THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

2.1

Specific Duties. The Executive will serve as Chairman of the Board and Chief Executive Officer for the Company. From time to time, the Executive may be appointed as an officer of one (1) or more of the Company’s subsidiaries. During the term of this Agreement, the Executive will be nominated for election or appointed to serve as a director of the Company and one (1) or more of the Company’s subsidiaries. The Executive will use the Executive’s best efforts to perform all of the services required to fully and faithfully execute the offices and positions to which the Executive is appointed and such other services as may be reasonably directed by the Board of Directors of the Company in accordance with this Agreement.

2.2

Modifications. The precise duties to be performed by the Executive may be extended or curtailed in the discretion of the Board of Directors of the Company. However, except for termination for Cause (as hereinafter defined) under paragraph 6.1.2 of this Agreement, the failure of the Executive to be elected, be reelected or serve as a director of the Company during the term of this Agreement, the removal of the Executive as a member of the board of directors of the Company, the withdrawal of the designation of the Executive as Chairman of the Board and Chief Executive Officer of the Company, or the assignment of the performance of duties incumbent on the foregoing offices to other persons without the prior written consent of the Executive will constitute termination without Cause by the Company.

2.3

Rules and Regulations. From time to time, the Company may issue policies applicable to employees and the Executive including an Employment Policies Manual that addresses frequently asked questions regarding the Company. The Executive agrees to comply with such policies, except to the extent such policies are inconsistent with this Agreement. The policies and the Employment Policies Manual are subject to change without notice in the sole discretion of the Company at any time. In the event of a conflict between such policies and this Agreement, this Agreement will control over the terms of the Employment Policies Manual.

2.4

Stock Investment. During the term of this Agreement, the Executive agrees to hold shares of the Company’s common stock having an aggregate Investment Value (as hereafter defined) greater than five hundred percent (500%) of the compensation paid to the Executive under paragraphs 4.1 and 4.2 of this Agreement during such calendar year. Any shares of common stock acquired by the Executive prior to the date of this Agreement and still owned by the Executive during the term of this Agreement may be used to satisfy the requirement to own common stock. For purposes of this paragraph, the “Investment Value” of each share of stock will be as follows: (a) for shares purchased in the open market the price paid by the Executive for such shares; (b) for shares acquired after the Company’s initial public offering (“IPO”) in February 1993 through the exercise of stock options or other than through open market purchases, the fair market value of the common stock on the date the option was exercised or the stock was acquired; and (c) for shares acquired prior to the Company’s IPO, the price obtained for stock in the IPO adjusted for subsequent stock splits. This paragraph will become null and void if the Company’s common stock ceases to be listed on the New York Stock Exchange, the National Association of Securities Dealers Automated Quotation System or other national exchange. The Company has no obligation to sell or to purchase from the Executive any of the Company’s stock in connection with this paragraph 2.4 and has made no representations or warranties regarding the Company’s stock, operations or financial condition.

3.1

Existing Interests. The Executive has in the past conducted oil and gas activities individually and through Chesapeake Investments, an Oklahoma Limited Partnership, and other entities owned or controlled by the Executive (collectively, the “Executive Affiliates”). The Executive will be permitted to continue to conduct oil and gas activities (including participation in new wells) directly or through the Executive Affiliates, but only to the extent such activities are conducted on oil and gas leases or interests which the Executive or Executive Affiliates owned or had the right to acquire as of July 1, 2001, or which the Executive or the Executive Affiliates acquired from the Company under this Agreement or prior agreements with the Company (collectively, the “Prior Interests”). To the extent that the oil and gas interests or activities covered by this paragraph 3.1 are operated by the Company, the ownership and participation will be subject to the payment provisions set forth in this paragraph 3.

3.2

Company’s Activities. The Executive or the designated Executive Affiliate will be permitted to acquire on the terms and conditions set forth herein an interest in the governmental, spacing or production unit for each of the wells (the “Program Wells”) spudded by any of the Company Entities (as hereafter defined) in any Calendar Quarter (as hereafter defined) during the Participation Term (as hereafter defined). The Program Wells include any well spudded during such Calendar Quarter in which the Company Entities

participate as a non-operator. Program Wells will include grass-roots wells only and will exclude re-entries of existing wells.

3.2.1 

Election. On or before the date which is thirty (30) days before the first (1^st) day of each Calendar Quarter, the Executive will provide notice to the Compensation Committee of the Company’s Board of Directors of the Executive’s intent to participate in Program Wells during the succeeding Calendar Quarter and the minimum percentage working interest which the Executive proposes to participate with during such Calendar Quarter (the “Acquisition Percentage”). The Executive’s elected Acquisition Percentage for any Calendar Quarter will not exceed two and one-half percent (2.5%) on an eight-eighths (8/8ths) basis. If prior to the date specified herein, the Executive fails to provide notice of the Executive’s intent to participate or of the Acquisition Percentage for a Calendar Quarter, the amount of the Acquisition Percentage for the Calendar Quarter will be deemed to be equal to the Acquisition Percentage for the immediately preceding Calendar Quarter.

3.2.2 

Amount of Participation. On election to participate and the designation of the Acquisition Percentage for a Calendar Quarter, the Executive will be deemed to have elected to participate in each Program Well spudded during such Calendar Quarter with a working interest equal to the greater of the following determined on a well-by-well basis (the “Minimum Participation”): (a) the Acquisition Percentage for such Program Well (as adjusted for any well under paragraph 3.2.3); or (b) the Prior Interest of the Executive or the Executive Affiliates in the drilling unit for such Program Well. If the foregoing clause (a) is applicable to a Program Well, then the Company will assign or allocate to the Executive or the designated Executive Affiliate a unit working interest in the Program Well sufficient to cause the Executive and the Executive Affiliates’ combined interest in such Program Well to equal the Acquisition Percentage (including in such computation any Prior Interests). The interest to be assigned or allocated under this paragraph to cause the Executive’s participation to be equal to the Acquisition Percentage will be derived proportionately from all the interests owned by the Company in the Program Wells (including non-consenting interests, back-in interests, leased royalty interests, overriding royalty interests or other similar interests) so that the interests assigned or allocated to the Executive are substantially similar to the interests retained by the Company. If the Executive elects not to participate in Program Wells during a Calendar Quarter, then the Executive can elect to participate or not participate with any Prior Interests under the existing agreements related to such Prior Interests.

3.2.3 

Minimum Company Working Interest Ownership Level. If the combined interests in a specific Program Well to be assigned or allocated by the Company to the Executive and Mr. Tom L. Ward under their respective employment agreements causes the Company’s working interest (determined after consideration of any carried or reversionary interests) on the spud date for such Program Well to be less than twelve and one-half percent (12.5%) on an eight-eighths (8/8ths) basis, then the Acquisition Percentage for that Program Well will be equal to zero for purposes of paragraph 3.2.2 of this Agreement. If this paragraph 3.2.3 prohibits the Executive’s participation in a Program Well, then Mr. Ward will also not be entitled to participate in such Program Well under his employment agreement.

3.3

Conditions of Participation. The Participation by the Executive in each Program Well will be on no better terms than the terms agreed to by unaffiliated third party participants in connection with the participation in such Program Well or similar wells operated by the Company Entities. The Acquisition Percentage cannot be changed during any Calendar Quarter without the prior approval of the members of the Compensation Committee of the Company’s board of directors. Any participation by the Executive under paragraph 3.2 is also conditioned on the Executive’s participation in each Program Well spudded during such Calendar Quarter in an amount equal to the Minimum Participation. The Executive hereby agrees to execute and deliver any documents reasonably requested by the Company and hereby appoints the Company as the Executive’s agent and attorney-in-fact to execute and deliver such documents if the Executive fails or refuses to execute such documents. The Executive further agrees to pay all joint interest billings promptly after receipt of the Company’s invoice in accordance with the applicable joint operating agreement or, in the absence of an applicable joint operating agreement, the standard joint operating agreement used by the Company in the ordinary conduct of its business.

3.4

Definitions. For purposes of this Agreement, the term: (a) “Calendar Quarter” means the three (3) month periods commencing on the first (1^st) day of January, April, July and October; (b) the term “Company Entities” means the Company, any affiliate or successor to the Company, any entity which controls, subsequently owns or is under common control with the Company and any subsidiary corporation, partnership, limited liability company or other entity owned by, controlled by or under common control with any of the foregoing (whether direct or indirect); and (c) “Participation Term” means the term of this Agreement plus five (5) years after a termination under paragraphs 6.1.1 or 6.3 of this Agreement.

4.1

Base Salary. A base salary (the “Base Salary”), in an annual rate of not less than Eight Hundred Thousand Dollars ($800,000.00), will be paid to the Executive in equal semi-monthly installments, beginning January 15, 2004, during the term of this Agreement.

4.2

Bonus. In addition to the Base Salary described at paragraph 4.1 of this Agreement, the Company may periodically pay bonus compensation to the Executive. Any bonus compensation will be at the absolute discretion of the Company in such amounts and at such times as the Compensation Committee of the Board of Directors of the Company may determine.

4.3

Equity Compensation. In addition to the compensation set forth in paragraphs 4.1 and 4.2 of this Agreement, the Executive may periodically receive grants of stock options, restricted stock or other equity related awards from the Company’s various stock compensation plans, subject to the terms and conditions thereof.

4.4

Benefits. The Company will provide the Executive such retirement benefits, reimbursement of reasonable expenditures for dues, travel and entertainment and other benefits on terms customarily provided by the Company from time to time. The Company will also provide the Executive the opportunity to apply for coverage under the Company’s medical, life and disability plans, if any. If the Executive is accepted for coverage under such plans, the Company will provide such coverage on the same terms as is customarily provided by the Company to the plan participants as modified from time to time. The following specific benefits will also be provided to the Executive at the expense of the Company:

4.4.1 

Vacation. The Executive will be entitled to take up to five (5) weeks of paid vacation each calendar year during the term of this Agreement. No additional compensation will be paid for failure to take vacation and no vacation may be carried forward from one calendar year to another.

4.4.2 

Membership Dues. The Company will reimburse the Executive for: (a) the monthly dues necessary to maintain a full membership in (1) golf and/or country club in the Oklahoma City area selected by the Executive; and (b) the reasonable cost of any qualified business entertainment at such country club. All other costs, including, without implied limitation, any initiation costs, initial membership costs, personal use and business entertainment unrelated to the Company

will be the sole obligation of the Executive and the Company will have no liability with respect to such amounts.

4.4.3 

Travel. The Executive will receive a monthly cash allowance in the amount of Two Thousand Dollars ($2,000.00) to defer a portion of the Executive’s cost of acquiring, operating and maintaining an automobile for use in the Executive’s employment. Additionally, for safety and security reasons, the Executive will be required to utilize aircraft owned or leased by the Company for business and personal use in the Western Hemisphere (including North America, South America and the surrounding oceans) and will not be required to reimburse the Company for any cost related to such use. In addition, the Executive’s immediate family members may use such company aircraft for their personal use to the same extent. When a family member travels without the Executive, then the Executive agrees to reimburse the company for the variable costs of such use. For purposes of this Agreement, the variable cost of using the Company’s aircraft means the variable costs directly identifiable with each use (including fuel, pilot charges, landing fees, hourly charges under co-ownership arrangements and other such costs), but specifically excluding any fixed costs of the aircraft (including acquisition costs and depreciation). The Executive will pay all personal income taxes accruing as a result of the personal use of the Company’s aircraft by the Executive under this paragraph.

4.4.4 

Accounting Support. The Executive will be permitted to utilize the Company’s office space, computer facilities and personnel to provide accounting services, records maintenance and tax advice and tax return preparation for the Executive’s (and his family’s) personal business investments and activities. The Executive will not be required to pay any amount to the Company in connection with such accounting support.

4.5

Gross-Up Payment. In the event it is determined that any payment or distribution by the Company or the Company Entities to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this paragraph 4.5) (a “Payment”) is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the “Code”) or any interest or penalties related to such excise tax (collectively, the “Excise Tax”), the Executive will be entitled to receive an additional payment (a “Gross-Up Payment”) from the Company. The Gross-Up Payment will be equal to the amount such that after payment by the Executive of all taxes (including the Excise Tax, income taxes, interest and penalties imposed with respect to such taxes) on the Gross-Up

Payment, the Executive will retain an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payment.

4.5.1 

Determination