STOCK OPTION GRANT
                    UNDER THE PENNSYLVANIA ENTERPRISES, INC.
                              STOCK INCENTIVE PLAN



Option No.:  98-093



     THIS AGREEMENT dated as of May 6, 1998 (the "Date of Grant") is made by and
between PENNSYLVANIA ENTERPRISES,  INC. (the "Company") and Thomas F. Karam (the
"Optionee").

     WHEREAS, the Company has adopted the Pennsylvania  Enterprises,  Inc. Stock
Incentive Plan (the "Plan"); and

     WHEREAS,  the  purpose  of the  Plan  is to  enable  the  Company  and  its
subsidiaries to attract and retain key employees; and

     WHEREAS,  the Stock Option  Committee of the  Company's  Board of Directors
(the  "Committee")  has determined that it would be in the best interests of the
Company to enter into this Agreement.

     NOW,  THEREFORE,  the Company hereby grants an option (the "Option")  under
the Plan to the Optionee on the following terms and conditions:

     1. AMOUNT OF STOCK SUBJECT TO OPTION:

     The  Company  hereby  grants  to the  Optionee,  subject  to the  terms and
conditions set forth in this Agreement,  the Option to purchase 60,000 shares of
authorized  and  unissued  common stock of the Company  (without  nominal or par
value,  with a stated  value of $5.00 per  share) or  shares  reacquired  by the
Company and held in treasury (the  "Stock"),  which Stock is to be issued by the
Company upon the exercise of the Option as hereinafter set forth.

     2. PURCHASE PRICE:

     The  purchase  price  per share of Stock  subject  to the  Option  shall be
$23.9375  per share,  the fair  market  value of a share of Stock on the Date of
Grant, as determined by the Committee.

     3. TYPE OF OPTION:

     The Option is intended to be a  Non-Qualified  Stock  Option that is not an
Incentive Stock Option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.

     4. EARN-OUT OF OPTION:

     (a) The Option shall be  exercisable  with respect to 30,000 shares (50% of
the shares  subject to the Option) on May 1, 2002,  but only if (i) PEI earnings
per share goal for 2001,  as  determined  by the  Compensation  Committee of the
Board of  Directors of the Company and approved by the Board of Directors of the
Company,  is met  and  (ii)  Optionee  satisfies  the  employment  condition  of
paragraph  4(c) until such date  except in the event of a Change of Control  (as
defined in the  Incentive  Plan),  in which case such options shall become fully
exercisable.

     (b) In  addition to the  portion of the Option  which shall be  exercisable
pursuant to paragraph 4(a) hereof,  the Option shall be exercisable with respect
to 30,000 shares (50% of the shares  subject to the Option) on May 1, 2003,  but
only if (i) PEI  earnings  per share goal for 2002,  as set by the  Compensation
Committee of the Board of Directors  of the  Company,  is met and (ii)  Optionee
satisfies the  employment  condition of paragraph 4(c) until such date except in
the event of a Change of Control (as defined in the  Incentive  Plan),  in which
case such options shall become fully exercisable.

     (c) In order to satisfy the employment  condition of this  paragraph  4(c),
Optionee  must remain  employed by the Company or a Related  Company (as defined
below) in at least the same or a similarly  responsible  position until the time
specified  in  paragraph  4(a)  or  4(b),  respectively.  For  purposes  of this
Agreement,  the term Related  Company means a  corporation,  partnership,  joint
venture or other entity in which the Company owns,  directly or  indirectly,  at
least a 50% beneficial ownership interest.

     (d) For  purposes of this  Section 4 the  Committee  reserves  the right to
review and  adjust,  as it deems  appropriate,  earnings  per share  results for
one-time, non-operating gains or losses, such as those resulting from accounting
changes, asset sales, early  retirement/severance  programs, other extraordinary
expenses or transactions, and also for temperature variations from normal degree
days.

     (e) The Committee shall determine, in its discretion, the level of earnings
per share  which has been  attained  and the  extent to which the  Optionee  has
satisfied  the  conditions  set forth in  paragraph  4(c).  Notwithstanding  the
foregoing  provisions of this Section 4, the Committee  may, in its  discretion,
declare all or any portion of the Option to be exercisable.

     5. PERIOD OF OPTION:

     The Option is granted as of the Date of Grant.  The Option  shall expire at
the earliest to occur of (a) three months after  termination  of the  Optionee's
Employment  (as  defined  below) for any reason  except  death,  disability,  or
retirement;  (b) one year after  termination  of the  Optionee's  Employment  by
reason  of  death  or  disability;  (c)  five  years  after  termination  of the
Optionee's  Employment  by reason of  retirement,  on or after age 55, under the
Employees' Retirement Plan of Pennsylvania Enterprises, Inc.; or (d) May 5, 2008
(ten years after the Date of Grant). In no event shall the term of the Option be
greater than ten years. For purposes of this Agreement,  "Employment" shall mean
employment with the Company or any Related Company.

     6. EXERCISE OF OPTION:

     (a) To the extent the Option has become exercisable  pursuant to Section 4,
the Option may be exercised in whole or in part with respect to full shares (and
no  fractional  shares  shall be issued)  until it expires  in  accordance  with
Section 5.

     (b) In order to exercise the Option or any part thereof, the Optionee shall
give  notice in writing to the  Company at its  headquarters  address (on a form
acceptable to the Company) of the  Optionee's  intention to purchase all or part
of the shares  subject to the Option,  and in said notice the Optionee shall set
forth the  number  of shares as to which  he/she  desires  to  exercise  his/her
Option.  The notice must be accompanied by payment in full of the exercise price
for such shares.  Such payment may be made in cash,  through the delivery to the
Company of full  shares of Stock  which have been owned by the  Optionee  for at
least six months having a value equal to the total exercise price of the portion
of the Option so  exercised,  through a  combination  of cash and such shares of
Stock, or in such other manner as may be permitted by the Committee.  Any shares
of Stock so delivered shall be valued at the average of the high and low trading
prices  for the day prior to the date on which  the  Option  is  exercised.  The
Option  will be  deemed  exercised  on the  date a  proper  notice  of  exercise
(accompanied as described above) is hand delivered, or, if mailed, postmarked.

     (c) The Optionee  shall,  no later than the date of exercise of the Option,
make payment to the Company in cash or its  equivalent  of any  federal,  state,
local or other taxes of any kind  required by law to be withheld with respect to
the Option.  The obligations of the Company under the Plan and this Option shall
be  conditional on such payment,  and the Company (and,  where  applicable,  any
Related Company) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Optionee.

     7. NON-TRANSFERABILITY OF OPTION:

     The  Option is not  transferable  otherwise  than by will or by the laws of
descent and distribution. To the extent the Option is exercisable at the time of
the Optionee's  death, it may be exercised by the executor or  administrator  of
the  Optionee's  estate or by the person  designated  by will or entitled by the
laws of descent and  distribution,  upon such  death,  to any  remaining  rights
arising out of the Option.

     8. CHANGE OF CONTROL:

     Notwithstanding  the provisions of Section 4, the Option shall become fully
exercisable upon the occurrence of a Change of Control (as defined in the Plan).

     9. CHANGE IN CAPITAL:

     If prior to the expiration of the Option, there shall be any changes in the
Stock structure of the Company by reason of the declaration of stock  dividends,
recapitalization  resulting in stock  split-ups or  combinations or exchanges of
shares by reason  of  merger,  consolidation,  or by any other  means,  then the
number of shares subject to the Option and the exercise price per share of Stock
shall be  equitably  and  appropriately  adjusted as the  Committee  in its sole
discretion  shall  deem just and  reasonable  in light of all the  circumstances
pertaining thereto.

     10. RIGHT TO TERMINATE EMPLOYMENT:

     The Option  shall not confer upon the Optionee any right to continue in the
employ of the  Company  or a Related  Company or  interfere  in any way with the
right  of the  Company  or any  Related  Company  to  terminate  the  Optionee's
employment at any time,  nor shall it interfere in any way with the right of the
Optionee to terminate the Optionee's employment.

     11. REGISTRATION AND OTHER REQUIREMENTS:

     The Option is subject to the requirement that, if at any time the Committee
shall determine that (a) the listing, registration or qualification of the Stock
subject or related to the Option upon any securities exchange or under any state
or federal law, (b) the consent or approval of any governmental  regulatory body
or (c) an agreement by the Optionee with respect to the  disposition of Stock is
necessary or desirable (in connection with any requirement or  interpretation of
any federal or state  securities  law, rule or regulation) as a condition of, or
in  connection  with,  the  issuance,  purchase  or  delivery of Stock under the
Option,  the Option  shall not be  exercised,  in whole or in part,  unless such
listing, registration,  qualification, consent, approval or agreement shall have
been  effected  or  obtained  free  of  any  conditions  not  acceptable  to the
Committee.

     12. SUBJECT TO THE PLAN:

     The Option  evidenced by the Agreement and the exercise thereof are subject
to the  terms and  conditions  of the Plan,  which  are  incorporated  herein by
reference  and made a part  hereof.  In  addition,  the Option is subject to any
rules and regulations promulgated by the Committee.

     IN WITNESS  WHEREOF,  this Agreement has been executed and delivered by the
parties hereto:

                                           PENNSYLVANIA ENTERPRISES, INC.



                                      By:      ______________________________
                                      Name:      Kenneth L. Pollock
                                      Title:     Chairman


Accepted and agreed to as of the Date of Grant:



____________________________
Optionee