CREDIT AGREEMENT

                     $650,000,000 REDUCING REVOLVING CREDIT

                          AND COMPETITIVE BID FACILITY

                                      AMONG

                           SEAGULL ENERGY CORPORATION,

                            THE CHASE MANHATTAN BANK,
                           Individually and as Agent,

                                       AND

                        THE OTHER BANKS SIGNATORY HERETO



                                December 23, 1996


<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<S>                 <C>                                                      <C>

Section 1.          Definitions and Accounting Matters

         1.1        Certain Defined Terms......................................1
                    
         1.2        Accounting Terms and Determinations.......................24
                    
         1.3        Types of Loans............................................24
                    
         1.4        Miscellaneous.............................................24
                    

Section 2.          Commitments; Borrowing Base Determinations;
                    Competitive Bid Facility..................................25
                    
         2.1        Committed Loans...........................................25
                    
         2.2        Letters of Credit.........................................25
                    
         2.3        Reductions and Changes of Commitments.....................28
                    
         2.4        Fees......................................................29
                    
         2.5        Affiliates; Lending Offices...............................30
                    
         2.6        Several Obligations.......................................30
                    
         2.7        Notes.....................................................30
                    
         2.8        Use of Proceeds...........................................31
                    
         2.9        Borrowing Base Determinations.............................31
                    
         2.10       Competitive Bid Procedure.................................31
                    

Section 3.          Borrowings, Prepayments and Selection of Interest Rates...33
                     
         3.1        Borrowings................................................33
                    
         3.2        Prepayments...............................................34
                    
         3.3        Selection of Interest Rates...............................35
                    

Section 4.          Payments of Principal and Interest........................36
         
         4.1        Repayment of Loans and Reimbursement Obligations..........36
       
         4.2        Interest..................................................36

Section 5.          Payments; Pro Rata Treatment; Computations, Etc...........37
                    
         5.1        Payments..................................................37
                    
         5.2        Pro Rata Treatment........................................37
                    
         5.3        Computations..............................................38
                    
         5.4        Minimum and Maximum Amounts...............................38
                    
         5.5        Certain Actions, Notices, Etc.............................38
                    
         5.6        Non-Receipt of Funds by Agent.............................40
                    
         5.7        Sharing of Payments, Etc..................................40
                    

Section 6.          Yield Protection and Illegality...........................41

         6.1        Additional Costs..........................................41
</TABLE>



<PAGE>


<TABLE>
<S>                 <C>                                                      <C>

         6.2        Limitation on Types of Loans..............................42
                    
         6.3        Illegality................................................43
                   
         6.4        Substitute Alternate Base Rate Loans......................43
                    
         6.5        Compensation..............................................44
                    
         6.6        Additional Costs in Respect of Letters of Credit..........44
                    
         6.7        Capital Adequacy..........................................45
                    
         6.8        Limitation on Additional Charges; Substitute Banks;
                    Non-Discrimination........................................45
                    

Section 7.          Conditions Precedent......................................46

         7.1        Initial Loans.............................................46

         7.2        Initial and Subsequent Loans..............................48


Section 8.          Representations and Warranties............................48
                    
         8.1        Corporate Existence.......................................49
                    
         8.2        Corporate Power and Authorization.........................49
                    
         8.3        Binding Obligations.......................................49
                    
         8.4        No Legal Bar or Resultant Lien............................49
                   
         8.5        No Consent................................................49
                    
         8.6        Financial Condition.......................................50
                    
         8.7        Investments and Guaranties................................50
                    
         8.8        Liabilities and Litigation................................50
                   
         8.9        Taxes and Governmental Charges............................50
                    
         8.10       Title to Properties.......................................51
                    
         8.11       Defaults..................................................51
                   
         8.12       Location of Businesses and Offices........................51
                    
         8.13       Compliance with Law.......................................51
                    
         8.14       Margin Stock..............................................51
                    
         8.15       Subsidiaries..............................................52
                    
         8.16       ERISA.....................................................52
                    
         8.17       Investment Company Act....................................52
                   
         8.18       Public Utility Holding Company Act........................52
                    
         8.19       Environmental Matters.....................................53
                    
         8.20       Claims and Liabilities....................................54
                    
         8.21       Solvency..................................................54
                   

Section 9.          Affirmative Covenants.....................................54
                     
         9.1        Financial Statements and Reports..........................54
                    
         9.2        Officers' Certificates....................................56
                    
         9.3        Taxes and Other Liens.....................................57
                    
         9.4        Maintenance...............................................57
                    
         9.5        Further Assurances........................................58
                    
</TABLE>



<PAGE>



<TABLE>
<S>                 <C>                                                      <C>
         9.6        Performance of Obligations................................58
                    
         9.7        Reimbursement of Expenses.................................58
                    
         9.8        Insurance.................................................59
                    
         9.9        Accounts and Records......................................59
                    
         9.10       Rights of Inspection......................................59
                    
         9.11       Notice of Certain Events..................................60
                    
         9.12       ERISA Information and Compliance..........................61
                    

Section 10.         Negative Covenants........................................62
                    
         10.1       Debts, Guaranties and Other Obligations...................62
                    
         10.2       Liens.....................................................65
                    
         10.3       Investments, Loans and Advances...........................68
                    
         10.4       Dividend Payment Restrictions.............................70
                    
         10.5       Mergers and Sales of Assets...............................70
                    
         10.6       Proceeds of Notes.........................................70
                    
         10.7       ERISA Compliance..........................................70
                    
         10.8       Amendment of Certain Documents............................71
                    
         10.9       Tangible Net Worth........................................71
                   
         10.10      Company Debt/Capitalization Ratio.........................71
                    
         10.11      EBITDAX/Interest Ratio....................................71
                    
         10.12      Nature of Business........................................71
                    
         10.13      Futures Contracts.........................................72
                    
         10.14      Covenants in Other Agreements.............................72
                    

Section 11.         Defaults..................................................73
                    
         11.1       Events of Default.........................................73
                    
         11.2       Collateral Account........................................75
                    
         11.3       Preservation of Security for Unmatured 
                    Reimbursement Obligations.................................75
                    
         11.4       Right of Setoff...........................................76
                    

Section 12.         Agent.....................................................76
                   
         12.1       Appointment, Powers and Immunities........................76
                    
         12.2       Reliance by Agent.........................................77
                    
         12.3       Defaults..................................................78
                    
         12.4       Rights as a Bank..........................................78
                    
         12.5       Indemnification...........................................78
                    
         12.6       Non-Reliance on Agent and Other Banks.....................79
                    
         12.7       Failure to Act............................................79
                    
         12.8       Resignation or Removal of Agent...........................79
                    
</TABLE>




<PAGE>



<TABLE>
<S>                 <C>                                                      <C>
Section 13.         Miscellaneous.............................................80
                     
         13.1       Waiver....................................................80
                    
         13.2       Notices...................................................80
                    
         13.3       Indemnification...........................................80
                    
         13.4       Amendments, Etc...........................................81
                    
         13.5       Successors and Assigns....................................82
                    
         13.6       Limitation of Interest....................................85
                    
         13.7       Survival..................................................86
                    
         13.8       Captions..................................................86
                    
         13.9       Counterparts..............................................86
                    
         13.10      Governing Law.............................................86
                    
         13.11      Severability..............................................87
                    
         13.12      Chapter 15 Not Applicable.................................87
                    
         13.13      Confidential Information..................................87
                    
         13.14      Tax Forms.................................................88
                    
         13.15      Amendment and Restatement.................................88
                    
         13.16      Intercreditor Agreement...................................88
                    




EXHIBITS:

Exhibit A           Oil and Gas Subsidiaries
Exhibit B           Form of Borrowing Base Certificate
Exhibit C           Form of Request for Extension of Credit
Exhibit D           Existing Competitive Loans
Exhibit E           Form of Committed Note
Exhibit F           Subsidiaries (with Addresses)
Exhibit G           Form of Compliance Certificate
Exhibit H           Assignment and Acceptance
Exhibit I           Form of Engineering Report Certificate
Exhibit J           Parameters Interest Rate Protection and Commodities
                    Futures Programs
Exhibit K           Form of Competitive Bid Request
Exhibit L           Form of Notice to Banks of Competitive Bid Request
Exhibit M           Form of Competitive Bid
Exhibit N           Form of Competitive Bid Administrative Questionnaire
Exhibit O           Form of Competitive Note
Exhibit P           Form of Second Amendment to Intercreditor Agreement
</TABLE>





<PAGE>



                                CREDIT AGREEMENT


          This CREDIT  AGREEMENT,  dated as of December 23, 1996 (the "Effective
Date"),  is  by  and  among  SEAGULL  ENERGY  CORPORATION  (the  "Company"),   a
corporation  duly organized and validly  existing under the laws of the State of
Texas;  each of the  banks  which is or which  may  from  time to time  become a
signatory hereto (individually,  a "Bank" and,  collectively,  the "Banks"); THE
CHASE  MANHATTAN  BANK  ("Chase"),  as agent for the  Banks  (in such  capacity,
together with its successors in such capacity, "Agent").

          The parties hereto agree as follows:

          Section 1. Definitions and Accounting Matters.

          1.1 Certain Defined Terms.  As used herein,  the following terms shall
have the  following  meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):

          "Additional  Costs"  shall have the  meaning  ascribed to such term in
Section 6.1 hereof.

          "Affiliate"  shall mean,  as to any  Person,  any other  Person  which
directly  or  indirectly  controls,  or is  under  common  control  with,  or is
controlled by, such Person and, if such Person is an  individual,  any member of
the  immediate  family   (including   parents,   siblings,   spouse,   children,
stepchildren,  grandchildren,  nephews  and nieces) of such  individual  and any
trust whose  principal  beneficiary is such individual or one or more members of
such  immediate  family and any Person who is  controlled  by any such member or
trust.  As used in  this  definition,  "control"  (including,  with  correlative
meanings,   "controlled   by"  and  "under  common  control  with")  shall  mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies  (whether through  ownership of securities or partnership
or other ownership interests, by contract or otherwise).

          "Agreement"  shall  mean  this  Credit  Agreement,  as the same may be
amended, modified, restated or supplemented from time to time.

          "Alaskan  Gas  Component  Value"  shall mean (A) prior to the  initial
Borrowing Base  Determination,  $60,000,000  and (B)  thereafter,  the amount by
which (i) the product of 5-1/2 times an amount  equal to (I) the average  annual
EBITDA of ENSTAR Alaska on a consolidated  basis for the three year period ended
on the most recent December 31st plus (II) 70% of the average annual  management
fees paid to the Company by ENSTAR  Alaska  during such three year period  minus
(III)  average  annual  Capital  Expenditures  attributable  to ENSTAR Alaska in
accordance  with GAAP and on a consolidated  basis during such three year period
exceeds (ii) the Alaskan Gas Debt  determined as of (x) the preceding  January 1
(in the case of a Scheduled  Redetermination)  or (y) the last day of the second

<PAGE>

month  prior to the  month in which the  effective  date of the  Borrowing  Base
Determination occurs (in the case of a Requested Redetermination).

          "Alaskan  Gas Debt" shall mean the sum of (i) Funded  Indebtedness  of
ENSTAR  Alaska  plus  (ii)  Current  Maturities  of  ENSTAR  Alaska  plus  (iii)
Redemption  Obligations  of ENSTAR Alaska plus (iv) the highest  amount of Short
Term Borrowings outstanding during the Short Term Borrowings Measuring Period.

          "Alternate  Base Rate" shall mean, for any day, a rate per annum equal
to the  higher of (a) the Prime Rate in effect on such day or (b) 1/2 of 1% plus
the Federal Funds Rate in effect for such day (rounded upwards, if necessary, to
the nearest 1/16th of 1%). For purposes hereof, "Federal Funds Rate" shall mean,
for any period, a fluctuating  interest rate per annum equal for each day during
such period to the  weighted  average of the rates on  overnight  Federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next  preceding  Business Day) by the Federal  Reserve Bank of New York,
or, if such rate is not so  published  for any day which is a Business  Day, the
average of the  quotations for such day on such  transactions  received by Agent
from three  Federal funds  brokers of  recognized  standing  selected by it. For
purposes  of this  Agreement,  any  change in the  Alternate  Base Rate due to a
change in the Federal  Funds Rate shall be  effective on the  effective  date of
such  change in the  Federal  Funds  Rate.  If for any reason  Agent  shall have
determined (which determination shall be conclusive and binding, absent manifest
error) that it is unable to  ascertain  the  Federal  Funds Rate for any reason,
including,  without  limitation,  the  inability  or  failure of Agent to obtain
sufficient  bids or  publications  in  accordance  with the  terms  hereof,  the
Alternate Base Rate shall be the Prime Rate until the circumstances  giving rise
to such inability no longer exist. For the purposes  hereof,  "Prime Rate" shall
mean the prime  rate as  announced  from time to time by Agent,  and  thereafter
entered in the minutes of Agent's Loan and Discount Committee. Without notice to
the Company or any other Person, the Prime Rate shall change  automatically from
time to time as and in the amount by which said prime rate shall fluctuate.  The
Prime Rate is a reference rate and does not necessarily  represent the lowest or
best rate actually  charged to any customer.  Agent may make commercial loans or
other loans at rates of interest at, above or below the Prime Rate. For purposes
of this  Agreement any change in the Alternate  Base Rate due to a change in the
Prime  Rate  shall be  effective  on the date such  change in the Prime  Rate is
announced.

          "Alternate  Base Rate Loans" shall mean Loans which bear interest at a
rate based upon the Alternate Base Rate.

          "APC" shall mean Alaska Pipeline  Company,  an Alaska  corporation,  a
Subsidiary of the Company.

          "APC Long Term Financing Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement  (together with the Notes,  as defined
therein),  each  dated  as of May  14,  1992,  by and  among  the  Company,  Aid

<PAGE>

Association  for Lutherans,  The Equitable Life Assurance  Society of the United
States,  Equitable Variable Life Insurance Company,  Provident Life and Accident
Insurance Company and Teachers Insurance & Annuity  Association of America,  any
documentation   executed  in   connection   with  any   renewal,   extension  or
rearrangement  of  the  Indebtedness  that  is  the  subject  of  the  foregoing
documents,  the Gas Sales Contract, the Intercompany Mortgage, as defined in the
above-mentioned Note Agreement, and any documents executed in replacement of any
of the  foregoing  documents,  if any,  and only if Agent  has  received  notice
thereof pursuant to Section 10.8.

          "Applicable  Lending  Office"  shall mean,  for each Bank and for each
Type of Loan, such office of such Bank (or of an affiliate of such Bank) as such
Bank may from time to time  specify  to Agent and the  Company  as the office by
which its Loans of such Type are to be made and/or issued and maintained.

          "Applicable  Margin"  shall mean,  on any day and with  respect to any
Loan,  the  applicable  per  annum  percentage  set  forth  at  the  appropriate
intersection in the table shown below, based on the Debt/Capitalization Ratio as
of the last day of the most recently  ending  fiscal  quarter of the Company and
its  Subsidiaries  with respect to which Agent shall have received the financial
statements  and other  information  (the "Current  Information")  required to be
delivered to Agent  pursuant to Section 9.1 hereof (said  calculation to be made
by Agent as soon as practicable  after receipt by Agent of all required  Current
Information):

<TABLE>
<CAPTION>
                                                                  Eurodollar
                                     Alternate Base Rate              Loan
                                       Loan Applicable             Applicable
  Debt/Capitalization Ratio                 Margin                   Margin
----------------------------        ---------------------         -----------
<S>                                  <C>                          <C>    

Greater than or equal to 60%                 0.375                   1.1875

Greater than or equal to 55%
but less than 60%                             0.00                   0.8125

Greater than or equal to 50%
but less than 55%                             0.00                   0.5625

Less than 50%                                 0.00                   0.4375

</TABLE>

Notwithstanding  the foregoing,  at all times that a Borrowing  Base  Deficiency
shall exist and is  continuing  for more than 30 days,  the  Applicable  Margins
provided for in this  definition  shall each be increased by adding 1.00%.  Each
change in the  Applicable  Margin  based on a change in the Current  Information
shall be effective as of the fifteenth day of the month during which the Current
Information used to calculate the new Applicable Margin was delivered to Agent.

<PAGE>




          "Applications"  shall mean all applications and agreements for Letters
of Credit, or similar  instruments or agreements,  now or hereafter  executed by
any Person in connection with any Letter of Credit now or hereafter issued or to
be issued.

          "Bankruptcy  Code" shall mean the United  States  Bankruptcy  Code, as
amended, and any successor statute.

          "Beluga  Financing  Documents"  shall  mean  that  certain  Inducement
Agreement and that certain Note Agreement  (together with the Notes,  as defined
therein),  each dated June 17,  1985,  and amended as of June 15,  1990,  by and
among the Company and The Equitable Life Assurance  Society of the United States
and the Travelers  Insurance Company,  any documentation  executed in connection
with any renewal,  extension or rearrangement  of the  Indebtedness  that is the
subject of the foregoing  documents,  the Gas Sales Contract,  the  Intercompany
Mortgage,  as defined in the above-mentioned  Note Agreement,  and any documents
executed in replacement of any of the foregoing documents,  if and only if Agent
has received notice thereof pursuant to Section 10.8.

          "Borrowing Base" shall mean, as at any date, the sum of

          (i)  the Oil and Gas Reserves Component Value plus

          (ii) the Alaskan Gas Component Value.

If the Company fails to provide a current Borrowing Base Certificate as required
by Section  9.2(c),  two (2)  Business  Days  after  notice to the  Company  the
Majority  Banks may  determine the Alaskan Gas Component  Value  comprising  the
Borrowing  Base from time to time in their  reasonable  discretion,  taking into
account  all  information  reasonably  available  to them,  and the  Alaskan Gas
Component  Value  from  time to time so  determined  shall  be the  Alaskan  Gas
Component  Value for all purposes of this  Agreement  until a current  Borrowing
Base Certificate is furnished.

          "Borrowing Base Certificate"  shall mean a certificate with respect to
the Alaskan Gas Component Value,  duly executed by the chief executive  officer,
chief financial officer,  treasurer or controller of the Company,  appropriately
completed and in substantially the form of Exhibit B hereto.

          "Borrowing Base Debt" shall mean, without duplication,  the sum of (i)
borrowed money Indebtedness (including without limitation contingent obligations
in respect of  borrowed  money  Indebtedness  under any  Guarantee  or letter of
credit) plus (ii) the "Maximum  Outstanding  Amount" in effect from time to time
under the Canadian Facility plus (iv) Redemption Obligations payable within five
(5) years after any applicable  determination  date,  together with  obligations
(excluding  volumetric  obligations  with respect to  pre-sales  of  Hydrocarbon
production  which have  already been  accounted  for in the  calculation  of the

<PAGE>

Borrowing Base) payable out of Hydrocarbon  production  (except such obligations
payable  solely by recourse to properties not included in the Borrowing Base and
Indebtedness  permitted by Section  10.1(l)) to the extent such obligations have
not already been deducted in the  calculation of the Borrowing  Base;  provided,
however,  that  Borrowing  Base Debt shall not include the Loans,  the Letter of
Credit Liabilities or any Subordinated Debt.

          "Borrowing Base Deficiency" shall mean the amount by which (a) the sum
of (i) the aggregate outstanding amount of all Revolving Credit Obligations plus
(ii) the aggregate  outstanding amount of all Borrowing Base Debt of the Company
and its  Subsidiaries  (other than ENSTAR  Alaska)  exceeds (b) the then current
Borrowing Base.

          "Borrowing Base Deficiency  Notification  Date" shall mean the date on
which any notice of a Borrowing Base Deficiency is received by the Company.

          "Borrowing Base Determination" shall mean a Scheduled  Redetermination
or a Requested Redetermination.

          "Business Day" shall mean any day other than a day on which commercial
banks are  authorized  or required to close in Houston,  Texas or New York,  New
York, and where such term is used in the definition of "Quarterly  Date" in this
Section 1.1 or if such day relates to a borrowing of, a payment or prepayment of
principal of or interest on, or an Interest  Period for, a Eurodollar  Loan or a
notice by the Company with respect to any such borrowing, payment, prepayment or
Interest  Period, a day which is also a day on which dealings in Dollar deposits
are carried out in the relevant interbank market.

          "Canadian  Facility"  shall mean that certain Credit  Agreement  dated
December ____,  1996 executed by and among Seagull Energy Canada Ltd., The Chase
Manhattan Bank of Canada,  as Arranger and as Agent, The Bank of Nova Scotia, as
Paying Agent and as Co-Agent,  Canadian Imperial Bank of Commerce,  as Co-Agent,
and certain banks therein named, as amended by the Intercreditor  Agreement, and
as the same may be further amended or modified from time to time.

          "Capital  Expenditures" shall mean expenditures in respect of fixed or
capital assets  (calculated in accordance with GAAP) excluding  expenditures for
the  restoration,  repair or replacement of any fixed or capital asset which was
destroyed  or  damaged,  in whole  or in part,  to the  extent  financed  by the
proceeds of an insurance  policy.  Expenditures in respect of  replacements  and
maintenance  consistent  with the  business  practices  of the  Company  and its
Subsidiaries in respect of plant facilities,  machinery, fixtures and other like
capital  assets  utilized in the  ordinary  course of  business  are not Capital
Expenditures to the extent such  expenditures are not capitalized in preparing a
balance sheet of the Company in accordance with GAAP.


<PAGE>



          "Capital  Lease  Obligations"  shall  mean,  as  to  any  Person,  the
obligations  of such  Person to pay rent or other  amounts  under a lease of (or
other agreement  conveying the right to use) real and/or personal property which
obligations  are required to be classified  and accounted for as a capital lease
on a  balance  sheet  of such  Person  under  GAAP  and,  for  purposes  of this
Agreement,  the  amount  of such  obligations  shall be the  capitalized  amount
thereof, determined in accordance with GAAP.

          "Capitalization"  shall mean an amount  equal to the sum of (a) Funded
Indebtedness of the Company and its  Subsidiaries  on a consolidated  basis plus
(b) Current  Maturities of the Company and its  Subsidiaries  on a  consolidated
basis plus (c) borrowed money  Indebtedness of the Company and its  Subsidiaries
on a consolidated basis that is not Funded Indebtedness plus (d) Indebtedness of
the  Company  and  its  Subsidiaries  on  a  consolidated   basis   constituting
obligations payable out of Hydrocarbons  (except such obligations payable solely
by recourse to properties not included in the Borrowing  Base) plus (e) Tangible
Net Worth of the Company and its Subsidiaries on a consolidated basis.

          "Change of Control"  shall mean a change  resulting when any Unrelated
Person or any Unrelated  Persons acting together which would  constitute a Group
together  with any  Affiliates  or Related  Persons  thereof  (in each case also
constituting  Unrelated  Persons) shall at any time either (i)  Beneficially Own
more than 50% of the  aggregate  voting  power of all classes of Voting Stock of
the  Company  or (ii)  succeed  in having  sufficient  of its or their  nominees
elected to the Board of Directors of the Company such that such  nominees,  when
added to any  existing  director  remaining  on the  Board of  Directors  of the
Company after such election who is an Affiliate or Related Person of such Person
or Group,  shall constitute a majority of the Board of Directors of the Company.
As used herein (a)  "Beneficially  Own" means  "beneficially  own" as defined in
Rule 13d-3 of the Securities  Exchange Act of 1934, as amended, or any successor
provision thereto;  provided,  however, that, for purposes of this definition, a
Person shall not be deemed to Beneficially Own securities tendered pursuant to a
tender or  exchange  offer  made by or on  behalf of such  Person or any of such
Person's  Affiliates until such tendered securities are accepted for purchase or
exchange;  (b)  "Group"  means a "group" for  purposes  of Section  13(d) of the
Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any
time any Person  other than the  Company  or any  Subsidiary  and other than any
trust for any  employee  benefit  plan of the Company or any  Subsidiary  of the
Company;  (d) "Related  Person" of any Person shall mean any other Person owning
(1) 5% or more of the outstanding  common stock of such Person or (2) 5% or more
of the Voting Stock of such Person;  and (e) "Voting  Stock" of any Person shall
mean  capital  stock of such Person  which  ordinarily  has voting power for the
election of directors (or persons  performing similar functions) of such Person,
whether at all times or only so long as no senior class of  securities  has such
voting power by reason of any contingency.

          "Chapter  One" shall mean Chapter One of the Texas Credit Code,  as in
effect on the date the document using such term was executed.


<PAGE>



          "Code" shall mean the Internal  Revenue Code of 1986,  as amended,  or
any   successor   statute,   together   with  all   regulations,   rulings   and
interpretations thereof or thereunder by the Internal Revenue Service.

          "Commitment  Percentage"  shall mean, as to any Bank,  the  percentage
equivalent  of a fraction  the  numerator  of which is the amount of such Bank's
Commitment  and  the  denominator  of  which  is  the  aggregate  amount  of the
Commitments of all Banks.

          "Commitment"  shall mean, as to any Bank, the  obligation,  if any, of
such Bank to make Committed  Loans and incur Letter of Credit  Liabilities in an
aggregate  principal  amount at any one time outstanding up to but not exceeding
the amount,  if any, set forth opposite such Bank's name on the signature  pages
hereof under the caption  "Commitment"  (as the same may be reduced from time to
time pursuant to Section 2.3).

          "Committed  Loans"  shall mean the loans  provided  for in Section 2.1
hereof.

         "Committed  Notes"  shall  mean the  promissory  notes  of the  Company
evidencing the Committed  Loans, in the form of Exhibit E hereto,  together with
all  renewals,   extensions,   modifications   and   replacements   thereof  and
substitutions therefor.

          "Company Report" shall mean one or more reports,  in form satisfactory
to Agent and the Majority Banks, prepared by petroleum engineers employed by the
Company  or its  Subsidiaries,  which  shall  evaluate  (i) at least  85% of the
present value of the Included Reserves and (ii) any other properties as to which
the Company has conducted successful  exploration  activities  subsequent to the
most recent  Engineering  Report,  in each case effective as of the  immediately
preceding July 1. Each Company Report shall set forth  production,  drilling and
acquisition  information and other  information  requested by Agent and shall be
based upon updated economic assumptions  acceptable to Agent and approved by the
Majority Banks at the beginning of the applicable year.

          "Competitive  Bid" shall mean an offer by a Bank to make a Competitive
Loan pursuant to Section 2.10 hereof.

          "Competitive   Bid   Administrative   Questionnaire"   shall   mean  a
questionnaire substantially in the form of Exhibit N hereto.

          "Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Bank pursuant to Section 2.10 hereof, the fixed rate of interest,  in each case,
offered by the Bank making such Competitive Bid.

          "Competitive Bid Request" shall have the meaning ascribed to such term
in Section 2.10 hereof.


<PAGE>



          "Competitive  Loans"  shall mean the  Existing  Competitive  Loans and
loans provided for in Section 2.10 hereof.

          "Competitive  Notes"  shall mean the  promissory  notes of the Company
evidencing the Competitive Loans, in the form of Exhibit O hereto, together with
all  renewals,   extensions,   modifications   and   replacements   thereof  and
substitutions therefor.

          "Cover" for Letter of Credit  Liabilities  shall be effected by paying
to Agent  immediately  available  funds,  to be held by  Agent  in a  collateral
account maintained by Agent at its Principal Office and collaterally assigned as
security for the financial  accommodations  extended  pursuant to this Agreement
using  documentation  satisfactory  to Agent, in an amount equal to any required
prepayment.  Such amount shall be retained by Agent in such  collateral  account
until such time as (x) in the case of Cover being  provided  pursuant to Section
2.2(a),  the  applicable  Letter of Credit shall have expired and  Reimbursement
Obligations, if any, with respect thereto shall have been fully satisfied or (y)
in the  case  of  Cover  being  provided  pursuant  to  Section  3.2(b)(1),  the
outstanding  principal amount of all Revolving Credit Obligations is not greater
than the aggregate amount of the Commitments.

          "Current   Maturities"  shall  mean,  on  any  day  on  which  Current
Maturities are calculated, the sum of (a) scheduled principal payments on Funded
Indebtedness  which are payable  within one (1) year after such day plus (b) the
principal  component  of payments  required  to be made with  respect to Capital
Lease  Obligations  within one (1) year of said date plus (c), to the extent not
included  above,  all items which in accordance with GAAP would be classified as
current maturities of long term debt.

          "Debt/Capitalization  Ratio"  shall  mean the  ratio of (a) the sum of
Funded  Indebtedness of the Company and its Subsidiaries on a consolidated basis
plus Current  Maturities of the Company and its  Subsidiaries  on a consolidated
basis plus borrowed money  Indebtedness of the Company and its Subsidiaries on a
consolidated  basis that is not Funded  Indebtedness  plus  Indebtedness  of the
Company and its Subsidiaries on a consolidated  basis  constituting  obligations
payable out of Hydrocarbons  (except such obligations payable solely by recourse
to properties not included in the Borrowing Base) to (b) Capitalization.

          "Default" shall mean an Event of Default or an event which with notice
or lapse of time or both  would,  unless  cured or  waived,  become  an Event of
Default.

          "Disclosure  Statement"  shall  mean the  Disclosure  Statement  dated
December 31, 1992 delivered to Agent by the Company.

          "Dividend  Payment" shall mean, with respect to any Person,  dividends
(in cash,  property or obligations)  on, or other payments or  distributions  on
account of, or the redemption of, or the setting apart of money for a sinking or
other  analogous  fund  for  the  purchase,  redemption,   retirement  or  other

<PAGE>

acquisition of, any shares of any class of capital stock of such Person,  or the
exchange  or  conversion  of any  shares of any class of  capital  stock of such
Person for or into any  obligations  of or shares of any other  class of capital
stock of such  Person or any other  property,  but  excluding  dividends  to the
extent  payable in, or exchanges or  conversions  for or into,  shares of common
stock of the  Company or options or warrants  to  purchase  common  stock of the
Company.

          "Dollars"  and "$" shall mean  lawful  money of the  United  States of
America.

          "EBITDA" shall mean net earnings  (excluding gains and losses on sales
and  retirement  of  assets,   non-cash  write  downs,  charges  resulting  from
accounting  convention  changes)  before  deduction for federal and state taxes,
interest expense (including  capitalized  interest),  operating lease rentals or
depreciation,  depletion and amortization  expense, all determined in accordance
with GAAP.

          "EBITDAX" shall mean net earnings (excluding gains and losses on sales
and  retirement  of  assets,   non-cash  write  downs,  charges  resulting  from
accounting  convention  changes and  deductions  for dry hole  expenses)  before
deduction for federal and state taxes,  interest expense (including  capitalized
interest),  operating lease rentals or depreciation,  depletion and amortization
expense, all determined in accordance with GAAP.

          "EBITDAX/Interest  Ratio"  shall mean the ratio of (a)  EBITDAX of the
Company and its  Subsidiaries  on a  consolidated  basis to (b) operating  lease
rentals and interest  expense  (including  capitalized  interest  but  excluding
non-cash  amortization of deferred  financing  costs) on all Indebtedness of the
Company and its Subsidiaries on a consolidated basis for any twelve-month period
ending on the last day of every calendar  quarter during the period with respect
to which the EBITDAX/Interest Ratio is to be calculated.

          "Engineering   Report"  shall  mean  one  or  more  reports,  in  form
satisfactory  to  Agent  and  the  Majority  Banks,  prepared  by  one  or  more
independent consulting firms acceptable to Agent and the Majority Banks in their
reasonable  business judgment,  which shall evaluate at least 85% of the present
value of the Included  Reserves as of the immediately  preceding January 1. Each
Engineering  Report  shall  set  forth  a  projection  of  the  future  rate  of
production,  Net Proceeds of Production and present value of the Net Proceeds of
Production, in each case based upon economic assumptions acceptable to Agent and
approved by the Majority Banks.

          "ENSTAR  Alaska"  shall  collectively  mean  (i) the gas  distribution
system in south-central  Alaska known as ENSTAR Natural Gas Company,  a division
of the Company, and (ii) APC.

          "Environmental  Claim" means any third party  (including  Governmental
Authorities  and  employees)  action,  lawsuit,  claim or proceeding  (including
claims or proceedings at common law or under the Occupational  Safety and Health
Act or similar  laws  relating  to safety of  employees)  which  seeks to impose
liability for (i) noise;  (ii) pollution or  contamination  of the air,  surface

<PAGE>

water,  ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation,  handling,  treatment, storage,
disposal or  transportation;  (iv)  exposure to  Hazardous  Substances;  (v) the
safety or health of employees or (vi) the manufacture,  processing, distribution
in commerce or use of Hazardous  Substances.  An "Environmental Claim" includes,
but is not limited to, a common law action,  as well as a  proceeding  to issue,
modify or terminate an Environmental  Permit,  or to adopt or amend a regulation
to the  extent  that such a  proceeding  attempts  to redress  violations  of an
applicable  permit,  license,  or  regulation  as  alleged  by any  Governmental
Authority.

          "Environmental  Liabilities" includes all liabilities arising from any
Environmental  Claim,  Environmental  Permit or Requirement of Environmental Law
under  any  theory  of  recovery,  at law or in  equity,  and  whether  based on
negligence,  strict  liability  or  otherwise,  including  but not  limited  to:
remedial,  removal, response,  abatement,  investigative,  monitoring,  personal
injury and damage to property or  injuries  to  persons,  and any other  related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs  and  expenses  necessary  to cause the  issuance,  reissuance  or
renewal of any  Environmental  Permit including  reasonable  attorneys' fees and
court costs.

          "Environmental  Permit" means any permit,  license,  approval or other
authorization  under any applicable Legal  Requirement  relating to pollution or
protection of health or the  environment,  including laws,  regulations or other
requirements relating to emissions,  discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water,  ground water or land, or otherwise relating to
the manufacture,  processing,  distribution,  use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.

          "ERISA"  shall mean the  Employee  Retirement  Income  Security Act of
1974,  as  amended  from  time  to  time,   and  all  rules,   regulations   and
interpretations  by the  Internal  Revenue  Service or the  Department  of Labor
thereunder.

          "ERISA  Affiliate"  shall mean any trade or  business  (whether or not
incorporated)  which is a member of a group of which the Company is a member and
which is under  common  control  within  the  meaning of the  regulations  under
Section 414 of the Code.

          "Eurodollar Base Rate" shall mean, with respect to any Interest Period
for any Eurodollar Loan, the lesser of (A) the rate per annum (rounded  upwards,
if necessary,  to the nearest  1/16th of 1%) equal to the average of the offered
quotations  appearing on Telerate  Page 3750 (or if such Telerate Page shall not
be available,  any successor or similar  service as may be selected by Agent and
the Company) as of 11:00 a.m.,  Houston,  Texas time (or as soon  thereafter  as
practicable)  on the  day two  Business  Days  prior  to the  first  day of such
Interest  Period for Dollar  deposits  having a term comparable to such Interest
Period and in an amount  comparable  to the principal  amount of the  Eurodollar

<PAGE>

Loan to which such Interest  Period  relates or (B) the Highest  Lawful Rate. If
none of such  Telerate  Page  3750  nor any  successor  or  similar  service  is
available,  then the  "Eurodollar  Base Rate"  shall mean,  with  respect to any
Interest Period for any applicable  Eurodollar  Loan, the lesser of (A) the rate
per  annum  (rounded  upwards,  if  necessary,  to  the  nearest  1/16th  of 1%)
determined by Agent to be the average of the rates quoted by the Reference Banks
at  approximately  11:00 a.m.,  Houston,  Texas time (or as soon  thereafter  as
practicable)  on the  day two  Business  Days  prior  to the  first  day of such
Interest Period for the offering by such Reference Banks to leading banks in the
interbank  market of Dollar  deposits  having a term comparable to such Interest
Period and in an amount  comparable  to the principal  amount of the  Eurodollar
Loan to which such Interest  Period  relates or (B) the Highest  Lawful Rate. If
any Reference Bank does not furnish a timely  quotation,  Agent shall  determine
the relevant interest rate on the basis of the quotation or quotations furnished
by the  remaining  Reference  Bank or  Banks;  if none  of  such  quotations  is
available on a timely basis,  the  provisions  of Section 6.2 shall apply.  Each
determination  of the  Eurodollar  Base Rate shall be  conclusive  and  binding,
absent  manifest error,  and may be computed using any reasonable  averaging and
attribution method.

          "Eurodollar   Loans"  shall  mean  Loans  the  interest  on  which  is
determined on the basis of rates  referred to in the  definition of  "Eurodollar
Base Rate" in this Section 1.1.

          "Eurodollar  Rate"  shall  mean,  for  any  Interest  Period  for  any
Eurodollar  Loan,  a rate  per  annum  determined  by  Agent  to be equal to the
Eurodollar Base Rate for such Loan for such Interest Period.

          "Event of  Default"  shall have the  meaning  assigned to such term in
Section 11 hereof.

          "Existing   Competitive   Loans"  shall  mean  the  Competitive  Loans
described on Exhibit D hereto.

          "Facility Fee Percentage" shall mean 0.1875%; provided,  however, that
at all times that the Company  shall have  received an  investment  grade senior
debt  rating from two  nationally  known  agencies  (one of which must be either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.) of BBB-/Baa3
(or the equivalent), the Facility Fee Percentage shall be reduced to 0.125%.

          "Financial   Statements"   shall  mean  the  financial   statement  or
statements, together with the notes and schedules thereto, described or referred
to in Sections 8.6 and 9.1.

          "Funded  Indebtedness"  shall mean all Indebtedness which by its terms
matures  more  than one (1) year from the date as of which  any  calculation  of
Funded  Indebtedness is made, and any Indebtedness  maturing within one (1) year
from such date which is  renewable at the option of the obligor to a date beyond
one (1) year from such date.


<PAGE>



          "GAAP" shall mean as to a particular Person,  such accounting practice
as, in the  opinion of KPMG Peat  Marwick or other  independent  accountants  of
recognized  national  standing  retained  by such Person and  acceptable  to the
Majority  Banks,   conforms  at  the  time  to  generally  accepted   accounting
principles, consistently applied. Generally accepted accounting principles means
those principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board, (b) which are applied for all periods after the date
hereof in a manner  consistent  with the  manner in which  such  principles  and
practices  were applied to the most recent audited  financial  statements of the
relevant  Person  furnished  to the  Banks,  except  only  for such  changes  in
principles  and  practices  with  which  the   applicable   independent   public
accountants  concur and which are  disclosed  to the Banks in  writing,  and (c)
which are  consistently  applied for all periods  after the date hereof so as to
reflect  properly the  financial  condition  and results of  operations  of such
Person.

          "Gas and Liquids Pipeline Subsidiaries" shall mean each company (which
may include the Company) engaged in the Pipeline Operations.

          "Gas Sale  Contract"  shall mean that certain Gas Sale Contract  dated
January 1, 1984,  between APC, as Seller,  and ENSTAR  Natural Gas  Company,  as
Purchaser, as amended on June 17, 1985, and from time to time thereafter, if and
only if Agent has received notice thereof pursuant to Section 10.8.

          "Governmental   Authority"  shall  mean  any  sovereign   governmental
authority,  the United States of America, any State of the United States and any
political  subdivision  of any of the foregoing,  and any central bank,  agency,
instrumentality,  department,  commission,  board, bureau,  authority,  court or
other tribunal or  quasi-governmental  authority in each case whether executive,
legislative,  judicial,  regulatory or administrative,  having jurisdiction over
the Company, any of its Subsidiaries, any of their respective property, Agent or
any Bank.

          "Guarantee"  by  any  Person  means  any  obligation,   contingent  or
otherwise,   of  any  such  Person  directly  or  indirectly   guaranteeing  any
Indebtedness  of any other Person and,  without  limiting the  generality of the
foregoing, any obligation,  direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or  advance or supply  funds for the  purchase or
payment  of)  such  Indebtedness  (whether  arising  by  virtue  of  partnership
arrangements,  by agreement to keep- well, to purchase assets, goods, securities
or services,  to take-or-pay,  or to maintain financial statement  conditions or
otherwise,  other than  agreements  to purchase  assets,  goods,  securities  or
services at an arm's length  price in the  ordinary  course of business) or (ii)
entered  into for the purpose of assuring in any other manner the holder of such
Indebtedness  of the payment  thereof or to protect such holder  against loss in
respect thereof (in whole or in part),  provided that the term "Guarantee" shall
not include  endorsements  for  collection or deposit in the ordinary  course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

<PAGE>



          "Hazardous Substance" shall mean petroleum products, and any hazardous
or toxic waste or  substance  defined or  regulated as such from time to time by
any law, rule,  regulation or order described in the definition of "Requirements
of Environmental Law".

          "Highest Lawful Rate" shall mean, on any day, the maximum  nonusurious
rate of interest  permitted for that day by whichever of  applicable  federal or
Texas law permits the higher interest rate,  stated as a rate per annum. On each
day, if any, that Chapter One  establishes  the Highest Lawful Rate, the Highest
Lawful Rate shall be the  "indicated  rate  ceiling" (as defined in Chapter One)
for that day.

          "Hydrocarbons"  shall mean oil, gas,  casinghead  gas, drip  gasoline,
natural  gasoline,  condensate and all other liquid or gaseous  hydrocarbons and
related minerals, in each case whether in a natural or a processed state.

          "Included  Reserves"  shall mean  those  producing  and  non-producing
proved oil and gas  reserves  of the  Company  and its Oil and Gas  Subsidiaries
which  are to be taken  into  account  in the  determination  of the Oil and Gas
Reserves  Component  Value from time to time in  effect,  as  designated  by the
Company.

          "Indebtedness"  shall mean, as to any Person: (i) indebtedness of such
Person for  borrowed  money  (whether by loan or the  issuance  and sale of debt
securities)  or for the deferred  purchase or  acquisition  price of property or
services,  including,  without  limitation,  obligations  (excluding  volumetric
obligations  with  respect to  pre-sales of  Hydrocarbon  production  which have
already been accounted for in the calculation of the Borrowing Base) payable out
of Hydrocarbon  production;  (ii) obligations,  whether fixed or contingent,  of
such Person in respect of letters of credit,  acceptances or similar instruments
issued or accepted by banks and other financial  institutions for the account of
such Person or any other Person; (iii) Capital Lease Obligations of such Person;
(iv) Redemption  Obligations of such Person and other obligations of such Person
to redeem or  otherwise  retire  shares of capital  stock of such  Person or any
other Person,  in each case to the extent that the redemption  obligations  will
arise  prior to the stated  maturity of the  Obligations;  (v)  indebtedness  of
others of the type described in clause (i), (ii), (iii) or (iv) above secured by
a Lien on the property of such Person,  whether or not the respective obligation
so secured has been assumed by such Person;  and (vii) indebtedness of others of
the type described in clause (i), (ii),  (iii) or (iv) above  Guaranteed by such
Person.

          "Intercreditor   Agreement"  shall  mean  that  certain  Intercreditor
Agreement  dated  December 30, 1993  executed by and among the Company,  Seagull
Energy  Canada  Ltd.,  Agent and the  "Administrative  Agent" under the Canadian
Facility, as amended by that certain First Amendment to Intercreditor  Agreement
dated  May 24,  1994  and by that  certain  Second  Amendment  to  Intercreditor
Agreement in the form of Exhibit P hereto dated  concurrently  herewith,  and as
the same may be further amended or modified from time to time.



<PAGE>



          "Interest Period" shall mean:

          (a) With respect to any Eurodollar Loan, the period  commencing on (i)
the date such Loan is made or converted  into or continued as a Eurodollar  Loan
or (ii) in the case of a roll-over to a successive Interest Period, the last day
of the  immediately  preceding  Interest  Period and  ending on the  numerically
corresponding  day  in  the  first,   second,  third  or  sixth  calendar  month
thereafter,  as the Company may select as provided in Section 3.3 hereof, except
that each such Interest  Period which commences on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month shall
end on the last Business Day of the appropriate subsequent calendar month.

          (b)  With  respect  to  any  Alternate  Base  Rate  Loan,  the  period
commencing  on the date  such  Loan is made and  ending  on the next  succeeding
Quarterly Date.

          (c) With  respect to any Existing  Competitive  Loan,  the  applicable
interest  period  specified  on Exhibit D hereto,  and with respect to any other
Competitive Loan, the period commencing on the date such Loan is made and ending
on the date  specified  in the  Competitive  Bid in which  the offer to make the
Competitive Loan was extended;  provided,  however,  that each such period shall
have a duration of not less than seven  calendar  days or more than 180 calendar
days.

Notwithstanding  the  foregoing:  (i)  no  Interest  Period  applicable  to  any
Eurodollar  Loan or any  Competitive  Loan may commence before and end after the
date of any  scheduled  reduction in the  Commitments  if,  after giving  effect
thereto,  the aggregate  principal amount of the Eurodollar Loans or Competitive
Loans which have Interest  Periods which end after such  reduction date shall be
greater than the aggregate  principal amount of the Commitments  scheduled to be
in effect  after such  reduction  date;  (ii) each  Interest  Period which would
otherwise  end on a day  which  is not a  Business  Day  shall  end on the  next
succeeding  Business Day (or, in the case of an Interest  Period for  Eurodollar
Loans,  if such  next  succeeding  Business  Day  falls in the  next  succeeding
calendar  month, on the next preceding  Business Day);  (iii) no Interest Period
applicable to any Eurodollar  Loan or any  Competitive  Loan shall extend beyond
the end of the  scheduled  Revolving  Credit  Availability  Period,  and (iv) no
Interest Period for any Eurodollar  Loans shall have a duration of less than one
month and, if the Interest  Period therefor would otherwise be a shorter period,
such Loans shall not be available hereunder.

          "Investments"  shall have the meaning assigned to such term in Section
10.3 hereof.

          "Investments  Tests" shall mean  compliance with each of the following
restrictions  (both before and immediately after giving effect to the applicable
Investments):

          (i) there shall exist no Borrowing Base Deficiency;


<PAGE>



          (ii)      no Default or Event of Default  shall have  occurred  and be
                    continuing; and

          (iii)     the applicable  Investment,  when  aggregated with any prior
                    permitted Investments,  shall not exceed 10% of Tangible Net
                    Worth of the Company and its  Subsidiaries on a consolidated
                    basis.

          "Issuer" shall mean each Bank issuing a Letter of Credit hereunder.

          "Legal  Requirement" shall mean any law, statute,  ordinance,  decree,
requirement,  order, judgment, rule, regulation (or interpretation of any of the
foregoing)  of,  and  the  terms  of  any  license  or  permit  issued  by,  any
Governmental Authority, now or hereafter in effect.

          "Letter of Credit"  shall have the  meaning  assigned  to such term in
Section 2.2 hereof.

          "Letter  of  Credit  Fee"  shall  mean a per annum  rate  equal to the
Applicable Margin for Eurodollar Loans in effect from time to time.

          "Letter of Credit  Liabilities" shall mean, at any time and in respect
of any Letter of Credit,  the sum of (i) the amount available for drawings under
such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations  at the time due and  payable in respect of previous  drawings  made
under such Letter of Credit.

          "Lien" shall mean,  with  respect to any asset,  any  mortgage,  lien,
pledge, charge,  collateral assignment,  security interest or encumbrance of any
kind in respect of such  asset.  For the  purposes of this  Agreement,  a Person
shall be deemed to own  subject  to a Lien any asset  which it has  acquired  or
holds subject to the interest of a vendor or lessor under any  conditional  sale
agreement,  capital lease or other title  retention  agreement  relating to such
asset.

          "Liquid Investments" shall mean:

          (I) in the case of investments of U.S. Dollars

                    (i)    securities    issued   or    directly,    fully   and
                           unconditionally  guaranteed  or insured by the United
                           States of America  or any  agency or  instrumentality
                           thereof  (provided  that the full faith and credit of
                           the  United  States of  America is pledged in support
                           thereof) having  maturities of not more than one year
                           from the date of issue;

                    (ii)   U.S. Dollar time deposits and certificates of deposit
                           (A) of any Bank having  capital and surplus in excess
                           of U.S. $300,000,000, or (B) of  any  commercial bank
                           incorporated  in  the  United  States,  of recognized
                           standing,  having  capital and  surplus  in excess of
                           U.S.  $500,000,000  and  which  has  (or  which  is a

<PAGE>

                           Subsidiary of a holding  company which  has) publicly
                           traded debt securities rated, at the time of issuance
                           of such  time deposits,  AA  or higher  by Standard &
                           Poor's  Corporation  or  Aa-2  or  higher  by Moody's
                           Investors  Service,  Inc. with maturities of not more
                           than one year from the date of issue;

                    (iii)  repurchase obligations  with a  term of not more than
                           seven days  for underlying  securities  of  the types
                           described  in  clause (I)(i)  above entered into with
                           any  bank meeting  the  qualifications  specified  in
                           clause (I)(ii) above, provided that the terms of such
                           agreements comply  with the guidelines  set forth  in
                           the Federal Financial Institution Examination Counsel
                           Supervisory   Policy -- Repurchase    Agreements   of
                           Depository  Institutions  With Securities Dealers and
                           Others, as adopted by the Comptroller of the Currency
                           on October 31, 1985;

                    (iv)   commercial  paper or  other U.S.  Dollar  obligations
                           issued by  the  parent  corporation  (A) of  any Bank
                           having   capital  and  surplus  in  excess  of   U.S.
                           $300,000,000, or (B) of any commercial bank (provided
                           that the parent  corporation and  the  bank  are both
                           incorporated  in  the  United States)  of  recognized
                           standing having capital and surplus in excess of U.S.
                           $500,000,000  and  commercial  paper  or  other  U.S.
                           Dollar obligations  issued by any Person incorporated
                           in the United States, which commercial paper is rated
                           at least A-2 or the equivalent thereof by  Standard &
                           Poor's  Corporation or at least P-2 or the equivalent
                           thereof by Moody's Investors  Service,  Inc.  and  in
                           each case maturing not more than six months after the
                           date of issue;

                    (v)    obligations  of  any  state or  political subdivision
                           thereof  rated  at  least  F-1  by   Fitch  Investors
                           Service,  Inc. or AA by Standard & Poor's Corporation
                           with an original maturity of 180 days or less; and

                    (vi)   investments in money market funds  substantially  all
                            the assets of which are  comprised of  securities of
                           the types  described  in clauses  (I)(i)  through (v)
                           above; and

          (II) in the case of investments of Canadian dollars

                    (i)    bonds or other evidences of  indebtedness  of, or the
                           principal  and interest of which is fully  guaranteed
                           by,  the  Government  of  Canada or any  province  of
                           Canada,  payable in Canadian dollars and (in the case
                           of any provincial  obligations  and any Government of
                           Canada  obligations  that are rated)  rated AAA or AA
                           (or the  then  equivalent  grade)  by  Dominion  Bond
                           Rating  Service  Limited,  or  any  other  nationally
<PAGE>


                           recognized bond rating service, having a maturity not
                           in excess of one year,

                    (ii)   certificates  of deposit  issued or  guaranteed  by a
                           bank or trust  company  organized  under  the laws of
                           Canada or any province thereof, provided such bank or
                           trust  company has capital and  retained  earnings in
                           the aggregate in excess of Canadian  $500,000,000  on
                           its most recent  balance  sheet  (whether  audited or
                           unaudited),  having a  maturity  not in excess of one
                           year,

                    (iii)  bankers' acceptances of any bank or trust company the
                           certificates  of  deposit of which  would  constitute
                           Liquid  Investments  as provided  in clause  (II)(ii)
                           above, if outstanding  unsecured debt of such bank or
                           trust  company  is rated no less than AA (or the then
                           equivalent  grade) by Dominion  Bond  Rating  Service
                           Limited,  or any  other  nationally  recognized  bond
                           rating service; and

                    (iv)   commercial  paper rated no less than R-1 (or the then
                           equivalent  grade) by Dominion  Bond  Rating  Service
                           Limited or A-1 (or the then equivalent grade) by CBRS
                           Inc.,  having a  maturity  not in excess of one year;
                           excluding   any   bonds   or   other   evidences   of
                           indebtedness,  certificates  of deposit or commercial
                           paper which a Canadian chartered bank may not hold as
                           security under the Bank Act (Canada).

          "Loan   Documents"   shall  mean  this  Agreement,   the  Notes,   the
Intercreditor  Agreement,  all Applications,  all instruments,  certificates and
agreements now or hereafter  executed or delivered to Agent or any Bank pursuant
to  any  of  the  foregoing,  and  all  amendments,   modifications,   renewals,
extensions,  increases and  rearrangements of, and substitutions for, any of the
foregoing.

          "Loans" shall mean Committed Loans and Competitive Loans.

          "Majority  Banks"  shall  mean  (a)  prior to the  termination  of the
Commitments,  Banks having  greater than 66-2/3% of the aggregate  amount of the
Commitments  and (b) after the  termination  of the  Commitments,  Banks  having
greater  than  66-2/3% of the  aggregate  principal  amount of the Loans and the
Letter of Credit Liabilities.

          "Material  Adverse Effect" shall mean a material adverse effect on the
business, condition (financial or otherwise),  operations, properties (including
proven oil and gas  reserves) or prospects of the Company and its  Subsidiaries,
taken as a whole,  or on the  ability of the  Company to  perform  its  material
obligations under any Loan Document to which it is a party.


<PAGE>



          "Maximum  Revolving Credit Available  Amount" shall mean, at any date,
an amount equal to the lesser of (i) the  aggregate of the  Commitments  or (ii)
the amount by which (a) the Borrowing Base exceeds (b) the aggregate outstanding
amount of all  Borrowing  Base Debt of the Company and its  Subsidiaries  (other
than ENSTAR Alaska).

          "Mesa  Contract"  shall mean that certain  Purchase and Sale Agreement
dated  February 6, 1991  executed  by and among  Mesa  Limited  Partnership,  a
Delaware limited  partnership,  Mesa Operating Limited  Partnership,  a Delaware
limited  partnership,  and Mesa  Midcontinent  Limited  Partnership,  a Delaware
limited  partnership,  as Sellers, and the Company, as Buyer, as amended by that
certain First  Amendment to Purchase and Sale Agreement  dated February 22, 1991
and as further  amended by that  certain  Second  Amendment to Purchase and Sale
Agreement dated March 8, 1991.

          "Net Proceeds of Production"  shall mean,  with respect to any Person,
all revenue  received by or credited to the account of such Person from the sale
of Hydrocarbons  and other minerals in, under or produced from their  respective
oil, gas and mineral properties after deducting royalties, overriding royalties,
volumetric   production  payments  with  respect  to  pre-sales  of  Hydrocarbon
production, production payments pledged to secure non-recourse financing payable
solely out of such production payments,  net profits interests and other burdens
payable  out  of  production,  normal  and  reasonable  operating  expenses  and
severance, ad valorem, excise and windfall profit taxes.

          "Notes" shall mean the Committed Notes and the Competitive Notes.

          "Obligations" shall mean, as at any date of determination thereof, the
sum of the following:  (i) the aggregate  principal amount of Loans  outstanding
hereunder  plus (ii) the  aggregate  amount of the Letter of Credit  Liabilities
hereunder plus (iii) all other liabilities,  obligations and indebtedness of the
Company or any Subsidiary of the Company under any Loan Document.

          "Oil and Gas  Reserves  Component  Value"  shall mean (A) prior to the
initial  Borrowing Base  Determination,  $490,000,000  and (B) thereafter,  that
amount  of  Indebtedness  that the  Super  Majority  Banks  shall  agree  can be
supported by the Included Reserves,  after an engineering and economic review of
the Included Reserves  conducted by the Banks using customary  standards for oil
and gas lending.

          "Oil and Gas  Subsidiaries"  shall mean any  Subsidiary of the Company
whose assets consist primarily of oil and gas properties. As of the date hereof,
the Oil and Gas Subsidiaries are listed as such on Exhibit A hereto.

          "Organizational  Documents" shall mean, with respect to a corporation,
the certificate of  incorporation,  articles of incorporation and bylaws of such
corporation;   with  respect  to  a  partnership,   the  partnership   agreement

<PAGE>

establishing  such  partnership;  with  respect  to a joint  venture,  the joint
venture agreement  establishing such joint venture, and with respect to a trust,
the  instrument  establishing  such trust;  in each case  including  any and all
modifications  thereof  as of the date of the Loan  Document  referring  to such
Organizational Document.

          "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation  or any
entity succeeding to any or all of its functions under ERISA.

          "Person" shall mean an individual, a corporation, a company, a bank, a
voluntary association, a partnership,  a trust, an unincorporated  organization,
any Governmental Authority or any other entity.

          "Pipeline  Operations"  shall  mean  the  natural  gas  gathering  and
transmission, gas liquids plant, gas marketing, engineering and construction and
liquids pipeline  operations of the Company and its Subsidiaries,  excluding any
portion of such operations attributable to ENSTAR Alaska.

          "Plan" shall mean an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding  standards under Section 412
of the Code and is either (a)  maintained by the Company or any ERISA  Affiliate
for employees of the Company or any ERISA  Affiliate or (b) maintained  pursuant
to a collective  bargaining  agreement or any other arrangement under which more
than one  employer  makes  contributions  and to which the  Company or any ERISA
Affiliate is then making or accruing an obligation to make  contributions or has
within the preceding five plan years made contributions.

          "Post-Default  Rate" shall mean,  in respect of any  principal  of any
Loan, any Reimbursement  Obligation or any other amount payable by the Company
under  this  Agreement  or any other  Loan  Document  which is not paid when due
(whether at stated maturity,  by acceleration,  or otherwise),  a rate per annum
during the period  commencing  on the due date until such amount is paid in full
equal to the lesser of (a) the sum of (x) with respect to Eurodollar  Loans,  2%
per annum plus the applicable Eurodollar Rate then in effect plus the Applicable
Margin for  Eurodollar  Loans until the  expiration of the  applicable  Interest
Period,  (y) with respect to Competitive Loans, 2% per annum plus the applicable
fixed  rate  offered  by the  applicable  Bank and  accepted  by the  Company in
accordance with Section 2.10 hereof (or, in the case of the Existing Competitive
Loans,  the applicable  fixed rate specified on Exhibit D hereto),  and (z) with
respect to Alternate Base Rate Loans and with respect to Eurodollar  Loans after
the  expiration  of the  applicable  Interest  Period (and also with  respect to
indebtedness  other than Loans),  2% plus the  Alternate  Base Rate as in effect
from time to time plus the  Applicable  Margin for Alternate  Base Rate Loans or
(b) the Highest Lawful Rate.

          "Principal Office" shall mean the principal office of Agent, presently
located  at 1 Chase  Manhattan  Plaza,  8th  Floor,  New York,  New York  10081,
Attention: Agent Services.


<PAGE>



          "Quarterly  Dates"  shall  mean  the  last  day of each  March,  June,
September and December,  provided  that, if any such date is not a Business Day,
then the relevant Quarterly Date shall be the next succeeding Business Day.

          "Redemption  Obligations"  shall  mean with  respect to any Person all
mandatory redemption  obligations of such Person with respect to preferred stock
or other equity  securities  issued by such Person or put rights in favor of the
holder of such preferred  stock or other equity  securities,  to the extent that
the  redemption  obligations  will  arise  prior to the stated  maturity  of the
Obligations.

          "Reference  Banks"  shall  mean  Chase and such  other  Banks (up to a
maximum of two (2) additional Banks) as the Company,  with the approval of Agent
(which  approval  shall  not be  unreasonably  withheld),  may from time to time
designate.

          "Regulation  D" shall mean  Regulation  D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented  from time
to time and any successor or other regulation relating to reserve requirements.

          "Regulatory  Change" shall mean,  with respect to any Bank, any change
on or  after  the  date of  this  Agreement  in  Legal  Requirements  (including
Regulation  D) or  the  adoption  or  making  on  or  after  such  date  of  any
interpretation, directive or request applying to a class of banks including such
Bank under any Legal  Requirements  (whether  or not having the force of law) by
any Governmental Authority.

          "Reimbursement   Obligations"   shall  mean,  as  at  any  date,   the
obligations  of the  Company  then  outstanding  in respect of Letters of Credit
under this  Agreement,  to  reimburse  Agent for the  account of the  applicable
Issuer for the amount  paid by the  applicable  Issuer in respect of any drawing
under such Letter of Credit.

          "Relevant Party" shall mean the Company and each other party to any of
the Loan Documents other than (a) the Banks and (b) Agent.

          "Request for  Extension of Credit"  shall mean a request for extension
of credit duly executed by the chief executive officer, chief financial officer,
or treasurer of the Company,  appropriately  completed and  substantially in the
form of Exhibit C attached hereto.

          "Requested  Redetermination"  shall have the meaning  assigned to such
term in Section 2.9 hereof.

          "Requesting  Banks"  shall  mean (a) prior to the  termination  of the
Commitments,  Banks  having  greater  than 50% of the  aggregate  amount  of the
Commitments  and (b) after the  termination  of the  Commitments,  Banks  having
greater than 50% of the aggregate  principal  amount of the Loans and the Letter
of Credit Liabilities.



<PAGE>



          "Requirements of Environmental Law" means all requirements  imposed by
any law (including for example and without limitation The Resource  Conservation
and Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability  Act),  rule,  regulation,  or  order of any  federal,  state or local
executive, legislative,  judicial, regulatory or administrative agency, board or
authority  in effect at the  applicable  time which  relate to (i)  noise;  (ii)
pollution,  protection or clean-up of the air,  surface  water,  ground water or
land;  (iii) solid,  gaseous or liquid  waste  generation,  treatment,  storage,
disposal or  transportation;  (iv)  exposure to  Hazardous  Substances;  (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.

          "Reserve  Requirement"  shall mean,  for any  Eurodollar  Loan for any
Interest Period  therefor,  the stated maximum rate for all reserves  (including
any  marginal,  supplemental  or emergency  reserves)  required to be maintained
during such Interest Period under Regulation D by any member bank of the Federal
Reserve System or any Bank against  "Eurocurrency  liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement  shall  reflect  and  include  any  other  reserves  required  to be
maintained by such member banks by reason of any  Regulatory  Change against (i)
any category of liabilities  which  includes  deposits by reference to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of  extensions  of credit or
other assets which include  Eurodollar  Loans. Any determination by Agent of the
Reserve Requirement shall be conclusive and binding,  absent manifest error, and
may be made using any reasonable averaging and attribution method.

          "Responsible  Officer"  shall  mean the  chairman  of the  board,  the
president,  any  executive  vice  president,  the vice  president of finance and
administration,  the chief executive  officer or the chief operating  officer or
any equivalent officer (regardless of title) and in the case of the Company, any
other vice president,  and in respect of financial or accounting matters,  shall
also include the chief  financial  officer,  the treasurer and the controller or
any equivalent officer (regardless of title).

          "Revolving Credit Availability  Period" shall mean the period from and
including the date hereof to but not including December 31, 2002 or the date the
Commitments  are  terminated  pursuant to Section  11.1,  whichever  is first to
occur.

          "Revolving  Credit   Obligations"  shall  mean,  as  at  any  date  of
determination   thereof,   the  sum  of  the   following   (determined   without
duplication):  (i) the aggregate principal amount of Loans outstanding hereunder
plus (ii) the aggregate amount of the Letter of Credit Liabilities hereunder.

          "Scheduled  Redetermination" shall having the meaning assigned to such
term in Section 2.9 hereof.


<PAGE>



          "Senior  Debt"  shall  mean  Indebtedness  having a  weighted  average
maturity  at least  seven  (7) years  from the date of  issuance  and  having no
conditions  precedent or covenants  materially  more onerous to the Company than
the conditions  precedent and covenants  contained  herein and in the other Loan
Documents  with respect to the Loans.  The documents  evidencing any Senior Debt
shall  contain a provision  substantially  identical to Section  10.2(y)  hereof
permitting  Liens  securing the Notes and the other  Obligations on a pari passu
basis with such Senior Debt.

          "Short Term  Borrowings"  shall mean,  as of any date,  the  aggregate
outstanding  principal  amount of ENSTAR  Alaska's  borrowed money  Indebtedness
(other than borrowed  money  Indebtedness  owed by ENSTAR Natural Gas Company to
APC or by APC to ENSTAR Natural Gas Company) which is not Funded Indebtedness.

          "Short Term  Borrowings  Measuring  Period"  shall mean that period of
ninety  (90)  consecutive  days  during the  twelve-month  period  ending on the
applicable  date that average  Short Term  Borrowings  were lower than any other
period of ninety (90) consecutive days during such twelve-month period.

          "Subordinated  Debt" shall mean  Indebtedness  of the Company having a
weighted average maturity at least seven (7) years from the date of issuance and
having no  conditions  precedent  or  covenants  materially  more onerous to the
Company than the conditions  precedent and covenants contained herein and in the
other  Loan  Documents  with  respect to the Loans and which is  expressly  made
subordinate  and junior in right of payment to the Obligations and in respect of
any  collateral or security by the express terms of the  instruments  evidencing
the Subordinated  Debt or the indenture or other similar  instrument under which
the  Subordinated  Debt is issued (which  indenture or other  instrument will be
binding on all  holders  of such  Subordinated  Debt),  by  provisions  not more
favorable to the holders of the Subordinated Debt than the following:

          (a) in the event a Default  exists  and is  continuing,  no payment of
principal or interest will be made on account of Subordinated Debt and no remedy
for default  shall be  exercised  until (i) such Default will have been cured or
waived or until the Obligations  will have been paid in full (or provisions made
therefor  reasonably  satisfactory  to the  Banks)  or (ii) 179 days  after  the
occurrence of such Default (as to which the Banks have  knowledge as a result of
having received notice from the Company pursuant to this Agreement or otherwise)
and no action being taken by the Banks with respect to such  Default,  whichever
occurs earlier;

          (b) upon the occurrence of any of the events or proceedings  specified
in Subsections 11.1(f) or (g) hereof (or, as to any  Subsidiary of the Company,
Subsection 11.1(j) to the extent that it refers to Subsections  11.1(f) or (g)),
the holders of any  Obligations  will be entitled to receive  payment in full of
all  principal  or  interest  on  all  Obligations  before  the  holders  of the
Subordinated Debt are entitled to receive any payment on account of principal or
interest on the Subordinated  Debt, and to that end (but subject to the power of
a court of competent  jurisdiction  to make other  provision) the holders of the
Obligations will be entitled to receive  distributions of any kind or character,

<PAGE>

whether in cash or property or  securities  (other  than equity  securities  and
other  securities   establishing   rights  in  the  holders  thereof  which  are
subordinate to the rights of the holders of the  Obligations in accordance  with
this  definition  of  Subordinated  Debt),  which may be or would  otherwise  be
payable or  deliverable in any such  proceedings in respect of the  Subordinated
Debt (provided that, the  Subordinated  Debt may provide that if the Obligations
have been paid in full or  provision  therefor  reasonably  satisfactory  to the
Banks has been made, the holders of the Subordinated  Debt will be subrogated to
the rights of the holders of the Obligations);

          (c) in the  event  that  any  Subordinated  Debt is  declared  due and
payable before its expressed  maturity  because of the occurrence of an event of
default  thereunder  (under  circumstances  when the provisions of the foregoing
clauses (a) and (b) will not be  applicable),  the holders of the Obligations at
the time such Subordinated Debt becomes due and payable because of such an event
of default will be entitled to receive  payment in full of all  Obligations  (or
have provision  therefor  satisfactory  to the Banks made) before the holders of
the  Subordinated  Debt are  entitled  to receive  any payment on account of the
principal or interest on the Subordinated Debt; and

          (d) no holder of the  Obligations  will be  prejudiced in its right to
enforce  subordination of the Subordinated Debt by any act or failure to act on
the part of the Company or the part of the holders of the Obligations;  provided
that, the Subordinated Debt may provide that the foregoing provisions are solely
for  the  purpose  of  defining  the  relative  rights  of  the  holders  of the
Obligations  on the one hand,  and the holders of the  Subordinated  Debt on the
other hand, and that nothing therein will impair, as between the Company and the
holders of the  Subordinated  Debt, the obligation of the Company,  which may be
unconditional  and absolute,  to pay to the holders of the Subordinated Debt the
principal and interest  thereon in accordance with its terms,  nor will anything
herein prevent the holders of the Subordinated Debt from exercising all remedies
otherwise  permitted by applicable  law or thereunder  upon default  thereunder,
subject to the rights under clauses (a), (b) and (c) above of the holders of the
Obligations  to  receive  cash,  property  or  securities  otherwise  payable or
deliverable to the holders of the Subordinated Debt.

          "Subsidiary"  shall mean,  with respect to any Person (the  "parent"),
(a) any  corporation of which at least a majority of the  outstanding  shares of
stock having by the terms thereof  ordinary  voting power to elect a majority of
the board of directors of such  corporation  (irrespective  of whether or not at
the time stock of any other class or classes of such  corporation  shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly  owned or controlled by the parent or one or more of
the  Subsidiaries  of the  parent  or by the  parent  and  one  or  more  of the
Subsidiaries of the parent, and (b) any partnership,  limited partnership, joint
venture  or other  form of  entity,  the  majority  of the  legal or  beneficial
ownership of which is at the time directly or indirectly  owned or controlled by

<PAGE>

the parent or one or more of the Subsidiaries of the parent or by the parent and
one or more of the Subsidiaries of the parent.

          "Super  Majority Banks" shall mean (a) prior to the termination of the
Commitments, Banks having 75% or more of the aggregate amount of the Commitments
and (b) after the  termination of the  Commitments,  Banks having 75% or more of
the  aggregate   principal  amount  of  the  Loans  and  the  Letter  of  Credit
Liabilities.

          "Tangible  Net Worth"  shall mean the sum of the  redemption  price of
preferred  stock,  par value of common stock,  capital in excess of par value of
common stock (additional  paid-in capital) and retained earnings,  less treasury
stock,  goodwill,  deferred development costs,  franchises,  licenses,  patents,
trademarks and copyrights and all other assets which are properly  classified as
intangible assets in accordance with GAAP less any Redemption Obligations.

          "Type"  shall have the  meaning  assigned  to such term in Section 1.3
hereof.

          "Unfunded  Liabilities"  shall mean,  with respect to any Plan, at any
time,  the amount (if any) by which (a) the present value of all benefits  under
such Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits,  all determined as of the then most recent actuarial  valuation report
for such Plan,  but only to the extent that such excess  represents  a potential
liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.

          1.2 Accounting Terms and  Determinations.  Unless otherwise  specified
herein,   all   accounting   terms  used  herein  shall  be   interpreted,   all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be delivered  hereunder shall be prepared,  in accordance with GAAP.
To enable the ready  determination of compliance with the provisions hereof, the
Company  will not  change  from  December  31 in each year the date on which its
fiscal year ends, nor from March 31, June 30 and September 30 the dates on which
the first three fiscal quarters in each fiscal year end.

          1.3 Types of Loans.  Loans hereunder are distinguished by "Type".  The
"Type" of a Loan refers to the  determination  whether such Loan is a Eurodollar
Loan, a Competitive Loan or an Alternate Base Rate Loan.

          1.4  Miscellaneous.  The words "hereof",  "herein" and "hereunder" and
words  of  similar  import  when  used in this  Agreement  shall  refer  to this
Agreement as a whole and not to any particular provision of this Agreement.  Any
reference to Sections shall refer to Sections of this Agreement.



<PAGE>



          Section 2. Commitments; Borrowing Base Determinations; Competitive Bid
Facility.

          2.1 Committed Loans. From time to time on or after the date hereof and
during the Revolving Credit Availability  Period, each Bank shall make Committed
Loans under this Section 2.1 to the Company in an aggregate  principal amount at
any one time outstanding  (including its Commitment  Percentage of all Letter of
Credit  Liabilities at such time) up to but not exceeding such Bank's Commitment
Percentage of the amount by which the Maximum  Revolving Credit Available Amount
exceeds the aggregate  unpaid  principal  balance of all  Competitive  Loans and
Letter  of Credit  Liabilities  from time to time  outstanding.  Subject  to the
conditions  herein,  any  such  Committed  Loan  repaid  prior to the end of the
Revolving Credit  Availability Period may be reborrowed pursuant to the terms of
this Agreement; provided, that any and all such Committed Loans shall be due and
payable in full at the end of the Revolving Credit Availability Period.

          2.2 Letters of Credit.

          (a) Letters of Credit. Subject to the terms and conditions hereof, and
on the condition that aggregate Letter of Credit  Liabilities shall never exceed
$100,000,000,  the Company shall have the right,  in addition to Committed Loans
provided for in Section 2.1 hereof, to utilize the Commitments from time to time
from and after the Effective Date through the expiration of the Revolving Credit
Availability  Period by  obtaining  the  issuance  of  letters of credit for the
account of the Company and on behalf of the Company by the applicable  Issuer if
the  Company  shall so request in the notice  referred  to in Section  2.2(b)(i)
(such  letters of credit  being  collectively  referred  to as the  "Letters  of
Credit").  Upon the date of the issuance of a Letter of Credit,  the  applicable
Issuer shall be deemed, without further action by any party hereto, to have sold
to each Bank, and each Bank shall be deemed, without further action by any party
hereto,  to have purchased from the applicable  Issuer, a participation,  to the
extent of such Bank's  Commitment  Percentage,  in such Letter of Credit and the
related Letter of Credit Liabilities. Any Letter of Credit having an expiry date
after the end of the Revolving Credit  Availability Period shall have been fully
Covered  or shall be backed by a letter  of  credit in form and  substance,  and
issued by an issuer, acceptable to Agent in its reasonably exercised discretion.
Subject to the terms and conditions hereof,  upon the request of the Company, if
Chase is the  designated  Issuer,  Chase  shall issue the  applicable  Letter of
Credit and if any other Bank is the designated Issuer,  such Bank may, but shall
not be obligated to, issue such Letter of Credit.

          (b) Additional  Provisions.  The following additional provisions shall
apply to each Letter of Credit:

          (i) The  Company  shall give Agent at least three (3)  Business  Days'
prior notice  (effective  upon receipt)  specifying the proposed  Issuer and the
date such Letter of Credit is to be issued and  describing the proposed terms of
such Letter of Credit and the nature of the transaction proposed to be supported
thereby,   and  shall  furnish  such  additional   information   regarding  such

<PAGE>

transaction  as Agent or the  applicable  Issuer may  reasonably  request.  Upon
receipt of such notice  Agent shall  promptly  notify each Bank of the  contents
thereof and of such Bank's Commitment  Percentage of the amount of such proposed
Letter of Credit.

          (ii) No Letter of Credit may be issued if after giving effect  thereto
(A) the  aggregate  outstanding  principal  amount of  Committed  Loans plus the
aggregate Letter of Credit  Liabilities would exceed (B) the amount by which the
Maximum Revolving Credit Available Amount exceeds the aggregate unpaid principal
balance of all  Competitive  Loans and Letter of Credit Liabilities from time to
time outstanding.  On each day during the period commencing with the issuance of
any Letter of Credit and until such Letter of Credit  shall have expired or been
terminated,  the  Commitment of each Bank shall be deemed to be utilized for all
purposes hereof in an amount equal to such Bank's  Commitment  Percentage of the
amount then available for drawings under such Letter of Credit.

          (iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment  thereunder,  the applicable Issuer shall promptly notify the
Company and each Bank as to the amount to be paid as a result of such demand and
the payment date. If at any time the applicable Issuer shall have made a payment
to a beneficiary of a Letter of Credit in respect of a drawing under such Letter
of Credit,  each Bank will pay to the applicable Issuer  immediately upon demand
by the  applicable  Issuer at any time during the period  commencing  after such
payment until  reimbursement  thereof in full by the Company, an amount equal to
such Bank's  Commitment  Percentage of such  payment,  together with interest on
such amount for each day from the date of demand for such  payment  (or, if such
demand is made after 11:00 a.m. Houston,  Texas time on such date, from the next
succeeding Business Day) to the date of payment by such Bank of such amount at a
rate of interest per annum equal to the Federal Funds Rate for such period.

          (iv) The Company shall be irrevocably  and  unconditionally  obligated
forthwith  to  reimburse  the  applicable  Issuer  for  any  amount  paid by the
applicable  Issuer  upon  any  drawing  under  any  Letter  of  Credit,  without
presentment,   demand,   protest  or  other   formalities  of  any  kind.   Such
reimbursement  may, subject to satisfaction of any other  applicable  conditions
set forth in this  Agreement,  including the existence of the Maximum  Revolving
Credit Available Amount (after adjustment in the same to reflect the elimination
of the corresponding  Letter of Credit Liability) be made by borrowing of Loans.
In the event  any such  reimbursement  is not made by  borrowing  of Loans,  the
Company shall make such reimbursement in immediately available funds within five
(5) days after demand therefor by the applicable  Issuer.  The applicable Issuer
will pay to each Bank such Bank's Commitment  Percentage of all amounts received
from the  Company  for  application  in  payment,  in  whole or in part,  of the
Reimbursement  Obligation  in respect  of any Letter of Credit,  but only to the
extent such Bank has made  payment to the  applicable  Issuer in respect of such
Letter of Credit pursuant to clause (iii) above.


<PAGE>



          (v) The  Company  will pay to Agent at the  Principal  Office  for the
account of each Bank a fee on such  Bank's  Commitment  Percentage  of the daily
average amount available for drawings under each Letter of Credit,  in each case
for the period from and  including the date of issuance of such Letter of Credit
to and including the date of  expiration  or  termination  thereof at a rate per
annum equal to the Letter of Credit Fee in effect from time to time, such fee to
be paid in arrears on the Quarterly  Dates and on the date of the  expiration or
termination  thereof.  Agent will pay to each Bank, promptly after receiving any
payment  in  respect  of letter  of credit  fees  referred  to in the  preceding
sentence  of  this  clause  (v),  an  amount  equal  to such  Bank's  Commitment
Percentage  of such fees.  The  Company  shall pay to the  applicable  Issuer an
administration and issuance fee in an amount equal to 1/8 of 1% per annum of the
daily average amount available for drawings under such Letter of Credit, in each
case for the period  from and  including  the date of issuance of such Letter of
Credit to and including the date of expiration or termination thereof,  such fee
to be paid in arrears on the Quarterly  Dates and on the date of the  expiration
or termination  thereof.  Such administration and issuance fee shall be retained
by the applicable Issuer.

          (vi) The  issuance by the  applicable  Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions  precedent that such Letter of Credit shall be in such
form  and  contain  such  terms  as  shall  be  reasonably  satisfactory  to the
applicable  Issuer and that the Company shall have  executed and delivered  such
other  instruments  and  agreements  relating  to such  Letter  of Credit as the
applicable Issuer shall have reasonably  requested and are not inconsistent with
the terms of this Agreement including an Application therefor. In the event of a
conflict  between the terms of this Agreement and the terms of any  Application,
the terms of this Agreement  shall control.  Without  limiting the generality of
the  foregoing  sentence,  in the  event  any  such  Application  shall  include
requirements for Cover, it is agreed that there shall be no requirements for the
Company to provide Cover except as expressly required in this Agreement.

          (c) Indemnification. The Company hereby indemnifies and holds harmless
Agent,  the applicable  Issuer and each Bank from and against any and all claims
and  damages,  losses,  liabilities,  costs or  expenses  which such  Bank,  the
applicable Issuer or Agent may incur (or which may be claimed against such Bank,
the applicable Issuer or Agent by any Person  whatsoever) in connection with the
execution  and  delivery  or  transfer of or payment or failure to pay under any
Letter of Credit,  including,  without limitation,  any claims, damages, losses,
liabilities,  costs or expenses which Agent, the applicable Issuer or such Bank,
as the  case  may  be,  may  incur  (whether  incurred  as a  result  of its own
negligence or  otherwise) by reason of or in connection  with the failure of any
other Bank  (whether as a result of its own  negligence or otherwise) to fulfill
or comply with its obligations to Agent, the applicable  Issuer or such Bank, as
the case may be, hereunder (but nothing herein contained shall affect any rights
the Company may have against such defaulting  Bank);  provided that, the Company
shall not be required to indemnify any Bank, the applicable  Issuer or Agent for
any claims, damages, losses,  liabilities,  costs or expenses to the extent, but
only to the extent,  caused by (i) the willful misconduct or gross negligence of
the  party  seeking  indemnification,  or (ii) by such  Bank's,  the  applicable

<PAGE>

Issuer's  or  Agent's,  as the case may be,  failure  to pay under any Letter of
Credit  after the  presentation  to it of a request  required  to be paid  under
applicable  law.  Nothing  in this  Section  2.2(c)  is  intended  to limit  the
obligations of the Company under any other provision of this Agreement.

          (d) Co-issuance or Separate Issuance of Letters of Credit. The Company
may, at its option,  request that any  requested  Letter of Credit which exceeds
$1,000,000 be issued severally, but not jointly, by any two or more of the Banks
or issued  through  separate  Letters of Credit issued by any two or more of the
Banks,  respectively,  each in an amount equal to a portion of the amount of the
applicable Letter of Credit requested by the Company.  In either such event, the
Banks  issuing such Letters of Credit shall each  constitute an "Issuer" and the
Letters of Credit so issued  shall each  constitute a "Letter of Credit" for all
purposes hereunder and under the Loan Documents.  Notwithstanding the foregoing,
no Bank  other  than  Chase  shall  have any  obligation  to issue any Letter of
Credit, but may do so at its option.

          2.3 Reductions and Changes of Commitments.

          (a) Mandatory.

          (i) The total Commitment of the Banks shall be reduced as follows:

<TABLE>
<CAPTION>

                                        Reduction         Resulting Revolving
         Reduction Date                   Amount           Credit Commitment
       <S>                              <C>               <C>

       March 31, 1999                   $40,000,000           $610,000,000
       June 30, 1999                    $40,000,000           $570,000,000
       September 30, 1999               $40,000,000           $530,000,000
       December 31, 1999                $40,000,000           $490,000,000
       March 31, 2000                   $40,000 000           $450,000,000
       June 30, 2000                    $40,000,000           $410,000,000
       September 30, 2000               $40,000,000           $370,000,000
       December 31, 2000                $40,000,000           $330,000,000
       March 31, 2001                   $40,000,000           $290,000,000
       June 30, 2001                    $40,000,000           $250,000,000
       September 30, 2001               $40,000,000           $210,000,000
       December 31, 2001                $40,000,000           $170,000,000
       March 31, 2002                   $40,000,000           $130,000,000
       June 30, 2002                    $40,000,000            $90,000,000
       September 30, 2002               $40,000,000            $50,000,000
       December 31, 2002                $50,000,000                     $0

</TABLE>


<PAGE>



          (ii) On December 31, 2002,  all  Commitments  shall be  terminated  in
their entirety unless terminated at an earlier date pursuant to Section 11.1.

          (b) Optional.  The Company shall have the right to terminate or reduce
the unused portion of the Commitments at any time or from time to time, provided
that: (i) the Company shall give notice of each such termination or reduction to
Agent as  provided in Section  5.5 hereof and (ii) each such  partial  reduction
shall be permanent and in an aggregate amount at least equal to $5,000,000.

          (c)  No  Reinstatement.   Any  reduction  in  or  termination  of  the
Commitments  may not be  reinstated  without the  approval of Agent and any Bank
whose Commitment (or the applicable part thereof) is to be so reinstated.

          2.4 Fees.

          (a) The  Company  shall  pay to Agent for the  account  of each Bank a
facility fee accruing from the Effective  Date,  computed for each day at a rate
per annum equal to the Facility Fee Percentage  times such Bank's pro rata share
(based on its respective  Commitment) of the Maximum  Revolving Credit Available
Amount on such day. Such  facility fees shall be payable on the Quarterly  Dates
and on the earlier of the date the  Commitments are terminated in their entirety
or the last day of the Revolving Credit Availability Period.

          (b) The  Company  shall  pay to Agent for the  account  of each Bank a
commitment  fee  with  respect  to such  Bank's  Commitment  accruing  from  the
Effective  Date,  computed for each day at a rate per annum equal to 0.05% times
the amount of such Bank's pro rata share (based on its respective Commitment) of
(i) the  aggregate  Commitments  on such day minus (ii) the sum of the aggregate
outstanding  Loans on such day plus the aggregate  Letter of Credit  Liabilities
outstanding on such day.  Commitment  fees accruing  pursuant to this clause (b)
shall be  payable  on the  Quarterly  Dates and on the  earlier  of the date the
Commitments  are  terminated in their  entirety or the last day of the Revolving
Credit Availability Period.

          (c) The  Company  shall pay to Agent for the  account  of each Bank an
additional facility fee upon any increase in such Bank's available Commitment as
a result of an increase in the  Borrowing  Base or a decrease in Borrowing  Base
Debt.  Such  additional  facility fee shall be in an amount equal to such Bank's
pro rata  share  (based on its  respective  Commitment)  of the  product  of (i)
one-fourth (1/4th) of the amount (if any) by which the then current Facility Fee
Percentage  exceeds  0.125%  times (ii) the amount of such  increase in a Bank's
available  Commitment  as a result of an  increase  in the  Borrowing  Base or a
decrease in Borrowing Base Debt.  Payment of such  additional fee resulting from
an increase in the  Borrowing  Base shall be due and payable upon the  effective
date of such  increase in the Borrowing  Base.  Payment of such  additional  fee
resulting  from a decrease in Borrowing  Base Debt shall be due and payable upon
delivery of a Request for Extension of Credit  pursuant to Section 7.2 hereof or
a certificate  of compliance  pursuant to Sections  9.2(a)(i) or 9.2(b)  hereof,

<PAGE>

whichever  shall first occur,  reflecting  such decrease in Borrowing Base Debt.
The  facility  fee  provided  for  in  this  Section  2.4(c)  shall  be  payable
notwithstanding  any prior decrease in the available  Commitments which may have
occurred  as a result of a decrease  in the  Borrowing  Base or an  increase  in
Borrowing Base Debt.

          (d)  The  Company  agrees  to pay to  Agent  fees as  provided  in the
separate letter agreements executed by and between Agent and the Company.

          2.5 Affiliates; Lending Offices.

          (a) Any Bank may, if it so elects,  fulfill any  obligation  to make a
Eurodollar Loan or Competitive  Loan by causing a branch,  foreign or otherwise,
or Affiliate of such Bank to make such Loan and may transfer and carry such Loan
at, to or for the  account  of any  branch  office or  Affiliate  of such  Bank;
provided  that, in such event for the purposes of this Agreement such Loan shall
be deemed to have been made by such Bank and the  obligation  of the  Company to
repay  such Loan  shall  nevertheless  be to such Bank and shall be deemed to be
held by such Bank and,  to the  extent of such  Loan,  to have been made for the
account of such branch or Affiliate.

          (b)  Notwithstanding  any provision of this Agreement to the contrary,
each Bank shall be entitled to fund and  maintain its funding of all or any part
of its Loans hereunder in any manner it sees fit, it being understood,  however,
that for the purposes of this Agreement all  determinations  hereunder  shall be
made as if such Bank had actually  funded and maintained  each  Eurodollar  Loan
during each Interest  Period through the purchase of deposits  having a maturity
corresponding  to such Interest Period and bearing an interest rate equal to the
Eurodollar Rate for such Interest Period.

          2.6 Several  Obligations.  The failure of any Bank to make any Loan to
be made by it on the date specified therefor shall not relieve any other Bank of
its  obligation  to make its Loan on such date,  but neither  Agent nor any Bank
shall be responsible for the failure of any other Bank to make a Loan to be made
by such other Bank.

          2.7 Notes. The Committed Loans made by each Bank shall be evidenced by
a single  Committed Note of the Company in  substantially  the form of Exhibit E
hereto  payable  to the order of such Bank in a  principal  amount  equal to the
Commitment of such Bank, and otherwise duly  completed.  The  Competitive  Loans
made by each Bank shall be evidenced by a single Competitive Note of the Company
in substantially  the form of Exhibit O hereto payable to the order of such Bank
and otherwise duly completed.  Each Bank is hereby  authorized by the Company to
endorse on the schedules (or a continuations  thereof)  attached to the Notes of
such  Bank,  to the  extent  applicable,  the date,  amount  and Type of and the
Interest  Period for each Loan made by such Bank to the Company  hereunder,  and
the amount of each payment or  prepayment  of principal of such Loan received by
such Bank, provided,  that any failure by such Bank to make any such endorsement

<PAGE>

shall not affect the  obligations of the Company under such Note or hereunder in
respect of such Loan.

          2.8 Use of  Proceeds.  The  proceeds  of the  Loans  shall be used for
general corporate purposes.

          2.9 Borrowing Base Determinations.

          (a) Within 45 days after receipt of the Engineering Report required to
be delivered each year,  commencing with the  Engineering  Report required to be
delivered in 1994,  Agent shall notify the Company,  in writing,  of the Oil and
Gas Reserves  Component Value determined on the basis of such Engineering Report
and the  Borrowing  Base  determined  on the basis of such Oil and Gas  Reserves
Component  Value,  together with the  determination of the Alaskan Gas Component
Value. Each such  determination is herein called a "Scheduled  Redetermination".
Each Scheduled  Redetermination  shall be effective when the Company is notified
of the amount of the redetermined Borrowing Base by Agent.

          (b) The  Requesting  Banks or the Company may,  from time to time (but
not more  frequently  than one time during any calendar  year by the  Requesting
Banks  and one  time  during  any  calendar  year  by the  Company),  request  a
redetermination  of the Oil and Gas Reserves Component Value based upon the most
recently received  Engineering Report or Company Report, as the case may be, and
of the  Borrowing  Base  based  upon  such  redetermination  of the  Oil and Gas
Reserves  Component  Value,  together with the  determination of the Alaskan Gas
Component  Value.  Each  such  requested  redetermination  is  herein  called  a
"Requested  Redetermination." Each Requested  Redetermination shall be effective
when the  Company is  notified,  in writing,  of the amount of the  redetermined
Borrowing Base by Agent.

          2.10 Competitive Bid Procedure.

          (a) In order to  request  Competitive  Bids,  the  Company  shall hand
deliver,  telex or telecopy to Agent a duly completed  request  substantially in
the form of Exhibit K, with the blanks  appropriately  completed (a "Competitive
Bid Request"), to be received by Agent not later than 11:00 a.m., Houston, Texas
time,  five Business Days before the date  specified for a proposed  Competitive
Loan. No Alternate Base Rate Loan shall be requested in, or, except  pursuant to
Section 6, made  pursuant to, a  Competitive  Bid  Request.  A  Competitive  Bid
Request  that does not conform  substantially  to the format of Exhibit K may be
rejected at Agent's sole discretion, and Agent shall promptly notify the Company
of such rejection by telecopier. Each Competitive Bid Request shall in each case
refer to this  Agreement  and  specify  (x) the date of such  Competitive  Loans
(which  shall be a Business  Day) and the  aggregate  principal  amount  thereof
(which shall not be less than  $25,000,000 or greater than the unused portion of
the  Maximum  Revolving  Credit  Available  Amount  on such date and shall be an
integral  multiple of  $5,000,000)  and (y) the  Interest  Period  with  respect
thereto  (which  may not end  after  the  termination  of the  Revolving  Credit

<PAGE>

Availability  Period).  Promptly after its receipt of a Competitive  Bid Request
that is not  rejected  as  aforesaid,  Agent  shall  invite  by  telecopier  (in
substantially  the form set forth in Exhibit L hereto)  the Banks to bid, on the
terms and conditions of this Agreement,  to make  Competitive  Loans pursuant to
such Competitive Bid Request. Notwithstanding the foregoing, Agent shall have no
obligation to invite any Bank to make a Competitive Bid pursuant to this Section
2.10(a)  until such Bank has  delivered  a properly  completed  Competitive  Bid
Administrative Questionnaire to Agent.

          (b)  Each  Bank  may,  in  its  sole  discretion,  make  one  or  more
Competitive Bids to the Company responsive to each Competitive Bid Request. Each
Competitive Bid by a Bank must be received by Agent via telecopier,  in the form
of Exhibit M hereto,  not later than  11:00  a.m.,  Houston,  Texas  time,  four
Business  Days  before  the date  specified  for a  proposed  Competitive  Loan.
Competitive  Bids that do not conform  substantially  to the format of Exhibit M
may be rejected by Agent after conferring with, and upon the instruction of, the
Company,  and  Agent  shall  notify  the  Bank  of  such  rejection  as  soon as
practicable.  Each Competitive Bid shall refer to this Agreement and (x) specify
the  principal  amount  (which  shall  be  in  a  minimum  principal  amount  of
$10,000,000  and in an integral  multiple of $1,000,000  and which may equal the
entire  aggregate  principal  amount of the  Competitive  Loan  requested by the
Company)  of the  Competitive  Loan  that  the  Bank is  willing  to make to the
Company,  (y) specify the  Competitive Bid Rate at which the Bank is prepared to
make the  Competitive  Loan and (z) confirm  the  Interest  Period with  respect
thereto  specified by the Company in its Competitive Bid Request.  A Competitive
Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable.

          (c) Agent  shall,  by 2:00 p.m.  four  Business  Days  before the date
specified for a proposed  Competitive  Loan, notify the Company by telecopier of
all the  Competitive  Bids  made,  the  Competitive  Bid  Rate  and the  maximum
principal  amount of each Competitive Loan in respect of which a Competitive Bid
was made and the  identity  of the Bank that made each bid.  Agent  shall send a
copy  of all  Competitive  Bids  to the  Company  for  its  records  as  soon as
practicable  after  completion of the bidding  process set forth in this Section
2.10.

          (d) The Company may in its sole and absolute discretion,  subject only
to the provisions of this Section 2.10(d),  accept or reject any Competitive Bid
referred to in Section 2.10(c); provided,  however, that the aggregate amount of
the  Competitive  Bids so accepted  by the Company may not exceed the  principal
amount of the  Competitive  Loan  requested  by the Company.  The Company  shall
notify Agent by  telecopier  whether and to what extent it has decided to accept
or reject any or all of the bids referred to in Section 2.10(c),  not later than
11:00 a.m.,  Houston,  Texas time, three Business Days before the date specified
for a proposed Competitive Loan; provided,  however, that (w) the failure by the
Company to give such notice  shall be deemed to be a  rejection  of all the bids
referred  to in  Section  2.10(c)  and  (x)  no  bid  shall  be  accepted  for a
Competitive Loan unless such  Competitive Loan is in a minimum  principal amount
of  $10,000,000  and an integral  multiple of  $1,000,000.  Notwithstanding  the
foregoing, if it is necessary for the Company to accept a pro rata allocation of
the bids made in response to a Competitive Bid Request (whether  pursuant to the

<PAGE>

events  specified in clause (x) above or otherwise) and the available  principal
amount of Competitive Loans to be allocated among the Banks is not sufficient to
enable  Competitive  Loans to be allocated  to each Bank in a minimum  principal
amount of $10,000,000 and in integral multiples of $1,000,000,  then the Company
shall select the Banks to be allocated  such  Competitive  Loans and shall round
allocations  up or down to the next higher or lower multiple of $1,000,000 as it
shall deem  appropriate.  In addition,  the Company shall be permitted under the
foregoing  procedures to accept a bid or bids in a principal amount of less than
$10,000,000  (i) in order to enable the Company to accept bids equal to (but not
in excess of) the  principal  amount of the  Competitive  Loan  requested by the
Company or (ii) in order to enable the Company to accept all remaining  bids, or
all  remaining  bids at a  particular  Competitive  Bid Rate.  A notice given by
Company pursuant to this paragraph (d) shall be irrevocable.

          (e) Agent shall  promptly  notify each bidding Bank whether or not its
Competitive  Bid has  been  accepted  (and if so,  in  what  amount  and at what
Competitive Bid Rate) by telex or telecopier sent by Agent,  and each successful
bidder will thereupon become bound,  subject to the other applicable  conditions
hereof,  to make the  Competitive  Loan in  respect  of  which  its bid has been
accepted.  After  completing the  notifications  referred to in the  immediately
preceding  sentence,  Agent shall (i) notify Agent of each  Competitive Bid that
has been accepted,  the amount thereof and the Competitive Bid Rate therefor and
(ii) notify each Bank of the aggregate  principal amount of all Competitive Bids
accepted.

          (f) No Competitive Loan shall be made within five Business Days of the
date of any other  Competitive Loan, unless the Company and Agent shall mutually
agree otherwise.

          (g) If Agent shall at any time have a Commitment  hereunder  and shall
elect to submit a  Competitive  Bid in its  capacity as a Bank,  it shall submit
such bid  directly to the Company one quarter of an hour earlier than the latest
time at which  the other  Banks  are  required  to  submit  their  bids to Agent
pursuant to paragraph (b) above.

          (h)  All  notices  required  by this  Section  2.10  shall  be made in
accordance   with  Section   13.2  and  the   Competitive   Bid   Administrative
Questionnaire most recently placed on file by each Bank with Agent.

          Section 3. Borrowings, Prepayments and Selection of Interest Rates.

          3.1 Borrowings.  The Company shall give Agent notice of each borrowing
to be made hereunder as provided in Sections 2.10 and 5.5 hereof. Not later than
2:00 p.m.  Houston,  Texas time on the date  specified  for each such  borrowing
hereunder,  each Bank shall make available the amount of the Loan, if any, to be
made by it on such  date to  Agent,  at its  Principal  Office,  in  immediately
available funds, for the account of the Company. The amount so received by Agent
shall, subject to the terms and conditions of this Agreement,  be made available
to the Company by depositing the same, in  immediately  available  funds,  in an

<PAGE>

account designated by the Company maintained with Agent at the Principal Office.

          3.2 Prepayments.

          (a) Optional  Prepayments.  Subject to the provisions of Sections 4, 5
and 6, the Company shall have the right to prepay, on any Business Day, in whole
or in part, without the payment of any penalty or fee, Loans at any time or from
time to time,  provided  that,  the Company shall give Agent notice of each such
prepayment as provided in Section 5.5 hereof.  Eurodollar  Loans and Competitive
Loans may be prepaid on the last day of an Interest Period  applicable  thereto.
Neither  Eurodollar Loans nor Competitive  Loans may be otherwise prepaid unless
prepayment is accompanied by payment of all compensation required by Section 6.

          (b) Mandatory Prepayments and Cover; Borrowing Base Deficiency.

          (1) Reduction of  Commitments.  The Company shall from time to time on
demand  by Agent  prepay  the  Loans  (or  provide  Cover  for  Letter of Credit
Liabilities)  in such  amounts  as shall be  necessary  so that at all times the
aggregate outstanding principal amount of all Revolving Credit Obligations shall
not be in excess of the  aggregate  amount of the  Commitments,  as reduced from
time to time pursuant to Section 2.3 hereof plus any Cover  provided  under this
Section 3.2(b)(1).

          (2) Borrowing  Base  Deficiency.  Should a Borrowing  Base  Deficiency
occur, Agent may (and, at the direction of the Majority Banks, shall) notify the
Company in writing of such  Borrowing Base  Deficiency.  Within 30 days from and
after the Borrowing Base Deficiency Notification Date, the Company shall, at its
election, take one of the following actions:

                    (i)    execute and deliver to Agent security  documents,  in
                           form and  substance  satisfactory  to  Agent  and its
                           counsel, securing the Notes and the other Obligations
                           and  covering   additional  assets,   which  are  not
                           included in the Borrowing Base and which are not then
                           covered by any security  documents securing the Notes
                           or the other  Obligations,  of a type and nature, and
                           having  a value  (determined  by the  Majority  Banks
                           using customary  standards for lending)  satisfactory
                           to the Majority Banks; or

                    (ii)   make a payment on the Loans or Borrowing Base Debt of
                           the Company or its  Subsidiaries,  as the Company may
                           elect,  in an amount  sufficient  to  eliminate  such
                           Borrowing  Base  Deficiency,  and  deliver  to  Agent
                           evidence satisfactory to Agent of any such payment of
                           Borrowing   Base   Debt   of  the   Company   or  its
                           Subsidiaries.



<PAGE>



If the Company  shall elect to execute and deliver  security  documents to Agent
pursuant to  subsection  (i) above,  it shall  provide  Agent and each Bank with
descriptions  of the assets to be collaterally  assigned  (together with current
valuations,  Engineering Reports and title evidence applicable thereto,  each of
which shall be in form and substance satisfactory to Agent) within 20 days after
the Borrowing Base Deficiency Notification Date.

If the Company fails to take either of the actions  described  above within such
30-day period, then without any necessity for notice to the Company or any other
person,  the  Company  shall  become  obligated  to pay on the  Loans  three (3)
installments,  each in an amount  equal to one-third  (1/3rd) of the  applicable
Borrowing Base Deficiency,  such installments to be due and payable on or before
three  (3),  six (6) and nine (9)  calendar  months  after  the  Borrowing  Base
Deficiency  Notification  Date,  respectively.  Payments of principal  otherwise
required hereunder shall be credited against such installments.

          (3)  Asset  Dispositions.  If the  Company  or any  Subsidiary  sells,
transfers or otherwise disposes of assets that have been given value in the most
recent determination of the Borrowing Base and having a fair market value in the
aggregate for the Company and such Subsidiaries in excess of $50,000,000  during
the period from the effective date of any Borrowing Base Determination until the
effective  date of the next  Borrowing  Base  Determination,  the Borrowing Base
shall be  immediately  reduced,  until the effective  date of the next Borrowing
Base  Determination,  by an amount equal to (i) in the case of sale, transfer or
other  disposition  of all or  substantially  all of the assets  comprising  (x)
ENSTAR Alaska or (y) the Included  Reserves,  the value of such assets reflected
in the most  recent  Borrowing  Base,  or if the value of the  applicable  asset
reflected in the most recent  Borrowing Base cannot be readily  determined,  the
net sales proceeds realized from the sale, transfer or other disposition of such
assets and (ii) in the case of sale,  transfer or other disposition of less than
all or substantially  all of the assets  comprising any of the business segments
described  in (x) or (y) above,  the value of such assets  reflected in the most
recent Borrowing Base (if such value can be readily determined), or if the value
of the applicable  asset  reflected in the most recent  Borrowing Base cannot be
readily  determined,  the net sales proceeds realized from the sale, transfer or
other  disposition of such assets. If such reduction shall result in a Borrowing
Base  Deficiency,  then in lieu of the provisions of Section 3.2(b)(2)  hereof,
the Company shall  immediately make a payment on the Loans in an amount equal to
such Borrowing Base Deficiency.  In addition to and cumulative of the foregoing,
if a Borrowing  Base  Deficiency  exists  prior to such sale,  transfer or other
disposition  of assets,  then in lieu of the  provisions  of  Section  3.2(b)(2)
hereof,  the Company shall  immediately make a payment on the Loans in an amount
equal to the lesser of the amount of the Borrowing Base Deficiency (after giving
effect to the applicable sale, transfer or other disposition) or 100% of the net
sales proceeds realized from the applicable sale, transfer or other disposition.

          3.3 Selection of Interest  Rates.  Subject to the terms and provisions
of this  Agreement,  the Company shall have the right either to convert any Loan
(in  whole  or in  part)  into a Loan of  another  Type  (provided  that no such
conversion of Eurodollar  Loans or  Competitive  Loans shall be permitted  other

<PAGE>

than on the last day of an Interest  Period  applicable  thereto) or to continue
such  Loan (in  whole or in part) as a Loan of the same  Type.  In the event the
Company fails to so give such notice prior to the end of the applicable Interest
Period with respect to any Eurodollar Loan or Competitive  Loan, such Loan shall
become an Alternate Base Rate Loan on the last day of such Interest Period.

          Section 4. Payments of Principal and Interest.

          4.1 Repayment of Loans and Reimbursement Obligations. The Company will
pay to Agent for the account of each Bank (a) the principal of each Loan made by
such  Bank  on the  dates  provided  in the  respective  Notes  and as  provided
hereunder and (b) the amount of each Reimbursement  Obligation promptly upon its
occurrence.  The amount of any  Reimbursement  Obligation may, if the applicable
conditions precedent specified in Section 7 hereof have been satisfied,  be paid
with the proceeds of Loans.

          4.2 Interest.

          (a) Subject to Section 13.6 hereof,  the Company will pay to Agent for
the account of each Bank  interest on the unpaid  principal  amount of each Loan
made by such  Bank for the  period  commencing  on the date of such  Loan to but
excluding  the date such Loan  shall be paid in full,  at the  lesser of (I) the
following rates per annum:

          (i) if such Loan is an Alternate  Base Rate Loan,  the Alternate  Base
Rate plus the Applicable Margin,

          (ii) if such Loan is a Eurodollar Loan, the applicable Eurodollar Rate
plus the Applicable Margin, and

          (iii) if such Loan is a Competitive  Loan, the  applicable  fixed rate
offered by the  applicable  Bank and accepted by the Company in accordance  with
Section  2.10  hereof  (or,  in the  case of  Existing  Competitive  Loans,  the
applicable fixed rate specified on Exhibit D hereto), or (II) the Highest Lawful
Rate.

          (b)  Notwithstanding  any of the foregoing but subject to Section 13.6
hereof,  the Company will pay to Agent for the account of each Bank  interest at
the applicable Post-Default Rate on any principal of any Loan made by such Bank,
on any  Reimbursement  Obligation and on any other amount payable by the Company
hereunder  to or for the account of such Bank (but,  if such amount is interest,
only to the extent  legally  allowed),  which shall not be paid in full when due
(whether at stated  maturity,  by  acceleration  or  otherwise),  for the period
commencing on the due date thereof until the same is paid in full.



<PAGE>



          (c) Accrued  interest on each Loan shall be payable on the last day of
each Interest  Period for such Loan (and, if such Interest  Period exceeds three
months' duration,  quarterly,  commencing on the first quarterly  anniversary of
the first day of such Interest Period), except that (i) accrued interest payable
at the Post-Default Rate shall be due and payable from time to time on demand of
Agent or the Majority  Banks  (through  Agent) and (ii) accrued  interest on any
amount  prepaid or  converted  pursuant to Section 6 hereof shall be paid on the
amount so prepaid or converted.

          Section 5. Payments; Pro Rata Treatment; Computations, Etc.

          5.1 Payments.

          (a) Except to the extent otherwise  provided  herein,  all payments of
principal,  interest,  Reimbursement Obligations and other amounts to be made by
the  Company  hereunder  and  under  the  Notes  shall  be made in  Dollars,  in
immediately available funds, to Agent at the Principal Office (or in the case of
a successor Agent, at the principal office of such successor Agent in the United
States), not later than 11:00 a.m. Houston, Texas time on the date on which such
payment  shall  become due (each such  payment  made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). Agent,
or any Bank for whose  account any such  payment is made,  may (but shall not be
obligated  to) debit the  amount of any such  payment  which is not made by such
time to any ordinary  deposit account of the Company with Agent or such Bank, as
the case may be.

          (b) The Company shall, at the time of making each payment hereunder or
under any Note,  specify  to Agent the  Loans or other  amounts  payable  by the
Company  hereunder or  thereunder  to which such payment is to be applied.  Each
payment received by Agent hereunder or under any Note or any other Loan Document
for the account of a Bank shall be paid  promptly to such Bank,  in  immediately
available funds for the account of such Bank's Applicable Lending Office.

          (c) If the due date of any payment  hereunder or under any Note or any
other Loan Document falls on a day which is not a Business Day, the due date for
such payment (subject to the definition of Interest Period) shall be extended to
the next succeeding Business Day and interest shall be payable for any principal
so extended for the period of such extension.

          5.2 Pro  Rata  Treatment.  Except  to the  extent  otherwise  provided
herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be made
ratably  from the Banks on the basis of their  respective  Commitments  and each
payment of  commitment  or  facility  fees shall be made for the  account of the
Banks,  and each  termination or reduction of the Commitments of the Banks under
Section  2.3  hereof  shall  be  applied,  pro  rata,  according  to the  Banks'
respective  Commitments;  (b) each  payment by the  Company of  principal  of or
interest on Loans of a particular Type shall be made to Agent for the account of
the Banks pro rata in accordance with the respective unpaid principal amounts of

<PAGE>

such Loans  held by the  Banks;  and (c) the Banks  (other  than the  applicable
Issuer) shall purchase from the applicable Issuer  participations in the Letters
of Credit to the extent of their respective Commitment Percentages.

          5.3 Computations.  Interest on Competitive Loans and interest based on
the Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis
of a year of 360 days and  actual  days  elapsed  (including  the  first day but
excluding the last day)  occurring in the period for which  payable,  unless the
effect of so  computing  shall be to cause the rate of  interest  to exceed  the
Highest  Lawful Rate, in which case interest shall be calculated on the basis of
the actual  number of days elapsed in a year composed of 365 or 366 days, as the
case may be. All other  interest  and fees shall be  computed  on the basis of a
year of 365 (or 366) days and actual days elapsed  (including  the first day but
excluding the last day) occurring in the period for which payable.

          5.4 Minimum and Maximum Amounts.  Except for prepayments made pursuant
to Section 3.2(b)  hereof,  and subject to the provisions of Section 2.10 hereof
with respect to Competitive  Loans, each borrowing and repayment of principal of
Loans,  each termination or reduction of Commitments,  each optional  prepayment
and each conversion of Type shall be in an aggregate  principal  amount at least
equal to (a) in the case of Eurodollar Loans and Competitive Loans,  $5,000,000,
and (b) in the case of  Alternate  Base Rate Loans,  $1,000,000  (borrowings  or
prepayments of Loans of different Types or, in the case of Eurodollar  Loans and
Competitive Loans,  having different Interest Periods at the same time hereunder
to be deemed separate  borrowings and prepayments for purposes of the foregoing,
one for each Type or Interest Period).  Upon any mandatory prepayment that would
reduce  Eurodollar  Loans or Competitive  Loans,  respectively,  having the same
Interest  Period to less than  $5,000,000  such  Loans  shall  automatically  be
converted  into  Alternate  Base Rate  Loans.  Notwithstanding  anything  to the
contrary contained in this Agreement,  there shall not be, at any one time, more
than eight (8) Interest  Periods in effect with respect to  Eurodollar  Loans or
Competitive Loans, in the aggregate.

          5.5 Certain Actions, Notices, Etc. Notices to Agent of any termination
or reduction of  Commitments,  of borrowings and  prepayments,  conversions  and
continuations  of  Loans  and of the  duration  of  Interest  Periods  shall  be

<PAGE>

irrevocable  and shall be  effective  only if  received  by Agent not later than
11:00 a.m. Houston,  Texas time on the number of Business Days prior to the date
of the relevant termination,  reduction, borrowing and/or repayment,  conversion
or continuance specified below:

<TABLE>
<CAPTION>
                                                                   Number of
                                                                   Business
              Notice                                               Days Prior
<S>           <C>                                                  <C>

              Termination or
              Reduction of Commitments                                 2

              Borrowing or prepayment
              of or conversion into or
              continuance of Alternate Base
              Rate Loans                                            same day

              Borrowing or
              prepayment of or conversion
              into or continuance of
              Eurodollar Loans                                         3
</TABLE>

          Each such notice of termination or reduction  shall specify the amount
of the Commitments to be terminated or reduced. Each such notice of borrowing or
prepayment  shall  specify  the amount and Type of the Loans to be  borrowed  or
prepaid  (subject to Sections  3.2(a) and 5.4 hereof),  the date of borrowing or
prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans,
the duration of the  Interest  Period  therefor  (subject to the  definition  of
"Interest  Period").  Each such  notice of  conversion  of a Loan into a Loan of
another Type shall identify such Loan (or portion  thereof) being  converted and
specify  the Type of Loan into which such Loan is being  converted  (subject  to
Section 5.4 hereof) and the date for conversion  (which shall be a Business Day)
and,  unless such Loan is being  converted into an Alternate Base Rate Loan, the
duration (subject to the definition of "Interest Period") of the Interest Period
therefor  which is to commence as of the last day of the then  current  Interest
Period therefor (or the date of conversion, if such Loan is being converted from
an Alternate  Base Rate Loan).  Each such notice of  continuation  of a Loan (or
portion  thereof) as the same Type of Loan shall  identify such Loan (or portion
thereof) being  continued  (subject to Section 5.4 hereof) and, unless such Loan
is an Alternate  Base Rate Loan,  the  duration  (subject to the  definition  of
"Interest  Period") of the Interest  Period  therefor which is to commence as of
the last day of the then current Interest Period therefor.  Agent shall promptly
notify the affected  Banks of the  contents of each such  notice.  Notice of any
prepayment  having been given,  the principal  amount  specified in such notice,
together  with  interest  thereon  to the date of  prepayment,  shall be due and
payable on such  prepayment  date.  Section 2.10 hereof  shall  control the time
periods applicable to Competitive Loans.



<PAGE>



          5.6  Non-Receipt  of Funds by  Agent.  Unless  Agent  shall  have been
notified by a Bank or the Company (the "Payor")  prior to the date on which such
Bank is to make  payment  to  Agent of the  proceeds  of a Loan to be made by it
hereunder (or the payment of any amount by such Bank to reimburse the applicable
Issuer for a drawing  under any  Letter of  Credit) or the  Company is to make a
payment to Agent for the account of one or more of the Banks, as the case may be
(such payment being herein called the "Required Payment"), which notice shall be
effective  upon  receipt,  that the Payor does not  intend to make the  Required
Payment to Agent,  Agent may assume that the Required  Payment has been made and
may, in reliance upon such  assumption  (but shall not be required to), make the
amount  thereof  available  to the  intended  recipient on such date and, if the
Payor has not in fact made the Required Payment to Agent on or before such date,
the  recipient of such payment (or, if such  recipient is the  beneficiary  of a
Letter of  Credit,  the  Company  and,  if the  Company  fails to pay the amount
thereof to Agent forthwith upon demand, the Banks ratably in proportion to their
respective  Commitment  Percentages)  shall, on demand,  pay to Agent the amount
made  available to it together  with  interest  thereon in respect of the period
commencing on the date such amount was so made available by Agent until the date
Agent  recovers  such amount at a rate per annum equal to the Federal Funds Rate
for such period.

          5.7 Sharing of Payments,  Etc. If a Bank shall  obtain  payment of any
principal of or interest on any Loan made by it under this Agreement,  or on any
Reimbursement  Obligation or other  obligation  then due to such Bank hereunder,
through the exercise of any right of set-off,  banker's  lien,  counterclaim  or
similar right,  or otherwise,  it shall  promptly  purchase from the other Banks
participations  in  the  Loans  made,  or  Reimbursement  Obligations  or  other
obligations  held,  by the other  Banks in such  amounts,  and make  such  other
adjustments  from  time to time as  shall be  equitable  to the end that all the
Banks shall share the benefit of such payment (net of any expenses  which may be
incurred by such Bank in  obtaining  or  preserving  such  benefit)  pro rata in
accordance with the unpaid principal and interest on the Obligations then due to
each of them (provided,  however, that the foregoing shall not apply to payments
of Competitive Loans made prior to the termination of the Commitments  following
the  occurrence  of an Event of  Default).  To such end all the Banks shall make
appropriate  adjustments among themselves (by the resale of participations  sold
or  otherwise) if such payment is rescinded or must  otherwise be restored.  The
Company agrees,  to the fullest extent it may effectively do so under applicable
law,  that  any  Bank so  purchasing  a  participation  in the  Loans  made,  or
Reimbursement Obligations or other obligations held, by other Banks may exercise
all rights of  set-off,  bankers'  lien,  counterclaim  or similar  rights  with
respect to such  participation  as fully as if such Bank were a direct holder of
Loans and  Reimbursement  Obligations or other obligations in the amount of such
participation.  Nothing  contained herein shall require any Bank to exercise any
such  right or shall  affect the right of any Bank to  exercise,  and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of the Company.



<PAGE>



          Section 6. Yield Protection and Illegality.

          6.1 Additional Costs.

          (a) Subject to Section 13.6, the Company shall pay to Agent, on demand
for the  account  of each Bank from time to time such  amounts  as such Bank may
determine to be necessary to compensate  it for any costs  incurred by such Bank
which such Bank determines are  attributable to its making or maintaining of any
Eurodollar Loan or any Competitive  Loan hereunder or its obligation to make any
such Loan  hereunder,  or any  reduction in any amount  receivable  by such Bank
hereunder in respect of any of such Loans or such obligation  (such increases in
costs and  reductions  in amounts  receivable  being herein  called  "Additional
Costs"), in each case resulting from any Regulatory Change which:

          (i)  subjects  such  Bank (or  makes it  apparent  that  such  Bank is
subject) to any tax (including  without  limitation  any United States  interest
equalization tax), levy, impost, duty, charge or fee (collectively, "Taxes"), or
any deduction or withholding  for any Taxes on or from the payment due under any
Eurodollar  Loan or any Competitive  Loan or other amounts due hereunder,  other
than income and franchise taxes of the jurisdiction (or any subdivision thereof)
in which such Bank has an office or its Applicable Lending Office; or

          (ii) changes the basis of taxation of any amounts payable to such Bank
under this  Agreement  or its Notes in respect of any of such Loans  (other than
changes  which affect taxes  measured by or imposed on the overall net income or
franchise taxes of such Bank or of its Applicable Lending Office for any of such
Loans by the jurisdiction (or any subdivision thereof) in which such Bank has an
office or such Applicable Lending Office); or

          (iii)  imposes  or  modifies  or  increases  or deems  applicable  any
reserve, special deposit or similar requirements (including, without limitation,
any such  requirement  imposed by the Board of Governors of the Federal  Reserve
System) relating to any extensions of credit or other assets of, or any deposits
with or other  liabilities  of, such Bank or loans made by such Bank, or against
any  other  funds,  obligations  or other  property  owned or held by such  Bank
(including  any of such Loans or any deposits  referred to in the  definition of
"Eurodollar Base Rate" in Section 1.1 hereof) and such Bank actually incurs such
additional costs.

Each Bank (if so  requested  by the  Company  through  Agent)  will  designate a
different  available  Applicable  Lending Office for the Eurodollar Loans or the
Competitive  Loans of such Bank or take such  other  action as the  Company  may
request if such  designation  or action  will avoid the need for,  or reduce the
amount of, such  compensation and will not, in the sole opinion of such Bank, be
disadvantageous  to such Bank  (provided that such Bank shall have no obligation
so to designate an Applicable Lending Office for Eurodollar Loans located in the
United  States of America).  Each Bank will furnish the Company with a statement
setting forth the basis and amount of each request by such Bank for compensation
under this Section 6.1(a); subject to  Section 6.8, such  certificate  shall  be

<PAGE>

conclusive,  absent manifest error, and  may be  prepared  using  any reasonable
averaging and attribution methods.

          (b) Without  limiting the effect of the  foregoing  provisions of this
Section 6.1, in the event that,  by reason of any  Regulatory  Change,  any Bank
either (i) incurs  Additional  Costs based on or measured by the excess  above a
specified level of the amount of a category of deposits or other  liabilities of
such Bank which  includes  deposits by reference  to which the interest  rate on
Eurodollar  Loans is determined  as provided in this  Agreement or a category of
extensions  of credit or other  assets of such Bank  which  includes  Eurodollar
Loans or Competitive Loans or (ii) becomes subject to restrictions on the amount
of such a category of  liabilities  or assets which it may hold,  then,  if such
Bank so elects by notice to the Company (with a copy to Agent),  the  obligation
of such Bank to make Eurodollar Loans or Competitive  Loans, as the case may be,
hereunder shall be suspended until the date such Regulatory  Change ceases to be
in  effect  (in  which  case the  provisions  of  Section  6.4  hereof  shall be
applicable).

          (c) Good faith determinations and allocations by any Bank for purposes
of this  Section  6.1 of the  effect  of any  Regulatory  Change on its costs of
maintaining its  obligations to make Loans or of making or maintaining  Loans or
on amounts  receivable by it in respect of Loans, and of the additional  amounts
required to compensate  such Bank in respect of any Additional  Costs,  shall be
conclusive, absent manifest error.

          (d) The Company's  obligation to pay Additional Costs and compensation
with regard to each  Eurodollar  Loan and each  Competitive  Loan shall  survive
termination of this Agreement.

          6.2  Limitation  on Types of Loans.  Anything  herein to the  contrary
notwithstanding, if, with respect to any Eurodollar Loans:

          (a) Agent  determines  in good  faith  (which  determination  shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the  definition  of  "Eurodollar  Base Rate" in Section 1.1 hereof are not
being  provided  by the  Reference  Banks  in the  relevant  amounts  or for the
relevant  maturities for purposes of  determining  the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or

          (b)  the  Majority  Banks  determine  (which  determination  shall  be
conclusive) and notify Agent that the relevant rates of interest  referred to in
the definition of "Eurodollar Base Rate" in Section 1.1 hereof upon the basis of
which  the  rates  of  interest  for  such  Loans  are to be  determined  do not
accurately  reflect the cost to such Banks of making or  maintaining  such Loans
for Interest Periods therefor; or

          (c) Agent  determines  in good  faith  (which  determination  shall be
conclusive)  that by reason of  circumstances  affecting  the  interbank  Dollar
market  generally,  deposits in United States dollars in the relevant  interbank

<PAGE>

Dollar market are not being offered for the applicable Interest Period and in an
amount equal to the amount of the Eurodollar Loan requested by the Company; then
Agent shall promptly  notify the Company and each Bank thereof,  and, so long as
such condition remains in effect, the Banks shall be under no obligation to make
Eurodollar  Loans (but shall maintain until the end of the Interest  Period then
in effect the Eurodollar Loans then outstanding).

          6.3 Illegality.  Notwithstanding any other provision of this Agreement
to the  contrary,  if (x) by  reason of the  adoption  of any  applicable  Legal
Requirement  or  any  change  in  any  applicable  Legal  Requirement  or in the
interpretation  or  administration  thereof  by any  Governmental  Authority  or
compliance by any Bank with any request or directive  (whether or not having the
force  of law)  of any  central  bank or  other  Governmental  Authority  or (y)
circumstances  affecting the relevant interbank Dollar market or the position of
a Bank therein shall at any time make it unlawful or  impracticable  in the sole
discretion  of a Bank  exercised  in good faith for such Bank or its  Applicable
Lending  Office  to (a)  honor  its  obligation  to  make  Eurodollar  Loans  or
Competitive  Loans  hereunder,  or (b) maintain  Eurodollar Loans or Competitive
Loans  hereunder,  then such Bank  shall  promptly  notify the  Company  thereof
through Agent and such Bank's obligation to make or maintain Eurodollar Loans or
Competitive  Loans, as the case may be,  hereunder shall be suspended until such
time as such Bank may again make and maintain  Eurodollar  Loans or  Competitive
Loans,  as the case may be (in which case the  provisions  of Section 6.4 hereof
shall be  applicable).  Before giving such notice  pursuant to this Section 6.3,
such Bank will designate a different available Applicable Lending Office for the
Eurodollar  Loans or the Competitive  Loans, as the case may be, of such Bank or
take such other action as the Company may request if such  designation or action
will avoid the need to suspend such Bank's  obligation to make Eurodollar  Loans
or Competitive  Loans,  as the case may be,  hereunder and will not, in the sole
opinion of such Bank exercised in good faith,  be  disadvantageous  to such Bank
(provided, that such Bank shall have no obligation so to designate an Applicable
Lending Office for Eurodollar Loans located in the United States of America).

          6.4  Substitute  Alternate  Base Rate Loans.  If the obligation of any
Bank to make or maintain  Eurodollar Loans or Competitive Loans, as the case may
be,  shall be suspended  pursuant to Section  6.1, 6.2 or 6.3 hereof,  all Loans
which would  otherwise be made by such Bank as Eurodollar  Loans or  Competitive
Loans,  as the case may be, shall be made  instead as Alternate  Base Rate Loans
(and, if an event  referred to in Section  6.1(b) or 6.3 hereof has occurred and
such  Bank so  requests  by  notice to the  Company  with a copy to Agent,  each
Eurodollar Loan or each Competitive  Loan, as the case may be, of such Bank then
outstanding shall be automatically converted into an Alternate Base Rate Loan on
the  date  specified  by such  Bank in such  notice)  and,  to the  extent  that
Eurodollar  Loans or Competitive  Loans,  as the case may be, are so made as (or
converted into) Alternate Base Rate Loans, all payments of principal which would
otherwise be applied to such Eurodollar Loans or such Competitive  Loans, as the
case may be, shall be applied instead to such Alternate Base Rate Loans.


<PAGE>



          6.5  Compensation.  Subject to Section 13.6 hereof,  the Company shall
pay to Agent for the account of each Bank,  within four (4) Business  Days after
demand  therefor by such Bank through Agent,  such amount or amounts as shall be
sufficient  (in the  reasonable  opinion of such Bank) to  compensate it for any
loss, cost or expense actually  incurred by it (exclusive of any lost profits or
opportunity costs) as a result of:

          (a) any payment,  prepayment or  conversion of a Eurodollar  Loan or a
Competitive  Loan  made by such  Bank on a date  other  than  the last day of an
Interest Period for such Loan; or

          (b) any  failure  by the  Company  to  borrow a  Eurodollar  Loan or a
Competitive  Loan to be  made  by such  Bank  on the  date  for  such  borrowing
specified in the relevant  notice of borrowing under Section 5.5 or Section 2.10
hereof or to convert a Eurodollar  Loan or a Competitive  Loan into an Alternate
Base  Rate Loan on such  date  after  giving  notice  of such  conversion;  such
compensation  to  include,  without  limitation,  any loss or  expense  actually
incurred  (exclusive of any lost profits or opportunity  costs) by reason of the
liquidation  or  reemployment  of  deposits  or  other  funds  acquired  by  the
applicable  Bank to fund or maintain  its share of any Loan.  Subject to Section
6.8, each  determination  of the amount of such  compensation by a Bank shall be
conclusive and binding,  absent  manifest  error,  and may be computed using any
reasonable  averaging and  attribution  method.  No costs shall be payable under
this  Section  solely  by  reason  of the  conversion  of  loans  designated  as
"Eurodollar  Loans" under that certain  Amended and  Restated  Credit  Agreement
referred to in Section 13.15 hereof into the Existing Competitive Loans.

          6.6 Additional  Costs in Respect of Letters of Credit.  If as a result
of any Regulatory  Change there shall be imposed,  modified or deemed applicable
any tax, reserve, special deposit or similar requirement against or with respect
to or  measured  by  reference  to  Letters  of  Credit  issued  or to be issued
hereunder or participations  in such Letters of Credit,  and the result shall be
to increase the cost to any Bank of issuing or maintaining  any Letter of Credit
or any  participation  therein,  or reduce  any  amount  receivable  by any Bank
hereunder in respect of any Letter of Credit or any participation therein (which
increase in cost, or reduction in amount receivable, shall be the result of such
Bank's  reasonable  allocation of the aggregate of such  increases or reductions
resulting  from such  event),  then such Bank shall  notify the Company  through
Agent, and upon demand therefor by such Bank through Agent, the Company (subject
to Section 13.6 hereof)  shall pay to such Bank,  from time to time as specified
by such Bank, such additional  amounts as shall be sufficient to compensate such
Bank for such increased costs or reductions in amount. Before making such demand
pursuant to this Section  6.6,  such Bank will  designate a different  available
Applicable  Lending  Office  for the  Letter of Credit of such Bank or take such
other  action as the Company may  request,  if such  designation  or action will
avoid the need for, or reduce the amount of, such  compensation and will not, in
the sole opinion of such Bank  exercised in good faith,  be  disadvantageous  to

<PAGE>

such Bank.  A  statement  as to such  increased  costs or  reductions  in amount
incurred  by  such  Bank,  submitted  by  such  Bank to the  Company,  shall  be
conclusive as to the amount thereof, absent manifest error.

          6.7  Capital  Adequacy.  If any Bank  shall have  determined  that the
adoption after the date hereof or  effectiveness  after the date hereof (whether
or not previously  announced) of any applicable law, rule,  regulation or treaty
regarding capital adequacy,  or any change therein after the date hereof, or any
change in the interpretation or administration  thereof after the date hereof by
any Governmental  Authority  charged with the  interpretation  or administration
thereof,  or compliance by any Bank (or its Applicable  Lending Office) with any
request or directive after the date hereof regarding  capital adequacy  (whether
or not having the force of law) of any such Governmental  Authority has or would
have the  effect of  reducing  the rate of return on such  Bank's  capital  as a
consequence of such Bank's  obligations  hereunder,  under the Loans made by it,
under the Letters of Credit and under the Notes held by it to a level below that
which such Bank could have achieved but for such adoption,  change or compliance
(taking  into  consideration  such  Bank's  policies  with  respect  to  capital
adequacy)  by an amount  deemed by such Bank to be  material,  then from time to
time, upon  satisfaction  of the conditions  precedent set forth in this Section
6.7,  upon demand by such Bank (with a copy to Agent),  the Company  (subject to
Section 13.6 hereof) shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.  A certificate as to such amounts,
submitted  to the  Company and Agent by such Bank,  setting  forth the basis for
such Bank's  determination  of such amounts,  shall constitute a demand therefor
and shall be conclusive and binding for all purposes, absent manifest error. The
Company  shall pay the amount shown as due on any such  certificate  within four
(4) Business Days after delivery of such certificate. Subject to Section 6.8, in
preparing such  certificate,  a Bank may employ such assumptions and allocations
of costs and expenses as it shall in good faith deem  reasonable and may use any
reasonable averaging and attribution method.

          6.8   Limitation   on   Additional    Charges;    Substitute    Banks;
Non-Discrimination. Anything in this Section 6 notwithstanding:

          (a) the Company shall not be required to pay to any Bank reimbursement
with regard to any costs or expenses,  unless such Bank  notifies the Company of
such costs or expenses within 90 days after the date paid or incurred;

          (b)  none of the  Banks  shall be  permitted  to pass  through  to the
Company charges and costs under this Section 6 on a discriminatory  basis (i.e.,
which are not also passed  through by such Bank to other  customers of such Bank
similarly  situated  where such  customer is subject to documents  providing for
such pass through); and

          (c) if any Bank elects to pass  through to the  Company  any  material
charge or cost under this Section 6 or elects to terminate the  availability  of
Eurodollar  Loans for any material  period of time,  the Company may,  within 60
days after the date of such event and so long as no Default  shall have occurred
and be continuing,  elect to terminate  such Bank as a party to this  Agreement;

<PAGE>

provided that, concurrently with such termination the Company shall (i) if Agent
and each of the other Banks shall consent, pay that Bank all principal, interest
and fees and other amounts owed to such Bank through such date of termination or
(ii) have  arranged for another  financial  institution  approved by Agent (such
approval  not  to be  unreasonably  withheld)  as of  such  date,  to  become  a
substitute  Bank for all purposes under this Agreement in the manner provided in
Section 13.5;  provided  further that,  prior to substitution  for any Bank, the
Company shall have given written notice to Agent of such intention and the Banks
shall have the option, but no obligation,  for a period of 60 days after receipt
of such notice,  to increase their  Commitments in order to replace the affected
Bank in lieu of such substitution.

          Section 7. Conditions Precedent.

          7.1  Initial  Loans.  The  obligation  of each Bank or any  applicable
Issuer to make its initial  Loans after the date hereof or issue or  participate
in a Letter of Credit  after the date hereof (if such Letter of Credit is issued
prior to the funding of the initial  Loans after the date  hereof)  hereunder is
subject to the  following  conditions  precedent,  each of which shall have been
fulfilled or waived to the satisfaction of the Majority Banks:

          (a)  Corporate  Action and Status.  Agent shall have received from the
appropriate  Governmental  Authorities  certified  copies of the  Organizational
Documents (other than bylaws) of the Company and each of its  Subsidiaries,  and
evidence  satisfactory to Agent of all corporate  action taken by the Company or
any of its Subsidiaries  authorizing the execution,  delivery and performance of
the Loan Documents and all other documents related to this Agreement to which it
is a party  (including,  without  limitation,  a certificate of the secretary of
each  such  party  setting  forth  the  resolutions  of its  Board of  Directors
authorizing the  transactions  contemplated  thereby and attaching a copy of its
bylaws),  together with such  certificates  as may be appropriate to demonstrate
the  qualification  and good standing of and payment of taxes by the Company and
each of its Subsidiaries in each state in which such qualification is necessary.

          (b)  Incumbency.  The  Company  and each  Relevant  Party  shall  have
delivered to Agent a certificate in respect of the name and signature of each of
the officers (i) who is  authorized  to sign on its behalf the  applicable  Loan
Documents  related to any Loan or the  issuance of any Letter of Credit and (ii)
who will, until replaced by another officer or officers duly authorized for that
purpose,  act as its  representative  for the purposes of signing  documents and
giving  notices  and other  communications  in  connection  with any Loan or the
issuance of any Letter of Credit.  Agent and each Bank may conclusively  rely on
such  certificates  until they receive notice in writing from the Company or the
appropriate Relevant Party to the contrary.

          (c) Notes.  Agent  shall have  received  the  appropriate  Note of the
Company for each Bank, duly completed and executed.




<PAGE>



          (d) Loan  Documents.  The Company and each other  Relevant Party shall
have duly executed and delivered the other Loan Documents to which it is a party
(in such  number of copies as Agent  shall  have  requested)  and each such Loan
Document shall be in form  satisfactory to Agent.  Each such Loan Document shall
be in substantially  the form furnished to the Banks prior to their execution of
this Agreement, together with such changes therein as Agent may approve.

          (e) Fees and  Expenses.  The Company  shall have paid to Agent for the
account of each Bank all  accrued and unpaid  commitment  fees and other fees in
the amounts  previously  agreed upon in writing among the Company and Agent; and
shall  have in  addition  paid to Agent all  amounts  payable  under the  letter
agreements  referred to Section 2.4(d) hereof and under Section 9.7 hereof on or
before the date of this Agreement.

          (f) Opinions of Counsel.  Agent shall have  received (1) an opinion of
Vinson & Elkins L.L.P., counsel to the Company, in form and substance reasonably
satisfactory  to Agent and (2) such opinions of counsel to the Company and other
Relevant  Parties and special local  counsel of Agent as Agent shall  reasonably
request with respect to the Company and the Loan Documents.

          (g) Execution by Banks. Agent shall have received counterparts of this
Agreement  executed and  delivered by or on behalf of each of the Banks or Agent
shall have received evidence satisfactory to it of the execution and delivery by
each of the Banks of a counterpart hereof.

          (h) Consents.  Agent shall have received  evidence  satisfactory to it
that, except as disclosed in the Disclosure Statement,  all material consents of
each  Governmental  Authority  and of each  other  Person,  if  any,  reasonably
required in connection  with (a) the Loans and the Letters of Credit and (b) the
execution,  delivery  and  performance  of this  Agreement  and the  other  Loan
Documents have been satisfactorily obtained.

          (i) Amendment to  Intercreditor  Agreement.  Agent shall have received
counterparts of the Second Amendment to Intercreditor  Agreement  referred to in
the definition of  "Intercreditor  Agreement" in Section 1.1 hereof executed and
delivered  by or on behalf  of each of the  Company  and by the  "Administrative
Agent"  under the  Canadian  Facility  or Agent  shall  have  received  evidence
satisfactory  to it of the  execution  and  delivery  by each  such  Person of a
counterpart of such Second Amendment to Intercreditor Agreement.

          (j) Canadian Facility.  Agent shall have received  counterparts of the
Credit Agreement referred to in the definition of "Canadian Facility" in Section
1.1 hereof  executed  and  delivered  by or on behalf of each of Seagull  Energy
Canada Ltd., The Chase Manhattan Bank of Canada,  as Arranger and as Agent,  The
Bank of Nova Scotia, as Paying Agent and as Co-Agent,  Canadian Imperial Bank of
Commerce,  as Co-Agent,  and certain banks  parties  thereto or Agent shall have
received evidence  satisfactory to it of the execution and delivery by each such
Person of a counterpart of such Credit Agreement.

<PAGE>



          (k) Other  Documents.  Agent shall have received such other  documents
consistent  with the terms of this  Agreement  and relating to the  transactions
contemplated hereby as Agent may reasonably request.

          All provisions  and payments  required by this Section 7.1 are subject
to the provisions of Section 13.6.

          7.2 Initial and Subsequent  Loans.  The obligation of each Bank or any
applicable Issuer to make any Loan (including,  without limitation,  its initial
Loan) to be made by it  hereunder  or to issue or  participate  in any Letter of
Credit is subject to the  additional  conditions  precedent that (i) Agent shall
have received a Request for Extension of Credit and such other certifications as
Agent may reasonably require, (ii) in the case of Competitive Loans, the Company
shall have complied  with the  provisions of Section 2.10 hereof and (iii) as of
the date of such Loan or such issuance, and after giving effect thereto:

          (a) no Default shall have occurred and be continuing;

          (b) except for facts  timely  disclosed  to Agent from time to time in
writing,  which facts (I) are not materially more adverse to the Company and its
Subsidiaries,  (II) do not  materially  decrease  the  ability  of the  Banks to
collect the  Obligations as and when due and payable and (III) do not materially
increase the  liability of Agent or any of the Banks,  in each case  compared to
those facts  existing on the date hereof and the material  details of which have
been set forth in the Financial  Statements delivered to Agent prior to the date
hereof or in the Disclosure  Statement,  and except for the  representations set
forth in the Loan Documents which, by their terms, are expressly (or by means of
similar phrasing) made as of the Effective Date or as of the date hereof, as the
case may be, only, the representations and warranties made in each Loan Document
shall be true and correct in all material  respects on and as of the date of the
making of such Loan or such issuance,  with the same force and effect as if made
on and as of such date;

          (c) the making of such Loan or the  issuance  of such Letter of Credit
shall not violate any Legal Requirement applicable to any Bank.

          Each  Request  for  Extension  of Credit by the Company  hereunder  or
request for issuance of a Letter of Credit shall  include a  representation  and
warranty  by the Company to the effect set forth in  Subsections  7.2(a) and (b)
(both as of the date of such notice and, unless the Company  otherwise  notifies
Agent prior to the date of such  borrowing or  issuance,  as of the date of such
borrowing or issuance).

          Section  8.  Representations  and  Warranties.  To induce the Banks to
enter into this  Agreement and to make the Loans and issue or participate in the
Letters of Credit, the Company represents and warrants (such representations and

<PAGE>

warranties  to  survive  any  investigation  and the making of the Loans and the
issuance of the Letters of Credit) to the Banks and Agent as follows:

          8.1  Corporate  Existence.  The  Company  and each  Subsidiary  of the
Company are corporations duly  incorporated and organized,  legally existing and
in good standing  under the laws of the respective  jurisdictions  in which they
are  incorporated,  and  are  duly  qualified  as  foreign  corporations  in all
jurisdictions  wherein the  property  owned or the business  transacted  by them
makes  such  qualification  necessary  and  the  failure  to  so  qualify  could
reasonably be expected to result in a Material Adverse Effect.

          8.2 Corporate Power and Authorization.  The Company is duly authorized
and  empowered  to create  and issue the  Notes;  each of the  Company  and each
Subsidiary of the Company is duly authorized and empowered to execute,  deliver,
and perform this  Agreement and the other Loan Documents to which it is a party;
and all corporate  action on the Company's  part  requisite for the due creation
and  issuance  of the  Notes and on the  Company's  part and on the part of each
Subsidiary of the Company for the due execution,  delivery,  and  performance of
this  Agreement  and the other Loan  Documents  to which each of the Company and
each such Subsidiary is a party has been duly and effectively taken.

          8.3 Binding Obligations.  This Agreement, the Notes and the other Loan
Documents constitute legal, valid and binding obligations of the Company and its
Subsidiaries,  to the extent each is a party  thereto,  enforceable  against the
Company  and  its  Subsidiaries,  to the  extent  each is a  party  thereto,  in
accordance  with  their  respective  terms,  except  as  may be  limited  by any
bankruptcy,  insolvency,  moratorium or other similar laws or judicial decisions
affecting creditors' rights generally.

          8.4 No Legal Bar or  Resultant  Lien.  The  Company's  and each of its
Subsidiaries' creation,  issuance,  execution,  delivery and performance of this
Agreement,  the Notes and the  other  Loan  Documents,  to the  extent  they are
parties   thereto,   do  not  and  will  not  violate  any   provisions  of  the
Organizational  Documents of the Company or any Subsidiary of the Company or any
Legal  Requirement  to which the  Company or any  Subsidiary  of the  Company is
subject or by which its property may be presently bound or encumbered, or result
in the creation or imposition of any Lien upon any  properties of the Company or
any Subsidiary of the Company, other than those permitted by this Agreement.

          8.5 No Consent.  Except as set forth in the Disclosure Statement,  the
Company's  creation and issuance of the Notes and the  Company's and each of its
Subsidiaries' execution,  delivery, and performance of this Agreement, the Notes
and the other  Loan  Documents  to which  they are  parties  do not and will not
require the consent or approval of any Person  other than such  consents  and/or
approvals  obtained  by the  Company  contemporaneously  with  or  prior  to the
execution of this Agreement,  including,  without  limitation,  any Governmental

<PAGE>

Authorities,  other than those consents the failure to obtain which could not be
reasonably expected to have a Material Adverse Effect.

          8.6  Financial  Condition.  The  audited  consolidated  and  unaudited
consolidating  annual  financial  statements of the Company and its Subsidiaries
for the year ended  December  31, 1995 and the  unaudited  consolidated  interim
financial  statements of the Company and its  Subsidiaries  for the quarters and
three-month  periods  ended  March 31, 1996 and June 30,  1996,  which have been
delivered to the Banks,  have been prepared in accordance with GAAP, and present
fairly the financial  condition and results of the operations of the Company and
its  Subsidiaries  for the  period or  periods  stated  (subject  only to normal
year-end audit adjustments with respect to the unaudited interim statements). No
material  adverse change,  either in any case or in the aggregate,  has occurred
since June 30, 1996 in the assets, liabilities,  financial condition,  business,
operations,  affairs or circumstances of the Company and its Subsidiaries  taken
as a whole, except as disclosed to the Banks in the Disclosure  Statement.  Each
Engineering Report and Company Report fairly presents the values and prospective
performances  of the property  described  therein and there are no statements or
conclusions  therein  which were based upon or  included  materially  misleading
information or fail to take into account material information.

          8.7 Investments and Guaranties.  As of the Effective Date, neither the
Company nor any Subsidiary of the Company had made  Investments in, advances to,
or Guarantees of, the obligations of any Person,  except as (a) disclosed to the
Banks in the Disclosure Statement or (b) not prohibited by applicable provisions
of Section 10.

          8.8 Liabilities and Litigation. Neither the Company nor any Subsidiary
of the Company has any material (individually or in the aggregate)  liabilities,
direct or  contingent,  except as (a)  disclosed or referred to in the Financial
Statements,  (b)  disclosed  to the  Banks  in  the  Disclosure  Statement,  (c)
disclosed in a notice to Agent  pursuant to Section 9.11 with respect to such as
could  reasonably  be  expected  to have a  Material  Adverse  Effect or (d) not
prohibited  by  applicable  provisions of Section 10. Except as (a) described in
the Financial Statements, (b) otherwise disclosed to the Banks in the Disclosure
Statement,  (c)  disclosed  in a notice to Agent  pursuant to Section  9.11 with
respect to such as could  reasonably  be  expected  to have a  Material  Adverse
Effect  or (d) not  prohibited  by  applicable  provisions  of  Section  10,  no
litigation,  legal,  administrative or arbitral  proceeding,  investigation,  or
other  action of any  nature  exists or (to the  knowledge  of the  Company)  is
threatened  against or affecting  the Company or any  Subsidiary  of the Company
which  could  reasonably  be  expected  to result in any  judgment  which  could
reasonably be expected to have a Material Adverse Effect, or which in any manner
challenges  or may  challenge  or  draw  into  question  the  validity  of  this
Agreement,  the Notes or any other Loan  Document,  or enjoins or  threatens  to
enjoin or otherwise  restrain  any of the  transactions  contemplated  by any of
them.

          8.9 Taxes and Governmental  Charges.  The Company and its Subsidiaries
have filed,  or obtained  extensions with respect to the filing of, all material
tax returns and reports  required to be filed and have paid all material  taxes,

<PAGE>

assessments, fees and other governmental charges levied upon any of them or upon
any of  their  respective  properties  or  income  which  are due  and  payable,
including  interest and penalties,  or have provided  adequate  reserves for the
payment thereof.

          8.10 Title to Properties.  The Company and its Subsidiaries  have good
and defensible  title to their respective  properties  included in the Borrowing
Base (including,  without limitation, all fee and leasehold interests), free and
clear of all Liens except (a) those referred to in the Financial Statements, (b)
as  disclosed  to the Banks in the  Disclosure  Statement or (c) as permitted by
Section 10.2.

          8.11  Defaults.  Neither the Company nor any Subsidiary of the Company
is in default,  which  default  could  reasonably be expected to have a Material
Adverse Effect, under any indenture, mortgage, deed of trust, agreement or other
instrument  to which the Company or any  Subsidiary of the Company is a party or
by which the Company or any  Subsidiary  of the  Company or the  property of the
Company or any  Subsidiary  of the Company is bound,  except as (a) disclosed to
the  Banks in the  Disclosure  Statement,  (b)  disclosed  in a notice  to Agent
pursuant to Section 9.11 with respect to such as could reasonably be expected to
have a Material  Adverse  Effect or (c)  specifically  permitted  by  applicable
provisions  of Section  10. No Default  under this  Agreement,  the Notes or any
other Loan Document has occurred and is continuing.

          8.12  Location of  Businesses  and Offices.  Except to the extent that
Agent  has been  furnished  written  notice  to the  contrary  or of  additional
locations,  pursuant to Section 9.11, the Company's  principal place of business
and chief  executive  offices are located at the address stated on the signature
page hereof and the principal places of business and chief executive  offices of
each Subsidiary are described on Exhibit F hereto.

          8.13  Compliance  with Law.  Neither the Company nor any Subsidiary of
the Company  (except as (a) disclosed to the Banks in the Disclosure  Statement,
(b) disclosed in a notice to Agent pursuant to Section 9.11 with respect to such
as could  reasonably  be expected to have a Material  Adverse  Effect or (c) not
prohibited by applicable provisions of Section 10):

          (a) is in violation of any Legal Requirement; or

          (b) has  failed to obtain  any  license,  permit,  franchise  or other
governmental authorization necessary to the ownership of any of their respective
properties  or the conduct of their  respective  business;  which  violation  or
failure could reasonably be expected to have a Material Adverse Effect.

          8.14 Margin Stock.  None of the proceeds of the Notes will be used for
the purpose of, and  neither  the Company nor any  Subsidiary  of the Company is
engaged in the business of extending credit for the purpose of (a) purchasing or

<PAGE>

carrying any "margin stock" as defined in Regulation U of the Board of Governors
of the Federal  Reserve System (12 C.F.R.  Part 221) or (b) reducing or retiring
any  indebtedness  which was  originally  incurred to  purchase or carry  margin
stock,  if such  purpose  under  either (a) or (b) above would  constitute  this
transaction a "purpose  credit" within the meaning of said  Regulation U, or for
any other purpose which would  constitute this  transaction a "purpose  credit".
Neither the Company nor any Subsidiary of the Company is engaged principally, or
as one of its important activities,  in the business of extending credit for the
purpose of purchasing  or carrying  margin  stocks.  Neither the Company nor any
Subsidiary  of the Company nor any Person acting on behalf of the Company or any
Subsidiary  of the Company  has taken or will take any action  which might cause
the Notes or any of the Loan  Documents,  including this  Agreement,  to violate
Regulation  U or any other  regulation  of the Board of Governors of the Federal
Reserve System, or to violate any similar  provision of the Securities  Exchange
Act of 1934 or any rule or regulation under any such provision thereof.

          8.15  Subsidiaries.  The Company has no Subsidiaries as of the date of
this Agreement except those shown in Exhibit F hereto.

          8.16  ERISA.  With  respect to each Plan,  the  Company and each ERISA
Affiliate have fulfilled  their  obligations,  including  obligations  under the
minimum  funding  standards of ERISA and the Code,  and are in compliance in all
material  respects with the provisions of ERISA and the Code. The Company has no
knowledge  of any event which could  result in a liability of the Company or any
ERISA Affiliate to the PBGC or a Plan (other than to make  contributions  in the
ordinary course).  Since the effective date of Title IV of ERISA, there have not
been any nor are there now  existing any events or  conditions  that would cause
the Lien  provided  under Section 4068 of ERISA to attach to any property of the
Company or any ERISA Affiliate.  There are no Unfunded  Liabilities with respect
to any Plan other than those specifically described in the certificate delivered
in accordance with Section 7.1(i). No "prohibited transaction" has occurred with
respect to any Plan.

          8.17  Investment  Company  Act.  Neither  the  Company  nor any of its
Subsidiaries  is an  investment  company  within the  meaning of the  Investment
Company Act of 1940, as amended,  or,  directly or indirectly,  controlled by or
acting  on behalf of any  Person  which is an  investment  company,  within  the
meaning of said Act.

          8.18 Public Utility Holding  Company Act.  Neither the Company nor any
of its  Subsidiaries  (i) is subject  to  regulation  under the  Public  Utility
Holding  Company Act of 1935, as amended (the "PUHC Act"),  except as to Section
9(a)(2) thereof (15 U.S.C.A. ss.79(i)(a)(2)),  or (ii) is in violation of any of
the provisions,  rules, regulations or orders of or under the PUHC Act. Further,
none of the transactions  contemplated  under this Agreement,  including without
limitation,  the making of the Loans and the  issuance of the Letters of Credit,
shall  cause  or  constitute  a  violation  of  any of  the  provisions,  rules,
regulations  or orders of or under the PUHC Act and the PUHC Act does not in any
manner impair the legality, validity or enforceability of the Notes. The Company

<PAGE>

has  duly  filed  with  the  Securities  and  Exchange   Commission  good  faith
applications  (each an "Application")  under Section 2(a)(8) of the PUHC Act (15
U.S.C.A.  ss.79(b)(a)(8)) for a declaration of non-subsidiary status pursuant to
such   Section   2(a)(8)   with  respect  to  each  Person  (each  a  "Specified
Shareholder")  which  owns,  controls  or holds with power to vote,  directly or
indirectly,  a sufficient quantity of the voting securities of the Company to be
construed  as a "holding  company",  as such term is defined in the PUHC Act, in
respect of the Company.  All of the information  contained in such Applications,
as amended,  was true as of the most recent  filing  date with  respect  thereto
(provided that the Company may,  unless it has actual  current  knowledge to the
contrary,  rely solely  upon  written  information  furnished  by any  Specified
Shareholder  with  respect  to  background   information   about  the  Specified
Shareholder and the nature of the ownership by such Specified Shareholder or its
Affiliates of the voting securities of the Company), and the Company knows of no
reason why each such  Application,  if acted upon by the Securities and Exchange
Commission,  would  not be  approved.  True  and  correct  copies  of each  such
Application and any amendments  thereto, as filed, have been furnished to Agent.
The Company has not received any written notice from the Securities and Exchange
Commission  with  respect to any such  Application  other than as  disclosed  in
writing to Agent.

          8.19  Environmental  Matters.  Except as disclosed  in the  Disclosure
Statement,  (i) the Company and it Subsidiaries  have obtained and maintained in
effect all  Environmental  Permits  (or has  initiated  the  necessary  steps to
transfer the  Environmental  Permits into its name), the failure to obtain which
could reasonably be expected to have a Material Adverse Effect, (ii) the Company
and its Subsidiaries and their properties,  assets, business and operations have
been and are in compliance with all applicable Requirements of Environmental Law
and  Environmental  Permits  failure to comply  with which could  reasonably  be
expected  to  have  a  Material  Adverse  Effect,  (iii)  the  Company  and  its
Subsidiaries  and their  properties,  assets,  business and  operations  are not
subject to any (A)  Environmental  Claims or (B) Environmental  Liabilities,  in
either case direct or contingent,  and whether known or unknown, arising from or
based upon any act,  omission,  event,  condition or  circumstance  occurring or
existing on or prior to the date hereof  which could  reasonably  be expected to
have a Material Adverse Effect,  and (iv) no Responsible  Officer of the Company
or any of its  Subsidiaries  has received any notice of any violation or alleged
violation of any  Requirements of Environmental  Law or Environmental  Permit or
any Environmental Claim in connection with its assets,  properties,  business or
operations which could reasonably be expected to have a Material Adverse Effect.
The liability (including without limitation any Environmental  Liability and any
other  damage  to  persons  or  property),  if  any,  of  the  Company  and  its
Subsidiaries  and  with  respect  to  their  properties,  assets,  business  and
operations which is reasonably expected to arise in connection with Requirements
of  Environmental  Laws  currently  in effect  and other  environmental  matters
presently known by a Responsible Officer of the Company will not have a Material
Adverse  Effect.  No  Responsible  Officer of the Company  knows of any event or
condition  with  respect to  Environmental  Matters  with  respect to any of its
properties or the properties of any of its  Subsidiaries  which could reasonably
be expected to have a Material  Adverse  Effect.  For  purposes of this  Section
8.19,  "Environmental  Matters"  shall mean  matters  relating to  pollution  or
protection  of  the  environment,   including,  without  limitation,  emissions,

<PAGE>

discharges,  releases or threatened  releases of Hazardous  Substances  into the
environment (including, without limitation, ambient air, surface water or ground
water, or land surface or subsurface), or otherwise relating to the manufacture,
processing,  distribution,  use,  treatment,  storage,  disposal,  transport  or
handling of Hazardous Substances.

          8.20  Claims  and  Liabilities.  Except as  disclosed  to the Banks in
writing,  neither  the  Company  nor any of its  Subsidiaries  has  accrued  any
liabilities under gas purchase  contracts for gas not taken, but for which it is
liable to pay if not made up and  which,  if not  paid,  would  have a  Material
Adverse  Effect.  Except as disclosed  to the Banks in writing,  no claims exist
against the  Company or its  Subsidiaries  for gas  imbalances  which  claims if
adversely  determined  would have a Material  Adverse  Effect.  No  purchaser of
product supplied by the Company or any of its Subsidiaries has any claim against
the  Company or any of its  Subsidiaries  for  product  paid for,  but for which
delivery was not taken as and when paid for, which claim if adversely determined
would have a Material Adverse Effect.

          8.21   Solvency.   Neither   the  Company  nor  the  Company  and  its
Subsidiaries,  on a consolidated basis, is "insolvent", as such term is used and
defined  in (i) the  Bankruptcy  Code  and  (ii) the  Texas  Uniform  Fraudulent
Transfer Act, Tex. Bus. & Com. Code Ann. ss.24.001 et seq.

          Section 9. Affirmative  Covenants.  A deviation from the provisions of
this  Section 9 will not  constitute  a Default  under  this  Agreement  if such
deviation is consented  to in writing by the Majority  Banks.  Without the prior
written  consent of the Majority  Banks,  the Company  agrees with the Banks and
Agent that, so long as any of the  Commitments is in effect and until payment in
full of all Loans hereunder,  the termination or expiry of all Letters of Credit
and payment in full of Letter of Credit  Liabilities,  all interest  thereon and
all other amounts payable by the Company hereunder:

          9.1  Financial  Statements  and  Reports.  The Company  will  promptly
furnish to any Bank from time to time upon  request such  information  regarding
the  business  and  affairs  and  financial  condition  of the  Company  and its
Subsidiaries as such Bank may reasonably request,  and will furnish to Agent and
each of the Banks:

          (a) Annual  Reports - promptly  after  becoming  available  and in any
event within 100 days after the close of each fiscal year of the Company:

          (i)       the audited  consolidated  balance  sheet of the Company and
                    its Subsidiaries as of the end of such year;

          (ii)      the  audited  consolidated  statement  of  earnings  of  the
                    Company and its Subsidiaries for such year;



<PAGE>



          (iii)     the  audited  consolidated  statement  of cash  flows of the
                    Company and its Subsidiaries for such year;

          (iv)      the unaudited  consolidating  balance sheet and statement of
                    earnings of the Company and its Subsidiaries,  each for such
                    year or as of the end of such year, as the case may be;

          (v)       a report  prepared  by a petroleum  engineer,  who may be an
                    employee of the Company or its  Subsidiaries,  setting forth
                    the  historical  monthly  production  data for  Hydrocarbons
                    produced  and sold by the Company and its  Subsidiaries  for
                    such year;  setting forth in each case in  comparative  form
                    the  corresponding  figures for the  preceding  fiscal year,
                    and,  in the  case  of  the  audited  Financial  Statements,
                    audited and  accompanied by the related opinion of KPMG Peat
                    Marwick or other independent certified public accountants of
                    recognized  national  standing  acceptable  to the  Majority
                    Banks,  which opinion shall state that such audited  balance
                    sheets and statements  have been prepared in accordance with
                    GAAP consistently  followed  throughout the period indicated
                    and fairly present the consolidated  financial condition and
                    results of  operations of the  applicable  Persons as at the
                    end of, and for, such fiscal year; and

          (b)  Quarterly  Reports - as soon as available and in any event within
50 days  after  the end of each of the first  three  quarterly  periods  in each
fiscal year of the Company:

                    (i)    the  unaudited  consolidated  balance  sheet  of  the
                           Company and its Subsidiaries  as of  the  end of such
                           quarter;

                    (ii)   the unaudited  consolidated  statement of earnings of
                           the Company and its Subsidiaries for such quarter and
                           for the period from the  beginning of the fiscal year
                           to the close of such quarter;

                    (iii)  the unaudited consolidated statement of cash flows of
                           the Company and its Subsidiaries for such quarter and
                           for the period from the  beginning of the fiscal year
                           to the close of such quarter;

                    (iv)   the   unaudited   consolidating   balance  sheet  and
                           statement   of   earnings  of  the  Company  and  its
                           Subsidiaries,  each  for  such  quarter  and  for the
                           period from the  beginning  of the fiscal year to the
                           close of such quarter;

                    (v)    a report prepared by a petroleum engineer, who may be
                           an  employee  of the  Company  or  its  Subsidiaries,
                           setting forth the historical  monthly production data
                           for Hydrocarbons produced and sold by the Company and
                           its  Subsidiaries  for  such  quarter; all  of  items

<PAGE>

                           (i)  through (iv)  above  prepared  on  substantially
                           the  same  accounting  basis  as  the  annual reports
                           described  in  Subsection  9.1(a),  subject to normal
                           changes resulting from year-end adjustments; and

          (c) Company  Report - promptly  after  becoming  available  and in any
event on or before September 1 of each year, a Company Report; and

          (d) Other Bank Requirements - at such time as the same are required to
be furnished to other lenders under other  financing  arrangements  to which the
Company or any of its Subsidiaries may be a party or be bound from time to time,
a copy of any report, certificate, affidavit or other information required to be
furnished to any such lender; and

          (e) SEC and Other  Reports -  promptly  upon their  becoming  publicly
available,  one copy of each financial statement,  report,  notice or definitive
proxy statement sent by the Company or any Subsidiary to shareholders generally,
and  of  each  regular  or  periodic  report  and  any  registration  statement,
prospectus or written  communication (other than transmittal letters) in respect
thereof filed by the Company or any of its Subsidiaries with, or received by the
Company or any of its Subsidiaries in connection  therewith from, any securities
exchange or the Securities and Exchange Commission or any successor agency; and

          (f)  Engineering  Report and other  Component  Values - promptly after
becoming  available  and in any  event  on or  before  March  15 of  each  year,
commencing with March 15, 1997, an Engineering Report.

          All of the balance sheets and other financial  statements  referred to
in this  Section 9.1 will be in such detail as any Bank may  reasonably  request
and  will  conform  to GAAP  applied  on a basis  consistent  with  those of the
Financial Statements as of December 31, 1995. In addition,  if GAAP shall change
with respect to any matter  relative to  determination  of compliance  with this
Agreement, the Company will also provide financial information necessary for the
Banks to determine compliance with this Agreement.

          9.2 Officers' Certificates.

          (a)   Concurrently   with  the  furnishing  of  the  annual  financial
statements  pursuant to Subsection 9.1(a),  commencing with the annual financial
statements  required to be delivered in 1997,  the Company will furnish or cause
to be furnished to Agent certificates of compliance, as follows:

          (i) a  certificate  signed by the principal  financial  officer of the
Company in the form of ExhiHbit G; and



<PAGE>



          (ii)      a  certificate  from  the  independent   public  accountants
                    stating that their audit has not  disclosed the existence of
                    any condition which constitutes a Default, or if their audit
                    has  disclosed   the   existence  of  any  such   condition,
                    specifying the nature and period of existence.

          (b)  Concurrently  with  the  furnishing  of the  quarterly  financial
statements  pursuant to Subsection  9.1(b),  the Company will furnish to Agent a
principal financial officer's certificate in the form of Exhibit G.

          (c) Not later  than  concurrently  with the  furnishing  of any annual
reports  pursuant  to Section  9.1(a) or  concurrently  with any  request by the
Company  for  a  Requested   Redetermination  (using  then  available  Financial
Statements)  and  within  ten  (10)  Business  Days  after  any  request  by the
Requesting Banks for a Requested Redetermination (using then available Financial
Statements), the Company will furnish to Agent a Borrowing Base Certificate.

          (d)  Concurrently  with the  furnishing of any  Engineering  Report or
Company  Report,  the Company will furnish to Agent a  certificate  signed by an
appropriate officer of the Company and the applicable Relevant Party in the form
of Exhibit I.

          9.3  Taxes and Other  Liens.  The  Company  will and will  cause  each
Subsidiary of the Company to pay and discharge  promptly all taxes,  assessments
and governmental  charges or levies imposed upon the Company or such Subsidiary,
or upon the income or any property of the Company or such Subsidiary, as well as
all claims of any kind (including claims for labor,  materials,  supplies,  rent
and  payment of proceeds  attributable  to  Hydrocarbon  production)  which,  if
unpaid,  might result in or become a Lien upon any or all of the property of the
Company or such Subsidiary; provided, however, that neither the Company nor such
Subsidiary  will be required to pay any such tax,  assessment,  charge,  levy or
claims if the  amount,  applicability  or validity  thereof  will  currently  be
contested in good faith by appropriate  proceedings  diligently conducted and if
the Company or such Subsidiary will have set up reserves therefor adequate under
GAAP.

          9.4  Maintenance.  Except as referred to in Sections  8.1 and 8.13 and
except as  permitted  under  Section  10.5 the Company  will and will cause each
Subsidiary  of the  Company  to: (i)  maintain  its  corporate  existence;  (ii)
maintain  its rights and  franchises,  except for any mergers or  consolidations
otherwise  permitted by this  Agreement  and except to the extent  failure to so
maintain the same would not have a Material  Adverse  Effect;  (iii) observe and
comply (to the extent that any  failure  would have a Material  Adverse  Effect)
with all valid Legal Requirements  (including without limitation Requirements of
Environmental  Law);  and (iv)  maintain  (except  to the  extent  failure to so
maintain the same would not have a Material  Adverse Effect) its properties (and
any  properties  leased by or consigned  to it or held under title  retention or
conditional  sales  contracts)  consistent  with the  standards  of a reasonably
prudent  operator at all times and make all  repairs,  replacements,  additions,

<PAGE>

betterments and improvements to its properties  consistent with the standards of
a reasonably prudent operator.

          9.5  Further  Assurances.   The  Company  will  and  will  cause  each
Subsidiary  of the  Company to cure  promptly  any defects in the  creation  and
issuance of the Notes and the  execution  and  delivery  of the Loan  Documents,
including this Agreement.  The Company at its expense will promptly  execute and
deliver to Agent upon request all such other and further  documents,  agreements
and  instruments  (or cause any of its  Subsidiaries  to take  such  action)  in
compliance with or accomplishment of the covenants and agreements of the Company
or any of its Subsidiaries in the Loan Documents,  including this Agreement,  or
to correct any omissions in the Loan Documents,  or to make any  recordings,  to
file any notices, or obtain any consents, all as may be necessary or appropriate
in connection therewith.

          9.6  Performance  of  Obligations.  The  Company  will  pay the  Notes
according to the reading,  tenor and effect thereof; and the Company will do and
perform every act and discharge all of the obligations  provided to be performed
and  discharged by the Company under this Agreement and the other Loan Documents
at the  time  or  times  and in the  manner  specified,  and  cause  each of its
Subsidiaries  to take  such  action  with  respect  to their  obligations  to be
performed and discharged under the Loan Documents to which they respectively are
parties.

          9.7 Reimbursement of Expenses. Whether or not any Loan is ever made or
any Letter of Credit is ever  issued,  the  Company  agrees to pay or  reimburse
Agent for paying the reasonable fees and expenses of Liddell, Sapp, Zivley, Hill
& LaBoon,  L.L.P.,  special counsel to Agent,  together with the reasonable fees
and  expenses  of  local  counsel  engaged  by  Agent,  in  connection  with the
negotiation  of the terms and  structure of the  Obligations,  the  preparation,
execution and delivery of this  Agreement  and the other Loan  Documents and the
making of the Loans and the issuance of Letters of Credit hereunder,  as well as
any modification, supplement or waiver of any of the terms of this Agreement and
the other Loan  Documents.  The Company  will  promptly  upon request and in any
event within 30 days from the date of receipt by the Company of a copy of a bill
for  such  amounts,  reimburse  any  Bank or Agent  for all  amounts  reasonably
expended,  advanced or incurred by such Bank or Agent to satisfy any  obligation
of the Company under this Agreement or any other Loan  Document,  to protect the
properties  or business  of the Company or any  Subsidiary  of the  Company,  to
collect  the  Obligations,  or to enforce the rights of such Bank or Agent under
this  Agreement or any other Loan Document,  which amounts will include  without
limitation all court costs,  attorneys' fees (but not including  allocated costs
of in-house  counsel),  any  engineering  fees and  expenses,  fees of auditors,
accountants  and  appraisers,   investigation  expenses,  all  transfer,  stamp,
documentary or similar taxes,  assessments or charges levied by any governmental
or  revenue  authority  in  respect  of any of the Loan  Documents  or any other
document referred to therein, all costs, expenses,  taxes, assessments and other
charges  incurred in  connection  with any filing,  registration,  recording  or
perfection of any lien contemplated by any of the Loan Documents or any document
referred to therein,  fees and expenses  incurred in connection with such Bank's
participation  as a member of a creditors'  committee in a case commenced  under

<PAGE>

the  Bankruptcy  Code or other  similar  law of the  United  States or any state
thereof,  fees and expenses  incurred in  connection  with lifting the automatic
stay  prescribed  in ss.362  Title 11 of the United  States  Code,  and fees and
expenses  incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code and all other customary  out-of-pocket  expenses incurred
by such Bank or Agent in connection  with such  matters,  together with interest
after the  expiration  of the 30-day  period  stated above in this Section if no
Event of Default has occurred and is continuing, or from the date of the request
to the Company if an Event of Default has occurred and is continuing,  at either
(i) the Post-Default Rate on each such amount until the date of reimbursement to
such Bank or Agent,  or (ii) if no Event of Default  will have  occurred  and be
continuing,  the  Alternate  Base Rate plus the  highest  Applicable  Margin for
Alternate  Base Rate Loans (not to exceed the Highest  Lawful Rate) on each such
amount until the date of the Company's  receipt of written  demand or request by
such  Bank or  Agent  for the  reimbursement  of  same,  and  thereafter  at the
applicable  Post-Default  Rate until the date of  reimbursement  to such Bank or
Agent.  The  obligations of the Company under this Section are  compensatory  in
nature, shall be deemed liquidated as to amount upon receipt by the Company of a
copy of any  invoice  therefor,  and will  survive  the  non-assumption  of this
Agreement in a case commenced  under the Bankruptcy Code or other similar law of
the United States or any state  thereof,  and will remain binding on the Company
and any trustee,  receiver,  or liquidator of the Company  appointed in any such
case.

          9.8 Insurance.  The Company and its Subsidiaries  will maintain,  with
financially  sound and  reputable  insurers,  insurance  with  respect  to their
respective properties and business against such liabilities,  casualties,  risks
and  contingencies  and in such types and amounts as is customary in the case of
corporations  engaged in the same or similar businesses and similarly  situated.
Upon the request of Agent acting at the instruction of the Majority  Banks,  the
Company  will  furnish  or cause to be  furnished  to Agent  from time to time a
summary of the insurance  coverage of the Company and its  Subsidiaries  in form
and substance  satisfactory to the Majority Banks in their reasonable  judgment,
and if requested will furnish Agent copies of the applicable  policies.  Subject
to the terms of  Section 3 hereof,  in the case of any fire,  accident  or other
casualty  causing loss or damage to any  properties of the Company or any of its
Subsidiaries,  the  proceeds  of such  policies  will be used (i) to  repair  or
replace the damaged property or (ii) to prepay the Obligations,  at the election
of the Company.

          9.9 Accounts  and  Records.  The Company will keep and will cause each
Subsidiary  of the  Company  to keep books of record and  account  which  fairly
reflect all dealings or transactions in relation to their respective  businesses
and activities,  in accordance with GAAP, which books of record and account will
be maintained,  to the extent necessary to enable compliance with all provisions
of this  Agreement,  separately  for each such  Subsidiary,  the Company and any
division of the Company.

          9.10 Rights of Inspection. The Company will permit and will cause each
of its  Subsidiaries to permit any officer,  employee,  or agent of Agent or any
Bank to meet with the consultants who prepared any applicable Engineering Report

<PAGE>

and to review such  Engineering  Report with such  consultants  and to visit and
inspect any of the  properties  of the Company or such  Subsidiary,  examine the
Company's or such  Subsidiary's  books of record and  accounts,  take copies and
extracts therefrom,  and discuss the affairs,  finances and accounts of the Bank
or such Subsidiary with the Company's or such Subsidiary's officers, accountants
and auditors,  all at such reasonable  times during normal business hours and as
often as Agent or such Bank may reasonably  desire,  and will assist in all such
matters.

          9.11 Notice of Certain Events.  The Company will promptly notify Agent
(and Agent will then  notify all of the Banks) if a  Responsible  Officer of the
Company  learns of the  occurrence  of, or if the  Company  causes or intends to
cause, as the case may be:

          (i) any event which  constitutes  a Default,  together with a detailed
statement  by a  responsible  officer of the Company of the steps being taken to
cure the effect of such Default; or

          (ii) the receipt of any notice from, or the taking of any other action
by,  the  holder  of  any  promissory  note,  debenture  or  other  evidence  of
indebtedness  of the Company or any Subsidiary of the Company or of any security
(as  defined in the  Securities  Act of 1933,  as amended) of the Company or any
Subsidiary  of the Company with respect to a claimed  default,  together  with a
detailed statement by a Responsible Officer of the Company specifying the notice
given or other action taken by such holder and the nature of the claimed default
and what  action the  Company or such  Subsidiary  is taking or proposes to take
with respect thereto; or

          (iii) any legal,  judicial or  regulatory  proceedings  affecting  the
Company or any Subsidiary of the Company or any of the properties of the Company
or any  Subsidiary  of the Company in which the amount  involved  is  materially
adverse to the Company and its Subsidiaries taken as a whole, and is not covered
by insurance or which, if adversely  determined,  would have a Material  Adverse
Effect; or

          (iv) any dispute  between the Company or any Subsidiary of the Company
and  any  Governmental  Authority  or  any  other  Person  which,  if  adversely
determined, could reasonably be expected to have a Material Adverse Effect; or

          (v) the  occurrence of a default or event of default by the Company or
any Subsidiary of the Company under any other  agreement to which it is a party,
which  default  or event of  default  could  reasonably  be  expected  to have a
Material Adverse Effect; or

          (vi) any change in the accuracy of the  representations and warranties
of the Company or any  Subsidiary  contained in this Agreement or any other Loan
Document; or



<PAGE>



          (vii) any  material  violation  or alleged  material  violation of any
Requirements of Environmental  Law or Environmental  Permit or any Environmental
Claim or any Environmental Liability; or

          (viii) any tariff and rate cases and other  material  reports filed by
the Company or any of its Subsidiaries  with any Governmental  Authority and any
notice to the Company or any of its Subsidiaries from any Governmental Authority
concerning noncompliance with any applicable Legal Requirement; or

          (ix) the existence of any Borrowing Base Deficiency; or

          (x)  within 10 days after the date on which a  Responsible  Officer of
the  Company  has actual  knowledge  thereof,  the  receipt of any notice by the
Company or any of its Subsidiaries of any claim of nonpayment of, or any attempt
to  collect  or  enforce,  accounts  payable  of  the  Company  or  any  of  its
Subsidiaries  exceeding,  in the  case of any one  account  payable  at one time
outstanding, $1,000,000 and in the case of all accounts payable in the aggregate
at any one time outstanding, $3,000,000; or

          (xi) any  requirement  for the  payment  of all or any  portion of any
Indebtedness  of the  Company  or any of its  Subsidiaries  prior to the  stated
maturity  thereof (whether by acceleration or otherwise) or as the result of any
failure to maintain  or the  reaching of any  threshold  amount  provided in any
promissory note, bond, debenture, or other evidence of Indebtedness or under any
credit agreement,  loan agreement,  indenture or similar  agreement  executed in
connection with any of the foregoing; or

          (xii) any notice from the  Securities  and  Exchange  Commission  with
respect to any Application (as defined in Section 8.18 hereof).

          9.12 ERISA  Information  and  Compliance.  The Company  will  promptly
furnish to Agent (i) immediately upon receipt,  a copy of any notice of complete
or partial withdrawal  liability under Title IV of ERISA and any notice from the
PBGC under Title IV of ERISA of an intent to  terminate  or appoint a trustee to
administer any Plan,  (ii) if requested by Agent,  acting on the  instruction of
the Majority  Banks,  promptly  after the filing  thereof with the United States
Secretary of Labor or the PBGC or the Internal Revenue  Service,  copies of each
annual  and  other  report  with  respect  to  each  Plan or any  trust  created
thereunder,  (iii)  immediately  upon  becoming  aware of the  occurrence of any
"reportable  event", as such term is defined in Section 4043 of ERISA, for which
the disclosure requirements of Regulation Section 2615.3 promulgated by the PBGC
have  not been  waived,  or of any  "prohibited  transaction",  as such  term is
defined in Section 4975 of the Code,  in  connection  with any Plan or any trust
created  thereunder,  a written  notice signed by the President or the principal
financial  officer of the Company or the applicable  ERISA Affiliate  specifying
the nature thereof, what action the Company or the applicable ERISA Affiliate is
taking or proposes to take with respect  thereto,  and,  when known,  any action

<PAGE>

taken by the PBGC, the Internal  Revenue Service or the Department of Labor with
respect  thereto,  (iv)  promptly  after the filing or receiving  thereof by the
Company  or  any  ERISA  Affiliate  of any  notice  of  the  institution  of any
proceedings  or other actions which may result in the  termination  of any Plan,
and (v) each  request for waiver of the funding  standards  or  extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code  promptly  after the request is  submitted  by the Company or any ERISA
Affiliate  to the  Secretary of the  Treasury,  the  Department  of Labor or the
Internal  Revenue  Service,  as the case may be. To the  extent  required  under
applicable statutory funding requirements,  the Company will fund, or will cause
each ERISA Affiliate to fund, all current  service  pension  liabilities as they
are incurred under the provisions of all Plans from time to time in effect,  and
comply with all  applicable  provisions of ERISA,  except to the extent that any
such  failure to comply  could not  reasonably  be  expected  to have a Material
Adverse Effect.  The Company  covenants that it shall and shall cause each ERISA
Affiliate to (1) make  contributions  to each Plan in a timely  manner and in an
amount  sufficient to comply with the contribution  obligations  under such Plan
and the minimum funding standards requirements of ERISA; (2) prepare and file in
a timely  manner  all  notices  and  reports  required  under the terms of ERISA
including but not limited to annual reports;  and (3) pay in a timely manner all
required PBGC premiums,  in each case, to the extent failure to do so would have
a Material Adverse Effect.

          Section 10.  Negative  Covenants.  A deviation  from the provisions of
this  Section 10 will not  constitute  a Default  under this  Agreement  if such
deviation is consented to in writing by the Majority  Banks.  The Company agrees
with the Banks and Agent that,  so long as any of the  Commitments  is in effect
and until payment in full of all Loans  hereunder,  the termination or expiry of
all Letters of Credit and payment in full of Letter of Credit  Liabilities,  all
interest thereon and all amounts payable by the Company hereunder:

          10.1 Debts, Guaranties and Other Obligations. The Company will not and
will not  permit  any of its  Subsidiaries  (other  than APC) to incur,  create,
assume or in any  manner  become or be liable  in  respect  of any  Indebtedness
(including obligations for the payment of rentals); and the Company will not and
will not  permit  any of its  Subsidiaries  (other  than  APC) to  Guarantee  or
otherwise  in any way  become or be  responsible  for  obligations  of any other
Person, whether by agreement to purchase the Indebtedness of any other Person or
agreement for the  furnishing of funds to any other Person  through the purchase
or lease of goods,  supplies or services (or by way of stock  purchase,  capital
contribution,  advance  or loan) for the  purpose of paying or  discharging  the
Indebtedness  of any other  Person,  or  otherwise,  except  that the  foregoing
restrictions will not apply to:

          (a) the Notes or other Indebtedness under the Loan Documents;

          (b)  liabilities,   direct  or  contingent,  of  the  Company  or  any
Subsidiary  of the  Company  existing  on the date of this  Agreement  which are

<PAGE>

reflected  in the  Financial  Statements  or the  Disclosure  Statement  and all
renewals,  extensions,  refinancings  and  rearrangements,  but  not  increases,
thereof;

          (c)  endorsements of negotiable or similar  instruments for collection
or deposit in the ordinary course of business;

          (d)  trade  payables,   lease   acquisition   and  lease   maintenance
obligations,  extensions of credit from  suppliers or  contractors,  liabilities
incurred in  exploration,  development  and  operation  of the  Company's or any
Subsidiary's  oil and gas  properties or similar  obligations  from time to time
incurred in the  ordinary  course of business,  other than for  borrowed  money,
which are paid within 90 days after the invoice date  (inclusive  of  applicable
grace  periods) or (i) are being  contested  in good faith,  if such  reserve as
required by GAAP has been made  therefor or (ii) trade  accounts  payable of the
Company  and its  Subsidiaries  (with  respect to which no legal  proceeding  to
enforce  collection  has been  commenced  or, to the  knowledge of a Responsible
Officer of the Company,  threatened) not exceeding, in the aggregate at any time
outstanding, $25,000,000;

          (e) taxes,  assessments or other government  charges which are not yet
due or are  being  contested  in  good  faith  by  appropriate  action  promptly
initiated and diligently conducted,  if such reserve as will be required by GAAP
will have been made therefor;

          (f) Borrowing Base Debt of the Company; provided that the aggregate of
all  Indebtedness  permitted under this Subsection  10.1(f) shall not exceed the
amount  by which  the then  current  Borrowing  Base  exceeds  the then  current
Revolving Credit Obligations;

          (g) to the extent,  if any, not covered by Subsection (b) hereinabove,
the  Indebtedness  of the Company to APC  evidenced  solely by the  Intercompany
Notes,  as  defined  in the  Beluga  Financing  Documents  and the APC Long Term
Financing  Documents,  together  with  any  renewals,  extensions,   amendments,
refinancings,  rearrangements,  modifications,  restatements or supplements, but
not increases  (other than increases which are permitted under the present terms
of the Beluga  Financing  Documents and the APC Long Term  Financing  Documents)
thereof from time to time;

          (h) intercompany Indebtedness owed to the Company by any Subsidiary of
the Company and intercompany  Indebtedness owed to any Subsidiary of the Company
by  the  Company  or  any  other  Subsidiary  of  the  Company  which  is  fully
subordinated to the Obligations;

          (i) loans,  advances  or  extensions  of credit to the Company for the
purpose of financing no more than 75% of the purchase  price of any fixed assets
which are not included in the property  taken into  account in  determining  the
Borrowing Base and which are considered in the categories of property,  plant or
equipment according to GAAP applied on a consistent basis;



<PAGE>



          (j) obligations of the Company under the Gas Sales Contract,  together
with  any  renewals,  extensions,  amendments,   refinancings,   rearrangements,
modifications, restatements or supplements, but not increases, thereof from time
to time;

          (k) the  Guarantee by the Company or any  Subsidiary of the Company of
payment or  performance  by any Subsidiary of the Company under any agreement so
long as the obligation guaranteed does not constitute  Indebtedness for borrowed
money;

          (l)  obligations of the Company or any of its  Subsidiaries  under gas
purchase  contracts for gas not taken, as to which the Company or its respective
Subsidiary is liable to pay if not made up;

          (m)  obligations of the Company or any of its  Subsidiaries  under any
contract for sale for future  delivery of oil or gas (whether or not the subject
oil  or  gas is to be  delivered),  hedging  contract,  forward  contract,  swap
agreement, futures contract or other similar agreement;

          (n)  obligations of the Company or any of its  Subsidiaries  under any
interest rate swap  agreement,  or any contract  implementing  any interest rate
cap, collar or floor, or any similar interest hedging contract;

          (o)  obligations  in  connection  with gas  imbalances  arising in the
ordinary course of business;

          (p)  Indebtedness not exceeding  $1,000,000 in the aggregate  borrowed
from the Amarillo  Economic  Development  Commission and related  Guarantees and
related obligations of the Company and its Subsidiaries;

          (q) liabilities  under leases and lease  agreements which do not cover
oil and gas  properties  to the  extent the  incurrence  and  existence  of such
liabilities will still enable the Company and each Subsidiary to comply with all
other  requirements of this Agreement and the other Loan Documents to which they
respectively are parties;

          (r) Subordinated Debt;

          (s) Funded  Indebtedness  of any Oil and Gas  Subsidiary  for borrowed
money  payable  solely by recourse to  properties  not included in the Borrowing
Base and  Indebtedness  incurred by any Gas and Liquids  Pipeline  Subsidiary in
connection with the construction or acquisition of new assets in connection with
the  Pipeline  Operations  which is payable  solely by recourse to the assets so
constructed or acquired, each to the extent not otherwise expressly permitted by
this Section 10.1;




<PAGE>



          (t) the Canadian Facility (and the "Bankers' Acceptances" provided for
therein) and the guaranty by the Company of the Canadian Facility; and

          (u)  Indebtedness  of Seagull Energy Canada Ltd.  having a maturity of
364 days or less  from  the date of its  incurrence  in an  aggregate  principal
amount not exceeding Canadian $10,000,000 at any one time outstanding.

          10.2  Liens.  The  Company  will not and will  not  permit  any of its
Subsidiaries to create,  incur, assume or permit to exist any Lien on any of its
or their properties (now owned or hereafter acquired), except:

          (a) Liens securing the Indebtedness described in Subsection 10.1(a);

          (b) Liens for  taxes,  assessments  or other  governmental  charges or
levies not yet due or which are being  contested  in good  faith by  appropriate
action promptly initiated and diligently  conducted,  if such reserve as will be
required by GAAP will have been made therefor;

          (c)  Liens  of  landlords,   vendors,   contractors,   subcontractors,
carriers,  warehousemen,  mechanics, laborers or materialmen or other like Liens
arising by law in the ordinary  course of business for sums not yet due or being
contested in good faith by appropriate  action promptly initiated and diligently
conducted,  if such  reserve  as will be  required  by GAAP  will have been made
therefor;

          (d) Liens  existing  on  property  owned by the  Company or any of its
Subsidiaries  on the date of this  Agreement  which have been  disclosed  to the
Banks in the  Disclosure  Statement,  together  with any  renewals,  extensions,
amendments,  refinancings,   rearrangements,   modifications,   restatements  or
supplements, but not increases, thereof from time to time;

          (e) pledges or  deposits  made in the  ordinary  course of business in
connection with worker's compensation,  unemployment insurance,  social security
and other like laws;

          (f)  inchoate  liens  arising  under  ERISA to secure  the  contingent
liability of the Company permitted by Section 9.12;

          (g) Liens in the  ordinary  course of  business,  not to exceed in the
aggregate  $10,000,000  as to the  Company and its  Subsidiaries  at any time in
effect,  regarding (i) the performance of bids,  tenders,  contracts (other than
for the repayment of borrowed  money or the deferred  purchase price of property
or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or
(iv) Liens to secure progress or partial  payments made to the Company or any of
its Subsidiaries and other Liens of like nature;




<PAGE>



          (h)   covenants,   restrictions,   easements,   servitudes,   permits,
conditions,  exceptions,  reservations,  minor rights, minor encumbrances, minor
irregularities  in  title  or  conventional  rights  of  reassignment  prior  to
abandonment  which do not  materially  interfere  with the  occupation,  use and
enjoyment  by the Company or any  Subsidiary  of the  Company of its  respective
assets in the normal  course of business as presently  conducted,  or materially
impair the value thereof for the purpose of such business;

          (i) Liens of operators  under joint  operating  agreements  or similar
contractual  arrangements  with respect to the relevant  entity's  proportionate
share of the expense of  exploration,  development and operation of oil, gas and
mineral leasehold or fee interests owned jointly with others, to the extent that
same  relate to sums not yet due or which are being  contested  in good faith by
appropriate action promptly initiated and diligently conducted,  if such reserve
as will be required by GAAP will have been made therefor;

          (j)  Liens  created  pursuant  to the  creation  of  trusts  or  other
arrangements  funded  solely with cash,  cash  equivalents  or other  marketable
investments or securities of the type customarily  subject to such  arrangements
in  customary  financial  practice  with  respect to  long-term  or  medium-term
indebtedness  for borrowed money, the sole purpose of which is to make provision
for the retirement or defeasance,  without prepayment, of Indebtedness permitted
under Section 10.1;

          (k) Liens on the assets or properties of ENSTAR Alaska;

          (l)  the  Vendor  Financing  Arrangements  (as  defined  in  the  Mesa
Contract),  to the extent that the same shall have been deducted in  calculating
the Borrowing Base;

          (m) purchase money Liens for the  acquisition of fixed assets pursuant
to Subsection 10.1(i),  so long as such Liens exist solely against the relevant
fixed asset acquired and secure only the purchase money debt; provided, that the
aggregate  amount of  Indebtedness  which is secured by Liens  described in this
subsection (other than  Indebtedness  which is payable solely by recourse to the
applicable property) shall not exceed $10,000,000 at any one time outstanding;

          (n)  any  Lien  existing  on any  real  or  personal  property  of any
corporation or partnership at the time it becomes a Subsidiary of the Company or
of any  other  Subsidiary  of the  Company,  or  existing  prior  to the time of
acquisition upon any real or personal property acquired by the Company or any of
its  Subsidiaries;  provided,  that such Liens may at all times be  deducted  in
calculating the Borrowing Base from time to time in effect;

          (o) legal or equitable  encumbrances  deemed to exist by reason of the
existence  of any  litigation  or other  legal  proceeding  or arising  out of a
judgment or award with  respect to which an appeal is being  prosecuted  in good
faith by appropriate action promptly initiated and diligently conducted, if such
reserve as will be required by GAAP will have been made therefor;


<PAGE>



          (p) any Liens securing  Indebtedness neither assumed nor guaranteed by
the  Company  or any of  its  Subsidiaries  nor on  which  it  customarily  pays
interest,  existing  upon real  estate or rights in or  relating  to real estate
acquired  by the Company or any of its  Subsidiaries  for  substation,  metering
station,   pump   station,   storage,   gathering   line,   transmission   line,
transportation line,  distribution line or right-of-way  purposes, and any Liens
reserved in leases for rent and full  compliance with the terms of the leases in
the case of leasehold  estates,  to the extent that any such Lien referred to in
this clause arises in the normal  course of business as presently  conducted and
does not materially  impair the use of the property covered by such Lien for the
purposes  for which  such  property  is held by the  Company  or its  applicable
Subsidiary;

          (q) rights reserved to or vested in any  municipality or governmental,
statutory  or public  authority  by the terms of any  right,  power,  franchise,
grant,  license or permit,  or by any provision of law, to terminate such right,
power, franchise, grant, license or permit or to purchase, condemn,  expropriate
or  recapture  or to designate a purchaser of any of the property of the Company
or any of its Subsidiaries;

          (r) rights reserved to or vested in any  municipality or governmental,
statutory or public authority to control or regulate any property of the Company
or any of its  Subsidiaries,  or to use such property in a manner which does not
materially impair the use of such property for the purposes for which it is held
by the Company or its applicable Subsidiary;

          (s) any obligations or duties affecting the property of the Company or
any of its Subsidiaries to any municipality,  governmental,  statutory or public
authority with respect to any franchise, grant, license or permit;

          (t)  rights  of a  common  owner  of  any  interest  in  real  estate,
rights-of-way  or easements held by the Company or any of its  Subsidiaries  and
such common owner as tenants in common or through other common ownership;

          (u) any Liens  arising from the matters  described in Schedule 3.19 of
the Mesa Contract;

          (v) Liens securing Indebtedness permitted under Section 10.1(s) hereof
(to the extent such Liens are permitted under such Section 10.1(s));

          (w)  as  to  assets  located  in  Canada,  reservations,  limitations,
provisos and conditions in any original grant from the Crown or freehold  lessor
of any of the properties of the Company or its Subsidiaries;

          (x) other Liens securing Indebtedness not exceeding, in the aggregate,
$10,000,000 at any one time outstanding;



<PAGE>



          (y) other Liens  securing  Senior Debt, but only so long as such Liens
shall  also  secure  the  Obligations  on a pari  passu  basis,  in a manner and
pursuant to documentation acceptable to the Majority Banks;

          (z) Liens (i)  granted  to or  existing  in favor of third  parties on
margin accounts of the Company or any of its  Subsidiaries  relating to exchange
traded  contracts  for the delivery of natural gas pursuant to which the Company
or any such  Subsidiary  intends to take  actual  delivery  of such  natural gas
within  forty (40) days from the then  current  date in the  ordinary  course of
business and not for  speculative  purposes,  and (ii) on margin accounts of the
Company or any of its Subsidiaries relating to exchange traded contracts for the
delivery of natural gas, provided,  however, the aggregate balance of the margin
accounts  subject to the Liens  permitted  by this  clause (ii) shall not exceed
from time to time $10,000,000.

          10.3  Investments,  Loans and Advances.  The Company will not and will
not  permit  its  Subsidiaries  to make or  permit  to  remain  outstanding  any
advances,  loans or other extensions of credit or capital  contributions  (other
than  prepaid  expenses  in the  ordinary  course of  business)  to (by means of
transfers  of property or assets or  otherwise),  or purchase or own any stocks,
bonds, notes,  debentures or other securities of, or incur contingent  liability
with respect to (except for the  endorsement of checks in the ordinary course of
business  and  except  for the  Indebtedness  and  Liens  permitted  under  this
Agreement) any Person (all such transactions being herein called "Investments"),
except that the foregoing restriction will not apply to:

          (a) Investments (all prior to the date hereof) the material details of
which have been set forth in the Financial  Statements  delivered to Agent prior
to the date hereof or the Disclosure Statement;

          (b) Liquid Investments;

          (c)  advances  or  extensions  of  credit  in  the  form  of  accounts
receivable incurred in the ordinary course of business;

          (d) the  acquisition  of all of the  capital  stock  of  wholly  owned
Subsidiaries incorporated or acquired subsequent to the date of this Agreement;

          (e) investments where the  consideration  paid is capital stock of the
Company,  plus cash paid in lieu of issuing  fractional  shares and cash paid in
settlement of claims of dissenters, such cash not to exceed 10% of the aggregate
purchase price in any such transaction;

          (f)  Investments  in any Person which after giving effect thereto will
be a Subsidiary of the Company,  so long as the Investment in such Person,  when
consummated,  would not result in a breach of the covenants set forth in Section
10.1;



<PAGE>



          (g) intercompany  loans,  advances or investments by the Company to or
in any Subsidiary of the Company  (other than a Subsidiary  that is obligated to
pay Funded  Indebtedness  for  borrowed  money  payable  solely by  recourse  to
properties not included in the Borrowing Base) or, to the extent permitted under
Section 10.1(h) hereof, by any Subsidiary of the Company to or in the Company or
to or in any other Subsidiary of the Company,  provided,  however,  that APC may
not make any  intercompany  loans,  advances or investments in any Subsidiary of
the Company pursuant to this clause (g);

          (h) intercompany loans, advances or investments by the Company, solely
from  income  or cash  flow  of the  Company  subject  to the  Beluga  Financing
Documents,  to APC as required under the Beluga Financing  Documents and the APC
Long Term Financing Documents;

          (i) to the extent,  if any, not covered by Subsection (a) hereinabove,
the  Indebtedness  of the Company to APC  evidenced  solely by the  Intercompany
Notes,  as  defined  in the  Beluga  Financing  Documents  and the APC Long Term
Financing  Documents,  together  with  any  renewals,  extensions,   amendments,
refinancings,  rearrangements,  modifications,  restatements or supplements, but
not increases  (other than increases which are permitted under the present terms
of the Beluga  Financing  Documents and the APC Long Term  Financing  Documents)
thereof from time to time;

          (j) loans or  advances to  employees  made in the  ordinary  course of
business,  up to the aggregate  principal  amount at any one time outstanding of
$5,000,000;

          (k)  Investments  in reasonable  amounts of securities for purposes of
funding employee benefit plans maintained by the Company;

          (l) advances or  extensions  of credit made in the ordinary  course of
business  to  third  parties  under  applicable   contracts  and  agreements  in
connection  with (i) oil,  gas or other  mineral  exploration,  development  and
production  activities or (ii)  Hydrocarbon  or chemical  pipeline  gathering or
transportation activities;

          (m) Investments where the consideration  paid is assets of the Company
or its Subsidiaries other than capital stock, cash or oil and gas reserves;

          (n)  Investments  in EBOC  Energy  Ltd.  made in  connection  with and
pursuant to that certain Sale Agreement  dated November 19, 1993 executed by and
between Novacor Petrochemicals Ltd., as Vendor, and the Company, as Purchaser;

          (o) any payment, prepayment, purchase or retirement of Indebtedness of
the Company  (other than  payments,  prepayments,  purchases  or  retirement  of
Subordinated Debt prohibited under the definition of "Subordinated Debt"); and



<PAGE>



          (p) any  other  Investments  which in the  aggregate  do not cause the
Company to be in violation of the Investments Tests.

          10.4 Dividend  Payment  Restrictions.  The Company will not declare or
make any Dividend Payment if any Default or Event of Default has occurred and is
continuing or if there exists any Borrowing Base Deficiency.

          10.5  Mergers and Sales of Assets.  The Company  will not (a) merge or
consolidate with, or sell, assign, lease or otherwise dispose of, whether in one
transaction or in a series of  transactions,  more than ten percent (10%) in the
aggregate  of the  Company's  and its  Subsidiaries'  consolidated  total assets
(whether  now owned or hereafter  acquired) to any Person or Persons  during the
period  since the most  recent  Borrowing  Base  Determination,  or  permit  any
Subsidiary  of the  Company  to do so  (other  than to the  Company  or  another
Subsidiary  of the Company or the issuance by any  Subsidiary  of the Company of
any stock to the Company or another  Subsidiary  of the  Company),  or (b) sell,
assign, lease or otherwise dispose of, whether in one transaction or in a series
of transactions,  any other properties if receiving therefor consideration other
than cash or other  consideration  readily  convertible to cash or which is less
than the fair market value of the relevant properties,  or permit any Subsidiary
of the  Company to do so;  provided  that the Company or any  Subsidiary  of the
Company may merge or consolidate with any other Person and any Subsidiary of the
Company may transfer properties to any other Subsidiary of the Company or to the
Company so long as, in each case, (i)  immediately  thereafter and giving effect
thereto, no event will occur and be continuing which constitutes a Default, (ii)
in the case of any such merger or consolidation to which the Company is a party,
the  Company is the  surviving  Person,  (iii) in the case of any such merger or
consolidation  to which any  Subsidiary  of the  Company is a party (but not the
Company),  after giving effect to all transactions closing concurrently relating
to such merger or  consolidation,  the  surviving  Person is a Subsidiary of the
Company and (iv) the surviving Person ratifies each applicable Loan Document and
provided  further that any  Subsidiary  of the Company may merge or  consolidate
with  any  other  Subsidiary  of the  Company  so  long  as,  in each  case  (i)
immediately  thereafter  and giving effect  thereto,  no event will occur and be
continuing  which  constitutes a Default and (ii) the surviving  Person ratifies
each applicable Loan Document.

          10.6  Proceeds of Notes.  The Company  will not permit the proceeds of
the  Notes  to be used  for any  purpose  other  than  those  permitted  by this
Agreement.

          10.7 ERISA  Compliance.  The  Company  will not at any time permit any
Plan maintained by it or any Subsidiary of the Company to:

          (a) engage in any "prohibited  transaction" as such term is defined in
Section 4975 of the Code;




<PAGE>



          (b) incur any "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA; or

          (c)  terminate or be  terminated in a manner which could result in the
imposition  of a Lien on the  property of the Company or any  Subsidiary  of the
Company  pursuant  to Section  4068 of ERISA,  in each case,  to the extent that
permitting the Plan to do so would have a Material Adverse Effect.

          10.8  Amendment  of Certain  Documents.  The  Company  will not amend,
modify or obtain or grant a waiver of (except for waivers only of cross-defaults
created  by a Default  under  this  Agreement),  or allow APC to enter  into any
amendment or  modification  or obtain or grant any waiver of (except for waivers
only of cross-defaults created by a Default under this Agreement), any provision
of those documents relating to or constituting the Beluga Financing Documents or
the APC Long Term Financing  Documents,  without prior written  notification  to
Agent.

          10.9 Tangible Net Worth.  The Company will not permit the Tangible Net
Worth of the Company and its Subsidiaries,  on a consolidated basis, at any time
to be less  than  $465,000,000  plus 50% of net  income of the  Company  and its
Subsidiaries  on a consolidated  basis,  if positive,  beginning with the fiscal
year ended  December  31, 1997 and  calculated  annually  thereafter  based upon
positive  net income of the Company  and its  Subsidiaries  for each  applicable
fiscal year taken cumulatively.

          10.10 Company  Debt/Capitalization  Ratio. The Company will not permit
the Debt/Capitalization Ratio to be, at any time, more than 65%.

          10.11  EBITDAX/Interest   Ratio.  The  Company  will  not  permit  the
EBITDAX/Interest Ratio to be, at any time, less than

          (a)       3.00:1.00 for any twelve month period ending on the last day
                    of any  calendar  quarter for the period from the  Effective
                    Date through and including March 31, 1997; and

          (b)       3.50:1.00 for any twelve month period ending on the last day
                    of any calendar quarter thereafter.

          10.12 Nature of Business. The Company will not engage in, and will not
permit any Subsidiary of the Company to engage in, businesses other than oil and
gas  exploration and production,  gas  processing,  transmission,  distribution,
marketing and storage and gas and liquids  pipeline  operations  and  activities
related or ancillary thereto; provided, that if the Company acquires one or more
Subsidiaries in transactions  otherwise  permitted by the terms hereof, any such

<PAGE>

Subsidiary may be engaged in businesses  other than those listed in this Section
so long as the assets of such Subsidiaries which are used in the conduct of such
other  businesses  do  not  constitute  more  than  five  percent  (5%)  of  the
consolidated  total  assets  of the  Company  (inclusive  of the  assets  of the
Subsidiary so acquired).

          10.13 Futures Contracts. The Company will not, and will not permit any
Subsidiary of the Company to, enter into or be obligated  under any contract for
sale for future delivery of oil or gas (whether or not the subject oil or gas is
to be delivered),  hedging contract,  forward contract, swap agreement,  futures
contract or other similar agreement except for (i) such contracts (x) which fall
within the parameters set forth on Exhibit J hereto or are otherwise approved in
writing by the Majority Banks and (y) which in the aggregate do not cover at any
time a volume of oil  and/or  gas  equal to or  greater  than 50% of the  proved
producing reserves attributable to the oil and gas properties of the Company and
its Subsidiaries, taken as a whole, as evidenced by the most current Engineering
and Company  Reports and (ii)  production  sales  contracts  entered into in the
ordinary course of the Company's or the applicable Subsidiary's business.

          10.14 Covenants in Other Agreements. The Company will not and will not
permit any of its  Subsidiaries  to become a party to or to agree that it or any
of its property is bound by any agreement, indenture, mortgage, deed of trust or
any other instrument directly or indirectly

          (i) restricting any loans,  advances or any other Investments to or in
the Company by any of its Subsidiaries;

          (ii)  restricting the ability of any Subsidiary of the Company to make
tax payments or management fee payments;

          (iii)  restricting the  capitalization  structure of any Subsidiary of
the Company; or

          (iv)  restricting  the ability or capacity  of any  Subsidiary  of the
Company to make Dividend Payments;  provided,  however,  nothing in this Section
10.14 shall restrict the existence of negative covenants otherwise prohibited by
this Section in documentation evidencing or related to Indebtedness permitted by
Subsection  10.1(t) and, to the extent that the applicable  Subsidiary  does not
own any property included in the Borrowing Base,  Subsections  10.1(m),  (n) and
(s). Notwithstanding the foregoing,  either of ENSTAR Alaska or APC may become a
party to,  or grant a Lien in any of its  property  by way of, or agree  that it
will be bound by, any  indenture,  mortgage,  deed of trust or other  instrument
containing provisions of the types described above in this Section 10.14 so long
as the terms and provisions thereof are not materially more restrictive than the
terms or  provisions  which are legally  binding on ENSTAR  Alaska or APC on the
Effective Date.




<PAGE>



          Section 11. Defaults.

          11.1 Events of Default. If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:

          (a)  Payments - (i) the Company or any other  Relevant  Party fails to
make any payment or prepayment of any  installment  of principal on the Loans or
any  Reimbursement  Obligation  payable under the Notes,  this  Agreement or the
other Loan  Documents  when due or (ii) the Company or any other  Relevant Party
fails to make any payment or  prepayment  of interest with respect to the Loans,
any  Reimbursement  Obligation or any other fee or amount under the Notes,  this
Agreement  or the  other  Loan  Documents  and  such  failure  to pay  continues
unremedied for a period of five (5) Business Days; or

          (b)  Representations  and Warranties - any  representation or warranty
made by the  Company or any other  Relevant  Party in this  Agreement  or in any
other Loan  Document or in any  instrument  executed in  connection  herewith or
therewith  proves to have been incorrect in any material  respect as of the date
thereof;  or any representation,  statement  (including  Financial  Statements),
certificate or data furnished or made by the Company or any other Relevant Party
(or any  officer  of the  Company  or any  other  Relevant  Party)  under  or in
connection  with this  Agreement or any other Loan Document,  including  without
limitation  in the  Disclosure  Statement,  proves  to have  been  untrue in any
material  respect,  as of the date as of which the facts  therein set forth were
stated or certified; or

          (c)  Affirmative  Covenants  - (i)  default  shall  be made in the due
observance or  performance  of any of the  covenants or agreements  contained in
Sections  9.11 (or in Section 9.6 to the extent such  default is  considered  an
Event of  Default  under the other  Subsections  of this  Section  11.1) or (ii)
default  is  made in the  due  observance  or  performance  of any of the  other
covenants or  agreements  contained in Section 9 of this  Agreement or any other
affirmative  covenant of the Company or any other  Relevant  Party  contained in
this Agreement or any other Loan Document and such default continues  unremedied
for a  period  of 30 days  after  (x)  notice  thereof  is given by Agent to the
Company or (y) such default otherwise becomes known to the Company, whichever is
earlier; or

          (d) Negative  Covenants - (i) default shall be made in the  observance
or performance  of any of the covenants or agreements  contained in Section 10.8
and such default  continues  unremedied  for a period of five (5) Business  Days
after (x) notice  thereof is given by Agent to the  Company or (y) such  default
otherwise becomes known to the Company, whichever is earlier, or (ii) default is
made in the due  observance  or  performance  by the Company of any of the other
covenants  or  agreements  contained  in Section 10 of this  Agreement or of any
other negative  covenant of the Company or any other Relevant Party contained in
this Agreement or any other Loan Document; or




<PAGE>



          (e) Other  Obligations  -  default  is made in the due  observance  or
performance by the Company or any of its Subsidiaries (as principal or guarantor
or other surety) of any of the  covenants or  agreements  contained in any bond,
debenture,  note or other  evidence  of  Indebtedness  in excess of  $25,000,000
(singly or aggregating several such bonds,  debentures,  notes or other evidence
of  Indebtedness)  which default  gives the holder the right to  accelerate  the
maturity  of such  Indebtedness,  other  than the Loan  Documents,  or under any
credit  agreement,  loan  agreement,   indenture,  promissory  note  or  similar
agreement or instrument  executed in connection  with any of the  foregoing,  to
which it  (respectively)  is a party and such  default is unwaived or  continues
unremedied  beyond the  expiration of any  applicable  grace period which may be
expressly allowed under such instrument or agreement; or

          (f) Involuntary  Bankruptcy or Receivership  Proceedings - a receiver,
conservator,  liquidator  or trustee of the Company or of any of its property is
appointed by the order or decree of any court or agency or supervisory authority
having jurisdiction, and such decree or order remains in effect for more than 60
days;  or the  Company  is  adjudicated  bankrupt  or  insolvent;  or any of its
property is sequestered by court order and such order remains in effect for more
than 60 days;  or a petition is filed  against  the  Company  under any state or
federal bankruptcy,  reorganization,  arrangement,  insolvency,  readjustment of
debt, dissolution,  liquidation or receivership law of any jurisdiction, whether
now or  hereafter  in  effect,  and is not  dismissed  within 60 days after such
filing; or

          (g)  Voluntary  Petitions  or  Consents  -  the  Company  commences  a
voluntary  case  or  other  proceeding  seeking   liquidation,   reorganization,
arrangement, insolvency, readjustment of debt, dissolution, liquidation or other
relief  with  respect  to  itself  or its debt or other  liabilities  under  any
bankruptcy,  insolvency  or other  similar  law nor or  hereafter  in  effect or
seeking the appointment of a trustee, receiver,  liquidator,  custodian or other
similar official of it or any substantial  part of its property,  or consents to
any such  relief  or to the  appointment  of or  taking  possession  by any such
official in an involuntary  case or other  proceeding  commenced  against it, or
fails  generally  to, or cannot,  pay its debts  generally as they become due or
takes any corporate action to authorize or effect any of the foregoing; or

          (h) Assignments for Benefit of Creditors or Admissions of Insolvency -
the Company makes an assignment for the benefit of its  creditors,  or admits in
writing its inability to pay its debts generally as they become due, or consents
to the  appointment of a receiver,  trustee,  or liquidator of the Company or of
all or any part of its property; or

          (i)  Undischarged  Judgments  -  judgments  (individually  or  in  the
aggregate)  for the payment of money in excess of $10,000,000 is rendered by any
court or other  governmental body against the Company or any of its Subsidiaries
and the Company or such  Subsidiary  does not  discharge the same or provide for
its  discharge  in  accordance  with its terms,  or procure a stay of  execution
thereof within 60 days from the date of entry thereof, and within said period of
60 days  from the date of entry  thereof  or such  longer  period  during  which

<PAGE>

execution of such judgment will have been stayed, the Company or such Subsidiary
fails to appeal  therefrom and cause the  execution  thereof to be stayed during
such appeal while  providing  such  reserves  therefor as may be required  under
GAAP; or

          (j)  Subsidiary  Defaults  - any  Subsidiary  of  the  Company  takes,
suffers,  or  permits to exist any of the events or  conditions  referred  to in
Subsections 11.1(f), (g) or (h); or

          (k) Change in Control - there should occur any Change of Control.

THEREUPON: Agent may (and, if directed by the Majority Banks, shall) (a) declare
the  Commitments  terminated  (whereupon  the  Commitments  shall be terminated)
and/or (b) terminate  any Letter of Credit  providing  for such  termination  by
sending a notice of  termination  as  provided  therein  and/or (c)  declare the
principal  amount then  outstanding of and the accrued interest on the Loans and
Reimbursement  Obligations and all fees and all other amounts payable  hereunder
and under the Notes to be  forthwith  due and  payable,  whereupon  such amounts
shall be and become  immediately  due and  payable,  without  notice  (including
without  limitation  notice of acceleration and notice of intent to accelerate),
presentment,  demand, protest or other formalities of any kind, all of which are
hereby  expressly  waived  by the  Company;  provided  that  in the  case of the
occurrence  of an Event of Default  with  respect to the Company  referred to in
clause (f) or (g) of this  Section 11.1 or in clause (j) of this Section 11.1 to
the  extent  it  refers  to  clauses  (f)  or  (g),  the  Commitments  shall  be
automatically  terminated and the principal  amount then  outstanding of and the
accrued interest on the Loans and Reimbursement Obligations and all fees and all
other  amounts  payable  hereunder  and  under  the  Notes  shall be and  become
automatically and immediately due and payable, without notice (including but not
limited  to notice  of intent to  accelerate  and  notice of  acceleration)  and
without presentment,  demand,  protest or other formalities of any kind, all of
which are hereby expressly waived by the Company and/or (d) exercise any and all
other rights available to it under the Loan Documents, at law or in equity.

          11.2 Collateral Account. The Company hereby agrees, in addition to the
provisions  of Section  11.1  hereof,  that upon the  occurrence  and during the
continuance  of any Event of Default,  it shall,  if  requested  by Agent or the
Majority Banks (through Agent), pay to Agent an amount in immediately  available
funds  equal to the then  aggregate  amount  available  for  drawings  under all
Letters of Credit  issued for the account of the  Company,  which funds shall be
held by Agent as Cover.

          11.3 Preservation of Security for Unmatured Reimbursement Obligations.
In the event that,  following (i) the  occurrence of an Event of Default and the
exercise of any rights  available  to Agent under the Loan  Documents,  and (ii)
payment in full of the  principal  amount  then  outstanding  of and the accrued
interest  on the  Loans  and  Reimbursement  Obligations  and fees and all other
amounts  payable  hereunder  and under the Notes,  any  Letters of Credit  shall
remain  outstanding  and undrawn upon,  Agent shall be entitled to hold (and the
Company  hereby  grants and conveys to Agent a security  interest in and to) all
cash or other property  ("Proceeds of Remedies")  realized or arising out of the

<PAGE>

exercise by Agent of any rights available to it under the Loan Documents, at law
or in equity, including, without limitation, the proceeds of any foreclosure, as
collateral  for the  payment  of any  amounts  due or to become  due under or in
respect of such Letters of Credit.  Such Proceeds of Remedies  shall be held for
the ratable benefit of the applicable  Issuers.  The rights,  titles,  benefits,
privileges,  duties and  obligations  of Agent  with  respect  thereto  shall be
governed by the terms and  provisions  of this  Agreement.  Agent may, but shall
have no  obligation  to,  invest any such Proceeds of Remedies in such manner as
Agent, in the exercise of its sole discretion, deems appropriate.  Such Proceeds
of Remedies shall be applied to Reimbursement  Obligations arising in respect of
any such Letters of Credit and/or the payment of any Issuer's  obligations under
any such Letter of Credit when such Letter of Credit is drawn upon.  The Company
hereby  agrees to  execute  and  deliver  to Agent and the Banks  such  security
agreements,  pledges or other  documents as Agent or any of the Banks may,  from
time to time,  require to perfect the pledge,  lien and security interest in and
to any such Proceeds of Remedies provided for in this Section 11.3.

          11.4  Right  of  Setoff.  Upon  (i)  the  occurrence  and  during  the
continuance  of any Event of Default  referred to in clauses  (f), (g) or (h) of
Section  11.1,  or in  clause  (j) of  Section  11.1 to the  extent it refers to
clauses  (f), (g) or (h), or upon (ii) the  occurrence  and  continuance  of any
other  Event of Default and upon the making of the notice  specified  in Section
11.1 to  authorize  Agent to declare the Notes due and  payable  pursuant to the
provisions thereof,  or if (iii) the Company or any of its Subsidiaries  becomes
insolvent,  however  evidenced,  the Banks are hereby authorized at any time and
from time to time, without notice to the Company or any of its Subsidiaries (any
such notice  being  expressly  waived by the Company and its  Subsidiaries),  to
setoff  and apply any and all  deposits  (general  or  special,  time or demand,
provisional or final, whether or not such setoff results in any loss of interest
or other penalty,  and including without limitation all certificates of deposit)
at any time held,  and any other funds or  property at any time held,  and other
Indebtedness  at any time owing by any Bank to or for the credit or the  account
of the Company against any and all of the Obligations irrespective of whether or
not such Bank will have made any demand  under this  Agreement  or the Notes and
although  such  obligations  may be  unmatured.  Should the right of any Bank to
realize  funds  in any  manner  set  forth  hereinabove  be  challenged  and any
application of such funds be reversed,  whether by court order or otherwise, the
Banks shall make  restitution  or refund to the  Company pro rata in  accordance
with their Commitments. The Banks agree promptly to notify the Company and Agent
after any such setoff and  application,  provided  that the failure to give such
notice will not affect the validity of such setoff and  application.  The rights
of Agent and the Banks under this  Section  are in addition to other  rights and
remedies  (including  without  limitation other rights of setoff) which Agent or
the Banks may have.

          Section 12. Agent.

          12.1 Appointment,  Powers and Immunities. Each Bank hereby irrevocably
appoints  and  authorizes  Agent to act as its  agent  hereunder  and  under the
Letters  of  Credit  and the  other  Loan  Documents  with  such  powers  as are

<PAGE>

specifically  delegated to Agent by the terms hereof and thereof,  together with
such other powers as are  reasonably  incidental  thereto.  Agent (which term as
used in this Section 12 shall include  reference to its  affiliates  and its own
and their affiliates' officers,  directors,  employees and agents) shall not (a)
have any duties or  responsibilities  except those  expressly  set forth in this
Agreement,  the  Letters of Credit,  and the other Loan  Documents,  or shall by
reason of this  Agreement  or any other Loan  Document be a trustee or fiduciary
for any  Bank;  (b) be  responsible  to any Bank for any  recitals,  statements,
representations or warranties contained in this Agreement, the Letters of Credit
or any other Loan Document,  or in any certificate or other document referred to
or  provided  for in, or  received by any of them  under,  this  Agreement,  the
Letters  of Credit or any  other  Loan  Document,  or for the  value,  validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Letters of Credit,  or any other Loan Document or any other document referred to
or provided  for herein or therein or any  property  covered  thereby or for any
failure  by any  Relevant  Party  or any  other  Person  to  perform  any of its
obligations hereunder or thereunder;  (c) be required to initiate or conduct any
litigation or collection proceedings hereunder or under the Letters of Credit or
any other  Loan  Document  except to the  extent  Agent is so  requested  by the
Majority  Banks,  or (d) be  responsible  for any action  taken or omitted to be
taken by it hereunder or under the Letters or Credit or any other Loan  Document
or any other  document  or  instrument  referred  to or  provided  for herein or
therein or in connection herewith or therewith,  including,  without limitation,
pursuant to their own negligence, except for its own gross negligence or willful
misconduct.  Agent may  employ  agents  and  attorneys-in-fact  and shall not be
responsible   for  the   negligence   or   misconduct  of  any  such  agents  or
attorneys-in-fact  selected  by it  with  reasonable  care.  Without  in any way
limiting any of the foregoing, each Bank acknowledges that neither Agent nor any
Issuer shall have any greater  responsibility in the operation of the Letters of
Credit than is  specified in the Uniform  Customs and  Practice for  Documentary
Credits (1993 Revision,  International Chamber of Commerce Publication No. 500).
In any  foreclosure  proceeding  concerning any  collateral for the Notes,  each
holder of a Note if bidding  for its own  account or for its own account and the
accounts of other Banks is prohibited from including in the amount of its bid an
amount to be applied as a credit  against  its Note or Notes or the Notes of the
other  Banks;  instead,  such holder must bid in cash only;  provided  that this
provision  is for the sole benefit of Agent and the Banks and shall not inure to
the  benefit of the  Company or any of its  Subsidiaries.  However,  in any such
foreclosure  proceeding,  Agent may (but shall not be obligated to) submit a bid
for all Banks  (including  itself) in the form of a credit  against the Notes of
all of the Banks,  and Agent or its designee may (but shall not be obligated to)
accept title to such collateral for and on behalf of all Banks.

          12.2  Reliance  by Agent.  Agent  shall be  entitled  to rely upon any
certification,   notice  or  other  communication   (including  any  thereof  by
telephone,  telex,  telegram or cable)  believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and  statements of legal  counsel  (which may be counsel for the
Company), independent accountants and other experts selected by Agent. As to any
matters not expressly provided for by this Agreement,  the Letters of Credit, or
any other Loan Document,  Agent shall in all cases be fully protected in acting,

<PAGE>

or in  refraining  from acting,  hereunder and  thereunder  in  accordance  with
instructions of the Majority Banks (or, where  unanimous  consent is required by
the terms  hereof or of the other Loan  Documents,  all of the  Banks),  and any
action taken or failure to act pursuant  thereto  shall be binding on all of the
Banks.  Pursuant to  instructions  of the  Majority  Banks  (except as otherwise
provided in Section  13.4  hereof),  Agent shall have the  authority  to execute
releases of security documents on behalf of the Banks without the joinder of any
Bank.

          12.3  Defaults.  Agent  shall not be deemed to have  knowledge  of the
occurrence of a Default (other than the  non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless it has received notice from a Bank
or the Company specifying such Default and stating that such notice is a "Notice
of Default". In the event that Agent receives such a notice of the occurrence of
a Default,  Agent shall give prompt notice  thereof to the Banks (and shall give
each Bank  prompt  notice of each such  non-payment).  Agent  shall  (subject to
Section  12.7  hereof) take such action with respect to such Default as shall be
directed by the Majority  Banks and within its rights  under the Loan  Documents
and at law or in  equity,  provided  that,  unless  and until  Agent  shall have
received  such  directions,  Agent may (but shall not be obligated to) take such
action,  or refrain  from taking such action,  permitted  hereby with respect to
such Default as it shall deem  advisable in the best  interests of the Banks and
within its rights under the Loan Documents, at law or in equity.

          12.4 Rights as a Bank.  With respect to its  Commitments and the Loans
made and Letter of Credit Liabilities, Chase in its capacity as a Bank hereunder
shall  have the same  rights  and  powers  hereunder  as any other  Bank and may
exercise  the same as though it were not acting as Agent and the term  "Bank" or
"Banks" shall, unless the context otherwise indicates,  include the Chase in its
individual capacity.  Agent may (without having to account therefor to any Bank)
accept deposits from, lend money to and generally engage in any kind of banking,
trust,  letter of credit,  agency or other business with the Company (and any of
its Affiliates) as if it were not acting as Agent, and Agent may accept fees and
other consideration from the Company and its Affiliates (in addition to the fees
heretofore  agreed to between the Company and Agent) for services in  connection
with this  Agreement or otherwise  without having to account for the same to the
Banks.

          12.5  Indemnification.  The  Banks  agree to  indemnify  Agent (to the
extent not reimbursed under Section 2.2(c),  Section 9.7 or Section 13.3 hereof,
but without  limiting the obligations of the Company under said Sections 2.2(c),
9.7 and 13.3), ratably in accordance with their respective Commitments,  for any
and  all  liabilities,   obligations,   losses,  damages,  penalties,   actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any kind and  nature
whatsoever  (including but not limited to, the consequences of the negligence of
Agent) which may be imposed on, incurred by or asserted against Agent in any way
relating to or arising out of this Agreement, the Letters of Credit or any other
Loan Document or any other  documents  contemplated  by or referred to herein or
therein or the transactions  contemplated hereby or thereby (including,  without

<PAGE>

limitation,  the costs and expenses  which the Company is obligated to pay under
Sections  2.2(c),  9.8 and 13.3  hereof  but  excluding,  unless a  Default  has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of their respective  agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other  documents,  provided
that no Bank shall be liable for any of the  foregoing  to the extent they arise
from the gross negligence or willful  misconduct of the party to be indemnified.
The  obligations  of the  Banks  under  this  Section  12.5  shall  survive  the
termination of this Agreement and the repayment of the Obligations.

          12.6  Non-Reliance on Agent and Other Banks.  Each Bank agrees that it
has received current financial  information with respect to the Company and that
it has,  independently and without reliance on Agent or any other Bank and based
on such  documents and  information as it has deemed  appropriate,  made its own
credit  analysis of the Company and  decision to enter into this  Agreement  and
that it will,  independently  and without reliance upon Agent or any other Bank,
and based on such documents and information as it shall deem  appropriate at the
time,  continue to make its own analysis  and  decisions in taking or not taking
action under this Agreement or any of the other Loan Documents.  Agent shall not
be required to keep itself  informed as to the  performance or observance by any
Relevant Party of this Agreement, the Letters of Credit or any of the other Loan
Documents or any other document referred to or provided for herein or therein or
to inspect the properties or books of the Company or any Relevant Party.  Except
for notices,  reports and other documents and information  expressly required to
be furnished to the Banks by Agent hereunder, under the Letters of Credit or the
other Loan Documents, Agent shall not have any duty or responsibility to provide
any Bank with any credit or other information concerning the affairs,  financial
condition  or  business of the  Company or any other  Relevant  Party (or any of
their affiliates) which may come into the possession of Agent.

          12.7  Failure to Act.  Except for action  expressly  required of Agent
hereunder, under the Letters of Credit and under the other Loan Documents, Agent
shall in all cases be fully  justified  in failing or refusing to act  hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Banks of their indemnification obligations under Section 12.5 hereof against
any and all  liability  and  expense  which may be  incurred  by it by reason of
taking or continuing to take any such action.

          12.8  Resignation or Removal of Agent.  Subject to the appointment and
acceptance of a successor Agent as provided below,  Agent may resign at any time
by giving notice thereof to the Banks and the Company,  and Agent may be removed
at any  time  with or  without  cause  by the  Majority  Banks.  Upon  any  such
resignation  or removal,  the  Majority  Banks shall have the right to appoint a
successor  Agent,  provided  deposits with a successor Agent shall be insured by
the Federal  Deposit  Insurance  Corporation or its  successor.  If no successor
Agent shall have been so appointed by the Majority Banks and shall have accepted
such  appointment  within 30 days after the retiring Agent's giving of notice of
resignation  or the  Majority  Banks'  removal of the retiring  Agent,  then the
retiring  Agent may,  on behalf of the Banks,  appoint a  successor  Agent.  Any

<PAGE>

successor  Agent shall be a bank which has an office in the United  States and a
combined  capital and surplus of at least  $250,000,000.  Upon the acceptance of
any  appointment as Agent hereunder by a successor  Agent,  such successor Agent
shall  thereupon  succeed  to and become  vested  with all the  rights,  powers,
privileges  and duties of the retiring  Agent,  and the retiring  Agent shall be
discharged  from its duties and obligations  hereunder.  A successor Agent shall
promptly  specify by notice to the  Company and the Banks its  Principal  Office
referred to in Sections 3.1 and 5.1. After any retiring  Agent's  resignation or
removal  hereunder as Agent, the provisions of this Section 12 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as an Agent.

          Section 13. Miscellaneous.

          13.1 Waiver.  No waiver of any Default  shall be a waiver of any other
Default.  No  failure  on the part of any Agent or any Bank to  exercise  and no
delay in exercising,  and no course of dealing with respect to, any right, power
or privilege  under any Loan  Document  shall operate as a waiver  thereof,  nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or  privilege.  The remedies  provided in the Loan  Documents  are
cumulative and not exclusive of any remedies provided by law or in equity.

          13.2 Notices. All notices and other communications provided for herein
(including,  without  limitation,  any  modifications of, or waivers or consents
under,  this  Agreement)  shall be given or made by telex,  telegraph,  telecopy
(confirmed  by mail),  cable,  mail or other  writing and  telexed,  telecopied,
telegraphed,  cabled,  mailed or  delivered  to the  intended  recipient  at the
"Address for Notices"  specified  below its name on the signature  pages hereof;
or, as to any party,  at such other address as shall be designated by such party
in a notice to the Company,  Agent given in  accordance  with this Section 13.2.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly received when transmitted by telex or telecopier during
regular business hours, delivered to the telegraph or cable office or personally
delivered  or, in the case of a mailed  notice,  three (3) days after deposit in
the United States mails,  postage  prepaid,  certified  mail with return receipt
requested (or upon actual receipt, if earlier),  in each case given or addressed
as aforesaid.

          13.3  Indemnification.  The Company shall indemnify  Agent, the Banks,
and each Affiliate thereof and their respective directors,  officers,  employees
and agents from,  and hold each of them  harmless  against,  any and all losses,
liabilities,  claims  or  damages  to  which  any of  them  may  become  subject
(regardless  of whether caused in whole or in part by the simple (but not gross)
negligence  of the Person  indemnified),  insofar as such  losses,  liabilities,
claims or damages  arise out of or result from any (i) actual or proposed use by
the Company of the  proceeds  of any  extension  of credit  (whether a Loan or a
Letter of  Credit) by any Bank  hereunder,  (ii)  breach by the  Company of this
Agreement or any other Loan Document,  (iii)  violation by the Company or any of
its  Subsidiaries of any Legal  Requirement,  including but not limited to those

<PAGE>

relating to Hazardous Substances, (iv) Liens or security interests previously or
hereafter granted on any real or personal property, to the extent resulting from
any Hazardous Substance located in, on or under any such property, (v) ownership
by the Banks or Agent of any real or personal property following foreclosure, to
the extent such losses,  liabilities,  claims or damages  arise out of or result
from any Hazardous  Substance located in, on or under such property,  including,
without  limitation,  losses,  liabilities,  claims or damages which are imposed
upon Persons under laws relating to or regulating Hazardous Substances solely by
virtue of ownership, (vi) Bank's or Agent's being deemed an operator of any such
real or  personal  property  by a court or other  regulatory  or  administrative
agency or tribunal in  circumstances in which neither Agent nor any of the Banks
is generally  operating or generally  exercising control over such property,  to
the extent such losses,  liabilities,  claims or damages  arise out of or result
from any  Hazardous  Substance  located  in, on or under  such  property,  (vii)
investigation,   litigation  or  other  proceeding   (including  any  threatened
investigation or proceeding)  relating to any of the foregoing,  and the Company
shall  reimburse  Agent,  each  Bank,  and  each  Affiliate  thereof  and  their
respective  directors,  officers,  employees  and agents,  upon demand,  for any
expenses   (including   legal  fees)  incurred  in  connection   with  any  such
investigation  or  proceeding  or  (viii)  taxes  (excluding  income  taxes  and
franchise  taxes)  payable or ruled  payable by any  Governmental  Authority  in
respect of the Notes or any other Loan  Document,  together  with  interest  and
penalties,  if any;  provided,  however,  that the  Company  shall  not have any
obligations   pursuant  to  this  Section  13.3  with  respect  to  any  losses,
liabilities,  claims, damages or expenses (a) arising from or relating solely to
events,  conditions or  circumstances  which,  as to clauses  (iv),  (v) or (vi)
above, first came into existence or which first occurred after the date on which
the Company or any of its Subsidiaries  conveyed to an unrelated third party all
of the Company's or the applicable  Subsidiary's rights, titles and interests to
the  applicable  real or  personal  property  (whether  by  deed,  deed-in-lieu,
foreclosure or otherwise)  other than a conveyance made in violation of any Loan
Document or (b) incurred by the Person seeking  indemnification by reason of the
gross  negligence  or willful  misconduct  of such  Person.  If the Company ever
disputes a good faith claim for  indemnification  under this Section 13.3 on the
basis of the proviso  set forth in the  preceding  sentence,  the full amount of
indemnification  provided  for  shall  nonetheless  be  paid,  subject  to later
adjustment  or  reimbursement  at such  time (if  any) as a court  of  competent
jurisdiction  enters  a  final  judgment  as to the  applicability  of any  such
exceptions.

          13.4 Amendments,  Etc. No amendment or waiver of any provision of this
Agreement,  the  Notes  or any  other  Loan  Document,  nor any  consent  to any
departure by the Company  therefrom,  shall in any event be effective unless the
same shall be agreed or consented to by the Majority Banks and the Company,  and
each such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, that no amendment, waiver or
consent shall,  unless in writing and signed by each Bank affected  thereby,  do
any of the  following:  (a)  increase  the  Commitment  of such  Bank (it  being
understood  that the waiver of any reduction in the Commitments or any mandatory
repayment  other than (x) the repayment of all Loans at the end of the Revolving
Credit Availability  Period and (y) the mandatory  reductions of the Commitments
provided for in Section 2.3(a) and (z) the mandatory prepayments required by the

<PAGE>

terms  of  Section  3.2(b),  shall  not  be  deemed  to be an  increase  in  any
Commitment)  or subject the Banks to any additional  obligation;  (b) reduce the
principal  of,  or  interest  on,  any  Loan,  Reimbursement  Obligation  or fee
hereunder;  (c) postpone any  scheduled  date fixed for any payment or mandatory
prepayment of principal of, or interest on, any Loan, Reimbursement  Obligation,
fee or other sum to be paid  hereunder;  (d) change the percentage of any of the
Commitments or of the aggregate  unpaid principal amount of any of the Loans and
Letter of Credit  Liabilities,  or the number of Banks,  which shall be required
for the Banks or any of them to take any action under this Agreement; (e) change
any provision  contained in Sections 2.2(c),  9.7 or 13.3 hereof or this Section
13.4 or Section 6.7  hereof,  or (f)  release  all or  substantially  all of any
security for the  obligations of the Company under this Agreement or any Note or
all or substantially all of the personal  liability of any obligor created under
any of the Loan  Documents.  Anything in this Section 13.4 to the  contrary,  no
amendment,  waiver or consent  shall be made with  respect to Section 12 without
the consent of Agent.  The consent of the Super Majority Banks shall be required
to any amendment of any  requirement  under this Agreement or the other the Loan
Documents that the consent of the Super Majority Banks be obtained.

          13.5 Successors and Assigns.

          (a) This  Agreement  shall be binding upon and inure to the benefit of
the Company,  Agent and the Banks and their  respective  successors and assigns.
The  Company  may not  assign  or  transfer  any of its  rights  or  obligations
hereunder  without the prior written consent of all of the Banks.  Each Bank may
sell  participations  to any  Person  in all or part of any  Loan or  Letter  of
Credit,  or all or part of its Notes or  Commitments,  in which  event,  without
limiting the  foregoing,  the provisions of Section 6 shall inure to the benefit
of each purchaser of a participation and the pro rata treatment of payments,  as
described in Section 5.2,  shall be determined as if such Bank had not sold such
participation.  In the event any Bank  shall sell any  participation,  such Bank
shall retain the sole right and responsibility to enforce the obligations of the
Company  relating  to  the  Loans  or  Letters  of  Credit,  including,  without
limitation,  the right to approve any amendment,  modification  or waiver of any
provision of this Agreement other than amendments, modifications or waivers with
respect to (i) any fees  payable  hereunder  to the Banks and (ii) the amount of
principal  or the rate of  interest  payable  on,  or the  dates  fixed  for the
scheduled repayment of principal of, the Loans.

          (b) Each Bank may assign to one or more Banks or any other  Person all
or a portion of its  interests,  rights and  obligations  under this  Agreement,
provided,  however,  that (i) other than in the case of an assignment to another
Bank that is, at the time of such assignment,  a party hereto or an Affiliate of
such Bank, the Company must give its prior written  consent,  which consent will
not be unreasonably withheld, (ii) the aggregate amount of the Commitment and/or
Loans or Letters of Credit of the assigning Bank subject to each such assignment
(determined as of the date the Assignment and Acceptance (as defined below) with
respect to such assignment is delivered to Agent) shall in no event be less than
$10,000,000  (or  $5,000,000  in the case of an  assignment to an Affiliate of a
Bank or between  Banks),  (iii) no assignment  shall have the effect of reducing

<PAGE>

the pro rata share of the Loans or Letters of Credit and the Commitments held by
the assignor and its Affiliates  below  $10,000,000,  (iv)  notwithstanding  any
other  term or  provision  of this  Agreement,  unless  the  Company  shall have
otherwise  consented in writing (such consent not to be unreasonably  withheld),
each such assignment shall be pro rata with respect to the Loans, the Letters of
Credit and the  Commitment  of the  assignor,  and (v) the  parties to each such
assignment  shall execute and deliver to Agent, for its acceptance and recording
in the Register (as defined below),  an Assignment and Acceptance in the form of
Exhibit H hereto (each an "Assignment and Acceptance") with blanks appropriately
completed,  together  with any Note or Notes  subject to such  assignment  and a
processing  and  recordation  fee of $2,500 paid by the assignee  (for which the
Company shall have no liability). Upon such execution,  delivery, acceptance and
recording,  from and after the effective date  specified in each  Assignment and
Acceptance,  which effective date shall be at least five Business Days after the
execution thereof,  (A) the assignee  thereunder shall be a party hereto and, to
the extent  provided  in such  Assignment  and  Acceptance,  have the rights and
obligations of a Bank hereunder and (B) the Bank thereunder shall, to the extent
provided in such  Assignment and  Acceptance,  be released from its  obligations
under this Agreement.  Notwithstanding  anything  contained in this Agreement to
the  contrary,  any Bank may at any time assign all or any portion of its rights
under  this  Agreement  and the Notes  issued to it as  collateral  to a Federal
Reserve Bank; provided, that no such assignment shall release the assigning Bank
from any of its obligations hereunder.

          (c) By executing and delivering an Assignment and Acceptance, the Bank
assignor  thereunder and the assignee  thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty  that it is the legal and  beneficial  owner of the interest  being
assigned  thereby free and clear of any adverse claim,  such Bank assignor makes
no representation or warranty and assumes no responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement  or  any of the  other  Loan  Documents  or the  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan  Documents or any other  instrument or document  furnished
pursuant  thereto;  (ii) such Bank assignor makes no  representation or warranty
and assumes no  responsibility  with respect to the  financial  condition of the
Company  or  the  performance  or  observance  by  the  Company  of  any  of its
obligations under this Agreement or any of the other Loan Documents or any other
instrument or document furnished  pursuant hereto;  (iii) such assignee confirms
that it has  received  a copy of this  Agreement,  together  with  copies of the
financial  statements  referred to in Section 8.6 and such other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such Assignment and Acceptance;  (iv) such assignee will,
independently  and without  reliance  upon any Agent,  such Bank assignor or any
other  Bank and  based  on such  documents  and  information  as it  shall  deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this  Agreement and the other Loan  Documents;  (v) such
assignee  appoints  and  authorizes  Agent to take  such  action as agent on its
behalf and to  exercise  such  powers  under this  Agreement  and the other Loan
Documents as are  delegated  to Agent by the terms  hereof,  together  with such

<PAGE>

powers as are reasonably  incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this  Agreement and the other Loan  Documents are required to be performed by
it as a Bank.

          (d) Agent shall  maintain at its office a copy of each  Assignment and
Acceptance  delivered to it and a register for the  recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the Loans
owing to,  each Bank from time to time  (the  "Register").  The  entries  in the
Register shall be conclusive, in the absence of manifest error, and the Company,
Agent and the Banks may treat each  person the name of which is  recorded in the
Register as a Bank  hereunder  for all purposes of this  Agreement and the other
Loan Documents. The Register shall be available for inspection by the Company or
any Bank at any  reasonable  time and from  time to time upon  reasonable  prior
notice.

          (e) Upon its receipt of an Assignment  and  Acceptance  executed by an
assigning  Bank  and the  assignee  thereunder  together  with any Note or Notes
subject to such assignment,  the written consent to such assignment  executed by
the  Company  and the fee  payable  in respect  thereto,  Agent  shall,  if such
Assignment and Acceptance has been completed with blanks  appropriately  filled,
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the  Register  and (iii) give prompt  notice  thereof to the Company.
Within five  Business  Days after  receipt of notice,  the  Company,  at its own
expense,  shall  execute and deliver to Agent in  exchange  for the  surrendered
Notes  new  Notes  to the  order  of such  assignee  in an  amount  equal to the
Commitments  and/or  Loans or Letters of Credit  assumed by it  pursuant to such
Assignment  and Acceptance  and, if the assigning Bank has retained  Commitments
and/or  Loans  hereunder,  new  Notes to the order of the  assigning  Bank in an
amount equal to the Commitment  and/or Loans retained by it hereunder.  Such new
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such  surrendered  Notes,  shall be dated the  effective  date of such
Assignment and Acceptance and shall  otherwise be in  substantially  the form of
the respective Note. Thereafter,  such surrendered Notes shall be marked renewed
and  substituted  and the  originals  delivered  to the  Company  (with  copies,
certified  by the  Company as true,  correct  and  complete,  to be  retained by
Agent).

          (f) Any Bank may, in connection  with any assignment or  participation
or proposed assignment or participation  pursuant to this Section 13.5, disclose
to the  assignee  or  participant  or  proposed  assignee  or  participant,  any
information  relating to the Company  furnished  to such Bank by or on behalf of
the Company; provided,  however, that, prior to any such disclosure, the Company
shall have consented thereto,  which consent shall not be unreasonably withheld,
and each such  assignee or  participant,  or proposed  assignee or  participant,
shall execute an agreement  whereby such assignee or participant  shall agree to
preserve the confidentiality of any Confidential Information (defined in Section
13.13) on terms substantially the same as those provided in Section 13.13.


<PAGE>



          (g) The  Company  will  have the  right  to  consent  to any  material
intercreditor  arrangements  in connection with an assignment by any Bank of any
interest,  right or obligation  under this Agreement  which is not pro rata with
respect to the Loans,  the Letters of Credit and the  Commitment of the assignor
and the  Company  may deny its consent to any such  arrangements  which,  in the
reasonable  judgement of the Company,  would  adversely  affect the Company in a
material respect.

          (h) The  provisions of this Section shall not apply to the  assignment
and pledge of a Bank's rights hereunder or under any Note to any Federal Reserve
Bank for collateral  purposes pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any Operating  Circular issued by such Federal
Reserve Bank;  provided that such  assignment  and pledge shall not relieve such
Bank of any of its obligations hereunder.

          13.6  Limitation  of  Interest.  The Company  and the Banks  intend to
strictly  comply with all  applicable  laws,  including  applicable  usury laws.
Accordingly,  the  provisions of this Section 13.6 shall govern and control over
every  other  provision  of this  Agreement  or any other  Loan  Document  which
conflicts or is inconsistent with this Section,  even if such provision declares
that it controls.  As used in this  Section,  the term  "interest"  includes the
aggregate of all charges,  fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable  law, (a) any  non-principal  payment  shall be  characterized  as an
expense or as  compensation  for something  other than the use,  forbearance  or
detention  of  money  and not as  interest,  and (b) all  interest  at any  time
contracted  for,  reserved,  charged or received  shall be amortized,  prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Company or any other  Person be obligated to pay, or any Bank
have any right or privilege to reserve,  receive or retain,  (a) any interest in
excess of the maximum amount of nonusurious interest permitted under the laws of
the State of Texas or the  applicable  laws (if any) of the United  States or of
any other applicable  state, or (b) total interest in excess of the amount which
such Bank could lawfully have contracted for,  reserved,  received,  retained or
charged had the interest been calculated for the full term of the Obligations at
the Highest  Lawful  Rate.  On each day,  if any,  that the  interest  rate (the
"Stated  Rate")  called for under  this  Agreement  or any other  Loan  Document
exceeds the Highest  Lawful Rate,  the rate at which interest shall accrue shall
automatically  be fixed by operation of this sentence at the Highest Lawful Rate
for that day,  and shall  remain  fixed at the Highest  Lawful Rate for each day
thereafter until the total amount of interest accrued equals the total amount of
interest  which  would have  accrued if there  were no such  ceiling  rate as is
imposed by this sentence.  Thereafter,  interest shall accrue at the Stated Rate
unless and until the Stated Rate again exceeds the Highest  Lawful Rate when the
provisions  of the  immediately  preceding  sentence  shall again  automatically
operate to limit the interest  accrual rate. The daily interest rates to be used
in  calculating  interest at the  Highest  Lawful  Rate shall be  determined  by
dividing the  applicable  Highest Lawful Rate per annum by the number of days in
the calendar year for which such  calculation  is being made.  None of the terms
and  provisions  contained in this Agreement or in any other Loan Document which
directly  or  indirectly  relate to  interest  shall ever be  construed  without

<PAGE>

reference to this Section  13.6, or be construed to create a contract to pay for
the use,  forbearance or detention of money at an interest rate in excess of the
Highest  Lawful Rate.  If the term of any  Obligation  is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted  prepayment,  and if for that (or any other)
reason any Bank at any time,  including but not limited to, the stated maturity,
is owed or  receives  (and/or  has  received)  interest  in excess  of  interest
calculated  at the Highest  Lawful  Rate,  then and in any such event all of any
such  excess  interest  shall be canceled  automatically  as of the date of such
acceleration,  prepayment or other event which produces the excess, and, if such
excess  interest  has been paid to such  Bank,  it shall be  credited  pro tanto
against the then-outstanding  principal balance of the Company's  obligations to
such Bank,  effective as of the date or dates when the event occurs which causes
it to be  excess  interest,  until  such  excess  is  exhausted  or all of  such
principal has been fully paid and  satisfied,  whichever  occurs first,  and any
remaining balance of such excess shall be promptly refunded to its payor.

          13.7 Survival.  The obligations of the Company under Sections  2.2(c),
6, 9.7 and 13.3  hereof and the  obligations  of the Banks  under  Section  13.6
hereof shall  survive the repayment of the Loans and  Reimbursement  Obligations
and the termination of the Commitments and the Letters of Credit.

          13.8  Captions.  Captions and section  headings  appearing  herein are
included  solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

          13.9  Counterparts.  This  Agreement  may be executed in any number of
counterparts,  all of which taken  together  shall  constitute  one and the same
agreement  and any of the parties  hereto may execute this  Agreement by signing
any such counterpart.

          13.10  Governing  Law.  This  Agreement  and the Notes and  (except as
therein  provided) the other Loan  Documents are  performable  in Harris County,
Texas, which shall be a proper place of venue for suit on or in respect thereof.
The  Company  irrevocably  agrees that any legal  proceeding  in respect of this
Agreement or the other Loan Documents shall be brought in the district courts of
Harris  County,  Texas or the  United  States  District  Court for the  Southern
District of Texas, Houston Division (collectively,  the "Specified Courts"). The
Company hereby irrevocably submits to the nonexclusive jurisdiction of the state
and federal courts of the State of Texas. The Company hereby irrevocably waives,
to the  fullest  extent  permitted  by law,  any  objection  which it may now or
hereafter have to the laying of venue of any suit, action or proceeding  arising
out of or relating to any Loan  Document  brought in any  Specified  Court,  and
hereby  further  irrevocably  waives  any claims  that any such suit,  action or
proceeding brought in any such court has been brought in an inconvenient  forum.
The Company further (1) agrees to designate and maintain an agent for service of
process  in the City of  Houston in  connection  with any such  suit,  action or
proceeding and to deliver to Agent evidence thereof and (2) irrevocably consents
to the  service of process out of any of the  aforementioned  courts in any such

<PAGE>

suit,  action or proceeding by the mailing of copies thereof by certified  mail,
return  receipt  requested,  postage  prepaid,  to the Company at its address as
provided in this Agreement or as otherwise provided by Texas law. Nothing herein
shall affect the right of any Agent or any Bank to commence legal proceedings or
otherwise proceed against the Company in any jurisdiction or to serve process in
any manner permitted by applicable law. The Company agrees that a final judgment
in any such  action or  proceeding  shall be  conclusive  and may be enforced in
other  jurisdictions  by suit on the judgment or in any other manner provided by
law. THIS  AGREEMENT AND (EXCEPT AS THEREIN  PROVIDED) THE OTHER LOAN  DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER
THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED  STATES OF
AMERICA FROM TIME TO TIME IN EFFECT.

          13.11  Severability.  Whenever  possible,  each  provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid,  illegal
or unenforceable in any respect under any applicable law, the validity, legality
and  enforceability of the remaining  provisions of such Loan Document shall not
be affected or impaired thereby.

          13.12  Chapter 15 Not  Applicable.  Chapter 15,  Subtitle 3, Title 79,
Revised  Civil  Statutes of Texas,  1925,  as  amended,  shall not apply to this
Agreement  or to any Loan or Letter of Credit,  nor shall this  Agreement or any
Loan or Letter of Credit be governed by or be subject to the  provisions of such
Chapter 15 in any manner whatsoever.

          13.13 Confidential Information.  Agent and each Bank separately agrees
that:

          (a) As used herein, the term "Confidential  Information" means written
information about the Company or the transactions  contemplated herein furnished
by the Company to Agent  and/or the Banks which is  specifically  designated  as
confidential  by the  Company;  Confidential  Information,  however,  shall  not
include  information  which (i) was publicly  known or  available,  or otherwise
available on a  non-confidential  basis to any Bank,  at the time of  disclosure
from a source other than the Company,  (ii) subsequently  becomes publicly known
through no act or omission by such Bank, (iii) otherwise  becomes available on a
non-confidential  basis to any Bank other than through disclosure by the Company
or (iv) has been in the  possession  of any Bank for a period  of more  than two
years from the date on which such  information  originally was furnished to such
Bank by the Company, unless the Company shall have requested Agent and the Banks
in  writing,  at least  30 days  prior to the end of such  two-year  period,  to
maintain the confidentiality of such information for another two (2) year period
(or for successive  two (2) year  periods);  provided that the Company shall not
unreasonably  withhold  its consent to a request  made after the initial two (2)
year period to eliminate information from "Confidential Information".

          (b) Agent and each Bank agrees that it will take normal and reasonable
precautions  to maintain the  confidentiality  of any  Confidential  Information
furnished  to such  Person;  provided,  however,  that such Person may  disclose

<PAGE>

Confidential  Information (i) upon the Company's consent;  (ii) to its auditors;
(iii)  when  required  by any  Legal  Requirement;  (iv) as may be  required  or
appropriate in any report,  statement or testimony submitted to any Governmental
Authority having or claiming to have  jurisdiction over it; (v) to such Person's
and its Subsidiaries' or Affiliates'  officers,  directors,  employees,  agents,
representatives  and professional  consultants in connection with this Agreement
or administration of the Loans and Letters of Credit; (vi) as may be required or
appropriate,  should such Bank elect to assign or grant participations in any of
the Obligations in connection with (1) the enforcement of the Obligations to any
such Person under any of the Loan  Documents or related  agreements,  or (2) any
potential  transfer  pursuant to this Agreement of any  Obligation  owned by any
Bank  (provided  any  potential  transferee  has been approved by the Company if
required by this Agreement,  which approval shall not be unreasonably  withheld,
and has  agreed in  writing  to be bound by  substantially  the same  provisions
regarding Confidential  Information contained in this Section);  (vii) as may be
required or  appropriate in response to any summons or subpoena or in connection
with any litigation or administrative proceeding; (viii) to any other Bank; (ix)
to the extent reasonably  required in connection with the exercise of any remedy
hereunder  or under the other Loan  Documents;  or (x) to  correct  any false or
misleading   information  which  may  become  public  concerning  such  Person's
relationship to the Company.

          13.14 Tax Forms.  With respect to each Bank which is  organized  under
the laws of a jurisdiction  outside the United States, on the day of the initial
borrowing hereunder and from time to time thereafter if requested by the Company
or  Agent,  such  Bank  shall  provide  Agent  and the  Company  with the  forms
prescribed by the Internal Revenue Service of the United States certifying as to
such Bank's  status for purposes of  determining  exemption  from United  States
withholding taxes with respect to all payments to be made to such Bank hereunder
or  other  documents  satisfactory  to the Bank and  Agent  indicating  that all
payments  to be made to such Bank  hereunder  are  subject to such tax at a rate
reduced by an  applicable  tax  treaty.  Unless the Company and Agent shall have
received such forms or such documents indicating that payments hereunder are not
subject to United  States  withholding  tax or are subject to such tax at a rate
reduced by an applicable  tax treaty,  the Company or Agent shall withhold taxes
from such payments at the  applicable  statutory rate in the case of payments to
or for any Bank organized  under the laws of a  jurisdiction  outside the United
States.

          13.15 Amendment and Restatement. This Agreement amends and restates in
its entirety that certain Credit  Agreement dated as of May 24, 1994 executed by
and among the Company, the Banks and Agent, as amended.

          13.16  Intercreditor  Agreement.  Reference  is  hereby  made  to  the
Intercreditor Agreement, which provides for certain matters relating to both the
Loans and the Canadian Facility. To the extent of any conflict between the terms
hereof and the terms of the Intercreditor Agreement, the Intercreditor Agreement
shall  control.  The  execution  and  delivery  by  Agent  of the  Intercreditor

<PAGE>

Agreement on behalf of the Banks is hereby ratified and confirmed by each of the
Banks.  Any Bank that becomes a party to this Agreement after the Effective Date
agrees to be bound by the terms and provisions of the Intercreditor Agreement.

          IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.

                                                     SEAGULL ENERGY CORPORATION,
                                                     a Texas corporation


                                                     By: /s/ William L. Transier
                                                     Name: William L. Transier
                                                     Title: Senior Vice
                                                            President and Chief
                                                            Financial Officer

                                                     Address for Notices:

                                                     1001 Fannin, Suite 1700
                                                     Houston, Texas  77002
                                                     Attention: Steve Thorington





<PAGE>



                                        THE CHASE MANHATTAN BANK,
                                        as Agent


                                        By: /s/ Edward L. Nelson, Jr.
                                        Name: Edward L. Nelson, Jr.
                                        Title: Managing Director
Commitment:
                                        Address for Notices:
$62,000,000
                                        1 Chase Manhattan Plaza, 8th Floor
                                        New York, New York 10081
                                        Attention: Agent Services

                                        with a copy to:

                                        Texas Commerce Bank National Association
                                        712 Main Street
                                        Houston, Texas 77002
                                        Attention: Manager, Energy Division






<PAGE>



                                       MORGAN GUARANTY TRUST COMPANY OF NEW YORK



                                       By: /s/ John Kowalczuk
Commitment:                            Name: John Kowalczuk
                                       Title: Vice President
$60,000,000
                                       Address for Notices:

                                      60 Wall Street
                                      New York, New York 10260-0060
                                      Attention: Loan Department





<PAGE>



                                                    NATIONSBANK OF TEXAS, N.A.



                                                    By: /s/ Paul A. Squires
Commitment:                                         Name: Paul A. Squires
                                                    Title: Senior Vice President
$60,000,000
                                                    Address for Notices:

                                                    700 Louisiana, 8th Floor
                                                    Houston, Texas  77002
                                                    Attention:  Jo A. Tamalis






<PAGE>



                                               THE FIRST NATIONAL BANK OF BOSTON



                                               By: /s/ George W. Passela
Commitment:                                    Name: George W. Passela
                                               Title: Managing Director
$40,000,000
                                               Address for Notices:

                                               100 Federal Street
                                               Energy & Utilities 01-15-04
                                               Boston, Massachusetts  02110
                                               Attention:  George W. Passela





H1995A/73788
7002/3623
                                                        93

<PAGE>



                                      ABN AMRO BANK N.V., HOUSTON AGENCY

                                      By: ABN AMRO North America, Inc., as agent


                                      By: /s/ Cheryl I. Lipshutz
Commitment:                           Name: Cheryl I. Lipshutz
                                      Title: Group Vice President and Director
$30,000,000

                                      By: /s/ H. Gene Shiels
                                      Name: H. Gene Shiels
                                      Title: Vice President and Director


                                       Address for Notices:

                                       Three Riverway, Suite 1700
                                       Houston, Texas  77056
                                       Attention: Ms. Cheryl Lipshultz






<PAGE>



                                                   THE BANK OF NEW YORK



                                                    By: 
Commitment:                                         Name:
                                                    Title:
$30,000,000
                                                    Address for Notices:

                                                    One Wall Street, 19th Floor
                                                    New York, New York 10296
                                                    Attention: Ms. Renee Bijlani






<PAGE>



                                                   BANQUE PARIBAS HOUSTON AGENCY



                                                   By: /s/ Marian Livingston
Commitment:                                        Name: Marian Livingston
                                                   Title: Vice President
$25,000,000

                                                   By: /s/ Barton D. Schouest
                                                   Name: Barton D. Schouest
                                                   Title: Group Vice President


                                                   Address for Notices:

                                                   1200 Smith, Suite 3100
                                                   Houston, Texas  77002
                                                   Attention: Barton D. Schouest





<PAGE>



                                                 CREDIT LYONNAIS NEW YORK BRANCH



                                                 By: /s/ Pascal Poupelle
Commitment:                                      Name: Pascal Poupelle
                                                 Title: Senior Vice President
$40,000,000


                                                 Address for Notices:

                                                 1000 Louisiana, Suite #5360
                                                 Houston, Texas  77002
                                                 Attention:  Mr. A. David Dodd




<PAGE>



                                           THE FUJI BANK, LIMITED HOUSTON AGENCY


                                           By: /s/ Yoshiaki Inoue
Commitment:                                Name: Yoshiaki Inoue
                                           Title: Vice President and Manager
$25,000,000
                                           Address for Notices:

                                           One Houston Center
                                           Suite 4100
                                           1221 McKinney Street
                                           Houston, Texas  77010
                                           Attention:  Mr. Roger Frey







<PAGE>



                                                  FIRST NATIONAL BANK OF CHICAGO



                                                  By: /s/ Dixon P. Schultz
Commitment:                                       Name: Dixon P. Schultz
                                                  Title: Vice President
$30,000,000
                                                  Address for Notices:

                                                  1100 Louisiana, Suite 3200
                                                  Houston, Texas 77002
                                                  Attention:  Mr. Dennis Petito





<PAGE>



                                              SOCIETE GENERALE, SOUTHWEST AGENCY



                                              By: /s/ Richard A. Erbert
Commitment:                                   Name: Richard A. Erbert
                                              Title: Vice President
$35,000,000
                                              Address for Notices:

                                              2001 Ross Avenue, Suite 4800
                                              Dallas, Texas 75201
                                              Attention: Ms. Angela Aldridge

                                              with a copy to:

                                              1111 Bagby, Suite 2020
                                              Houston, Texas  77002
                                              Attention:  Mr. Richard Erbert




<PAGE>



                                              THE BANK OF TOKYO-MITSUBISHI, LTD.



                                              By: /s/ Michael G. Meiss
Commitment:                                   Name: Michael G. Meiss
                                              Title: Vice President
$16,500,000
                                              Address for Notices:

                                              1100 Louisiana, Suite 2800
                                              Houston, Texas  770002-5216
                                              Attention: Mr. John M. McIntyre




<PAGE>



                                                BANK OF SCOTLAND



                                                By: /s/ Catherine M. Oniffrey
Commitment:                                     Name: Catherine M. Oniffrey
                                                Title: Vice President
                                                       Bank of Scotland
$25,000,000
                                                Address for Notices:

                                                565 Fifth Avenue
                                                New York, New York 10017
                                                Attention: Ms. Catherine Onifrey




<PAGE>



                                             CAISSE NATIONALE DE CREDIT AGRICOLE



                                             By: /s/  David E. Bouhl
Commitment:                                  Name: David E. Bouhl
                                             Title: First Vice President
$16,500,000
                                             Address for Notices:

                                             600 Travis, Suite 2340
                                             Houston, Texas 77002
                                             Attention:  Mr. Brian Knezeak



<PAGE>



                                                 CHRISTIANIA BANK OG KREDITKASSE



                                                 By: /s/ Peter M. Dodge
Commitment:                                      Name: Peter M. Dodge
                                                 Title: First Vice President
$30,000,000


                                                 By: /s/ Justin F. McCarty, III
                                                 Name: Justin F. McCarty, III
                                                 Title: Vice President


                                                 Address for Notices:

                                                 11 West 42nd Street
                                                 7th Floor
                                                 New York, New York 10036
                                                 Attention: Mr. Jahn Roising



<PAGE>



                                                  DEN NORSKE BANK AS

                                                  By: /s/ Byron L. Cooley
Commitment:                                       Name: Byron L. Cooley
                                                  Title: Senior Vice President
$21,000,000

                                                  By: /s/ William V. Moyer
                                                  Name: William V. Moyer
                                                  Title: Vice President

                                                  Address for Notices:

                                                  333 Clay
                                                  Suite 4890
                                                  Houston, Texas 77002
                                                  Attention: Mr. Byron L. Cooley






<PAGE>



                                                      WELL FARGO BANK



                                                      By: /s/Gregory J. Petruska
Commitment:                                           Name: Gregory J. Petruska
                                                      Title: Vice President
$21,000,000 
                                                      Address for Notices:

                                                      1000 Louisiana
                                                      3rd Floor/MS #156
                                                      Houston, Texas 77002
                                                      Attention: Mr. John Fields






<PAGE>



                                                   THE BANK OF NOVA SCOTIA



                                                   By: /s/ F.C.H. Ashby
Commitment:                                        Name: F.C.H. Ashby
                                                   Title: Senior Manager
                                                          Loan Operations
$17,500,000
                                                   Address for Notices:

                                                   Suite 3000, 1100 Louisiana
                                                   Houston, Texas  77002
                                                   Attention:  Mr. Mark Ammerman






<PAGE>



                                              CIBC INC.



                                              By: /s/ Aleksandra K. Dymanus
Commitment:                                   Name: Aleksandra K. Dymanus
                                              Title: Authorized Signatory
$17,500,000

                                              Address for Notices:

                                              Two Paces West
                                              2727 Paces Ferry Road
                                              Suite 1200
                                              Atlanta, Georgia 30339
                                              Attention: Loan Operations

                                              with a copy to:

                                              Canadian Imperial Bank of Commerce
                                              Two Houston Center
                                              909 Fannin Street
                                              Houston, Texas 77010
                                              Attention: Mr. Brian Myers






<PAGE>



                                  MELLON BANK



                                  By: /s/ E. Marc Cuenod, Jr.
Commitment:                       Name: E. Marc Cuenod, Jr.
                                  Title: First Vice President
$16,000,000
                                  Address for Notices:

                                  Mellon Bank
                                  One Mellon Bank Center
                                  Room 151-4425
                                  Pittsburgh, Pennsylvania 15258-0001
                                  Attention: Manager, Energy and Utilities Group

                                  with a copy to:

                                  Mellon Financial Services
                                  1100 Louisiana, 36th Floor
                                  Houston, Texas 77002-5210
                                  Attention: Ms. Melissa Bauman






<PAGE>



                                   FIRST UNION NATIONAL BANK OF NORTH CAROLINA

                                   By: First Union Corporation of North Carolina


                                   By: /s/ Michael J. Kolosowsky
Commitment:                        Name: Michael J. Kolosowsky
                                   Title: Vice President
$21,000,000
                                   Address for Notices:

                                   First Union Corporation of North Carolina
                                   1001 Fannin, Suite 2255
                                   Houston, Texas 77002
                                   Attention: Mr. Jay M. Chernosky





<PAGE>


                                                     BANK OF MONTREAL



                                                     By: /s/ Michael P. Stuckey
Commitment:                                          Name: Michael P. Stuckey
$11,000,000                                          Title: Managing Director


                                                     Address for Notices:

                                                     700 Louisiana, Suite 4400
                                                     Houston, Texas 77002
                                                     Attention: Ms. Christa Hash