THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with each of the Delaware General Corporation Law (the "DGCL"), the General Corporation Law of Nevada (the "GCLN") and the Texas Business Corporation Act (the "TBCA" and, together with the DGCL and the GCLN, the "Applicable Corporate Laws"), Company will be merged with and into Merger Sub at the Effective Time (as defined in Section 1.2). Following the Merger, the separate corporate existence of Company will cease in accordance with the GCLN, and Merger Sub will continue as the surviving corporation (the "Surviving Corporation"), and will succeed to and assume all the rights and obligations of Company in accordance with the DGCL.

Section 1.2 Effective Time. The Merger will become effective when a Certificate of Merger (the "Delaware Certificate of Merger") executed in accordance with the relevant provisions of the DGCL, is filed with the Secretary of State of the State of Delaware, and a Certificate of Merger (the "Nevada Certificate of Merger" and, together with the Delaware Certificate of Merger, the "Certificates of Merger") executed in accordance with the GCLN is filed with the Secretary of State of the State of Nevada, or such later time which the parties hereto will have agreed upon and designated in the Certificates of Merger as the effective time of the Merger. When used in this Agreement, the term "Effective Time" will mean the first date and time at which both Certificates of Merger have been duly filed, which the Parties agree will be done simultaneously (as reasonably possible) for record or such later time established by the Certificates of Merger. The filing of the Certificates of Merger will be made on the date of the Closing (as defined in Section 1.9).

Section 1.3 Effects of the Merger. The Merger will have the effects set forth in the applicable provisions of the Applicable Corporate Laws.

Section 1.4 Charter and Bylaws, Directors. (a) At the Effective Time, the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time in the form attached as Exhibit A, will be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. At the Effective Time, the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, will be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or in the Certificate of Incorporation of Merger Sub or by applicable law.

(b) The directors of Merger Sub at the Effective Time will be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

(c) Prior to the date of this Agreement, Parent's Board of Directors has approved (i) an amendment to its Bylaws to be effective at or prior to the Effective Time (A) increasing the number of directors on Parent's Board of Directors to nine or more, (B) creating two vacancies on Parent's Board of Directors as of and subsequent to the Effective Time for a term lasting until the second annual meeting of the shareholders following the Effective Time, and (C) which cannot be amended or otherwise modified or repealed except by a unanimous vote of Parent's Board of Directors, and (ii) resolutions causing two individuals which Company will select prior to the Effective Time (the "Company Director Nominees") to become directors of Parent as of the Effective Time, filling such vacancies. If at any time after Company's selection of the Company Director Nominees (including after the Effective Time) any Company Director Nominee is unable to serve as a director, the other, remaining Company Director Nominee will nominate and elect a replacement director.

Section 1.5 Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, Company or the holders of any securities of Merger Sub:

(a) (i) Each issued and outstanding share of Parent Common Stock will remain outstanding and will represent one validly issued, fully paid and nonassessable share of Parent Common Stock.

(ii) Each issued and outstanding share of common stock, par value $0.01, of Merger Sub ("Merger Sub Common Stock") will remain outstanding and will represent one validly issued, fully paid and nonassessable share of Merger Sub Common Stock.

(b) Each share of Company Common Stock held in the treasury of Company and each share of Company Common Stock owned by Parent or any Subsidiary of Parent will be canceled, and no cash, capital stock of Parent or Merger Sub, or other consideration will be delivered in exchange therefor.

(c) Subject to Sections 1.5(b), 1.6, 1.7, 1.8 and 1.12, each issued and outstanding share of Company Common Stock not cancelled pursuant to Section 1.5(b) will be converted into one of the following (as adjusted pursuant to this Article I, the "Merger Consideration"):

(i) for each such share of Company Common Stock (other than shares as to which a Stock Election (as defined in Section 1.6(a) has been effectively made and not revoked or lost pursuant to Section 1.6), the right to receive an amount in cash, without interest (collectively, the "Cash Consideration"), equal to $4.71, as may be adjusted pursuant to
Section 1.5(d) (as adjusted, the "Per Share Merger Consideration"); or

(ii) at the election of the holder thereof, for each such share of Company Common Stock as to which a Stock Election has been effectively made and not revoked or lost, the right to receive a number of shares of Parent Common Stock equal to the Exchange Ratio (collectively, the "Stock Consideration"; the aggregate Cash Consideration and Stock Consideration issued to all of Company's shareholders in connection with the Merger will be referred to as the "Aggregate Merger Consideration"). The "Exchange Ratio" will equal the Per Share Merger Consideration divided by 10.

(d) The Per Share Merger Consideration will be (i) increased by an amount equal to the quotient of (A) the amount by which the Company Transaction Costs are less than $2,300,000, divided by (B) 15,980,815; or
(ii) decreased by an amount equal to the quotient of (A) the amount by which the Company Transaction Costs exceed $3,300,000, divided by (B) 15,980,815. "Company Transaction Costs" means, to the extent relating to the Merger and incurred or reasonably expected to be incurred (whether paid or payable) after the date of this Agreement and up to the Effective Time, the sum of (i) Company Employee Payments (as defined in Section 3.9(d)),
(ii) Company Financial Advisor Fees (as defined in Section 3.15), and (iii) accounting, printing, registration and legal expenses. Within five calendar days after the Stock Election Mailing Date, Company will deliver to Parent a schedule setting forth in reasonable detail Company's estimated calculation of the Company Transaction Costs to be used in the computation of the adjustment (the "Per Share Merger Consideration Adjustment") to the Per Share Merger Consideration under this Section 1.5(d). Within five calendar days of its receipt of Company's calculation of the Per Share Merger Consideration Adjustment, Parent may advise Company whether it has any exceptions to such calculation. Unless Parent delivers to Company within five calendar days after its receipt of Company's calculation of the Per Share Merger Consideration Adjustment a letter describing in reasonable detail its exceptions to Company's calculation of the Per Share Merger Consideration Adjustment, Company's estimate of the Per Share Merger Consideration Adjustment will be conclusive and binding. If Parent submits a letter detailing any exceptions to the calculation of the Per Share Merger Consideration Adjustment, then (i) for five days after the date Company receives such letter, Company and Parent will use their reasonable best efforts to agree on the calculation of the Per Share Merger Consideration Adjustment, and (ii) lacking such agreement, the matter will be referred to a "Big 5" accounting firm mutually agreed upon by Parent and Company, who will determine on an expedited basis prior to the Stock Election Final Date the correct Per Share Merger Consideration Adjustment, which determination will be conclusive and binding.

(e) If, and only if, the aggregate number of shares of Company Common Stock as to which a Stock Election has been effectively made pursuant to
Section 1.6 (the "Stock Election Shares") would represent (but for the application of this Section 1.5(e)) the right to receive more than 4,000,000 shares of Parent Common Stock (the "Maximum Stock Election Number"), then the Aggregate Merger Consideration will

be comprised of Stock Consideration equal to the Maximum Stock Election Number and Cash Consideration in an amount equal to the balance of the Aggregate Merger Consideration. In which case, the Stock Election Shares will be converted into the right to receive the Cash Consideration or the Stock Consideration in the following manner:

(i) the number of Stock Election Shares covered by each Stock Election to be converted into Stock Consideration will be determined by multiplying the number of Stock Election Shares covered by such Stock Election by a fraction, (A) the numerator of which is the Maximum Stock Election Number, and (B) the denominator of which is the aggregate number of Stock Election Shares;

(ii) all Stock Election Shares not converted into Stock Consideration in accordance with Section 1.5(e)(i) will be converted into the right to receive the Cash Consideration; and

(iii) Fractional Shares resulting from the application of Section 1.5(e)(i) will be converted into Cash Consideration.

(f) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all shares of Company Common Stock will, pursuant to Section 1.5(c), cease to be outstanding and the certificates representing such shares will be canceled and retired and will cease to exist and each holder of such shares of Company Common Stock will thereafter cease to have any rights with respect to such shares of Company Common Stock, except the right to receive, without interest, the Merger Consideration and cash for fractional shares of Parent Common Stock in accordance with Section 1.5(c) upon the surrender of a certificate representing such shares of Company Common Stock (a "Certificate").

(g) At the Effective Time, each warrant to purchase shares of Company Common Stock that is outstanding immediately prior to the Effective Time (a "Warrant") will remain outstanding and will become warrants to acquire Per Share Merger Consideration on terms set forth in the Warrant. After the Effective Time, each Warrant will represent the right to receive, upon exercise of such Warrant, an amount of cash (without interest) equal to the product of (i) the number of shares of Company Common Stock subject to such Warrant as of the Effective Time, and (ii) (A) the Per Share Merger Consideration, minus (B) the exercise price per share applicable under such Warrant. All references to Company in Company's warrant agreements with respect to Warrants will be deemed to refer to Parent and Merger Sub, and Parent and Merger Sub will assume the obligations of the Company under such warrant agreements. The other terms of each such Warrant and the applicable Company warrant agreement under which it was issued will continue to apply.

(h) Each of Company's stock option plans listed in Section 1.5(h) of the Company Disclosure Schedule (collectively, the "Company Stock Plans"), and each outstanding stock option held by any current or former employee, director or consultant (an "Option"), (A) will be assumed by Parent at the Effective Time, and each Option will vest and become immediately exercisable, and will be deemed to be converted into an option to purchase a number of shares of Parent Common Stock (a "Substitute Option") equal to the number of shares of Company Common Stock subject to such Option multiplied by the Exchange Ratio (rounded to the nearest whole share, with 0.5 shares being rounded up) or (B) at the option of the holder of such Option exercisable by written notice to Company prior to the Effective Time, will be cancelled immediately prior to the Effective Time in exchange for a payment in cash as provided below (a "Cash-out Option"). The per share exercise price for each Substitute Option will be the current exercise price per share of Company Common Stock set forth in the original Option to which it relates divided by the Exchange Ratio (rounded up to the nearest full cent), and each Substitute Option otherwise will be subject to all of the other terms and conditions of the original Option to which it relates. The cash payment for each Cash-out Option will be equal to the product of (x) the number of shares of Company Common Stock subject to such Option, and (y) the excess of the Per Share Merger Consideration over the exercise price per share of Company Common Stock subject to such Option. Parent will provide to Company at the Effective Time funds to make the payments provided in the preceding sentence. Prior to the Effective Time, Company will take such additional actions as are necessary under applicable law and the applicable agreements and Company Stock Plans to effect the transactions contemplated by this paragraph.

Section 1.6 Company Common Stock Elections. Subject to Sections 1.5, 1.7 and 1.8, each holder of shares of Company Common Stock (other than holders of shares to be canceled as set forth in Section 1.5(b)) will have the right to submit a request specifying the number of shares of Company Common Stock which such holder desires to have converted into the right to receive either Stock Consideration or a combination of Stock Consideration and Cash Consideration in accordance with the following procedures:

(a) Each holder of shares of Company Common Stock may specify in a request made in accordance with the provisions of this Section 1.6 the number of such shares which such holder desires to have converted into the right to receive Stock Consideration in the Merger (a "Stock Election"). Each share of Company Common Stock as to which no Stock Election is in effect at the Stock Election Final Date (as defined in Section 1.6(e)) or for which a Stock Election has been made but has been revoked or withdrawn or is otherwise no longer effective will be called a "Non-Electing Share." Subject to Sections 1.7 and 1.8, the Non-Electing Shares of each holder of shares of Company Common Stock will be treated for purposes of this Agreement as if such shares were not covered by a Stock Election and, accordingly, will be converted to the right to receive Cash Consideration in accordance with Section 1.5(c)(i).

(b) Parent will authorize Parent's Transfer Agent or such other person as will be reasonably acceptable to Company to receive Stock Elections, to act as exchange agent hereunder and to make, subject to approval by Parent and Company (provided such approval is not unreasonably withheld, delayed or denied), any computations required to be made to give effect to this Article I (the "Exchange Agent").

(c) Parent will prepare, for use by shareholders of Company in surrendering Certificates, a form (the "Form of Stock Election") pursuant to which each holder of Company Common Stock may make Stock Elections. As of a date on which Parent and Company can mutually agree, which date is expected to be as soon as practicable after the Company Shareholder Approval is obtained (the "Stock Election Mailing Date"), the Form of Stock Election will be mailed to shareholders of record of Company and record holders of Warrants.

(d) Company and Parent will use all reasonable efforts to make the Form of Stock Election available to all persons who become shareholders of record of Company and Parent during the period between the Stock Election Mailing Date and the Stock Election Final Date.

(e) A Stock Election will have been properly made only if the Exchange Agent will have received, by 5:00 p.m., New York City time, on the twentieth day (or a later date which may be determined prior to the Stock Election Mailing Date by mutual agreement of Parent and Company) following the date of mailing of the Form of Stock Election (such time on such day being referred to herein as the "Stock Election Final Date"), a properly completed and signed Form of Stock Election. A holder of Warrants that (i) receives a Form of Stock Election, (ii) exercises Warrants in accordance with the applicable warrant agreement after receipt of such Form of Stock Election but prior to the Stock Election Final Date, and (iii) otherwise delivers such Form of Stock Election in accordance with this Section 1.6(e) with respect to the shares of Company Common Stock issuable under such Warrant, will have made a Stock Election with respect to such shares of Company Common Stock issuable under such Warrant if, and only if, such shares are issued to such holder on or prior to the Stock Election Final Date so that such holder is the record holder of such shares on the Stock Election Final Date.

(f) Any holder of record of shares of Company Common Stock may at any time prior to the Stock Election Final Date change such holder's Stock Election by written notice received by the Exchange Agent at or prior to the Stock Election Final Date, accompanied by a properly completed Form of Stock Election.

(g) Any holder of record of shares of Company Common Stock may at any time prior to the Stock Election Final Date revoke such holder's Stock Election by written notice received by the Exchange Agent at or prior to the Stock Election Final Date or by withdrawal prior to the Stock Election Final Date of such holder's Certificates previously deposited with the Exchange Agent. Any revocation of a Stock Election may be withdrawn by notice of such withdrawal delivered at or prior to the Stock Election Final Date. Any shareholder of Company who will have deposited Certificates with the Exchange Agent will have the

right to withdraw such Certificates by written notice received by the Exchange Agent at or prior to the Stock Election Final Date. Parent will obtain from the Exchange Agent an agreement to return all Stock Elections and accompanying Certificates to the shareholders submitting the same in the event this Agreement will be terminated in accordance with its terms.

(h) Parent will have the right, subject to approval by Company (provided such approval is not unreasonably withheld or delayed), to make rules, not inconsistent with the terms of this Agreement, governing the validity of Forms of Stock Election, the issuance and delivery of certificates for Parent Common Stock into which shares of Company Common Stock are converted in the Merger and the payment for shares of Company Common Stock converted into the right to receive the Cash Consideration in the Merger.

Section 1.7 Parent to Make Cash and Certificates Available, Transfer Taxes, Withholding.

(a) As soon as practicable after the Effective Time, Parent will deposit with the Exchange Agent, in trust for the holders of shares of Company Common Stock and holders of Warrants, certificates for shares of Parent Common Stock and cash representing the Aggregate Merger Consideration payable pursuant to Sections 1.5, 1.6, and 1.8 (such certificates and cash, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). The Exchange Agent will invest any cash included in the Exchange Fund as directed by Parent on a daily basis. Any interest or other income resulting from such investments will be paid to Parent. As soon as practicable after the Effective Time, the Exchange Agent will distribute to each holder of shares of Company Common Stock converted into the right to receive the Cash Consideration or the Stock Consideration pursuant to Sections 1.5, 1.6, and 1.8, upon surrender to the Exchange Agent (to the extent not previously surrendered with a Form of Stock Election) of one or more Certificates for cancellation, a check for the amount of cash to which such holder is entitled under such sections and/or certificates representing the shares of Parent Common Stock to which such holder is entitled under such sections. As soon as practicable after the Effective Time, the Exchange Agent will mail to each holder of record of a Certificate or Certificates whose shares were converted pursuant to this Article I (other than any holder who previously surrendered all its Certificates with a Stock Election or pursuant to a guarantee of delivery delivered with a Stock Election) (A) a letter of transmittal in form reasonably acceptable to Parent (which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon actual delivery of the Certificates to the Exchange Agent) and (B) instructions for use in effecting the surrender of the Certificates.

(b) Upon surrender for cancellation to the Exchange Agent of a Certificate, together with such letter of transmittal, duly executed, the holder of such Certificate will be entitled to receive in exchange therefor a certificate representing that number of whole shares of Parent Common Stock issuable and/or the cash payable to such holder pursuant to Sections 1.5, 1.6 and 1.8 of this Agreement. Each share of Parent Common Stock into which a share of Company Common Stock will be converted will be deemed to have been issued at the Effective Time. If any certificate representing shares of Parent Common Stock or cash or other property is to be issued or delivered in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of such exchange that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange will pay to the Exchange Agent any transfer or other taxes required by reason of the issuance of certificates for such shares of Parent Common Stock in a name other than that of the registered holder of the Certificate surrendered or will establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Parent or the Exchange Agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or under any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent or the Exchange Agent.

Section 1.8 Dividends, Fractional Shares, etc.

(a) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on Parent Common Stock will be paid with respect to any shares of Company Common Stock represented by a Certificate, until such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there will be paid to the holder of certificates of Parent Common Stock issued in exchange for such Certificate, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock and not paid, less the amount of any withholding taxes that may be required thereon, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock, less the amount of any withholding taxes that may be required thereon.

(b) At or after the Effective Time, there will be no transfer on the stock transfer books of Company of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing any such shares are presented to the Surviving Corporation, they will be canceled and exchanged for the Merger Consideration, if any, deliverable in respect thereof pursuant to this Agreement.

(c) No fractional shares of Parent Common Stock will be issued pursuant to the Merger. In lieu of the issuance of any fractional share of Parent Common Stock pursuant to the Merger, cash adjustments will be paid to holders in respect of any fractional share of Parent Common Stock that could otherwise be issuable (each, a "Fractional Share"), and the amount of such cash adjustment will be equal to the product of such fractional amount and the Per Share Merger Consideration.

(d) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any shares of Parent Common Stock) that remains unclaimed by the former shareholders of Company six months after the Effective Time or for such longer time as Parent will determine will be delivered to Parent. Any former shareholder of Company who has not theretofore complied with this Article I will thereafter look only to the Surviving Corporation and Parent for payment of the applicable Merger Consideration, cash in lieu of fractional shares and unpaid dividends and distributions on Parent Common Stock deliverable in respect of each share of Company Common Stock such shareholder holds as determined pursuant to this Agreement, in each case without any interest thereon.

(e) To the fullest extent permitted by law, none of Parent, Company, the Surviving Corporation, the Exchange Agent or any other Person will be liable to any former holder of shares of Company Common Stock for any amount properly delivered to a public official pursuant to applicable or unclaimed property, escheat or similar laws.

(f) In the event that any Certificate will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent the posting by such person of a bond in such reasonable amount as Parent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost stolen or destroyed Certificate the applicable Merger Consideration, cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Parent Common Stock, as provided in this Section 1.8, deliverable in respect thereof pursuant to this Agreement.

(g) In the event of any change in the Parent Common Stock between the date of this Agreement and the Effective Time by reason of any stock split, stock dividend, subdivision, reclassification, combination, or exchange of Parent Common Stock or the like, the Per Share Merger Consideration, the Exchange Ratio and other terms set forth in this Agreement will be appropriately adjusted.

Section 1.9 Closing. The closing of the Merger (the "Closing") and all actions contemplated by this Agreement to occur at the Closing will take place at the offices of Parent, 6733 South Yale Avenue, Tulsa, Oklahoma 74136, at 10:00 a.m., local time, on a date to be specified by the parties, which
(subject to fulfillment or waiver of the conditions set forth in Article VI)
will be no later than the second business day following the day on which the last of the conditions set forth in Article VI will have been fulfilled or waived, or at such other time and place as Parent and Company will agree.

Section 1.10 Transfer Taxes. Parent and Company will cooperate in the preparation, execution and filing of all returns, applications or other documents regarding any real property transfer, stamp, recording, documentary or other taxes and any other fees and similar taxes which become payable in connection with the Merger other than transfer or other taxes described in
Section 1.7(b) (collectively, "Transfer Taxes"). From and after the Effective Time, Parent will pay or cause to be paid, without deduction or withholding from any amounts payable to the holders of Company Stock, all Transfer Taxes.

Section 1.11 Guarantee. Parent hereby absolutely, unconditionally and irrevocably guarantees the performance by Merger Sub of all of its obligations under this Agreement. The liability of Parent hereunder will be primary and not as a surety, and will not be affected by:

(a) any amendment, modification of or supplement to this Agreement, any other Transaction Document or any agreement or any other instrument or any assignment or transfer of any rights or obligations thereunder;

(b) any release or waiver, by operation of law or otherwise, of the performance or observance by Parent or Merger Sub or any Person of any express or implied agreement, covenant, term, obligation or condition under any of the Transaction Documents;

(c) any extension of the time for the payment of all or any portion of any sums payable under any agreement or the extension of time for the performance of any obligations under, arising out of or in connection with any of the Transaction Documents;

(d) any failure, omission, delay or lack of diligence on the part of Company, or any other Person, to enforce, assert or exercise, or any waiver of, any right, privilege, power or remedy conferred on Company or any other individual or entity by any of the Transaction Documents, or any action on the part of Company or such other Person granting indulgence or extension of any kind;

(e) any bankruptcy, insolvency, readjustment, composition, liquidation, dissolution or similar proceeding with respect to Merger Sub;

(f) any merger, amalgamation or consolidation of Parent or of Merger Sub into or with any other corporation or partnership or other entity or any sale, lease or transfer of any or all of the assets of Parent or of Merger Sub to any Person; or

(g) any failure on the part of Company for any reason to comply with or perform any of the terms of the Transaction Documents.

Notwithstanding the foregoing, Parent will not be obligated to guarantee Merger Sub's performance to the extent Parent has a defense to its performance of its obligations hereunder if such defense (i) would arise if Merger Sub were not a party to this Agreement and Company were merging into Parent, and (ii) did not arise through any act or omission of Parent.

Parent hereby waives notice or demand of performance in the acceptance of its obligations hereunder.

Section 1.12 Dissenting Shares. Company will give Parent prompt notice of any demands received by Company for appraisal of any shares of Company Common Stock in accordance with the GCLN, and Parent will have the right to control all negotiations and proceedings with respect to such demands except as required by applicable law. Company will not, except with the prior written consent of Parent which may be withheld in

its sole discretion without any obligation to provide an explanation for the exercise of that discretion, make any payment with respect to, or settle or offer to settle, any such demands. Any such demands will not be converted into a right to receive the Merger Consideration, unless the shareholder making such demand fails to perfect or withdraws or otherwise loses its right to appraisal or it is determined that such holder does not have appraisal rights in accordance with the GCLN. If after the Effective Time such shareholder fails to perfect or withdraws or loses its right to appraisal, such shares of Company Common Stock will be treated as if they had been converted as of the Effective Time into a right to receive the Cash Consideration.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PARENT

Parent represents and warrants to Company as follows (such representations and warranties (as well as other provisions of this Agreement) are qualified by the matters identified on a disclosure schedule (the "Parent Disclosure Schedule") delivered by Parent to Company prior to execution of this Agreement).

Section 2.1 Organization and Qualification. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power to carry on its business as it is now being conducted or currently proposed to be conducted. Parent is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities make such qualification necessary, except where the failure to be so qualified has not had, and would not reasonably be expected to have, alone or in the aggregate, a Parent Material Adverse Effect. For the purposes of this Agreement, a "Parent Material Adverse Effect" means any state of facts, event, change or effect which, individually or in the aggregate, (a) has a material adverse effect on the business, properties, assets, condition (financial or otherwise), liabilities or results of operations of Parent and its Subsidiaries taken as a whole, or (b) would prevent the consummation of the material transactions contemplated hereby; provided that occurrences or events arising out of or resulting from the following will in each case be excluded from consideration for purposes of the effect of an occurrence or event on Parent and its Subsidiaries, taken as a whole: (i) changes in general economic conditions, including general stock market conditions and interest rate changes, (ii) changes in the energy industry, including changes in the prices of crude oil, natural gas, natural gas liquids and other hydrocarbons produced from crude oil or natural gas ("Hydrocarbons"), or (iii) the adverse determination of any pending litigation disclosed in the Parent Disclosure Schedule. Complete and correct copies as of the date of this Agreement of the Amended and Restated Articles of Incorporation and Bylaws of Parent have been delivered to Company prior to the date of this Agreement.

Section 2.2 Capitalization. The authorized capital stock of Parent consists of 25,000,000 shares of Parent Common Stock, and 1,000,000 shares of preferred stock, par value $.01 per share (the "Parent Preferred Stock"). As of the date of this Agreement, (a) 8,703,719 shares of Parent Common Stock were validly issued and outstanding, fully paid, and nonassessable, (b) no shares of Parent Preferred Stock were issued and outstanding, (c) 1,515,157 shares of Parent Common Stock were reserved for issuance pursuant to options ("Parent Stock Options") to purchase Parent Common Stock, and (d) no shares of parent Common Stock were reserved for issuance pursuant to warrants to purchase Parent Common Stock. As of the date of this Agreement, there are no bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote with Parent's shareholders, whether together or as a separate class, on any matters on which Parent's shareholders may vote. As of the date of this Agreement, except for Parent Stock Options and rights ("Parent Rights") issued pursuant to the Shareholder Rights Agreement dated November 22, 1998, between Parent and First Union National Bank, there are no options, warrants, calls, convertible securities or other rights, agreements or commitments presently outstanding obligating Parent to issue, deliver or sell shares of its capital stock, or obligating Parent to grant, extend or enter into any such option, warrant, call or other such right, agreement or commitment. All of the shares of Parent Common Stock issuable in accordance with this Agreement in exchange for Company Common Stock at the Effective Time in accordance with this Agreement

will be, when so issued, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights and will be delivered free and clear of all liens, claims, charges and encumbrances of any kind or nature whatsoever.

Section 2.3 Subsidiaries. Each Subsidiary of Parent is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization (except where the failure to be validly existing and in good standing would not be material to the business of such Subsidiary) and has the corporate or similar power to carry on its business as it is now being conducted or currently proposed to be conducted. Each Subsidiary of Parent is duly qualified to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary except where the failure to be so qualified, when taken together with all such failures, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect. Section 2.3 of the Parent Disclosure Schedule contains, with respect to each Subsidiary of Parent its name and jurisdiction of organization and, with respect to each Subsidiary that is not wholly owned, the percentage of outstanding capital stock or equity capital owned by Parent or a Subsidiary. All the outstanding shares of capital stock or equity capital of each Subsidiary of Parent are validly issued, fully paid and nonassessable, and, to the extent owned by Parent or by a Subsidiary of Parent, are owned free and clear of any liens, claims or encumbrances. There are no existing options, warrants, calls, convertible securities or other rights, agreements or commitments of any character relating to the issued or unissued capital stock or other securities of any of the Subsidiaries of Parent (other than preemptive rights or similar rights held by Parent with respect to certain of its Subsidiaries). Except as set forth in Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Parent does not directly or indirectly own any interest in any other corporation, partnership, joint venture or other business association or entity or have any obligation, commitment or undertaking to acquire any such interest, other than business associations customary in the oil and gas industry consisting of interests in oil and gas property subject to a joint operating agreement.

Section 2.4 Authority Relative to this Agreement. Parent and each of its Subsidiaries has the corporate power to enter into this Agreement and each other agreement and document executed and delivered in connection with the material transactions contemplated hereby (together with this Agreement, the "Transaction Documents") to which Parent is a party and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Documents to which Parent is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by Parent's Board of Directors and the Parent Principal Shareholders. Each Transaction Document to which Parent is a party constitutes a valid and binding obligation of Parent enforceable against Parent in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. No other corporate proceedings on the part of Parent are necessary after the date of this Agreement to authorize execution by Parent of the Transaction Documents to which Parent is a party. Parent is not subject to or obligated under (a) any charter, bylaw, indenture or other loan or credit document provision, or (b) any other contract, license, franchise, permit, order, decree, concession, lease, instrument or judgment, or any statute, law, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries, or their respective properties or assets, which would be breached or violated, or under which there would be a default (with or without notice or lapse of time, or both), or under which there would arise a right of termination, cancellation, modification or acceleration of any obligation, or any right to payment or compensation, or the loss of a material benefit, by its executing and carrying out the Transaction Documents to which Parent is a party other than, in the case of clause (b) only, (i) any breaches, violations, defaults, terminations, cancellations, modifications, accelerations, rights to payment or compensation, or losses which, either alone or in the aggregate, have not had, and would not reasonably be expected to have, a Parent Material Adverse Effect and (ii) the laws and regulations referred to in the next sentence. Except as required by the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Canadian Governmental Entities (including without limitation Canadian Governmental Entities requiring filings under the Investment Canada

Act) and the corporation, securities or blue sky laws or regulations of the various states, no filing or registration with, or authorization, consent or approval of, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (each, a "Governmental Entity"), is necessary for the consummation by Parent of the Merger or the other transactions contemplated by the Transaction Documents to which Parent is a party, other than filings, registrations, authorizations, consents or approvals the failure to make or obtain which has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect.

Section 2.5 Reports and Financial Statements. Parent has previously furnished Company with, or there has been made available to Company, true and complete copies of its (a) Annual Reports on Form 10-K for the fiscal years ended December 31, 1998 and December 31, 1999, as filed with the Securities and Exchange Commission (the "Commission"), (b) Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1999 and 2000, as filed with the Commission, (c) proxy statements related to all meetings of its shareholders (whether annual or special) since December 31, 1998, and (d) all other reports or registration statements filed by Parent with the Commission since December 31, 1998, except for preliminary material (in the case of clauses (c) and (d) above) and except for registration statements on Form S-8 relating to employee benefit plans and annual reports on Form 11-K with respect to such plans, which are all the documents that Parent was required to file with the Commission since December 31, 1998 (the documents in clauses (a) through (d) being referred to herein collectively as the "Parent SEC Reports"). All Parent SEC Reports were properly and timely filed with the Commission and any applicable securities exchange or market and its self regulatory organization. As of their respective dates, the Parent SEC Reports complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the Commission thereunder applicable to the Parent SEC Reports. As of their respective dates, the Parent SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of Parent included in the Parent SEC Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto. The financial statements included in the Parent SEC Reports (i) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto);
(ii) present fairly, in all material respects, the financial position of Parent and its Subsidiaries as of the dates thereof and the results of their operations and cash flows for the periods then ended subject in the case of the unaudited interim financial statements, to normal year-end adjustments, any other adjustments described therein and the fact that certain information and notes have been condensed or omitted in accordance with the Exchange Act and the rules promulgated thereunder, and (iii) are in all material respects in accordance with the books of account and records of Parent and its Subsidiaries.

Section 2.6 Absence of Certain Changes or Events. Except as disclosed in the Parent SEC Reports, from September 30, 2000 until the date of this Agreement, there has not been any transaction, commitment, dispute or other event or condition (financial or otherwise) of any character (whether or not in the ordinary course of business) which, alone or in the aggregate, has had, or would reasonably be expected to have, a Parent Material Adverse Effect.

Section 2.7 Litigation. Except as disclosed in the Parent SEC Reports and as set forth in Section 2.7 of the Parent Disclosure Schedule, there is no suit, action or proceeding to which Parent or any of its Subsidiaries is a party pending or, to the actual knowledge of the individuals listed in Section 2.7 of the Parent Disclosure Schedule ("Parent's Knowledge"), threatened against Parent or any of its Subsidiaries which, alone or in the aggregate, has had or would reasonably be expected to have, a Parent Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or any of its Subsidiaries which, alone or in the aggregate, has had, or would reasonably be expected to have, a Parent Material Adverse Effect.

Section 2.8 Compliance with All Applicable Laws. Parent and each of its Subsidiaries holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary or appropriate for the operation of its respective business, except for such permits, licenses, variances, exemptions, orders and approvals the failure to hold which, alone or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect (the "Parent Permits"). Parent and each of its Subsidiaries is in compliance with the terms of the Parent Permits, except for any failure to comply which, alone or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect. Except as disclosed in the Parent SEC Reports filed and delivered to Company prior to the date of this Agreement, the businesses of Parent and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations which, alone or in the aggregate, have not had, and would not reasonably be expected to have, a Parent Material Adverse Effect.

Section 2.9 Employee Benefit Plans. (a) Section 2.9(a) of the Parent Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all other material employee benefit or compensation arrangements, including, without limitation, any such arrangements providing severance pay, sick leave, vacation pay, salary continuation for disability, retirement benefits, deferred compensation, bonus pay, incentive pay, stock options (including those held by directors, employees, and consultants), hospitalization insurance, medical insurance, life insurance, scholarships or tuition reimbursements, that are maintained by Parent, any Subsidiary of Parent or any Parent ERISA Affiliate or to which Parent, any Subsidiary of Parent or any Parent ERISA Affiliate is obligated to contribute thereunder for current or former directors, employees, independent contractors, consultants and leased employees of Parent, any Subsidiary of Parent or any Parent ERISA Affiliate (the "Parent Employee Benefit Plans").

(b) None of the Parent Employee Benefit Plans is a "multiemployer plan," as defined in Section 4001(a)(30 of ERISA (a "Multiemployer Plan") and neither Parent nor any Parent ERISA Affiliate presently maintains or has maintained such a plan.

(c) Except as provided in Part 6 of Subtitle B of Title I of ERISA, Parent does not maintain or contribute to any plan or arrangement which provides or has any liability to provide health or medical benefits to any employee or former employee upon his retirement or termination of employment.

(d) Except as provided in the agreements and arrangements in Section 2.9(d) of the Parent Disclosure Schedule, the execution of, and performance of the transactions contemplated in, this Agreement and the other Transaction Documents will not either alone or upon the occurrence of subsequent events, result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. The only severance agreements or severance policies applicable to Parent or its Subsidiaries in the event of a change of control of Parent are the agreements and policies specifically referred to in Section 2.9(d) of the Parent Disclosure Schedule. Except as disclosed in Section 2.9(d) of the Parent Disclosure Schedule, no payment or benefit which will or may be made by Parent, Company or any of their Subsidiaries or affiliates with respect to any employee of Parent or any Subsidiary of Parent will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code.

(e) Each Parent Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been determined to be exempt from federal income taxation under Section 501 of the Code by the IRS, and, to Parent's knowledge, nothing has occurred with respect to the operation or organization of any such Parent Employee Benefit Plan that would cause the loss of such qualification or exemption or the imposition of any material liability, penalty or tax under ERISA or the Code. With respect to any Parent Employee Benefit Plan which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA, (i) Parent has not incurred and is not reasonably likely to incur any liability under Title IV of ERISA (other than for the payment of premiums, all of which have been paid when due), (ii) Parent has not incurred any accumulated funding deficiency within the meaning of
Section 412 of the Code and has

not applied for or obtained a waiver of any minimum funding standard or an extension of any amortization period under Section 412 of the Code, (iii) no "reportable event" (as such term is defined in Section 4043 of ERISA but excluding any event for which the provision for 30-day notice to the Pension Benefit Guaranty Corporation has been waived by regulation) has occurred or is expected to occur and (iv) since December 31, 1996, no material adverse change in the financial condition of any such plan has occurred.

(f) (i) All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Parent Employee Benefit Plans to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof, (ii) Parent has complied in all material respects with any notice, reporting and documentation requirements of ERISA and the Code, (iii) there are no pending actions, claims or lawsuits which have been asserted, instituted or, to Parent's knowledge, threatened, in connection with the Parent Employee Benefit Plans, and (iv) the Parent Employee Benefit Plans have been maintained, in all material respects, in accordance with their terms and with all provisions of ERISA and the Code (including rules and regulations thereunder) and other applicable federal and state laws and regulations.

For purposes of this Agreement, "Parent ERISA Affiliate" means any business or entity which is a member of the same "controlled group of corporations," under "common control" or in an "affiliated service group" with Parent within the meanings of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with Parent under Section 414(o) of the Code, or a "Parent ERISA Affiliate" under "common control" with Parent within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing Sections.

Section 2.10 Parent Board Action. The Board of Directors of Parent (at a meeting duly called and held) has by the requisite vote of directors present
(a) determined that the Merger is advisable and fair to and in the best interests of Parent and its shareholders, and (b) approved the Merger, this Agreement and the transactions contemplated by the Transaction Documents in accordance with the TBCA, Parent's Amended and Restated Articles of Incorporation, and Parent's Bylaws. The only corporate action necessary to effect the election of Company Director Nominees to Parent's Board of Directors for a term to last until the second annual meeting of shareholders after the Effective Time pursuant to Section 1.4(c), is an amendment to Parent's Bylaws which can be effected by a resolution of Parent's Board of Directors.

Section 2.11 Required Shareholder Vote or Consent. The only vote of the holders of any class or series of the Parent's capital stock necessary to consummate the Merger and the other Transaction Documents is the approval and adoption of the Merger, this Agreement and the other Transaction Documents by the holders of the Parent Common Stock (the "Parent Shareholder Approval") at a shareholder meeting in person or by proxy.

Section 2.12 Taxes.

(a) The term "Tax" as used herein means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code (S) 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. The term "Tax Return" as used herein means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. All citations to the Code, or the Treasury Regulations promulgated thereunder, will include any amendments or any substitute or successor provisions thereto.

(b) Each of Parent and its Subsidiaries has filed all material Tax Returns required to be filed by any of them and has paid (or Company has paid on its behalf), or has set up an adequate reserve for the payment of,

all Taxes required to be paid in respect of the periods covered by such Tax Returns. The information contained in such Tax returns is true, complete and accurate in all material respects. Neither Parent nor any Subsidiary of Parent is delinquent in the payment of any material Tax, assessment or governmental charge. No material deficiencies for any Taxes have been proposed, asserted or assessed against Parent or any of its Subsidiaries that have not been finally settled or paid in full, and no requests for waivers of the time to assess any such Tax are pending. None of Parent and its Subsidiaries is obligated, or is reasonably expected to be obligated, to make any payments, or is a party to any agreement that on account of the transactions contemplated by this Agreement would obligate it, or reasonably be expected to obligate it to make any payments that will not be deductible under Section 280G of the Code. Each of Parent and its Subsidiaries has withheld and paid all material Taxes required to be withheld and paid and has complied with all information and backup withholding requirements, including maintaining all necessary records in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party.

(c) Except as set forth in Section 2.12(c) of the Parent Disclosure Schedule, none of Parent or its Subsidiaries has, since December 31, 1997, been a member of an affiliated group, within the meaning of Code (S) 1504, filing a consolidated income Tax Return other than a group the common parent of which is Parent. None of Parent and its Subsidiaries has any material liability for the Taxes of any Person other than Parent and its Subsidiaries (i) under Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a Joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity.

(d) To Parent's Knowledge, Parent has not taken any action which would prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.

Section 2.13 No HSR Filing. No filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 is required in connection with the Merger or any other transactions contemplated hereby or in the Transaction Documents.

Section 2.14 Certain Agreements. (a) Neither Parent nor any of its Subsidiaries is in default (or would be in default with notice or lapse of time, or both) under any indenture, note, credit agreement, loan document lease, license, concession or other agreement including, but not limited to, any Parent Employee Benefit Plan, whether or not such default has been waived, which default alone or in the aggregate with other such defaults, has had, or would reasonably be expected to have, a Parent Material Adverse Effect.

(b) Section 2.14(b) of the Parent Disclosure Schedule describes all contracts, agreements and transactions, involving consideration of more than $300,000 for any individual contract, agreement or transaction or series of related contracts, agreements or transactions, between Parent or any of its Subsidiaries, on the one hand, and any Parent Related Party (as defined below), on the other hand, which are currently in effect or which were in effect or were consummated at any time on or after January 1, 1998 and sets forth all current balances payable to or receivable from such Parent Related Party related thereto as of the date of this Agreement. For the purpose of this Agreement, "Parent Related Party" means (i) any officer or director of Parent or any of its Subsidiaries and (ii) any spouse, former spouse, child, parent, parent of a spouse, sibling or grandchild of any of the persons listed in clause (i), any Affiliate of any of the persons listed in clauses (i) and (ii) (other than Parent or any Subsidiary of Parent).

Section 2.15 Compliance with Environmental Laws. (a) The properties, assets and operations of Parent and its Subsidiaries and their predecessors are and have been in compliance with all applicable federal, state, local, and foreign laws, rules and regulations, orders, decrees, Common law, judgments, permits and licenses relating to the protection, regulation and clean-up of the indoor and outdoor environment and activities or conditions related thereto, including, without limitation, those relating to the generation, handling, disposal, transportation or release of hazardous or toxic materials, substances, wastes, pollutants and contaminants including, without limitation, asbestos, petroleum, radon and polychlorinated biphenyls (collectively, "Environmental Laws"),

except for any violations that individually or in the aggregate, have not had, and would not reasonably be expected to have, a Parent Material Adverse Effect. With respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no past, present or reasonably anticipated future events, conditions, circumstances, activities, practices, incidents, actions or plans of Parent or any of its Subsidiaries and their predecessors that may interfere with or prevent compliance or continued compliance with applicable Environmental Laws, other than any such interference or prevention that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect.

(b) Parent and its Subsidiaries and their predecessors have not caused or permitted any property, asset, operation, including any previously owned property, asset or operation, to use, generate, manufacture, refine, transport, treat, store, handle, dispose, transfer or process hazardous or toxic materials, substances, wastes, pollutants or contaminants, except in material compliance with all Environmental Laws, other than any such activity that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect. Parent and its Subsidiaries have not reported to any Governmental Entity any material violation of an Environmental Law or any release, discharge or emission of any hazardous or toxic materials, substances, wastes, pollutants or contaminants, other than any such violation, release, discharge or emission that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect. To Parent's Knowledge, there are no pending, threatened or asserted claims or liabilities under CERCLA, 42 U.S.C. (S)9601 et seq., RCRA, 42 U.S.C. (S)6901 et seq., or equivalent state law provisions and no current or former property, asset or operation of Parent or any Subsidiary of Parent is identified or currently proposed for the National Priorities List at 40 CFR (S)300, Appendix B, or the CERCLIS or equivalent state lists or hazardous substances release sites.

Section 2.16 Financial Advisor. No brokerage, lender's or other fee or commission are due to any broker, finder or investment banker in connection with the Merger or the transactions contemplated by Transaction Documents based upon arrangements made by or on behalf of the Parent or any of its Subsidiaries.

Section 2.17 Hedging.

(a) Parent does not, and each of its Subsidiaries does not, have any outstanding obligations for the delivery of Hydrocarbons attributable to any of the properties of Parent or any of its Subsidiaries in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor.

(b) Section 2.17(b) of the Parent Disclosure Schedule sets forth all futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, to which Parent or any of its Subsidiaries is bound.

Section 2.18 No Distribution of Parent Rights. Under the agreements governing Parent Rights, the Merger and other transactions contemplated by the Transaction Documents will not cause a distribution of Parent Rights or cause any Parent Rights to become exercisable.

Section 2.19 Oil and Gas Operations. Except as set forth in Section 2.19 of the Parent Disclosure Schedule:

(a) All wells included in the Parent Reserve Report (as defined in
Section 2.21) have been drilled and (if completed) completed, operated and produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases and applicable laws, rules and regulations, except where any failure or violation has not had, or would not be reasonably expected to have, a Parent Material Adverse Effect; and

(b) Proceeds from the sale of Hydrocarbons produced from Parent's Oil and Gas Interests are being received by Parent and its Subsidiaries in a timely manner and are not being held in suspense for any reason (except in the ordinary course of business).

Section 2.20 Properties.

(a) Except for goods and other property sold, used or otherwise disposed of since September 30, 2000 in the ordinary course of business, Parent and its Subsidiaries have Parent Good and Marketable Title (as defined below), for oil and gas purposes, in and to all oil and gas properties set forth in the Parent Reserve Report as owned by Parent and its Subsidiaries, and defensible title for oil and gas purposes to all other properties, interests in properties and assets, real and personal, reflected on the balance sheet of Parent in its Quarterly Report on Form 10-Q for the period ended September 30, 2000, as owned by Parent and its Subsidiaries, free and clear of any liens, security interests, charges, mortgages or other encumbrances of any kind (collectively "Liens"), except: (i) Liens associated with obligations reflected in the Parent SEC Reports or Section 2.20(a) of the Parent Disclosure Schedule; (ii) Liens for current taxes not yet due and payable, (iii) materialman's, mechanic's, repairman's, employee's, contractor's, operator's, and other similar liens, charges or encumbrances arising in the ordinary course of business (A) if they have not been perfected pursuant to law, (B) if perfected, they have not yet become due and payable or payment is being withheld as provided by law, or (C) if their validity is being contested in good faith by appropriate action, (iv) all rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests if they are customarily obtained subsequent to the sale or conveyance, and (v) such imperfections of title, easements and Liens which, to Parent's Knowledge, have not had, or would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. All leases and other agreements pursuant to which Parent or any of its Subsidiaries leases or otherwise acquires or obtains operating rights affecting any real or personal property are in good standing, valid and effective and all royalties, rentals and other payments due by Parent to any lessor of any such oil and gas leases have been paid, except in each case, as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. To Parent's Knowledge, all major items of operating equipment of Parent and its Subsidiaries are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.

(b) The term "Parent Good and Marketable Title," for purposes of this
Section 2.20(b), with respect to Parent and its Subsidiaries, means such title that: (1) is deducible of record (from the records of the applicable parish or county or (A) in the case of federal leases, from the records of the applicable office of the Minerals Management Service or Bureau of Land Management, (B) in the case of Indian leases, from the applicable office of the Bureau of Indian Affairs, (C) in the case of state leases, from the records of the applicable state land office) or is assignable to Parent or its Subsidiaries out of an interest of record (as so defined) by reason of the performance by Parent or its Subsidiaries of all operations required to earn an enforceable right to such assignment; (2) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the ownership, development and operation of producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept and pay full value for the same and a prudent lender would be willing to lend against it as collateral without discount for title matters; (3) entitles Parent or its Subsidiaries to receive not less than the interest set forth in the Parent Reserve Report with respect to each proved property evaluated therein under the caption "Net Revenue Interest" or "NRI" without reduction during the life of such property except as stated in the Parent Reserve Report; (4) obligates Parent or its Subsidiaries to pay costs and expenses relating to each such proved property in an amount not greater than the interest set forth under the caption "Working Interest" or "WI" in the Parent Reserve Report with respect to such property without increase over the life of such property except as shown on the Parent Reserve Report; and (5) does not restrict the ability of Parent or its Subsidiaries to utilize the properties as currently intended.

Section 2.21 Oil and Gas Reserves. Parent has furnished Company with Parent's estimates of Parent's and its Subsidiaries' oil and gas reserves as of January 1, 2000 in a report as described in Section 2.21 of the Parent Disclosure Schedule (the "Parent Reserve Report"). Except as has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect, the factual, non-interpretive data on which the Parent Reserve Report was based for purposes of estimating the oil and gas reserves set forth in the Parent Reserve Report and in any supplement thereto or update thereof furnished to Parent was, to Parent's Knowledge,

accurate. To Parent's Knowledge, and based on the information given to Company by third-party operators for all wells not operated by Parent, the Parent Payout Balances (as defined below) for each of the wells as used in the Parent Reserve Report were accurate as of the dates to which Parent had calculated them, except as has not had, and would not reasonably be expected to have a Parent Material Adverse Effect. "Parent Payout Balances" means the status, as of the dates of Parent's calculations, of the recovery by Parent or a third party of a cost amount specified in the contract relating to a well out of the revenue from such well where the net revenue interest of Parent therein will be reduced or increased when such amount has been recovered.

Section 2.22 Take-or-Pay Deliveries. Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, there are no calls (exclusive of market calls) on Parent's oil or gas production and Parent has no obligation to deliver oil or gas pursuant to any take-or-pay, prepayment or similar arrangement without receiving full payment therefor. Section 2.22 of the Parent Disclosure Schedule sets forth Parent's estimates of its imbalances in gas production as of September 30, 2000. Parent does not have any other imbalances in gas production that, individually or in the aggregate, have had or would be reasonably likely to have a Parent Material Adverse Effect.

Section 2.23 Representations and Warranties Regarding Merger Sub. Parent and Merger Sub jointly and severally represent and warrant to Company as follows:

(a) Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub has not engaged in any business since it was incorporated other than in connection with its organization and the transactions contemplated by this Agreement.

(b) The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $1.00 per share, all of which are validly issued and outstanding, fully paid and nonassessable and are directly owned by Parent, free and clear of all liens, claims and encumbrances.

(c) Merger Sub has the corporate power to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and by the Transaction Documents have been duly authorized by the Board of Directors and by Parent as the sole shareholder of Merger Sub. This Agreement constitutes a valid and binding obligation of Merger Sub enforceable against Merger Sub in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. No other corporate proceedings on the part of Merger Sub are necessary to authorize this Agreement and the transactions contemplated hereby. Except as required by the Securities Act, the Exchange Act and the corporation, securities or blue sky laws or regulations of the various states, no filing or registration with, or authorization; consent or approval of, any Governmental Entity is necessary for the consummation by Merger Sub of the Merger or the transactions contemplated by the Transaction Documents, other than filings, registrations, authorizations, consents or approvals the failure to make or obtain which would not prevent the consummation of the transactions contemplated by the Transaction Documents.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Company represents and warrants to Parent as follows (such representations and warranties (as well as other provisions of this Agreement) are qualified by the matters identified on a disclosure schedule (the "Company Disclosure Schedule") delivered by Company to Parent prior to execution of this Agreement) as supplemented in accordance with Section 8.2:

Section 3.1 Organization and Qualification. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the corporate power to carry on its business as it is now being conducted or currently proposed to be conducted. Company is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities make such qualification necessary, except where the failure to be so qualified has not had, and would not reasonably be expected to have, alone or in the aggregate, a Company Material Adverse Effect. For the purposes of this Agreement, a "Company Material Adverse Effect" means any state of facts, event, change or effect which, individually or in the aggregate, (a) has a material adverse effect on the business, properties, assets, condition (financial or otherwise), liabilities or results of operations of Company and its Subsidiaries taken as a whole, or (b) would prevent the consummation of the material transactions contemplated hereby; provided that occurrences or events arising out of or resulting from the following will in each case be excluded from consideration for purposes of the effect of an occurrence or event on Company and its Subsidiaries, taken as a whole: (i) changes in general economic conditions, including general stock market conditions and interest rate changes, (ii) changes in the energy industry, including changes in the prices of Hydrocarbons, or (iii) the adverse determination of any pending litigation disclosed in the Company Disclosure Schedule. Complete and correct copies as of the date of this Agreement of the Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of Company have been delivered to Parent prior to the date of this Agreement.

Section 3.2 Capitalization. The authorized capital stock of Company consists of 50,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, $.01 par value (the "Company Preferred Stock"). As of the date of this Agreement, (a) 12,231,960 shares of Company Common Stock were validly issued and outstanding, fully paid and nonassessable, (b) no shares of Company Preferred Stock were issued and outstanding, (c) 330,393 shares of Company Common Stock were reserved for issuance pursuant to Options, and (d) 3,838,071 shares were reserved for issuance pursuant to Warrants. As of the date of this Agreement, there are no bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote with Company's shareholders, whether together or as a separate class, on any matters on which Company's shareholders may vote. As of the date of this Agreement, except for Options and Warrants, there are no options, warrants, calls, convertible securities or other rights, agreements or commitments presently outstanding obligating Company to issue, deliver or sell shares of its capital stock or debt securities, or obligating Company to grant, extend or enter into any such option, warrant, call or other such right, agreement or commitment. After the Effective Time, except for obligations in respect of the Options and Warrants, the Surviving Corporation will have no obligation to issue, transfer or sell any shares of stock of Company or the Surviving Corporation pursuant to any Company Employee Benefit Plan.

Section 3.3 Subsidiaries. Each Subsidiary of Company is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization (except where the failure to be validly existing and in good standing would not be material to the business of such Subsidiary of Company) and has the corporate or similar power to carry on its business as it is now being conducted or currently proposed to be conducted. Each Subsidiary of Company is duly qualified to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary except where the failure to be so qualified, when taken together with all such failures, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect. Section 3.3 of the Company Disclosure Schedule contains, with respect to each Subsidiary of Company, its name and jurisdiction of organization and, with respect to each Subsidiary of Company that is not wholly owned, the number of issued and outstanding shares of capital stock or equity capital and the number of shares of capital stock or equity capital owned by Company or a Subsidiary of Company. Except as set forth in Section 3.3 of the Company Disclosure Schedule, all the outstanding shares of capital stock or equity capital of each Subsidiary of Company are validly issued, fully paid and nonassessable, and those owned by Company or by a Subsidiary of Company are owned free and clear of any liens, claims or encumbrances. There are no existing options, warrants, calls, convertible securities or other rights, agreements or commitments of any character relating to the issued or unissued capital stock or other securities of any of the Subsidiaries of

Company (other than preemptive rights or similar rights held by Company with respect to certain of such Subsidiaries). Except as set forth in Section 3.3 of the Company Disclosure Schedule, Company does not directly or indirectly own any interest in any other corporation, partnership, joint venture or other business association or entity or have any obligation, commitment or undertaking to acquire any such interest, other than business associations customary in the oil and gas industry consisting of interests in oil and gas property subject to a joint operating agreement.

Section 3.4 Authority Relative to this Agreement. Company and each of its Subsidiaries has the corporate power to enter into this Agreement and each other Transaction Document to which Company or any of its Subsidiaries is a party and to carry out their obligations hereunder and thereunder. The execution and delivery of the Transaction Documents to which Company or any of its Subsidiaries is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of Company. Each Transaction Document to which Company or any of its Subsidiaries is a party constitutes a valid and binding obligation of Company or such Subsidiary enforceable against Company or such Subsidiary in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and except that the liability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. No other corporate proceedings on the part of Company or any of its Subsidiaries are necessary to authorize the Transaction Documents to which Company or any of its Subsidiaries is a party and, other than the Company Shareholder Approval, no other corporate proceedings on the part of the Company are necessary, the transactions contemplated hereby or thereby. Except as set forth in Section 3.4 of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is subject to or obligated under (a) any charter, bylaw, indenture or other loan or credit document or (b) any other contract (other than Options and Warrants), license, franchise, permit, order, decree, concession, lease, instrument or judgment or any statute, law, ordinance, rule or regulation applicable to Company or any of its Subsidiaries or their respective properties or assets which would be breached or violated, or under which there would be a default (with or without notice or lapse of time, or both), or under which there would arise a right of termination, cancellation, modification or acceleration of any obligation, or any right to payment or compensation, or the loss of a material benefit, by its executing and carrying out the Transaction Documents to which Company or any of its Subsidiaries is a party, other than, in the case of clause (b) only, (i) any breaches, violations, defaults, terminations, cancellations, modifications, accelerations, rights to payment or compensation, or losses which, either alone or in the aggregate, have not had, and would not reasonably be expected to have, a Company Material Adverse Effect and (ii) the laws and regulations referred to in the next sentence. Except as required by the Securities Act, the Exchange Act, Canadian Governmental Entities (including without limitation Canadian Governmental Entities requiring filings under the Investment Canada Act) and the corporation, securities or blue sky laws or regulations of the various states, no filing or registration with, or authorization, consent or approval of, any Governmental Entity is necessary for the consummation by Company and its Subsidiaries of the Merger or the other transactions contemplated by the Transaction Documents to which Company or any of its Subsidiaries is a party, other than filings, registrations, authorizations, consents or approvals the failure to make or obtain which has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

Section 3.5 Reports and Financial Statements. Company has previously furnished Parent with, or there has been made available to Parent, true and complete copies of its (a) Annual Reports on Form 10-K for the fiscal years ended December 31, 1998 and December 31, 1999 as filed with the Commission, (b) Quarterly Report on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1999 and 2000, as filed with the Commission, (c) proxy statements related to all meetings of its shareholders (whether annual or special) since December 31, 1998 and (d) all other reports or registration statements filed by Company with the Commission since December 31, 1998, except for preliminary material (in the case of clauses (c) and (d) above) and except for registration statements on Form S-8 relating to employee benefit plans and annual reports on Form 11-K with respect to such plans, which are all the documents that Company was required to file with the Commission since that date (the documents in clauses (a) through (d) being referred to herein collectively as the "Company SEC Reports"). As of their respective dates, the Company SEC Reports complied as to form in all material

respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the Commission thereunder applicable to such Company SEC Reports. As of their respective dates, the Company SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of Company, included in the Company SEC Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto. The financial statements included in the Company SEC Reports (i) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto), (ii) present fairly, in all material respects, the financial position of Company, and its Subsidiaries, as the case may be, as of the dates thereof and the results of their operations and cash flows for the periods then ended subject, in the case of the unaudited interim financial statements, to normal year-end adjustments and any other adjustments described therein and the fact that certain information and notes have been condensed or omitted in accordance with the Exchange Act and the rules promulgated thereunder, and (iii) are in all material respects in accordance with the books of account and records of Company and its Subsidiaries.

Section 3.6 Absence of Certain Changes or Events. Except as disclosed in the Company SEC Reports, from September 30, 2000 until the date of this Agreement, there has not been any transaction, commitment, dispute or other event or condition (financial or otherwise) of any character (whether or not in the ordinary course of business) which, alone or in the aggregate, has had, or would reasonably be expected to have, a Company Material Adverse Effect.

Section 3.7 Litigation. Except as disclosed in the Company SEC Reports and as set forth in Section 3.7 of the Company Disclosure Schedule, there is no suit, action or proceeding to which Company or any Subsidiary of Company is a party pending or, to the actual knowledge of a director of Company ("Company's Knowledge"), threatened against Company or any of its Subsidiaries which, alone or in the aggregate, has had or would reasonably be expected to have, a Company Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Company or any of its Subsidiaries which, alone or in the aggregate, has had, or would reasonably be expected to have, any such Company Material Adverse Effect.

Section 3.8 Compliance with Applicable Laws. Company and each of its Subsidiaries holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary or appropriate for the operation of its respective business, except for such permits, licenses, variances, exemptions, orders and approvals the failure to hold which, alone or in the aggregate, has not had, and would not reasonably be expected to have a Company Material Adverse Effect (the "Company Permits"). Company and each of its Subsidiaries is in compliance in all material respects with the terms of Company Permits. Except as disclosed in Company SEC Reports filed and delivered to Parent prior to the date of this Agreement the businesses of Company and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations which alone or in the aggregate have not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

Section 3.9 Employee Benefit Plans. (a) Section 3.9(a) of the Company Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as defined in Section 3(3) of ERISA, and all other material employee benefit or compensation arrangements, including, without limitation, any such arrangements providing severance pay, sick leave, vacation pay, salary continuation for disability, retirement benefits, deferred compensation, bonus pay, incentive pay, stock options (including those held by directors, employees, and consultants), hospitalization insurance, medical insurance, life insurance, scholarships or tuition reimbursements, that are maintained by Company, any Subsidiary of Company or any Company ERISA Affiliate or to which Company, any Subsidiary of Company or any Company ERISA Affiliate is obligated to contribute thereunder for current or former directors, employees, independent contractors, consultants and leased employees of Company, any Subsidiary of Company or any Company ERISA Affiliate (the "Company Employee Benefit Plans").

(b) None of the Company Employee Benefit Plans is a Multiemployer Plan and neither Company nor any Company ERISA Affiliate presently maintains or has maintained such a plan.

(c) Except as provided in Part 6 of Subtitle B of Title I of ERISA, Company does not maintain or contribute to any plan or arrangement which provides or has any liability to provide health or medical benefits to any employee or former employee upon his retirement or termination of employment.

(d) In a letter dated December 21, 2000, the Company set forth to Parent the aggregate amount of (i) retention and severance benefits to be paid or payable to all employees of Company and its Subsidiaries in connection with the Merger and the transactions contemplated hereby and the other Transaction Documents, which amount is $798,437, and (ii) the aggregate amount of sales bonus payments to be paid or payable to all employees of Company and its Subsidiaries, which amount is $558,687 (the "Company Employee Payments"), The execution of, and performance of the transactions contemplated in, this Agreement and the other Transaction Documents will not either alone or upon the occurrence of subsequent events, result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee, other than Company Employee Payments and as provided in Options and Warrants. The only severance agreements or severance policies applicable to Company or its Subsidiaries in the event of a change of control of Company are the agreements and policies specifically referred to in Section 3.9(d) of the Company Disclosure Schedule or in the letter described in the first sentence of this Section 3.9(d). Except as disclosed in Section 3.9(d) of the Company Disclosure Schedule, no payment or benefit which will or may be made by Company, Parent or any of their Subsidiaries or affiliates with respect to any employee of Company or any Subsidiary of Company will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code.

(e) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been determined to be exempt from federal income taxation under Section 501 of the Code by the IRS, and, to Company's knowledge, nothing has occurred with respect to the operation or organization of any such Company Employee Benefit Plan that would cause the loss of such qualification or exemption or the imposition of any material liability, penalty or tax under ERISA or the Code. With respect to any Company Employee Benefit Plan or other employee benefit plan which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA, (i) Company has not incurred and is not reasonably likely to incur any liability under Title IV of ERISA (other than for the payment of premiums, all of which have been paid when due), (ii) Company has not incurred any accumulated funding deficiency within the meaning of Section 412 of the Code and has not applied for or obtained a waiver of any minimum funding standard or an extension of any amortization period under Section 412 of the Code, (iii) no "reportable event" (as such term is defined in Section 4043 of ERISA but excluding any event for which the provision for 30-day notice to the Pension Benefit Guaranty Corporation has been waived by regulation) has occurred or is expected to occur and (iv) since December 31, 1996, no material adverse change in the financial condition of any such plan has occurred.

(f) (i) All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Company Employee Benefit Plans to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof, (ii) Company has complied in all material respects with any notice, reporting and documentation requirements of ERISA and the Code, (iii) there are no pending actions, claims or lawsuits which have been asserted, instituted or, to Company's knowledge, threatened, in connection with the Company Employee Benefit Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all material respects, in accordance with their terms and with all provisions of ERISA and the Code (including rules and regulations thereunder) and other applicable federal and state laws and regulations.

For purposes of this Agreement, "Company ERISA Affiliate" means any business or entity which is a member of the same "controlled group of corporations," under "common control" or in an "affiliated service

group" with Company within the meanings of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with Company under Section 414(o) of the Code, or a "Company ERISA Affiliate" under "common control" with Company within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing Sections.

Section 3.10 Company Board Action. The Board of Directors of Company (at a meeting duly called and held) has by the requisite vote of directors present
(a) determined that the Merger is advisable and fair to and in the best interests of Company and its shareholders and (b) approved the Merger, this Agreement and the transactions contemplated by the Transaction Documents in accordance with the GCLN, Company's Second Amended and Restated Articles of Incorporation and Company's Amended and Restated Bylaws.

Section 3.11 Required Shareholder Vote or Consent. The only vote of the holders of any class or series of the Company's capital stock necessary to consummate the Merger and the other Transaction Documents is the approval and adoption of the Merger, this Agreement and the other Transaction Documents by the holders of a majority of the votes entitled to be cast by holders of the Company Common Stock (the "Company Shareholder Approval").

Section 3.12 Taxes. (a) Each of Company and its Subsidiaries has filed all material Tax Returns required to be filed by any of them and has paid (or Company has paid on its behalf), or has set up an adequate reserve for the payment of, all Taxes required to be paid in respect of the periods covered by such Tax Returns. The information contained in such Tax returns is true, complete and accurate in all material respects. Neither Company nor any Subsidiary of Company is delinquent in the payment of any material Tax, assessment or governmental charge. No material deficiencies for any Taxes have been proposed, asserted or assessed against Company or any of its Subsidiaries that have not been finally settled or paid in full, and no requests for waivers of the time to assess any such Tax are pending. None of Company and its Subsidiaries is obligated, or is reasonably expected to be obligated, to make any payments, or is a party to any agreement that on account of the transactions contemplated by this Agreement would obligate it, or reasonably be expected to obligate it to make any payments that will not be deductible under
Section 280G of the Code. Each of Company and its Subsidiaries has withheld and paid all material Taxes required to be withheld and paid and has complied with all information and backup withholding requirements, including maintaining all necessary records in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party.

(b) Except as set forth in Section 3.12(b) of the Company Disclosure Schedule, none of Company or its Subsidiaries has, since December 31, 1997, been a member of an affiliated group, within the meaning of Code (S) 1504, filing a consolidated income Tax Return other than a group the common parent of which is Company. None of Company and its Subsidiaries has any material liability for the Taxes of any Person other than Company and its Subsidiaries
(i) under Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.

(c) To Company's Knowledge, Company has not taken any action which would prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.

Section 3.13 Certain Agreements. (a) Neither Company nor any of its Subsidiaries is in default (or would be in default with notice or lapse of time, or both) under any indenture, note, credit agreement, loan document lease, license, concession or other agreement including, but not limited to, any Company Employee Benefit Plan, whether or not such default has been waived, which default alone or in the aggregate with other such defaults, has had, or would reasonably be expected to have, a Company Material Adverse Effect.

(b) Section 3.13(b) of the Company Disclosure Schedule describes all contracts, agreements and transactions, involving consideration of more than $300,000 for any individual contract, agreement or transaction or series of related contracts, agreements or transactions, between Company or any of its Subsidiaries, on the one hand, and any Company Related Party (as defined below), on the other hand, which are currently in effect or which were in effect or were consummated at any time on or after January 1, 1998

and sets forth all current balances payable to or receivable from such Company Related Party related thereto as of the date of this Agreement. For the purpose of this Agreement, "Company Related Party" means (i) any officer or director of Company or any of its Subsidiaries and (ii) any spouse, former spouse, child, parent, parent of a spouse, sibling or grandchild of any of the persons listed in clause (i), any Affiliate of any of the persons listed in clauses (i) and
(ii) (other than Company or any Subsidiary of Company).

Section 3.14 Compliance with Environmental Laws. (a) The properties, assets and operations of Company and its Subsidiaries and their predecessors are and have been in compliance with all Environmental Laws, except for any violations that individually or in the aggregate, have not had, and would not reasonably be expected to have, a Company Material Adverse Effect. With respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no past, present or reasonably anticipated future events, conditions, circumstances, activities, practices, incidents, actions or plans of Company or any of its Subsidiaries and their predecessors that may interfere with or prevent compliance or continued compliance with applicable Environmental Laws, other than any such interference or prevention that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

(b) Company and its Subsidiaries and their predecessors have not caused or permitted any property, asset, operation, including any previously owned property, asset or operation, to use, generate, manufacture, refine, transport, treat, store, handle, dispose, transfer or process hazardous or toxic materials, substances, wastes, pollutants or contaminants, except in material compliance with all Environmental Laws, other than any such activity that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect. Company and its Subsidiaries have not reported to any Governmental Entity any material violation of an Environmental Law or any release, discharge or emission of any hazardous or toxic materials, substances, wastes, pollutants or contaminants, other than any such violation, release, discharge or emission that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect. To Company's Knowledge, there are no pending, threatened or asserted claims or liabilities under CERCLA, 42 U.S.C. (S)9601 et seq., RCRA, 42 U.S.C. (S)6901 et seq., or equivalent state law provisions and no current or former property, asset or operation of Company or any Subsidiary of Company is identified or currently proposed for the National Priorities List at 40 CFR (S)300, Appendix B, or the CERCLIS or equivalent state lists or hazardous substances release sites.

Section 3.15 Financial Advisor. On the date of this Agreement, Company's Board of Directors received the written opinion of Petrie Parkman & Co. that, as of the date of this Agreement and based upon and subject to the matters set forth therein, the Merger Consideration was fair from a financial point of view to the holders of Company Common Stock. Except for fees due to Petrie Parkman & Co. and to FirstEnergy Capital Corporation in connection with the transactions contemplated by the Transaction Documents (the "Company Financial Advisor Fees"), no brokerage, lender's or other fee or commission are due to any broker, finder or investment banker in connection with the Merger or the transactions contemplated by Transaction Documents based upon arrangements made by or on behalf of the Company or any of its Subsidiaries.

Section 3.16 Hedging.

(a) Company does not, and each of its Subsidiaries does not, have any outstanding obligations for the delivery of Hydrocarbons attributable to any of the properties of Company or any of its Subsidiaries in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor.

(b) Section 3.16(b) of the Company Disclosure Schedule sets forth all futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, to which Company or any of its Subsidiaries is bound.

Section 3.17 Oil and Gas Operations. Except as set forth in Section 3.17 of the Company Disclosure Schedule:

(a) All wells included in the Company Reserve Report have been drilled and (if completed) completed, operated and produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases and applicable laws, rules and regulations, except where any failure or violation has not had, or would not reasonably be expected to have a Company Material Adverse Effect; and

(b) Proceeds from the sale of Hydrocarbons produced from Company's Oil and Gas Interests are being received by Company and its Subsidiaries in a timely manner and are not being held in suspense for any reason (except in the ordinary course of business).

Section 3.18 Gas Imbalances. Except as set forth in Section 3.18 of the Company Disclosure Schedule, none of Company or its Subsidiaries has received any material deficiency payment under any gas contract for which any Person has a right to take deficiency gas from any of Company or its Subsidiaries, nor have any of Company or its Subsidiaries received any material payment for production which is subject to refund or recoupment out of future production.

Section 3.19 Royalties. To Company's Knowledge, as to wells not operated by Company or its Subsidiaries, and without qualification as to knowledge, as to all wells operated by Company or its Subsidiaries, all royalties, overriding royalties, compensatory royalties and other payments due from or in respect of production with respect to Company's Oil and Gas Interests, have been or will be, prior to the Effective Time, properly and correctly paid or provided for in all material respects, except for those for which Company or its Subsidiaries has a valid right to suspend.

Section 3.20 Properties.

(a) Except for goods and other property sold, used or otherwise disposed of since September 30, 2000 in the ordinary course of business, Company and its Subsidiaries have Company Good and Marketable Title (as defined below), for oil and gas purposes, in and to all oil and gas properties set forth in the Company Reserve Report as owned by Company and its Subsidiaries, and defensible title for oil and gas purposes to all other properties, interests in properties and assets, real and personal, reflected on the balance sheet of the Company in its Quarterly Report on Form 10-Q for the period ended September 30, 2000, as owned by Company and its Subsidiaries, free and clear of any Liens, except: (i) Liens associated with obligations reflected in the Company SEC Reports or Section 3.20(a) of the Company Disclosure Schedule; (ii) Liens for current taxes not yet due and payable, (iii) materialman's, mechanic's, repairman's, employee's, contractor's, operator's, and other similar liens, charges or encumbrances arising in the ordinary course of business (A) if they have not been perfected pursuant to law, (B) if perfected, they have not yet become due and payable or payment is being withheld as provided by law, or (C) if their validity is being contested in good faith by appropriate action, (iv) all rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests if they are customarily obtained subsequent to the sale or conveyance, and (v) such imperfections of title, easements and Liens which, to Company's Knowledge, have not had, or would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. All leases and other agreements pursuant to which Company or any of its Subsidiaries leases or otherwise acquires or obtains operating rights affecting any real or personal property are in good standing, valid and effective and all royalties, rentals and other payments due by Company to any lessor of any such oil and gas leases have been paid, except in each case, as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. All major items of operating equipment of Company and its Subsidiaries are in good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted, except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(b) The term "Company Good and Marketable Title" will, for purposes of this
Section 3.20(b), with respect to Company and its Subsidiaries, mean such title that: (1) is deducible of record (from the records of the applicable parish or county or (A) in the case of federal leases, from the records of the applicable office of the Minerals Management Service or Bureau of Land Management, (B) in the case of Indian leases, from the applicable office of the Bureau of Indian Affairs, (C) in the case of state leases, from the records of the applicable state land office) or is assignable to Company or its Subsidiaries out of an interest of record (as so defined) by reason of the performance by Company or its Subsidiaries of all operations required to earn an enforceable right to such assignment; (2) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the ownership, development and operation of producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept and pay full value for the same and a prudent lender would be willing to lend against it as collateral without discount for title matters; (3) entitles Company or its Subsidiaries to receive not less than the interest set forth in the Company Reserve Report with respect to each proved property evaluated therein under the caption "Net Revenue Interest" or "NRI" without reduction during the life of such property except as stated in the Company Reserve Report; (4) obligates Company or its Subsidiaries to pay costs and expenses relating to each such proved property in an amount not greater than the interest set forth under the caption "Working Interest" or "WI" in the Company Reserve Report with respect to such property without increase over the life of such property except as shown on the Company Reserve Report; and (5) does not restrict the ability of Company or its Subsidiaries to utilize the properties as currently intended.

Section 3.21 Oil and Gas Reserves. Company has furnished Parent prior to the date of this Agreement with Company's estimates of Company's and its Subsidiaries' oil and gas reserves as of July 1, 2000 (the "Company Reserve Report"). Except as have not had, and would not reasonably be expected to have a Company Material Adverse Effect, the factual, non-interpretive data on which the Company Reserve Report was based for purposes of estimating the oil and gas reserves set forth in the Company Reserve Report and in any supplement thereto or update thereof furnished to Company was, to Company's Knowledge, accurate. To Company's Knowledge, and based on the information given to Company by third- party operators for all wells not operated by Company, the Company Payout Balances (as defined below) for each of the wells as used in the Company Reserve Report were accurate as of the dates to which Company had calculated them, except as would not reasonably be expected to have a Company Material Adverse Effect. "Company Payout Balances" means the status, as of the dates of Company's calculations, of the recovery by Company or a third party of a cost amount specified in the contract relating to a well out of the revenue from such well where the net revenue interest of Company therein will be reduced or increased when such amount has been recovered.

Section 3.22 Take-or-Pay Deliveries. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, there are no calls (exclusive of market calls) on Company's oil or gas production and Company has no obligation to deliver oil or gas pursuant to any take-or-pay, prepayment or similar arrangement without receiving full payment therefor. Section 3.22 of the Company Disclosure Schedule sets forth Company's estimates of its imbalances in gas production as of September 30, 2000. The Company does not have any other imbalances in gas production that, individually or in the aggregate, have had or would be reasonably likely to have a Company Material Adverse Effect.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1 Conduct of Business by Company Pending the Merger. Except as contemplated by the Company Disclosure Schedule, this Agreement and the other Transaction Documents, during the period from the date of this Agreement to the Effective Time, Company will, and will cause each of its Subsidiaries to, (i) carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, lessors and

others having business dealings with it to the end that its goodwill and ongoing business will be unimpaired at the Effective Time and (ii) prepare and timely file all Tax Returns and amendments required to be filed by any of Company and its Subsidiaries prior to the Effective Time, and pay all Taxes relating to such Tax Returns before they will become delinquent. Except as otherwise permitted or contemplated by this Agreement, the Transaction Documents or the Company Disclosure Schedule, Company will not, and will not permit any of its Subsidiaries to, without the prior consent (which will not be unreasonably withheld, delayed or denied) of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its shareholders in their capacity as such (other than dividends and other distributions by direct or indirect wholly owned Subsidiaries), (ii) other than in the case of any direct or indirect wholly owned Subsidiary of Company, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire any shares of capital stock of Company or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

(b) issue, deliver, sell, pledge, dispose of or otherwise encumber
(other than the pledges or other encumbrances described in Section 4.1(e)) any shares of its capital stock, any other voting securities or equity equivalent (other than Options issued to employees of Company and its Subsidiaries in the ordinary course of business) or any securities convertible into, or any rights, warrants or options to acquire any such shares, voting securities, equity equivalent or convertible securities, other than the issuance of shares of Company Common Stock upon the exercise of Options (whether or not presently exercisable) outstanding on the date of this Agreement or upon the exercise of Warrants outstanding on the date of this Agreement, in each case in accordance with their current terms;

(c) amend its Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws or other comparable organizational documents;

(d) acquire or agree to acquire (i) by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or (ii) any assets except in the ordinary course of business and except, in the case of clauses (i) and (ii), for transactions not exceeding $100,000 individually or $3,000,000 for all transactions pursuant to clauses (i) and (ii) in the aggregate;

(e) except for Company Permitted Encumbrances, as required by contracts and agreements set forth in exhibits to the Company SEC Reports, sell, lease, license, mortgage otherwise encumber or subject to any lien, charge or encumbrance or otherwise dispose of, or agree to sell, lease, license, mortgage, or otherwise encumber or subject to any lien, charge or encumbrance or otherwise dispose of, any of its assets, other than pursuant to transactions that are in the ordinary course of business (including, without limitation, any sale transfer or other disposition of interests in oil and gas leaseholds (including, without limitation, by abandonment, farm-ins, farm-outs, leases, swaps and subleases), hydrocarbons and other mineral products in the ordinary course of business of the oil and gas operations conducted by Company or its Subsidiaries) consistent with past practice and not material to Company and its Subsidiaries taken as a whole. When used in this Agreement, the term "Company Permitted Encumbrances" will include any liens, title defects, preferential rights or other encumbrances upon any of the relevant individual's or entities' property, assets or revenues, whether now owned or hereafter acquired, that are (i) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceeding, (ii) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements, (iii) for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Company or its Subsidiaries, as the case may be, in conformity with

United States generally accepted accounting principles in effect on the date of this Agreement ("GAAP"), (iv) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business,
(v) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially Interfere with the ordinary conduct of the business of Company or such Subsidiary of Company, (vi) created pursuant to construction, operating and maintenance agreements, space lease agreements and other similar agreements, in each case having ordinary and customary terms and entered into in the ordinary course of business by Company and its Subsidiaries, (vii) created pursuant to or arising under the Credit Agreement, dated August 23, 2000, between Company, SMC Ecuador, Inc., SMC Production Co., BEC Energy, Inc. and Spruce Hills Production Company, Inc. and Bank One, Texas National Association for Reducing Revolving Line of Credit up to $30,000,000 and the documents related thereto, and the Credit Agreement, dated August 29, 2000, between Neutrino Resources, Inc. and Bank One Canada for U.S. $30,000,000 Revolving Reducing Credit Facility, and the documents related thereto (collectively, as amended, the "Company Credit Agreements"), (viii) the terms, conditions, restrictions, exceptions, reservations, limitations and other matters contained in the agreements, instruments and other documents (including, without limitation, division orders) which create or reserve to Company (or otherwise govern) its interest in any oil and gas assets, provided that the same do not reduce the net revenue interest of Company in the oil and gas asset affected thereby, (ix) royalties, overriding royalties, reversionary interests, production payments, net profits interests and similar burdens affecting any oil and gas asset if the net cumulative effect of such burdens does not operate to reduce the net revenue interest in the oil and gas asset affected thereby, (x) preferential rights to purchase and required third party consents with respect to which any necessary waivers or consents shall have been obtained or shall have been requested to be obtained from the appropriate parties and the appropriate time period for asserting such rights shall have expired without an exercise of such rights, or preferential rights to purchase and required third party consents which are not applicable to the transactions contemplated hereby,
(xi) liens for Taxes and assessments which are not yet delinquent or which are being contested by Company in good faith, (xii) rights existing under applicable law (including without limitation statutory liens) or operating agreements or similar contracts to assert liens against the oil and gas assets, but not including liens and other rights which have actually been asserted, unless Company disputes in good faith the validity of such liens or the amount claimed to be owed in connection therewith or such lien or other right is not enforceable against the interest of Company, (xiii) conventional rights of reassignment requiring less than thirty-two days notice to the holder of such rights, (xiv) any of the following which do not materially and adversely affect the oil and gas assets: easements, rights-of-way, servitudes, permits, coal-mining leases, surface leases and other rights in respect to surface operations, pipelines, logging, canals, ditches, reservoirs or the like; conditions, covenants or other restrictions; easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements or rights-of-way on, over or with respect of the oil and gas assets, (xv) any obligations or duties affecting an oil and gas asset to any municipality or public authority with respect to any franchise, grant, license or permit and all applicable laws, rules and order of any governmental authority, (xvi) all rights to consent by, required notices to, filings with or other action by governmental entities in connection with the sale or conveyance of oil and gas leases, permits, or interests therein, if the same are customarily obtained contemporaneously with or subsequent to such sale or conveyance, and which would not be triggered by the transactions contemplated hereby, (xvii) existing operating agreements, unit agreements, gas purchase contracts and any and all other agreements which are normal and customary in the oil and gas exploration, development, production or extraction business or in the business of processing of gas and gas condensate or production for the extraction of proper products therefrom, to the extent that the same do not reduce the net revenue interest of Company in the oil and gas asset affected thereby, (xviii) any other defect or imperfection in title which would customarily be waived by a Person engaged in the exploration for oil or gas and the operation of oil and/or gas properties in the regions where the oil and gas assets are located, or which can be cured by the provision of the forced

pooling statutes of applicable law which are applicable to the affected oil and gas assets and (xix) the matters described in Section 4.1(e) of the Company Disclosure Schedule;

(f) incur any indebtedness for borrowed money, guarantee any such indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities or make any loans, advances or capital contributions to, or other investments in, any other Person, or enter into any arrangement having the economic effect of any of the foregoing, other than the Company Credit Agreements (the balance outstanding under which shall not exceed $18,500,000 as of the Effective Time) and indebtedness incurred in the ordinary course of business consistent with past practice which is prepayable at any time without premium or penalty;

(g) alter (through merger, liquidation, reorganization, restructuring or in any other fashion) the corporate structure or ownership of Company or any Subsidiary of Company (unless an alteration to the corporate structure or ownership of a Subsidiary does not cause such Subsidiary not to be wholly owned by Company) other than as contemplated by the Transaction Documents;

(h) except as required under any collective bargaining agreement, enter into or adopt any new, or amend any existing, severance plan, agreement or arrangement or enter into any new or amend any existing Company Employee Benefit Plan or employment or consulting agreement other than as required by law;

(i) increase the compensation payable or to become payable to its officers or employees, except for Company Employee Payments;

(j) grant or award any stock options, restricted stock, performance shares, stock appreciation rights or other equity-based incentive awards other than grants and awards to directors for service in such capacity;

(k) take any action with respect to accounting policies or procedures for Tax or accounting purposes (other than actions required to be taken by Tax laws or generally accepted accounting principles) or make or change any election with respect to Taxes (except that Company can elect to forgo the carryback of net operating losses);

(l) except as disclosed in the Company Disclosure Schedule or for capital expenditures (including any asset acquisition or drilling commitment) in the ordinary course of business consistent with past practice or capital expenditures to repair or replace casualty losses, make or agree to make any new capital expenditure or expenditures in excess of $100,000 individually or $3,000,000 in the aggregate;

(m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or contemplated in the notes thereto) of Company included in the Company SEC Reports or incurred in the ordinary course of business consistent with past practice or as required by law;

(n) settle or compromise any material federal, state, local or foreign Tax liability;

(o) enter into, amend, terminate or waive any provision of, any agreement or arrangement with any Company Related Party or enter into any transaction with any Company Related Party;

(p) take any action which would prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code; or

(q) enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

Section 4.2 Conduct of Business by Parent Pending the Merger. Except as contemplated by the Parent Disclosure Schedule, this Agreement and the other Transaction Documents, during the period from the date of this Agreement to the Effective Time, Parent will, and will cause each of its Subsidiaries to, carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted

and, to the extent consistent therewith. Except as otherwise permitted or contemplated by this Agreement, the Transaction Documents or the Parent Disclosure Schedule, Parent will not, and will not permit any of its Subsidiaries to, without the prior consent (which will not be unreasonably withheld or delayed) of Company:

(a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its shareholders in their capacity as such (other than dividends and other distributions by direct or indirect wholly owned Subsidiaries), (ii) other than in the case of any direct or indirect wholly owned Subsidiary of Parent, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire any shares of capital stock of Parent or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

(b) issue, deliver, sell, pledge, dispose of or otherwise encumber a substantial portion of its capital stock, any other voting securities or equity equivalent (other than options issued to employees of Parent and its Subsidiaries in the ordinary course of business) or any securities convertible into, or any rights, warrants or options to acquire any such shares, voting securities, equity equivalent or convertible securities, other than the issuance of shares of Parent Common Stock upon the exercise of options (whether or not presently exercisable) outstanding on the date of this Agreement or upon the exercise of warrants outstanding on the date of this Agreement, in each case in accordance with their current terms;

(c) amend its Amended and Restated Articles of Incorporation or Bylaws or other comparable organizational documents;

(d) subject to Company approval, make an acquisition of the assets of or equity in (whether by purchase, merger or otherwise) any business or any corporation, partnership, association or other business organization or division thereof, which is material to Parent and its Subsidiaries, taken as a whole;

(e) except for Parent Permitted Encumbrances, as required by contracts and agreements set forth in exhibits to the Parent SEC Reports, or sell, lease, license, mortgage, otherwise encumber or subject to any lien, charge or encumbrance or otherwise dispose of, or agree to sell, lease, license, mortgage or otherwise encumber or subject to any lien, charge or encumbrance or otherwise dispose of, a significant portion of its assets, other than pursuant to transactions that are in the ordinary course of business (including, without limitation, any sale transfer or other disposition of interests in oil and gas leaseholds (including, without limitation, by abandonment, farm-ins, farm-outs, leases, swaps and subleases), hydrocarbons and other mineral products in the ordinary course of business of the oil and gas operations conducted by Parent or its Subsidiaries) consistent with past practice and not material to Parent and its Subsidiaries taken as a whole. When used in this Agreement, the term "Parent Permitted Encumbrances" will include any liens, title defects, preferential rights or other encumbrances upon any of the relevant individual's or entities' property, assets or revenues, whether now owned or hereafter acquired, that are (i) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceeding, (ii) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements, (iii) for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Parent or its Subsidiaries, as the case may be, in conformity with GAAP, (iv) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business, (v) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially Interfere with the ordinary conduct of the business of Parent or such Subsidiary of Parent, (vi) created pursuant to construction, operating and maintenance agreements, space lease agreements and other

similar agreements, in each case having ordinary and customary terms and entered into in the ordinary course of business by Parent and its Subsidiaries, (vii) the terms, conditions, restrictions, exceptions, reservations, limitations and other matters contained in the agreements, instruments and other documents (including, without limitation, division orders) which create or reserve to Parent (or otherwise govern) its interest in any oil and gas assets, provided that the same do not reduce the net revenue interest of Parent in the oil and gas asset affected thereby, (viii) royalties, overriding royalties, reversionary interests, production payments, net profits interests and similar burdens affecting any oil and gas asset if the net cumulative effect of such burdens does not operate to reduce the net revenue interest in the oil and gas asset affected thereby, (ix) preferential rights to purchase and required third party consents with respect to which any necessary waivers or consents shall have been obtained or shall have been requested to be obtained from the appropriate parties and the appropriate time period for asserting such rights shall have expired without an exercise of such rights, or preferential rights to purchase and required third party consents which are not applicable to the transactions contemplated hereby, (x) liens for Taxes and assessments which are not yet delinquent or which are being contested by Parent in good faith, (xi) rights existing under applicable law (including without limitation statutory liens) or operating agreements or similar contracts to assert liens against the oil and gas assets, but not including liens and other rights which have actually been asserted, unless Parent disputes in good faith the validity of such liens or the amount claimed to be owed in connection therewith or such lien or other right is not enforceable against the interest of Parent, (xii) conventional rights of reassignment requiring less than thirty-two days notice to the holder of such rights, (xiii) any of the following which do not materially and adversely affect the oil and gas assets: easements, rights-of-way, servitudes, permits, coal-mining leases, surface leases and other rights in respect to surface operations, pipelines, logging, canals, ditches, reservoirs or the like; conditions, covenants or other restrictions; easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements or rights-of-way on, over or with respect of the oil and gas assets, (xiv) any obligations or duties affecting an oil and gas asset to any municipality or public authority with respect to any franchise, grant, license or permit and all applicable laws, rules and order of any governmental authority, (xv) all rights to consent by, required notices to, filings with or other action by governmental entities in connection with the sale or conveyance of oil and gas leases, permits, or interests therein, if the same are customarily obtained contemporaneously with or subsequent to such sale or conveyance, and which would not be triggered by the transactions contemplated hereby, (xvi) existing operating agreements, unit agreements, gas purchase contracts and any and all other agreements which are normal and customary in the oil and gas exploration, development, production or extraction business or in the business of processing of gas and gas condensate or production for the extraction of proper products therefrom, to the extent that the same do not reduce the net revenue interest of Company in the oil and gas asset affected thereby, (xvii) any other defect or imperfection in title which would customarily be waived by a Person engaged in the exploration for oil or gas and the operation of oil and/or gas properties in the regions where the oil and gas assets are located, or which can be cured by the provision of the forced pooling statutes of applicable Law which are applicable to the affected oil and gas assets, (xviii) created pursuant to or arising under the Credit Agreement dated September 28, 2000 among Parent, PCC Energy Limited, PCC Energy Corp., Toronto Dominion (Texas), Inc., The Toronto-Dominion Bank, TD Securities (USA), Inc. and various lenders signatory thereto (collectively, as amended, the "Parent Credit Agreement"), and (xix) the matters described in Section 4.2(e) of the Parent Disclosure Schedule;

(f) except in connection with the transactions contemplated by the Transaction Documents, incur any material indebtedness for borrowed money, guarantee any such indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities or make any material loans, advances or capital contributions to, or other investments in, any other Person, or enter into any arrangement having the economic effect of any of the foregoing;

(g) alter (through merger, liquidation, reorganization, restructuring or in any other fashion) the corporate structure or ownership of Parent or any Subsidiary of Parent (unless an alteration to the corporate structure or ownership of a Subsidiary does not cause such Subsidiary not to be wholly owned by Parent) other than as contemplated by the Transaction Documents;

(h) enter into, amend, terminate or waive any provision of, any agreement or arrangement with any Parent Related Party or enter into any transaction with any Parent Related Party;

(i) take any action which would prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code; or

(j) enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1 Access and Information. (a) Company and the Subsidiaries of Company will afford to Parent and to Parent's accountants, counsel and other representatives, and (b) Parent and the Subsidiaries of Parent will afford to Company and Company's accountants, counsel and other representatives, reasonable access during normal business hours (and at such other times as the parties may mutually agree) throughout the period prior to the Effective Time to (i) all of its properties, books, contracts, commitments and records, and, during such period, will furnish promptly to Parent and the Company, respectively, a copy of each report, schedule and other document filed or received by it pursuant to the requirements of federal or state securities laws, and (ii) all other information concerning its business, properties and personnel as Parent or Company may reasonably request.

Section 5.2 Registration Statement/Proxy Statement. Parent and Company will cooperate and promptly prepare, and Parent will file with the Commission as soon as practicable, a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the Parent Common Stock issuable in the Merger (the "Parent Prospectus"), a portion of which Registration Statement will also serve as the joint proxy statement of Parent and Company (the "Joint Proxy Statement" and, together with the Parent Prospectus, the "Joint Proxy Statement/Prospectus") with respect to the Merger. The respective parties will cause the Joint Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Parent will use all reasonable efforts, and Company will cooperate with Parent, to have the Form S-4 declared effective by the Commission as promptly as practicable after the filing thereof (including, without limitation, responding to any comments received from the Commission with respect thereto) and to keep the Form S-4 effective as long as is necessary to consummate the Merger and the transactions contemplated thereby. Each of Parent and Company will, as promptly as practicable, provide to the other copies of any written comments received from the Commission with respect to the Joint Proxy Statement/Prospectus or the Form S-4 and advise the other of any oral comments with respect to the Joint Proxy Statement/Prospectus or the Form S-4 received from the Commission. Parent will use its best efforts to obtain, prior to the Effective Time of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. Parent agrees that none of the information supplied or to be supplied by Parent for inclusion or incorporation by reference in the Form S-4 or the Joint Proxy Statement/Prospectus (i) in the case of the Joint Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof, or (ii) in the case of the Parent Prospectus and each amendment or supplement thereto, at the time it is filed or becomes effective, will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Company agrees that none of the information supplied or to be supplied by Company for inclusion or incorporation by reference in the Form S-4 or the Joint Proxy Statement/Prospectus (i) in the case of the Joint Proxy Statement and each amendment or supplement thereto, at the time of mailing thereof, or,
(ii) in the case of the Parent Prospectus or any amendment or supplement thereto, at the time it is filed or becomes effective, will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. For purposes of the foregoing, it is understood and agreed that information concerning or related to Parent will be deemed to

have been supplied by Parent and information concerning or related to Company will be deemed to have been supplied by Company. No amendment or supplement to the Joint Proxy Statement/Prospectus will be made by Parent or Company without the approval (not to be unreasonably delayed, withheld or denied) of the other party. Parent will advise Company, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, or the suspension of the qualification of Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction.

Section 5.3 Compliance with the Securities Act. At least 30 days prior to the Effective Time, Company will deliver to Parent a list of names and addresses of those persons who were, in Company's reasonable judgment, at the date of this Agreement, "affiliates" (each such person, an "Affiliate") of Company within the meaning of Rule 145 of the rules and regulations promulgated under the Securities Act. Company will use commercially reasonable efforts to deliver or cause to be delivered to Parent, prior to the Effective Time, from each of the Affiliates of Company identified in the foregoing list, an Affiliate Letter in the form attached hereto as Exhibit B (an "Affiliate Letter"), and Parent will duly execute the acknowledgments to any Affiliate Letters so delivered and return a copy of the acknowledged Affiliate Letter to the delivering Affiliate. Parent will be entitled to place legends as specified in such Affiliate Letters on the certificates evidencing any Parent Common Stock to be received by such Affiliates pursuant to the terms of the Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Parent Common Stock, consistent with the terms of such Affiliate Letters.

Section 5.4 Stock Exchange Listing. Parent will use its best efforts to list on the AMEX, upon official notice of issuance, the Parent Common Stock to be issued pursuant to the Merger.

Section 5.5 Employee Matters. As of the Effective Time, the employees of Company and each Subsidiary of Company listed in Section 5.5 of the Company Disclosure Schedule will continue employment with the Surviving Corporation and its Subsidiaries, respectively, in the same positions and at the same level of wages and/or salary and without having incurred a termination of employment or separation from service; provided, however, except as may be specifically required by applicable law or any contract, neither the Surviving Corporation and its Subsidiaries, on the one hand, nor any employee, on the other hand, will be obligated to continue any employment relationship or any specific terms of employment for any specific period of time. As of the Effective Time, Parent will assume and become the sponsor of Company Employee Benefit Plans sponsored by Company immediately prior to the Effective Time, and Parent will and will cause its Subsidiaries to satisfy all obligations and liabilities under such Company Employee Benefit Plans; provided, however, that, except as hereafter provided or in Section 5.5 of the Company Disclosure Schedule, nothing contained in this Agreement will limit or restrict Parent's or its Subsidiaries' right on or after the Effective Time to amend, modify or terminate any of Company Employee Benefit Plans. To the extent any employee benefit plan, program or policy of Parent or their affiliates is made available to any person who is an employee of Company or any of its Subsidiaries immediately prior to the Effective Time: (i) service with Company and its Subsidiaries by any employee prior to the Effective Time will be credited for eligibility and vesting purposes and for purposes of qualifying for any additional benefits tied to periods of service (such as higher rates of matching contributions and eligibility for early retirement) under such plan, program or policy and (ii) with respect to any welfare benefit plans to which such employees may become eligible, Parent will cause such plans to provide credit for any co-payments or deductibles by such employees and waive all pre- existing condition exclusions and waiting periods, other than limitations or waiting periods that have not been satisfied under any welfare plans maintained by the Company and its Subsidiaries for their employees prior to the Effective Time. At the reasonable request of Parent, Company will amend, modify or terminate any of Company Employee Benefit Plans at or immediately prior to the Effective Time (whichever the Parent may request) and will take such other steps as Parent may reasonably request to facilitate the administration after the Effective Time of the compensation and benefit plans, programs and arrangements of the Surviving Corporation.

Section 5.6 Indemnification. (a) From and after the Effective Time, the Surviving Corporation will indemnify, defend and hold harmless the officers, directors and employees of Company and its Subsidiaries who were such at any time prior to the Effective Time (the "Indemnified Parties") from and against all losses, expenses, claims, damages or liabilities arising out of the transactions contemplated by this Agreement to the fullest extent permitted or required under applicable law, and the Indemnified Parties will be advanced expenses subject to a customary reimbursement agreement. All rights to indemnification existing in favor of the directors, officers or employees of Company and its Subsidiaries as provided in Company's Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws, as in effect as of the date of this Agreement, with respect to matters occurring through the Effective Time, will survive the Merger and will continue in full force and effect thereafter. Parent will maintain in effect for not less than six years after the Effective Time the current policies of directors' and officers' liability insurance maintained by Company, and will cause the Surviving Corporation to indemnify the Indemnified Parties, from and against all losses, expenses, claims, damages or liabilities arising from or related to matters, acts or omissions occurring on or prior to the Effective Time; provided, however, that Parent may substitute therefor policies of at least the same coverage (with carriers comparable to Company's existing carriers) containing terms and conditions which are no less advantageous to the Indemnified Parties; and provided, further, that Parent will not be required in order to maintain or procure such coverage to pay an annual premium in excess of 200% of the current annual premium paid by the Company for its existing coverage (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an annual premium in excess of Cap, the Parent will only be required to obtain as much coverage as can be obtained by paying an annual premium equal to the Cap.

(b) In the event that any action, suit, proceeding or investigation relating hereto or to the transactions contemplated by this Agreement is commenced, whether before or after the Effective Time, the parties hereto agree to cooperate and use their respective reasonable efforts to vigorously defend against and respond thereto.

(c) Any Indemnified Party, upon learning of any claim, action, suit, proceeding or investigation for which such party may seek indemnification under this Section 5.6, will promptly notify Parent; provided that the failure to so promptly notify will not impede, limit or prohibit an Indemnified Party from recovering except to the extent a delay permanently prejudiced Parent's ability to defend such claim, action, suit, proceeding or investigation. In case any such action shall be brought against an Indemnified Party and it shall give written notice to Parent of the commencement thereof, Parent shall be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party. If Parent elects to assume the defense of such action, the Indemnified Party shall have the right to employ separate counsel at its own expense and to participate in the defense thereof. If Parent elects not to assume (or fails to assume) the defense of such action, the Indemnified Party shall be entitled to assume the defense of such action with counsel of its own choice, at the expense of Parent. If the action is asserted against both Parent and the Indemnified Party and there is a conflict of interests which renders it inappropriate for the same counsel to represent both Parent and the Indemnified Party, Parent shall be responsible for paying for separate counsel for the Indemnified Party; provided, however, that if there is more than one Indemnified Party, Parent shall not be responsible for paying for more than one separate firm of attorneys (and any local counsel) to represent the indemnified parties, regardless of the number of indemnified parties. If Parent elects to assume the defense of such action, (i) no compromise or settlement thereof may be effected by Parent without the Indemnified Party's written consent (which shall not be unreasonably withheld) and (ii) the Indemnified Party shall have no liability with respect to any compromise or settlement thereof effected without its written consent (which shall not be unreasonably withheld).

Section 5.7 Additional Agreements. (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees diligently to use their best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and the other Transaction Documents as soon as reasonably practical, including to (i) obtain all necessary waivers, consents and

approvals, (ii) effect all necessary registrations and filings, (iii) lift any injunction to the Merger (and, in such case, to proceed with the Merger as expeditiously as possible), and (iv) otherwise promptly satisfy the conditions set forth in Article VI. In addition, Parent agrees to cooperate with Company in obtaining (x) a legal opinion from Akin, Gump, Strauss, Hauer & Feld, LLP, counsel to Company, reasonably satisfactory to Company, to be delivered in connection with the filing of the Form S-4 concerning tax matters, and (y) the legal opinion described in Section 6.2(c) from Akin, Gump, Strauss, Hauer & Feld, LLP. In connection with each of such opinions of Akin, Gump, Strauss, Hauer & Feld, LLP, Parent and Company shall each deliver a certificate executed by an appropriate officer of Parent containing customary representations as to current financial matters related to the treatment of the Merger as a tax-free reorganization under Section 368(a) of the Code.

(b) Company will give prompt notice to Parent, and Parent or Merger Sub will give prompt notice to Company, of:

(i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by the Transaction Documents; and

(iii) any actions, suits, claims, investigations or proceedings commenced or, to Company's or Parent's Knowledge, as applicable, threatened against, relating to or involving or otherwise affecting it or any of its Subsidiaries which, if pending on the date of this Agreement would have been required to have been disclosed pursuant to Section 2.7, 2.8, 3.7 and 3.8 or which relate to the consummation of the transactions contemplated by this Agreement.

(c) Parent and Merger Sub, on the one hand, and Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement and the other Transaction Documents, including the Merger, and will not issue any such press release or make any such public statement prior to such consultation.

(d) Parent agrees to cause its Board of Directors prior to the Effective Time to approve in the form required by Rule 16b-3 under the Exchange Act certain acquisitions of Parent Common Stock pursuant to the Merger, as directed by Company and in form reasonably acceptable to Company.

(e) In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement and the other Transaction Documents, the proper officers and/or directors of Parent and Company will use their reasonable best efforts to take all such necessary action.

Section 5.8 No Shop. Company agrees (a) that neither it nor any of its Subsidiaries or affiliates will, and it will direct and use commercially reasonable efforts to cause its officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries or affiliates) not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a merger, acquisition, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or equity securities covering all or any significant portion of the assets of, Company and its Subsidiaries, taken as a whole (any such proposal or offer being hereinafter referred to as an "Alternative Proposal"), or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Alternative Proposal, or release any third party from any obligations under any existing standstill agreement or arrangement, or enter into any agreement with respect to an Alternative Proposal, or otherwise facilitate any effort or attempt to make or implement an Alternative Proposal; (b) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties with respect to any of the foregoing, and it will take the

necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 5.9; and (c) that it will notify Parent immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it. Notwithstanding the foregoing, prior to the Effective Time, Company may, directly or indirectly, furnish information and access to, and may participate in discussions and negotiate with, any Person, if (i) such person has submitted an unsolicited proposal to the Board of Directors of Company relating to an Alternative Proposal, (ii) the Board of Directors of Company believes that such Alternative Proposal is superior from a financial point of view to the transactions contemplated by the Transaction Documents, and (iii) the Board of Directors of Company determines in its good faith judgment that it is required to take such action to comply with the Board of Directors' fiduciary duty imposed by law (a "Superior Proposal"). Such Board of Directors will provide a summary of any such proposal to Parent immediately after receipt thereof and thereafter keep Parent promptly advised of any development with respect thereto and any revision of the terms of such Superior Proposal.

Section 5.9 Advice of Changes, SEC Filings. Company will confer on a regular basis with Parent on operational matters. Parent and Company will promptly advise each other of any change or event that has had, or could reasonably be expected to have, a Company Material Adverse Effect or a Parent Material Adverse Effect, as the case may be. Company and Parent will promptly provide each other (or their respective counsel) copies of all filings made by such party with the SEC or any other Governmental Entity in connection with this Agreement and the transactions contemplated hereby and other Transaction Documents and the transactions contemplated thereby.

Section 5.10 Confidentiality Agreement. Each party will keep all information received pursuant to this Agreement confidential in accordance with the confidentiality provisions of the offer letter dated December 8, 2000 between Parent and Company, and the Confidentiality Agreement dated October 11, 1999 between Parent and Company (the "Confidentiality Agreement"). Notwithstanding any other provision of this Agreement or the Confidentiality Agreement, the Confidentiality Agreement remains in full force and effect, is not superseded or modified by this Agreement, and will only terminate upon the Effective Time.

Section 5.11 Special Meetings.

(a) Company will, as promptly as reasonably practicable after the date of this Agreement (i) take all steps reasonably necessary to call, give notice of, convene and hold a special meeting of its shareholders (the "Company Special Meeting") for the purpose of securing the Company Shareholder Approval, (ii) distribute to its shareholders the Joint Proxy Statement/Prospectus in accordance with applicable federal and state law and its articles of incorporation and bylaws, which Joint Proxy Statement/Prospectus will contain the recommendation of the Company Board of Directors that its shareholders approve and adopt this Agreement and approve the Merger and other Transaction Documents and transactions contemplated thereby, and (iii) subject to the fiduciary duties of its directors, use all reasonable efforts to solicit from its shareholders proxies in favor of, and to secure, the Company Shareholder Approval, and (iv) cooperate and consult with Parent with respect to each of the foregoing matters; provided, that this Section 5.11 will not prohibit the Company Board of Directors from failing to make or from withdrawing or modifying its recommendation to the Company shareholders hereunder if the Board of Directors of Company determines in good faith that such action is necessary for such Board of Directors to comply with its fiduciary duties to its shareholders under applicable law and provided further that this Agreement will not be required to be submitted to the shareholders of Company at the Company Special Meeting if this Agreement has been terminated pursuant to Section 7.1 hereof.

(b) Parent will, as promptly as reasonably practicable after the date of this Agreement (a) take all steps reasonably necessary to call, give notice of, convene and hold a special meeting of its shareholders (the "Parent Special Meeting") for the purpose of securing the Parent Shareholder Approval, (b) distribute to its shareholders the Joint Proxy Statement/Prospectus in accordance with applicable federal and state law and its

articles of incorporation and bylaws, which Joint Proxy Statement/Prospectus will contain the recommendation of the Parent Board of Directors that its shareholders approve and adopt this Agreement and approve the Merger and other Transaction Documents and transactions contemplated thereby, (c) use all reasonable efforts to solicit from its shareholders proxies in favor of, and to secure, the Parent Shareholder Approval, and (d) cooperate and consult with Company with respect to each of the foregoing matters; provided, that this Agreement will not be required to be submitted to the shareholders of Parent at the Parent Special Meeting if this Agreement has been terminated pursuant to
Section 7.1 hereof.

Section 5.12 State Takeover Statutes. If any "fair price", "control share acquisition", "moratorium" or other anti-takeover statute, or similar statute or regulation will become applicable to the Merger, this Agreement, the other Transaction Documents or any of the transactions contemplated hereby or thereby, Company and Parent will use their commercially reasonable efforts to ensure that the Merger and the other transactions contemplated hereby and by the Transaction Documents, may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to minimize the effect of such statute or regulation on the Merger and the other transactions contemplated hereby or thereby.

Section 5.13 Company Credit Agreements. Parent agrees that at or immediately subsequent to the Effective Time, it will, or will cause its Subsidiaries to pay off the entire balance outstanding under the Company Credit Agreements.

Section 5.14 Expenses. Except as provided to the contrary in Article VII, each party hereto will pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby, whether or not the Merger will be consummated, except that the fee for filing the Joint Proxy Statement/Prospectus with the Commission and the costs and expenses associated with printing and mailing the Joint Proxy Statement/Prospectus and complying with any applicable state securities or "blue sky" laws will be borne by Parent.

Section 5.15 St. Paul Shareholder Agreement. Parent will use its best efforts to have St. Paul Fire and Marine Insurance Company ("St. Paul") execute a shareholder agreement in the form of Exhibit C ("St. Paul Shareholder Agreement") hereto as promptly as possible after the date of this Agreement.

Section 5.16 Available Funds. Parent covenants that it will have at the Closing immediately available funds and authorized Parent Common Stock available for issuance sufficient to enable it to make payment of the Aggregate Merger Consideration and effect the transactions contemplated by this Agreement and the other Transaction Documents without encumbrance or delay and without causing Parent to become insolvent or to declare insolvency.

ARTICLE VI

CONDITIONS PRECEDENT

Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger will be subject to the fulfillment at or prior to the Effective Time of the following conditions:

(a) The Form S-4 will have become effective in accordance with the provisions of the Securities Act. No stop order suspending the effectiveness of the Form S-4 will have been issued by the Commission and remain in effect and all necessary approvals under state securities laws relating to the issuance or trading of the Parent Common Stock to be issued to shareholders of Company in connection with the Merger will have been obtained.

(b) No preliminary or permanent injunction or other order by any federal or state court in the United States of competent jurisdiction which prevents the consummation of the Merger will have been issued

and remain in effect (each party agreeing to use all commercially reasonable efforts to have any such injunction lifted).

(c) The Parent Common Stock to be issued to Company shareholders in connection with the Merger will have been approved for listing on the American Stock Exchange ("AMEX"), subject only to official notice of issuance.

(d) (i) Stock Elections that would represent the right to receive no less than 3,000,000 shares of Parent Common Stock have been effectively made pursuant to Section 1.6, and (ii) Company will have received a legal opinion from Akin, Gump, Strauss, Hauer & Feld, LLP dated as of the date of the Effective Time, reasonably satisfactory to Company to the effect that on the basis of certain facts, representations and assumptions set forth in such opinions, the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code.

(e) Company Shareholder Approval. The holders of issued and outstanding shares of Company Common Stock will have duly approved the Merger.

(f) Parent Shareholder Approval. The holders of issued and outstanding shares of Parent Common Stock will have duly approved the Merger.

Section 6.2 Conditions to Obligation of Company to Effect the Merger. The obligation of Company to effect the Merger will be subject to the fulfillment (or waiver by Company) at or prior to the Effective Time of the following additional conditions:

(a) Performance of Obligations, Representations and Warranties. (i) The representations and warranties of Parent contained herein (other than in
Section 2.6) will be true and correct in all respects (but without regard to any materiality qualifications or references to a Parent Material Adverse Effect contained in any specific representation or warranty) as of the Effective Time except (a) for changes specifically permitted by the terms of this Agreement, (b) that the accuracy of representations and warranties that by their terms speak as of the date of this Agreement or some other date will be determined as of such date and (c) where any such failure of the representations and warranties in the aggregate to be true and correct in all respects would not have a Parent Material Adverse Effect, and (ii) Parent will have performed in all material respects all obligations and complied with all covenants required by this Agreement to be performed or complied with by it prior to the Effective Time, in the case of (i) and (ii) above except as contemplated or permitted by this Agreement, and Company will have received certificates signed on behalf of Parent by an executive officer of Parent to certifying as to both (i) and
(ii) above.

(b) Consents and Authorizations. All consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made for the consummation of the transactions contemplated by this Agreement will have been obtained and made by Parent and Merger Sub, except for those consents, waivers, approvals, authorizations, orders and filings the failure of which to obtain would not and would not reasonably be expected to adversely affect the Closing or have a Parent Material Adverse Effect.

(c) No Material Adverse Effect. From the date of this Agreement through the Effective Time, there will not have occurred any change in the financial condition, business or operations of Parent and its Subsidiaries, that would constitute a Parent Material Adverse Effect.

Section 6.3 Conditions to Obligations of Parent to Effect the Merger. The obligations of Parent to effect the Merger will be subject to the fulfillment (or waiver by Parent) at or prior to the Effective Time of the following additional conditions:

(a) Performance of Obligations, Representations and Warranties. (i) The representations and warranties of Company contained herein (other than in
Section 3.6) will be true and correct in all respects (but without regard to any materiality qualifications or references to a Company Material Adverse Effect

contained in any specific representation or warranty) as of the Effective Time except (a) for changes specifically permitted by the terms of this Agreement, (b) that the accuracy of representations and warranties that by their terms speak as of the date of this Agreement or some other date will be determined as of such date and (c) where any such failure of the representations and warranties in the aggregate to be true and correct in all respects would not have a Company Material Adverse Effect, and (ii) Company will have performed in all material respects all obligations and complied with all covenants required by this Agreement to be performed or complied with by it prior to the Effective Time, in each case except as contemplated or permitted by this Agreement, and Parent will have received certificates signed on behalf of Company by an executive officer of Company to such effect.

(b) Consents and Authorizations. All consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made for the consummation of the transactions contemplated by this Agreement will have been obtained and made by Company, except for those consents, waivers, approvals, authorizations, orders and filings (x) relating to the Company Credit Agreements or the Parent Credit Agreement, or (y) the failure of which to obtain would not and would not reasonably be expected to adversely affect the Closing or have a Company Material Adverse Effect.

(c) No Company Material Adverse Effect. From the date of this Agreement through the Effective Time, there will not have occurred any change in the financial condition, business or operations of Company and its Subsidiaries, that would constitute a Company Material Adverse Effect.

ARTICLE VII

TERMINATION, AMENDMENT AND WAIVER

Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of any matters presented in connection with the Merger by the shareholders of Company:

(a) by mutual written consent of Parent and Company;

(b) by either Company or Parent if there has been an inaccuracy or breach of the representations, warranties, covenants or agreements on the part of the other set forth in this Agreement which breach would result in the condition set forth in Section 6.2(a), in the case of a breach by Parent or Merger Sub, or Section 6.3(a), in the case of a breach by Company, not being satisfied, and such breach has not been cured within ten business days following receipt by the breaching party of notice of such breach from the non-breaching party;

(c) by either Parent or Company if the Merger will not have been consummated on or before May 31, 2001, unless the failure to consummate the Merger is the result of an inaccuracy or breach of the representations, warranties, covenants or agreements contained in this Agreement by the party seeking to terminate this Agreement which has not been cured within ten business days following receipt by the breaching party of notice of such inaccuracy or breach from the non-breaching party;

(d) by Company, prior to the Effective Time, if the Board of Directors of Company has received a Superior Proposal which the Board of Directors has resolved to accept. Upon such termination, Parent, Merger Sub and their respective Subsidiaries will be deemed to have waived any and all claims Parent and its Subsidiaries may have at law or in equity against Company, its Subsidiaries or their respective officers, directors or employees arising out of or relating to this Agreement or the other Transaction Documents, except as contemplated by Section 7.2(a);

(e) by either Company or Parent if (i) a statute, rule, regulation or executive order will have been enacted, entered or promulgated prohibiting the consummation of the Merger substantially on the terms contemplated hereby or (ii) an order, decree, ruling or injunction will have been entered permanently restraining, enjoining or otherwise prohibiting the consummation of the Merger substantially on the terms

contemplated hereby and such order, decree, ruling or injunction will have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this Section 7.1(e) will have used its reasonable best efforts to remove such injunction, order or decree;

(f) by either Company or Parent if the Company Shareholder Approval will not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of shareholders or of any adjournment thereof;

(g) by Company if the St. Paul Shareholder Agreement has not been executed by St. Paul on or prior to January 5, 2000; or

(h) by Parent, prior to the Effective Time, if the Board of Directors of Company has received a Superior Proposal which the Board of Directors has failed to reject within 30 days of the date of receipt of such Superior Proposal. Upon such termination, Parent, Merger Sub and their respective Subsidiaries will be deemed to have waived any and all claims Parent and its Subsidiaries may have at law or in equity against Company, its Subsidiaries or their respective officers, directors or employees arising out of or relating to this Agreement or the other Transaction Documents.

Section 7.2 Effect of Termination. (a) In the event of termination of this Agreement by either Parent or Company as provided in Section 7.1, this Agreement will forthwith become void and there will be no liability hereunder on the part of Company, Parent or their respective officers or directors; provided, however, that nothing contained in this Section 7.2 will relieve any party hereto from any liability for any willful breach of a representation or warranty contained in this Agreement, for the breach of any covenant or agreement contained in this Agreement or under Section 7.1(d), this Section 7.2 and Article VIII.

(b) If Company terminates this Agreement pursuant to Section 7.1(d), forthwith upon such termination Company will pay Parent $2,350,000 in immediately available funds.

(c) If either Company or Parent has willfully breached a representation, warranty, covenant or agreement set forth in this Agreement that results in the other party terminating this Agreement pursuant to Section 7.1(b), then, in addition to any other remedies available to the non-breaching party, the breaching party will promptly reimburse the non-breaching party for all substantiated out-of-pocket costs and expenses incurred by the non-breaching party in connection with this Agreement and the transactions contemplated hereby and the other Transaction Documents, including, without limitation, costs and expenses of accountants, attorneys and financial advisors (the "Expenses Fee"). Each of Parent and Company acknowledges that the agreements contained in this Section 7.2(c) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Parent and Company would not enter into this Agreement; accordingly, if the breaching party falls to promptly pay the amount due pursuant to this Section 7.2(c), and, in order to obtain such payment, the non-breaching party commences a suit which results in a judgment for the Expenses Fee, the breaching party will pay to the non-breaching party its costs and expenses (including attorney's fees) in connection with such suit.

(d) If the Merger does not occur for any reason other than (i) a breach by Company of its representations, warranties, covenants or agreements set forth in this Agreement resulting in the condition set forth in Section 6.3(a) not being satisfied, (ii) any of the conditions set forth in Sections 6.1(e), 6.2(c), 6.3(b) and 6.3(c) not being satisfied, or (iii) a termination of this Agreement by Parent under Section 7.1(h), Parent will promptly pay $250,000 in immediately available funds to Company, which amount is intended to reimburse Company for its costs and expenses incurred in connection with this Agreement and the transactions contemplated by the Transaction Documents.

Section 7.3 Amendment. This Agreement may be amended by the parties hereto, by or pursuant to action taken by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Company, Parent and Merger Sub, but, after any such approval no amendment will be made which by law requires further approval by such shareholders without such further approval. This Agreement may not be amended except by an instrument in writing duly executed by each of the parties hereto.

Section 7.4 Waiver. At any time prior to the Effective Time, any party hereto may waive any of its rights under this Agreement or any applicable law that may be legally waived, including, without limitation, waiving (i) any failure to timely perform any of the obligations or other acts of the other parties hereto, (ii) any inaccuracies in or breaches of the representations and warranties contained herein or in any document delivered pursuant hereto and
(iii) compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver will be valid only if set forth in an instrument in writing duly executed by such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights.

Section 7.5 Exclusive Remedy for Inaccuracy or Breach of Representation or Warranty. Except as expressly provided in Section 7.2(a), (b), (c) and (d) hereof, a party's sole and exclusive remedy with respect to the non-willful inaccuracy or breach of any representation or warranty provided by the other party will be to (i) elect not to close the Merger and the other transactions contemplated by this Agreement to the extent permitted by Article VI and (ii) elect to terminate this Agreement to the extent permitted by Article VII.

ARTICLE VIII

GENERAL PROVISIONS

Section 8.1 Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Articles II and III, the parties hereto have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the title, condition or quality of any rights or assets of Parent or Company or any Subsidiary of Parent or Company or the accuracy or completeness of any information provided or obtained. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate at the Effective Time or, if sooner, the termination of this Agreement.

Section 8.2 Disclosure Schedules. Each disclosure identified in the Parent Disclosure Schedule and the Company Disclosure Schedule or elsewhere in this Agreement constitutes a disclosure by the disclosing party with respect to all applicable Sections of this Agreement, regardless of any reference to a particular Section or subsection. The Company agrees that it will provide Parent, and Parent agrees that it will provide Company, with written supplements to this Agreement disclosing any inaccuracies in representations and warranties made by it in Article III.

Section 8.3 Notices. All notices and other communications' hereunder will be in writing and will be deemed given when delivered personally, one day after being delivered to a nationally recognized overnight courier or when telecopied (with a confirmatory copy sent by such overnight courier) to the parties at the following addresses (or at such other address for a party as will be specified by like notice):

(a) if to Parent or Merger Sub, to

PetroCorp Incorporated
6733 South Yale Avenue
Tulsa, OK 74136
Attention: Chief Executive Officer Facsimile No.: (918) 491-4584

with a copy (which will not constitute notice) to:

Frederic Dorwart
One City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103-5010
Facsimile No.: (918) 583-8251

(b) if to Company, to

Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, TX 77002-4609
Attention: Chief Executive Officer Facsimile No.: 713-658-9447

with a copy (which will not constitute notice) to:

Akin, Gump, Strauss, Hauer & Feld, LLP 1900 Pennzoil Place--South Tower
711 Louisiana
Houston, Texas 77002
Attention: J. Vincent Kendrick
Facsimile No.: (713) 236-0822

Section 8.4 Interpretation. When a reference is made in this Agreement to a
Section or Article, such reference will be to a Section or Article of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words, of without limitation. As used in this Agreement the word "Subsidiary" when used with respect to any relevant individual or entity, means any other individual or entity that directly or indirectly is controlled by such relevant individual or entity in question. As used herein, the term "control" (including its derivatives and similar terms) means the power to, directly or indirectly, direct or cause the direction of the management and policies of such relevant individual or entity.

Section 8.5 Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

Section 8.6 Entire Agreement, No Third-Party Beneficiaries. This Agreement and the other written agreements executed by the parties in connection herewith, including the Confidentiality Agreement, constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and there are no promises, undertakings, representations or warranties by Company or Parent relative to the subject matter of this Agreement not expressly set forth or referred to herein. This Agreement, except for the provisions of Sections 1.4(c), 5.5 and 5.6, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

Section 8.7 Governing Law. EXCEPT TO THE EXTENT THE LAW OF ANOTHER
JURISDICTION IS REQUIRED TO BE APPLIED, THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.

Section 8.8 Shareholder Agreements. The parties hereto acknowledge that, except as contemplated by Section 5.15, the Shareholder Agreements have been executed as of the date of this Agreement.

Section 8.9 Standstill. If (a) this Agreement is terminated by either Parent or Company in accordance with the terms of Section 7.1 and (b) such termination was not related to a material breach by Company of any of its representations, warranties, covenants or agreements set forth herein resulting in a failure to satisfy the requirements of Section 6.3(a), neither Parent, Merger Sub nor any Subsidiary of either of them will for a period of two years following such expiration (i) acquire, offer to acquire or agree to acquire directly or

indirectly by purchase or otherwise any voting securities of Company, (ii) make or in any way participate directly or indirectly, in any "solicitation" of "proxies" to vote (in such terms as used in the proxy rules of the Commission) or seek to advise or influence any person or entity with respect to the voting of any voting securities of Company, (iii) form, join or in any way participate in a "group" within the meaning of Section 13(d)(iv) of the Exchange Act with respect to any voting securities of Company or (iv) otherwise act alone or in concert with others to seek to control or influence the management, Board of Directors, or policies of Company.

Section 8.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned, transferred, disposed of or otherwise alienated by either of the parties hereto (whether voluntarily or involuntarily, with or without consideration, by operation of law or otherwise) without the prior written consent of the other party (which consent may be granted or withheld in such party's sole discretion). An attempted assignment, transfer, disposition or alienation in violation of this Agreement will be null, void and ineffective. Subject to the two preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

Section 8.11 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as' to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

Section 8.12 Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written in the preamble.

PETROCORP INCORPORATED

By: /s/ Gary R. Christopher
   ----------------------------------
Name: Gary R. Christopher
Title: President and Chief Executive
 Officer

PETROCORP ACQUISITION COMPANY

By: /s/ Gary R. Christopher
   ----------------------------------
Name: Gary R. Christopher
Title: President and Chief Executive
 Officer

SOUTHERN MINERAL CORPORATION

By: /s/ Steven H. Mikel
   ----------------------------------
Name: Steven H. Mikel
Title: President and Chief Executive
 Officer

[Merger Agreement Signature Page]

ANNEX B

SHAREHOLDER AGREEMENT

SHAREHOLDER AGREEMENT (this "Agreement") dated as of December 22, 2000, between Kaiser-Francis Oil Company, a Delaware corporation ("Shareholder"), and Southern Mineral Corporation, a Nevada corporation ("Company").

RECITALS:

WHEREAS, Company, PetroCorp Incorporated, a Nevada corporation ("Parent"), and PetroCorp Acquisition Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger Agreement"; capitalized terms used but not defined herein will have the meanings ascribed thereto in the Merger Agreement) on the date of this Agreement pursuant to which Parent proposes to acquire the entire equity interest in Company pursuant to the merger (the "Merger") of Company with and into Merger Sub, on the terms and conditions set forth in the Merger Agreement.

WHEREAS, Shareholder owns the number of shares of Parent Common Stock (the "Shares"), options to purchase shares of Parent Common Stock (the "Options") and/or warrants to purchase shares of Parent Common Stock (the "Warrants" and, collectively with the Shares and the Options, the "Equity Securities") listed on Schedule 1.

WHEREAS, the Board of Directors of Parent has, prior to the execution of this Agreement, approved and adopted the Merger Agreement;

WHEREAS, approval of the Merger Agreement by Parent's shareholders is a condition to the consummation of the Merger; and

WHEREAS, as a condition to its entering into the Merger Agreement, Company has required that Shareholder agree, and Shareholder has so agreed, to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Covenants of Shareholder and Company.

(a) During the term of this Agreement, except in accordance with the express provisions of this Agreement, Shareholder agrees that (i) it will not sell, transfer, assign or otherwise dispose of, or enter into any contract, option or other agreement with respect to the sale, transfer, assignment or other disposition of, any Equity Securities, whether now owned or hereafter acquired, and (ii) it will cause the Management Agreement dated August 3, 1999 between Parent and Shareholder to be amended by deleting Sections 3.1B and 3.1C thereof, which contain backin and override provisions in favor of Shareholder, in their entirety and replacing such Sections with provisions to compensate Shareholder thereunder that are no less favorable to Parent than those discussed at the November 17, 2000 meeting of the Board of Directors of Shareholder.

(b) During the term of this Agreement, Company agrees to fully and timely perform, in all material respects, its obligations under the Merger Agreement.

2. Representations and Warranties of Shareholder. Shareholder represents and warrants to Company as follows:

(a) (i) Shareholder is the record or beneficial owner of the Equity Securities listed on Schedule 1, (ii) such securities are the only Equity Securities owned of record or beneficially by Shareholder free and clear of all liens and defects, and (iii) Shareholder does not have any option or other right to acquire any other Equity Securities;

(b) (i) Shareholder has the right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) the execution, delivery and performance of this Agreement by such Shareholder does not require the consent of any other Person and does not constitute a violation of, conflict with or result in a material default under (1) any contract or agreement to which such Shareholder is a party or by which such Shareholder is bound, (2) any judgment, decree or order applicable to such Shareholder, or (3) to Shareholder's actual knowledge, any law, rule or regulation of any governmental body applicable to such Shareholder, in the case of clauses (1) through (3), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Shareholder's ability to perform its obligations under this Agreement; and (iii) this Agreement constitutes a valid and binding agreement on the part of such Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity;

(c) Shareholder is an accredited investor (as defined in Rule 501(a) under the Securities Act), and has had an opportunity to review all such documents and obtain all such information as Shareholder deems necessary in connection with the approval and execution of this Agreement.

3. Representations and Warranties of Company. Company hereby represents and warrants to Shareholder that:

(a) Company is a corporation validly existing and in good standing under the laws of the State of Nevada;

(b) Company has all requisite right, power and authority to execute and deliver this Agreement and perform all its obligations hereunder;

(c) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on Company's part and do not constitute a violation of, conflict with or result in a material default under (i) any contract or agreement to which Company is a party or by which Company is bound, (ii) any judgment, decree or order applicable to Company or (iii) to Company's actual knowledge, any law, rule or regulation of any governmental body applicable to Company, including, without limitation, any securities laws exemptions, in the case of clauses (i) through (iii), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Company's ability to perform its obligations under this Agreement;

(d) this Agreement has been duly executed and delivered by Company; and

(e) this Agreement constitutes a valid and binding agreement on Company's part, enforceable against Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity.

4. Voting of Equity Securities. Shareholder hereby agrees that, during the term of this Agreement, at any meeting of the shareholders of Parent, however called, and in any action by written consent of the shareholders of Parent, it will (a) attend any such meeting, in person or by proxy, (b) vote all voting Equity Securities, whether now owned or hereafter acquired, of Shareholder in favor of the Merger; (c) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or agreement which would result in a breach in any material respect of any material covenant, representation or warranty or any other obligation of Parent under the Merger Agreement; and (d) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder against any action or agreement the primary or a substantial purpose of which would be to materially impede, interfere with or attempt to discourage the Merger or the transactions and events contemplated thereby, including, but not limited to: (i) except as expressly contemplated by the Transaction Documents, any change in the management or board of directors of Parent, except to fill vacancies (as contemplated by the Merger Agreement) occurring after the date of this Agreement or as otherwise agreed to in writing by Company; (ii) except as expressly contemplated by the Transaction

Documents, any material change in the present capitalization or dividend policy of Parent; or (iii) except as expressly contemplated by the Transaction Documents, any other material change in Parent's corporate structure or business; (e) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or attempt to amend Parent's articles of incorporation or bylaws to effect the removal of the Company Director Nominees (or any replacement director nominated and elected by a Company Director Nominee as contemplated by Section 1.4(b) of the Merger Agreement) prior to the second annual meeting of Parent's shareholders following the Effective Time; and (f) vote all voting Equity Securities, whether now owned or hereafter acquired, against any action or attempt to amend Parent's articles of incorporation or bylaws to effect the removal of the Company Director Nominees (or any replacement director nominated and elected by a Company Director Nominee as contemplated by Section 1.4(b) of the Merger Agreement) prior to the second annual meeting of Parent's shareholders following the Effective Time.

5. Further Assurances. Each party hereto will perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement.

6. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by either party by injunctive or other equitable relief.

7. Notices. All notices or other communications required or permitted hereunder will be in writing (except as otherwise provided herein) and will be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows:

To Company:

Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, TX 77002-4609
Facsimile No.: 713-658-9447

To Shareholder:

At the address set forth beneath the name of such Shareholder on Schedule 1

8. Interpretation. When a reference is made in this Agreement to a Section, such reference will be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." The phrase "the date hereof" in this Agreement means the date of this Agreement.

9. Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

10. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder, except that the shareholders of Company immediately prior to the Effective Time are expressed third-party beneficiaries of this Agreement.

11. Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of Texas without regard to its rules of conflict of laws.

12. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written

consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns, and any Person succeeding to the ownership of (or power to vote) the Equity Securities.

13. 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

14. Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

15. Binding Effect. This Agreement will survive the death or incapacity of Shareholder and will inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives and successors.

16. Term. The term of this Agreement will begin on the date hereof and end on the termination of the Merger Agreement. If the Merger is consummated, the provisions of this Agreement will survive the Effective Time, except as provided in Section 17.

17. Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Sections 2 and 3, the parties have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the transactions contemplated herein. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement, and (b) the Effective Time.

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IN WITNESS WHEREOF, Shareholder and Company have entered into this Agreement as of the date first written above.

SOUTHERN MINERAL CORPORATION

By: /s/ Gary R. Christopher
  -----------------------------------
Name: Gary R. Christopher
Title: President and Chief Executive
 Officer

KAISER-FRANCIS OIL COMPANY

By: /s/ George B. Kaiser
  -----------------------------------
Name: George B. Kaiser
Title: President

                                                                       Number of
Name and Address of Shareholder                                         Shares
-------------------------------                                        ---------
Kaiser-Francis Oil Company ........................................... 4,327,457
6733 South Yale
Tulsa, Oklahoma 74136

ANNEX C

SHAREHOLDER AGREEMENT

SHAREHOLDER AGREEMENT (this "Agreement") dated as of January 5, 2001, between St. Paul Fire and Marine Insurance Company, a corporation ("Shareholder"), and Southern Mineral Corporation, a Nevada corporation ("Company").

RECITALS:

WHEREAS, Company, PetroCorp Incorporated, a Nevada corporation ("Parent"), and PetroCorp Acquisition Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger Agreement"; capitalized terms used but not defined herein will have the meanings ascribed thereto in the Merger Agreement) on the date of this Agreement pursuant to which Parent proposes to acquire the entire equity interest in Company pursuant to the merger (the "Merger") of Company with and into Merger Sub, on the terms and conditions set forth in the Merger Agreement.

WHEREAS, Shareholder owns the number of shares of Parent Common Stock (the "Shares"), options to purchase shares of Parent Common Stock (the "Options") and/or warrants to purchase shares of Parent Common Stock (the "Warrants" and, collectively with the Shares and the Options, the "Equity Securities") listed on Schedule 1.

WHEREAS, the Board of Directors of Parent has, prior to the execution of this Agreement, approved and adopted the Merger Agreement;

WHEREAS, approval of the Merger Agreement by Parent's shareholders is a condition to the consummation of the Merger; and

WHEREAS, as a condition to its entering into the Merger Agreement, Company has required that Shareholder agree, and Shareholder has so agreed, to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Covenants of Shareholder and Company.

(a) During the term of this Agreement, except in accordance with the express provisions of this Agreement, Shareholder agrees that it will not sell, transfer, assign or otherwise dispose of, or enter into any contract, option or other agreement with respect to the sale, transfer, assignment or other disposition of, any Equity Securities, whether now owned or hereafter acquired.

(b) During the term of this Agreement, Company agrees to fully and timely perform, in all material respects, its obligations under the Merger Agreement.

2. Representations and Warranties of Shareholder. Shareholder represents and warrants to Company as follows:

(a) (i) Shareholder is the record or beneficial owner of the Equity Securities listed on Schedule 1, (ii) such securities are the only Equity Securities owned of record or beneficially by Shareholder free and clear of all liens and defects, and (iii) Shareholder does not have any option or other right to acquire any other Equity Securities;

(b) (i) Shareholder has the right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) the execution, delivery and performance of this Agreement by such Shareholder does not require the consent of any other Person and does not constitute a violation of, conflict with or result in a material default under (1) any contract or agreement to which such Shareholder is a party or by which such Shareholder is bound, (2) any judgment, decree or order applicable to such Shareholder, or (3) to Shareholder's actual knowledge, any law, rule or regulation of any governmental body applicable to such Shareholder, in the case of clauses (1) through (3), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Shareholder's ability to perform its obligations under this Agreement; and (iii) this Agreement constitutes a valid and binding agreement on the part of such Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity;

(c) Shareholder is an accredited investor (as defined in Rule 501(a) under the Securities Act), and has had an opportunity to review all such documents and obtain all such information as Shareholder deems necessary in connection with the approval and execution of this Agreement.

3. Representations and Warranties of Company. Company hereby represents and warrants to Shareholder that:

(a) Company is a corporation validly existing and in good standing under the laws of the State of Nevada;

(b) Company has all requisite right, power and authority to execute and deliver this Agreement and perform all its obligations hereunder;

(c) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on Company's part and do not constitute a violation of, conflict with or result in a material default under (i) any contract or agreement to which Company is a party or by which Company is bound, (ii) any judgment, decree or order applicable to Company or (iii) to Company's actual knowledge, any law, rule or regulation of any governmental body applicable to Company, including, without limitation, any securities laws exemptions, in the case of clauses (i) through (iii), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Company's ability to perform its obligations under this Agreement;

(d) this Agreement has been duly executed and delivered by Company; and

(e) this Agreement constitutes a valid and binding agreement on Company's part, enforceable against Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity.

4. Voting of Equity Securities. Shareholder hereby agrees that, during the term of this Agreement, at any meeting of the shareholders of Parent, however called, and in any action by written consent of the shareholders of Parent, it will (a) attend any such meeting, in person or by proxy, (b) vote all voting Equity Securities, whether now owned or hereafter acquired, of Shareholder in favor of the Merger; (c) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or agreement which would result in a breach in any material respect of any material covenant, representation or warranty or any other obligation of Parent under the Merger Agreement; (d) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder against any action or agreement the primary or a substantial purpose of which would be to materially impede, interfere with or attempt to discourage the Merger or the transactions and events contemplated thereby, including, but not limited to: (i) except as expressly contemplated by the Transaction Documents, any change in the management or board of directors of Parent, except to fill vacancies (as contemplated by the Merger Agreement) occurring after the date of this Agreement or as otherwise agreed to in writing by Company; (ii) except as expressly contemplated by the Transaction Documents, any material

change in the present capitalization or dividend policy of Parent; or (iii) except as expressly contemplated by the Transaction Documents, any other material change in Parent's corporate structure or business; (e) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or attempt to amend Parent's articles of incorporation or bylaws to effect the removal of the Company Director Nominees (or any replacement director nominated and elected by a Company Director Nominee as contemplated by
Section 1.4(b) of the Merger Agreement) prior to the second annual meeting of Parent's shareholders following the Effective Time; and (f) vote all voting Equity Securities, whether now owned or hereafter acquired, against any action or attempt to amend Parent's articles of incorporation or bylaws to effect the removal of the Company Director Nominees (or any replacement director nominated and elected by a Company Director Nominee as contemplated by Section 1.4(b) of the Merger Agreement) prior to the second annual meeting of Parent's shareholders following the Effective Time.

5. Company Director Nominees. Company agrees that the Company Director Nominees that it selects to serve on the Board of Directors of Parent after the Effective Time pursuant to Section 1.4(c) will not have served as executive officers of the Company.

6. Further Assurances. Each party hereto will perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement.

7. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by either party by injunctive or other equitable relief.

8. Notices. All notices or other communications required or permitted hereunder will be in writing (except as otherwise provided herein) and will be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows:

To Company:

Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, TX 77002-4609
Facsimile No.: 713-658-9447

To Shareholder:

At the address set forth beneath the name of such Shareholder on Schedule 1

9. Interpretation. When a reference is made in this Agreement to a Section, such reference will be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." The phrase "the date hereof" in this Agreement means the date of this Agreement.

10. Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

11. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder, except that the shareholders of Company immediately prior to the Effective Time are expressed third-party beneficiaries of this Agreement.

12. Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of Texas without regard to its rules of conflict of laws.

13. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns, and any Person succeeding to the ownership of (or power to vote) the Equity Securities.

14. 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

15. Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

16. Binding Effect. This Agreement will survive the death or incapacity of Shareholder and will inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives and successors.

17. Term. The term of this Agreement will begin on the date hereof and end on the termination of the Merger Agreement. If the Merger is consummated, the provisions of this Agreement will survive the Effective Time, except as provided in Section 18.

18. Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Sections 2 and 3, the parties have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the transactions contemplated herein. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement, and (b) the Effective Time.

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IN WITNESS WHEREOF, Shareholder and Company have entered into this Agreement as of the date first written above.

SOUTHERN MINERAL CORPORATION

By: /s/ Steven H. Mikel
  -----------------------------------
Name: Steven H. Mikel
Title: President

ST. PAUL FIRE AND MARINE INSURANCE
COMPANY

By: /s/ James C. Adams
  -----------------------------------
Name: James C. Adams
Title: Vice President

                                                                       Number of
Name and Address of Shareholder                                         Shares
-------------------------------                                        ---------
St. Paul Fire and Marine Insurance Company............................ 1,738,000
385 Washington Street
St. Paul, Minnesota 55102

ANNEX D

SHAREHOLDER AGREEMENT

SHAREHOLDER AGREEMENT (this "Agreement") dated as of December 22, 2000, among PetroCorp Incorporated, a Texas corporation ("Parent"); and Donald H. Weise, Jr. and DHW Energy, Inc. (collectively, the "Shareholders" and individually, a "Shareholder").

RECITALS:

WHEREAS, Southern Mineral Corporation, a Nevada corporation ("Company"), Parent and PetroCorp Acquisition Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger Agreement"; capitalized terms used but not defined herein will have the meanings ascribed thereto in the Merger Agreement) on the date of this Agreement pursuant to which Parent proposes to acquire the entire equity interest in Company pursuant to the merger (the "Merger") of Company with and into Merger Sub, on the terms and conditions set forth in the Merger Agreement;

WHEREAS, Shareholders own the number of shares of Company Common Stock (the "Shares"), options to purchase shares of Company Common Stock (the "Options") and/or warrants to purchase shares of Company Common Stock (the "Warrants" and, collectively with the Shares and the Options, the "Equity Securities") listed opposite their names on Schedule 1;

WHEREAS, the Board of Directors of Company has, prior to the execution of this Agreement, approved and adopted the Merger Agreement;

WHEREAS, approval of the Merger Agreement by Company's shareholders is a condition to the consummation of the Merger; and

WHEREAS, as a condition to its entering into the Merger Agreement, Parent has required that each of the Shareholders agree, and each of the Shareholders have so agreed, to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Covenants of Shareholders and Parent.

(a) During the term of this Agreement, except in accordance with the express provisions of this Agreement, each Shareholder agrees that it will not sell, transfer, assign or otherwise dispose of, or enter into any contract, option or other agreement with respect to the sale, transfer, assignment or other disposition of, any Equity Securities.

(b) During the term of this Agreement, Parent agrees to fully and timely perform, in all material respects, its obligations under the Merger Agreement.

2. Representations and Warranties of Shareholders. Each Shareholder represents and warrants to Parent as follows:

(a) (i) Such Shareholder is the record or beneficial owner of the Equity Securities listed opposite its name on Schedule 1, (ii) such securities are the only Equity Securities owned of record or beneficially by such Shareholder free and clear of all liens and defects, and (iii) such Shareholder does not have any option or other right to acquire any other Equity Securities;

(b) (i) Such Shareholder has the right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) the execution, delivery and performance of this Agreement by such Shareholder does not require the consent of any other Person and does not constitute a violation of, conflict with or result in a material default under (1) any contract or agreement to which such Shareholder is a party or by which such Shareholder is bound, (2) any judgment, decree or order applicable to such Shareholder, or (3) to such Shareholder's actual knowledge, any law, rule or regulation of any governmental body applicable to such Shareholder, in the case of clauses (1) through (3), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect such Shareholder's ability to perform its obligations under this Agreement; and (iii) this Agreement constitutes a valid and binding agreement on the part of such Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity;

(c) Such Shareholder is an accredited investor (as defined in Rule 501(a) under the Securities Act), and has had an opportunity to review all such documents and obtain all such information as such Shareholder deems necessary in connection with the approval and execution of this Agreement.

3. Representations and Warranties of Parent. Parent hereby represents and warrants to Shareholder that:

(a) Parent is a corporation validly existing and in good standing under the laws of the State of Texas;

(b) Parent has all requisite right, power and authority to execute and deliver this Agreement and perform all its obligations hereunder;

(c) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on Parent's part and do not constitute a violation of, conflict with or result in a material default under (i) any contract or agreement to which Parent is a party or by which Parent is bound, (ii) any judgment, decree or order applicable to Parent or (iii) to Parent's actual knowledge, any law, rule or regulation of any governmental body applicable to Parent, including, without limitation, any securities laws exemptions, in the case of clauses (i) through (iii), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Parent's ability to perform its obligations under this Agreement;

(d) this Agreement has been duly executed and delivered by Parent; and

(e) this Agreement constitutes a valid and binding agreement on Parent's part, enforceable against Parent in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity.

4. Voting of Equity Securities. Each Shareholder hereby agrees that, during the term of this Agreement, at any meeting of the shareholders of Company, however called, and in any action by written consent of the shareholders of Company, it will (a) attend any such meeting, in person or by proxy, (b) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder in favor of the Merger; (c) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or agreement which would result in a breach in any material respect of any material covenant, representation or warranty or any other obligation of Company under the Merger Agreement; and (d) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder against any action or agreement the primary or a substantial purpose of which would be to materially impede, interfere with or attempt to discourage the Merger, including, but not limited to: (i) any change in

the management or board of directors of Company, except to fill vacancies occurring after the date of this Agreement or as otherwise agreed to in writing by Parent; (ii) except as expressly contemplated by the Transaction Documents, any material change in the present capitalization or dividend policy of Company; or (iii) except as expressly contemplated by the Transaction Documents, any other material change in Company's corporate structure or business.

5. Registration Rights. Parent will use reasonable efforts to prepare and file a shelf registration statement (the "Registration Statement") pursuant to Rule 415 under the Securities Act to permit the sale or other disposition of any or all shares of Parent Common Stock received by each Shareholder in the Merger, in accordance with the intended method of sale or other disposition elected by such Shareholder, and Parent will use its best efforts to qualify such shares of Parent Common Stock under any applicable state securities laws. Parent will use all reasonable efforts
(i) to cause the Registration Statement to become effective on or before the Effective Time, (ii) to obtain all consents or waivers of other parties which are required therefor, and (iii) to keep the Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by such Shareholder for a period ending two years from the Effective Time, or for such shorter period that will terminate when all shares of Parent Common Stock covered by the Registration Statement have been sold pursuant to the Registration Statement or otherwise cease to be outstanding. The offer and sale under the Registration Statement or the obligation of Parent to file the Registration Statement and to maintain its effectiveness may be suspended for one or more periods of time not exceeding 90 calendar days in the aggregate with respect to such Registration Statement if the Board of Directors of Parent will have determined in good faith that the offering and sales under the Registration Statement, the filing of such Registration Statement or the maintenance of its effectiveness would require disclosure of or would interfere in any material respect with any material financing, acquisition, merger or other transaction involving Parent or any of its Subsidiaries or would otherwise require disclosure of nonpublic information that would materially and adversely affect Parent. The Registration Statement prepared and filed under this Section, and any sale covered thereby, will be at Parent's expense except for underwriting discounts or commissions, brokers' fees and the fees and disbursements of each Shareholder's counsel related thereto. Each Shareholder will provide all information reasonably requested by Parent for inclusion in the Registration Statement to be filed hereunder. In connection with the registration pursuant to this Section, each Shareholder and Parent will provide each other and any underwriter of the offering with customary representations, warranties, covenants, and rights to indemnification and contribution.

6. Stock Elections. Each Shareholder agrees that unless it has effectively made a Stock Election pursuant to Section 1.6 of the Merger Agreement prior to the filing with the Commission by Company and Parent of the Joint Proxy Statement/Prospectus, it will be deemed to have failed to make, and will not be eligible to make, a Stock Election with respect to the Shares or shares of Company Common Stock issuable upon the exercise of the Options and Warrants under the Merger Agreement.

7. Additional Agreements. If a Shareholder makes a Stock Election and, as a result of the application of Section 1.5(e) of the Merger Agreement, a portion of such Shareholder's Stock Election Shares (the "Converted Stock Election Shares") are converted into the right to receive the Cash Consideration in the Merger, then immediately after the Effective Time, such Shareholder agrees to buy, and Parent agrees to issue and deliver to such Shareholder, the number for shares of PetroCorp Common Stock which is equal to (a) the Cash Consideration which is payable pursuant to the Merger with respect to the Converted Stock Election Shares, divided by (b) the Per Share Merger Consideration.

8. Further Assurances. Each party hereto will perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement.

9. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by either party by injunctive or other equitable relief.

10. Notices. All notices or other communications required or permitted hereunder will be in writing (except as otherwise provided herein) and will be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows:

To Parent:

PetroCorp Incorporated
6733 South Yale Avenue
Tulsa, OK 74136
Facsimile No.: (918) 491-4584

With a copy (which will not constitute notice) to:

Frederic Dorwart
One City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103-5010
Facsimile No.: (918) 583-8251

To the Shareholders:

At the address set forth beneath the name of such Shareholder on Schedule 1

11. Interpretation. When a reference is made in this Agreement to a Section, such reference will be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." The phrase "the date hereof" in this Agreement means the date of this Agreement.

12. Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

13. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

14. Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of Texas without regard to its rules of conflict of laws.

15. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns, and any Person succeeding to the ownership of (or power to vote) the Equity Securities.

16. 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

17. Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

18. Binding Effect. This Agreement will survive the death or incapacity of any of the Shareholders and will inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives and successors.

19. Term. The term of this Agreement will begin on the date hereof and end on the termination of the Merger Agreement. If the Merger is consummated, the provisions of this Agreement will survive the Effective Time, except as provided in Section 20.

20. Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Sections 2 and 3, the parties have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the transactions contemplated herein. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement, and (b) the Effective Time.

Remainder of this page intentionally left blank.

IN WITNESS WHEREOF, Shareholder and Parent have entered into this Agreement as of the date first written above.

Petrocorp Incorporated

      /s/ Gary R. Christopher
By: _________________________________
          Gary R. Christopher
Name: _______________________________
     President and Chief Executive
                Officer
Title: ______________________________

DHW Energy, Inc.

      /s/ Donald H. Weise, Jr.
By: _________________________________
         Donald H. Weise, Jr.
Name: _______________________________
               President
Title: ______________________________

      /s/ Donald H. Weise, Jr.
By: _________________________________
         Donald H. Weise, Jr.
Name: _______________________________

 Name and Address of                                            Number of
    Shareholder                                                  Shares
 -------------------                                            ---------
DHW Energy, Inc................................................  73,897
  1111 Fannin, Suite 680
  Houston, Texas 77002
Donald H. Wiese, Jr. ..........................................  28,444
  1111 Fannin, Suite 680
  Houston, Texas 77002

ANNEX E

SHAREHOLDER AGREEMENT

SHAREHOLDER AGREEMENT (this "Agreement") dated as of December 22, 2000, among PetroCorp Incorporated, a Texas corporation ("Parent"); and Thomas R. Fuller; and Michmatt, Inc. (collectively, the "Shareholders" and individually, a "Shareholder").

RECITALS:

WHEREAS, Southern Mineral Corporation, a Nevada corporation ("Company"), Parent and PetroCorp Acquisition Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger Agreement"; capitalized terms used but not defined herein will have the meanings ascribed thereto in the Merger Agreement) on the date of this Agreement pursuant to which Parent proposes to acquire the entire equity interest in Company pursuant to the merger (the "Merger") of Company with and into Merger Sub, on the terms and conditions set forth in the Merger Agreement;

WHEREAS, Shareholders own the number of shares of Company Common Stock (the "Shares"), options to purchase shares of Company Common Stock (the "Options") and/or warrants to purchase shares of Company Common Stock (the "Warrants" and, collectively with the Shares and the Options, the "Equity Securities") listed opposite their names on Schedule 1;

WHEREAS, the Board of Directors of Company has, prior to the execution of this Agreement, approved and adopted the Merger Agreement;

WHEREAS, approval of the Merger Agreement by Company's shareholders is a condition to the consummation of the Merger; and

WHEREAS, as a condition to its entering into the Merger Agreement, Parent has required that each of the Shareholders agree, and each of the Shareholders have so agreed, to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Covenants of Shareholders and Parent.

(a) During the term of this Agreement, except in accordance with the express provisions of this Agreement, each Shareholder agrees that it will not sell, transfer, assign or otherwise dispose of, or enter into any contract, option or other agreement with respect to the sale, transfer, assignment or other disposition of, any Equity Securities.

(b) During the term of this Agreement, Parent agrees to fully and timely perform, in all material respects, its obligations under the Merger Agreement.

2. Representations and Warranties of Shareholders. Each Shareholder represents and warrants to Parent as follows:

(a) (i) Such Shareholder is the record or beneficial owner of the Equity Securities listed opposite its name on Schedule 1, (ii) such securities are the only Equity Securities owned of record or beneficially by such Shareholder free and clear of all liens and defects, and (iii) such Shareholder does not have any option or other right to acquire any other Equity Securities;

(b) (i) Such Shareholder has the right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) the execution, delivery and performance of this Agreement by such Shareholder does not require the consent of any other Person and does not constitute a violation of,

conflict with or result in a material default under (1) any contract or agreement to which such Shareholder is a party or by which such Shareholder is bound, (2) any judgment, decree or order applicable to such Shareholder, or (3) to such Shareholder's actual knowledge, any law, rule or regulation of any governmental body applicable to such Shareholder, in the case of clauses (1) through (3), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect such Shareholder's ability to perform its obligations under this Agreement; and
(iii) this Agreement constitutes a valid and binding agreement on the part of such Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity;

(c) Such Shareholder is an accredited investor (as defined in Rule 501(a) under the Securities Act), and has had an opportunity to review all such documents and obtain all such information as such Shareholder deems necessary in connection with the approval and execution of this Agreement.

3. Representations and Warranties of Parent. Parent hereby represents and warrants to Shareholder that:

(a) Parent is a corporation validly existing and in good standing under the laws of the State of Texas;

(b) Parent has all requisite right, power and authority to execute and deliver this Agreement and perform all its obligations hereunder;

(c) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on Parent's part and do not constitute a violation of, conflict with or result in a material default under (i) any contract or agreement to which Parent is a party or by which Parent is bound, (ii) any judgment, decree or order applicable to Parent or
(iii) to Parent's actual knowledge, any law, rule or regulation of any governmental body applicable to Parent, including, without limitation, any securities laws exemptions, in the case of clauses (i) through (iii), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Parent's ability to perform its obligations under this Agreement;

(d) this Agreement has been duly executed and delivered by Parent; and

(e) this Agreement constitutes a valid and binding agreement on Parent's part, enforceable against Parent in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity.

4. Voting of Equity Securities. Each Shareholder hereby agrees that, during the term of this Agreement, at any meeting of the shareholders of Company, however called, and in any action by written consent of the shareholders of Company, it will (a) attend any such meeting, in person or by proxy, (b) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder in favor of the Merger; (c) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or agreement which would result in a breach in any material respect of any material covenant, representation or warranty or any other obligation of Company under the Merger Agreement; and (d) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder against any action or agreement the primary or a substantial purpose of which would be to materially impede, interfere with or attempt to discourage the Merger, including, but not limited to: (i) any change in the management or board of directors of Company, except to fill vacancies occurring after the date of this Agreement or as otherwise agreed to in writing by Parent; (ii) except as expressly contemplated by the Transaction Documents, any material change in the present capitalization or dividend policy of Company; or (iii) except as expressly contemplated by the Transaction Documents, any other material change in Company's corporate structure or business.

5. Registration Rights. Parent will use reasonable efforts to prepare and file a shelf registration statement (the "Registration Statement") pursuant to Rule 415 under the Securities Act to permit the sale or other disposition of any or all shares of Parent Common Stock received by each Shareholder in the Merger, in

accordance with the intended method of sale or other disposition elected by such Shareholder, and Parent will use its best efforts to qualify such shares of Parent Common Stock under any applicable state securities laws. Parent will use all reasonable efforts (i) to cause the Registration Statement to become effective on or before the Effective Time, (ii) to obtain all consents or waivers of other parties which are required therefor, and (iii) to keep the Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by such Shareholder for a period ending two years from the Effective Time, or for such shorter period that will terminate when all shares of Parent Common Stock covered by the Registration Statement have been sold pursuant to the Registration Statement or otherwise cease to be outstanding. The offer and sale under the Registration Statement or the obligation of Parent to file the Registration Statement and to maintain its effectiveness may be suspended for one or more periods of time not exceeding 90 calendar days in the aggregate with respect to such Registration Statement if the Board of Directors of Parent will have determined in good faith that the offering and sales under the Registration Statement, the filing of such Registration Statement or the maintenance of its effectiveness would require disclosure of or would interfere in any material respect with any material financing, acquisition, merger or other transaction involving Parent or any of its Subsidiaries or would otherwise require disclosure of nonpublic information that would materially and adversely affect Parent. The Registration Statement prepared and filed under this Section, and any sale covered thereby, will be at Parent's expense except for underwriting discounts or commissions, brokers' fees and the fees and disbursements of each Shareholder's counsel related thereto. Each Shareholder will provide all information reasonably requested by Parent for inclusion in the Registration Statement to be filed hereunder. In connection with the registration pursuant to this Section, each Shareholder and Parent will provide each other and any underwriter of the offering with customary representations, warranties, covenants, and rights to indemnification and contribution.

6. Stock Elections. Each Shareholder agrees that unless it has effectively made a Stock Election pursuant to Section 1.6 of the Merger Agreement prior to the filing with the Commission by Company and Parent of the Joint Proxy Statement/Prospectus, it will be deemed to have failed to make, and will not be eligible to make, a Stock Election with respect to the Shares or shares of Company Common Stock issuable upon the exercise of the Options and Warrants under the Merger Agreement.

7. Additional Agreements. If a Shareholder makes a Stock Election and, as a result of the application of Section 1.5(e) of the Merger Agreement, a portion of such Shareholder's Stock Election Shares (the "Converted Stock Election Shares") are converted into the right to receive the Cash Consideration in the Merger, then immediately after the Effective Time, such Shareholder agrees to buy, and Parent agrees to issue and deliver to such Shareholder, the number for shares of PetroCorp Common Stock which is equal to (a) the Cash Consideration which is payable pursuant to the Merger with respect to the Converted Stock Election Shares, divided by (b) the Per Share Merger Consideration.

8. Further Assurances. Each party hereto will perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement.

9. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by either party by injunctive or other equitable relief.

10. Notices. All notices or other communications required or permitted hereunder will be in writing (except as otherwise provided herein) and will be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows:

To Parent:

PetroCorp Incorporated
6733 South Yale Avenue
Tulsa, OK 74136
Facsimile No.: (918) 491-4584

With a copy (which will not constitute notice) to:

Frederic Dorwart
One City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103-5010
Facsimile No.: (918) 583-8251

To the Shareholders:

At the address set forth beneath the name of such Shareholder on Schedule 1

11. Interpretation. When a reference is made in this Agreement to a Section, such reference will be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." The phrase "the date hereof" in this Agreement means the date of this Agreement.

12. Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

13. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

14. Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of Texas without regard to its rules of conflict of laws.

15. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns, and any Person succeeding to the ownership of (or power to vote) the Equity Securities.

16. 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

17. Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

18. Binding Effect. This Agreement will survive the death or incapacity of any of the Shareholders and will inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives and successors.

19. Term. The term of this Agreement will begin on the date hereof and end on the termination of the Merger Agreement. If the Merger is consummated, the provisions of this Agreement will survive the Effective Time, except as provided in Section 20.

20. Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Sections 2 and 3, the parties have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the transactions contemplated herein. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement, and (b) the Effective Time.

Remainder of this page intentionally left blank.

IN WITNESS WHEREOF, Shareholder and Parent have entered into this Agreement as of the date first written above.

PETROCORP INCORPORATED

By: /s/ Gary R. Christopher
  -----------------------------------
Name: Gary R. Christopher
Title: President and Chief Executive
 Officer

MICHMATT, INC.

By: /s/ Thomas R. Fuller
  -----------------------------------
Name: Thomas R. Fuller
Title: President

By: /s/ Thomas R. Fuller
  -----------------------------------
Name: Thomas R. Fuller

                                                                       Number of
Name and Address of Shareholder                                         Shares
-------------------------------                                        ---------
Michmatt, Inc.........................................................  75,397
1111 Fannin, Suite 680
Houston, Texas 77002
Thomas R. Fuller......................................................  29,464
1111 Fannin, Suite 680
Houston, Texas 77002

ANNEX F

SHAREHOLDER AGREEMENT

SHAREHOLDER AGREEMENT (this "Agreement") dated as of December 22, 2000, among PetroCorp Incorporated, a Texas corporation ("Parent"); and CoMac Partners, L.P., a Delaware limited partnership; CoMac Endowment Fund, L.P., a Delaware limited partnership; CoMac International N.V., a Netherlands Antilles corporation; CoMac Opportunities Fund, L.P., a Delaware limited partnership; and Carol Ann Coughlin (collectively, the "Shareholders" and individually, a "Shareholder").

RECITALS:

WHEREAS, Southern Mineral Corporation, a Nevada corporation ("Company"), Parent and PetroCorp Acquisition Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger Agreement"; capitalized terms used but not defined herein will have the meanings ascribed thereto in the Merger Agreement) on the date of this Agreement pursuant to which Parent proposes to acquire the entire equity interest in Company pursuant to the merger (the "Merger") of Company with and into Merger Sub, on the terms and conditions set forth in the Merger Agreement;

WHEREAS, Shareholders own the number of shares of Company Common Stock (the "Shares"), options to purchase shares of Company Common Stock (the "Options") and/or warrants to purchase shares of Company Common Stock (the "Warrants" and, collectively with the Shares and the Options, the "Equity Securities") listed opposite their names on Schedule 1;

WHEREAS, the Board of Directors of Company has, prior to the execution of this Agreement, approved and adopted the Merger Agreement;

WHEREAS, approval of the Merger Agreement by Company's shareholders is a condition to the consummation of the Merger; and

WHEREAS, as a condition to its entering into the Merger Agreement, Parent has required that each of the Shareholders agree, and each of the Shareholders have so agreed, to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Covenants of Shareholders and Parent.

(a) During the term of this Agreement, except in accordance with the express provisions of this Agreement, each Shareholder agrees that it will not sell, transfer, assign or otherwise dispose of, or enter into any contract, option or other agreement with respect to the sale, transfer, assignment or other disposition of, any Equity Securities.

(b) During the term of this Agreement, Parent agrees to fully and timely perform, in all material respects, its obligations under the Merger Agreement.

2. Representations and Warranties of Shareholders. Each Shareholder represents and warrants to Parent as follows:

(a) (i) Such Shareholder is the record or beneficial owner of the Equity Securities listed opposite its name on Schedule 1, (ii) such securities are the only Equity Securities owned of record or beneficially by such Shareholder free and clear of all liens and defects, and (iii) such Shareholder does not have any option or other right to acquire any other Equity Securities;

(b) (i) Such Shareholder has the right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) the execution, delivery and performance of this Agreement by such Shareholder does not require the consent of any other Person and does not constitute a violation of, conflict with or result in a material default under (1) any contract or agreement to which such Shareholder is a party or by which such Shareholder is bound, (2) any judgment, decree or order applicable to such Shareholder, or (3) to such Shareholder's actual knowledge, any law, rule or regulation of any governmental body applicable to such Shareholder, in the case of clauses (1) through (3), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect such Shareholder's ability to perform its obligations under this Agreement; and (iii) this Agreement constitutes a valid and binding agreement on the part of such Shareholder, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity;

(c) Such Shareholder is an accredited investor (as defined in Rule 501(a) under the Securities Act), and has had an opportunity to review all such documents and obtain all such information as such Shareholder deems necessary in connection with the approval and execution of this Agreement.

3. Representations and Warranties of Parent. Parent hereby represents and warrants to Shareholder that:

(a) Parent is a corporation validly existing and in good standing under the laws of the State of Texas;

(b) Parent has all requisite right, power and authority to execute and deliver this Agreement and perform all its obligations hereunder;

(c) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on Parent's part and do not constitute a violation of, conflict with or result in a material default under (i) any contract or agreement to which Parent is a party or by which Parent is bound, (ii) any judgment, decree or order applicable to Parent or
(iii) to Parent's actual knowledge, any law, rule or regulation of any governmental body applicable to Parent, including, without limitation, any securities laws exemptions, in the case of clauses (i) through (iii), except for violations, conflicts or defaults which would not, or would not reasonably be expected to, materially affect Parent's ability to perform its obligations under this Agreement;

(d) this Agreement has been duly executed and delivered by Parent; and

(e) this Agreement constitutes a valid and binding agreement on Parent's part, enforceable against Parent in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity.

4. Voting of Equity Securities. Each Shareholder hereby agrees that, during the term of this Agreement, at any meeting of the shareholders of Company, however called, and in any action by written consent of the shareholders of Company, it will (a) attend any such meeting, in person or by proxy, (b) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder in favor of the Merger; (c) not vote any voting Equity Securities, whether now owned or hereafter acquired, in favor of any action or agreement which would result in a breach in any material respect of any material covenant, representation or warranty or any other obligation of Company under the Merger Agreement; and (d) vote all voting Equity Securities, whether now owned or hereafter acquired, of such Shareholder against any action or agreement the primary or a substantial purpose of which would be to materially impede, interfere with or attempt to discourage the Merger, including, but not limited to: (i) any change in the management or board of directors of Company, except to fill vacancies occurring after the date of this Agreement or as otherwise agreed to in writing by Parent; (ii) except as expressly contemplated by the Transaction Documents, any material change in the present capitalization or dividend policy of Company; or (iii) except as expressly contemplated by the Transaction Documents, any other material change in Company's corporate structure or business.

5. Registration Rights. Parent will use reasonable efforts to prepare and file a shelf registration statement (the "Registration Statement") pursuant to Rule 415 under the Securities Act to permit the sale or other disposition of any or all shares of Parent Common Stock received by each Shareholder in the Merger, in accordance with the intended method of sale or other disposition elected by such Shareholder, and Parent will use its best efforts to qualify such shares of Parent Common Stock under any applicable state securities laws. Parent will use all reasonable efforts (i) to cause the Registration Statement to become effective on or before the Effective Time, (ii) to obtain all consents or waivers of other parties which are required therefor, and (iii) to keep the Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by such Shareholder for a period ending two years from the Effective Time, or for such shorter period that will terminate when all shares of Parent Common Stock covered by the Registration Statement have been sold pursuant to the Registration Statement or otherwise cease to be outstanding. The offer and sale under the Registration Statement or the obligation of Parent to file the Registration Statement and to maintain its effectiveness may be suspended for one or more periods of time not exceeding 90 calendar days in the aggregate with respect to such Registration Statement if the Board of Directors of Parent will have determined in good faith that the offering and sales under the Registration Statement, the filing of such Registration Statement or the maintenance of its effectiveness would require disclosure of or would interfere in any material respect with any material financing, acquisition, merger or other transaction involving Parent or any of its Subsidiaries or would otherwise require disclosure of nonpublic information that would materially and adversely affect Parent. The Registration Statement prepared and filed under this Section, and any sale covered thereby, will be at Parent's expense except for underwriting discounts or commissions, brokers' fees and the fees and disbursements of each Shareholder's counsel related thereto. Each Shareholder will provide all information reasonably requested by Parent for inclusion in the Registration Statement to be filed hereunder. In connection with the registration pursuant to this Section, each Shareholder and Parent will provide each other and any underwriter of the offering with customary representations, warranties, covenants, and rights to indemnification and contribution.

6. Stock Elections. Each Shareholder agrees that unless it has effectively made a Stock Election pursuant to Section 1.6 of the Merger Agreement prior to the filing with the Commission by Company and Parent of the Joint Proxy Statement/Prospectus, it will be deemed to have failed to make, and will not be eligible to make, a Stock Election with respect to the Shares or shares of Company Common Stock issuable upon the exercise of the Options and Warrants under the Merger Agreement.

7. Further Assurances. Each party hereto will perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement.

8. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by either party by injunctive or other equitable relief.

9. Notices. All notices or other communications required or permitted hereunder will be in writing (except as otherwise provided herein) and will be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows:

To Parent:

PetroCorp Incorporated
6733 South Yale Avenue
Tulsa, OK 74136
Facsimile No.: (918) 491-4584

With a copy (which will not constitute notice) to:

Frederic Dorwart
One City Hall
124 East Fourth Street
Tulsa, Oklahoma 74103-5010
Facsimile No.: (918) 583-8251

To the Shareholders:

At the address set forth beneath the name of such Shareholder on Schedule 1

10. Interpretation. When a reference is made in this Agreement to a Section, such reference will be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." The phrase "the date hereof" in this Agreement means the date of this Agreement.

11. Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same agreement, and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

12. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

13. Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of Texas without regard to its rules of conflict of laws.

14. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns, and any Person succeeding to the ownership of (or power to vote) the Equity Securities.

15. 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, conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

16. Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity.

17. Binding Effect. This Agreement will survive the death or incapacity of any of the Shareholders and will inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives and successors.

18. Term. The term of this Agreement will begin on the date hereof and end on the termination of the Merger Agreement. If the Merger is consummated, the provisions of this Agreement will survive the Effective Time, except as provided in Section 19.

19. Non-Survival of Representations and Warranties. Except to the extent expressly set forth in Sections 2 and 3, the parties have not made and expressly negate and waive any representations or warranties (express, implied, statutory or otherwise) with respect to this Agreement or the transactions contemplated herein. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement, and (b) the Effective Time.

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IN WITNESS WHEREOF, Shareholder and Parent have entered into this Agreement as of the date first written above.

PETROCORP INCORPORATED

By: /s/ Gary R. Christopher
  -----------------------------------
Name: Gary R. Christopher
Title: President and Chief Executive
 Officer

COMAC PARTNERS, L.P.

By: /s/ Paul Coughlin
  -----------------------------------
Name: Paul Coughlin
Title: General Partner

COMAC ENDOWMENT FUND, L.P.

By: /s/ Paul Coughlin
  -----------------------------------
Name: Paul Coughlin
Title: General Partner

COMAC INTERNATIONAL N.V.

By: /s/ Paul Coughlin
  -----------------------------------
Name: Paul Coughlin
Title: Director

COMAC OPPORTUNITIES FUND, L.P.

By: /s/ Paul Coughlin
  -----------------------------------
Name: Paul Coughlin
Title: General Partner

By: /s/ Carol Ann Coughlin
  -----------------------------------
Name: Carol Ann Coughlin

                                                                       Number of
Name and Address of Shareholder                                         Shares
-------------------------------                                        ---------
CoMac Partners, L.P...................................................  661,017
1 Greenwich Office Park, 3rd Floor,
Greenwich, CT 06831
CoMac Endowment.......................................................  885,043
1 Greenwich Office Park, 3rd Floor,
Greenwich, CT 06831
CoMac International...................................................  105,329
1 Greenwich Office Park, 3rd Floor,
Greenwich, CT 06831
CoMac Opportunities...................................................    1,844
1 Greenwich Office Park, 3rd Floor,
Greenwich, CT 06831
Carol Ann Coughlin....................................................   69,144
1 Greenwich Office Park, 3rd Floor,
Greenwich, CT 06831

ANNEX G

FORM OF AFFILIATE LETTER

December [ ], 2000

Ladies and Gentlemen:

The undersigned, a holder of shares of capital stock, par value $0.01 per share (the "Company Common Stock"), of Southern Mineral Corporation, a Nevada corporation ("Company"), has been advised that as of the date hereof, the undersigned may be deemed to be an "affiliate" of Company, as the term "affiliate" is defined for purposes of paragraph (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act").

The undersigned has been further advised that pursuant to the terms of the Agreement and Plan of Merger dated as of December 22, 2000 (the "Merger Agreement") among Company, PetroCorp Acquisition Company, a Delaware corporation ("Merger Sub"), and PetroCorp Incorporated, a Texas corporation ("Parent"), Company will be merged with and into Merger Sub (the "Merger") and that as a result of the Merger, the undersigned may receive shares of Parent Common Stock in exchange for shares of Company Common Stock owned by the undersigned. Capitalized terms used but not defined herein will have the meanings given them in the Merger Agreement.

1. The undersigned represents, warrants and covenants to Parent that in the event the undersigned receives any Parent Common Stock pursuant to the Merger (the "Parent Merger Shares"), the undersigned:

A. Shall not make any sale, transfer or other disposition of the Parent Merger Shares in violation of the Act or the Rules and Regulations.

B. Has read carefully this letter and discussed applicable limitations upon the ability of the undersigned to sell, transfer or otherwise dispose of Parent Merger Shares to the extent the undersigned believed necessary with counsel of the undersigned or counsel for Company.

C. Unless the undersigned has executed a Company Shareholder Agreement and the Commission objects to registration of the Parent Merger Shares, has been advised that the issuance of the Parent Merger Shares to the undersigned will be registered with the Commission under the Act on a Registration Statement on Form S-4. However, the undersigned has also been advised that, since at the time of the approval of the Merger by written consent of the stockholders of Parent, the undersigned may be deemed to have been an affiliate of Company and the distribution by the undersigned of the Parent Merger Shares has not been registered under the Act, the undersigned may be prohibited from selling, transferring or otherwise disposing of the Parent Merger Shares unless (i) such sale, transfer or other disposition has been registered under the Act, (ii) such sale, transfer or other disposition is made in conformity with the volume and other limitations of Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion of counsel reasonably acceptable to Parent, such sale, transfer or other disposition is otherwise exempt from registration under the Act.

D. Understands that, except as provided in paragraph 2 below, Parent is under no obligation to register the sale, transfer or other disposition of the Parent Merger Shares by the undersigned or on behalf of the undersigned under the Act or (except as forth in paragraph 2 below) to take any other action necessary in order to make compliance with an exemption from such registration available.

E. Also understands that, unless a registration statement permitting the sale or other disposition of any or all of the Parent Merger Shares is effective, Parent may give stop transfer instructions to Parent's transfer agent with respect to the Parent Merger Shares and that Parent reserves the right to place on the certificates for the Parent Merger Shares, or any substitutions therefor, a legend stating in substance:

"The securities represented by this certificate have been issued in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies and may only be sold or otherwise transferred in compliance with the requirements of Rule 145 or pursuant to a registration statement under said Act or an exemption from such registration."

F. Also understands that unless the transfer by the undersigned of the Parent Merger Shares has been registered under the Act or is a sale made in conformity with the provisions of Rule 145, Parent reserves the right to put the following legend on the certificates issued to transferees of the undersigned:

"The securities represented by this certificate have not been registered under the Securities Act of 1933 and were acquired from a person who received such shares in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies. The securities have been acquired by the holder not with a view to, or for resale in connection with, any distribution thereof within the meaning of Securities Act of 1933 and may not be sold, pledged or otherwise transferred except in accordance with an exemption from the registration requirements of the Securities Act of 1933."

G. Execution of this letter should not be considered an admission on the part of the undersigned that the undersigned is an affiliate of Company as described in the first paragraph of this letter, nor as a waiver of any rights the undersigned may have to object to any claim that the undersigned is such an affiliate on or after the date of this letter.

2. By Parent's acceptance of this letter, Parent hereby agrees with the undersigned as follows:

A. For so long as and to the extent necessary to permit the undersigned to sell the Parent Merger Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under the Act, Parent shall (a) use its reasonable best efforts to (i) file, on a timely basis, all reports and data required to be filed with the Commission by it pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) furnish to the undersigned upon request a written statement as to whether Parent has complied with such reporting requirements during the 12 months preceding any proposed sale of the Parent Merger Shares by the undersigned under Rule 145, and (b) otherwise use its reasonable efforts to permit such sales pursuant to Rule 145 and Rule 144. Parent has filed all reports required to be filed with the Commission under Section 13 of the Exchange Act during the preceding 12 months.

B. It is understood and agreed that certificates with any legends set forth in paragraphs E and F above will be substituted by delivery of certificates without such legend if (i) one year shall have elapsed from the date the undersigned acquired the Parent Merger Shares and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two years shall have elapsed from the date the undersigned acquired the Parent Merger Shares and the provisions of Rule 145(d)(3) are then applicable to the undersigned, or (iii) Parent has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Parent, or a "no-action" letter obtained by the undersigned from the staff of the Commission, to the effect that the restrictions imposed by Rule 144 and Rule 145 under the Act no longer apply to the undersigned.

C. Parent will use reasonable efforts to prepare and file a shelf registration statement (the "Registration Statement") pursuant to Rule 415 under the Act to permit the sale or other disposition of any or all of the Parent Merger Shares in accordance with the intended method of sale or other disposition elected by the undersigned, and Parent will use its best efforts to qualify such shares of Parent Merger Shares under any applicable state securities laws. Parent will use all reasonable efforts (i) to cause the Registration Statement to become effective on or before the Effective Time, (ii) to obtain all consents or waivers of other parties which are required therefor, and (iii) to keep the Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by the undersigned for a period ending two years from the Effective Time, or for such shorter period that will terminate when all shares of Parent Merger Shares covered by the Registration Statement have been sold pursuant to the Registration Statement or otherwise cease to be outstanding. The offer and sale under the Registration Statement or the obligation of Parent to file the Registration Statement and to maintain its

effectiveness may be suspended for one or more periods of time not exceeding 90 calendar days in the aggregate with respect to such Registration Statement if the Board of Directors of Parent will have determined in good faith that the offering and sales under the Registration Statement, the filing of such Registration Statement or the maintenance of its effectiveness would require disclosure of or would interfere in any material respect with any material financing, acquisition, merger or other transaction involving Parent or any of its Subsidiaries or would otherwise require disclosure of nonpublic information that would materially and adversely affect Parent. The Registration Statement prepared and filed under this paragraph 2.C., and any sale covered thereby, will be at Parent's expense except for underwriting discounts or commissions, brokers' fees and the fees and disbursements of the undersigned's counsel related thereto. The undersigned will provide all information reasonably requested by Parent for inclusion in the Registration Statement to be filed hereunder. In connection with the registration pursuant to this paragraph
2.C., the undersigned and Parent will provide each other and any underwriter of the offering with customary representations, warranties, covenants, and rights to indemnification and contribution.

[Remainder of page intentionally left blank.]

Very truly yours,

ACCEPTED:
PETROCORP INCORPORATED

ANNEX H

December 22, 2000

The Board of Directors
Southern Mineral Corporation
1201 Louisiana, Ste. 3350
Houston, TX 77002

Members of the Board:

Southern Mineral Corporation, a Nevada corporation ("Southern Mineral"), proposes to enter into an agreement and plan of merger (the "Merger Agreement") with PetroCorp Incorporated, a Texas corporation ("PetroCorp"), and Petrocorp Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of PetroCorp ("PetroCorp Sub"), which provides for, among other things, the merger of Southern Mineral with and into PetroCorp Sub (the "Merger"). Upon consummation of the Merger, each outstanding share of common stock, par value $.01 per share, of Southern Mineral (the "Southern Mineral Common Stock") (other than Southern Mineral Common Stock held by Southern Mineral as treasury stock or owned by PetroCorp or any subsidiary of Petrocorp or as to which dissenters' rights have been perfected) will be converted into the right to receive (i) $4.71 per share in cash subject to adjustment as described in the Merger Agreement or (ii) at the election of each holder of Southern Mineral Common Stock in accordance with the Merger Agreement, a number of shares of common stock, par value $.01 per share, of PetroCorp (the "PetroCorp Common Stock") equal to the Exchange Ratio (as defined in the Merger Agreement) (subject to limitation on such election set forth in the Merger Agreement if holders of Southern Mineral Common Stock elect to receive more than an aggregate of 4,000,000 shares of PetroCorp Common Stock) (the "Transaction Consideration").

You have requested our opinion as to whether the Transaction Consideration is fair from a financial point of view to the holders of Southern Mineral Common Stock.

In arriving at our opinion, we have, among other things:

1. reviewed certain publicly available business and financial information relating to PetroCorp and Southern Mineral, including
(a) Annual Reports on Form 10-K and related audited financial statements for the fiscal years ended December 31, 1998 and December 31, 1999, and (b) the Quarterly Reports on Form 10-Q and related unaudited financial statements for the fiscal quarters ended March 31, 2000, June 30, 2000 and September 30, 2000;

2. reviewed certain estimates of Southern Mineral's reserves, including
(a) estimates of proved oil and gas reserves prepared by Netherland, Sewell & Associates, Inc. (as to United States and Ecuador reserves only) as of July 1, 2000 and (b) estimates of proved oil and gas reserves prepared by Chapman Petroleum Engineering Ltd. (as to Canadian reserves only) as of July 1, 2000;

3. reviewed certain estimates of PetroCorp's reserves, including (a) estimates of proved and probable oil and gas reserves prepared by Huddleston & Co., Inc. as of January 1, 2000, and (b) updated unaudited estimates of proved and probable oil and gas reserves prepared by the management and staff of PetroCorp as of October 1, 2000;

4. analyzed certain historical and projected financial and operating data (i) of PetroCorp prepared by the management and staff of PetroCorp and (ii) of Southern Mineral prepared in conjunction with, and approved by, the management and staff of Southern Mineral;

5. discussed the current and projected operations and prospects of PetroCorp and Southern Mineral with the management and staff of PetroCorp and Southern Mineral, respectively;

6. reviewed the trading history of PetroCorp Common Stock and Southern Mineral Common Stock;

7. compared recent stock market capitalization indicators for PetroCorp and Southern Mineral with recent stock market capitalization indicators for certain other publicly-traded independent energy companies;

8. compared the financial terms of the Merger with the financial terms of certain other transactions that we deemed to be relevant;

9. participated in certain discussions and negotiations among the representatives of Southern Mineral, PetroCorp and their financial and legal advisors;

10. reviewed a draft dated December 21, 2000 of the Merger Agreement; and

11. reviewed such other financial studies and analyses and performed such other investigations and took into account such other matters as we have deemed necessary or appropriate.

In preparing our opinion, we have assumed and relied upon, without assuming any responsibility for, or independently verifying, the accuracy and completeness of any information supplied or otherwise made available to us by Southern Mineral and PetroCorp. We have further relied upon the assurances of the management of Southern Mineral and PetroCorp that they are unaware of any facts that would make the information provided to us incomplete or misleading in any material respect. With respect to projected financial and operating data, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements and staff of Southern Mineral and PetroCorp, respectively, relating to the future financial and operational performance of each company. With respect to the estimates of oil and gas reserves, we have assumed that they have been reasonably prepared on bases reflecting the best available estimates and judgments of the managements and staff of Southern Mineral or PetroCorp or their respective engineering consultants relating to the oil and gas properties of Southern Mineral and PetroCorp, respectively. We have not made an independent evaluation or appraisal of the assets or liabilities of Southern Mineral or PetroCorp nor, except for the estimates of oil and gas reserves referred to above, have we been furnished with such an evaluation or appraisal. In addition, we have not assumed any obligation to conduct, nor have we conducted, any physical inspection of the properties or facilities of Southern Mineral or PetroCorp. Consistent with the Merger Agreement, we have assumed that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. We have assumed, based on discussions with the management and staff of Southern Mineral, that no adjustment to the Transaction Consideration will be required under the Merger Agreement on the basis of the transaction costs incurred by Southern Mineral. We have also assumed that the final form of the Merger Agreement will be substantially similar to the last draft of the Merger Agreement reviewed by us.

Our opinion relates solely to the fairness, from a financial point of view, of the Transaction Consideration to the holders of Southern Mineral Common Stock. This opinion is for the use and benefit of the Board of Directors of Southern Mineral and does not constitute a recommendation to any holder of Southern Mineral Common Stock as to how such stockholder should vote on the Merger. We have not been asked to consider, and this opinion does not address, the after-tax consequences of the Merger to any particular stockholder of Southern Mineral or the price at which PetroCorp Common Stock will actually trade following the announcement or consummation of the Merger. As you are aware, we have acted as financial advisor to Southern Mineral and we will receive a fee from Southern Mineral for such services, a substantial portion of which is contingent upon the consummation of the Merger. In addition, Southern Mineral has agreed to indemnify us for certain liabilities arising out of our engagement. We have, in the past, provided financial advisory services to Southern Mineral and have received customary fees for such services. In addition, in the ordinary course of business, we or our affiliates may trade in the debt or equity securities of Southern Mineral or PetroCorp for the accounts of our customers or for our own account and, accordingly, may at any time hold a long or short position in such securities.

Our opinion is rendered on the basis of conditions in the securities markets and the oil and gas markets prevailing as of the date hereof and the condition and prospects, financial and otherwise, of PetroCorp and Southern Mineral as they have been represented to us as of the date hereof or as they were reflected in the materials and discussions described above.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Transaction Consideration is fair from a financial point of view to the holders of Southern Mineral Common Stock.

Very truly yours,

/s/ Randall E. King
_____________________________________
PETRIE PARKMAN & CO., INC.

ANNEX I

NEVADA REVISED STATUTES
TITLE 7. BUSINESS ASSOCIATIONS; SECURITIES; COMMODITIES
CHAPTER 92A. MERGERS AND EXCHANGES OF INTEREST
RIGHTS OF DISSENTING OWNERS

NRS 92A.300 Definitions.

As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those sections.

NRS 92A.305 "Beneficial stockholder" defined.

"Beneficial stockholder" means a person who is a beneficial owner of shares held in a voting trust or by a nominee as the stockholder of record.

NRS 92A.310 "Corporate action" defined.

"Corporate action" means the action of a domestic corporation.

NRS 92A.315 "Dissenter" defined.

"Dissenter" means a stockholder who is entitled to dissent from a domestic corporation's action under NRS 92A.380 and who exercises that right when and in the manner required by NRS 92A.400 to 92A.480, inclusive.

NRS 92A.320 "Fair value" defined.

"Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which he objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.

NRS 92A.325 "Stockholder" defined.

"Stockholder" means a stockholder of record or a beneficial stockholder of a domestic corporation.

NRS 92A.330 "Stockholder of record" defined.

"Stockholder of record" means the person in whose name shares are registered in the records of a domestic corporation or the beneficial owner of shares to the extent of the rights granted by a nominee's certificate on file with the domestic corporation.

NRS 92A.335 "Subject corporation" defined.

"Subject corporation" means the domestic corporation which is the issuer of the shares held by a dissenter before the corporate action creating the dissenter's rights becomes effective or the surviving or acquiring entity of that issuer after the corporate action becomes effective.

NRS 92A.340 Computation of interest.

Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed from the effective date of the action until the date of payment, at the average rate currently paid by the entity on its principal bank loans or, if it has no bank loans, at a rate that is fair and equitable under all of the circumstances.

NRS 92A.380 Right of stockholder to dissent from certain corporate actions and to obtain payment for shares.

1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of any of the following corporate actions:

(a) Consummation of a plan of merger to which the domestic corporation is a party:

(1) If approval by the stockholders is required for the merger by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and he is entitled to vote on the merger; or

(2) If the domestic corporation is a subsidiary and is merged with its parent under NRS 92A.180.

(b) Consummation of a plan of exchange to which the domestic corporation is a party as the corporation whose subject owner's interests will be acquired, if he is entitled to vote on the plan.

(c) Any corporate action taken pursuant to a vote of the stockholders to the event that the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares.

2. A stockholder who is entitled to dissent and obtain payment under NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to him or the domestic corporation.

NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or series; action of stockholders not required for plan of merger.

1. There is no right of dissent with respect to a plan of merger or exchange in favor of stockholders of any class or series which, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting at which the plan of merger or exchange is to be acted on, were either listed on a national securities exchange, included in the national market system by the National Association of Securities Dealers, Inc., or held by at least 2,000 stockholders of record, unless:

(a) The articles of incorporation of the corporation issuing the shares provide otherwise; or

(b) The holders of the class or series are required under the plan of merger or exchange to accept for the shares anything except:

(1) Cash, owner's interests or owner's interests and cash in lieu of fractional owner's interests of:

(I) The surviving or acquiring entity; or

(II) Any other entity which, at the effective date of the plan of merger or exchange, were either listed on a national securities exchange, included in the national market system by the National Association of Securities Dealers, Inc., or held of record by a least 2,000 holders of owner's interests of record; or

(2) A combination of cash and owner's interests of the kind described in sub- subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).

2. There is no right of dissent for any holders of stock of the surviving domestic corporation if the plan of merger does not require action of the stockholders of the surviving domestic corporation under NRS 92A.130.

NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to shares registered to stockholder; assertion by beneficial stockholder.

1. A stockholder of record may assert dissenter's rights as to fewer than all of the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the subject corporation in writing of the name and address of each person on whose behalf he asserts dissenter's rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different stockholders.

2. A beneficial stockholder may assert dissenter's rights as to shares held on his behalf only if:

(a) He submits to the subject corporation the written consent of the stockholder of record to the dissent not later than the time the beneficial stockholder asserts dissenter's rights; and

(b) He does so with respect to all shares of which he is the beneficial stockholder or over which he has power to direct the vote.

NRS 92A.410 Notification of stockholders regarding right of dissent.

1. If a proposed corporate action creating dissenters' rights is submitted to a vote at a stockholders' meeting, the notice of the meeting must state that stockholders are or may be entitled to assert dissenters' rights under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.

2. If the corporate action creating dissenters' rights is taken by written consent of the stockholders or without a vote of the stockholders, the domestic corporation shall notify in writing all stockholders entitled to assert dissenters' rights that the action was taken and send them the dissenter's notice described in NRS 92A.430.

NRS 92A.420 Prerequisites to demand for payment for shares.

1. If a proposed corporate action creating dissenters' rights is submitted to a vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's rights:

(a) Must deliver to the subject corporation, before the vote is taken, written notice of his intent to demand payment for his shares if the proposed action is effectuated; and

(b) Must not vote his shares in favor of the proposed action.

2. A stockholder who does not satisfy the requirements of subsection 1 and NRS 92A.400 is not entitled to payment for his shares under this chapter.

NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert rights; contents.

1. If a proposed corporate action creating dissenters' rights is authorized at a stockholders' meeting, the subject corporation shall deliver a written dissenter's notice to all stockholders who satisfied the requirements to assert those rights.

2. The dissenter's notice must be sent no later than 10 days after the effectuation of the corporate action, and must:

(a) State where the demand for payment must be sent and where and when certificates, if any, for shares must be deposited;

(b) Inform the holders of shares not represented by certificates to what extent the transfer of the shares will be restricted after the demand for payment is received;

(c) Supply a form for demanding payment that includes the date of the first announcement to the news media or to the stockholders of the terms of the proposed action and requires that the person asserting dissenter's rights certify whether or not he acquired beneficial ownership of the shares before that date;

(d) Set a date by which the subject corporation must receive the demand for payment, which may not be less than 30 nor more than 60 days after the date the notice is delivered; and

(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.

NRS 92A.440 Demand for payment and deposit of certificates; retention of rights of stockholder.

1. A stockholder to whom a dissenter's notice is sent must:

(a) Demand payment;

(b) Certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice for this certification; and

(c) Deposit his certificates, if any, in accordance with the terms of the notice.

2. The stockholder who demands payment and deposits his certificates, if any, before the proposed corporate action is taken retains all other rights of a stockholder until those rights are canceled or modified by the taking of the proposed corporate action.

3. The stockholder who does not demand payment or deposit his certificates where required, each by the date set forth in the dissenter's notice, is not entitled to payment for his shares under this chapter.

NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand for payment; retention of rights of stockholder.

1. The subject corporation may restrict the transfer of shares not represented by a certificate from the date the demand for their payment is received.

2. The person for whom dissenter's rights are asserted as to shares not represented by a certificate retains all other rights of a stockholder until those rights are canceled or modified by the taking of the proposed corporate action.

NRS 92A.460 Payment for shares: General requirements.

1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for payment, the subject corporation shall pay each dissenter who complied with NRS 92A.440 the amount the subject corporation estimates to be the fair value of his shares, plus accrued interest. The obligation of the subject corporation under this subsection may be enforced by the district court:

(a) Of the county where the corporation's registered office is located; or

(b) At the election of any dissenter residing or having its registered office in this state, of the county where the dissenter resides or has its registered office. The court shall dispose of the complaint promptly.

2. The payment must be accompanied by:

(a) The subject corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, a statement of income for that year, a statement of changes in the stockholders' equity for that year and the latest available interim financial statements, if any;

(b) A statement of the subject corporation's estimate of the fair value of the shares;

(c) An explanation of how the interest was calculated;

(d) A statement of the dissenter's rights to demand payment under NRS 92A.480; and

(e) A copy of NRS 92A.300 to 92A.500, inclusive.

NRS 92A.470 Payment for shares: Shares acquired on or after date of dissenter's notice.

1. A subject corporation may elect to withhold payment from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenter's notice as the date of the first announcement to the news media or to the stockholders of the terms of the proposed action.

2. To the extent the subject corporation elects to withhold payment, after taking the proposed action, it shall estimate the fair value of the shares, plus accrued interest, and shall offer to pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The subject corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenters' right to demand payment pursuant to NRS 92A.480.

NRS 92A.480 Dissenter's estimate of fair value: Notification of subject corporation; demand for payment of estimate.

1. A dissenter may notify the subject corporation in writing of his own estimate of the fair value of his shares and the amount of interest due, and demand payment of his estimate, less any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of his shares and interest due, if he believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his shares or that the interest due is incorrectly calculated.

2. A dissenter waives his right to demand payment pursuant to this section unless he notifies the subject corporation of his demand in writing within 30 days after the subject corporation made or offered payment for his shares.

NRS 92A.490 Legal proceeding to determine fair value: Duties of subject corporation; powers of court; rights of dissenter.

1. If a demand for payment remains unsettled, the subject corporation shall commence a proceeding within 60 days after receiving the demand and petition the court to determine the fair value of the shares and accrued interest. If the subject corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.

2. A subject corporation shall commence the proceeding in the district court of the county where its registered office is located. If the subject corporation is a foreign entity without a resident agent in the state, it shall commence the proceeding in the county where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign entity was located.

3. The subject corporation shall make all dissenters, whether or not residents of Nevada, whose demands remain unsettled, parties to the proceeding as in an action against their shares. All parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.

4. The jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair

5. Each dissenter who is made a party to the proceeding is entitled to a judgment:

(a) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the subject corporation; or

(b) For the fair value, plus accrued interest, of his after-acquired shares for which the subject corporation elected to withhold payment pursuant to NRS 92A.470.

NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs and fees.

1. The court in a proceeding to determine fair value shall determine all of the costs of the proceeding, including the reasonable compensation and expenses of any appraisers appointed by the court. The court shall assess the costs against the subject corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment.

2. The court may also assess the fees and expenses of the counsel and experts for the respective parties, in amounts the court finds equitable:

(a) Against the subject corporation and in favor of all dissenters if the court finds the subject corporation did not substantially comply with the requirements of NRS 92A.300 to 92A.500, inclusive; or

(b) Against either the subject corporation or a dissenter in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.

3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the subject corporation, the court may award to those counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.

4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the costs against the subject corporation, except that the court may assess costs against all or some of the dissenters who are parties to the proceeding, in amounts the court finds equitable, to the extent the court finds that such parties did not act in good faith in instituting the proceeding.

5. This section does not preclude any party in a proceeding commenced pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS 17.115.

ANNEX J

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999 or

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-22650

             Texas                                  76-0380430
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
  incorporation organization)

    6733 South Yale Avenue                             74136
        Tulsa, Oklahoma                             (Zip Code)
(Address of principal executive
           offices)

Registrant's telephone number, including area code: (918) 491-4500

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)(S) 229.045 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 20, 2000 was $15,218,625. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 2000:

Common Stock, par value $.01 per share: 8,683,019

Item  Title                                                              Page
----  -----                                                              ----


                                    PART I

  1   Business.........................................................   J-3
  2   Properties.......................................................   J-9
  3   Legal Proceedings................................................  J-17
  4   Submission of Matters to a Vote of Security Holders..............  J-18

                                   PART II

  5   Market for Registrant's Common Equity and Related Stockholder
      Matters..........................................................  J-18
  6   Selected Financial Data..........................................  J-19
  7   Management's Discussion and Analysis of Financial Condition and
      Results of Operations............................................  J-20
 7A   Quantitative and Qualitative Disclosure about Market Risk........  J-25
  8   Financial Statements and Supplementary Data......................  J-25
  9   Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure.............................................  J-25

                                   PART III

10-13 (Items 10-13 incorporated by reference to Proxy Statement).......  J-25

                                   PART IV

 14   Exhibits, Financial Statement Schedules, and Reports on Form
      8-K..............................................................  J-26

                                                        Year Ended December 31,
                                                        -----------------------
                                                         1999    1998    1997
                                                        ------- ------- -------
Net oil produced (MBbls):
  United States........................................     324     422     580
  Canada...............................................     138     143     142
                                                        ------- ------- -------
    Total..............................................     462     565     722
Average oil sales price (per Bbl):
  United States........................................ $ 17.33 $ 12.55 $ 19.57
  Canada...............................................   16.48   11.59   17.19
  Weighted average.....................................   17.08   12.31   19.10
Net gas produced (MMcf):
  United States........................................   4,421   4,932   4,853
  Canada...............................................   4,660   4,579   4,787
                                                        ------- ------- -------
    Total..............................................   9,081   9,511   9,640
Average gas sales price (per Mcf):
  United States........................................ $  2.24 $  2.15 $  2.62
  Canada...............................................    1.58    1.32    1.46
  Weighted average.....................................    1.90    1.75    2.04
Gas equivalents produced (MMcfe):
  United States........................................   6,365   7,464   8,333
  Canada...............................................   5,488   5,437   5,639
                                                        ------- ------- -------
    Total..............................................  11,853  12,901  13,972
Average sales price (per Mcfe):
  United States........................................ $  2.44 $  2.13 $  2.89
  Canada...............................................    1.76    1.42    1.67
  Weighted average.....................................    2.13    1.83    2.39
Production costs (per Mcfe):
  United States........................................ $  0.72 $  0.69 $  0.73
  Canada...............................................    0.40    0.40    0.30
  Weighted average.....................................    0.57    0.57    0.56

                                                 December 31, 1999
                                         ---------------------------------
                                            Estimated Proved
                                                Reserves
                                         ----------------------
                                           Oil    Gas
Property/Area                            (MBbls) (MMcf)  MMcfe    PV-10
-------------                            ------- ------ ------- ----------
                                                                   (in
                                                                thousands)
Hanlan-Robb.............................     83  48,077  48,575  $ 48,983
Oklahoma City Area......................  2,431   2,908  17,494    30,412
McLeod Field............................    443   4,038   6,696     8,404
South Louisiana Area....................     91   3,897   4,443     8,031
                                          -----  ------ -------  --------
  Subtotal..............................  3,048  58,920  77,208    95,830
                                          -----  ------ -------  --------
Others..................................  1,533  17,439  26,637    24,547
                                          -----  ------ -------  --------
  Total.................................  4,581  76,359 103,845  $120,377
                                          =====  ====== =======  ========

                                                       December 31, 1999
                                                   -------------------------
                                                   United
                                                   States   Canada   Total
                                                   ------- -------- --------
Proved reserves:
  Oil (MBbls).....................................   3,261    1,320    4,581
  Gas (MMcf)......................................  20,950   55,409   76,359
  Gas equivalents (MMcfe).........................  40,516   63,329  103,845
Future net revenues ($000s)(1).................... $91,353 $105,703 $197,056
Present value of future net revenues ($000s)(2)... $60,682 $ 59,695 $120,377
Proved developed reserves:
  Oil (MBbls).....................................   3,180    1,187    4,367
  Gas (MMcf)......................................  18,906   47,026   65,932
  Gas equivalents (MMcfe).........................  37,986   54,148   92,134
Future net revenues ($000s)(1).................... $86,050 $ 90,400 $176,450
Present value of future net revenues ($000s)(2)... $57,216 $ 51,134 $108,350

                                                     Developed     Undeveloped
                                                       Acres         Acres(1)
                                                   -------------- --------------
                                                    Gross   Net    Gross   Net
                                                   ------- ------ ------- ------
United States:
  Colorado........................................  10,186  7,958       0      0
  Kansas..........................................   5,360    667      10      1
  Louisiana.......................................   2,091    202     341     69
  Mississippi.....................................     640    405  10,238  6,770
  Oklahoma........................................  40,429 10,558  14,284  6,137
  Texas...........................................  24,963  3,304 102,308  7,310
  Other...........................................   2,287    446   5,109    480
Canada:
  Alberta.........................................  62,640 11,416  84,000 21,519
                                                   ------- ------ ------- ------
    Total......................................... 148,596 34,956 216,290 42,286
                                                   ======= ====== ======= ======

                                              Year Ended December 31,
                                    ---------------------------------------------
                                         1999            1998           1997
                                    --------------  -------------- --------------
                                            Net             Net            Net
                                          Working         Working        Working
           Type of Well             Gross Interest  Gross Interest Gross Interest
           ------------             ----- --------  ----- -------- ----- --------
United States:
 Development:
 Oil...............................    4     .2                       6     1.2
 Gas...............................    1     .0(1)     9    1.3       3      .6
 Nonproductive.....................    1     .2                       3      .8
                                     ---    ---      ---    ---     ---    ----
   Total...........................    6     .4        9    1.3      12     2.6
                                     ---    ---      ---    ---     ---    ----
 Exploratory:
 Oil...............................                                   2      .6
 Gas...............................                    2     .3       1      .5
 Nonproductive.....................    1     .2        8    2.6       6     2.2
                                     ---    ---      ---    ---     ---    ----
   Total...........................    1     .2       10    2.9       9     3.3
                                     ---    ---      ---    ---     ---    ----
Canada:
 Development:
 Oil...............................    1      1                       2      .5
 Gas...............................    2     .2        2     .1       5     1.4
 Nonproductive.....................    2     .0(1)
                                     ---    ---      ---    ---     ---    ----
   Total...........................    5    1.2        2     .1       7     1.9
                                     ---    ---      ---    ---     ---    ----
 Exploratory:
 Oil...............................                                   1     1.0
 Gas...............................    4     .2        2    1.1       8     2.2
 Nonproductive.....................    3     .1        2    1.2       4      .4
                                     ---    ---      ---    ---     ---    ----
   Total...........................    7     .3        4    2.3      13     3.6
                                     ---    ---      ---    ---     ---    ----
Total..............................   19    2.1       25    6.6      41    11.4
                                     ===    ===      ===    ===     ===    ====