Document:

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                                                                    EXHIBIT 10.1
                                                                    ------------

                            ASSET PURCHASE AGREEMENT

                                by and among the

                           SOUTHERN UTE INDIAN TRIBE

                doing business as Red Willow Production Company

                                      and

                           CONTANGO OIL & GAS COMPANY

                          Dated as of January 28, 2002
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                           ASSET PURCHASE AGREEMENT

     This ASSET PURCHASE AGREEMENT dated as of January 28, 2002 (this
"Agreement"), is entered into by and among the Southern Ute Indian Tribe, a
federally recognized Indian tribe organized under the Indian Reorganization Act
of 1934, doing business as Red Willow Production Company ("Seller") and Contango
Oil & Gas Company, a Delaware corporation ("Buyer") (collectively, the
"Parties").

                                   RECITALS

     WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, all of Seller's oil and gas interests and related assets identified
in Exhibits "A," "B" and "C" attached hereto and made a part hereof, all on the
terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

                                   ARTICLE I

                          PURCHASE AND SALE OF ASSETS

     Section 1.1  Assets. On the terms and subject to the conditions set forth
                  ------
in this Agreement, at the Closing (as defined herein in Section 6.1) Seller
                                                        -----------
agrees to sell, transfer and assign to Buyer, and Buyer shall purchase and
receive, all of Seller's right, title and interest in and to the following
tangible and intangible assets:

          (a)  Leases.  The oil and gas leases described in Exhibit "A" and the
               ------                                       -----------
lands covered thereby (the "Leases");

          (b)  Wells.  All oil and/or gas wells, equipment, machinery, tanks,
               -----
pipelines and other appurtenances and all other tangible property located
thereon, thereunder or associated therewith or used in connection with the
ownership or operation of the Leases and the production of oil and/or gas
therefrom, including, without limitation, all wells, whether producing,
operating, shut-in or temporarily abandoned, located on the lands covered by the
Leases described in Exhibit "B" (the "Wells");
                    -----------

          (c)  Contracts.  The agreements described in Exhibit "C" (the
               ---------                               -----------
"Contracts"), to the extent such agreements relate to the Leases; and

          (d)  Other Assets.  All tangible and intangible assets of Seller
               ------------
necessary to or used primarily in connection with the Leases, Wells and
Contracts, whether presently existing or arising hereafter, including without
limitation, any and all rights arising under or relating to the Exploration and
Operations Agreements described in Exhibit "C" (the "Other Assets").
                                   -----------

     Leases and Wells together with the Contracts and Other Assets collectively
hereinafter referred to as the "Assets."

     Section 1.2  Excluded Assets.  The Assets do not include (the "Excluded
                  ---------------
Assets"), and Seller shall not sell, transfer or assign to Buyer, and Buyer
shall not acquire, or make any payments or otherwise discharge any liability or
obligation of Seller relating to, any of the following:

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          (a)  accounts receivable relating to any operation or ownership of the
Assets prior to the Effective Time (as defined in Section 6.1 herein);
                                                  -----------

          (b)  oil and liquid hydrocarbon inventories in tanks above the
pipeline connections as of the Effective Time; and

          (c)  gas produced through designated sales meters prior to the
Effective Time.

     Section 1.3  Purchase Price.  As consideration for the sale of the Assets,
                  --------------
the aggregate purchase price to be paid by Buyer to Seller shall be Six Million
Nine Hundred Ninety-Four Thousand Five Hundred Eighty-Eight Dollars ($6,994,588)
(the "Purchase Price"), subject to adjustment as set forth in Section 1.4
                                                              -----------
herein, payable by wire transfer of immediately available funds to a bank
account designated by Seller.

     Section 1.4  Adjustments to Purchase Price.  Notice of any adjustments to
                  -----------------------------
the portion of the Purchase Price otherwise payable at the Closing (as defined
in Section 6.1 herein) shall be delivered, as between the Parties, no later than
   -----------
two (2) business days prior to the Closing in order to be considered at the
Closing.  Any notice of adjustment not timely provided, together with any other
adjustment will be made in the final adjustment as set forth in Section 6.5
                                                                -----------
herein.  The Purchase Price shall be adjusted as follows:

          (a)     The Purchase Price shall be increased by the following:

                  (1)  an amount equal to paid ad valorem, property, production,
excise, severance and similar taxes and assessments based upon or measured by
the ownership of the Assets that are attributable to the period of time from and
after the Effective Time, which amounts shall, to the extent not actually
assessed, be computed based on such taxes and assessments for the preceding tax
year (such amount to be prorated for the period of Seller's and Buyer's
ownership before and from and after the Effective Time); and

                  (2)  an amount equal to all expenses attributable to the
Assets that are paid by or on behalf of Seller that are, in accordance with
generally accepted accounting principles, attributable to the period from and
after the Effective Time.

          (b)     The Purchase Price shall be reduced by the following:

                  (1)  the amount of the proceeds received by Seller
attributable to the Assets that are, in accordance with generally accepted
accounting principles, attributable to the period of time from and after the
Effective Time;

                  (2)  an amount equal to unpaid ad valorem, property,
production, excise, severance and similar taxes and assessments based upon or
measured by the ownership of the Assets that are attributable to the period of
time prior to the Effective Time, which amounts shall, to the extent not
actually assessed, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of Seller's and
Buyer's ownership before and after the Effective Time); and

                  (3)  an amount equal to all expenses attributable to the
Assets that are paid by or on behalf of Buyer that are, in accordance with
generally accepted accounting principles, attributable to any period prior to
the Effective Time.

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     Section 1.5  Assumption of Liabilities.  As additional consideration for
                  -------------------------
the sale of the Assets, if the Closing occurs, Buyer shall assume the following
obligations and liabilities ("Assumed Liabilities"):

          (a)  all obligations and liabilities relating to the ownership or use
of the Assets that arise and are attributable to occurrences from and after the
Effective Time (except for (1) any liability or obligation that arises under
contracts or agreements, or that arises from or is the subject of a breach by
Seller of any of its covenants, representations or warranties hereunder, none of
which shall be Assumed Liabilities; and (2) any payment obligation associated
with an agreement for the supply of materials, goods or services, which shall be
an Assumed Liability only to the extent that such materials, goods or services
with respect to which such payment is due is received by Buyer and relates to
operation of the Assets from and after the Effective Time);

          (b)  all obligations and liabilities relating to the ownership or use
of the Assets that arise from and after the Effective Time for site reclamation
and plugging and abandonment of all Wells. Buyer recognizes and specifically
assumes the obligation to properly plug and abandon all Wells and remove all
personal property associated with the Assets when appropriate;

          (c)  all obligations and liabilities (including, without limitation,
all liabilities and obligations under present and future federal, state and
local laws relating to the protection of health or the environment) in respect
of the condition of the Assets as of the Closing relating to such Assets
(including, without limitation, conditions resulting from, and remediation of,
Environmental Matters occurring on or before the Closing), other than any
condition that is the subject of a breach by Seller of any of its
representations and warranties under this Agreement.

          (d)  all lease operating expenses for the Jaboncillo and Mesquite
Creek wells from and after the Effective Time.

As used herein, the term "Environmental Matters" shall mean any pollution,
contamination, degradation, damage or injury, caused by, related to or arising
from or in connection with the generation, use, handling, treatment,
remediation, storage, transportation, disposal, discharge, release or emission
of any Hazardous Materials by, in, on or underlying the Assets.  As used in the
preceding definition, "Hazardous Materials" means any asbestos material,
pollutants, contaminants, hazardous, corrosive or toxic substances, special
waste or waste of any kind, and any other material or substance the storage,
manufacture, disposal, treatment, generation, use, transportation, remediation
or release into the environment of which is prohibited, controlled, regulated or
licensed under Environmental Laws.  As used herein, "Environmental Laws" means
all laws, statutes, ordinances, rules, regulations, orders or determinations of
any governmental authority pertaining to human health or protection of the
environment in effect now or in the future in the jurisdictions in which the
respective Lease or lands pooled or unitized with such Lease are located.

     Section 1.6  Retained Liabilities.  Seller shall retain, and Buyer shall
                  --------------------
not acquire or make any payments or otherwise discharge any liability or
obligation of Seller not specifically enumerated as an Assumed Liability at
Section 1.5 herein ("Retained Liabilities") including the following:
-----------

          (a)  all liabilities and obligations relating to or arising out of
personal injury claims and accounts payable affecting the ownership of the
Assets that arose prior to, or are attributable to the period of time or acts or
omissions prior to, the Effective Time (other than those liabilities and
obligations referred to in clauses (b) and (c) of the definition of Assumed
Liabilities);

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          (b)  those liabilities and obligations that result in a credit or
payment to Seller under Section 6.5 herein;

          (c)  all liabilities and obligations incurred in violation of, or
arising out of or that are the subject matter of a breach of, the covenants,
representations or warranties of Seller under this Agreement;

          (d)  all liabilities and obligations under contracts and agreements to
which the Assets are subject on the date of this Agreement other than the
Contracts;

          (e)  all liabilities and obligations that result from a breach by
Seller with respect to the Assets as regards preferential rights, consents to
assign and/or notices of transfers.

          (f)  all liabilities and obligations incurred for capital expenditures
for the Jaboncillo, Mesquite Creek, Libre 8, Libre 10, and Libre 11 wells
through the Closing.

                                  ARTICLE II

                   REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby represents, warrants and covenants to Buyer that:

     Section 2.1  Organization.  Seller is a federally recognized Indian tribe
                  ------------
organized under the Indian Reorganization Act of 1934.  Seller has the power and
authority to own its properties and to carry on its business as now conducted
and to enter into and to carry out the terms of this Agreement.

     Section 2.2  Authorization.  Seller has the requisite power and authority,
                  -------------
to execute, deliver and perform its obligations under this Agreement.  The
execution, delivery and performance by Seller of this Agreement has been duly
authorized by all necessary action of Seller, and no other act or proceeding on
the part of Seller or its members is necessary to authorize the execution,
delivery or performance by Seller of this Agreement.

     Section 2.3  Purchased Assets; Defensible Title.  Seller owns Defensible
                  ----------------------------------
Title (as such term is defined below) to all of the Assets. Seller represents
that, to the best of Seller's knowledge, Seller has the right to convey, and
Seller will have conveyed, and Seller warrants that Buyer will be vested with,
Defensible Title to the Assets.  "Defensible Title" shall mean, with respect to
Seller, such title, free and clear of all liens and encumbrances and defects,
other than the Contracts, as will (a) entitle Buyer to receive a percentage of
the oil and gas produced and saved from the Wells that is not less than the net
revenue interest of Seller shown on Exhibit "B," without reduction throughout
the productive life of the Wells except as set forth in Exhibit "B," and (b)
obligate Buyer to bear and pay a portion of the costs and expenses of operating
the Wells that is not greater than the working interest of Seller shown on
Exhibit "B," without increase throughout the productive life of the Wells except
as set forth in Exhibit "B."

     Section 2.4  Consents and Approvals.  To the best of Seller's knowledge, no
                  ----------------------
consent, approval, order or authorization of, or registration, declaration or
filing with, any Person is required to be made or obtained by Seller in
connection with the authorization, execution, delivery and performance by Seller
of this Agreement and the transactions contemplated hereby, other than those set
forth on Schedule 2.4, which will be obtained as soon as practicable following
         ------------
the date hereof, but in any event prior to the Closing.

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     Section 2.5   No Violation.  The execution, delivery and performance by
                   ------------
Seller of this Agreement and the consummation of the transactions contemplated
herein (a) will not result in the breach of any of the terms or conditions of,
or constitute a default under, or in any manner release any party thereto from
any obligation under, any mortgage, note, bond, indenture, contract, agreement,
license or other instrument or obligation of any kind or nature by which Seller
may be bound or affected; (b) to the best of Seller's knowledge will not violate
any law, order, writ, injunction, rule, regulation, statute or decree of any
court, administrative agency, or Governmental Authority (as defined in Section
                                                                       -------
7.2 hereof); (c) will not result in the creation or imposition of any liens,
---
mortgages, charges, security interests, pledges or other encumbrances or adverse
claims ("Liens") upon any of the Assets; or (d) will not violate any provision
of the organizational documents of Seller.

     Section 2.6   Litigation.  To the best of Seller's knowledge, there are no
                   ----------
claims, counterclaims, actions, suits, orders, proceedings (arbitration or
otherwise) or investigations pending or threatened against or involving Seller
or the Assets, or relating to the transactions contemplated hereby, at law or in
equity in any court or agency, or before or by any Governmental Authority or
arbitral tribunal that, if granted, could be reasonably expected to have a
Materially Adverse Affect (as hereinafter defined).  "Materially Adverse Effect"
shall mean a material adverse effect on the prospects, value, use, operation or
ownership of the Assets.

     Section 2.7   No Brokers or Finders.  Seller has not retained any broker or
                   ---------------------
finder, made any statement or representation to any Person which would entitle
such Person to, or agreed to pay, any broker's, finder's or similar fees or
commissions in connection with the transactions contemplated by this Agreement.

     Section 2.8   Contracts; Leases.  Complete and correct copies of the
                   -----------------
Contracts and Leases have been furnished to Buyer. To the best of Seller's
knowledge, Seller is not in default under any order, judgment, Contract, Lease,
license or instrument, which default or potential default might reasonably be
expected to have a Materially Adverse Effect. To the best of Seller's knowledge,
all of the Contracts and Leases are in full force and effect, and Seller is not
in default or material breach and no event has occurred which, with the giving
of notice or the passage of time or both, would constitute a default by Seller
under any Contracts or Leases. Schedule 2.8(a) identifies all of those Contracts
                               ---------------
and Leases that may not be assigned to Buyer without the consent, approval,
notification or waiver of any Person. Schedule 2.8(b) identifies those Contracts
                                      ---------------
and Leases that are subject to a preferential right to purchase obligation.
Seller has obtained or will obtain as soon as practicable following the date
hereof (but in any event prior to the Closing) such consents, approvals and
waivers of the preferential right to purchase provisions.

     Section 2.9   Environmental Matters.  To Seller's knowledge, there are no
                   ---------------------
notices, claims, suits, actions or proceedings (including government
investigations and audits) now pending or threatened against Seller relating to
Environmental Matters with respect to any of the Assets, and Seller is not aware
of any reasonable basis for believing that any such claims for Environmental
Matters may be asserted against Seller with respect to the Assets.

     Section 2.10  Disclosure.  No representation, warranty or statement made by
                   ----------
Seller in this Agreement or any of the exhibits or schedules hereto contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. To the knowledge of Seller, there is no material fact that has not
been disclosed to Buyer that might reasonably be expected to have a Materially
Adverse Effect on the Assets or Seller's ability to consummate the transactions
contemplated hereby.

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     Section 2.11  Condition of the Assets.  EXCEPT AS EXPRESSLY PROVIDED IN
                   -----------------------
THIS AGREEMENT TO THE CONTRARY, BUYER UNDERSTANDS AND AGREES THAT THE ASSETS ARE
SOLD "AS IS" AND "WHERE IS," WITH ALL FAULTS AND DEFECTS, WITHOUT COVENANT,
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED; AND WITHOUT LIMITATION OF THE
GENERALITY OF THE IMMEDIATELY PRECEDING CLAUSE, SELLER EXPRESSLY DISCLAIMS ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, QUALITY,
CONDITION OR MERCHANTABILITY OF THE ASSETS.

                                  ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer hereby represents, warrants and covenants to Seller that:

     Section 3.1   Corporate Organization.  Buyer is a corporation duly
                   ----------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.

     Section 3.2   Authorization.  The execution and delivery of this
                   -------------
Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary organizational action and no other act or proceeding
on the part of Buyer is necessary. Buyer has full power and authority to enter
into, execute and deliver this Agreement and to perform its obligations
hereunder.

     Section 3.3   No Violation.  The execution, delivery and performance by
                   ------------
Buyer of this Agreement and the consummation of the transactions contemplated
herein do not and will not: (a) result in the breach of any of the terms or
conditions of, or constitute a default under, or in any manner release any party
thereto from any obligation under, any mortgage, note, bond, indenture,
contract, agreement, license or other instrument or obligation of any kind or
nature by which Buyer may be bound or affected; (b) violate any law, order,
writ, injunction, rule, regulation, statute or decree of any court,
administrative agency, or Governmental Authority; or (c) violate any provision
of the Certificate of Incorporation or by-laws of Buyer.

     Section 3.4   Consents and Approvals.  No consent, approval or
                   ----------------------
authorization of, or declaration, filing or registration with, any Person is
required to be made or obtained by Buyer in connection with the execution and
delivery of this Agreement by Buyer, the performance by Buyer of its obligations
hereunder, and the consummation by it of the transactions contemplated hereby.

     Section 3.5   No Brokers or Finders.  Buyer has not retained any broker or
                   ---------------------
finder, made any statement or representation to any Person which would entitle
such Person to, or agreed to pay, any broker's, finder's or similar fees or
commissions in connection with transactions contemplated by this Agreement.

     Section 3.6   Knowledge of the Business. Buyer is directly and actively
                   -------------------------
engaged in the business of exploration for and production of oil and gas. Buyer
is a sophisticated investor in oil and gas properties and has knowledge and
expertise in financial and business matters relating to the evaluation and
purchase of producing oil and gas properties. Buyer is acquiring the interests
to be conveyed herein for investment purposes and not for distribution in
violation of any applicable securities laws.

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                                  ARTICLE IV

                                INDEMNIFICATION

     Section 4.1  Indemnification by Seller.  If the Closing occurs, Seller
                  -------------------------
hereby agrees to indemnify, defend and save Buyer and its officers, directors,
employees, agents and Affiliates (all or each, a "Buyer Indemnified Party")
harmless from and against (a) any and all liabilities (whether contingent, fixed
or unfixed, liquidated or unliquidated, or otherwise), obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, interest, fines, penalties, and damages (including
reasonable fees and expenses of attorneys, accountants and other experts)
(individually and collectively, the "Losses") suffered, sustained or incurred by
any Buyer Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any misrepresentation or breach of the representations or
warranties of Seller contained in this Agreement or in any exhibit or schedule
hereto; (b) the failure of Seller to perform any of its covenants or obligations
contained in this Agreement; (c) the liabilities and obligations (other than
Assumed Liabilities) relating to or arising out of the ownership of the Assets
and attributable to any act, omission, occurrence or event occurring prior to
the Effective Time; and (d) any and all Losses arising directly or indirectly
out of the Retained Liabilities.

     Section 4.2  Indemnification by Buyer.  If the Closing occurs, Buyer
                  ------------------------
agrees to indemnify, defend and save Seller and its Affiliates, and their
respective officers, directors, employees and agents (each, a "Seller
Indemnified Party") forever harmless from and against any and all Losses
sustained or incurred by any Seller Indemnified Party relating to, resulting
from, arising out of or otherwise by virtue of: (a) any misrepresentation in or
breach of the representations and warranties of Buyer contained in this
Agreement or in any schedule or exhibit hereto; (b) the failure of Buyer to
perform any of its covenants or obligations contained in this Agreement or in
any exhibit or schedule hereto; (c) the liabilities and obligations (other than
Retained Liabilities) relating to or arising out of ownership of the Assets and
attributable to any act, omission, occurrence or event occurring after the
Effective Time; (d) all liabilities and obligations (including, without
limitation, all liabilities and obligations under present and future federal,
state and local laws relating to the protection of health or the environment) in
respect of Environmental Matters occurring before or after the Closing, other
than any condition that is the subject of a breach by Seller or its
representations and warranties under this Agreement and (e) all Assumed
Liabilities.

     Section 4.3  Indemnification Procedure. Any party seeking indemnification
                  -------------------------
pursuant to this Article IV shall promptly provide written notice of any claim
to the party from which it seeks indemnification within a reasonable period of
time.  The indemnifying Person, if it so elects, shall assume and control the
defense thereof (and shall consult with the indemnified person with respect
thereto), including the employment of counsel reasonably satisfactory to the
indemnified person within ten (10) business days after receipt of the notice
with respect thereto, and the payment of all necessary expenses; provided that
                                                                 -------- ----
as a condition precedent to the indemnifying person's right to assume control of
such defense, it must first enter into an agreement with the indemnified person
(in form and substance reasonably satisfactory to the indemnified person)
pursuant to which the indemnifying person agrees to be fully responsible for all
losses relating to such claim and unconditionally guarantees the payment and
performance of any liability or obligation which may arise with respect to such
claim or the facts giving rise to such claim for indemnification; provided
                                                                  --------
further that the indemnifying person shall not have the right to assume control
-------
of such defense if the claim which the indemnifying person seeks to assume
control of (i) seeks non-monetary relief or (ii) involves criminal or quasi-
criminal allegations; and provided further that (i) the indemnifying person
                          -------- -------
shall not consent to the imposition of any injunction against the indemnified
person without the written consent of the indemnified person, (ii) the
indemnifying person shall permit the indemnified person to participate in such
conduct or settlement through counsel chosen by the indemnified person, but the
fees and expenses of such counsel shall be

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borne by the indemnified person (except as provided below), and (iii) upon a
final determination of such action, suit or proceeding, the indemnifying person
shall promptly reimburse to the full extent required under this Article IV the
indemnified person for the full amount of any Loss resulting from such action,
suit or proceeding and all reasonable and related expenses incurred by the
indemnified person, other than fees and expenses of counsel for the indemnified
person incurred after the assumption of the conduct and control of such action,
suit or proceeding by the indemnifying person (except as provided below). If the
indemnifying person is permitted to assume and control the defense and elects to
do so, the indemnified person shall have the right to employ counsel separate
from counsel employed by the indemnifying person in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
employed by the indemnified person shall be at the expense of the indemnified
person unless (i) the employment thereof has been specifically authorized by the
indemnifying person in writing, (ii) the indemnifying person has been advised by
counsel that a reasonable likelihood exists of a conflict of interest between
the indemnifying person and the indemnified person, (iii) the indemnifying
person has failed to assume the defense and employ counsel; or (iv) the
indemnified person has reasonably determined that an adverse outcome could have
a material adverse effect on its business reputation or could reasonably be
expected to have a materially adverse precedential effect; in which case the
fees and expenses of the indemnified person's counsel shall be paid by the
indemnifying person. In the event the indemnifying person fails to elect to
defend such claim in accordance with the foregoing, then the indemnified person
may elect, but shall not be required, to defend against or settle such claim as
it sees fit, provided that any settlement of such claim shall require the
consent of the indemnifying person, which consent shall not be unreasonably
withheld.

     Section 4.4  Failure to Give Timely Notice.  A failure by an indemnified
                  -----------------------------
person to give timely, complete or accurate notice as provided in Section 4.3
                                                                  -----------
will not affect the rights or obligations of any party hereunder except and only
to the extent that such failure results in actual prejudice to the indemnifying
person.

                                   ARTICLE V

                              CLOSING CONDITIONS

     Section 5.1  Buyer's Conditions to Closing.  The obligation of Buyer to
                  -----------------------------
proceed with the Closing contemplated hereby is subject to the satisfaction on
or prior to the Closing of all of the following conditions:

          (a)  Representations and Warranties.  The representations and
               ------------------------------
warranties of Seller contained in Article II of this Agreement shall be true and
correct in all material respects with respect to the Assets.

          (b)  Board Approval.  Buyer shall have received authorization to
               --------------
acquire the Assets from its Board of Directors.

          (c)  Due Diligence.  Buyer shall have reviewed and approved all
               -------------
documents and information, including title and production records, for the
Assets relating thereto.

                                  ARTICLE VI

                                    CLOSING

     Section 6.1  Closing.  The transactions that are the subject of this
                  -------
Agreement shall be consummated at the offices of Buyer in Houston, Texas as soon
as possible but no later than March 8,

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2002 or such other date as the parties may designate from time to time (the
"Closing"). The ownership of the Assets shall be transferred from Seller to
Buyer at the Closing but effective as of 7:00 a.m., Central Time, January 1,
2002 (the "Effective Time").

     Section 6.2  Deliveries by Seller.  At the Closing, pursuant to this
                  --------------------
Agreement, Seller shall execute and deliver to Buyer: (i) an Assignment and Bill
of Sale in the form attached hereto as Schedule 6.2(a) and an Assignment of
                                       ---------------
Operating Rights and Bill of Sale in the form attached hereto as Schedule 6.2(b)
                                                                 ---------------
transferring to Buyer the Assets; and (ii) such other documents and instruments
as Buyer may reasonably require.  All such other documents and instruments
delivered to Buyer, as applicable, shall be in form and substance reasonably
satisfactory to Buyer.

     Section 6.3  Deliveries by Buyer.  At the Closing, Buyer shall deliver to
                  -------------------
Seller:  (i) a wire transfer of immediately available funds for the Purchase
Price (as set forth in Section 1.3 hereof) and (ii) such other documents and
                       -----------
instruments as Seller may reasonably require in order to effectuate the
transactions which are the subject of this Agreement.  All documents and
instruments delivered to Seller shall be in form and substance reasonably
satisfactory to Seller.

     Section 6.4  Further Assurances.  From time to time after the Closing, and
                  ------------------
without further consideration, the Parties shall execute such further documents
and perform such further acts as may be necessary to transfer and convey the
Assets to Buyer, on the terms contained herein, and to otherwise comply with the
terms of this Agreement and consummate the transactions contemplated hereby.

     Section 6.5  Post Closing Adjustments.  Within 90 days after the Closing,
                  ------------------------
Seller and Buyer shall jointly prepare a final accounting statement for the
gross revenue, if any, received by Seller for hydrocarbons and liquid
hydrocarbon inventory produced from the Assets from and after the Effective
Time, less reasonable and documented expenses incurred by the Seller for the
period of time from and after the Effective Time and attributable to the
operation of the Assets or sale of such hydrocarbons and liquid hydrocarbon
inventory following the Effective Time. The Parties shall have 30 days following
completion of such accounting to agree as to its accuracy. Following such
agreement, Seller or Buyer, as the case may be, shall promptly pay to the other
such sum as may be found due. Nothing in this Section 6.5 is intended to limit
                                              -----------
any right of Seller or Buyer to assert a claim for reimbursement after the final
accounting with respect to the Closing.

     Section 6.6  Failure to Close.  If the Closing does not occur on or
                  ----------------
before the scheduled closing date as set forth hereunder, either party may
terminate this Agreement by giving written notice to the other party.
Thereafter, neither party shall have any further obligations to the other
hereunder, other than any obligations and liabilities arising prior to such
termination and those obligations that by their terms survive the termination of
this Agreement.

                                  ARTICLE VII

                                 MISCELLANEOUS

     Section 7.1  Notices.  All notices, reports, records or other
                  -------
communications that are required or permitted to be given to the Parties under
this Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the receiving
party at the following address:

     If to Seller:               Southern Ute Indian Tribe, doing business as
                                     Red Willow Production Company
                                 2577 Main Avenue

                                       9
<PAGE>

                                 Durango, CO  81301
                                 Attention: Robert J. Zahradnik
                                 Telecopier: 970.375.2216
                                 Phone: 970.375.2199

     If to Buyer:                Contango Oil & Gas Company
                                 3700 Buffalo Speedway, Suite 960
                                 Houston, TX  77098
                                 Attention:  Kenneth R. Peak
                                 Telecopier: 713.960.1065
                                 Phone: 713.960.1901

or such other address as such party may have given to the other party by notice
pursuant to this Section 7.1.  Notice shall be deemed given on (i) the date such
                 -----------
notice is personally delivered, (ii) three (3) days after the mailing if sent by
Certified or Registered Mail, (iii) one (1) day after the date of delivery to
the overnight courier if sent by overnight courier, or (iv) the next succeeding
day after transmission by facsimile.

     Section 7.2  General Definitions.  For the purposes of this Agreement, the
                  -------------------
following terms have the meaning set forth below:

     "Affiliate" with respect to any party, any Person directly or indirectly
controlling, controlled by, or under common control with such party, and any
officer, director or executive employee of such party and includes any past or
present Affiliate of any such Person.

     "Governmental Authority" means any federal, state, provincial, local,
governmental, judicial, public, quasi-public or administrative authority or
agency.

     "Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated association,
corporation, other entity or any Governmental Authority.

     Section 7.3  Entire Agreement.  The Schedules and Exhibits attached to this
                  ----------------
Agreement shall be deemed to be an integral part of this Agreement.  This
Agreement, including the Schedules and Exhibits, set forth the entire
understanding of the Parties with respect to the subject matter hereof and may
be modified only by instruments signed by both of the Parties hereto.

     Section 7.4  Counterparts.  This Agreement may be executed via facsimile in
                  ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     Section 7.5  Third Parties.  Nothing in this Agreement, express or
                  -------------
implied, is intended to confer any right or remedy under or by reason of this
Agreement on any Person other than the Parties hereto and their respective
heirs, representatives, successors and assigns, nor is anything set forth herein
intended to affect or discharge the obligation or liability of any third persons
to any party to this Agreement, nor shall any provision give any third party any
right of subrogation or action over against any party to this Agreement.

     Section 7.6  Expenses.  Each of the Parties shall pay all costs and
                  --------
expenses incurred or to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions contemplated by
hereunder, including, without limitation, legal and accounting fees and
expenses.

                                       10
<PAGE>

     Section 7.7   Waiver.  No failure of any party to exercise any right or
                   ------
remedy given such party under this Agreement or otherwise available to such
party or to insist upon strict compliance by any other party with its
obligations hereunder, and no custom or practice of the Parties in variance with
the terms hereof, shall constitute a waiver of any party's right to demand exact
compliance with the terms hereof, unless such waiver is set forth in writing and
executed by such party.

     Section 7.8   Survival.  All representations, warranties, indemnifications
                   --------
and rights to set off of the Parties hereto contained in or arising out of this
Agreement or otherwise in connection herewith shall survive the Closing
hereunder and shall continue in effect until the expiration of all applicable
statute of limitations (including any extensions of said statute).  Unless a
specified period is set forth in this Agreement (in which event such specified
period will control), all covenants contained in this Agreement will survive the
Closing and remain in effect indefinitely.

     Section 7.9   Governing Law; Jurisdiction.  This Agreement shall be
                   ---------------------------
construed and governed in accordance with the laws of the State of Texas without
regard to the principles of conflicting laws. Any action to enforce, or which
arises out of or relates in any way to, any of the provisions of this Agreement
shall be brought and prosecuted solely in the Texas state courts or the Federal
district courts located in Harris County, Texas.

     Section 7.10  Assignment.  No party may assign its rights or delegate its
                   ----------
obligations hereunder without the consent of the other party.  Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
Parties hereto and their respective heirs, successors and assigns.

     Section 7.11  Confidentiality.  Buyer and Seller acknowledge that all
                   ---------------
information furnished or disclosed pursuant hereto must remain confidential.
Buyer and Seller must mutually approve all press releases.  Buyer may disclose
such information only to its subsidiaries or Affiliates, agents, advisors or
representatives who have need to know such information and who have agreed in
writing, prior to being given access to such information, to be bound by the
terms of this Section 7.11.
              ------------

     Section 7.12  Severability.  If any term or other provision of this
                   ------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to any party. Upon any binding determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible and in an acceptable manner, to the
end that the transaction hereby may be contemplated to the extent possible.

     Section 7.13  DTPA.  Each party hereby certifies to the other that it is
                   ----
not a "Consumer" within the meaning of the Texas Deceptive Trade Practices -
Consumer Protection Act, Subchapter E of Chapter 17, Section 17.41, et. Seq. of
the Texas Business and Commerce Code, as amended (the "DTPA"). The Parties
covenant, for themselves and for an on behalf of any successors and assigns,
that if the DTPA is applicable, (a) the Parties are "business consumers"
thereunder and (b) each party hereby waives and releases all of its rights and
remedies thereunder (other than Section 17.555, Texas Business and Commercial
Code) as applicable to the other party and its successors and (c) each party
shall defend and indemnify the other party from and against any and all claims,
demands or causes of action of or by that party or any successor or any of its
Affiliates based in whole or in part on the DTPA, arising out of or in
connection with the transaction set forth in this Agreement.

                                       11
<PAGE>

     Section 7.14  No Additional Approvals.  Seller certifies to Buyer that the
                   -----------------------
Tribal Council of Seller has approved the transaction set forth in this
Agreement and Buyer and Seller further certify that, to the best of their
knowledge, no other approvals are required or necessary, including any approvals
pursuant to 25 United States Code Section 1 et seq. (the "Code").  Seller
covenants, for itself and for and on behalf of any successors and assigns, that
if any such approval is required or applicable (a) Seller shall promptly obtain
such approval, (b) Seller hereby waives and releases all of its rights or
remedies pursuant to the Code, (c) Seller covenants and agrees not to assert
against Buyer that any such approval or consent is required or necessary, and
(d) Seller shall defend and indemnify Buyer from and against any and all Losses
based in whole or in part on the Code arising out of or in connection with the
transaction set forth in this Agreement.

     Section 7.15  Headings.  The subject headings of paragraphs and
                   --------
subparagraphs of this Agreement are included for purposes of convenience only
and shall not affect the construction or interpretation of any of its
provisions.

     Section 7.16  Construction.  Where specific language is used to clarify by
                   ------------
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates.  The language used in this Agreement
shall be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.

                                       12
<PAGE>

     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.

                              SELLER:

                              SOUTHERN UTE INDIAN TRIBE,
                              doing business as Red Willow Production Company

                              By: /s/ LEONARD C. BURCH
                                  --------------------
                              Name:   Leonard C. Burch
                              Title:  Chairman

                              BUYER:

                              CONTANGO OIL & GAS COMPANY,
                              a Delaware corporation

                              By: /s/ KENNETH R. PEAK
                                  --------------------
                                      Kenneth R. Peak
                                      President and Chief Executive Officer

                                       13<PAGE>

                                                                    Exhibit 10.1

LYONDELL CHEMICAL COMPANY

______________________

EXECUTIVE SEVERANCE PAY PLAN

AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2002
<PAGE>

                           LYONDELL CHEMICAL COMPANY
                          EXECUTIVE SEVERANCE PAY PLAN
              (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2002)

     1.  PURPOSE.  This Lyondell Chemical Company Executive Severance Pay Plan
(the "Plan") is intended to assure Lyondell Chemical Company (the "Company")
that it will have the continued dedication of specified executives by
eliminating the distractions of personal uncertainties associated with potential
transactions that the Company may undertake in the future by providing for the
payment to such executives of certain severance benefits upon a termination
within a specified period following a Change in Control, as defined below.

     2.  DEFINITIONS.  As used herein, the terms set forth below shall have the
following respective meanings:

         "APPLICABLE ANNUAL EARNINGS" means the sum of a Participant's annual
base salary in effect on the last day of employment with the Employer (or if
greater, annual base salary in effect on the date of the Change in Control) and
the Participant's Target Award (whether or not paid) for personal services on
behalf of the Employer.  The "Target Award" shall be the actual bonus
compensation target for the calendar year during which the Change of Control
occurs, or if none has been established, the bonus compensation target for the
immediately preceding calendar year.  Applicable Annual Earnings shall include
the Participant's current annual base salary and Target Award whether or not
paid on a deferred basis, including without limitation, amounts contributed by
or on behalf of the Participant under any Employer-sponsored plan, such as (i) a
plan described in section 125 or 401(k) of the Internal Revenue Code of 1986, as
amended, or (ii) the Company's Executive Deferral Plan.  Notwithstanding the
preceding provisions of this paragraph, for purposes of this Plan, the
definition of Applicable Annual Earnings does not include any income
attributable to stock options, stock appreciation rights, performance awards
other than awards under an executive bonus plan described above, dividend
credits, and restricted stock granted under, and dividends on shares acquired
pursuant to, any stock option plan, restricted stock plan or performance unit
plan.

         "BOARD" means the Board of Directors of the Company.

         "CHANGE IN CONTROL"  shall be deemed to have occurred as of the date
that one or more of the following occurs:

         (i)    Individuals who, as of February 1, 1999, constitute the entire
Board ("Incumbent Directors") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the then Incumbent Directors shall be considered as though such
individual was an Incumbent Director, but excluding, for this purpose any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest, as such terms are used in Rule 14a-11
under the Securities Exchange Act of 1934, as amended or other actual or
threatened solicitation of proxies or consents by or on behalf of any Person (as
defined below) other than the Board;

                                                                             -2-
<PAGE>

         (ii)   The stockholders of the Company shall approve any merger,
consolidation or recapitalization of the Company (or, if the capital stock of
the Company is affected, any subsidiary of the Company), or any sale, lease, or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company (each of the foregoing being an "Acquisition Transaction")
where (1) the shareholders of the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition Transaction
beneficially own, directly or indirectly, shares or other ownership interests
representing in the aggregate eighty percent (80%) or more of (a) the then
outstanding common stock or other equity interests of the corporation or other
entity surviving or resulting from such merger, consolidation or
recapitalization or acquiring such assets of the Company, as the case may be, or
of its ultimate parent corporation or other entity, if any (in either case, the
"Surviving Entity"), and (b) the Combined Voting Power of the then outstanding
Voting Securities of the Surviving Entity or (2) the Incumbent Directors at the
time of the initial approval of such Acquisition Transaction would not
immediately after such Acquisition Transaction constitute a majority of the
Board of Directors, or similar managing group, of the Surviving Entity;
provided, however, that, notwithstanding the foregoing, a Change of Control
shall not be deemed to have occurred for purposes of this Subsection (ii) if
each of the following conditions are met:  (a) the Acquisition Transaction is
between the Company and/or its Affiliates, on the one hand, and Millennium
Chemicals Inc. ("Millennium") and/or its Affiliates, on the other hand, (b) the
Company or an entity that was a wholly owned subsidiary of the Company prior to
the Acquisition Transaction has a class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended, immediately after
completion of the Acquisition Transaction,  (c) Millennium or an entity that was
a wholly owned subsidiary of Millennium prior to the Acquisition Transaction has
a class of equity securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended, immediately after completion of the
Acquisition Transaction, and (d) as a result of the Acquisition Transaction, the
Company or its Affiliates own a greater percentage equity interest in Equistar
Chemicals, LP ("Equistar") than was owned, directly or indirectly, by the
Company immediately prior to such Acquisition Transaction;

         (iii)  The stockholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or

         (iv)   Any Person shall be or become the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended),
directly or indirectly, of securities of the Company representing in the
aggregate more than twenty percent (20%) of either (A) the then outstanding
shares of common stock of the Company ("Common Shares") or (B) the Combined
Voting Power of all then outstanding Voting Securities of the Company; provided,
however, that notwithstanding the foregoing, a Change in Control shall not be
deemed to have occurred for purposes of this Subsection (iv):

         (1)    Solely as a result of an acquisition of securities by the
     Company which, by reducing the number of Common Shares or other Voting
     Securities outstanding, increases (a) the proportionate number of Common
     Shares beneficially owned by any Person to more than twenty percent (20%)
     of the Common Shares then outstanding, or (b) the proportionate voting
     power represented by the Voting Securities beneficially owned by any Person
     to more than twenty percent (20%) of the Combined Voting Power of all then
     outstanding Voting Securities;

                                                                             -3-
<PAGE>

         (2)    Solely as a result of an acquisition of securities directly
     from the Company, except for any conversion of a security that was not
     acquired directly from the Company; or

         (3)    Solely as a result of a direct or indirect acquisition by
     Occidental Petroleum Corporation ("Occidental") or Millennium, or any
     Affiliate of either of them, of beneficial ownership of securities
     representing, (x) in the case of Occidental (with its Affiliates), no more
     than forty percent (40%), (y) in the case of Millennium (with its
     Affiliates), no more than forty percent (40%), and (z) in the case of
     Occidental (with its Affiliates) and Millennium (with its Affiliates) in
     the aggregate, no more than forty-nine percent (49%), of either (A) the
     then outstanding Common Shares or (B) the Combined Voting Power of all then
     outstanding Voting Securities of the Company, pursuant to or as
     contemplated under any agreement between the Company and Occidental and/or
     Millennium or Affiliates of either of them (including any subsequent
     related transaction or series of related transactions or acquisitions of
     Voting Securities of the Company by Occidental and/or Millennium or their
     Affiliates or assignees approved by the Incumbent Directors prior to the
     consummation of such transaction or series of related transactions) where,
     as a result of such transaction or series of related transactions, the
     Company or a Surviving Entity owns, directly or indirectly, a greater
     percentage equity interest in Equistar than was owned, directly or
     indirectly, by the Company immediately prior to such transaction or series
     of related transactions;

     provided, further, that if any Person referred to in paragraph (1) or (2)
     of this Subsection (iv) shall thereafter become the beneficial owner of
     additional shares or other ownership interests representing one percent
     (1%) or more of the outstanding Common Shares or one percent (1%) or more
     of the Combined Voting Power of the Company (other than (x) pursuant to a
     stock split, stock dividend or similar transaction or (y) as a result of an
     event described in paragraph (1), (2) or (3) of this Subsection (iv)), then
     a Change in Control shall be deemed to have occurred for purposes of this
     Subsection (iv).

         (v)    For purposes of this definition of Change in Control, the
following capitalized terms have the following meanings:

         (1)    "Affiliate" shall mean, as to a specified person, another
     person that directly, or indirectly through one or more intermediaries,
     controls or is controlled by, or is under common control with, the
     specified person, within the meaning of such terms as used in Rule 405
     under the Securities Act of 1933, as amended, or any successor rule.

         (2)    "Combined Voting Power" shall mean the aggregate votes
     entitled to be cast generally in the election of the Board of Directors, or
     similar managing group, of a corporation or other entity by holders of then
     outstanding Voting Securities of such corporation or other entity.

                                                                             -4-
<PAGE>

         (3)    "Person" shall mean any individual, entity (including, without
     limitation, any corporation, partnership, trust, joint venture, association
     or governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2)
     of the Exchange Act and the rules and regulations thereunder); provided,
     however, that Person shall not include the Company, LYONDELL-CITGO Refining
     LP ("LCR") or Equistar, any of their subsidiaries, any employee benefit
     plan of the Company, LCR or Equistar or any of their majority-owned
     subsidiaries or any entity organized, appointed or established by the
     Company, LCR, Equistar or such subsidiaries for or pursuant to the terms of
     any such plan.

         (4)    "Voting Securities" shall mean all securities of a corporation
     or other entity having the right under ordinary circumstances to vote in an
     election of the Board of Directors, or similar managing group, of such
     corporation or other entity.

         "CAUSE" means:  (i) the continued and willful refusal by a Participant
to substantially perform his duties (other than a willful refusal to perform a
duty which constitutes Constructive Termination for Good Reason or refusal
resulting from the Participant's incapacity due to physical or mental illness),
after demand for substantial performance is delivered by the Governing Body
which demand specifically identifies the manner in which the Governing Body has
determined that the Participant has not substantially performed his duties, and
the Participant's performance is not cured to the Governing Body's reasonable
satisfaction within thirty (30) days from such demand; (ii) the engagement by a
Participant in willful misconduct or dishonesty that is materially injurious to
the Employer, monetarily or otherwise; or (iii) a Participant's final conviction
of a felony.  Notwithstanding the foregoing, an Employer shall not be deemed to
have terminated a Participant for Cause without (i) reasonable written notice to
a Participant setting forth the reasons for the Employer's intention to
terminate the Participant for Cause and (ii) an opportunity for the Participant,
together with his counsel, to be heard before the Governing Body.
Notwithstanding any contrary provision of this Plan, it is specifically agreed
that Cause shall not include any act or omission by a Participant in the good
faith exercise of the Participant's business judgment as an officer of the
Employer.

         "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of the
Company.

         "CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.

         "COMMON STOCK" means the common stock, par value $1.00 per share, of
the Company.

         "COMMITTEE" means the Compensation Committee of the Board or any
person or persons appointed by the Board to administer the Plan.

         "COMPANY" means Lyondell Chemical Company.

         "CONSTRUCTIVE TERMINATION FOR GOOD REASON" means:

         (i)    the Participant is assigned to any duties or responsibilities
that are not comparable to the Participant's position, offices, duties,
responsibilities or status with the Employer at the time of the Change in
Control, or the Participant's reporting responsibilities or
                                                                             -5-
<PAGE>

titles are changed and the change results in a reduction of the Participant's
responsibilities or position with the Employer;

         (ii)   the level of benefits (qualified and executive) or compensation
(individual base compensation and short and long-term incentive opportunity)
provided to the Participant is reduced below the comparable level payable to
similarly situated executives at the Employer; or

         (iii)  the Participant is actually transferred, or offered a proposed
transfer, as evidenced in a written communication from the Employer to the
Participant, to another location other than the location at which he was
primarily employed immediately preceding the Change in Control, unless that new
location is a major operating unit or facility of the Employer that is located
within 50 miles of the Participant's primary location as of the date immediately
preceding a transfer; provided, however, (1) the Participant, within thirty (30)
days from the date that he is given written notice by the Employer of such
actual or proposed transfer, shall provide the Committee or the Board with
written notice that the transfer shall constitute a Constructive Termination for
Good Reason, (2) the Employer, within twenty (20) days of receipt of the notice,
fails to provide the Participant with written notice rescinding the actual or
proposed transfer and (3) if the Employer does not rescind the transfer, the
Participant must terminate his employment due to Constructive Termination for
Good Reason within forty (40) days following expiration of the twenty (20)-day
period so that in any event the Participant shall have terminated his employment
with the Employer within ninety (90) days after the Participant first receives
written notice from the Employer of such actual or proposed transfer.

         "DISABILITY" means a permanent and total disability as defined in the
Employer-sponsored long-term disability plan applicable to the affected
Participant.

         "EFFECTIVE DATE" means March 15, 1999.

         "EMPLOYEE" means an individual employed by the Company or a Subsidiary.

         "EMPLOYER" means the Company or any Subsidiary that is the employer of
a Participant.

         "GOVERNING BODY" shall mean (i) the Board if the Employer is the
Company, or (ii) the applicable governing body of any other Employer.

         "LEVEL ONE" means the Chief Executive Officer and any Executive Vice
President of the Company.

         "LEVEL ONE PARTICIPANT" means a Participant who is employed in a Level
One position of the Company during the period relevant for determination of
eligibility pursuant to Section 3.

         "LEVEL TWO" means an elected executive officer of the Company who does
not serve in a capacity defined under Level One, or an elected executive officer
of a Subsidiary who is designated by the Chief Executive Officer as eligible for
participation.

                                                                             -6-
<PAGE>

         "LEVEL TWO PARTICIPANT" means a Participant who is employed in a Level
Two position during the period relevant for determination of eligibility
pursuant to Section 3.

         "LEVEL THREE" means a senior management position of the Company or any
Subsidiary which is designated by the Chief Executive Officer as eligible for
participation.

         "LEVEL THREE PARTICIPANT" means a Participant who is employed in a
Level Three position during the period relevant for determination of eligibility
pursuant to Section 3.

         "PARTICIPANT" means an Employee who is eligible for a benefit under
the Plan pursuant to Section 3 as a Level One Participant, Level Two
Participant, or Level Three Participant.

         "PLAN" means the Lyondell Chemical Company Executive Severance Pay
Plan, as amended from time to time.

         "SUBSIDIARY" means (i) any corporation, limited liability company or
similar entity  of which the Company directly or indirectly owns shares
representing more than 50% of the voting power of all classes or capital stock
of such corporation which have the right to vote generally on matters submitted
to a vote of the shareholders of such entity, (ii) Equistar Chemicals, LP or
LYONDELL-CITGO Refining, LP so long as the Company maintains an equity ownership
interest equal to at least 25% in such entities, or (iii) any other entity in
which the Company has an equity ownership interest of at least 25%, so long as
such entity is designated by the Committee as a Subsidiary for purposes of this
Plan.

     3.  ADMINISTRATION AND ELIGIBILITY.

          (a)   Administration.  The Plan shall be administered by the
Committee, which shall have full and exclusive power to interpret this Plan and
to adopt such rules, regulations and guidelines for carrying out this Plan as it
may deem necessary or appropriate. The Committee may, in its discretion, retain
the services of an outside administrator for the purpose of performing any of
its functions hereunder. Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and absolute discretion
and shall be final, conclusive and binding on all parties concerned.
Notwithstanding the foregoing, on or before a Change in Control, the Board shall
designate a successor plan administrator which shall in all events be
independent of the Company and any affiliate of the Company. The successor plan
administrator shall have all the powers given under the Plan to the Committee
with respect to (i) determining all questions relating to Plan benefits; (ii)
adopting rules and procedures to administer the Plan; and (iii) interpreting
Plan provisions.

         (b)    Eligibility to Participate.  Individuals eligible to receive
benefits under the plan are Employees who, at any time in the two (2) year
period prior to a Change in Control, occupied a position classified as Level One
or Level Two, and such individuals shall be Level One Participants and Level Two
Participants, respectively.  In addition, the Chief Executive Officer may
designate Employees in Level Two or Level Three, individually or by employee
classification, as Level Two or Level Three Participants under the Plan.  Any
designation of an Employee as a Level 2 or Level Three Participant must be made
by written notice signed by the Chief Executive Officer and delivered to the
Participant with a copy sent to members of the

                                                                             -7-
<PAGE>

Committee. Notwithstanding the foregoing, an Employee will not be eligible to
become a Participant so long as such Employee is (i) currently eligible for a
severance benefit upon termination of employment with the Company pursuant to a
plan or agreement established by ARCO Chemical Company, or (ii) eligible for
severance benefits from the Company or a Subsidiary under any other plan or
agreement if such benefits are substantially equal to or greater than the
benefits set forth in this Plan.

         (c)    Eligibility for Severance Benefits.  In the event that a
Participant's employment is terminated, within two years following a Change in
Control, (i) by the Participant within ninety (90) days following the occurrence
of any event which shall constitute Constructive Termination for Good Reason, or
(ii) by the Employer for reasons other than (A) Cause, or (B) the Participants'
death or Disability, then the Company will provide or cause to be provided to
the Participant the rights and benefits provided in Section 4.  No event which
occurs on or after the date an Employer ceases to be a Subsidiary shall entitle
a Participant employed by that former Subsidiary to receive any severance
benefits pursuant to Section 4.

     4.  SEVERANCE BENEFITS. If a Participant is eligible for a severance
benefit due to a termination under circumstances described in Section 3(c), then
the Company shall provide or cause to be provided to the Participant benefits as
follows:

         (a)    Salary and Other Payment at Termination.  The Company shall pay
to the Participant not later than thirty (30) days following termination a lump-
sum payment in cash in the amount of:

         (i)    for Level One Participants, three (3) times the Participant's
     Applicable Annual Earnings;

         (ii)   for Level Two Participants, two (2) times the Participant's
     Applicable Annual Earnings; and

         (iii)  for Level Three Participants, one (1) times the Participant's
     Applicable Annual Earnings.

         (b)    Stock Options.  With respect to any stock options granted to the
Participant under any of  the Company's incentive plans (a "Stock Option
Plan"), notwithstanding any provision of the Stock Option Plans or the
Participant's associated stock option agreements, if any, to the contrary, all
non-vested options shall become 100% vested and fully exercisable as of the date
of the Change in Control.

         In the event the Company is the surviving entity following a Change in
Control, all stock options owned by a Participant shall be freely exercisable
for the remainder of their existing terms without regard to any earlier date
that may be specified therein including, without limitation, an earlier
expiration date specified with respect to a Participant's termination of
employment.

         (c)    Minimum Retirement Benefits.  The Company shall cause the
Participant to be fully vested in the Employer's qualified defined benefit
retirement plan, the Company's Supplementary Executive Retirement Plan (or its
successor), and any plan of a Subsidiary

                                                                             -8-
<PAGE>

comparable to the Company's Supplementary Executive Retirement Plan, and to have
satisfied the minimum age and service requirements for early retirement
eligibility for purposes of determining the Participant's eligibility to
commence receipt of benefits under such plans. For purposes of determining the
amount of benefits payable under the Employer's qualified defined benefit plan
and Supplementary Executive Retirement Plan (or its successor) or comparable
Subsidiary plan, a Participant who has attained age 55 at the time benefit
payments commence shall be deemed to have satisfied the early retirement
eligibility requirements for benefit payment purposes, and a Participant who has
not attained age 55 at the time benefit payments commence shall receive a
benefit amount that is actuarially adjusted to reflect the early commencement of
the benefit that would otherwise have been paid at attainment of early
retirement age. Payments attributable to any early retirement benefit that would
become payable under the Employer's qualified defined benefit retirement plan
pursuant to this Section 4(c) shall be payable in a lump sum cash payment. In
the event the Participant is covered under a Subsidiary's qualified defined
benefit plan or a plan of a Subsidiary comparable to the Company's Supplementary
Executive Retirement Plan, the Company will provide a lump-sum cash payment
equal to the excess (if any) of the amount payable pursuant to this Section 4(c)
and the present value of the amount payable under such plans of the Subsidiary.
The Participant shall be eligible for coverage under the retiree medical plan of
the Company (or its successor) upon termination of employment, regardless of
attained age and service, with such coverage to be provided for the Participant
and the Participant's dependents on the same terms and conditions, excluding
eligibility requirements, as provided to other retired executives or senior
managers of the Company (or its successor) in the same class or category of
position as was held by the Participant prior to the Change in Control;
provided, however, that the medical coverage set forth in Section 4(e) shall
govern for the first twenty-four (24) months following termination to the extent
more favorable to the Participant.

         (d)    Executive Deferral Plan.  Notwithstanding any provisions of the
Company's Executive Deferral Plan (the "Deferral Plan") to the contrary, the
full amount of contributions and earnings accrued or credited to a Participant's
account balance under the Deferral Plan (as of the date immediately preceding
the Termination) shall be immediately distributed to the Participant in a cash
lump-sum payment.

         (e)    Insurance and Other Benefits.  For a period of twenty-four (24)
months following termination, the Participant (and his or her dependents, as
applicable) shall be covered at the Company's expense by the Company's life
insurance, medical, dental, accident and disability plans or any successor to a
plan or program in effect at termination for active employees in the same class
or category as the Participant, or who would be in the same class or category if
employed by the Company (hereafter individually and collectively referred to as
"Welfare Plan"), subject to the terms of the Welfare Plan and to the
Participant's making any required contributions thereto which contributions
shall not exceed those charged to active employees in the same class or category
in which the Participant was employed by the Company.  In the event that the
Participant is ineligible to continue to be so covered under the terms of any
Welfare Plan, or in the event that Participant is eligible but the benefits
applicable to the Participant (and his dependents, as applicable) are not
substantially equivalent to such benefits immediately prior to termination,
then, for a period of twenty-four (24) months following termination, the
Company, at its expense, shall provide to the Participant (and his or
dependents, as applicable) through other sources such benefits as may be
necessary to make the benefits applicable to the Participant (and his or her
dependents, as applicable) substantially equivalent to

                                                                             -9-
<PAGE>

those in effect immediately prior to termination. Continuation coverage provided
pursuant to any group health plan maintained by the Company shall be in addition
to any continuation coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985 as amended ("COBRA").

         (f)    Outplacement.  The Company shall provide to the Participant, at
its expense, reasonable outplacement assistance for a period not to exceed one
(1) year for the Participant from a professional outplacement assistance firm
which is reasonably suitable to the Participant and commensurate with his
position and responsibilities.  In no event will the amount expended for
outplacement assistance for the Participant exceed $40,000.

         (g)    Certain Tax Payments. If the Participant becomes entitled to one
or more payments (with a "payment" including, without limitation, an increase in
pension benefits and the vesting of an option or other non-cash benefit or
property) pursuant to the terms of any plan, arrangement or agreement with the
Employer (the "Change in Control Payments"), which are or become subject to the
tax imposed by Section 4999 of the Code (or any similar tax that may hereafter
be imposed) (the "Excise Tax"), the Company shall pay to the Participant an
additional cash amount (the "Additional Gross-up Payment") such that the net
amount retained by the Participant after reduction for (i) any Excise Tax on the
Change in Control Payments and (ii) any federal, state and local income or
employment tax and Excise Tax payable with respect to the Additional Gross-up
Payment, shall equal the Change in Control Payments.  For purposes of
determining the amount of the Additional Gross-up Payment, the Participant shall
be deemed (i) to pay federal income taxes at the highest stated rate of federal
income taxation (including surtaxes, if any) for the calendar year in which the
Additional Gross-up Payment is to be made; and (ii) to pay any applicable state
and local income taxes at the highest stated rate of taxation (including
surtaxes, if any) for the calendar year in which the Additional Gross-up Payment
is to be made.  Any Additional Gross-up Payment required hereunder shall be made
to the Participant at the same time any Change in Control Payment subject to the
Excise Tax is paid or deemed received by the Participant.  The Additional Gross-
up Payment shall not be paid under this Plan if an Additional Gross-up Payment
which is identical to or greater than the amount calculated in this Section 4(g)
is paid under any plan, arrangement or agreement with the Employer.

         If, in connection with the examination of a Participant's tax return,
the Internal Revenue Service asserts that any amount payable or benefit provided
hereunder is a "parachute payment" as defined in the Code and such amount or
benefit was not treated as a parachute payment in determining an Additional
Gross-up Payment, the Company at its cost shall assume the defense of any
controversy involving such issue and shall indemnify and hold the Participant
harmless for all liabilities, costs, taxes, interest and penalties attributable
to such issue and shall to the extent necessary (without duplication) increase
the Additional Gross-up Payment to give effect to any additional amount or
benefit determined to be a parachute payment.  The Participant shall cooperate
with the Company so that the Company will be able to challenge any adverse
determination by the Internal Revenue Service through administrative proceedings
and, if determined by the Company, through litigation.

         (h)    No Duty to Mitigate.  A Participant's entitlement to benefits
hereunder shall not be governed by any duty to mitigate the Participant's
damages by seeking further employment nor offset by any compensation which the
Participant may receive from future employment.

                                                                            -10-
<PAGE>

     5.  COMPANY BENEFIT PLANS

         (a)    Funding of Supplemental Executive Benefit Plans Trust.
Immediately upon a Change in Control, the Company shall deposit with the trustee
under the Company's Supplemental Executive Benefit Plans Trust Agreement (the
"Trust") an amount which, together with the value of the assets then held under
the Trust, will be sufficient to fund, and to enable the trustee to timely pay,
the benefits due under the Supplementary Executive Retirement Plan, the
Executive Deferral Plan and any other plans funded by the Trust, taking into
consideration such factors as the person serving as the Chief Executive Officer
of the Company immediately prior to the Change in Control or his designee deems
relevant.

         (b)    Other Benefit Plans.  The specific arrangements referred to in
this Plan are not intended (i) to exclude or limit a Participant's participation
in other benefit plans or programs in which the Participant currently
participates or may participate including, without limitation, retiree benefits,
or benefits which are available to executive personnel generally in the same
class or category as the Participant or, (ii) to preclude or limit other
compensation or benefits as may be authorized by the Committee or the Governing
Body from time to time. To the extent not otherwise paid or provided, the
Company shall timely pay or provide to the Participants and/or the Participant's
dependents any other amounts or benefits required to be paid or provided or
which the Participant or the Participant's dependents are eligible to receive
pursuant to this Plan and under any plan program, policy or practice or contract
or agreement of the Company as in effect and applicable generally to executive
personnel in the same class or category of a Participant.

     6.  PAYMENT OBLIGATIONS ABSOLUTE.  The Company's obligation to pay or
provide, or to cause to be paid or provided to Participants the amounts and
benefits and to make the arrangements provided in this Plan shall be absolute
and unconditional and shall not be affected by any circumstances (including,
without limitation, any setoff, claim, counterclaim, recoupment, defense or
other right, which the Employer may have against a Participant or anyone else).
All amounts payable by or on behalf of the Company hereunder shall be paid
without notice or demand. Each and every payment made hereunder by or on behalf
of the Company shall be final and the Company and its subsidiaries or
affiliates, for any reason whatsoever, shall not seek to recover all or any part
of such payment from a Participant or from whomever shall be entitled thereto.
In no event shall an asserted violation of any provision of this Plan constitute
a basis for deferring or withholding any amount payable to, or on behalf of, a
Participant under this Plan.

     7.  CONFIDENTIALITY AND COOPERATION.

         (a)    Cooperation.  Following termination, Participants will furnish
such information and render such assistance and cooperation as may reasonably be
requested in connection with any litigation or legal proceedings concerning the
Company, any of its Subsidiaries (other than any legal proceedings arising out
of or concerning Participant's employment or Participant's termination).  In
connection with such cooperation, the Company will pay or reimburse Participants
for reasonable expenses.

                                                                            -11-
<PAGE>

         (b)    Release of Liability.  Each Participant must, prior to the time
that he or she is eligible to receive any payments provided for in Section 4 of
this Plan, execute and deliver to the Company, on a form reasonably satisfactory
to the Company and the Participant, a separate release and waiver, which,
without limiting the generality of the foregoing, shall include a release and
discharge of the Company, its Subsidiaries, and its and their directors, board
of directors, officers, employees, owners, agents, successors and assigns from
any and all suits, causes of action, demands, claims, charges, complaints,
liabilities, costs, losses, damages, injuries, bonds, judgments, attorneys' fees
and expenses, in any form whatsoever, in law or in equity, whether known or
unknown, whether suspect or unsuspected, arising out of the Participant's
employment with Company or any Subsidiary through his termination, including,
without limitation, claims arising under any federal, state or local law for
breach of an implied covenant of good faith and fair dealing, breach of
contract, defamation, slander, negligent misrepresentation, fraud, intentional
or negligent interference with business relations, and employment
discrimination, including, but not limited to, claims under the Age
Discrimination in Employment Act, the Americans with Disabilities Act and the
Texas Commission on Human Rights Act, except to the extent that the
Participant's rights are vested under the terms of employee benefit plans
sponsored by the Employer and except with respect to such rights or claims
(other than agreements herein to perform future employment-related actions) as
may arise after termination.

     8.  TERM OF PLAN.  If a Change in Control occurs, this Plan shall
continue in full force and effect and shall not terminate or expire until all
Participants who become entitled to any payments hereunder shall have received
such payments in full.  The Plan shall be subject to amendment, substitution,
revocation or termination by the Committee at any time prior to a Change in
Control; provided, however, that no amendment, substitution, revocation or
termination shall occur without the consent of the affected Participants if a
third party has submitted a proposal to the Board that is reasonably calculated,
in the judgment of the Committee, to effect a Change in Control.  After a Change
in Control, the Plan shall not be subject to amendment, substitution, revocation
or termination in any respect which adversely affects the rights of a
Participant without the consent of that Participant.

     9.  NOTICES.  All notices, requests, demands and other communications
required or permitted to be given hereunder (hereinafter referred to as
"notices") shall be in writing and shall be deemed to have been duly given if
delivered by-hand, given by facsimile or telegram, or mailed via certified or
registered U.S. mail, to the party to receive such notice at such party's
address set forth below; provided that either party may change its address for
notice by giving to the other party written notice of such change.

         If to the Company:

         Lyondell Chemical Company
         1221 McKinney, Suite 700, Houston, TX 77010
         Attn:  Chairman of the Board of Directors

         If to a Participant:

         Last address on the books of the Employer.

                                                                            -12-
<PAGE>

         Any notice given pursuant to this Plan shall be deemed received (i) if
delivered by-hand, when delivered; (ii) if sent by facsimile or telegram, 24
hours after sending; and (iii) if mailed, when delivered.

     10. CLAIMS PROCEDURE.   If a Participant makes a written request alleging
a right to receive benefits under this Plan or alleging a right to receive an
adjustment in benefits being paid under the Plan, the Committee shall treat it
as a claim for benefits.  All claims for benefits under the Plan shall be sent
to the Committee and must be received within 30 days after termination of
employment.  If the Committee determines that any individual who has claimed a
right to receive benefits, or different benefits, under the Plan is not entitled
to receive all or any part of the benefits claimed, he will inform the claimant
in writing of its determination and the reasons therefor in terms calculated to
be understood by the claimant.  The notice will be sent within 90 days of the
claim unless the Committee determines additional time, not exceeding 90 days, is
needed.  The notice shall make specific reference to the pertinent Plan
provisions on which the denial is based, and describe any additional material or
information that is necessary.  Such notice shall, in addition, inform the
claimant what procedure the claimant should follow to take advantage of the
review procedures set forth below in the event the claimant desires to contest
the denial of the claim.  The claimant may within 60 days thereafter submit in
writing to the Committee a notice that the claimant contests the denial of his
or her claim by the Committee and desires a further review.  The Committee shall
within 60 days thereafter review the claim and authorize the claimant or his
designated representative to appear personally and review all relevant documents
and submit issues and comments relating to the claim to the persons responsible
for making the determination on behalf of the Committee.  The Committee will
render its final decision with specific reasons therefor in writing and will
transmit it to the claimant within 60 days of the written request for review,
unless the Committee determines additional time, not exceeding 60 days, is
needed.

     11. ARBITRATION OF DISAGREEMENTS.  Any dispute, controversy or claim
arising out of or relating to the obligations under this Plan (after exhaustion
of the claims procedure remedies set forth in Section 10), shall be settled by
final and binding arbitration in accordance with the American Arbitration
Association Employment Dispute Resolution Rules.  The arbitrator shall be
selected by mutual agreement of the parties, if possible.  If the parties fail
to reach agreement upon appointment of an arbitrator within 30 days following
receipt by one party of the other party's notice of desire to arbitrate, the
arbitrator shall be selected from a panel or panels submitted by the American
Arbitration Association (the "AAA").  The selection process shall be that which
is set forth in the AAA Employment Dispute Resolution Rules, except that, if the
parties fail to select an arbitrator from one or more panels, AAA shall not have
the power to make an appointment but shall continue to submit additional panels
until an arbitrator has been selected.  All fees and expenses of the
arbitration, including a transcript if requested, will be borne by the parties
equally.

                                                                            -13-
<PAGE>

     12. MISCELLANEOUS.

         (a)    Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation, or
to execution, attachment, levy or similar process; provided, however, that
Participant may assign any right, benefit or interest hereunder if such
assignment is permitted under the terms of any plan or policy of insurance, or
annuity contract governing such right, benefit or interest.

         (b)    Construction of Plan.  Nothing in this Plan shall be construed
to amend any provision of any plan or policy of the Company or any Subsidiary
except as otherwise expressly noted herein. This Plan is not, and nothing herein
shall be deemed to create, a commitment of continued employment of a Participant
by the Company or any Subsidiary. The captions of this Plan are not part of the
provisions hereof and shall have no force or effect. Whenever the context of
this Plan so requires, the masculine gender includes the feminine gender, and
words used in the singular or plural will include the other. The words "herein"
"hereunder" and other similar compounds of the word "here" refer to the entire
Plan and not to any particular section or provision.

         (c)    Successors.  A Participant's rights under this Plan are personal
to the Participant and without the prior written consent of the Company shall
not be assignable by a Participant otherwise than by will or the laws of descent
and distribution.  This Plan shall inure to the benefit of and be enforceable by
a Participant's legal representatives.  The Company will require any successor
to assume this Plan, and to agree to perform this Plan in the same manner and to
the same extent that the Company would be required to perform this Plan if no
such succession had taken place.  Failure of the Company to obtain such
assumption and agreement shall entitle a Participant to compensation from the
Company in the same amount and on the same terms as he would be entitled
hereunder with respect to Constructive Termination for Good Reason.

         This Plan shall be binding upon and inure to the benefit of the
Company and any successor organization or organizations which shall success to
substantially all of the business and/or assets of the Company (whether direct
or indirect by means of merger, consolidation, acquisition of substantially all
the assets of the of the Company, or otherwise, including by operation of law).

         (d)    Taxes.  Any payment or delivery required under this Plan shall
be subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like.

         (e)    Governing Law.  TO THE EXTENT THIS PLAN IS NOT GOVERNED BY
FEDERAL LAW, THIS PLAN SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW
PRINCIPLES.

                              LYONDELL CHEMICAL COMPANY

                                                                            -14-

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