<PAGE>
 
                                  Exhibit 10i

                                   AGREEMENT

          This Agreement is entered into by and between McFarland Energy, Inc.,
(the "Company") and J. C. McFarland ("Executive").

          WHEREAS, the Company has a talented and dedicated management team
which has made many valuable contributions to the success of the Company; and

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause following
a change in control of the Company;

          NOW, THEREFORE, in consideration of the premises and mutual
promises contained herein, it is agreed as follows:

     1.   Payment of Benefits In The Event Of Termination Of Employment
          -------------------------------------------------------------
          Following A Change in Control.
          ------------------------------

          In the event that a "Change in Control" (as defined in this Section)
occurs on or before December 31, 1999, and that the employment of Executive is
thereafter "Involuntarily Terminated" (as defined in this Section) within
twenty-four (24) calendar months of the effective date of the Change in Control,
the Company (or Post-Change Employer as hereinafter described and defined) will
provide Executive with the benefits set forth in this Section.

          a.     Definition of "Change in Control."
                 ----------------------------------

          As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:

          (i)    A majority of the members of the Board of Directors at the end
of any consecutive twenty-four (24) calendar month period is not comprised of
"Incumbent Directors" (as defined in this Section).  For purposes of this
Agreement, a Director shall be considered to be an "Incumbent Director" if
either of the following conditions is met:

                 (A)  The Director was a Director at the beginning of

                                       66
<PAGE>
 
                      the consecutive twenty-four (24) calendar month period 
                      in question; or

                 (B)  The Director's election by the Company's stockholders, or
                      nomination for election by the Company's stockholders, was
                      approved by a vote of a majority of the members of the
                      Board at a time when a majority of the members of the
                      Board were Incumbent Directors. Such approval may be made
                      by any resolution of the Board expressing approval of the
                      Director or nominee, or by any communication to the
                      Company's stockholders, which communication is authorized
                      by the Board and which communication recommends election
                      of the Director or nominee. Such approval may be made by
                      the Board after the Director has been elected, provided
                      that a majority of the members of the Board at the time of
                      approval consists of Incumbent Directors.

          (ii)   Any "person", including a "group" (as such terms are used in 
Rule 13(d)(5) of the Securities Exchange Act of 1934 (the "1934 Act")), but
excluding the Company, any of its Subsidiaries, and any employee benefit plan of
the Company or any of its Subsidiaries) is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) under the 1934 Act), directly or indirectly, of
securities of the Company representing thirty-five (35%) percent or more of the
combined voting power of the Company's then outstanding securities.

          (iii)  A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into another
corporation, provided that the other corporation is not a "Subsidiary" of the
Company (as defined herein). For purposes of this Section, a corporation shall
be considered to be a "Subsidiary" of the Company if either of the following
conditions is met:

                 (A)  A majority of the directors of the corporation are also
                      directors of the Company; or

                 (B)  The Company is the "beneficial owner" (as defined in Rule
                      13(d)(3) under the 1934 Act), directly or indirectly, of
                      securities of the corporation representing more than fifty
                      (50%) percent of the combined voting power of the
                      corporation's then outstanding securities.

                                       67
<PAGE>
 
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:

                 (A)  A majority of the directors of the merged or combined
                      corporation were Incumbent Directors of the Company
                      immediately before the merger or combination; or

                 (B)  "Beneficial ownership" (as defined in Rule 13(d)(3) under
                      the 1934 Act), directly or indirectly, of more than fifty
                      (50%) percent of the combined voting power of the merged
                      or combined corporation is held, immediately after the
                      merger or combination, by persons (as that term is used in
                      the 1934 Act) who held beneficial ownership, directly or
                      indirectly, of more than fifty (50%) percent of the
                      combined voting power of the Company immediately before
                      the merger or combination; or

                 (C)  Securities representing more than fifty (50%) percent of
                      the combined voting power of the merged or combined
                      corporation (as measured immediately after the merger or
                      combination), are issued or conveyed to stockholders of
                      the Company in exchange for or in consideration of their
                      shares in the Company.

          b.     Involuntary Termination of Employment, Qualifying Executive
                 -----------------------------------------------------------
                 for Benefits.
                 -------------

          Executive will be entitled to receive the benefits set forth in this
Section 1 if the employment of Executive is "Involuntarily Terminated" (as
defined in this Section) within twenty-four (24) calendar months of the
effective date after the Change in Control.

          (i)    For purposes of this Section, Executive will be considered to
be "Involuntarily Terminated" if, within twenty-four (24) calendar months after
the effective date of the Change in Control, Executive's employment with the
Company or with any successor corporation which employs Executive as a result of
a merger or combination which constitutes a Change in Control under Section
1a(iii) of this Agreement (collectively, the "Post-Change Employer"), is
terminated for any of the following reasons:

                                       68
<PAGE>
 
                 (A)  If Executive is terminated by the Post-Change Employer
                      without "Good Cause." For purposes of this Subsection, the
                      Post-Change Employer shall have Good Cause to terminate
                      Executive's employment if any of the following conditions
                      are met:

                      (a)  If grounds exist to terminate the employment of
                           Executive pursuant to California Labor Code Section
                           2924; or

                      (b)  If Executive engages in serious or willful misconduct
                           which is detrimental to the interests of the Post-
                           Change Employer or its stockholders; or

                      (c)  If Executive willfully refuses to carry out the
                           directions and responsibilities assigned to Executive
                           by the Chief Executive Officer of the Post-Change
                           Employer.

                 (B)  If Executive resigns from employment for "Good Reason."

                      (a)  For purposes of this Subsection, Executive will have
                           Good Reason to resign from employment if any of the
                           following conditions are met:

                           (1)  There is a significant adverse change in the
                                nature or scope of Executive's authorities or
                                duties; or

                           (2)  There is a significant reduction in Executive's
                                compensation or benefits provided by the Post-
                                Change Employer in comparison with the
                                compensation and benefits which Executive was
                                receiving from the Company immediately before
                                the Change in Control; or

                                       69
<PAGE>
 
                           (3)  The geographic location at which Executive is
                                required to perform Executive's principal duties
                                is moved to a location more than fifty (50)
                                miles from such location existing immediately
                                before the Change in Control.

                       (b)  Notwithstanding any other provision of this
                            Agreement, Executive will not be considered to have
                            Good Reason to resign from employment unless both of
                            the following conditions are met:

                            (1)  Executive has given the Post-Change Employer
                                 timely written notice of the fact that
                                 Executive contends that Executive has Good
                                 Reason to resign from employment, and of the
                                 grounds for Executive's contention. To be
                                 timely, such notice must be given within a
                                 reasonable time after Executive learns of the
                                 circumstances which give rise to the contention
                                 that Executive has Good Reason to resign from
                                 employment. If Executive's contention is based
                                 on Subsections 1b(i)(B)(a)(2) or 1b(i)(B)(a)(3)
                                 of this Agreement, a period of fourteen (14)
                                 calendar days shall be presumed to constitute a
                                 "reasonable time" for Executive to give such
                                 notice. If Executive's contention is based on
                                 Subsection 1b(i)(B)(a)(1) of this Agreement, a
                                 "reasonable time" to give such notice shall be
                                 a period of time sufficient for Executive to
                                 fully assess the extent and consequences of any
                                 change in the nature or scope of Executive's
                                 authorities or duties,

                                       70
<PAGE>
 
                                 and to make a full and fair determination as to
                                 whether such change is "adverse."

                                 (2)  The Post-Change Employer fails to cure the
                                      circumstances which give rise to
                                      Executive's contention that Executive has
                                      Good Reason to resign from employment
                                      within thirty (30) calendar days following
                                      receipt of such written notice from
                                      Executive.

                 (C)  If Executive is terminated on account of disability,
                      unless the disability is such that Executive is eligible
                      for benefits under the Post-Change Employer's Long-Term
                      Disability Plan then in effect, if any.

          (ii)   For purposes of this Section, Executive will not be considered
to be "Involuntarily Terminated" if Executive's employment with the Post-Change
Employer is terminated for any of the following reasons:


                 (A)  On account of Executive's death;

                 (B)  On account of Executive's disability which renders
                      Executive eligible for benefits under the Post-Change
                      Employer's Long-Term Disability Plan, provided such
                      eligibility and benefits are substantially similar to
                      those in Company's Plan immediately prior to the Change in
                      Control;

                 (C)  If Executive is terminated by the Post-Change Employer
                      for "Good Cause" (as defined in this Section).

                 (D)  If Executive voluntarily resigns from employment without
                      "Good Reason" (as defined in this Section).

          (iii)  In the event of any dispute as to whether Executive has been

                                       71
<PAGE>
 
Involuntarily Terminated, such dispute shall be decided by final and binding
arbitration as provided in this Agreement.

          c.     Amount and Payment of Benefits.
                 ------------------------------ 

                 (i)   If Executive becomes eligible for benefits under this
Section 1, Executive shall be entitled, upon being Involuntarily Terminated from
employment, to receive from the Post-Change Employer, the following benefits:

                       (A)  An amount of cash equal to:

                            (a)  The greater of two times:

                                 (1)  Executive's annualized base salary, plus
                                      the amount of Executive's annualized car
                                      allowance, if any, in effect at the end of
                                      the month immediately prior to the Change
                                      in Control; or

                                 (2)  Executive's annualized base salary, plus
                                      the amount of Executive's annualized car
                                      allowance, if any, in effect at the end of
                                      the month immediately prior to the date
                                      Executive is Involuntarily Terminated; and

                            (b)  The greater of two times:

                                 (1)  The amount of bonus, if any, paid or
                                      accrued to Executive for the most recently
                                      ended calendar year immediately prior to
                                      the Change in Control; or

                                 (2)  The amount of bonus, if any, paid or
                                      accrued to Executive for the most recently
                                      ended calendar year prior to the date
                                      Executive is Involuntarily Terminated.

                                       72
<PAGE>
 
                            The Post-Change Employer shall make the cash
                            payments described in this Subsection 1c(i)(A) as a
                            lump sum payment payable within thirty (30) calendar
                            days after the date that Executive is Involuntarily
                            Terminated, or, at Executive's written request
                            delivered within fifteen (15) calendar days after
                            the date Executive is Involuntarily Terminated, in
                            twelve (12) equal and consecutive monthly
                            installments with the first installment payable
                            within thirty (30) calendar days after the date
                            Executive is Involuntarily Terminated.

                       (B)  Standard outplacement services provided by a
                            qualified outplacement agency selected by the Post-
                            Change Employer, which services will be made
                            available for a period of twelve (12) consecutive
                            calendar months from the date Executive is
                            Involuntarily Terminated, or until the date
                            Executive accepts employment with another employer,
                            whichever occurs first; and

                       (C)  Compensation for the loss of group medical and
                            dental insurance benefits (excluding coverage under
                            any life or long-term disability programs), which
                            may be provided, at the sole discretion of the Post-
                            Change Employer, by either of the following options:

                            (a)  By continuing in effect those group medical and
                                 dental insurance benefits which were provided
                                 by the Post-Change Employer immediately before
                                 Executive was Involuntarily Terminated, on the
                                 same terms and conditions which were in effect
                                 immediately before Executive was Involuntarily
                                 Terminated, provided that such coverage is
                                 substantially similar to the coverage
                                 (including any dependent coverage) Executive
                                 was receiving from the Company immediately
                                 prior to the Change in Control, for a period of
                                 twenty-four (24) calendar months from the date
                                 of Executive

                                       73
<PAGE>
 
                                 is Involuntarily Terminated or until Executive
                                 obtains coverage under a group insurance
                                 arrangement or program sponsored by a new
                                 employer, whichever occurs first; or

                            (b)  By payment of a lump sum amount equal to 
                                 twenty-four (24) times the greater of the 
                                 following amounts:

                                 (1)  the monthly premium necessary for
                                      Executive to maintain Executive's group
                                      medical and dental insurance benefits,
                                      pursuant to COBRA, under the plan provided
                                      by the Post-Change Employer, net of
                                      Executive's required co-payments; or

                                 (2)  the monthly premium which would have been
                                      necessary for Executive to maintain
                                      Executive's group medical and dental
                                      insurance benefits, pursuant to COBRA,
                                      under the plan provided by the Company
                                      immediately prior to the Change in
                                      Control, net of Executive's required co-
                                      payments.

          (ii)   In the event that the payments hereunder, or that the payments
hereunder together with any other payments by the Company under any other plan
or arrangement, would cause the loss of deductibility of any portion of such
payments by the Company under Section 280G of the Internal Revenue Code, then
the amounts payable under this Section 1, shall be limited to an amount that
would not cause such loss of deduction. Further, in the event that any payments
are required to be made by any Post-Change Employer to Executive on or after the
date Executive is Involuntarily Terminated, pursuant to any decree, court award,
employment agreement or severance agreement (other than under this Agreement),
or under any plan or policy of the Post-Change Employer (excluding any
retirement, savings or thrift plans), or under the laws of any government
(collectively "Other Required Payments"), the amounts payable under this Section
1 shall be reduced by the amount of such Other Required Payments.

                                       74
<PAGE>
 
                 (iii)  Notwithstanding any other provision of this Agreement,
Executive shall be entitled to receive, in addition to the payments and benefits
provided by this Agreement, any and all wages and vacation pay actually earned
and accrued by Executive during the period of Executive's employment, which are
unpaid as of the time of Executive's termination from employment.

          d.     Rights in the Event of Default.  In the event that the Post-
                 ------------------------------                             
Change Employer defaults on its obligations under this Section 1 and, fails to
remedy such default within thirty (30) calendar days after having received
written notice of the default from Executive or Executive's estate or
"Beneficiary" (as defined in Subsection 5a of this Agreement), the Post-Change
Employer shall thereupon pay or transfer to such party, in full discharge of its
obligations under this Section 1, a lump sum amount representing all payments
required under this Section 1, and with interest on the amount thereof at the
rate of eight (8%) percent per annum, compounded daily, from the otherwise due
date of such payment or transfer.

     2.   Payment of Benefits In The Event Of Termination Of Employment In
          ----------------------------------------------------------------
          The Absence Of A Change in Control.
          -----------------------------------

          If Company (or in the case of a termination which occurs more than two
years after a Change in Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control, then
Executive shall be entitled to receive, but limited to receive, from the Company
(or Post-Change Employer), the following benefits:

          a.  A lump sum severance payment in an amount equal to the
              greater of:

              (i)  Two weeks salary for every year or partial year of service
                   with the Company (computed using Executive's most recent
                   annualized base salary and annualized car allowance, if any,
                   combined), or

              (ii) Four weeks salary, likewise computed.

          b.  Compensation for the loss of group medical and dental insurance
              benefits (excluding coverage under any life or long-term
              disability programs) for the same number of weeks as the number of
              weeks of salary which Executive receives under Subsection a of
              this Section 2, which may be provided, at the sole discretion of
              the Company, by either of the following options:

                                       75
<PAGE>
 
                       (a)  By continuing in effect those group medical and
                            dental insurance benefits which were provided by the
                            Company immediately before Executive was terminated,
                            on the same terms and conditions which were in
                            effect immediately before executive was terminated,
                            or

                       (b)  By payment of a lump sum amount computed by the
                            following formula: (0.23) x (the number of weeks of
                            benefit which Executive is entitled to receive) x
                            (the monthly premium necessary for Executive to
                            maintain Executive's group medical and dental
                            insurance benefits, pursuant to COBRA, under the
                            plan provided by the Company).

          Termination with "Good Cause," as used in this Section 2, shall mean a
termination of Executive's employment where any of the following conditions are
met:

          (a)  If grounds exist to terminate the employment of Executive
               pursuant to California Labor Code Section 2924; or

          (b)  If Executive engages in serious or willful misconduct which is
               detrimental to the interests of the Company or its stockholders;
               or

          (c)  If Executive willfully refuses to carry out the directions and
               responsibilities assigned to Executive by the Chief Executive
               Office of the Company.

      3.  Termination of Employment.
          --------------------------

          The parties hereto each expressly agree that Executive's employment
with the Company may be terminated at any time, by either Executive or by the
Company, for any reason, with or without cause and with or without notice.
Executive agrees that in the event of the termination of Executive's employment,
either before or after a Change in Control, the sole and exclusive contractual
rights and remedies which Executive shall be entitled to enforce are the rights
and remedies expressly set forth in this Agreement, and that this Agreement
replaces and supersedes any contract or agreement, express or implied, which in
any way limits the rights of Executive or of the Company to terminate the
employment relationship between them without liability; provided, however, that
nothing in this Agreement shall

                                       76
<PAGE>
 
replace, supersede, or modify any written employment contract which may be in
effect, or may hereafter take effect, between Executive and the Company, if such
written employment contract is or has been duly executed by both Executive and
by the Chief Executive Officer of the Company and has been approved by the
express authorization or ratification of the Company's Board of Directors.

      4.  Enforcement By Arbitration.
          ---------------------------

          The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.

          Any such arbitration shall be governed by the Rules of the American
Arbitration Association For The Resolution Of Employment Disputes then in
effect.  There shall be one arbitrator, who shall be a retired judge of the Los
Angeles County Superior Court.

          The arbitrator's determination shall be final and binding upon all
parties. Judgment upon the arbitrator's award may be entered in any court having
jurisdiction thereof.

          The prevailing party in any such arbitration will be entitled to
recover reasonable costs, expenses and attorneys' fees for such arbitration and
for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration, which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.

          The arbitration provisions contained in this Section 4 shall not apply
to any Dispute involving a claim or demand by Executive for workers'
compensation benefits.  The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved through
arbitration.

      5.  Miscellaneous.
          --------------

          a.   Successors; Binding Agreement.
               ------------------------------

          This Agreement shall be binding upon Executive and the Company, and
upon any assignee or successor of the Company (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
Company's voting securities or assets, and upon any Post-Change Employer.

                                       77
<PAGE>
 
          This Agreement shall inure to the benefit of and, be enforceable by,
Executive and by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If
Executive should die, any benefits then due and payable to Executive under
Section 1 of this Agreement shall be paid to Executive's "Beneficiary" as
designated by Executive from time to time under Executive's then most recent
principal life insurance coverage provided to Executive by the Post-Change
Employer or Company.

          b.   Amendment or Termination.  No provision of this Agreement
               ------------------------                                 
may be modified, amended, waived or terminated, unless such modification,
amendment, wavier or termination is expressly agreed to in writing, and is
signed by Executive and by the Chief Executive Officer of the Company, and has
been approved by the express authorization or ratification of the Company's
Board of Directors.

          c.   No Vested Interest.  Neither Executive nor Executive's
               ------------------                                    
Beneficiary nor any other person shall have any right, title or interest in any
benefit under this Agreement prior to the occurrence of the right to payment
thereof.

          d.   No Alienation of Benefits.  Executive shall not have any
               -------------------------                               
right to pledge, hypothecate, anticipate or in any way create a lien upon any
amounts provided under this Agreement, and no benefits payable hereunder shall
be assignable in anticipation of payment either by voluntary or involuntary
acts.

          e.   Prior Agreement.  This Agreement contains the entire
               ---------------                                     
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive.  If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.

          f.   Taxes.  The Company may withhold from any amounts payable
               -----                                                    
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.

          g.   No Waiver, No Representations.  No waiver by any party
               -----------------------------                         
hereto at any time of any breach by another party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreement or representations, oral or otherwise,
express or implied, relating to the subject matter hereof have been made by
either party that are not set forth expressly on this Agreement.  Executive
represents and agrees that Executive understands Executive's right to thoroughly
discuss all aspects of this Agreement with an attorney of Executive's choice.
Executive further represents that Executive has carefully read and fully
understands all of the provisions of this Agreement, and is voluntarily entering
into this Agreement.

                                       78
<PAGE>
 
          h.   Severability.  In the event that any provision or portion of
               ------------                                                
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.

          i.   Applicable Law.  This Agreement is made and entered into in
               --------------                                             
the State of California and shall in all respects be interpreted, enforced and
governed under the laws of said state.  The language of all parts of this
Agreement shall, in all cases, be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.

          j.   Notice.  Notices and other communications provided for in
               ------                                                   
this Agreement shall be in writing and shall be deemed to have been duly given
when actually delivered.  Delivery shall be effective as follows:  If to the
Company, at the location of the Company's then principal place of business and
directed to the attention of the Chief Executive Officer.  If to Executive, at
the address in the records of the Company listed as Executive's current address.
The parties hereto may change such address upon sending notice of same to the
other party, with such change of address to be effective upon receipt.

          k.   Counterparts.  This Agreement may be executed in
               ------------                                    
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of identical
language.

             PLEASE READ CAREFULLY.  THIS IS A BINDING CONTRACT, 
                      AND AFFECTS IMPORTANT LEGAL RIGHTS.



Date:  
      -------------                 -------------------------------------------
                                    J. C. McFarland
                                    Executive
                             
                                    McFARLAND ENERGY, INC.
                             
                             
Date:                               By:
      -------------                      --------------------------------------
                                         Daniel J. Redden, Chairman
                                         Compensation Committee of the Board
                                         of Directors of McFarland Energy, Inc.

                                       79
<PAGE>
 
                                   AGREEMENT

          This Agreement is entered into by and between McFarland Energy, Inc.,
(the "Company") and Ronald T Yoshihara ("Executive").

          WHEREAS, the Company has a talented and dedicated management team
which has made many valuable contributions to the success of the Company; and

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause following
a change in control of the Company;

             NOW, THEREFORE, in consideration of the premises and mutual
promises contained herein, it is agreed as follows:

     6.   Payment of Benefits In The Event Of Termination Of Employment
          -------------------------------------------------------------
          Following A Change in Control.
          ------------------------------

          In the event that a "Change in Control" (as defined in this Section)
occurs on or before December 31, 1999, and that the employment of Executive is
thereafter "Involuntarily Terminated" (as defined in this Section) within
twenty-four (24) calendar months of the effective date of the Change in Control,
the Company (or Post-Change Employer as hereinafter described and defined) will
provide Executive with the benefits set forth in this Section.

          a.  Definition of "Change in Control."
              ----------------------------------

          As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:

              (i)   A majority of the members of the Board of Directors at the
end of any consecutive twenty-four (24) calendar month period is not comprised
of "Incumbent Directors" (as defined in this Section). For purposes of this
Agreement, a Director shall be considered to be an "Incumbent Director" if
either of the following conditions is met:

                    (A)  The Director was a Director at the beginning of the
                         consecutive twenty-four (24) calendar month period in
                         question; or

                                       80
<PAGE>
 
                    (B)  The Director's election by the Company's stockholders,
                         or nomination for election by the Company's
                         stockholders, was approved by a vote of a majority of
                         the members of the Board at a time when a majority of
                         the members of the Board were Incumbent Directors. Such
                         approval may be made by any resolution of the Board
                         expressing approval of the Director or nominee, or by
                         any communication to the Company's stockholders, which
                         communication is authorized by the Board and which
                         communication recommends election of the Director or
                         nominee. Such approval may be made by the Board after
                         the Director has been elected, provided that a majority
                         of the members of the Board at the time of approval
                         consists of Incumbent Directors.

              (ii)  Any "person", including a "group" (as such terms are used in
Rule 13(d)(5) of the Securities Exchange Act of 1934 (the "1934 Act")), but
excluding the Company, any of its Subsidiaries, and any employee benefit plan of
the Company or any of its Subsidiaries) is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) under the 1934 Act), directly or indirectly, of
securities of the Company representing thirty-five (35%) percent or more of the
combined voting power of the Company's then outstanding securities.

              (iii) A merger or other business combination of the Company takes
place, whereby the Company merges or combines with or into another corporation,
provided that the other corporation is not a "Subsidiary" of the Company (as
defined herein). For purposes of this Section, a corporation shall be considered
to be a "Subsidiary" of the Company if either of the following conditions is
met:

                    (A)  A majority of the directors of the corporation are also
                         directors of the Company; or

                    (B)  The Company is the "beneficial owner" (as defined in
                         Rule 13(d)(3) under the 1934 Act), directly or
                         indirectly, of securities of the corporation
                         representing more than fifty (50%) percent of the
                         combined voting power of the corporation's then
                         outstanding securities.

                                       81
<PAGE>
 
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:

                    (A)  A majority of the directors of the merged or combined
                         corporation were Incumbent Directors of the Company
                         immediately before the merger or combination; or

                    (B)  "Beneficial ownership" (as defined in Rule 13(d)(3)
                         under the 1934 Act), directly or indirectly, of more
                         than fifty (50%) percent of the combined voting power
                         of the merged or combined corporation is held,
                         immediately after the merger or combination, by persons
                         (as that term is used in the 1934 Act) who held
                         beneficial ownership, directly or indirectly, of more
                         than fifty (50%) percent of the combined voting power
                         of the Company immediately before the merger or
                         combination; or

                    (C)  Securities representing more than fifty (50%) percent
                         of the combined voting power of the merged or combined
                         corporation (as measured immediately after the merger
                         or combination), are issued or conveyed to stockholders
                         of the Company in exchange for or in consideration of
                         their shares in the Company.

          b.  Involuntary Termination of Employment, Qualifying Executive
              -----------------------------------------------------------
              for Benefits.
              -------------

          Executive will be entitled to receive the benefits set forth in this
Section 1 if the employment of Executive is "Involuntarily Terminated" (as
defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.

              (i)  For purposes of this Section, Executive will be considered to
be "Involuntarily Terminated" if, within twenty-four (24) calendar months after
the effective date of the Change in Control, Executive's employment with the
Company or with any successor corporation which employs Executive as a result of
a merger or combination which constitutes a Change in Control under Section
1a(iii) of this Agreement (collectively, the "Post-Change Employer"), is
terminated for any of the following reasons:

                                       82
<PAGE>
 
                    (A)  If Executive is terminated by the Post-Change Employer
                         without "Good Cause." For purposes of this Subsection,
                         the Post-Change Employer shall have Good Cause to
                         terminate Executive's employment if any of the
                         following conditions are met:

                         (a)  If grounds exist to terminate the employment of
                              Executive pursuant to California Labor Code
                              Section 2924; or

                         (b)  If Executive engages in serious or willful
                              misconduct which is detrimental to the interests
                              of the Post-Change Employer or its stockholders;
                              or

                         (c)  If Executive willfully refuses to carry out the
                              directions and responsibilities assigned to
                              Executive by the Chief Executive Officer of the
                              Post-Change Employer.

                    (B)  If Executive resigns from employment for "Good Reason."

                         (a)  For purposes of this Subsection, Executive will
                              have Good Reason to resign from employment if any
                              of the following conditions are met:

                              (1)  There is a significant adverse change in the
                                   nature or scope of Executive's authorities or
                                   duties; or

                              (2)  There is a significant reduction in
                                   Executive's compensation or benefits provided
                                   by the Post-Change Employer in comparison
                                   with the compensation and benefits which
                                   Executive was receiving from the Company
                                   immediately before the Change in Control; or

                                       83
<PAGE>
 
                              (3)  The geographic location at which Executive is
                                   required to perform Executive's principal
                                   duties is moved to a location more than fifty
                                   (50) miles from such location existing
                                   immediately before the Change in Control.

                         (b)  Notwithstanding any other provision of this
                              Agreement, Executive will not be considered to
                              have Good Reason to resign from employment unless
                              both of the following conditions are met:

                              (1)  Executive has given the Post-Change Employer
                                   timely written notice of the fact that
                                   Executive contends that Executive has Good
                                   Reason to resign from employment, and of the
                                   grounds for Executive's contention. To be
                                   timely, such notice must be given within a
                                   reasonable time after Executive learns of the
                                   circumstances which give rise to the
                                   contention that Executive has Good Reason to
                                   resign from employment. If Executive's
                                   contention is based on Subsections
                                   1b(i)(B)(a)(2) or 1b(i)(B)(a)(3) of this
                                   Agreement, a period of fourteen (14) calendar
                                   days shall be presumed to constitute a
                                   "reasonable time" for Executive to give such
                                   notice. If Executive's contention is based on
                                   Subsection 1b(i)(B)(a)(1) of this Agreement,
                                   a "reasonable time" to give such notice shall
                                   be a period of time sufficient for Executive
                                   to fully assess the extent and consequences
                                   of any change in the nature or scope of
                                   Executive's authorities or duties,

                                       84
<PAGE>
 
                                   and to make a full and fair determination as
                                   to whether such change is "adverse."

                              (2)  The Post-Change Employer fails to cure the
                                   circumstances which give rise to Executive's
                                   contention that Executive has Good Reason to
                                   resign from employment within thirty (30)
                                   calendar days following receipt of such
                                   written notice from Executive.

          (C)  If Executive is terminated on account of disability, unless the
               disability is such that Executive is eligible for benefits under
               the Post-Change Employer's Long-Term Disability Plan then in
               effect, if any.

    (ii)  For purposes of this Section, Executive will not be considered to
be "Involuntarily Terminated" if Executive's employment with the Post-Change
Employer is terminated for any of the following reasons:


          (A)  On account of Executive's death;

          (B)  On account of Executive's disability which renders Executive
               eligible for benefits under the Post-Change Employer's Long-Term
               Disability Plan, provided such eligibility and benefits are
               substantially similar to those in Company's Plan immediately
               prior to the Change in Control;

          (C)  If Executive is terminated by the Post-Change Employer
               for "Good Cause" (as defined in this Section).

          (D)  If Executive voluntarily resigns from employment without
               "Good Reason" (as defined in this Section).

    (iii) In the event of any dispute as to whether Executive has been

                                       85
<PAGE>
 
Involuntarily Terminated, such dispute shall be decided by final and binding
arbitration as provided in this Agreement.

          c.  Amount and Payment of Benefits.
              ------------------------------ 

              (i)  If Executive becomes eligible for benefits under this Section
1, Executive shall be entitled, upon being Involuntarily Terminated from
employment, to receive from the Post-Change Employer, the following benefits:

                    (A)  An amount of cash equal to:

                         (a)  The greater of one and one half times:

                              (1)  Executive's annualized base salary, plus the
                                   amount of Executive's annualized car
                                   allowance, if any, in effect at the end of
                                   the month immediately prior to the Change in
                                   Control; or

                              (2)  Executive's annualized base salary, plus the
                                   amount of Executive's annualized car
                                   allowance, if any, in effect at the end of
                                   the month immediately prior to the date
                                   Executive is Involuntarily Terminated; and

                         (b)  The greater of one and one half times:

                              (1)  The amount of bonus, if any, paid or accrued
                                   to Executive for the most recently ended
                                   calendar year immediately prior to the Change
                                   in Control; or

                              (2)  The amount of bonus, if any, paid or accrued
                                   to Executive for the most recently ended
                                   calendar year prior to the date Executive is
                                   Involuntarily Terminated.

                                       86
<PAGE>
 
                                   The Post-Change Employer shall make the cash
                                   payments described in this Subsection
                                   1c(i)(A) as a lump sum payment payable within
                                   thirty (30) calendar days after the date that
                                   Executive is Involuntarily Terminated, or, at
                                   Executive's written request delivered within
                                   fifteen (15) calendar days after the date
                                   Executive is Involuntarily Terminated, in
                                   twelve (12) equal and consecutive monthly
                                   installments with the first installment
                                   payable within thirty (30) calendar days
                                   after the date Executive is Involuntarily
                                   Terminated.

                              (B)  Standard outplacement services provided by a
                                   qualified outplacement agency selected by the
                                   Post-Change Employer, which services will be
                                   made available for a period of twelve (12)
                                   consecutive calendar months from the date
                                   Executive is Involuntarily Terminated, or
                                   until the date Executive accepts employment
                                   with another employer, whichever occurs
                                   first; and

                              (C)  Compensation for the loss of group medical
                                   and dental insurance benefits (excluding
                                   coverage under any life or long-term
                                   disability programs), which may be provided,
                                   at the sole discretion of the Post-Change
                                   Employer, by either of the following options:

                                   (a)  By continuing in effect those group
                                        medical and dental insurance benefits
                                        which were provided by the Post-Change
                                        Employer immediately before Executive
                                        was Involuntarily Terminated, on the
                                        same terms and conditions which were in
                                        effect immediately before Executive was
                                        Involuntarily Terminated, provided that
                                        such coverage is substantially similar
                                        to the coverage (including any dependent
                                        coverage) Executive was receiving from
                                        the Company immediately prior to the
                                        Change in Control, for a period of
                                        eighteen (18) calendar months from the
                                        date of Executive

                                       87
<PAGE>
 
                                        is Involuntarily Terminated or until
                                        Executive obtains coverage under a group
                                        insurance arrangement or program
                                        sponsored by a new employer, whichever
                                        occurs first; or

                                   (b)  By payment of a lump sum amount equal to
                                        eighteen (18) times the greater of the
                                        following amounts:

                                        (1)  the monthly premium necessary for
                                             Executive to maintain Executive's
                                             group medical and dental insurance
                                             benefits, pursuant to COBRA, under
                                             the plan provided by the Post-
                                             Change Employer, net of Executive's
                                             required co-payments; or

                                        (2)  the monthly premium which would
                                             have been necessary for Executive
                                             to maintain Executive's group
                                             medical and dental insurance
                                             benefits, pursuant to COBRA, under
                                             the plan provided by the Company
                                             immediately prior to the Change in
                                             Control, net of Executive's
                                             required co-payments.

          (ii)  In the event that the payments hereunder, or that the payments
hereunder together with any other payments by the Company under any other plan
or arrangement, would cause the loss of deductibility of any portion of such
payments by the Company under Section 280G of the Internal Revenue Code, then
the amounts payable under this Section 1, shall be limited to an amount that
would not cause such loss of deduction. Further, in the event that any payments
are required to be made by any Post-Change Employer to Executive on or after the
date Executive is Involuntarily Terminated, pursuant to any decree, court award,
employment agreement or severance agreement (other than under this Agreement),
or under any plan or policy of the Post-Change Employer (excluding any
retirement, savings or thrift plans), or under the laws of any government
(collectively "Other Required Payments"), the amounts payable under this Section
1 shall be reduced by the amount of such Other Required Payments.

                                       88
<PAGE>
 
          (iii) Notwithstanding any other provision of this Agreement,
Executive shall be entitled to receive, in addition to the payments and benefits
provided by this Agreement, any and all wages and vacation pay actually earned
and accrued by Executive during the period of Executive's employment, which are
unpaid as of the time of Executive's termination from employment.

      d.  Rights in the Event of Default.  In the event that the Post-
          ------------------------------                             
Change Employer defaults on its obligations under this Section 1 and, fails to
remedy such default within thirty (30) calendar days after having received
written notice of the default from Executive or Executive's estate or
"Beneficiary" (as defined in Subsection 5a of this Agreement), the Post-Change
Employer shall thereupon pay or transfer to such party, in full discharge of its
obligations under this Section 1, a lump sum amount representing all payments
required under this Section 1, and with interest on the amount thereof at the
rate of eight (8%) percent per annum, compounded daily, from the otherwise due
date of such payment or transfer.

   7. Payment of Benefits In The Event Of Termination Of Employment In
      ----------------------------------------------------------------
The Absence Of A Change in Control.
-----------------------------------

      If Company (or in the case of a termination which occurs more than two
years after a Change of Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control, then
Executive shall be entitled to receive, but limited to receive, from the
Company, the following benefits:

      a.  A lump sum severance payment in an amount equal to the greater of:

          (i)  Two weeks salary for every year or partial year of service with
               the Company (computed using Executive's most recent annualized
               base salary and annualized car allowance, if any, combined), or

          (ii) Four weeks salary, likewise computed.

      b.  Compensation for the loss of group medical and dental insurance
          benefits (excluding coverage under any life or long-term disability
          programs) for the same number of weeks as the number of weeks of
          salary which Executive receives under Subsection a of this Section 2,
          which may be provided, at the sole discretion of the Company, by
          either of the following options:

                                       89
<PAGE>
 
                        (a)  By continuing in effect those group medical and
                             dental insurance benefits which were provided by
                             the Company immediately before Executive was
                             terminated, on the same terms and conditions which
                             were in effect immediately before executive was
                             terminated, or

                        (b)  By payment of a lump sum amount computed by the
                             following formula: (0.23) x (the number of weeks of
                             benefit which Executive is entitled to receive) x
                             (the monthly premium necessary for Executive to
                             maintain Executive's group medical and dental
                             insurance benefits, pursuant to COBRA, under the
                             plan provided by the Company).

          Termination with "Good Cause," as used in this Section 2, shall mean a
termination of Executive's employment where any of the following conditions are
met:

          (a)  If grounds exist to terminate the employment of Executive
               pursuant to California Labor Code Section 2924; or

          (b)  If Executive engages in serious or willful misconduct which is
               detrimental to the interests of the Company or its stockholders;
               or

          (c)  If Executive willfully refuses to carry out the directions and
               responsibilities assigned to Executive by the Chief Executive
               Office of the Company.

     8.   Termination of Employment.
          --------------------------

          The parties hereto each expressly agree that Executive's employment
with the Company may be terminated at any time, by either Executive or by the
Company, for any reason, with or without cause and with or without notice.
Executive agrees that in the event of the termination of Executive's employment,
either before or after a Change in Control, the sole and exclusive contractual
rights and remedies which Executive shall be entitled to enforce are the rights
and remedies expressly set forth in this Agreement, and that this Agreement
replaces and supersedes any contract or agreement, express or implied, which in
any way limits the rights of Executive or of the Company to terminate the
employment relationship between them without liability; provided, however, that
nothing in this Agreement shall

                                       90
<PAGE>
 
replace, supersede, or modify any written employment contract which may be in
effect, or may hereafter take effect, between Executive and the Company, if such
written employment contract is or has been duly executed by both Executive and
by the Chief Executive Officer of the Company and has been approved by the
express authorization or ratification of the Company's Board of Directors.

     9.   Enforcement By Arbitration.
          ---------------------------

          The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.

          Any such arbitration shall be governed by the Rules of the American
Arbitration Association For The Resolution Of Employment Disputes then in
effect.  There shall be one arbitrator, who shall be a retired judge of the Los
Angeles County Superior Court.

          The arbitrator's determination shall be final and binding upon all
parties. Judgment upon the arbitrator's award may be entered in any court having
jurisdiction thereof.

          The prevailing party in any such arbitration will be entitled to
recover reasonable costs, expenses and attorneys' fees for such arbitration and
for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration, which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.

          The arbitration provisions contained in this Section 4 shall not apply
to any Dispute involving a claim or demand by Executive for workers'
compensation benefits.  The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved through
arbitration.

     10.  Miscellaneous.
          --------------

          a.  Successors; Binding Agreement.
              ------------------------------

          This Agreement shall be binding upon Executive and the Company, and
upon any assignee or successor of the Company (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
Company's voting securities or assets, and upon any Post-Change Employer.

                                       91
<PAGE>
 
          This Agreement shall inure to the benefit of and, be enforceable by,
Executive and by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If
Executive should die, any benefits then due and payable to Executive under
Section 1 of this Agreement shall be paid to Executive's "Beneficiary" as
designated by Executive from time to time under Executive's then most recent
principal life insurance coverage provided to Executive by the Post-Change
Employer or Company.

          b.  Amendment or Termination.  No provision of this Agreement
              ------------------------                                 
may be modified, amended, waived or terminated, unless such modification,
amendment, wavier or termination is expressly agreed to in writing, and is
signed by Executive and by the Chief Executive Officer of the Company, and has
been approved by the express authorization or ratification of the Company's
Board of Directors.

          c.  No Vested Interest.  Neither Executive nor Executive's
              ------------------                                    
Beneficiary nor any other person shall have any right, title or interest in any
benefit under this Agreement prior to the occurrence of the right to payment
thereof.

          d.  No Alienation of Benefits.  Executive shall not have any
              -------------------------                               
right to pledge, hypothecate, anticipate or in any way create a lien upon any
amounts provided under this Agreement, and no benefits payable hereunder shall
be assignable in anticipation of payment either by voluntary or involuntary
acts.

          e.  Prior Agreement.  This Agreement contains the entire
              ---------------                                     
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive.  If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.

          f.  Taxes.  The Company may withhold from any amounts payable
              -----                                                    
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.

          g.  No Waiver, No Representations.  No waiver by any party
              -----------------------------                         
hereto at any time of any breach by another party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreement or representations, oral or otherwise,
express or implied, relating to the subject matter hereof have been made by
either party that are not set forth expressly on this Agreement.  Executive
represents and agrees that Executive understands Executive's right to thoroughly
discuss all aspects of this Agreement with an attorney of Executive's choice.
Executive further represents that Executive has carefully read and fully
understands all of the provisions of this Agreement, and is voluntarily entering
into this Agreement.

                                       92
<PAGE>
 
          h.  Severability.  In the event that any provision or portion of
              ------------                                                
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.

          i.  Applicable Law.  This Agreement is made and entered into in
              --------------                                             
the State of California and shall in all respects be interpreted, enforced and
governed under the laws of said state.  The language of all parts of this
Agreement shall, in all cases, be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.

          j.  Notice.  Notices and other communications provided for in
              ------                                                   
this Agreement shall be in writing and shall be deemed to have been duly given
when actually delivered.  Delivery shall be effective as follows:  If to the
Company, at the location of the Company's then principal place of business and
directed to the attention of the Chief Executive Officer.  If to Executive, at
the address in the records of the Company listed as Executive's current address.
The parties hereto may change such address upon sending notice of same to the
other party, with such change of address to be effective upon receipt.

          k.  Counterparts.  This Agreement may be executed in
              ------------                                    
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of identical
language.

             PLEASE READ CAREFULLY.  THIS IS A BINDING CONTRACT, 
                      AND AFFECTS IMPORTANT LEGAL RIGHTS.



Date:  __________________               ______________________________________
                                        Ronald T Yoshihara
                                        Executive

                                        McFARLAND ENERGY, INC.


Date:  __________________               By: ___________________________________
                                            J. C. McFarland
                                            Chairman and Chief Executive Officer

                                       93
<PAGE>
 
                                   AGREEMENT

          This Agreement is entered into by and between McFarland Energy, Inc.,
(the "Company") and Robert E. Ransom ("Executive").

          WHEREAS, the Company has a talented and dedicated management team
which has made many valuable contributions to the success of the Company; and

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;

          WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause following
a change in control of the Company;

          NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, it is agreed as follows:

     11.  Payment of Benefits In The Event Of Termination Of Employment
          -------------------------------------------------------------
          Following A Change in Control.
          ------------------------------

          In the event that a "Change in Control" (as defined in this Section)
occurs on or before December 31, 1999, and that the employment of Executive is
thereafter "Involuntarily Terminated" (as defined in this Section) within
twenty-four (24) calendar months of the effective date of the Change in Control,
the Company (or Post-Change Employer as hereinafter described and defined) will
provide Executive with the benefits set forth in this Section.

          a.  Definition of "Change in Control."
              ----------------------------------

          As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:

              (i)  A majority of the members of the Board of Directors at the
end of any consecutive twenty-four (24) calendar month period is not comprised
of "Incumbent Directors" (as defined in this Section). For purposes of this
Agreement, a Director shall be considered to be an "Incumbent Director" if
either of the following conditions is met:

                   (A)  The Director was a Director at the beginning of the
                        consecutive twenty-four (24) calendar month period in
                        question; or

                                       94
<PAGE>
 
                   (B)  The Director's election by the Company's stockholders,
                        or nomination for election by the Company's
                        stockholders, was approved by a vote of a majority of
                        the members of the Board at a time when a majority of
                        the members of the Board were Incumbent Directors. Such
                        approval may be made by any resolution of the Board
                        expressing approval of the Director or nominee, or by
                        any communication to the Company's stockholders, which
                        communication is authorized by the Board and which
                        communication recommends election of the Director or
                        nominee. Such approval may be made by the Board after
                        the Director has been elected, provided that a majority
                        of the members of the Board at the time of approval
                        consists of Incumbent Directors.

            (ii)   Any "person", including a "group" (as such terms are used in
Rule 13(d)(5) of the Securities Exchange Act of 1934 (the "1934 Act")), but
excluding the Company, any of its Subsidiaries, and any employee benefit plan of
the Company or any of its Subsidiaries) is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) under the 1934 Act), directly or indirectly, of
securities of the Company representing thirty-five (35%) percent or more of the
combined voting power of the Company's then outstanding securities.

            (iii)  A merger or other business combination of the Company takes
place, whereby the Company merges or combines with or into another corporation,
provided that the other corporation is not a "Subsidiary" of the Company (as
defined herein). For purposes of this Section, a corporation shall be considered
to be a "Subsidiary" of the Company if either of the following conditions is
met:

                   (A)  A majority of the directors of the corporation are also
                        directors of the Company; or

                   (B)  The Company is the "beneficial owner" (as defined in
                        Rule 13(d)(3) under the 1934 Act), directly or
                        indirectly, of securities of the corporation
                        representing more than fifty (50%) percent of the
                        combined voting power of the corporation's then
                        outstanding securities.

                                       95
<PAGE>
 
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:

                   (A)  A majority of the directors of the merged or combined
                        corporation were Incumbent Directors of the Company
                        immediately before the merger or combination; or

                   (B)  "Beneficial ownership" (as defined in Rule 13(d)(3)
                        under the 1934 Act), directly or indirectly, of more
                        than fifty (50%) percent of the combined voting power of
                        the merged or combined corporation is held, immediately
                        after the merger or combination, by persons (as that
                        term is used in the 1934 Act) who held beneficial
                        ownership, directly or indirectly, of more than fifty
                        (50%) percent of the combined voting power of the
                        Company immediately before the merger or combination; or

                   (C)  Securities representing more than fifty (50%) percent of
                        the combined voting power of the merged or combined
                        corporation (as measured immediately after the merger or
                        combination), are issued or conveyed to stockholders of
                        the Company in exchange for or in consideration of their
                        shares in the Company.

          b.  Involuntary Termination of Employment, Qualifying Executive
              -----------------------------------------------------------
              for Benefits.
              -------------

          Executive will be entitled to receive the benefits set forth in this
Section 1 if the employment of Executive is "Involuntarily Terminated" (as
defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.

              (i)  For purposes of this Section, Executive will be considered to
be "Involuntarily Terminated" if, within twenty-four (24) calendar months after
the effective date of the Change in Control, Executive's employment with the
Company or with any successor corporation which employs Executive as a result of
a merger or combination which constitutes a Change in Control under Section
1a(iii) of this Agreement (collectively, the "Post-Change Employer"), is
terminated for any of the following reasons:

                                       96
<PAGE>
 
                   (A)  If Executive is terminated by the Post-Change Employer
                        without "Good Cause." For purposes of this Subsection,
                        the Post-Change Employer shall have Good Cause to
                        terminate Executive's employment if any of the following
                        conditions are met:

                        (a)  If grounds exist to terminate the employment of
                             Executive pursuant to California Labor Code Section
                             2924; or

                        (b)  If Executive engages in serious or willful
                             misconduct which is detrimental to the interests of
                             the Post-Change Employer or its stockholders; or

                        (c)  If Executive willfully refuses to carry out the
                             directions and responsibilities assigned to
                             Executive by the Chief Executive Officer of the
                             Post-Change Employer.

                   (B)  If Executive resigns from employment for "Good Reason."

                        (a)  For purposes of this Subsection, Executive will
                             have Good Reason to resign from employment if any
                             of the following conditions are met:

                             (1)  There is a significant adverse change in the
                                  nature or scope of Executive's authorities or
                                  duties; or

                             (2)  There is a significant reduction in
                                  Executive's compensation or benefits provided
                                  by the Post-Change Employer in comparison with
                                  the compensation and benefits which Executive
                                  was receiving from the Company immediately
                                  before the Change in Control; or

                                       97
<PAGE>
 
                            (3)  The geographic location at which Executive is
                                 required to perform Executive's principal
                                 duties is moved to a location more than fifty
                                 (50) miles from such location existing
                                 immediately before the Change in Control.

                       (b)  Notwithstanding any other provision of this
                            Agreement, Executive will not be considered to have
                            Good Reason to resign from employment unless both of
                            the following conditions are met:

                            (1)  Executive has given the Post-Change Employer
                                 timely written notice of the fact that
                                 Executive contends that Executive has Good
                                 Reason to resign from employment, and of the
                                 grounds for Executive's contention. To be
                                 timely, such notice must be given within a
                                 reasonable time after Executive learns of the
                                 circumstances which give rise to the contention
                                 that Executive has Good Reason to resign from
                                 employment. If Executive's contention is based
                                 on Subsections 1b(i)(B)(a)(2) or 1b(i)(B)(a)(3)
                                 of this Agreement, a period of fourteen (14)
                                 calendar days shall be presumed to constitute a
                                 "reasonable time" for Executive to give such
                                 notice. If Executive's contention is based on
                                 Subsection 1b(i)(B)(a)(1) of this Agreement, a
                                 "reasonable time" to give such notice shall be
                                 a period of time sufficient for Executive to
                                 fully assess the extent and consequences of any
                                 change in the nature or scope of Executive's
                                 authorities or duties,

                                       98
<PAGE>
 
                                 and to make a full and fair determination as to
                                 whether such change is "adverse."

                            (2)  The Post-Change Employer fails to cure the
                                 circumstances which give rise to Executive's
                                 contention that Executive has Good Reason to
                                 resign from employment within thirty (30)
                                 calendar days following receipt of such written
                                 notice from Executive.

                  (C)  If Executive is terminated on account of disability,
                       unless the disability is such that Executive is eligible
                       for benefits under the Post-Change Employer's Long-Term
                       Disability Plan then in effect, if any.

           (ii)   For purposes of this Section, Executive will not be considered
to be "Involuntarily Terminated" if Executive's employment with the Post-Change
Employer is terminated for any of the following reasons:


                  (A)  On account of Executive's death;

                  (B)  On account of Executive's disability which renders
                       Executive eligible for benefits under the Post-Change
                       Employer's Long-Term Disability Plan, provided such
                       eligibility and benefits are substantially similar to
                       those in Company's Plan immediately prior to the Change
                       in Control;

                  (C)  If Executive is terminated by the Post-Change Employer
                       for "Good Cause" (as defined in this Section).

                  (D)  If Executive voluntarily resigns from employment without
                       "Good Reason" (as defined in this Section).

           (iii)  In the event of any dispute as to whether Executive has been

                                       99
<PAGE>
 
Involuntarily Terminated, such dispute shall be decided by final and binding
arbitration as provided in this Agreement.

             c.   Amount and Payment of Benefits.
                  ------------------------------ 

                  (i)  If Executive becomes eligible for benefits under this
Section 1, Executive shall be entitled, upon being Involuntarily Terminated from
employment, to receive from the Post-Change Employer, the following benefits:

                       (A)   An amount of cash equal to:

                             (a)  The greater of one and one half times:

                                  (1)  Executive's annualized base salary, plus
                                       the amount of Executive's annualized car
                                       allowance, if any, in effect at the end
                                       of the month immediately prior to the
                                       Change in Control; or

                                  (2)  Executive's annualized base salary, plus
                                       the amount of Executive's annualized car
                                       allowance, if any, in effect at the end
                                       of the month immediately prior to the
                                       date Executive is Involuntarily
                                       Terminated; and

                             (b)  The greater of one and one half times:

                                  (1)  The amount of bonus, if any, paid or
                                       accrued to Executive for the most
                                       recently ended calendar year immediately
                                       prior to the Change in Control; or

                                  (2)  The amount of bonus, if any, paid or
                                       accrued to Executive for the most
                                       recently ended calendar year prior to the
                                       date Executive is Involuntarily
                                       Terminated.

                                      100
<PAGE>
 
                                       The Post-Change Employer shall make the
                                       cash payments described in this
                                       Subsection 1c(i)(A) as a lump sum payment
                                       payable within thirty (30) calendar days
                                       after the date that Executive is
                                       Involuntarily Terminated, or, at
                                       Executive's written request delivered
                                       within fifteen (15) calendar days after
                                       the date Executive is Involuntarily
                                       Terminated, in twelve (12) equal and
                                       consecutive monthly installments with the
                                       first installment payable within thirty
                                       (30) calendar days after the date
                                       Executive is Involuntarily Terminated.

                                  (B)  Standard outplacement services provided
                                       by a qualified outplacement agency
                                       selected by the Post-Change Employer,
                                       which services will be made available for
                                       a period of twelve (12) consecutive
                                       calendar months from the date Executive
                                       is Involuntarily Terminated, or until the
                                       date Executive accepts employment with
                                       another employer, whichever occurs first;
                                       and

                                  (C)  Compensation for the loss of group
                                       medical and dental insurance benefits
                                       (excluding coverage under any life or
                                       long-term disability programs), which may
                                       be provided, at the sole discretion of
                                       the Post-Change Employer, by either of
                                       the following options:

                                       (a)  By continuing in effect those group
                                            medical and dental insurance
                                            benefits which were provided by the
                                            Post-Change Employer immediately
                                            before Executive was Involuntarily
                                            Terminated, on the same terms and
                                            conditions which were in effect
                                            immediately before Executive was
                                            Involuntarily Terminated, provided
                                            that such coverage is substantially
                                            similar to the coverage (including
                                            any dependent coverage) Executive
                                            was receiving from the Company
                                            immediately prior to the Change in
                                            Control, for a period of eighteen
                                            (18) calendar months from the date
                                            of Executive

                                      101
<PAGE>
 
                                            is Involuntarily Terminated or until
                                            Executive obtains coverage under a
                                            group insurance arrangement or
                                            program sponsored by a new employer,
                                            whichever occurs first; or

                                       (b)  By payment of a lump sum amount
                                            equal to eighteen (18) times the
                                            greater of the following amounts:

                                            (1)  the monthly premium necessary
                                                 for Executive to maintain
                                                 Executive's group medical and
                                                 dental insurance benefits,
                                                 pursuant to COBRA, under the
                                                 plan provided by the Post-
                                                 Change Employer, net of
                                                 Executive's required co-
                                                 payments; or

                                            (2)  the monthly premium which would
                                                 have been necessary for
                                                 Executive to maintain
                                                 Executive's group medical and
                                                 dental insurance benefits,
                                                 pursuant to COBRA, under the
                                                 plan provided by the Company
                                                 immediately prior to the Change
                                                 in Control, net of Executive's
                                                 required co-payments.

               (ii)  In the event that the payments hereunder, or that the
payments hereunder together with any other payments by the Company under any
other plan or arrangement, would cause the loss of deductibility of any portion
of such payments by the Company under Section 280G of the Internal Revenue Code,
then the amounts payable under this Section 1, shall be limited to an amount
that would not cause such loss of deduction. Further, in the event that any
payments are required to be made by any Post-Change Employer to Executive on or
after the date Executive is Involuntarily Terminated, pursuant to any decree,
court award, employment agreement or severance agreement (other than under this
Agreement), or under any plan or policy of the Post-Change Employer (excluding
any retirement, savings or thrift plans), or under the laws of any government
(collectively "Other Required Payments"), the amounts payable under this Section
1 shall be reduced by the amount of such Other Required Payments.

                                      102
<PAGE>
 
               (iii)  Notwithstanding any other provision of this Agreement,
Executive shall be entitled to receive, in addition to the payments and benefits
provided by this Agreement, any and all wages and vacation pay actually earned
and accrued by Executive during the period of Executive's employment, which are
unpaid as of the time of Executive's termination from employment.

          d.   Rights in the Event of Default.  In the event that the Post-
               ------------------------------                             
Change Employer defaults on its obligations under this Section 1 and, fails to
remedy such default within thirty (30) calendar days after having received
written notice of the default from Executive or Executive's estate or
"Beneficiary" (as defined in Subsection 5a of this Agreement), the Post-Change
Employer shall thereupon pay or transfer to such party, in full discharge of its
obligations under this Section 1, a lump sum amount representing all payments
required under this Section 1, and with interest on the amount thereof at the
rate of eight (8%) percent per annum, compounded daily, from the otherwise due
date of such payment or transfer.

     12.  Payment of Benefits In The Event Of Termination Of Employment In
          ----------------------------------------------------------------
          The Absence Of A Change in Control.
          -----------------------------------

          If Company (or in the case of a termination which occurs more than two
years after a Change of Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control, then
Executive shall be entitled to receive, but limited to receive, from the
Company, the following benefits:

          a.  A lump sum severance payment in an amount equal to the
              greater of:

              (i)  Two weeks salary for every year or partial year of service
                   with the Company (computed using Executive's most recent
                   annualized base salary and annualized car allowance, if any,
                   combined), or

              (ii) Four weeks salary, likewise computed.

          b.  Compensation for the loss of group medical and dental insurance
              benefits (excluding coverage under any life or long-term
              disability programs) for the same number of weeks as the number of
              weeks of salary which Executive receives under Subsection a of
              this Section 2, which may be provided, at the sole discretion of
              the Company, by either of the following options:

                                      103
<PAGE>
 
                        (a)  By continuing in effect those group medical and
                             dental insurance benefits which were provided by
                             the Company immediately before Executive was
                             terminated, on the same terms and conditions which
                             were in effect immediately before executive was
                             terminated, or

                        (b)  By payment of a lump sum amount computed by the
                             following formula: (0.23) x (the number of weeks of
                             benefit which Executive is entitled to receive) x
                             (the monthly premium necessary for Executive to
                             maintain Executive's group medical and dental
                             insurance benefits, pursuant to COBRA, under the
                             plan provided by the Company).

          Termination with "Good Cause," as used in this Section 2, shall mean a
termination of Executive's employment where any of the following conditions are
met:

          (a)  If grounds exist to terminate the employment of Executive
               pursuant to California Labor Code Section 2924; or

          (b)  If Executive engages in serious or willful misconduct which is
               detrimental to the interests of the Company or its stockholders;
               or

          (c)  If Executive willfully refuses to carry out the directions and
               responsibilities assigned to Executive by the Chief Executive
               Office of the Company.

     13.  Termination of Employment.
          --------------------------

          The parties hereto each expressly agree that Executive's employment
with the Company may be terminated at any time, by either Executive or by the
Company, for any reason, with or without cause and with or without notice.
Executive agrees that in the event of the termination of Executive's employment,
either before or after a Change in Control, the sole and exclusive contractual
rights and remedies which Executive shall be entitled to enforce are the rights
and remedies expressly set forth in this Agreement, and that this Agreement
replaces and supersedes any contract or agreement, express or implied, which in
any way limits the rights of Executive or of the Company to terminate the
employment relationship between them without liability; provided, however, that
nothing in this Agreement shall

                                      104
<PAGE>
 
replace, supersede, or modify any written employment contract which may be in
effect, or may hereafter take effect, between Executive and the Company, if such
written employment contract is or has been duly executed by both Executive and
by the Chief Executive Officer of the Company and has been approved by the
express authorization or ratification of the Company's Board of Directors.

     14.  Enforcement By Arbitration.
          ---------------------------

          The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.

          Any such arbitration shall be governed by the Rules of the American
Arbitration Association For The Resolution Of Employment Disputes then in
effect.  There shall be one arbitrator, who shall be a retired judge of the Los
Angeles County Superior Court.

          The arbitrator's determination shall be final and binding upon all
parties. Judgment upon the arbitrator's award may be entered in any court having
jurisdiction thereof.

          The prevailing party in any such arbitration will be entitled to
recover reasonable costs, expenses and attorneys' fees for such arbitration and
for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration, which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.

          The arbitration provisions contained in this Section 4 shall not apply
to any Dispute involving a claim or demand by Executive for workers'
compensation benefits.  The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved through
arbitration.

     15.  Miscellaneous.
          --------------

          a.     Successors; Binding Agreement.
                 ------------------------------

          This Agreement shall be binding upon Executive and the Company, and
upon any assignee or successor of the Company (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
Company's voting securities or assets, and upon any Post-Change Employer.

                                      105
<PAGE>
 
          This Agreement shall inure to the benefit of and, be enforceable by,
Executive and by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If
Executive should die, any benefits then due and payable to Executive under
Section 1 of this Agreement shall be paid to Executive's "Beneficiary" as
designated by Executive from time to time under Executive's then most recent
principal life insurance coverage provided to Executive by the Post-Change
Employer or Company.

          b.   Amendment or Termination.  No provision of this Agreement
               ------------------------                                 
may be modified, amended, waived or terminated, unless such modification,
amendment, wavier or termination is expressly agreed to in writing, and is
signed by Executive and by the Chief Executive Officer of the Company, and has
been approved by the express authorization or ratification of the Company's
Board of Directors.

          c.   No Vested Interest.  Neither Executive nor Executive's
               ------------------                                    
Beneficiary nor any other person shall have any right, title or interest in any
benefit under this Agreement prior to the occurrence of the right to payment
thereof.

          d.   No Alienation of Benefits.  Executive shall not have any
               -------------------------                               
right to pledge, hypothecate, anticipate or in any way create a lien upon any
amounts provided under this Agreement, and no benefits payable hereunder shall
be assignable in anticipation of payment either by voluntary or involuntary
acts.

          e.   Prior Agreement.  This Agreement contains the entire
               ---------------                                     
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive.  If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.

          f.   Taxes.  The Company may withhold from any amounts payable
               -----                                                    
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.

          g.   No Waiver, No Representations.  No waiver by any party
               -----------------------------                         
hereto at any time of any breach by another party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.  No agreement or representations, oral or otherwise,
express or implied, relating to the subject matter hereof have been made by
either party that are not set forth expressly on this Agreement.  Executive
represents and agrees that Executive understands Executive's right to thoroughly
discuss all aspects of this Agreement with an attorney of Executive's choice.
Executive further represents that Executive has carefully read and fully
understands all of the provisions of this Agreement, and is voluntarily entering
into this Agreement.

                                      106
<PAGE>
 
          h.   Severability.  In the event that any provision or portion of
               ------------                                                
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.

          i.   Applicable Law.  This Agreement is made and entered into in
               --------------                                             
the State of California and shall in all respects be interpreted, enforced and
governed under the laws of said state.  The language of all parts of this
Agreement shall, in all cases, be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.

          j.   Notice.  Notices and other communications provided for in
               ------                                                   
this Agreement shall be in writing and shall be deemed to have been duly given
when actually delivered.  Delivery shall be effective as follows:  If to the
Company, at the location of the Company's then principal place of business and
directed to the attention of the Chief Executive Officer.  If to Executive, at
the address in the records of the Company listed as Executive's current address.
The parties hereto may change such address upon sending notice of same to the
other party, with such change of address to be effective upon receipt.

          k.   Counterparts.  This Agreement may be executed in
               ------------                                    
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of identical
language.

             PLEASE READ CAREFULLY.  THIS IS A BINDING CONTRACT, AND AFFECTS
IMPORTANT LEGAL RIGHTS.



Date:  __________________               ______________________________________
                                        Robert E. Ransom
                                        Executive

                                        McFARLAND ENERGY, INC.


Date:  __________________               By:
                                            ________________________________
                                            J. C. McFarland
                                            Chairman and Chief Executive Officer

                                      107