MESA INC, PRER14A, 1995-08-31

MESA INC
PRER14A, 1995-08-31
CRUDE PETROLEUM & NATURAL GAS

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

MESA INC.

(Name of Registrant as Specified In Its Charter)

MESA INC.

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:
________________________________________________________________________

2) Aggregate number of securities to which transaction applies:
________________________________________________________________________

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined).
________________________________________________________________________

4) Proposed maximum aggregate value of transaction:
________________________________________________________________________

5) Total fee paid:
________________________________________________________________________

[x] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

________________________________________________________________________

2) Form, Schedule or Registration Statement No.:

________________________________________________________________________

3) Filing Party:

________________________________________________________________________

4) Date Filed:

________________________________________________________________________
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PRELIMINARY COPY August , 1995

MESA INC.

1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039-3746

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

PROXY STATEMENT

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

This Proxy Statement (this "Proxy Statement") is furnished by the members of
the Board of Directors of MESA Inc. (other than David H. Batchelder and Dorn
Parkinson) (the "Majority Directors") in connection with an anticipated
solicitation of written requests for a special meeting of shareholders of MESA
Inc. by Dennis R. Washington, Marvin Davis and certain of his affiliates (the
"Davis Entities"), David H. Batchelder and Dorn Parkinson (collectively, the
"13D Group"). Unless the context otherwise requires, references herein to "the
Company" or "MESA" are to MESA Inc. and its subsidiaries and predecessors
viewed as a single entity. This Proxy Statement is first being made available
to shareholders on or about August [ ], 1995.

NO FORM OF PROXY, CONSENT OR REVOCATION IS INCLUDED WITH THIS PROXY
STATEMENT, AND THE MAJORITY DIRECTORS ARE NOT REQUESTING ANY PROXY, CONSENT OR
REVOCATION AT THIS TIME. IT IS NOT THE PURPOSE OF THIS PROXY STATEMENT TO
OBTAIN PROXIES TO VOTE ON THE ISSUES THAT WOULD BE PRESENTED AT A SPECIAL
MEETING. IF A SPECIAL MEETING IS CALLED, THE MAJORITY DIRECTORS WILL DELIVER
TO SHAREHOLDERS A PROXY STATEMENT AND WILL SOLICIT PROXIES WITH RESPECT TO THE
ISSUES TO BE VOTED UPON AT THE SPECIAL MEETING.

This Proxy Statement is being furnished to shareholders with whom the
Company or the Majority Directors are having communications that could be
deemed to constitute solicitations under the federal proxy rules. This Proxy
Statement is intended to facilitate communications between the Company and
shareholders of the Company during the time a proxy solicitation could be
deemed to occur under such rules.

BACKGROUND

Beginning in early 1994 and continuing thereafter, the Company's annual and
quarterly reports filed with the Securities and Exchange Commission (the
"SEC") and the Company's presentations to securities analysts and portfolio
managers discussed the Company's deleveraging objectives and efforts and the
possibility that the Company would have to issue new equity or debt securities
or sell assets to reduce its debt. Long-term debt aggregated $1.2 billion at
year-end 1994. In the spring of 1994, the Company sold 16.3 million shares of
Common Stock for approximately $93 million. The Company's two major assets are
its Hugoton Field natural gas properties, with 65% of the Company's proved
reserves, and its West Panhandle Field natural gas properties, with 31% of the
Company's proved reserves. Beginning in late summer of 1994 and continuing
into the fall of 1994, the Company explored on a preliminary basis several
potential transactions, including asset sales, the sale of interests in a
royalty trust based on the Hugoton Field properties and a production payment
financing in the Hugoton Field properties. These activities included
preliminary discussions with investment bankers and potential parties to such
transactions. In late fall of 1994, the chairman of another oil and gas
company contacted Boone Pickens, the chairman and chief executive officer of
the Company, to say he would like to explore making a proposal to purchase of
all of the Company's Hugoton Field properties. Mr. Pickens said the Company
would be interested in pursuing that effort.

On December 5, 1994, Mr. Batchelder, a former officer of the Company's
predecessor, met at Mr. Batchelder's request with Mr. Pickens. Mr. Batchelder
informed Mr. Pickens that he was the financial advisor to Mr. Washington and
that Mr. Washington had acquired shares of MESA Common Stock having a value of
just under $15 million and constituting less than 5% of the outstanding
shares. Mr. Batchelder said that Mr. Washington would soon make a filing
regarding MESA shares under the Hart-Scott-Rodino Antitrust Improvements Act.

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On December 6, 1994, Mr. Washington made such a filing, notifying the
Company and federal antitrust authorities that he had a present good faith
intention to acquire more than $15 million of the outstanding Common Stock of
the Company and, depending on market conditions, might acquire more of such
shares. His notification designated the 25% acquisition threshold, which had
the effect of permitting him, following the applicable waiting period, to
acquire up to 49.9% of the outstanding shares without further notification
under the Hart-Scott-Rodino Act. The authorities granted early termination of
the waiting period later in December.

In mid-December 1994, the other oil and gas company referenced above entered
into a confidentiality agreement with the Company, and its representatives had
meetings with representatives of the Company to obtain information about the
Hugoton properties for purposes of preparing a proposal regarding the
properties.

In a December 19 conference call, the Board of Directors discussed such
other company's indication of interest in the Hugoton Field properties and
concluded that the Company, in addition to continuing discussions with such
company, should conduct a broader solicitation of proposals to purchase the
Hugoton Field properties. On December 20, 1994, the Company announced that it
would consider the sale of all or a substantial portion of its Hugoton Field
oil and gas properties, that proceeds from any such sale would be used to
reduce the Company's debt and that details of the time and method of sale
efforts would be announced at a later date. On December 21, 1994, the other
oil and gas company referenced above advised Mr. Pickens that, subject to
certain conditions, it had an interest in purchasing a portion of the
Company's Hugoton Field properties for a specified price. Mr. Pickens replied
that the Company would like to continue property sale discussions with such
company, but that the price indicated was not sufficient to preempt a broader
solicitation of offers. The Company commenced an auction program in January
1995.

By letter dated February 17, 1995, pursuant to a provision of the Company's
Bylaws, Mr. Washington notified the Company of his wish to nominate three
candidates for election as directors at the Company's May 1995 Annual Meeting
of Shareholders (the "Annual Meeting") and his intent to cumulate votes in the
election of directors at the Annual Meeting. Mr. Washington's letter stated
that he beneficially owned at that time 2,854,900 shares of Common Stock
(which constituted approximately 4.5% of the outstanding shares).
Concurrently, Mr. Batchelder told MESA representatives that Mr. Washington had
not decided whether to nominate directors and that the notification had been
sent only to preserve his right to do so.

On April 1, 1995, after discussions with Mr. Washington's representatives,
the Company and Mr. Washington entered into an agreement (the "Washington
Agreement") pursuant to which the parties agreed that the slate of nominees to
be proposed by the Board of Directors for election at the Annual Meeting would
consist of the eight then-incumbent directors and two designees of Mr.
Washington and that Mr. Washington would vote and the parties would cause
their affiliates to vote in favor of the election of such nominees. Under the
Washington Agreement, Mr. Washington withdrew the notifications made in his
February 17 letter and agreed not to engage in any solicitation of proxies at
the Annual Meeting. Mr. Washington represented in the Washington Agreement
that he and his affiliates did not beneficially own any securities of the
Company other than 2,854,900 shares of Common Stock. The Washington Agreement
also contained provisions regarding membership of Mr. Washington's designees
on Board committees, resignation of Mr. Washington's nominees if his stock
ownership were to fall below certain levels, solicitation at the Company's
1996 annual meeting, release of certain claims and certain other matters. Mr.
Washington designated Mr. Batchelder and Mr. Parkinson as his nominees to the
Board of Directors, and they were elected to the Board at the Annual Meeting
held May 17, 1995.

On or about May 22, 1995, definitive bids were received from bidders in the
auction of the Company's Hugoton Field properties. Negotiations between the
Company and these bidders ensued.

During the week of June 5, 1995, such negotiations concluded, with the
highest offers for the properties being approximately $750 million. During
that week, one bidder, whose May 22 offer had been subject to final approval
by its board of directors, advised Mesa that its board had decided not to
approve its May 22 offer and had reduced its offer to $750 million, a
substantial reduction. On June 9, 1995, the Board of Directors held a
conference call and concluded that none of the bids received in the auction
were acceptable. All directors participating in the call, including Mr.
Batchelder, agreed with that conclusion. Mr. Parkinson did not participate

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in the call. The Board members also concluded that the Company should continue
to explore asset sale and refinancing alternatives. During the discussion, Mr.
Batchelder briefly recommended, without presenting any materials or asking for
a vote, that a sale or merger of the Company be included among the strategic
alternatives to be explored. Such recommendation was not adopted at that time.
On the next business day, June 12, 1995, the Company announced that no
acceptable bids had been received in the Hugoton Field auction. The Company's
press release further stated that it would continue to pursue asset sale and
refinancing alternatives and that it had engaged Lehman Brothers Inc. ("Lehman
Brothers") as financial advisor for this purpose.

On June 29, 1995, Mr. Washington and Marvin Davis sent a letter to the Board
of Directors of the Company asking the Board of Directors to promptly form a
committee consisting of all independent directors, with independent financial
and legal advisors, to explore all alternatives to enhance value for MESA's
shareholders. That same day, a Statement on Schedule 13D (the "Schedule 13D")
was filed with the SEC announcing that the members of the 13D Group constituted
a group with respect to MESA Common Stock. Also on June 29, 1995, Mr.
Batchelder and Mr. Parkinson sent a letter to the other directors of the
Company that, among other things, sought the appointment of a committee of
independent directors with independent advisors to explore alternatives for
enhancing shareholder value, including business combinations or a sale of the
Company. The Schedule 13D stated that as of that date the 13D Group
beneficially owned an aggregate of 6 million shares of Common Stock of MESA.

On July 3, 1995, after a conference call with the Majority Directors, the
Company filed a lawsuit regarding the Schedule 13D against the members of the
13D Group and certain other persons alleging, among other things, that the
defendants violated Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") because they have constituted a group owning more than 5% of
the Company's stock since at least late 1994 but did not file a Schedule 13D
until June 29, 1995 and because the Schedule 13D fails to disclose the
existence and identity of other members of the group. See "Litigation."

On July 6, 1995, at a special meeting, the Board approved a proposal to
expand its review of strategic alternatives to include consideration of the
sale of the Company and a stock-for-stock merger. The Board also determined to
continue to explore the sale of all or a portion of the Company's Hugoton Field
properties and to explore other restructuring alternatives. While the Board
determined that all these strategic alternatives should be explored to
determine if they would yield a superior value for shareholders, the Board did
not make any determination at such meeting that the Company would be sold or
merged, that any property sale or other restructuring alternative would be
implemented or that any such transaction would be in the best interests of
shareholders. Any determination by the Board to implement any particular
transaction would be made following the exploration of the alternatives or in
response to a proposal for a specific transaction. The Board authorized Lehman
Brothers to seek indications of interest from potential buyers of the Company
or its properties and of potential merger partners for the Company, both
domestic and foreign. The Board determined that all the strategic alternatives
would be explored under the direction of MESA's entire Board of Directors and
with the advice of Lehman Brothers and Company counsel, and not by a separate
committee with separate financial and legal advisors. At the meeting, the Board
adopted a timetable for the process recommended by Lehman Brothers. The
timetable calls for the Company to receive final bids by late November and to
complete definitive documentation for any transactions approved by the Board by
year-end 1995. Lehman Brothers stated that this timetable is aggressive and may
not be met, especially because of the timing requirements of bidders. Messrs.
Batchelder and Parkinson voted against this proposal, stating that their
opposition was based on the fact that the proposal did not contemplate a
separate committee with separate advisors.

At the July 6, 1995 meeting, the Board also approved a proposal that the
Company adopt a limited-term shareholder rights plan (the "Rights Plan").
Messrs. Batchelder and Parkinson voted against the Rights Plan proposal. The
provisions of the Rights Plan would be triggered if a person or group acquired
beneficial ownership of 10% or more of the Common Stock after July 6, 1995,
except pursuant to a "Permitted Offer" -- a tender or exchange offer that meets
certain criteria, as described under "Rights Plan" below. However, if any
person or group beneficially owned more than 10% of the Common Stock on July 6,
1995, the Rights Plan would not be triggered unless that person or group were
to obtain beneficial ownership of more than 100,000 additional shares.

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If triggered, the Rights Plan would allow all shareholders, other than the
person or group exceeding the ownership threshold, to purchase Common Stock at
a 50% discount. At this meeting, Mr. Batchelder and Mr. Parkinson were invited
to raise either at the meeting or at a subsequent Board meeting any questions
or comments they might have with respect to the sale process, the engagement of
Lehman Brothers and the adoption of the Rights Plan.

Also on July 6, 1995, following the special meeting of the Board, the 13D
Group announced that in light of the decision of MESA's Board of Directors not
to appoint a committee of independent directors, the 13D Group would seek to
call a special meeting of the Company's shareholders "for the purpose of
electing a majority of directors committed to exploring all alternatives for
maximizing shareholder value."

On July 11, 1995, Mr. Batchelder and Mr. Parkinson sent a letter to the other
members of the Board of Directors raising questions about the adequacy of the
process being followed to explore strategic alternatives and the commitment of
Board members to exploring a possible sale or merger of the Company. The letter
also raised questions relating to the Company's Rights Plan.

Also on July 11, 1995, Mr. Washington sent a letter to the Company requesting
the right to inspect the Company's share transfer records pursuant to the
provisions of the Texas Business Corporation Act (the "TBCA"). On July 18,
1995, the Company notified Mr. Washington that such portion of the requested
information which was in the Company's possession or control or which could be
obtained from the transfer agent for the Common Stock would be made available
for examination by him or his agents upon his satisfaction of the eligibility
requirements for such examination under the TBCA. On July 27, 1995, the Company
delivered copies of such share transfer records to Mr. Washington through his
agent.

On July 20, 1995, the Board of Directors held a special meeting primarily to
elaborate on the initiatives adopted by the Board at the July 6, 1995 Board
meeting and to discuss the questions raised by Mr. Batchelder and Mr. Parkinson
in their letter to the other directors dated July 11, 1995. At this meeting,
Lehman Brothers made a presentation to the Board and the Board reaffirmed its
commitment to explore a broad range of strategic alternatives to enhance
shareholder value, including the possible sale or merger of the Company. The
Board also amended the Permitted Offer exception of the Rights Plan in certain
respects, as described under "Rights Plan" below.

One of the questions relating to the Rights Plan raised by Mr. Batchelder and
Mr. Parkinson in their July 11 letter to the other directors related to a
clause in the definition of "beneficial ownership" in the Rights Plan that has
the practical effect of requiring that a shareholder who solicits requests for
a special meeting or other proxies or consents from shareholders must (in order
to avoid triggering the Rights Plan) solicit the same in a public solicitation
of revocable proxies or consents made in accordance with the SEC's proxy rules,
rather than in a private solicitation of ten or fewer shareholders (which would
be exempt from the filing requirements under the SEC's proxy rules). In their
letter, Mr. Batchelder and Mr. Parkinson asked whether there was any precedent
in other rights plans for such a definition and whether the requirement that
requests for a special meeting be solicited publicly would affect the ability
of shareholders to call a special meeting. At the July 20 meeting, counsel for
the Company told the Board that the "public" proxy solicitation requirement was
conventional in rights plans. Counsel cited an annually published compilation
of rights plans for a recent six-year period that contained 31 representative
rights plans, and noted that 30 of those plans included the public solicitation
requirement. In addition, counsel noted that such a requirement was included in
certain rights plans recently prepared by the two law firms representing the
13D Group. Counsel also suggested that requiring that the solicitation be
public is fair because (i) it means there are written materials that tell
shareholders who is soliciting and why, (ii) those materials are publicly
available so all shareholders can be informed about what is happening and (iii)
it requires revocable proxies, so shareholders can change their mind after
executing a proxy if they wish to do so. Counsel also suggested that the public
solicitation requirement should not impose any significant expense burdens or
time delays on the 13D Group's efforts to call a special shareholders meeting
since the necessary proxy statement was relatively simple to prepare and would
be required to be photocopied and distributed only to those stockholders
actually solicited (which, under Mr. Batchelder's and Mr. Parkinson's
assumption, would be ten or fewer holders), and since shareholders could be
contacted during the period of SEC review of the filing.

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On August 8, 1995, the 13D Group filed a preliminary proxy statement with
the SEC with respect to its proposal to call a special meeting of the
Company's shareholders. The preliminary proxy statement, as subsequently
revised, states that the purpose of the solicitation would be to obtain
sufficient written requests from shareholders to call a special meeting, at
which shareholders would be asked to vote for or approve (i) the removal of
all directors serving on the Board at the date of such meeting, (ii) an
amendment to the Company's Bylaws to provide that the Board shall consist of
eight directors, which number may be increased or decreased by the Board,
(iii) the election of the eight nominees of the 13D Group to replace the
directors so removed and (iv) a resolution to rescind any measures the Board
may take prior to the special meeting that would contravene or impede the
purposes of the foregoing proposals. The proxy materials indicate that the 13D
Group is soliciting all shareholders with respect to calling a special
meeting, not just ten or fewer as suggested by Mr. Batchelder and Mr.
Parkinson at the July 20 Board meeting. In an amendment to its Schedule 13D
filed with the SEC on August 7, 1995, the 13D Group stated that it will not
immediately seek to call a special meeting, but will communicate with
shareholders with respect to certain matters, and that it will determine in
its sole judgment whether and when to seek to call a special meeting.

On August 15, 1995, John L. Cox, who had been one of the Majority Directors,
resigned from the Board of Directors, citing personal reasons.

On August 22, 1995, at a regular meeting, the Board of Directors received a
report from Lehman Brothers regarding the proposal solicitation process.
Lehman Brothers reported that it had contacted more than 130 domestic and
foreign companies and that approximately 50 of those companies had already
expressed an interest in reviewing the reserve and financial data necessary to
participate in the process. At that meeting, the Board of Directors also
received a report from management and an independent compensation consulting
firm regarding change in control severance arrangements. The Board then
adopted the MESA Inc. Change in Control Retention/Severance Plan, which is
intended to encourage MESA's officers and employees to remain in the Company's
employment while it pursues strategic alternatives. Under the plan, officers
and employees would receive certain severance benefits in the event of
termination or constructive termination of employment following a change in
control (as defined) of the Company. Messrs. Batchelder and Parkinson voted
against the adoption of the plan. The independent compensation consulting firm
advised the Board that the plan is conservatively in line with common
practices. See Appendix II hereof, "Employee Retention Provisions," for a
summary of the plan.

ADDITIONAL INFORMATION REVEALED IN LITIGATION DISCOVERY

Discovery in the Company's lawsuit against the 13D Group (see "Litigation")
commenced in mid-July 1995. Such discovery has revealed to the Company that,
during the late summer and early fall of 1994, Mr. Batchelder recruited at
least four persons in addition to Mr. Washington and the Davis Entities to
acquire MESA Common Stock, and such four persons acquired prior to December
1994 (and continue to own as of a recent date) an aggregate of 5,588,000
shares of Common Stock, representing approximately 8.7% of the outstanding
shares. Discovery has also revealed that three of such persons acquired their
shares (an aggregate of 4,746,200 shares) pursuant to written agreements with
Mr. Batchelder's company, Batchelder & Partners, Inc. ("BPI"), in which, among
other things, the investors agreed to pay BPI 15% of certain profits that
might be realized by such investors on such MESA shares. Such agreements are
similar in nature to written agreements between BPI and Mr. Washington and the
Davis Entities, respectively, that were entered into effective July 1994. The
agreements with the other three persons were purportedly unilaterally
terminated by BPI in June 1995. Discovery has also revealed sequential
purchasing of shares at separate intervals and other facts that the Company
believes show a pattern of coordination in the purchases of MESA shares by Mr.
Davis, Mr. Washington and such other investors through Mr. Batchelder and
their brokers. The Company's lawsuit asserts that at least three such other
investors, in addition to Mr. Washington and the Davis Entities, became part
of a "hub-and-spoke" group with respect to MESA shares for which Mr.
Batchelder and BPI were the "hub," and that such group was required to, but
did not, file a Schedule 13D under Section 13(d) of the Exchange Act once the
group members had acquired in the aggregate more than 5% of the Common Stock
in August 1994.

Discovery in the lawsuit has also revealed that, during the late summer and
early fall of 1994, Mr. Batchelder and BPI developed and presented to certain
of these shareholders books entitled "Project Boot"

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outlining plans for, among other things, acquiring control of MESA through
acquisitions of shares, business combinations or other transactions, as well as
a proxy contest. Discovery has also revealed that in mid-1994, Mr. Batchelder
and BPI also made presentations to certain other oil and gas companies
recommending that they retain BPI as merger and acquisition advisor for the
purpose of an attempt to acquire MESA. Notwithstanding Mr. Batchelder's
recruitment of such investors and his efforts to initiate an acquisition of
MESA, Mr. Batchelder maintained to representatives of MESA on several occasions
from and after December 1994 in discussions regarding Mr. Washington's
investment in MESA that Mr. Batchelder had "no hidden agenda" with respect to
MESA, and the 13D Group is currently taking the position that it has no present
intention of attempting to gain control of the Company through an acquisition
of shares, business combination or other transaction. In light of the
foregoing, the Majority Directors question the credibility of that announced
position.

POSITION OF THE MAJORITY DIRECTORS

The Majority Directors believe that the 13D Group's activities have disrupted
the Company's efforts to explore all strategic alternatives to enhance
shareholder value. While recognizing that it is the shareholders' right to call
a special meeting in accordance with the Company's charter and bylaws, the
Majority Directors believe that any such meeting will create an additional
significant distraction to this process of exploring alternatives. If a special
meeting is held, the Majority Directors expect to oppose the 13D Group's
efforts to remove and replace the Majority Directors.

The Majority Directors believe that the Board has taken the actions necessary
to commence the process of exploring all alternatives for maximizing
shareholder value, and the Majority Directors are committed to seeing the
process through to conclusion. However, notwithstanding the Board's
determination on July 6, 1995 to expand its review of strategic alternatives to
include the sale or merger of the Company, the Board's engagement of Lehman
Brothers as its independent financial advisor to manage the solicitation effort
and to seek potential merger partners and purchasers for the Company and its
assets, the Board's reaffirmation on July 20, 1995 of its commitment to explore
a broad range of strategic alternatives to enhance shareholder value and the
Board's adoption of an aggressive timetable (now in progress) in which to
conduct this process, the 13D Group has continued to repeatedly question the
credibility of the process undertaken by the Board to explore the strategic
alternatives available to the Company. The Majority Directors believe that the
13D Group's continued attacks on the process are not only invalid, but that
they threaten to disrupt the process undertaken by the Company and Lehman
Brothers, thus undermining the Majority Directors' efforts to enhance
shareholder value. To the extent that the Majority Directors and management
must devote significant time and effort to opposing the 13D Group's attempt to
remove and replace the Majority Directors, management and the Majority
Directors will be distracted from the more important objective of increasing
shareholder value through the proposal solicitation process.

RIGHTS PLAN

The provisions of the Rights Plan are triggered if a person or group acquires
beneficial ownership of 10% or more of the Common Stock after July 6, 1995,
except pursuant to a Permitted Offer--a tender or exchange offer that meets
certain criteria, as described below. However, if any person or group
beneficially owned more than 10% of the Common Stock on July 6, 1995, the
Rights Plan would not be triggered unless that person or group were to obtain
beneficial ownership of more than 100,000 additional shares. If triggered, the
Rights Plan would allow all shareholders, other than the person or group
exceeding the ownership threshold, to purchase Common Stock at a 50% discount.
The Rights Plan will expire on December 31, 1996, giving it an 18-month
duration in contrast to the 10-year duration of most other rights plans.

A Permitted Offer under the Rights Plan means a tender offer or an exchange
offer commenced on or after September 30, 1995 by a bidder for all outstanding
shares of Common Stock, whether or not approved by the Board, (i) that remains
open for at least 50 business days; (ii) pursuant to which the bidder together
with its affiliates and associates becomes the beneficial owner of 51% of the
outstanding shares of Common Stock

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immediately upon completion of such offer; (iii) if and to the extent the
consideration offered is cash, states that the bidder has obtained written
financing commitments from recognized financing sources, and/or has on hand
cash or cash equivalents, for the full amount of all financing necessary to
purchase all the shares and pay all related fees and expenses; (iv) if all or
part of the consideration offered is securities, offers a security that is to
be issued by an entity that has a consolidated net worth at least equal to that
of the Company and its consolidated subsidiaries as of June 30, 1995; and (v)
states that as promptly as practicable following the completion of such offer,
the bidder will propose and seek to consummate a merger of the Company with the
bidder (or a subsidiary thereof) in which each share of Common Stock not then
owned by the bidder will be converted into the same form and amount of
consideration per share as that paid in such offer.

At its July 20 meeting, the Board of Directors amended the Permitted Offer
exception in the Rights Plan to reduce the percentage of the outstanding shares
of Common Stock that the bidder together with its affiliates and associates
must beneficially own immediately upon completion of an offer for it to be
considered a Permitted Offer from 75% to 51%, and to clarify that other
conditions to a Permitted Offer must be satisfied both at and after the
commencement thereof.

The Majority Directors believe that the Rights Plan's Permitted Offer
exception and its 18-month duration make the Rights Plan significantly
different from most other rights plans, although it, like the other rights
plans, is designed to deter certain bidder-favorable takeover tactics. The
Rights Plan is designed to ensure that any takeover proposal to the Company's
shareholders receives adequate time for evaluation and for the emergence of
competing bids and to deter tactics such as partial bids and street sweeps--but
not to prevent shareholders from deciding for themselves whether to accept an
offer that constitutes a Permitted Offer, whether or not such offer is approved
by the Board of Directors.

The Rights Plan has a number of effects that are potentially advantageous to
shareholders. It can be used to defend against an inadequate takeover proposal
(unless the acquisition is a Permitted Offer) or a partial or front-end loaded
tender offer. Because only the Board of Directors can redeem the Rights, the
Rights Plan could enable the Board to exercise increased leverage in
negotiating on behalf of shareholders and enable the Board to reject an offer
that does not qualify as a Permitted Offer and that the Board determines is not
in the best interests of shareholders. Such negotiating leverage may also be
useful in seeking to compel any potential acquiror to pay a higher price for
the Company if a determination is made that the Company should be sold; it
should be noted, however, that an offer that qualifies as a Permitted Offer
need not satisfy any minimum price criteria. The Rights Plan could also provide
the Board of Directors more time to respond to a tender offer than the minimum
20 business days allowed by the federal tender offer rules. The additional time
could allow the Board to negotiate with the original bidder or other potential
bidders, to formulate a restructuring or recapitalization or to develop another
response to the tender offer. In an auction of the Company, the Rights Plan
could be used, subject to offers that qualify as Permitted Offers, to prevent
one bidder, who may have a tactical or timing advantage, from gaining control
of the Company before the auction has run its course. There can be no assurance
that the Rights Plan will have any or all of these advantages.

The Rights Plan may also have effects that are disadvantageous. The Rights
would cause substantial dilution to any person or group that were to become the
beneficial owner (as determined under the Rights Plan) of 10% or more of the
outstanding shares of Common Stock without the approval of the Company's Board
of Directors, unless such acquisition were pursuant to a Permitted Offer. As a
result, the overall effect of the Rights may be to render more difficult the
accomplishment of certain mergers and acquisitions that are not Permitted
Offers or the assumption of control by a principal shareholder or group, thus
making more difficult the removal of management. This could be the result even
if such measures are supported by holders of a large number of shares. The
adoption of the Rights Plan has been made the subject of certain litigation
(see "Litigation"), and in the event of any unsolicited takeover attempt, there
could be additional legal challenges to the adoption of the Rights Plan or to a
refusal by the Board of Directors to redeem the Rights. The Rights Plan also
could result in heightened judicial scrutiny of director actions and place the
Board of Directors under pressure to redeem the Rights in connection with
acquisition proposals that are conditioned upon the Board's redeeming the
Rights or that proffer a higher price if the Rights are redeemed. Additionally,
adoption of the Rights Plan may raise discontent among some shareholders and
lead to shareholder proposals to redeem the Rights Plan. There can be no
assurance that the Rights Plan will not have other disadvantages.

For a more complete summary of the provisions of the Rights Plan, see
Appendix I hereto.

7
<PAGE>

CERTAIN INFORMATION REGARDING THE MAKING OF SOLICITATIONS

Communications that could be deemed solicitations may be made by mail,
telephone, telegram, facsimile transmission and other electronic communication
methods or in person. Communications that could be deemed solicitations may be
made by the Majority Directors, certain officers, representatives and regular
employees (who will receive no additional compensation beyond their regular
salaries) of the Company. Press releases by the Company and other published
statements could also be deemed to constitute solicitations. In the event that
the Company requests brokers and other custodians or nominees to forward this
Proxy Statement to beneficial owners of Common Stock, the Company will
reimburse such persons for their out of pocket expenses.

The entire expense of this Proxy Statement and any solicitations relating
hereto by the Company or the Majority Directors will be borne by the Company.
Costs and expenses incidental to this Proxy Statement and any such
solicitations include expenditures for legal and related expenses incurred in
preparing and filing this Proxy Statement and furnishing it to shareholders.
Certain travel costs may also be deemed to constitute solicitation costs. All
such costs are expected to total approximately $[ ]. Costs incurred as
of August [ ], 1995 are approximately $[ ].

CERTAIN INFORMATION REGARDING CALL OF A SPECIAL MEETING

At the date hereof, there are 64,050,009 shares of Common Stock outstanding.
Each share of Common Stock is entitled to one vote on all matters that come
before shareholders, except that cumulative voting is allowed in the election
of directors.

Under the Articles of Incorporation and Bylaws of the Company and the TBCA,
the Secretary of the Company is required to call a special meeting of the
shareholders upon the written request of holders of shares entitled to cast
not less than 20% of all the votes entitled to be cast at such a meeting. The
TBCA provides that the record date for determining shareholders entitled to
call a special meeting may be stated in or fixed in accordance with the
Bylaws. The Bylaws provide that the Board of Directors shall have the
exclusive authority to fix, in advance, a record date in order to make a
determination of shareholders for any proper purpose, and that such date shall
be not more than 60 days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. New York Stock
Exchange rules require that the Company provide the Exchange with at least 10
days advance notice of any record date. The record date for the determination
of shareholders entitled to call a special meeting, as fixed by the Board, is
[ ], 1995.

The Bylaws further provide that upon receipt of any such request for a
special meeting and of a statement containing certain information as to the
business to be brought before the meeting and the shareholders who intend to
propose such business, the Board of Directors shall set a date for the special
meeting, fix the record date for the determination of shareholders entitled to
vote at the special meeting and direct the appropriate officer to give proper
notice of the meeting to the shareholders. The Bylaws require the above-
described statement to be

8
<PAGE>

given to the Company 80 days in advance of any annual or special meeting of
shareholders, unless the meeting date is not publicly announced at least 90
days in advance of such meeting, in which case the statement must be received
within 10 days after the first public announcement of the date of such meeting.
The Bylaws provide that shareholders may not bring business before a meeting or
make nominations at a meeting unless done so in accordance with the Bylaws
requiring such statement.

The Bylaws also provide that the Board of Directors shall designate an
independent third party not affiliated with the Company or any other third
party soliciting proxies, to collect, count and hold all proxies and ballots
that identify shareholders. The Company believes that the Bylaw provision
requiring independent and confidential collection and counting of proxies helps
assure the integrity of the proxy process and is in the best interests of the
shareholders and the Company. The 13D Group has not yet requested that the
Board designate an independent third party for the collection of its proxies.
Because the Majority Directors are not seeking forms of proxy or revocation in
connection with the call of a special meeting, no independent collection agent
is required for their activities at this time.

LITIGATION

On July 3, 1995, the Company filed a complaint in United States District
Court for the Northern District of Texas against the members of the 13D Group
and certain other persons. The complaint alleges, among other things, that the
defendants violated Section 13(d) of the Securities Exchange Act because they
had constituted a group owning more than 5% of the Company's stock since at
least late 1994 but did not file a Schedule 13D until June 29, 1995. The
complaint further alleges that the Schedule 13D ultimately filed by the 13D
Group was false and misleading in certain respects and failed to disclose
certain material information, including the existence and identity of other
members of the group. The complaint requests the court to preliminarily and
permanently enjoin defendants, their agents and affiliates, and all other
persons acting in concert with them or on their behalf, directly or indirectly,
from: voting in person or by proxy any shares of MESA stock; soliciting any
proxies (including any requests to call a special shareholders meeting) from
owners of MESA stock; purchasing or otherwise acquiring any additional MESA
stock; taking any steps to replace current MESA directors with nominees of the
defendants; exercising or attempting to exercise influence and control over the
affairs of MESA; selling or disposing of MESA shares except by orderly means
designed to ensure wide public distribution; and encouraging other persons to
do any of the foregoing or otherwise acting in concert with others in the
acquisition, holding, voting, and disposition of MESA stock. The complaint also
requests entry of a judgment rescinding the Washington Agreement and compelling
the resignation of Messrs. Batchelder and Parkinson from the Board of
Directors. Discovery has commenced. See "Additional Information Revealed in
Litigation Discovery." The Court had scheduled a hearing for August 25, 1995 on
the Company's request for a preliminary injunction. On August 17, the judge to
whom the case had been assigned recused himself from the case and ordered a
continuance of the hearing. No new hearing date has been set.

On August 8, 1995, the 13D Group filed an answer denying the Company's claims
and asserting a counterclaim against MESA and the Majority Directors. The
counterclaim, as amended August 17, 1995, alleges, among other things, that
there have been undisclosed arrangements among certain of the Majority
Directors pursuant to which they acted together to acquire Common Stock in
advance of public announcements of material events involving MESA; that such
directors constituted a group owning more than 5% of the Company's Common Stock
and should have filed a Schedule 13D disclosing such arrangements; that Mr.
Pickens violated federal securities laws by purchasing and selling MESA debt
securities during the pendency of its auction of the Hugoton Field assets, but
prior to public disclosure of the prospects concerning the auction; that during
late 1994, certain of the Majority Directors violated federal securities laws
by purchasing Common Stock while in possession of material, non-public
information that they obtained pursuant to these alleged arrangements; that the
Rights Plan was implemented for the purpose of entrenching the existing Board
of Directors and management and that its adoption was a breach of fiduciary
duty and inconsistent with Texas law; and that the Rights Plan has an
unreasonably low trigger, chills proxy contests and was unreasonable in
reaction to any threat that could reasonably have been perceived by the Board
at the time of adoption. The counterclaim seeks, among other things, to enjoin
certain of the Majority Directors from voting any shares of MESA stock or
acquiring additional shares of MESA stock. The counterclaim also seeks
invalidation of the Rights Plan and compensatory damages for breach of
fiduciary duty and for unlawful trades in MESA securities.

9
<PAGE>

On July 3, 1995, Robert Strougo filed a purported class action lawsuit in the
District Court for Dallas County, Texas against the Company and the Majority
Directors (as of such date) alleging, among other things, that: the defendants
have engaged in a plan and scheme to entrench themselves in their positions of
control over the Company at the expense of plaintiff and MESA's public
shareholders; the defendants breached their fiduciary duties; the defendants'
conduct has prevented and is preventing plaintiff and the purported class from
receiving the maximum value for their shares; and plaintiff and the other
members of the purported class will suffer irreparable harm if the alleged
wrongful acts are not enjoined. The lawsuit also alleges in particular that the
defendants have breached their fiduciary duties by failing to consider a sale
of the entire Company; that the defendants have evidenced a predisposition and
determination to reject and thwart any effort to enhance shareholder value so
as to preserve and protect their emoluments and positions with the Company, and
without regard to the interests of MESA's shareholders; and that the defendants
have failed to inform themselves as to any and all potential acquirors of the
Company so as to maximize shareholder value. The lawsuit seeks declaratory
relief, preliminary and permanent injunctive relief, compensatory damages
together with interest, counsel and expert fees and expenses and such further
relief as the court deems proper.

On July 18, 1995, Deborah Eigen and Adele Brody filed a purported derivative
class action lawsuit in the United States District Court for the Northern
District of Texas against the Majority Directors (as of such date) alleging,
among other things, that the defendants breached their fiduciary duties by
failing to fully inform themselves of all available alternatives, including the
possible sale of the Company, resisting attempts to call special shareholder
meetings to elect new directors, adopting the Rights Plan and filing the
complaint against the members of the 13D Group. The complaint alleges that the
defendants have acted in an effort to prevent a change of control and to
protect their positions of control and salaries and other emoluments. The
lawsuit seeks, among other things, money damages, return to the Company of all
salaries and other remuneration paid to the defendants during the time they
were allegedly in breach of fiduciary duties, institution of policies designed
to protect and prevent conduct such as that alleged in the complaint, counsel
and expert fees and such further relief as the court deems proper.

On July 20, 1995, Herman Krangel, Lillian Krangel and Jacquelyn A. Cady filed
a purported class action lawsuit in the District Court for Dallas County, Texas
against the Company and the Majority Directors (as of such date) alleging,
among other things, that the Majority Directors have breached their fiduciary
duties by impeding rather than seeking the maximization of shareholder value,
including by adopting the Rights Plan, filing the complaint against the members
of the 13D Group, and failing to actively pursue the acquisition of the Company
by other companies or to conduct an adequate market check. In particular, the
complaint alleges that the Majority Directors have failed to inform themselves
as to all reasonable alternatives available to the Company, perform an
appropriate market check, solicit bids for the Company, put the Company up for
auction, or otherwise take appropriate steps to maximize the value of the
Company to its stockholders. The complaint alleges that the defendants' primary
concern is the entrenchment and perpetuation of their positions of control and
that statements by the Chairman of the Board indicate that the defendants have
a clear bias in favor of a restructuring plan and have a bias against and have
acted to discourage any merger, acquisition or other change in control
transaction. The lawsuit seeks, among other things, injunctive relief, a
declaration that the Rights Plan is a legal nullity, appointment of a special
committee of independent outside directors of the Company, disclosure of all
material facts to the purported class, the creation of a stockholders'
committee to protect purported class members' interests in connection with
measures to achieve maximum value for the Company's shares, recision of any
transactions inconsistent with the Board's duties, money damages, counsel and
expert fees and expenses and such further relief as the court deems proper.

On August 15, 1995, William A. Montagne, Jr. filed a purported class action
lawsuit in the District Court for Dallas County, Texas against the Company and
the Majority Directors (as of such date) containing substantially the same
allegations and seeking substantially the same relief as the July 20, 1995
lawsuit described above.

The Majority Directors believe that the claims made against them in each of
the above described actions are without merit.

10
<PAGE>

CERTAIN INFORMATION REGARDING PARTICIPANTS

The Company, each of its directors (other than Messrs. Batchelder and
Parkinson) and each of its executive officers could be deemed participants in
any solicitation by the Majority Directors in opposition to the 13D Group
(collectively, the "Participants"). Certain information relating to the
Participants, including information that has been excerpted from MESA's Proxy
Statement dated April 4, 1995, relating to the 1995 Annual Meeting, is
attached as Appendix II hereto.

BENEFICIAL OWNERSHIP INFORMATION

SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS

The following table presents certain information as to the beneficial
ownership of the Company's Common Stock as of July 31, 1995, by the current
officers and directors of the Company, individually and as a group. No
Participant is the record owner of any securities of the Company of which the
Participant is not also the beneficial owner.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE
COMMON OF COMMON
STOCK(1) STOCK
--------- ----------
<S> <C> <C>
Majority Directors:
Paul W. Cain............................................. 260,139 *
John S. Herrington....................................... 10,000 *
Wales H. Madden, Jr...................................... 22,000 *
Boone Pickens(2)......................................... 4,945,376 7.6%
Fayez S. Sarofim......................................... 1,400,000 2.2%
Robert L. Stillwell...................................... 26,500 *
J. R. Walsh, Jr.(3)...................................... 75,620 *
Officers:
Dennis E. Fagerstone..................................... 81,000 *
Stephen K. Gardner....................................... 69,229 *
Andrew J. Littlefair(4).................................. 85,938 *
William D. Ballew........................................ 51,103 *
Majority Directors and officers as a group (11 persons).... 7,026,905 10.7%
Other Directors:
David H. Batchelder(5)................................... -- *
Dorn Parkinson(5)(6)..................................... -- *
All directors and officers as a group (13 persons)......... 7,026,905 10.7%
</TABLE>
- --------
* Less than 1.0%

(1) Includes shares issuable upon the exercise of options that are exercisable
within 60 days of July 31, 1995, as follows: 1,011,250 shares for Mr.
Pickens; 250,000 for Mr. Cain; 81,000 for Mr. Fagerstone; 53,000 for Mr.
Gardner; 69,250 for Mr. Littlefair; 49,000 for Mr. Ballew; and 1,513,500
for all directors and officers as a group.

(2) The above amount includes 7,545 shares of Common Stock owned by several
trusts for Mr. Pickens' children of which he is a trustee, and over which
shares he has sole voting and investment power, although he has no
economic interest therein. The above amounts exclude 2,798 shares of
Common Stock owned by Mrs. Pickens as her separate property, as to which
Mr. Pickens disclaims beneficial ownership and with respect to which he
does not have or share voting or investment power.

(3) Excludes 1,027 shares of Common Stock owned by Mrs. Walsh as her separate
property, as to which Mr. Walsh disclaims beneficial ownership and with
respect to which he does not have or share voting or investment power.

11
<PAGE>

(4) Excludes 1,125 shares of Common Stock owned by Mrs. Littlefair as her
separate property, as to which Mr. Littlefair disclaims beneficial
ownership and with respect to which he does not have or share voting or
investment power.

(5) The beneficial ownership information for Messrs. Batchelder and Parkinson
is taken from the Schedule 13D filed by the 13D Group, of which Messrs.
Batchelder and Parkinson are members. The Schedule 13D states that the 13D
Group is the beneficial owner of 6,000,000 shares of Common Stock. Matters
relating to such Schedule 13D are the subject of a lawsuit by the Company.
See "Certain Beneficial Owners" and "Litigation."

(6) Excludes 3,800 shares of Common Stock owned by Mr. Parkinson's son as his
separate property, as to which Mr. Parkinson disclaims beneficial
ownership and with respect to which he does not have or share voting or
investment power.

SECURITY OWNERSHIP OF 13D GROUP'S NOMINEES

Proxy materials filed by the 13D Group state that seven of the eight persons
whom the 13D Group proposes to nominate for election to the Board beneficially
own no shares of Common Stock and that the eighth nominee owns 1,500 shares.
See "Litigation."

CERTAIN BENEFICIAL OWNERS

The table below sets forth certain information as of July 31, 1995,
regarding each person or "group" (as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) known by the Company to own beneficially
more than 5% of the Common Stock. Information is based on the most recent
Schedule 13D, 13F or 13G filed by such holder with the SEC, or other
information provided by the holder to the Company.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
------------------------------
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK
------------------------------------ ---------------- -------------
<S> <C> <C>
Boone Pickens.................................... 4,945,376(1) 7.6%
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039-3746
The Prudential Insurance Company of America...... 4,414,727(2) 6.9%
Prudential Plaza
Newark, New Jersey 07102-3777
13D Group........................................ 6,000,000(3) 9.4%
c/o Dennis R. Washington
Washington Corporations
101 International Way
Missoula, Montana 59807
</TABLE>
- --------
(1) See notes (1) and (2) to the table under "Security Ownership of Directors
and Officers."

(2) The Schedule 13F filed with the SEC on August 7, 1995 by The Prudential
Insurance Company of America states its ownership as of June 30, 1995.

(3) The 13D Group filed a Schedule 13D on June 29, 1995. The Schedule 13D
states that the group consists of Dennis R. Washington, Marvin Davis,
Davis Acquisition, L.P., Davis Companies, the Marvin Davis and Barbara
Davis Revocable Trust, David H. Batchelder and Dorn Parkinson. The
Schedule 13D states that Dennis R. Washington has sole voting power over
3,500,000 shares of common stock and that Davis Acquisition, L.P., Davis
Companies, the Marvin Davis and Barbara Davis Revocable Trust, and Marvin
Davis have shared voting power over the remaining 2,500,000 shares held by
the 13D Group. The Company has alleged that other parties are members of
such group and that such group's beneficial ownership exceeds 6,000,000
shares of Common Stock. See "Litigation."

12
<PAGE>

1996 STOCKHOLDER PROPOSALS

Proposals that shareholders of the Company intend to present for inclusion in
the Company's Proxy Statement and form of proxy with respect to the 1996 Annual
Meeting of Stockholders must be received by the Company at its principal
executive offices in Irving, Texas, not later than December 7, 1995.

OTHER MATTERS

If you desire a copy of the Company's Annual Report on Form 10-K or other
reports filed under the Exchange Act, you should send a written request to MESA
Inc., Stockholder Services, 1400 Williams Square West, 5205 North O'Connor
Boulevard, Irving, Texas 75039-3746, and a copy will be provided to you without
charge. A copy of the Rights Plan may be obtained, free of charge, in the same
fashion.

On behalf of the Majority Directors

-------------------------------------
Irving, Texas Boone Pickens
August [ ], 1995 Chairman of the Board and Chief
Executive Officer

13
<PAGE>

APPENDIX I

DESCRIPTION OF SHAREHOLDER RIGHTS PLAN

I-1
<PAGE>

DESCRIPTION OF SHAREHOLDER RIGHTS PLAN

On July 6, 1995, the Board of Directors declared a dividend of one right to
purchase preferred stock ("Right") for each outstanding share of the Company's
Common Stock to shareholders of record at the close of business on July 17,
1995. Each Right entitles the registered holder to purchase from the Company a
unit consisting of one one-hundredth of a share (a "Fractional Share") of
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at a purchase price of $15 per Fractional Share, subject
to adjustment (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement dated as of July 6, 1995 as it may from
time to time be supplemented or amended (the "Rights Agreement") between the
Company and American Stock Transfer and Trust Company, as Rights Agent.

Initially, the Rights will be attached to all certificates representing
outstanding shares of Common Stock, and no separate certificates for the
Rights ("Rights Certificates") will be distributed. The Rights will separate
from the Common Stock and a "Distribution Date" will occur upon the earlier of
(i) ten days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 10% or more of the
outstanding shares of Common Stock (the date of the announcement being the
"Stock Acquisition Date"), or (ii) ten business days following the
commencement of a tender offer or exchange offer that would result in a
person's becoming an Acquiring Person. In certain circumstances, the
Distribution Date may be deferred by the Board of Directors. Certain
inadvertent acquisitions will not result in a person's becoming an Acquiring
Person if the person promptly divests itself of sufficient Common Stock. If,
at the time of the adoption of the Rights Agreement, any person or group of
affiliated or associated persons is the beneficial owner of 10% or more of the
shares of Common Stock then outstanding, such person shall not become an
Acquiring Person unless and until such time as (i) such person or group shall
purchase or otherwise become the beneficial owner of more than 100,000
additional shares (less any shares referred to in clause (ii)) of Common Stock
or (ii) any other person or persons who is or are the beneficial owner of an
aggregate of more than 100,000 shares of Common Stock (less any shares
referred to in clause (i)) shall become affiliated or associated with such
person and as a result of either clause (i) or (ii), such person or group is
the beneficial owner of 10% or more of the shares of Common Stock then
outstanding.

Until the Distribution Date, (a) the Rights will be evidenced by the Common
Stock certificates (together with a copy of this Summary of Rights or bearing
the notation referred to below) and will be transferred with and only with
such Common Stock certificates, (b) new Common Stock certificates issued after
July 17, 1995 will contain a notation incorporating the Rights Agreement by
reference and (c) the surrender for transfer of any certificate for Common
Stock (with or without a copy of this Summary of Rights) will also constitute
the transfer of the Rights associated with the Common Stock represented by
such certificate.

The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 31, 1996, unless earlier redeemed or
exchanged by the Company as described below.

As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of Common Stock as of the close of business on
the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common
Stock issued prior to the Distribution Date will be issued with Rights. Shares
of Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with Rights. Except as otherwise determined by the Board of Directors, no
other shares of Common Stock issued after the Distribution Date will be issued
with Rights.

In the event (a "Flip-In Event") that a person becomes an Acquiring Person
except pursuant to a Permitted Offer (as hereinafter defined), each holder of
a Right will thereafter have the right to receive, upon exercise of such
Right, a number of shares of Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a Current Market Price (as
defined in the Rights Agreement), equal to two times the exercise price of the
Right. Notwithstanding the foregoing, following the occurrence of any Flip-In
Event, all

I-2
<PAGE>

Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by or transferred to any Acquiring Person
(or by certain related parties) will be null and void in the circumstances set
forth in the Rights Agreement. However, Rights are not exercisable following
the occurrence of any Flip-In Event until such time as the Rights are no
longer redeemable by the Company as set forth below.

For example, at an exercise price of $15 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $30
worth of Common Stock (or other consideration, as noted above), based upon its
then Current Market Price, for $15. Assuming that the Common Stock had a
Current Market Price of $5 per share at such time, the holder of each valid
Right would be entitled to purchase six shares of Common Stock for $15.

In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (i) the Company is acquired in a merger or
other business combination transaction (other than certain mergers that follow
a Permitted Offer), or (ii) 50% or more of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the
right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a Current Market Price equal to two times the
exercise price of the Right. Flip-In Events and Flip-Over Events are
collectively referred to as "Triggering Events."

The term "Permitted Offer" means a tender offer or an exchange offer
commenced on or after September 30, 1995 by a bidder for all outstanding
shares of Common Stock (i) that remains open for at least 50 business days;
(ii) pursuant to which the bidder together with its Affiliates and Associates
becomes the beneficial owner of 51% of the outstanding shares of Common Stock
immediately upon completion of such offer; (iii) if and to the extent the
consideration offered is cash, states that the bidder has obtained written
financing commitments from recognized financing sources, and/or has on hand
cash or cash equivalents, for the full amount of all financing necessary to
consummate such tender offer and pay all related fees and expenses; (iv) if
all or part of the consideration offered is securities, offers a security that
is to be issued by an entity that has a consolidated net worth at least equal
to that of the Company and its consolidated subsidiaries as of June 30, 1995;
and (v) states that as promptly as practicable following the completion of
such offer, the bidder will propose and seek to consummate a merger of the
Company with the bidder (or a subsidiary thereof) in which each share of
Common Stock not then owned by the bidder will be converted into the same form
and amount of consideration per share as that paid in such offer. In order to
satisfy the requirements of clause (i) of this definition, if the nature or
amount of the consideration offered in such offer is changed after the offer
is commenced, the offer must remain open for at least 50 business days from
the date of such change; provided that the requirement of this sentence shall
not apply (a) if the consideration is increased after the offer is commenced
to an amount that equals or exceeds in value the consideration offered in any
other tender offer or exchange offer for shares of Common Stock that is open
at the time such increase is made and (b) such consideration is not thereafter
reduced. In order to satisfy the requirements of clauses (iii), (iv) and (v)
of this definition, the offer must satisfy such requirements at and after the
commencement thereof.

The Purchase Price payable, and the number of Fractional Shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred
Stock are granted certain rights or warrants to subscribe for Preferred Stock
or convertible securities at less than the current market price of the
Preferred Stock, or (iii) upon the distribution to holders of the Preferred
Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above).

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Preferred Stock that are not integral multiples
of a Fractional Share are required to be issued and, in lieu thereof, an
adjustment in cash may be made based on the market price of the Preferred
Stock on the last trading date prior to the date of exercise. Pursuant to the

I-3
<PAGE>

Rights Agreement, the Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number
of Rights be exercised so that only whole shares of Preferred Stock will be
issued.

At any time until ten days following the first date of public announcement
of the occurrence of a Flip-In Event, the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right, payable, at the option
of the Company, in cash, shares of Common Stock or such other consideration as
the Board of Directors may determine. Under certain circumstances set forth in
the Rights Agreement, the decision to redeem shall require the concurrence of
a majority of the Continuing Directors. Immediately upon the effectiveness of
the action of the Board of Directors ordering redemption of the Rights, with,
where required, the concurrence of the Continuing Directors, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.01 redemption price.

The term "Continuing Director" means any member of the Board of Directors of
the Company, while such Person is a member of the Board of Directors of the
Company, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a nominee or representative of an Acquiring Person or of
any such Affiliate or Associate, if (i) such Person was a member of the Board
of Directors of the Company prior to the time a Person becomes an Acquiring
Person or (ii) such Person's nomination for election or election to the Board
of Directors of the Company is recommended or approved by a majority of the
then Continuing Directors.

At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock
then outstanding, the Company (with the concurrence of a majority of the
Continuing Directors) may exchange the Rights (other than Rights owned by an
Acquiring Person or an affiliate or an associate of an Acquiring Person, which
will have become void), in whole or in part, at an exchange ratio of one share
of Common Stock, and/or other equity securities deemed to have the same value
as one share of Common Stock, per Right, subject to adjustment.

Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights should not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights
become exercisable for Common Stock (or other consideration) of the Company or
for the common stock of the acquiring company as set forth above or are
exchanged as provided in the preceding paragraph.

Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company (in certain
circumstances, with the concurrence of the Continuing Directors) as long as
the Rights are redeemable. Thereafter, the provisions of the Rights Agreement
may be amended by the Board of Directors (in certain circumstances, with the
concurrence of the Continuing Directors) in order to cure any ambiguity,
defect or inconsistency, to make changes that do not materially adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to lengthen the time period
governing redemption shall be made at such time as the Rights are not
redeemable.

A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Report on Form 8-K. A copy of the
Rights Agreement is available free of charge from the Company and the Right
Agent. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which
is incorporated herein by reference.

The Rights will cause substantial dilution to any person or group that
attempts to acquire the Company without the approval of the Company's Board of
Directors, unless such acquisition is pursuant to a Permitted Offer. As a
result, the overall effect of the Rights may be to render more difficult or
discourage certain attempts to acquire the Company. Because the Company's
Board of Directors (in some cases, with the concurrence of the Continuing
Directors) can redeem the Rights, the Rights should not interfere with a
merger or other business combination approved by the Board of Directors of the
Company.

I-4
<PAGE>

APPENDIX II

ADDITIONAL INFORMATION REGARDING PARTICIPANTS

II-1
<PAGE>

The following table sets forth with respect to each MESA director (other
than Messrs. Batchelder and Parkinson) (i) his name and age, (ii) the period
during which he has served as a director, if currently a director, and (iii)
his principal occupation over the last five years (including other
directorships and business experience):

<TABLE>
<S> <C>
NAME AND AGE BUSINESS EXPERIENCE OVER PAST FIVE YEARS
------------ ----------------------------------------
Boone Pickens, age 67....... January 1992-Present, Chairman of the Board of Directors and
Chief Executive Officer of the Company; October 1985-
December 1991, General Partner of Mesa Limited Partnership
(predecessor to the Company and hereinafter referred to as
the "Partnership"); 1964-January 1987, Chairman of the
Board, President, and founder of Mesa Petroleum Co.
(predecessor to the Partnership, hereinafter referred to as
"Original Mesa").
Paul W. Cain, age 56........ January 1992-Present, Director, President, and Chief
Operating Officer of the Company; August 1986-December
1991, President, Chief Operating Officer of the
Partnership; Director of Bicoastal Corporation.
John S. Herrington, age 56.. January 1992-Present, Director of the Company; December
1991-Present, personal investments and real estate
activities; May 1990-November 1991, Chairman of the Board
of Harcourt Brace Jovanovich, Inc. (publishing); May 1989-
May 1990, Director of Harcourt Brace Jovanovich, Inc.;
February 1989, Secretary of the Department of Energy of
United States.
Wales H. Madden, Jr., age
67......................... January 1992-Present, Director of the Company; December
1985-December 1991, Member of Advisory Committee of the
Partnership; 1964-January 1987, Director of Original Mesa;
Self-employed attorney and businessman for more than the
last five years; Director of Boatmen's First National Bank
of Amarillo.
Fayez S. Sarofim, age 66.... January 1992-Present, Director of the Company; Chairman of
the Board and President of Fayez Sarofim & Co. (investment
adviser) for more than the last five years; Director of
Teledyne, Inc., Unitrin, Inc., Argonaut Group, Inc., and
Imperial Holly Corporation.
Robert L. Stillwell, age 58. January 1992-Present, Director of the Company; December
1985-December 1991, Member of the Advisory Committee of the
Partnership; 1969-January 1987, Director of Original Mesa;
Partner in the law firm of Baker & Botts, L.L.P., for more
than the last five years.
J.R. Walsh, Jr., age 70..... January 1992-Present, Director of the Company; December
1985-December 1991, Member of the Advisory Committee of the
Partnership; 1982-January 1987, Director of Original Mesa;
President and Chairman of the Board of United Mud Service
Company (oil and gas service company) for more than the
last five years.
</TABLE>

DIRECTOR COMPENSATION, CERTAIN RELATIONSHIPS, AND COMMITTEES

Each director of the Company serving during 1994 who was not also an
employee of the Company or its subsidiaries received compensation of $20,000
in 1994. Directors who are also employees of the Company receive no
remuneration for their services as directors.

Mr. Sarofim, a director and member of the Compensation and Stock Option
Committees, is Chairman of the Board, President, and owner of a majority of
the outstanding capital stock of Fayez Sarofim & Co., which acts as an
investment adviser to certain employee benefit plans of the Company. During
the year ended

II-2
<PAGE>

December 31, 1994, Fayez Sarofim & Co. received fees, paid by the employee
benefit plans, of $135,442 for such services and has been retained to provide
such services in 1995.

Mr. Stillwell, a director and member of the Compensation and Stock Option
Committees, is a partner in the law firm of Baker & Botts, L.L.P. The Company
retained Baker & Botts, L.L.P. and incurred legal fees for such services in
1994. Baker & Botts, L.L.P. has been retained to provide legal services in
1995.

Mr. Walsh, a director and member of the Compensation and Stock Option
Committees, is President and Chairman of the Board of United Mud Service
Company. The Company paid United Mud Service Company $82,428 for drilling mud
and services during the year ended December 31, 1994, and expects to use United
Mud Service Company for such products and services in 1995.

MANAGEMENT OF THE COMPANY

The following table sets forth the name, age, and five-year employment
history of each Executive Officer of the Company:

<TABLE>
<S> <C>
NAME AND AGE BUSINESS EXPERIENCE OVER PAST FIVE YEARS
------------ ----------------------------------------
Boone Pickens, age 67....... January 1992-Present, Chairman of the Board of Directors and
Chief Executive Officer of the Company; October 1985-
December 1991, General Partner of the Partnership; 1964-
January 1987, Chairman of the Board, President, and founder
of Original Mesa.
Paul W. Cain, age 56........ January 1992-Present, Director, President, and Chief
Operating Officer of the Company; August 1986-December
1991, President, Chief Operating Officer of the
Partnership; Director of Bicoastal Corporation.
Dennis E. Fagerstone, age
46......................... January 1992-Present, Vice President-Exploration and
Production of the Company; May 1991-December 1991, Vice
President-Exploration and Production of the Partnership;
June 1988-May 1991, Vice President-Operations of the
Partnership.
Stephen K. Gardner, age 35.. June 1994-Present, Vice President, Chief Financial Officer
of the Company; January 1992-May 1994, Vice President of
BTC Partners Inc. (financial consultant to the Company);
May 1988-December 1991, Financial Analyst of BTC Partners,
Inc.; June 1987-April 1988, Financial Analyst of the
Partnership; Director of Bicoastal Corporation.
Andrew J. Littlefair, age
34......................... January 1992-Present, Vice President-Public Affairs of the
Company; August 1987-December 1991, Assistant to the
General Partner of the Partnership; January 1984-August
1987, Staff Assistant to the President of the United
States, Washington, D.C.
William D. Ballew, age 37... January 1992-Present, Controller of the Company; May 1991-
December 1991, Controller of the Partnership; January 1991-
May 1991, Manager-Accounting of the Partnership; December
1988-December 1990, Assistant to the Controller of the
Partnership; July 1986-December 1988, Audit Manager for
Price Waterhouse, Dallas, Texas.
</TABLE>

II-3
<PAGE>

EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

The table set forth below contains certain information regarding
compensation earned by, awarded to, or paid to the Chief Executive Officer and
the other five most highly compensated executive officers of the Company for
services rendered to the Company during the years 1992 through 1994.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM
COMPENSATION
AWARDS-
NUMBER OF
SHARES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS/SARS COMPENSATION(3)
------------------ ---- ------ ----- -------------- ------------ ---------------
Boone Pickens, 1994 $675,000 $175,000 $-- 200,000 $1,094,500(4)
Chairman of the 1993 675,000 -- -- 275,000 114,750(5)
Board of Directors and 1992 960,000 --(1) -- 800,000 1,047,707(6)
Chief Executive Officer
Paul W. Cain, 1994 400,020 150,000 -- 150,000 93,503(7)
President, 1993 400,020 225,000 -- 100,000 106,253(8)
Chief Operating Officer 1992 400,020 --(1) -- 150,000 273,040(9)
Dennis E. Fagerstone, 1994 199,980 100,000 -- 85,000 50,997(10)
Vice President- 1993 199,980 75,000 -- 10,000 46,747(11)
Exploration and
Production 1992 199,980 106,323(1) -- 50,000 72,740(12)
Stephen K. Gardner 1994 92,095 60,000 -- 135,000 25,856(13)
Vice President, 1993 -- -- -- -- --(14)
Chief Financial Officer 1992 -- -- -- -- --(14)
Andrew J. Littlefair, 1994 115,980 100,000 -- 85,000 36,717(15)
Vice President-Public 1993 115,980 75,000 -- 25,000 32,467(16)
Affairs 1992 109,980 92,330(1) -- 30,000 47,583(17)
William D. Ballew, 1994 121,230 40,000 -- 45,000 27,409(18)
Controller 1993 115,980 50,000 -- 10,000 28,217(19)
1992 109,980 66,512(1) -- 30,000 43,807(20)
</TABLE>
- --------
(1) Bonuses paid to the executive officers of the Company in 1992 include
bonus payments with respect to performance in 1992 as well as the unpaid
portion of deferred bonuses awarded in 1990 and 1991. The following
amounts were paid to the executive officers of the Company for services
rendered during 1992: $0 to Mr. Pickens; $0 to Mr. Cain; $28,000 to Mr.
Fagerstone; $32,000 to Mr. Littlefair; and $21,000 to Mr. Ballew. On July
1, 1992, the Company canceled the key employee life insurance policies for
certain of its officers and other employees and collected the aggregate
cash surrender value of $1,210,859. At the same time, the Company
accelerated the deferred portion of bonuses awarded in previous years to
such officers and employees. The balance of the 1992 bonus amounts
represents the acceleration of the deferred portion of bonuses for prior
years that were paid to each individual in the above table in connection
with the cancellation of employee life insurance policies. Bonuses paid to
the individuals named in the table above for 1992 (but not for 1993 or
1994) were paid pursuant to a bonus plan under which the Company awarded
bonuses by reference to the achievement of certain established objectives
by such individuals for the bonus plan year, although under such plan
awards could be made even if all such objectives were not fully achieved.
Under such plan, awards generally vested and were paid in three annual
installments. Bonuses paid in 1993 and 1994 were awarded based upon the
decisions of the Company's Compensation Committee. See "Compensation
Committee Report" below.

II-4
<PAGE>

(2) Apart from the compensation set forth in the summary compensation table and
under the plans and pursuant to the transactions described below, other
compensation paid for services during the years ended December 31, 1994,
1993, and 1992, respectively, to each individual named in the summary
compensation table aggregated less than 10% of the total salary and bonus
reported for such individual in the summary compensation table, or $50,000,
if lower.

(3) Except as reflected in other notes, "All Other Compensation" consists of
the following items. First, the Company maintains an Employees Premium Plan
and a Profit Sharing Plan, both of which are retirement plans (the
"Retirement Plans"), for all employees (see separate discussion below).
Total employer contributions to the Retirement Plans for the account of a
participant in any calendar year are limited as specified by the Internal
Revenue Code (the "Code") and the Retirement Plans. See "Limitation on
Contributions to Benefit Plans" below. The maximum annual amount of
employer contributions to the Retirement Plans totaled $25,500 in 1994 and
$30,000 in 1993 and 1992. The Company contributed 17% of each employee's
total 1994 compensation to the Retirement Plans. Second, to the extent that
17% of an employee's total compensation exceeded $25,500 in 1994 (all
employees with total compensation in excess of $150,000) and $30,000 in
1993 and 1992 (all employees with total compensation in excess of
$176,470), the Company, as a matter of policy, paid the excess amount in
cash to such employee. Third, prior to July 1, 1992, the Company maintained
a key employee life insurance program (see separate discussion below) for
each executive officer and certain other key employees for which the
Company paid a major portion of the premiums. Fourth, Mr. Pickens was
granted a bonus, payment of which has been deferred until his retirement
and subject to his continued employment (except in certain events) through
December 31, 1995, with respect to the Company's 1994 commodities and
securities investment activities, which were managed by Mr. Pickens. See
"Compensation Committee Report" below.

(4) Includes the following: a $25,500 Retirement Plans contribution; a $119,000
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above; a $950,000 bonus payment which has
been deferred until Mr. Pickens' retirement and subject to his continued
employment (except in certain events) through December 31, 1995, with
respect to the Company's 1994 commodities and securities investment
activities managed by him. See "Compensation Committee Report" below.

(5) Includes the following: a $30,000 Retirement Plans contribution; an $84,750
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above.

(6) Includes the following: $114,244 of life insurance premiums; a $30,000
Retirement Plans contribution; a $133,200 payment for Retirement Plans
contribution in excess of the contribution limitation as described in Note
3 above. Also includes cancellation of the previous deferred compensation
plan for which $3,590,345 had been previously expensed and accrued and
which was replaced by a split-dollar life insurance program that was funded
in 1992 at a premium cost of $4,360,608. The net amount attributable to
1992 is reflected in the summary compensation table.

(7) Includes the following: a $25,500 Retirement Plans contribution; a $68,003
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above.

(8) Includes the following: a $30,000 Retirement Plans contribution; a $76,253
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above.

(9) Includes the following: $28,266 of life insurance premiums; a $30,000
Retirement Plans contribution; a $38,003 payment for a Retirement Plans
contribution in excess of the contribution limitation as described in Note
3 above. Also includes cancellation of the previous deferred compensation
plan for which $323,229 had been previously expensed and accrued and which
was replaced by a split-dollar life insurance program that was funded in
1992 at a premium cost of $500,000. The net amount attributable to 1992 is
reflected in the summary compensation table.

(10) Includes the following: a $25,500 Retirement Plans contribution; a
$25,497 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.

(11) Includes the following: a $30,000 Retirement Plans contribution; a
$16,747 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.

II-5
<PAGE>

(12) Includes the following: $6,840 of life insurance premiums; a $30,000
Retirement Plans contribution; a $35,900 payment for a Retirement Plans
contribution in excess of the contribution limitation as described in
Note 3 above.

(13) Mr. Gardner joined the Company in June 1994, after serving as an officer
of BTC Partners Inc., a financial consultant to the Company. Includes the
following: a $15,300 Retirement Plans contribution; a $10,556 payment for
a Retirement Plans contribution in excess of the contribution limitation
as described in Note 3 above.

(14) Mr. Gardner was not an officer of the Company in this fiscal year.

(15) Includes the following: a $25,500 Retirement Plans contribution; an
$11,217 payment for a Retirement Plans contribution in excess of the
contribution limitation as described in Note 3 above.

(16) Includes the following: a $30,000 Retirement Plans contribution; a $2,467
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above.

(17) Includes the following: $2,187 of life insurance premiums; a $30,000
Retirement Plans contribution; a $15,396 payment for a Retirement Plans
contribution in excess of the contribution limitation as described in
Note 3 above.

(18) Includes the following: a $25,500 Retirement Plans contribution; a $1,909
payment for a Retirement Plans contribution in excess of the contribution
limitation as described in Note 3 above.

(19) Includes a $28,217 Retirement Plans contribution.

(20) Includes the following: $3,360 of life insurance premiums; a $30,000
Retirement Plans contribution; a $10,447 payment for a Retirement Plans
contribution in excess of the contribution limitation as described in
Note 3 above.

EMPLOYEES PREMIUM AND PROFIT SHARING PLANS

MESA maintains the Retirement Plans for the benefit of its employees. Each
year, the Company is required to contribute to the Employees Premium Plan 5%
of the total compensation (as defined in the plan) paid to participants and
may also contribute up to 12% of total compensation (as defined) to the Profit
Sharing Plan. Participants become 30% vested in their account balances in the
Retirement Plans after three years of service and 40% vested after four years
of service. Participants become vested an additional 20% for each additional
year of service through year seven.

Effective December 31, 1991, all participants were fully vested in their
account balances in the Retirement Plans as a result of certain property
dispositions consummated in 1990 and 1991. Participants shall remain fully
vested in their 1991 balances, but contributions in 1992 and later years under
the Retirement Plans are subject to the vesting schedule described above.

Prior years of service with the Company's predecessors are counted in the
vesting schedule. Amounts accumulated and vested are distributable only under
certain circumstances, including termination of the Retirement Plans.

LIMITATION ON CONTRIBUTIONS TO BENEFIT PLANS

Total employer contributions to the Retirement Plans for the account of a
participant in any calendar year are limited to the lesser of what is
specified by the Code or by the Retirement Plans. The Code provides that
annual additions to a participant's account may not exceed the lesser of
$30,000 or 25% of the amount of the participant's annual compensation. The
Retirement Plans provide that aggregate annual additions to a participant's
account may not exceed 17% of eligible compensation as defined by the
Retirement Plans. The eligible compensation per the Code was limited to
$150,000 in 1994 and $228,000 in 1993 and 1992. The Company, in its
discretion, may determine to make cash payments of amounts attributable to an
employee's participation in the Retirement Plans to the extent such amounts
exceed the Code limitations. As a matter of general policy for employees of
the Company, the Company makes annual cash payments directly to employees to
the extent that the annual additions to the account of each such employee
pursuant to the Retirement Plans would exceed the Code limitations.

II-6
<PAGE>

1991 STOCK OPTION PLAN

The 1991 Stock Option Plan (the "Option Plan") was approved by stockholders
in 1991 and amended by stockholders in 1994. Its purpose is to serve as an
incentive to, and aid in the retention of, key executives and other employees
whose training, experience, and ability are considered important to the
operations and success of the Company. The Option Plan is administered by the
Stock Option Committee composed of non-employee directors of the Company who
meet the requirements of "disinterested person" in Rule 16b-3 (c) (2) (i) of
the Securities Exchange Act of 1934. Pursuant to the Option Plan, the Stock
Option Committee is given the authority to designate plan participants, to
determine the terms and provisions of options granted thereunder, and to
supervise the administration of the plan. A total of 4,000,000 shares of
Common Stock are currently subject to the plan, of which options for 3,042,950
shares have been granted. At December 31, 1994, the following stock options
were outstanding:

<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------
<S> <C>
Granted........................................................ 3,042,950
Exercised...................................................... (62,720)
Forfeited...................................................... (53,770)
---------
Outstanding at December 31, 1994............................... 2,926,460
=========
</TABLE>

Shares of Common Stock subject to an option are awarded at an exercise price
that is equivalent to at least 100% of the fair market value of the Common
Stock on the date the option is granted. The purchase price of the shares as
to which the option is exercised is payable in full at exercise in cash or in
shares of Common Stock previously held by the optionee for more than six
months, valued at their fair market value on the date of exercise. Subject to
Stock Option Committee approval and to certain legal limitations, an optionee
may pay all or any portion of the purchase price by electing to have the
Company withhold a number of shares of Common Stock having a fair market value
equal to the purchase price. Options granted under the Option Plan include a
limited right of relinquishment that permits an optionee, in lieu of
purchasing the entire number of shares subject to purchase thereunder and
subject to consent of the Stock Option Committee, to relinquish all or part of
the unexercised portion of an option, to the extent exercisable, for cash
and/or shares of Common Stock in an amount representing the appreciation in
market value of the shares subject to such options over the exercise price
thereof. In its discretion, the Stock Option Committee may provide for the
acceleration of any unvested installments of outstanding options. The Board of
Directors may amend, alter, or discontinue the Option Plan, subject in certain
cases to stockholder approval.

The options granted and outstanding at December 31, 1994, have exercise
prices and vesting schedules as set forth in the following table:

<TABLE>
<CAPTION>
EXERCISE VESTING SCHEDULE
NUMBER OF PRICE PER -----------------------------------------------------------
OPTIONS SHARE 30% 55% 80% 100%
--------- --------- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1,126,000 $ 6.8125 07/10/92 01/10/93 01/10/94 01/10/95
142,500 11.6875 04/02/93 10/02/93 10/02/94 10/02/95
107,960 5.8125 11/18/93 05/18/94 05/18/95 05/18/96
475,000 7.3750 05/10/94 11/10/94 11/10/95 11/10/96
75,000 6.1875 12/06/94 06/06/95 06/06/96 06/06/97
1,000,000 4.2500 06/01/95 12/01/95 12/01/96 12/01/97
</TABLE>

Options granted to the Chief Executive Officer and the other five most
highly compensated executive officers of the Company during 1994 are as
follows:

II-7
<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SHARES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION -------------------
NAME GRANTED 1994 PRICE DATE 5% 10%
---- ------------ ------------ -------- ---------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Boone Pickens 200,000(1) 18.60% $4.25 December 1, 2004 $534,560 $1,354,681
Paul W. Cain 150,000(1) 13.95% 4.25 December 1, 2004 400,920 1,016,011
Dennis E. Fagerstone 85,000(1) 7.91% 4.25 December 1, 2004 227,188 575,739
Stephen K. Gardner 50,000(2) 4.65% 6.1875 June 6, 2004 194,564 493,064
85,000(1) 7.91% 4.25 December 1, 2004 227,188 575,739
Andrew J. Littlefair 85,000(1) 7.91% 4.25 December 1, 2004 227,188 575,739
William D. Ballew 45,000(1) 4.19% 4.25 December 1, 2004 120,276 304,803
</TABLE>
- --------

(1) The options vest as follows: 30% vested and became exercisable beginning
June 1, 1995; 55% will be vested and exercisable beginning December 1,
1995; 80% will be vested and exercisable beginning December 1, 1996; and
100% will be vested and exercisable beginning December 1, 1997.

(2) The options vest as follows: 30% vested and became exercisable beginning
December 6, 1994; 55% vested and became exercisable beginning June 6,
1995; 80% will be vested and exercisable beginning June 6, 1996; and 100%
will be vested and exercisable beginning June 6, 1997.

Options exercised in 1994, and the number and value of exercisable and
unexercisable options at December 31, 1994, for the Chief Executive Officer
and the other five most highly compensated executive officers of the Company
are as follows:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING IN-THE-MONEY
YEAR ENDED UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994
-------------------- ------------------------------ -------------------------
NUMBER
OF SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Boone Pickens........... -- $-- 791,250 483,750 $ 0 $125,000
Paul W. Cain............ -- -- 175,000 225,000 0 93,750
Dennis E. Fagerstone.... -- -- 45,500 99,500 0 53,125
Stephen K. Gardner...... -- -- 15,000 120,000 0 53,125
Andrew J. Littlefair.... -- -- 37,750 102,250 0 53,125
William D. Ballew....... -- -- 29,500 55,500 0 28,125
</TABLE>

At December 31, 1994, the Company's Common Stock per share closed at $4.875.
The exercise price of the four grants of stock options reflected in the
aggregate in the above tables are $6.8125, $7.375, $6.1875 and $4.25,
respectively, per share. Thus, only outstanding options with an exercise price
of $4.25, none of which were exercisable at December 31, 1994, were in-the-
money at such date.

OTHER

There were no awards made under any long-term incentive plans from January
1, 1994, through December 31, 1994, that require disclosure in the Long-Term
Incentive Plan Awards table. From January 1, 1994, through December 31, 1994,
no options or stock appreciation rights were repriced (as defined in Item
402(i) of Regulation

II-8
<PAGE>

S-K of the Securities Act of 1933). Furthermore, the Company does not have any
employment contracts or termination or change-in-control arrangements with the
Chief Executive Officer or the other five most highly compensated executive
officers of the Company that would require disclosure pursuant to Item 402(h)
of Regulation S-K.

COMPENSATION COMMITTEE REPORT

The Company's Compensation Committee is composed of the three non-employee
directors named below. The Committee's decisions as to annual base salaries,
bonuses, and stock option grants, if any, for Mr. Pickens, Chairman and Chief
Executive Officer, and the other executive officers of the Company are based
on the subjective judgment of the Committee as to (1) a reasonable value to
the Company of the services of Mr. Pickens and the other officers in their
respective capacities and for their respective contributions; (2) a reasonable
competitive market value of the services of Mr. Pickens and the other officers
in such capacities; (3) a reasonable relationship to compensation levels of
the chief executive and other officers of other public companies, including
those companies named in the Company's "Peer Group" discussed under
"Performance Graph" below; and (4) the recommendation of senior management as
to compensation levels for all officers other than Mr. Pickens. The
Committee's decisions in this regard are not based on any objective, required,
or projected performance criteria for the Company or its securities. Mr.
Pickens' base salary and the 1994 salaries listed in the summary compensation
table for the five other most highly compensated executive officers are the
result of such judgment. The Committee made a similar judgment based on its
assessment of the efforts and contributions of individual officers during the
year and on the above-listed criteria with respect to 1994 current bonuses for
Mr. Pickens and the other officers (as listed in the summary compensation
table), as well as stock option grants to such persons. The deferred bonus for
Mr. Pickens represents the Committee's subjective judgment as to a reasonable
value to the Company of Mr. Pickens' contribution to the Company's commodities
and securities investment activities, including the hedging of natural gas
production, which are conducted by Mr. Pickens. These activities resulted in
gains to the Company of $17.3 million in 1994, consisting of a $7.6 million
realized gain during 1994 and a $9.7 million unrealized gain at December 31,
1994, which amount was realized in early 1995.

The Company intends to comply with Internal Revenue Service regulations
under Section 162(m) of the Code dealing with non-deductibility of executive
compensation in excess of one million dollars annually except under certain
permitted circumstances that deal generally with shareholder-approved
"performance-based compensation."

Submitted by the Compensation Committee:

Fayez S. Sarofim
Robert L. Stillwell
J. R. Walsh, Jr.

CREDIT SUPPORT OF COMMON UNIT PURCHASES

Mesa Limited Partnership, a predecessor of the Company (the "Partnership"),
provided credit support by acting as a co-maker on certain loans made by
commercial banks in prior years to certain employees, including Mr. Fagerstone
(but not including Mr. Pickens), the proceeds of which were used to purchase
common units of the Partnership in open market transactions. In conjunction
with the conversion of the Partnership to the Company in December 1991, the
Company assumed the credit support obligations. Mr. Fagerstone's largest
outstanding borrowing balance during 1994 was $113,731. At December 31, 1994,
all such loans had been repaid by the employees.

COMMON STOCK PURCHASE PLAN

The Company has established a Common Stock purchase program whereby
employees can buy Common Stock through after-tax payroll deductions. All full-
time employees of the Company and its participating affiliates are eligible to
participate. The Company pays the brokerage fees for these open market
transactions.

II-9
<PAGE>

INDEMNIFICATION ARRANGEMENTS

The Company's Bylaws provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in connection
with proceedings and claims, to the fullest extent permitted by the Texas
Business Corporation Act. The Company has also entered into indemnification
agreements with its executive officers and directors that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitees' receipt of such benefits. In
addition, the Company purchased customary directors' and officers' liability
insurance policies for its directors and officers. The Bylaws and agreements
with directors and officers also provide for indemnification for amounts (i)
in respect of the deductibles for such insurance policies, (ii) that exceed
the liability limits of such insurance policies, and (iii) that would have
been covered by prior insurance policies of the Company or its predecessors.
Such indemnification may be made even though directors and officers would not
otherwise be entitled to indemnification under other provisions of the Bylaws
or such agreements.

EMPLOYEE RETENTION PROVISIONS

On August 22, 1995, the Board of Directors adopted the MESA Inc. Change in
Control Retention/ Severance Plan (the "Retention Plan"). Pursuant to the
Retention Plan, all employees of the Company will be entitled to receive
certain benefits upon the occurrence of certain involuntary termination events
(as described below) following a "Change in Control" (as defined below) of the
Company. The severance benefits consist of 200% of defined pay for officers
(which includes the highest salary during the then-current and last three
calendar years and highest bonus during the last three calendar years), 150%
of defined pay for certain key employees (which includes salary and bonus
amounts) and a formula-based amount for all other employees, plus, in each
case, any other accrued or vested or earned but deferred compensation, rights,
options or benefits otherwise owed to such employee upon his termination. In
addition, on the same date, the Board's Stock Option Committee determined that
all outstanding but unvested stock options granted to an employee under the
Company's 1991 Stock Option Plan would immediately vest and become exercisable
upon such a termination event following a Change in Control.

The Company developed the Retention Plan in consultation with an independent
compensation expert. That consulting firm advised the Board that the Retention
Plan is conservatively in line with common practices. The independent firm
noted, among other things, that most such plans surveyed by it provide
officers with three times their defined pay, rather than two.

For purposes of the Retention Plan, a "Change in Control" means (i) any
acquisition by an individual, entity or group resulting in such person's
obtaining beneficial ownership of 35% or more of the then outstanding Common
Stock or the combined voting power of the then outstanding voting securities
of the Company entitled to vote in an election of directors, subject to
certain exceptions; (ii) a change in the membership of the Board of Directors
such that the members of the Board as of May 16, 1995 (the "Incumbent Board"),
together with members elected subsequent to May 16, 1995 whose election or
nomination for election was approved by a majority of the members of the
Incumbent Board as then constituted (excluding for this purpose any individual
whose initial assumption of office occurred as a result of an actual or
threatened election contest, including Messrs. Batchelder and Parkinson),
cease for any reason to constitute a majority of the Board of Directors; (iii)
a reorganization, merger, consolidation or sale of all or substantially all of
the assets of the Company, subject to certain exceptions; or (iv) approval by
the stockholders of the Company of the complete liquidation or dissolution of
the Company.

Following the occurrence of a Change in Control, an eligible employee would
be entitled to receive full severance benefits if, within 24 months of the
occurrence of a Change in Control, the employee were terminated by the Company
without "Cause" (as defined below) or the employee's duties, responsibilities
or rate of pay as an employee were materially and adversely diminished in
comparison to the duties, responsibilities and rate of pay enjoyed by the
employee on the effective date of the Retention Plan or the employee were
relocated to any location in excess of 35 miles from his location immediately
prior to the Change in Control. All severance

II-10
<PAGE>

benefits with respect to an eligible employee are payable in a lump sum within
10 days after the termination date of such employee. Under the Retention Plan,
"Cause" means the willful and continued failure of an employee to perform
substantially the employee's duties with the Company following written demand
for performance or the willful engaging by the employee in illegal conduct or
gross misconduct that is materially and demonstrably injurious to the Company.

BTC PARTNERS

The Company had entered into an agreement with BTC Partners Inc. ("BTC"), a
Delaware corporation, pursuant to which BTC provided certain financial and
advisory services to the Company. BTC regularly functioned as part of the
Company's management team with respect to financial and other matters.
Pursuant to the agreement, BTC received an annual retainer and, in the
discretion of the Company, was paid additional fees for services it rendered
in connection with financing transactions, debt restructuring activities,
acquisitions or dispositions of properties or assets, and other transactions
with respect to which BTC assisted the Company. Such amounts were payable in
respect of BTC's services to the Company in evaluating, negotiating, and
implementing such transactions. The agreement also provided that the Company
would provide BTC certain other benefits and support services. The agreement
was terminated in June 1994. Stephen K. Gardner, the Company's Chief Financial
Officer, was a Vice President and shareholder of BTC prior to assuming his
current position with the Company.

CERTAIN TRANSACTIONS

The Company permits Mr. Pickens and his affiliates to use MESA's properties
and assets such as equipment, computers, aircraft, and other transportation
equipment for noncompany purposes on terms that are not disadvantageous to the
Company; however, such terms may be more favorable to Mr. Pickens than those
otherwise available to him. Mr. Pickens and affiliates were charged a total of
$113,894 in 1994, $79,002 in 1993, and $125,027 in 1992 for the use of these
assets (principally use of aircraft).

MESA periodically conducts business meetings and events and hosts customers
and business associates at facilities owned by Mr. Pickens, principally a
ranch and hunting facility. MESA pays for the use of these facilities at rates
comparable to those charged for similar facilities owned by third parties.
MESA paid Mr. Pickens $127,500 in 1994, $157,000 in 1993, and $149,750 in 1992
for the use of the facilities.

TRANSACTIONS BY PARTICIPANTS IN THE SECURITIES

OF THE COMPANY IN THE PAST TWO YEARS

The dates within the past two years on which any of the Participants
purchased or sold securities of the Company and the amount purchased or sold
on each date are set forth below. Except as indicated below, all transactions
were effected on the New York Stock Exchange. Except as indicated below, no
Participant has purchased or sold any securities of the Company within the
past two years.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PARTICIPANT DATE SHARES PURCHASED SHARES SOLD
----------- -------- ---------------- -----------
<S> <C> <C> <C>
Participant Directors:
Wales H. Madden, Jr............. 02/23/94 1,000
05/20/94 4,000
09/27/94 2,000
12/05/94 10,000
Boone Pickens................... 08/31/93 50,000
09/03/93 3,500
09/03/93 26,500
09/07/93 40,000
09/08/93 29,000
</TABLE>

II-11
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PARTICIPANT DATE SHARES PURCHASED SHARES SOLD
----------- -------- ---------------- -----------
<S> <C> <C> <C>
09/13/93 21,000
09/14/93 50,000
09/17/93 50,000
09/17/93 5,800
09/20/93 300
09/20/93 18,900
11/29/93 35,000
11/29/93 15,000
01/14/94 25,000
01/25/94 25,000
03/28/94 13,400
03/28/94 22,500
03/28/94 49,100
03/28/94 15,000
03/28/94 43,300
03/29/94 10,000
03/30/94 20,000
03/30/94 26,700
03/30/94 10,000
03/30/94 15,000
04/28/94 1,000,000(1)
07/07/94 20,000
10/13/94 71,600
11/11/94 8,400
11/16/94 10,000
11/21/94 10,000
11/30/94 20,000
12/02/94 20,000
12/27/94 20,100
12/27/94 79,900
Fayez S. Sarofim.......................... 04/28/94 1,000,000(1)
J.R. Walsh, Jr............................ 09/24/93 2,000
09/28/93 20,000
02/17/94 100
08/02/94 50,000
Officers:
Dennis E. Fagerstone...................... 02/23/94 4,684
02/23/94 4,400
Stephen K. Gardner........................ 06/01/94 10,000
07/07/94 1,000
12/02/94 5,000
Andrew J. Littlefair...................... 03/15/94 2,000
03/28/94 1,000
03/29/94 3,800
07/06/94 275
07/06/94 1,125
</TABLE>
- --------
(1)Purchased in an underwritten public offering by the Company of 16.3 million
shares of Common Stock.

Mr. Pickens purchased $3 million aggregate principal amount of the Company's
12 3/4% Secured Discount Notes due 1998 on January 9, 1995 and $3 million
thereof on January 10, 1995. He sold $2 million thereof on April 19, 1995 and
$4 million thereof on April 20, 1995.

II-12

<PAGE>

On May 31, 1994 and June 2, 1994, Mr. Ballew sold $9,000 aggregate principal
amount of the Company's 12 3/4% Secured Discount Notes due 1998 and $3,000
aggregate principal amount of the Company's 12 3/4% Unsecured Discount Notes
due 1998, respectively.

FUNDING OF CERTAIN PURCHASES

On April 28, 1994, Mr. Pickens consummated the purchase of 1,000,000 shares
of Common Stock from the Company in connection with a public offering of 16.3
million shares of Common Stock at a public offering price of $6.00 per share.
Pursuant to two separate unsecured loan agreements, each dated April 13, 1994,
each of Mr. Sarofim and John L. Cox, a former director of the Company, loaned
Mr. Pickens 50% (an aggregate of 100%) of the amount of funds used by Mr.
Pickens to purchase such shares. The outstanding principal balance under each
loan agreement as of July 31, 1995 was $3,000,000.

Certain of Mr. Littlefair's purchases of Common Stock were funded through a
margin account at a securities brokerage. As of August 21, 1995, the margin
balance was $10,775.

OTHER MATTERS

The business address for Messrs. Cain, Pickens, Fagerstone, Gardner and
Littlefair is 1400 Williams Square West, 5205 North O'Connor Boulevard, Irving,
Texas 75039-3746. The business address for Mr. Herrington is 800 South
Broadway, Walnut Creek, California 94596. The business address for Mr. Madden
is P. O. Box 15288, Amarillo, Texas 79105-5288. The business address for Mr.
Sarofim is Two Houston Center, Suite 2907, Houston, Texas 77010. The business
address for Mr. Stillwell is 3000 One Shell Plaza, 910 Louisiana, Houston,
Texas 77002. The business address for Mr. Walsh is First National Bank
Building, 5th and Deahl Streets, Borger, Texas 79007. The business address for
Mr. Ballew is 301 South Polk Street, Amarillo, Texas 79101.

In September 1990, the Company and Mr. Pickens entered into a consent decree
to settle allegations by the SEC that the Company and Mr. Pickens had violated
Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 in connection with
a proposal made by the Company in February 1988 to acquire Homestake Mining
Company ("Homestake"). Under the terms of the settlement, without admitting or
denying any of the SEC's allegations, the Company and Mr. Pickens consented to
the entry of a judgment enjoining them from future violations of such sections.
The SEC's allegations related to the Company's February 1988 press release
announcing its offer to acquire Homestake and its subsequent sales of Homestake
shares. The Company deposited $2.3 million in a fund for disbursement to other
persons who purchased Homestake shares at the time of the 1988 offer.

II-13