Document:

PEASE OIL AND GAS COMPANY
                          751 Horizon Court, Suite 203
                                 P.O. Box 60219
                      Grand Junction, Colorado 81506-8758

                                December __, 1998

Mr. Patrick J. Duncan
[home address]

                  Re:      Confirmation of Employment Contract

Dear Pat:

         This letter is intended to reconfirm  the  existence of, and our mutual
obligations  under, the Employment  Agreement  between you and Pease Oil and Gas
Company ("Company") dated as of December 27, 1994 ("Employment Agreement").

         As you know, the Company is presently considering one or more potential
transactions  in which the Company might be merged with or into another  entity,
acquired  directly  or  indirectly  by another  entity,  or  involved in another
similar type of  transaction,  all of which would require  shareholder  approval
(hereafter referred to as a "Merger Transaction").

         In order to induce you to continue  to serve as the  interim  President
and as a director of the  Company  through at least the  completion  of a Merger
Transaction, the Company, acting through the Executive Committee of the Board of
Directors,  hereby reconfirms and acknowledges the Com pany's obligations to you
as set forth in the Employment Agreement.

         The following clarifications and understandings apply to our respective
rights and obligations under the Employment Agreement:

         1.  Duties.  Since  November  2, 1998,  you have  served as the interim
President,  reporting to the  Executive  Committee of the Board of Directors and
the Board of Directors.  Your duties under the  Employment  Agreement  have been
deemed to be revised accordingly.

         2.  Compensation.  Your  present  level  of  compensation  is  $105,000
annually,  payable at the same time as other  employees of the Company are paid.
Exhibit C to the  Employment  Agreement  is deemed to be revised  to  accurately
reflect your current level of compensation.

         3.  Termination  Upon  Change  of  Control.  Under  Section  3.7 of the
Employment Agreement,  the Company is obligated to pay certain amounts to you if
you are  terminated as a direct or indirect  result of a change in control.  The
Company and you, by signing below, hereby confirm that our respective rights and
obligations  as set forth in Section 3.7 are in full force and effect.  Further,
we hereby agree that if you do not choose to be employed by any successor entity
following a Merger  Transaction,  then the  Company's  obligations  to you under
Section 3.7 of the Employment  Agreement shall apply.  Furthermore,  the Company
hereby confirms and agrees that all amounts

<PAGE>

Patrick J. Duncan
December __, 1998
Page 2

which will be owed to you under  Section 3.7 shall be paid to you in cash at the
time of closing of any Merger Transaction.

         4. Reaffirm Employment Agreement.  The Executive Committee of the Board
of Directors expects that clarification of the Company's obligation to you under
the Employment  Agreement will provide additional  incentive for you to continue
to  serve  as  the  interim   President  through  the  completion  of  a  Merger
Transactions.  While it is not our understanding that this clarification  amends
or changes our respective  rights or obligations  as they  presently  exist,  by
signing below, the Company and you mutually agree that the Employment  Agreement
is in full force and effect and that our respective rights and obligations shall
include the understandings and acknowledgments set forth in this letter.

         Please  sign and  return  the  extra  copy of this  letter in the place
indicated below to acknowledge your  understanding  and agreement of the matters
set forth in this letter.

                                            Sincerely,

                                            PEASE OIL AND GAS COMPANY

                                             By /s/ William F. Warnick
                                                -------------------------------
                                                William F. Warnick, Chairman

The matters set forth above are understood and agreed to:

/s/ Patrick J. Duncan
---------------------------------------
Patrick J. DuncanSeptember 4, 1998

Pease Oil and Gas Co.
751 Horizon Center, Suite 203
P.O. Box 60219
Grand Junction, CO 81506-8758

Attention: William F. Warnick, Chairman

RE:      Engagement of San Jacinto Securities, Inc.

Dear Sirs:

Representatives  of San Jacinto  Securities,  Inc. ("SJS") and Pease Oil and Gas
Co. (the  "Company"),  have  discussed on a  confidential  basis,  the Company's
short-term and long-term financial and business objectives,  goals and needs and
the  financial   advisory  and  investment   banking   services   (collectively,
"Investment  Banking  Services")  which SJS can  provide  to the  Company.  More
specifically,  the Company has requested that SJS assist the Company in locating
a party or parties for the purpose of acquiring  the Company or merging with the
Company, such party called hereinafter a "Candidate".  At this time, neither the
Company or SJS can determine the nature or form of any possible  transaction  or
transactions  between  the  Company  and a Candidate  or  Candidates,  and,  for
purposes of this letter (this  "Agreement"),  any transaction  with or between a
Candidate will be referred to generically as a "Transaction".

Accordingly,  this Agreement will confirm and set forth the following  terms and
conditions  under  which SJS will  render  Investment  Banking  Services  to the
Company based on its understanding of the Company's current intentions:

1. Engagement.  The Company will engage SJS as its exclusive  financial  advisor
for the purpose of  providing  Investment  Banking  Services  with  respect to a
possible  transaction between the Company and a Candidate.  In addition,  during
the term of its  engagement,  SJS will  provide  such other  Investment  Banking
Services as the  officers of the Company may  reasonably  request.  For purposes
hereof the term  "Company"  shall  include any  subsidiary  or  affiliate of the
Company.

2. General Services. SJS along with the management of the Company will develop a
strategy for the Company identifying  specific corporate  objectives,  financial
needs and companies or other parties who are Candidates  for a Transaction  with
the Company.

3. Transaction Candidates.  After a suitable Candidate has been identified,  SJS
will assist the Company in evaluating  such  Candidate  and, if requested by the
Company, will make contact with appropriate parties regarding such Candidate and
assist in negotiations.

4. Compensation. The Company agrees to pay SJS an initial financial advisory fee
of $150,000, payable as follows:

<PAGE>

         1. $50,000 upon signing of this Agreement;
         2. $50,000 on or before October 1, 1998; and
         3. $50,000 on or before October 20, 1998.

The amount of such fee shall be non-refundable except as provided in paragraph 9
below and shall be  credited  against  the amount of any  Transaction  fee owing
hereunder.  In the event the Company enters into a Transaction  as  contemplated
herein  with any  Candidate  during the term  hereof,  SJS shall be  entitled at
closing  thereof  to an amount of cash  equal to three and one half  percent  (3
1/2%) of the total value of such  Transaction.  For purposes  hereof,  the total
value of the  Transaction  shall  include the value of all cash,  securities  or
other  property  given by a Candidate or Candidates  for assets or securities of
the Company.  The Company also agrees to reimburse SJS for its reasonable out of
pocket expenses.

5.  Identification  of  Transaction  Candidates.  SJS will identify  parties and
companies  which are  Candidates  for the Company.  Before or within thirty (30)
days following the  identification  of any such Candidate,  SJS will confirm the
identification  of such  Candidate  by letter to the Company and such  Candidate
shall be deemed to be an identified  Candidate  ("Identified  Candidate") within
the terms of this  letter.  In the event the Company  enters into a  Transaction
with any  Identified  Candidate  within one (1) year following the expiration of
this  engagement,  SJS will be entitled to a fee  determined in accordance  with
paragraph 4 above.

6. Excepted  Candidates.  Within three (3) days of the date hereof,  the Company
may  identify  in writing to SJS, a list of  Candidates  which shall be excepted
Candidates  under  this  Agreement.  In the  event  the  Company  enters  into a
Transaction with an excepted  Candidate during the term hereof, SJS shall not be
entitled to a Transaction  fee,  although SJS will still assist in  negotiations
with such Candidate and provide  Investment Banking Services with respect to the
Transaction as requested by the Company.

7. Refinancing.  In the event the Company is able to obtain additional financing
or  refinancing  through its own initiative  during the term hereof,  SJS at the
Company's  request will assist the Company with  respect to such  financing  but
will not be entitled to a Transaction fee.

8. Due  Diligence  Investigation.  From and  after  the  date of  execution  and
delivery  of this  Agreement,  the Company  will  continue to afford SJS and its
agents,  attorneys and accountants reasonable access to the business records and
properties of the Company and will furnish to SJS all information concerning its
business  for the purpose of enabling  SJS to make such  financial,  accounting,
legal or other investigations deemed necessary or appropriate by SJS.

9. Early  Termination  of Agreement.  This  Agreement may be terminated  with or
without cause by the Company or SJS at any time, without liability or continuing
obligation  by either  party to the other with the  exception  of fees earned or
expenses incurred by SJS; provided, however that if SJS elects to terminate this
Agreement  it shall  refund to the  Company a portion of the  initial  financial
advisory fee  determined by  multiplying  $150,000 by the ratio of the number of
days the Agreement was in effect to 180 days.

10.  Subsequent  Agreement.  At the time the scope of SJS's investment Banking
Services becomes

<PAGE>

definitive,  the Company and SJS may enter into an appropriate agreement in form
and  substance  satisfactory  to SJS  and the  Company.  Neither  the  foregoing
sentence nor any such additional  agreement shall affect SJS's rights  hereunder
or the  enforceability  of this  Agreement  except  to the  extent  specifically
provided herein.

11.  Disavowal  of Agency.  In no event  shall SJS or any of its  principals  or
employees be deemed to be an agent or employee of the Company and shall not hold
themselves out as such.  While SJS may assist the Company in the  negotiation of
final agreements,  the terms and conditions of such final agreements,  including
all representations,  warranties,  covenants and conditions to closing, shall be
the sole responsibility of the Company, its officers and directors.

12.  Confidentiality.  Except as  otherwise is agreed to by the Company or as is
required by law or is necessary to complete its engagement  hereunder,  SJS will
keep confidential all information which is supplied by the Company and which has
not previously  entered the public domain, and will not use any such information
for its own benefit except in connection with the matters undertaken pursuant to
the terms of this  engagement.  At the termination of this  agreement,  upon the
request of the Company,  SJS shall return all  information,  and copies thereof,
furnished by the Company.

13.  Reliance  Upon  Information.  SJS has and  will  rely  without  independent
verification on all information  supplied by the Company.  In addition,  SJS may
and will rely on public  information  and  information  supplied  by  Candidates
without  independent  verification  thereof  unless the  Company  requests  such
verification.

14.  Indemnification.  THE COMPANY  AGREES TO  INDEMNIFY  AND HOLD SJS  HARMLESS
AGAINST AND FROM ANY AND ALL LOSSES,  CLAIMS,  DAMAGES OR  LIABILITIES,  JOIN OR
SEVERAL,  TO WHICH SJS MAY BECOME  SUBJECT IN CONNECTION  WITH THE  TRANSACTIONS
REFERRED TO HEREIN  UNDER ANY OF THE FEDERAL  SECURITIES  LAWS,  UNDER ANY OTHER
STATUTE, AT COMMON LAW OR OTHERWISE, AND TO REIMBURSE SJS FOR ANY LEGAL OR OTHER
EXPENSES  (INCLUDING THE COST OF ANY INVESTIGATION AND PREPARATION)  INCURRED BY
SJS  ARISING  OUT OF OR IN  CONNECTION  WITH ANY  ACTION OR CLAIM IN  CONNECTION
THEREWITH,  WHETHER OR NOT RESULTING IN ANY LIABILITY;  PROVIDED,  HOWEVER, THAT
THE  COMPANY  SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE  EXTENT  THAT ANY SUCH
LOSS, CLAIM, DAMAGE OR LIABILITY IS FOUND IN A FINAL JUDGMENT BY A COURT TO HAVE
RESULTED  FROM  SJS'S  GROSS  NEGLIGENCE,  WILLFUL  MISCONDUCT  OR BAD  FAITH IN
PERFORMING SUCH SERVICES. THE INDEMNITY AGREEMENT IN THIS PARAGRAPH SHALL EXTEND
UPON THE SAME TERMS AND  CONDITIONS  TO THE OFFICERS,  DIRECTORS,  EMPLOYEES AND
AGENTS OF SJS AND TO EACH PERSON, IF ANY, WHO MAY BE DEEMED TO CONTROL SJS.

15.  Governing Law. This letter and the engagement  resulting  herefrom shall be
governed by and construed under the laws of the State of Texas.

16. Term.  This Agreement shall continue in effect for a term of one hundred and
eighty  (180)  days  from the date of the  Company's  acceptance  hereof  unless
earlier  terminated  under  paragraph  9,  above ore  replaced  by a  subsequent
agreement.

<PAGE>

If the foregoing correctly sets forth our understanding,  please sign and return
the enclosed copy of this Agreement. The second copy is for your files.

                                                SAN JACINTO SECURITIES, INC.

                                                by /s/ Kenneth R. Etheredge
                                                -------------------------------
                                                Kenneth R. Etheredge, President

Accepted and Agreed to this 4th day of September, 1998.

PEASE OIL AND GAS CO.

by /s/ William F. Warnick
------------------------------
William F. Warnick, Chairman

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