MITCHELL ENERGY & DEVELOPMENT CORP, 10-K405, 1998-04-02

MITCHELL ENERGY & DEVELOPMENT CORP
10-K405, 1998-04-02
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

================================================================================

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 JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-6959

MITCHELL ENERGY & DEVELOPMENT CORP.
(Exact name of registrant as specified in its charter)

TEXAS 74-1032912
(State of Incorporation) (I.R.S. Employer Identification No.)

2001 TIMBERLOCH PLACE
THE WOODLANDS, TEXAS 77380
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number including area code: (713) 377-5500

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, $.10 Par Value New York and Pacific
Class B Common Stock, $.10 Par Value New York and Pacific

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 voting stock held by nonaffiliates of the
registrant at February 28, 1998 was approximately $213,923,000.

Shares of common stock outstanding at February 28, 1998:
Class A - 22,321,144
Class B - 26,745,982

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference into the indicated parts of this report:

Annual Report to Stockholders for the fiscal year ended
January 31, 1998 - Parts I and II.

Definitive Proxy Statement to be filed within 120 days after
January 31, 1998 - Part III.

================================================================================
<PAGE> 2

PART I

ITEM 1 - BUSINESS

Except for discussions of competition and insurance, information required
by this item is incorporated by reference from portions of Mitchell Energy &
Development Corp.'s Annual Report to Stockholders for the fiscal year ended
January 31, 1998 furnished to the Commission pursuant to Rule 14a-3(b) under the
Securities Exchange Act of 1934 (Annual Report to Stockholders).

<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ----
<S> <C>
Inside
The Company...................................... Front Cover
Exploration and Production....................... 4 - 17
Gas Services..................................... 18 - 30
Notes to Consolidated Financial Statements
Note 10: Segment Information.................. 55 - 57
</TABLE>

Competition

The Registrant is a holding company which conducts all of its operations
through its subsidiaries, collectively referred to as "the Company." The Company
is one of the country's largest independent producers of natural gas and natural
gas liquids.

Its operations include the exploration for and production of natural gas
and crude oil, production of natural gas liquids (NGLs) and the operation of gas
gathering systems. Within these businesses, the Company competes with many
companies that have substantially larger financial and other resources or whose
operations are more fully integrated than the Company's. The oil and gas
industry is highly competitive. There is competition within the industry and
also with other industries in supplying the fuel and energy needs of commerce,
industry and individuals.

The Company owns or has interests in natural gas processing plants located
in Texas and Oklahoma, and it ranked 16th in daily domestic NGL production in
calendar 1996. The Company has fractionating equipment at several of its
processing plants and also owns a 38.75% interest in a large fractionating plant
near Mont Belvieu on the upper Texas Gulf Coast. After being fractionated into
ethane, propane, butanes and natural gasoline, the NGLs are used by others in
the production of plastics, paints, solvents, synthetic rubber, gasoline and a
wide variety of other products. Propane also is widely used as a fuel in rural
areas for cooking, home heating and crop drying. The Company participates in the
petrochemical business through its one-third interest in a plant at Mont
Belvieu, Texas that produces methyl tertiary butyl ether (MTBE), an oxygenate
used in the production of environmentally cleaner gasoline. This plant has a
daily capacity of approximately 16,500 barrels.

The Company owns or operates natural gas gathering systems located in
Texas with an overall length of more than 9,500 miles. These systems operate in
highly competitive local markets and intersect with numerous pipeline systems
enabling the Company to buy, sell, transport and exchange gas with other
pipeline operators.

-1-

<PAGE> 3

The Company's operations have been and in the future may be affected in
varying degree by general economic conditions and by laws and regulations,
including restrictions on production, price controls, tax increases and
environmental regulations. The Company's energy price realizations are often
volatile and generally are affected both by domestic and world supply and demand
conditions.

Insurance

The Company's business is subject to all the operating risks normally
associated with exploration and production of natural gas and oil; extraction of
NGLs from natural gas streams and natural gas gathering and transportation. Such
risks include well blow-out, fire and explosion, pollution, flood and other
events which could result in the damage to or destruction of assets owned by the
Company or third parties and the injury of employees and other persons. The
Company, following practices customary within the industries in which it
operates, purchases insurance coverage against most, but not all, of these
operating risks as protection against financial loss and believes it is
adequately insured against public liability claims and physical damage losses.
Losses and liabilities, to the extent not covered by insurance, could reduce the
Company's cash flows and increase its costs.

-2-

<PAGE> 4

ITEM 2 - PROPERTIES

Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.

<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ----
<S> <C>
Exploration and Production..................... 4 - 17
Gas Services................................... 18 - 30
Operating Statistics........................... 35
Supplemental Oil and Gas Information........... 61 - 64
</TABLE>

OTHER OIL AND GAS RELATED DATA

The following information is required by Sections 3, 5 and 6 of the
Securities Act Industry Guide 2, Disclosure of Oil and Gas Operations.

AVERAGE PRODUCTION COST IN EQUIVALENT UNITS

<TABLE>
<CAPTION>
Year Ended January 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Combined natural gas, crude oil and condensate
production (thousand cubic feet per day)* 285,000 261,000 249,000
Average production cost per
equivalent thousand cubic feet ........... $ .68 $ .69 $ .65
</TABLE>

- ---------------
*Expressed in equivalent units of production with barrels of oil converted to
cubic feet of gas on a 6-to-1 basis.

UNDEVELOPED ACREAGE AT JANUARY 31, 1998

<TABLE>
<CAPTION>
Earliest Material
Areas of Concentration Expiration (a)
----------------------- -----------------
Gross Net % Net Calendar
Location Acres Acres County or Area (b) Acres Year
- -------- -------- -------- ---------------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Texas..................... 389,200 264,300 North Texas 48 83,400 1999
South Dakota.............. 84,100 24,100 Butte 100 7,600 1998
Ohio...................... 30,200 30,000 Lawrence 87 8,600 1998
Utah...................... 28,000 11,600 Uintah 100 2,600 1999
Louisiana................. 27,300 24,500 Jefferson Davis 76 4,400 2000
Alabama................... 27,000 16,400 Butler, Conecuh 84 11,000 1999
Mississippi............... 20,500 8,200 Smith and Wayne 80 1,000 2000
New Mexico................ 20,400 18,800 Lea 87 2,400 1999
Other (c)................. 33,100 23,900
--------- -------
Total undeveloped acreage. 659,800 421,800
Producing acreage......... 761,600 571,600
--------- -------
Total acreage............. 1,421,400 993,400
========= =======
</TABLE>

- -------------------------

(a) Expiring leases may be renewed if conditions warrant.
(b) Percentage of the state's net acres located in the indicated areas of
concentration.
(c) Includes Colorado, Michigan, Montana, Oklahoma and Wyoming.

-3-

<PAGE> 5
DRILLING ACTIVITY (a)
For the year ended January 31

<TABLE>
<CAPTION>
Exploratory Development Total
------------------ ------------------ ------------------
Well Completions Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
- ------------------------- ----- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Wells - 1998
North Texas..................... 105 23 4 9 - 69 - 23 73 9
East Texas...................... 35 - 4 2 - 28 1 - 32 3
Gulf Coast...................... 24 1 4 3 1 15 - 2 19 3
West Texas...................... 97 1 - 2 94 - - 95 - 2
Other........................... 11 - - 2 5 3 1 5 3 3
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total (b)..................... 272 25 12 18 100 115 2 125 127 20
==== ==== ==== ==== ==== ==== ==== ==== ==== ====

Net Wells
1998............................ 162.1 15.0 5.5 10.2 23.2 106.7 1.5 38.2 112.2 11.7

1997............................ 119.1 6.1 1.0 12.1 22.0 74.2 3.7 28.1 75.2 15.8

1996............................ 94.7 .3 5.1 3.8 2.2 81.6 1.7 2.5 86.7 5.5
</TABLE>

- ----------------------------
(a) Excludes service wells.
(b) An additional 34 wells (24.3 net wells) were in the process of being
drilled or completed on January 31, 1998.

ITEM 3 - LEGAL PROCEEDINGS

See Note 7 of Notes to Consolidated Financial Statements included in the
Company's Annual Report to Stockholders.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of fiscal 1998, no matter was submitted to a
vote of security holders, either through solicitation of proxies or otherwise.

-4-

<PAGE> 6

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the executive officers of the Company as of
March 1, 1998.

<TABLE>
<CAPTION>
Officer
Name Position Age Since
---- -------- --- -------
<S> <C> <C> <C>
George P. Mitchell Chairman and Chief Executive Officer 78 1946
Bernard F. Clark Vice Chairman 76 1956
W. D. Stevens President and Chief Operating Officer 63 1994
Philip S. Smith Senior Vice President and Chief Financial Officer 61 1980
Allen J. Tarbutton, Jr. Senior Vice President, Gas Services 59 1974
Thomas P. Battle Senior Vice President, Legal and Governmental 55 1982
Affairs, General Counsel and Secretary
</TABLE>

The year in the "Officer Since" column is the beginning of the period during
which the indicated individual has continuously served as an officer of the
Company (although not necessarily as an "executive officer").

All of the executive officers were elected at a Board of Directors meeting
held on June 25, 1997 for a term of one year, or until their respective
successors are qualified.

There are no significant family relationships among the officers of the
Company, either by blood, marriage or adoption.

-5-

<PAGE> 7
PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Except for the approximate number of holders of record of common stock,
information required by this item is incorporated by reference from portions of
the Annual Report to Stockholders.

<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ----
<S> <C>
Quarterly Stock Data..................................... 35
Corporate Information.................................... Inside
Back Cover
</TABLE>

The numbers of holders of record of Class A Common Stock and of Class B Common
Stock at February 28, 1998 were 1950 and 1932, respectively. Including those
whose shares are carried in street names, the Registrant estimates that there
are approximately 6,000 Class A and 7,000 Class B holders of its common stock.

ITEM 6 - SELECTED FINANCIAL DATA

Information required by this item is incorporated by reference from pages
65 and 66 of the Annual Report to Stockholders under the caption "Historical
Summary." Incorporation by reference from these pages is restricted to the
information for the fiscal years 1994 through 1998 provided under the following
captions: Revenues, earnings from continuing operations, net earnings (loss),
earnings per share (basic and diluted), cash dividends per share, ratio of
earnings to fixed charges, total assets and long-term debt.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS

Information required by this item is incorporated by reference from pages
31 through 41 of the Annual Report to Stockholders.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this item is incorporated by reference from
portions of the Annual Report to Stockholders.

<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ----
<S> <C>
Consolidated Financial Statements........................ 42 - 45
Notes to Consolidated Financial Statements............... 46 - 59
Report of Independent Public Accountants................. 60
Supplemental Oil and Gas Information (unaudited)......... 61 - 64
Quarterly Financial Data (unaudited)..................... 41
</TABLE>

-6-

<PAGE> 8

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

No Form 8-K was filed by the Registrant during its fiscal years ended
January 31, 1998 and 1997 or any subsequent period reporting a change of
accountants or any disagreement on any matter of accounting principles,
practices or financial statement disclosure.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item is incorporated by reference from
portions of the Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after January 31, 1998
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (Proxy
Statement), under the caption "Election of Directors." See page 5 of this Form
10-K for information regarding Executive Officers of the Registrant.

ITEM 11 - EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1998, under the captions "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation."

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference from
portions of the Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after January 31, 1998, under the caption "Voting
Securities and Principal Holders Thereof."

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

-7-

<PAGE> 9

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

<TABLE>
<CAPTION>
CROSS REFERENCE TO APPLICABLE SECTIONS
OF ANNUAL REPORT TO STOCKHOLDERS PAGE
-------------------------------------- ----
<S> <C>
Quarterly Financial Data (unaudited)................................. 41
Consolidated Balance Sheets.......................................... 42
Consolidated Statements of Earnings.................................. 43
Consolidated Statements of Stockholders' Equity...................... 44
Consolidated Statements of Cash Flows................................ 45
Notes to Consolidated Financial Statements........................... 46 - 59
Report of Independent Public Accountants............................. 60
Supplemental Oil and Gas Information (unaudited)..................... 61 - 64
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULES
Page
----
<S> <C>
Report of Independent Public Accountants............................. S-1

Schedule I - Condensed Financial Information of the Registrant....... S-2
at January 31, 1998 and 1997 and for the Years......... thru
Ended January 31, 1998, 1997 and 1996.................. S-5
</TABLE>

Schedules not listed above are omitted as the information required to be set
forth therein is included in the consolidated financial statements or the
footnotes thereto, or the schedules are not applicable.

-8-

<PAGE> 10

EXHIBITS

3(a) Restated Articles of Incorporation of Mitchell Energy & Development
Corp., as amended through July 2, 1990 are incorporated as an exhibit to
this report by reference to exhibit 3(a) of the annual report on Form
10-K dated January 31, 1992. The Certificate of Amendment dated June 24,
1992 is incorporated as an exhibit to this report by reference to exhibit
3 of the quarterly report on Form 10-Q for the quarter ended July 31,
1992.

3(b) The Bylaws of Mitchell Energy & Development Corp. are incorporated as an
exhibit to this report by reference to exhibit 3(b) of the annual report
on Form 10-K dated January 31, 1996.

4(a) The senior indenture dated August 1, 1991 by and between Mitchell Energy
& Development Corp., as Issuer, and First City, Texas - Houston, National
Association (succeeded by Chase Bank of Texas, N.A.), as Trustee, is
incorporated as an exhibit to this report by reference to exhibit 4(b) of
File No. 33-42340.

4(b) The senior and subordinated indentures dated January 1, 1993 by and
between Mitchell Energy & Development Corp., as Issuer, and NationsBank
of Texas, National Association, as Trustee, are incorporated as exhibits
to this report by reference to exhibits 4(b) and 4(c) of File No.
33-61070. The first supplement to the senior indenture dated January 15,
1994 is incorporated as an exhibit to this report by reference to exhibit
4(a) of the current report on Form 8-K dated January 18, 1994.

4(c) The amended and restated credit agreement dated as of April 19, 1996
among Southwestern Gas Pipeline, Inc., MND Energy Corporation, the
several banks which are parties thereto and The Chase Manhattan Bank, as
administrative agent for the banks, as amended by the first amendment
dated January 31, 1997, the second amendment dated July 31, 1997 and the
third amendment dated January 30, 1998.

Upon request, the Registrant will provide to the Securities and Exchange
Commission copies of all other instruments defining the rights of holders
of long-term debt of Mitchell Energy & Development Corp. and its
consolidated subsidiaries.

The following exhibits 10(a) through 10(m) filed under paragraph 10 of Item 601
of Regulation S-K are the Company's management contracts and compensation plans
or arrangements.

10(a) Long Term Incentive and 1979 Nonqualified Stock Option Plan, as amended
through the Seventh Amendment is incorporated as an exhibit to this
report by reference to exhibit 10(c) of the annual report on Form 10-K
dated January 31, 1992. The Eighth Amendment to such Plan is incorporated
as an exhibit to this report by reference to exhibit 10(b) of the annual
report on Form 10-K dated January 31,1993.

10(b) 1989 Stock Option Plan is incorporated as an exhibit to this report by
reference to exhibit 10(d) of the annual report on Form 10-K dated
January 31, 1992. The first amendment to such Plan is incorporated as an
exhibit to this report by reference to exhibit 10(c) of the annual report
on Form 10-K dated January 31, 1993.

10(c) 1995 Stock Option Plan is incorporated as an exhibit to this report by
reference to File No. 333-06981.

-9-

<PAGE> 11

10(d) 1991 Bonus Unit Plan is incorporated as an exhibit to this report by
reference to exhibit 10(f) of the annual report on Form 10-K dated
January 31, 1992. The first amendment to such Plan effective as of June
24, 1992 is incorporated as an exhibit to this report by reference to
exhibit 10(e) of the annual report on Form 10-K dated January 31, 1993.
The second amendment, effective February 9, 1993, and the third
amendment, effective January 18, 1996, to such Plan are incorporated as
an exhibit to this report by reference to exhibit 10(d) of the annual
report on Form 10-K dated January 31, 1996. The fourth amendment,
effective June 25, 1997, is attached hereto as exhibit 10(d).

10(e) 1997 Bonus Unit Plan.

10(f) Mitchell Energy & Development Corp. Restoration Benefit Plan effective
January 1, 1992 is incorporated as an exhibit to this report by reference
to exhibit 10(f) of the annual report on Form 10-K dated January 31,
1994.

10(g) Mitchell Energy & Development Corp. Excess Benefit Plan (formerly the
Supplemental Retirement Plan) amended and restated effective as of
January 1, 1992 is incorporated as an exhibit to this report by reference
to exhibit 10(g) of the annual report on Form 10-K dated January 31,
1994.

10(h) Deferred compensation/supplementary life insurance arrangement between
the Registrant and certain of its executive officers is incorporated as
an exhibit to this report by reference to exhibit 10(h) of the annual
report on Form 10-K dated January 31, 1992.

10(i) The Supplemental Benefit Agreement dated August 17, 1990 between the
Registrant and George P. Mitchell is incorporated as an exhibit to this
report by reference to exhibit 10(h) of the Annual Report on Form 10-K
dated January 31, 1997.

10(j) Employment agreement between the Registrant and W. D. Stevens dated
January 3, 1994 is incorporated as an exhibit to this report by reference
to exhibit 10(j) of the annual report on Form 10-K dated January 31,
1994.

10(k) Severance compensation contract dated October 31, 1991 between the
Registrant and Philip S. Smith is incorporated as an exhibit to this
report by reference to exhibit 10(k) of the annual report on Form 10-K
dated January 31, 1993.

10(l) Severance compensation contract dated April 16, 1992 between the
Registrant and Allen J. Tarbutton, Jr., is incorporated as an exhibit to
this report by reference to exhibit 10(l) of the annual report on Form
10-K dated January 31, 1993.

10(m) A written description (in lieu of a formal document) describing the
Registrant's commitment to contribute to the life insurance program of
George P. Mitchell is incorporated as an exhibit to this report by
reference to exhibit 10(m) of the annual report on Form 10-K dated
January 31, 1996.

12 Computation of Ratio of Earnings to Fixed Charges.

13 Annual Report to Stockholders for the fiscal year ended January 31, 1998.

21 List of Subsidiaries as of January 31, 1998.

-10-

<PAGE> 12

23 Consent of Independent Public Accountants.

99 Mitchell Energy & Development Corp. Thrift and Savings Plan - Annual
Report on Form 11-K for the fiscal year ended January 31, 1998.

REPORTS FILED ON FORM 8-K

No reports were filed on Form 8-K during the quarter ended January 31,
1998.

-11-

<PAGE> 13

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Mitchell Energy & Development Corp

/s/ George P. Mitchell March 20, 1998
- --------------------------------------------------
George P. Mitchell, Chairman
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

/s/ George P. Mitchell March 20, 1998
- --------------------------------------------------
George P. Mitchell, Chairman
and Chief Executive Officer

/s/ Bernard F. Clark March 20, 1998
- --------------------------------------------------
Bernard F. Clark, Vice Chairman

/s/ W. D. Stevens March 20, 1998
- --------------------------------------------------
W. D. Stevens, Director, President
and Chief Operating Officer

/s/ Philip S. Smith March 20, 1998
- --------------------------------------------------
Philip S. Smith, Senior Vice President -
Administration, Chief Financial Officer
and Principal Accounting Officer

/s/ Robert W. Baldwin March 20, 1998
- --------------------------------------------------
Robert W. Baldwin, Director

/s/ William D. Eberle March 20, 1998
- --------------------------------------------------
William D. Eberle, Director

-12-

<PAGE> 14

SIGNATURES (continued)

/s/ Shaker A. Khayatt March 20, 1998
- --------------------------------------------------
Shaker A. Khayatt, Director

/s/ Ben F. Love March 20, 1998
- --------------------------------------------------
Ben F. Love, Director

/s/ Walter A. Lubanko March 20, 1998
- --------------------------------------------------
Walter A. Lubanko, Director

/s/ J. Todd Mitchell March 20, 1998
- --------------------------------------------------
J. Todd Mitchell, Director

/s/ M. Kent Mitchell March 20, 1998
- --------------------------------------------------
M. Kent Mitchell, Director

/s/ Constantine S. Nicandros March 20, 1998
- --------------------------------------------------
Constantine S. Nicandros, Director

/s/ Raymond L. Watson March 20, 1998
- --------------------------------------------------
Raymond L. Watson, Director

/s/ J. McDonald Williams March 20, 1998
- --------------------------------------------------
J. McDonald Williams, Director

-13-

<PAGE> 15

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Mitchell Energy & Development Corp.:

We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Mitchell Energy &
Development Corp.'s Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated March 23, 1998. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule listed in Item 14
on page 8 is the responsibility of the Company's management and is presented for
purposes of complying with rules of the Securities and Exchange Commission, and
is not part of the basic financial statements. This financial statement schedule
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Houston, Texas
March 23, 1998

S-1

<PAGE> 16

Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

================================================================================

Mitchell Energy & Development Corp.
CONDENSED BALANCE SHEETS
January 31, 1998 and 1997
(in thousands)

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS (Note C)
Cash and cash equivalents.............................. $ 96,572 $ 68,644
Net assets of discontinued operations ................. 26,056 --
Other current assets .................................. 3,984 1,362
---------- ----------
Total current assets ................................ 126,612 70,006
Investment in consolidated subsidiaries,
at cost plus equity in undistributed earnings ....... 389,778 397,909
Investment in discontinued operations (Note C) ........ -- 520,484
Advances to subsidiaries .............................. 314,097 279,123
Trust fund for nonqualified retirement benefits ....... 12,583 11,251
Deferred financing costs .............................. 1,447 2,881
Other ................................................. 57 157
---------- ----------
$ 844,574 $1,281,811
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt .................. $ -- $ 100,000
Other current liabilities ............................. 14,442 22,543
---------- ----------
Total current liabilities ........................... 14,442 122,543
Long-term debt (Note D) ............................... 414,267 600,000
Deferred credits and other liabilities ................ 2,939 3,981
Commitments and contingencies (Note E)
Stockholders' equity .................................. 412,926 555,287
---------- ----------
$ 844,574 $1,281,811
========== ==========
</TABLE>

================================================================================

Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF EARNINGS
For the Years Ended January 31, 1998, 1997 and 1996
(in thousands, except per-share amounts)

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Note C) (Note C)
<S> <C> <C> <C>
EQUITY IN NET EARNINGS OF SUBSIDIARIES ..................... $ 37,865 $ 85,475 $ 101,063
---------- ---------- ----------

OTHER (INCOME) EXPENSE
Interest expense - third parties ........................... 42,531 53,931 54,076
Interest income on subsidiary advances ..................... (32,796) (54,846) (54,782)
Interest income on cash investments ........................ (8,549) (498) --
General and administrative expense (Note F) ................ -- -- --
Other, net ................................................. (710) (176) 1,010
Income taxes (Note B) ...................................... (437) 763 47
---------- ---------- ----------
39 (826) 351
---------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS ........................ 37,826 86,301 100,712
---------- ---------- ----------
DISCONTINUED REAL ESTATE OPERATIONS (Note C)
Earnings (loss) from operations, net of income
taxes of $4,071, $8,914 and ($34,218) .................... 7,440 16,925 (63,583)
Loss on sale, net of income tax benefit of $25,878 ......... (67,123) -- --
---------- ---------- ----------
(59,683) 16,925 (63,583)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM .................. (21,857) 103,226 37,129
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT (Note D) ....... (13,250) -- --
---------- ---------- ----------
NET EARNINGS (LOSS) ........................................ $ (35,107) $ 103,226 $ 37,129
========== ========== ==========

BASIC AND DILUTED EARNINGS PER SHARE (NOTE I)
Class A - Earnings from continuing operations .......... $ .71 $ 1.64 $ 1.91
Net earnings (loss) .......................... (.66) 1.96 .69
Class B - Earnings from continuing operations .......... .77 1.68 1.96
Net earnings (loss) .......................... (.72) 2.01 .74
</TABLE>

- --------------------------------------------------------------
The accompanying notes are an integral part of these condensed
financial statements.

S-2

<PAGE> 17

Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

================================================================================

Mitchell Energy & Development Corp.
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1998, 1997 and 1996
(in thousands)

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
OPERATING ACTIVITIES (Note C) (Note C)
<S> <C> <C> <C>
Earnings from continuing operations ........................... $ 37,826 $ 86,301 $ 100,712
Adjustments to reconcile earnings from continuing
operations to cash provided by operating activities
Equity in net earnings of subsidiaries ................. (37,865) (85,475) (101,063)
Dividends from consolidated subsidiaries ............... 46,000 35,000 30,000
Deferred income taxes .................................. 7,662 39 1,154
Changes in operating assets and liabilities ............ (7,247) 10,384 3,452
Other .................................................. 1,556 972 1,295
--------- --------- --------
Cash provided by operating activities ..................... 47,932 47,221 35,550
--------- --------- --------

INVESTING ACTIVITIES
Investments in subsidiaries ................................... -- (550) (600)
Proceeds from sale of TWC ..................................... 480,994 -- --
Advances (to) from subsidiaries, net .......................... (92,734) 17,079 582
Funding of trust for nonqualified retirement benefits ......... (1,332) (11,251) --
Other ......................................................... 96 (25) (25)
--------- --------- ---------
Cash provided by (used for) investing activities .......... 387,024 5,253 (43)
--------- --------- ---------

FINANCING ACTIVITIES
Debt repayments ............................................... (285,733) -- --
Cash dividends (including special dividends of $12,462 in 1998) (38,153) (26,342) (26,421)
Debt extinguishment costs ..................................... (19,294) -- --
Treasury stock purchases ...................................... (72,465) (3,917) (4,227)
Other ......................................................... 3,082 399 338
--------- --------- ---------
Cash used for financing activities ........................ (412,563) (29,860) (30,310)
--------- --------- ---------

INCREASE IN CASH AND CASH EQUIVALENTS
FROM CONTINUING OPERATIONS .................................. 22,393 22,614 5,197
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS ........... 5,535 45,945 (5,462)
CASH AND CASH EQUIVALENTS, beginning of year .................. 68,644 85 350
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ........................ $ 96,572 $ 68,644 $ 85
========= ========= =========
</TABLE>

- --------------------------------------------------------------
The accompanying notes are an integral part of these condensed
financial statements.

S-3

<PAGE> 18
Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

================================================================================

Mitchell Energy & Development Corp.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996

(A) General. The accompanying condensed financial statements of Mitchell Energy
& Development Corp. (MEDC) should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report to
Stockholders of Mitchell Energy & Development Corp. and subsidiaries (the
Company) for fiscal 1998, which is filed as an exhibit to this annual report on
Form 10-K. For information regarding the components of and an analysis of the
activity in stockholders' equity, refer to the Consolidated Statements of
Stockholders' Equity included in the Company's Annual Report to Stockholders.
See Notes to Consolidated Financial Statements included in the Company's Annual
Report to Stockholders as indicated below for information concerning the
following:

<TABLE>
<S> <C>
Retirement benefits................................ Note 9
Common stock and stock options..................... Note 11
Incentive compensation plans....................... Note 12
Earnings per share................................. Note 13
</TABLE>

(B) Income Taxes. Deferred income taxes are provided on temporary differences
between the book and tax bases of MEDC's assets and liabilities. MEDC is
included in the consolidated tax return of the Company. As the parent company,
MEDC allocates to its subsidiaries amounts equal to the income taxes that the
subsidiaries would pay or receive as a refund if separate returns were filed.

(C) Discontinued Real Estate Operations. On June 12, 1997, MEDC entered into an
agreement to sell its real estate subsidiary, The Woodlands Corporation (TWC),
to a partnership of Crescent Real Estate Equities Company and Morgan Stanley
Real Estate Fund II, L.P. for $543,000,000 in cash. The transaction was
subsequently closed on July 31, 1997. In connection with the sale, MEDC forgave
intercompany debt payable to it by TWC. After adjustment for certain net
additional amounts received pursuant to the contract and deductions for income
taxes and transaction costs incurred in connection with the sale, net cash sales
proceeds totaled $480,994,000.

MEDC decided to withdraw from the real estate business upon entering the
agreement to sell TWC on June 12, 1997 and commenced reporting real estate
activities as discontinued operations effective that date. MEDC's financial
statements were revised to segregate the net assets associated with the
discontinued operations and to separately report their results of operations.
Prior-year financial statements were restated similarly. The net loss that
resulted from the sale of TWC is summarized as follows (in thousands):

<TABLE>
<S> <C>
Proceeds........................................... $551,376
Less - Net book value of assets sold............... 632,732
Transaction costs and expenses.............. 11,645
--------
Pretax loss........................................ 93,001
Income tax benefit................................. 25,878
--------
Net loss........................................... $ 67,123
========
</TABLE>

S-4

<PAGE> 19

Mitchell Energy & Development Corp. and Subsidiaries
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

================================================================================

(D) Long-term Debt. Outstanding long-term debt, which consists of unsecured
senior notes, included the following at January 31, 1998 and 1997 (in
thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
8%, due July 15, 1999 .............. $100,000 $100,000
9 1/4%, due January 15, 2002 ....... 64,267 250,000
6 3/4%, due February 15, 2004 ...... 250,000 250,000
5.10%, (repaid on February 18, 1997) -- 100,000
-------- --------
414,267 700,000
Less - Current maturities .......... -- 100,000
-------- --------
$414,267 $600,000
======== ========
</TABLE>

During fiscal 1998, MEDC repurchased $185,733,000 face amount of its 9 1/4%
senior notes due January 15, 2002. In connection with the repurchase, costs of
$20,385,000 were expensed, including cash costs of $19,294,000 associated with a
tender offer for these notes and the write-off of $1,091,000 in deferred
financing costs. After an income tax benefit of $7,135,000, an extraordinary
charge of $13,250,000 was recorded in connection with this extinguishment of
debt.

MEDC's senior notes have no sinking fund requirements and are not redeemable
prior to their respective maturity dates. The senior note indentures contain
certain restrictions which, among other things, limit cash dividend payments and
additional borrowings, restrict the sale or lease of certain assets and limit
MEDC's right to consolidate or merge with other companies. Retained earnings
available for the payment of cash dividends totaled $111,012,000 at January 31,
1998.

(E) Debt Guarantees. MEDC had contingent liabilities totaling approximately
$22,000,000 at January 31, 1998, consisting primarily of guarantees of third
party debt.

(F) General and Administrative Expense Allocation. General and administrative
expense in the Condensed Statements of Earnings is net of amounts charged to
subsidiaries of $31,978,000; $30,823,000 and $35,760,000 in fiscal 1998, 1997
and 1996. The fiscal 1996 expense includes personnel reduction program costs of
$4,532,000. The charges to the subsidiaries are based on their estimated use of
accounting, legal, information systems and other services provided by MEDC which
are managed on a companywide basis.

(G) Statements of Cash Flows. Short-term investments with a maturity of three
months or less are considered to be cash equivalents. Interest paid totaled
$45,030,000; $53,100,000 and $53,100,000 during the years ended January 31,
1998, 1997 and 1996. Income taxes paid during these periods, including amounts
applicable to the sale of TWC, totaled $63,764,000; $9,988,000 and $21,634,000.
There were no significant non-cash investing or financing activities during the
three-year period ended January 31, 1998.

(H) Financial Instruments. Based on quoted market prices, the aggregate fair
value of MEDC's senior notes was $427,980,000 at January 31, 1998 (compared with
an aggregate balance sheet carrying value of $414,267,000). The carrying amounts
of MEDC's other on-balance-sheet financial instruments approximate their fair
values. The aggregate cost to terminate MEDC's off-balance-sheet financial
instruments is not significant. MEDC has no direct involvement with derivative
financial instruments.

(I) The earnings per share computations have been made in accordance with
Statement of Financial Accounting Standards No. 128, which MEDC adopted during
fiscal 1998; prior year amounts were restated.

S-5

<PAGE> 20

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES

EXHIBITS TO FORM 10-K

For the Fiscal Year Ended January 31, 1998

<PAGE> 21

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3(a) Restated Articles of Incorporation of Mitchell Energy & Development
Corp., as amended through July 2, 1990 are incorporated as an exhibit to
this report by reference to exhibit 3(a) of the annual report on Form
10-K dated January 31, 1992. The Certificate of Amendment dated June 24,
1992 is incorporated as an exhibit to this report by reference to exhibit
3 of the quarterly report on Form 10-Q for the quarter ended July 31,
1992.

3(b) The Bylaws of Mitchell Energy & Development Corp. are incorporated as an
exhibit to this report by reference to exhibit 3(b) of the annual report
on Form 10-K dated January 31, 1996.

10(c) 1995 Stock Option Plan is incorporated as an exhibit to this report by
reference to File No. 333-06981.
</TABLE>

<PAGE> 22

INDEX TO EXHIBITS (Continued)

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10(d) 1991 Bonus Unit Plan is incorporated as an exhibit to this report by
reference to exhibit 10(f) of the annual report on Form 10-K dated
January 31, 1992. The first amendment to such Plan effective as of June
24, 1992 is incorporated as an exhibit to this report by reference to
exhibit 10(e) of the annual report on Form 10-K dated January 31, 1993.
The second amendment, effective February 9, 1993, and the third
amendment, effective January 18, 1996, to such Plan are incorporated as
an exhibit to this report by reference to exhibit 10(d) of the annual
report on Form 10-K dated January 31, 1996. The fourth amendment,
effective June 25, 1997, is attached hereto as exhibit 10(d).

10(e) 1997 Bonus Unit Plan.

<PAGE> 23

INDEX TO EXHIBITS (Continued)

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
12 Computation of Ratio of Earnings to Fixed Charges.

13 Annual Report to Stockholders for the fiscal year ended January 31, 1998.

21 List of Subsidiaries as of January 31, 1998.

23 Consent of Independent Public Accountants.

99 Mitchell Energy & Development Corp. Thrift and Savings Plan - Annual
Report on Form 11-K for the fiscal year ended January 31, 1998.
</TABLE>

<PAGE> 1

Exhibit 4(c)

FIRST AMENDMENT

FIRST AMENDMENT, dated as of January 31, 1997 (this "Amendment"), to
the Amended and Restated Credit Agreement, dated as of April 19, 1996 (the
"Credit Agreement"), among (a) MITCHELL MARKETING COMPANY, a Louisiana
corporation ("MMC"), (b) MITCHELL GAS SERVICES, INC., a Delaware corporation
("MGS"; MMC and MGS, each a "Borrower", and collectively, the "Borrowers"), (c)
MND ENERGY CORPORATION, a Delaware corporation ("MND"), (d) the several banks
which are parties to this Amendment (collectively, the "Banks", each a "Bank"),
including the Issuing Bank (as defined herein), and (e) THE CHASE MANHATTAN
BANK (formerly known as Chemical Bank), a New York banking corporation, as
administrative agent for the Banks (in such capacity, the "Administrative
Agent").

W I T N E S E T H:

WHEREAS, the Borrowers have requested that certain amendments be made
to the Credit Agreement as provided herein; and

WHEREAS, the Administrative Agent and the Banks are willing to effect
such amendments, but only on the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto hereby agree as follows:

I. Defined Terms. Terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.

II. Amendments to Credit Agreement.

1. Determining Banks. Subsection 1.1 of the Credit Agreement is
hereby amended by deleting the definition of "Determining Banks" in its
entirety and inserting in lieu thereof the following definition:

"'Determining Banks': means The Chase Manhattan Bank and
NationsBank of Texas, N.A."

2. Borrowing Base Determination Date. Subsection 1.1 of the
Credit Agreement is hereby amended by deleting the definition of "Borrowing
Base Determination Date" in its entirety and inserting in lieu thereof the
following definition:

<PAGE> 2
"'Borrowing Base Determination Date': means August 1 of each
year and such other day as provided in subsection 2.24."

3. Consolidated Net Current Assets. (a) Subsection 1.1 of the
Credit Agreement is hereby amended by deleting the definitions of "Consolidated
Current Assets", "Consolidated Current Liabilities", "Current Assets" and
"Current Liabilities" in their entirety;

(b) Subsection 5.2(a)(ii) of the Credit Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof;

"'(ii) [Reserved]';"; and

(c) Subsection 6.5 of the Credit Agreement is hereby amended
by deleting it in its entirety and inserting in lieu thereof:

"'6.5 [Reserved]'."

4. Fixed Charge Ratio. Subsection 6.8 of the Credit Agreement is
hereby amended by deleting the ratio "1.5 to 1" contained therein and inserting
in lieu thereof the ratio "2.5 to 1."

III. Conditions to Effectiveness. This Amendment shall become
effective as of January 31, 1997 (the "Effective Date") but shall not become
effective until all of the following conditions precedent have been satisfied
or waived:

(a) The Borrowers, MND, the Administrative Agent and the
Required Banks shall have executed and delivered to the Administrative
Agent this Amendment.

(b) The Administrative Agent shall have received a copy of
the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Board of Directors of the Borrowers and
MND authorizing the execution, delivery and performance of this
Amendment and the transactions contemplated hereby, certified by the
Secretary or an Assistant Secretary of such Credit Party as of the
Effective Date, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate.

<PAGE> 3

IV. General.

1. Representations and Warranties. To induce the Administrative
Agent and the Banks parties hereto to enter into this Amendment, the Borrowers
and MND each hereby represents and warrants to the Administrative Agent and all
of the Banks as of the Effective Date that the representations and warranties
made by such party in the Credit Documents to which it is a party are true and
correct in all material respects on and as of the Effective Date, after giving
effect to the effectiveness of this Amendment, as if made on and as of the
Effective Date.

2. Payment of Expenses. The Borrowers agree to pay or reimburse the
Administrative Agent for all of its out- of-pocket costs and reasonable
expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.

3. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and
the other Credit Documents are and shall remain in full force and effect.

4. Affirmation of MEDC Guarantee. MEDC hereby consents to the
execution and delivery of this Amendment and reaffirms its obligations under
the MEDC Guarantee.

5. Governing Law; Counterparts. (a) THIS AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(b) This Amendment may be executed by one or more of the parties to
this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Administrative Agent. This Amendment may be delivered
by facsimile transmission of the relevant signature pages hereof.

<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.

MITCHELL GAS SERVICES, INC.

By: /s/ W. BROOKE HAMILTON, JR.
------------------------------------
W. Brooke Hamilton, Jr.
Vice President - Finance

MITCHELL MARKETING COMPANY

By: /s/ W. BROOKE HAMILTON, JR.
------------------------------------
W. Brooke Hamilton, Jr.
Title: Vice President - Finance

MND ENERGY CORPORATION

By: /s/ W. BROOKE HAMILTON, JR.
------------------------------------
W. Brooke Hamilton, Jr.
Title: Vice President - Finance

THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Administrative Agent, Issuing
Bank and as a Bank

By: /s/ PETER M. LING
------------------------------------
Peter M. Ling
Title: Vice President

NATIONSBANK OF TEXAS, N.A.

By: /s/ JOHN H. ROBERTS
------------------------------------
John H. Roberts
Title: Vice President

THE BANK OF NOVA SCOTIA

By: /s/ M. D. SMITH
------------------------------------
M. D. Smith
Title: Agent

<PAGE> 5

PNC BANK, NATIONAL ASSOCIATION

By: /s/ ILLEGIBLE
------------------------------------
Illegible
Title: Illegible

BANK ONE, TEXAS, N.A.

By: /s/ ILLEGIBLE
------------------------------------
Illegible
Title: Vice President

BANK OF AMERICA, NATIONAL TRUST &
SAVINGS ASSOCIATION

By: /s/ MICHAEL J. DILLON
------------------------------------
Michael J. Dillon
Title: Managing Director

WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION

By: /s/ ALAN ALEXANDER
------------------------------------
Alan Alexander
Title: Vice President

CHRISTIANIA BANK OG KREDITKASSE

By: /s/ PETER M. DODGE
------------------------------------
Peter M. Dodge
Title: First Vice President

By: /s/ CARL-PETTER SVENDSEN
------------------------------------
Carl-Petter Svendsen
Title: First Vice President

MORGAN GUARANTY TRUST COMPANY

By: /s/ JOHN KOWALCZUK
------------------------------------
John Kowalczuk
Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO

By: /s/ ILLEGIBLE
------------------------------------
Illegible
Title: Corporate Banking Officer

<PAGE> 6

THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY

By: ILLEGIBLE
------------------------------------
Title: Vice President

ABN AMRO BANK N.V., HOUSTON AGENCY
by: ABN AMRO North America,
Inc., as agent

By: ILLEGIBLE
------------------------------------
Title: Illegible

By: ILLEGIBLE
------------------------------------
Title: Vice President

UNION BANK OF SWITZERLAND, HOUSTON
AGENCY

By: /s/ J. George Kubove
------------------------------------
George Kubove
Title: Assistant Vice President

By: /s/ Kelly Boots
------------------------------------
Kelly Boots
Title: Assistant Vice President

<PAGE> 7

Consented and agreed to:

MITCHELL ENERGY & DEVELOPMENT CORP.

By: /s/ W. BROOKE HAMILTON, JR.
------------------------------------
W. Brooke Hamilton, Jr.
Title: Vice President - Finance

<PAGE> 8

Exhibit 4(c)

SECOND AMENDMENT

SECOND AMENDMENT, dated as of July 31, 1997 (this "Amendment"), to the
Amended and Restated Credit Agreement, dated as of April 19, 1996, as amended
by the First Amendment thereto, dated as of January 31, 1997 (as so amended,
the "Credit Agreement"), among (a) MITCHELL MARKETING COMPANY, a Louisiana
corporation ("MMC"), (b) MITCHELL GAS SERVICES, INC., a Delaware corporation
("MGS"; MMC and MGS, each a "Borrower", and collectively, the "Borrowers"), (c)
MND ENERGY CORPORATION, a Delaware corporation ("MND"), (d) the several banks
which are parties to this Amendment (collectively, the "Banks", each a "Bank"),
including the Issuing Bank (as defined therein), and (e) THE CHASE MANHATTAN
BANK (formerly known as Chemical Bank), a New York banking corporation, as
administrative agent for the Banks (in such capacity, the "Administrative
Agent").

W I T N E S E T H:

WHEREAS, in connection with the sale of The Woodlands Corporation by
Mitchell Energy & Development Corp. ("MEDC") to MS TWC Acquisition Partners
Limited Partnership (the "Woodlands Disposition"), the Borrowers have requested
that certain amendments be made to the Credit Agreement as provided herein; and

WHEREAS, the Administrative Agent and the Banks are willing to effect
such amendments, but only on the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto hereby agree as follows:

I. Defined Terms. Terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.

II. Amendments to Credit Agreement.

1. Credit Parties. Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the definition of "Credit Parties" in its entirety and
inserting in lieu thereof the following definition:

"'Credit Parties': means MEDC, MND, MMC, MGS and MEC."

2. Guarantees. Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the definition of "Guarantees" in its entirety and
inserting in lieu thereof the following definition:
<PAGE> 9
2

"'Guarantees': means the MEDC Guarantee and the MND Guarantee"

3. TWC, TWC Guarantee and Woodlands Revolving Credit Agreement.
Subsection 1.1 of the Credit Agreement is hereby amended by deleting the
definitions of "TWC", "TWC Guarantee" and "Woodlands Revolving Credit
Agreement" in their entirety.

4. Determination of Borrowing Base. Subsection 2.23 of the Credit
Agreement is hereby amended as follows:

(a) by deleting the third sentence in its entirety and
inserting in lieu thereof the following sentence:

"In addition, the Determining Banks will deduct from such
Present Value of Assets the amount at the Determination Date of
Intercompany Debt and Certain Other MEC Debt, thereby determining the
'Net Asset Value'."; and

(b) by deleting the words "and present value of advances"
in the fourth sentence.

5. Limitation on Investments, Loans and Advances. Subsection 6.9
of the Credit Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the following subsection 6.9:

"MEDC, MND and its Limited Subsidiaries shall not make any
advance, loan, extension of credit or capital contribution to, or
purchase any stock, bonds, notes, debentures or other securities of,
or make any other investment in, any Subsidiary of MEDC (other than
MND and its Limited Subsidiaries) in excess of an aggregate amount per
year for all such investments of $10,000,000 provided, however, that
this covenant shall not prohibit any such investment in any Subsidiary
of MEDC which will invest, in short-term interest-bearing securities,
the proceeds of the sale of The Woodlands Corporation by MEDC to MS
TWC Acquisition Partners Limited Partnership."

6. Amendments. Subsection 9.3 of the Credit Agreement is hereby
amended by deleting the word "TWC's", as well as the comma immediately
preceding it.

7. Successors and Assigns; Participations. (a) Subsection
9.10(c) of the Credit Agreement is hereby amended by deleting the words
"provided that all assignments of Commitments and/or Loans hereunder shall be
made simultaneously with assignments by the assigning Bank to the same Assignee
of pro rata portions of such Bank's Commitments and/or Loans under, and as
defined in, the Woodlands Revolving Credit

<PAGE> 10

Agreement" appearing at the end of the first sentence, as well as the semicolon
immediately preceding these words.

(b) Subsection 9.10(e) of the Credit Agreement is hereby
amended by deleting the words "(which amount shall include the fees for
registration and processing of the corresponding assignment and acceptances
under the Woodlands Revolving Credit Agreement)" appearing immediately after
the word "$2,000."

8. Exhibit E-3. Exhibit E-3 to the Credit Agreement and the
reference thereto in the Table of Contents of the Credit Agreement are hereby
deleted in their entirety.

III. Consent and Waiver. The Banks agree to the release of the TWC
Guarantee as of the Effective Date and confirm that such release shall not
constitute or be deemed to constitute a default under subsection 7.1 of the
Credit Agreement.

IV. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Effective Date") on which all of the following
conditions precedent have been satisfied or waived:

(a) The Borrowers, MND, the Administrative Agent and the
Banks shall have executed and delivered to the Administrative Agent
this Amendment.

(c) All loans and other extensions of credit under the
Woodlands Revolving Credit Agreement shall have been repaid in full
and all commitments thereunder shall have been terminated.

(d) The Woodlands Disposition shall have occurred and MEDC
shall have notified the Administrative Agent in writing to this
effect.

<PAGE> 11
4

V. General.

2. Payment of Expenses. The Borrowers agree to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable
expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.

4. Affirmation of MEDC Guarantee. MEDC hereby consents to the
execution and delivery of this Amendment and reaffirms its obligations under
the MEDC Guarantee.

<PAGE> 12

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.

MITCHELL GAS SERVICES, INC.

By: Illegible
----------------------------------------
Title:

MITCHELL MARKETING COMPANY

By: Illegible
----------------------------------------
Title:

MND ENERGY CORPORATION

By: Illegible
----------------------------------------
Title:

THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Administrative Agent, Issuing Bank
and as a Bank

By: Illegible
----------------------------------------
Title:

NATIONSBANK OF TEXAS, N.A.

By: James V. Ducoto
----------------------------------------
Title:

THE BANK OF NOVA SCOTIA

By: Illegible
----------------------------------------
Title:

<PAGE> 13

PNC BANK, NATIONAL ASSOCIATION

By: John R. Way
-----------------------------------------
Title: Commercial Banking Officer

BANK ONE, TEXAS, N.A.

By: Richard G. Sylvan
-----------------------------------------
Title: Senior Vice President

BANK OF AMERICA, NATIONAL TRUST &
SAVINGS ASSOCIATION

By: Illegible
-----------------------------------------
Title: Vice President

WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION

By: Alan Alexander
-----------------------------------------
Title: Vice President

CHRISTIANIA BANK OG KREDITKASSE

By: Peter M. Dodge
------------------------------------------
Title: Vice President

By: Carl-Petter Svendsen
-----------------------------------------
Title: Vice President

MORGAN GUARANTY TRUST COMPANY

By: John Kowalczuk
------------------------------------------
Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO

By: Illegible
-----------------------------------------
Title: Corporate Banking Officer

<PAGE> 14

THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY

By: Illegible
------------------------------------
Title: Vice President

ABN AMRO BANK N.V., HOUSTON AGENCY
by: ABN AMRO North America,
Inc., as agent

By: Charles W. Randall
------------------------------------
Title: Senior Vice President &
Managing Director

By: H. Gene Shiels
------------------------------------
Title: Vice President

UNION BANK OF SWITZERLAND, HOUSTON
AGENCY

By: Ben Vance
------------------------------------
Title: Assistant Vice President

<PAGE> 15

Consented and agreed to:

MITCHELL ENERGY & DEVELOPMENT CORP.

By: Illegible
---------------------------------
Title: Vice President-Finance

<PAGE> 16

Exhibit 4(c)
THIRD AMENDMENT

THIRD AMENDMENT, dated as of January 30, 1998 (this
"Amendment"), to the Amended and Restated Credit Agreement, dated as of April
19, 1996, as amended by the First Amendment thereto, dated as of January 31,
1997 and the Second Amendment thereto, dated as of July 31, 1997 (as so
amended, the "Credit Agreement"), among (a) SOUTHWESTERN GAS PIPELINE, INC.
(successor by merger to MITCHELL MARKETING COMPANY and MITCHELL GAS SERVICES,
INC.) ("MGS"), (b) MND ENERGY CORPORATION, a Delaware corporation ("MND"), (c)
the several banks which are parties to this Amendment (collectively, the
"Banks", each a "Bank"), including the Issuing Bank (as defined therein), and
(d) THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York
banking corporation, as administrative agent for the Banks (in such capacity,
the "Administrative Agent").

W I T N E S S E T H:

WHEREAS, the Borrowers have requested that certain amendments
be made to the Credit Agreement as provided herein; and

WHEREAS, the Administrative Agent and the Banks are willing to
effect such amendments, but only on the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto hereby agree as follows:

I. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.

II. Amendments to Credit Agreement.

1. Definitions.

A. Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the following definitions:

"Guarantees"

"Judgment"

"Judgment Interest"

"Judgment Payments"

"MEC Credit and Reimbursement Agreement"

<PAGE> 17
"MEC Letters of Credit"

"MEC Loans"

"MEC Reimbursement Obligations"

"MEDC Guarantee"

"Settlements"

B. The parties hereto hereby agree that all of the terms
listed in clause (A) above shall be deemed to be deleted in the Credit
Agreement wherever such terms appear therein.

C. Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the following definitions in their entirety and
inserting in lieu thereof the following definitions:

"'Credit Parties' means MND, MGSLP, MGS and MEC."

"'Gulf Coast Fractionators' means a Texas general partnership
among Trident NGL, Inc., Conoco, Inc. and MGS until it transfers its
interest to MGSLP and thereafter MGSLP."

"'Material Subsidiary' means, for so long as they shall remain
Subsidiaries of MND, each of MGSLP, MEC, and MGS."

"'Scheduled Termination Date' means January 27, 2003."

"'Subsidiary Guarantee' shall be the collective reference to
(i) the Subsidiary Guarantee dated as of April 19, 1996 made by MEC
and MGS in favor of the Administrative Agent for the ratable benefit
of the Banks, and (ii) the Subsidiary Guarantee made by MGSLP in favor
of the Administrative Agent in form and substance satisfactory to the
Administrative Agent, as such guarantees may be amended, supplemented
or otherwise modified from time to time.

D. Subsection 1.1 of the Credit Agreement is hereby
amended by adding the following definitions:

"'Current Debt' means the sum of all Debt which is outstanding
on the date as of which Current Debt is being determined and which
matures on demand or within one year after such date.

<PAGE> 18

"MGSLP" means Mitchell Gas Services L.P., a Delaware limited
partnership.

E. All references in the Credit Agreement to (i)
Borrower or Borrowers shall be deemed to be solely references to MND, (ii) MGS
shall be deemed to be to Southwestern Gas Pipeline, Inc. successor by merger to
Mitchell Gas Services, Inc. and (iii) Subsidiary and Restricted Subsidiary
shall be deemed to include MGSLP.

2. Prepayments. Subsection 2.6 of the Credit Agreement is
hereby amended by deleting paragraph (a) in its entirety and inserting in lieu
thereof the following:

"(a) If the aggregate principal amount of Loans outstanding
exceeds the Available Borrowing Base as determined on any Borrowing
Base Determination Date, MND shall prepay such excess within six
months of such date."

3. Letter of Credit Commitment. Subsection 2.10 of the
Credit Agreement is hereby amended by deleting paragraph (a) in its entirety
and inserting in lieu thereof the following:

"(a) Subject to the terms and conditions hereof, the Issuing
Bank, in reliance on the agreements of the other Banks set
forth in subsection 2.13(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrower on any
Business Day during the Commitment Period; provided that the
Issuing Bank shall have no obligation to issue any Letter of
Credit if after giving effect to such issuance (i) the
Available Commitments would be less than zero or (ii) the
aggregate amount of all then outstanding L/C Obligations
together with the aggregate principal amount of all then
outstanding Loans would exceed the Available Borrowing Base."

4. Restrictions on Incurrence of Debt. Section 6 of the
Credit Agreement is hereby amended by deleting subsection 6.2 in its entirety
and inserting in lieu thereof the following:

"6.2 Restrictions on Incurrence of Debt. It will not, and
will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, issue, assume, or suffer to exist,
guarantee, agree to purchase or repurchase or provide funds in
respect of or otherwise become liable in respect of any Debt
(except for Loans outstanding subject to prepayment in
accordance with subsection 2.6(a) hereof) if

<PAGE> 19
4

Consolidated Debt would exceed the Approved Borrowing Base
after taking into account such Debt, other than:

(a) Debt owed by MND to a Restricted Subsidiary or
by a Restricted Subsidiary to MND or to another Restricted
Subsidiary;

(b) Unsecured Current Debt of MND, if for any period
of at least 45 consecutive days during the 12-month period
immediately preceding the incurrence of such Current Debt,
Consolidated Debt in an amount at least equal to the principal
amount of Current Debt outstanding on each of such 45 days
could have been incurred by MND under the Approved Borrowing
Base in compliance with the provisions hereof;

(c) Any extension, modification, renewal or
refunding, without increase in the principal amount, of Debt
by MND or a Restricted Subsidiary so long as the Consolidated
Debt of MND and its Restricted Subsidiaries is not thereby
increased;

(d) Debt under the agreements in effect on January
31, 1996 and indicated on Schedule 5 hereto;

(e) Debt of a partnership or joint venture in which
MND or any Restricted Subsidiary is a partner or joint
venturer incurred after the Effective Date, and with respect
to which a written waiver has been obtained from each holder
of such Debt waiving all liability of MND or any Restricted
Subsidiary with respect thereto;

(f) Debt of MND or any Restricted Subsidiary (i)
which is recourse only to the assets of MND or such Restricted
Subsidiary acquired or financed with the proceeds of such Debt
and the provisions of which Debt with respect to its limited
recourse nature shall have been approved by the Required Banks
at least 10 days prior to its incurrence, (ii) with respect to
which a written waiver shall have been obtained from each
holder of such Debt waiving all liability of MND or such
Restricted Subsidiary with respect thereto and (iii) with
respect to which a written waiver has been obtained from each
holder of such Debt waiving, to the extent such holder may
legally do so, all of such holder's rights under 11 U.S.C.
Section 1111(b)(1)(A) of the U.S. Bankruptcy Code in a
proceeding thereunder wherein MND or any Restricted Subsidiary
is the debtor;

<PAGE> 20
5

(g) Debt of the nature described in paragraphs (b) and
(c) of subsection 6.1 and Debt of any Person acquired by MND
provided such Debt is in existence at the time of such
acquisition and is not created in anticipation of such
acquisition so long as after the incurrence of all Debt
described in this paragraph (g) Consolidated Debt would not
exceed the Approved Borrowing Base;

provided, that no Restricted Subsidiary shall directly or indirectly
create, incur, issue, assume or suffer to exist, guarantee, agree to
purchase or repurchase or provide funds in respect of or otherwise
become liable in respect of any Debt (other than Debt of such
Restricted Subsidiary existing on the date hereof and any extensions
or renewals on substantially the same terms) which would otherwise be
permitted by this subsection 6.2 if the terms of such Debt or any
related agreement restrict the repayment of loans or advances made to
it by MND, or require that any loans or advances by MND to such
Restricted Subsidiary be subordinated in any respect to such Debt, or
adversely affect the ability of MEC, MGS or MGSLP to perform their
respective obligations hereunder or under the Subsidiary Guarantee."

5. Events of Default. Subsection 7.1 of the Credit
Agreement is hereby amended as follows:

A. by deleting all references to MEDC in paragraph (e)
and

B. by deleting paragraph (k) in its entirety and
inserting in lieu thereof

(k) Any Subsidiary Guarantee shall cease for any reason to be
in full force and effect or any party thereto or its
successors or assigns shall assert in writing that it has no
liability thereunder.

III. Release. (a) Effective on the Effective Date the Banks
and the Administrative Agent hereby release MEDC from all its obligations under
the MEDC Guarantee and MND from all its obligations under the MND Guarantee as
of the Effective Date and confirm that such release shall not constitute or be
deemed to constitute a default under subsection 7.1 of the Credit Agreement.

IV. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Effective Date" provided on such date and after
giving effect thereto there is no Default or Event of Default in existence) on
which all of

<PAGE> 21
6

the following conditions precedent have been satisfied or waived:

(a) MND, MGS, the Administrative Agent and the Banks
shall have executed and delivered to the Administrative Agent
this Amendment and MGSLP and MEC shall acknowledge the terms
thereof.

(b) The Administrative Agent shall have received (i)
a copy of the resolutions, in form and substance satisfactory
to the Administrative Agent, of the Board of Directors of MND,
MGS, and MGSLP authorizing the execution, delivery and
performance of this Amendment and the transactions
contemplated hereby, certified by the Secretary or an
Assistant Secretary of such Credit Party as of the Effective
Date, (ii) a Subsidiary Guarantee in form and substance
satisfactory to the Administrative Agent executed by MGSLP in
favor of the Administrative Agent for the benefit of the Banks
and (iii) a legal opinion of counsel to MND, MGS, and MGSLP in
form and substance satisfactory to the Administrative Agent.

V. General.

1. Representations and Warranties. To induce the
Administrative Agent and the Banks parties hereto to enter into this Amendment,
MND and MGS each hereby represents and warrants to the Administrative Agent and
all of the Banks as of the Effective Date that the representations and
warranties made by such party in the Credit Documents to which it is a party
are true and correct in all material respects on and as of the Effective Date,
after giving effect to the effectiveness of this Amendment, as if made on and
as of the Effective Date.

2. Payment of Expenses. MND agrees to pay or reimburse the
Administrative Agent for all of its out- of-pocket costs and reasonable
expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.

3. No Other Amendments; Confirmation. Except as expressly
amended, modified and supplemented hereby, the provisions of the Credit
Agreement and the other Credit Documents are and shall remain in full force and
effect.

4. Affirmation of Subsidiary Guarantee. MEC and MGSLP
hereby consents to the execution and delivery of this

<PAGE> 22
7
Amendment and reaffirms its obligations under the Subsidiary Guarantee.

5. Governing Law; Counterparts. A. THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

B. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Administrative Agent. This Amendment may be delivered
by facsimile transmission of the relevant signature pages hereof.

<PAGE> 23

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.

MND ENERGY CORPORATION

By: /s/ Illegible
---------------------------------
Title: Vice President

SOUTHWESTERN GAS PIPELINE, INC.
(successor by merger to MITCHELL
MARKETING COMPANY and MITCHELL GAS
SERVICES, INC.)

By: /s/ Illegible
---------------------------------
Title: Vice President

THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Administrative Agent, Issuing Bank
and as a Bank

By: /s/ PETER M. LING
---------------------------------
Peter M. Ling
Title: Vice President

NATIONSBANK OF TEXAS, N.A.

By: /s/ Illegible
---------------------------------
Title: Vice President

THE BANK OF NOVA SCOTIA

By: /s/ F.C.H. Ashby
---------------------------------
F.C.H. Ashby
Title: Senior Manager
Loan Operations

PNC BANK, NATIONAL ASSOCIATION

By: /s/ JOHN R. WAY
---------------------------------
John R. Way
Title: Asst. Vice Pres.

<PAGE> 24

BANK ONE, TEXAS, N.A.

By: /s/ Illegible
---------------------------------
Title: Sr. Vice President

BANK OF AMERICA, NATIONAL TRUST &
SAVINGS ASSOCIATION

By: /s/ Illegible
---------------------------------
Title: Vice President

WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION

By: /s/ ALAN ALEXANDER
---------------------------------
Alan Alexander
Title: Vice President

CHRISTIANIA BANK OG KREDITKASSE

By:
---------------------------------
Title:

MORGAN GUARANTY TRUST COMPANY

By: /s/ Illegible
---------------------------------
Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO

By: /s/ Illegible
---------------------------------
Title: Assistant Vice President

THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY

By: /s/ MICHAEL G. MEISS
---------------------------------
Michael G. Meiss
Title: Vice President

<PAGE> 25

ABN AMRO BANK N.V., HOUSTON AGENCY

By: /s/ CHARLES W. RANDALL
---------------------------------
Charles W. Randall
Title: Senior Vice President

By: /s/ CHERYL I. LIPSHUTZ
---------------------------------
Cheryl I. Lipshutz
Title: Group Vice President

UNION BANK OF SWITZERLAND, HOUSTON
AGENCY

By: /s/ EVAN SWANN
---------------------------------
Evan Swann
Title: Managing Director

By: /s/ FINDLEY BIGGERSTAFF
---------------------------------
Findley Biggerstaff
Title: Assistant Vice President

<PAGE> 26

Acknowledged and Consented to:

MITCHELL ENERGY CORPORATION

By: /s/ Illegible
---------------------------------
Title: Vice President

MITCHELL GAS SERVICES L.P.

By: Mitchell Gas Operating, Inc.

By: /s/ Illegible
---------------------------------
Title: Vice President

<PAGE> 27
Exhibit 4(c)

EXECUTION COPY

================================================================================

MITCHELL MARKETING COMPANY and
MITCHELL GAS SERVICES, INC.,
as Borrowers

MND ENERGY CORPORATION,
as a Guarantor

______________________________

AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of April 19, 1996

______________________________

CHEMICAL BANK,
as Administrative Agent

================================================================================
<PAGE> 28
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1.3 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 2. AMOUNT AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.2 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.4 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.5 Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.6 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.7 Interest Rates and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.8 Computation of Interest and Fees; Funding Procedures . . . . . . . . . . . . . . . . . . . . . . . . 31
2.9 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.10 Letter of Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.11 Procedure for Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.12 Fees, Commissions and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.13 Letter of Credit Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.14 Reimbursement Obligations of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.15 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.16 Letter of Credit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.17 L/C Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.18 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.19 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.20 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.21 Reemployment Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.22 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.23 Determination of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.24 Redetermination of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.25 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.2 Corporate Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3 No Legal Bar on Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.5 Compliance With Other Instruments; None Burdensome . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.6 Ownership of Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.9 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.10 Certain Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

</TABLE>

-i-
<PAGE> 29
<TABLE>
<S> <C>
Page
----

3.11 Status Under Other Federal Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.12 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1 Conditions to Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2 Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.1 Financial Statements; Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.2 Certificates as to Financial Matters, No Default, etc. . . . . . . . . . . . . . . . . . . . . . . . 51
5.3 Payment of Taxes, etc.; Observance of Legal Requirements; Liens; Contests . . . . . . . . . . . . . . 52
5.4 Notice of Default, Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.7 Material Mineral Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.8 Maintenance of Corporate Existence, Franchises, etc. . . . . . . . . . . . . . . . . . . . . . . . . 54
5.9 Maintenance and Improvement of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.10 Maintenance of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.11 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2 Restrictions on Incurrence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.3 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.4 Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.5 Consolidated Net Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.6 Restrictions on Disposition of Stock and Debt of Restricted Subsidiaries, etc . . . . . . . . . . . . 59
6.7 Consolidation, Merger, Sales of Assets, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.8 Fixed Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.9 Limitation on Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.1 Nonpayment of Interest or Principal, Insolvency of Subsidiaries and Other Defaults . . . . . . . . . 61
7.2 Insolvency of a Borrower and Like Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.3 Letter of Credit Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.4 Letter of Credit Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

SECTION 8. THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE DETERMINING BANKS . . . . . . . . . . . . . . . . . . 68
8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

</TABLE>
-ii-
<PAGE> 30
<TABLE>
Page
----
<S> <C>
8.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.3 Reimbursement of Administrative Agent and Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . 68
8.4 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.5 Indemnification of Administrative Agent and Issuing Bank . . . . . . . . . . . . . . . . . . . . . . 69
8.6 Reliance by Administrative Agent and Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.7 Administrative Agent and Issuing Bank in Individual Capacity . . . . . . . . . . . . . . . . . . . . 70
8.8 Non-Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.9 Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.1 Waiver of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.2 Request to Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.5 Adjustments; Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.6 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.7 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.8 Notice of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.9 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.10 Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.13 Surrender of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.14 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.15 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.16 SUBMISSION TO JURISDICTION; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.17 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

</TABLE>
-iii-
<PAGE> 31
MITCHELL MARKETING COMPANY
MITCHELL GAS SERVICES, INC.
MND ENERGY CORPORATION

------------------------

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of April 19, 1996

--------------------------

CHEMICAL BANK, as Administrative Agent

CLOSING DOCUMENTS

<S> <C>
Schedule 1 Applicable Margins, Letter of Credit Commission Rate, Commitment Fee Rate
Schedule 2 Subsidiaries, Restricted and Unrestricted
Schedule 3 Existing Liens
Schedule 4 Certain Other MEC Debt
Schedule 5 Existing Debt
Schedule 6 Bank Offices

Exhibit A - Form of Note
Exhibit B - Form of Legal Opinion of Counsel to the Borrowers
Exhibit C - [Reserved]
Exhibit D - Form of Closing Certificate
Exhibit E-1 - Form of MEDC Guarantee
Exhibit E-2 - Form of MND Guarantee
Exhibit E-3 - Form of TWC Guarantee
Exhibit F - Form of Subordination Agreement
Exhibit G - Form of Subsidiary Guarantee
Exhibit H - Form of Assignment and Acceptance

</TABLE>
-iv-
<PAGE> 33

Exhibit 4(c)

AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 19,
1996 (as amended, supplemented or otherwise modified, this "Credit Agreement"),
among (a) MITCHELL MARKETING COMPANY, a Louisiana corporation ("MMC"), (b)
MITCHELL GAS SERVICES, INC., a Delaware corporation ("MGS"; MMC and MGS, each a
"Borrower", and collectively, the "Borrowers"), (c) MND ENERGY CORPORATION, a
Delaware corporation ("MND"), which on the date of this Credit Agreement owns,
directly or indirectly, all of the issued and outstanding capital stock of each
of the Borrowers, (d) the several banks which are parties to this Credit
Agreement (collectively, the "Banks", each a "Bank"), including the Issuing
Bank (as defined herein), and (e) CHEMICAL BANK, a New York banking
corporation, as administrative agent for the Banks (in such capacity, the
"Administrative Agent").

W I T N E S S E T H :

WHEREAS, MND, MGS (as successor by merger to Southwestern Gas
Pipeline, Inc. ("SGP")), the Banks, and Chemical Bank, as agent, are parties to
that certain Credit Agreement, dated as of November 30, 1994 (as amended by the
First Amendment thereto, dated as of December 20, 1995, the "Original Credit
Agreement"); and

WHEREAS, the parties to the Original Credit Agreement desire
to amend and restate the Original Credit Agreement in its entirety to, among
other things, (i) reduce the Commitments thereunder from $250,000,000 to
$150,000,000, (ii) provide a $50,000,000 letter of credit subfacility and (iii)
replace MND with MMC as a Borrower.

NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties agree that, on the Effective
Date (as defined herein), the Original Credit Agreement shall be amended and
restated in its entirety to read as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms. As used herein the following terms shall
have the following meanings, unless the context shall otherwise require:

"ABR Rate" means the rate of interest publicly announced by
Chemical Bank in New York, New York, from time to time as its
reference rate. The reference rate is not intended to be the lowest
rate of interest charged by Chemical Bank in connection with
extensions of credit to debtors.
<PAGE> 34
2

"ABR Rate Loans" means Loans hereunder at such time as they
are made and/or being maintained at a rate of interest based upon the
ABR Rate.

"Accountants" means Arthur Andersen & Co. or such other
independent public accountants of recognized national standing
selected by MND with the prior approval of the Required Banks.

"Advance Payment Obligation" when used with respect to any
Person, means indebtedness, obligations and liabilities of such Person
arising out of any loan, advance or take-or-pay payment (or other
payment for Petroleum or other products not delivered by such Person)
made to such Person in connection with or pursuant to the commitment
or contract of such Person to sell or offer to sell or deliver

(i) Petroleum to be produced from or attributable to designated
Mineral Interests owned or to be acquired by such Person,

(ii) products of Gas Processing Plant Assets, or

(iii) fees, revenues or products of Gas Gathering and
Transmission Assets,

to or upon the order of the party making such loan, advance or
payment, whether or not such Person is in fact liable for such
indebtedness, obligations and liabilities or pays or is liable for
interest thereon.

"Affiliate" when used with respect to any Person, means any
other Person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such first mentioned Person, or (ii) which beneficially
owns or holds 10% or more of any class of Voting Stock of such first
mentioned Person, or (iii) 10% or more of whose Voting Stock (or in
the case of a Person which is not a corporation, 10% or more of the
equity interest) is beneficially owned or held by such first mentioned
Person and/or any of its Affiliates. The term "control" (including
the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise;
provided, however, that no Person shall be deemed to be an Affiliate
of another Person (i) by reason of the exercise or existence of rights
or remedies granted under this Credit Agreement or (ii) by reason of
such Person's being a participant in a joint venture, partnership,
joint operating group or joint undivided ownership group with such
other Person notwithstanding the fact that such joint venture,
<PAGE> 35
3

partnership, joint operating group or joint undivided ownership group
may be an Affiliate of such first Person.

"Aggregate Outstanding Extensions of Credit" means, as to any
Bank at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Loans made by such Bank then outstanding and
(b) such Bank's Commitment Percentage of the L/C Obligations then
outstanding.

"Applicable Margin" means, with respect to ABR Rate Loans, CD
Rate Loans and Eurodollar Loans, the percentage set forth opposite
said terms in the appropriate column on Schedule 1.

"Appraisal Report" means a report on the Proved Reserves of
Oil and Gas Assets or Gas Processing Plant Assets signed by an
Appraiser or MND (in the case of MND, such report to be substantially
similar to that made by an Appraiser and satisfactory to the
Determining Banks) and "Appraisal Reports" means more than one
Appraisal Report.

"Appraisers" means DeGolyer and MacNaughton, B. P. Huddleston
& Co., Inc., Miller & Lents Ltd., Ryder Scott Company Petroleum
Engineers and H. J. Gruy and Associates, Inc., or such other engineers
of nationally recognized standing and experience in the evaluation of
Mineral Interests who may be selected from time to time by MND, with
the prior approval of the Required Banks, to make one or more of the
Appraisal Reports; provided, however, that the Required Banks shall
have the right reasonably to require a change in one or more
Appraisers for purposes of preparing future Appraisal Reports.

"Approved Borrowing Base" has the meaning specified in
subsection 2.23 hereof.

"Approved Present Value of Assets" has the meaning specified
in subsection 2.23 hereof.

"Assessment Rate" means, with respect to each CD Interest
Period, the annual assessment rate per annum (rounded to the nearest
1/100 of 1%, or if necessary, to the next higher 1/100 of 1%)
determined by the Administrative Agent to be the then-current
assessment rate payable by Chemical Bank to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring
time deposits made in dollars at offices of Chemical in the United
States as of the day two (2) Business Days prior to the first day of
such CD Interest Period.

"Available Borrowing Base" means, at any time, the Approved
Borrowing Base minus the aggregate principal amount of all
Consolidated Debt (other than Loans and L/C Obligations).
<PAGE> 36
4

"Available Commitment" means, as to any Bank, an amount equal
to the excess, if any, of (a) such Bank's Commitment over (b) such
Bank's Aggregate Outstanding Extensions of Credit.

"Board of Directors" or "Board" means the Board of Directors
of MND, MMC or MGS, as appropriate, or a committee of directors
lawfully exercising the relevant powers of the Board.

"Borrowing Base" has the meaning specified in subsection 2.23
hereof.

"Borrowing Base Determination Date" means July 1 of each year
commencing July 1, 1996 and such other day as provided in subsection
2.24.

"Business Day" means (a) a day other than a Saturday, Sunday
or other day on which commercial banks in New York City are authorized
or required by law to close, and (b) if a Eurodollar Loan is
concerned, a day which meets the criterion set forth in clause (a) and
upon which banks are also open for transactions in currencies and
exchange in the market where the Reference Banks are then determining
the Eurodollar Rate.

"Capital Lease" means any lease of property which, in
accordance with GAAP, should be capitalized on the lessee's balance
sheet and "Capital Lease Obligation" means the amount of the liability
which should be so capitalized.

"CD Base Rate" means with respect to each CD Interest Period
the rate per annum equal to the average (rounded to the nearest
one-one hundredth of one percent, or if necessary, to the next higher
one-one hundredth of one percent) of the prevailing rates per annum
bid at 9:00 A.M. (New York City time), or as soon thereafter as
practicable, on the first day of the relevant CD Interest Period by
New York certificate of deposit dealers of recognized standing for the
purchase at face value from each of the Reference Banks of its
certificates of deposit in an amount comparable to the CD Rate Loan to
which such CD Interest Period applies and having a maturity comparable
to such CD Interest Period.

"CD Interest Period" means with respect to any CD Rate Loan a
period beginning on, as the case may be, the relevant borrowing or
conversion date or the date of the expiration of the then current CD
Interest Period therefor, and ending on the day which is 30, 60, 90,
120 or 180 days (or 360 days, subject to availability in the opinion
of the Banks) thereafter, or, with the prior written consent of the
Banks, any other duration (as selected by the relevant Borrower, as
the case may be, in its notice of borrowing or conversion or by
irrevocable notice received by the Administrative Agent
<PAGE> 37
5

prior to 12:00 noon (New York City time) on the second Business Day
prior to the last day of the then current CD Interest Period therefor
if the loan is to be continued as such); provided that:

(a) if any CD Interest Period would otherwise end
on a day which is not a Business Day, that CD Interest Period
shall be extended to the next succeeding Business Day;

(b) any such notice electing CD Rate Loans but
not specifying the length of a CD Interest Period therefor
shall be deemed an election of ABR Rate Loans; and

(c) any CD Interest Period that would otherwise
extend beyond the Scheduled Termination Date shall end on the
Scheduled Termination Date.

"CD Rate" means a rate per annum determined pursuant to the
following formula:

CD Base Rate + Assessment Rate
1.00 - Reserve Percentage

"CD Rate Loans" means Loans at such time as they are made
and/or being maintained at a rate of interest based upon the CD Rate.

"Certain Other MEC Debt" means, as at any Determination Date,
the sum of the following: (i) all Guarantee Obligations of MND, if
any, as at such Determination Date in respect of borrowings made by
Belvieu Environmental Fuels, a Texas General Partnership, pursuant to
that certain term sheet delivered to the Banks on June 24, 1992, (ii)
all Guarantee Obligations of MND, if any, under the Partners'
Undertaking dated as of August 14, 1992 among Conoco, Inc., MGS, MND,
C&L Processors Partnership and The Chase Manhattan Bank (National
Association), as agent, as at such Determination Date, (iii) all
Guarantee Obligations of MND, if any, as at such Determination Date
under the Mitchell Guarantee dated as of June 1, 1993 made by MND in
favor of Chemical Bank, as agent, relating to that certain Term Loan
Agreement dated as of June 1, 1993 among Gulf Coast Fractionators,
certain lenders and Chemical Bank, as agent, including the Clawback
Amount (as defined in such Mitchell Guarantee), if any, and (iv) such
other obligations as are mutually agreed to by the Determining Banks
as at such Determination Date. The amounts specified in clauses (i),
(ii) and (iii) of the preceding sentence, as at January 31, 1996, are
set forth on Schedule 4.

"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
<PAGE> 38
6

"Commitment" means each Bank's obligation to make loans to the
Borrowers and/or to issue and/or participate in Letters of Credit
issued on behalf of a Borrower in an aggregate principal and/or face
amount at any one time outstanding not to exceed the amount set forth
opposite such Bank's name in subsection 2.1; collectively, as to all
the Banks, the "Commitments".

"Commitment Fee Rate" means the percentage set forth opposite
Commitment Fee Rate in the appropriate column on Schedule 1.

"Commitment Percentage" means, with respect to any Bank at any
time, the percentage which such Bank's Commitment then constitutes of
the aggregate Commitments (or, at any time after the Commitments shall
have expired or terminated, the percentage which the Aggregate
Outstanding Extensions of Credit of such Bank constitutes of the
Aggregate Outstanding Extensions of Credit of all the Banks).

"Commitment Period" means the period from and including the
Effective Date to but not including the Scheduled Termination Date or
such earlier date as the Commitments shall terminate as provided
herein.

"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with MND or any Borrower
within the meaning of Section 4001 of ERISA.

"Common Stock" means all capital stock of any corporation
other than Preferred Stock of such corporation.

"Consolidated Current Assets", as applied to MND and its
Restricted Subsidiaries at any date, means the sum of all Current
Assets of MND and its Restricted Subsidiaries at such date, determined
on a consolidated basis, plus the amount of the unused portion of the
Commitments as in effect from time to time.

"Consolidated Current Liabilities", as applied to MND and its
Restricted Subsidiaries at any date, means the sum of all Current
Liabilities of MND and its Restricted Subsidiaries at such date,
determined on a consolidated basis.

"Consolidated Debt", as applied to MND and its Restricted
Subsidiaries at any date, means the sum of all Debt of MND and its
Restricted Subsidiaries at such date, including, without limitation,
all MEC Loans and MEC Reimbursement Obligations, determined on a
consolidated basis, less (i) Intercompany Debt and Certain Other MEC
Debt deducted in determining Net Asset Value pursuant to subsection
2.23 hereof and (ii) the aggregate face amount of all outstanding MEC
Letters of Credit. Consolidated Debt
<PAGE> 39
7

shall also include the excess, if any, of (a) the aggregate amounts at
such date of Intercompany Debt and Certain Other MEC Debt over (b) the
aggregate amount, as mutually agreed to by MND and the Determining
Banks pursuant to subsection 2.23 hereof, of the types of Debt
described in (a) of this definition that were deducted from the
Present Value of Assets in determining Net Asset Value.

"Consolidated Tangible Net Worth", as applied to MEDC and its
Subsidiaries at any date, means stockholders' equity as reflected on
the consolidated balance sheet of MEDC and its Subsidiaries, from
which shall be subtracted the amount of all franchises, licenses,
permits, patents, patent applications, copyrights, trademarks, trade
names, goodwill, experimental or organizational expense, unamortized
debt discount and all other intangible assets, determined on a
consolidated basis.

"Credit Documents" means this Credit Agreement, the Notes, the
Guarantees, the Subsidiary Guarantee, the Subordination Agreement, the
L/C Documentation and any other documents prepared in connection
herewith or therewith.

"Credit Parties" means MEDC, MND, MMC, MGS, MEC, and TWC.

"Current Assets", as applied to any Person at any date, means
all assets of such Person which would, in accordance with GAAP, be
classified as current assets.

"Current Liabilities", as applied to any Person at any date,
means all liabilities of such Person which would, in accordance with
GAAP, be classified as current liabilities.

"Debt" as to any Person, at a particular time, means the sum
(without duplication) of (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or
services, (b) the face amount of all letters of credit issued for the
account of such Person and all drafts drawn thereunder that are
classified as indebtedness on the balance sheets of such Person in
accordance with generally accepted accounting principles, (c) the
undischarged balance of any Production Payment owing by such Person,
(d) Capitalized Lease Obligations of such Person and (e) any Guarantee
Obligation of such Person of any of the foregoing. "Debt" of any
Person shall not include (i) non-recourse Production Payments; and
(ii) Debt where prior to or at the maturity thereof there shall have
been irrevocably deposited in the manner provided for in the
instrument creating such indebtedness, in trust, the funds (or
evidences of such indebtedness, if permitted by the instrument
creating such indebtedness) necessary for the redemption, payment or
satisfaction of all such indebtedness so to be redeemed, paid or
satisfied, and where all other
<PAGE> 40
8

steps prerequisite to such redemption, payment or satisfaction shall
have been duly taken or duly provided for, and in such case the funds
and evidences of indebtedness so deposited shall not be included in
any computation of the assets of such Person; and (iii) for purposes
other than subsection 6.2, any Debt of MND or any Restricted
Subsidiary as described in paragraphs (d) (but only to the extent
indicated as "Non-Recourse Debt" on Schedule 5 hereto), (e) and (f) of
subsection 6.2 hereof; and (iv) any Advance Payment Obligation, and
provided, further, that "Debt" shall not include liabilities with
respect to the refunds of prior charges to gas purchasers required by
governmental or court action to the extent that a Person other than
MND or a Restricted Subsidiary will pay such refunds (and any interest
accrued thereon) or will reimburse MND or such Restricted Subsidiary
for its payment of the same.

"Dedicated Pipeline Reserves" means reserves of natural gas
which have been identified, on the basis of analytical techniques and
procedures customarily accepted in the oil and gas industry, in the
report most recently furnished to the Banks by MND and satisfactory to
the Required Banks, provided that such natural gas reserves are (a)
owned by, or subject to a sales or transportation agreement in favor
of, or (in the case of natural gas reserves owned by MND and its
Restricted Subsidiaries) committed to, MND or any of its Restricted
Subsidiaries involved in the gas gathering and transmission business;
(b) located in the United States or its territorial waters; and (c)
located sufficiently near or otherwise available to MND's and its
Restricted Subsidiaries' pipeline system to allow it to be reasonably
expected that MND and its Subsidiaries can earn operating income from
the purchase and sale or transporting thereof. Dedicated Pipeline
Reserves shall also include additional reserves that MND reasonably
expects to sell or transport, based on historical experience, then
current operating and contractual developments and any other relevant
factors.

"Default" means an event or condition which, with the giving
of notice or lapse of time, would become an Event of Default.

"Determination Date", as used in connection with any Appraisal
Report or Officers' Certificate delivered hereunder, means the date
(which shall be specified in such Appraisal Report or Certificate) as
of which the determinations set forth in such Appraisal Report or
Officers' Certificate are made.

"Determining Banks" means Chemical Bank, Citibank, N.A., and
NationsBank of Texas, N.A.
<PAGE> 41
9

"Dollar" and "$" means dollars in lawful currency of the
United States of America.

"Effective Date" means the date on which (a) counterparts of
this Credit Agreement executed by MND, MMC, MGS, the Administrative
Agent and each Bank shall have been delivered to the Borrowers and the
Administrative Agent and (b) the other conditions set forth in
subsection 4.1 shall have been satisfied.

"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may from time to time be amended or supplemented.

"Eurodollar Interest Period" means, with respect to any
Eurodollar Loan, a period beginning on, as the case may be, the
relevant borrowing or conversion date or on the date of the expiration
of the then current Eurodollar Interest Period therefor and ending
one, two, three or six months (or twelve months, subject to
availability in the opinion of the Banks) thereafter, or, with the
prior written consent of the Banks and subject to availability in the
opinion of the Banks, any other duration (as selected by the relevant
Borrower in its notice of borrowing or conversion or by irrevocable
notice received by the Administrative Agent prior to 12:00 noon (New
York City time) on the third Business Day prior to the last day of the
then current Eurodollar Interest Period therefor if the Loan is to be
continued as such); provided that:

(a) if any Eurodollar Interest Period would
otherwise end on a day which is not a Business Day, that
Eurodollar Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension
would be to extend such Eurodollar Interest Period into
another calendar month in which event such Eurodollar Interest
Period shall end on the immediately preceding Business Day;

(b) any such notice electing Eurodollar Loans but
not specifying the length of a Eurodollar Interest Period
therefor shall be deemed an election of ABR Rate Loans; and

(c) any Eurodollar Interest Period that would
otherwise extend beyond the Scheduled Termination Date shall
end on the Scheduled Termination Date.

"Eurodollar Loans" means Loans hereunder at such time as
interest thereupon accrues at a rate based upon the Eurodollar Rate.
That portion of the principal of such Loans to which a single Interest
Period applies shall be a single Eurodollar Loan.
<PAGE> 42
10

"Eurodollar Rate" means with respect to each Eurodollar
Interest Period the rate per annum equal to the quotient of (a) the
Eurodollar Reference Rate therefor, divided by (b) a number equal to
1.00 minus the aggregate of the rates (expressed as a decimal
fraction) of reserve requirements current on the date two Business
Days prior to the beginning of such Eurodollar Interest Period
(including, without limitation, basic, supplemental, marginal and
emergency reserves) under any regulations of the Board of Governors of
the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time
hereafter in effect, dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency
liabilities") of a member bank of such System (such Eurodollar Rate to
be adjusted to the nearest 1/100 of one percent or, if necessary, to
the next higher 1/100 of one percent).

"Eurodollar Reference Rate" means with respect to each
Eurodollar Interest Period the average (rounded to the nearest one-one
hundredth of one percent, or if necessary, to the next higher one-one
hundredth of one percent) of the rates per annum equal to the
prevailing rates per annum two Business Days prior to the beginning of
that Eurodollar Interest Period at which the Reference Banks are
offered Dollar deposits in the interbank eurodollar market used by,
and as at or about the relevant local time of, their offices then
determining the Eurodollar Reference Rate, for delivery on the first
day of such Eurodollar Interest Period for the number of days
comprised therein and in an amount equal to the amount of the
corresponding Eurodollar Loan. As used herein, "relevant local time"
shall mean 11:00 A.M. local time in London, England, when the relevant
office normally operates on London time or 10:00 A.M., local time in
New York, New York, when such office normally operates on New York
time.

"Event of Default" means any of the events specified in
Section 7 hereof, provided that any requirement for notice or lapse of
time or any other condition has been satisfied.

"Existing Loans" means the Loans made under, and as defined
in, the Original Credit Agreement to MND and SGP.

"Fee Payment Date" means the last day of each January, April,
July and October.

"Fiscal Year" means the period of 12 consecutive calendar
months commencing on (and including) February 1 and ending on (and
including) the next following January 31. Each quarter of a Fiscal
Year is hereinafter referred to as a "fiscal quarter".
<PAGE> 43
11

"Fixed Charge Ratio", as determined at the end of each fiscal
quarter, means the quotient of (a) total operating earnings (which
shall be the same line item as in MND's consolidated statement of
earnings for the fiscal year ended January 31, 1995), plus
depreciation, depletion and amortization for the period of four
consecutive fiscal quarters ending on the last day of such fiscal
quarter, divided by (b) total interest expense for such period of four
consecutive fiscal quarters (including any amounts capitalized).

"GAAP" means generally accepted accounting principles.

"Gas Gathering and Transmission Assets" means the fixed
property, plant and equipment of MND and its Restricted Subsidiaries
employed in the gathering and transmission of Dedicated Pipeline
Reserves, including, but not limited to, pipelines, compressors and
natural gas required for line-pack. In addition, assets (i) of a
partnership or joint venture in which MND or any Restricted Subsidiary
has an investment and which has no Debt or has outstanding Debt that
is recourse to MND or any Restricted Subsidiary and (ii) which would
constitute Gas Gathering and Transmission Assets if owned by MND or a
Restricted Subsidiary shall be Gas Gathering and Transmission Assets
for purposes of this Credit Agreement.

"Gas Processing Plant Assets" means the fixed property, plant
and equipment of MND and its Restricted Subsidiaries, including
associated gathering lines with respect to which a separate gathering
fee is not charged, employed in the processing of natural gas or gas
condensate to produce ethane, propane, butanes, natural gasoline and
other liquefiable hydrocarbons. In addition, assets (i) of a
partnership or joint venture in which MND or any Restricted Subsidiary
has an investment and which has no Debt or has outstanding Debt that
is recourse to MND or any Restricted Subsidiary and (ii) which would
constitute Gas Processing Plant Assets if owned by MND or a Restricted
Subsidiary shall be Gas Processing Plant Assets for purposes of this
Credit Agreement.

"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.

"Guarantee Obligation" means, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Debt (the
"primary obligations") of any other Person (the "primary obligor") in
any manner, whether
<PAGE> 44
12

directly or indirectly, including, without limitation, any obligation
of such Person, whether or not contingent (a) to purchase any such
primary obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that
the term Guarantee Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation shall be deemed to
be an amount equal to the stated portion or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is
made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by MND in good
faith.

"Guarantees" means the MEDC Guarantee, the MND Guarantee and
the TWC Guarantee.

"Gulf Coast Fractionators" means a Texas general partnership
among MGS, Trident NGL, Inc. and Conoco, Inc.

"Intercompany Debt" shall mean amounts payable to MEDC or any
of its Subsidiaries (other than MND or any of its Subsidiaries) and
shown as "Amounts Payable to Affiliated Companies" in the consolidated
balance sheet of MND and its Subsidiaries, and which is subordinated
to the prior payment of the Loans hereunder pursuant to the terms of
the Subordination Agreement.

"Interest Payment Date" means (a) as to ABR Rate Loans, the
last day of each January, April, July and October commencing on the
first of such days to occur after an ABR Rate Loan is made or
Eurodollar Loans or CD Rate Loans are converted to ABR Rate Loans, (b)
as to any Eurodollar Loan or CD Rate Loan having an Interest Period of
three months or less or 90 days or less, as the case may be, the last
day of each Interest Period with respect thereto, (c) as to any
Eurodollar Loan and any CD Rate Loan in respect of which a Borrower
has selected an Interest Period longer than three months or 90 days,
as the case may be, each day which is three months or 90 days, as the
case may be, or a whole multiple thereof, from the first day of such
Interest Period and the last day of such Interest Period, and (d) the
date of each prepayment as to the principal amount prepaid.
<PAGE> 45
13

"Interest Period" means a Eurodollar Interest Period or a CD
Interest Period, as the case may be.

"Issuing Bank" means Chemical Bank, in its capacity as issuer
of any Letter of Credit.

"Judgment" means any judgment, decree or order issued by a
court of law or other Governmental Authority, in each case for the
payment of money, rendered against MEDC or any of its Subsidiaries in
the Litigation.

"Judgment Interest" means pre-judgment and post-judgment
interest with respect to any Judgment, whether such interest has been
paid or remains unpaid.

"Judgment Payments" means payments made on Judgments.

"L/C Documentation" means an application, in such form as the
Issuing Bank may specify from time to time, requesting the Issuing
Bank to issue a Letter of Credit and/or such other certificates,
documents and other papers and information as the Issuing Bank may
request in connection with such issuance.

"L/C Obligations" means at any time, an amount equal to the
sum of (a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been reimbursed by the
Borrowers pursuant to subsection 2.14(a).

"Lending Office" means the office of each Bank designated as
such on Schedule 6, as well as any office notified as such by a Bank
to the Borrowers via the Administrative Agent. A Bank may designate
separate "Domestic" and "Eurodollar" Lending Offices for its loans
which are a portion of CD Rate and ABR Rate Loans, and Eurodollar
Loans, respectively.

"Letters of Credit" has the meaning set forth in subsection
2.10(a).

"Letter of Credit Account" has the meaning set forth in
subsection 7.4(a).

"Letter of Credit Commission Rate" means the percentage set
forth opposite Letter of Credit Commission Rate in the appropriate
column on Schedule 1.

"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement,
any lease (including, but not limited to, any Capital Lease) in the
nature thereof, any agreement to give
<PAGE> 46
14

any mortgage, security interest, encumbrance or pledge and the filing
of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction. An Advance Payment Obligation or
Production Payment shall not be deemed a Lien on Mineral Interests for
purposes of this Credit Agreement.

"Limited Subsidiary" means any Subsidiary which is a
Restricted Subsidiary or which would be a Restricted Subsidiary if
clause (a) of the definition of "Restricted Subsidiary" was not given
effect.

"Litigation" shall mean, collectively, the consolidated civil
action James Bartlett et al. v. Mitchell Energy Corporation, Case No.
87-04-190 (Consolidated) (271st Judicial District, Wise County,
Texas), any other litigation relating to allegations of surface and
subsurface contamination in Wise County, Texas or contiguous counties
from natural gas well leaks similar to the allegations in such
consolidated action, and any appeals arising from any thereof.

"Loan" or "Loans" shall refer to one or more portions of the
outstanding principal balance of loans made by the Banks to the
Borrowers pursuant to subsection 2.1 hereof; a particular "Loan" shall
bear interest at a common rate (i.e., the principal amount of the ABR
Rate Loans bears interest at a rate based upon the ABR Rate, and a
particular Eurodollar or CD Rate Loan bears interest at a particular
rate for each Interest Period). References to "Eurodollar", "ABR
Rate" and "CD Rate" refer to bases for interest, not necessarily to a
source of funds or procedure actually used to make or maintain loans.
In contrast, each Bank's portion of a Loan is one of its "loans".

"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property or condition (financial or
otherwise) of any of MEDC and its Subsidiaries taken as a whole, MND
and its Subsidiaries taken as a whole, or any Borrower and its
Subsidiaries taken as a whole, or (b) the validity or enforceability
of any of the Credit Documents or the rights or remedies of the
Administrative Agent or the Banks thereunder; provided that the
existence at any date of determination of an aggregate amount not in
excess of $500,000,000 of, without duplication, all (i) Outstanding
Judgments, (ii) Judgment Payments, (iii) Judgment Interest and (iv)
Settlements shall not in and of itself be considered a Material
Adverse Effect.

"Material Subsidiary" means, for so long as they shall remain
Subsidiaries of MND, each of MEC, MMC and MGS.
<PAGE> 47
15

"Maximum Rate" shall mean, for any Bank, the maximum lawful
non-usurious rate of interest (if any) which, under any law in effect
and applicable to such Bank, is permitted to be charged by such Bank
to the Borrowers on the transactions evidenced by this Credit
Agreement and any Notes from time to time in effect, including changes
in such Maximum Rate attributable to changes under such law which
permit a greater rate of interest to be contracted for, charged,
collected, received or taken as of the effective date of such
respective changes.

"MEC" means Mitchell Energy Corporation, a Delaware
corporation.

"MEC Credit and Reimbursement Agreement" means the Credit and
Reimbursement Agreement dated as of April 8, 1996 among MEC, MND, the
banks parties thereto, including the Issuing Banks (as defined
therein), and Chemical Bank, as administrative agent, as such
Agreement may be extended, amended, supplemented or otherwise
modified.

"MEC Letters of Credit" means "Letters of Credit" issued under
and as defined in the MEC Credit and Reimbursement Agreement.

"MEC Loans" means "Loans" under and as defined in the MEC
Credit and Reimbursement Agreement.

"MEC Reimbursement Obligations" means "Reimbursement
Obligations" under and as defined in the MEC Credit and Reimbursement
Agreement.

"MEDC" means Mitchell Energy & Development Corp., a Texas
corporation, which on the date of this Credit Agreement owns all of
the issued and outstanding capital stock of MND.

"MEDC Guarantee" means the Guarantee made by MEDC in favor of
the Administrative Agent for the ratable benefit of the Banks,
substantially in the form of Exhibit E-1 hereto, as the same may be
amended, supplemented or otherwise modified from time to time.

"Mineral Interests" means leasehold and other interests in
Petroleum in or under oil, gas and other mineral leases, mineral fee
interests, and overriding royalty and Production Payments, and
royalty, net profits interests and any other interests in Petroleum in
place situated in the United States or Canada or within the limits of
the territorial and offshore waters of the United States or any state
thereof or Canada or any province thereof.

"MND Guarantee" means the Guarantee made by MND in favor of
the Administrative Agent for the ratable benefit of
<PAGE> 48
16

the Banks, substantially in the form of Exhibit E-2 hereto, as the
same may be amended, supplemented or otherwise modified from time to
time.

"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.

"Net Asset Value" has the meaning specified in subsection 2.23
hereof.

"NGPL" means Natural Gas Pipeline Company of America, a
Delaware corporation, its successors and assigns.

"NGPL Settlement Agreement" means the settlement agreement,
dated as of July 1, 1995, among MEC, MGS and NGPL.

"Note" shall have the meaning given such term in subsection
2.2 hereof.

"Officers' Certificate" means a certificate signed by (a) the
chief financial officer or principal accounting officer of MND or (b)
the Chairman of the Board, the Vice Chairman of the Board, the
President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of a Person.

"Oil and Gas Assets" means at any time (a) all of MND's and
its Restricted Subsidiaries' Mineral Interests having Proved Reserves
or possible or probable reserves attributable thereto, (b) all items
(except undeveloped leases), capitalized and being amortized in
connection with the exploration, development or production of Mineral
Interests (i.e., the "full cost" asset base) and (c) all fixed
property, plant and equipment which are employed in connection with
the operation of such Mineral Interests and the production of
Petroleum therefrom, in each case located in the United States or
within the limits of the territorial and offshore waters of the United
States or any state thereof, or Canada or within the limits of the
territorial and offshore waters of Canada or any province thereof. In
addition, assets (i) of a partnership or joint venture in which MND or
any Restricted Subsidiary has an investment and which has no Debt or
has outstanding Debt that is recourse to MND or any Restricted
Subsidiary and (ii) which would constitute Oil and Gas Assets if owned
by MND or a Restricted Subsidiary shall be Oil and Gas Assets for
purposes of this Credit Agreement.

"Outstanding Judgments" means, at any date of determination,
unpaid Judgments then in effect (regardless of whether bonded or
stayed).
<PAGE> 49
17

"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.

"Permitted Encumbrances" means as applied to MND or any of its
Restricted Subsidiaries:

(a) liens of taxes, assessments and governmental
charges not yet payable, or payable without penalty so long as
so payable, or deposits created in the ordinary course of
business as security for compliance with laws imposing taxes,
assessments or governmental charges;

(b) liens of taxes, assessments and governmental
charges the validity of which is being contested in good faith
by appropriate action promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made
therefor;

(c) materialmen's, mechanics', repairmen's,
employees', operators' or other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of any property which
have not at the time been filed pursuant to law and any such
liens and charges incidental to construction, maintenance or
operation of any property which, although filed, relate to
obligations not yet due or the payment of which is being
withheld as provided by law, or to obligations the validity of
which is under contest in good faith by appropriate action
promptly initiated and diligently conducted if such reserve or
other appropriate provision, if any, as shall be required by
GAAP shall have been made for such withheld payment or
contested claim;

(d) liens incurred or deposits made in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other similar
statutory obligations or to secure the performance of leases,
licenses, franchises, permits, tenders, statutory obligations,
surety and appeal bonds, performance and return-of-money bonds
and other similar obligations (exclusive of obligations
incurred in connection with the borrowing of money or the
obtaining of advances or credit);

(e) any judgment lien, unless the judgment it
secures shall not, within 30 days after the entry thereof,
have been discharged or execution thereof stayed pending
appeal, or shall not have been discharged within 30 days after
the expiration of any stay, provided, however, that the
aggregate amount of such liens securing judgments which have
not been
<PAGE> 50
18

discharged or stayed within such 30-day period (excluding
Judgments in respect of which MEC Letters of Credit will be is
sued) shall not exceed $50,000,000 at any one time;

(f) (i) encumbrances (other than to secure the
payment of money), easements, rights-of-way, servitudes,
permits, leases and other rights in respect of grazing,
logging, canals, ditches, reservoirs or the like, conditions,
covenants or other restrictions, or (ii) easements for
streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other rights-of-way, on, over or in
respect of property owned or leased by MND or its Restricted
Subsidiaries or over which MND or its Restricted Subsidiaries
own rights-of-way, easements, permits or licenses, provided
that such encumbrances, easements, rights-of-way, servitudes,
permits, leases, rights, conditions, covenants or other
restrictions are such that they will not either individually
or in the aggregate, if exercised or availed of, interfere
materially with the proper use or operation of the property
affected thereby or the purpose for which such property is, or
is to be, used;

(g) rights reserved to or vested in any
municipality or governmental, statutory or public authority to
control or regulate any property of MND or its Subsidiaries or
to use such property in any manner;

(h) obligations or duties, affecting any property
of MND or its Restricted Subsidiaries, to any municipality or
public authority with respect to any franchise, grant, license
or permit; and any defects in title to structures or other
facilities arising solely from the fact that such structures
or facilities are constructed or installed on lands held under
government permits, leases or other grants, which defects in
the aggregate do not materially prevent the use of such
property for the purposes for which it is held by MND or its
Restricted Subsidiaries;

(i) zoning laws and ordinances and municipal
regulations;

(j) defects or irregularities in the titles to
any property which defects or irregularities have been cured
by possession under applicable statutes of limitation or which
are of a minor nature and in the aggregate will not materially
impair the use of such property for the purposes for which it
is held; and any irregularities in or deficiencies of title to
any rights-of-way for pipelines, telephone lines, power lines,
water lines and/or appurtenances thereto or
<PAGE> 51
19

improvements thereon, and to any real estate or interest
therein subject to such rights-of-way;

(k) the lien reserved in leases for rent and for
compliance with the terms of the leases in the case of
leasehold estates; any interests which other parties to any
joint venture, common enterprise, pooling or unitization
agreement may have in the Mineral Interests to which such
agreement relates or any interests with which other parties
may be vested pursuant to orders, regulations, rules or other
official acts of any Federal, state or other governmental
agency having jurisdiction which create or declare any unit or
units embracing or relating to Mineral Interests or the
production of Petroleum therefrom;

(l) any Lien securing Debt, not created, assumed
or guaranteed by MND or its Restricted Subsidiaries and on
which neither MND nor its Restricted Subsidiaries customarily
pay interest, existing upon real estate or rights in or
relating to real estate (including rights-of-way and
easements) acquired by MND or its Restricted Subsidiaries for
the purposes of production, treatment, storage or
transportation of Petroleum but excluding Gas Processing Plant
Assets and Gas Gathering and Transmission Assets; or any such
Liens upon oil and gas leasehold interests at the date of
lease execution which are of a minor nature and in the
aggregate will not materially impair the use of such property
for the purposes for which it is held;

(m) the right reserved to, or vested in, any
municipality or governmental or other public authority or
public utility, by the terms of any franchise, grant, license,
permit or lease or by any statutory provisions specifically
relating thereto, to terminate such franchise, grant, license,
permit or lease or to purchase, condemn, expropriate or
recapture, or designate a purchaser of, any property, if the
terms of such franchise, grant, license, permit or lease or
statute do not contain any provisions giving to such authority
the right (without default by such Person under the terms and
conditions of such franchise, grant, license, permit or lease
by the Person holding the same) to take title to, or to
designate any Person to take title to, any property of MND or
its Restricted Subsidiaries located or constructed thereon
without the payment of fair consideration therefor or
consideration determined in accordance with any applicable
statutory provision in that regard; and the right reserved to
or vested in any such authority to require such property to be
altered, relocated or removed at the expense of the holder of
such franchise, grant, license, permit or lease; and
<PAGE> 52
20

(n) production sale contracts, unitization and
pooling declarations and agreements, and any operating
agreements and other agreements which are customary in the oil
and gas exploration and development business and in the
business of processing gas and gas condensate production for
the extraction of products therefrom.

"Permitted Shortfall" shall have the meaning given such term
in subsection 2.6(a).

"Person" means an individual, a corporation (including MND or
any of its Subsidiaries), a partnership, a limited liability company,
a trust, an unincorporated organization or a government or any agency
or political subdivision thereof.

"Petroleum" means oil, gas and other liquid or gaseous
hydrocarbons, including, but not limited to, all liquefiable
hydrocarbons and other products which may be extracted from gas and
gas condensate by the processing thereof in a gas processing plant.

"Plan" means at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which MND, either Borrower
or a Commonly Controlled Entity is (or, if such plan were terminated
at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as said term is defined in Section 3(5) of ERISA.

"Preferred Stock" means any capital stock of any corporation
(whether now or hereafter authorized and however designated) which
shall have a priority or preference over any other class of capital
stock of such corporation with respect to the right to receive
dividends or the right to receive payments or other distributions of
assets on the voluntary or involuntary liquidation, dissolution or
winding up of such corporation.

"Present Value of Assets" means the present value of Proved
Reserves of Oil and Gas Assets and Gas Processing Plant Assets and the
present value of Gas Gathering and Transmission Assets determined by
the Determining Banks in accordance with subsection 2.23 hereof.

"Production Payment" means a limited royalty or overriding
royalty interest which burdens one or more other Mineral Interests but
which has a term extending only until such time as the owner or owners
of such royalty or overriding royalty interest have realized therefrom
(i) a specified or determinable amount of the Petroleum produced from
or attributable to such other Mineral Interests or (ii) a specified or
determinable amount of the proceeds from the value of such Petroleum
production.
<PAGE> 53
21

"Proved Reserves" means reserves of Petroleum which are still
in the ground but which have been located and (a) at least 70% of the
present value of which have been determined by an Appraiser in making
an Appraisal Report with respect to such reserves and (b) no more than
30% of the present value of which have been determined by MND in
making an Appraisal Report with respect to such reserves, in each case
(a) and (b) by reason of actual completion, successful testing,
positive core analyses or reasonable geological interpretation, to be
economically recoverable through the use of known operating techniques
and procedures being utilized in the oil and gas industry at the
Determination Date set forth in such Appraisal Report, which reserves,
under sound engineering practice, are classified as proved reserves,
which do not include any reserves classified as probable or possible,
and which also meet the following qualifications:

(a) such reserves are located in the United
States or Canada or within the limits of the territorial and
offshore waters of the United States or Canada or any state or
province thereof; and

(b) such reserves are so located in relation to
potential delivery points or pipelines for possible sales of
Petroleum therefrom that MND and its Restricted Subsidiaries
can reasonably expect to produce, deliver and sell such
Petroleum at economically practical prices.

There shall not be included in Proved Reserves any volumes of
Petroleum, which, in the opinion of MND or such Appraiser making such
Appraisal Report, as the case may be, with respect to such reserves,
will be produced and recovered from any reservoir by utilization of
secondary or enhanced recovery procedures or techniques (such as, but
not limited to, water flooding or injection of other substances into
the reservoir to effect recovery of Petroleum therefrom) unless, prior
to the date such Appraisal Report is signed, such procedures and
techniques either have actually been successfully initiated and
utilized in economically producing and recovering Petroleum from such
reservoir or from similar nearby reservoirs producing from the same
formation or have, in the opinion of MND or such Appraiser, as the
case may be, been proved economic by sufficient pilot operations for
producing and recovering Petroleum from such reservoir.

"Reference Banks" means Chemical Bank and PNC Bank, National
Association.

"Register" shall have the meaning given such term in
subsection 9.10(d).
<PAGE> 54
22

"Reimbursement Obligation" means an obligation of the
Borrowers to reimburse the Issuing Bank pursuant to subsection 2.14(a)
for amounts drawn under Letters of Credit issued by the Issuing Bank.

"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA other than those events as to which the
thirty-day notice period is waived under subsections .13, .14, .16,
.18, .19 or .20 of PBGC Reg. 2615.

"Required Banks" means Banks holding 66-2/3% or more of the
Commitment Percentages as of any determination.

"Requirement of Law" means, as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon, such Person or
any of its property or to which such Person or any of its property is
or purports to be subject.

"Reserve Percentage" for any day with respect to any CD Rate
Loan means that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve
requirement for a member bank of the Federal Reserve System in New
York City with deposits exceeding one billion dollars in respect of
new non-personal time deposits in Dollars in New York City having a
maturity comparable to the CD Interest Period for such CD Rate Loan
and in an amount of $100,000 or more.

"Restricted Subsidiary" means any Subsidiary

(a) at least 80% of the outstanding shares of
every class of stock, all options, warrants or other rights to
acquire stock and all securities convertible into stock of
which are at the time owned by MND or one or more Restricted
Subsidiaries or by MND and one or more Restricted
Subsidiaries;

(b) which is organized and existing under the
laws of the United States or any state thereof or the District
of Columbia or Canada or any province thereof;

(c) all or substantially all of the properties
and assets and business operations of which are located and
conducted in (i) the United States or within the limits of the
territorial and offshore waters of the United States or any
state thereof or (ii) Canada or within the limits of the
territorial and offshore waters of Canada or any province
thereof; and
<PAGE> 55
23

(d) which has not been designated by the Board as
an Unrestricted Subsidiary;

provided, that in no case may an Unrestricted Subsidiary be
redesignated a Restricted Subsidiary unless, at the time of such
redesignation and after giving effect thereto and to the concurrent
retirement of any Debt, (i) no Event of Default or Default shall have
occurred and be continuing and (ii) such Subsidiary could incur all of
its Debt then outstanding without violation of this Credit Agreement
and, provided, further, that each Material Subsidiary, while a
Subsidiary, shall always be a Restricted Subsidiary. Schedule 2 lists
all Restricted Subsidiaries as at the date hereof.

"Scheduled Termination Date" means April 8, 2000.

"Securities" means any stocks, any bonds, debentures, notes or
other evidences of Debt, and any other instruments generally known as
securities; any certificates of interest or participation in,
temporary or interim certificates for, receipts for, guarantees of, or
warrants or rights to subscribe to or purchase, any of the foregoing;
and any agreements, indentures, mortgages or other instruments
providing for, relating to or securing any of the foregoing.

"Settlements" means amounts paid or agreed to be paid by MEDC
or any of its Subsidiaries with respect to any settlement of any
Litigation (including threatened Litigation).

"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.

"Subordination Agreement" means a subordination agreement
substantially in the form of Exhibit F hereto.

"Subsidiary" means with respect to any Person, a corporation,
a majority (by number of votes) of the Voting Stock of which is at the
time owned by such Person or one or more of such Person's Subsidiaries
or by such Person and one or more of such Person's Subsidiaries.
Unless the context requires otherwise, "Subsidiary" shall be deemed to
refer to a Subsidiary of MND.

"Subsidiary Guarantee" means the Subsidiary Guarantee made by
MEC, MGS and MMC in favor of the Administrative Agent for the ratable
benefit of the Banks, in the form of Exhibit G hereto, as such
guarantee may be amended, supplemented or otherwise modified from time
to time.

"TUFCO" shall mean the Texas Utilities Fuel Company, a Texas
corporation, its successors and assigns.
<PAGE> 56
24

"TWC" means The Woodlands Corporation, a Delaware corporation,
which on the date of this Credit Agreement is a wholly-owned
Subsidiary of MEDC.

"TWC Guarantee" means the Guarantee made by TWC in favor of
the Administrative Agent for the ratable benefit of the Banks,
substantially in the form of Exhibit E-3 hereto, as the same may be
amended, supplemented or otherwise modified from time to time.

"Type" means as to any Loan, its nature as an ABR Rate Loan, a
CD Rate Loan or a Eurodollar Loan.

"UBS Facility" means the Term Loan Agreement, dated as of May
15, 1992, as amended, between MND and Union Bank of Switzerland.

"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.

"Unrestricted Subsidiary" means any Subsidiary of MND which
has been designated an Unrestricted Subsidiary by the Board, provided,
that in no case may a Restricted Subsidiary be designated an
Unrestricted Subsidiary, and in no case may any Unrestricted
Subsidiary be designated a Restricted Subsidiary unless, at the time
of such designation or redesignation and after giving effect thereto
and to the concurrent retirement of any Debt, (i) no Event of Default
or Default shall have occurred and be continuing and (ii) MND's
Consolidated Debt does not exceed the current Approved Borrowing Base,
provided that at the time of the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary, the Subsidiary so designated
does not own, directly or indirectly, any capital stock or Debt of MND
or any Restricted Subsidiary and, provided, further, that no
Subsidiary that is a Restricted Subsidiary as of the date hereof may
be redesignated an Unrestricted Subsidiary.

"Voting Stock" means stock or shares of any class or classes
(however designated) of a corporation, having ordinary voting power
for the election of a majority of the members of the board of
directors (or other governing body) of such corporation other than
stock or shares having such power only by reason of the happening of a
contingency.

"Woodlands Revolving Credit Agreement" means the Credit
Agreement dated as of November 30, 1994 among TWC, the Banks and
Chemical Bank, as agent, as amended by the First Amendment thereto
dated as of December 20, 1995 and by the Second Amendment thereto
dated as of April 19, 1996, and as the same may be further amended,
supplemented or otherwise modified.
<PAGE> 57
25

1.2 Accounting Principles. (a) All financial statements
provided for in this Credit Agreement shall be prepared in accordance with GAAP
as in effect from time to time in the United States. All financial
computations hereunder required pursuant to Section 6 shall be made, and all
accounting terms used in connection therewith shall be construed, in accordance
with GAAP applied by MND and MEDC; provided however, that if GAAP or MND's or
MEDC's application of GAAP changes and such change is judged to be material by
either MND or the Administrative Agent, then MND or the Administrative Agent
shall give written notice (a "Notice of Accounting Change") to the other party
and such computations will be made in accordance with GAAP in effect and as
applied by MND and MEDC immediately prior to such material change. The
Administrative Agent or MND must give such Notice of Accounting Change to the
other party within three months of receipt by the Administrative Agent of the
notice and schedule referred to in the immediately succeeding sentence. MND
agrees to notify the Banks in writing of any material change in GAAP affecting
MND or MEDC or of any material change in MND's or MEDC's application of GAAP
and to provide a schedule which shows the effect of such change on such
financial computations or such calculations, all within five Business Days of
sending (or being required to send) to each Bank the first financial statements
pursuant to subsection 5.1(a) or subsection 5.1(b) hereof reflecting such
change.

In the event a Notice of Accounting Change is given by either
party:

(i) It is the intent of the Administrative Agent and MND
that the relevant provisions of this Credit Agreement be amended as
necessary to adjust the requirements of the aforementioned financial
computations so that the respective positions of the Banks and MND
after the accounting change conform as nearly as possible to their
respective positions as of the date of this Credit Agreement.

(ii) Until an amendment in accordance with clause (i)
above is executed, financial computations will be made in accordance
with GAAP in effect and as applied by MND and MEDC immediately prior
to the material change.

(b) For purposes of all financial computations required
hereunder pursuant to Section 6, investments in partnerships or joint ventures
shall not be consolidated.

1.3 Use of Defined Terms. (a) All terms defined in this
Credit Agreement shall have the defined meanings when used in any Notes,
certificates, reports or other documents made or delivered pursuant to this
Credit Agreement, unless the context shall require otherwise.

(b) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Credit Agreement shall
<PAGE> 58
26

refer to this Credit Agreement as a whole and not to any particular provision
of this Credit Agreement, and section, subsection, schedule and exhibit
references are to this Credit Agreement unless otherwise specified.

SECTION 2. AMOUNT AND TERMS OF LOANS

2.1 Revolving Credit Commitments. (a) Subject to the terms
and conditions of this Credit Agreement, each of the Banks severally agrees to
make loans to the Borrowers from time to time during the Commitment Period in
an aggregate principal amount which, when added to such Bank's Commitment
Percentage of the then outstanding L/C Obligations, does not exceed the lesser
of (i) the amount of its Commitment set opposite its name below, as such amount
may be reduced as provided herein and (ii) such Bank's Commitment Percentage of
the then current Available Borrowing Base:

Amount of
Bank Commitment
---- ----------

Chemical Bank $24,300,000
NationsBank of Texas, N.A. 20,700,000

Citibank, N.A. 18,600,000

The Bank of Nova Scotia 16,800,000
PNC Bank, National Association 16,800,000

Bank One, Texas, N.A. 9,300,000
Bank of America, National Trust & Savings 9,300,000
Association

First Interstate Bank of Texas, N.A. 5,700,000

Christiania Bank Og Kreditkasse 5,700,000
Morgan Guaranty Trust Company 5,700,000

The First National Bank of Chicago 5,700,000
The Bank of Tokyo-Mitsubishi, Ltd., Houston 5,700,000
Agency

National Westminster Bank Plc 5,700,000
<PAGE> 59
27

Amount
Bank Commitment
---- ----------
Total $150,000,000
============

During the Commitment Period, the Borrowers may use the Commitments by
borrowing, prepaying outstanding Loans, in whole or in part, and reborrowing,
all in accordance with the terms and conditions hereof.

(b) The Loans may be (i) Eurodollar Loans, (ii) ABR Rate
Loans, (iii) CD Rate Loans or (iv) a combination thereof, as determined by the
relevant Borrower pursuant to subsection 2.7.

2.2 Repayment of Loans; Evidence of Debt. (a) Each Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Bank the then unpaid principal amount of each loan of such Bank
on the Scheduled Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 7). Each Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the
rates per annum, and on the dates, set forth in subsection 2.7.

(b) Each Bank shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of each Borrower to
such Bank resulting from each loan of such Bank from time to time, including
the amounts of principal and interest payable and paid to such Bank from time
to time under this Credit Agreement.

(c) The Administrative Agent shall maintain the Register
pursuant to subsection 9.10(d), and a subaccount therein for each Bank, in
which shall be recorded (i) the amount of each Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Borrower to each Bank hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from either Borrower and each Bank's
share thereof.

(d) The entries made in the Register and the accounts of each
Bank maintained pursuant to subsection 2.2(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of each Borrower therein recorded; provided, however, that the
failure of any Bank or the Administrative Agent to maintain the Register or any
such account, or any error therein, shall not in any manner affect the
obligation of either Borrower to repay (with applicable interest) the loans
made to such Borrower by such Bank in accordance with the terms of this Credit
Agreement.
<PAGE> 60
28

(e) The Borrowers agree that, upon the request to the
Administrative Agent by any Bank, the Borrowers will execute and deliver to
such Bank a promissory note of each Borrower evidencing the loans of such Bank,
substantially in the form of Exhibit A with appropriate insertions as to date
and principal amount (a "Note").

2.3 Procedure for Borrowing. (a) Each Borrower may borrow
under the Commitments during the Commitment Period on any Business Day;
provided that such Borrower shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to
12:00 noon, New York City time, (a) three Business Days prior to the borrowing
date, in the case of Eurodollar Loans, (b) two Business Days prior to the
borrowing date, in the case of CD Rate Loans and (c) on the borrowing date, in
the case of ABR Rate Loans) specifying (i) the name of such Borrower, (ii) the
amounts to be borrowed, (iii) the borrowing date, (iv) whether the borrowings
are to be Eurodollar Loans, CD Rate Loans, ABR Rate Loans or a combination
thereof and (v) if the borrowing (or any portion thereof) is a Eurodollar Loan
or a CD Rate Loan, the length of the initial Interest Period or periods
therefor (subject to the definitional provisions hereof). Each borrowing
pursuant to the Commitments shall be in a principal amount of the lesser of (x)
$5,000,000 or a whole multiple thereof and (y) the available undrawn portion of
the Commitments.

(b) Upon receipt of such notice from a Borrower the
Administrative Agent shall promptly notify each Bank thereof. Each Bank will
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of such Borrower at the office of the
Administrative Agent designated by the Administrative Agent in the
Administrative Agent's notice aforesaid prior to 12:00 noon (according to the
time of the place where such office of the Administrative Agent is located) on
the borrowing date requested by such Borrower in funds immediately available to
the Administrative Agent as the Administrative Agent may direct. The proceeds
of all such loans will immediately thereafter be made available to such
Borrower by the Administrative Agent crediting the account of such Borrower on
the books of the Administrative Agent with the aggregate of the amount made
available to the Administrative Agent by the Banks and in like funds as
received by the Administrative Agent.

2.4 Commitment Fee. The Borrowers shall pay to the
Administrative Agent during and for the Commitment Period for the account of
each Bank a commitment fee, computed at the Commitment Fee Rate, on the
Available Commitment of such Bank during such period. Such commitment fee
shall be payable in arrears on each Fee Payment Date to occur prior to the
Scheduled Termination Date and on the Scheduled Termination Date or such
earlier date as the Commitments shall terminate as provided herein and shall be
shared ratably among the Banks in accordance with their respective Commitment
Percentages.
<PAGE> 61
29

2.5 Reduction of Commitment. The Borrowers shall have the
right, upon not less than three Business Days' written, telecopy or telephone
notice (to be confirmed promptly in writing) to the Administrative Agent, to
from time to time terminate or reduce the Commitments by an amount not
exceeding the amount of the then aggregate Available Commitments. Any such
reduction by either Borrower shall be in an amount of $5,000,000 or a whole
multiple thereof and shall reduce permanently the amount of the Commitments
then in effect. Termination of the Commitments shall also terminate the
obligation of the Issuing Bank to issue the Letters of Credit.

2.6 Prepayments. (a) If, following a determination of the
Approved Borrowing Base resulting in a reduction thereof, Consolidated Debt
exceeds such reduced Approved Borrowing Base (any such excess on the date of
such determination (solely to the extent of such reduction), as decreased by
any subsequent reduction in Consolidated Debt or increase in the Approved
Borrowing Base, a "Permitted Shortfall"), the Borrowers shall, on the date
which is six months following the date of such determination, prepay Loans in
an aggregate principal amount equal to the amount of such Permitted Shortfall,
if any, on such date of prepayment. If Consolidated Debt exceeds the Approved
Borrowing Base as a result of the incurrence of MEC Reimbursement Obligations
and/or MEC Loans, the Borrowers shall, on the date which is 60 days following
the date of such incurrence, prepay Loans in an aggregate principal amount
equal to the amount, if any, by which Consolidated Debt exceeds the Approved
Borrowing Base on such date of prepayment (excluding any Permitted Shortfall
which is subject to prepayment pursuant to the immediately preceding sentence).
If Consolidated Debt exceeds the Approved Borrowing Base other than as a result
of (i) a determination of the Approved Borrowing Base resulting in a reduction
thereof or (ii) the incurrence of MEC Reimbursement Obligations and/or MEC
Loans, the Borrowers shall immediately prepay Loans in an aggregate principal
amount equal to the amount of such excess until such excess has been reduced to
zero (whether such reduction results from such prepayments, from other
reductions in Consolidated Debt or otherwise).

(b) The Borrowers may as provided in this subsection at any
time and from time to time prepay the Loans, in whole or in part, without
premium or penalty, upon at least three Business Days' prior written or
telecopy notice to the Administrative Agent, specifying the date and amount of
prepayment. Prepayments of Loans shall first be applied to ABR Rate Loans to
the extent thereof, before prepayment of Eurodollar Loans or CD Rate Loans.
Prepayment of any of the Eurodollar Loans or CD Rate Loans may only be made
upon the last day of the relevant Interest Period. Upon receipt of such
notice, the Administrative Agent shall promptly notify each Bank thereof. The
payment amount specified in such notice shall be due and payable on the date
specified, together with accrued interest to such date on the amount prepaid.
Partial optional prepayments of Loans shall be in an
<PAGE> 62
30

aggregate principal amount of $5,000,000 or a whole multiple thereof.

2.7 Interest Rates and Options. (a) The Loans may be (i)
Eurodollar Loans, (ii) ABR Rate Loans, (iii) CD Rate Loans or (iv) a
combination thereof, as determined by the relevant Borrower pursuant to
subsection 2.3 or this subsection 2.7.

(b) The entire outstanding principal amount of the Loans
hereunder shall bear interest at one of the following rates per annum, or a
combination thereof, until repaid in full:

(i) ABR Rate Loans shall bear interest at a
rate per annum equal to the ABR Rate plus the Applicable
Margin;

(ii) Eurodollar Loans shall bear interest at a
rate per annum equal to the Eurodollar Rate determined by the
Administrative Agent for the relevant Eurodollar Interest
Period plus the Applicable Margin; and

(iii) CD Rate Loans shall bear interest at a rate
per annum equal to the CD Rate determined by the
Administrative Agent for the relevant CD Interest Period plus
the Applicable Margin.

The rates specified in clauses (i), (ii) and (iii) shall apply until the unpaid
principal amount of any Loan shall become due and payable (whether at the
stated maturity, by acceleration or otherwise), and thereafter such principal
amount not paid when due shall bear interest at 2% per annum above the rate
otherwise applicable thereto until paid in full, except that each Eurodollar
Loan and CD Rate Loan not paid when due shall be automatically and irrevocably
converted into an ABR Rate Loan on the last day of the Interest Period therefor
in effect when such amount becomes due and payable.

(c) A conversion to an ABR Rate Loan may occur on any
Business Day upon irrevocable telephonic notice (confirmed in writing) by the
relevant Borrower received by the Administrative Agent prior to 12:00 noon (New
York City time) on such Business Day, provided that conversions from any
Eurodollar Loan or CD Rate Loan must occur on the last day of the current
Interest Period therefor.

(d) A continuation as, or conversion to, one or more
Eurodollar Loans may occur on any Business Day upon irrevocable telephonic
notice (confirmed in writing) by the relevant Borrower received by the
Administrative Agent prior to 12:00 noon (New York City time) on the third
Business Day prior to the first day of the Eurodollar Interest Period therefor,
provided that no continuation as or conversion to a Eurodollar Loan may be made
upon the occurrence and during the continuance of a Default or an Event of
Default, and provided, further, that any continuation as
<PAGE> 63
31

a Eurodollar Loan or conversion from a CD Rate Loan to a Eurodollar Loan must
occur on the last day of the current Interest Period for such continued or
converted Loan.

(e) A continuation as, or conversion to, one or more CD Rate
Loans may occur on any Business Day upon irrevocable telephonic notice
(confirmed in writing) by the relevant Borrower received by the Administrative
Agent prior to 12:00 noon (New York City time) on the second Business Day prior
to the first day of the Interest Period therefor, provided that no continuation
as or conversion to a CD Rate Loan may be made upon the occurrence and during
the continuance of a Default or an Event of Default, and provided, further,
that any continuation as a CD Rate Loan or conversion from a Eurodollar Loan to
a CD Rate Loan must occur on the last day of the current Interest Period for
such continued or converted Loan.

(f) The minimum principal amount to which any such
election upon conversion or continuation may apply if more than one category of
interest rate option is then in effect shall be at least $5,000,000 (i.e., the
ABR Rate Loans, each Eurodollar Loan and each CD Rate Loan shall each have a
minimum principal amount of $5,000,000 unless only one such option applies to
the entire principal amount then outstanding).

(g) Interest shall be payable on each Interest Payment
Date.

2.8 Computation of Interest and Fees; Funding Procedures.
(a) Interest on ABR Rate Loans and commitment fees shall be calculated on the
basis of a 365- (or 366- as the case may be) day year for the actual number of
days elapsed. Interest on Eurodollar and CD Rate Loans shall be calculated on
the basis of a 360-day year for the actual number of days elapsed. The
Administrative Agent shall notify the Borrowers of each determination of a
Eurodollar Rate or CD Rate. Any change in the interest rate on a Loan shall
become effective as of the opening of business on the day on which such change
shall become effective. The Administrative Agent shall notify the Borrowers
and the Banks of the effective date and the amount of each such change in the
interest rate on a Loan.

(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Credit Agreement shall
be conclusive and binding on the Borrowers in the absence of manifest error.

(c) References to the purchase of deposits in the
inter-bank eurodollar market are included only for the purpose of determining
the rate of interest to be paid upon Eurodollar Loans by reference to rates
prevailing in such market. Each Bank shall be entitled to fund the loans
hereunder in any manner it sees fit, but each Eurodollar Rate and other
provisions applicable to Eurodollar Loans shall be construed and applied upon
the
<PAGE> 64
32

conclusive assumption that each Bank actually funded such portions through the
purchase of interbank eurodollar deposits having a term corresponding to the
relevant Interest Periods and through the transfer of such deposits from a
non-United States office to a United States office.

2.9 Inability to Determine Interest Rate. In the event that
the Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Borrowers) that by reason of circumstances
affecting the interbank eurodollar market or the domestic certificate of
deposit market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate or the CD Rate for any Eurodollar or CD Interest Period for (a)
a proposed loan that a Borrower has requested be made as a Eurodollar or CD
Rate Loan, (b) a Eurodollar or CD Rate Loan that will result from the requested
conversion into a Eurodollar or CD Rate Loan or (c) the continuation of a
Eurodollar or CD Rate Loan as such for an additional Interest Period (any such
Eurodollar or CD Rate Loan with an Interest Period so affected being herein
called an "Affected Loan"), the Administrative Agent shall forthwith give
telephone or telecopy notice of such determination, confirmed in writing, to
the Borrowers at least one day prior to, as the case may be, the requested
borrowing or conversion date for such Affected Loan or the first day of a
requested succeeding Interest Period. If such notice is given, (i) any
requested Affected Loan shall be made as an ABR Rate Loan unless the relevant
Borrower cancels its request therefor prior to the relevant borrowing date,
(ii) any such conversion into an Affected Loan shall not be effected and (iii)
any outstanding Affected Loan shall be converted, on the last day of the then
current Interest Period therefor, into any other interest option permitted by
subsection 2.7 which is not so affected as selected by the relevant Borrower.
Until such notice has been withdrawn by the Administrative Agent, no further
borrowings as or conversions to Affected Loans may be made.

2.10 Letter of Credit Commitment. (a) Subject to the terms
and conditions hereof, the Issuing Bank, in reliance on the agreements of the
other Banks set forth in subsection 2.13(a), agrees to issue letters of credit
("Letters of Credit") for the account of a Borrower on any Business Day during
the Commitment Period; provided that the Issuing Bank shall have no obligation
to issue any Letter of Credit if after giving effect to such issuance (i) the
Available Commitments would be less than zero, (ii) the aggregate amount of all
then outstanding L/C Obligations would exceed $50,000,000 or (iii) the
aggregate amount of all then outstanding L/C Obligations together with the
aggregate principal amount of all then outstanding Loans would exceed the
Available Borrowing Base.

(b) Each Letter of Credit shall:
<PAGE> 65
33

(i) be denominated in Dollars and shall be in form and
substance satisfactory to the Issuing Bank and the Banks and shall be issued to
support general corporate purposes of a Borrower or its Affiliates (other than
those purposes set forth in the MEC Credit and Reimbursement Agreement with
respect to MEC Letters of Credit); and

(ii) expire no later than the Scheduled Termination Date.

(d) The Issuing Bank shall at no time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
it to exceed any limits imposed by, any applicable Requirement of Law.

2.11 Procedure for Issuance of Letters of Credit. Either
Borrower may from time to time during the Commitment Period request that the
Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its
address for notices specified herein L/C Documentation therefor, completed to
the satisfaction of the Issuing Bank, with a copy to the Administrative Agent.
Upon receipt of such L/C Documentation, the Issuing Bank will process such L/C
Documentation in accordance with its customary procedures and shall promptly
issue the Letter of Credit requested thereby (but in no event shall the Issuing
Bank be required to issue any Letter of Credit earlier than three Business Days
after its receipt of such L/C Documentation) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed by
the Issuing Bank, the Administrative Agent and the relevant Borrower. The
Issuing Bank shall furnish a copy of such Letter of Credit to the relevant
Borrower and the Administrative Agent promptly following the issuance thereof;
upon receipt thereof, the Administrative Agent shall promptly furnish a copy of
such Letter of Credit to the other Banks.

2.12 Fees, Commissions and Other Charges. (a) The Borrowers
shall pay to the Administrative Agent, for the account of the Issuing Bank, a
fronting fee with respect to each Letter of Credit issued by the Issuing Bank,
from the date of issuance of such Letter of Credit to the date of expiration or
termination thereof, at a rate of 1/8% per annum, calculated on the basis of
the actual number of days elapsed in a 365- (or 366-, as the case may be) day
year, of the aggregate amount available to be drawn under such Letter of Credit
for the period over which such fee is calculated. Such fee shall be payable in
arrears on each Fee Payment Date to occur after such issuance and prior to the
Scheduled Termination Date and on the Scheduled Termination Date.

(b) The Borrowers shall pay to the Administrative Agent, for
the account of the Banks, a letter of credit
<PAGE> 66
34

commission with respect to each Letter of Credit, from the date of issuance of
such Letter of Credit to the date of expiration or termination thereof, at a
rate per annum equal to the Letter of Credit Commission Rate, calculated on the
basis of the actual number of days elapsed in a 365- (or 366-, as the case may
be) day year, of the aggregate amount available to be drawn under such Letter
of Credit for the period over which such commission is calculated. Such
commission shall be payable in arrears on each Fee Payment Date to occur after
such issuance and prior to the Scheduled Termination Date and on the Scheduled
Termination Date and shall be shared ratably among the Banks in accordance with
their respective Commitment Percentages.

(c) In addition to the foregoing fees and commissions, the
Borrowers shall pay or reimburse the Issuing Bank for such normal and customary
costs and expenses as are incurred or charged by the Issuing Bank in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit.

(d) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Bank and the Banks all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this subsection.

2.13 Letter of Credit Participation. (a) The Issuing Bank
irrevocably agrees to grant and hereby grants to each other Bank and, to induce
the Issuing Bank to issue Letters of Credit hereunder, each such other Bank
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Bank, on the terms and conditions hereinafter stated, for such
other Bank's own account and risk an undivided interest equal to such other
Bank's Commitment Percentage in the Issuing Bank's obligations and rights under
each Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Bank thereunder. Each other Bank unconditionally and irrevocably
agrees with the Issuing Bank that, if a draft is paid under any Letter of
Credit for which the Issuing Bank is not reimbursed in full by the Borrowers in
accordance with the terms of this Credit Agreement, such other Bank shall pay
to the Issuing Bank upon demand at the Issuing Bank's address for notices
specified herein an amount equal to such other Bank's Commitment Percentage of
the amount of such draft, or any part thereof, which is not so reimbursed.

(b) If any amount required to be paid by any Bank to the
Issuing Bank pursuant to subsection 2.13(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
paid to the Issuing Bank within three Business Days after the date such payment
is due, such Bank shall pay to the Issuing Bank on demand an amount equal to
the product of (i) such amount, times (ii) the daily average Federal funds
rate, as quoted by the Issuing Bank, during the period from and including the
date such payment is required to the date on which such payment is immediately
available to the Issuing Bank,
<PAGE> 67
35

times (iii) a fraction the numerator of which is the number of days that elapse
during such period and the denominator of which is 360. If any such amount
required to be paid by any Bank to the Issuing Bank pursuant to subsection
2.13(a) is not in fact made available to the Issuing Bank by such Bank within
three Business Days after the date such payment is due, the Issuing Bank shall
be entitled to recover from such Bank, on demand, such amount with interest
thereon calculated from such due date at the rate per annum applicable to ABR
Rate Loans hereunder. A certificate of the Issuing Bank submitted to any Bank,
with a copy to the Administrative Agent, with respect to any amounts owing
under this subsection shall be conclusive in the absence of manifest error.

(c) Whenever, at any time after the Issuing Bank has made
payment under any Letter of Credit and has received from any other Bank its pro
rata share of such payment in accordance with subsection 2.13(a), the Issuing
Bank receives any payment related to such Letter of Credit (whether directly
from the Borrowers or otherwise, including proceeds of collateral applied
thereto by the Issuing Bank), or any payment of interest on account thereof,
the Issuing Bank will distribute to such Bank its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Bank shall be required to be returned by the Issuing Bank, such other
Bank shall return to the Issuing Bank the portion thereof previously
distributed by the Issuing Bank to it.

2.14 Reimbursement Obligations of the Borrowers. (a) Each
Borrower agrees to reimburse the Issuing Bank on each date on which the Issuing
Bank notifies such Borrower of the date and amount of a draft presented under
any Letter of Credit and paid by the Issuing Bank for the amount of (i) such
draft so paid and (ii) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Bank in connection with such payment. Each such
payment shall be made to the Issuing Bank at its address for notices specified
herein in lawful money of the United States of America and in immediately
available funds.

(b) Interest shall be payable on any and all amounts
remaining unpaid by the Borrowers under this subsection from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate which would be payable on any
outstanding ABR Rate Loans which were then overdue.

(c) Each drawing under any Letter of Credit shall constitute
a request by the relevant Borrower to the Administrative Agent for a borrowing
pursuant to subsection 2.3 in the amount of such drawing. The borrowing date
with respect to such borrowing shall be the date of such drawing.

2.15 Obligations Absolute. (a) Each Borrower's obligations
under this Section 2 shall be absolute and
<PAGE> 68
36

unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which such Borrower may have or have had
against the Issuing Bank or any beneficiary of a Letter of Credit.

(b) Each Borrower also agrees with the Issuing Bank that the
Issuing Bank shall not be responsible for, and the Borrowers' obligations under
subsection 2.14(a) shall not be affected by, among other things, (i) the
validity or genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid, fraudulent or forged,
or (ii) any dispute between or among any Borrower and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be
transferred, or (iii) any claims whatsoever of any Borrower against any
beneficiary of such Letter of Credit or any such transferee.

(c) The Issuing Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by the Issuing Bank's gross
negligence or willful misconduct.

(d) Each Borrower agrees that any action taken or omitted by
the Issuing Bank under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in
the Uniform Commercial Code of the State of New York, shall be binding on such
Borrower and shall not result in any liability of the Issuing Bank to such
Borrower.

2.16 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing Bank shall
promptly notify the Borrowers and the Administrative Agent of the date and
amount thereof. The responsibility of the Issuing Bank to the Borrowers in
connection with any draft presented for payment under any Letter of Credit
issued by the Issuing Bank shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that
the documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are in conformity with such Letter of Credit.

2.17 L/C Documentation. To the extent that any provision of
any L/C Documentation related to any Letter of Credit is inconsistent with the
provisions of this Section 2, the provisions of this Section 2 shall apply.

2.18 Pro Rata Treatment and Payments. (a) Each borrowing by
either Borrower from the Banks, each payment (including each prepayment) by a
Borrower on account of the
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37

principal of and interest on the Loans and on account of any fee or commission
hereunder for the account of the Banks and any reduction of the Commitments of
the Banks hereunder shall be made pro rata according to the original
Commitments, except that payments specifically for the account of a particular
Bank under the terms of subsections 2.19, 2.20, 2.21 or 2.22 hereof or for the
account of the Issuing Bank shall be made to such Bank or Issuing Bank.

(b) All payments (including prepayments) to be made by
either Borrower on account of principal (including Reimbursement Obligations),
interest and fees shall be made without setoff or counterclaim and shall be
made to the Administrative Agent on behalf of the Banks or the Issuing Bank, as
the case may be, at the Administrative Agent's office located at Chemical Bank,
Agent Bank Services Group, 140 East 45th Street, New York, New York 10017,
Attention Frank Giacalone, MND Energy Corporation Clearing Account, #144041274,
at or before 12:00 noon, New York time, for the account of the Banks or the
Issuing Bank, as the case may be, in lawful money of the United States of
America and in immediately available funds. The Administrative Agent shall
distribute such payments to the Banks or the Issuing Bank, as the case may be,
entitled thereto promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a Eurodollar Loan becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month in which event such payment
shall be made on the immediately preceding Business Day. Each Bank is
authorized to indorse the amount, and the date of making or conversion pursuant
to subsection 2.7, of each loan of such Bank, each payment of principal with
respect thereto and its character as ABR Rate, Eurodollar or CD Rate on the
schedule annexed to and constituting a part of its Note, which indorsement
shall constitute prima facie evidence of the items so indorsed.

2.19 Illegality. Notwithstanding any other provisions
herein, if any law, regulation or treaty, or directive of a central bank or
other monetary authority, or any change therein or in the interpretation or
application thereof, shall make it unlawful for any Bank to make or maintain
Eurodollar Loans as contemplated by this Credit Agreement, the Commitment of
such Bank hereunder to make Eurodollar Loans and to convert its portion of ABR
Rate or CD Rate Loans to Eurodollar Loans shall forthwith be cancelled and any
loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Rate Loans. If any such conversion of a Eurodollar Loan
is made on a day which is not the last day of an Interest Period, the
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38

Borrowers shall pay to such Bank, upon its request, such amount or amounts as
may be necessary to compensate it for any costs incurred by such Bank in making
any such conversion prior to the last day of an Interest Period pursuant to
subsection 2.21. A certificate as to any additional amounts payable pursuant
to the foregoing sentence submitted by such Bank to the Borrowers shall be
conclusive absent manifest error.

2.20 Increased Costs. (a) In the event that any applicable
law, treaty or governmental regulation, or any change therein or in the
interpretation or application thereof or compliance by any Bank with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority:

(i) does or shall subject such Bank to any tax
of any kind whatsoever with respect to this Credit Agreement,
any Note, any L/C Documentation, any Letter of Credit or any
loan hereunder, or change the basis of taxation of payments to
such Bank of principal, commitment fee, interest or any other
amount payable hereunder (except for changes in the rate of
tax on the overall net income of such Bank);

(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or
other liabilities in or for the account of, advances or loans
by, or other credit extended by, or any other acquisition of
funds by, any office of such Bank which are not otherwise
taken into account in computing the Eurodollar or CD Rate for
such Interest Period; or

(iii) does or shall impose on such Bank any
other condition;

and the result of any of the foregoing is to increase the cost to such Bank of
making, renewing or maintaining advances or extensions of credit as Eurodollar
or CD Rate Loans or issuing or participating in Letters of Credit or to reduce
any amount receivable hereunder in respect of any thereof then, in any such
case, the Borrowers shall promptly pay such Bank, upon its demand, such
additional amount which will compensate it for such additional cost or reduced
amount receivable which such Bank deems to be material and in the amount
determined by it to be applicable to this Credit Agreement, its Note or loans
hereunder. If any Bank becomes entitled to claim any additional amounts
pursuant to this subsection 2.20, it shall promptly notify the Borrowers of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection 2.20 submitted by any
Bank to the Borrowers shall be conclusive absent manifest error.
<PAGE> 71
39

(b) In the event that any Bank shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
any Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or Governmental Authority,
does or shall have the effect of reducing the rate of return on such Bank's
capital as a consequence of its obligations hereunder or under any Letter of
Credit to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, after submission by such Bank to MND (with a
copy to the Administrative Agent) of a written request therefor, showing in
reasonable detail the assumptions upon which such amount was computed (provided
that such Bank shall not be required to disclose information not available to
the public), the Borrowers shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction. In such event, the
Borrowers shall have the right, upon payment to such Bank of such additional
amount or amounts which have accrued, to prepay in full the loans made by such
Bank and to terminate the Commitment of such Bank; provided that upon such
termination, the Borrowers shall have replaced such Bank as a Bank under this
Credit Agreement with another bank with the consent of the Issuing Bank and the
Administrative Agent, or by increasing the Commitments of some or all of the
other Banks with their consent. To effect such replacement, MND, the
Borrowers, the Administrative Agent, the Issuing Bank, the Bank to be replaced
and the designated bank shall enter into a supplement to this Credit Agreement,
which designates the new bank as a Bank, fixes its Commitment as such, releases
the Bank to be replaced from its obligations under the Credit Agreement and
contains the agreement of the designated Bank to become a party to the Credit
Agreement with all rights, duties and obligations of a Bank hereunder, provides
for the effective date of such supplement and provides for the cancellation of
any Notes of the Bank to be replaced and issuance of new Notes to the
designated Bank if so requested to be the date the Commitment of the Bank being
replaced is terminated. The agreements in this subsection 2.20 shall survive
termination of this Credit Agreement, expiration of the Letters of Credit and
payment of the Loans and the Reimbursement Obligations until the obligations of
the Borrowers under this subsection have been paid in full.

2.21 Reemployment Costs. The Borrowers agree to indemnify
each Bank and to hold each Bank harmless from any cost, loss or expense which
each Bank may sustain or incur as a consequence of (a) default by either
Borrower in making a borrowing, continuation or conversion after it has given a
notice in accordance with subsection 2.7, (b) receipt by the Administrative
Agent of a payment of principal of a Eurodollar or CD Rate Loan on a day which
is not the last day of an Interest Period therefor, and (c) conversion of all
or any portion of a
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40

Eurodollar Loan or a CD Rate Loan on a day which is not the last day of an
Interest Period therefor. In each case, such costs, losses or expenses shall
include but not be limited to any interest or other amounts payable by such
Bank to lenders of funds obtained by it in order to make or maintain its
portion of the Eurodollar and CD Rate Loans and the cost of liquidating any
time deposit prior to the maturity thereof. This agreement shall survive
termination of this Credit Agreement and payment of the Loans until the
obligations of the Borrowers under this subsection 2.21 shall have been paid in
full.

2.22 Taxes. All payments made by a Borrower under this
Credit Agreement shall be made free and clear of, and without reduction for or
on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, restrictions or
conditions of any nature whatsoever now or hereafter imposed, levied,
collected, withheld or assessed by any country (or by any political subdivision
or taxing authority thereof or therein) excluding income and franchise taxes
now or hereafter imposed by the United States of America or any political
subdivision or taxing authority thereof or therein, or by the country in which
any Bank's Eurodollar Lending Office is located or any political subdivision or
taxing authority thereof or therein (such non-excluded taxes being called
"Foreign Taxes"). If any Foreign Taxes are required to be withheld from any
amounts payable to any Bank (including the Issuing Bank) hereunder or under any
Note, the amounts so payable to such Bank shall be increased to the extent
necessary to yield to such Bank (after payment of all Foreign Taxes) interest
or any such other amounts payable hereunder at the rates or in the amounts
specified in this Credit Agreement. Whenever any Foreign Tax is payable by a
Borrower, as promptly as possible thereafter, such Borrower shall send the
Administrative Agent an original official receipt showing payment thereof.
This agreement shall survive termination of this Credit Agreement and payment
of the Loans and the Reimbursement Obligations until the obligations of the
Borrowers under this subsection have been paid in full.

2.23 Determination of Borrowing Base. On or before the
Borrowing Base Determination Date, the Determining Banks shall determine from
the information contained in the reports delivered to the Banks pursuant to
paragraphs (g) and (j) of subsection 5.1, including information as to projected
cash flows, a Present Value of Assets. The Determining Banks will adjust such
Present Value of Assets to take into account the amount, if any, of Preferred
Stock obligations at the Determination Date. In addition, the Determining
Banks will deduct from such Present Value of Assets the amount at the
Determination Date of Intercompany Debt, Certain Other MEC Debt, and an amount
to be determined in the reasonable discretion of the Determining Banks
attributable to the present value of future advances that might be made (in an
aggregate undiscounted amount not to exceed $50,000,000) by MND to or for the
benefit of TWC, thereby
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41

determining the "Net Asset Value". The aggregate amount of such Debt and
present value of advances that may be deducted in determining Net Asset Value
shall be mutually agreed upon by MND and the Determining Banks on an annual
basis. Until the first determination or redetermination of the Borrowing Base
to occur after the date hereof, such aggregate amount will be $434,000,000.
From the Net Asset Value, the Determining Banks will determine a borrowing base
(the "Borrowing Base"), which shall limit the Consolidated Debt permitted to be
outstanding. The Borrowing Base will be a percentage of Net Asset Value. Such
percentage may vary from time to time and shall be calculated in accordance
with normal guidelines customarily used by the Determining Banks in evaluating
energy and natural resource related credits. Until the payment of the amounts
under the NGPL Settlement Agreement, the Borrowing Base will include 75% of the
present value of such payments and will automatically be reduced by such amount
upon such payments. The determination of the amounts of such Borrowing Base
and such Present Value of Assets shall be submitted to the Banks for approval
by the Required Banks (such approved amounts being the "Approved Borrowing
Base" and the "Approved Present Value of Assets"). Until the first
determination or redetermination of the Borrowing Base to occur after the date
hereof, the Net Asset Value will be $619,000,000, the Approved Borrowing Base
will be $433,000,000 and the Approved Present Value of Assets will be
$1,053,000,000. The Administrative Agent shall notify MND of the Approved
Borrowing Base and the Approved Present Value of Assets and the computation
thereof by the Borrowing Base Determination Date.

The determination of the component of the Net Asset Value
based upon the present value of Proved Reserves of Oil and Gas Assets and Gas
Processing Plant Assets will be made by the Determining Banks based on the
Appraisal Reports delivered pursuant to paragraph (g) of subsection 5.1, which
reports in all material respects are to be satisfactory to the Required Banks
with respect to reserve quantities. The Determining Banks may redetermine the
projected cash flows and discounted present values thereof shown in such
Appraisal Reports based upon their normal guidelines on price parameters,
escalation rates and the discount rate used in evaluating energy and natural
resource related credits. However, with respect to natural gas pricing, all
gas sold under the contract with TUFCO (covering the Limestone/Robertson
Counties area) will be priced strictly in accordance with the terms of such
contract. It is also understood that the Determining Banks may revise the
projected future cash flows shown in the Appraisal Reports to subtract from
such cash flows the estimated recoupment of any Advance Payment Obligations.

In the determination of the component of the Net Asset Value
based upon the present value of Gas Gathering and Transmission Assets,
projected cash flows from Dedicated Pipeline Reserves will be calculated using
the current transportation rates, "buy/sell" margins for pipeline gas sales and
operating
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42

costs with appropriate escalations and in accordance with normal guidelines
customarily used by the Banks in evaluating energy and natural resource related
credits.

2.24 Redetermination of Borrowing Base. In the event MND or
any of its Restricted Subsidiaries acquire significant assets through the
acquisition of, or merger with, another corporation, direct purchase of assets
or otherwise, or materially reduce the Debt that is subtracted from Present
Value of Assets in determining Net Asset Value, the existing Approved Borrowing
Base shall be redetermined at MND's request to take into account the newly
acquired assets or the reduction in such Debt.

2.25 Use of Proceeds. The Borrowers agree that the proceeds
of the loans obtained by the Borrowers hereunder shall be used for their
respective general corporate purposes.

SECTION 3. REPRESENTATIONS AND WARRANTIES

In order to induce each Bank to enter into this Credit
Agreement and to make the loans to be made by it and issue or participate in
the Letters of Credit hereunder, each of MND and each Borrower represents and
warrants to each Bank that:

3.1 Organization and Qualification. MEDC, MND, the
Borrowers, and each of their Restricted Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, and each is duly qualified and in
good standing in each jurisdiction wherein the conduct of its respective
business or the ownership of its respective properties requires such
qualification. MND owns, directly, all of the issued and outstanding capital
stock of the Borrowers and, directly or through Restricted Subsidiaries, all of
the issued and outstanding stock of each other Material Subsidiary, in each
case free and clear of any Liens and each of MND, the Borrowers and each other
Material Subsidiary has the corporate power and authority and the legal right
to own its property, to lease and encumber its property and to conduct the
business in which it is currently engaged. Schedule 2 lists all Restricted
Subsidiaries of MND as of the date hereof.

3.2 Corporate Power and Authorization. Each Borrower has the
corporate power to make, deliver and perform this Credit Agreement, the Notes,
the L/C Documentation and to obtain extensions of credit hereunder and
thereunder, and has taken all necessary corporate action to authorize the
extensions of credit under this Credit Agreement and under the L/C
Documentation on the terms and conditions hereof and thereof and the execution,
delivery and performance of this Credit Agreement, the Notes and the L/C
Documentation. MND has the corporate power to make, deliver and perform this
Credit Agreement and has taken all
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43

necessary corporate action to authorize the execution, delivery and performance
of this Credit Agreement. This Credit Agreement constitutes and (in the case
of the Borrowers) any Notes and L/C Documentation when executed will
constitute, a valid obligation of each of MND and each Borrower legally binding
upon it and enforceable in accordance with its respective terms. No consent of
any other party (including, without limitation, stockholders of MND or either
Borrower) and no consent, license, approval or authorization of, or
registration or declaration with, any governmental authority, bureau or agency
is currently required in connection with the execution, delivery, performance,
validity or enforceability of this Credit Agreement, the Notes and any L/C
Documentation.

3.3 No Legal Bar on Borrowers. The execution, delivery and
performance of this Credit Agreement, the Notes, the L/C Documentation, and the
extensions of credit hereunder and thereunder, will not violate any provision
of any existing law or regulation (including, without limitation, any Texas
usury law) in each case applicable to MND or either Borrower, or order or
decree of any court, Governmental Authority, bureau or agency, or of the
articles of incorporation or of the by-laws of MND or either Borrower, or of
any material mortgage, indenture, security agreement, contract, undertaking or
other agreement to which either Borrower, MND, MEDC or any of their
Subsidiaries is a party or which purports to be binding upon them or any of
their property or assets, and will not result in any default under, violation
of, or the creation or imposition of any lien, charge or encumbrance on, or
security interest in, any of their properties pursuant to the provisions of,
any such material undertaking or other agreement.

3.4 No Material Litigation. No litigation or administrative
proceeding of or before any Governmental Authority is currently pending, nor,
to the knowledge of MND and the Borrowers, is any litigation or proceeding
currently threatened, against MND, either Borrower, MEDC or any of their
Subsidiaries or any of their properties which has or is likely to have a
Material Adverse Effect, other than as disclosed in the financial statements
referred to in subsection 3.9.

3.5 Compliance With Other Instruments; None Burdensome. None
of MEDC, MND, nor any Subsidiary of MND is in violation of any term or
provision of its charter or by-laws or in violation of any evidence of
indebtedness, judgment, decree or order or of any statute, rule, governmental
regulation, franchise, certificate, permit or the like applicable to MEDC, MND
or any such Subsidiary or in violation of any term of any other agreement or
instrument applicable to MEDC, MND, or any such Subsidiary which violation,
individually or in the aggregate, has a Material Adverse Effect; no such
violation of any statute, rule, governmental regulation, franchise,
certificate, permit or the like or any term of any agreement or instrument,
individually or in the aggregate, has or will have a
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44

Material Adverse Effect; the execution, delivery and performance of this Credit
Agreement, the Notes and the L/C Documentation will not result in any violation
of or be in conflict with or constitute a material default under any such term,
or result in the creation of, or the arising of any obligation to create, any
Lien upon any of the properties or assets of MND, either Borrower, or any of
their Subsidiaries pursuant to any such term; and there is no such term which
has, or in the future (to the best of the knowledge of MND and the Borrowers)
is likely to have, a Material Adverse Effect.

3.6 Ownership of Properties; Liens. MND, the Borrowers and
their Subsidiaries and MEDC have valid leases or good and marketable title to
substantially all their respective properties and assets, real and personal,
subject to no mortgage, security interest, pledge, Lien, charge, encumbrance or
title retention or other security agreement or arrangement of any nature
whatsoever, except as permitted by subsection 6.1 of this Credit Agreement or
as described in Schedule 3 annexed hereto.

3.7 No Default. None of MND, the Borrowers, MEDC, nor any of
their Material Subsidiaries is in default in the payment or performance of any
of its obligations for borrowed money, and no Default or Event of Default
(including after giving effect to the execution of this Credit Agreement and
the extensions of credit hereunder) has occurred and is continuing with respect
to any of them, except for (i) non-recourse indebtedness for borrowed money or
the deferred purchase price of assets where the assets, respectively, of MEC,
MGS or MEDC securing the same are not, in MEC's, MGS's or MEDC's good faith
estimation, necessary in, or a material part of, MEC's, MGS's or MEDC's
business, and (ii) obligations for borrowed money having an outstanding
principal amount (either individually or as a part of a related series) of
$15,000,000 or less (including any obligations under any conditional sale or
other title retention agreement or any obligation issued or assumed as full or
partial payment for properties transferred to MEDC or any of the Material
Subsidiaries, whether or not secured by a purchase money security interest).

3.8 Taxes. MEDC, MND and each of the Restricted Subsidiaries
has filed all federal income tax returns required to be filed and paid all
taxes shown thereon to be due, including interest and penalties, or provided
adequate reserves for payment thereof. All other tax returns of MEDC, MND and
the Restricted Subsidiaries the filing of which is required by any law of the
United States or of any state, municipality or political subdivision thereof or
by any foreign taxing authority and of which the failure to file might have a
Material Adverse Effect have been duly filed and all taxes, assessments,
contributions, fees and other governmental charges of material amount (other
than those presently payable without penalty or interest and those currently
being contested in good faith by appropriate proceedings) which have been
asserted against MEDC, MND or the
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45

Restricted Subsidiaries or upon any of their respective properties or assets
which are due and payable have been paid. Except as disclosed in the most
recent financial statements delivered pursuant to subsection 3.9 or 5.1 hereof,
none of MEDC, MND or any of the Restricted Subsidiaries is a party to any
material action or proceeding by any governmental authority for the assessment
or collection of taxes, nor has any material claim for assessment or collection
of taxes been asserted against MEDC, MND or any of the Restricted Subsidiaries,
other than those which are not likely to have a Material Adverse Effect and
those currently being contested in good faith by appropriate proceedings.

3.9 Financial Condition. (a) The consolidated balance sheet
of MEDC and its Subsidiaries and the consolidating and consolidated balance
sheets of MND and its Subsidiaries at January 31, 1995, and the respective
related statements of consolidated (and, in the case of MND, consolidating)
earnings and consolidated changes in the financial position for the fiscal year
ended January 31, 1995, which consolidated statements are certified by Arthur
Andersen & Co., are complete and correct in all material respects and present
fairly the financial position of MEDC and of MND and their respective
Subsidiaries as at January 31, 1995 and the consolidated (or consolidating, as
the case may be) results of their respective operations for the fiscal year
then ended. All of the foregoing consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistently maintained throughout the period involved and prior
periods.

(b) The unaudited consolidated balance sheet of MEDC and its
Subsidiaries and the unaudited consolidating and consolidated balance sheets of
MND and its Subsidiaries at October 31, 1995, and the respective related
unaudited statements of consolidated (and, in the case of MND, consolidating)
earnings and consolidated changes in financial position for the nine months
ended October 31, 1995, are complete and correct in all material respects and
present fairly the financial position of MEDC and of MND and their respective
Subsidiaries at October 31, 1995 and the consolidated (or consolidating, as the
case may be) results of their operations for the nine months then ended.
MEDC's financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from MEDC's statements pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The financial statements of MEDC and MND include all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the consolidated (and, in the case of MND, consolidating)
financial position and consolidated (and, in the case of MND,
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46

consolidating) results of operations of MEDC and of MND and their respective
Subsidiaries for the periods presented.

3.10 Certain Acts. To the best of its knowledge, MEDC, MND
and their Subsidiaries have conducted their business in substantial compliance
with the Emergency Petroleum Allocation Act of 1973 and the Federal Energy
Administration Act of 1974 and the rules and regulations promulgated under each
such Act and have incurred no liability in connection therewith which is likely
to have a Material Adverse Effect.

3.11 Status Under Other Federal Laws and Regulations. MEDC,
MND, the Borrowers and the other Material Subsidiaries are not, and are not
directly or indirectly controlled by or acting on behalf of any Person which
is, an "investment company", within the meaning of the Investment Company Act
of 1940. Neither MEDC, the Borrowers, MND nor any other Subsidiary of MEDC is
a "gas utility company", a "holding company", or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935 and the rules and
regulations thereunder. No part of the proceeds of the loans hereunder will be
used, directly or indirectly, for the purpose, whether immediate, incidental,
or ultimate, (i) of purchasing any equity security of a class registered
pursuant to Section 12 of the Securities Exchange Act of 1934 or (ii) of
"purchasing" or "carrying" any "margin stock" within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System or reducing or
retiring any Debt which was originally incurred to purchase any such margin
stock, or engaging in any transaction prohibited by any other rule or
regulation of said Board.

3.12 Disclosure. Neither this Credit Agreement, nor any
certificate, report, statement or document furnished in writing to the
Administrative Agent or any Bank by or on behalf of MEDC, MND, the Borrowers or
any other Material Subsidiary pursuant hereto nor any other certificate,
report, statement or document furnished in writing to any of them in connection
herewith, at the date the same were so furnished, or as subsequently
supplemented, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein and
therein not misleading. There is no fact known to MEDC, MND or the Borrowers
which has or, insofar as MEDC, MND or either Borrower has knowledge, will be
likely to have a Material Adverse Effect, which MEDC, MND or either Borrower
has not disclosed to the Banks in writing.

3.13 ERISA. No Reportable Event has occurred during the
immediately preceding six-year period with respect to any Plan, and each Plan
has complied with and has been administered in all material respects in
accordance with applicable provisions
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47

of ERISA and the Code. The present value of all benefits vested under each
Single Employer Plan maintained by MND, the Borrowers or any Commonly
Controlled Entity (based on those assumptions used to fund such Plan) did not,
as of the last annual valuation date applicable thereto, exceed the value of
the assets of such Plan allocable to such vested benefits. Neither MND, either
Borrower nor any Commonly Controlled Entity has any obligations in respect of a
Multiemployer Plan, and neither MND, either Borrower nor any Commonly
Controlled Entity will have any obligations in respect of Multiemployer Plan
for the duration of this Credit Agreement.

SECTION 4. CONDITIONS PRECEDENT

4.1 Conditions to Effectiveness. The effectiveness of this
Amended and Restated Credit Agreement is subject to the satisfaction of the
following conditions precedent:

(a) Loan Documents. The Administrative Agent shall have
received (i) this Amended and Restated Credit Agreement, executed and
delivered by a duly authorized officer of each Borrower and MND, with
a counterpart for each Bank, (ii) for the account of each Bank holding
Notes under and as defined in the Original Credit Agreement, a duly
executed Note for each Borrower, payable to such Bank and meeting the
requirements of subsection 2.2 and (iii) each of the Guarantees, the
Subsidiary Guarantee and the Subordination Agreement, each executed
and delivered by a duly authorized officer of each party thereto, with
a counterpart or a conformed copy for each Bank.

(b) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Bank, a certificate of the
Borrowers, dated the Effective Date, substantially in the form of
Exhibit D, with appropriate insertions and attachments, satisfactory
in form and substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of each Borrower.

(c) Payment of Fees. The Administrative Agent shall have
received on or prior to the Effective Date all fees, commissions and
other amounts accrued and owing as of the Effective Date to the
Administrative Agent and the Banks under the Original Credit
Agreement.

(d) Corporate Proceedings. The Administrative Agent shall
have received, with a counterpart for each Bank, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of each Credit Party authorizing (i)
the execution, delivery and performance of the Credit Documents to
which it is a party and (ii) the transactions contemplated thereunder,
<PAGE> 80
48

certified by the Secretary or an Assistant Secretary of such Credit
Party as of the Effective Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state
that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.

(e) Incumbency Certificates. The Administrative Agent shall
have received, with a counterpart for each Bank, a Certificate of each
Credit Party, dated the Effective Date, as to the incumbency and
signature of the officers of such Credit Party executing any Credit
Document, satisfactory in form and substance to the Administrative
Agent, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of such Credit Party.

(f) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Bank, true and complete copies
of the certificate of incorporation and by-laws of each Credit Party,
certified as of the Effective Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of such Credit
Party.

(g) Legal Opinion. The Administrative Agent shall have
received, with a counterpart for each Bank, the executed legal
opinion, dated as of the Effective Date, of Deborah W. Leiber, Esq.,
Counsel to the Borrowers, MND, MEDC, MEC and TWC, substantially in the
form of Exhibit B.

4.2 Conditions to Each Extension of Credit. The agreement of
each Bank to make any extension of credit requested to be made by it on any
date is subject to the satisfaction of the following conditions precedent:

(a) Representations and Warranties. Except in the case of
any loan which does not, after application of the proceeds thereof,
result in a net increase in the aggregate principal amount of the
Loans, each of the representations and warranties made by MEDC, MND,
the Borrowers, and any of their Subsidiaries in or pursuant to the
Credit Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date.

(b) No Default. No Default (other than a Default under
subsection 6.2 arising solely from Consolidated Debt being greater
than the Approved Borrowing Base under the circumstances described in
clause (i) or (ii) of such subsection) or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.

Each borrowing by either Borrower and each Letter of Credit issued on behalf of
either Borrower hereunder shall constitute a representation and warranty by MND
and the Borrowers as of the
<PAGE> 81
49

date thereof that the conditions contained in this subsection have been
satisfied.

SECTION 5. AFFIRMATIVE COVENANTS

Each of MND and each Borrower covenants that from and after
the date hereof and so long as the Commitments are in effect or any Letter of
Credit remains outstanding or any amounts remain unpaid on account of the
Reimbursement Obligations or Loans:

5.1 Financial Statements; Reports. It shall furnish to each
Bank:

(a) as soon as practicable after the end of each of the
first three quarterly periods in each Fiscal Year of MND and of MEDC,
respectively, and in any event within 60 days thereafter, (i)
consolidating and consolidated balance sheets of MND and its
Restricted Subsidiaries and consolidated balance sheets of MEDC and
its Subsidiaries as at the end of such quarterly period, (ii)
consolidating and consolidated statements of earnings of MND and its
Restricted Subsidiaries and consolidated statements of earnings of
MEDC and its Subsidiaries for such quarterly period and for the
portion of the Fiscal Year ended with such quarterly period, setting
forth in each case of consolidated statements (beginning with such
reports due for periods ending on or after April 30, 1996), in
comparative form, figures of the corresponding periods of the previous
Fiscal Year. In each instance, such financial statements are to be
presented in reasonable detail and certified as complete and correct
by a principal financial or accounting officer of MND and of MEDC,
respectively, subject to year-end adjustments, provided, that, insofar
as the information pertaining to MEDC required to be delivered by this
paragraph (a) is contained in financial statements or reports
furnished pursuant to subsection 5.1(d), delivery of such financial
statements or reports pursuant to such subsection 5.1(d) shall
constitute delivery of such information pertaining to MEDC pursuant to
this subsection 5.1(a);

(b) as soon as practicable after the end of each such
Fiscal Year (commencing with the Fiscal Year ending January 31, 1996),
and in any event within 120 days thereafter, consolidating and
consolidated balance sheets of MND and its Restricted Subsidiaries and
consolidated balance sheets of MEDC and its Subsidiaries as at the end
of such year and consolidating and consolidated statements of earnings
and consolidated statements of stockholders' equity of MND and its
Restricted Subsidiaries and consolidated statements of earnings and
stockholders' equity of MEDC and its
<PAGE> 82
50

Subsidiaries for such year, setting forth in each case of consolidated
statements, in comparative form, figures for the previous Fiscal Year,
all in reasonable detail and, in the case of the aforesaid MND and
MEDC consolidated statements, certified by Accountants; and, in the
case of the aforesaid consolidating statements, certified by a
principal financial or accounting officer of MND, provided, that,
insofar as the information pertaining to MEDC required to be delivered
by this subsection 5.1(b) is contained in financial statements or
reports furnished pursuant to subsection 5.1(d), delivery of such
financial statements or reports pursuant to such subsection 5.1(d)
shall constitute delivery of such information pertaining to MEDC
pursuant to this subsection 5.1(b);

(c) promptly upon receipt thereof, copies of all detailed
reports with respect to any material inadequacies of accounting
controls or absences of accounting controls submitted to MEDC, MND or
any Restricted Subsidiaries by Accountants in connection with any
annual, special or interim audit of the books of MEDC, MND or any
Restricted Subsidiaries made by such Accountants;

(d) promptly upon transmission thereof, copies of all
financial statements, reports and proxy statements, if any, sent by
MEDC to its stockholders pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and of all regular and
periodic reports, if any, and any registration statement or prospectus
filed by MEDC or any Subsidiary of MEDC with the Securities and
Exchange Commission or any governmental authority succeeding to the
functions of such Commission;

(e) immediately upon becoming aware of the existence of
any condition or event which constitutes a Default or an Event of
Default, a written notice specifying the nature and period of
existence thereof and the action MND and/or the Borrowers are taking
or propose to take with respect thereto;

(f) immediately upon becoming aware that the holder of
any Debt of MND or any Restricted Subsidiary has given notice or taken
any action with respect to a claimed default or event of default with
respect to such Debt, a written notice specifying the notice given or
such action taken by such holder and the nature of the claim, default
or event of default and the action MND or such Restricted Subsidiary
is taking or proposes to take with respect thereto;

(g) on or before each April 30 of each year, Appraisal
Reports on Proved Reserves of Oil and Gas Assets and Gas Processing
Plant Assets specifying the immediately preceding January 31 as the
Determination Date (such Appraisal Reports to be made by an Appraiser
with respect to at least 70% of
<PAGE> 83
51

the present value of such Proved Reserves and by MND with respect to
no more than 30% of the present value of such Proved Reserves);

(h) together with each Appraisal Report delivered
pursuant to subsection 5.1(g), an Officers' Certificate, dated as of
the date it is delivered to the Banks, stating (i) that the
information set forth therein is complete in all material respects on
and as of the dates thereof, (ii) that the information furnished by
MND or any Affiliate of MND for use, or used by MND or any such
Affiliate, in connection with, or as a basis for, each such Appraisal
Report was and is complete and accurate in all material respects, and
(iii) in case more than one Appraisal Report is delivered pursuant to
subsection 5.1(g), that the summary of such Appraisal Reports for MND
and its Restricted Subsidiaries set forth in such Officers'
Certificate is complete and accurate in all material respects;

(i) with reasonable promptness, such other information
and data relating to the business, affairs and financial condition of
MND and its Restricted Subsidiaries and oil and gas, gas processing
plant, gas gathering and transmission and compression operations of
MEDC and its Subsidiaries as from time to time may reasonably be
requested by any Bank;

(j) on or before each May 31 of each year, an Officers'
Certificate, dated as of the date it is delivered to the Banks and
specifying the immediately preceding January 31 as the Determination
Date, setting forth the discounted projected net revenues from Gas
Gathering and Transmission Assets;

(k) within 60 days after the end of each fiscal quarter,
a certificate setting forth the Available Borrowing Base as at the end
of such quarter, including in reasonable detail the calculations used
to make such determination; and

(l) promptly upon (i) the rendering of any verdict or
entry of any Judgment against MEDC or any of its Subsidiaries in the
Litigation, (ii) any affirmance of any appeal of any such Judgment,
(iii) the entry by MEDC or any of its Subsidiaries into any settlement
with respect to the Litigation, or (iv) any other material development
in the Litigation which is a matter of public record or which MEDC is
required to disclose publicly, notice of and information regarding
such verdict, judgment, affirmance, settlement or other material
development, as the case may be.

5.2 Certificates as to Financial Matters, No Default, etc.
The financial statements required by subsection 5.1 shall be accompanied by
<PAGE> 84
52

(a) in the case of the financial statements of
MND and its Restricted Subsidiaries required by subsections
5.1(a) and (b), an Officers' Certificate setting forth
computations in reasonable detail showing as at the end of
such quarter or Fiscal Year:

(i) the Consolidated Tangible Net Worth of MEDC
and its Subsidiaries;

(ii) the Consolidated Current Assets and
Consolidated Current Liabilities of MND and its Restricted
Subsidiaries;

(iii) the Fixed Charge Ratio with respect to MND
and its Restricted Subsidiaries;

and stating that, based, upon such examination or investigation as the
officers signing such certificate shall have deemed necessary to
enable them to render an informed opinion in respect thereof, in their
opinion, no Default or Event of Default existed at any time during
such quarter or Fiscal Year and to the date of such certificate except
for those, if any, described in such certificate in reasonable detail,
with a statement of MND's or the Borrowers' action with respect
thereto taken or proposed to be taken, and

(b) in the case of the financial statements of MND
required by subsection 5.1(b), a certificate of its Accountants
referred to therein to the effect that in making such Accountants'
examination such Accountants have become aware of no condition or
event which constitutes a Default or an Event of Default, or if such
Accountants have become aware of any such condition or event,
specifying the nature and existence thereof.

The receipt by any Bank of the certificates and calculations referred to in
this subsection 5.2 shall not constitute a waiver by or estop or prejudice any
Bank with respect to any subsequent challenge it may have to any interpretation
by MND or any Borrower of the terms of this Credit Agreement.

5.3 Payment of Taxes, etc.; Observance of Legal Requirements;
Liens; Contests.
(a) It will duly pay and discharge or cause to be paid
and discharged, as the same shall become due and payable, all taxes,
assessments, rates, excises, levies, fees and other charges levied and imposed
upon or with respect to any property of it or any of its Subsidiaries, or upon
or with respect to any income or profits therefrom, or upon or measured by
income, profits or business of it or any of its Subsidiaries.

(b) It will promptly discharge or cause to be discharged
any mechanics', materialmen's, laborers', operators'
<PAGE> 85
53

or other similar Liens now existing or hereafter created on the property of it
and its Subsidiaries or any part thereof.

(c) It will, and will cause each of its Subsidiaries to,
duly observe and comply in all material respects with all valid laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, certificates, franchises, permits, licenses, authorizations,
directions and requirements of all Federal, state, county, parish, municipal
and other governments and all governmental departments, commissions, boards,
courts, authorities, officials and officers, domestic or foreign, which now or
at any time hereafter may be applicable to it or its Subsidiaries or any of
their respective properties or operations or any part thereof, or any use,
manner of use or condition of their properties or any part thereof (including
applicable statutes, regulations, orders and restrictions relating to
environmental standards or controls).

(d) Nothing contained in this subsection 5.3 shall be
deemed to require MND or the Borrowers to pay or discharge or cause to be paid
or discharged any such tax, assessment, rate, excise, levy, fee or charge, or
any mechanics', materialmen's, laborers', operators' or other similar Lien, or
to observe or comply with or to cause to be observed or complied with any such
legal requirement, so long as MND or the Borrowers in good faith by appropriate
action promptly initiated and diligently conducted, shall contest or cause to
be contested the validity, amount, extent or application thereof, and MND or
the Borrowers shall have set up on their respective books such reserve or other
appropriate provision, if any, with respect thereto as shall be required by
GAAP.

5.4 Notice of Default, Litigation, etc. It shall promptly
give notice in writing to the Administrative Agent (which shall promptly give
such notice to each Bank) (a) of the occurrence of any Event of Default or
Default under this Credit Agreement or of the occurrence of any event of
default by MEDC, MND, the Borrowers or any of their Subsidiaries under any
other obligation for borrowed money or (b) of the occurrence of any material
litigation or proceedings affecting MEDC, MND, the Borrowers or any of their
Subsidiaries and of any dispute between MEDC, MND, the Borrowers, or any of
their Subsidiaries and any governmental regulatory body or any other party if
such litigation, proceedings or dispute might substantially interfere with the
normal operations of the total enterprise represented by MEDC and its
Subsidiaries, or by MND, and its Subsidiaries. As soon as possible and in any
event within 30 days after MND or such Borrower knows or has reason to know of
the following events: (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan or any withdrawal from, or the
termination or reorganization of, any Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC, MND, the Borrowers
or any Commonly Controlled Entity, with respect to the withdrawal from, or the
terminating or
<PAGE> 86
54

reorganizing of, any Plan, it shall deliver to the Administrative Agent and
each Bank a certificate of the chief financial officer of it setting forth the
details thereof and the action that it or the Commonly Controlled Entity
proposes to take with respect thereto.

5.5 Insurance. It will keep or cause to be kept all of its
and its Restricted Subsidiaries' property and business of a character usually
insured by companies of established reputation similarly situated insured by
reputable insurance companies or associations of high standing against loss or
damage by fire and such other hazards and risks (including, but not limited to,
public liability and workmen's compensation) as are customarily insured against
by companies of established reputation similarly situated, in such amount as
such property and business is usually insured by such companies, and will
comply and will cause its Restricted Subsidiaries to comply with all the terms
and conditions of all insurance policies with respect to its and their property
and business or any part thereof and with all requirements of boards of
underwriters (or similar bodies) applicable thereto.

5.6 ERISA. It shall, and shall cause each of its
Subsidiaries to, substantially comply in all material respects with all
applicable provisions of ERISA.

5.7 Material Mineral Interests. It shall make available to
the Banks in its offices during working hours all of the following documents
pertaining to all material Mineral Interests of it and its Subsidiaries:

(a) all computer runs and other geological or geophysical
data of the sorts used or useful in preparing an Appraisal Report; and

(b) any estimates (which MND or either Borrower may
prepare internally or have prepared for it) of the projected value,
costs of production or net present value associated with any such
material Mineral Interests.

5.8 Maintenance of Corporate Existence, Franchises, etc. It
will at all times maintain and keep and cause to be maintained and kept in full
force and effect its corporate existence, rights and franchises and the
corporate existence, rights and franchises of each of its Restricted
Subsidiaries, except as otherwise permitted by subsections 6.6 and 6.7 and
except that the corporate existence, rights and franchises of any Restricted
Subsidiary (other than, subject to the provisions of subsection 6.7, the
Material Subsidiaries) or the rights and franchises of MND or a Borrower may be
abandoned or terminated if, in the good faith opinion of its Board, such
abandonment or termination is in the best interests of it and not prejudicial
in any material respect to the Banks.
<PAGE> 87
55

5.9 Maintenance and Improvement of Property. It will, and
will cause each of its Restricted Subsidiaries to, at all times, maintain,
develop and operate, or cause to be maintained, developed and operated, its oil
and gas properties in a good and workmanlike manner and will observe and comply
with all the terms and provisions, express or implied, of the oil and gas
leases which (or interest in which) constitute a part thereof and any
assignments or subleases thereof under which any of them holds, or its
predecessors-in-interest held, title in order to keep such leases or
assignments in full force and effect so long as such leases are capable of
producing Petroleum in commercial quantities. It will, and will cause each of
its Restricted Subsidiaries to, at all times maintain, preserve and keep all of
its property used or useful for the continued efficient and profitable
operation of their property and business in proper repair, working order and
condition, and make all necessary or appropriate repairs, renewals,
replacements, additions, betterments and improvements to such property, so that
the efficiency of all such property shall at all times be properly preserved
and maintained, provided that no such action as to any item of property need be
taken if MND shall in good faith determine that it is not necessary or
desirable for the continued efficient and profitable operation of the property
and business of MND, the Borrowers or any of their Restricted Subsidiaries, as
the case may be, and that the failure to take such action will not prejudice
the interests of the Banks.

5.10 Maintenance of Accounts. It will at all times maintain,
and will cause each of its Subsidiaries to maintain, a standard, modern system
of accounting, in accordance with generally accepted accounting principles in
which entries, complete and correct in all material respects, shall be made of
all transactions of it or such Subsidiary, and will administer and cause to be
administered each such system of accounting in accordance with generally
accepted accounting principles.

5.11 Inspection. At any and all reasonable times, upon the
request of any Bank, it will permit such Bank, or any agents or representatives
designated by such Bank,

(a) to examine the books of account, records, reports and
other papers of it and its Subsidiaries (and to make copies and
extracts therefrom),

(b) to inspect any property of it or any of its
Subsidiaries, and

(c) to discuss the business and affairs of it and its
Subsidiaries with its and their officers and its and their Accountants
and each Appraiser (and by this provision each of them authorizes said
Accountants and each Appraiser to discuss with such Bank or such
agents or representatives the business and affairs of it and its
Subsidiaries).
<PAGE> 88
56

5.12 Transactions with Affiliates. Except with respect to
the allocation of taxes and general and administrative expenses, it will not
enter into or participate in, or permit any Restricted Subsidiary to enter into
or participate in, any transaction with any Affiliate of MND other than in the
ordinary course of business and on an arm's length basis involving terms no
less favorable to it than would be the terms of a similar transaction with a
Person other than such Affiliate. In the case of tax allocations, MND agrees
that tax expenses and benefits will be allocated among MEDC and its
Subsidiaries on a basis no less advantageous to MND and its Restricted
Subsidiaries than the tax allocation being used by MEDC and its Subsidiaries at
January 31, 1989 (which allocation is generally based on the premise that such
expenses and benefits shall be apportioned as if each such Subsidiary were a
separate taxpayer). MND agrees that general and administrative overhead will
be allocated among MEDC and its Subsidiaries on the basis of usage or benefits
received to the extent practicable in MND's judgment, and otherwise consistent
with generally recognized cost accounting methods.

SECTION 6. NEGATIVE COVENANTS

Each of MND and each Borrower covenants that from and after
the date of this Credit Agreement and so long as the Commitments are in effect
or any Letter of Credit remains outstanding or any amounts remain unpaid on
account of the Reimbursement Obligations or Loans:

6.1 Limitation on Liens. It will not, nor will it permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien upon any property or assets owned by it or subject
such property to the prior payment of any Debt other than the Letters of
Credit, Reimbursement Obligations and Loans; provided, that the foregoing
restriction shall not apply to or prevent the creation, assumption or continued
existence of any of the following:

(a) Permitted Encumbrances;

(b) any Lien on any property hereafter acquired or
constructed by MND or any Restricted Subsidiary thereof, created or
assumed contemporaneously with, or within one year after, such
acquisition or completion of such construction to secure Debt incurred
to provide for the payment of not greater than 100% of the purchase
price or the cost of such construction thereof; provided, however,
that such Lien shall not apply to any other property owned by MND or
any Restricted Subsidiary thereof;

(c) any Lien on any property existing at the time of
acquisition thereof securing Debt not exceeding 100% of the purchase
price or cost of such property; provided, however,
<PAGE> 89
57

that such Lien shall not extend to any other property owned by MND or
any Restricted Subsidiary;

(d) any Lien on property of a corporation existing at the
time such corporation is merged or consolidated with MND or a
Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of such corporation (or a division
thereof) as an entirety or substantially as an entirety to MND or a
Restricted Subsidiary; provided, however, that such Lien shall not
extend to any other property owned by MND or any Restricted
Subsidiary;

(e) any Lien on property of a corporation existing at the
time such corporation first becomes a Restricted Subsidiary so long as
such Subsidiary shall not have previously been a Restricted Subsidiary
under this Credit Agreement; provided, however, that such Lien shall
not extend to any other property owned by MND or any Restricted
Subsidiary;

(f) any Lien securing any presently existing Advance
Payment Obligation of MND or a Restricted Subsidiary and any Lien
securing an Advance Payment Obligation hereafter incurred by MND or
any Restricted Subsidiary through the receipt of any take-or-pay
payment;

(g) the Liens listed in Schedule 3 hereto;

(h) any Lien on assets acquired or financed with the
proceeds of any Debt of MND or any Restricted Subsidiary referred to
in clause (f) of subsection 6.2 hereof and securing such Debt; and

(i) any other Lien securing Debt if at the time of, and
after giving effect to, the creation or assumption of any such Lien,
(1) no event which is a Default or would become an Event of Default
has occurred and is continuing and (2) the aggregate amount of all
Debt of MND and its Restricted Subsidiaries secured by Liens described
in paragraphs (b), (c), (d), (e), (g) and (i) of this subsection 6.1
shall not exceed 10% of the Approved Present Value of Assets;

provided, however, that notwithstanding anything to the contrary in this
subsection 6.1, MND may acquire a corporation which becomes a Restricted
Subsidiary with outstanding secured Debt if MND could incur an equal amount of
Debt under subsection 6.2.

6.2 Restrictions on Incurrence of Debt. It will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, issue, assume, or suffer to exist, guarantee, agree to purchase or
repurchase or provide funds in respect of or otherwise become liable in respect
of any Debt, other than:
<PAGE> 90
58

(a) Debt owed by MND to a Restricted Subsidiary or by a
Restricted Subsidiary to MND or to another Restricted Subsidiary and
Intercompany Debt;

(b) Short-term money market Debt in an aggregate
principal amount not in excess of $35,000,000, subject to the
restrictions contained in paragraph (k) below;

(c) Any extension, modification, renewal or refunding,
without increase in the principal amount, of Debt by MND or a
Restricted Subsidiary so long as the Debt of MND and its Restricted
Subsidiaries is not thereby increased;

(d) Debt under the agreements in effect on January 31,
1996 and indicated on Schedule 5 hereto;

(e) Debt of a partnership or joint venture in which MND
or any Restricted Subsidiary is a partner or joint venturer incurred
after the Effective Date, and with respect to which a written waiver
has been obtained from each holder of such Debt waiving all liability
of MND or any Restricted Subsidiary with respect thereto;

(f) Debt of MND or any Restricted Subsidiary (i) which is
recourse only to the assets of MND or such Restricted Subsidiary
acquired or financed with the proceeds of such Debt and the provisions
of which Debt with respect to its limited recourse nature shall have
been approved by the Required Banks at least 10 days prior to its
incurrence, (ii) with respect to which a written waiver shall have
been obtained from each holder of such Debt waiving all liability of
MND or such Restricted Subsidiary with respect thereto and (iii) with
respect to which a written waiver has been obtained from each holder
of such Debt waiving, to the extent such holder may legally do so, all
of such holder's rights under 11 U.S.C. Section 1111(b)(1)(A) of the
U.S. Bankruptcy Code in a proceeding thereunder wherein MND or any
Restricted Subsidiary is the debtor; provided that the aggregate
principal amount of all such Debt does not exceed $50,000,000;

(g) Debt under the UBS Facility in an aggregate principal
amount not to exceed $32,000,000;

(h) Debt of the nature described in paragraphs (b) and (c) of
subsection 6.1 and Debt of any Person acquired by MND provided such
Debt is in existence at the time of such acquisition and is not
created in anticipation of such acquisition so long as after the
incurrence of all Debt described in this paragraph (h) Consolidated
Debt would not exceed the Approved Borrowing Base;

(i) Debt under the MEC Credit and Reimbursement Agreement;
<PAGE> 91
59

(j) Debt hereunder; and

(k) any other Debt so long as the aggregate amount of all
Debt outstanding pursuant to paragraphs (b), (j) and (k) of this
subsection 6.2 does not exceed $150,000,000;

provided, however, that in no event shall Consolidated Debt exceed the Approved
Borrowing Base except (i) solely as a result of the incurrence of MEC
Reimbursement Obligations and/or MEC Loans for a period of less than 60 days
following such incurrence or (ii) solely as a result of a determination of the
Approved Borrowing Base resulting in a reduction thereof by an amount not in
excess of the Permitted Shortfall in respect thereof for a period of less than
six months from the date of such determination; and provided, further, that no
Restricted Subsidiary shall directly or indirectly create, incur, issue, assume
or suffer to exist, guarantee, agree to purchase or repurchase or provide funds
in respect of or otherwise become liable in respect of any Debt (other than
Debt of such Restricted Subsidiary existing on the date hereof and any
extensions or renewals on substantially the same terms) which would otherwise
be permitted by this subsection 6.2 if the terms of such Debt or any related
agreement restrict the repayment of loans or advances made to it by MND, or
require that any loans or advances by MND to such Restricted Subsidiary be
subordinated in any respect to such Debt, or adversely affect the ability of
MEC, MGS or MMC to perform their respective obligations hereunder or under the
Subsidiary Guarantee.

6.3 Subordinated Debt. MND and its Restricted Subsidiaries
will not incur subordinated debt other than Intercompany Debt.

6.4 Consolidated Tangible Net Worth. The Consolidated
Tangible Net Worth of MEDC and its Subsidiaries will not be, at any time, less
than $300,000,000.

6.5 Consolidated Net Current Assets. It will not permit
Consolidated Current Assets of MND and its Restricted Subsidiaries to be, at
any time, less than 100% of Consolidated Current Liabilities of MND and its
Restricted Subsidiaries.

6.6 Restrictions on Disposition of Stock and Debt of
Restricted Subsidiaries, etc.

(a) It will not permit any Restricted Subsidiary to
issue, sell, assign, pledge or otherwise transfer any shares of the stock of
such Restricted Subsidiary (other than directors' qualifying shares if required
by law) except to MND or a wholly-owned Restricted Subsidiary; provided,
however, that dispositions by a Restricted Subsidiary of its stock in
connection with the sale of such Restricted Subsidiary as an
<PAGE> 92
60

entirety in accordance with the proviso of subsection 6.6(b) shall not be
prohibited.

(b) It will not, and will not permit any Restricted
Subsidiary to, sell, assign, pledge, transfer or dispose of, or in any way part
with control of, any shares of the stock of any Restricted Subsidiary (other
than directors' qualifying shares if required by law) or any Debt owing by a
Restricted Subsidiary to MND or another Restricted Subsidiary or by MND to a
Restricted Subsidiary, in each case other than to MND or a wholly-owned
Restricted Subsidiary; provided, however, that all shares of the stock and all
Debt of any Restricted Subsidiary may, subject to compliance with subsection
6.7, be sold as an entirety to any Person if the Restricted Subsidiary being
sold does not at the time of sale own directly or indirectly, any shares or
Debt of MND or of another Restricted Subsidiary not simultaneously being sold.
If MND wishes to sell the stock of any Material Subsidiary, MND must first
obtain the prior written consent of the Required Banks and thereupon the
Determining Banks shall determine a new Borrowing Base for approval by the
Required Banks.

(c) In every case in which directors' qualifying shares
are transferred to directors, options to acquire such shares by MND or a
Restricted Subsidiary for a nominal consideration shall be obtained, together
with certificates for such shares duly endorsed in blank or accompanied by
stock powers duly endorsed in blank.

6.7 Consolidation, Merger, Sales of Assets, etc.. MND will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, consolidate or merge with, or sell, lease, transfer or otherwise
dispose of any of its property and assets to, any Person, except that:

(a) MND may permit any corporation to be consolidated
with or merged into MND if after giving effect to such transaction,
MND is the surviving corporation, no Default or Event of Default shall
have occurred and be continuing and the resultant Consolidated Debt
does not exceed the current Approved Borrowing Base under this Credit
Agreement;

(b) MND or any of its Restricted Subsidiaries may sell,
lease or otherwise dispose of any of its assets in the ordinary course
of business;

(c) any Restricted Subsidiary of MND may (i) consolidate
with or merge into MND if MND is the continuing or surviving
corporation and if after giving effect to such transaction, MND's
Consolidated Debt does not exceed the current Approved Borrowing Base
or (ii) consolidate with or merge into any wholly-owned Restricted
Subsidiary of MND or a corporation which thereupon becomes a
wholly-owned Restricted Subsidiary of MND;
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(d) any Restricted Subsidiary may sell, lease, transfer
or otherwise dispose of all or any part of its assets to MND or any
other wholly-owned Restricted Subsidiary; and

(e) subject to the covenants set forth in this Section 6,
MND or any of its Restricted Subsidiaries may sell, lease, transfer or
otherwise dispose of any of its assets including, but not limited to,
sales of Production Payments if:

(i) such sale, lease, transfer or other
disposition is for fair market value as determined by the
Board of MND; and

(ii) (A) the aggregate Present Value of Assets
so disposed of during any period of twelve consecutive months
does not exceed $20,000,000 or (B) the amount by which the
aggregate Present Value of Assets so disposed of during such
period exceeds $20,000,000 is applied to reduce the Borrowing
Base and after such reduction the Approved Borrowing Base
exceeds Consolidated Debt.

6.8 Fixed Charge Ratio. The Fixed Charge Ratio with respect
to MND and its Restricted Subsidiaries, taken as a whole, shall not be less
than 1.5 to 1 at the end of any fiscal quarter.

6.9 Limitation on Investments, Loans and Advances. MEDC,
MND, its Limited Subsidiaries, TWC and its Subsidiaries shall not make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of, or make any other
investment in, any Subsidiary of MEDC (other than MND, its Limited
Subsidiaries, TWC and its Subsidiaries) in excess of an aggregate amount per
year for all such investments of $10,000,000.

SECTION 7. EVENTS OF DEFAULT

7.1 Nonpayment of Interest or Principal, Insolvency of
Subsidiaries and Other Defaults. If any of the following Events of Default
shall occur and be continuing:

(a) failure by either Borrower to pay any principal of
any Loan, any Note issued by it or any Reimbursement Obligation when
and as the same shall become due and payable, whether upon demand, at
maturity, on a date fixed for prepayment, or otherwise; or

(b) failure by either Borrower for five days to pay any
interest on any Loan, any Note issued by it or any Reimbursement
Obligation, or any fee or any other amount owing by it hereunder, when
and as the same shall become due and payable; or
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(c) failure by MND or the Borrowers to perform and comply
with any term, covenant, agreement or condition of Section 6; or

(d) failure by MND or the Borrowers to perform, comply
with or observe any other term, covenant, agreement or condition of
this Credit Agreement applicable to it and such failure shall have
continued for 30 days after written notice specifying such failure
shall have been given to MND by the Required Banks; or

(e) failure by MEDC, MND or any Material Subsidiary
which is also a Restricted Subsidiary (as principal or as guarantor or
other surety) to make any payment or payments in the aggregate amount
of more than $15,000,000 on any Debt for borrowed money (other than
the Loans or the Reimbursement Obligations), or any Guarantee
Obligation therefor (including any obligations under any conditional
sale or other title retention agreement or any obligation issued or
assumed as full or partial payment for property transferred to MND or
any of its Restricted Subsidiaries, whether or not secured by a
purchase money security interest) and the continuance of such failure
beyond the applicable period of grace; or the occurrence of any event
(other than the mere passage of time or the failure to pay money when
due) or the existence of any condition in respect of any such Debt
described in this paragraph (e) or any Securities of MEDC, MND or any
such Material Subsidiary, or under any agreement securing or relating
to such Debt or Securities, the effect of which is (x) to cause or
permit any holder or holders of such Debt (or a trustee or trustees on
behalf of such holder or holders) to cause, with the giving of notice
if required, such Debt, or a portion thereof, to become due prior to
its stated maturity or prior to its regularly scheduled dates of
payment, or (y) to permit a trustee or the holder of any Securities
(other than Common Stock of MEDC, MND or any Restricted Subsidiary) to
elect a majority of the directors on the Board of Directors of MEDC,
MND or any such Restricted Subsidiary and such event or condition
shall have continued for 5 days; or

(f) if any representation, warranty or other statement
made in writing by or on behalf of any Credit Party in or in
connection with any Credit Document shall prove to have been false or
misleading in any material respect on the date as of which made; or

(g) the expiration of 60 days after the entry of a final
judgment, decree or order for the payment of money undischarged
against MEDC, MND or any Material Subsidiary which is also a
Restricted Subsidiary which, together with all other such outstanding
undischarged final judgments against MEDC, MND and any Material
Subsidiary which is also a Restricted Subsidiary exceeds an aggregate
of $15,000,000,
<PAGE> 95
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provided that if such decree, order or judgment shall be stayed or
bonded pending appeal (or further appeal) or otherwise or said
judgment shall be discharged prior to the occurrence of an Event of
Default pursuant to this subsection 7.1(g), such Event of Default
shall not occur until 60 days after the expiration of such stay, and
in the case of a judgment, shall not occur if said judgment is
discharged within 60 days after expiration of such stay; or

(h) If (i) any of the following events or conditions
described in clauses (1) through (5) below shall occur or exist: (1)
any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(2) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan,
(3) a Reportable Event shall occur with respect to, or proceedings
shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment
of a trustee is, in the reasonable opinion of the Required Banks,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, and, in the case of a Reportable Event, the continuance
of such Reportable Event unremedied for ten days after notice of such
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is
given or the continuance of such proceedings for ten days after
commencement thereof, as the case may be, (4) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA, or (5) any other
event or condition with respect to any Plan shall occur or exist, and
(ii) such event or condition (A) subjects MND, either Borrower or any
of their Subsidiaries to any tax, penalty or other liability in excess
of $15,000,000; and (B) continues unsatisfied, uncured or otherwise
unremedied for 30 days after notice from the Required Banks; or

(i) (1) If MEDC, MND or any Material Subsidiary (other
than either Borrower) which is also a Restricted Subsidiary shall
commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or
MEDC, MND or any such Restricted Subsidiary shall make a general
assignment for the benefit of its creditors; or (2) there shall be
commenced against MEDC, MND or any such
<PAGE> 96
64

Restricted Subsidiary any case, proceeding or other action of a nature
referred to in clause (1) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 90 days;
or (3) there shall be commenced against MEDC, MND or any such
Restricted Subsidiary any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets, which
results in the entry of an order for any such relief which shall not
have been vacated, discharged, or stayed or bonded pending appeal
within 90 days from the entry thereof; or (4) MEDC, MND or any such
Restricted Subsidiary shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (1), (2) or (3) above; or (5) MEDC, MND or
any such Restricted Subsidiary shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they
become due; or

(j) MEDC shall cease to be the owner of all of the issued
and outstanding capital stock of MND, or MND shall cease to be the
owner, directly or through Restricted Subsidiaries, of all of the
issued and outstanding stock of any Material Subsidiary other than as
permitted by subsections 6.6 and 6.7 hereof; or

(k) Any Guarantee or the Subsidiary Guarantee shall cease
for any reason to be in full force and effect or any party thereto or
its successors or assigns shall assert in writing that it has no
liability thereunder;

then, and in any such event, the Administrative Agent, upon the written request
of the Required Banks, shall (x) terminate forthwith the Commitments and/or (y)
declare, by notice of default given to the Borrowers, all Loans and all other
amounts owing hereunder to be forthwith due and payable, whereupon the
principal amount of all outstanding Loans, together with accrued interest
thereon, and all other amounts owing hereunder (including, without limitation,
all amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in any Notes or L/C Documentation to the
contrary notwithstanding.

7.2 Insolvency of a Borrower and Like Defaults. Upon the
occurrence of any of the following events of default:

(i) If either Borrower shall commence
any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign,
<PAGE> 97
65

relating to bankruptcy, insolvency, reorganization, or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of
its assets, or either Borrower shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against
either Borrower any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 90 days;
or (iii) there shall be commenced against either Borrower any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 90 days from the entry thereof;
or (iv) if either Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clauses (i), (ii) or (iii) above; or (v) if either
Borrower shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due;

then, and in any such event during the continuance thereof, the Commitments
shall immediately and without notice terminate and the principal amount of all
outstanding Loans, together with accrued interest thereon, and all other
amounts owing hereunder (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters
of Credit shall have presented the documents required thereunder) shall become
immediately due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything contained herein
or in any Notes to the contrary notwithstanding.

7.3 Letter of Credit Remedies. (a) Upon the occurrence of
an Event of Default and so long as such event shall continue unremedied, upon
the request of the Required Banks, the Administrative Agent shall, by notice of
default to the Borrowers, declare any or all of the L/C Obligations, although
contingent and unmatured, immediately due and payable, unless automatically due
and payable pursuant to subsection 7.2, whereupon the same shall immediately
become due and payable to the Administrative Agent for deposit and application
pursuant to subsection 7.4, without any other presentment, demand, protest or
<PAGE> 98
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other notice of any kind, all of which are hereby expressly waived by the
Borrowers.

(b) The Borrowers shall defend the funds from time to time on
deposit in the Letter of Credit Account against any Lien or other claim adverse
to the interests of the Issuing Bank and the Banks in such funds, and shall
take any other action appropriate in the circumstances to satisfy, or cause to
be released or discharged, any such claim or Lien.

(c) Each Borrower hereby agrees to take any action expressly
contemplated to be taken by the Borrowers pursuant to paragraphs (a) and (b) of
this subsection 7.3, together with any other action incidental thereto which,
under the circumstances, is reasonably requested by the Administrative Agent,
the Issuing Bank or the Banks. Each Borrower further agrees that a breach by
it of the provisions of said paragraphs (a) and (b) or the first sentence of
this paragraph (c) will cause irreparable injury to the Banks, that the Banks
may have no adequate remedy at law in respect of any such breach and that, as a
consequence, each of such provisions shall be specifically enforceable against
the Borrowers. In connection with the foregoing, each Borrower hereby waives
and agrees not to assert any defenses against an action for specific
performance of such provisions, except for a defense that an Event of Default
has not occurred or is not continuing.

7.4 Letter of Credit Account.

(a) Establishment of the Letter of Credit Account. The
Borrowers and the Administrative Agent agree that upon the L/C Obligations
becoming due and payable pursuant to subsections 7.1, 7.2 or 7.3(a), there
shall be established, and that thereafter there shall be maintained, in the
names of the Borrowers, as debtors, and the Administrative Agent, as secured
party for the ratable benefit of the Banks, on the books of the Administrative
Agent at the office of the Administrative Agent at 270 Park Avenue, New York,
N.Y. 10017, and under the sole dominion and control of the Administrative
Agent, and otherwise on the terms and conditions hereof a cash collateral
account designated as the "MGS/MMC Letter of Credit Account" (the "Letter of
Credit Account").

(b) Deposits and Withdrawals. (i) There shall be deposited
in the Letter of Credit Account any amount paid to the Administrative Agent in
respect of L/C Obligations pursuant to subsections 7.1, 7.2 or 7.3. Each
Borrower hereby authorizes and instructs the Banks (or the Administrative
Agent, as the case may be) to deposit in the Letter of Credit Account any such
amount, and hereby agrees that any such amount, from the time of such deposit
and so long as it remains in the Letter of Credit Account in whole or in part,
shall be and constitute collateral security for the prompt and complete payment
when due of the indebtedness,
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obligations and liabilities of each Borrower under this Credit Agreement, the
Notes and the L/C Documentation.

(ii) Funds from time to time on deposit in the Letter of
Credit Account shall be withdrawn and distributed by the Administrative Agent
only as follows:

(A) if the Issuing Bank has made any payment under any
Letter of Credit and has not been reimbursed by the Borrowers in full
therefor, the Issuing Bank shall, to the extent there are sufficient
funds on deposit in the Letter of Credit Account, receive and apply
such funds on account of such unreimbursed amount, or the
Administrative Agent shall apply such funds on account of any unpaid
amount provided for in subsection 2.14(a) and on account of unpaid
letter of credit fees and commissions as provided in subsection 2.12;

(B) if the principal of or interest on any Loan has not
been paid when due (whether at the stated maturity thereof, by
acceleration or otherwise), or any other indebtedness, obligation or
liability of either Borrower under this Credit Agreement, any Note or
any L/C Documentation has not been paid when due (after giving effect
to any applicable grace period), the Administrative Agent shall, upon
the request of the Required Banks and to the extent there are
sufficient funds on deposit in the Letter of Credit Account, withdraw
and apply such funds on account thereof;

(C) if at any time there shall be no Default or Event of
Default continuing and uncured, the Administrative Agent shall, at the
request of the Borrowers, disburse to the Borrowers all funds then on
deposit in the Letter of Credit Account;

(D) if at any time the amount on deposit in the Letter of
Credit Account shall exceed the L/C Obligations, (x) the
Administrative Agent shall upon the Borrowers' direction apply the
amount of such excess on account of the outstanding principal amount
of and accrued interest upon the Loans (notwithstanding any minimum
prepayment amounts set forth herein), or any other amounts payable
hereunder, or (y) if no such obligations are then outstanding, the
Administrative Agent shall pay to the Borrowers upon their direction,
the excess, if any, of such amount then on deposit over the L/C
Obligations; and

(E) upon the full and complete payment of all the
obligations described in clauses (A) and (B) above and the expiration
or cancellation of each Letter of Credit, the funds on deposit in the
Letter of Credit Account shall be withdrawn and distributed to the
Borrowers or as a court of competent jurisdiction shall direct.
<PAGE> 100
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(c) Investment of Funds. Funds from time to time on deposit
in the Letter of Credit Account shall be invested in U.S. Treasury securities
(which may be subject to repurchase agreements with substantial United States
commercial banks) or instruments of comparable security and liquidity with
yields at prevailing market rates for comparable instruments, as selected by
the Borrowers. All income received by the Administrative Agent earned in
respect of such investments shall be deposited in the Letter of Credit Account,
and any losses (including, without limitation, any losses in liquidating such
investments or withdrawals and disbursements pursuant to the terms of
subsection 7.4(b)) shall be for the account of, and shall be deducted from, the
Letter of Credit Account.

(d) Exculpatory Provisions. Each Borrower agrees that any
action taken or omitted to be taken by the Administrative Agent or the Issuing
Bank in connection with the Letter of Credit Account, if taken or omitted to be
taken in good faith and in the absence of gross negligence and willful
misconduct, shall be binding upon the Borrowers and shall not create any
liability for the Administrative Agent, the Issuing Bank or the other Banks to
either Borrower.

SECTION 8. THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE
DETERMINING BANKS

8.1 Appointment. Chemical Bank is hereby appointed as the
Administrative Agent hereunder, and each of the Banks hereby irrevocably
authorizes said Chemical Bank, as the Administrative Agent for such Bank, to
take such action on its behalf under the provisions of this Credit Agreement
and the other Credit Documents and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
the Administrative Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Credit Agreement or any other Credit Document,
the Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any Bank,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any other Credit
Document or otherwise exist against the Administrative Agent.

8.2 Delegation of Duties. The Administrative Agent and the
Issuing Bank may execute any of their duties hereunder by or through agents or
employees and shall be entitled to advice of counsel concerning all matters
pertaining to their respective duties hereunder.

8.3 Reimbursement of Administrative Agent and Issuing Bank.
Each Bank, without limiting the Borrowers' obligations under subsection 9.7,
agrees to reimburse the Administrative Agent and the Issuing Bank in the amount
of its pro rata share
<PAGE> 101
69

for any out-of-pocket expenses incurred for the benefit of the Banks and not
reimbursed by the Borrowers, and for any counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Banks and not
reimbursed by the Borrowers.

8.4 Exculpatory Provisions. Neither the Administrative
Agent, the Issuing Bank, nor any of their officers, directors, employees or
agents shall be liable for any action lawfully taken or omitted to be taken by
it or them under this Credit Agreement or any other Credit Document or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct. Neither the Administrative Agent nor the Issuing Bank
shall be responsible in any manner to any of the Banks for the effectiveness,
enforceability, genuineness, validity or the due execution of this Credit
Agreement or any other Credit Document or any certificate, report or other
document used under or in connection with this Credit Agreement or be under any
obligation to any of the Banks to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions hereof on the part
of MND or the Borrowers. The Administrative Agent and the Issuing Bank shall
be fully justified in failing or refusing to take any action hereunder unless
it shall first be indemnified to its satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Subject to the provisions of subsection
9.3 of this Credit Agreement, the Administrative Agent and the Issuing Bank
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with written instructions signed by the Required Banks
and such instructions and any action taken or failure to act pursuant thereto
shall be binding on all the Banks and on all holders of the Loans.

8.5 Indemnification of Administrative Agent and Issuing Bank.
The Banks agree to indemnify the Administrative Agent and the Issuing Bank (to
the extent not reimbursed by the Borrowers) ratably according to their
respective Commitment Percentages from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Administrative Agent or the Issuing
Bank in any way relating to or arising out of this Credit Agreement or any
other Credit Document or any action taken or omitted by the Administrative
Agent or the Issuing Bank under this Credit Agreement or any other Credit
Document; provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs or disbursements resulting from the Administrative Agent's or the
Issuing Bank's gross negligence or willful misconduct.
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8.6 Reliance by Administrative Agent and Issuing Bank. The
Administrative Agent and the Issuing Bank shall be entitled to rely on any
Note, notice, consent, certificate, affidavit, letter, telegram, teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed and sent by the proper person or persons and,
in respect of legal matters, upon opinion of counsel selected by the
Administrative Agent or the Issuing Bank. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes hereof
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent.

8.7 Administrative Agent and Issuing Bank in Individual
Capacity. With respect to loans made or renewed by it, any Note or Notes
issued to it, and with respect to any Letter of Credit issued or participated
in by it, the Administrative Agent and the Issuing Bank shall have the same
rights and powers hereunder as any Bank and may exercise the same as though it
were not the Administrative Agent or the Issuing Bank, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include the
Administrative Agent and the Issuing Bank in its individual capacity.

8.8 Non-Reliance. Each Bank expressly acknowledges that
neither the Administrative Agent, the Issuing Bank, the Determining Banks nor
any of their officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Administrative Agent, the Issuing Bank or the Determining Banks hereinafter
taken, including any review of the affairs of the Borrowers, shall be deemed to
constitute any representation or warranty by the Administrative Agent, the
Issuing Bank or the Determining Banks to any Bank. Each Bank represents to the
Administrative Agent, to the Issuing Bank and to the Determining Banks that it
has, independently and without reliance upon the Administrative Agent, the
Issuing Bank or any other Bank including without limitation the Determining
Banks, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial or other condition and creditworthiness of the
Borrowers and made its own decision to make extensions of credit hereunder and
enter into this Credit Agreement. Each Bank also represents to the
Administrative Agent, to the Issuing Bank and to the Determining Banks that it
will, independently and without reliance upon the Administrative Agent, the
Issuing Bank or any other Bank including without limitation the Determining
Banks, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Credit Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers. Except for notices,
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reports and other documents expressly required to be furnished to the Banks by
the Administrative Agent or the Issuing Bank hereunder, neither the
Administrative Agent nor the Issuing Bank shall have any duty or responsibility
to provide any Bank with any credit or other information concerning the
business, operations, property, financial and other condition or
creditworthiness of the Borrowers which may come into the possession of the
Administrative Agent, the Issuing Bank or any of their officers, directors,
employees, agents, attorneys-in-fact or Affiliates. Each Bank agrees that the
Determining Banks shall not be liable for any determination made pursuant to
this Credit Agreement in the absence of gross negligence or willful misconduct.

8.9 Successor Administrative Agent. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Banks. If the
Administrative Agent shall resign as Administrative Agent under this Credit
Agreement, then the Required Banks shall appoint from among the Banks a
successor agent for the Banks which successor agent shall be approved by MND,
whereupon such successor agent shall succeed to the rights, powers and duties
of the Administrative Agent, and the term "Administrative Agent" shall mean
such successor agent effective upon its appointment, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Credit Agreement or
any holders of the Loans or the L/C Obligations. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Credit Agreement.

SECTION 9. MISCELLANEOUS

9.1 Waiver of Default. Subject to the proviso clause of
subsection 9.3 below, the Administrative Agent may, by written notice to the
Borrowers (if thereunto authorized by the Required Banks), on behalf of all the
Banks, at any time and from time to time, waive any default in the performance
or observance of any condition, covenant or other term hereof or any Default or
Event of Default which shall have occurred hereunder and its consequences. Any
such waiver shall be for such period and subject to such conditions as shall be
specified in any such notice. In the case of any such waiver, the Borrowers,
the Banks and the Administrative Agent shall be restored to their former
position and rights hereunder and under any Note issued hereunder,
respectively, and any Default or Event of Default so waived shall be deemed to
be cured and not continuing; but no such waiver shall extend to any subsequent
or other Event of Default, or impair any right consequent thereon.
<PAGE> 104
72

9.2 Request to Administrative Agent. Whenever the
Administrative Agent is authorized and empowered hereunder on behalf of each of
the Banks to give any approval or consent, or to make any request, or to take
any action on behalf of the Banks, the Administrative Agent shall be required
to give such approval or consent, to make such request or to take such action
when so requested by the Required Banks, except that any action specified in
subsection 9.3 below to require a different percentage shall be taken only on
the percentage specified therein.

9.3 Amendments. With the written consent of the Required
Banks, the Administrative Agent and the Borrowers may, subject to the
provisions of this subsection, from time to time, enter into agreements
amendatory or supplemental hereto for the purpose of adding any provisions to
this Credit Agreement or changing in any manner the rights of the Banks or of
the Borrowers, hereunder; provided, however, that no such amendatory or
supplemental agreement shall (a) change the maturity of any Loan or the
Scheduled Termination Date or change the rate or amount of interest or any fee,
commission or other charge, in each case for the account of the Banks, or the
time of payment or prepayment of any thereof or change the principal amount of
any Bank's loan, Reimbursement Obligation or Commitment or the duration thereof
or release or limit MEDC's, MND's, TWC's or any Material Subsidiaries'
obligations under the Guarantees or the Subsidiary Guarantee without the written
consent of all the Banks, or (b) change (i) the provisions of subsection 2.18(a)
or (ii) the percentages specified in Section 7 or this Section 9 or in the
definition of Required Banks, without the written consent of all the Banks, or
(c) change any provision of Section 8 without the consent of the Administrative
Agent and the Issuing Bank. Any such amendatory or supplemental agreement shall
apply equally to each Bank and shall be binding upon the Borrowers, all the
Banks and the Administrative Agent.

9.4 Notices. All notices, requests and demands to or upon
the respective parties hereto shall be in writing (including by facsimile
transmission if followed promptly by hard copy) and shall be deemed to have
been duly given or made three days after being deposited in the mails, postage
prepaid, or, in the case of telecopy notice, when received by the addressee,
addressed as follows or to such other address as may be hereafter designated in
writing by the respective parties hereto:

MND: MND Energy Corporation
P.O. Box 4000
The Woodlands, TX 77380
Attn: Chief Financial Officer
Telecopy: 713-377-6192

MGS: Mitchell Gas Services, Inc.
P.O. Box 4000
The Woodlands, TX 77380
<PAGE> 105
73

Attn: Chief Financial Officer
Telecopy: 713-377-6192

MMC: Mitchell Marketing Company
P.O. Box 4000
The Woodlands, TX 77380
Attn: Chief Financial Officer
Telecopy: 713-377-6192

The Banks: Their respective names and addresses
set forth on Schedule 6

The Chemical Bank, as
Administrative Administrative Agent
Agent: 270 Park Avenue
New York, NY 10017
Attn: John F. Gehebe
Vice President
Credit and Lending Group
Telecopy: 212-270-4711

With a copy Chemical Bank
to: Agent Bank Services Group
140 East 45th Street
New York, New York 10017
Attn: Frank Giacalone
Telecopy: 212-622-0002

except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.

9.5 Adjustments; Set-Off. (a) If any Bank shall at any time
receive payment of all or part of any of the Loans or Reimbursement Obligations
owing to it, whether by set-off or otherwise, in a greater proportion than the
payments made on the Loans or Reimbursement Obligations owing to the other
Banks, such Bank shall purchase for cash, ratably from each of the other Banks,
an undivided participating interest in a portion of the Loans or Reimbursement
Obligations owing to such other Banks so that after such purchase each Bank
will hold an interest in an unpaid principal amount of Loans or Reimbursement
Obligations bearing the same proportion to the total principal amount of Loans
or Reimbursement Obligations at such time outstanding as existed in the Loans
or Reimbursement Obligations outstanding hereunder prior to such payment. In
the event that at any time any Bank shall be required to refund any amounts
which have been paid to or received by it on account of any of the Loans or
Reimbursement Obligations held by such Bank and which have been applied to the
purchase of an undivided participating interest in the portion of Loans or
Reimbursement Obligations held by other Banks pursuant to this subsection
9.5(a) then, upon notice from such Bank, each of the other Banks shall
repurchase said portions for cash to the extent of their ratable share of such
refund.
<PAGE> 106
74

(b) In addition to any rights and remedies of the Banks
provided by law (including, without limitation, other rights of set-off), upon
the occurrence of any Event of Default specified in paragraph (a) or (b) of
subsection 7.1, each Bank shall have the right, without prior notice to the
Borrowers, any such notice being expressly waived by the Borrowers to the
extent permitted by applicable law, upon any amount becoming due and payable by
any Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Bank or any branch or agency
thereof to or for the credit or the account of any Borrower. Each Bank agrees
promptly to notify the Borrowers and the Administrative Agent after any such
set-off and application made by such Bank, provided that the failure to give
such notice shall not affect the validity of such set-off and application.

9.6 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Bank, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.

9.7 Payment of Expenses and Taxes. The Borrowers agree (a)
to pay or reimburse the Administrative Agent and the Issuing Bank for all its
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Credit Agreement, the other Credit Documents and any
other documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Administrative Agent,
(b) to pay or reimburse each Bank and the Administrative Agent for all its
costs and expenses incurred in connection with the enforcement or preservation
of any rights under this Credit Agreement, the other Credit Documents and any
such other documents, including, without limitation, fees and disbursements of
counsel (including, without limitation, in-house counsel) to the Administrative
Agent and to the several Banks, and (c) to pay, indemnify and hold each Bank
and the Administrative Agent and each of their officers, directors, employees,
agents, attorneys-in-fact and Affiliates harmless from any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other similar taxes, if any, which may
be payable or determined to be payable in connection with the
<PAGE> 107
75

execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Credit Agreement, the other Credit
Documents and any such other documents; provided, however, that with respect to
subparagraph (c), the Borrowers shall not be liable for the payment of any
losses, costs, penalties, judgments, suits, liabilities, damages, penalties,
actions, expenses or disbursements resulting solely from the gross negligence
or wilful misconduct of any such Bank. The agreements in this subsection shall
survive termination of the Letters of Credit and repayment of the Loans and all
other amounts payable hereunder.

9.8 Notice of Action. In the event the Administrative Agent
or any Bank or Banks should take any action or give any consent or notice
provided for by this Credit Agreement, notice of such action, consent or notice
shall be given forthwith to all the Banks by the Administrative Agent or the
Bank or Banks taking such action or giving such consent or notice; provided,
however, that the failure to give any such notice shall not invalidate any such
action, consent or notice in respect of the Borrowers.

9.9 Survival of Agreements. All agreements, representations
and warranties made herein shall survive the execution and delivery of this
Credit Agreement and the issuances of Letters of Credit and the making and
renewal of loans hereunder.

9.10 Successors and Assigns; Participations. (a) This
Credit Agreement shall be binding upon and inure to the benefit of the
Borrowers, MND, the Banks, the Administrative Agent, all future holders of the
Loans and the L/C Obligations, and their respective successors and assigns,
except that the Borrowers and MND may not assign or transfer any of their
rights or obligations under this Credit Agreement without the prior written
consent of each Bank.

(b) Any Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan or Reimbursement Obligations owing to such Bank, any
Commitment of such Bank or any other interest of such Bank hereunder. In the
event of any such sale by a Bank of participating interests to a Participant,
such Bank's obligations under this Credit Agreement to the other parties to
this Credit Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note for all purposes under this Credit Agreement and the Borrowers
and the Administrative Agent shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Credit Agreement. The Borrowers agree that if amounts outstanding under this
Credit Agreement are due and unpaid, or shall have been declared or
<PAGE> 108
76

shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Credit Agreement to the same
extent as if the amount of its participating interest were owing directly to it
as a Bank under this Credit Agreement; provided, that such right of setoff
shall be subject to the obligation of such Participant to share with the Banks,
and the Banks agree to share with such Participant, as provided in subsection
9.5(a). The Borrowers also agree that each Participant shall be entitled to
the benefits of subsections 2.20, 2.21, 2.22 and 9.5(b) with respect to its
participation in the Commitments and the Loans and other amounts outstanding
from time to time; provided, that no Participant shall be entitled to receive
any greater amount pursuant to such subsections than the transferor Bank would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Bank to such Participant had no such transfer
occurred.

(c) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to any Bank or any affiliate thereof or, with the prior
consent of the Borrowers, the Issuing Bank and the Administrative Agent (which
in the case of the Borrowers shall not be unreasonably withheld), to an
additional bank or financial institution ("an Assignee") all or any part of its
rights and obligations under this Credit Agreement and the other Credit
Documents pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit H, executed by such Assignee, such assigning Bank (and, in the case of
an Assignee that is not then a Bank or an affiliate thereof, by the Borrowers,
the Issuing Bank and the Administrative Agent) and delivered to the
Administrative Agent for its acceptance and recording in the Register; provided
that all assignments of Commitments and/or Loans hereunder shall be made
simultaneously with assignments by the assigning Bank to the same Assignee of
pro rata portions of such Bank's Commitments and/or Loans under, and as defined
in, the Woodlands Revolving Credit Agreement. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Bank hereunder with a Commitment as set forth
therein, and (y) the assigning Bank thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Credit Agreement (and, in the case of an Assignment and Acceptance covering all
or the remaining portion of an assigning Bank's rights and obligations under
this Credit Agreement, such assigning Bank shall cease to be a party hereto).
Unless requested by the Assignee and/or the assigning Bank, new Notes shall not
be required to be executed and delivered by either Borrower.
<PAGE> 109
77

(d) The Administrative Agent, on behalf of the Borrowers,
shall maintain at the address of the Administrative Agent referred to in
subsection 9.4 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Banks and the Commitment of, and principal amount of the Loan and Reimbursement
Obligation owing to, each Bank from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrowers, the
Administrative Agent and the Banks may (and, in the case of any Loan or other
obligation hereunder not evidenced by a Note, shall) treat each Person whose
name is recorded in the Register as the owner of a Loan or other obligation
hereunder as the owner thereof for all purposes of this Credit Agreement and
the other Credit Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being
made in the Register. The Register shall be available for inspection by the
Borrowers or any Bank at any reasonable time and from time to time upon
reasonable prior notice.

(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an Assignee (and, in the case of an Assignee that is
not then a Bank or an affiliate thereof, by the Borrowers, the Issuing Bank and
the Administrative Agent) together with payment to the Administrative Agent of a
registration and processing fee of $2,000 (which amount shall include the fees
for registration and processing of the corresponding assignment and acceptances
under the Woodlands Revolving Credit Agreement), the Administrative Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) on the effective
date determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Banks and the
Borrowers.

(f) Each Borrower authorizes each Bank to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
(but, in the case of a prospective Assignee as to which consent of the
Borrowers must be obtained pursuant to subsection 9.10(c), only if the
Borrowers shall have given such consent) any and all financial information in
such Bank's possession concerning the Borrowers and their Affiliates which has
been delivered to such Bank by or on behalf of the Borrowers pursuant to this
Credit Agreement or which has been delivered to such Bank by or on behalf of
the Borrowers in connection with such Bank's credit evaluation of the Borrowers
and their Affiliates prior to becoming a party to this Credit Agreement;
provided that each such Transferee or prospective Transferee agrees to keep
confidential such financial information and any other written or oral
information provided to it by or on behalf of MND or any of its Subsidiaries,
or by such Bank regarding MND or any of its Subsidiaries, pursuant to or in
connection with this Credit Agreement.
<PAGE> 110
78

(g) For avoidance of doubt, the parties to this Credit
Agreement acknowledge that the provisions of this subsection concerning
assignments of Loans and Notes relate only to absolute assignments and that
such provisions do not prohibit any pledge or assignment by a Bank of any Loan
or Note to any Federal Reserve Bank in accordance with applicable law.

9.11 Counterparts. This Credit Agreement may be executed in
any number of separate counterparts each of which shall be an original and all
of said counterparts taken together shall be deemed to constitute one and the
same agreement. Promptly after the execution hereof, the Administrative Agent
shall transmit to each Bank a conformed copy of this Credit Agreement. A set
of the copies hereof signed by all the parties hereto shall be lodged with the
Borrowers and the Administrative Agent.

9.12 Severability. Any provision of this Credit Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

9.13 Surrender of Notes. As of the Effective Date, the Notes
of MND and MGS issued pursuant to, and as defined in, the Original Credit
Agreement shall cease to be of any further force and effect, and the Banks
shall surrender such Notes for cancellation at the Effective Date.

9.14 Interest. It is the intent of each Bank and each of the
Borrowers in the execution and performance of this Credit Agreement and all
matters incidental and related hereto and any agreement or instrument executed
in connection herewith or with any Debt of the Borrowers to any of the Banks to
remain in strict compliance with all laws applicable to such Bank from time to
time in effect, including, without limitation, usury laws. In furtherance
hereof, each Bank and each Borrower stipulates and agrees that none of the
terms and provisions contained in or pertaining to this Credit Agreement or any
other agreement or instrument ("Other Agreement") executed in connection
herewith or with any Debt of the Borrowers to any Bank shall ever be construed
to create a contract to pay for the use, forbearance or detention of money with
interest at a rate or in an amount in excess of the Maximum Rate for such Bank
or maximum amount of interest permitted to be charged by such Bank under all
laws in effect and applicable to such Bank. For purposes of this Credit
Agreement and the Notes, "interest" shall include the aggregate of all amounts
which constitute or are deemed to constitute interest under the respective laws
in effect and applicable to the Banks that are contracted for, chargeable,
receivable (whether received or deemed to have been received) or taken under
<PAGE> 111
79

this Credit Agreement or the Notes or any Other Agreement. Each of the
Borrowers shall never be required to pay to any Bank unearned interest
hereunder or on any Note or any Other Agreement and shall never be required to
pay interest hereunder or on any Note or any Other Agreement at a rate or in an
amount in excess of the Maximum Rate for such Bank or maximum amount of
interest that may be lawfully charged by such Bank under any law which is in
effect and applicable to such Bank and the provisions of this paragraph shall
control over all other provisions of this Credit Agreement and the Notes or any
Other Agreement which may be in apparent conflict herewith. If the effective
rate or amount of interest which would otherwise be payable under this Credit
Agreement or the Notes or any Other Agreement, or all of them, would exceed the
Maximum Rate for any Bank or the maximum amount of interest any Bank or any
holder of the Notes or any Other Agreement is allowed by the relevant
applicable law to charge, contract for, take or receive, or in the event a Bank
or any holder of the Notes or any Other Agreement shall charge, contract for,
take or receive monies that are deemed to constitute interest which could, in
the absence of this provision, increase the effective rate or amount of
interest payable under this Credit Agreement or the Notes or any Other
Agreement, or all of them, to a rate or amount in excess of that permitted to
be charged, contracted for, taken or received under the applicable laws then in
effect with respect to such Bank, then the principal amount of the Notes or the
obligations of the Borrowers to such Bank under this Credit Agreement, the
Notes or any Other Agreement or the amount of interest which would otherwise be
payable to or for the account of such Bank under this Credit Agreement or the
Notes or any Other Agreement, or all of them, shall be reduced to the amount
allowed under said laws as now or hereafter construed by the courts having
jurisdiction, and all such monies so charged, contracted for, or received that
are deemed to constitute interest in excess of the Maximum Rate for such Bank
or maximum amount of interest permitted by the relevant applicable laws shall
be immediately returned to or credited to the account of the Borrowers upon
such determination. All amounts paid or agreed to be paid in connection with
the indebtedness arising pursuant to this agreement and/or evidenced by the
Notes which would under any law in effect and applicable to such Bank be deemed
"interest" shall, to the extent permitted by such applicable law, be amortized,
prorated, allocated and spread throughout the full term of this Credit
Agreement and the Notes, as applicable.

9.15 GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH NOTE AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.

9.16 SUBMISSION TO JURISDICTION; WAIVERS. MND AND EACH
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
<PAGE> 112
80

(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION
OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED
OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION 9.4 HEREOF OR AT
SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT THERETO; AND

(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT
TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

9.17 WAIVERS OF JURY TRIAL. THE BORROWERS, MND, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS CREDIT
AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 113
81

IN WITNESS WHEREOF, the parties have caused this Credit
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

MITCHELL GAS SERVICES, INC.

By ILLEGIBLE
_________________________
Title: Vice President -
Finance and Treasurer

MITCHELL MARKETING COMPANY

By ILLEGIBLE
_________________________
Title: Vice President -
Finance and Treasurer

MND ENERGY CORPORATION

By ILLEGIBLE
_________________________
Title: Vice President -
Finance and Treasurer

CHEMICAL BANK, as Administrative
Agent, Issuing Bank and as a Bank

By JAMES H. RAMAGE
_________________________
Title: Vice President

NATIONSBANK OF TEXAS, N.A.

By ILLEGIBLE
_________________________
Title: Vice President

CITIBANK, N.A.

By ILLEGIBLE
_________________________
Title: Assistance Vice
President

THE BANK OF NOVA SCOTIA

By F.C.H ASHBY
_________________________
Title: Senior Manager
Loan Operations
<PAGE> 114
82

PNC BANK, NATIONAL ASSOCIATION

By Illegible
_________________________
Title: Vice President

BANK ONE, TEXAS, N.A.

By Illegible
_________________________
Title: Vice President

FIRST INTERSTATE BANK OF TEXAS, N.A.

By COLLIE C. MICHAELS
_________________________
Title: First Vice President

CHRISTIANIA BANK OG KREDITKASSE

By CARL-PETTER SVENDSEN
_________________________
Title: First Vice President

By ARMAND KNUTSEN-OY
_________________________
Title: Vice President

MORGAN GUARANTY TRUST COMPANY

By JOHN KOWALCZUK
_________________________
Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO

By Illegible
_________________________
Title: Corporate Banking Officer

THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY

By Illegible
_________________________

Title: Vice Presient
<PAGE> 115
83

BANK OF AMERICA, NATIONAL TRUST &
SAVINGS ASSOCIATION

By Illegible
_________________________
Title: Vice President
<PAGE> 116
84

NATIONAL WESTMINSTER BANK PLC

By PAUL K. CARTER
__________________________
Title: Manager & Vice President
<PAGE> 117
Schedule 1
to Credit
Agreement

The Applicable Margin, Letter of Credit Commission Rate and Commitment Fee Rate
will be based on ratings (the "Bond Rating") of MEDC's senior unsecured debt by
Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service Inc.
("Moody's"). Any change in such margins and fees resulting from a change in
the Bond Rating shall be effective immediately.

Level 1 Level 2 Level 3 Level 4 Level 5
Rating S&P/Moody's* BBB/ BBB-/ BB+/ BB/ BB-/
Baa2 or Baa3 Ba1 Ba2 Ba3 or
higher lower
- ----------------------------------------------------------------------------------------------
Letter of Credit Commission .35 .50 .75 1.00 1.375
Rate

Applicable Margin-Eurodollar .35 .50 .75 1.00 1.375
Loans

Applicable Margin-ABR Rate 0 0 0 0 .375
Loans

Applicable Margin-CD Rate .475 .625 .875 1.125 1.50
Loans
Commitment Fee Rate .12 .20 .30 .375 .50

</TABLE>

* In the event such Bond Ratings fall within different Levels, the foregoing
will be based on the higher of the two Bond Ratings, provided that if the
higher (i.e. lower numbered) Level shall be two or more Levels higher than
the lower Level, the Level immediately below such higher Level shall govern.
In the event no Bond Rating iso in effect, Level 5 shall govern.
<PAGE> 118
86

Schedule 2
to Credit
Agreement

MND Energy Corporation
Restricted Subsidiaries

Mitchell Energy Corporation
Mitchell Energy Twenty-Two, Inc.(1)

Mitchell Gas Services, Inc.
Acacia Natural Gas Corporation
Liquid Energy Fuels Corporation

Mitchell Marketing Company

Liquid Energy Corporation(2)

MND Energy Eight, Inc.(1)

Southwestern Gas Pipeline, Inc.(2)

MND Energy Nine, Inc.(1)

MND Energy Ten, Inc.(1)

____________________

(1) Currently only a shell corporation. No assets are
owned nor are business activities performed under
this entity.

(2) Currently a shell corporation used only to preserve a
business name. No assets are owned nor are business
activities performed under this entity.

<PAGE> 119
Schedule 3
to Credit
Agreement

MND Energy Corporation
Existing Liens
January 31, 1996
(in thousands)

Belvieu Environmental Fuels $ 58,667
C&L Processors Partnership 43,105
Gulf Coast Fractionators 28,772
--------
$130,544
========

<PAGE> 120
Schedule 4
to Credit
Agreement

Certain Other MEC Debt
----------------------
as of January 31, 1996
(in Thousands)
Belvieu Environmental Fuels $ 6,667
C&L Processors 23,277
Gulf Coast Fractionators 3,028
-------

Total $ 32,972
========
<PAGE> 121
Schedule 5
to Credit
Agreement

MND Energy Corporation
Existing Debt
January 31, 1996
(in thousands)

<TABLE>

Mitchell Gas Services' Interest
________________________________________________
Non-
Total Recourse Recourse
Debt Debt Debt
------------ -------- ---------

<S> <C> <C> <C>
Belvieu Environmental Fuels $ 58,667 $ 6,667 $ 52,000
C&L Processors Partnership 43,105 23,277 19,828

Gulf Coast Fractionators 28,772 3,028 25,744
------ ----- ------
Total $130,544 $32,972 $97,572
======== ======= =======
</TABLE>
<PAGE> 122
Schedule 6
to Credit
Agreement

Bank Offices

CHEMICAL BANK
270 Park Avenue
New York, NY 10017
Attn: Mr. John F. Gehebe
Fax: 212-270-4711

BANK OF AMERICA, NATIONAL TRUST & SAVINGS ASSOCIATION
333 Clay Street Suite 4550
Houston, Texas 77002
Attn: Ms. C. Paige Dimaggio
Fax: 713-651-4841

THE BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY
1100 Louisiana Street, Suite 2800
Houston, Texas 77002-5216
Attn: Mr. John M. McIntyre
Vice President-Energy Center
Fax: 713-655-3855

THE BANK OF NOVA SCOTIA
Atlanta Agency
600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
Attn: F.C.H. Ashby
Fax: 404-888-8998

with a copy to:
The Bank of Nova Scotia
1100 Louisiana
Suite 3000
Houston, Texas 77002
Attn: Mr. Mark A. Ammerman
Fax: 713-752-2425

BANK ONE, TEXAS, N.A.
910 Travis Street
Houston, TX 77002
Attn: Mr. Kelly L. Elmore, III
Fax: 713-751-3544

CHRISTIANA BANK OG KREDITKASSE
11 West 42nd Street
New York, NY 10036
Attn: Mr. Jahn O. Roising
Fax: 212-827-4888
<PAGE> 123
CITIBANK, N.A.
1200 Smith Street
Suite 2000
Houston, TX 77005
Attn: Mr. Don Miller
Fax: 713-654-2849

FIRST INTERSTATE BANK OF TEXAS, N.A.
1000 Louisiana
Third Floor
Houston, Texas 77002
Attn: Ms. Collie C. Michaels
Fax: 713-250-7912

MORGAN GUARANTY TRUST COMPANY
60 Wall Street
New York, New York 10260
Attn: Mr. Philip W. McNeal
Fax: 212-648-5014

NATIONSBANK OF TEXAS, N.A.
700 Louisiana, 8th Floor
Houston, TX 77002
Attn: Ms. Kristin Palmer
Fax: 713-247-6586

THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza
Chicago, Illinois 60670
Attn: John Beirne
Fax: 312-732-4840

PNC BANK, NATIONAL ASSOCIATION
One PNC Plaza, 3rd Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attn: Mr. Michael J. Beyer
Fax: 412-762-2571

NATIONAL WESTMINSTER BANK PLC
600 Travis Street
Suite 3700
Houston, TX 77002
Attn: Mr. Kevin Howard
Fax: 713-221-2430
<PAGE> 124
EXHIBIT A
TO CREDIT AGREEMENT

[FORM OF]
PROMISSORY NOTE

$___________ New York, New York
April __, 1996

FOR VALUE RECEIVED, the undersigned, [Mitchell Marketing Company/Mitchell
Gas Services, Inc.], a [Louisiana/Delaware] corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of ______________ (the "Bank") at
the office of Chemical Bank, located at 270 Park Avenue, New York, New York
10017, in lawful money of the United States of America and in immediately
available funds, on the Scheduled Termination Date the principal amount of
(a)_____________ DOLLARS (__________), or, if less, (b) the aggregate unpaid
principal amount of all Loans made by the Bank to the Borrower pursuant to
subsection 2.1 of the Credit Agreement, as hereinafter defined. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in subsections 2.7 and 2.8 of such Credit Agreement.

The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereto or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of each Loan
made pursuant to the Credit Agreement and the date and amount of each payment
or prepayment of principal thereof, each continuation thereof, each conversion
of all or a portion thereof to another Type and, in the case of CD Rate Loans
and Eurodollar Loans, the length of each Interest Period with respect thereto.
Each such endorsement shall constitute prima facie evidence to the accuracy of
the information endorsed. The failure to make any such endorsement shall not
affect the obligations of the Borrower in respect of such Loan.

This Note (a) is one of the Notes referred to in the Amended and Restated
Credit Agreement, dated as of April __, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrower, [Mitchell Marketing Company/Mitchell Gas Services, Inc.], MND Energy
Corporation, the Bank, the other banks and financial institutions from time to
time parties thereto, including the Issuing Bank (as defined therein), and
Chemical Bank, as administrative agent, (b) is subject to the provisions of the
Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is guaranteed
as provided in the Credit Documents. Reference is hereby made to the Credit
Documents for a description of the nature and extent of the guarantees, the
terms and conditions upon which each guarantee was granted and the rights of
the holder of this Note in respect thereof.

<PAGE> 125

Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.

All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.

Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[MITCHELL MARKETING COMPANY/
MITCHELL GAS SERVICES, INC.]

By: _______________________________

Name: _____________________________

Title: ____________________________
<PAGE> 126
Schedule A
to Note
----------

LOANS, CONVERSIONS AND REPAYMENTS OF ABR RATE LOANS

<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________

Amount Amount of Amount of Amount of Unpaid
Amount Converted Principal of ABR Rate Loans ABR Rate Loans Principal Notation
of ABR to ABR ABR Rate Converted to Converted to Balance of Made
Date Rate Loans Rate Loans Loans Repaid Eurodollar Loans CD Rate Loans ABR Rate Loans By
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>

_____________________________________________________________________________________________________________

_____________________________________________________________________________________________________________
</TABLE>
<PAGE> 127
Schedule B
to Note
----------

LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS

<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________

Amount Interest Period Amount of Amount of Amount of Unpaid
Amount Converted to or and Eurodollar Principal of Eurodollar Loans Eurodollar Loans Principal Notation
Eurodollar Continued as Rate with Eurodollar Converted to Converted to Balance of Made
Date Loans Eurodollar Loans Respect Thereto Loans Repaid ABR Rate Loans CD Rate Loans Eurodollar Loans By

____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>

____________________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 128
Schedule C
to Note
----------

LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF CD RATE LOANS

<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________

Amount Interest Period Amount of Amount of Amount of Unpaid
Amount of Converted to or and CD Principal of CD Rate Loans CD Rate Loans Principal Notation
CD Rate Continued as Rate with CD Rate Converted to Converted to Balance of Made
Date Loans CD Rate Loans Respect Thereto Loans Repaid ABR Rate Loans Eurodollar Loans CD Rate Loans By

____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>

____________________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 129
EXHIBIT B
TO CREDIT AGREEMENT

April __, 1996

To each of the Banks which is a party to the
Amended and Restated Credit Agreement, dated
as of April __, 1996 (the "Credit Agreement"),
among the Banks, including the Issuing Bank,
referred to in the Credit Agreement (the "Banks"),
Chemical Bank, as Administrative Agent, Mitchell
Marketing Company and Mitchell Gas Services, Inc.,
as Borrowers, and MND Energy Corporation, as
Guarantor

Gentlemen:

We have acted as counsel for MND Energy Corporation, a Delaware
corporation ("MND"), Mitchell Gas Services, Inc., a Delaware corporation
("MGS"), Mitchell Energy Corporation, a Delaware corporation ("MEC"), Mitchell
Marketing Company, a Louisiana corporation ("MMC"), The Woodlands Corporation,
a Delaware corporation ("TWC"), and Mitchell Energy & Development Corp., a
Texas corporation ("MEDC"), in connection with the negotiation, preparation,
execution and delivery of the Credit Agreement and the other Credit Documents.
Terms defined in the Credit Agreement and not herein shall have such defined
meanings when used in this opinion letter.

As such counsel we have examined the Credit Agreement, the Guarantees, the
Subsidiary Guarantee, the Subordination Agreement, and the originals, or copies
certified to our satisfaction of such corporate records, certificates of public
officials and other persons and other documents, agreements and instruments as
we deemed necessary as a basis for the opinions hereinafter expressed.

Based upon the foregoing, we are of the following opinion:

1. Each of MEDC, TWC, MND, MGS, MMC and each Material Subsidiary is a
corporation duly incorporated and validly existing under the law of the
jurisdiction in which it is incorporated, in good standing therein, duly
qualified and in good standing in each jurisdiction wherein the conduct of its
business or the ownership of its properties requires such qualifications.

<PAGE> 130
April __, 1996
Page 2

2. Each of MND, MMC and MGS has the corporate power and authority under
the laws of its jurisdiction of incorporation to execute, deliver and perform
the Credit Agreement; each of MEDC, TWC and MND has the corporate power and
authority under the laws of its jurisdiction of incorporation to execute,
deliver and perform the Guarantee to which it is a party; each of MEC, MGS and
MMC has the corporate power and authority under the laws of its jurisdiction of
incorporation to execute, deliver and perform the Subsidiary Guarantee; and
MEDC has the corporate power and authority under the laws of its jurisdiction
of incorporation to execute, deliver and perform the Subordination Agreement.

3. The execution, delivery and performance by each of MND, MMC and MGS of
the Credit Agreement, by each of MEDC, TWC and MND of the Guarantee to which it
is a party, by each of MEC, MGS and MMC of the Subsidiary Guarantee, and by
MEDC of the Subordination Agreement has in each case been duly and validly
authorized by its board of directors and by all other necessary corporation
action.

4. Each of MND, MMC and MGS has duly executed and delivered the Credit
Agreement; each of MEDC, TWC and MND has duly executed and delivered the
Guarantee to which it is a party; each of MEC, MGS and MMC has executed and
delivered the Subsidiary Guarantee; MEDC has duly executed and delivered the
Subordination Agreement; and the Credit Agreement, the Guarantees, the
Subsidiary Guarantee, and the Subordination Agreement each constitutes a valid
and legally binding obligation of such party or parties thereto, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.

5. No consent of any other party (including, without limitation,
stockholders of MND, MMC or MGS), and no consent, license, approval or
authorization of, or registration or declaration with, any governmental
authority, bureau or agency is required to be obtained in connection with the
execution, delivery or performance, validity or enforceability of the Credit
Agreement, the Guarantees, the Subsidiary Guarantee or the Subordination
Agreement.

6. The execution, delivery and performance of the Credit Agreement, the
Guarantees, the Subsidiary Guarantee and the Subordination Agreement will not
(A) violate or contravene any provision of any law or regulation (including
without limitation any Texas usury law) applicable to MEDC, TWC, MND, MGS, MMC
or any other Material Subsidiary, (B) conflict with, or result in a breach or
violation of, any of the provisions of, or constitute a default under, the
Certificate of Incorporation or By-laws of MEDC, TWC, MND, MGS, MMC or any
other Material Subsidiary or any material indenture, loan agreement or other
agreement or instrument to which MEDC, TWC, MND, MGS, MMC or any other Material
<PAGE> 131
April __, 1996
Page 3

Subsidiary is a party or under which it or any of its properties are or may be
bound, or (C) violate any order, award, judgment, determination, writ,
injunction or decree applicable to MEDC, TWC, MND, MGS, MMC or any other
Material Subsidiary, of any regulatory, administrative or other governmental or
public body or authority, arbitrator or court of the United States or any state
of other jurisdiction thereof.

7. Neither MEDC, TWC, MND, MGS, MMC nor any Material Subsidiary is a
"holding company," a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

8. Neither MEDC, TWC, MND, MGS, MMC nor any Material Subsidiary is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.

9. MEDC is the legal and beneficial owner of all of the issued and
outstanding capital stock of MND and TWC and MND is the legal and beneficial
owner of all of the issued and outstanding capital stock of each of MMC and MGS
and each other Material Subsidiary, in each case free and clear, to the best of
our knowledge, of any Liens, claims, security interests or encumbrances of any
nature.

The opinions in paragraphs 2 through 9 above are based upon and limited to
the laws of the State of Texas and the United States of America and the
corporate law of the States of Delaware and Louisiana. We note that, by their
terms, the Credit Agreement, the Guarantees, the Subsidiary Guarantee and the
Subordination Agreement are governed by the laws of the State of New York. For
purposes of the opinion given in paragraph 4, we have assumed, with your
permission, that the laws of the State of New York are identical to the
laws of the State of Texas.

This opinion is furnished to you in connection with the Credit Agreement
and may not be relied upon by any person or by you in any other context without
our prior written consent.

Very truly yours,

MITCHELL ENERGY & DEVELOPMENT CORP.
LEGAL DEPARTMENT

By: ______________________________________
Thomas P. Battle
Senior Vice President, General Counsel

<PAGE> 132

EXHIBIT C
TO CREDIT AGREEMENT

[RESERVED]

<PAGE> 133
EXHIBIT D
TO CREDIT AGREEMENT

[Form of]
Closing Certificate

I, _________________, (i) [________________________________] of

Mitchell Marketing Company, a corporation organized under the laws of the State
of Louisiana ("MMC"), and (ii) [_______________________] of Mitchell Gas
Services, Inc., a corporation organized under the laws of the State of Delaware
(together with MMC, the "Corporations"), as required by Section 4 of the Amended
and Restated Credit Agreement among the Corporations, MND Energy Corporation,
the Banks party thereto, and Chemical Bank, as administrative agent, dated as of
April 19, 1996 (the "Credit Agreement"), do hereby certify that, on and as of
the date set forth below:

(i) No Default or Event of Default has occurred and is
continuing, after giving effect to the execution of the Credit
Agreement; and

(ii) The representations and warranties contained in
Section 3 of the Credit Agreement are true and correct in all material
respects.

IN WITNESS WHEREOF, I have signed this Closing Certificate on
behalf of the Corporations on this ____ day of April, 1996.

---------------------------------------
Name:
Title:
Mitchell Marketing Company

---------------------------------------
Name:
Title:
Mitchell Gas Services, Inc.
<PAGE> 134
EXHIBIT E-1
TO CREDIT AGREEMENT

FORM OF
MEDC GUARANTEE

GUARANTEE dated as of April 19, 1996 by MITCHELL ENERGY & DEVELOPMENT
CORP., a Texas corporation (the "Guarantor"), in favor of CHEMICAL BANK, as
administrative agent (in such capacity, the "Administrative Agent") for the
banks (the "Banks"), including the Issuing Bank (as defined in the Credit
Agreement defined herein), from time to time party to the Amended and Restated
Credit Agreement, dated as of April 19, 1996, among Mitchell Marketing Company,
a Louisiana corporation ("MMC"), Mitchell Gas Services, Inc., a Delaware
corporation ("MGS"; together with MMC, the "Borrowers"), MND Energy
Corporation, the Banks, and the Administrative Agent (hereinafter, as the same
may from time to time be amended, supplemented or otherwise modified, the
"Credit Agreement").

W I T N E S S E T H:

WHEREAS, pursuant to the Credit Agreement the Banks have agreed, among
other things, to make extensions of credit to, or for the account of, the
Borrowers, including issuing Letters of Credit and making Loans from time to
time in an aggregate face and/or principal amount up to but not exceeding
$150,000,000; and

WHEREAS, the Guarantor indirectly owns all the issued and outstanding
capital stock of the Borrowers and it is to the advantage of the Guarantor that
the Banks make such extensions of credit to, or for the account of, the
Borrowers; and

WHEREAS, the Banks are willing to make such extensions of credit under
the Credit Agreement upon the condition, among others, that the Guarantor shall
have executed and delivered this Guarantee to the Administrative Agent for the
ratable benefit of the Banks;

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other GOOD and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms. Unless otherwise defined herein, as used in
this Guarantee, terms defined in the Credit Agreement shall have their defined
meanings when used herein. As used herein, "Obligations" shall mean the unpaid
principal of and interest on the Loans and Reimbursement Obligations and all
other indebtedness, obligations and liabilities of each Borrower to the
Administrative Agent and the Banks, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit Agreement, any Note,
the other Credit

<PAGE> 135
2

Documents and any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without limitation,
all reasonable fees and disbursements of counsel to the Administrative Agent or
to the Banks that are required to be paid by each Borrower pursuant to the
terms of the Credit Agreement) or otherwise.

2. Guarantee. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Administrative Agent, for the ratable benefit of
the Banks, the prompt and complete payment when due (whether upon demand, at
the stated maturity, by acceleration or otherwise) of the Obligations. The
Guarantor further agrees to pay any and all expenses (including, without
limitation, fees and disbursements of counsel) which may be paid or incurred by
the Administrative Agent in collecting any or all of the Obligations and/or
enforcing any rights under this Guarantee or under the Obligations. This
Guarantee shall remain in full force and effect until the Obligations are paid
in full, no Letters of Credit are outstanding and the Commitments are
terminated, notwithstanding that from time to time prior thereto the Borrowers
may be free from any Obligations.

(b) No payment or payments made by either Borrower, the Guarantor
or any other Person received or collected by the Administrative-Agent or any
Bank from either Borrower, the Guarantor or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments,
remain liable for the Obligations until the obligations are paid in full, no
Letters of Credit are outstanding and the Commitments are terminated.

3. Set-off. Upon the occurrence of any Event of Default in the
payment on any Loan or Reimbursement Obligation, the Administrative Agent and
each Bank is hereby irrevocably authorized by the Guarantor at any time and
from time to time without notice to the Guarantor, any such notice being
expressly waived by the Guarantor, to set off and appropriate and apply any and
all deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, or matured or
unmatured, at any time held or owing by the Administrative Agent or such Bank
to or for the credit or the account of the Guarantor, or any part thereof in
such amounts as the Administrative Agent or such Bank may elect, against and on
account of the obligations and liabilities of the Guarantor to the
Administrative Agent or such Bank hereunder, and claims of every nature and
description of the Administrative Agent or such Bank against the Guarantor, in
any currency, whether arising hereunder, under the Credit Agreement,

<PAGE> 136
3

any Note, any other Credit Document or otherwise, as the Administrative Agent
or such Bank may elect, whether or not the Administrative Agent or such Bank
has made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Administrative Agent and each Bank
agrees to notify the Guarantor promptly of any such set-off and the application
made by it of the proceeds thereof, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Bank under this Section 3 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Bank may have.

4. No Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder or any set-off or application of funds of the
Guarantor by the Administrative Agent or any Bank, the Guarantor shall not be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Bank against either Borrower or against any collateral security or
guarantee or right of offset held by the Administrative Agent or any Bank for
the payment of the Obligations, nor shall the Guarantor seek any reimbursement
from either Borrower in respect of payments made by the Guarantor hereunder,
until all amounts owing to the Administrative Agent and each Bank by the
Borrowers for or on account of the obligations are paid in full, no Letters of
Credit are outstanding and the Commitments are terminated. If any amount shall
be paid to the Guarantor on account of such subrogation rights at any time when
all of the Obligations shall not have been paid in full, such amount shall be
held by the Guarantor in trust for the Banks, segregated from other funds of
the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
over to the Administrative Agent in the exact form received by the Guarantor
(duly indorsed by the Guarantor to the Administrative Agent, if required), to
be applied against the Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.

5. Renewals, Extensions, Modifications, etc. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent BY the
Guarantor, any demand for payment of any of the obligations made by the
Administrative Agent or any Bank may be rescinded by the Administrative Agent
or such Bank and any of the Obligations continued, and the obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended,
modified, accelerated, compromised, waived, surrendered or released by the
Administrative Agent or any Bank and the Credit Agreement, any Note, any other
Credit Document or any other document in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Banks (or the
Required Banks, as the case may be) may deem advisable from time to time,

<PAGE> 137
4

and any collateral security or guarantee or right of offset at any time held by
the Administrative Agent or any Bank for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Bank shall have any obligation to protect, secure, perfect or
insure any Lien at any time held as security for the Obligations or this
Guarantee or any property subject thereto.

6. Guarantee Absolute and Unconditional. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Bank upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred and extended, amended and waived in reliance upon this Guarantee;
and all dealings between the Borrowers or the Guarantor, on the one hand, and
the Administrative Agent and the Banks, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon either Borrower or the
Guarantor with respect to the Obligations. This Guarantee shall be construed
as a continuing, absolute and unconditional guarantee of payment without regard
(a) to the validity, regularity or enforceability of the Credit Agreement, any
Note, any other Credit Document, any of the obligations or any collateral
security document or guarantee therefor or right of offset with respect thereto
at any time or from time to time held by the Administrative Agent or any Bank,
(b) any defense, set-off or counterclaim which may at any time be available to
or be asserted by either Borrower against the Administrative Agent or any Bank,
or (c) any other circumstance whatsoever (with or without notice to or
knowledge of either Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of either Borrower for
the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in
any other instance. When making any demand or pursuing its rights and remedies
hereunder against the Guarantor, the Administrative Agent or any Bank may, but
shall be under no obligation to, make a similar demand upon or pursue such
rights and remedies as it may have against either Borrower or any other Person
or against any collateral security or guarantee for the Obligations or any
right of offset with respect thereto, and any failure by the Administrative
Agent or any Bank to make any such similar demand or to pursue such other
rights or remedies or to collect any payments from either Borrower or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of either Borrower or any
such other Person or any such collateral security, guarantee or right of
offset, shall not relieve the Guarantor of any liability hereunder, and shall
not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Administrative Agent and the Banks. This
Guarantee

<PAGE> 138
5

shall continue in full force and effect and be binding in accordance with and
to the extent of its terms upon the Guarantor and its successors and assigns,
and shall inure to the benefit of the Administrative Agent and the Banks, and
their respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Guarantee shall
have been satisfied by payment in full, no Letters of Credit are outstanding
and the Commitments are terminated. For the purposes hereof, "demand" shall
include the commencement and continuance of any legal proceedings.

7. Reinstatement of Guarantee. This Guarantee shall continue to
be effective, or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Bank upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of either
Borrower, the Guarantor or any other Person, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, either Borrower or the Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.

8. Payment of Obligations. The Guarantor hereby guarantees that
the Obligations will be paid to the Administrative Agent, for the ratable
benefit of the Banks, without set-off or counterclaim in lawful currency of the
United States of America at the office of the Administrative Agent located at
Agent Bank Services Group, Chemical Bank, 140 East 45th Street, New York, New
York 10017, Attention: Frank Giacalone, MND Energy Corporation Clearing Account
#144041274 (or at such other office as shall be notified by the Administrative
Agent to the Guarantor).

9. Representations and Warranties. The Guarantor represents and
warrants to the Administrative Agent and the Banks that:

(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority and the legal
right to own and operate its property, to lease the property it
operates and to conduct the business in which it is currently engaged;

(b) it has the corporate power and authority and the
legal right to execute and deliver, and to perform its obligations
under, this Guarantee, and has taken all necessary corporate action to
authorize its execution, delivery and performance of this Guarantee;

(c) this Guarantee constitutes a LEGAL, valid and binding
obligation of it enforceable in accordance with its
<PAGE> 139
6

terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally;

(d) the execution, delivery and performance of this
Guarantee will not violate any provision of any Requirement of Law or
material contractual obligation of it and will not result in or
require the creation or imposition of any Lien on any of the properties
or revenues of it pursuant to any Requirement of Law or material
contractual obligation of it; and

(e) no consent or authorization of, filing with, or other
act by or in respect of, any arbitrator or Governmental Authority and
no consent of any other Person (including, without limitation, any
stockholder or creditor of it) is required in connection with the
execution, delivery, performance, validity or enforceability of this
Guarantee.

10. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

11. No Waiver; Cumulative Remedies. Neither the Administrative
Agent nor any Bank shall by any act (except by a written instrument pursuant to
Section 13 hereof), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Bank, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Bank of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or any Bank would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by
law.

12. Notices. Notices by the Administrative Agent to the Guarantor
may be in the same manner and to the same address set forth in subsection 9.4
of the Credit Agreement for notices to the Borrowers.

<PAGE> 140
7

13. Waivers, Amendments; Assignments. None of the terms or
provisions of this Guarantee may be waived, altered, modified or amended except
by a written instrument executed by the Guarantor and the Administrative Agent;
Provided that any provision of this Guarantee may be waived by the
Administrative Agent in a letter or agreement executed by the Administrative
Agent or by facsimile transmission from the Administrative Agent. This
Guarantee shall be binding upon the successors and assigns of the Guarantor and
shall inure to the benefit of the Administrative Agent and the Banks and their
successors and assigns, except that the Guarantor may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
all the Banks.

14. Authority of Administrative Agent. The Guarantor acknowledges
that the rights and responsibilities of the Administrative Agent under this
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Guarantee shall, as between the Administrative Agent and
the Banks, be governed by the Credit Agreement and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Administrative Agent and the Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Banks with full and valid
authority so to act or refrain from acting, and the Guarantor shall not be
under any obligation, or entitlement, to make any inquiry respecting such
authority.

15. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

16. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS GUARANTEE, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
<PAGE> 141
8

REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE GUARANTOR AT ANY BORROWER'S ADDRESS SET
FORTH IN SUBSECTION 9.4 OF THE CREDIT AGREEMENT OR AT SUCH OTHER
ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO; AND

(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

17. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

<PAGE> 142
9

IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.

MITCHELL ENERGY & DEVELOPMENT CORP.

By:
----------------------------------
Title:

<PAGE> 143
EXHIBIT E-2
TO CREDIT AGREEMENT

FORM OF
MND GUARANTEE

GUARANTEE dated as of April 19, 1996 by MND ENERGY CORPORATION, a
Delaware corporation (the "Guarantor"), in favor of CHEMICAL BANK, as
administrative agent (in such capacity, the "Administrative Agent") for the
banks (the "Banks"), including the Issuing Bank (as defined in the Credit
Agreement defined herein), from time to time party to the Amended and Restated
Credit Agreement, dated as of April 19, 1996, among Mitchell Marketing Company,
a Louisiana corporation ("MMC"), Mitchell Gas Services, Inc. a Delaware
corporation ("MGS"; together with MMC, the "Borrowers"), the Guarantor, the
Banks, and the Administrative Agent (hereinafter, as the same may from time to
time be amended, supplemented or otherwise modified, the "Credit Agreement").

WITNESSETH:

WHEREAS, the Guarantor owns all the issued and outstanding capital
stock of the Borrowers and it is to the advantage of the Guarantor that the
Banks make such extensions of credit to, or for the account of, the Borrowers;
and

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:

<PAGE> 144
2

connection therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without limitation,
all reasonable fees and disbursements of counsel to the Administrative Agent or
to the Banks that are required to be paid by each Borrower pursuant to the
terms of the Credit Agreement) or otherwise.

2. Guarantee. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Administrative Agent, for the ratable benefit of
the Banks, the prompt and complete payment when due (whether upon demand, at
the stated maturity, by acceleration or otherwise) of the Obligations. The
Guarantor further agrees to pay any and all expenses (including, without
limitation, fees and disbursements of counsel) which may be paid or incurred by
the Administrative Agent in collecting any or all of the Obligations and/or
enforcing any rights under this Guarantee or under the Obligations. This
Guarantee shall remain in full force and effect until the obligations are paid
in full, no Letters of Credit are outstanding and the Commitments are
terminated, notwithstanding that from time to time prior thereto the Borrowers
may be free from any obligations.

(b) No payment or payments made by either Borrower, the Guarantor
or any other Person received or collected by the Administrative Agent or any
Bank from either Borrower, the Guarantor or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments,
remain liable for the Obligations until the Obligations are paid in full, no
Letters of Credit are outstanding and the Commitments are terminated.

<PAGE> 145
\ 3

Administrative Agent or such Bank may elect, whether or not the Administrative
Agent or such Bank has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. The
Administrative Agent and each Bank agrees to notify the Guarantor promptly of
any such set-off and the application made by it of the proceeds thereof,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Administrative Agent and each
Bank under this Section 3 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the
Administrative Agent or such Bank may have.

4. No Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder or any set-off or application of funds of the
Guarantor by the Administrative Agent or any Bank, the Guarantor shall not be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Bank against either Borrower or against any collateral security or
guarantee or right of offset held by the Administrative Agent or any Bank for
the payment of the Obligations, nor shall the Guarantor seek any reimbursement
from either Borrower in respect of payments made by the Guarantor hereunder,
until all amounts owing to the Administrative Agent and each Bank by the
Borrowers for or on account of the Obligations are paid in full, no Letters of
Credit are outstanding and the Commitments are terminated. If any amount shall
be paid to the Guarantor on account of such subrogation rights at any time when
all of the Obligations shall not have been paid in full, such amount shall be
held by the Guarantor in trust for the Banks, segregated from other funds of
the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
over to the Administrative Agent in the exact form received by the Guarantor
(duly indorsed by the Guarantor to the Administrative Agent, if required), to
be applied against the Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.

5. Renewals, Extensions, Modifications, etc. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the
Administrative Agent or any Bank may be rescinded by the Administrative Agent or
such Bank and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Bank and the Credit Agreement, any Note, any other Credit Document
or any other document in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Banks (or the Required
Banks, as the case may be) may deem advisable from time to time, and any
collateral security or guarantee or right of offset at

<PAGE> 146
4

any time held by the Administrative Agent or any Bank for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. Neither
the Administrative Agent nor any Bank shall have any obligation to protect,
secure, perfect or insure any Lien at any time held as security for the
Obligations or this Guarantee or any property subject thereto.

6. Guarantee Absolute and Unconditional. The Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Bank upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred and extended, amended and waived in reliance upon this Guarantee;
and all dealings between the Borrowers or the Guarantor, on the one hand, and
the Administrative Agent and the Banks, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon either Borrower or the
Guarantor with respect to the Obligations. This Guarantee shall be construed
as a continuing, absolute and unconditional guarantee of payment without regard
(a) to the validity, regularity or enforceability of the Credit Agreement, any
Note, any other Credit Document, any of the Obligations or any collateral
security document or guarantee therefor or right of offset with respect thereto
at any time or from time to time held by the Administrative Agent or any Bank,
(b) any defense, set-off or counterclaim which may at any time be available to
or be asserted by either Borrower against the Administrative Agent or any Bank,
or (c) any other circumstance whatsoever (with or without notice to or
knowledge of either Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of either Borrower for
the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in
any other instance. When making any demand or pursuing its rights and remedies
hereunder against the Guarantor, the Administrative Agent or any Bank may, but
shall be under no obligation to, make a similar demand upon or pursue such
rights and remedies as it may have against either Borrower or any other Person
or against any collateral security or guarantee for the Obligations or any
right of offset with respect thereto, and any failure by the Administrative
Agent or any Bank to make any such similar demand or to pursue such other
rights or remedies or to collect any payments from either Borrower or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of either Borrower or any
such other Person or any such collateral security, guarantee or right of
offset, shall not relieve the Guarantor of any liability hereunder, and shall
not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Administrative Agent and the Banks. This
Guarantee shall continue in full force and effect and be binding in

<PAGE> 147
5

accordance with and to the extent of its terms upon the Guarantor and its
successors and assigns, and shall inure to the benefit of the Administrative
Agent and the Banks, and their respective successors, indorsees, transferees
and assigns, until all the Obligations and the obligations of the Guarantor
under this Guarantee shall have been satisfied by payment in full, no Letters
of Credit are outstanding and the Commitments are terminated. For the purposes
hereof, "demand" shall include the commencement and continuance of any legal
proceedings.

9. Representations and Warranties. The Guarantor represents and
warrants to the Administrative Agent and the Banks that:

(c) this Guarantee constitutes a legal, valid and binding
obligation of it enforceable in accordance with its terms, except as
enforceability may be limited by

<PAGE> 148
6

bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors, rights generally;

(d) the execution, delivery and performance of this
Guarantee will not violate any provision of any Requirement of Law or
material contractual obligation of it and will not result in or
require the creation or imposition of any Lien on any of the
properties or revenues of it pursuant to any Requirement of Law or
material contractual obligation of it; and

11. No Waiver; Cumulative Remedies. Neither the Administrative
Agent nor any Bank shall by any act (except by a written instrument pursuant to
Section 13 hereof), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Bank, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Bank of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or any Bank would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by
law.

12. Notices. Notices by the Administrative Agent to the Guarantor
may be in the same manner and to the same address set forth in subsection 9.4
of the Credit Agreement for notices to the Borrowers.

<PAGE> 149
7

13. Waivers, Amendments; Assignments. None of the terms or
provisions of this Guarantee may be waived, altered, modified or amended except
by a written instrument executed by the Guarantor and the Administrative Agent;
provided that any provision of this Guarantee may be waived by the
Administrative Agent in a letter or agreement executed by the Administrative
Agent or by facsimile transmission from the Administrative Agent. This
Guarantee shall be binding upon the successors and assigns of the Guarantor and
shall inure to the benefit of the Administrative Agent and the Banks and their
successors and assigns, except that the Guarantor may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
all the Banks.

15. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

16. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY

<PAGE> 150
8

REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE GUARANTOR AT ITS ADDRESS SET FORTH IN
SUBSECTION 9.4 OF THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF
WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO; AND

(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

17. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.

<PAGE> 151
9

IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.

MND ENERGY CORPORATION

By:
--------------------------------
Title:
<PAGE> 152

EXHIBIT E-3
TO CREDIT AGREEMENT

FORM OF
TWC GUARANTEE

GUARANTEE dated as of April 19, 1996 by THE WOODLANDS CORPORATION, a
Delaware corporation (the "Guarantor"), in favor of CHEMICAL BANK, as
administrative agent (in such capacity, the "Administrative Agent") for the
banks (the "Banks"), including the Issuing Bank (as defined in the Credit
Agreement defined herein), from time to time party to the Amended and Restated
Credit Agreement, dated as of April 19, 1996, among Mitchell Marketing Company,
a Louisiana corporation ("MMC"), Mitchell Gas Services, Inc., a Delaware
corporation ("MGS"; together with MMC, the "Borrowers"), MND Energy
Corporation, the Banks, and the Administrative Agent (hereinafter, as the same
may from time to time be amended, supplemented or otherwise modified, the
"Credit Agreement").

W I T N E S S E T H:

WHEREAS, Mitchell Energy & Development Corp., a Texas corporation,
owns, directly or indirectly, all of the issued and outstanding capital stock
of the Borrowers and the Guarantor and it is to the advantage of the Guarantor
that the Banks make such extensions of credit to, or for the account of, the
Borrowers; and

<PAGE> 153
2

connection with, the Credit Agreement, any Note, the other Credit Documents and
any other document made, delivered or given in connection therewith, whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all reasonable fees and
disbursements of counsel to the Administrative Agent or to the Banks that are
required to be paid by each Borrower pursuant to the terms of the Credit
Agreement) or otherwise.

(b) The Guarantor agrees that the obligations may at any time or
from time to time exceed the amount of the liability of the Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Administrative Agent and the Banks hereunder.

(c) No payment or payments made by either Borrower, the Guarantor
or any other Person received or collected by the Administrative Agent or any
Bank from either Borrower, the Guarantor or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments,
remain liable for the Obligations until the Obligations are paid in full, no
Letters of Credit are outstanding and the Commitments are terminated.

<PAGE> 154
3

and all deposits (general or special, time or demand, provisional or final), in
any currency, and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect, absolute or contingent, or matured or
unmatured, at any time held or owing by the Administrative Agent or such Bank
to or for the credit or the account of the Guarantor, or any part thereof in
such amounts as the Administrative Agent or such Bank may elect, against and on
account of the obligations and liabilities of the Guarantor to the
Administrative Agent or such Bank hereunder, and claims of every nature and
description of the Administrative Agent or such Bank against the Guarantor, in
any currency, whether arising hereunder, under the Credit Agreement, any Note,
any other Credit Document or otherwise, as the Administrative Agent or such
Bank may elect, whether or not the Administrative Agent or such Bank has made
any demand for payment and although such obligations, liabilities and claims
may be contingent or unmatured. The Administrative Agent and each Bank agrees
to notify the Guarantor promptly of any such set-off and the application made
by it of the proceeds thereof, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
the Administrative Agent and each Bank under this Section 3 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Administrative Agent or such Bank may have.

4. No Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder or any set-off or application of funds of the
Guarantor by the Administrative Agent or any Bank, the Guarantor shall not be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Bank against either Borrower or against any collateral security or
guarantee or right of offset held by the Administrative Agent or any Bank for
the payment of the Obligations, nor shall the Guarantor seek any reimbursement
from either Borrower in respect of payments made by the Guarantor hereunder,
until all amounts owing to the Administrative Agent and each Bank by the
Borrowers for or on account of the Obligations are paid in full, no Letters of
Credit are outstanding and the Commitments are terminated. If any amount shall
be paid to the Guarantor on account of such subrogation rights at any time when
all of the obligations shall not have been paid in full, such amount shall be
held by the Guarantor in trust for the Banks, segregated from other funds of
the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
over to the Administrative Agent in the exact form received by the Guarantor
(duly indorsed by the Guarantor to the Administrative Agent, if required), to
be applied against the Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.

<PAGE> 155
4

Agent or any Bank may be rescinded by the Administrative Agent or such Bank and
any of the Obligations continued, and the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may., from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Bank and the Credit Agreement, any Note, any other Credit Document
or any other document in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Banks (or the Required
Banks, as the case may be) may deem advisable from time to time, and any
collateral security or guarantee or right of offset at any time held by the
Administrative Agent or any Bank for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Bank shall have any obligation to protect, secure, perfect or
insure any Lien at any time held as security for the Obligations or this
Guarantee or any property subject thereto.

6. Guarantee Absolute and Unconditional. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Bank upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred and extended, amended and waived in reliance upon this Guarantee;
and all dealings between the Borrowers or the Guarantor, on the one hand, and
the Administrative Agent and the Banks, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon either Borrower or the
Guarantor with respect to the Obligations. This Guarantee shall be construed
as a continuing, absolute and unconditional guarantee of payment without regard
(a) to the validity, regularity or enforceability of the Credit Agreement, any
Note, any other Credit Document, any of the Obligations or any collateral
security document or guarantee therefor or right of offset with respect thereto
at any time or from time to time held by the Administrative Agent or any Bank,
(b) any defense, set-off or counterclaim which may at any time be available to
or be asserted by either Borrower against the Administrative Agent or any Bank,
or (c) any other circumstance whatsoever (with or without notice to or
knowledge of either Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of either Borrower for
the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in
any other instance. When making any demand or pursuing its rights and remedies
hereunder against the Guarantor, the Administrative Agent or any Bank may, but
shall be under no obligation to, make a similar demand upon or pursue such
rights and remedies as it may have against either Borrower or any other Person
or against any collateral security

<PAGE> 156
5

or guarantee for the Obligations or any right of offset with respect thereto,
and any failure by the Administrative Agent or any Bank to make any such
similar demand or to pursue such other rights or remedies or to collect any
payments from either Borrower or any such other Person or to realize upon any
such collateral security or guarantee or to exercise any such right of offset,
or any release of either Borrower or any such other Person or any such
collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent and the Banks. This Guarantee shall continue in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and its successors and assigns, and shall inure to the
benefit of the Administrative Agent and the Banks, and their respective
successors, indorsees, transferees and assigns, until all the Obligations and
the obligations of the Guarantor under this Guarantee shall have been satisfied
by payment in full, no Letters of Credit are outstanding and the Commitments
are terminated. For the purposes hereof, "demand" shall include the
commencement and continuance of any legal proceedings.

9. Representations and Warranties. The Guarantor represents and
warrants to the Administrative Agent and the Banks that:

(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate

<PAGE> 157
6

power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the
business in which it is currently engaged;

(c) this Guarantee constitutes a legal, valid and binding
obligation of it enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors, rights generally;

(d) the execution, delivery and performance of this
Guarantee will not violate any provision of any Requirement of Law or
material contractual obligation of it and will not result in or
require the creation or imposition of any Lien on any of the
properties or revenues of it pursuant to any Requirement of Law or
material contractual obligation of it; and

(e) no consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or Governmental
Authority and no consent of any other Person (including, without
limitation, any stockholder or creditor of it) is required in
connection with the execution, delivery, performance, validity or
enforceability of this Guarantee.

<PAGE> 158
7

remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or any Bank would otherwise have
on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.

12. Notices. Notices by the Administrative Agent to the Guarantor
may be in the same manner and to the same address set forth in subsection 9.4
of the Credit Agreement for notices to the Borrowers.

13. Waivers, Amendments; Assignments. None of the terms or
provisions of this Guarantee may be waived, altered, modified or amended except
by a written instrument executed by the Guarantor and the Administrative Agent;
provided that any provision of this Guarantee may be waived by the
Administrative Agent in a letter or agreement executed by the Administrative
Agent or by facsimile transmission from the Administrative Agent. This
Guarantee shall be binding upon the successors and assigns of the Guarantor and
shall inure to the benefit of the Administrative Agent and the Banks and their
successors and assigns, except that the Guarantor may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
all the Banks.

15. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

16. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

<PAGE> 159
8

STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO THE GUARANTOR AT ANY BORROWER'S ADDRESS SET FORTH IN
SUBSECTION 9.4 OF THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF
WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO; AND

(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

17. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.

<PAGE> 160
9

IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.

THE WOODLANDS CORPORATION

By:
-------------------------------
Title:

<PAGE> 161
EXHIBIT F
TO CREDIT AGREEMENT

FORM OF
SUBORDINATION AGREEMENT

SUBORDINATION AGREEMENT, dated as of April 19, 1996, among MITCHELL
ENERGY & DEVELOPMENT CORP., a Texas corporation (together with its successors
and assigns, the "Subordinated Creditor"), and CHEMICAL BANK, as administrative
agent for the banks from time to time parties to the Credit Agreement referred
to below.

The parties hereto agree as follows:

SECTION 1. DEFINITIONS.

1.1 Certain Defined Terms. As used herein the
following terms shall have the following meanings:

"Bank Agent" shall have the meaning assigned to the term
"Administrative Agent" in the Credit Agreement.

"Borrowers" shall mean, collectively, MMC and MGS and their
respective successors and assigns.

"Credit Agreement" shall mean the Amended and Restated Credit
Agreement, dated as of April 19, 1996, among the Borrowers, MND, the
Banks from time to time parties thereto and Chemical Bank as
Administrative Agent, as the same may from time to time be further
amended, modified or otherwise supplemented.

"Debtors" shall mean, collectively, the Borrowers and the
Guarantors.

"Event of Default" shall mean any one or more of the Events of
Default specified in Section 7 of the Credit Agreement.

"Guarantees" shall mean (a) the Guarantee, dated as of April
19, 1996, made by MND in favor of the Bank Agent pursuant to the
Credit Agreement, (b) the Guarantee, dated as of April 19, 1996, made
by The Woodlands Corporation, a Delaware corporation, in favor of the
Bank Agent pursuant to the Credit Agreement and (c) the Subsidiary
Guarantee, dated as of April 19, 1996, made by Mitchell Energy
Corporation, a Delaware corporation, MGS and MMC in favor of the Bank
Agent pursuant to the Credit Agreement, as each of the same shall be
amended, supplemented or modified.

"Guarantors" shall mean, collectively, each of the Guarantors
under, and as defined in, each of the Guarantees.
<PAGE> 162
2

"MGS" shall mean Mitchell Gas Services, Inc., a Delaware
corporation.

"MMC" shall mean Mitchell Marketing Company, a Louisiana
corporation.

"MND" shall mean MND ENERGY Corporation, a Delaware
corporation.

"Obligations" shall mean (a) all obligations of the Borrowers
now or hereafter existing under the Credit Agreement, any Note and any
other Credit Document and (b) all obligations of the Guarantors now or
hereafter existing under the Guarantees, in all cases whether for
principal, interest (including, without limitation, any interest which
accrues after the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of any
Borrower or Guarantor), fees, expenses or otherwise and any deferrals,
renewals or extensions of any such obligations, notes or other
evidences of indebtedness issued in exchange therefor.

"Required Banks" shall have the meaning assigned to the term
"Required Banks" in the Credit Agreement.

"Senior Creditors" shall mean the holders or beneficiaries
from time to time of Obligations.

"Subordinated Debt" shall mean the aggregate principal amount
of, and accrued interest (including, without limitation, any interest
which accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of any
Debtor) on, any long-term loan or advance made by the Subordinated
Creditor to any Debtor and characterized as "Intercompany Debt" under
the Credit Agreement, now existing or hereafter incurred or created.

"Superior Debt" shall mean (a) the Obligations, (b) all other
indebtedness of each Debtor for borrowed money and guarantees by each
Debtor for money borrowed by any other Person, unless by the terms of
the instrument creating or evidencing such indebtedness or guarantee,
it is provided that such indebtedness or guarantee is not superior to
the Subordinated Debt or to other indebtedness which is pari passu
with, or subordinated to, the Subordinated Debt, and (c) any
deferrals, renewals, extensions, modifications and refundings of any
such Obligations, indebtedness or guarantees.

1.2 Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and

<PAGE> 163
3

section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.

(b) ALL terms used herein shall have the meanings given to them
under the Credit Agreement unless otherwise defined herein.

SECTION 2. TERMS OF SUBORDINATION.

2.1 Subordination. (a) The Subordinated Creditor agrees for itself
and each future holder of the Subordinated Debt that the Subordinated Debt is
expressly subordinated, to the extent and in the manner hereinafter set forth,
to the prior payment of all Superior Debt:

(1) Upon the maturity of any Superior Debt by lapse of time,
acceleration or otherwise, all principal thereof and interest thereon shall
first be paid in full, or such payment duly provided for in cash or in a manner
satisfactory to the holder or holders of such Superior Debt, before any payment
is made on account of the principal of or premium, if any, or interest on the
Subordinated Debt or to acquire any of the Subordinated Debt or on account of
any sinking fund which may be therein provided for.

(2) No payment shall be made with respect to the principal of or
premium, if any, or interest on the Subordinated Debt or to acquire any of the
Subordinated Debt or on account of any sinking fund for the Subordinated Debt,
if, at any time of such payment, or immediately after giving effect thereto, a
Default or Event of Default with respect to the Obligations or an event of
default permitting acceleration of any Superior Debt shall exist.

(3) In the event that notwithstanding the provisions hereof any
Debtor shall make any payment on account of the principal of or premium, if
any, or interest on the Subordinated Debt, or on account of said sinking fund,
after the happening of a default in payment of, or in respect of, the principal
of or interest on Superior Debt, or after receipt by such Debtor of written
notice of a Default or an Event of Default with respect to the Obligations or
an event of default permitting the acceleration of any Superior Debt, then,
unless and until such Default or Event of Default or other event of default
shall have been cured or waived or shall have ceased to exist, such payment
shall be held by the holders of the Subordinated Debt, in trust for the benefit
of, and shall be forthwith paid over and delivered to, the holders of Superior
Debt with respect to which a Default, Event of Default or other event of
default permitting the acceleration thereof shall have occurred (pro rata as to
each of such holders on the basis of the respective amounts of Superior Debt
held by them), for application to the payment of all Superior Debt remaining
unpaid to the extent necessary to pay

<PAGE> 164
4

all Superior Debt, after giving effect to any concurrent payment or
distribution to or for the holders of such Superior Debt.

(4) Upon any distribution of assets of any Debtor upon any
dissolution, winding up, liquidation or reorganization of such Debtor (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise),

(i) the holders of Superior Debt shall first be entitled
to receive payment in full in cash of, or in respect of, the principal
thereof, and interest due thereon, including interest accruing after
the commencement of any insolvency or bankruptcy proceeding, before
the holders of the Subordinated Debt are entitled to receive any
payment on account of the principal of, premium, if any, or interest
on the Subordinated Debt;

(ii) any payment or distribution of assets of such Debtor
of any kind or character, whether in cash, property or securities, to
which the holders of the Subordinated Debt would be entitled except
for the provisions hereof, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or other
trustee or agent, directly to the holders of Superior Debt (pro rata
as to each of such holders on the basis of the respective amounts of
Superior Debt held by them), to the extent necessary to make payment
in full of all Superior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution or provision therefor to the
holders of the Superior Debt; and

(iii) in the event that notwithstanding the foregoing
provisions, any payment or distribution of assets of any Debtor of any
kind or character, whether in cash, property or securities, shall be
received by the holders of the Subordinated Debt before the Superior
Debt is paid in full, or effective provision made for its payment,
such payment or distribution shall be received and held in trust for
and shall be paid over to the holders of the Superior Debt remaining
unpaid or unprovided for (pro rata as to each of such holders on the
basis of the respective amounts of Superior Debt held by them), for
application to the payment of such Superior Debt until all such
Superior Debt shall have been paid in full, after giving effect to any
concurrent payment or distribution or provision therefor to the
holders of such Superior Debt.

(b) Subject to the payment in full of all Superior Debt, the
holders of the Subordinated Debt shall be subrogated to the rights of the
holders of Superior Debt to receive payments or distributions of assets of each
Debtor applicable to the Superior Debt until all amounts owing on the
Subordinated Debt shall be

<PAGE> 165
5

paid in full, and for the purpose of such subrogation no payments or
distributions to the holders of the Superior Debt by or on behalf of any Debtor
or by or on behalf of the holders of the Subordinated Debt by virtue hereof
which otherwise would have been made to the holders of the Subordinated Debt
shall, as between such Debtor and the holders of the Subordinated Debt, be
deemed to be payment by such Debtor to or on account of the Superior Debt, it
being understood that the provisions hereof are and are intended solely for the
purpose of defining the relative rights of the holders of the Subordinated
Debt, on the one hand, and the holders of the Superior Debt, on the other hand.

(c) Nothing contained herein is intended to or shall impair, as
between each Debtor and the holders of the Subordinated Debt, the obligation of
such Debtor to the holders of the Subordinated Debt.

(d) Any holder of Superior Debt is hereby authorized to demand
specific performance of these provisions, whether or not any Debtor shall have
complied with any of the provisions hereof applicable to it, at any time when
the holder of the Subordinated Debt shall have failed to comply with any of
these provisions.

(e) The holders of the Superior Debt may, at any time and from
time to time, without any consent of or notice to the holder of the
Subordinated Debt or any other holder of the Subordinated Debt and without
impairing or releasing the obligations of the Subordinated Debt under these
provisions (i) change the manner, place or terms of payment or change or extend
the time of payment of, or renew or alter, Superior Debt (including any change
in the rate of interest thereon), or amend in any manner any agreement under
which any Superior Debt is outstanding; (ii) sell, exchange, release, not
perfect and otherwise deal with any property at any time pledged, assigned or
mortgaged to secure Superior Debt; (iii) release anyone liable in any manner
under or in respect of Superior Debt; (iv) exercise or refrain from exercising
any rights against any Debtor and others; and (v) apply any sums from time to
time received to Superior Debt.

2.2 Power of Attorney; Agreement to Cooperate. The Subordinated
Creditor irrevocably authorizes and empowers the Senior Creditors (or their
representatives), under the circumstances set forth in paragraph (4) of
subsection 2.1(a), to demand, sue for, collect and receive every such payment
or distribution referred to in such paragraph to which the Subordinated
Creditor is entitled and give acquittance therefor, and to file claims and
proofs of claim in any statutory or non-statutory proceeding, to vote such
claim in any such proceeding and take such other actions, in their own name as
Senior Creditors, or in the name of the Subordinated Creditor or otherwise, as
the Senior Creditors (or their representatives) may deem necessary or advisable
for the enforcement of the provisions

<PAGE> 166
6

of this agreement. The Subordinated Creditor hereby agrees, under the
circumstances set forth in paragraph (4) of subsection 2.1(a), duly and
promptly to take such action as may be requested at any time and from time to
time by the Senior Creditors (or their representatives), to file appropriate
proofs of claim in respect of the Subordinated Debt held by it, and to execute
and deliver such powers of attorney, assignments or proofs of claim or other
instruments as may be requested by the Senior Creditors, in order to enable the
Senior Creditors to enforce any and all claims upon or in respect of such
Subordinated Debt and to collect and receive any and all payments or
distributions which may be payable or deliverable at any time upon or in
respect of such Subordinated Debt.

SECTION 3. REPRESENTATIONS.

The Subordinated Creditor represents and warrants to
the Senior Creditors that:

3.1 Power and Authority; Authorization; No Violation. The
Subordinated Creditor has full power, authority and legal right to execute,
deliver and perform this Agreement, and the execution, delivery and performance
of this Agreement have been duly authorized by all necessary action on the part
of the Subordinated Creditor, do not require any approval or consent of any
trustee or holders of any indebtedness or obligations of the Subordinated
Creditor and will not violate any provision of law, governmental regulation,
order or decree or any provision of any indenture, mortgage, contract or other
agreement to which the Subordinated Creditor is party or by which it is bound.

3.2 Consents. No consent, license, approval or authorization of,
or registration or declaration with, any governmental instrumentality, domestic
or foreign, is required in connection with the execution, delivery and
performance by the Subordinated Creditor of this Agreement.

3.3 Binding Obligation. This Agreement constitutes a legal, valid
and binding obligation of the Subordinated Creditor enforceable in accordance
with its terms.

SECTION 4. MODIFICATION OF OBLIGATIONS; RELIANCE

4.1 No Consent Required. The Subordinated Creditor shall remain
obligated hereunder notwithstanding that, without any reservation of rights
against the Subordinated Creditor, and without notice to or further assent by
the Subordinated Creditor, (a) any demand for payment of any Superior Debt may
be rescinded in whole or in part, and any Superior Debt may be continued, and
the Superior Debt, or the liability of any Debtor or any other party upon or
for any part thereof, or any collateral security or guaranty therefor or right
of offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, modified, accelerated, compromised, waived, surrendered, or

<PAGE> 167
7

released and (b) the Credit Agreement, any Note, any L/C Documentation, the
Guarantees or any other document in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Bank Agent or
any Senior Creditor may deem advisable from time to time, and any collateral
security or guarantee or right of offset at any time held by the Bank Agent or
any Senior Creditor for the payment of any of the Superior Debt may be sold,
exchanged, waived, surrendered or released, all without impairing, abridging,
releasing or affecting the subordination provided for herein. Neither the Bank
Agent nor any Senior Creditor shall have any obligation to protect, secure,
perfect or insure any Lien at any time held as security for the Superior Debt
or any property subject thereto. The Subordinated Creditor waives any and all
notice of the creation, renewal, extension or accrual of any of the Superior
Debt and notice of or proof of reliance by the Senior Creditors upon this
Agreement, and the Obligations, and any of them, shall conclusively be deemed
to have been created, contracted or incurred and extended, amended and waived
in reliance upon this agreement, and all dealings between the Debtors and the
Senior Creditors shall be conclusively presumed to have been had or consummated
in reliance upon this agreement. The Subordinated Creditor acknowledges and
agrees that the Senior Creditors have relied upon the subordination provided
for herein in entering into the Credit Agreement and in making extensions of
credit available to the Borrowers thereunder. The Subordinated Creditor waives
notice of or proof of reliance on this agreement and waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment
with respect to the Superior Debt.

4.2 Reliance on Court Orders. Upon any payment or distribution of
assets of a Debtor referred to in paragraph (4) of subsection 2.1(a), the
Subordinated Creditor shall be entitled to rely upon a certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Subordinated Creditor,
for the purpose of ascertaining the persons entitled to participate in such
distribution, the Senior Creditors and other indebtedness of such Debtor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this agreement.

SECTION 5. TRANSFER OF SUBORDINATED DEBT.

The Subordinated Creditor will not (a) sell, assign or otherwise
transfer, in whole or in part, the Subordinated Debt or any interest therein to
any other person or entity (a "Transferee") or (b) create, incur or suffer to
exist any security interest, lien, charge or other encumbrance whatsoever upon
the Subordinated Debt in favor of any Transferee unless, in either case, (x) if
the Obligations or any Letters of Credit are outstanding, the Subordinated
Creditor shall have received prior written consent from the Required Banks for
such action (which consent shall not be unreasonably withheld), and (y) such

<PAGE> 168
8

Transferee expressly acknowledges to the Bank Agent, if the Obligations or any
Letters of Credit are outstanding, or to the Debtors thereon if neither the
Obligations nor any Letters of Credit are any longer outstanding, in writing,
the subordination provided for herein and agrees to be bound by all the terms
hereof.

SECTION 6. MISCELLANEOUS.

6.1 No Waiver; Cumulative Remedies. No failure to exercise, and
no delay in exercising, on the part of the Bank Agent or any Senior Creditor
from time to time of any right, power or privilege under the Obligations, or of
any right, power or privilege under this Agreement, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies provided in this Agreement and in any agreement relating to any of the
Obligations and all other agreements, instruments and documents referred to in
any of the foregoing are cumulative and shall not be exclusive of any rights or
remedies provided by law.

6.2 Further Assurances. The Subordinated Creditor agrees to
execute and deliver such further documents and to do such other acts and things
as the Bank Agent may reasonably request in order fully to effect the purposes
of this Agreement.

6.3 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission if promptly confirmed by mail) and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or three days after being deposited in the mail, postage
prepaid, or, in the case of facsimile notice, when received by the addressee,
addressed as set forth in this Agreement by the parties signatory hereto or to
such address or other address as may be hereafter notified by the respective
parties hereto.

6.4 Counterparts. This Agreement may be executed by the parties
hereto in any number of separate counterparts all of which taken together shall
constitute one and the same instrument.

6.5 Waivers, Amendments. Etc. The subordination provisions
contained herein are for the benefit of the Bank Agent, the Senior Creditors,
and their respective successors and assigns as holders from time to time of
Superior Debt and may not be rescinded or cancelled or modified in any way,
nor, unless otherwise expressly provided for herein, may any provision of this
agreement be waived or changed without the express prior written consent
thereto of the Subordinated Creditor and, so long

<PAGE> 169
9

as any Superior Debt is outstanding under the Credit Agreement, the Senior
Creditors and, thereafter, of the Debtors.

6.6 Action by Senior Creditors.. Whenever in this Agreement the
Senior Creditors may, or are required to, take any action, such action may be
taken by them or their respective representatives with the consent of Senior
Creditors holding a majority in amount of the Superior Debt (exclusive of
interest) and any such action shall be binding upon all Senior Creditors.

6.7 Exculpation. Neither any Senior Creditor, nor any director,
officer, agent or employee thereof, shall be liable to any other Senior
Creditor for any action taken or omitted to be taken by it or them in
connection with this Agreement. Without limiting the foregoing, neither the
Bank Agent nor any Senior Creditor has any obligations or duties to any of the
other Senior Creditors with respect to this Agreement and are not, and shall
not be, agents, trustees or fiduciaries for the other Senior Creditors.

6.8 Legend. In the event that any Subordinated Debt is evidenced
by a promissory note or other instrument, the Subordinated Creditor will cause
such note or instrument to bear a statement or legend to the effect that such
Subordinated Debt evidenced thereby is subordinate and junior in right of
payment to the Superior Debt in the manner and to the extent herein set forth.

6.9 GOVERNING LAW; SUCCESSORS AND ASSIGNS. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE BANK AGENT, THE
SENIOR CREDITORS, THE SUBORDINATED CREDITOR, AND THEIR RESPECTIVE SUCCESSORS,
TRANSFEREES AND ASSIGNS.

6.10 SUBMISSION TO JURISDICTION; WAIVERS. THE SUBORDINATED CREDITOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY:

(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGEMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

<PAGE> 170
10

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID TO SUCH SUBORDINATED CREDITOR AT 2001 TIMBERLOCH PLACE, THE
WOODLANDS, TEXAS 77380 OR AT SUCH OTHER ADDRESS OF WHICH THE BANK
AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND

(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

6.11 WAIVER OF JURY TRIAL. THE SUBORDINATED CREDITOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

<PAGE> 171
11

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.

CHEMICAL BANK, for itself and as
Administrative Agent for the Senior
Creditors

By
---------------------------------------
Title:

Chemical Bank
270 Park Avenue
New York, New York 10017
Attn: John Gehebe
Credit and Lending Group
Telecopy: 212-270-4711

MITCHELL ENERGY & DEVELOPMENT CORP.

By
---------------------------------------
Title:

Mitchell Energy & Development Corp.
2001 Timberloch Place
The Woodlands, Texas 77380
Attn: Chief Financial Officer
Telecopy: 713-377-6192

<PAGE> 172
12

CONSENT AND AGREEMENT

Each of the undersigned hereby consents to all of the provisions of
the foregoing agreement and agrees to comply with all of the terms thereof.

MND ENERGY CORPORATION

By
------------------------------------
Title:

MITCHELL GAS SERVICES, INC.

By
------------------------------------
Title:

MITCHELL MARKETING COMPANY

By
------------------------------------
Title:

MITCHELL ENERGY CORPORATION

By
------------------------------------
Title:

THE WOODLANDS CORPORATION

By
------------------------------------
Title:

<PAGE> 173
EXHIBIT G
TO CREDIT AGREEMENT

FORM OF
SUBSIDIARY GUARANTEE

GUARANTEE, dated as of April 19, 1996, made by MITCHELL ENERGY
CORPORATION, a Delaware corporation ("MEC"), MITCHELL MARKETING COMPANY
("MMC"), a Louisiana corporation, and MITCHELL GAS SERVICES, INC. ("MGS"), a
Delaware corporation, and each hereinafter called a "Guarantor" and
collectively the "Guarantors", in favor of (a) Chemical Bank, as administrative
agent (in such capacity, the "Administrative Agent") for the banks (the
"Banks"), including the Issuing Bank (as defined in the Credit Agreement
defined herein), from time to time parties to the Amended and Restated Credit
Agreement, dated as of April 19, 1996 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among MMC, MGS (MMC and
MGS hereinafter collectively referred to as the "Borrowers"), MND Energy
Corporation ("MND"), the Banks and the Administrative Agent, and (b) the Banks.

W I T N E S S E T H :

WHEREAS, pursuant to the Credit Agreement, the Banks will severally
agree to make extensions of credit to the Borrowers upon the terms and subject
to the conditions set forth therein; and

WHEREAS, it is a condition precedent to the obligation of the Banks to
make their respective extensions of credit to the Borrowers under the Credit
Agreement that the Guarantors shall have executed and delivered this Guarantee
to the Administrative Agent for the benefit of the Banks; and

WHEREAS, MND owns ALL of the issued and outstanding capital stock of
the Borrowers and the Guarantors; and

WHEREAS, the Guarantors will receive economic benefits from the
proceeds of extensions of credit to the Borrowers in connection with the
operation of the Guarantors' businesses;

NOW, THEREFORE, in consideration of the premises and to induce the
Banks and the Administrative Agent to enter into, and to make extensions of
credit to the Borrowers under, the Credit Agreement, and for other good and
valuable consideration receipt of which is hereby acknowledged, the Guarantors
hereby agree with the Administrative Agent, for the ratable benefit of the
Banks, as follows:

1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein

<PAGE> 174
2

are so used as so defined and the following terms shall have the following
meanings:

"Obligations" shall mean the unpaid principal of and interest
on the Loans and Reimbursement Obligations and all other indebtedness,
obligations and liabilities of each Borrower to the Administrative
Agent or the Banks, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the
Credit Agreement, the other Credit Documents and any other document
made, delivered or given in connection therewith, whether on account
of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all reasonable fees
and disbursements of counsel to the Administrative Agent or to the
Banks that are required to be paid BY each Borrower pursuant to the
terms of the Credit Agreement) or otherwise.

2. Guarantee. (a) Each Guarantor hereby unconditionally
and irrevocably guarantees to the Administrative Agent and the Banks and their
successors, indorsees, transferees and assigns, the prompt and complete payment
by the Borrowers when due (whether upon demand, at the stated maturity, by
acceleration or otherwise) of the Obligations, and each Guarantor further
agrees to pay any and all expenses (including, without limitation, all fees and
disbursements of counsel) which may be paid or incurred by the Administrative
Agent or any Bank in enforcing any rights with respect to, or collecting, any
or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, such Guarantor under this Guarantee; provided, however,
that, anything herein or in any other Credit Document to the contrary
notwithstanding, the maximum liability of any Guarantor hereunder shall in no
event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors. This
Guarantee shall remain in full force and effect until the obligations are paid
in full, the Commitments are terminated and no Letters of Credit are
outstanding, notwithstanding that from time to time prior thereto the Borrowers
may be free from any Obligations.

(b) Each Guarantor agrees that the Obligations may at
any time or from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing this Guarantee or affecting the rights
and remedies of the Administrative Agent and the Banks hereunder.

(c) Each Guarantor agrees that whenever, at any time, or
from time to time, it shall make any payment to the Administrative Agent or any
Bank on account of its liability hereunder, it will notify the Administrative
Agent and such Bank in writing that such payment is made under this Guarantee
for such purpose. No payment or payments made by either Borrower,

<PAGE> 175
3

any Guarantor or any other Person received or collected by the Administrative
Agent or any Bank from either Borrower, any Guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of. or in payment of
the obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of any Guarantor hereunder which shall, notwithstanding any such
payment or payments, remain liable for the Obligations up to the maximum
liability of such Guarantor until the Obligations are paid in full, the
Commitments are terminated, and no Letters of Credit are outstanding.

3. Right of Set-off. Upon the occurrence of any Event
of Default specified in paragraph (a), (b) or (k) (as to the Subsidiary
Guarantee only) of subsection 7.1 of the Credit Agreement or in subsection 7.2
of the Credit Agreement, or if the maturity of the Obligations shall be
accelerated pursuant to Section 7 of the Credit Agreement, the Administrative
Agent and each Bank are hereby irrevocably authorized by each Guarantor at any
time and from time to time without notice to such Guarantor, any such notice
being hereby waived by such Guarantor, to set off and appropriate and apply any
and all deposits (general or special, time or demand, provisional or final), in
any currency, and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Administrative Agent or such Bank
to or for the credit or the account of such Guarantor, or any part thereof in
such amounts as the Administrative Agent or such Bank may elect, on account of
the Obligations, as the Administrative Agent or such Bank may elect, whether or
not the Administrative Agent or such Bank has made any demand for payment and
although such Obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Bank shall notify such Guarantor
promptly of any such set-off made by it and the application made by it of the
proceeds thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the
Administrative Agent and each Bank under this paragraph are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Administrative Agent or such Bank may have.

4. No Subrogation. Notwithstanding any payment or
payments made by a Guarantor hereunder, or any set-off or application of funds
of such Guarantor by the Administrative Agent or any Bank, such Guarantor shall
not be entitled to be subrogated to any of the rights of the Administrative
Agent or any Bank against either Borrower or against any collateral security or
guarantee or right of offset held by the Administrative Agent or any Bank for
the payment of the Obligations, nor shall such Guarantor seek or be entitled to
seek any contribution or reimbursement from either Borrower in respect of
payments made by such Guarantor hereunder, until all amounts owing to the
Administrative Agent and the Banks by the Borrowers

<PAGE> 176
4

on account of the Obligations are paid in full, the Commitments are terminated,
and no Letters of Credit are outstanding. If any amount shall be paid to a
Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by such
Guarantor in trust for the Administrative Agent and the Banks, segregated from
other funds of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Administrative Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the
Administrative Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Administrative Agent may
determine.

5. Amendments, etc. with respect to the Obligations.
The Guarantors shall remain obligated hereunder notwithstanding that, without
any reservation of rights against the Guarantors, and without notice to or
further assent by the Guarantors, any demand for payment of any of the
Obligations made by the Administrative Agent or any Bank is rescinded by the
Administrative Agent or such Bank, and any of the Obligations continued, and
the Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Administrative Agent or any Bank, and the Credit Documents and
any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Administrative Agent and/or any Bank may deem advisable from time to time, and
any collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Bank for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Bank shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Guarantee or any property subject thereto.

6. Guarantee Absolute and Unconditional. The Guarantors
waive any and all notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Administrative
Agent or any Bank upon this Guarantee or acceptance of this Guarantee; the
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted, incurred or renewed, extended, amended or waived, in
reliance upon this Guarantee; and all dealings between the Borrowers and the
Administrative Agent and the Banks shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guarantee. The Guarantors
waive diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon either Borrower with respect to the Obligations. This
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to
<PAGE> 177
5

(a) the validity or enforceability of the Credit Documents, any of the
Obligations or any collateral security therefor or guarantee or right of offset
with respect thereto at any time or from time to time held by the
Administrative Agent or any Bank, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by either Borrower against the Administrative Agent
or any Bank, or (c) any other circumstance whatsoever (with or without notice
to or knowledge of either Borrower or any Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of either
Borrower from the Obligations, or of any Guarantor under this Guarantee, in
bankruptcy or in any other instance. When making any demand upon or pursuing
its rights and remedies hereunder against any Guarantor, the Administrative
Agent or any Bank may, but shall be under no obligation to, make a similar
demand upon or pursue such rights and remedies as it may have against either
Borrower, any Guarantor or any other Person or against any collateral security
or guarantee for the Obligations or any right of offset with respect thereto,
and any failure by the Administrative Agent or any Bank to make any such
similar demand or to pursue such other rights or remedies or to collect any
payments from either Borrower, any Guarantor or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of either Borrower, any Guarantor or any such
other Person or of any such collateral security, guarantee or right of offset,
shall not relieve such Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Administrative Agent and the Banks. This Guarantee
shall continue in full force and effect and be binding in accordance with and
to the extent of its terms upon such Guarantor and its successors and assigns,
and shall inure to the benefit of the Administrative Agent and the Banks, and
their respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of such Guarantor under this Guarantee shall
have been satisfied by payment in full, the Commitments are terminated, and no
Letters of Credit are outstanding. For the purposes hereof, "demand" shall
include the commencement and continuance of any legal proceedings.

7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof of any of the Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Bank upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of either
Borrower, any Guarantor or any other Person or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, either Borrower or any Guarantor or any substantial part of its
property, or otherwise, all as though such payment had not been made.
<PAGE> 178
6

8. Payments. The Guarantors hereby agree that the
Obligations will be paid to the Administrative Agent without set-off or
counterclaim in U.S. Dollars at the office of the Administrative Agent located
at Agent Bank Services Group, Chemical Bank, 140 East 45th Street, New York,
New York 10017, Attention: Frank Giacalone, MND Energy Corporation Clearing
Account #144041274.

9. Representations and Warranties. Each Guarantor
hereby represents and warrants that it has the corporate power and authority to
make, deliver and perform this Guarantee and has taken all necessary corporate
action to authorize the execution, delivery and performance of this Guarantee;
no consent or authorization of, filing with or act by or in respect of any
Governmental Authority is required in connection with the execution, delivery
or performance by it, or the validity or enforceability against it of this
Guarantee, and this Guarantee has been duly executed and delivered on its
behalf; this Guarantee constitutes a legal, valid and binding obligation of
such Guarantor, enforceable in accordance with its terms.

10. Severability. Any provision of this Guarantee which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

11. Paragraph Headings. The paragraph headings used in
this Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.

12. No Waiver; Cumulative Remedies. Neither the
Administrative Agent nor any Bank shall by any act (except by a written
instrument pursuant to paragraph 13 hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Bank, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Bank would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.

<PAGE> 179
7

13. Waivers and Amendments: Successors and Assigns;
Governing Law. None of the terms or provisions of this Guarantee may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Guarantors and the Administrative Agent, provided
that any provision of this Guarantee may be waived by the Administrative Agent
in a letter or agreement executed by the Administrative Agent or by facsimile
transmission from the Administrative Agent. This Guarantee shall be binding
upon the successors and assigns of the Guarantors and shall inure to the
benefit of the Administrative Agent and the Banks and their respective
successors and assigns, except that the Guarantors may not assign or transfer
any of their rights hereunder without the prior written consent of all the
Banks. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

14. Notices. Notices by the Administrative Agent to any
Guarantor may be given by mail or by telecopy (if promptly confirmed by mail),
addressed to such Guarantor at its address or telecopy number set forth under
its signature below and shall be effective (a) in the case of mail, 3 days
after deposit in the postal system, first class postage pre-paid and (b) in the
case of telecopy, when received by the addressee. Any Guarantor may change its
address and telecopy number by written notice to the Administrative Agent.

15. SUBMISSION TO JURISDICTION; WAIVERS. EACH GUARANTOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY;

(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER DOCUMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

(ii) WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR
THAT SUCH PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;

(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH LEGAL
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING OF A COPY THEREOF (BY
REGISTERED OR CERTIFIED MAIL OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL
POSTAGE PREPAID) TO SUCH GUARANTOR AT ITS ADDRESS SET FORTH UNDER ITS
SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT
SHALL HAVE BEEN NOTIFIED PURSUANT TO THIS GUARANTEE.
<PAGE> 180
8

16. WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

17. Authority of Administrative Agent. The Guarantors
acknowledge that the rights and responsibilities of the Administrative Agent
under this Guarantee with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, right, request, judgment or other right or remedy provided for herein
or resulting or arising out of this Guarantee shall, as between the
Administrative Agent and the Banks, be governed by the Credit Agreement, and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Guarantors, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Banks with full and valid authority so to act or refrain from acting, and
the Guarantors shall not be under any obligation, or entitlement, to make any
inquiry respecting such authority.

18. Counterparts. This Guarantee may be executed by one
or more of the parties hereto on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.

<PAGE> 181
9

IN WITNESS WHEREOF, the undersigned have caused this Guarantee
to be duly executed and delivered by their duly authorized officers as of the
date first above written.

MITCHELL ENERGY CORPORATION

By:
-----------------------------------
Title:

Address for Notices:

2001 Timberloch Place
The Woodlands, Texas 77380
Telecopy: 713-377-6192
Attn: Chief Financial Officer

MITCHELL MARKETING COMPANY

By:
-----------------------------------
Title:

Address for Notices:

2001 Timberloch Place
The Woodlands, Texas 77380
Telecopy: 713-377-6192
Attn: Chief Financial Officer

MITCHELL GAS SERVICES, INC.

By:
-----------------------------------
Title:

Address for Notices:

2001 Timberloch Place
The Woodlands, Texas 77380
Telecopy: 713-377-6192
Attn: Chief Financial Officer
<PAGE> 182

EXHIBIT H
TO CREDIT AGREEMENT

[FORM OF)
ASSIGNMENT AND ACCEPTANCE

Reference is made to the Amended and Restated Credit Agreement, dated
as of April __, 1996 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among Mitchell Marketing Company, Mitchell
Gas Services, Inc. (collectively, the "Borrowers"), MND Energy Corporation, the
Banks parties thereto, including the Issuing Bank, and Chemical Bank, as
administrative agent for the Banks (in such capacity, the "Administrative
Agent"). Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.

__________________________ (the "Assignor") and ______________________
(the "Assignee") agree as follows:

1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor, as of
the Effective Date (as defined below), a interest (the "Assigned Interest") in
and to the Assignor's rights and obligations under the Credit Agreement with
respect to those credit facilities contained in the Credit Agreement as are set
forth on SCHEDULE 1 (individually, an "Assigned Facility"; collectively, the
"Assigned Facilities"), in a principal amount for each Assigned Facility as set
forth on SCHEDULE 1.

2. The Assignor (a) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or with
respect to the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Credit Document or any
other instrument or document furnished pursuant thereto, other than that the
Assignor has not created any adverse claim upon the interest being assigned by
it hereunder and that such interest is free and clear of any such adverse
claim; and (b) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers, MND,
MEDC, any of their Subsidiaries or any other obligor or the performance or
observance by the Borrowers, any of their respective Subsidiaries or any other
obligor of any of their respective obligations under the Credit Agreement or
any other Credit Document or any other instrument or document furnished
pursuant hereto or thereto.

3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to subsection 3.9 thereof and such
other documents and information as it has deemed appropriate to make its own
credit

<PAGE> 183
2

analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, the
other Credit Documents or any other instrument or document furnished pursuant
hereto or thereto; (d) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement, the other Credit Documents or any other instrument
or document furnished pursuant hereto or thereto as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
incidental thereto; and (e) agrees that it will be bound by the provisions of
the Credit Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank.

4. The effective date of this Assignment and Acceptance shall be
______________, 19___ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Administrative Agent for
acceptance by it and recording by the Administrative Agent pursuant to the
Credit Agreement, effective as of the Effective Date (which shall not, unless
otherwise agreed to by the Administrative Agent, be earlier than five Business
Days after the date of such acceptance and recording by the Administrative
Agent).

5. Upon such acceptance and recording, from and after the
Effective Date, the Administrative Agent shall make all payments in respect of
the Assigned Interest (including payments of principal, interest, fees and
other amounts) to the Assignee to the extent such amounts accrue subsequent to
the Effective Date. The Assignor and the Assignee shall make all appropriate
adjustments in payments by the Administrative Agent for periods prior to the
Effective Date or with respect to the making of this assignment directly
between themselves.

6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Bank thereunder and under
the other Credit Documents and shall be bound by the provisions thereof and (b)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.

7. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first
<PAGE> 184
3

above written by their respective duly authorized officers on
Schedule 1 hereto.

<PAGE> 185
SCHEDULE 1
To ASSIGNMENT AND ACCEPTANCE
RELATING TO THE AMENDED AND RESTATED CREDIT AGREEMENT,
DATED AS OF APRIL __, 1996, AMONG
MITCHELL MARKETING COMPANY, MITCHELL GAS SERVICES, INC.,
MM ENERGY CORPORATION,
THE BANKS PARTIES THERETO, INCLUDING THE ISSUING BANK,
AND
CHEMICAL BANK, AS ADMINISTRATIVE AGENT FOR THE BANKS
(IN SUCH CAPACITY, THE "ADMINISTRATIVE AGENT")

________________________________________________________________________________

Name of Assignor:

Name of Assignee:

Effective Date of Assignment:

Credit Principal Commitment Percentage
Facility Assigned Amount Assigned Assigned(1)
- ----------------- --------------- ---------------------

$_____________ ____._________%

[Name of Assignee] [Name of Assignor]

By By
- --------------------------------- -------------------------------------
Name: Name:
Title: Title:

Office and Address for
Notices:

- ---------------------------------

- ---------------------------------
Attn:
---------------------------

- ---------------------

(1) Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all Banks.

<PAGE> 186
2

Accepted [and Consented to]: [Consented To:]

CHEMICAL BANK, as MITCHELL MARKETING COMPANY
Administrative Agent and as
Issuing Bank

By By
- --------------------------------- ------------------------------------
Name: Name:
Title: Title:

MITCHELL GAS SERVICES, INC.

By
------------------------------------
Name:
Title:

<PAGE> 1
Exhibit 10(d)

FOURTH AMENDMENT TO
MITCHELL ENERGY & DEVELOPMENT CORP.
1991 BONUS UNIT PLAN

This Fourth Amendment to the Mitchell Energy & Development Corp. 1991
Bonus Unit Plan (the "Plan"), authorized by the Compensation Committee of the
Board of Directors of the Company, is effective as of June 25, 1997.

Article VI. "Valuation of Bonus Units", paragraph (c) shall be amended to add
the following sentence:

Notwithstanding any other provision of this Plan, if a Participant's
employment with the Company is terminated as a result of the sale of
The Woodlands Corporation, any outstanding Vested Bonus Units shall be
automatically redeemed on the earlier of (i) three months from the date
of the closing of the sale of The Woodlands Corporation, or (ii)
December 3, 1997.

MITCHELL ENERGY & DEVELOPMENT CORP.

By: /s/ Bernard F. Clark
----------------------------------
Bernard F. Clark, Vice Chairman

<PAGE> 1
Exhibit 10(e)

MITCHELL ENERGY & DEVELOPMENT CORP.

1997 BONUS UNIT PLAN

I. PURPOSE OF THE PLAN

The MITCHELL ENERGY & DEVELOPMENT CORP. 1997 BONUS UNIT PLAN ("Plan")
is intended to provide a means whereby certain employees of MITCHELL ENERGY &
DEVELOPMENT CORP., a Texas Corporation ("Company"), and its subsidiaries may
develop an increased sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may grant to certain employees ("Participants") units
under the Plan ("Bonus Units").

II. ADMINISTRATION

The Plan shall be administered by the Compensation Committee
("Committee") of the Board of Directors of the Company (the "Board") constituted
so as to permit the Plan to comply with Rule 16b-3 ("Rule 16b-3"), promulgated
under the Securities Exchange Act of 1934, as amended ("1934 Act"). Bonus Units
may be granted only to individuals who are employees of the Company (including
officers or members of the Board who are also employees of the Company and any
subsidiary corporation, as defined in section 425 of the Internal Revenue Code
of 1986, as amended ["Code"] at the time the Bonus Units are granted). The
Committee shall have sole authority to select the Participants from among those
individuals eligible hereunder and to establish the number of Bonus Units which
may be issued. In selecting the Participants from among individuals eligible
hereunder and in establishing the number of Bonus Units that may be issued, the
Committee may take into account the nature of the services rendered by such
individuals, their present and potential contributions to the Company's success
and such other factors as the Committee in its discretion shall deem relevant.
The Committee is authorized to interpret the Plan and may from time to time
adopt such rules and regulations, consistent with the provisions of the Plan, as
it may deem advisable to carry out the Plan. All decisions made by the Committee
in selecting the Participants, in establishing the number of Bonus Units which
may be issued and in construing the provisions of the Plan shall be final.

III. BONUS UNIT AGREEMENTS

Each grant of Bonus Units to a Participant shall be evidenced by a
written agreement between the Company and the Participant ("Bonus Unit
Agreement") which shall contain such terms and conditions as may be approved by
the Committee. The terms and conditions of the respective

<PAGE> 2
Bonus Unit Agreements need not be identical, including the number of a
Participant's Bonus Units that are "Vested" as of any relevant date.

IV. VALUATION OF BONUS UNITS

(a) Solely for purposes of determining the amount of the payments to be
made to a Participant upon the redemption of his/her Vested Bonus Units pursuant
to Article III hereinabove, the "Value" of a Bonus Unit shall be equal to the
amount, if any, by which the closing sale price of a share of the Class B Common
Stock of the Company ("Stock") on the Composite Tape of the principal national
securities exchange on which the Stock is listed on the "Redemption Date" (as
hereinafter defined) exceeds the closing price of the Stock on the date of grant
("Designation Date").

(b) Except as may be modified by the Committee, a Participant may elect
to redeem any or all of such Participant's Bonus Units that are Vested by
written notice to the Company at its principal executive office addressed to the
attention of the Corporate Controller, at any time after such Bonus Units become
Vested (being the "Redemption Date"). As soon as practicable after receipt of
written notice from a Participant that such Participant elects to redeem all or
a part of such Participant's Vested Bonus Units, the Company shall pay to the
Participant an amount in cash equal to (1) the value of the Bonus Unit on the
date such notice is postmarked, or if not mailed, the date delivered to the
Company multiplied by (2) the number of Vested Bonus Units that the Participant
elects to redeem. Upon payment by the Company in redemption of Bonus Units, such
redeemed Bonus Units shall be canceled and shall no longer be outstanding.

V. BONUS UNITS SUBJECT TO THE PLAN

The aggregate number of Bonus Units which may be granted by the Company
from time to time under the Plan, subject to adjustment in accordance with the
provisions of Article VII hereof, shall, together with the number of shares of
the Company's common stock which may be issued under "Options" granted pursuant
to the Company's 1995 Stock Option Plan ("Options" being defined in this latter
plan), not exceed 2,500,000. If any Bonus Units expire or terminate for any
reason without having been exercised in full, such Bonus Units shall be
available for purposes of the Plan. The number of Bonus Units redeemed upon the
exercise thereof shall be charged against the aggregate number of Bonus Units
available for purposes of the Plan.

VI. TERM OF PLAN

The Plan shall be effective upon the date of its adoption by the Board.
Except with respect to Bonus Units then outstanding, if not sooner terminated
under the provisions of Paragraph VIII hereinbelow, the Plan shall terminate
upon and no further Bonus Units shall be granted after the expiration of ten
years from the date of its adoption by the Board.

- 2 -
<PAGE> 3
VII. RECAPITALIZATION OR REORGANIZATION

(a) The existence of the Plan and the Bonus Units granted hereunder
shall not affect in any way the right or power of the Board or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of its assets or
business or any other corporate act or proceeding.

(b) If the Company should effect a merger, subdivision, consolidation,
recapitalization or other structural change with respect to the Stock or the
payment of a stock dividend with respect to the Stock, the Committee shall make
appropriate adjustments to the Bonus Units allocated to each Participant or to
any Bonus Units as may be granted thereafter and to the value of such Bonus
Units as of the Designation Date to reflect such subdivision, consolidation,
recapitalization, structural change or dividend. If (i) the Company shall not be
the surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a
"Corporate Change") (provided, however, in the event of the death of George P.
Mitchell, the majority shareholder of the Company and the Chief Executive
Officer of the Company, the transfer of George P. Mitchell's shares of the
Company's stock upon his death shall not result in or constitute a Corporate
Change), no later than (a) ten days after the approval by the shareholders of
the company of such merger, consolidation, reorganization, sale, lease or
exchange of assets or dissolution or such election of directors or (b) thirty
days after a change of control of the type described in Clause (iv), the
Committee may accelerate the time at which Bonus Units then outstanding are
fully Vested and may be exercised in full for a limited period of time on or
before a specified date (before or after such Corporate Change) fixed by the
Committee, after which specified date all unexercised Bonus Units and all rights
of Participants thereunder shall terminate.

VIII. AMENDMENT OR TERMINATION OF THE PLAN

The Board in its discretion may terminate the Plan at any time with
respect to any Bonus Units which have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Bonus Units theretofore granted may be
made which would impair the rights of the Participant without the consent of
such Participant; and provided, further, that (i) the Board may not make any
alteration or amendment which would decrease any authority granted to the
Committee hereunder in contravention of Rule 16b-3 and (ii) the Board may not
make any alteration or amendment which would materially

- 3 -
<PAGE> 4
increase the benefits accruing to Participants under the Plan, increase the
aggregate number of Bonus Units which may be issued pursuant to the provisions
of the Plan, change the class of individuals eligible to receive Bonus Units
under the Plan or extend the term of the Plan.

IX. PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE

No right, title, interest or benefit hereunder shall ever be
transferable or liable for or charge with any of the torts or obligations of a
Participant or any person claiming under a Participant, or be subject to seizure
by any creditor of a Participant or any person claiming under a Participant
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. No Participant
or any person claiming under a Participant shall have the power to anticipate or
dispose of any right, title, interest or benefit hereunder in any manner until
the same shall have been actually distributed free and clear of the terms of the
Plan.

X. WITHHOLDING OF TAX

To the extent that the redemption of any Vested Bonus Units results in
compensation income to a Participant for federal or state income tax purposes,
the Company is authorized to withhold from any cash remuneration then or
thereafter payable to the Participant, including but not limited to cash
payments payable under the Plan, any tax required to be withheld by reason of
such resulting compensation income.

XI. NATURE OF THE PLAN

The Plan shall constitute an unfunded, unsecured obligation of the
Company to make payments in accordance with the provisions of the Plan. Neither
the establishment of the Plan nor the allocation of Bonus Units shall be deemed
to create a trust. No Participant shall have any security or other interest in
Stock or any assets of the Company, pursuant to the Plan. Any amounts paid
pursuant to the Plan shall be considered "extraordinary income" and excludable
from any qualified retirement plan benefit calculation.

XII. EMPLOYMENT RELATIONSHIP

For all purposes of the Plan, a Participant shall be considered to be
in the employment of the Company as long as he/she remains employed on a
full-time basis by the Company, any parent corporation or subsidiary corporation
of the Company (within the meaning of section 425 of the Code). Nothing in the
adoption of the Plan nor the allocation of Bonus Units shall confer on any
employee the right to continued employment by the Company or affect in any way
the right of the Company to terminate such employment at any time. Any question
as to whether and when there

- 4 -
<PAGE> 5
has been a termination of a Participant's employment shall be determined by the
Committee, and its determination shall be final.

XIII. GOVERNING LAW

The Plan shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas.

MITCHELL ENERGY & DEVELOPMENT CORP.

By:

Thomas P. Battle, Senior Vice President

- 5 -

<PAGE> 1

Exhibit 12

Mitchell Energy & Development Corp. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED JANUARY 31, 1998, 1997, 1996, 1995 AND 1994 (RESTATED)

(dollar amounts in thousands)

<TABLE>
<CAPTION>
Fiscal Year Ended January 31
--------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(a) (a) (a) (a) (a)
<S> <C> <C> <C> <C> <C>
EARNINGS
Pretax earnings from continuing operations ......... $ 43,751 $ 70,210 $ 156,132 $ 133,757 $ 50,735
Add (Deduct):
Previously capitalized interest
charged against pretax earnings .............. 628 8,204 1,281 231 232
Losses of less-than-50%-owned persons ........... -- 1,080 -- -- --
Fixed charges (see below) ....................... 71,363 72,719 68,234 61,664 46,944
Reverse effect of inclusion of interest
capitalized in fixed charges above ........... (5,448) (5,304) (1,333) (835) (1,283)
Undistributed earnings of
less-than-50%-owned persons .................. (3,594) (914) (4,321) (12,024) (13,900)
--------- --------- --------- --------- ---------
$ 106,700 $ 145,995 $ 219,993 $ 182,793 $ 82,728
========= ========= ========= ========= =========

FIXED CHARGES
Interest expense incurred
Consolidated (b)................................. $ 65,059 $ 62,753 $ 60,759 $ 56,782 $ 42,531
50%-owned persons ............................... 2,571 3,101 4,008 2,715 2,246
Less-than-50%-owned persons ..................... -- 3,032(d) -- -- --
--------- --------- --------- --------- ---------
67,630 68,886 64,767 59,497 44,777
Portion of rental expense
representing interest (c) ....................... 3,733 3,833 3,467 2,167 2,167
--------- --------- --------- --------- ---------

$ 71,363 $ 72,719 $ 68,234 $ 61,664 $ 46,944
========= ========= ========= ========= =========

RATIO OF EARNINGS TO FIXED CHARGES ................. 1.50 2.01 3.22 2.96 1.76
========= ========= ========= ========= =========
</TABLE>

- -----------------

(a) The Company withdrew from the real estate business during fiscal 1998 and
began reporting these activities as discontinued operations. Prior-year
financial information was restated.

(b) At January 31, 1998, the Company had outstanding guaranties of the
indebtedness of third parties and less-than-50%-owned equity investees
totaling approximately $20,707,000 under which it has not been, nor is it
expected that it will be, required to perform. Fixed charges related to
these outstanding borrowings, estimated at approximately $1,000,000 for the
fiscal year ended January 31, 1998, have been excluded from the reported
fixed charges.
(c) Represents one-third of rental expense under operating lease agreements.
(d) At January 31, 1995, the Company had an outstanding guaranty covering
$58,667,000 of indebtedness of Belvieu Environmental Fuels (BEF), a
one-third-owned entity, under which it could have been required to perform
on May 31, 1995. Because of this, interest expense incurred during fiscal
1995 of $3,032,000 attributable to the Company's share of BEF's debt (all
of which was capitalized by BEF) was included in the Company's reported
fixed charges. This guaranty was eliminated when BEF's debt was
subsequently converted to a term loan.

<PAGE> 1
EXHIBIT 13

THE COMPANY

Mitchell Energy & Development Corp. one of the nation's largest independent oil
and gas companies, traces its origins to a small wildcatting firm formed 1946.
At January 31, 1998, the Company had approximately 1,123 full-time employees.

In July 1997, the Company sold its wholly owned real estate subsidiary, The
Woodlands Corporation, leaving a pure energy company engaged in the exploration
for and production of natural gas and oil and gathering, processing and
marketing of natural gas and gas liquids. In fiscal 1998, the Company produced
90.6 billion cubic feet of natural gas and 18.7 million barrels of liquid
hydrocarbons (natural gas liquids, oil and condensate). At year end, it owned or
had interest in 3,273 wells, 1.4 million acres of leases, 14 gas processing
plants and 9,500 miles of gas gathering pipelines.

FORWARD LOOKING INFORMATION

All statements included in this Annual Report, other than statements of
historical fact are forward looking statements. These include, but are not
limited to, certain statements made in the Letter to Shareholders, strategies,
goals and expectations set forth in the Exploration and Production and Gas
Services sections, and discussions of liquidity and capital resources and other
matters included in Management's Discussion and Analysis of Financial Position
and Results of Operations. Although the Company believes that its expectations
are based on reasonable assumptions, it can give no assurance that its goals
will be achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements include the timing and
extent of changes in commodity prices for natural gas. NGL's and crude oil, the
attainment of forecasted operating levels, reserve replacement and asset
acquisitions; the impact of pending North Texas water well litigations against
the Company and related insurance recoveries; and unexpected changes in
competitive and economic conditions, government regulations, technology and
other factors.

CONTENTS

<S> <C>
Letter to Shareholders............................. 2
Exploration and Production......................... 4
Gas Services....................................... 18
Management's Discussion and Analysis of
Financial Position and Results of Operations...... 31
Consolidated Financial Statements.................. 42
Notes to Consolidated Financial Statements......... 46
Report of Independent Public Accountants........... 60
Supplemental Oil and Gas Information............... 61
Historical Summary................................. 65
Board of Directors................................. 67
Principal Officers................................. 68
Corporate Information.............................. 69
</TABLE>

DEFINITIONS

<S> <C>
MMBtu.......................... million British thermal units
Mcf............................ thousand cubic feet (measure of gas volume)
MMcf........................... million cubic feet
Bcf............................ billion cubic feet
Bbl............................ barrel (measure of liquid hydrocarbon volume)
MMBbls......................... million barrels
NGE or NGLs.................... natural gas liquids (ethane,propane, butanes and
natural gasoline)
DD&A........................... depreciation, depletion and amortization
</TABLE>

COVER: MITCHELL GAS SERVICES L.P. EMPLOYEES DON FIPPINGER (LEFT) OF OPERATIONS,
JOEL STEPHEN OF SAFETY AND ENVIRONMENTAL AND ELLEN HERMINGHAUS OF GAS SUPPLY
INSPECT PROCESSING FACILITIES AT THE MADISON COUNTY GAS PROCESSING PLANT.

Note: Natural gas volumes in this report are stated at the legal pressure base
of the area in which the reserves are located and at 60 degrees Fahrenheit.
Pipeline throughput volumes are based on an average energy content of 1,000 Btu
per cubic foot. Where applicable, NGL, volume price and reserve information and
pipeline throughput includes equity partnership interests.
<PAGE> 2

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES

Financial Highlights
Year Ended January 31 (in thousands except per-share data)

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Earnings from continuing operations .......... $ 37,826 $ 86,301
--------- ---------
Net earnings (loss) .......................... $ (35,107)* $ 103,226
--------- ---------
Basic/diluted earnings per share
From continuing operations
Class A .................................. $ .71 $ 1.64
Class B .................................. .77 1.68
Net earnings (loss)
Class A .................................. (.66) 1.96
Class B .................................. (.72) 2.01

Revenues ..................................... $ 790,502 $ 906,677
--------- ---------
Segment operating earnings
Exploration and production$ .................. $ 62,528 $ 81,432
Natural gas processing ....................... 28,330 69,110
Natural gas gathering and marketing .......... 21,982 27,589
Other gas services ........................... 13,192 11,397
--------- ---------
126,032 189,528
Unusual items

Water well litigation provision .......... (7,000) (10,000)
Royalty litigation settlement provision .. (26,000) --
Gain from sale of contract drilling assets 2,382 --
Severance tax refunds .................... -- 5,935
Columbia Gas contract settlement proceeds -- 3,444
--------- ---------
$ 95,414 $ 188,907
--------- ---------

Capital and exploratory expenditures ......... $ 258,292 $ 175,826
--------- ---------
Long-term debt (including current maturities) $ 414,267 $ 700,000
--------- ---------
Stockholders' equity ......................... $ 412,926 $ 555,287
--------- ---------
Operating statistics (average daily amounts)
Natural gas sales (Mcf) ...................... 238,200 228,500
Crude oil and condensate sales (Bbls) ........ 6,200 5,500
Natural gas liquids production (Bbls) ........ 45,300 46,100
Pipeline throughput (Mcf) .................... 426,000 410,000
</TABLE>

* Includes a $67,123 loss on the sale of The Woodlands Corporation and an
extraordinary charge of $13,250 from the early retirement of debt.

[ESTIMATED PROVED RESERVES CHART]

1
<PAGE> 3
INVESTOR
HIGHLIGHTS

ENHANCING MARKET VALUE

With the sale of our real estate subsidiary last summer, we're now a pure
energy play, and as a result, easier for investors to understand and fairly
value on Wall Street. We've already seen the benefits of our restructuring
efforts and of being a single-industry company. Our common stock, which had
traded at relatively low earnings and cash flow multiples, now trades more in
line with other energy independents.

IMPROVING OUR FINANCIAL BASE

Financially speaking, the Company is the strongest it's ever been. We've
reduced debt from $1 billion four years ago to about $400 million today, and the
recent repayment of off-balance-sheet partnership debt will free up some $17
million in cash flow this year. Our excess cash and credit capacity provide
ample flexibility to pursue growth opportunities.

WHAT MAKES US SPECIAL?

Mitchell is the only independent with a "midstream" business natural gas
gathering, processing and marketing roughly equal in size to its upstream
business. This allows us to realize more total economic value from the raw
materials produced from the wellhead. We add further value through gas liquids
upgrading.

BALANCING THE RISK

Acting as both producer and processor also helps shelter us from commodity
price risk. While low gas prices may cut into profits from production, they may
actually bolster profit margins from NGL sales. We purchase make-up gas to
replace gas consumed when NGLs are extracted. This provides a built-in hedge for
about 40 percent of our own gas production.

STICKING TO WHAT WE KNOW BEST

While other energy independents have departed for exotic, high-risk locales
to hunt for new reserves, we've been able to increase our reserves and
production year after year while sticking closer to home. Our operations are
concentrated in North and East Texas and along the Gulf Coast in Texas and
Louisiana. With at least 500 and potentially as many as 1,300 drilling locations
now in inventory, these core holdings provide a solid platform for future
growth.

CHOOSING THE RIGHT TOOLS

Technology and operating know-how are keys to our success. We helped
pioneer the "massive hydraulic fracturing" completion technology that has been
crucial to developing some of our largest fields, where the tight rock was once
considered uneconomic to drill. Three-dimensional seismic is now proving
invaluable in exploiting existing fields and exploring new plays. Also, we began
testing horizontal drilling technology last year in North Texas and believe it
could greatly enhance ultimate reserve recovery in this mature area.

CARVING A NICHE

Key to much of our success in the midstream arena is our "niche" approach:
establishing a pipeline infrastructure in core areas, expanding them as drilling
increases, and later, possibly adding gas processing operations. Recent asset
acquisitions will not only boost gathering and processing volumes but also offer
cost savings through consolidation with existing operations. We hope to make
more acquisitions like these this year.

<PAGE> 4

TO OUR SHAREHOLDERS

Fiscal 1998 was a year of momentous change for your Company. The sale of our
real estate subsidiary, The Woodlands Corporation, completed a four-year
restructuring program that has transformed the Company and resulted in a much
more focused organization. Using part of the proceeds from that sale, we
stepped up energy investment programs, acquired gas gathering and processing
assets, repurchased common stock, reduced corporate debt by $186 million and
repaid another $44 million of off-balance-sheet partnership debt. The result
is a pure energy company that is in the best shape it's ever been in both
operationally and financially.

Looking ahead, Mitchell's singular focus is on growing its two energy
businesses. With a unique blend of upstream exploration and production
operations and midstream gas gathering and processing businesses, we think we're
well poised to capitalize on the mix of opportunities expected over the next few
years and to weather the inevitable downturns.

A major legal and financial cloud was lifted in fiscal 1998, when the
Company won three important court victories related to the North Texas water
well litigation. Previously, in March 1996, a Wise County court awarded a $204
million judgment against the Company in the "Bartlett" case, which alleged our
oil and gas operations had contaminated landowners' water wells. In November
1997, the Second Court of Appeals in Fort Worth completely reversed the Bartlett
judgment, ruling that the plaintiffs failed to prove their case and that the
statutes of limitations barred them from bringing suit in the first place.
Meanwhile, in May 1997, a different Wise County jury found unanimously in
Mitchell's favor in a virtually identical set of suits known as the "Bailey"
case. Finally, in January 1998, a district court judge in the same county
rendered judgment in our favor in yet another case before it went to trial,
again citing statutes of limitations. Although 28 similar suits still remain
filed, with three clear-cut court victories, this litigation is no longer seen
as a major threat.

The investment community reacted well to all these events, and Mitchell
shares reached their highest level in four years. Our common shares climbed an
average 31 percent over the course of calendar 1997 in line with overall stock
market performance, but well ahead of our peer group. Most of our peers in the
independent oil and gas group saw their share prices drop last year.

Even though earnings were lower due to weaker energy prices and one-time
charges, we frankly weren't expecting a repeat of the near-record energy prices
and earnings enjoyed the year before and were generally pleased with fiscal 1998
financial results and operating accomplishments. In E&P, we replaced 187 percent
of the oil and gas produced, adding 179 Bcf of gas and 4.7 million barrels of
oil through extensions, discoveries and enhanced recovery, even while producing
record gas volumes. It was the 10th year in a row that the Company replaced its
gas production and the second consecutive year that it replaced its oil
production. Total development and finding costs per barrel equivalent were in
line with average industry costs.

2
<PAGE> 5
Fiscal 1998 capital spending was increased by 37 percent from the previous
year, and we will continue growing our reserve base with an equally aggressive
capital investment program in fiscal 1999. A key element of our increased
exploratory activity is $16 million of planned three-dimensional seismic (3-D)
expenditures covering 680 square miles. Included in this program is a
110-square-mile survey of an exploratory prospect in McMullen County in South
Texas and an 80-square-mile survey in Fort Bend County in Southeast Texas. We'll
also survey exploratory prospects in Throckmorton and Wise counties in North
Texas as well as in Southwest Louisiana -- all areas where we had good 3-D
drilling results last year. In addition, we've begun using horizontal drilling
in North Texas to see if it is economic to exploit our large undeveloped reserve
potential there.

Development drilling will continue to concentrate on the prolific Barnett
shale in North Texas, where we are increasing reserve recovery through reduced
well spacing, and on the Lake Creek field in Southeast Texas, purchased in 1995.
Last year saw a total of 133 Bcf of additional reserves booked in these two
fields. We're also working on new exploitation opportunities in Limestone
County, another core development area, targeting shallower sandstone formations.

While we were disappointed at our lack of success in making more upstream
property acquisitions, it wasn't for lack of trying -- the prices paid for those
we took a run at were simply too high. We will continue to look for such
opportunities, but only when the price is right.

In gas services, stepped-up drilling activity in North and Southeast Texas
increased the gas supplies feeding our largest processing plant at Bridgeport
and the Katy plant, where we have a third-party processing agreement. These
increases, coupled with new volumes from acquisitions made late in fiscal 1998,
should push NGL production near 50,000 barrels a day in fiscal 1999.

Among last year's acquisitions was the 110-mile Vanderbilt pipeline,
purchased from Mobil in May 1997. This line, which runs east and south of the
Company's existing Monco line in Southeast Texas, will pick up new gas being
developed southwest of Houston and grow the volumes processed at the Katy plant.
Acquisition of the Tejas gathering system, completed in December 1997, gives us
more gas to process at various plants on our Southwestern Gas Pipeline system in
North Texas. Purchase of Western Gas' Perkins/Noel gathering system in West
Central Texas, which is expected to be completed early this year, will bring
more gas into the Jameson plant, owned in partnership with Conoco. These
acquisitions will add a total of 3,000 barrels a day to NGL volumes. We continue
to seek additional gathering and processing assets that will be as good a fit
with existing operations.

Our restructuring and refocusing programs have already yielded major
benefits, but our commitment to enhancing profitability remains just as great
today as when we began this process four years ago. The future approach will, of
necessity, be different, but we are confident the outcome will be the same --
added shareholder value.

These operating and financial achievements would not have been possible
without the hard work of the Company's 1,125 employees. Their capabilities and
contributions are the key to our success. We are grateful for their dedication
and proud to share with you portraits of many of them at work on the following
pages of this annual report.

/s/ GEORGE P. MITCHELL /s/ W. D. STEVENS
- ------------------------------------ -------------------------------------
George P. Mitchell W. D. Stevens
Chairman and Chief Executive Officer President and Chief Operating Officer

[PICTURE OF George P. Mitchell (left) and W.D. Stevens]

March 20, 1998

3
<PAGE> 6
The Company replaced 187 percent of the natural gas and oil reserves it produced
in fiscal 1998, even while setting a new high for gas sales of 238 MMcf a day.
This was the 10th consecutive year Mitchell more than replaced its gas
production.

Exploration & Production

Financial Highlights
Year Ended January 31 (in thousands)

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues .................................................... $ 262,432 $ 269,862
========= =========
Segment operating earnings
Operations .................................................. $ 62,528 $ 81,432
Unusual items
Water well litigation provision ........................... (7,000) (10,000)
Gain from sale of contract drilling assets ................ 2,382 --
Severance tax refunds ..................................... -- 5,935
Columbia Gas contract settlement proceeds ................. -- 3,444
--------- ---------

$ 57,910 $ 80,811
========= =========

Capital and exploratory expenditures, excluding acquisitions $ 185,783 $ 131,932
========= =========
</TABLE>

Lower energy prices, combined with higher geological and geophysical expenses
associated with the Company's expanded exploration program, reduced earnings
from exploration and production in fiscal 1998. This was partly offset by
increases in natural gas and oil production. Excluding the effect of unusual
items, operating earnings were $62.5 million, versus $81.4 million the prior
year.

Despite the lower price environment, fundamentals of the E&P business
remained good by recent years' standards, and the Company conducted its most
active drilling, leasing and exploration program since the early 1980s. Mitchell
drilled or participated in 121 development wells, 55 exploratory wells and 96
enhanced oil

<PAGE> 7

[PHOTO]

Marcus Eubanks, completion foreman, reviews a log of a well in the Barnett shale
formation in North Texas.

5
<PAGE> 8
recovery (EOR) wells last year, running an average of 10 rigs, plus two others
operated by partners. Exploration and production capital expenditures totaled
$185.8 million, a 41 percent increase over the prior year. An additional $4.7
million was spent to acquire producing properties.

Another active year is planned for fiscal 1999, with capital spending set
at $188.4 million, excluding any outlays for acquisitions. This year the Company
plans to conduct its most aggressive 3-D seismic program ever and to drill 142
development, 41 exploratory and 43 EOR wells.

OIL AND GAS SALES

Natural gas sales averaged a record 238.2 MMcf a day in fiscal 1998, up more
than 4 percent from the prior year, due primarily to production increases in the
Lake Creek field near Houston and the North Personville field in East Texas. The
increase would have been greater but for wet weather that slowed drilling early
in the year and delays caused by tight drilling rig availability.

Mitchell's gas sales price averaged $2.47 per Mcf for fiscal 1998, down 17
cents from the prior year. Gas prices were extremely volatile, swinging from a
low of $1.91 per Mcf in March 1997 to a high of $3.29 in November 1997. The
run-up was driven by increased demand from electric utilities for air
conditioning last summer and heavy inventory building for the winter heating
season. By year end, however, prices had weakened in response to
warmer-than-normal winter temperatures associated with El Nino. This volatility
suggests that supply and demand are very closely balanced, and as a result, we
expect more price swings in fiscal 1999.

Oil production increased 13 percent during fiscal 1998 to an average of
6,200 barrels a day, mainly due to rising production in Throckmorton County in
North Texas and enhanced oil recovery projects in West Texas, and to growing
condensate volumes at the Lake Creek field. The benefit of the volume increases
was partly offset by lower oil prices, however. The Company's average oil price
declined by $3 to $18.50 a barrel last year, primarily due to overproduction by
OPEC, combined with the unusually warm winter and resulting lower demand growth.

[NATURAL GAS SALES CHART]

6
<PAGE> 9

[PHOTO]

From left, John Hibbeler, Senior Vice President - Exploration, and Jon Huggins
and Dan Steward of Mid-Continent Exploration review 3-D seismic interpretations
of the Caddo limestone, where Mitchell is currently involved in horizontal
drilling.

EXPLORATION AND PRODUCTION

Even with record production, the Company replaced 184 percent of the gas it
produced in fiscal 1998, posting record gas reserves of 778 Bcf at year end, up
11 percent from the prior year. This was the 10th consecutive year that Mitchell
replaced its gas production. Extensions, discoveries and enhanced recovery added
179 Bcf of new gas reserves. Oil and condensate reserves increased by 18 percent
to 15.7 million barrels at year end, and the Company replaced 209 percent of the
oil it produced during fiscal 1998, adding 4.7 million barrels of reserves from
extensions, discoveries and enhanced recovery.

Mitchell's overall finding costs declined to $4.84 per barrel equivalent
from $6.73 in fiscal 1997. This decrease was due in part to the addition of
undeveloped gas reserves in the Barnett shale in North Texas, which were
recognized based on results of a pilot infill drilling program testing the
viability of increasing well density.

[CRUDE AND CONDENSATE SALES CHART]

7
<PAGE> 10

[PHOTO] [PHOTO]

o Hugh Jones and Dorane Hernandez (background) and Binh Phan, all of
Information Systems Support, operate the Company's mid-range client server
systems.

o The team developing the Lake Creek field includes (left to right) Forrest
Craig of Reservoir Engineering, Dallas Wagner of Gulf Coast Exploration, Samir
Abueits of Production Engineering, Bud Gholson of Land and Dean Reynolds of
Production Engineering.

o Terry Peterson of Land (second from right), reviews 3-D seismic prospects in
Calcasieu Parish, Louisiana, with Shelly England (from left), Randy Carlson and
Steve Campbell of Gulf Coast Exploration.

[PHOTO]

8
<PAGE> 11

[PHOTO] [PHOTO]

o In the foreground, Jack Yovanovich, Senior Vice President - Land, and Rondia
Terry of Records Management review lease records, as Maureen Sadion of Property
Administration checks out a file from Joann Runay of Records Management.

o Reservoir engineer Maryann Fuchs checks the status of the TXL waterflood unit
in Ector County, Texas.

o Rick Stothers of North Texas Production researches well records in the Fort
Worth office.

[PHOTO]

9
<PAGE> 12
Additional undeveloped gas and condensate reserves also were booked at Lake
Creek as a result of very successful development drilling results to date.
Substantial oil reserves also were booked in Throckmorton County, Calcasieu
Parish and at two EOR projects in West Texas in which the Company owns
interests. Three-D seismic also contributed to last year's lower finding costs,
particularly in exploratory drilling, where the Company experienced an overall
success rate of 67 percent.

PRINCIPAL PRODUCING AREAS
Average Daily Sales
Year Ended January 31

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Natural gas (net Mcf)

North Texas ...................................... 114,400 112,600
East Texas ....................................... 56,200 49,100
Gulf Coast ....................................... 47,700 45,300
Other ............................................ 19,900 21,500
--------- ---------

Total ............................................ 238,200 228,500
========= =========
</TABLE>

<TABLE>
<S> <C> <C>
Crude oil and condensate (net Bbls)

North Texas .................................... 1,500 1,200
East Texas ..................................... 1,000 1,000
Gulf Coast ..................................... 2,000 1,900
West Texas/Southeastern New Mexico ............. 1,200 1,000
Other .......................................... 500 400
----- -----

Total .......................................... 6,200 5,500
===== =====
</TABLE>

EXPLORATORY ACTIVITY

Fiscal 1998 outlays for exploratory drilling, land acquisition and geological
and geophysical expenditures totaled $52.3 million -- double the prior year's
expenditures -- as Mitchell's exploratory program shifted into high gear in the
second half. Undeveloped acreage holdings increased by 44 percent to nearly
660,000 gross acres. The

[Production Replaced Chart]

10
<PAGE> 13

[PHOTO]

At a North Texas drilling location in Jack County (from left), L. D.
Cox, George Wilson, Richard Horton of Drilling and Rick Wilson of
Engineering review directional plans on a horizontal well.

- --------------------------------------------------------------------------------

Company plans to maintain this higher activity level in the current year.

The Company shot or purchased eight 3-D seismic surveys totaling 150
square miles in fiscal 1998, and 12 surveys totaling 680 square miles are
planned in fiscal 1999. Mitchell expects to spend more than $16 million on
seismic in the current year -- all 3-D. Among the largest are two exploratory
projects. One is a 110-square-mile survey in McMullen County in South Texas,
which will target shallow Wilcox oil and deeper Edwards gas potential. The
second is an 80-square-mile survey in Fort Bend County southwest of Houston,
where the Company will look for Yegua and deeper Wilcox gas potential.

As part of our intensified exploration push, we continued working the
Caddo sandstone and Atoka conglomerate formations in North Texas and expanded
into the shallower Caddo and Parks Reef limestones. During fiscal 1998 the
Company drilled 17 wells in these various formations, including eight
exploratory tests, and that program will nearly double this year. Horizontal
drilling, principally in the Caddo limestone formation, is under way in Wise
and Jack counties, with five horizontal wells drilled to date and at least a
dozen more planned. If successful, this horizontal program could add
significantly to reserve potential in the area. Meanwhile, a 90-square-mile 3-D
survey in Wise County is scheduled for the second quarter to help identify more
drilling locations.

Elsewhere in North Texas, oil production from exploratory drilling in
Throckmorton County tripled during the past year to more than 1,400 barrels a
day. Mitchell holds a 55 percent working interest in these wells. Three seismic
surveys totaling 110 square miles were completed as part of our continued
exploration of the Caddo limestone. Twenty of 27 wells drilled in this play in
fiscal 1998 were producers.

We more than doubled our lease and seismic option holdings in Throckmorton
and surrounding counties to roughly 250,000 acres. Three more 3-D surveys
totaling 190 square miles are planned this year, which should expand our
inventory of drilling locations in the area. Twenty wells are planned for fiscal
1999, including 15 exploratory tests.

Exploratory work in Calcasieu Parish in southwestern Louisiana yielded
good results in fiscal 1998. One Yegua and three Frio discoveries were made last
year, based on a 3-D survey shot the previous year. A follow-up

11
<PAGE> 14
[PHOTOS]

From left, Frank Fix of Energy Support Services and Herb Magley of
Mid-Continent Exploration review maps and data for acquisition
opportunities with Homer Hershey, Senior Vice President-Production,
Don Gann of Continental Production and Bobby Hickman and Jerry
Youngblood of Energy Support Services.

- --------------------------------------------------------------------------------
development well also was completed, bringing daily volumes from five producers
to 9 MMcf of gas and nearly 1,000 barrels of oil. The Company holds a one-third
working interest in this play. Two additional exploratory tests are planned for
the current year -- one in Calcasieu Parish and one in adjacent Orange County,
Texas. Mitchell also has acquired 28,000 additional acres of leases and seismic
options east of the Calcasieu discoveries.

DEVELOPMENT ACTIVITY

The Barnett shale in North Texas remained by far Mitchell's most active
development area last year. The Company drilled and completed 60 wells in Wise
and Denton counties, and a similar number is planned for fiscal 1999. Based on
results of a program that began two years ago to test the viability of doubling
the well density in the Barnett from 100-acre to 50-acre spacing, Mitchell
booked an additional 43 Bcf of reserves at year end. We believe tighter well
spacing could potentially add another 140 Bcf of proved reserves to current
estimates, based on technical evaluation of the production performance of 25
wells already drilled on 50-acre spacing and their 100-acre offsets.

Well Completions (1)
Year Ended January 31, 1998

<TABLE>
<CAPTION>
Exploratory Development Total
---------------------------- ---------------------------- ----------------------------
Total Oil Gas Dry Oil Gas Dry Oil Gas Dry
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North Texas .. 105 23 4 9 -- 69 -- 23 73 9
East Texas ... 35 -- 4 2 -- 28 1 -- 32 3
Gulf Coast ... 24 1 4 3 1 15 -- 2 19 3
West Texas ... 97 1 -- 2 94 -- -- 95 -- 2
Other(2) ..... 11 -- -- 2 5 3 1 5 3 3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross wells(3) 272 25 12 18 100 115 2 125 127 20
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

Net wells .... 162.1 15.0 5.5 10.2 23.2 106.7 1.5 38.2 112.2 11.7
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

(1) Excludes service wells.

(2) Includes Colorado, Mississippi, New Mexico, Ohio and Oklahoma.

(3) An additional 34 wells (24.3 net wells) were in the process of drilling or
completion at January 31, 1998.

12
<PAGE> 15

Mitchell also is experimenting with new fracturing techniques in an effort
to reduce costs and enhance profitability. One new technique uses mainly water,
instead of polymer gel and large amounts of sand, to crack tight rock so gas can
flow into the well. This technique could reduce the total cost to drill and
complete a well by as much as 20 percent.

The Company is also evaluating horizontal drilling potential in the
Barnett shale in hopes of expanding the boundaries of its commercial producing
area and increasing production in existing areas where residential or commercial
development at the surface precludes vertical drilling. One previously drilled
horizontal well was recompleted in fiscal 1998, and as many as three new
horizontal wells are planned for fiscal 1999.

Mitchell has nearly doubled the amount of reserves it originally booked in
another important development/exploitation area, the Lake Creek field. We
believe even greater reserve upside is likely, as we continue to drill undrained
or underdeveloped zones in the Middle and Upper Wilcox.

Lake Creek was producing just 3 MMcf a day of gas and 300 barrels of
condensate when Mitchell purchased the field in September 1995. By drilling new
wells, recompleting others, co-mingling production from several different zones
and applying the same hydraulic fracturing techniques the Company helped pioneer
for its fields in North and East Texas, Mitchell has increased daily production
there to 25 MMcf of gas and 1,500 barrels of condensate. These volumes are
expected to increase even further in fiscal 1999. The Company drilled 12
successful development wells at Lake Creek and recompleted two others last year;
13 new wells are planned in the current year.

In March 1997, the Company purchased the adjacent East Lake Creek field,
currently producing 700 Mcf of gas and 150 barrels of oil per day from eight
wells. Four additional development wells are planned this year, and several idle
wells may be recompleted. A 45-square-mile 3-D survey covering both Lake Creek
and East Lake Creek was in progress in the first quarter and should provide
additional development and exploratory locations. Mitchell continues to search
for additional acquisitions with large upside potential, like Lake Creek, where
the Company can leverage its technical expertise further.

- --------------------------------------------------------------------------------

Geophysicist Steve Adcock of Southern Region Exploration reviews
placement of shot holes in the Lake Creek field prior to a 3-D seismic
survey in Montgomery County, Texas.

[PHOTOS]

13
<PAGE> 16

[PHOTO] [PHOTO]

o Ron Colbert and Linda Manning-Miller of North Texas Land research deed
records in the Wise County Courthouse.

o North Texas drilling foreman Matt Gray checks an offset well log at a rig
site in Denton County, Texas.

o Margie Jeffery (left) and Julie Bullock of Treasury finalize the Company's
daily cash position prior to making investments.

[PHOTO]

14
<PAGE> 17

[PHOTO]

o In a North Texas well review meeting, Operations and Engineering staff
(foreground, left to right) Tim Raley, Alan Goodwin, Mark Whitley and George
Jackson discuss the status of producing wells. In the background (left to
right) are Production Operations staff Clay Cavasos, James Pewitt, Gary Potts
and Robert Burtnett.

o James Dixon (right) of North Texas Land visits with rancher Rob Brown in
Throckmorton County.

o Robert Klez (left) and Pat Parker of Mid-Continent Exploration discuss 3-D
seismic sections from a survey shot in Wise County, Texas.

[PHOTO] [PHOTO]

<PAGE> 18
[PHOTO]

Dan Higdon of Land (far right) details the Company's leasehold
interests in the planned 90-square-mile Frazier 3-D seismic survey in
Wise County, Texas, for Cheryl Thompson of Property Administration and
Roger Smith, also of Land.

- --------------------------------------------------------------------------------

In the older Pinehurst field, which served as the model for the
revitalization of Lake Creek, two successful development wells were drilled in
the Middle Wilcox in fiscal 1998, and two others were recompleted. Three
additional wells will be drilled this year.

In Limestone County in East Texas, the focus has expanded from the
Cotton Valley limestone, which has been Mitchell's primary development zone in
this area since the late 1970s, to include the shallower Cotton Valley and
Travis Peak sandstone formations. By applying 3-D technology and recompleting
existing wells to tap these shallower zones, there is good potential to
significantly extend the life of the field. A 52-square-mile 3-D survey is
planned for early this year that will target both formations. The
Company also has acquired acreage outside the original development area for
additional exploration.

Improved technology is key to development of these shallower zones.
More sophisticated well log interpretation methods make drilling these wells
less risky, and fracture stimulation treatment technology improves their
recovery rates. Four out of five sandstone wells drilled last year were
producers, and two existing Cotton Valley limestone wells were recompleted to
the shallower zones. This year 18 new wells are planned in the sandstone
formations, plus seven additional recompletions. As the development program in
the deeper Cotton Valley limestone nears completion, drilling will decline
from 20 wells in fiscal 1998 to a dozen in fiscal 1999.

Mitchell had interests in 2,201 gas producers and 1,072 oil producers
at year end -- a total of 3,273 -- of which 84 were productive in two or more
zones. Excluding interests held by partners, the Company held net interests
equal to 2,553 wells -- 1,920 gas and 633 oil -- of which 73 were productive in
two or more zones.

<PAGE> 19

L E A S E H O L D I N G S

At January 31, 1998
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Gross Net
Acres Acres
--------- -------
<S> <C> <C>
Alabama . . . . . . . . . . . . . . . . . . . . . . . 27,000 16,400
Louisiana . . . . . . . . . . . . . . . . . . . . . . 27,300 24,500
Mississippi . . . . . . . . . . . . . . . . . . . . . 20,500 8,200
New Mexico. . . . . . . . . . . . . . . . . . . . . . 20,400 18,800
Ohio. . . . . . . . . . . . . . . . . . . . . . . . . 30,200 30,000
South Dakota. . . . . . . . . . . . . . . . . . . . . 84,100 24,100
Texas . . . . . . . . . . . . . . . . . . . . . . . . 389,200 246,300
Utah. . . . . . . . . . . . . . . . . . . . . . . . . 28,000 11,600
Other*. . . . . . . . . . . . . . . . . . . . . . . . 33,100 23,900
--------- -------
Total undeveloped acreage . . . . . . . . . . . . . . 659,800 421,800
Producing acreage . . . . . . . . . . . . . . . . . . 761,600 571,600
--------- -------
Total acreage . . . . . . . . . . . . . . . . . . . . 1,421,400 993,400
========= =======
</TABLE>

* Includes Colorado, Michigan, Montana, Oklahoma and Wyoming.

[MAJOR AREAS OF OPERATIONS MAP]

<PAGE> 20
NGL production is expected to reach nearly 50,000 barrels per day this year as
a result of recent gathering acquisitions in North and West Texas. The Company
is extending its gathering and processing operations into new drilling plays
via its Vanderbilt and Louisiana Chalk systems.

GAS SERVICES

FINANCIAL HIGHLIGHTS

Year Ended January 31 (in thousands)

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Natural gas processing ............................... $ 329,990 $ 376,980
Natural gas gathering and marketing .................. 183,554 247,214
Other ................................................ 14,526 12,621
---------- ----------
$ 528,070 $ 636,815
========== ==========
Segment operating earnings
Natural gas processing ............................... $ 28,330 $ 69,110
Natural gas gathering and marketing .................. 21,982 27,589
Other ................................................ 13,192 11,397
---------- ----------
63,504 108,096
Unusual item
Royalty litigation settlement provision ............ (26,000) --
---------- ----------
$ 37,504 $ 108,096
========== ==========

Capital expenditures, excluding acquisitions ......... $ 41,041 $ 34,043
========== ==========
</TABLE>

Gas services operating earnings, excluding unusual items, declined to $63.5
million from $108.1 million in fiscal 1998 due mainly to significantly weaker
natural gas liquids prices and lower profit margins from natural gas gathering
and marketing.

Capital outlays, excluding acquisitions, totaled $41 million in fiscal
1998, up $7 million over the prior year. Major projects included completion of
the Louisiana Chalk gathering system and additions to processing plants at
Bridgeport and Huckabay in North Texas. Asset acquisitions totaled $22 million,
including gathering systems in North and Southeast Texas, and the purchase of a
gathering system in West Texas is pending.

At the beginning of the current year, gas services reorganized its
corporate structure to become Mitchell Gas Services L.P. This new entity
combines the functions of once-separate internal companies that were formed over
the years for gathering, processing and marketing operations. The new
organization will simplify our dealings

<PAGE> 21
[PHOTO]

Leonard Young (foreground) and Randy Boone of Operations make changes
to the gas flow at the Batts Ferry Compressor Station in Brazos
County, Texas.

19
<PAGE> 22

[PHOTO] [PHOTO]

o Richard Luedecke (left), plant manager, and Chris Tackel of Plant Operations
discuss the vapor recovery installation at the Bridgeport plant in Wise County,
Texas.

o Bill Green of Gas Marketing monitors natural gas futures prices.

o Darin Aucoin (left rear), David Hardy and Kimberly Clausen of Gas Marketing
talk with other natural gas traders.

o Ken Glowacky (second from left) of NGL and Crude Oil Marketing tours the
recently renovated rail and truck loading area at the Bridgeport plant with
Juan Mercer (far left), Steve Chandler (third from left), Dean Izell and David
Pierce, all of Plant Operations.

[PHOTO] [PHOTO]

20
<PAGE> 23

[PHOTO] [PHOTO]

o Tracy Carter (front) of Engineering and John Blildea of Drafting update
system maps to reflect new pipeline construction and acquisitions.

o Mary Jew (left) and John Jordan (far right) of Audit and Management Services
team up with Jim Osina (second from left) of Joint Venture Operations and Dean
Graves of Gas Measurement to go over plant schematics and meters at the MTBE
Plant at Mont Belvieu, Texas.

o J. W. Varner, Senior Vice President - Operations, talks to Gas Services
employees in Mineral Wells, Texas, about workplace safety.

[PHOTO]

21
<PAGE> 24
[PHOTO]

Inside the Gas Control Center located in the Woodlands, Mark Patton
(left) and Allen Tarbutton, President - Mitchell Gas Services L.P.
(standing), review real-time data and gas control capabilities with
Chuck Gillam (seated left) and Don Adamson.

- --------------------------------------------------------------------------------
with customers by conducting most of our gas gathering, processing and marketing
business under one name. Southwestern Gas Pipeline, Inc., a wholly owned
subsidiary, will continue to operate in areas where utility operations are
necessary for regulatory reasons.

VOLUME AND PRICES

Natural gas liquids production averaged 45,300 barrels per day in fiscal 1998,
essentially flat with the prior year. New gas available for processing at
plants in Bridgeport and Katy offset decreases in NGL production resulting from
normal field declines in the Texas Austin Chalk. NGL production is expected to
increase this year and could reach 50,000 barrels per day, driven by recent
gathering acquisitions in North and West Texas and by active drilling in the
Company's core operating areas.

[NATURAL GAS LIQUIDS PRODUCED CHART]

[PIPELINE THROUGHPUT CHART]

<PAGE> 25
At year end, proved NGL reserves totaled 146.5 million barrels, up 16
percent over the prior year. This increase resulted primarily from NGLs
associated with new gas reserves booked in the Barnett shale in North Texas and
reserves added in the Tejas acquisition.

Average NGL prices dropped 17 percent in fiscal 1998 to $13.38 per
barrel, due mainly to lower worldwide crude oil prices and higher domestic NGL
inventory levels resulting from record production by both refiners and gas
processors. Near term, NGL prices are expected to be dampened by the worldwide
oil glut. Also, demand in the current year will be influenced by North American
weather and the troubled Asian economies' impact on U.S. chemical exports to
the Far East. Longer term, however, the outlook for NGL markets is positive.
Petrochemical demand along the Texas Gulf Coast, the Company's primary market,
is expected to increase, as several new ethylene plants that started up in late
fiscal 1998 reach full capacity this year.

Pipeline throughput rose 4 percent to an average of 426 MMcf per day
during fiscal 1998. This was due mainly to the inclusion of volumes on the
Bridgeport gathering system beginning January 1, 1998, when Mitchell took
ownership of that system. Volumes added by new well hookups to the Louisiana
Chalk system and Monco system in Southeast Texas offset normal field declines
from wells tied to the Texas Chalk system.

Pipeline gross profit margins were solid at 25 cents per Mcf but were
5 cents lower than last year's margins, which benefited from sharply rising
natural gas prices, especially in the fourth quarter.

OPERATIONS

In fiscal 1998, Mitchell pursued a two-pronged strategy to grow its gas
gathering and processing operations. First, the Company leveraged off
established infrastructure in West and North Texas, purchasing almost 3,000
miles

[WEST/NORTH TEXAS GATHERING SYSTEMS MAP]

<PAGE> 26

[PHOTO] [PHOTO]

o Laura Weaver (left), Annette Joubert and Sherry McNutt (right) use process
mapping to improve Human Resources systems.

o Brenda Bishop changes one of 15,000 data tape cartridges within an automated
tape library in the Information Systems data center.

o From left, Harry Simmons, Janet Biles and Bruce Toeilner of NGL Marketing
survey process equipment at the Gulf Coast Franctionator at Mont Belvieu,
Texas, with John Thompson, who represents Mitchell's operational interests in
the partnership.

o Becky Bowles of Records Management scans files into a new system that will
make an extensive database of wells files available on the Company's desktop
computers.

[PHOTO] [PHOTO]

24
<PAGE> 27
[PHOTO]

o Lynn Nutter (standing at right) of NGL Marketing helps plan operational
details of a new shared system for NGL marketing and accounting with Gas
Services Accounting staff members (from left) Robin Pruitt, Joe White, Tom
Papa, Sonya Dennis and James Shaddix.

o Kerry Woodring of Operations records data from an electronic flow meter and
compressor monitoring system near Mineral Wells, Texas.

o Gas Production operators (left to right) Dennis Martin, Gene Sanderford and
Alan Jackson work on a compressor at the Lake Creek field in Montgomery County,
Texas.

[PHOTO] [PHOTO]
25

<PAGE> 28
[PHOTO]

During the construction of an interconnecting pipeline
between the Company's Vanderbilt system and the Exxon
Katy plant in Southeast Texas, Alan Bryant (from left)
of Operations details the plans for Dan James of Gas
Supply and Ken Ballard of Business Development.

- -------------------------------------------------------------------------------

of gathering lines in two separate transactions. It also acquired the
1,200-mile Bridgeport gathering system as part of the 1995 contract settlement
with Natural Gas Pipeline Company of America. As a result, the Company now
operates more than 7,000 miles of gathering lines stretching from the Jameson
plant in West Texas to the Bridgeport plant northwest of Fort Worth. These
acquisitions will add more than 180 MMcf per day of gathering throughput and
nearly 3,000 barrels per day of NGLs. They also give the Company access to
active drilling areas, where third-party operators drilled 300 wells last year.

Secondly, the Company moved into new gas drilling plays with the
acquisition of the 100 MMcf-per-day Vanderbilt gathering system and the
completion of the 250 MMcf-per-day Louisiana Chalk gathering system. The
Vanderbilt system provides access to active drilling in Wharton and other
counties southwest of Houston, while the Louisiana system gathers gas production
from the Masters Creek area in South Louisiana. The goal this year is to load up
these systems and ultimately to expand these gathering activities into
processing and marketing.

NORTH TEXAS

Drilling activity by Mitchell and other operators provided higher volumes of
gas for processing at the Bridgeport plant, the Company's largest NGL complex,
increasing plant production by nearly 1,400 barrels a day. Two previously idled
15 MMcf-a-day processing trains were reactivated at Bridgeport to handle
increased volumes on the Bridgeport gathering system. Renovation of the rail
terminal at the Bridgeport plant is expected to increase local sales of propane
in the current year by 55 percent, to 70 million gallons. This will provide
additional marketing flexibility and eliminate some transportation and
fractionation costs.

Nearby, in Hood, Parker, Palo Pinto and Eastland counties, the Company
acquired a 350-mile gathering system and the Lipan plant from Tejas Gas in
December, adding 10 MMcf per day of throughput and 1,000 barrels a day of NGL
production. This acquisition also will allow the Company to cut operating costs
by integrating the line with its Southwestern Gas Pipeline System (SWGPL).

26
<PAGE> 29
Further expansion and consolidation opportunities exist in these areas,
and the Company continues to aggressively pursue acquisitions that will enhance
existing operations.

C&L PROCESSORS

C&L Processors, a partnership of Mitchell and Conoco, has entered into a
contract to purchase the 2,600-mile Perkins/Noel gathering system, located in
West Texas, from Western Gas Resources. At year end, this transaction was
awaiting Hart-Scott-Rodino antitrust clearance and is expected to close in the
first quarter. This system, which currently gathers approximately 22 MMcf per
day of rich gas, will be rerouted to C&L's Jameson plant in Coke County and
should add 1,700 barrels per day to the Company's share of net NGL production
starting in the first quarter.

The partnership also acquired a gathering system in Oklahoma from
Enogex. This system of gathering lines and compressors supplies increased gas
volumes to C&L's Hennessey and Mitchell's Cashion and Mustang processing plants.

As in North Texas, C&L has opportunities to acquire gathering systems
and plants and consolidate them with its existing operations in West Texas and
Oklahoma.

SOUTHEAST TEXAS

The Company continued to expand its gathering and processing operations in
Southeast Texas, where third-party producers are exploring for and developing
new gas reserves in the Yegua and Wilcox formations. As a result, throughput on
the Monco pipeline increased to 65 MMcf per day (up 56 percent from the previous
year), adding 1,000 barrels per day to the Company's share of NGL production at
the Exxon-operated Katy plant. These volumes would have been higher, had the
Company not elected to curtail processing at Katy in November due to weak
processing margins.

The 139-mile Vanderbilt pipeline, purchased from Mobil, will be
connected to the Katy plant in May 1998 and will give the Company additional
access to Gulf Coast reserves. When connected, the Vanderbilt pipeline

- --------------------------------------------------------------------------------

Steve Shorts (left) and Favlan Minjarez (far right) of
Operations review Jameson plant facilities in West Texas
with Dan McKeaver of Gas Supply, Jim Dyer of Business
Development and Ray Solia of Engineering.

[PHOTO]

27
<PAGE> 30
[PHOTO]

o Mickey Herrmann, Senior Vice President - Financial Operations (center)
reviews monthly financial reports with Brooke Hamilton (left) of Finance and
Treasury, and Phil Smith, Chief Financial Officer.

o Kent Wright of Operations inserts a "pig" that will be used to clean the
inside of a 10-inch gathering pipeline in Parker County, Texas.

o From left, David Pack and Anne Pearson of Investor Relations review stock
price data with Dan Bach of Finance and Brian Engel of Public Affairs.

[PHOTO] [PHOTO]

28
<PAGE> 31
[PHOTO] [PHOTO]

O Thomas McDaniel (left) and Richard Thompson of Pipeline Operations adjust a
control valve at the Eunice liquid handling facility, part of the Louisiana
Chalk Gathering System.

o Dianne Whalan of Human Resources (standing) leads a class in petroleum
technology for Saresh Bhat (left) of Operations Analysis, Joy Harkins of
Safety and Environmental and Becky Spencer of Office Services.

o Mike Robison and Rad Dorris of Gas Measurement review production samples
in the Company's natural gas analysis lab in The Woodlands, Texas.

[PHOTO]

29
<PAGE> 32
will be capable of gathering up to 100 MMcf per day for processing at the Katy
facility. The processing agreement at Katy gives the Company opportunities to
attract new production as well as existing third-party gas supplies from
competing pipelines.

Austin Chalk Systems

In South Louisiana, the Company and its 50-percent partner, Chesapeake Energy
Corporation, completed construction of a pipeline from the Masters Creek area,
starting near Alexandria, to the Trans Canada processing plant 40 miles south
at Eunice. This pipeline was completed in July and was transporting 30 MMcf per
day by year's end. In the current year, Chesapeake and other producers plan to
drill 14 to 16 new wells in this area.
Production volumes in the Texas Austin Chalk trend have declined, as
expected. This area has a history of boom and bust cycles, and new drilling in
the nearby Brenham Dome suggests that another boom cycle could be at hand. One
of the first wells in this area was flowing at 50 MMcf per day to another
pipeline in late February 1998. The Company's partnership with UPR has a call
on 50 percent of the gas to be produced from 13 more wells that are planned for
the area. If these wells are nearly as prolific as the initial well, this could
stem the overall production decline in the Texas Chalk and result in a
significant expansion in the area. The Company is also evaluating opportunities
to consolidate its operations with those of other processor/gatherers in the
area to improve cost effectiveness.

OTHER

The Company's downstream operations in Mont Belvieu, Texas, consists of a
one-third interest in a world-scale MTBE gasoline additive plant and a 38.75
percent interest in an NGL fractionator. Operating earnings from these
facilities totaled $13.2 million in fiscal 1998, up 16 percent from the prior
year.

[SOUTHEAST TEXAS GATHERING SYSTEMS MAP]

30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

FORWARD-LOOKING INFORMATION

The discussion which follows includes forward-looking statements. Reference is
made to the inside front cover of this report for information concerning these
statements, including factors that could cause actual results to differ
materially from those in the forward-looking statements.

LIQUIDITY AND CAPITAL RESOURCES

Overview. After a restructuring program that was begun in fiscal 1995 and
substantially completed in fiscal 1997, the Company's operations had been
streamlined to focus on its core energy and real estate businesses. The
Company's goals for fiscal 1998 included growing its core businesses through
increased capital spending and acquisitions and re-examining the possible
separation of its energy and real estate businesses.

Late in fiscal 1997, a comprehensive review was initiated to determine
whether separating the energy and real estate businesses would best serve the
interests of the Company's shareholders. After an extensive evaluation, the
Company decided to discontinue its real estate activities and entered into an
agreement on June 12, 1997 to sell its real estate subsidiary, The Woodlands
Corporation (TWC), for $543 million. Selling TWC was deemed the best course of
action because it could be accomplished in the strongest real estate market in
years and since the Company's core energy businesses were well-positioned for
growth, which could be enhanced by directing greater resources - both
management and financial - toward strategic acquisitions and expanded energy
capital spending programs.

The Company realized $481 million of after-tax proceeds from the TWC
sale, which closed on July 31, 1997. Excluded from that transaction were
non-core real estate assets outside The Woodlands (including deferred tax
assets) with a net book value of approximately $35 million. The Company is
working to liquidate these holdings, and net proceeds of approximately $9
million had been realized from such disposals through January 31, 1998.

A balanced reinvestment plan was initiated to prudently use the
proceeds as quickly as practical, consistent with the Company's objective of
growing its core energy businesses. This plan called for using the proceeds to
(i) buy back common stock, (ii) retire debt and (iii) make capital investments
that would expand the scope and scale of the Company's core energy operations.
The following table summarizes the uses that have been made of these proceeds
through January 31, 1998 (in millions):

<TABLE>
<S> <C>
Common Stock Purchases
Accelerated buyback of 700,000 Class A and 1,400,000 Class B shares ........................... $ 49.7
Open-market purchases (45,000 Class A and 819,200 Class B shares) ............................. 22.7
Repurchase of 9 1/4% senior notes (including $19.3 for tender offer
costs and expenses) ............................................................................ 205.0
Repayment of off-balance-sheet partnership indebtedness ........................................ 43.8
Acquisitions (primarily gas services operating assets) ......................................... 26.3
Accelerated fiscal 1998 capital spending (primarily for oil and gas exploratory activities) .... 24.0
December 1997 special common stock dividends (24 cents on Class A and
26 1/2 cents on Class B)....................................................................... 12.5
--------

384.0
Remaining unreinvested proceeds ................................................................ 97.0
--------

$ 481.0
========
</TABLE>

31
<PAGE> 34
Although a portion of the remaining proceeds may be used for common stock
repurchases, the Company expects that most of the remaining unreinvested
proceeds will be spent during fiscal 1999 to grow its energy businesses. While
no specific amounts were included in the fiscal 1999 budget for asset
acquisitions, the Company continues to aggressively pursue purchases of
attractively priced producing oil and gas properties and gas gathering and
processing facilities that complement its core activities. For example, the
Company expects during the first quarter that a 50%-owned partnership will
close an acquisition of the Perkins/Noel gathering system in West Central
Texas. If appropriate opportunities become available, the Company believes its
strong financial condition would allow much larger acquisitions to be made
using proceeds of borrowings or stock offerings. To grow its exploration and
production operations, the Company also plans to continue the accelerated
capital spending program begun in fiscal 1998 that emphasizes developing the
Company's backlog of drilling prospects and exploring to locate new prospects
for the future.

On August 18, 1997, the Company purchased 700,000 of its Class A
shares and 1,400,000 of its Class B shares in an accelerated stock purchase
transaction with a financial intermediary, which borrowed the shares and has
been repurchasing shares on the open market to cover its short position. The
total consideration was $49.7 million, subject to a market price adjustment
provision payable either in the Company's common stock or cash. Concurrently,
the Company commenced a program to spend up to an additional $50 million to
directly repurchase Class A and Class B shares from time to time in the open
market (such purchases totaled $22.7 million through January 31, 1998).

During fiscal 1998's third quarter, the Company spent $205 million to
repurchase $185.7 million face amount of its 9 1/4% senior notes, and an
after-tax extraordinary charge of $13.25 million was recorded in connection
with this. At January 31, 1998, the Company's outstanding debt totaled $414
million, or $580 million less than the $994 million balance at January 31,
1994, before the restructuring program was undertaken. At January 31, 1998, the
Company's debt-to-equity ratio stood at 1.00-to-1, an appropriate level for an
energy company and substantially lower than the 2.12-to-1 that existed at
January 31, 1994. With the Company's improved financial condition and its
lessened litigation uncertainties, each of the major rating agencies now rates
the Company's senior notes as investment grade.

During January 1998, the Company repaid its $43.8 million share of the
indebtedness of two partnerships, C&L Processors and Gulf Coast Fractionators.
These partnerships' operating cash flows previously were not available to the
Company because they were dedicated to debt service. The Company's share of the
operating cash flows of these entities totaled $17 million in fiscal 1998.

Capital and Exploratory Expenditures. The following table, which excludes
expenditures for discontinued real estate operations, compares the Company's
fiscal 1999 budget for capital and exploratory expenditures with its actual
expenditures during fiscal 1998 and 1997 (in millions):

<TABLE>
<CAPTION>
1999 Budget 1998 1997
----------------- ----------------- -----------------
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Exploration and production
Capital .............................................. $159.0 66.0 $163.4 70.4 $116.2 66.1
Exploratory expenses ................................. 29.0 12.0 22.4 9.7 18.1 10.3
Gas services ........................................... 49.0 20.3 41.0 17.7 34.2 19.5
Corporate .............................................. 4.0 1.7 5.2 2.2 7.3 4.1
------ ------ ------ ------ ------ ------
$241.0 100.0 232.0 100.0 $175.8 100.0
====== ====== ====== ====== ======

Unbudgeted asset acquisitions funded using
TWC sales proceeds (primarily gas services assets) .......................... 26.3
------
$258.3
======
</TABLE>

32
<PAGE> 35
The Company's fiscal 1998 budget, originally set at $208 million
(excluding $75.3 million for real estate activities), was later increased to
$238 million principally to cover additional exploration and production
expenditures for three-dimensional (3-D) seismic work, exploratory acreage
acquisitions and exploratory and development drilling. Actual fiscal 1998
spending, exclusive of asset acquisitions funded using the TWC sales proceeds,
totaled $232 million or 2.5% less than the revised budget.

The Company's fiscal 1999 budget was set at $241 million, 4% above
fiscal 1998's actual spending. While exploration and production capital
spending - which increased 41% in fiscal 1998 - was budgeted to decline
slightly, exploratory expenses were set almost 30% higher as the Company
further emphasizes exploratory activities, particularly 3-D seismic surveys.
After rising 20% in fiscal 1998, gas services capital expenditures were
budgeted to increase by almost another 20% in fiscal 1999, to $49 million. The
incremental spending is earmarked primarily for additional well connections on
several of the Company's gathering systems, including some on the Bridgeport
gas gathering system that had been paid for by Natural Gas Pipeline Company of
America prior to the transfer of legal ownership of that system to the Company
on January 1, 1998.

The Company expects to be able to fund its aggressive fiscal 1999
capital spending program using cash flows from operations and proceeds
remaining from the TWC sale. Starting off the year, the Company's cash flows
are depressed as discussed in the following section. Should this situation
persist, the Company could choose to reduce its planned capital spending or to
proceed with the planned program, funding a portion of the spending with
borrowings under its currently unused $150 million committed bank revolving
credit facility.

RECENT ENERGY PRICE TRENDS. Energy prices continued to be extremely volatile
early in fiscal 1999. Prices for crude oil and NGLs declined sharply, nearing
ten-year lows in mid-March before rebounding considerably on March 23, 1998
with an announcement of planned oil production cutbacks by several major
producing countries. For the first half of fiscal 1999's first quarter, the
Company's average sales prices were sharply lower than its fourth quarter
averages, and margins for gas processing were particularly depressed because
the low NGL sales prices were accompanied by relatively strong prices for
natural gas feedstock. The lower NGL margins, coupled with a higher level of
expenses for exploratory activities, will adversely impact the Company's
earnings and cash flows during fiscal 1999's first quarter, and possibly
beyond.

Because the recent declines in crude oil and NGL prices have not
changed its longer-term price projections and since its reserves and production
consist largely of natural gas, the Company does not expect the current pricing
environment to result in significant property impairments in the near term.
However, the carrying amounts of a few small oil properties could be impaired
if the depressed-price environment were to continue for an extended time, and
the situation for other properties could change were energy prices to fall
significantly from current levels.

REDUCED LITIGATION UNCERTAINTIES. As previously reported, the Company began
fiscal 1998 with substantial litigation contingencies. These included the
outstanding $204 million judgment against a subsidiary in the Bartlett case and
other cases with similar allegations as well as class-action lawsuits brought
on behalf of a large group of royalty holders in North Texas.

As discussed more fully in Note 7 of Notes to Consolidated Financial
Statements, three favorable court decisions were rendered during fiscal 1998 in
cases involving allegations by land owners that the Company's North Texas oil
and gas operations had harmed their water wells. These included a favorable
jury verdict and judgment in May in the Bailey case, a reversal in November by
the Fort Worth Court of Appeals of the $204 million Bartlett judgment and a
summary judgment for the Company in the Nelon case in January. These decisions
were generally based on findings that the plaintiffs failed to prove the
Company's actions were the cause of their alleged damages and/or their claims
were time barred by statutes of limitations.

While 28 other lawsuits remain, these claims in most, if not all,
instances appear to have fact situations similar to those the courts have found
to be time barred by statutes of limitations. As in the earlier cases, the
Company believes it was not the cause of the plaintiffs' alleged damages. With
the three successive favorable decisions in the water well litigation, it now
seems unlikely that this litigation will have any significant adverse impact on
the Company's future cash flows. In January 1998, the Company terminated the
bank letter of credit facility that had been put in place to secure appeals
bonds in connection with this litigation.

33
<PAGE> 36
The Company believes that a number of its insurance carriers have
responsibilities for participating in the Company's defense costs in connection
with this litigation, and a reimbursement agreement was entered into with one
of these carriers in May 1997. It is expected that two additional reimbursement
agreements will be completed during fiscal 1999's first quarter.

As discussed in Note 10 of Notes to Consolidated Financial Statements,
the North Texas royalty owner litigation was settled for $21 million in October
1997. Besides eliminating litigation risk and potentially significant defense
costs, the settlement facilitated the Company's ongoing North Texas drilling
program and its assumption of ownership of the Bridgeport gas gathering system
effective January 1, 1998.

DIVIDEND POLICY. The Company has paid regular quarterly cash dividends on its
common stock for an uninterrupted period of 20 years. Annual regular dividends
totaling 48 cents and 53 cents per share, respectively, have been paid on the
Company's Class A and Class B common stock since fiscal 1994.

ENVIRONMENTAL MATTERS. Concern for the environment has been a fundamental part
of the Company's operating philosophy for many years. In the ordinary course of
conducting its business, the Company incurs costs - both expensed and
capitalized - to preserve and protect the environment. As public concern for
the environment has grown, new environmental laws have been enacted, more
stringent regulations have been implemented and enforcement of existing
controls has been strengthened. The Company considers the cost of environmental
protection a necessary and manageable part of its business. To date, the
Company has not been faced with major cleanup obligations and has been able to
conform with environmental regulations without materially altering its
operating strategies.

The Company estimates that expenditures totaling approximately $7
million annually will be made over the next two or three years by its energy
operations to comply with environmental regulations. These costs consist
principally of third party charges for services, equipment and testing. Actual
expenditures for new permitting and monitoring requirements of the Federal
Clean Air Act Amendments of 1990 may differ from the estimated amounts when
several long-anticipated regulations are issued in final form, but the
differences are not expected to be significant. The estimates include some
facility-closure and remediation costs related to recently acquired assets.

Nevertheless, while it is not possible to fully anticipate all of the
financial obligations or operating constraints that might ultimately result
from increasingly stringent environmental regulations and enforcement programs,
management believes the Company is well-positioned within the industries in
which it competes to deal with environmental protection requirements.
Furthermore, demand for clean-burning natural gas, the cornerstone of the
Company's energy operations, is likely to benefit from increasing environmental
awareness.

OTHER. Like others, the Company is facing computer systems problems caused by
the approaching turn of the century, which has been dubbed the "Year 2000
problem." In addition to affecting mainframe and mid-range computer systems,
this problem potentially impacts computer chips integrated into security, plant
automation and pipeline control systems. For some time the Company has been
conducting reviews to determine where modifications are necessary and whether
such changes can best be made in-house or by software vendors. It has
established schedules for completing in-house work during fiscal 1999 and has
begun contacting applicable vendors to determine the status of their Year 2000
conversion efforts. The Company believes that its computer systems will be Year
2000 compliant on a timely basis. Further, it is believed that this will be
accomplished without incurring costs that are material to the Company's
financial position or results of operations.

34
<PAGE> 37
OPERATING STATISTICS

Certain operating statistics (including, where applicable, proportional
interests in equity partnerships) for fiscal 1998, 1997 and 1996 follow:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
AVERAGE DAILY VOLUMES
Natural gas sales (Mcf) .................. 238,200 228,500 216,200
Crude oil and condensate sales (Bbls) .... 6,200 5,500 5,400
Natural gas liquids produced (Bbls) ...... 45,300 46,100 46,400
Pipeline throughput (Mcf) ................ 426,000 410,000 354,000

AVERAGE SALES PRICES
Natural gas (per Mcf) .................... $ 2.47 $ 2.64 $ 2.16
Crude oil and condensate (per Bbl) ....... 18.50 21.50 16.91
Natural gas liquids produced (per Bbl) ... 13.38 16.13 11.55
</TABLE>

QUARTERLY STOCK DATA

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

(per-share amounts)

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
MARKET PRICE RANGE - FISCAL 1998
Class A - High ............................. $23.63 $24.06 $29.75 $29.63
Low .............................. 18.25 19.13 22.75 25.25
Class B - High ............................. 23.50 24.13 29.50 29.38
Low .............................. 18.75 18.75 23.44 25.06

MARKET PRICE RANGE - FISCAL 1997
Class A - High ............................. $18.50 $20.38 $20.63 $23.63
Low .............................. 15.88 15.50 17.00 19.75
Class B - High ............................. 18.50 20.25 21.25 23.50
Low .............................. 15.75 15.75 17.38 20.00

CASH DIVIDENDS PER SHARE - FISCAL 1998
Class A ....................................... 12c. 12c. 12c. 36c.*
Class B ....................................... 13 1/4 13 1/4 13 1/4 39 1/4*

CASH DIVIDENDS PER SHARE - FISCAL 1997
Class A ....................................... 12c. 12c. 12c. 12c.
Class B ....................................... 13 1/4 13 1/4 13 1/4 13 1/4
</TABLE>

- -----------------------

* Includes special dividends (24 cents on Class A and 26 1/2 cents on Class B).

35
<PAGE> 38
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED WITH FISCAL 1997

Overview. The Company's operating results for periods through the second
quarter of fiscal 1998 have been restated to report the Company's previous real
estate activities as discontinued operations (see Consolidated Statements of
Earnings). The analysis included in the two Results of Operations sections
included herein focuses on the Company's earnings from continuing operations.

The Company's earnings from continuing operations for fiscal 1998 and 1997 -
both before and after unusual items - are summarized in the table which
follows. Largely because of lower energy prices, earnings from continuing
operations for fiscal 1998 of $37.8 million were $48.5 million below those of
the prior year. Excluding the impact of unusual items, such earnings totaled
$57.5 million in fiscal 1998, down $29.2 million from fiscal 1997's $86.7
million. The following table and discussion identify and explain the major
increases (decreases) in earnings (in millions):

<TABLE>
<CAPTION>
Segment Earnings from Con-
Operating Earnings tinuing Operations
------------------------ ------------------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FISCAL 1997 AMOUNTS AFTER UNUSUAL ITEMS ............... $ 80.8 $ 108.1 $ (55.1) $ 133.8 $ 86.3
ELIMINATE IMPACT OF FISCAL 1997 UNUSUAL ITEMS
(see bottom section of table on page 39) ............ .6 -- -- .6 .4
--------- --------- --------- --------- ---------

FISCAL 1997 AMOUNTS BEFORE UNUSUAL ITEMS .............. 81.4 108.1 (55.1) 134.4 86.7
--------- --------- --------- --------- ---------

MAJOR INCREASES (DECREASES)
Lower natural gas sales price ......................... (13.3) -- -- (13.3) (8.6)
Lower crude and condensate sales price ................ (6.5) -- -- (6.5) (4.2)
Higher natural gas sales volumes ...................... 3.7 -- -- 3.7 2.4
Higher crude and condensate sales volumes ............. 3.6 -- -- 3.6 2.3
Increased geological and geophysical costs ............ (6.6) -- -- (6.6) (4.3)
Natural gas processing
Price-related decreases in NGL margins .............. -- (27.4) -- (27.4) (17.8)
Lower NGL production volumes ........................ -- (2.9) -- (2.9) (1.9)
Lower NGL marketing earnings (primarily due to
declining prices early in fiscal 1998 versus
rising prices late in fiscal 1997) ................ -- (6.0) -- (6.0) (3.9)
Increased operating expenses (principally
repairs and maintenance at the Bridgeport plant) .. -- (6.0) -- (6.0) (3.9)
Gas gathering and marketing ........................... -- (5.6) -- (5.6) (3.6)
Equity in earnings of MTBE plant partnership .......... -- 1.5 -- 1.5 1.0
Increased interest expense
attributable to continuing operations ............... -- -- (4.6) (4.6) (3.0)
Interest income on excess cash balances ............... -- -- 8.2 8.2 5.3
Gains on venture capital investments .................. -- -- 5.4 5.4 3.5
Lower effective income tax rate ....................... -- -- -- -- 5.3
Other, net ............................................ .2 1.8 1.4 3.4 2.2
--------- --------- --------- --------- ---------

(18.9) (44.6) 10.4 (53.1) (29.2)
--------- --------- --------- --------- ---------

FISCAL 1998 AMOUNTS BEFORE UNUSUAL ITEM ............... 62.5 63.5 (44.7) 81.3 57.5
--------- --------- --------- --------- ---------

FISCAL 1998 UNUSUAL ITEMS (See Note 10 of
Notes to Consolidated Financial Statements)
Royalty litigation settlement provision ............... -- (26.0) -- (26.0) (16.9)
Water well litigation provision (see page 51) ......... (7.0) -- -- (7.0) (4.3)
Gain from sale of remaining contract drilling assets .. 2.4 -- -- 2.4 1.5
--------- --------- --------- --------- ---------

(4.6) (26.0) -- (30.6) (19.7)
--------- --------- --------- --------- ---------

FISCAL 1998 AMOUNTS AFTER UNUSUAL ITEMS ............... $ 57.9 $ 37.5 $ (44.7) $ 50.7 $ 37.8
========= ========= ========= ========= =========
</TABLE>

- ------------------------

* Includes general and administrative expense and other expense.

36
<PAGE> 39
Exploration and Production Overview. Exclusive of unusual items, exploration
and production segment operating earnings of $62.5 million during fiscal 1998
were $18.9 million below the $81.4 million of the prior year largely as a
result of lower sales prices for natural gas and crude and condensate in fiscal
1998. Also contributing to the fiscal 1998 earnings decline were increased
expenditures for seismic surveys. The Company increased its natural gas
production by 4% in fiscal 1998 despite problems that held back production
gains in the first and second quarters.

Lower natural gas sales price ($13.3 million decrease). The Company's natural
gas sales price during fiscal 1998 averaged $2.47 per Mcf, $.17 below the $2.64
of the prior year, reducing operating earnings by $13.3 million. Natural gas
prices were unusually volatile in fiscal 1998, suggesting that supply and
demand are closely balanced. Accordingly, it seems probable that this price
volatility will carry over into fiscal 1999.

Lower crude and condensate sales price ($6.5 million decrease). The Company's
sales price for crude and condensate averaged $18.50 per barrel in fiscal 1998,
down from the prior year's $21.50, reducing operating earnings by $6.5 million.

Higher natural gas sales volumes ($3.7 million increase). Natural gas sales
volumes averaged 238.2 MMcf per day during fiscal 1998, up from 228.5 MMcf
during fiscal 1997, increasing operating earnings by $3.7 million. The increase
was principally related to activities in the Lake Creek and North Personville
fields.

Higher crude and condensate sales volumes ($3.6 million increase). The
Company's production of crude oil and condensate increased 700 barrels per day
(12.7%) in fiscal 1998, increasing operating earnings by $3.6 million. This
occurred largely because of drilling in Throckmorton County (North Texas) and
Lake Creek and enhanced recovery projects in West Texas.

Increased geological and geophysical costs ($6.6 million decrease). During
fiscal 1998, the Company stepped-up its exploration program, particularly
increasing expenditures for 3-D seismic surveys to identify new reserves in
unexplored areas and to locate additional reserves in areas already well-worked
by the Company and others. As a result, geological and geophysical costs rose
$6.6 million (64%) in fiscal 1998. While such expenditures reduce current
earnings, it is believed that they will make important contributions to the
Company's longer-term results.

Gas Services Overview. Gas services operating earnings before unusual items
declined $44.6 million to $63.5 million during fiscal 1998 principally because
of price-related reductions in earnings from gas processing and gas gathering
and marketing operations. Also contributing to the earnings decline were volume
reductions resulting from normal field decline of the natural gas wells
connected to the 45%-owned Texas Austin Chalk rich-gas system. Besides reducing
this system's throughput, this also lowered the NGL volumes extracted at gas
processing plants located on the system.

Natural gas processing - Price-related decreases in NGL margins ($27.4 million
decrease). The average price for NGLs produced during fiscal 1998 of $13.38 per
barrel was 17% below the prior period's $16.13, decreasing NGL revenues by
$44.2 million. Partially offsetting the impact of this on NGL margins was a
$16.8 million decline in feedstock costs, which occurred because of
NGL-price-related reductions in producer payments and fuel and shrinkage cost
reductions associated with fiscal 1998's lower natural gas prices.

Natural gas processing - Lower NGL production volumes ($2.9 million decrease).
NGL production volumes averaged 45,300 barrels per day, down from fiscal 1997's
46,100, reducing operating earnings by $2.9 million. This decline was
principally due to reduced inlet volumes at plants which process gas gathered
by the Austin Chalk rich-gas system.

Gas gathering and marketing ($5.6 million decrease). This variance was primarily
due to lower gas gathering and marketing margins in fiscal 1998. This occurred
largely because those margins did not benefit from unusual upward movements in
natural gas prices as fiscal 1997's had (particularly in the fourth quarter when
prices rose to near-record levels because of unusually cold weather throughout
much of the United States at a time when natural gas storage levels were
relatively low).

37
<PAGE> 40
Equity in earnings of MTBE plant partnership ($1.5 million increase). This
variance resulted primarily from a $.7 million increase in operating income
because of much less downtime for maintenance in fiscal 1998 (13 days versus
70) and a $.9 million decline in interest expense occurring largely because of
ongoing quarterly repayments of the partnership's debt.

Other

Increased interest expense attributable to continuing operations ($4.6 million
decrease). Interest was charged to discontinued real estate operations for only
six months in fiscal 1998 versus a full year in fiscal 1997. Primarily because
of this, the amount attributable to discontinued operations declined from $34
million to $15.1 million, thus shifting $18.9 million to the amount
attributable to continuing operations. Largely offsetting this increase,
however, was a $14.3 million decline in fiscal 1998's total interest expense
that resulted from a $201.4 million lower average debt balance. The debt
balance decline occurred primarily because of senior note repayments ($100
million in February and $185.7 million in the third quarter using some of the
TWC sales proceeds) and the retirement of a $30 million term loan on January
28, 1997.

Interest income on excess cash balances ($8.2 million increase). During the
last half of fiscal 1998, the Company temporarily invested the substantial
available proceeds from the TWC sale in short-term investments of the highest
quality. Primarily because of the income from these investments, the Company
earned interest income of $8.9 million in fiscal 1998, or $8.2 million more
than in the previous year.

Lower effective income tax rate ($5.3 million net earnings increase). Largely
because of reductions of deferred state tax liabilities related to a
reorganization late in fiscal 1998 of the legal structure under which gas
services operations are conducted, the Company's effective income tax rate on
earnings from continuing operations was 25.4% in fiscal 1998, down from fiscal
1997's 35.5%.

RESULTS OF OPERATIONS - FISCAL 1997 COMPARED WITH FISCAL 1996

Overview. Excluding the effects of unusual items, fiscal 1997's earnings from
continuing operations of $86.7 million were $63.0 million above the $23.7
million of the prior year, which included five months of sales under the
high-priced North Texas gas sales contract. The substantial earnings
improvement was the result of higher market prices for all energy products,
increased natural gas sales volumes, improved margins in gas gathering and
marketing and restructuring-related reductions in operating and interest
expenses.

38
<PAGE> 41
The following table and discussion identify and explain the major increases
(decreases) in earnings (in millions):

<TABLE>
<CAPTION>
Segment Earnings from Con-
Operating Earnings tinuing Operations
------------------------ ------------------------
Exploration Before
and Gas Income After
Production Services Other* Taxes Tax
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FISCAL 1996 AMOUNTS AFTER UNUSUAL ITEMS ................. $ 223.4 $ (2.2) $ (65.1) $ 156.1 $ 100.7
--------- --------- --------- --------- ---------

ELIMINATE IMPACT OF FISCAL 1996 UNUSUAL ITEMS (see
Note 10 of Notes to Consolidated Financial Statements)
Gain from Natural contract buyout ....................... (205.3) -- -- (205.3) (127.3)
Gas services and corporate asset write-downs ............ -- 52.7 2.7 55.4 34.4
Personnel reduction program costs ....................... 7.9 3.6 4.5 16.0 9.9
Water well litigation provision (see page 51) ........... 15.0 -- -- 15.0 9.3
Gains from sale of energy assets ........................ (5.3) -- -- (5.3) (3.3)
--------- --------- --------- --------- ---------

(187.7) 56.3 7.2 (124.2) (77.0)
--------- --------- --------- --------- ---------

FISCAL 1996 AMOUNTS BEFORE UNUSUAL ITEMS ................ 35.7 54.1 (57.9) 31.9 23.7
--------- --------- --------- --------- ---------

MAJOR INCREASES (DECREASES)
Natural gas
Contract buyout ....................................... (23.1) -- -- (23.1) (15.0)
Higher sales price .................................... 59.6 -- -- 59.6 38.7
Higher sales volumes .................................. 5.3 -- -- 5.3 3.4
Higher crude and condensate sales price ................. 8.8 -- -- 8.8 5.7
Reduced proved-property impairments ..................... 8.4 -- -- 8.4 5.5
Amortization of deferred gas contract
restructuring proceeds (none versus $4.4) ............. (4.4) -- -- (4.4) (2.9)
Higher exploratory dry-hole costs ($7.6 versus $3.3) .... (4.3) -- -- (4.3) (2.8)
Natural gas processing
Price-related increases in NGL margins ................ -- 27.9 -- 27.9 18.1
Other, net (principally expense reductions
caused by previous restructuring activities) ........ -- 10.2 -- 10.2 6.6
Gas gathering and marketing
Higher gross profits .................................. -- 10.7 -- 10.7 7.0

Other, net (principally expense reductions
caused by previous restructuring activities) ........ -- 2.8 -- 2.8 1.8
Equity in earnings of
fractionation plant partnership ....................... -- 1.8 -- 1.8 1.2
Interest expense incurred ............................... -- -- 4.0 4.0 2.6
Higher effective tax rate ............................... -- -- -- -- (3.5)
Other, net .............................................. (4.6) .6 (1.2) (5.2) (3.4)
--------- --------- --------- --------- ---------

45.7 54.0 2.8 102.5 63.0
--------- --------- --------- --------- ---------

FISCAL 1997 AMOUNTS BEFORE UNUSUAL ITEMS ................ 81.4 108.1 (55.1) 134.4 86.7
--------- --------- --------- --------- ---------

FISCAL 1997 UNUSUAL ITEMS (see Note 10 of
Notes to Consolidated Financial Statements)
Water well litigation provision (see page 51) ........... (10.0) -- -- (10.0) (6.2)
Severance tax refunds ................................... 5.9 -- -- 5.9 3.7
Columbia Gas contract settlement proceeds ............... 3.5 -- -- 3.5 2.1
--------- --------- --------- --------- ---------
(.6) -- -- (.6) (.4)
--------- --------- --------- --------- ---------

FISCAL 1997 AMOUNTS AFTER UNUSUAL ITEMS ................. $ 80.8 $ 108.1 $ (55.1) $ 133.8 $ 86.3
========= ========= ========= ========= =========
</TABLE>

- --------------------

* Includes general and administrative expense and other expense.

39
<PAGE> 42
Exploration and Production Overview. Excluding unusual items, fiscal 1997
exploration and production segment operating earnings of $81.4 million were
$45.7 million above the $35.7 million of the prior year. Higher commodity
prices were the principal cause of the improvement. Realizations from
market-sensitive natural gas sales rose to such an extent that they more than
overcame the $23.1 million negative year-to-year operating earnings impact of
no longer having sales under the high-priced North Texas gas sales contract.

Natural gas - Contract buyout ($23.1 million decrease). Effective with a July
1, 1995 contract buyout, the Company began receiving market-sensitive prices
for approximately 80 MMcf per day of North Texas residue gas previously sold at
a substantially higher contract price of $4.00 per MMBtu. As a result, North
Texas gas sales revenues for the first five months of fiscal 1997 were
substantially less than they had been in the prior-year period. The Company's
realizations for its North Texas gas previously sold to Natural averaged $2.01
per MMBtu during the first five months of fiscal 1997, and consequently
operating earnings on a period-to-period basis were lowered by $23.1 million.

Natural gas - Higher sales price ($59.6 million increase). The Company's
natural gas sales price averaged $2.64 per Mcf during fiscal 1997, 53% higher
than the $1.72 realized during the prior year on non-Natural-contract sales,
increasing operating earnings by $59.6 million. The higher prices were the
consequence of cold weather in the winter of 1995/96 and relatively low gas
storage inventories thereafter until nearly the end of the 1996/97 heating
season.

Natural gas - Higher sales volumes ($5.3 million increase). Natural gas sales
volumes averaged 228.5 MMcf per day during fiscal 1997, up from 216.2 during
fiscal 1996. The Company's drilling and recompletion activities in North Texas
and at the recently acquired Lake Creek field were the principal causes of this
increase.

Higher crude and condensate sales price ($8.8 million increase). The average
sales price for crude and condensate during fiscal 1997 was $21.50 per barrel,
up 27% from the $16.91 of fiscal 1996, improving operating earnings by $8.8
million.

Reduced proved-property impairments ($8.4 million increase). Fiscal 1997
impairment charges totaled $3.1 million, $8.4 million less than fiscal 1996's
$11.5 million. Fiscal 1996 impairments, which related to five fields, occurred
principally because of downward revisions in reserve and price estimates and
disappointing fiscal 1996 drilling results for certain of these fields.

Gas Services Overview. Excluding unusual items, gas services segment operating
earnings rose $54.0 million (to $108.1 million) in fiscal 1997 as gas
processing earnings increased by $38.1 million and gas gathering and marketing
earnings were $13.5 million higher. Gas processing margins were much higher
primarily because NGL prices rose at a faster rate than natural gas feedstock
costs. Also contributing substantially to the improved gas processing earnings
were cost reductions resulting from the Company's previous refocusing efforts.
Price-related increases in margins and restructuring-related expense reductions
were the principal causes of the higher gas gathering and marketing earnings.
Increased earnings from the Company's interests in a fractionation plant
partnership also contributed to the gas services earnings improvement. NGL
production volumes averaged 46,100 barrels per day, down slightly from the
prior year's 46,400 principally because of the December 1, 1995 sale of three
plants, which added 1,800 barrels per day to the fiscal 1996 average.

Natural gas processing - Price-related increases in NGL margins ($27.9 million
increase). NGL margins rose substantially during fiscal 1997 as low
inventories, coupled with strong demand for chemical feedstocks, caused NGL
prices to rise significantly. The average price for NGLs produced during fiscal
1997 of $16.13 per barrel was $4.58 (40%) above the prior year's average,
increasing NGL revenues by $75.8 million. The earnings impact of this favorable
variance was partially offset by price-related increases in NGL feedstock
costs. Such costs, which consist primarily of amounts paid to the natural gas
producers, are based either on the value of natural gas consumed in processing
under keep-whole agreements or on a percent of the value of NGLs produced under
percent-of-proceeds agreements. Accordingly, feedstock costs under keep-whole
agreements vary directly with market-sensitive natural gas prices while costs
under percent-of-proceeds agreements vary directly with NGL prices. Largely
because of higher prices for market-sensitive gas and NGLs, fiscal 1997
feedstock costs were increased by $47.9 million, resulting in a net
price-related improvement in the Company's NGL margins of $27.9 million.

40
<PAGE> 43
Gas gathering and marketing - Higher gross profits ($10.7 million increase).
Substantially improved markets for natural gas during fiscal 1997 resulted in
significant improvements in margins for the Company's gas gathering and
marketing activities. A substantial portion of the natural gas supply costs of
these activities is based on beginning-of-the-month market index prices or
fixed prices. Fiscal 1997's generally rising natural gas price trend and sharp
upward spikes in these prices during some months in the first and fourth
quarters caused the profit margins for these activities to increase.
Additionally, daily average pipeline throughput rose 16% in fiscal 1997 to
410,000 Mcf per day. Most of this increase was attributable to a 45%-owned
gathering system serving the Austin Chalk area of East Central Texas, where
throughput volumes rose because of an expansion of that system that was
completed late in fiscal 1996.

Equity in earnings of fractionation plant partnership ($1.8 million increase).
The Company's equity in the earnings of Gulf Coast Fractionators totaled $3.6
million during fiscal 1997, or $1.8 million more than during fiscal 1996. A
volume-related increase in fractionation fees was the principal cause of the
plant's higher earnings.

Other

Interest expense incurred ($4.0 million increase). Interest expense incurred
was $4.0 million lower during fiscal 1997 because of a $55.0 million decline in
the average balance of debt outstanding. This occurred primarily because of
paydowns using proceeds received in July 1995 and February 1996 from the
Natural contract buyout.

UNAUDITED QUARTERLY FINANCIAL DATA (RESTATED)(a)

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL 1998
Revenues ..................................... $ 169,731 $ 175,602 $ 224,125 $ 221,044
Segment operating earnings ................... 26,259(b)(c) (971)(d) 38,685 31,441
Earnings from continuing operations .......... 10,721 (7,461) 17,735 16,831
Discontinued real estate operations .......... 5,756 (65,439) -- --
Extraordinary item (after tax) ............... -- -- (13,250) --
Net earnings (loss) .......................... 16,477 (72,900) 4,485 16,831
Basic and diluted earnings (loss) per share
Class A - From continuing operations ....... .20 (.15) .35 .32
Net earnings (loss) .............. .31 (1.41) .08 .32
Class B - From continuing operations ....... .21 (.14) .36 .35
Net earnings (loss) .............. .32 (1.40) .10 .35

FISCAL 1997
Revenues ..................................... $ 199,081 $ 196,927 $ 199,010 $ 311,659
Segment operating earnings ................... 42,393(e)(f) 37,309(e) 30,475(c) 78,730
Earnings from continuing operations .......... 19,831 16,414 10,882 39,174
Discontinued real estate operations .......... 3,418 4,380 8,041 1,086
Net earnings ................................. 23,249 20,794 18,923 40,260
Basic and diluted earnings per share
Class A - From continuing operations ....... .37 .31 .20 .75
Net earnings ..................... .44 .39 .36 .77
Class B - From continuing operations ....... .39 .32 .22 .76
Net earnings ..................... .45 .41 .37 .78
</TABLE>

- ----------------

(a) The Company withdrew from the real estate business during fiscal 1998
and began reporting these activities as discontinued operations.
Prior-period financial information was restated.

(b) Includes a gain of $2,382 from the sale of contract drilling assets.

(c) Reduced by water well litigation provisions of $7,000 in fiscal 1998's
first quarter and $10,000 in fiscal 1997's third quarter.

(d) Reduced by royalty litigation provision of $26,000 in fiscal 1998's
second quarter.

(e) Included severance tax refunds of $3,879 and $2,056 in fiscal 1997's
first and second quarters.

(f) Includes $3,444 in proceeds from settlement of natural gas contract
dispute with Columbia Gas Transmission Company.

41
<PAGE> 44
CONSOLIDATED BALANCE SHEETS

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

January 31, 1998 and 1997 (dollar amounts in thousands)

<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS (Note 3)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................... $ 105,309 $ 75,825
Trade receivables, net of allowance for
doubtful accounts of $326 and $333 ....... 113,285 149,585
Gas contract buyout receivable .............. -- 91,000
Inventories ................................. 14,479 10,072
Net Assets of Discontinued
Real Estate Operations (Note 3) .......... 26,056 --
Other ....................................... 8,591 8,864
----------- -----------
Total current assets ................... 267,720 335,346

PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation, depletion and
amortization of $1,331,139 and $1,337,041
(Note 2) ................................. 954,667 775,929
NET ASSETS OF DISCONTINUED
REAL ESTATE OPERATIONS (Note 3) .......... -- 520,484
LONG-TERM INVESTMENTS AND OTHER ASSETS ...... 29,586 36,513
----------- -----------
$ 1,251,973 $ 1,668,272
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........ $ -- $ 100,000
Oil and gas proceeds payable ................ 94,661 141,076
Accounts payable ............................ 55,119 44,586
Accrued liabilities ......................... 48,969 63,325
----------- -----------
Total current liabilities .............. 198,749 348,987
----------- -----------

LONG-TERM DEBT (Note 5) ..................... 414,267 600,000
----------- -----------

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes (Note 6) .............. 167,903 109,459
Retirement obligations and other ............ 58,128 54,539
----------- -----------
226,031 163,998
----------- -----------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)

STOCKHOLDERS' EQUITY (Note 11)
Preferred stock, $.10 par value
(authorized 10,000,000 shares;
none issued)
Common stock, $.10 par value
(authorized 100,000,000 Class A
and 100,000,000 Class B shares) ......... 5,386 5,386
Additional paid-in capital .................. 143,525 143,343
Retained earnings ........................... 361,905 435,165
Treasury stock, at cost ..................... (97,890) (28,607)
----------- -----------
412,926 555,287
----------- -----------
$ 1,251,973 $ 1,668,272
=========== ===========
</TABLE>

- ----------------
The accompanying notes are an integral part of these financial statements.

<PAGE> 45

CONSOLIDATED STATEMENTS OF EARNINGS

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

For the Years Ended January 31, 1998, 1997 and 1996 (in thousands except
per-share amounts)

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
REVENUES (Note 3) (Note 3)
<S> <C> <C> <C>
Exploration and production,
including gain on natural
gas contract buyout of
$205,256 in 1996 (Note 10) ... $ 262,432 $ 269,862 $ 424,661
Gas services .................... 528,070 636,815 478,258
--------- --------- ---------
790,502 906,677 902,919
--------- --------- ---------
OPERATING COSTS AND EXPENSES
(including personnel
reduction program costs of
$11,535 in 1996 - Note 10)
Exploration and production,
including litigation provisions
of $7,000; $10,000 and $15,000
(Note 7) ...................... 204,522 189,051 201,227
Gas services, including
litigation provision of
$26,000 in 1998 and asset
write-downs/restructuring
charges of $52,715 in 1996
(Note 10) .................... 490,566 528,719 480,457
--------- --------- ---------
695,088 717,770 681,684
--------- --------- ---------
SEGMENT OPERATING EARNINGS
(Note 10) .................... 95,414 188,907 221,235
General and administrative
expense, including personnel
reduction program costs of
$4,532 in 1996 ............... 31,978 30,823 35,760
--------- --------- ---------
TOTAL OPERATING EARNINGS ........ 63,436 158,084 185,475
--------- --------- ---------
OTHER EXPENSE
Interest expense
Total ........................ 42,531 56,782 60,759
Attributable to discontinued
operations ................ (15,112) (34,007) (33,418)
--------- --------- ---------
Attributable to continuing
operations ................ 27,419 22,775 27,341
Interest income ................. (8,899) (650) (111)
Other, net ...................... (5,819) 2,202 2,113
--------- --------- ---------
12,701 24,327 29,343
--------- --------- ---------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES ........................ 50,735 133,757 156,132
INCOME TAXES (Note 6) ........... 12,909 47,456 55,420
--------- --------- ---------
EARNINGS FROM CONTINUING
OPERATIONS ................... 37,826 86,301 100,712
--------- --------- ---------
DISCONTINUED REAL ESTATE
OPERATIONS (Note 3)
Earnings (loss) from operations,
net of income taxes of $4,071;
$8,914 and $(34,218) ......... 7,440 16,925 (63,583)
Loss on sale, net of income tax
benefit of $25,878 ........... (67,123) -- --
--------- --------- ---------
(59,683) 16,925 (63,583)
--------- --------- ---------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM ........... (21,857) 103,226 37,129
Extraordinary Item -
Extinguishment of debt, net
of income tax benefit of
$7,135 (Note 5) .............. (13,250) -- --
--------- --------- ---------
NET EARNINGS (LOSS) ............. $ (35,107) $ 103,226 $ 37,129
========= ========= =========
BASIC AND DILUTED EARNINGS PER
SHARE (Note 13)
Class A - Earnings from
continuing operations ........ $ .71 $ 1.64 $ 1.91
Net earnings (loss) .......... (.66) 1.96 .69
Class B -Earnings from
continuing operations ........ .77 1.68 1.96
Net earnings (loss) ............. (.72) 2.01 .74
AVERAGE COMMON SHARES
OUTSTANDING (Basic) -
Class A ............ 22,714 23,092 23,217
Class B ............ 27,989 28,786 28,827
</TABLE>

- ----------------
The accompanying notes are an integral part of these financial statements.

<PAGE> 46
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

For the Years Ended January 31, 1998, 1997 and 1996 (dollar amounts in
thousands)

<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
DOLLAR AMOUNTS Stock Capital Earnings Stock Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1995 ... $ 5,386 $ 143,472 $ 347,573 $ (21,401) $ 475,030
Net earnings ................ -- -- 37,129 -- 37,129
Cash dividends (48 cents
per share on Class A
and 53 cents per share
on Class B) .............. -- -- (26,421) -- (26,421)
Treasury stock purchases .... -- -- -- (4,227) (4,227)
Exercises of stock options -- (202) -- 594 392
--------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1996 ... 5,386 143,270 358,281 (25,034) 481,903
Net earnings ................ -- -- 103,226 -- 103,226
Cash dividends (48 cents
per share on Class A
and 53 cents per share
on Class B) .............. -- -- (26,342) -- (26,342)
Treasury stock purchases .... -- -- -- (3,917) (3,917)
Exercises of stock
options .................. -- 73 -- 344 417
--------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1997 ... 5,386 143,343 435,165 (28,607) 555,287
Net loss .................... -- -- (35,107) -- (35,107)
Regular cash dividends (48
cents per share on Class
A and 53 cents per share
on Class B) .............. -- -- (25,691) -- (25,691)
Special cash dividends
(24 cents per share on
Class A and 26.5 cents
per share on Class B) ..... -- -- (12,462) -- (12,462)
Treasury stock purchases
(Note 14) ................ -- -- -- (72,465) (72,465)
Exercises of stock
options ................... -- 182 -- 3,182 3,364
--------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 1998 ... $ 5,386 $ 143,525 $ 361,905 $ (97,890) $ 412,926
========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Outstanding Shares
------------------------- ---------------------- -------------------------
SHARE AMOUNTS Class A Class B Class A Class B Class A Class B
---------- ---------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1995 ... 23,978,104 29,878,104 677,577 896,478 23,300,527 28,981,626
Treasury stock
purchases .......... -- -- 94,100 173,500 (94,100) (173,500)
Exercises of stock
options ............ -- -- (21,398) (23,921) 21,398 23,921
Other ............... (9) (9) -- -- (9) (9)
---------- ---------- ------- ------- ---------- ----------
BALANCE,
JANUARY 31, 1996 ... 23,978,095 29,878,095 750,279 1,046,057 23,227,816 28,832,038
Treasury stock
purchases .......... -- -- 179,000 64,400 (179,000) (64,400)
Exercises of
stock options ...... -- -- (6,850) (17,499) 6,850 17,499
Other ............... (7) (7) -- -- (7) (7)
---------- ---------- ------- ------- ---------- ----------
BALANCE,
JANUARY 31, 1997 ... 23,978,088 29,878,088 922,429 1,092,958 23,055,659 28,785,130
Treasury stock
purchases .......... -- -- 745,000 2,219,200 (745,000) (2,219,200)
Exercises of
stock options ...... -- -- (10,492) (158,341) 10,492 158,341
Other ............... (7) (7) -- -- (7) (7)
---------- ---------- ------- ------- ---------- ----------
BALANCE,
JANUARY 31, 1998 ... 23,978,081 29,878,081 1,656,937 3,153,817 22,321,144 26,724,264
========== ========== ========= ========= ========== ==========
</TABLE>

- -----------------
The accompanying notes are an integral part of these financial statements.

<PAGE> 47

CONSOLIDATED STATEMENTS OF CASH FLOWS

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

For the Years Ended January 31, 1998, 1997 and 1996 (in thousands)

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Note 3) (Note 3)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Earnings from continuing operations .................... $ 37,826 $ 86,301 $ 100,712
Adjustments to reconcile earnings from continuing
operations to cash provided by operating activities
Depreciation, depletion and amortization .............. 105,613 99,067 151,373
Exploration expenses, including dry-hole costs ........ 22,376 18,051 14,752
Deferred income taxes ................................. 15,329 42,781 29,508
Distributions in excess of (less than)
earnings of equity investees ......................... (554) (3,528) 4,938
Non-cash portion of natural gas contract buyout gain .. -- -- (162,689)
Gains from sales of property, plant and equipment ..... (2,382) -- (5,338)
Litigation provisions ................................. 33,000 10,000 15,000
Accrued personnel reduction
program/restructuring costs .......................... -- -- 8,797
Other, net ............................................ (4,853) 5,657 4,131
--------- --------- ---------
206,355 258,329 161,184
Changes in operating assets and liabilities
Receivables ........................................... 127,586 33,470 30,272
Inventories ........................................... (4,407) 884 783
Payables .............................................. (44,753) 21,023 5,294
Accrued liabilities and other ......................... (46,464) 850 1,527
--------- --------- ---------
Cash provided by operating activities ................. 238,317 314,556 199,060
--------- --------- ---------
INVESTING ACTIVITIES
Capital and exploratory expenditures
Total on accrual basis ................................. (258,292) (175,826) (186,093)
Adjustment to cash basis .............................. 6,762 5,688 (2,234)
--------- --------- ---------
(251,530) (170,138) (188,327)
Net proceeds from sale of The Woodlands Corporation .... 480,994 -- --
Repayments of off-balance-sheet partnership debt ....... (43,827) -- --
Proceeds from sales of property, plant and equipment ... 6,903 8,842 39,747
Acquisition of leased equipment ........................ -- (6,995) (9,167)
Other, net ............................................. 6,930 (7,851) (1,426)
--------- --------- ---------
Cash provided by (used for) investing activities ...... 199,470 (176,142) (159,173)
--------- --------- ---------
FINANCING ACTIVITIES
Debt repayments ........................................ (285,733) (95,000) (44,680)
Proceeds from issuance of debt ......................... -- -- 50,000
Cash dividends (including special
dividends of $12,462 in 1998) ......................... (38,153) (26,342) (26,421)
Treasury stock purchases ............................... (72,465) (3,917) (4,227)
Other (including debt reacquisition
costs of $19,294 in 1998) ............................. (17,487) (1,142) (576)
--------- --------- ---------
Cash used for financing activities .................... (413,838) (126,401) (25,904)
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS
FROM CONTINUING OPERATIONS ............................ 23,949 12,013 13,983
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS .... 5,535 45,945 (5,462)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........... 75,825 17,867 9,346
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ................. $ 105,309 $ 75,825 $ 17,867
========= ========= =========
</TABLE>

- ------------
The accompanying notes are an integral part of these financial statements.

45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

JANUARY 31, 1998, 1997 AND 1996

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation. The consolidated financial statements include the
accounts of Mitchell Energy & Development Corp. and its majority-owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions are eliminated in consolidation. The Company follows the equity
method of accounting for investments in 20%- to 50%-owned entities.

Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Property, plant and equipment. The Company's exploration and production
activities are accounted for using the "successful efforts" method. Lease
acquisition costs are capitalized as are costs to drill and equip development
wells, including unsuccessful ones. Exploratory drilling costs are initially
capitalized; if proved reserves are not found, such costs are subsequently
expensed. Geological and geophysical costs and other exploration costs are
charged to expense as incurred.

The Company currently holds no unproved leases whose costs are
individually significant. The aggregate cost of individually insignificant
unproved leaseholds estimated to be non-productive is amortized on a
straight-line basis over estimated holding periods based on historical
experience. As unproved properties are determined to be productive, the related
costs are transferred to proved oil and gas properties.

Other property, plant and equipment additions are recorded at cost and
depreciated on the straight-line method over the estimated service lives of the
various assets, which range from 3 to 25 years. Maintenance and repair costs are
charged to expense; costs of renewals and betterments are capitalized.

Depreciation, depletion and amortization (DD&A) of proved oil and gas
properties is determined on a field-by-field basis using physical units of
production. Estimated future costs of dismantlement, restoration and abandonment
are considered in determining DD&A expense. Long-lived assets held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When it is determined that an asset's estimated future net cash
flows will not be sufficient to recover its carrying amount, an impairment
charge is recorded to reduce the carrying amount for that asset to its estimated
fair value. Impairment assessments for proved oil and gas properties are made on
a field-by-field basis. Charges for impairments, which are included in DD&A
expense, totaled $1,640,000; $3,068,000 and $11,516,000 in fiscal 1998, 1997 and
1996.

Environmental expenditures. Liabilities for environmental expenditures are
recognized when it is probable that obligations have been incurred in amounts
that are material and reasonably estimable.

Statements of Cash Flows. Short-term investments with maturities of three months
or less are considered to be cash equivalents. The reported amounts for proceeds
from issuance of debt and debt repayments exclude the impact of borrowings with
initial terms of three months or less. Interest paid, including amounts
attributable to discontinued operations, totaled $45,030,000; $57,797,000 and
$60,043,000 during fiscal 1998, 1997 and 1996. Income taxes paid during these
periods, including amounts applicable to discontinued operations, totaled
$64,500,000 (a substantial portion of which was related to the taxable gain on
the sale of The Woodlands Corporation); $10,600,000 and $23,900,000. There were
no significant non-cash investing or financing activities during the three-year
period ended January 31, 1998.

<PAGE> 49

Comprehensive income disclosures. Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income," must be adopted during the Company's
fiscal year ending January 31, 1999. This statement is not expected to affect
the Company's financial reporting since it historically has had no items of
other comprehensive income.

NOTE 2 PROPERTY, PLANT AND EQUIPMENT

The cost and net book value of property, plant and equipment consisted of the
following at January 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
Cost Net Book Value
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EXPLORATION AND PRODUCTION
Oil and gas properties ............ $1,690,693 $1,625,903 $ 613,565 $ 537,992

Support equipment and facilities .. 48,467 58,483 18,407 22,485
---------- ---------- ---------- ----------

1,739,160 1,684,386 631,972 560,477
---------- ---------- ---------- ----------

GAS SERVICES (including investments
in equity partnerships) (Note 4)
Natural gas processing ............ 195,395 155,601 106,464 69,658
Natural gas gathering ............. 260,632 213,927 134,779 94,499
Other ............................. 74,757 43,595 73,689 42,634
---------- ---------- ---------- ----------
530,784 413,123 314,932 206,791
---------- ---------- ---------- ----------
Corporate ......................... 15,862 15,461 7,763 8,661
---------- ---------- ---------- ----------
$2,285,806 $2,112,970 $ 954,667 $ 775,929
========== ========== ========== ==========
</TABLE>

NOTE 3 DISCONTINUED REAL ESTATE OPERATIONS

On June 12, 1997, the Company entered into an agreement to sell its real estate
subsidiary, The Woodlands Corporation (TWC), to a partnership of Crescent Real
Estate Equities Company and Morgan Stanley Real Estate Fund II, L.P. for
$543,000,000 in cash. The transaction was subsequently closed on July 31, 1997.
In connection with the sale, the parent company forgave intercompany debt
payable to it by TWC. After adjustment for certain net additional amounts
received pursuant to the contract and deductions for income taxes and
transaction costs incurred by the Company in connection with the sale, net cash
sales proceeds totaled $480,994,000.

The Company decided to withdraw from the real estate business upon
entering into the definitive agreement to sell TWC on June 12, 1997 and
commenced reporting real estate activities as discontinued operations effective
that date. The Company's financial statements were revised to segregate the net
assets associated with the discontinued operations and to separately report
their results of operations. Prior-year financial statements were restated
similarly. Interest expense attributable to discontinued operations was
determined in the same manner that historically had been used to allocate such
costs to the Company's real estate operations. Revenues of the discontinued real
estate operations totaled $73,094,000 for the six-month period ended July 31,
1997 and $198,167,000 and $168,828,000 for the years ended January 31, 1997 and
1996. The net loss that resulted from the sale of TWC is summarized as follows
(in thousands):

<TABLE>
<S> <C>
Proceeds ..................................................... $551,376
Less - Net book value of assets sold ........................ 632,732
Transaction costs and expenses ....................... 11,645
--------
Pretax loss .................................................. 93,001
Income tax benefit ........................................... 25,878
--------
Net loss ..................................................... $ 67,123
========
</TABLE>

47
<PAGE> 50
Excluded from the TWC sales transaction were real estate assets located outside
The Woodlands that had been held for disposal with a book value at the time of
the sale of approximately $35,000,000, including deferred tax benefits.
Approximately $9,000,000 had been realized from disposals of these assets
through January 31, 1998, and efforts continue to liquidate the remaining
holdings.

NOTE 4 PARTNERSHIP INVESTMENTS

During the three-year period ended January 31, 1998, the Company's principal
partnership interests included the following (exclusive of those disposed of in
the TWC sale):

<TABLE>
<CAPTION>
Ownership
Percentage Nature of Operations
---------- ----------------------
<S> <C> <C>
Austin Chalk Natural Gas Marketing Services 45 Natural gas marketing
Belvieu Environmental Fuels 33.33 Production of MTBE
C&L Processors Partnership 50 Natural gas processing
Ferguson-Burleson County Gas Gathering System 45 Natural gas gathering
Gulf Coast Fractionators 38.75 Fractionation of
natural gas liquids
Louisiana Chalk Gathering System 50 Natural gas gathering
U. P. Bryan Plant 45 Natural gas processing
</TABLE>

The Company's net investment in each of these entities is reported as property,
plant and equipment in the consolidated balance sheets under the gas services
caption. The Company's equity in their pretax earnings is reported as revenues
in the consolidated statements of earnings under the gas services caption.

A summary of the Company's investments in partnerships at January 31, 1998
and 1997 and its equity in their pretax earnings for the years ended January 31,
1998, 1997 and 1996 follows (in thousands):

<TABLE>
<CAPTION>
Net Investment Equity in Pretax Earnings
--------------------- -----------------------------------
1998 1997 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Austin Chalk Natural Gas
Marketing Services ................ $ 670 $ 2,014 $ 2,662 $ 2,633 $ 973
Belvieu Environmental Fuels (BEF)... 41,300 31,174 10,126 8,472 8,116
C&L Processors Partnership ......... 51,945 21,433 2,908 7,831 429
Ferguson-Burleson County
Gas Gathering System .............. 43,863 53,164 3,262 9,953 7,913
Gulf Coast Fractionators (GCF) ..... 30,629 9,593 4,900 4,063 1,810
Louisiana Chalk Gathering System.... 19,053 4,754 (367) -- --
U.P. Bryan Plant ................... 6,738 6,973 3,525 8,976 7,669
Others ............................. 138 162 39 218 (205)
-------- -------- -------- -------- --------
$194,336 $129,267 $ 27,055 $ 42,146 $ 26,705
======== ======== ======== ======== ========
</TABLE>

Of these partnerships, only BEF had outstanding debt that is recourse to the
Company at January 31, 1998. On that date, BEF's bank loan had an outstanding
balance of $97,778,000, the Company's share of which totaled $32,593,000
($6,667,000 of which is recourse to the Company). The loan bears interest at
floating rates based on spreads over LIBOR and is due in quarterly installments
of $9,778,000 plus interest through May 2000. BEF owns a plant located at Mont
Belvieu, Texas with the capacity to produce up to 16,500 barrels per day of
MTBE, a gasoline additive that reduces carbon monoxide emissions. BEF has
entered into agreements which require each of the three partners to provide
one-third of the plant's isobutane feedstock and one of the partners, Sun
Company, Inc., to purchase all of its production for a period extending through
September 2004.

GCF owns an NGL fractionation plant at Mont Belvieu, Texas, with the
capacity to process up to 105,000 barrels per day of natural gas liquids. The
Company and its partners (Conoco, Inc. and NGC Corp.) have long-term contracts
with GCF for the fractionation of production from certain of their gas
processing plants.

48
<PAGE> 51
Financial statement information is generally reported on a one-month lag
for entities accounted for on the equity method. Summarized balance sheet
information (on a 100% basis) for these entities at January 31, 1998 and 1997
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets ................................. $114,301 $176,042
Net noncurrent assets .......................... 523,697 540,393
Current liabilities ............................ 72,436 124,856
Debt payable to third parties (including current
maturities of $59,064 and $71,611) ............ 151,606 269,848

Notes payable to owners (including $3,045 and
$2,045 payable to the Company) ................ 6,090 4,090
Owners' equity ................................. 407,866 317,641
</TABLE>

Summarized earnings information (on a 100% basis) for these entities for
the years ended January 31, 1998, 1997 and 1996 follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues ................................ $764,272 $814,394 $519,605
Operating earnings ...................... 87,845 117,290 83,278
Pretax earnings (before interest expense
for those entities whose activities are
funded by capital contributions of the
owners) ............................... 69,918 94,997 59,722
</TABLE>

NOTE 5 LONG-TERM DEBT

The Company's outstanding debt consists of unsecured parent company senior
notes, the proceeds of which have been advanced to the operating subsidiaries. A
summary of the outstanding senior notes at January 31, 1998 and 1997 follows
(in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
8%, due July 15, 1999 ............... $100,000 $100,000
9 1\4%, due January 15, 2002 ........ 64,267 250,000
6 3\4%, due February 15, 2004 ....... 250,000 250,000
5.10% (repaid on February 18, 1997).. -- 100,000
-------- --------
414,267 700,000
Less - Current maturities ........... -- 100,000
-------- --------
$414,267 $600,000
======== ========
</TABLE>

During fiscal 1998, the Company repurchased $185,733,000 face amount of its
9 1/4% senior notes due January 15, 2002. In connection with the repurchase,
costs of $20,385,000 were expensed, including cash costs of $19,294,000
associated with a tender offer for these notes and the write-off of $1,091,000
in deferred financing costs. After an income tax benefit of $7,135,000, an
extraordinary charge of $13,250,000 was recorded in connection with this
extinguishment of debt.

The Company has a committed $150,000,000 bank revolving credit facility
under which nothing was borrowed at January 31, 1998. Any amounts then
outstanding under this agreement are payable in January 2003. Interest rates,
which generally are based on spreads over LIBOR, vary based on the highest of
the ratings given the Company's senior notes by two specified rating agencies.
The Company compensates the banks for the unused portions of this facility by
paying commitment fees.

49
<PAGE> 52
The Company's senior notes have no sinking fund requirements and are not
redeemable prior to their respective maturity dates. The bank credit agreement
contains certain restrictions which, among other things, limit the payment of
dividends by requiring consolidated stockholders' equity to equal at least
$300,000,000 and require the maintenance of specified financial and oil and gas
reserve and/or asset value-to-debt ratios. Retained earnings available for the
payment of cash dividends totaled $111,012,000 at January 31, 1998. The bank
credit agreement and/or the senior notes indentures also limit the amounts of
additional borrowings and letters of credit, restrict the sale or lease of
certain assets and limit the right of the parent company and certain
subsidiaries to merge with other companies.

NOTE 6 INCOME TAXES

Income taxes applicable to earnings from continuing operations for the years
ended January 31, 1998, 1997 and 1996 consist of the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current - Federal.. $ (2,425) $ 1,689 $ 22,558
State ... 5 2,986 3,354
-------- -------- --------
(2,420) 4,675 25,912
-------- -------- --------
Deferred - Federal.. 19,033 40,883 26,773
State ... (3,704) 1,898 2,735
-------- -------- --------
15,329 42,781 29,508
-------- -------- --------
$ 12,909 $ 47,456 $ 55,420
======== ======== ========
</TABLE>

In fiscal 1998, as shown above, the Company recorded a state income tax benefit
of $3,699,000. This occurred principally because of a legal reorganization of
the Company's gas services operations, which allowed the Company to reduce its
previously recorded deferred tax liability.

Reconciliations from the 35% statutory Federal income tax rate to the
Company's effective income tax rate for the fiscal years 1998, 1997 and 1996
follow:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate ....................... 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax effect .... (4.7) 2.4 2.5
Federal tax credits under Section 29 of the Internal
Revenue Code for natural gas produced from certain wells (4.0) (2.1) (2.2)
Other, net .............................................. (.9) .2 .2
---- ---- ----
25.4% 35.5% 35.5%
==== ==== ====
</TABLE>

The principal components of the Company's deferred income tax liability
consisted of the following at January 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Oil and gas acquisition, exploration and development costs
deducted for tax purposes in excess of financial
statement DD&A ............................................. $ 136,462 $ 109,173
Depreciation of other property, plant and equipment ......... 44,704 38,984
Unused alternative minimum tax credits ...................... -- (24,736)
Employee benefits expense not yet deductible for tax purposes (20,607) (18,758)
Other, net .................................................. 7,344 4,796
--------- ---------
$ 167,903 $ 109,459
========= =========
</TABLE>

50
<PAGE> 53
NOTE 7 COMMITMENTS AND CONTINGENCIES

North Texas water well litigation. On March 1, 1996, in a trial known as the
Bartlett case, a judgment was entered against a wholly owned subsidiary of the
Company by a Wise County, Texas court. The judgment awarded $4,051,760 in actual
damages (consisting of $339,266 for economic damages and $3,712,494 for pain,
mental anguish, inconvenience, etc.) and $200,000,000 in exemplary damages to
eight plaintiff groups, who claimed that the natural gas operations of the
subsidiary had affected their water wells.

The Company appealed this judgment to the Second Court of Appeals in Fort
Worth, Texas, which ruled on the Company's appeal in November 1997. The
three-judge panel unanimously reversed the previous decision finding that the
plaintiffs failed to prove that the Company's actions were the cause of their
alleged damages and that the claims of most plaintiffs were time-barred by
statutes of limitations. The court subsequently denied the plaintiffs' request
for a reconsideration of the court's decision. The plaintiffs have requested
that the Texas Supreme Court review and overturn this decision. The Supreme
Court has not indicated whether it will review the Court of Appeals' judgment.

In May 1997 - in a case involving allegations similar to those in the
Bartlett case - another jury in the Wise County court found unanimously on all
counts that the Company was not responsible for damages claimed by 17 other
plaintiff groups in an 11-week trial known as the Bailey case. The court entered
the judgment on July 15, 1997. After their motion for a new trial was denied,
the plaintiffs appealed this decision to the Second Court of Appeals, which by
law must consider the case.

In the Nelon case, which also involves allegations similar to those in the
Bartlett case, a judge in the Wise County court issued a summary judgment in
favor of the Company during January 1998, finding all the plaintiffs' claims to
be time-barred by statutes of limitations. The plaintiffs subsequently appealed
this case to the Second Court of Appeals, which by law must consider the case.

Similar untried lawsuits (each claiming damages of more than $1,000,000)
have been brought by 28 other plaintiff groups. To date, there has been only
minimal activity with respect to these cases although one of them (the Maxey
case) is scheduled for trial beginning October 19, 1998.

The Company believes that a number of its insurance carriers have
responsibilities for participating in the defense costs incurred by the Company
in connection with this litigation. In May 1997, a reimbursement agreement was
entered into with one of these carriers. It is expected that reimbursement
agreements will be completed with two more insurors by April 30, 1998.

The Company at least quarterly reviews the adequacy of its accrued
liability for this litigation, and recorded provisions in fiscal 1998, 1997 and
1996 totaling $32,000,000 to adjust the accrued liability to its current
estimate of the costs to be incurred in connection with this litigation. Costs
incurred - which have consisted principally of estimated attorneys' fees and
other defense costs for the Bartlett and Bailey trials and costs of bonds, etc.,
related to the appeal of the Bartlett judgment - are charged against the
reserve. Insurance reimbursements, which are credited to the accrued liability
when received, are included in the determination of the adequacy of the accrued
liability only after reimbursement agreements have been executed.

51
<PAGE> 54
Leases and contingent liabilities. The Company has various noncancellable
equipment and facility operating lease agreements which provide for aggregate
future payments of approximately $21,000,000. Minimum rentals for each of the
five years subsequent to fiscal 1998 total approximately $6,100,000; $5,400,000;
$5,300,000; $4,200,000 and none. Rental expense for operating leases was
approximately $6,500,000; $6,500,000 and $10,400,000 in fiscal 1998, 1997 and
1996. In addition to obligations described elsewhere in these notes, the Company
had contingent liabilities totaling approximately $22,000,000 at January 31,
1998, consisting primarily of guarantees of third-party debt.

Environmental regulations. The Company is considered by the United States
Environmental Protection Agency to be a potentially responsible party with
respect to two Superfund waste disposal sites. The only site involving more than
minimal potential exposure to the Company is the Operating Industries, Inc. site
located in Monterey Park, California, where small amounts of non-toxic drilling
fluids from Company-operated oil and gas wells were deposited. Although the
Company believes that it should be exempt from liability with respect to this
site, to date it has paid and expensed approximately $429,000 of cleanup costs.
While additional exposure exists for future cleanup and closure costs of this
site, the Company's share of such costs is not expected to be significant.

The Company continually monitors the many Federal, state and local laws
and regulations relating to the protection of the environment and public health
and believes it is in substantial compliance with such rules. Also, it expects
to continue to be able to conform with environmental regulations without
materially altering its operating strategies.

Other. The Company also is party to other claims and legal actions arising in
the ordinary course of its business and to recurring examinations performed by
the Internal Revenue Service and other regulatory agencies. While the outcome of
all such matters cannot be predicted with certainty, management expects that
losses, if any, resulting from the ultimate resolution of the matters discussed
in this footnote will not result in charges that are material to the Company's
financial position. It is possible, however, that charges could be required that
would be significant to the operating results of a particular period.

NOTE 8 FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of the Company's financial
instruments at January 31, 1998 and 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amounts Fair Values Amounts Fair Values
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Long-term debt (including current maturities) $414,267 $427,980 $700,000 $710,964
</TABLE>

Fair values of long-term debt were based on quoted market prices for the
Company's senior notes. The carrying amounts of other on-balance-sheet financial
instruments approximate their fair values. The aggregate cost to terminate
off-balance-sheet financial instruments is not significant.

The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Such use generally
consists of using commodities futures contracts to hedge well-defined energy
price risks. At January 31, 1998 and 1997, open transactions under such
arrangements were not significant.

52
<PAGE> 55
NOTE 9 RETIREMENT BENEFITS

Qualified retirement plan. Substantially all full-time employees of the Company
who meet specified age and service requirements are covered by a defined benefit
retirement plan which is maintained without cost to the employees. Pension
benefits are based on years of service and average earnings for the three
highest consecutive years during the 10 years immediately preceding retirement.
The Company's funding policy is to make contributions to the plan of at least
the minimum amounts required by applicable Federal laws and regulations. No
contributions were made to the plan in fiscal 1998 or 1997 while $4,631,000 was
contributed in fiscal 1996.

The projected unit credit actuarial method is used in determining the
Company's required annual contributions to the retirement plan and its financial
statement pension expense. The assumptions used in the computations include an
expected long-term rate of return on plan assets of 9%, age-graded annual salary
increases ranging from 3.5% to 5.5% and a discount rate for the projected
benefit obligation of 7.25%. Plan assets consist primarily of marketable equity
securities and long-term U.S. Treasury bonds. Components of financial statement
pension expense for the years ended January 31, 1998, 1997 and 1996 were (in
thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits accrued during the year) $ 3,420 $ 3,455 $ 3,579
Interest accrued on projected benefit obligation 8,832 8,984 8,526
Return on plan assets .......................... (12,000) (10,738) (8,634)
Amortization of unrecognized gains ............. (1,571) (1,206) (1,183)
Early retirement benefits accrued .............. -- -- 8,329
-------- -------- --------
Financial statement pension expense (credit) ... $ (1,319) $ 495 $ 10,617
======== ======== ========
</TABLE>

The following table summarizes the plan's funded status for financial statement
purposes at January 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF PENSION BENEFIT OBLIGATION
Vested benefits .............................................. $ 104,106 $ 103,928
Nonvested benefits ........................................... 5,147 5,568
--------- ---------
Accumulated benefit obligation ............................... 109,253 109,496
Provision for future salary increases ........................ 17,179 17,311
--------- ---------
Projected benefit obligation ................................. $ 126,432 $ 126,807
========= =========

AMOUNTS AVAILABLE TO SATISFY PENSION BENEFIT OBLIGATION
Plan assets, at market value ................................. $ 150,088 $ 135,371
Unrecognized actuarial gains ................................. (41,294) (31,552)
Balance sheet accrued liability for qualified pension benefits 17,638 22,988
--------- ---------
$ 126,432 $ 126,807
========= =========
</TABLE>

Nonqualified retirement plans. Internal Revenue Service regulations limit the
benefits that may be paid to certain employees under the Company's qualified
retirement plan. Nonqualified plans are maintained to make the basis on which
those individuals' retirement benefits are determined the same as is used for
other employees. During fiscal 1997, a trust fund was established from which
these benefits are to be paid. The balance of this trust fund, which is included
in Long-term Investments and Other Assets in the Company's balance sheet, was
$12,583,000 at January 31, 1998.

53
<PAGE> 56
Amounts expensed related to these plans totaled $1,878,000; $1,353,000 and
$1,381,000 in fiscal 1998, 1997 and 1996 (the fiscal 1996 amount includes
$179,000 of incremental benefits accrued in connection with a voluntary
incentive retirement program). At January 31, 1998, the projected benefit
obligation attributable to these plans totaled $12,700,000, and the aggregate
balance sheet accrued liability, which excludes as-yet unrecognized past service
costs, totaled $6,180,000.

Postretirement medical benefits. Retirees who reach retirement age while working
for the Company and meet certain other eligibility requirements may elect
coverage under the Company's medical plan. The Company's medical plan
incorporates a scheduled-reimbursements methodology under which the Company and
providers agree to specified rates for individual services. The Company has the
right to amend or terminate medical benefits for active employees and retirees
or to change the required level of participant contributions. The cost of
providing these postretirement health care benefits is reduced by available
Medicare coverage and retiree contributions. Components of financial statement
expense for postretirement medical benefits for the years ended January 31,
1998, 1997 and 1996 were (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits accrued during the year) $ 684 $ 1,028 $ 814
Interest accrued on projected benefit obligation 1,859 2,165 1,823
Amortization of unrecognized (gains) losses .... (195) 217 (5)
Early retirement benefits accrued .............. -- -- 2,620
------- ------- -------
$ 2,348 $ 3,410 $ 5,252
======= ======= =======
</TABLE>

The plan is unfunded, and benefits are paid as costs are incurred. Such
benefits payments totaled $1,319,000; $1,585,000 and $1,325,000 in fiscal 1998,
1997 and 1996. The following table summarizes the plan's status for financial
statement purposes at January 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Actuarial Present Value of Postretirement Benefit Obligation
Retirees ................................................... $ 11,580 $ 17,719
Fully eligible, active plan participants ................... 1,822 1,150
Other active plan participants ............................. 7,190 7,915
Unrecognized actuarial gains (losses) ...................... 3,779 (1,627)
-------- --------
Balance sheet accrued liability for postretirement benefits $ 24,371 $ 25,157
======== ========
</TABLE>

The Company's assumed future medical cost trend rate equals 6% for fiscal 1999,
declines to 5.5% in 2002 and remains at that level thereafter. A discount rate
of 7.25% was used in determining the postretirement benefit obligations. The
medical cost trend rate assumption has a significant effect on the amount of the
obligation and the periodic cost reported. An increase of 1% in the assumed
trend rate for each year would have increased the actuarial present value of the
postretirement benefit obligation at January 31, 1998 by $2,736,000 and the
aggregate service and interest components of the fiscal 1998 cost by a total of
$333,000.

Curtailments/settlements. Curtailments and settlements of retirement benefits
occurred in connection with the discontinuance of the Company's real estate
operations in fiscal 1998. The resulting $5,714,000 gain was included in the
calculation of the loss on the TWC sale. As a result of this, the Company's
financial statement accrued liabilities for qualified retirement and retiree
medical benefits were reduced by $4,031,000 and $1,930,000, respectively, and
the liability for nonqualified retirement benefits was increased by $247,000.

54
<PAGE> 57
NOTE 10 SEGMENT INFORMATION

Industry segment data for the fiscal years ended January 31, 1998, 1997 and 1996
are as follows (in thousands):

<TABLE>
<CAPTION>
Inter- Segment Total Capital
Outside segment Operating Operating Expendi- Identifiable
Revenues Revenues Earnings Earnings DD&A tures(a) Assets
---------- -------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1998
EXPLORATION AND
PRODUCTION
Operations ........... $ 260,050 $ -- $ 62,528 $ 50,062 $ 91,858 $ 190,449 $ 677,712
Water well litigation
provision (Note 7)... -- -- (7,000) (7,000) -- -- --
Gain from sale of
contract drilling
assets .............. 2,382 -- 2,382 2,382 -- -- --
---------- -------- ---------- ---------- ---------- ---------- ----------
262,432 -- 57,910 45,444 91,858 190,449 677,712
---------- -------- ---------- ---------- ---------- ---------- ----------
GAS SERVICES
Natural gas
processing .......... 329,990 26,591 28,330 25,178 3,843 13,824 162,429
Royalty litigation
provision ........... -- -- (26,000) (26,000) -- -- --
Natural gas gathering
and marketing ....... 183,554 254,267 21,982 18,178 6,796 48,792 172,717
Other ................ 14,526 -- 13,192 12,809 107 39 73,956
---------- -------- ---------- ---------- ---------- ---------- ----------
528,070 280,858 37,504 30,165 10,746 62,655 409,102
---------- -------- ---------- ---------- ---------- ---------- ----------
CORPORATE ............ -- -- -- (12,173)(b) 3,009 5,188 139,103
---------- -------- ---------- ---------- ---------- ---------- ----------
$ 790,502 $ 280,858 $ 95,414 $ 63,436 $ 105,613 $ 258,292 $1,225,917
========== ========== ========== ========== ========== ========== ==========

FISCAL 1997
EXPLORATION AND
PRODUCTION
Operations ........... $ 266,418 $ -- $ 81,432 $ 69,314 $ 88,929 $ 134,275 $ 711,909
Water well litigation
provision (Note 7)... -- -- (10,000) (10,000) -- -- --
Severance tax
refunds ............. -- -- 5,935 5,935 -- -- --
Columbia Gas contract
settlement proceeds.. 3,444 -- 3,444 3,444 -- -- --
---------- -------- ---------- ---------- ---------- ---------- ----------
269,862 -- 80,811 68,693 88,929 134,275 711,909
---------- -------- ---------- ---------- ---------- ---------- ----------
GAS SERVICES
Natural gas
processing .......... 376,980 30,127 69,110 65,694 3,508 7,925 129,274
Natural gas gathering
and marketing ....... 247,214 208,043 27,589 23,937 3,392 24,797 159,620
Other ................ 12,621 -- 11,397 10,995 107 1,511 42,931
---------- -------- ---------- ---------- ---------- ---------- ----------
636,815 238,170 108,096 100,626 7,007 34,233 331,825
---------- -------- ---------- ---------- ---------- ---------- ----------
Corporate ............ -- -- -- (11,235)(b) 3,131 7,318 104,054
---------- -------- ---------- ---------- ---------- ---------- ----------
$ 906,677 $ 238,170 $ 188,907 $ 158,084 $ 99,067 $ 175,826 $1,147,788
========== ========== ========== ========== ========== ========== ==========
FISCAL 1996
EXPLORATION AND
PRODUCTION
Operations ........... $ 214,067 $ -- $ 35,775 $ 23,822 $ 93,206 $ 141,667 $ 761,743
Gain from gas
contract buyout ..... 205,256 -- 205,256 205,256 -- -- --
Water well litigation
provision (Note 7)... -- -- (15,000) (15,000) -- -- --
Gains from sales of
producing properties
and drilling rigs.... 5,338 -- 5,338 5,338 -- -- --
Personnel reduction
program costs ....... -- -- (7,935) (7,935) -- -- --
---------- -------- ---------- ---------- ---------- ---------- ----------
424,661 -- 223,434 211,481 93,206 141,667 761,743
---------- -------- ---------- ---------- ---------- ---------- ----------
GAS SERVICES
Natural gas
processing .......... 283,378 20,808 30,994 27,690 6,725 5,660 92,767
Natural gas gathering
and marketing ....... 184,584 103,055 14,063 10,340 6,645 26,119 130,741
Other ................ 10,296 -- 9,059 8,957 107 6,579 29,543
Asset write-downs..... -- -- (52,715) (52,715) 41,330 -- --
Personnel reduction
program costs ....... -- -- (3,600) (3,600) -- -- --
---------- -------- ---------- ---------- ---------- ---------- ----------
478,258 123,863 (2,199) (9,328) 54,807 38,358 253,051
---------- -------- ---------- ---------- ---------- ---------- ----------
Corporate ............ -- -- -- (16,678)(b) 3,360 6,068 34,885
---------- -------- ---------- ---------- ---------- ---------- ----------
$ 902,919 $ 123,863 $ 221,235 $ 185,475 $ 151,373 $ 186,093 $1,049,679
========== ========== ========== ========== ========== ========== ==========
</TABLE>

- -------------------------
(a) On accrual basis, including exploratory expenditures.
(b) General corporate expenses, including personnel reduction program costs of
$4,532 in 1996.

55
<PAGE> 58
Intersegment revenues are recorded at prevailing market prices and are
eliminated in consolidation. All of the Company's operations are conducted in
the United States. Its energy revenues are derived principally from
uncollateralized sales to customers in the electrical generation, gas
distribution, petrochemical and oil and gas industries. These industry
concentrations have the potential to impact the Company's exposure to credit
risk, either positively or negatively, because customers may be similarly
affected by changes in economic or other conditions. The creditworthiness of
this customer base is strong, and the Company has not experienced significant
credit losses. Sales to no single customer constituted as much as 10% of
consolidated revenues in fiscal 1998 and 1997. Exploration and production and
natural gas gathering and marketing sales to Natural Gas Pipeline Company of
America (Natural) constituted approximately 10% of consolidated revenues during
fiscal 1996.

The reported segment operating earnings amounts represent the operating
earnings of the Company's various industry segments before charges for
administrative, accounting, legal, information systems and other costs that are
managed on a companywide basis. In the reported total operating earnings
disclosures, all general and administrative expenses except for general
corporate expenses incurred in connection with the overall management of the
Company and the operation of the parent company have been allocated to the
industry segments based on their estimated use of these services.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which the Company must implement by the end
of fiscal 1999. The Company does not expect that the adoption of this statement
will require it to make material changes in the information heretofore disclosed
concerning its operating segments.

Because of their magnitude and unusual nature, and in accordance with
Accounting Principles Board Opinion No. 30, the items discussed in the following
paragraphs have been reported as separate components of segment operating
earnings.

Fiscal 1998 explanations. In July 1997, the Company recorded a $26,000,000
financial statement provision for estimated costs to be incurred in connection
with settlements of litigation with its North Texas royalty owners. In October
1997, a $21,000,000 payment was made to settle class-action litigation brought
on behalf of these royalty owners. In addition, payments totaling approximately
$5,000,000 are to be made to royalty owners who chose not to participate in the
class-action litigation.

Effective April 1, 1997, the Company sold its remaining contract drilling
assets for $3,500,000. A gain of $2,382,000 was recorded on this transaction.

Fiscal 1997 explanations. During fiscal 1997, the Company recorded severance tax
refunds totaling $5,935,000. Of these amounts, $3,879,000 was related to the
retroactive designation of a portion of the Boonsville field in North Texas as a
"tight gas formation area" by the Texas Railroad Commission and $2,056,000 was
related to taxes paid on certain contract settlement proceeds, which a Texas
Comptroller's office regulation subsequently excluded from severance taxes.

During fiscal 1997, the Company received $3,444,000 as its share of
proceeds in settlement of breach of contract claims brought against Columbia Gas
Transmission Company. In conjunction with its filing for protection under the
bankruptcy laws in July 1991, Columbia unilaterally rejected its high-priced,
long-term natural gas purchase contracts, including one with the Company. During
fiscal 1997's first quarter, the Company reached an agreement with Columbia as
to the amount of the contract termination damages; after approval by the
bankruptcy court, Columbia paid such damages to the Company.

Fiscal 1996 explanations. Effective July 1, 1995, the Company terminated its
North Texas gas sales contract with Natural which had been scheduled to expire
on December 31, 1997. In exchange, it received proceeds (for itself and other
interest owners) consisting of $55,500,000 in cash, receivables with discounted
values of $91,608,000 and $82,369,000, respectively, related to payments of
$95,000,000 and $91,000,000 subsequently made by Natural on February 1, 1996 and
1997 and ownership (effective January 1, 1998) of the gathering system that
serves 1,500 of the Company's North Texas wells. The discounted value of the
Company's share of these early termination proceeds aggregated $176,189,000.
After recognizing the remaining $29,067,000 of previously deferred restructuring
proceeds related to this contract, the Company recognized a gain of $205,256,000
on the contract buyout in fiscal 1996.

56
<PAGE> 59
Exploration and production segment operating earnings for fiscal 1996
included gains of $4,338,000 from the sale of certain West Texas producing oil
and gas properties and $1,000,000 related to the redemption of warrants that had
been obtained in a prior-year sale of drilling rigs.

In April 1995, the Company implemented a personnel reduction program which
resulted in the elimination of approximately 300 jobs. Aggregate pretax costs of
this program, including $4,532,000 reported as general and administrative
expense and $4,133,000 reported as discontinued operations, totaled $20,200,000.
Of these costs, $11,128,000 represented the present value of incremental pension
and retiree medical benefits provided under a voluntary incentive retirement
program offered to 130 employees (114 of whom accepted) while $9,072,000
represented the cash costs of severance and other benefits.

During fiscal 1996, gas services asset write-downs totaling $52,715,000
were recorded. Of this amount, $7,111,000 was recorded in October 1995 to reduce
to their net realizable values the carrying values of three gas processing
plants that were subsequently sold in December. Upon completion of a gas
services asset management study and concurrent with its adoption of SFAS No.
121, write-downs totaling $45,604,000 were recorded in January related to
various gas processing and natural gas gathering facilities. The write-downs
included downward adjustments in the estimated fair values of assets held for
sale and charges for certain operating properties whose cash flows had been
adversely affected by volume declines, contractual changes and other factors
which indicated that their capitalized costs would not be recovered.

NOTE 11 COMMON STOCK AND STOCK OPTIONS

The Company has two classes of common stock which are designated Class A and
Class B. Both classes are freely transferable and are listed on the New York
Stock Exchange; neither is convertible into the other class of common stock or
any other security of the Company at the option of the holder. The Class A
shares have full voting rights, whereas the Class B shares have no voting
rights, except as provided by law. The Company's Articles of Incorporation allow
cash dividends on Class B shares to be greater, but not less, than those paid on
Class A shares and also contain certain Class B protection provisions.

The Company's 1995 Stock Option Plan authorizes the granting of incentive
and nonqualified options to purchase Class B common stock at prices not less
than the market value on the date of grant. The options have maximum terms of 10
years and become exercisable ratably over a three-year period. Grants covering a
total of 2,500,000 Class B shares may be made under the Company's 1995 Stock
Option Plan and its 1997 Bonus Unit Plan (see page 58). At January 31, 1998,
grants covering an additional 369,193 shares could be issued under these plans.
Previously, the Company had granted options under 1979 and 1989 Stock Option
Plans, under which no further grants can be made.
Summarized stock option information follows:

<TABLE>
<CAPTION>
1995 Plan 1979 and 1989 Plans
----------------------------------------------- -------------------------------------------
Options Exercisable Options Exercisable
Options Outstanding at Fiscal Year End Options Outstanding at Fiscal Year End
---------------------- --------------------- ------------------- --------------------
Average Average Average Average
Number Price Number Price Number Price Number Price
--------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT JANUARY 31, 1995.. -- -- -- -- 272,650 $15.975 147,350 $12.400
June 28, 1995
grants ............. 477,800 $17.625 --
Exercised ........... -- (71,150) 8.800
Cancelled ........... -- (10,050) 11.287
--------- -------
AT JANUARY 31, 1996.. 477,800 17.625 -- -- 191,450 18.889 95,650 17.587
February 21,
1996 grants ........ 499,400 18.125 --
Exercised ........... (15,499) 17.625 (12,950) 8.750
Cancelled ........... (16,000) 17.859 --
--------- -------
AT JANUARY 31, 1997.. 945,701 17.885 149,098 $17.633 178,500 19.624 118,500 19.213
February 21,
1997 grants ........ 602,490 21.750 --
December 17,
1997 grants ........ 347,050 26.125 --
Exercised ........... (143,003) 17.911 (25,830) 18.186

Cancelled ........... (7,883) 19.680 --
--------- -------
AT JANUARY 31, 1998.. 1,744,355 $20.849 369,669 $18.048 152,670 $19.868 92,670 $19.499
========= =======
</TABLE>

57
<PAGE> 60
The weighted average remaining contractual life of outstanding stock options
under the 1995 Stock Option Plan was 8.6 years at January 31, 1998.

Stock options are accounted for under the provisions of APB Opinion No.
25. As a result, the Company generally does not recognize compensation expense
in its financial statements for outstanding stock options. Had grants under the
1995 Plan been accounted for on the estimated fair-value basis promulgated by
Statement of Financial Accounting Standards No. 123, the Company would have
recorded additional compensation expense of $3,977,000; $2,725,000 and $774,000
in fiscal 1998, 1997 and 1996. On a proforma basis, earnings from continuing
operations would have been reduced by $2,585,000; $1,771,000 and $503,000 in
fiscal 1998, 1997 and 1996, and basic earnings per share from continuing
operations for both the Class A and Class B shares would have been lowered by 5
cents, 3 cents and 1 cent, respectively.

The additional compensation expense under the estimated fair-value basis
was computed using the Black-Scholes option-pricing model, expected lives of
seven years, annual cash dividends of 53 cents per share (the regular rate paid
on the Class B shares for the last several years) and the following interest and
volatility rates, which were determined at the dates of the individual grants:

<TABLE>
<CAPTION>
6/28/95 2/21/96 2/21/97 12/17/97
------- ------- ------- --------
<S> <C> <C> <C> <C>
Risk-free interest rate (%) ... 5.85 5.56 6.27 5.82
Stock price volatility rate (%) 27.6 26.3 28.6 28.0
Computed value per option share $5.39 $5.32 $7.55 $9.15
</TABLE>

NOTE 12 INCENTIVE COMPENSATION PLANS

In December 1997, Board of Directors approved the Company's 1997 Performance
Unit Plan under which up to 600,000 units may be awarded to mid-level managerial
and professional employees. This plan was adopted to help the Company retain key
personnel in a very competitive employment market. At January 31, 1998, 294,889
of such units were outstanding. Individuals holding these units on March 31,
1999 are to receive cash compensation equal to the closing price of the
Company's Class B stock on that day times the number of units awarded them.
Compensation expense, which is being accrued ratably over the life of the
outstanding units, totaled $771,000 in fiscal 1998.

As long-term incentives, the Company periodically has issued awards that
it calls "bonus units" under which employees can earn compensation based on
increases in the market price of the Company's stock. Upon the redemption of
such awards, grantees receive gross compensation in amounts equal to the excess
of the market price of the Company's common stock over a floor price (the market
price of the stock when the units were awarded). The Company's 1991 Bonus Unit
Plan authorized the issuance of up to 700,000 units, substantially all of which
had been granted and exercised by January 31, 1998. During December 1997, the
Company established a 1997 Bonus Unit Plan. As indicated in Note 11, the total
awards under this plan and the Company's 1995 Stock Option Plan may not exceed
2,500,000. A total of 227,950 ten-year bonus units were issued in December 1997
which have a floor price of $26.125 and vest in three equal annual installments.

Compensation expense is recognized over the applicable vesting terms of
the bonus units in amounts equal to the appreciation in the market price of the
stock over the applicable floor prices. Reversals are recognized to the extent
of previously recorded appreciation in periods when the market price of the
stock declines. Expense accruals for bonus units aggregated $636,000; $1,895,000
and $751,000 in fiscal 1998, 1997 and 1996.

58
<PAGE> 61
NOTE 13 EARNINGS PER SHARE

The earnings per share computations included herein have been made in accordance
with Statement of Financial Accounting Standards No. 128, which the Company
adopted during fiscal 1998; prior period amounts were restated. The Company is
required to make separate earnings per share computations for its Class A and
Class B common stock since the shares are not convertible into each other and
different per share cash dividends are paid on the separate classes. In these
computations, earnings up to the amount of dividends paid in a year are
apportioned between the classes based on the respective dividends paid, while
earnings in excess of that amount are apportioned on a pro rata per share basis.
Accordingly, the differences in the per share earnings amounts occur because of
the higher cash dividends paid on the Class B shares. The following table sets
forth basic and diluted earnings per share information for the years ended
January 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -------------------
Class A Class B Class A Class B Class A Class B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From continuing
operations ......... $ .71 $ .77 $ 1.64 $ 1.68 $ 1.91 $ 1.96
-------- -------- -------- -------- -------- --------
Discontinued real
estate operations
Earnings (loss)
from operations... .14 .15 .32 .33 (1.22) (1.22)
Loss on sale....... (1.26) (1.37) -- -- -- --
-------- -------- -------- -------- -------- --------
(1.12) (1.22) .32 .33 (1.22) (1.22)
-------- -------- -------- -------- -------- --------
Extraordinary item.. (.25) (.27) -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss). $ (.66) $ (.72) $ 1.96 $ 2.01 $ .69 $ .74
======== ======== ======== ======== ======== ========
</TABLE>

The basic and diluted earnings per share amounts were the same because the
earnings amounts for the diluted computations were no different than the ones
used in the basic computations, and - as shown in the table below - the dilutive
effect of stock options did not significantly increase the weighted average
shares outstanding. The following table reconciles the weighted average shares
outstanding used in the basic and diluted earnings per share computations for
the years ended January 31, 1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Used in basic
computations ..... 22,714 27,989 23,092 28,786 23,217 28,827
Dilutive effect
of stock options.. 9 198 1 54 5 5
------ ------ ------ ------ ------ ------
Used in diluted
computations ..... 22,723 28,187 23,093 28,840 23,222 28,832
====== ====== ====== ====== ====== ======
</TABLE>

Excluded from these computations because their effect was antidilutive were
stock options covering 347,050 Class B shares in 1998; 80,500 Class A and 80,500
Class B shares in 1997 and 81,750 Class A and 559,550 Class B shares in 1996.

NOTE 14 TREASURY STOCK PURCHASES

On August 18, 1997, the Company purchased 700,000 of its Class A shares and
1,400,000 of its Class B shares in an accelerated stock purchase transaction
with a financial intermediary, which borrowed the shares and has been
repurchasing shares on the open market to cover its short position. The total
consideration was $49,700,000, subject to a market price adjustment provision
payable either in the Company's common stock or cash. Concurrently, the Company
commenced a program to spend up to an additional $50,000,000 to directly
repurchase Class A and Class B shares from time to time in the open market. Such
purchases totaled approximately $22,700,000 through January 31, 1998.

59
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Mitchell Energy & Development Corp.:

We have audited the accompanying consolidated balance sheets of Mitchell
Energy & Development Corp. (a Texas corporation) and subsidiaries as of January
31, 1998 and 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mitchell Energy &
Development Corp. and subsidiaries as of January 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1998, in conformity with generally accepted
accounting principles.

As discussed in Note 10 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for the impairment of long-lived assets
effective January 31, 1996.

ARTHUR ANDERSEN LLP

Houston, Texas
March 23, 1998

60
<PAGE> 63
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

Reserve quantities. Proved reserves are the estimated quantities which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under economic and operating
conditions at each year end. Proved developed reserves are expected to be
recovered from existing wells using existing equipment and operating methods.
Consolidated reserves represent the Company's net interest in oil and gas
properties or in reserves committed to Company-owned gas processing plants.
Equity partnership reserves represent the Company's proportional interest in the
reserves of partnerships that are accounted for using the equity method.

The following tables summarize changes in the Company's natural gas (gas),
crude oil and condensate (oil) and plant NGL reserve quantities during the
indicated fiscal years and the proved developed reserve quantities at the dates
indicated:

<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Gas Oil Gas Oil Gas Oil
PROVED GAS AND MBOE* (Bcf) (MMBbls) MBOE* (Bcf) (MMBbls) MBOE* (Bcf) (MMBbls)
OIL RESERVES ----- ----- ---- ----- ----- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance ..... 130.1 701.2 13.3 129.4 697.2 13.2 128.5 685.7 14.3
Extensions and
discoveries .......... 32.9 177.5 3.3 17.4 91.5 2.2 13.4 75.4 .9
Production marketed ... (16.7) (87.0) (2.2) (15.9) (83.6) (2.0) (15.1) (78.9) (2.0)
Production consumed
in operations ........ (.6) (3.6) -- (.7) (4.0) -- (.6) (3.6) --
Purchases in place .... .9 1.8 .6 .9 4.8 .1 7.2 36.6 1.1
Revisions of
previous estimates.... (2.5) (12.3) (.5) (.4) (1.0) (.2) (2.3) (9.1) (.8)
Sales in place ........ (.4) (1.5) (.2) (.8) (3.7) (.2) (1.7) (8.9) (.3)
Improved recovery ..... 1.6 1.4 1.4 .2 -- .2 -- -- --
----- ----- ---- ----- ----- ---- ----- ----- ----
Ending balance ........ 145.3 777.5 15.7 130.1 701.2 13.3 129.4 697.2 13.2
===== ===== ==== ===== ===== ==== ===== ===== ====
</TABLE>

- -----------------------
*Million barrels of oil equivalent using a 6-to-1 conversion factor for gas.

<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- ----------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
PROVED PLANT Total idated ships Total idated ships Total idated ships
NGL RESERVES (MMBbls) ----- ---- ---- ----- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance ..... 126.4 86.3 40.1 125.8 82.4 43.4 121.3 71.6 49.7
Additions ............. 18.5 18.5 -- 6.0 6.0 -- 10.7 10.1 .6
Production ............ (16.5) (11.3) (5.2) (16.8) (10.9) (5.9) (16.9) (10.6) (6.3)
Exchanges of plant
interests ............ 2.7 2.7 -- 2.7 3.7 (1.0) -- -- --
Revisions of
previous estimates.... 15.4 4.3 11.1 8.7 5.1 3.6 10.7 11.3 (.6)
----- ---- ---- ----- ---- ---- ----- ---- ----
Ending balance ........ 146.5 100.5 46.0 126.4 86.3 40.1 125.8 82.4 43.4
===== ===== ==== ===== ==== ==== ===== ==== ====
</TABLE>

<TABLE>
<CAPTION>
PROVED DEVELOPED RESERVES
AT FISCAL YEAR END 1998 1997 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Gas (Bcf) ............. 640.0 611.0 587.6 577.1
===== ===== ===== =====
Oil (MMBbls) .......... 14.5 12.5 11.5 12.6
===== ===== ===== =====
Plant NGLs (MMBbls)
Consolidated ........ 86.3 78.4 72.6 60.1
Equity partnerships.. 44.8 39.1 41.5 45.9
----- ----- ----- -----
131.1 117.5 114.1 106.0
===== ===== ===== =====
</TABLE>

61
<PAGE> 64
Future net cash flows from natural gas and oil reserves. The following tables
set forth estimates of the standardized measure of discounted future net cash
flows from proved gas and oil reserves at January 31, 1998, 1997 and 1996 and a
summary of the changes in those amounts for the fiscal years then ended (in
millions):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
STANDARDIZED MEASURE
Future cash inflows ............................ $ 2,060 $ 3,085 $ 1,752
Future production and development costs ........ (923) (864) (715)
Future income taxes ............................ (331) (685) (248)
Discount - 10% annually ........................ (325) (596) (258)
------- ------- -------
$ 481 $ 940 $ 531
======= ======= =======

CHANGES IN STANDARDIZED MEASURE
Extensions and discoveries, net of related costs $ 120 $ 176 $ 52
Sales, net of production costs ................. (185) (198) (145)
Net changes in prices and production costs ..... (726) 699 (57)
Accretion of discount .......................... 129 62 69
Production rate changes and other .............. (7) (96) (43)
Development costs incurred ..................... 13 24 33
Purchases in place ............................. 5 9 50
Sales in place ................................. (2) (9) (11)
Revisions of previous quantity estimates ....... (13) (3) (16)
Net change in future income taxes .............. 207 (255) (2)
------- ------- -------
$ (459) $ 409 $ (70)
======= ======= =======
</TABLE>

Future net cash flows from plant NGL reserves. The following tables set forth
estimates of the standardized measure of discounted future net cash flows from
proved NGL reserves at January 31, 1998, 1997 and 1996 and a summary of the
changes in those amounts for the fiscal years then ended (in millions):

<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
Equity Equity Equity
Consol- Partner- Consol- Partner- Consol- Partner-
Standardized Measure Total idated ships Total idated ships Total idated ships
------- ------- ------- ------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Future cash inflows ........... $ 1,782 $ 1,237 $ 545 $ 2,100 $ 1,424 $ 676 $ 1,578 $ 1,036 $ 542
Future production costs ....... (1,467) (1,007) (460) (1,562) (1,058) (504) (1,175) (745) (430)
Future income taxes ........... (103) (73) (30) (177) (116) (61) (130) (87) (43)
Discount - 10% annually ....... (88) (65) (23) (155) (103) (52) (108) (77) (31)
------- ------- ------- ------- ------- ------- ------- ------- -------
$ 124 $ 92 $ 32 $ 206 $ 147 $ 59 $ 165 $ 127 $ 38
======= ======= ======= ======= ======= ======= ======= ======= =======

CHANGES IN STANDARDIZED MEASURE
Additions, net of
related costs ................ $ 25 $ 25 $ -- $ 20 $ 20 $ -- $ 22 $ 21 $ 1
Sales, net of
production costs ............. (33) (20) (13) (72) (48) (24) (26) (10) (16)
Net changes in
prices and costs ............. (161) (113) (48) 67 36 31 (34) (19) (15)
Accretion of discount ......... 30 21 9 24 18 6 25 16 9
Exchange of plant
interests .................... 1 1 -- 14 15 (1) -- -- --
Revisions of previous
quantity estimates ........... 21 9 12 6 (3) 9 11 8 3
Other ......................... (4) (1) (3) 4 (3) 7 (8) (7) (1)
Net change in
future income taxes .......... 39 23 16 (22) (15) (7) (3) (7) 4
------- ------- ------- ------- ------- ------- ------- ------- -------
$ (82) $ (55) $ (27) $ 41 $ 20 $ 21 $ (13) $ 2 $ (15)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

62
<PAGE> 65
The natural gas reserve quantities reported as gas and oil reserves represent
wet gas volumes, including quantities that will be converted by processing to
NGLs. The gas and oil future net cash flows include only the leasehold
reimbursements for NGLs to be extracted during processing from the Company's gas
production; the other cash flows (amounts in excess of the leasehold
reimbursements) associated with NGLs to be extracted from the Company's wet gas
reserves are included in plant NGL amounts since those cash flows accrue to the
Company because of its ownership of gas processing plants.

The quantities reported herein for plant NGLs include all liquids that
will be extracted from gas streams contractually committed to Company-owned gas
processing plants since the Company, as plant owner, generally has beneficial
ownership of all the NGLs so produced. Accordingly, the plant NGL reserves and
future net cash flows include amounts attributable to all NGLs extracted from
gas streams committed to the plants, both those owned by the Company and by
third parties. The Company reimburses the owners of the natural gas streams
based either on a percentage of the value of the liquids produced or on the
value of the natural gas consumed in processing under keep-whole agreements.
Such reimbursements, including amounts attributable to the Company's oil and gas
leasehold interests (included in oil and gas future net cash flows), are
deducted as production costs in determining future net cash flows from plant
NGLs.

Of the total remaining natural gas reserves at January 31, 1998, an
estimated 418.5 Bcf will be processed at Company plants, including 110.8 Bcf of
fiscal 1998's natural gas reserve additions from extensions and discoveries. It
is estimated that 97.2 Bcf of such reserves and 25.5 Bcf of such reserve
additions will be converted by processing into 39.9 MMBbls and 10.5 MMBbls of
plant NGLs, respectively.

Except where otherwise specified by contractual agreement, future cash
inflows are estimated using year-end prices. Future production and development
cost estimates are based on economic conditions at the respective year ends.
Future income taxes are computed by applying applicable statutory tax rates to
the difference between the estimated future net revenues and the tax basis of
proved oil and gas properties after considering tax credit carryforwards,
estimated future percentage depletion deductions and energy tax credits.

Subsequent to January 31, 1998, energy prices have been extremely
volatile, particularly for crude oil and NGLs whose prices neared ten-year lows
in mid-March before rebounding considerably on March 23, 1998 with an
announcement of planned oil production cutbacks by several major producing
countries. At March 23, 1998, energy prices approximated the prices on which the
Company's January 31, 1998 standardized measure disclosures were based.

Reserve estimates are subject to numerous uncertainties inherent in
estimating quantities of proved reserves and in the projection of future rates
of production and the timing of development expenditures. The accuracy of such
estimates is a function of the quality of available data and of engineering and
geological interpretation and judgment. Results of subsequent drilling, testing
and production may cause either upward or downward revisions of previous
estimates. Further, the volumes considered to be commercially recoverable
fluctuate with changes in prices and operating costs. Because of the
aforementioned factors, reserve estimates are generally less precise than
other financial statement disclosures.

Discounted future cash flow estimates such as those shown herein are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value also should consider probable
reserves, anticipated future oil and gas prices and interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value is
necessarily subjective and imprecise.

63
<PAGE> 66
Gas and oil related costs and operating results. The following tables set forth
capitalized costs at January 31, 1998, 1997 and 1996 and costs incurred and
operating results for oil and gas producing activities for the years then ended
(in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CAPITALIZED COSTS
Oil and gas properties ................. $ 1,690,693 $ 1,625,903 $ 1,564,852
Support equipment and facilities ....... 48,467 58,483 55,961
Accumulated depreciation, depletion
and amortization ...................... (1,107,188) (1,123,909) (1,082,839)
----------- ----------- -----------
Net capitalized costs .................. $ 631,972 $ 560,477 $ 537,974
=========== =========== ===========

COSTS INCURRED (including exploration
expenses and exploratory dry-hole costs
of $22,376; $18,051 and $14,752)
Property acquisitions
Unproved ............................. $ 17,099 $ 5,464 $ 5,267
Proved ............................... 4,666 2,343 32,201
Exploration ............................ 34,297 18,796 19,908
Development ............................ 132,167 105,008 81,355
----------- ----------- -----------
Costs incurred ......................... 188,229 131,611 138,731
Support equipment and facilities ....... 2,220 2,664 2,936
----------- ----------- -----------
Capital and exploratory expenditures ... $ 190,449 $ 134,275 $ 141,667
=========== =========== ===========

OPERATING RESULTS (before charges for
general and administrative and interest
expense)
Production revenues .................... $ 256,286 $ 264,323 $ 203,906
Other revenues ......................... 3,764 2,095 10,161
----------- ----------- -----------
260,050 266,418 214,067
Less - Production costs ................ 70,919 65,825 58,589
Depreciation, depletion and
amortization (including proved-
property impairments of $1,640;
$3,068 and $11,516) ........... 91,858 88,929 93,206
Exploration expenses ............ 17,059 10,415 11,476
Exploratory dry-hole costs ...... 5,317 7,636 3,276
Other operating costs ........... 12,369 12,181 11,745
----------- ----------- -----------
Segment operating earnings ............. 62,528 81,432 35,775
Income taxes ........................... 21,399 28,121 10,281
----------- ----------- -----------
$ 41,129 $ 53,311 $ 25,494
=========== =========== ===========
</TABLE>

64
<PAGE> 67
HISTORICAL SUMMARY (RESTATED)

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

Five Years Ended January 31, 1998 (in thousands except where otherwise
indicated)

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT YEAR END
Net property, plant and equipment ....... $ 954,667 $ 775,929 $ 719,535 $ 734,099 $ 858,705

Total assets ............................ 1,251,973 1,668,272 1,599,183 1,514,277 1,685,954

Capital employed
Long-term debt ........................ $ 414,267 $ 600,000 $ 795,000 $ 789,680 $ 939,680
Deferred income taxes ................. 167,903 109,459 66,696 37,243 21,055
Deferred credits and other
liabilities .......................... 58,128 54,539 72,832 77,799 82,973
Stockholders' equity .................. 412,926 555,287 481,903 475,030 463,237
---------- ---------- ---------- ---------- ----------
$1,053,224 $1,319,285 $1,416,431 $1,379,752 $1,506,945
========== ========== ========== ========== ==========

CAPITAL AND EXPLORATORY
EXPENDITURES (accrual basis)
Exploration and Production
Capital ............................... $ 168,073 $ 116,224 $ 126,915 $ 101,766 $ 128,234
Exploratory expenses .................. 22,376 18,051 14,752 13,307 29,969
MEC Development, Ltd. buyout .......... -- -- -- -- 78,251
Gas services ............................ 62,655 34,233 38,358 35,111 48,628
Corporate ............................... 5,188 7,318 6,068 4,268 3,866
---------- ---------- ---------- ---------- ----------
$ 258,292 $ 175,826 $ 186,093 $ 154,452 $ 288,948
========== ========== ========== ========== ==========

OPERATING STATISTICS
Average daily volumes
Natural gas sales (Mcf) ............... 238,200 228,500 216,200 214,100 193,800
Crude oil and condensate sales (Bbls).. 6,200 5,500 5,400 6,300 6,000
Natural gas liquids produced (Bbls) ... 45,300 46,100 44,500(a) 43,400(a) 44,300(a)
Pipeline throughput (Mcf) ............. 426,000 410,000 354,000 353,000(b) 386,000(b)

Average annual sales price (dollars)
Natural gas (per Mcf) ................. $ 2.47 $ 2.64 $ 2.16 $ 2.71 $ 2.86
Crude oil and condensate (per Bbl) .... 18.50 21.50 16.91 15.75 16.31
Natural gas liquids produced (per Bbl). 13.38 16.13 11.55 11.57 12.18

Drilling program (gross wells)
Wells drilled ......................... 272 209 116 132 154
Wells completed ....................... 252 185 107 121 127
Well count at year end (gross wells) .. 3,273 3,090 3,047 3,280 3,413

STOCKHOLDERS' EQUITY
(per share at year end) ................. $ 8.42 $ 10.71 $ 9.26 $ 9.09 $ 8.78

RATIO OF EARNINGS TO FIXED CHARGES ...... 1.76x 2.96x 3.22x 2.01x 1.50x

CASH DIVIDENDS PER SHARE
Class A (including special dividend
of 24 cents in 1998) ................... $ .72 $ .48 $ .48 $ .48 $ .48
Class B (including special dividend
of 26 1\2 cents in 1998)................ .795 .53 .53 .53 .53

AVERAGE COMMON SHARES OUTSTANDING (Basic)
Class A ................................. 22,714 23,092 23,217 23,532 23,505
Class B ................................. 27,989 28,786 28,827 29,164 27,499
</TABLE>

- -------------------------
(a) Excludes production of plants sold in 1996 and 1995.
(b) Excluding amounts attributable to the Winnie Pipeline system which was sold
in July 1994.

<PAGE> 68

HISTORICAL SUMMARY (RESTATED)

MITCHELL ENERGY & DEVELOPMENT CORP. AND SUBSIDIARIES
- ----------------------------------------------------

Five Years Ended January 31, 1998 (in thousands except per-share data)

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Exploration and Production
(including gain of $205,256 from
natural gas contract buyout in
1996)............................. $ 262,432 $ 269,862 $ 424,661 $ 277,099 $ 266,166
Gas Services
Natural gas processing .......... 329,990 376,980 283,378 252,159 253,605
Natural gas gathering and
marketing ...................... 183,554 247,214 184,584 180,038 296,373
Gains from property, plant and
equipment sales ................ -- -- -- 48,821 --
Other ........................... 14,526 12,621 10,296 6,989 10,559
--------- --------- --------- --------- ---------
Total revenues .................. $ 790,502 $ 906,677 $ 902,919 $ 765,106 $ 826,703
========= ========= ========= ========= =========

SEGMENT OPERATING EARNINGS
Exploration and Production
Operations ...................... $ 62,528 $ 81,432 $ 35,775 $ 84,115 $ 68,186
Gain from natural gas contract
buyout ......................... -- -- 205,256 -- --
Litigation provision ............ (7,000) (10,000) (15,000) -- --
Personnel reduction program
costs .......................... -- -- (7,935) -- --
Severance tax refunds ........... -- 5,935 -- -- --
Columbia Gas contract
settlement proceeds ............ -- 3,444 -- -- --
Gains from asset sales .......... 2,382 -- 5,338 3,791 --
Gas Services
Natural gas processing .......... 28,330 69,110 30,994 23,253 20,088
Natural gas gathering and
marketing ...................... 21,982 27,589 14,063 12,335 18,742
Other ........................... 13,192 11,397 9,059 (846) 3,829
--------- --------- --------- --------- ---------
Operations subtotal ........... 63,504 108,096 54,116 34,742 42,659
Asset write-downs ............... -- -- (52,715) (23,888) --
Litigation provision ............ (26,000) -- -- -- --
Gains from major asset sales .... -- -- -- 48,821 --
Personnel reduction
program costs .................. -- -- (3,600) (7,364) --
--------- --------- --------- --------- ---------
Total segment operating
earnings ..................... 95,414 188,907 221,235 140,217 110,845
General and administrative
expense .......................... 31,978 30,823 35,760* 33,472 34,230
Interest expense attributable to
continuing operations ............ 27,419 22,775 27,341 32,958 37,084
Interest income ................... (8,899) (650) (111) (108) (234)
Other expense ..................... (5,819) 2,202 2,113 3,685 (3,986)
--------- --------- --------- --------- ---------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ... 50,735 133,757 156,132 70,210 43,751
Income taxes ...................... 12,909 47,456 55,420 24,627 12,419
--------- --------- --------- --------- ---------
EARNINGS FROM CONTINUING
OPERATIONS ....................... 37,826 86,301 100,712 45,583 31,332

AFTER-TAX EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS
(including $67,123 loss on
disposal in 1998) ................ (59,683) 16,925 (63,583) 231 (4,015)
--------- --------- --------- --------- ---------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM ............... (21,857) 103,226 37,129 45,814 27,317
Extraordinary item (extinguishment
of debt) ......................... (13,250) -- -- -- (2,713)
--------- --------- --------- --------- ---------
NET EARNINGS (LOSS) ............... $ (35,107) $ 103,226 $ 37,129 $ 45,814 $ 24,604
========= ========= ========= ========= =========
EARNINGS PER SHARE
(Basic and Diluted)
Class A - From continuing
operations ....................... $ .71 $ 1.64 $ 1.91 $ .84 $ .64
Net earnings (loss) .... (.66) 1.96 .69 .84 .45
Class B - From continuing
operations ....................... .77 1.68 1.96 .89 .69
Net earnings (loss) .... (.72) 2.01 .74 .89 .51
</TABLE>

- ---------------
*Includes $4,532 of personnel reduction program costs.

<PAGE> 69

Board of Directors

<TABLE>
<S> <C> <C>
George P. Mitchell Shaker A. Khayatt (1) M. Kent Mitchell (1) (3)
Chairman and Chief Executive Officer, President and Chief Executive Officer, President and Chief Executive Officer,
Mitchell Energy & Development Corp. Khayatt and Company, Inc. Bald Head Island Management, Inc.
(investment banking), (real estate development),
Bernard F. Clark New York City Bald Head Island, North Carolina
Vice Chairman,
Mitchell Energy & Development Corp. Ben F. Love (2) (3) Constantine S. Nicandros (2)
Consultant; Advisory Director, Chairman,
W. D. Stevens (3) Texas Commerce Bank, N.A., and CSN and Company
President and Chief Operating Officer, retired Chairman and (investment and consulting);
President--Exploration and Chief Executive Officer, retired Chairman, President and Chief
Production, Texas Commerce Bancshares, Executive Officer, Conoco and Vice
Mitchell Energy & Development Corp. Houston Chairman, DuPont,
Houston
Robert W. Baldwin (1) Walter A. Lubanko (2)
Consultant (energy/management); Chairman and President, Raymond L. Watson (1)
retired President, Gulf Refining W.A. Lubanko & Co., Inc. Chairman,
and Marketing Company (investment banking), Executive Committee
(a division of Gulf Oil Corp.), Houston Brookville, New York of the Board of Directors,
The Walt Disney Company
William D. Eberle (1) (3) J. Todd Mitchell (3) (entertainment),
Chairman, President, Burbank, California;
Manchester Associates, Ltd. The Discovery Bay Company Vice Chairman,
(international business consulting), (seismic software) and The Irvine Company
Boston; Of Counsel on trade issues to Dolomite Resources, Inc. (real estate development),
Kaye, Scholer, Fierman, Hays and (exploration and investments), Newport Beach, California
Handler (attorneys), Houston
Washington, D.C. J. McDonald Williams (2)
Chairman,
Trammell Crow Company
(real estate services),
Dallas
</TABLE>

(1) Compensation Committee
(2) Audit Committee
(3) Executive Committee Principal Officers

<PAGE> 70
[PHOTO]

[CAPTION ILLEGIBLE]

PRINCIPAL OFFICERS

George P. Mitchell
Chairman and Chief Executive Officer

Bernard F. Clark
Vice Chairman

W. D. Stevens
President and Chief Operating Officer,
President--Exploration and Production Division

Philip S. Smith
Corporate Senior Vice President,
Chief Financial Officer, and
President--Administration and
Financial Division

Allen J. Tarbutton, Jr.
Corporate Senior Vice President,
President--Gas Services Division

Thomas P. Battle
Corporate Senior Vice President,
General Counsel and Secretary
Corporate Information

68
<PAGE> 71
CORPORATE INFORMATION

Stock Listings

New York Stock Exchange
The Pacific Stock Exchange
Ticker Symbols: MNDA and MNDB
Options Trading: The Pacific Stock Exchange

Transfer Agent and Registrar

ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, N.J. 07660-2104
Phone: (800) 635-9270

Annual Meeting

10 a.m. CDT
Wednesday, June 24, 1998
Mitchell Learning Center Auditorium
2002 Timberloch Place, 3rd Floor
The Woodlands, Texas 77380-1148

Form 10-K

Copies of the Company's
Form 10-K are available upon request to:
Public Affairs Department
Mitchell Energy & Development Corp.
P.O. Box 4000
The Woodlands, Texas 77387-4000
Phone: (713) 377-5650

Worldwide Web

http://www.mitchellenergy.com

<PAGE> 1

Exhibit 21

Mitchell Energy & Development Corp.
SUBSIDIARIES

Listings of the Company's major subsidiaries and partnership interests at
January 31, 1998 follow. These entities, along with others which in the
aggregate are not significant, are included in the financial statements
appearing in the Company's Annual Report to Stockholders. Parent/subsidiary
relationships are indicated by indentions. Except where otherwise indicated,
each subsidiary is incorporated in Delaware and is 100% owned by its parent.

CONSOLIDATED SUBSIDIARIES
MND Energy Corporation
Mitchell Energy Corporation
Southwestern Gas Pipeline, Inc.
Acacia Natural Gas Corporation (Oklahoma)
Mitchell Gas Operating, Inc. (MGOI)
Mitchell Louisiana Gas Services, Inc. (MLGS)
MND Gas Service, LLC

MND Service, Inc.
Mitchell Resorts, Inc.
Mitchell Catamount, Inc. (Texas)

The Woodlands Venture Capital Company

PARTNERSHIP INTERESTS (accounted for on equity basis)
Mitchell Gas Services LP (MGSLP) (99% owned by MND Gas Service, LLC and 1%
owned by MGOI)
Austin Chalk Natural Gas Marketing Services (45% owned by MGSLP)
Belvieu Environmental Fuels (33.33% owned by MGSLP)
C&L Processors Partnership (50% owned by MGSLP)
Ferguson-Burleson County Gas Gathering System (45% owned by MGSLP)
Gulf Coast Fractionators (38.75% owned by MGSLP)
Louisiana Chalk Gathering System (50% owned by MLGS)
UP Bryan Plant (45% owned by MGSLP)

<PAGE> 1

Exhibit 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this Form
10-K, into the Company's previously filed Form S-8 Registration Statement Nos.
2-74458, 2-86550, 2-93380, 33-26276, 33-31446 and 333-06981 and into previously
filed Form S-3 Registration Statement Nos. 33-57332 and 33-61070.

ARTHUR ANDERSEN LLP

Houston, Texas
March 27, 1998

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 105,309
<SECURITIES> 0
<RECEIVABLES> 113,611
<ALLOWANCES> 326
<INVENTORY> 14,479
<CURRENT-ASSETS> 267,720
<PP&E> 2,285,806
<DEPRECIATION> 1,331,139
<TOTAL-ASSETS> 1,251,973
<CURRENT-LIABILITIES> 198,749
<BONDS> 414,267
0
0
<COMMON> 5,386
<OTHER-SE> 407,540
<TOTAL-LIABILITY-AND-EQUITY> 1,251,973
<SALES> 788,120
<TOTAL-REVENUES> 790,502
<CGS> 0
<TOTAL-COSTS> 695,088
<OTHER-EXPENSES> 17,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,419
<INCOME-PRETAX> 50,735
<INCOME-TAX> 12,909
<INCOME-CONTINUING> 37,826
<DISCONTINUED> (59,683)
<EXTRAORDINARY> (13,250)
<CHANGES> 0
<NET-INCOME> (35,107)
<EPS-PRIMARY> (.66)<F1>
<EPS-DILUTED> (.66)<F2>
<FN>
<F1>Class A Shares (.66)
Class B Shares (.72)
<F2>Class A Shares (.66)
Class B Shares (.72)
</FN>

</TABLE>

<PAGE> 1

Exhibit 99

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

FORM 11-K

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

FOR THE FISCAL YEAR ENDED JANUARY 31, 1998

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

Commission file number 1-6959

-------------

MITCHELL ENERGY & DEVELOPMENT CORP.
THRIFT AND SAVINGS PLAN

-------------

MITCHELL ENERGY & DEVELOPMENT CORP.
(Name of issuer of securities held pursuant to the Plan)

P. O. Box 4000, The Woodlands, Texas 77387-4000
(Address of Plan and principal executive office of issuer)

The financial statements and schedules of the Mitchell Energy & Development
Corp. Thrift and Savings Plan required to be filed on Form 11-K by Section 15(d)
of the Securities Exchange Act of 1934 will be filed as an amendment to this
Form 10-K.