holder  or its duly
authorized  representatives at any and all reasonable times. Any Partner or Unit
Holder,  or its  duly  authorized  representatives,  upon  paying  the  costs of
collection, duplication and mailing, shall be entitled for any proper purpose to
a copy of the list of names and addresses  and  Interests of the  Partners.  The
Production Partnership may maintain such other books and records and may provide
such  financial or other  statements as the Managing  Partner in its  discretion
deems advisable.

       Section 9.2.  Accounting Basis for Tax and Reporting  Purposes;  Fiscal
Year

       The books and records of the Production Partnership for tax purposes, for
purposes of this  agreement and for the purpose of reports to the Partners shall
be kept on the  accrual  basis.  The Fiscal Year of the  Production  Partnership
shall be the calendar year to the extent  permissible  and the Managing  Partner
shall use its best efforts to obtain any necessary approvals therefor.

       Section 9.3.  Bank Accounts

       The Managing  Partner shall maintain a bank account or accounts on behalf
of the  Production  Partnership  with any bank in the United States having total
assets  in  excess of  $100,000,000.  The  Managing  Partner  shall not  deposit
Production  Partnership funds in an account with any bank in an aggregate amount
in excess of 5% of such bank's total assets.  Withdrawals  shall be made only in
the regular course of the Production Partnership's business on such signature or
signatures as the Managing  Partner may determine.  All deposits and other funds
not  needed  in  the   operation   of  the   business   may  be   deposited   in
interest--bearing   accounts,   certificates  of  deposit,  money  market  funds
(including those managed or marketed by the Dealer Manager or its Affiliates) or
invested in short-term United States Government  obligations maturing within one
year,  commercial paper of United States  corporations having the highest credit
rating  granted  by  Moody's  Investors  Services,  Inc.  or  Standard  &  Poors
Corporation, or other similar highly liquid investments.

       Section 9.4.  Reports

       A.  The  Managing  Partner  shall  furnish  to  the  Limited  Partnership
sufficient information and data with respect to the properties and operations of
the Production Partnership in order to permit the Limited Partnership to satisfy
its  reporting  obligations  under  Section  10.4  of  the  Limited  Partnership
Agreement.



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<PAGE>




       B. The Managing  Partner shall file on a timely basis with the Securities
and  Exchange  Commission  all  filings  required  to be made by the  Production
Partnership  pursuant to the Securities Act of 1933, the Securities Exchange Act
of 1934, and the rules and regulations promulgated thereunder.

       Section 9.5.  Elections

       The Managing  Partner shall cause the Production  Partnership to make all
elections  required or permitted to be made by the Production  Partnership under
the Code and not  otherwise  expressly  provided for in this  Agreement,  in the
manner that the  Managing  Partner  believes  will be most  advantageous  to the
Limited Partnership,  except that (i) the Managing Partner shall not be required
to make an election under Section 754 of the Code or corresponding provisions of
applicable  state income tax laws, and (ii) the Managing  Partner shall make the
election under Section 263(c) of the Code to expense all intangible drilling and
development  costs in the  initial  Production  Partnership  federal  income tax
return filed for the Fiscal Year in which such costs are incurred.

                                   ARTICLE TEN
                                   Amendments

       Section 10.1.  Proposal and Adoption of Amendments Generally

       A.  Notwithstanding  anything  to  the  contrary  contained  herein,  the
Managing  Partner may,  without  prior  notice or consent of any other  Partner,
amend any  provision  of this  Agreement  (including  an  amendment  to admit an
additional or successor  Managing  Partner) if, in its opinion,  such  amendment
does not have a material  adverse  effect  upon the  Limited  Partnership.  Such
amendment shall  thereafter be disclosed to the Unit Holders within a reasonable
time  thereafter.  Amendments  to this  Agreement  to reflect  the  addition  or
substitution of a Partner or the admission of a successor Managing Partner shall
be made at the time and in the manner  referred  to in Section  10.2.  Any other
amendment  to this  Agreement  may be  proposed by the  Managing  Partner or the
Limited  Partnership.  The Partner or Partners  proposing such  amendment  shall
submit  a  Notification  containing  (i)  the  text of  such  amendment,  (ii) a
statement  of the  purpose  of such  amendment,  and (iii) an opinion of counsel
obtained by the Partner or Partners  proposing such amendment to the effect that
such amendment is permitted by the Act, will not impair the limited liability of
the Unit  Holders,  and will not  adversely  affect  the  classification  of the
Limited  Partnership or the Production  Partnership as partnerships  for federal
income tax purposes. The Managing Partner shall, within 15 days after receipt of
any proposal under this Section 10.1A, give Notification to all Partners of such
proposed amendment, of such statement of purpose and of such opinion of counsel,
together,  in the case of an  amendment  proposed  by other  Partners,  with the
views, if any, of the Managing Partner with respect to such proposed amendment.



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<PAGE>




       B.  Amendments to this Agreement  shall be adopted if: (i) in the case of
amendments referred to in Section 10.2A, the conditions specified in Section 7.3
shall have been  satisfactorily  completed and the Production  Partnership shall
not have been furnished with an opinion of counsel to the Production Partnership
to the effect that such amendment will adversely  affect the  classification  of
the Limited  Partnership  or the  Production  Partnership  as  partnerships  for
Federal  income tax  purposes;  (ii) in the case of  amendments  referred  to in
Section  10.2B,  the  conditions  specified  in  Section  6.3  shall  have  been
satisfactorily  completed;  or (iii) in the case of all other  amendments,  such
amendment shall have been Consented to by the Limited  Partnership  (unless such
Consent is not required pursuant to Section 10.1A);  provided,  however, that no
such  amendment  may:  (i) enlarge  the  obligations  of any Partner  under this
Agreement  without the Consent of such Partner;  (ii) modify the method provided
in Article Five of determining and allocating or  distributing,  as the case may
be, Income, Investment Income, Profits, Losses,  Distributable Cash or costs and
expenses  without  the  Consent  of  each  Partner  adversely  affected  by such
modification;  (iii) amend  Sections  6.1, 6.2 or 6.3 without the Consent of all
the Partners;  or (iv) amend Sections 2.3, 4.3A,  4.3B,  4.3C, 4.3D, 4.4A, 4.4B,
4.5A, 4.9, 4.10 or this Article Ten without the Consent of all the Partners.

       C. Upon the adoption of any  amendment to this  Agreement,  the amendment
shall be executed by the Managing  Partner and all other Partners,  and shall be
recorded  in the proper  records  of the State and any other  state in which the
Production Partnership is then doing business.

       Section  10.2.   Amendments   on   Admission,   Withdrawal  or  Removal
of Partners

       A. If this  Agreement  shall be  amended  to  reflect  the  admission  or
substitution of a Partner, the amendment to this Agreement may be adopted by the
Managing  Partner,  the Person to be  substituted  or added,  and the  assigning
Partner.  Any such amendment shall be executed on behalf of all Partners but may
be executed by the substituted or added Partner,  the assigning Partner, and the
Managing  Partner,  individually  and on  behalf  of all of the  other  Partners
pursuant to the power of attorney granted in Section 12.5.

       B. If this  Agreement  shall be  amended  to reflect  the  withdrawal  or
Removal of the  Managing  Partner and the  continuation  of the  business of the
Production  Partnership,  such  amend-merit  shall be  signed  by the  successor
Managing Partner and by the departing Managing Partner.

       C. No Person shall become a Partner,  unless such Person shall have:  (i)
become a party  to,  and  adopted  all of the  terms  and  conditions  of,  this
Agreement;  (ii) if such  Person  is other  than an  individual,  provided  upon
request the  Managing  Partner  with  evidence  satisfactory  to counsel for the
Production



                                      -45-
<PAGE>



Partnership  of such Person's  authority to become a Partner under the terms and
provisions of this  Agreement;  and (iii) paid all reasonable  legal fees of the
Production Partnership and the Managing Partner and filing and publication costs
in connection with such Person's becoming a Partner.

                                 ARTICLE ELEVEN
                          Consents, Voting and Meetings

       Section 11.1.  Method of Giving Consent

       Any  Consent  required  by this  Agreement  may be given by a Partner  as
follows:  (1) at a meeting,  in  person,  by a written  proxy or signed  writing
directing  the manner in which it desires that its vote be cast,  which  writing
must be received by the Managing Partner prior to such meeting, or (2) without a
meeting,  by a signed writing directing the mariner in which it desires that its
vote be cast,  which  writing must be received by the Managing  Partner prior to
the date upon which the vote of  Partners  are to be  counted.  Any  Partner may
waive notice of or  attendance  at any meeting of the Partners and may execute a
signed  written  consent.  Only the votes of  Partners  of record on the date of
Notification,  whether at a meeting or otherwise,  shall be counted. The laws of
the State  pertaining to the validity and use of corporate  proxies shall govern
the validity and use of proxies given by Partners.

       Section 11.2.  Meetings of Partners

       The  Managing  Partner may at any time call a meeting of the  Partners or
for a vote,  without a  meeting,  of the  Partners  on  matters  upon  which the
Partners  are  entitled to vote,  and shall call for such a meeting or vote upon
receipt of a Notification therefor of the Limited Partnership. Within 15 days of
the receipt of the Notification,  the Managing Partner shall notify all Partners
of  record  as of the date of the  Notification  as to the time and place of the
meeting,  if called,  and the general  nature of the  business to be  transacted
thereat,  or if no such meeting has been called,  of the matter or matters to be
voted  upon and the date upon which the votes will be  counted.  Any  Production
Partnership meeting or the date upon which such votes,  without a meeting,  will
be counted  (regardless  of whether  the  Managing  Partner  has called for such
meeting or vote upon the request of Limited  Partnership  or have initiated such
event  without  such  request)  shall be not less  than 30 or more  than 60 days
following  mailing of the  Notification  thereof by the  Managing  Partner.  All
expenses of the  meetings,  voting and such  Notification  shall be borne by the
Production Partnership.

       Section 11.3.  Submissions to Other Partners

       The Managing  Partner shall give all the other Partners  Notification  of
any proposal or other matter  required by any provisions of this Agreement or by
law to be submitted for the  consideration  and approval of the other  Partners.
Such  Notification  shall  include  any  information  required  by the  relevant
provision of the Agreement or by law.



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<PAGE>




       Section 11.4.  Limited Partnership Consent

       To the extent allowed in the Limited Partnership Agreement and subject to
Section 10.1, the Limited  Partnership,  by and through Unit Holders owning more
than 50% of the Depositary  Units,  may without the  concurrence of the Managing
Partner:

        (i)   amend the Production Partnership Agreement;

        (ii)  dissolve the Production Partnership;

       (iii) remove the Managing Partner and elect a new one;

       (iv) approve or disapprove the sale of all or substantially  all of the
assets of the Production Partnership; and

        (v)  cancel or amend the terms of any  contract  for  services  with the
Managing Partner or any Affiliate thereof without penalty upon 30 days' notice.

                                 ARTICLE TWELVE
                            Miscellaneous Provisions

       Section  12.1.  Notification  to  the  Production  Partnership  or  the
Managing Partner

       Any  Notification to the Production  Partnership or the Managing  Partner
shall be sent to the  principal  office of the  Production  Partnership,  as set
forth in this  Agreement.  Except as  provided  herein,  any  Notification  to a
Partner shall be sent to its last known address.

       Section 12.2  Binding Provisions

       The covenants and agreements  contained  herein shall be binding upon and
inure to the benefit of the heirs,  executors,  administrators,  successors  and
assigns of the respective parties hereto.


       Section 12.3.  Applicable Law

       This  Agreement  shall be construed and enforced in  accordance  with the
laws of the State applicable to contracts made and to be performed wholly within
the State.

       Section 12.4.  Separability of Provisions

       If for any  reason  any  provision  or  provisions  hereof  which are not
material to the  purposes or business of the  Production  Partnership  or of the
Partners' Interests are determined to be invalid and contrary to any existing or
future law,  such  invalidity  shall not impair the operation of or affect those
portions of this Agreement that are valid.



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<PAGE>




       Section    12.5.    Appointment    of   the    Managing    Partner   as
Attorney-in-Fact

       A.  Each  Partner,  by  the  execution  of  this  Agreement,  irrevocably
constitutes  and appoints the  Managing  Partner,  its true and lawful agent and
attorney-in-fact  with full power and authority in its name,  place and stead to
execute,  acknowledge,  deliver,  swear to,  file and record at the  appropriate
public offices such documents, instruments and conveyances that may be necessary
or  appropriate  to carry out the  provisions  or  purposes  of thus  Agreement,
including  without  limitation:  (i)  all  certificates  and  other  instruments
(including counterparts of this Agreement), and any amendment thereof, including
any  amendment   substituting  a  Partner,   that  the  Managing  Partner  deems
appropriate to form, reform,  qualify or continue the Production Partnership (or
a new  partnership  with  substantially  the same  provisions as the  Production
Partnership)  as a  partnership  in the  jurisdiction  in which  the  Production
Partnership  may conduct  business;  (ii) all amendments  and other  instruments
necessary to admit into the  Production  Partnership  additional or  substituted
Partners  pursuant to Section  10.2;  (iii) all  instruments  that the  Managing
Partner deems  appropriate to reflect a change or modification of the Production
Partnership  in accordance  with the terms of this  Agreement  (including  those
necessary  to  reflect  any  additional  Capital  Contributions);  and  (iv) all
conveyances and other  instruments that the Managing Partner deem appropriate to
reflect the dissolution and termination of the Production Partnership.

      B. The  appointment  by all Partners of the Managing  Partner as agent and
attorney-in-fact  shall be deemed  irrevocable and to be a power coupled with an
interest,  in  recognition  of the fact that  each of the  Partners  under  this
Agreement  will be  relying  upon the power of the  Managing  Partner  to act as
contemplated by this Agreement in any filing and other action by it on behalf of
the  Production  Partnership,  and shall  survive the  Incapacity  of any Person
hereby  giving such power and the transfer or  assignment  of all or any part of
the  Interest  of such  person;  provided,  however,  that in the  event  of the
transfer by a Partner of all of its Interest,  the foregoing  powers of attorney
of the  transferor  Partner  shall survive such transfer only until such time as
the  transferee  shall have been  admitted to the  Production  Partnership  as a
Substituted  Partner and all required  documents and instruments shall have been
duly executed, filed and recorded to effect such substitution.

      Section 12.6.  Entire Agreement

       This Agreement  constitutes the entire agreement among the parties.  This
Agreement  supersedes any prior agreement or understanding among the parties and
may not be modified or amended in any manner other than as set forth herein.



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<PAGE>




      Section 12.7.  Paragraph Titles

      Article and section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.

      Section 12.8.  Counterparts

      This  Agreement  may be  executed  in several  counterparts,  all of which
together  shall  constitute  one  agreement   binding  on  all  parties  hereto,
notwithstanding that all the parties have not signed the same counterpart except
that no counterpart shall be binding unless signed by the Partners.

                                    GEODYNE PRODUCTION COMPANY

                                    By:   /s/ Michael E. Luttrell
                                          ------------------------
                                          Michael E. Luttrell,
                                          Executive Vice President


                                    PAINEWEBBER/GEODYNE ENERGY INCOME
                                    LIMITED PARTNERSHIP II-E

                                    By:   GEODYNE PROPERTIES, INC.
                                          General Partner

                                    By:   /s/ Michael E. Luttrell
                                          -----------------------------
                                          Michael E. Luttrell,
                                          Executive Vice President


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