OPERATING AGREEMENT

                                       FOR

                                 NEG HOLDING LLC



         Operating Agreement by and among National Energy Group, Inc., a

Delaware corporation ("NEG"), and Gascon Partners, a New York general

partnership ("Gascon), each a Member (as such term is hereinafter defined), and

each person who shall at any time become a Member under this Agreement by

executing a signature page hereof as a Member (such persons collectively

referred to as the "Members").



                                                         Dated as of May 1, 2001



         WHEREAS, the Members wish to state the terms and conditions which shall

govern the operation of the Company (as hereinafter defined).



         NOW, THEREFORE, for good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the Members hereby agree as

follows:



                                    ARTICLE I



                                   DEFINITIONS



         The terms defined in this Article I shall, for the purposes of this

Operating Agreement, have the meaning herein specified. Certain other

capitalized terms used in this Operating Agreement are defined elsewhere herein.

Unless otherwise specified, all references herein to Articles or Sections are to

Articles or Sections of this Operating Agreement.



         1.1 "ACCRUED GASCON AMOUNT" An amount equal to the aggregate of

interest that would be computed annually, if interest were imposed at a rate

equal to the Prime Rate plus 1/2%, as of the close of each Fiscal Year on the

excess of (a) the sum of (i) the cumulative Guaranteed Payments and (ii) the

aggregate of any Accrued Gascon Amounts computed in prior years, over (b)

cumulative Distributions by the Company to Gascon pursuant to Section 6.4(b) of

this Agreement.



         1.2 "ACT" shall mean the Delaware Limited Liability Company Act, 6 Del.

C. 18-101 et seq., as in effect from time to time (the "Act").



         1.3 "AFFILIATE" shall mean with respect to a specified Person, any

Person directly or indirectly controlling, controlled by, or under common

control with, the specified Person.



<PAGE>   2



         1.4 "AGREEMENT" shall mean this Operating Agreement for NEG Holding

LLC, as may be amended from time to time.



         1.5 "BANKRUPTCY" shall mean, and a Member shall be deemed "Bankrupt"

upon, (i) the entry of a decree or order for relief of such Member by a court of

competent jurisdiction in any involuntary case involving such Member under any

bankruptcy, insolvency, or other similar law now or hereafter in effect; (ii)

the appointment of a receiver, liquidator, assignee, custodian, trustee,

sequestrator or other similar agent for such Member or for any substantial part

of such Member's assets or property; (iii) the filing with respect to such

Member of a petition in any such involuntary bankruptcy case, which petition

remains undismissed for a period of 90 days or which is dismissed or suspended

pursuant to Section 305 of the Federal Bankruptcy Code (or any corresponding

provision of any future United States bankruptcy law); (iv) the filing by such

Member of a petition in bankruptcy, or the voluntary commencement of any

insolvency proceeding; (v) the consent of such Member to the entry of an order

for relief in an involuntary case under any such law or to the appointment of or

the taking of possession by a receiver, liquidator, assignee, trustee,

custodian, sequestrator or other similar agent for such Member or for any

substantial part of such Member's assets or property; or (vi) the making by such

Member of any general assignment for the benefit of creditors.



         1.6 "BONDS" shall mean the following issued and outstanding

instruments: (i) registered 10 3/4% Series A/B Notes in the aggregate principal

amount of $100 million due 2006, consisting of registered Series A Notes issued

by NEG in 1996 and registered Series B Notes issued by NEG in 1997 in exchange

for Series A Notes; (ii) unregistered 10 3/4 Series C Notes in the aggregate

principal amount of $65 million due 2006 that were issued by NEG in August 1997;

and (iii) registered 10 3/4% Series D Notes due 2006 that were issued by NEG in

December 1997 in exchange for substantially all of the Series A/B Notes and the

Series C Notes. As of May 1, 2001, the aggregate principal amount of Bonds

outstanding was $165 million, before giving effect to the purchase by NEG of

Bonds which took place as of June 30, 2001.



         1.7 "BUSINESS DAY" shall mean any day other than Saturday, Sunday or

any legal holiday observed in the State of Texas or the State of New York.



         1.8 "CAPITAL ACCOUNT" shall mean the account maintained by the Company

for each Member in accordance with Section 5.3 of this Agreement.

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