EXHIBIT 10.43

                       OPERATING AGREEMENT
                               OF
                   PAN GRANDE PIPELINE, L.L.C.
     THIS AGREEMENT is made and entered into by and between
MIDCOAST HOLDINGS NO. ONE, INC. ("Midcoast"), a corporation
organized under the laws of the State of Delaware which has its
principal place of business at Houston, Texas, herein appearing by
and through K. B. Holmes, Jr., its Vice President, duly authorized
by resolution of its Board of Directors; and RESOURCE ENERGY
DEVELOPMENT COMPANY, LLC ("Resource"), a Limited Liability Company
organized under the laws of the State of North Carolina, which has
its principal place of business at Houston, Texas, herein appearing
by and through Chester R. Cloudt, Jr., its Senior Vice President,
duly authorized by resolution of its Board of Members.  Midcoast
and Resource are hereafter sometimes referred to collectively as
"Members" or individually as a "Member".
                      W I T N E S S E T H:
     WHEREAS, the Members constitute all of the members of Pan
Grande Pipeline, L.L.C., a Texas Limited Liability Company (the
"Company"), organized under the Texas Limited Liability Company
Act, Tex.Rev.Civ.Stat.Ann.art. 1528n (Vernon Supp. 1993) (the
"Texas Limited Liability Company Act"), as evidenced by Articles of
Organization of the Company dated February 28, 1996, on which date
the existence of such company began, as evidenced by the
Certificate of Organization issued by the Secretary of State of the
State of Texas; and
     WHEREAS, the Members have agreed to join together for the
purpose of acquiring, owning and operating those certain natural
gas gathering systems, pipelines and related equipment, all located
within the State of Texas, as described in Exhibit "A" attached
hereto, which may be amended from time-to-time.
     WHEREAS, the Members desire to enter into an operating
agreement on the terms and conditions hereinafter set forth;
     NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the parties hereto hereby agree as follows:
                            ARTICLE I
             FORMATION OF LIMITED LIABILITY COMPANY
Section 1.01. Formation of Limited Liability Company.
     (a)  Midcoast and Resource have formed the Company for the
          limited purposes and scope set forth herein.
     (b)  Except as expressly provided for herein to the contrary,
          the rights and obligations of the Members and the
          administration and termination of the Company shall be
          governed by the Texas Limited Liability Act and any
          successor statute, as amended from time-to-time.  All
          real and other property owned by the Company shall be
          deemed owned by the Company as an entity.  A Member's
          interest in the Company shall be personal property for
          all purposes.  The business and affairs of the Company
          shall be conducted solely in the name of the Company; and
          title to all Company property shall be taken solely in
          the name of the Company, unless all Members agree in
          writing otherwise.
Section 1.02. Scope of Company.
     (a)  The operations of the Company shall be limited strictly
          to the following purposes: the purchase, sale and/or
          transportation of natural gas and the liquid components
          thereof (if any) and the acquisition, development,
          construction, ownership, management, operation and
          maintenance of the gas gathering systems, pipelines, and
          related equipment described in Exhibit "A" attached
          hereto (collectively, the "Systems"), and extensions of
          and improvements to the Systems.
     (b)  The Company shall operate the Systems in accordance with
          the terms of this Agreement.
Section 1.03. Principal Place of Business.  The principal place of
business of the Company shall be 1100 Louisiana, Suite 2950,
Houston, Texas 77002.
                           ARTICLE II

                 ACQUISITIONS OF THE SYSTEMS AND
                    EXTENSIONS TO THE SYSTEMS
Section 2.01. Systems Acquisition.
     The Company shall acquire the Systems by cash purchase from
Seahawk Natural Gas Company, together with the Rights-of-Way and
Permits described in Exhibits "A-1" through "A-6" attached hereto
and the contracts pertaining to the Systems.
Section 2.02. Extensions and Other Improvements to the Systems.
     Acquisition of all permits, licenses, authorizations,
approvals and rights-of-way required for the extension and/or
improvements of the Systems will be obtained by the Manager but
shall be taken in the name of the Company, unless otherwise
approved by all the Members.
Section 2.03.  Contracts.
     The Manager (as designated in Section 3.01 hereof) will
execute contracts for the purchase of construction services and
materials required for any and all extensions of and improvements
to the Systems.  All of such contracts executed by the Manager
shall be in the name of the Company, unless otherwise approved by
the Members.
Section 2.04. Insurance.
     The Manager shall obtain and maintain such insurance coverage
on behalf of the Company (whether under a separate policy issued in
the name of the Company or as an additional insured under a policy
issued in the name of the Manager or an affiliate of the Manager)
as it, in its discretion, shall deem necessary but shall include:
     (a)  Worker's compensation and employer's liability insurance
          in accordance with all applicable state and federal laws
          during such time or times that the Company has one or
          more employees and/or is doing business with an uninsured
          contractor;
     (b)  General and umbrella liability insurance with a combined
          single limit of liability for bodily injury and property
          damage of not less than Five Million and No/100 Dollars
          ($5,000,000); and
     (c)  Automobile public liability  with a combined single limit
          of liability for bodily injury and property damage of not
          less than One Million and No/100 Dollars ($1,000,000).
     The cost of such coverages (which cost shall be at competitive
rates and which cost shall be allocated on a fair and equitable
basis to the Company where the Manager holds a blanket policy
covering other property and activities in addition to the Company
property and activities and where the Company is named as an
additional insured on said policy) will be charged to the Company.

                           ARTICLE III
                      MANAGEMENT OF COMPANY
Section 3.01. Management of Company.
     (a)  Midcoast is hereby designated as the initial Manager of
          the Company.  After Midcoast, as the initial Manager, or
          any successor Manager, has served a term of two (2) years
          as Manager, the then non-managing Member which has the
          greatest percentage ownership in the Company shall have
          the right to succeed Midcoast or the then Manager, as
          applicable, at any time within, but not after, the six
          (6) month period immediately following the expiration of
          the two (2) year term, provided that ninety (90) days
          prior written notice is given to all Members by such non-
          managing Member and it can sufficiently demonstrate to
          the then Manager (which demonstration shall not be
          unreasonable) that it and/or its affiliate(s) has the
          capability of operating the Systems and performing with
          its own employees all functions of the Manager, and,
          further provided, that it and/or its affiliate(s) has (i)
          professional engineering employees, (ii) a federally and
          state approved drug and alcohol testing program, and
          (iii) employees with proven expertise in both state and
          federal regulatory and environmental affairs.  In the
          event Midcoast or any successor Manager is not succeeded
          by a new Manager within the six (6) month period
          following the expiration of any two (2) year term as
          Manager, it shall then continue as Manager for another
          two (2) year term commencing as of the date of expiration
          of its preceding two (2) year term.
     (b)  Upon the resignation of the Manager, a successor Manager
          shall be elected by the Members based upon the unanimous
          vote of all Members.  Any successor Manager must own an
          interest in the Company unless the Members unanimously
          agree otherwise.
     (c)  Except as otherwise provided in this Agreement, the
          overall management and conduct of the business affairs of
          the Company shall be vested in the Members.  In this
          connection, it is understood and agreed:
          (i)  The day-to-day operation of the Company shall be
               vested in the Manager; and
          (ii) All accounting functions of the Company, including
               the establishment of Company bank accounts, receipt
               of revenue and payment of obligations, and
               preparation of books, records and reports, shall be
               performed by the Manager.
     (d)  Non-managing Members of the Company are not authorized to
          bind the Company.
Section 3.02.  Members' Designated Representatives.
     Wherever in this Agreement it is provided that any action may
be taken only upon authorization or vote of the Members, it shall
mean by the Member itself, acting by and through its president or
other officer duly authorized by company resolution, or by any one
or more of the persons specified as a Designated Representative for
such Member in Section 10.01 hereof.  Each Member represents and
warrants to the other Members that each of its Designated
Representatives have authority to act for and bind it with respect
to any matter pertaining to the Company other than approval of any
single expenditure by the Company which would require an additional
capital contribution from the Member in excess of twenty-five
thousand dollars ($25,000.00).
Section 3.03. Meetings.
     (a)  Meetings of the Members of the Company may be called by
          any Member or one of its Designative Representatives on
          seven (7) days' notice to the other Members or one of its
          Designative Representatives.  Any such notice shall state
          the date, place and time of the meeting.  All meetings
          shall be held in Harris County, Texas, unless otherwise
          agreed upon by a majority vote of the Members.  Meetings
          of the Company may be held upon less than seven (7) days'
          notice if waived by all the Members.  Attendance by all
          Members at a gathering where Company business is
          discussed shall, for all purposes hereof, be deemed a
          Waiver of Notice unless expressly protested by any one or
          more Members during the conduct of the business
          discussion.
     (b)  Each Member of the Company shall be entitled to one (1)
          vote (or fractional part thereof) for each one (1)
          percent ownership in the Company.  Except where
          prohibited by law, any action, resolution, or decision
          adopted by the Members shall require a majority
          affirmative vote of Members holding more than fifty
          percent (50%) of the voting rights of the Company. 
          Members are allowed to grant written proxies to any
          competent person of the age of majority authorizing said
          person to vote their vote(s).
     (c)  In lieu of meetings of the Members, the Members may act
          or adopt resolutions by written consent of Member(s)
          holding a majority in voting rights of the Members. 
          Meetings may be conducted by telephone.  Members may
          attend meetings by telephone.
Section 3.04. Standard of Care.
     (a)  The Manager shall perform all acts and things to be done
          by it in good and workmanlike manner in conformity with
          the usual practices of the natural gas gathering and
          pipeline industry and in accordance with all valid and
          applicable laws, rules and regulations of the
          governmental authorities.
     (b)  The Manager shall be obligated to perform the
          responsibilities and the obligations of the Manager
          hereunder only to the extent that funds of the Company
          are available therefor.  Notwithstanding any other
          provision hereof, the Manager shall be liable only for
          willful misconduct or breach of an express provision of
          this Agreement but in other respects shall not be liable
          for mistakes of judgment.
     (c)  The Manager, the Members and the Designated Repre-
          sentatives shall, in good faith and at all times, conduct
          the business and affairs of the Company in a professional
          manner in order to maximize the economic benefit to the
          Company and each of the Members.
Section 3.05. Compensation of Manager.
     For the period of one (1) year from the date of closing of the
purchase of the Systems, the Company shall pay to the Manager as
compensation for its services the sum of three thousand dollars
($3,000.00) for each month the Systems, or any of them, are in
operation.  This compensation shall be called an Administrative
Overhead Fee and shall be paid in advance on the first day of each
month.  At or near the expiration of the first one (1) year period
of operations and annually thereafter, the Members shall
redetermine the appropriate Administrative Overhead Fee to be paid
to the Manager.  The Administrative Overhead Fee shall be paid in
lieu of reimbursing Manager for those costs and expenses incurred
by it and any of its affiliates for their employees providing
supervision and management, accounting, regulatory reporting, gas
balancing and nominations, and contract negotiations and
administration for the Company and the Systems.  Thereafter, the
Manager shall be compensated by the Company in a manner and in
amounts to be determined by the Members upon recommendation by the
Manager, which recommendation shall be accompanied by such
accounting, financial and other data as shall be appropriate under
the circumstances.  The Administrative Overhead Fee shall expressly
not include any costs of materials, equipment and supplies
purchased or furnished by Manager solely for use by the Company;
transportation of personnel while solely performing Company
business; contract services (such as outside attorneys,
accountants, landmen, etc.); utilities procured from outside
services; all taxes levied or assessed against Company property;
insurance premiums or allocations pertaining to Company property or
business; permits, licenses and bond premiums; and all labor costs,
whether for contract labor or Manager's employees while in the
field.  For construction projects, repairs and extensions of any of
the Systems which will cost the Company twenty thousand dollars
($20,000.00) or more, the Manager shall receive an additional
Administrative Overhead Fee of five percent (5%) of the actual cost
of the project, repair or extension.
Section 3.06. Compensation of Members.
     Except as may be expressly provided for herein or hereafter
approved by the Members, no payment will be made by the Company to
any Member for the services of such Member, provided, however, any
Members' direct, out-of-pocket costs incurred on behalf of the
Company may, with prior approval of the Manager, be reimbursed.
Section 3.07. Approval of Contracts.
     Notwithstanding any other provisions of this Agreement to the
contrary, the Manager shall not enter any contracts or amendments
to contracts providing for the purchase, sale or transportation of
gas by or for the account of the Company unless submitted to each
Member or one or more of its Designated Representatives for
approval.  Approval shall be conclusively deemed given if no
objection in writing is given to the Manager within one (1)
business day after the receipt of such contract or amendment by
such Member or one or more of its Designated Representatives.
Section 3.08. Limit on Expenditures.
     In the event any expenditure (other than for the acquisition
of the Systems) is required for any item or materials in excess of
Twenty Thousand and No/100 Dollars (20,000.00), the Manager shall
have no authority to make such expenditure without the written
consent of all Member representatives or Members; provided,
however, that in case of explosion, fire, or emergencies of a
similar nature, the Manager may take such steps and incur such
expenses as, in its opinion, are required to deal with the
emergency to safeguard life and property.  The Manager, as promptly
as possible, shall report the emergency to the other Members.
                           ARTICLE IV
                     OWNERSHIP AND FINANCING
Section 4.01. Initial Capital Contributions.
     The Members agree that their respective initial percentage of
ownership in the Company shall be as follows: Midcoast - 50%,
Resource - 50%.  The Members agree to each make an initial capital
contribution equal to twenty-five thousand dollars ($25,000.00),
plus one-half (1/2) of the total purchase price of the Systems,
except that if the Company obtains a bank loan that is guaranteed
by both Resources and Midcoast in equal proportions (the "Bank
Loan"), then the initial capital contribution of each of them shall
only be twenty-five thousand dollars ($25,000.00), plus one-half
(1/2) of the difference between (i) the total purchase of the
Systems and (ii) the amount of the Bank Loan.
Section 4.02. Distributions.
     Except as provided in Sections 4.05 and 4.06 hereof, all Net
Operating Revenue received from the operation of the Systems shall
be distributed to the Members in accordance with their respective
ownership interest in the Company at the time of distribution. 
Distributions to the Members of Net Operating Revenue shall be made
monthly (unless otherwise agreed upon in writing by the Members)
within sixty (60) days after the close of each calendar month. 
"Net Operating Revenue", as used in this Agreement, is defined
herein as gross revenues less direct costs, note payments, retained
working capital, (such retained working capital shall at all times
be fifty thousand dollars ($50,000.00) unless an increase or
decrease is unanimously approved by all Members), and the
Administrative Overhead Fee (as set forth in Section 3.04 hereof),
but excluding any deduction of Federal  or State Income Tax
Expenses.  The above costs or expenses deducted from gross revenues
to determine Net Operating Revenue shall be paid as funds are
available on a priority basis in the order listed above with direct
costs, note payments, retained working capital, and the
Administrative Overhead Fee is paid and/or funded before any
distributions are made.
Section 4.03. Financing.
     (a)  The sums of money required to operate the business and
          affairs of the Company shall be derived, first, from the
          Company Revenues.  As used in this Agreement, the term
          "Company Revenues" means the total amounts received by
          the Company for the period indicated from operation of or
          sale of Company assets.
     (b)  From time-to-time, there may be insufficient Company
          Revenues available for operation of the Company during
          the next 30 days.  In such case, the Manager may require
          the Members to advance within ten (10) days after written
          request from the Manager, as an additional capital
          contribution, their share of estimated cash outlay for
          all purposes other than those authorized under Section
          4.04 hereof, as estimated by the Manager to be required
          during the next thirty (30) days; and the amounts so
          contributed shall be credited to the Members' respective
          capital accounts.
Section 4.04. Additional Facilities and Extensions to the Systems.
     Upon the unanimous approval of all Members, the Company may
acquire or construct additional facilities or extensions to the
Systems, and each Member shall pay an amount equal to their pro
rata share of the capital costs for such additions or extensions,
as an additional capital contribution, within twenty (20) days
after the Manager shall in writing request the same.
Section 4.05. Failure to Make Capital Contributions.
     In the event a Member breaches this Agreement by failing to
make a capital contribution required under Sections 4.03(b) or 4.04
hereof (a "Defaulting Member"), then unless otherwise agreed by and
among those remaining Members who have made their required capital
contribution (the "Non-Defaulting Members"), the Non-Defaulting
Members shall, in proportion to their capital accounts, contribute
a pro rata share of the contribution which such Defaulting Member
failed to make, and thereafter all Net Operating Revenue from the
operation of the Systems and all extensions or expansions thereto,
as well as all gross revenues from sales of gathering systems and
pipelines, and all additions or expansions thereto, as well as all
gross revenues from sales of Company property, which would
otherwise be distributed and paid to the Defaulting Members, in the
same proportions in which the Non-Defaulting Members made the
contribution which such Defaulting Member failed to make, until the
Non-Defaulting Members collectively shall have recovered therefrom
a sum of money equal to three (3) times the amount of such capital
contribution which the Defaulting Member failed to make.  The
provisions of this Section 4.05 shall in no manner alter or limit
all other remedies or rights available to the Non-Defaulting
Members under this Agreement, at law, in equity or otherwise, for
said breach.
4.06.  Special Allocations.
     It is anticipated that from time-to-time the Company will have
opportunities to purchase and resell gas for its own account,
rather than transporting such gas for a transportation fee.  In
those situations, the Members agree that the Net Operating Revenue
received therefrom, after deducting an amount equal to what the
transportation fee of the Company would have been if the gas had
been only transported by the Company rather than being purchased
and resold, shall be distributed to the Members in accordance with
such agreement as the Members shall make at the time of the
purchase and resale of such gas.
                            ARTICLE V
                           ACCOUNTING
Section 5.01. Tax Status.
     (a)  Any provision hereof to the contrary notwithstanding,
          solely for United States federal income tax purposes,
          each of the Members hereby recognizes that the Company
          will be subject to all provisions of Subchapter K of
          Chapter 1 of Subtitle A of the United States Internal
          Revenue Code of 1954; provided, however, the filing of
          U.S. Partnership Returns of Income shall not be construed
          to extend the purposes of the Company or expand the
          obligations or liabilities of the Members.  At the
          request of any Member, the Company shall file an election
          under Section 754 of the United States Internal Revenue
          Code of 1954.
     (b)  The Manager shall prepare or cause to be prepared all tax
          returns and statements, if any, which must be filed on
          behalf of the Company with any taxing authority and shall
          submit such returns and statements to all the Members for
          their approval and, upon approval by all the Members,
          make timely filing thereof.
     (c)  For accounting and federal and state income tax purposes,
          except as herein otherwise specifically provided, all
          income, deductions, credits, gains and losses of the
          Company shall be allocated to the Members in proportion
          to their respective Company ownership interests in the
          Company; provided, however, in allocating depreciation,
          gain or loss on sales or assets, and investment tax
          credits, such depreciation, gains or losses, and
          investment tax credits will be based on the respective
          tax basis of assets contributed to the Company by each
          Member.  Any item which is stipulated to be an expense of
          the Company under the terms of this Agreement or which
          would be so treated in accordance with generally accepted
          accounting principles, shall be treated as an expense of
          the Company for all purposes whether or not such item is
          deductible for purposes of computing net income for
          federal income tax purposes.  Neither the allocations
          referred to in this section nor the utilization of
          varying tax basis as herein provided shall have any
          effect whatsoever upon any Member's ownership interest in
          the Company.
Section 5.02. Accounting.
     (a)  The fiscal year of the Company shall end on the last day
          of December of each year.
     (b)  The Manager shall prepare and furnish to the Members,
          within sixty (60) days after the close of each calendar
          month, statements showing the results of operation of the
          Company for such month.  The Manager shall prepare and
          furnish to each of the Members, promptly after the close
          of each fiscal year, financial statements showing the
          financial condition and results of operation of the
          Company as of and for the 12-month period ending on the
          31st day of December of the year.
     (c)  Each Member shall have the right at all reasonable times
          during usual business hours to audit, examine, and make
          copies of or extracts from the records of the Company. 
          Such right may be exercised through any agent or employee
          of such Member designated by it or by an independent
          certified public accountant designated by such Member.
          The Manager shall reasonably cooperate in any such audit.

          Each Member shall bear all expenses incurred in any
          examination made for such Member's account.
                           ARTICLE VI
                  TERM, OPTIONS AND TERMINATION
Section 6.01. Term.
     The Company shall be in effect for a term beginning on the
date hereof and shall continue until December 31, 2020, unless
earlier terminated and liquidated in accordance with the provisions
hereof.  All provisions of this Agreement relative to termination
and liquidation shall be cumulative; that is, the exercise of use
of one of the provisions hereof shall not preclude the exercise or
use of any other provision hereof.
Section 6.02. Events of Dissolution.
     The term "Event of Dissolution", as used hereunder, shall
mean:
     (a)  the dissolution or termination of any person, company,
          limited liability company, partnership or corporation
          which is now or which shall hereafter become a Member, or
     (b)  the occurrence of any of the following events:
          (1)  If any Member shall file a voluntary petition in
               bankruptcy or shall be adjudicated bankrupt or
               insolvent or shall file any petition or answer
               seeking any reorganization, dissolution or similar
               relief for itself under the present or any future
               federal bankruptcy act or any other present or
               future applicable federal, state, or other statute
               or law relative to bankruptcy, insolvency, or other
               relief for debtors, or shall seek or consent to or
               acquiesce in the appointment of any trustee,
               receiver, conservator, or liquidator of said Member
               or of all or any substantial part of its properties
               or its interest in the Company (the term
               "acquiesce" includes, but is not limited to, the
               failure to file a petition or motion to vacate or
               discharge any order, judgment or decree providing
               for such appointment within ten (10) days after the
               appointment); or
          (2)  If a court of competent jurisdiction shall enter an
               order, judgment or decree approving a petition
               against any Member seeking any reorganization,
               arrangement, composition, readjustment, liqui-
               dation, dissolution or similar relief under the
               present or future applicable federal, state or
               other statute or law relating to bankruptcy,
               insolvency or other relief for debtors, and said
               Member shall acquiesce in the entry of such order,
               judgment or decree (the term "acquiesce" includes,
               but is not limited to, the failure to file a
               petition or motion to vacate or discharge such
               order, judgment or decree within ten (10) days
               after the entry of the order, judgment or decree),
               or such other judgment or decree shall remain
               unvacated and unstayed against any Member
               (including its affiliates) for an aggregate of
               thirty (30) days (whether or not consecutive) from
               the date of entry thereof, or any trustee,
               receiver, conservator or liquidator of said Member
               or all or any substantial part of its property or
               its interest in the Company shall be appointed
               without the consent or acquiescence of said Member
               and such appointment shall remain unvacated and
               unstayed for an aggregate of sixty (60) days
               (whether or not consecutive); or
          (3)  Any Member shall admit in writing its inability to
               pay its debts as they mature; or,
          (4)  Any Member shall give notice to any governmental
               body of insolvency or pending insolvency, or
               suspension or pending suspension of operations; or,
          (5)  Except as authorized in Section 7.03(b), any Member
               shall make an assignment for the benefit of
               creditors or take any other similar action for the
               protection or benefit of creditors.
     The Company will be terminated by the occurrence of an Event
of Dissolution unless within 90 days the remaining Members agree to
continue the Company.
Section 6.03. Termination for Default.
     (a)  If any Member fails to perform any of its respective
          obligations hereunder, the other Members ("Non-Defaulting
          Parties") shall have the right to give such party
          ("Defaulting Party") a notice of default ("Notice of
          Default").  The Notice of Default shall set forth the
          nature of the obligation which the Defaulting Party has
          not performed.  For purposes of this Section 6.03,
          "default" shall include actions taken by a Party which
          are prohibited by this agreement.
     (b)  If, within the thirty (30) day period following receipt
          of the Notice of Default, the Defaulting Party in good
          faith commences to perform such obligation and cure such
          default and thereafter prosecutes to completion with
          diligence and continuity the curing thereof and cures
          such default within a reasonable time, it shall be deemed
          that the Notice of Default was not given and the
          Defaulting Party shall lose no rights hereunder.  If,
          within such thirty (30) day period, the Defaulting Party
          does not commence in good faith the curing of such
          default or does not thereafter prosecute to completion
          with diligence and continuity the curing thereof, the
          Non-Defaulting Parties hereunder shall have the right to
          terminate this Company by giving the Defaulting Party
          written notice thereof.  If the Company is so terminated,
          the Defaulting Party shall be deemed to be the
          "Withdrawing Party".
     (c)  The foregoing provisions of this Section 6.03 shall not
          apply to any default with respect to the payment of any
          sums of money by or to any Member, which sums of money,
          except as otherwise provided herein, shall be paid within
          fifteen (15) days after receipt of a Notice of Default
          with respect thereto.  If such sums are not so paid
          within a fifteen (15) day period, the Non-Defaulting
          parties shall have the right to terminate this Company by
          giving the Defaulting Party and the other Member's
          written notice thereof, whereupon the Defaulting Party
          shall be deemed the "Withdrawing Party".
Section 6.04. Remedies of Non-Defaulting Parties.
     (a)  In the event of the occurrence of any event described in
          Sections 6.02 and 6.03 hereof, the Non-Defaulting Parties
          may purchase, in proportion to their capital account, the
          entire undivided ownership interest in the Company of the
          Defaulting Party at a price based on the value of the
          Company at the time of the default, as determined by a
          certified appraiser reasonably qualified by education,
          experience and training as to the valuation of pipeline
          companies.  The certified appraiser having such
          qualifications shall be mutually agreed upon by the Non-
          Defaulting Parties and the Defaulting Party, and, in the
          absence of mutual agreement, any of said parties may,
          upon reasonable notice to others, apply to the person who
          is then Chief Judge of the United States District Court
          for the Southern District of Texas for the appointment of
          a certified appraiser having such qualifications.  An
          encumbrance or assignment affecting the membership
          interest of the Defaulting Party shall be considered in
          determining the price under this provision.
     (b)  The rights of the Non-Defaulting Parties under this
          Article VI shall not be the exclusive remedies of the
          Non-Defaulting Parties but shall be in addition to all
          other rights and remedies available to the Non-Defaulting
          Parties under this Agreement at law, in equity or
          otherwise.
Section 6.05. Company Liquidation Procedures.
     (a)  Contemporaneously with the closing of the purchase
          pursuant to Section 6.04 hereof, the remaining Members
          may elect to liquidate the Company.  Otherwise, all
          Members' consent is required to liquidate the Company. 
          In either event, the Company shall thereafter immediately
          discharge the obligations and pay the indebtedness of the
          Company, which obligations and indebtedness may be
          discharged by assumption by one of the Members, and shall
          distribute the balance, if any, of the assets of the
          Company, to the Member that purchases the interest of the
          other Members in and to the Company.  After the foregoing
          has been accomplished, it shall be deemed that the
          Company has been liquidated and this Agreement shall
          terminate and none of the Members shall have any further
          rights or obligations hereunder.
     (b)  During the period beginning with termination of the
          Company pursuant hereto and ending with the liquidation
          thereof and termination of this Agreement, the business
          affairs of the Company shall be conducted by the Non-
          Defaulting Parties if such termination occurs pursuant to
          Section 6.02 or 6.03 hereof.  During such period, the
          business and affairs of the Company shall be conducted so
          as to preserve the assets of the Company and maintain the
          status thereof which existed immediately prior to such
          termination.
     (c)  If, at the time of the purchase by one party of the
          interest in the Company of another party, such interest
          is subject to an encumbrance, the purchasing party shall
          have the right, but not obligation, to discharge such
          encumbrance and reduce the amount of the purchase price
          by the amount of money required to discharge such
          encumbrance (but never more than the total amount of
          indebtedness secured by such encumbrance).
                           ARTICLE VII
            TRANSFER OR PLEDGE OF INTEREST IN COMPANY
Section 7.01. Restriction on Transfer.
     Except as expressly permitted by this Agreement, no Member
shall have the right to sell, assign, transfer or hypothecate all
or any part of its interest in the Company without the prior
written consent of all the other Members.
Section 7.02. Sale of Joint Venture Interest.
     (a)  If any Member receives from an unaffiliated and unrelated
          third party (the "Offeror") a bona fide written offer
          (the "Offer") to purchase all or a part of its interest
          in the Company which the Member receiving the Offer is
          willing to accept (the "Selling Member"), the Selling
          Member shall submit a copy thereof to the other Members. 
          The other Members shall have the right of first refusal
          to purchase such interest on the same terms and
          conditions by furnishing the Selling Member with written
          notice to that effect within fifteen (15) days of such
          other Member's receipt of the terms of the Offer.  If
          this right is not exercised, or if the exercising Members
          cannot purchase all of such interest of the Selling
          Member, the Selling Member can transfer such interest to
          the Offeror on the terms and conditions stated in the
          Offer; provided, however, the Offeror agrees to be bound
          by the terms and conditions hereof.  If for any reason,
          the Selling Member does not sell such interest in
          accordance with the terms and conditions provided in the
          offer, such interest shall again be subject to the terms
          hereof.  The successor(s) in interest of any Selling
          Member hereby shall only succeed to those rights of such
          Member hereunder, including the revenue and cost sharing
          provisions hereof.
     (b)  In the event of a dispute or difference in opinion
          concerning operation, disposition, expansion or utiliza-
          tion of any one or more of the Systems between the
          Members, any Member may submit to any or all of the other
          Members a written buy-sell proposal setting forth the
          purchase price and the terms and conditions on which the
          initiating Member offers to acquire the entire interest
          of the non-initiating Member(s) in any one or more of the
          Systems as to which there is such a dispute or difference
          of opinion.  Additionally, any Member, with or without a
          dispute or difference in opinion concerning any matter
          pertaining to the Company, may submit to any or all of
          the other Members a buy-sell proposal setting forth the
          terms and conditions on which the initiating Member
          offers to acquire the entire interest of the non-
          initiating Member(s) in the Company.  Upon receipt of
          written notice of a buy-sell offer concerning a System or
          Systems, or concerning the Company, the non-initiating
          Member(s) shall have the exclusive right and option,
          exercisable at any time during a period of fifteen (15)
          days from the date of receipt of said notice if
          concerning a System or Systems, and exercisable at any
          time during a period of sixty (60) days of the receipt of
          said notice if concerning the Company, to either (i) sell
          the entire interest covered by the offer in question at
          the purchase price and on the terms and conditions as set
          out in the notice from the initiating Member, or (ii)
          purchase the initiating Member's entire interest on the
          same terms and conditions, except that the purchase price
          will be adjusted to take into account such Member's
          percentage ownership in the Company.  Within said fifteen
          (15) day period or sixty (60) day period, as applicable,
          the non-initiating Member(s) shall give written
          notification to the initiating Member of his or its
          desire to either sell his or its interest or purchase the
          initiating Member's interest.  If any non-initiating
          Member does not respond in writing to the initiating
          Member within such aforementioned applicable time period,
          such non-initiating Member shall be deemed to have
          elected to sell his or its entire interest covered by the
          offer in question to the initiating Member.  The sale and
          purchase shall close not less than thirty (30) days after
          the expiration of such aforementioned applicable time
          period.  The initiating Member shall disclose to the non-
          initiating Members any and all material information known
          by it which is relevant to the subject of the buy-sell
          offer, so that an informed decision can be made by the
          non-initiating Members.
Section 7.03. Permitted Transfers by Members.
     Provided that such does not result in the termination of the
Company for federal income tax purposes, nothing contained in this
Agreement shall prevent:
     (a)  The transfer by any Member of all of its right, title and
          interest in the Company (including indebtedness thereof)
          and in this Agreement if all of such right, title and
          interest is transferred to another corporation or limited
          liability company, which is an affiliate of the
          transferor pursuant to:
          (i)  a statutory merger or consolidation, or
          (ii) a sale of all or substantially all of the assets of
               the transferrer provided that such affiliate
               assumes by operation of law or express agreement
               with the Company (in form and substance
               satisfactory to the Members) all of the obligations
               of the transferrer under this Agreement and that no
               transfer (other than pursuant to a statutory merger
               or consolidation wherein all obligations and
               liabilities of the Member are assumed by the
               successor corporation by operation of law) shall
               relieve the transferrer of its obligations under
               the Agreement without the unanimous approval of the
               Members.  Upon such transfer such affiliate shall
               be admitted as a Member in substitution of the
               Member which was the transferrer.
     (b)  An assignment, pledge or other transfer creating a
          security interest (and any transfer made in foreclosure
          or other enforcement of such security interest) in all or
          any portion of a Member's right, title or interest in the
          profits of the Company or in any indebtedness of the
          Company under any mortgage, indenture, deed of trust,
          pledge or other security agreement executed by or binding
          upon such Member.
Section 7.04. Effect of Permitted Transfers.
     No assignment, pledge or other transfer pursuant to Section
7.02 hereof shall give rise to the right in any Member to dissolve
the Company.
Section 7.05. Prohibition of Withdrawals.
     No Member shall have the right to withdraw from the Company
during the term of this Agreement except as otherwise expressly
provided in this Agreement.
Section 7.06. Effect of Prohibited Transfers.
     Any transfer of an interest in the Company by a Member in
violation of the terms of this Agreement shall not cause a
dissolution of the Company but shall result in the forfeiture of
such Member's right to participate in the management of the
Company; provided, however, that nothing herein shall be deemed to
limit any right or remedies that the Company or the other Member
may have against such defaulting Member.
Section 7.07. Public Utility Holding Company.
     No Member shall do any act to cause the Company to become
subject to the provisions of the Public Utility Holding Company
Act.
                          ARTICLE VIII
                VOLUNTARY DISSOLUTION OF Company
Section 8.01.  Voluntary Dissolution.
     The Company may be dissolved at any time upon the unanimous
vote of the Members.
Section 8.02.  Accounting on Dissolution.
     The Capital, Income and Drawing Accounts shall be posted as of
the date of dissolution.  Assets and liabilities shall be taken at
book value, but no value shall be assigned to good will or the
Company name.
Section 8.03.  Winding Up and Liquidation.
     Upon dissolution, the venture shall be wound up and liquidated
as rapidly as business circumstances permit.  The assets shall be
applied to these purposes in the following order:
     (a)  To pay or to provide for all amounts owing by such
          Company to creditors other than Company, and for expenses
          of winding up;
     (b)  To pay or to provide for all amounts owing by such
          Company other than for capital and profits;
     (c)  To pay or to provide for all amounts owing by such
          Company in respect of capital; and
     (d)  To pay or to provide for all amounts owing to the Company
          in respect of profits.
Section 8.04.  Method of Distribution of Assets.
     To the extent feasible, all distributions and liquidations
shall be made pro rata to the Members in kind.
                           ARTICLE IX
                        AREA OF INTEREST
     No Member (nor any principal of and/or affiliate of any
Member) shall construct, purchase or otherwise acquire any pipeline
or gathering system and/or related facilities, or an interest
therein, or a contract right to acquire or develop a natural gas
pipeline or gathering system or related facilities or an interest
therein, or purchase or transport gas (but any party shall have
right to purchase oil and gas leasehold or fee interests for their
own account) (all of which pipeline or gathering system and related
facilities, or interest or rights relating thereto, or rights to
purchase gas or transport gas, are hereinafter referred to as
"Interest") within a radius of five (5) miles of any pipeline,
gathering or related facilities then owned by the Company without
presenting same to the Company for the Company's consideration as
to whether or not to propose the acquisition of the Interest.  If
no proposal is made for the Company to acquire such Interest, or if
such proposal is made but the Members do not unanimously agree to
acquire such Interest within fifteen (15) days after the proposal
or having unanimously agreed such interest is for any reason not
acquired by the Company within a reasonable period of time, not to
exceed sixty (60) days, then the party holding rights to such
Interest may acquire same for its own account free and clear of the
terms and provisions of this Agreement.  The foregoing provisions
of this Article IX are not applicable to the Olmitos Pipeline
System, Webb County, Texas, and the Fitzsimmons Pipeline System,
Duval County, Texas (both of which are currently owned by an
affiliate of Midcoast Energy Resources, Inc.), nor shall such
provisions be applicable to any marketing or brokerage transaction
by any Member pertaining to any pipeline system owned by a third
party.  At such time as a Member (or any principal of and/or
affiliate of such Member) no longer owns an interest in the Company
such Member (and any principal of and/or affiliate of such Member)
shall be deemed released from the provisions of this Article IX. 
Under no circumstances shall it be deemed a conflict of interest or
in any way violative of this Agreement for any Member (or any
principal of and/or affiliate of any Member) to construct, purchase
or otherwise acquire any pipeline or gathering system and/or
related facilities, or an interest therein, or a contract right to
acquire or develop a natural gas pipeline or gathering system or
related facilities or any interest therein, or purchase or
transport gas outside a radius of five (5) miles of any pipeline,
gathering or related facilities then owned by the Company, with or
without notice to or an opportunity for the Members or the Company
to participate therein. 
                            ARTICLE X
                             GENERAL
Section 10.01.  Notices.
     (a)  Except as provided otherwise herein, all notices,
          demands, requests, consents or approvals provided for or
          permitted to be given pursuant to this Agreement must be
          in writing.  Meetings by telephone, pursuant to Section
          3.02 hereof, shall be with one or more of the Designated
          Representatives of each Member listed below.  All notices
          authorized or required between the Members, and required
          by any of the provisions of this Agreement, unless
          otherwise specifically provided, shall be given in
          writing by United States mail, postage prepaid, and
          addressed to the party to whom directed at his or its
          address set forth herein, or by facsimile transmission to
          the party to whom directed at his or its fax number set
          forth herein, or by personal delivery.  Any notice may be
          given by telephone (confirmed by letter, telex, or
          telegram).  The originating notice given under any
          provision hereof shall be deemed given only when received
          by the party to whom such notice is directed, and the
          time for such party to give any notice in response
          thereto shall run from the date the notice is received. 
          Each Member shall have the right to change its address
          and fax number at any time, and from time to time, by
          giving written notice hereof to all other Members.  The
          address, phone number and fax number of the Members and
          of the Designated Representatives for each of the Members
          is as follows:

Members                            Designated Representatives

Midcoast Holdings No. One.,Inc.         Dan C. Tutcher
Suite 2950, 1100 Louisiana              Suite 2950, 1100 Louisiana
Houston, Texas 77002                    Houston, Texas 77002
Phone: (713) 650-8900                   Phone (713) 650-8900
Fax: (713) 650-3232                     Fax: (713) 650-3232

P. O. Box 1980                Stevens G. Herbst & K.B. Holmes, Jr.
Corpus Christi, Texas         P. O. Box 1980
Phone: (512) 882-8407         Corpus Christi, Texas 78403
Fax: (512) 882-9210           Phone: (512) 882-8407
                              Fax: (512) 882-9210

Resource Energy Development   Leon Bray, Chester Cloudt & 
     Company, LLC              Terry Nixon
952 Echo Lane, Suite 130      952 Echo Lane, Suite 130           
Houston, Texas 77024          Houston, Texas 77024
Phone: (713) 827-8983         Phone: (713) 827-8983              
Fax: (713) 827-8978           Fax: (713) 827-8978

     (b)  No transferee of any interest of any Member shall be
          entitled to receive a notice independent of the notice
          sent to the Member making such transfer.  A notice sent
          or made to a Member shall be deemed to have been sent and
          made to all transferrees, if any, of such Member.
     (c)  All payments to be made pursuant hereto to any Member
          shall be made at the address set forth above for such
          Member or at such other address as may be designated by
          a Member upon written notice.  All such payments shall be
          effective upon receipt.
Section 10.02.  Governing Laws.
     This Agreement and the obligations of the Members hereunder
shall be interpreted, construed and enforced in accordance with the
laws of the State of Texas, excluding any conflict-of-law rules or
principle that might refer the governance or the construction of
this Agreement to the law of another jurisdiction.  In the event of
a direct conflict between the provisions of this Agreement and (a)
any provision of the Articles of Organization, or (b) any mandatory
provision of the Texas Limited Liability Company Act, the
application provision of the Articles of Organization or the Texas
Limited Liability Company Act shall control.  If any provision of
this Agreement or the application thereof to any Member or
circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision
to other Members or circumstances is not affected thereby and that
provisions shall be enforced to the greatest extent permitted by
law.
Section 10.03.  Entire Agreement.
     This Agreement contains the entire agreement between the
parties hereto relative to the formation of a Company to acquire,
own, expand, improve, operate and maintain the Systems.  No
variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly
executed by or on behalf of all parties.
Section 10.04.  Waiver.
     No consent or waiver, expressed or implied, by a Member to or
of any breach or default by the other in the performance by the
other of its obligations hereunder, shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other
obligations of such Member hereunder.  Failure on the part of any
Member to complain of any act of any of the other Members in
default, irrespective of how long such failure continues, shall not
constitute a waiver of its rights hereunder.
Section 10.05.  Headings.
     The headings used in this Agreement are for convenience only
and do not constitute substantive matter to be considered in
construing the terms of this Agreement.
Section 10.06.  Counterparts.
     This Agreement may be executed in multiple counterparts, each
of which shall be an original, but all of which shall be deemed to
constitute one instrument.
Section 10.07.  Binding Agreement.
     Subject to the restrictions on transfer and encumbrances set
forth herein, this Agreement shall inure to the benefit of and be
binding upon the undersigned Members and their respective heirs,
executors, legal representatives, su
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