SEAGULL ENERGY CORPORATION
                                      1996
                            EXECUTIVE INCENTIVE PLAN
                     (As revised and approved May 13, 1996)

Background

The 1996  Executive  Incentive  Plan (the  "Incentive  Plan") for Seagull Energy
Corporation  is  designed to motivate  key  employees  of the Company to achieve
tough,  but  realistic,  performance  goals and to reward  those  employees  who
perform at or above the expected level. The Incentive Plan defines participants,
award  opportunities and performance goals for the 1996 performance year. It is,
of course,  based upon the 1996  Operating  Plan (the  "Operating  Plan") and is
designed to maximize  performance  incentives while allowing for the recognition
of individual efforts through a significant discretionary component.


Participation

Approximately 125 key employees are or may become  participants in the Incentive
Plan.  They are officers or individuals  whose positions have been valued in the
salary  structure in and above Grade 12. These are the persons  responsible  for
the annual and longer-term success of the company.


Timing of Payments

Seventy-five  percent of any Incentive Plan award is paid to the recipient early
in the year  following the  performance  year, and the remaining 25% in the next
year. In this case, the  performance  year is 1996. The award will be determined
and the first 75% increment paid in early 1997, and the remaining installment in
early 1998.  The recipient  must be an employee on the payment dates in order to
receive any of the respective payments.


Award Opportunities

Annual  incentive  targets are  expressed as a percentage of total salary earned
during a given year and can increase to double the targeted  amounts or decrease
to zero,  relative to the  achievement of  predetermined  performance  goals and
subject to senior management and Board of Director  discretion at year-end.  The
Compensation Committee of the Board reserves the right to modify the performance
measures and award levels specified in the objective components of the Incentive
Plan if presently  unforeseen  circumstances  should occur during the year which
invalidate any of the material  assumptions that underlie the Operating Plan, or
if,  in the  opinion  of the  Compensation  Committee,  such  modifications  are
required  to avoid a result  that is  inequitable  to either the  company or the
Incentive Plan participants.


<PAGE>


Performance Measures

The  performance  measures for the Incentive  Plan are  summarized on pages 3-5.
Four performance criteria are included with the following weightings:

         Pre-tax cash flow from operations                            25% weight
         Pre-tax cash flow from operations
         to revenue ratio to E&P peers                                25% weight
         Discretionary individual performance assessment              25% weight
         Company stock performance assessment                         25% weight

The first component,  pre-tax cash flow from operations ("PCFO"),  is defined as
earnings  before income taxes,  plus operating and  non-operating  depreciation,
depletion and amortization,  plus pre-tax incentive compensation expense, and is
based on actual corporate  performance for the year as compared to the Company's
Operating Plan projection of PCFO.

The second component compares the ratio of PCFO from E&P to E&P revenue with the
same measures for our E&P peers. The definition of PCFO is the same as described
above,  except  incentive  compensation  expenditures  are not added back to the
results,  and the data is for E&P only. The PCFO and revenue figures will be for
the sum of the last four quarters ending September 30 of the performance year.

The third component,  discretionary  individual performance assessment,  will be
determined  individually and subjectively based on the respective  participant's
individual job performance.

The fourth component,  Company stock performance assessment,  will be determined
by subjectively  comparing the Company's stock price  performance to the average
stock  price  performance  by a selected  group of "peer  companies"  over three
separate time periods. The time periods are:

         year-end 1995 to year-end 1996;
         rolling  three-year  average from year-end 1993 to year-end  1996;  and
         rolling five-year average from year-end 1991 to year-end 1996.

Each  performance  component will be measured at year-end  independently  of the
other. At that time, the Chief Executive Officer will recommend specific awards,
subject  to  final  approval  of  each  element  of  the  total  awards  by  the
Compensation Committee and ultimately the Board of Directors.

<PAGE>


Performance Weightings:

         25% on pre-tax cash flow from operations
         25% on pre-tax cash flow from operations to revenue ratio to E&P peers
         25% on subjective individual performance assessment
         25% on subjective Company stock performance assessment

I.       Objective Performance Assessment - 50%:

         Pre-Tax Cash Flow from Operations ("PCFO") - 25%

         The performance award will be calculated as follows:

<TABLE>
<CAPTION>

        Column 1                 Column 2                 Column 3                  Column 4
        --------                 --------                 --------                  --------

      Pre-Tax Cash             Percentage of         Percentage of PCFO        Percentage of Total
        Flow From             Operating Plan            Target Award              Target Award
     Operations (1)           Projection (2)             Earned (3)                Earned (3)
     --------------           --------------             ----------                ----------

<S>                           <C>                    <C>                       <C>   
 
          97,988                    85                        0                       0.00
         103,752                    90                       25                       6.25
         109,516                    95                       50                       12.50
         115,280                    100                      100                      25.00
         121,044                    105                      110                      27.50
         126,808                    110                      120                      30.00
         132,572                    115                      130                      32.50
         138,336                    120                      140                      35.00
         144,100                    125                      150                      37.50
         149,864                    130                      160                      40.00
         155,628                    135                      170                      42.50
         161,392                    140                      180                      45.00
         167,156                    145                      190                      47.50
         172,920                    150                      200                

</TABLE>

         (1)    Earnings  before income taxes plus  operating and  non-operating
                depreciation,  depletion and  amortization and also plus pre-tax
                incentive compensation expense (dollars in thousands).

         (2)    If  subsequent  events over the course of the  performance  year
                invalidate any of the basic  assumptions in the Operating  Plan,
                then the original  Operating Plan projections will be revised to
                conform the Operating Plan  assumptions to reality.  The initial
                PCFO performance criteria for the Incentive Plan shown in Column
                1 will then be  adjusted by applying  the  percentages  shown in
                Column 2 to the revised Operating Plan projection of PCFO.

         (3)    If,  after the actual PCFO for the  performance  for the year is
                determined,  it falls  within the ranges  shown in Column 1, the
                exact incentive award  percentages  from Columns 3 and 4 will be
                calculated by interpolation.


<PAGE>


         Pre-Tax  Cash  Flow from  Operations  ("PCFO") to revenue  ratio to E&P
         peers - 25%

         Pre-tax  cash  flow  will be  defined  in the same way as in the  other
         objective measures of the plan (i.e., pre-tax income plus amortization,
         depreciation  and  depletion).   In  order  to  allow  the  appropriate
         performance  comparisons to industry peers, only pre-tax cash flow from
         the E&P segment is considered in the calculation. Further, pre-tax cash
         flow levels will be expressed  as a percent of E&P revenues  (which are
         defined as gross sales less write-offs). The PCFO pre-tax cash flow and
         revenue  figures will be for the sum of the last four  quarters  ending
         September 30 of the performance year.

         Performance  on the pre-tax cash flow to revenue ratio will be assessed
         relative  to the  industry  peer  group  used  in the  Company's  Total
         Shareholder  Return  Graph in the proxy  statement.  As a  result,  the
         Company will be measured  against other  companies that face volatility
         in the price of energy.

         The performance award will be calculated as follows:

<TABLE>
<CAPTION>

                                          Percentage of PCFO              Percentage of Total
           PCFO Relative                 Against Peers Target                Target Award
           to Peers (1)                      Award Earned                       Earned

<S>                                      <C>                              <C>

     Less than 25th percentile                      0                              0
          40th percentile                          40                             10
          50th percentile                          80                             20
          55th percentile                         100                             25
          60th percentile                         120                             30
          70th percentile                         160                             40
          80th percentile                         200                             50

         (1) Awards for  performance  between  stated  levels will be calculated
using straight-line interpolation.

</TABLE>



<PAGE>


II.      Discretionary Performance Assessment - 50%

         Both  the  discretionary  individual  performance  assessment  and  the
         Company stock performance  assessment will be determined informally and
         subjectively.

         25% on the respective  participant's  individual job performance, based
         primarily on the extent to which individual and  collective  goals  and
         objectives   established  at  the beginning of the year are achieved.

         25% on the Company's stock price performance based on rolling five-year
         and three-year averages and year-end 1995 to year-end  1996 comparisons
         with  the  average stock price performance by a selected group of "peer
         companies"  over the  same three periods.  The five-year and three-year
         comparative  calculations  will  be  done  on  a  "total return" basis,
         weighted for variances in beginning  market  capitalization  and in all
         respects consistent with the SEC proxy disclosure rules.

         Gatekeeper Performance Level

         For this component,  regardless of  performance against the peer group,
         if the five-year stock price performance has not resulted in a positive
         return, no award will be made.

         At year-end,  the Chief Executive  Officer will counsel with his direct
         reports in completing  discretionary  performance  assessments for each
         participant  and recommend  specific  awards,  which will be subject to
         final approval by the  Compensation  Committee and ultimately the Board
         of Directors.

Total Plan Payout Potential

         Maximum potential is 200% (1) 
         Target goal is 100% (1)
         Minimum potential is 0% (1)

         (1) Expressed  as  a  percentage  of the executive's targeted incentive
         opportunity as defined in the Incentive Plan.




                           SEAGULL ENERGY CORPORATION
                              PERFORMANCE MEASURES
                      FOR THE 1996 EXECUTIVE INCENTIVE PLAN