Document:

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                                                                    Exhibit 10.1

                          MATADOR PETROLEUM CORPORATION
                        1987 INCENTIVE STOCK OPTION PLAN

         THIS 1987 INCENTIVE STOCK OPTION PLAN originally entered into and
effective as of _________________, 1987 is amended and restated in its entirety
as follows, effective _____________, 1990, by Matador Petroleum Corporation for
the benefit of its eligible employees.

         1.       PURPOSE. The 1987 Incentive Stock Option Plan (the "Plan") is
intended to advance the interests of Matador Petroleum Corporation (the
"Company"). its Subsidiaries and its shareholders by encouraging and enabling
selected officers and key employees upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock so as to provide additional incentive for such individuals to promote the
success of its business through sharing in the future growth of such business.
Options granted under the Plan are intended to be options that meet the
requirements of incentive stock options contained in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").

         2.       DEFINITIONS. For the purposes of the Plan, the following terms
when used herein shall have the indicated meaning:

                  (a)      "Board" means the Board of Directors of the Company.

                  (b)      "Committee" means the compensation committee which
         may be appointed by the Board to administer all or a part of the Plan.

                  (c)      "Common Stock" means the Company's $.10 par value
         Common Stock.

                  (d)      "Date of Grant" means the date on which an Option is
         granted under the Plan.

                  (e)      "Expiration Date" means the date on which an Option
         expires.

                  (f)      "Major Shareholder-Employee" means an officer or
         employee who owns stock possessing more than ten percent ( 10% ) of the
         total combined voting power of all classes of stock of the Company, or
         the Company's parent, or a Subsidiary.

                  (g)      "Option" means an option granted under the Plan.

                  (h)      "Option Contracts" means the contracts to be entered
         into from time to time between the Company and each of the Optionees.

                  (i)      "Option Price" shall mean the price per share of
         Common Stock that is required to be paid by an Optionee in order to
         exercise his right to acquire the share of Common Stock under the terms
         of the Option.

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                  (j)      "Optionee" means A person to whom an Option, which
         has not expired, has been granted under the Plan.

                  (k)      "SAR" shall mean a stock appreciation right as
         defined in Section 9 hereof.

         (l)      "SAR Spread" shall mean with respect to each SAR, an amount as
defined in Section 9 hereof.

                  (m)      "Subsidiary" or "Subsidiaries" means a subsidiary
         corporation or corporations of the Company as defined in Section 425 of
         the Code.

                  (n)      "Successor" means the legal representative of the
         estate of a deceased or disabled Optionee or the person or persons who
         acquire the right to exercise an Option by bequest or inheritance or by
         reason of the death of any Optionee.

         3.       ADMINISTRATION OF PLAN. The Board shall have the authority to
administer the Plan including, without limitation, the authority to (i)
determine the individuals to whom and the time or times at which Options shall
be granted and the number of shares and the purchase price of Common Stock
covered by each Option; (ii) determine the terms and provisions of the
respective Option Contracts, which need not be identical, including, without
limitation, terms covering the time and method of payment of the Option price,
provided that payment for the exercise of such Options shall be made only by
cash, cashier's check, or certified check, (iii) impose such limitations on any
Optionee's right to sell shares of Common Stock to third parties, without first
offering to sell such shares of Common Stock to the Company on the same terms
and conditions, as it may deem appropriate; (iv) adopt such rules and
regulations for carrying out this Plan as it may deem proper and in the best
interests of the Company; and (v) make all other determinations and take all
other actions deemed necessary or advisable for the proper administration of the
Plan. The Board may appoint a Committee and may delegate to it the authority to
make any or all determinations or take any or all actions of the Board arising
under the Plan. All determinations and actions with respect to the Plan by the
Board or by a Committee acting within the scope of its authority shall be
conclusively binding for all purposes and upon all persons.

         4.       COMMON STOCK SUBJECT TO OPTIONS. The aggregate number of
shares of the Company's Common Stock that may be issued upon the exercise of
Options granted under the Plan is 200,000 shares, subject to adjustment under
the provisions of Section 7 hereof. The shares to be delivered upon exercise of
the Options granted under the Plan shall be made available, at the discretion of
the Board, from either the authorized but unissued shares of Common Stock or any
treasury shares of Common Stock held by the Company. In the event any Option
shall, for any reason, terminate or expire or be surrendered without having been
exercised in full, the shares subject to such Option but not purchased
thereunder shall again be available for Options to be granted under the Plan.

         5.       PARTICIPANTS. Options may he granted under the Plan to any
person who, at the time of grant of the Option, is an employee (including
officers and directors who are also employees) of the Company or any of its
Subsidiaries. Options to purchase shares of Common Stock shall be granted under
this Plan only to those individuals selected by the Board from time

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to time who, in the sole discretion of the Board, have made material
contributions in the past, or who are expected to make material contributions in
the future, to the successful performance of the Company and its Subsidiaries.

         6.       TERMS AND CONDITIONS OF OPTIONS. Any Option granted under the
Plan shall be evidenced by an Option Contract executed by the Company and the
Optionee and shall contain such terms and be in such form as the Board may from
time to time approve, subject to the following limitations and conditions:

                  (a)      OPTION PRICE. The exercise price per share with
         respect to each Option shall be determined by the Board but shall in no
         instance be less than 100% of the fair market value of a share of the
         Common Stock on the Date of Grant. Notwithstanding the foregoing,
         however, with respect to Options to be granted to a Major
         Shareholder-Employee, the exercise price per share with respect to each
         such Option shall in no instance be less than 110% of the fair market
         value of a share of the Common Stock on the Date of Grant. For the
         purposes hereof, fair market value shall be as determined by the Board
         in its sole discretion and such determination shall be binding upon the
         Company and upon the Optionee. The Board may make such determination
         (i) in case the Common Stock shall not then be listed and traded upon a
         recognized securities exchange, upon the basis of the mean between the
         bid and asked quotations for such stock on the Date of Grant (as
         reported by a recognized stock quotation service) or, in the event that
         there shall be no bid or asked quotations on the Date of Grant, then
         upon the basis of the mean between the bid and asked quotations on the
         date nearest preceding the Date of Grant, or (ii) in case the Common
         Stock shall then be listed and traded upon a recognized securities
         exchange, upon the basis of the mean between the highest and lowest
         selling prices at which shares of the Common Stock were traded on such
         recognized securities exchange on the Date of Grant or, in the event
         that the Common Stock was not traded on the Date of Grant, upon the
         basis of the mean of such prices on the date nearest preceding the Date
         of Grant, or (iii) upon any other factors which the Board shall deem
         appropriate.

                  (b)      PERIOD OF OPTION. Subject to the provisions of
         Sections 6(g) and 6(h) hereof with respect to the termination of
         employment or death of an Optionee, each Option shall expire on the
         date (the "Expiration Date") fixed by the Board, but, notwithstanding
         any provision of the Plan to the contrary, such Expiration Date shall
         not be more than five (5) years from the Date of Grant with respect to
         Major Shareholder-Employees, nor more than ten (10) years from the Date
         of Grant with respect to other officers or employees of the Company.

                  (c)      MAXIMUM AMOUNT TO BE EXERCISED. The aggregate fair
         market value (determined as of the time the Option is granted) of the
         Common Stock with respect to which Options are exercisable for the
         first time by an Optionee during any calendar year (under the Plan and
         all similar plans of the Company, any parent of the Company, or a
         Subsidiary) shall not exceed $100,000. Notwithstanding the foregoing,
         however, such exercise shall be permitted if and to the extent that the
         right to first exercise such Options shall have accumulated over a
         number of years rather than having first occurred in the year of
         exercise.

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                  (d)      VESTING OF SHAREHOLDER RIGHTS. Neither an Optionee
         nor his Successor shall have any of the rights of a shareholder of the
         Company until the certificates evidencing the shares purchased are
         properly issued and delivered to such Optionee or his Successor.

                  (e)      EXERCISE OF OPTION. Each Option shall be exercisable
         from time to time over a period commencing on the Date of Grant and
         ending upon the Expiration Date or termination of the Option; provided,
         however, the Board may, by the provisions of any Option Contract, limit
         the number of shares purchasable thereunder in any period or periods of
         time during which the Option is exercisable. Any Option granted under
         this Plan may be exercised by the Optionee only by (i) delivering to
         the Company written notice of the number of shares with respect to
         which he is exercising his Option rights, (ii) paying in full the
         exercise price for the purchased shares by payment of cash, and (iii)
         furnishing to the Company representations in writing signed by the
         Optionee that he is familiar with the business and financial condition
         of the Company, is purchasing the shares of Common Stock in good faith
         for himself for investment purposes and not with a view towards the
         sale or distribution thereof, and will not effect any sale in violation
         of any laws or regulations of the United States or any state.

                  (f)      NONTRANSFERABILITY OF OPTION. No option shall be
         transferable or assignable by an Optionee, otherwise than by will or
         the laws of descent and distribution and each Option shall be
         exercisable, during the Optionee's lifetime, only by the Optionee. No
         Option shall be subject to execution, attachment, or similar process
         except with the express consent of the Board.

                  (g)      TERMINATION OF EMPLOYMENT. Upon termination of an
         Optionee's employment with the Company or with any of its Subsidiaries
         other than by reason of death, his Option privileges shall be limited
         to the shares which were immediately purchasable by him at the date of
         such termination and such Option privileges shall expire unless
         exercised by the Optionee within three months after the date of such
         termination; PROVIDED, HOWEVER, THAT UPON AN OPTIONEE'S TERMINATION OF
         EMPLOYMENT WITH THE COMPANY FOR MISCONDUCT INVOLVING MORAL TURPITUDE,
         HIS OPTION PRIVILEGES SHALL IMMEDIATELY EXPIRE. The granting of an
         Option to an eligible person does not alter in any way the Company's or
         the relevant Subsidiary's existing rights to terminate such person's
         employment at any time for any reason, nor does it confer upon such
         person any rights or privileges except as specifically provided for in
         the Plan. NOTWITHSTANDING THE PROVISIONS OF THIS SECTION 6(g) TO THE
         CONTRARY, THE OPTION PRIVILEGES OF AN OPTIONEE WHOSE EMPLOYMENT WITH
         THE COMPANY HAS BEEN TERMINATED WILL IMMEDIATELY EXPIRE UPON THE
         DISCLOSURE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, BY SUCH
         OPTIONEE OF ANY PROPRIETARY OR CONFIDENTIAL INFORMATION RELATING TO THE
         COMPANY.

                  (h)      DEATH OR DISABILITY OF OPTIONEE. If an Optionee dies
         or is disabled while in the employ of the Company or any Subsidiary,
         his Option privileges shall be limited to the shares that were
         immediately purchasable by him at the date of death or disability and
         such Option privileges shall expire unless exercised by his Successor
         within 180 days after the date of death or disability.

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                  (i)      DELIVERY OF CERTIFICATES. As soon as practicable
         after receipt by the Company of the notice and representations
         described in Section 6(e) hereof, and of payment in full of the
         exercise price for all of the shares being purchased pursuant to an
         Option granted under the Plan, a certificate or certificates
         representing such shares of Common Stock shall be registered in the
         name of the Optionee and shall be delivered to the Optionee. However,
         no certificate for fractional shares of Common Stock shall be issued by
         the Company notwithstanding any request therefor. All stock
         certificates issued upon the exercise of any Options granted pursuant
         to the Plan may bear such legend as the Board shall deem appropriate
         regarding restrictions upon the transfer or sale of the shares
         evidenced thereby.

         7.       ADJUSTMENTS.

                  (a)      In the event that the outstanding shares of Common
         Stock of the Company are hereafter increased or decreased or changed
         into or exchanged for a different number or kind of shares or other
         securities of the Company or of another corporation, by reason of a
         recapitalization, reclassification, stock split-up, combination of
         shares, or dividend or other distribution payable in capital stock,
         appropriate adjustment shall be made by the Board in the number and
         kind of shares for the purchase of which Options may be granted under
         the Plan. In addition, the Board shall make appropriate adjustment in
         the number and kind of shares as to which outstanding Options, or
         portions thereof then unexercised, shall be exercisable, to the end
         that the proportionate interest of the holder of the Option shall, to
         the extent practicable, be maintained as before the occurrence of such
         event. Such adjustment in outstanding Options shall be made without
         change in the total price applicable to the unexercised portion of the
         Option but with a corresponding adjustment in the exercise price per
         share.

                  (b)      In the event of the dissolution or liquidation of the
         Company, any Option granted under the Plan shall terminate as of a date
         to be fixed by the Board, provided that not less than 30 days written
         notice of the date so fixed shall be given to each Optionee and each
         such Optionee shall have the right during such period to exercise his
         Option as to all or any part of the shares covered thereby.

                  (c)      In the event of the reorganization, consolidation, or
         merger of the Company with any other entity or entities, then the Board
         may determine either to:

                           (i)      terminate any Option granted under the Plan
                  as of the date of such reorganization, consolidation or
                  merger, provided that not less than 30 days' written notice of
                  the date so fixed shall be given to each Optionee, and each
                  such Optionee shall have the right during such period to
                  exercise his Option as to all or any part of the shares
                  covered thereby; or

                           (ii)     substitute for the shares of the Company
                  subject to any Option a corresponding number of shares of the
                  reorganized, consolidated or merged corporation, provided that
                  all such substituted options shall be subject to the Option
                  Contract in the same proportions as any Options which the
                  substituted options replaced.

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                  (d)      Adjustments and determinations under this Section 7
         shall be made by the Board, whose decisions as to what adjustments or
         determinations shall be made, and the extent thereof, shall be final,
         binding, and conclusive on all persons.

         8.       RESTRICTIONS ON ISSUING SHARES. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration, or qualification of
any shares otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the consent or approval of any
regulatory body, is necessary or desirable as a condition of, or in connection
with, such exercise or the delivery or purchase of shares pursuant thereto, then
in any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.

         9.       STOCK APPRECIATION RIGHTS. (a) The Board shall have authority
to grant an SAR with respect to all or some of the shares of Common Stock
covered by any Option ("Related Option"). An SAR must be granted together with
the Related Option.

                  (b)      For the purposes of this Section 9, the following
         definitions shall apply:

                           (i)      The term "SAR" shall mean a right granted
                  under this Plan that shall entitle the holder thereof to
                  receive an amount in cash or shares of Common Stock equal to
                  the SAR Spread.

                           (ii)     The term "SAR Spread" shall mean with
                  respect to each SAR an amount equal to the product of (1) the
                  excess of (A) the fair market value per share of Common Stock
                  on the date of exercise, DETERMINED IN THE SAME MANNER AS
                  DESCRIBED IN SECTION 6(a) HEREOF, over (B) the Option Price
                  per share of the Related Option, multiplied by (2) the number
                  of shares of Common Stock with respect to which such SAR is
                  being exercised; provided, however, that in no event shall the
                  SAR Spread exceed the amount permitted to be treated as the
                  SAR Spread under applicable Treasury Regulations or other
                  lega1 authority without disqualifying the Related Option as an
                  incentive stock option pursuant to Section 422A of the Code.

                  (c) To exercise an SAR, the Optionee shall:

                           (i)      Give written notice thereof to the Company,
                  specifying the SAR being exercised and the number or shares
                  with respect to which such SAR is being exercised, and

                           (ii)     If requested by the Company, deliver within
                  a reasonable time the agreement evidencing the SAR being
                  exercised, to the Secretary of the Company who shall endorse
                  or cause to be endorsed thereon a notation of such exercise
                  and return the agreement to the Optionee.

                  (d)      As soon as practicable after the exercise of an SAR,
         the Company IN ITS SOLE DISCRETION SHALL DETERMINE THE FORM IN WHICH
         PAYMENT OF THE SAR SPREAD SHALL BE

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         MADE AND shall pay to the Optionee (i) cash, (ii) shares of Common
         Stock, or (iii) a combination of cash and shares of Common Stock,
         having a fair market value equal to the SAR Spread; provided, however,
         the Company may in its sole discretion withhold from any such cash any
         amount necessary to satisfy the Company's obligation for federal and
         state withholding taxes with respect to such exercise.

                  (e)      An SAR may be exercised only if and to the extent
         that its Related Option is eligible to be exercised.

                  (f)      Upon the exercise of an SAR, the shares of Common
         Stock under the Related Option to which such exercised SAR relate shall
         be released, but such released shares of Common Stock shall never again
         be available for Options to be granted under the Plan.

                  (g)      Upon the exercise or termination of a Related Option,
         the SAR with respect to such Related Option likewise shall terminate.

                  (h)      An SAR shall be transferable only to the extent, if
         any, that the Related Option is transferable, and under the same
         conditions.

                  (i)      An SAR may be exercised only when the fair market
         value of the shares of Common Stock exceeds the Option Price.

                  (j)      Each SAR shall be on such terms and conditions not
         inconsistent with this Plan as the Board may determine and shall be
         evidenced by a written agreement.

                  (k)      The Optionee shall have no rights as a stockholder
         with respect to the related shares of Common Stock as a result of the
         grant of an SAR.

         10.      USE OF PROCEEDS. The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of Options granted under the Plan
shall be added to the Company's general funds and used for general corporate
purposes.

         11.      AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board may
at any time suspend or terminate the Plan or may amend it from time to time in
such respects as the Board may deem advisable in order that the Options granted
thereunder may conform to any changes in the law or in any other respect that
the Board may deem to be in the best interests of the Company, except that
approval of the shareholders of the Company shall be required for any of the
following amendments:

                  (a)      Increasing the maximum number of shares as to which
         Options may be granted under the Plan either to all persons
         participating in the Plan or to any one person;

                  (b)      Decreasing, directly or indirectly, the minimum
         exercise price applicable to any Option either for all persons
         participating in the Plan or for any one person;

                  (c)      Extending the term of the Plan beyond ten (10) years
         after its effective date;

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                  (d)      Extending the maximum term of Options granted beyond
         the period specified in Section 6(b) hereof; or

                  (e)      Altering any outstanding Option contract to the
         detriment of the Optionee without his consent.

Unless the Plan shall theretofore have been terminated by the Board, the Plan
shall terminate ten (10) years after the effective date of the Plan. No Option
may be granted during any suspension or after the termination of the Plan.
Except as otherwise provided herein, no amendment, suspension, or termination of
the Plan shall, without an Optionee's consent, alter or impair any of the rights
or obligations under any Option theretofore granted to such Optionee under the
Plan.

         12.      EFFECTIVE DATE OF PLAN. The Plan shall be effective
immediately upon adoption by the Board, subject to approval by the shareholders
of the Company.

         13.      TERMINATION OF OLD OPTION CONTRACT AND GRANT OF NEW OPTION
CONTRACT. An Option may be granted under this Plan that may be conditioned upon
the termination of an Option previously granted to the Optionee that has not yet
been terminated or been exercised.

                                       8<PAGE>

                                                                    EXHIBIT 10.2

                      1998 OMNIBUS STOCK AND INCENTIVE PLAN

                                       FOR

                          MATADOR PETROLEUM CORPORATION

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                      <C>
1.  PURPOSE                                                               1

2.  DEFINITIONS                                                           1
    (a)   "Affiliate"                                                     1
    (b)   "Agreed Price"                                                  1
    (c)   "Award"                                                         1
    (d)   "Available Shares"                                              1
    (e)   "Board"                                                         1
    (f)   "Cause"                                                         1
    (g)   "Code"                                                          1
    (h)   "Committee"                                                     1
    (i)   "Common Stock"                                                  1
    (j)   "Company"                                                       2
    (k)   "Date of Grant"                                                 2
    (l)   "Director"                                                      2
    (m)   "Disability"                                                    2
    (n)   "Effective Date"                                                2
    (o)   "Eligible Person"                                               2
    (p)   "Fair Market Value"                                             2
    (q)   "Holder"                                                        2
    (r)   "Immediate Family"                                              2
    (s)   "Incentive Stock Option"                                        2
    (t)   "Non-qualified Stock Option"                                    2
    (u)   "Option"                                                        3
    (v)   "Optionee"                                                      3
    (w)   "Option Price"                                                  3
    (x)   "Option Proceeds"                                               3
    (y)   "Parent"                                                        3
    (z)   "Share(s)"                                                      3
    (aa)  "Spread"                                                        3
    (bb)  "Subsidiary"                                                    3

3.  AWARD OF AVAILABLE SHARES                                             3

4.  CONDITIONS FOR GRANT OF AWARDS                                        3

5.  GRANT OF OPTIONS                                                      4

6.  OPTION PRICE                                                          4

7.  EXERCISE OF OPTIONS                                                   5

8.  EXERCISABILITY OF OPTIONS AND ACCELERATION OF AWARD                   5

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9.  TERMINATION OF OPTION PERIOD                                          5

10. INCENTIVE STOCK OPTIONS FOR 10% SHAREHOLDER                           6

11. NON-QUALIFED STOCK OPTIONS                                            6

12. CERTAIN CORPORATE TRANSACTIONS                                        6

13. ADJUSTMENT OF AVAILABLE SHARES                                        7

14. TRANSFERABILITY OF AWARDS                                             8

15. ISSUANCE OF SHARES                                                    8

16. STOCK APPRECIATION RIGHTS                                             9

17. RIGHT OF FIRST REFUSAL                                               10

18. ADMINISTRATION OF THE PLAN                                           11

19. TAX WITHHOLDING                                                      12

20. INTERPRETATION                                                       12

21. AMENDMENT AND DISCONTINUATION OF THE PLAN                            13

22. EFFECTIVE DATE AND TERMINATION DATE                                  13
</TABLE>

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                      1998 OMNIBUS STOCK AND INCENTIVE PLAN
                                       FOR
                          MATADOR PETROLEUM CORPORATION

1.   PURPOSE. The purpose of this Plan is to advance the interests of Matador
Petroleum Corporation and increase shareholder value by providing additional
incentives to attract, retain and motivate those qualified and competent
employees upon whose efforts and judgement its success is largely dependent.

2.   DEFINITIONS. As used herein, the following terms shall have the meaning
indicated:

     (a) "AFFILIATE" means any entity other than the Parent that is designated
         by the Board as a participating employer under the Plan, provided that
         the Parent directly or indirectly owns at least 50% of the combined
         voting power of all classes of stock of such entity or at least 50% of
         the ownership interests in such entity.

     (b) "AGREED PRICE" shall relate to the grant of a SAR without respect to a
         Related Option, and shall mean the value assigned to the Available
         Shares in the Award which will form the basis for calculating the
         Spread on the date of exercise of the SAR, which assigned value may be
         any value determined by the Committee, including the Fair Market Value
         of the Shares on the Date of Grant.

     (c) "AWARD" shall mean either an Option, or a SAR, except that where it
         shall be appropriate to identify the specific type of Award, reference
         shall be made to the specific type of Award.

     (d) "AVAILABLE SHARES" shall mean, at each time of reference, the total
         number of Shares described in SECTION 3 with respect to which the
         Committee may grant an Award, all of which Available Shares shall be
         held in the Parent's treasury or shall be made available from
         authorized and unissued shares.

     (e) "BOARD" shall mean the Board of Directors of the Parent.

     (f) "CAUSE" shall mean (i) a final, nonappealable conviction of a holder
         for commission of a felony involving moral turpitude, (ii) Holder's
         willful gross misconduct that causes material economic harm to the
         Company or that brings substantial discredit to the Company's
         reputation, or (iii) Holder's material failure or refusal to perform
         his duties if Holder has failed to cure such failure or refusal to
         perform within thirty (30) days after the Company notifies Holder in
         writing of such failure or refusal to perform.

     (g) "CODE" shall mean the Internal Revenue Code of 1986, as now or
         hereafter amended.

     (h) "COMMITTEE" shall mean the persons the Board expressly selects to act
         as the Committee.

     (i) "COMMON STOCK" shall mean the common stock of the Parent.

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     (j) "COMPANY" shall mean the Parent, its Subsidiaries and Affiliates,
         except when it shall be appropriate to refer only to Matador Petroleum
         Corporation, then it shall be referred to as "Parent".

     (k) "DATE OF GRANT" shall mean the date on which the Committee takes formal
         action to grant an Award, provided that it is followed, as soon as
         reasonably possible, by written notice to the Eligible Person receiving
         the Award.

     (l) "DIRECTOR" shall mean a member of the Board.

     (m) "DISABILITY" shall mean a Holder's present incapacity resulting from an
         injury or illness (either mental or physical) which, in the reasonable
         opinion of the Committee based on such medical evidence as it deems
         necessary, will result in death or can be expected to continue for a
         period of at least twelve (12) months and will prevent the Holder from
         performing the normal services required of the Holder by the Company,
         provided, however, that such disability did not result, in whole or in
         part: (i) from chronic alcoholism; (ii) from addiction to narcotics;
         (iii) from a felonious undertaking; or (iv) from an intentional
         self-inflicted wound.

     (n) "EFFECTIVE DATE" shall mean January 20, 1998.

     (o) "ELIGIBLE PERSON" shall mean employees of the Company who the Committee
         determines have the capacity to substantially contribute to the success
         of the Company.

     (p) "FAIR MARKET VALUE" shall mean, as of a particular date, the fair
         market value as determined by any fair and reasonable means prescribed
         by the Committee, except that if the shares are listed or admitted for
         trading on any United States national securities exchange, it shall
         mean the last reported sale price of the Shares on such exchange as
         reported in any newspaper of general circulation or if the Shares are
         quoted on NASDAQ, or any similar system of automated dissemination of
         quotations of securities prices in common use, it shall be mean between
         the closing high bid and low asked quotations for such day on such
         system.

     (q) "HOLDER" shall mean, at each time of reference, each person (including,
         but not limited to an Optionee) with respect to whom an Award is in
         effect, except that where it should be appropriate to distinguish
         between a Holder with respect to an Option and a Holder with respect to
         a SAR, reference shall be made to Optionee; and provided further that
         to the extent provide under, and subject to the conditions of, the
         Award, it shall refer tot he person who succeeds to the rights of the
         Holder upon the death of the Holder.

     (r) "IMMEDIATE FAMILY" means any child, stepchild, grandchild, parent,
         stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
         son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and
         shall include adoptive relationships.

     (s) "INCENTIVE STOCK OPTION" shall mean an Option that is an incentive
         stock option as defined in Section 422 of the Code.

     (t) "NON-QUALIFIED STOCK OPTION" shall mean an Option that is not an
         Incentive Stock Option.

                                       2
<PAGE>

     (u) "OPTION" (when capitalized) shall mean any Incentive Stock Option and
         Non-qualified Stock Option granted under this Plan, except that, where
         it shall be appropriate to identify a specific type of Option,
         reference shall be made to the specific type of Option; provided,
         further, without limitation, that a single Option may include both
         Incentive Stock Option and Non-qualified Stock Option provisions.

     (v) "OPTIONEE" shall mean a person to whom an Option is granted (often
         referred to as a Holder).

     (w) "OPTION PRICE" shall mean the price per Share which is required to be
         paid by the Optionee in order to exercise his right to acquire the
         Share under the terms of the Option.

     (x) "OPTION PROCEEDS" shall mean the cash proceeds received by the Company
         from the exercise of Options.

     (y) "PARENT" shall mean Matador Petroleum Corporation, a Texas corporation.

     (z) "SHARE(S)" shall mean a share or shares of Common Stock.

     (aa) "SPREAD" shall mean the difference between the Option Price, or the
          Agreed Price, as the case may be, of the Share(s) and the Fair Market
          Value of such Share(s), on the date of reference.

     (bb) "SUBSIDIARY" shall mean any corporation (other than the Parent) in any
          unbroken chain of corporations beginning with the Parent if, at any
          time of the granting of the Award, each of the corporations, other
          than the last corporation in the unbroken chain, owns stock possessing
          50% or more of the total combined voting power o all classes of stock
          in one of the other corporations in such unbroken chain.

3.   AWARD OF AVAILABLE SHARES. As of the Effective Date, Two Hundred Thousand
(200,000) Shares shall automatically, and without further action, become
Available Shares. To the extent any Award shall terminate, expire or be
canceled, or the Award shall be paid in cash, the Available Shares subject to
such Award (or with respect to which the Award is measured), shall remain
Available Shares.

4.   CONDITIONS FOR GRANT OF AWARDS.

     (a) Without limiting the generality of the provisions hereof which deal
         specifically with each form of Award, Awards shall only be granted to
         such one or more Eligible Persons as shall be selected by the
         Committee.

     (b) In granting Awards, the Committee shall take into consideration the
         contribution the Eligible Person has made or may be reasonably expected
         to make to the success of the Company and such other factors as the
         Committee shall determine. The Committee shall also have the authority
         to consult with and receive recommendations from officers and other
         personnel of the Company with regard to these matters. The Committee
         may from time to time in granting Awards under the Plan prescribe such
         other terms and conditions concerning such Awards as it deems
         appropriate, including, without limitations, relating an Award to
         achievement of specific goals established by the Committee or to the
         continued employment of the Eligible Person for a specified period of
         time, provided that such terms and conditions are not inconsistent with
         the provisions of this Plan.

                                       3
<PAGE>

     (c) The Plan shall not confer upon any Holder any right with respect to
         continuation of employment by, or consulting relationship with, the
         Company, nor shall it interfere in any way with his right or the
         Company's right to terminate his employment.

     (d) The Awards granted to Eligible Persons shall be in addition to regular
         salaries, pensions, life insurance or other benefits related to their
         service to the Company. Neither the Plan nor any Award granted under
         the Plan shall confer upon any person any right to continuance of
         employment by the Company, and provided, further, that nothing herein
         shall be deemed to limit the ability of the Company to enter into any
         other compensation arrangements with any Eligible Person.

     (e) The Committee shall determine in each case whether periods of military
         or government service shall constitute a continuation of employment for
         the purpose of this Plan or any award.

     (f) Notwithstanding any provision hereof to the contrary, each Award which
         in whole or in part involves the issuance of Available Shares may
         provide for the issuance of such Available Shares for consideration
         consisting of such consideration as the Committee may determine,
         including (without limitation) as compensation for past services
         rendered.

5.   GRANT OF OPTIONS.

     (a) The Committee may grant to Optionees from time to time Options alone,
         in addition to, or in tandem with, SARs, to purchase some or all of the
         Available Shares. An Option granted hereunder shall be either an
         Incentive Stock Option or a Non-qualified Stock Option, shall be
         evidenced by a written agreement that shall contain such provisions as
         shall be selected by the Committee, which may incorporate the terms of
         this Plan by reference, and which clearly shall state whether it is (in
         whole or in part) an Incentive Stock Option or a Non-qualified Stock
         Option.

     (b) The aggregate Fair Market Value (determined as of the Date of Grant) of
         the Available Shares with respect to which any Incentive Stock Option
         is exercisable for the first time by the Optionee during any calendar
         year under the Plan and all such plans of the Company (as defined in
         Section 425 of the Code) shall not exceed $100,000.

     (c) A Non-qualified Stock Option shall not be transferable by the Holder
         without the prior written consent of the Committee other than (i)
         transfers by the Holder to a member of his or her Immediate Family or a
         trust for the benefit of the Optionee or a member of his or her
         Immediate Family, or (ii) transfers by will or by the laws of descent
         and distribution. An Incentive Stock Option shall not be transferable
         by the Holder otherwise than by will or by the laws of descent and
         distribution. All Options shall be exercisable, during the Holder's
         lifetime, only by the Holder.

6.   OPTION PRICE.

     (a) The Option Price shall be any price determined by the Committee;
         provided, however, that the Option Price may not be less than the par
         value of the Common Stock, and in the case of an

                                       4
<PAGE>

         Incentive Stock Option, shall not be less than one hundred percent
         (100%) of the Fair Market Value per Share on the Date of Grant.

     (b) Unless further limited by the Committee in any Option, the Option Price
         shall be paid solely in cash, by certified or cashier's check, by wire
         transfer, by money order, with Common Stock (but with Shares only if
         expressly permitted by the terms of the Option), or by a combination of
         the above; provided, however, that the Committee may accept a personal
         check in full or partial payment. If the Option Price is permitted to
         be, and is, paid in whole or in part with Common Stock, the value of
         the Common Stock surrendered shall be its Fair Market Value on the date
         surrendered.

7.   EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the
Committee has received written notice of such exercise in accordance with the
terms of the Option, and (ii) full payment of the aggregate Option Price of the
Available Shares as to which the Option is exercised has been made. The
Committee, in its sole discretion may accept, in lieu of a cash payment, the
promissory note of the Optionee as payment in whole or in part of the aggregate
Option Price. Separate stock certificates shall be issued by the Parent for any
Available Shares acquired as a result of exercising an Incentive Stock Option
and Non-qualified Stock Option.

8.   EXERCISABILITY OF OPTIONS AND ACCELERATION OF AWARD.

     (a) Each Option shall become exercisable in whole or in part and
         cumulatively, and shall expire, according to the terms of the Option to
         the extent not inconsistent with the express provisions of this Plan.

     (b) The Board, in its sole discretion, may accelerate the date on which all
         or any portion of an otherwise unexercisable Option may be exercised or
         a restriction on an Award will lapse.

9.   TERMINATION OF OPTION PERIOD.

     (a) Unless the Option shall terminate on an earlier date under the express
         terms of the Option, and except to the extent the period in Subsection
         (ii) below is expressly extended under the terms of the Option, the
         unexercised portion of an Option shall automatically and without notice
         terminate and become null and void on the earlier of:

         (i)   the date that Optionee ceases to be employed by the Company, if
               such cessation is for Cause,

         (ii)  the 30th day after the date the Optionee ceases to be employed by
               the Company for any reason other than Cause,

         (iii) one year after the date on which Optionee ceases to be employed
               by the Company as a result of Disability or death,

         (iv)  the tenth (10th) anniversary of the Date of Grant.

     (b) Notwithstanding any provisions of SECTION 12(b) to the contrary, the
         Committee may, be giving written notice ("CANCELLATION NOTICE"),
         cancel, effective, upon the date of the consummation of any of the
         transactions described in SECTION 14(b), all or any portion of such
         Option which remains unexercised on such date. Such Cancellation Notice
         shall be given a

                                       5
<PAGE>

         reasonable period of time (but not less than 15 days) prior to the
         proposed dated of such cancellation, and may be given either before or
         after sharholder approval of such corporation transaction.

10.  INCENTIVE STOCK OPTIONS FOR 10% SHAREHOLDER. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly (or indirectly through attribution under
Section 425(d) of the Code) at the Date of Grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (as
defined in Section 425 of the Code) at the Date of Grant, unless the Option
Price of such Incentive Stock Option is at least 110% of the Fair Market Value
on the Date of Grant of the Available Shares subject to such Incentive Stock
Option, and the period during which the Incentive Stock Option may be exercised
does not exceed five (5) years from the Date of Grant.

11.  NON-QUALIFIED STOCK OPTIONS. Non-qualified Stock Options may be granted
hereunder and shall contain such terms and provisions as shall be determined by
the Committee, except that each such Non-qualified Stock Option (i) must be
clearly designated as a Non-qualified Stock Option; (ii) may be granted for
Available Shares which become exercisable in excess of the limits contained in
SUBSECTION 5(b); and (iii) shall not be subject to SECTION 10 hereof. If both
Incentive Stock Options and Non-qualified Stock Options are granted to an
Optionee, the right to exercise, to the full extent thereof, Options of either
type shall not be contingent in whole or in part upon the exercise of, or
failure to exercise, Options of the other type.

12.  CERTAIN CORPORATE TRANSACTIONS.

     (a) In the event of (i) dissolution or liquidation of the Parent, or (ii) a
         merger or consolidation in which the Parent is not the surviving
         corporation (other than a merger or consolidation in which there is not
         substantial change in the stockholders of the Parent or their relative
         stock holdings), any or all outstanding Awards may be assumed,
         converted or replaced by substantially similar Awards issued by the
         successor corporation, which assumption, conversation or replacement
         will be binding on all Holders.

     (b) Except to the extent Awards are assumed, converted or replaced in
         accordance with SUBSECTION (a), on the date thirty (30) days prior to
         any occurrence described in (i), or (ii), but only where such
         anticipation occurrence actually takes place, not withstanding the
         provisions of each Award, if any, which would limit exercisability, or
         result in a forfeiture if the Holder's employment were terminated
         immediately prior to such occurrence, such Award shall immediately
         become fully exercisable and nonforfeitable (hereafter, in this SECTION
         12, such Award shall be "accelerated") where such occurrence (i) is any
         transaction (which shall include a series of transactions occurring
         within 60 days or occurring pursuant to plan), which has the result
         that shareholders of the Parent immediately before such transaction
         cease to own at least fifty percent (50%) of the voting stock of the
         Parent or of any entity which results from the participation of the
         Parent in a reorganization, consolidation, merger, liquidation or any
         other form of corporate transaction; or (ii) is a sale, lease, exchange
         or other disposition of all or substantially all the property and
         assets of the Parent.

     (c) Notwithstanding any provisions hereof to the contrary, if an Award is
         accelerated under SUBSECTION 12(b), the portion of the Award which is
         accelerated is limited to that portion which can be accelerated without
         causing the Holder to have an "excess parachute payment" as determined
         under Section 280G of the Code, determined by taking into account all
         of the

                                       6
<PAGE>

         Holder's "parachute payments" determined under Section 280G of the
         Code, all as reasonably determined by the Committee.

13.  ADJUSTMENT OF AVAILABLE SHARES.

     (a) If at any time while the Plan is in effect or Awards with respect to
         Available Shares are outstanding, there shall be any increase or
         decrease in the number of issued and outstanding Shares through the
         declaration of a stock dividend or through any recapitalization
         resulting in a stock split-up, combination or exchange of Shares, then
         and in such event:

         (i)  appropriate adjustment shall be made in the maximum number of
              Available Shares which may be granted under SECTION 3, and in the
              Available Shares which are then subject to each Awards, so that
              the same proportion of the Parent's issued and outstanding Common
              Stock shall continue to be subject to grant under SECTION 3, and
              to such Award, and

         (ii) in addition, and without limitation, in the case of each Award
              (including, without limitation, Options) which requires the
              payment of consideration by the Holder in order to acquire
              Shares, an appropriate adjustment shall be made in the
              consideration (including, without limitation the Option Price)
              required to be paid to acquire the each Share, so that (i) the
              aggregate consideration to acquire all of the Shares subject to
              the Award remains the same and, (ii) so far as possible (and
              without disqualifying an Incentive Stock Option) as reasonably
              determined by the Committee in its sole discretion, the relative
              cost of acquiring each Share subject to such Award remains the
              same.

     (b) The Committee may change the terms of Options outstanding under this
         Plan, with respect to the Option Price or the number of Available
         Shares subject to the Options, or both, when, in the Committee's
         judgement, such adjustments become appropriate by reason of a corporate
         transaction (as defined in Treasury Regulation Section
         1.425-A(a)(1)(ii)); provided, however, that if by reason of such
         corporate transaction an Incentive Stock Option is assumed or a new
         option is substituted therefore, the Committee may only change the
         terms of such Incentive Stock Option such that (i) the excess of the
         aggregate Fair Market Value of the Shares subject to Option
         immediately after the substitution or assumption, over the aggregate
         option price of such Shares, is not more than the excess of the
         aggregate Fair Market Value of all Available Shares subject to the
         Option immediately before such substitution or assumption over the
         aggregate Option Price of such Available Shares, and (ii) the new
         Option, or the assumption of the old Incentive Stock Option does not
         give the Optionee additional benefits which he did not have under
         the old Incentive Stock Option.

     (c) Except as otherwise expressly provided herein, the issuance by the
         Parent or shares of its capital stock of any class, or securities
         convertible into shares of capital stock of any class, either in
         connection with direct sale or upon the exercise of rights or warrants
         to subscribe thereof, or upon conversion of shares or obligations of
         the Parent convertible into such shares or other securities, shall not
         affect, and no adjustment by reason thereof shall be made with respect
         to Available Shares subject to Awards granted under the Plan.

     (d) Without limiting the generality of the foregoing, the existence of
         outstanding Awards with respect to Available Shares granted under the
         Plan shall not affect in any manner the right or power of the Parent to
         make, authorize or consummate (1) any or all adjustments,
         recapitalizations, reorganizations or other changes in the Parent's
         capital structure or its

                                       7
<PAGE>

         business; (2) any merger or consolidation of the Parent; (3) any issue
         by the Parent of debt securities, or preferred or preference stock
         which would rank above the Available Shares subject to outstanding
         Awards' (4) the dissolution or liquidation of the Parent; (5) any
         sale, transfer or assignment of all or any part of the assets or
         business of the Company; or (6) any other corporate act or proceeding,
         whether of a similar character or otherwise.

14.  TRANSFERABILITY OF AWARDS. Each Award shall provide that such Award not be
transferable by the Holder otherwise than by will or the laws of descent and
distribution, or, if so provided in the Award, (a) that such Award (other than
an Incentive Stock Option) is transferable, in whole or in part, without payment
of consideration, to members of the Holder's Immediate Family, to trusts for
such Immediate Family members, or to partnerships whose only partners are such
deduction for a "charitable contribution" under Section 170(a)(i) of the Code
(provided, in each such case that no further transfer by any such permitted
transferee(s) shall be permitted); provided, further, that in each case the
exercise of the Award will remain the power and responsibility of the Holder and
that so long as the Holder lives, only such Holder (even if pursuant to the
legal direction of the person to whom a charitable contribution has been made)
or his guardian or legal representative shall have the rights set forth in such
Award.

15.  ISSUANCE OF SHARES. No Holder or other person shall be, or have any of the
rights or privileges of, the owner of Shares subject to an Award unless and
until certificates representing such Common Stock shall have been issued and
delivered to such Holder or other person. As a condition of any issuance of
Common Stock, the Committee may obtain such agreements or undertakings, if any,
as the Committee may deem necessary or advisable to assure compliance with any
such law or regulation including, but not limited to, the following:

     (i)  a representation, warranty or agreement by the Holder to the Parent,
          at the time any Shares are transferred, that he is acquiring the
          Shares to be issued to him for investment and not with a view to, or
          for sale in connection with, the distribution of any such Shares; and

     (ii) a representation, warranty or agreement to be bound by any legends
          that are, in the opinion of the Committee, necessary or appropriate
          to comply with the provisions of any securities law deemed by the
          Committee to be applicable to the issuance of the Shares and are
          endorsed upon the Share certificates.

Share certificates to the Holder receiving such Shares who are parties to any
shareholders agreement or any similar agreement shall bear the legends contained
in such agreements. Notwithstanding any provision hereof to the contrary, no
Shares shall be required to be issued with respect to an Award unless counsel
for the Parent shall be reasonably satisfied that such issuance will be I
compliance with applicable Federal or state laws. As a condition of any issuance
of Shares, the Committee may obtain such agreements or undertakings, if any, as
the Committee may deem necessary or advisable to insure that the Holder is bound
with respect to any restrictions that may be contained in any stock ownership
agreement being used by the Company at the time of exercise or with respect to
any restrictions imposed upon shareholders by underwriters in connection with an
initial public offering and, further, that if the Shares are offered for sale to
a person other than the Company, such Shares will be offered for sale to the
Company as provided in SECTION 17.

                                       8
<PAGE>

16.  STOCK APPRECIATION RIGHTS.

     (a) The Committee shall have authority to grant a SAR by itself with
         respect to Available Shares, or with respect to all or some of the
         Available Shares covered by an Option ("RELATED OPTION"). A SAR granted
         with respect to an Incentive Stock Option must be granted on the Date
         of Grant of such Related Option. A SAR grant with respect to a Related
         Option which is a Non-qualified Stock Option may be granted on or after
         the Date of Grant of such Related Option.

     (b) The following shall govern the granting of a SAR under this Plan:

         (i)  The term "SAR" shall mean a right granted under this Plan either
              (i) by itself with respect to Available Shares, or (ii) in tandem
              with a Related Option, that shall entitle the Holder thereof to an
              amount in cash equal to the SAR Spread.

         (ii) The term "SAR SPREAD" shall mean with respect to each SAR an
              amount equal to the product of (1) the excess of (A) the Fair
              Market Value per Share on the date of exercise over (B) whichever
              of (y) or (z) apply, where the SAR is granted in tandem with a
              Related Option, then (y) is the Option Price per Share of the
              Related Option with respect to which the SAR is exercised
              (without limitation, it not being necessary for the SAR to be
              exercised with respect to the maximum number of Shares available
              for exercise), and where the SAR is granted by itself with
              respect to a designated number of Available Shares, then (z) is
              whichever of the Fair Market Value of the Available Shares on the
              Date of Grant, or the Agreed Price, shall be designated in the
              SAR agreement, in each case such excess multiplied by (2) the
              number of Available Shares with respect to which such SA is being
              exercised; provided, however, that with respect to any SAR
              granted in tandem with an Incentive Stock Option, in no event
              shall the SAR Spread exceed the amount permitted to be treated as
              the SAR Spread under applicable Treasury Regulations or other
              legal authority without disqualifying the Option as an Incentive
              Stock Option.

     (c) To exercise the SAR the Holder shall:

         (i)  Give written notice thereof to the Company, specifying the SAR
              being exercised and the number of Available Shares with respect to
              which such SAR is being exercised, and

         (ii) If requested by the Company, deliver within a reasonable time the
              agreement evidencing the SAR being exercised, and the Related
              Option agreement (if any), to the Secretary of the Company who
              shall endorse or cause to be endorsed thereon a notation of such
              exercise and turn all agreements to the Holder.

     (d) As soon as practicable after the exercise of a SAR, the Company shall
         pay to the Holder either (i) cash, (ii) Shares, or (iii) a combination
         of cash and Shares, in each case as determined in the sole discretion
         of the Committee, having a value (in the case of a payment in whole or
         in part with Shares, based on their Fair Market Value on the date of
         delivery) equal to the SAR Spread, provided, however, without
         limitation that the Company may withhold from such payment any amount
         necessary to satisfy the Company's obligation for federal and state
         withholding taxes with respect to such exercise.

     (e) A SAR may be exercised only if and to the extent that it is permitted
         under the terms of the Award which, in the case of a Related Option,
         shall be only with respect to Shares subject to a

                                       9
<PAGE>

         Related Option to the extent such Related Option is eligible to be
         exercised with respect to such Shares at the time of reference.

     (f) Upon the exercise or termination of a Related Option with respect to
         Shares subject to such Related Option, the SAR with respect to such
         Shares shall terminate, and upon exercise of a SAR with respect to
         Shares subject to such Related Option, the right to exercise the
         Related Option with respect to such Shares shall terminate.

     (g) A SAR shall not be transferable.

     (h) A SAR granted with respect to an Incentive Stock Option may be
         exercised only when the Fair Market Value of the Shares subject to the
         Incentive Stock Option exceeds the Option Price.

     (i) Each SAR shall be granted on such terms and conditions not inconsistent
         with this Plan as the Committee may determine and shall be evidenced by
         a written agreement, which may, without limitation, be part of the
         Option Agreement.

     (j) The Holder shall have no rights as a stockholder with respect to the
         Shares as a result of the grant, or exercise, of a SAR.

17.  RIGHT OF FIRST REFUSAL. In the event Holder exercises his Option to acquire
Shares, such Shares shall be subject to the following requirements unless
otherwise expressly provided in the Option:

     (a) In the event Holder receives a bona fide offer for the purchase of all
         or a part of the Shares, Holder shall give written notice of such offer
         to the Secretary of the Company. The notice must set forth the name of
         the proposed transferee, the number of Shares to be transferred
         ("OFFERED SHARES"), the price per Share, and all other terms and
         conditions of the proposed transfer.

     (b) On receipt of the notice with respect to such offer, the Parent shall
         have the exclusive right and option, exercisable at any time during a
         period of thirty days from the date of said notice ("NOTICE PERIOD"),
         to notify Optionee of its election to purchase, all but not less than
         all, of the Offered Shares upon the same terms and conditions as
         contained in the offer from the third party (except that cash may be
         substituted for any non-cash consideration). If the Parent elects to
         exercise its right to purchase all of such Offered Shares, it shall
         give written notice to that effect to Optionee within the Notice Period
         and the closing of such purchase shall occur as provided in SUBSECTION
         (iii). In the event that the Company does not desire to purchase all of
         the Offered Shares, Optionee shall have the right to transfer all of
         the Offered Shares to the third-party purchaser free and clear of any
         restrictions against transfer imposed by this Section. In the event
         that the third party fails to purchase all of the Offered Shares, any
         subsequent offers for such Shares must be made pursuant to the terms of
         this Section.

     (c) The closing of the purchase and sale of Offered Shares shall be at the
         offices of the Company in Dallas, Texas, on the thirtieth day following
         the giving of the notice of election to purchase. If such thirtieth day
         is a Saturday, Sunday or legal holiday for national banks in Dallas,
         Texas, the closing shall be held on the next following business day.

                                      10
<PAGE>

Notwithstanding the foregoing, the Company, in its sole discretion, may provide
in writing, delivered to affected Holders, that some or all of the Shares of
such Holder are no longer subject to the requirements set forth in this Section
17.

18.  ADMINISTRATION OF THE PLAN.

     (a) The Plan shall be administered by the Committee selected by the Board
         and, except for the powers reserved to the Board in SECTION 21 hereof,
         the Committee shall have all of the administrative powers under Plan;
         provided that if a Committee is not appointed by the Board, the Plan
         shall be administered by the Board and all references herein to the
         Committee shall refer to the Board.

     (b) The Committee, from time to time, may adopt rules and regulations for
         carrying out the purposes of the Plan and, without limitation, may
         delegate all of what, in its sole discretion, it determines to be
         ministerial duties to an officer of the Parent. The determinations
         under, and the interpretations of, any provision of the Plan or an
         Award by the Committee shall, in all cases, be in its sole discretion,
         and shall be final and conclusive.

     (c) Any and all determinations and interpretations of the Committee shall
         be made either (i) by a majority vote of the members of the Committee
         at a meeting duly called, with at least 3 days prior notice and a
         general explanation of the subject matter given to each member, or (ii)
         without a meeting, by the written approval of all members of the
         Committee.

     (d) No member of the Committee shall be liable for any action taken or
         omitted to be taken by him or by any other member of the Committee with
         respect to the Plan, and to the extent of liabilities not otherwise
         insured under a policy purchased by the Company, the Company does
         hereby indemnify and agree to defend and save harmless any member of
         the Committee with respect to any liabilities asserted or incurred in
         connection with the exercise and performance of their powers and duties
         hereunder, unless such liabilities are judicially determined to have
         arisen out of such member's gross negligence, fraud or bad faith. Such
         indemnification shall include attorney's fees and all other costs and
         expenses reasonably incurred in defense of any action arising from such
         act of commission or omission. Nothing herein shall be deemed to limit
         the Company's ability to insure itself with respect to its obligations
         hereunder.

     (e) In particular, and without limitation, the Committee shall have the
         authority, consistent with the terms of the Plan:

         (i)   to select the key employees of the Company to whom Awards may
               from time to time be granted hereunder;

         (ii)  to determine whether and to what extent Awards are to be granted
               hereunder to one or more eligible persons;

         (iii) to determine the number of Shares, or the Shares which shall form
               the basis of a SAR, to be covered by each such Award granted
               hereunder;

         (iv)  to determine the terms and conditions, not inconsistent with the
               terms of the Plan, of any Award granted hereunder (including, but
               not limited to, the Agreed Value and any restriction or
               limitation, or any vesting acceleration or waiver of forfeiture
               restrictions,

                                      11
<PAGE>

               based in each case on such factors as the Committee shall
               determine, in its sole discretion); and to amend or waive any
               such terms and conditions to the extent permitted by the Plan;

         (v)   to determine whether, to what extent, and under what
               circumstances Awards under the Plan are to be made, and operate,
               on a tandem basis vis-a-vis other Awards under the Plan and/or
               cash awards made outside of the Plan; and

         (vi)  to determine whether to require payment of tax withholding
               requirements in Shares.

     (f) The Committee shall have the authority to adopt, alter, and repeal such
         rules, guidelines, and practices governing the Plan as it shall, from
         time to time, deem advisable; to interpret the terms and provisions of
         the Plan and any Award issued under the Plan (and any agreements
         relating thereto); and to otherwise supervise the administration of the
         Plan; provided, however, that to the extent that this Plan otherwise
         requires the approval of the Board or the shareholders of the Parent,
         all decisions of the Committee shall be subject to such Board or
         shareholder approval. Subject to the foregoing, and without limitation,
         all decisions made by the Committee pursuant to the provisions of the
         Plan shall be made in the Committee's sole discretion and shall be
         final and binding on all persons, including the Company and Holders.

19.  TAX WITHHOLDING. On or immediately prior to the date on which a payment is
made to a Holder hereunder or, if earlier, the date on which an amount if
required to be included in the income of the Holder as a result of an Award, the
Holder shall be required to pay to the Company, in cash or, at the option of the
Company, in Shares (including, but not limited to, the reservation to the
Company of the requisite number of Available Shares otherwise payable to such
Holder with respect to such Award) the amount which the Company reasonably
determines to be necessary in order for the Company to comply with applicable
federal or state tax withholding requirements, and the collection of employment
taxes, if applicable; provided, further, that the Committee may require that
such payment be made in cash.

20.  INTERPRETATION.

     (a) If any provision of the Plan is held invalid for any reason, such
         holding shall not affect the remaining provisions hereof, but instead
         the Plan shall be construed and enforced as if such provision had never
         been included in the Plan.

     (b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

     (c) Headings contained in this Agreement are for convenience only and
         shall in no manner be construed as part of this Plan

     (d) Any reference to the masculine, feminine, or neuter gender shall be a
         reference to such other gender as is appropriate.

     (e) The Plan is intended to constitute an "unfounded" plan for incentive
         and deferred compensation. With respect to any payments not yet made to
         a Holder, nothing contained herein shall give any such Holder any
         rights that are greater than those of a general creditor of the
         Company. In its sole discretion, the Committee may authorize the
         creation of trusts or other arrangements to meet the obligations
         created under the Plan to deliver Common Stock or payments in lieu of
         or with respect to Awards hereunder; provided, however, that, unless
         the

                                      12
<PAGE>

         Committee otherwise determines with the consent of the affected Holder,
         the existence of such trusts or other arrangements is consistent with
         the "unfunded" status of the Plan.

     (f) Nothing contained in this Plan shall prevent the Board from adopting
         other or additional compensation arrangements, subject to shareholder
         approval if such approval is required; and such arrangements may be
         either generally applicable or applicable only in specific cases.

21.  AMENDMENT AND DISCONTINUATION OF THE PLAN. The Board, or the Committee
(subject to the prior written authorization of the Board), may from time to time
amend the Plan or any Award; provided, however, that [except to the extent
provided in SECTIONS 9(b) AND 13 hereof] no such amendment may, without approval
by the shareholders of the Parent, (a) increase the number of Available Shares
or change the class of Eligible Persons, (b) permit the granting of Awards which
expire beyond the maximum 10-year period described in SUBSECTION 9(a)(iv), (c)
extend the termination date of the Plan as set forth in SECTION 22; and
provided, further, that no amendment or suspension of the Plan or any Award
issued hereunder shall, except as specifically permitted in this Plan or under
the terms of such Award, substantially impair any Award previously granted to
any Holder without the consent of such Holder.

22. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective as of its
Effective Date, and shall terminate on the tenth anniversary of such Effective
Date.

                          MATADOR PETROLEUM CORPORATION

                          BY__________________________________

                          NAME________________________________

                          TITLE_______________________________

                                      13

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