<PAGE>

                                                                   EXHIBIT 10.17

                             SEPARATION AGREEMENT

     It is hereby agreed by and between William C. Rankin and his former
employer, Bellwether Exploration Company (hereinafter "Bellwether"), that Mr.
Rankin has been released from his employment by Bellwether effective August 2,
1999 (hereinafter "Separation Date"), and that in order to resolve amicably all
matters concerning his employment and release, Mr. Rankin and Bellwether, in
consideration of their mutual promises and other consideration itemized below,
hereafter enter into the following agreement:

     1. Nothing stated in this Agreement, or stated or done in connection
herewith, shall constitute or indicate in any way any wrongdoing of any kind
either by Mr. Rankin or Bellwether.

     2. Bellwether agrees that upon execution by Mr. Rankin and receipt by its
representative of this Agreement and the Release appended as Exhibit A and the
expiration of the seven (7) day revocation period provided for herein,
Bellwether will pay Mr. Rankin the sum of Four Hundred Eighty Six Thousand Five
Hundred Forty and 00/100's Dollars ($486,540) which represents payment for two
times the sum of (1) Mr. Rankin's current salary and (2) his last annual bonus.
Mr. Rankin shall also be paid an amount equal to fifteen percent of his base
salary in lieu of outplacement services which is included in the $486,540 figure
stated above. The payments made hereunder shall be less standard payroll
deductions for Federal Income Tax and FICA.

     3. Mr. Rankin shall also receive, upon the expiration of the seven (7) day
revocation period provided for herein, by reason of his execution of this
agreement the following:

                                      -1-
<PAGE>

a. The immediate vesting of any of Mr. Rankin's executive options to purchase
   securities of Bellwether which were not vested by their own terms on the date
   of termination and the extension of Mr. Rankin's rights to exercise all of
   his options to purchase securities of Bellwether for a period equal to the
   lesser of (i) two years following the date of termination or (ii) the
   remaining term of the applicable option. The Compensation Committee of
   Bellwether shall execute minutes reflecting such agreement as seen in the
   attached Exhibit 3(a).

b. Continued coverage, at Bellwether's cost, under Bellwether's medical, dental
   and health benefits (but not life or disability insurance) for a period of
   six (6) months from the date of termination.

c. The payment of $335.17 being the total of any of Mr. Rankin's unreimbursed
   expenses in the performance of his duties hereunder through the date of
   termination.

d. Assignment of title to Mr. Rankin's car, with Mr. Rankin paying any resulting
   transfer or registration fee. The pay-off on such automobile is currently
   $30,127.42. Mr. Rankin will be liable for any income taxes that may be due by
   reason of such sale or transfer, as the case may be.

e. As consideration for this agreement, Bellwether also agrees that Mr. Rankin
   shall be assigned the computer that Mr. Rankin had been using during his
   tenure with Bellwether.

                                      -2-
<PAGE>

     4. No further payments or benefits of any kind (except those made pursuant
to Bellwether's deferred compensation plan) shall be due Mr. Rankin by
Bellwether by reason of his employment or this agreement except those set forth
above.

     5. Mr. Rankin acknowledges that during the course of his employment he has
had access to certain trade secrets of Bellwether and that such trade secrets
constitute valuable, highly confidential, special and unique property of
Bellwether, which Mr. Rankin agrees not to disclose. These "trade secrets" are
drawings, specifications, computer programs, training manuals, engineering
studies, compilations of product research, marketing techniques, and files,
records and documents relating thereto. Also, the "trade secrets" include lists
of customers who utilize Bellwether's technical services, and related customer
information. However, such customer lists do not include customers which Mr.
Rankin knew before he was employed by Bellwether; neither do such customer lists
include customers which could readily be identified by someone outside the
employ of Bellwether. These "trade secrets" shall not include any information
readily discernable from trade or general circulation publications or otherwise
existing or available in the public domain. In this regard, it is expressly
understood that the obligations of paragraph 7 of the June 1, 1998 Employment
Agreement with Mr. Rankin shall survive the termination of Mr. Rankin's
employment with Bellwether and the execution of the attached release.

     6. Employees and directors of Bellwether shall refrain from making any
derogatory or disparaging remarks to any third party against Mr. Rankin with
respect to his employment by Bellwether, his performance, his character, or any
such matters. Further, employees and

                                      -3-
<PAGE>

directors of Bellwether shall refrain from discussions among themselves using
any such derogatory or disparaging remarks.

     7. Mr. Rankin shall refrain from making any derogatory or disparaging
remarks regarding his employment by Bellwether, or Bellwether's service,
management, or operations to any third party other than members of Mr. Rankin's
immediate family.

     8. Mr. Rankin agrees that he will be reasonably available to consult and
otherwise cooperate with Bellwether after the Separation Date with respect to
matters of business for which Mr. Rankin had any direct responsibility during
his employment by Bellwether. However, any such consulting or request for
consulting shall not interfere with Mr. Rankin's endeavors after the Separation
Date or with his subsequent employment.

     9. Mr. Rankin acknowledges that he has been given a period of at least
forty-five (45) days within which to consider this Agreement and the Release to
be executed hereunder, and that these documents have been executed by him
voluntarily, with full knowledge of all relevant information and after ample
opportunity to consult with legal counsel. Mr. Rankin is hereby advised to
consult with an attorney prior to entering this Agreement and the Release to be
executed hereunder. Mr. Rankin and Bellwether further agree that Mr. Rankin has
a period of seven (7) days following his execution of this Agreement and the
Release to be executed hereunder in which to revoke these documents by
delivering to Bellwether's undersigned representative written notice of his
revocation, and by returning the consideration conveyed herein, and that this
Agreement and the Release executed hereunder shall not become effective or
enforceable until such revocation period has expired.

                                      -4-
<PAGE>

     10. This Agreement shall be binding on and inure to the benefit of Mr.
Rankin and Bellwether as well as all of their heirs, executors, administrators,
officers, directors, employees, stockholders, successors and assigns, and all
subsidiaries, affiliates and representatives of any of the foregoing entities.

     11. Bellwether and Mr. Rankin agree that this Agreement and the Release
shall be construed under the laws of Texas and, if necessary, litigated in
Houston, Texas.

     IN WITNESS HEREOF, the parties to this Agreement have executed this
instrument on the dates set forth below.

Date: August 9, 1999                /s/ William C. Rankin
                                    ---------------------------------
                                    William C. Rankin


                                    Bellwether Exploration Company

Date: 9 August 1999                 By: /s/ Robert J. Bensh
                                       ------------------------------
                                       (Name)  Robert J. Bensh
                                       (Title) Vice President, Capital Markets



                                      -5-
<PAGE>

                                   EXHIBIT A

                                    RELEASE

     FOR VALUABLE CONSIDERATION PAID, receipt of which is hereby acknowledged,
William C. Rankin, for himself, his heirs, executors, administrators, and
assigns, agrees to hereby release, acquit and forever discharge Bellwether
Exploration Company as well as each of its officers, directors, stockholders,
successors, assigns, divisions, subsidiaries, agents and employees (hereinafter
collectively "Bellwether"), of and from any and all obligations, claims,
counterclaims, third-party claims, debts, demands, covenants, contracts,
security agreements, promises, agreements, liabilities, controversies, costs,
expenses, attorneys' fees, actions, amended cause of action, or causes of action
whatsoever, whether known or unknown, suspected or unsuspected, he ever had or
now has or claims to have against Bellwether from the beginning of the world to
the day and date hereof, including specifically but not exclusively, and without
limiting the generality of the foregoing, any and all claims, demands and causes
of action, known or unknown, suspected or unsuspected, arising out of any
transaction, act or omission concerning his former employment by Bellwether, and
all claims of every kind which may arise under any federal, state or local
statutory or common law, including the federal Age Discrimination in Employment
Act; provided, however, that nothing contained herein shall release Bellwether
from the obligations spelled out in a Separation Agreement between him and
Bellwether of even date.

     FOR VALUABLE CONSIDERATION GIVEN, receipt of which is hereby acknowledged,
Bellwether Exploration Company (hereinafter collectively "Bellwether") do


                                      -1-
<PAGE>

hereby release, acquit, and forever discharge William C. Rankin as well as his
heirs, executors, administrators, and assigns, of and from any and
all obligations, claims, counterclaims, third-party claims, debts, demands,
covenants, contracts, security agreements, promises, agreements, liabilities,
controversies, costs, expenses, attorneys' fees, actions, amended causes of
action, or causes of action whatsoever, whether known or unknown, suspected or
unsuspected, which Bellwether ever had or now has or claims to have against
William C. Rankin from the beginning of the world to the day and date hereof,
including specifically but not exclusively, and without limiting the generality
of the foregoing, any and all claims, demands and causes of action, known or
unknown, suspected or unsuspected, arising out of any transaction, action or
omission concerning William C. Rankin's former employment by Bellwether, and all
claims of every kind which may arise under any federal, state or local statutory
or common law; provided however, that nothing contained herein shall release
William C. Rankin from the obligations spelled out in a Separation Agreement
between him and Bellwether of even date.

     William C. Rankin hereby acknowledges that he is executing this Release
pursuant to the terms of the Separation Agreement identified above, that certain
consideration provided to him pursuant to that Separation Agreement is in
addition to what he would have been entitled to receive in the absence of such
Agreement, that he has been advised to consult with an attorney in connection
with both the Separation Agreement and this Release, that he has had at least
forty-five (45) days in which to consider entering into the Separation Agreement
and providing this Release, and that he will have seven (7) days following the
execution of both the Separation

                                      -2-
<PAGE>

Agreement and this Release in which to revoke these documents by delivering his
written revocation to the person who executed the Separation Agreement on behalf
of Bellwether.

     William C. Rankin and Bellwether further hereby covenant and agree that
this Release shall be binding in all respects upon themselves, their heirs,
executors, administrators, assigns and transferees and all persons claiming
under them, and shall inure to the benefit of the officers, directors,
stockholders, assigns, divisions, subsidiaries, agents, employees, and
successors in interest of William C. Rankin and Bellwether.

     IN WITNESS WHEREOF, I have signed this Release this the 9th day of August,
1999.

                                        /s/ William C. Rankin
                                        -----------------------------
                                        William C. Rankin

     IN WITNESS WHEREOF, I have signed this Release on behalf of Bellwether
Exploration Company on this 9th day of August, 1999.

                                        /s/ Robert J. Bensh
                                        ---------------------------------------
                                        (Name)  Robert J. Bensh
                                        (Title) Vice President, Capital Markets


                                      -3-
<PAGE>

                                EXHIBIT "3(a)"

                        BELLWETHER EXPLORATION COMPANY


                          Minutes of the Meeting of
                          The Compensation Committee
                           Of the Board of Directors

                                August 2, 1999


     A meeting of the Compensation Committee ("Committee") of the Board of
Directors of Bellwether Exploration Company, a Delaware corporation ("Company")
was held on August 2, 1999 via telephone conference. Messrs. A.K. McLanahan,
Vincent H. Buckley and Dr. Jack Birks, constituting all of the members of the
Committee, were present at such meeting, after having waived notice of such
meeting.

     The meeting was called to order. The Committee discussed the previous
grants of stock options to Mr. J. Darby Sere ("Mr. Sere") and Mr. William C.
Rankin ("Mr. Rankin") under the 1994 Stock Incentive Plan and the 1996 Stock
Incentive Plan, as the case may be, the dates and amounts of such grants being
set forth more fully on Exhibit "A". The plans provide, in part, that recipients
of such stock option grants must be in the continuous employment of the Company
for the grants to remain effective. The above individuals are leaving the
employment of the Company and in view of their valuable contributions to the
Company, it is the opinion of the Committee that their option grants should
continue, notwithstanding their departure from the Company, for a period so
indicated on the attached Exhibit "A".

     In furtherance thereof, upon motion duly made and seconded, the following
resolutions were unanimously adopted by the Committee.

     RESOLVED, that the provisions of the 1994 and 1996 Stock Incentive Plans
     and the grants made thereunder to Mr. Sere and Mr. Rankin, be waived as to
     those provisions governing the termination of grants in the event that a
     stock option recipient ceases working for the Company; and

     FURTHER RESOLVED, that all stock options issued to Mr. Sere and Mr. Rankin
     immediately vest on August 2, 1999 with a termination date so indicated on
     Exhibit "A"; and


<PAGE>

     FURTHER RESOLVED, that the proper officers of the Company be, and each of
     them hereby are, authorized and directed, for and on behalf of the Company,
     to execute and deliver any and all documents and to take any and all steps
     and do any and all things which they may deem necessary or advisable in
     order to effectuate the purposes of the foregoing resolutions.

     IN WITNESS WHEREOF, the undersigned have executed these minutes as of the
date first written above.

                                        /s/ Jack Birks
                                        -------------------------------
                                        Dr. Jack Birks


                                        /s/ Vincent H. Buckley
                                        -------------------------------
                                        Vincent H. Buckley



                                        -------------------------------
                                        A. K. McLanahan

<PAGE>

                                  EXHIBIT "A"

                                                            EXP.          DATE
   NAME                 AMOUNT      PLAN        PRICE       DATE        GRANTED
   ----                 ------      ----        -----       ----        -------

J. DARBY SERE          120,000      1994      $ 5.6250     8/2/02       6/30/94
                        25,000      1994      $ 5.75       8/2/02       5/26/95
                        55,000      1996      $ 6.2500     8/2/02       9/16/96
                        23,000      1996      $12.3750     8/2/02       9/10/97
                         8,000      1996      $12.3750     8/2/02       9/10/97
                         8,000      1996      $12.3750     8/2/02       9/10/97
                         8,000      1996      $12.3750     8/2/02       9/10/97
                         8,000      1996      $12.3750     8/2/02       9/10/97
                        54,000      1996      $ 6.25       8/2/02       10/5/98

WILLIAM C. RANKIN       30,000      1994      $ 3.344      8/2/01       3/26/99
                        24,000      1996      $ 6.25       8/2/01       10/5/98
                         9,400      1996      $10.6250     8/2/01       11/21/97
                         9,400      1996      $10.6250     8/2/01       11/21/97
                         9,400      1996      $10.6250     8/2/01       11/21/97
                         9,400      1996      $10.6250     8/2/01       11/21/97
                        15,600      1996      $10.6250     8/2/01       11/21/97
                        15,600      1996      $10.6250     8/2/01       11/21/97
                        15,600      1996      $10.6250     8/2/01       11/21/97
                        15,600      1996      $10.6250     8/2/01       11/21/97