EX-10.2

OPERATING AGREEMENT

          THIS AGREEMENT (“Agreement”), entered by and between NEWPORT OIL
CORPORATION, a Florida corporation sometimes known as and being the same
corporation as Newport Oil, Inc. (“Operator”), and FIRECREEK PETROLEUM, INC., a
Delaware corporation (“Firecreek”). Firecreek and any third parties to whom
Firecreek may assign a portion of its interest in this Agreement in accordance
herewith is hereinafter sometimes referred to individually as “Non-Operator” and
collectively as “Non-Operators”.

          The parties to this Agreement are owners of Oil and Gas Leases and/or
Oil and Gas interests in the lands identified in Exhibit “A”. The parties have
reached an agreement to explore and develop these Leases and/or Oil and Gas
Interests for the production of Oil and Gas to the extent and as hereinafter
provided.

          NOW, THEREFORE, it is agreed as follows:

ARTICLE I.
DEFINITIONS

          As used in this Agreement, the following words and terms have the
meanings stated:

          A.           “AFE” means an Authority for Expenditure prepared by a
party to this Agreement for the purpose of estimating the costs to be incurred
in conducting an operation hereunder.

          B.           “Completion” or “Complete” means a single operation
intended to complete a well as a producer of Oil and Gas in one or more Zones,
including, but not limited to, the setting of production casing, perforating,
well stimulation and production testing conducted in such operation.

          C.           “Contract Area” means all of the lands, Oil and Gas
Leases and/or Oil and Gas Interests intended to be developed and operated for
Oil and Gas purposes under this Agreement. Such lands, Oil and Gas Leases and
Oil and Gas Interests are described in Exhibit “A”. The Contract Area as defined
for this venture shall be limited to the specific leases covered herein.

          D.           “Deepen” means a single operation whereby a well is
drilled to an objective Zone below the deepest Zone in which the well was
previously drilled deeper within an existing zone or below the Deepest Zone
proposed in the associated AFE, whichever is the lesser.

          E.           “Drilling Party” and “Participating Party” mean a party
who agrees to join in and pay its share of the cost of any operation conducted
under the provisions of this Agreement.

          F.           “Drilling Unit” means the area fixed for the drilling of
one well by order or rule of any state or federal body having authority. If a
Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be
the drilling unit as established by the pattern of drilling in the Contract Area
unless fixed by the express agreement of the Drilling Parties.

          G.           “Drillsite” means the Oil and Gas Lease or Oil and Gas
Interest on which a proposed well is to be located.

          H.           “Non-Participant Well” mean a well in which less than all
parties have conducted an operation as provided in Article VI. A.2.

          I.            “Non-Drilling Party” and “Non-Participating Party” mean
a party who elects not to participate in a proposed operation.

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          J.           “Oil and Gas” shall mean oil, gas, casinghead gas, gas
condensate, and/or all other liquid or gaseous hydrocarbons and other marketable
substances produced therewith, unless an intent to limit the inclusiveness of
this term is specifically stated.

          K.           “Oil and Gas Interests” or “Interests” means unleased fee
and mineral interests in Oil and Gas in tracts of land lying within the Contract
Area which are owned by parties to this Agreement. L. “Oil and Gas Lease” or
“Oil and Gas Leases”, “Lease” or “Leases” and “Leasehold” mean the oil and gas
leases or interest therein covering tracts of land lying within the Contract
Area which are owned by the parties to this Agreement.

          M.           “Plug Back” means a single operation whereby a deeper
Zone or a portion of a deeper zone is abandoned in order to attempt a Completion
in a shallower Zone.

          N.           “Recompletion” or “Recomplete” means an operation whereby
a Completion in one Zone is abandoned in order to attempt a Completion in
another portion of an existing zone or a different Zone within the existing
wellbore.

          O.           “Rework” means an operation conducted in the wellbore of
a well after it is Completed to secure, restore, or improve production in a Zone
which is currently open to production in the wellbore. Such operations include,
but are not limited to, well stimulation operations but exclude any routine
repair or maintenance work or drilling, Sidetracking, Deepening, Completing,
Recompleting, or Plugging Back of a well.

          P.           “Sidetrack” means the directional control and intentional
deviation of a well from vertical so as to change the bottom hole location
unless done to straighten the hole or to drill around junk in the hole to
overcome other mechanical difficulties. Sidetrack operations shall be considered
to be initiated at that point when drilling outside of the existing borehole is
started.

          Q.           “Zone” means a stratum of earth containing or thought to
contain a common accumulation of Oil and Gas separately producible from any
other common accumulation of Oil and Gas.

     Unless the context otherwise clearly indicates, words used in the singular
include the plural, the word “person” includes natural and artificial persons,
the plural includes the singular, and any gender includes the masculine,
feminine, and neuter.

ARTICLE II.
EXHIBITS

          The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof.

           A.          
Exhibit “A” - which includes the following information:
     
(1)          
Description of lands, leases and wells subject to this Agreement,
     
(2)
Parties to agreement with addresses and telephone numbers for notice purposes,
     
(3)
Percentages or fractional interests of parties to this Agreement,
    B.
Exhibit “B” - Accounting Procedure.
    C.
Exhibit “C” - Insurance.

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ARTICLE III
INTERESTS OF PARTIES

A.      INTERESTS OF PARTIES IN COSTS AND PRODUCTION

          Unless changed by other provisions, all costs and liabilities incurred
in operations under this Agreement shall be borne and paid, and all equipment
and materials acquired in operations in the Contract Area shall be owned, by the
parties as their interests are set forth in Exhibit “A”. In the same manner, the
parties shall also own all production of Oil and Gas from the Contract Area
subject, however, to the payment of royalties and other burdens on production as
hereinafter described.

          Regardless of which party has contributed any Oil and Gas Lease or Oil
and Gas Interest on which royalty or other burdens may be payable and except as
other wise expressly provided in this Agreement, each party shall pay or
deliver, or cause to be paid or delivered, all burdens on its share of the
production from the Contract Area up to, and shall indemnify, defend and hold
the other parties free from any liability therefor. Except as otherwise
expressly provided in this Agreement, if any party has contributed hereto any
Lease or Interest which is burdened with any royalty, overriding royalty,
production payment or other burden on production in excess of the amounts
stipulated above, such party so burdened shall assume and alone bear all such
excess obligations and shall indemnify, defend and hold the other parties hereto
harmless from any and all claims attributable to such excess burden. However, so
long as the Drilling Unit for productive Zones is identical with the Contract
Area, each party shall pay or deliver, or cause to be paid or delivered, all
burdens on production from the Contract Area due under the terms of the Oil and
Gas Leases which such party has contributed to this Agreement, and shall
indemnify, defend and hold the other parties free from any liability therefor.

          No party shall ever be responsible, on a price basis higher than the
price received by such party, to any other party’s lessor or royalty owner, and
if such other party’s lessor or royalty owner should demand and receive
settlement on a higher price basis, the party contributing the affected Lease
shall bear the additional royalty burden attributable to such higher price.

          Nothing contained in this Article III.A shall be deemed an assignment
or cross-assignment of interests covered hereby, and in the event two or more
parties contribute to this Agreement jointly owned leases, the parties undivided
interests in said Leaseholds shall be deemed separate leasehold interests for
the purposes of this Agreement.

B.      SUBSEQUENTLY CREATED INTERESTS

          If any party has contributed hereto a Lease or Interest that is
burdened with an assignment of production given as security for the payment of
money, or if, after the date of this Agreement, any party creates an overriding
royalty, production payment, net profits interest, assignment of production or
other burden payable out of production attributable to its working interest
hereunder, such burden shall be deemed a “Subsequently Created interest.”

          The party whose interest is burdened with the Subsequently Created
Interest (the “Burdened Party”) shall assume and alone bear, pay and discharge
the Subsequently Created Interest and shall indemnify, defend and hold harmless
the other parties from and against any liability therefore. Further, if the
Burdened Party fails to pay, when due, its share of expenses chargeable
hereunder, all provisions of Article VII.A shall be enforceable against the
Subsequently Created interest in the same manner as they are enforceable against
the working interest of the Burdened Party. If the Burdened Party is required
under this Agreement to assign or relinquish to any other party, or parties, all
or a portion of its working interest and/or the production attributable thereto,
such other party, or parties, shall receive such assignment and/or production
free and clear of said Subsequently Created Interest, and the Burdened

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Party shall indemnify, defend and hold harmless said other party, or parties,
from any and all claims and demands for payment asserted by owners of the
Subsequently Created Interest.

ARTICLE IV
TITLES

A.      TITLE EXAMINATION

          Title examination shall be made on the Drillsite of any proposed well
prior to commencement of drilling operations and, unless all Non-Operators and
the Operator agree otherwise, title examination shall be made on the entire
Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion
will include the ownership of the working interest, minerals, royalty,
overriding royalty and production payments under the applicable Leases. Each
party contributing Leases and/or Oil and Gas Interests to be included in the
Drillsite or Drilling Unit, if appropriate, shall furnish to Operator all
abstracts (including federal lease status reports), title opinions, title papers
and curative material in its possession free of all charge. All such information
not in the possession of or made available to Operator by the parties, but
necessary for the examination of the title, shall be obtained by Operator.
Operator shall cause title to be examined by attorneys on its staff or by
outside attorneys. Copies of all title opinions shall be furnished to each
Drilling Party. Costs incurred by Operator in procuring abstracts, fees paid
outside attorneys for title examination (including preliminary, supplemental,
shut-in royalty opinions and division order title opinions) and other direct
charges as provided in Exhibit “B” shall be borne by the Drilling Parties in the
proportion that the interest of each Drilling Party bears to the total interest
of all Drilling Parties as such interests appear in Exhibit “A”. Operator shall
make no charge for services rendered by its staff attorneys or other personnel
in the performance of the above functions.

          Each party shall be responsible for securing curative matter and
pooling amendments or agreements required in connection with Leases of Oil and
Gas Interests contributed by such party. Operator shall be responsible for the
preparation and recording of pooling designations or declarations and
communitization agreements as well as the conduct of hearings before
governmental agencies for the securing of spacing or pooling orders or any other
orders necessary or appropriate to the conduct of operations hereunder. This
shall not prevent any party from appearing on its own behalf at such hearings.
Costs incurred by Operator, including fees paid to outside attorneys, which are
associated with hearings before governmental agencies, and which costs are
necessary and proper for the activities contemplated under this Agreement, shall
be direct charges to the joint accounting and shall not be covered by the
administrative overhead charges as provided in Exhibit “B”. Operator shall make
no charge for services rendered by its staff attorneys or other personnel in the
performance of the above functions.

          No well shall be drilled on the Contract Area until after (1) the
title to the Drillsite or Drilling Unit, if appropriate, has been examined as
above provided, and (2) the title has been approved by the examining attorney or
title has been accepted by all of the Drilling Parties in such well.

B.      LOSS OR FAILURE OF TITLE

          1.           Failure of Title: Should any Oil and Gas Interest or Oil
and Gas Lease be lost through failure of title, which results in a reduction of
interest from that shown on Exhibit “A”, the party credited with contributing
the affected Lease or Interest (including, if applicable, a successor in
interest to such party) shall have ninety (90) days from final determination of
title failure to acquire a new lease or other instrument curing the entirety of
the title failure, which acquisition will not be subject to Article VIII.A, and
failing to do so, this Agreement, nevertheless, shall continue in force as to
all remaining Oil and Gas Leases and Interests; and,

                         (a)           The party credited with contributing the
Oil and Gas Lease or Interest affected by the title failure (including, if
applicable, a successor in interest to such party) shall bear alone the entire

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loss and it shall not be entitled to recover from Operator or the other parties
any development or operating costs which it may have previously paid or
incurred, but there shall be no additional liability on its part to the other
parties hereto by reason of such title failure;

                         (b)           There shall be no retroactive adjustment
of expenses incurred or revenues received from the operations of the Lease or
Interest which has failed, but the interests of the parties contained on Exhibit
“A” shall be revised on an acreage basis, as of the time it is determined
finally that title failure has occurred, so that the interest of the party whose
Lease or Interest is affected by the title failure will thereafter be reduced in
the Contract Area by the amount of the Lease or Interest failed;

                         (c)           If the proportionate interest of the
other parties hereto in any producing well previously drilled on the Contract
Area is increased by reason of the tile failure, the party who bore the costs
incurred in connection with such well attributable to the Lease or Interest
which has failed shall receive the proceeds attributable to the increase in such
interest (less costs and burdens attributable thereto) until it has been
reimbursed for unrecovered costs paid by it in connection with such well
attributable to such failed Lease or Interest;

                         (d)           Should any person not a party to this
Agreement, who is determined to be the owner of any Lease or interest which has
failed, pay in any manner any part of the cost operation, development, or
equipment, such amount shall be paid to the party or parties who bore the costs
which are so refunded;

                         (e)           Any liability to account to a person not
a party to this Agreement for prior production of Oil and Gas which arises by
reason of title failure shall be borne severally by each party (including a
predecessor to a current party) who received production for which such
accounting is required based on the amount of such production received, and each
such party shall severally indemnify, defend and hold harmless all other parties
hereto for any such liability to account;

                         (f)           No charge shall be made to the joint
account for legal expenses, fees or salaries in connection with the defense of
the Lease or Interest claimed to have failed, but if the party contributing such
Lease or Interest hereto elects to defend its title it shall bear all expenses
in connection therewith;

                         (g)           If any party is given credit on Exhibit
“A” to a Lease or Interest which is limited solely to ownership of an interest
in the wellbore of any well or wells and the production therefrom, such party’s
absence of interest in the remainder of the Contract Area shall be considered a
Failure of Title as to such remaining Contract Area unless that absence of
interest is reflected on Exhibit “A”; and

                         (h)           Should Operator assign to Non-Operators
an Oil and Gas Interest or Oil and Gas Leasehold contributed by Operator to this
Agreement and said interest or leasehold be lost through failure of title
resulting in a reduction of the interests shown on Exhibit “A”, Operator shall
refund to Non-Operators all funds paid by Non-Operators as consideration for
said interests or leasehold, save and except any portion thereof which
represents expenses incurred by Operator to third parties in connection with
said interests or leasehold.

          2.           Loss by Non-Payment of Amount Due: If, through mistake or
oversight, any rental, shut-in well payment, minimum royalty or royalty payment,
or other payment necessary to maintain all or a portion of an Oil and Gas Lease
or Interest is not paid or is erroneously paid, and as a result a Lease or
Interest terminates, there shall be no monetary liability against the party who
failed to make such payment. Unless the party who failed to make the required
payment secures a new Lease or Interest covered the same interest within ninety
(90) days from the discovery of the failure to make proper payment, which
acquisition will not be subject to Article VIII.A, the interests of the parties
reflected on Exhibit “A” shall be revised on an acreage basis, effective as of
the date of termination of the Lease or Interest involved, and the party who
failed to make proper payment will no longer be credited with an

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interest in the Contract Area on account of ownership of the Lease or Interest
which has terminated. If the party who failed to make the required payment shall
not have been fully reimbursed, at the time of the loss, from the proceeds of
the sale of Oil and Gas attributable to the lost Lease or Interest, calculated
on an acreage basis, for the development and operating costs previously paid on
account of such Lease or Interest, it shall be reimbursed for unrecovered actual
costs previously paid by it (but not for its share of the cost of any dry hole
previously drilled or wells previously abandoned) from so much of the following
as is necessary to effect reimbursement:

                         (a)           Proceeds of Oil and Gas produced prior to
termination of the Lease or Interest, less operating expenses and lease burdens
chargeable hereunder to the person who failed to make payment, previously
accrued to the credit of the lost Lease or Interest, on an acreage basis, up to
the amount of unrecovered cost;

                         (b)           Proceeds of Oil and Gas, less operating
expenses and lease burdens chargeable hereunder to the person who failed to make
payment up to the amount of unrecovered costs attributable to that portion of
Oil and Gas thereafter produced and marketed (excluding production from any
wells thereafter drilled) which, in the absence of such Lease or Interest
termination, would be attributable to the lost Lease or Interest on an acreage
basis and which as a result of such Lease or Interest termination is credited to
other parties, the proceeds of said portion of the Oil and Gas to be contributed
by the other parties in proportion to their respective interests reflected on
Exhibit “A”; and,

                         (c)           Any monies, up to the amount of
unrecovered costs, that may be paid by any party who is, or becomes, the owner
of the Lease or interest lost, for the privilege of participating in the
Contract Area or becoming a party to this Agreement.

          3.           Other Losses: All losses of Leases or Interests committed
to this Agreement, other than those set forth in Articles IV.B.1 and IV.B.2
above, shall be joint losses and shall be borne by all parties in proportion to
their interests shown on Exhibit “A”. This shall include but not be limited to
the loss of any Lease or Interest through failure to develop or because express
or implied covenants have not been performed (other than performance which
requires only the payment of money), and the loss of any Lease by expiration at
the end of its primary term if it is not renewed or extended. There shall be no
readjustment of interests in the remaining portion of the Contract Area on
account of any joint loss.

          4.           Curing Title: In the event of a Failure of Title under
Article IV.B.1 or a loss of title under Article IV.B.2 above, any Lease or
Interest acquired by any party hereto (other than the party whose interest has
failed or was lost) during the ninety (90) day period provided by Article IV.B.1
and Article IV.B.2 above covering all or a portion of the interest that has
failed or was lost shall be offered at cost to the party whose interest has
failed or was lost, and the provisions of Article VIII.B shall not apply to such
acquisition.

ARTICLE V
OPERATOR

A.      DESIGNATION AND RESPONSIBILITIES OF OPERATOR

          Newport shall be the Operator of the Contract Area, and shall conduct
and direct and have full control of all operations on the Contract Area as
permitted and required by, and within the limits of this Agreement. In its
performance of services hereunder for the Non-Operators, Operator shall be an
independent contractor not subject to the control or direction of the
Non-Operators except as to the type of operation to be undertaken in accordance
with the election procedures contained in this Agreement. Operator shall not be
deemed, or hold itself out as, the agent of the Non-Operators with authority to
bind them to any obligation or liability assumed or incurred by Operator as to
any third party. Operator shall conduct its activities under this Agreement as a
reasonably prudent operator, in a good and workmanlike

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matter, with due diligence and dispatch, in accordance with good oilfield
practice, and in compliance with applicable law and regulations, but in no event
shall it have any liability as Operator to the other parties for losses
sustained or liabilities incurred except such as may result from gross
negligence or willful misconduct.

B.      RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR

          1.           Resignation or Removal of Operator: Operator may resign
at any time by giving written notice thereof to Non-Operators. If Operator
terminates its legal existence, no longer own an interest hereunder in the
Contract Area, or is no longer capable of serving as Operator, Operator shall be
deemed to have resigned without any action by Non-Operators, except the
selection of a successor. Operator may be removed only for good cause by the
affirmative vote of on Non-Operators owning a majority interest based on
ownership as shown on Exhibit “A”. Such vote shall not be deemed effective until
a written notice has been delivered to the Operator by a Non-Operator detailing
the alleged default and Operator has failed to cure the default within thirty
(30) days from first receipt of the notice or, if the default concerns and
operation then being conducted, within forty-eight (48) hours of its receipt of
the notice. For purposes hereof, “good cause” shall mean not only gross
negligence or willful misconduct but also the material breach or inability to
meet the standards of operation contained in Article V.A or material failure or
inability to perform its obligations under this Agreement. Subject to Article
VII.D.1, such resignation or removal shall not become effective until 7:00
o’clock a.m. on the first day of the calendar month following the expiration of
ninety (90) days after the giving of notice or resignation by Operator or action
by the Non-Operators to remove Operator, unless a successor Operator has been
selected and assumes the duties of Operator at an earlier date. Operator, after
effective date of resignation or removal, shall be bound by the terms hereof as
a Non-Operator. A change of a corporate name or structure of Operator or
transfer of Operator’s interest to any single subsidiary, parent or successor
corporation shall not be the basis for removal of Operator. Should the well or
wells being produced utilize gathering facilities owned by the outgoing
operator, said wells shall be shut-in until such time as new facilities are
installed or a formal arrangement and agreement be made, with the outgoing
operator, for the use of the existing facilities. Said shut-in may not be in
contravention of or violate the ongoing requirements of said lease.

          2.           Selection of Successor Operator: Upon the resignation or
removal of Operator under any provision of this Agreement, a successor Operator
shall be selected by the parties. The successor Operator shall be selected from
the parties owning an interest in the Contract Area at the time such successor
Operator is selected. The successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest based on
ownership as shown on Exhibit “A”, provided, however, if an Operator which has
been removed or is deemed to have resigned fails to vote or votes only to
succeed itself, the successor Operator shall be selected by the affirmative vote
of the party or parties owning a majority interest based on ownership as shown
on Exhibit “A” remaining after excluding the voting interest of the Operator
that was removed or resigned. The former Operator shall promptly deliver to the
successor Operator all records and data relating to the operations conducted by
the former Operator to the extent such records and data are not already in the
possession of the successor operator. Any cost of obtaining or copying the
former Operator’s records and data shall be charged to the joint account.

          3.           Effect of Bankruptcy: If Operator becomes insolvent,
bankrupt or is placed in receivership, it shall be deemed to have resigned
without any action by Non-Operators, except the selection of a successor. If a
petition for relief under the federal bankruptcy laws is filed by or against
Operator, and the removal of Operator is prevented by the federal bankruptcy
court, all Non-Operators and Operator shall comprise an interim operating
committee to serve until Operator has elected to reject or assume this Agreement
pursuant to the Bankruptcy Code, and an election to reject this Agreement by
Operator as a debtor in possession, or by a trustee in bankruptcy, shall be
deemed a resignation as Operator without any action by Non-Operators, except the
selection of a successor. During the period of

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time the operating committee controls operations, all actions shall require the
approval of two (2) OR MORE PARTIES OWNING A MAJORITY INTEREST BASED ON
OWNERSHIP AS SHOWN ON Exhibit “A”. In the event there are only two (2) parties
to this Agreement, during the period of time the operating committee controls
operations, a third party acceptable to Operator, Non-Operator and the federal
bankruptcy court shall be selected as a member of the operating committee, and
all actions shall require the approval of two (2) members of the operating
committee without regard to their interest in the Contract Area based on Exhibit
“A”.

C.      EMPLOYEES AND CONTRACTORS

          The number of employees or contractors used by Operator in conducting
operations hereunder, their selection, and the hours of labor and the
compensation for services performed shall be determined by Operator, and all
such employees or contractors shall be the employees or contractors of Operator.

D.      RIGHTS AND DUTIES OF OPERATOR

          1.           Competitive Rates and Use of Affiliates: All wells
drilled on the Contract Area shall be drilled on a competitive contract basis at
the usual rates prevailing in the area. If it so desires, Operator may employ
its own tools and equipment in the drilling of wells, but its charges therefore
shall not exceed the prevailing rates in the area and the rate of such charges
shall be agreed upon by the parties in writing before drilling operations are
commenced, and such work shall be performed by Operator under the same terms and
conditions as are customary and usual in the area in contracts of independent
contractors who are doing work of a similar nature. All work performed or
materials supplied by Affiliates or related parties of Operator shall be
performed or supplied at competitive rates, pursuant to written agreement, and
in accordance with customs and standards prevailing in the industry. Nothing
herein shall be construed as being a Turnkey Agreement.

          2.           Discharge of Joint Account Obligations: Except as herein
otherwise specifically provided, Operator shall promptly pay and discharge
expenses incurred in the development and operation of the Contract Area pursuant
to this Agreement and shall charge each of the parties hereto with their
respective proportionate shares upon the expense basis provided in Exhibit “B”.
Operator shall keep an accurate record of the joint account hereunder, showing
expenses incurred and charges and credits made and received.

          3.           Protection from Liens: Operator shall pay, or cause to be
paid as and when they become due and payable, all accounts of contractors and
suppliers and wages and salaries for services rendered or performed, and for
materials supplied on, to or in respect of the Contract Area or any operations
for the joint account thereof, and shall keep the Contract Area free from liens
and encumbrances resulting therefrom except for those resulting from a bona fide
dispute as to services rendered or materials supplied.

          4.           Custody of Funds: Operator shall hold for the account of
the Non-Operators any funds of the Non-Operators advanced or paid to the
Operator, either for the conduct of operations hereunder or as a result of the
sale of production from the Contract Area, and such funds shall remain the funds
of the Non-Operators on whose account they are advanced or paid until used for
their intended purpose or otherwise delivered to the Non-Operators or applied
toward the payment of debts as provided in Article VII.B. Nothing in this
paragraph shall be construed to establish a fiduciary relationship between
Operator and Non-Operators for any purpose other than to account for
Non-Operator funds as herein specifically provided. Nothing in this paragraph
shall require the maintenance by Operator of separate accounts for the funds of
Non-Operators unless the parties otherwise specifically agree.

          5.           Access to Contract Area and Records: Operator shall,
except as otherwise provided herein, permit each Non-Operator or its duly
authorized representative, at the Non-Operator’s sole risk

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and cost, full and free access at all reasonable times to all operations of
every kind and character being conducted for the joint account on the Contact
Area and to the records of operations conducted thereon or production therefrom,
including Operator’s books and records relating thereto. Such access rights
shall not be exercised in a manner interfering with Operator’s conduct of an
operation hereunder and shall not obligate Operator to furnish any geologic or
geophysical data of an interpretive nature unless the cost of preparation of
such interpretive data was charged to the joint account. Operator will furnish
to each Non-Operator upon request copies of any and all reports and information
obtained by Operator in connection with production and related items, including,
without limitation, meter and chart reports, production purchaser statements,
run tickets and monthly gauge reports, but excluding purchase contracts and
pricing information to the extent not applicable to the production of the
Non-Operator seeking the information. Any audit of Operator’s records relating
to amounts expended and the appropriateness of such expenditures shall be
conducted in accordance with the audit protocol specified in Exhibit “B”.

          6.           Filing and Furnishing Governmental Reports: Operator will
file, and upon written request promptly furnish copies to each requesting
Non-Operator not in default of its payment obligation, all operational notices,
reports or applications required to be filed by local, state, federal or Indian
agencies or authorities having jurisdiction over operations hereunder. Each
Non-Operator shall provide to Operator on a timely basis all information
necessary to Operator to make such filings.

          7.           Drilling and Testing Operations: The following provisions
shall apply to each well drilled hereunder:

                         (a)           Operator will promptly advise
Non-Operators of the date on which the well is spudded, or the date on which
drilling operations are commenced.

                         (b)           Operator will send to Non-Operators such
reports, test results and notices regarding the progress of operations on the
well as the Non-Operators shall reasonable request, including, but not limited
to, daily drilling reports by telephone, completion reports, and well logs.

                         (c)           Operator shall adequately test all Zones
encountered which may reasonable be expected to be capable of producing Oil and
Gas in paying quantities as a result of examination of the electric log or any
other logs or cores or tests conducted hereunder.

          8.           Cost Estimates: Upon request of any Consenting Party,
Operator shall furnish estimates of current and cumulative costs incurred for
the joint account at reasonable intervals during the conduct of any operation
pursuant to this Agreement. Operator shall not be held liable for errors in such
estimates so long as the estimates are made in good faith.

          9.           Insurance: At all times while operations are conducted
hereunder, Operator shall comply with the workers compensation law of the state
where the operations are being conducted; provided, however, that Operator may
be a self-insurer for liability under said compensation laws in which event the
only charge that shall be made to the joint account shall be as provided in
Exhibit “B”. Operator shall also carry or provide insurance for the benefit of
the joint account of the parties as outlined in Exhibit “C” attached hereto and
made a part hereof. Operator shall require all contractors engaged in work on of
for the Contract Area to comply with the workers compensation law of the state
where the operations are being conducted and to maintain such other insurance as
Operator may require. In the event automobile liability insurance is specified
in said Exhibit “C”, or subsequently receives the approval of the parties, no
direct charge shall be made by Operator for premiums paid for such insurance for
Operator’s automotive equipment.

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ARTICLE VI
DRILLING AND DEVELOPMENT

A.      OPERATIONS:

          1.           Proposed Operations: Non-Operators shall have the option,
but not the obligation, to participate in the drilling of wells; provided,
however, that Operator and Non-Operators shall participate in and pay for the
cost of workover of two (2) existing wells on the Contract Area (identified as
“State 68-15600 7-16” and “State 68-15600 16-1” in Section 16, Township 212
North, Range 99 West, 6th P.M., on Exhibit “A”). Each of the parties has
contributed the sum of $614,129.50 (total of $1,228,259) pursuant to the initial
AFE for such workover.

          The parties acknowledge that the initial AFE is only an estimate of
workover costs for such two (2) wells and that each party shall be liable for
50% of all costs attributable to workover of such two (2) wells.

          The parties contemplate workover of a third well pursuant to a
separate agreement between them. Upon resolution of certain issues discussed in
such agreement to the mutual satisfaction of the parties, each of the parties
will be deemed to have elected to “participate” in such well, and workover of
such well will then be done on the same basis as described foregoing; that is,
there will be an initial AFE which must be promptly funded and the parties will
be liable for 50% of all costs attributable to workover of such third well.

          Proposed operations in additional wells (that is, wells beyond the
three workover wells) to be drilled and completed will be undertaken on the
industry basis of a “third for a quarter”: Non-Operators will pay all costs of
drilling, equipping, testing and completing each well and will own 75% of the
working interest therein; Operator will receive the remaining 25% working
interest as a free carried working interest.

          Operator and Non-Operators contemplate four (4) additional wells
during 2006 in Section 16, Township 21 North, Range 99 West, 6th P.M., and four
(4) to (6) wells on other land subject to this Agreement, subject to the right
of each Non-Operator to “not participate” as described herein.

          Operator will be responsible for the management of the development
program, will determine the parameters, timing, and direction of any further
drilling.

          Operator will formally offer to the Non-Operators an opportunity to
participate in wells to be drilled in addition to the two (2) wells to be worked
over in Section 16 on the Contract Area as discussed above. Operator may require
participating Non-Operators to deposit to Operator’s account, each
Non-Operator’s share of the estimated cost of drilling, equipping, testing, and
completing each such subsequent well. Each Non-Operator will promptly elect to
“participate” or “not participate” in any proposed such additional well or
wells. Failure to give prompt notice of an election to participate within
fifteen (15) calendar days from the date of receipt by Non-Operator of written
notice from Operator of a proposed well shall formally evidence such
Non-Operator’s decision to “not participate.”

          If a Non-Operator elects at any time to “not participate” in a well to
which an election may be made by the Non-Operator, the Non-Operator will loose
all future rights to participate in future drilling. Wells may, at the
discretion of the Operator, be drilled in groups (e.g., 4 or 5 wells) and in
such case (i) an election by a Non-Operator to “participate” or “not
participate” will apply to all wells in the group and (ii) if the Non-Operator
elects to “not participate” in the group, all rights of the Non-Operator to
“participate” in future wells and operations relating thereto shall become void
and of no further force or effect.

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          If all parties to whom such notice is delivered, elect to participate
in a proposed operation, the parties shall contractually be committed to
participate therein provided such operations are commenced within the time
period hereafter set forth. Operator shall, no later than ninety (90) days after
expiration of the notice of fifteen (15) (or as promptly as practicable after
the expiration of the forty-eight (48) hour period when a drilling rig is on
location, as the case may be), actually commence the proposed operation and
thereafter complete it with due diligence at the risk and expense of the parties
participating therein; provided, however, said commencement date may be extended
upon written notice of same by Operator to the other parties, for a period of up
to thirty (30) additional days if, in the sole opinion of Operator, such
additional time is reasonably necessary to obtain permits from governmental
authorities, surface rights (including right-of-way) or appropriate drilling
equipment, or to complete title examination or curative matter required for
title approval or acceptance.

          2.           Operations by Less Than All Parties: If any party to whom
appropriate notice is delivered as provided in Article VI.A.1 or VI.B.1 elects
not to participate in the proposed operation, then Operator and such other
parties as shall elect to participate in the proposed operation shall, no later
than ninety (90) days after the expiration of the notice period of fifteen (15)
days (or as promptly as practicable after the expiration of the forty-eight (48)
hour period when a drilling rig is on location, as the case may be) actually
commence the proposed operation and complete it with due diligence. Operator
shall perform all work for the account of the Participating Parties. The term
“proposed operation” shall include the drilling of any well and the completing,
recompleting, sidetracking, deepening or reworking of any well.

          If any party elects not to participate in any proposed operation, the
non-participating interest will be offered to the Participating Parties on a
prorata basis. Immediately after the expiration of the applicable notice period,
Operator shall advise all Parties of the total interest of the parties approving
such operation and its recommendation as to whether the Participating Parties
should proceed with the operation as proposed. Each Participating Party, within
forty-eight (48) hours (including Saturday, Sunday and legal holidays) after
delivery of such notice, shall advise the Operator of its desire to (i) limit
participation to such party’s interest as shown on Exhibit “A” or (ii) carry
only its proportionate part (determined by dividing such party’s interest in the
Contract Area by the interests of all Participating Parties in the Contract
Area) of Non-Participating Parties’ interests, or (iii) carry its proportionate
part [determined as provided in (ii)] of Non-Participating Parties’ interest
together will all or a portion of its proportionate part of any
Non-Participating Parties’ interests that any Participating Party did not elect
to take. Failure to advise the Operator within the time required shall be deemed
an election under (i). In the event a drilling rig is on location, notice may be
given by telephone, and the time permitted for such a response shall not exceed
a total of forty-eight (48) hours (including Saturday, Sunday and legal
holidays). IF A PARTY ELECTS NOT TO PARTICIPATE IN ANY PROPOSED OPERATION, THE
NON-PARTICIPATING PARTY SHALL HAVE NO FURTHER RIGHT TO PARTICIPATE UNDER THIS
AGREEMENT AS TO ANY UNDEVELOPED ACREAGE AND SHALL FURTHER HAVE NO RIGHT TO
PARTICIPATE IN A SUBSEQUENTLY PROPOSED OPERATION AS TO A WELL, FOR WHICH THE
COMPLETION, RECOMPLETION, REWORKING, DEEPENING OR SIDETRACKING IS PROPOSED. If
such Non-Participating Party has made a prepayment for the completion and
equipping of a well and then determines not to participate in the completion of
the well, Operator shall promptly refund to such Non-Participating Party who
relinquishes its interest at the time a proposed operation is proposed shall
have no liability for the plugging of such well or for surface restoration
operations and likewise shall forfeit any interest in the well or salvage value
therefrom. If all or part of the non-participating interest is not assumed by
the remaining Participating Parties, Operator shall be authorized to replace the
Non-Participating Party with a Third Party as to any of the non participating
interest not taken by participating parties and such Third Party shall be
thereafter deemed a Participating Party. The Non-Participating Party shall
reassign to Operator all of the remaining undeveloped acreage and shall also
reassign the Operator the proration unit corresponding to the well, the
completion, recompletion, reworking, deepening or

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sidetracking of which is proposed within fifteen (15) calendar days. In the
event the Non-Participating Party fails to reassign to Operator all of the
remaining undeveloped acreage and/or the proration unit mentioned in the
preceding sentence within the fifteen (15) day limitation period provided for
herein, Operator shall be deemed the attorney-in-fact for the Non-Participating
Party with express authority to execute an assignment of such Non Participating
Party’s interest in any undeveloped acreage and/or proration unit to Operator.
Operator, at its election, may withdraw its proposal for an additional operation
if there is less than 100% participation and shall notify all parties of such
decision within ten (10) days, or within twenty four (24) hours if a drilling
rig is on location, following expiration of the applicable response period. If
100% subscription to the proposed operation is obtained, either through the
existing participants or by the inclusion of a third party or parties, Operator
shall promptly notify the Participating Parties of their proportionate interests
in the operation and Operator shall commence such operation within the period
provided in Article VI.A.1, subject to the same extension right as provided
therein.

          The entire cost and risk of conducting such operations shall be borne
by the Participating Parties in the proportions they have elected to bear same
under the terms of the preceding paragraph.

          3.           Conformity to Spacing Pattern: Notwithstanding the
provisions of Article VI.A.2, it is agreed that no wells shall be proposed to be
drilled to or Completed in or produced from a Zone from which a well located
elsewhere on the Contract Area is producing, unless such well conforms to the
then-existing well spacing pattern for such Zone.

          4.           Paying Wells: No party shall conduct any Reworking,
Deepening, Plugging Back, Completion, Recompletion, or Sidetracking operation
under this Agreement with respect to any well then capable of producing in
paying quantities except with the consent of all parties that have not
relinquished interests in the well at the time of such operation.

B.      COMPLETION OF WELLS; REWORKING AND PLUGGING BACK

          1.           Drilling, Deepening or Sidetracking: Without the consent
of all parties, no well shall be drilled, Deepened or Sidetracked, except a well
drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.A.2 of
this Agreement. Consent to the drilling, Deepening or Sidetracking shall be
deemed to include consent to all necessary expenditures for the drilling,
Deepening or Sidetracking and testing of the well. When such well has reached
its authorized depth, and all logs, cores and other tests have been completed,
and the results thereof furnished to the parties, Operator and the participating
Non-Operators, or their designated representative, shall make a determination
whether to proceed with the attempted Completion of the Well. The parties
receiving such notice shall have forty-eight (48) hours (including Saturday,
Sunday and legal holidays) from receipt of notice in which to elect by delivery
of notice to Operator to participate in a recommended Completion attempt.
Election to participate in a Completion attempt shall include consent to all
necessary expenditures for the Completing and equipping of such well, including
necessary tankage and/or surface facilities but excluding any stimulation
operation not contained on the Completion AFE. If Operator is unable, after
reasonable efforts, to locate a Non-Operator, or its designated representative,
Operator is authorized to proceed at its own discretion to make the decision on
Non-Operator’s behalf as to whether to participate in a completion attempt. If
one or more, but less than all of the parties, elect to attempt a Completion,
the provisions of Article VI.A.2 hereof shall apply to the operations thereafter
conducted by less than all parties, and a Non-Participating Party shall be
deemed to have relinquished its interest in the proration unit for the well as
to which a Reworking operation, Sidetracking operation, Recompletion operation,
or Plugging Back operation is to be attempted as well as in all undeveloped
acreage.

          2.           Rework, Sidetrack, Recomplete or Plug Back: No well shall
be Reworked, Sidetracked, Recompleted, or Plugged Back except a well Reworked,
Sidetracked, Recompleted, or Plugged Back pursuant to the provisions of Article
VI.A.2 of this Agreement. Consent to the Reworking, Sidetracking,

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Recompleting or Plugging Back of a well shall be deemed to include consent to
all necessary expenditures in conducting such operations and Completing and
equipping of said well, including necessary tankage and/or surface facilities.
Any Non-Participating Party shall be deemed to have relinquished such Party’s
interest in the proration unit for the well as to which a Reworking operation,
Recompletion operation, or Plugging Back operation is to be attempted as well as
in all undeveloped acreage.

C.      OTHER PROVISIONS

          Operator shall not undertake any single project reasonable estimated
to required an expenditure in excess of TEN THOUSAND DOLLARS ($10,000.00) except
in connection with the drilling, Sidetracking, Reworking, Deepening, Completing,
Recompleting or Plugging Back of a well that has been previously authorized by
or pursuant to this Agreement; provided, however, that, in case of explosion,
fire, flood or other sudden emergency, whether of the same or different nature,
Operator may take such steps and incur such expenses as in its opinion are
required to deal with the emergency to safeguard life and property but Operator,
as promptly as possible, shall report the emergency to the other parties. If
Operator prepares an AFE for its own use Operator shall furnish any Non-Operator
so requesting an information copy thereof for any single project costing in
excess of TEN THOUSAND DOLLARS ($10,000.00) .

D.      ABANDONMENT OF WELLS

          1.           Abandonment of Dry Holes: Any well which has been drilled
or Deepened under the terms of this Agreement and is proposed to be completed as
a dry hole shall not be plugged and abandoned without the consent of all
participating parties. Should operator, after diligent effort, be unable to
contact any party, or should any party fail to reply within forty-eight (48)
hours (including Saturday, Sunday and legal holidays) after delivery of notice
of the proposal to plug and abandon such well, such party shall be deemed to
have consented to the proposed abandonment. All such wells shall be plugged and
abandoned in accordance with applicable regulations and at the cost, risk and
expense of the parties who participated in the cost of drilling or Deepening
such well. Any party who objects to plugging and abandoning such well by notice
delivered to Operator within forty-eight (48) hours (including Saturday, Sunday
and legal holidays) after delivery of notice of the proposed plugging shall take
over the well as of the end of such forty-eight (48) hour notice period and
conduct further operations in search of Oil and/or Gas subject to the provisions
of Article VI.A; failure of such party to provide proof reasonably satisfactory
to Operator of its financial capability to conduct such operations or to take
over the well within such period or thereafter to conduct operations on such
well or plug and abandon such well shall entitle Operator to retain or take
possession of the well and plug and abandon the well. The party taking over the
well shall indemnify Operator (if Operator is an abandoning party) and the other
abandoning parties against all liability for any further operations conducted on
such well including the costs of plugging and abandoning the well and restoring
the surface.

          2.           Abandonment of Wells That Have Produced: Any well which
has been completed as a producer shall not be plugged an abandoned well without
the consent of all Participating Parties. If all parties consent to such
abandonment, the well shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk and expense of all the
participating parties hereto. Failure of a party to reply within thirty (30)
days after delivery of notice of the proposed abandonment of any well, all
participating parties do not agree to the abandonment of such well, those
wishing to continue its operation from the Zone then open to production shall be
obligated to take over the well as of the expiration of the applicable notice
period and shall indemnify Operator (if Operator is an abandoning party) and the
other abandoning parties against liability for any further operations of the
well conducted by such parties. Failure of such party or parties to provide
proof reasonably satisfactory to Operator of their financial capability to
conduct such operations or to take over the well within the required period or
thereafter to

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conduct operations on such well shall entitle Operator to the right, but not the
obligation, to retain or take possession of such well and plug and abandon the
well. Parties taking over a well as provided herein shall tender to each of the
other parties their proportionate share of the value of the well’s salvable
material and equipment, determined in accordance with the provisions of Exhibit
“B”, less the estimated cost of salvaging and the estimated costs of plugging
and abandoning and restoring the surface; provided, however, that in the event
the estimated plugging and abandoning and surface restoration costs and the
estimated costs of salvaging are greater than the value of the well’s salvable
material and equipment, each of the abandoning parties shall tender to the
parties continuing operations such abandoning parties’ proportionate shares of
the estimated excess cost. Each abandoning party shall assign to the
non-abandoning parties, without warranty, express or implied, as to title or as
to quantity, or fitness for use of the equipment and material, all of its
interest in the wellbore of the well and related equipment, together with its
interest in the Leasehold in so far and only in so far as the leasehold covers
the right to obtain production from that wellbore in the Zone then open to
production. The assignments so limited shall encompass the Drilling Unit upon
which the well is located. The payments by, and the assignments to, the
assignees shall be in a ratio based upon the relationship of their respective
percentage of participation in the Contract Area to the aggregate of the
percentages of participation in the Contract Area of all assignees. There shall
be no readjustment of interests in the remaining portions of the Contract Area.

E.      TERMINATION OF OPERATIONS

          Upon the commencement of an operation for the drilling, Reworking,
Sidetracking, Plugging Back, Deepening, testing Completion or plugging of a
well, such operation shall not be terminated without consent of parties bearing
60% of the costs of such operation; provided, however, that in the event granite
or other practically impenetrable substance or condition in the hole is
encountered which renders further operations impractical, Operator may
discontinue operations and give notice of such condition in the manner provided
in Article VI.B.1, and the provisions of Article VI.B or VI.E shall thereafter
apply to such operations, as appropriate.

F.      TAKING PRODUCTION IN KIND

          Non-Operators authorize Operator, as their agent and attorney-in-fact,
to negotiate, execute and manage oil and gas purchase contracts with first
purchasers and other leases and contracts necessary for normal and prudent
operations. Operator is to exercise prudent judgment in the negotiation and
execution of any oil and gas purchase contract should it become necessary to
negotiate new contracts or agreements. This Agreement and all leases covered by
same are subject to the provisions of applicable oil and gas purchase contracts,
Operator and Non-Operators agree to permit on-site inspection of operations by
oil and gas purchaser representatives.

ARTICLE VII
EXPENDITURES AND LIABILITY OF PARTIES

A.      LIABILITY OF PARTIES

          The liability of the parties shall be several, not joint or
collective. Each party shall be responsible only for its obligations, and shall
be liable only for its proportionate share of the costs of developing and
operating the Contract Area. Accordingly, the liens granted among the parties in
Article VII.B are given to secure only the debts of each severally, and no party
shall have any liability to third parties hereunder to satisfy the default of
any other party in the payment of any expense or obligation hereunder. It is not
the intention of the parties to create, nor shall this Agreement be construed as
creating, a mining or other partnership, joint venture, agency relationship or
association, or to render the parties liable as partner, co-venturers, or
principals. In their relations with each other under this Agreement, the parties
shall not be considered fiduciaries or to have established a confidential
relationship but rather shall be free to act on an arm’s length basis in
accordance with their own respective self-interest, subject, however, to the

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obligation of the parties to act in good faith in their dealings with each other
with respect to activities hereunder.

B.      LIENS AND SECURITY INTERESTS

          Each party grants to the other parties hereto a lien upon any interest
it now owns or hereafter acquires in Oil and Gas Leases and Oil and Gas
Interests in the Contract Area, and a security interest and/or purchase money
security interest in any interest it now owns or hereafter acquires in the
personal property and fixtures on or used or obtained for use in connection
therewith, to secure performance of all of its obligations under this Agreement
including but not limited to payment of expense, interest and fees, the proper
disbursement of all monies paid hereunder, the assignment or relinquishment of
interest in Oil and Gas Leases as required hereunder, and the proper performance
of operations hereunder. Such lien and security interest granted by each party
hereto shall include such party’s leasehold interest, working interests,
operating rights, and royalty and overriding royalty interests in the Contract
Area now owned or hereafter acquired and in lands pooled or unitized therewith
or otherwise becoming subject to this Agreement, the Oil and Gas when extracted
therefrom and equipment situated thereon or used or obtained for use in
connections therewith (including, without limitation, all wells, tools, and
tubular goods), and accounts (including, without limitation, accounts arising
from gas imbalances or from the sale of Oil and/or Gas at the Wellhead),
contract rights, inventory and general intangibles relating thereto or arising
therefrom, and all proceeds and products of the foregoing. To perfect the lien
and security agreement provided herein, each party hereto authorizes each other
party hereto to execute, acknowledge and file any and all financing statements
and supplements or continuations thereof to evidence the security interests
granted by the parties hereunder. Operator is authorized to file this Agreement
or any recording supplement executed herewith as a lien or mortgage in the
applicable real estate records and as a financing statement with the proper
officer under the Uniform Commercial Code in the state in which the Contract
Area is situated and such other states as Operator shall deem appropriate to
perfect the security interest granted hereunder. Any party may file this
Agreement, or any recording supplement executed herewith, or such other
documents as it deems necessary as a lien or mortgage in the applicable real
estate records and/or a financing statement with the proper officer under the
Uniform Commercial Code.

          Each party represents and warrants to the other parties hereto that
the lien and security interest granted by such party to the other parties shall
be first and prior lien, and each party hereby agrees to maintain the priority
of said lien and security interest against all persons acquiring an interest in
Oil and Gas Leases and Interests covered by this Agreement by, through or under
such party. All parties acquiring an interest in Oil and Gas Leases and Oil and
Gas Interests covered by this Agreement, whether by assignment, merger,
mortgage, operation of law, or otherwise, shall be deemed to have taken subject
to the lien and security interest granted by this Article VII.B as to all
obligations attributable to such interest hereunder whether or not such
obligations arise before or after such interest is acquired.

          To the extent that parties have a security interest under the uniform
Commercial Code of the state in which the Contract Area is situated, they shall
be entitled to exercise the rights and remedies of a secured party under the
Code. The bringing of a suit and the obtaining of judgment of a party for the
secured indebtedness shall not be deemed and election of remedies or to
otherwise affect the lien rights or security interest as security for the
payment thereof. In addition, upon default by any party in the payment of its
share of expenses, interests or fees, or upon the improper use of funds by the
Operator, the other parties shall have the right, without prejudice to other
rights or remedies, to collect from the purchaser the proceeds from the sale of
such defaulting party’s share of Oil and Gas until the amount owed by such
party, plus interest as provided in Exhibit “B”, has been received, and shall
have the right to offset the amount owed against the proceeds from the sale of
such defaulting party’s share of Oil and Gas. All purchasers of production may
rely on a notification of default from the non-defaulting party or parties

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stating the amount due as a result of the default, and all parties waive any
recourse available against purchasers for releasing production proceeds as
provided in this paragraph.

          If any party fails to pay its share of cost within if the due date as
herein provided, the non-defaulting parties, including Operator, shall, upon
request by Operator, pay the unpaid amount in the proportion that the interest
of each such party bears to the interest of all such parties. The amount paid by
each party so paying its share of the unpaid amount shall be secured by the
liens and security rights described in this Article VII.B, and each paying party
may independently pursue any remedy available hereunder or otherwise.

          If any party does not perform all of its obligations hereunder, and
the failure to perform subjects such party to foreclosure or execution
proceeding pursuant to the provisions of this Agreement, to the extent allowed
by governing law, the defaulting party waives any available right of redemption
from and after the date of judgment, and any required valuation or appraisement
of the mortgaged or secured property prior to sale, any available right to state
execution or to require a marshalling of assets and any required bond in the
event a receiver is appointed. In addition, to the extent permitted by
applicable law, each party hereby grants to the other parties a power of sale as
to any property that is subject to the lien and security rights granted
hereunder, such power to be exercised in the manner provided by applicable law
or otherwise in a commercially reasonable manner and upon reasonable notice.

          Each party agrees that the other parties shall be entitled to utilize
the provisions of Oil and Gas lien law or other lien law of any state in which
the Contract Area is situated to enforce the obligations of each party
hereunder. Without limiting the generality of the foregoing, to the extent
permitted by applicable law, Non-Operators agree that Operator may invoke or
utilize the mechanics’ or materialmen’s lien law of the state in which the
Contract Area is situated in order to secure the payment to Operator of any sum
due hereunder for services performed or materials supplied by Operator.

C.      OTHER OPERATIONS

          Operator, at its election, shall have the right from time to time to
demand and receive from one or more of the other parties payments in advance of
their respective shares of the estimated amount of the expense to be incurred in
operations hereunder during the next succeeding month, which right may be
exercised only by submission to each such party of an itemized statement of such
estimated expense and an invoice for each participating party’s interest shall
be submitted on or before the last day of the next preceding month. Each party
shall pay to Operator its proportionate share of such estimate within fifteen
(15) days after such estimate and invoice is received. If any party fails to pay
its share of said estimate within said time, the amount due shall bear interest
as provided in Exhibit “B” until paid. Proper adjustment shall be made monthly
between advances and actual expense to the end that each party shall bear and
pay its proportionate share of actual expenses incurred, and not more.

D.      DEFAULTS AND REMEDIES

          If any party fails to discharge any financial obligation under this
Agreement, including without limitation the failure to make any advance under
the preceding Article VII.C or any other provision of this Agreement, within the
period required for such payment hereunder, then in addition to the remedies
provided in Article VII.B or elsewhere in this Agreement, the remedies specified
below shall be applicable. For purposes of this Article VII.D, all notices and
elections shall be delivered only by Operator, except that Operator shall
deliver any such notice and election requested by a non-defaulting Non-Operator,
and when Operator is the party in default, the applicable notices and elections
can be delivered by any Non-Operator. Election of any one or more of the
following remedies shall not preclude the subsequent use of any other remedy
specified below or otherwise available to non-defaulting party.

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          1.           Suspension of Rights: Any party may deliver to the party
in default a Notice of Default, which shall specify the default, specify the
action to be taken to cure the default, and specify that failure to take such
action will result in the exercise of one or more of the remedies provided in
this Article. If the default is not cured within thirty (30) days of the
delivery of such Notice of Default, all of the rights of the defaulting party
granted by this Agreement may upon notice be suspended until the default is
cured, without prejudice to the right of the non-defaulting party or parties to
continue to enforce the obligations of the defaulting party previously accrued
or thereafter accruing under this Agreement. If Operator is the party in
default, the Non-Operators shall have in addition the right, by vote of
Non-Operators owning a majority in interest in the Contract Area after excluding
the voting interest of Operator, to appoint a new Operator effective
immediately. The rights of a defaulting party that may be suspended hereunder at
the election of the non-defaulting parties shall include, without limitation,
the right to receive information as to any operation conducted hereunder during
the period of such default, the right to elect to participate in an operation
proposed under Article VI.A of this Agreement even if the party has previously
elected to participate in such operation, and the right to receive proceeds of
production from any well subject to this Agreement.

          2.           Suit for Damages: Non-defaulting parties or Operator for
the benefit of non-defaulting parties may sue (at joint account expense) to
collect the amounts in default, plus interest accruing on the amounts recovered
from the date of default until the date of collection at the rate specified in
Exhibit “B” attached hereto. Nothing herein shall prevent any party from suing
any defaulting party to collect consequential damages accruing to such party as
a result of the default.

          3.           Deemed Non-Participating: The non-defaulting party may
deliver a written Notice of Non-Participation Election to the defaulting party
at any time after the expiration of the thirty (30) day cure period following
delivery of the Notice of Default, in which event if the billing is for the
drilling of a new well or the Plugging Back, Sidetracking, Reworking or
Deepening of a well which is to be or has been plugged as a dry hole, or for the
Completion or Recompletion of any well, the defaulting party will be
conclusively deemed to have elected not to participate in the operation and to
be a Non-Participating Party with respect thereto under Article VI.A or VI.B, as
the case may be, to the extent of the costs unpaid by such party,
notwithstanding any election to participate theretofore made. If election is
made to proceed under this provision, then the non-defaulting parties may not
elect to sue for the unpaid amount pursuant to Article VII.D.2. Until the
delivery of such Notice of Non-Participating Election to the defaulting party,
such party shall have the right to cure its default by paying its unpaid share
of costs plus interest at the rate set forth in Exhibit “B”, provided, however,
such payment shall not prejudice the rights of the non-defaulting parties to
pursue remedies for damages incurred by the non-defaulting parties as a result
of the default. Any interest relinquished pursuant to this Article VII.D.3 shall
be offered to the non-defaulting parties in proportion to their interests, and
the non-defaulting parties electing to participate in the ownership of such
interest shall be required to contribute their shares of the defaulted amount
upon their election to participate therein.

          4.           Advance Payment: If a default is not cured within thirty
(30) days of the delivery of a Notice of Default, Operator or Non-Operators if
Operator is the defaulting party, may thereafter require advance payment from
the defaulting party of such defaulting party’s anticipated share of any item of
expense for which Operator, or Non-Operators, as the case may be, would be
entitled to reimbursement under any provision of this Agreement, whether or not
such expense was the subject of the previous default. Such right includes, but
is not limited to, the right to require advance payment for the estimated costs
of drilling a well or Completion of a well as to which an election to
participate in drilling or Completion has been made. If the defaulting party
fails to pay the required advance payment, the non-defaulting parties may pursue
any of the remedies provided in Article VII.D or any other default remedy
provided elsewhere in this Agreement. Any excess of funds advanced remaining
when the operation is completed and all costs have been paid shall be promptly
returned to the advancing party.

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          5.           Costs and Attorney’s Fees: In the event any party is
required to bring legal proceedings to enforce any financial obligation of a
party hereunder, the prevailing party in such action shall be entitled to
recover all court costs, costs of collection, and a reasonable attorney’s fee,
which the lien provided for herein shall also secure.

          6.           Operator Compensation: Operator shall be entitled to
reimbursement for actual third party expenses incurred in the supervision and
engineering of operations under this Agreement. All expenses and reimbursements
shall be paid by the Non-Operators in accordance with Exhibit “B”.

E.      RENTAL, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES

          Rentals, shut-in wells payments and minimum royalties which may be
required under the terms of any lease shall be paid by the party or parties who
subjected such lease to this Agreement at its or their expense, subject to the
right of contribution from all subsequent co owners of said lease. In the event
two or more parties own and have contributed interests in the same lease to this
Agreement, such parties may designate one of such parties to make said payments
for and on behalf of all such parties. Any party may request, and shall be
entitle to receive, proper evidence of all such payments. In the event of
failure to make proper payment of rental, shut-in well payment of minimum
royalty through mistake or oversight where such payment is required to continue
the lease enforce, any loss which results from such non-payment shall be borne
in accordance with the provisions of Article IV.B.2. Operator shall notify
Non-Operators of the anticipated completion of a shut-in well, or the shutting
in or return to production of a producing well, at least five (5) days
(including Saturday, Sunday and legal holidays) prior to taking such action, or
at the earliest opportunity permitted by circumstances, but assumes no liability
for failure to do so. In the event of failure by Operator to so notify
Non-Operators, the loss of any lease contributed hereto by Non-Operators for
failure to make timely payments of any shut-in well payment shall be borne
jointly by the parties hereto under the provisions of Article IV.B.3.

F.      TAXES

          Beginning with the first calendar year after the effective date
hereof, Operator shall render for ad valorem taxation all property subject to
this Agreement which by law should be rendered for such taxes, and it shall pay
all such taxes assessed thereon before they become delinquent. Prior to the
rendition date, each Non-Operator shall furnish Operator information as to
burdens (to include, but not limited to, royalties, overriding royalties and
production payments) on Leases and Oil and Gas Interests contributed by such
Non-Operator. If the assessed valuation of any Lease is reduced by reason of its
being subject to outstanding excess royalties, overriding royalties of
production payments, the reduction in ad valorem taxes resulting therefrom shall
inure to the benefit of the owner or owners of such Lease, and Operator shall
adjust the charge to such owner or owners so as to reflect the benefit of such
reduction. if the ad valorem taxes are based in whole or in part upon separate
valuations of each party’s working interest, then notwithstanding anything to
the contrary herein, charges to the joint account shall be made and paid by the
parties hereto in accordance with the tax value generated by each party’s
working interest. Operator shall bill the other parties for their proportionate
shares of all tax payments in the manner provided in Exhibit “B”.

          If Operator considers any tax assessment improper, Operator may, at
its discretion, protest within the time and manner prescribed by law, and
prosecute the protest to a final determination, unless all parties agree to
abandon the protest prior to final determination. During the pendency of
administrative or judicial proceedings, Operator may elect to pay, under
protest, all such taxes and any interest and penalty. When any such protested
assessment shall have been finally determined, Operator shall pay the tax for
the joint account, together with any interest and penalty accrued, and the total
cost shall then be assessed against the parties, and be paid by them as provided
in Exhibit “B”.

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          Each party shall pay or cause to be paid all production, severance,
excise, gathering and other taxes imposed upon or with respect to the production
or handling of such party’s share of Oil and Gas produced under the terms of
this Agreement.

ARTICLE VIII
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

A.      SURRENDER OF LEASES

          The Leases covered by this Agreement, insofar as they embrace acreage
in the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto.

          However, should any party desire to surrender its interests in any
Lease of any portion thereof, such party shall give written notice of the
proposed surrender to all parties, and the parties to whom such notice is
delivered shall have thirty (30) days after delivery of the notice within which
to notify the party proposing the surrender whether they elect to consent
thereto. Failure of a party to whom such notice is delivered to reply within
said 30-day period shall constitute a consent to the surrender of the Leases
described in the notice. If all parties do not agree or consent thereto, the
party desiring to surrender shall assign, without express or implied warranty of
title, all of its interest in such Lease, or portion thereof, and any well,
material and equipment which may be located thereon and any rights in production
thereafter secured, to the parties not consenting to such surrender. Upon such
assignment, the assigning party shall be relieved from all obligations
thereafter accruing, but not theretofore accrued, with respect to the interest
assigned and the operation of any well attributable thereto, and the assigning
party shall have no further interest in the assigned premises and its equipment
and production. The party assignee shall pay to the party assignor the
reasonable salvage value of the latter’s interest in any wells’ salvable
materials and equipment attributable to the assigned acreage. The value of all
salvable materials and equipment shall be determined in accordance with the
provisions of Exhibit “B”, less the estimated cost of salvaging and the
estimated cost of plugging and abandoning and restoring the surface. If such
value is less than such costs, then the party assignor shall pay to the party
assignee the amount of such deficit. If the assignment is in favor of more than
one party, the interest shall be shared by such parties in the proportions that
the interest of each bears to the total interest of all such parties. If the
interest of the parties to whom the assignment is to be made varies according to
depth, then the interest assigned shall similarly reflect such variances. Any
assignment or surrender made under this provision shall not reduce or change the
assignor’s or surrendering party’s interest as it was immediately before the
assignment or surrender in the balance of the Contract Area, and the acreage
assigned or surrendered, and subsequent operations thereon, shall not thereafter
by subject to the terms and provisions of the agreement but shall be deemed
subject to an Operating Agreement in the form of this Agreement.

B.      RENEWAL OR EXTENSION OF LEASES

          If any party secures a renewal or replacement of an Oil and Gas Lease
or Interest subject to this Agreement, then all other parties shall be notified
promptly upon such acquisition or, in the case of a replacement Lease taken
before expiration of an existing Lease, promptly upon expiration of the existing
Lease. The parties notified shall have the right for a period of thirty (30)
days following delivery of such notice in which to elect to participate in the
ownership of the renewal or replacement Lease, insofar as such Lease affects
lands within the Contract Area, by paying to the party who acquired it their
proportionate shares of the acquisition cost allocated to that part of such
Lease within the Contract Area, which shall be in proportion to the interests
held at that time by the given parties in the Contract Area. Each party who
participates in the purchase of a renewal or replacement Lease shall be given an
assignment of its proportionate interest therein by the acquiring party.

          If some, but less than all, of the parties elect to participate in the
purchase of a renewal or replacement Lease, it shall be owned by the parties who
elect to participate therein, in a ratio based upon

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the relationship of their respective percentage of participation in the Contract
Area to the aggregate of the percentage of participation in the Contract Area of
all parties participating in the purchase of such renewal or replacement Lease.
The acquisition of a renewal or replacement Lease by any or all of the parties
hereto shall not cause a readjustment of the interests of the parties stated in
Exhibit “A”, but any renewal or replacement lease in which less than all parties
elect to participate shall not be subject to this Agreement but shall be deemed
subject to a separate Operating Agreement in the form of this Agreement.

          If the interests of the parties in the Contract Area vary according to
depth, then their right to participate proportionately in renewal or replacement
Leases and their right to receive an assignment of interest shall also reflect
such depth variances.

          The provisions of this Article shall apply to renewal or replacement
Leases whether they are for the entire interest covered by the expiring Lease or
cover only a portion of its area or an interest therein. Any renewal or
replacement Lease taken before the expiration of its predecessor Lease, or taken
or contracted for or becoming effective within six (6) months after the
expiration of the existing Lease, shall be subject to this provision so long as
this Agreement is in effect at the time of such acquisition or at the time the
renewal or replacement Lease becomes effective; but any Lease taken or
contracted for more than six (6) months after the expiration of an existing
Lease shall not be deemed a renewal or replacement Lease and shall not be
subject to the provisions of this Agreement.

          The provisions in this Article shall also be applicable to extensions
of Oil and Gas Lease.

C.      ACREAGE OR CASH CONTRIBUTIONS

          While this Agreement is in force, if any party contracts for a
contribution of cash towards the drilling of a well or any other operation on
the Contract Area, such contribution shall be paid to the party who conducted
the drilling or other operation and shall be applied by its against the cost of
such drilling or other operation. If the contribution be in the form of acreage,
the party to whom the contribution is made shall promptly tender an assignment
of the acreage, without warranty of title, to the Drilling Parties in the
proportions said Drilling Parties shared the cost of drilling the well. Such
acreage shall become a separate Contract Area and, to the extent possible, be
governed by provisions identical to this Agreement. Each party shall promptly
notice all other parties of any acreage or cash contributions it may obtain in
support of any well or any other operation on the Contract Area. The above
provisions shall also be applicable to optional rights to earn acreage outside
the Contract Area which are in support of well drilled inside the Contract Area.

          If any party contracts for any consideration relating to disposition
of such party’s share of substances produced hereunder, such consideration shall
not be deemed a contribution as contemplated in this Article VIII.C.

D.      ASSIGNMENTS: MAINTENANCE OF UNIFORM INTEREST

          For the purpose of maintaining uniformity of ownership in the Contract
Area in the Oil and Gas Leases, Oil and Gas Interests, wells equipment and
production covered by this Agreement no party shall sell, encumber, transfer or
make other disposition of its interest in the Oil and Gas Lease and Oil and Gas
Interests embraced within the Contract Area or in wells equipment and production
unless such disposition covers either:

          1.           the entire interest of the party in all Oil and Gas
Leases, Oil and Gas Interests, wells, equipment and production; or

          2.           an equal undivided percent of the party’s present
interest in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and
production in the Contract Area.

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          Every sale, encumbrance, transfer or other disposition made by any
party shall be made expressly subject to this Agreement and shall be made
without prejudice to the right of the other parties, and any transferee of an
ownership interest in any Oil and Gas Lease or Interest shall be deemed a party
to this Agreement as to the interest conveyed from and after the effective date
of the transfer of ownership; provided, however, that the other parties shall
not be required to recognize any such sale, encumbrance, transfer or other
disposition for any purpose hereunder until thirty (30) days after they have
received a copy of the instrument of transfer or other satisfactory evidence
thereof in writing from the transferor or transferee. No assignment or other
disposition of interest by a party shall relieve such party of obligations
previously incurred by such party hereunder with respect to the interest
transferred, including without limitation the obligation of a party to pay all
costs attributable to an operation conducted hereunder in which such party has
agreed to participate prior to making such assignment, and the lien and security
interest granted by Article VII.B shall continue to burden the interest
transferred to secure payment of any such obligations.

          If, at any time the interest of any party is divided among and owned
by four or more co-owners, Operator, at its discretion, may require such
co-owners to appoint a single trustee or agent with full authority to receive
notices, approve expenditures, receive billings for and approve and pay such
party’s share of the joint expenses, and to deal generally with, and with power
to bind, the co-owners of such party’s interest within the scope of the
operations embraced in this Agreement; however, all such co-owners shall have
the right to enter into and execute all contracts or agreements for the
disposition of their respective shares of the Oil and Gas produced from the
Contract Area and they shall have the right to receive, separately, payment of
the sale proceeds thereof.

E.      WAIVER OF RIGHTS TO PARTITION

          If permitted by the law of the state or states in which the property
covered hereby is located, each party hereto owning an undivided interest in the
Contract Area waives any and all rights it may have to partition and have set
aside to it in severalty its undivided interest therein.

ARTICLE IX.
INTERNAL REVENUE CODE ELECTION

          If, for Federal income tax purposes, this Agreement and the operations
hereunder are regarded as a partnership, and if the parties have not otherwise
agreed to form a tax partnership pursuant to an agreement among them, each party
thereby affected elects to be excluded from the application of all of the
provisions of Subchapter “K”, Chapter 1, Subtitle “A,” of the Internal Revenue
Code of 1986 as amended (“Code”), as permitted and authorized by Section 761 of
the Code and the regulations promulgated thereunder. Operator is authorized and
directed to execute on behalf of each party hereby affected such evidence of
this election as may be required by the Secretary of the Treasury of the United
States or the Federal Internal Revenue Service, including specifically, but not
by way of limitation, all of the returns, statements, and the data required by
Treasury Regulations §1.761. Should there be any requirement that each party
hereby affected give further evidence of this election, each such party shall
execute such documents and furnish such other evidence as may be required by the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No such party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income tax
laws of the state or states in which the Contract Area is located or any future
income tax laws of the United States contain provisions similar to those in
Subchapter “K”, Chapter 1, Subtitle “A,” of the Code, under which an election
similar to that provided by Section 761 of the Code is permitted each party
hereby affected shall make such election as may be permitted or required by such
laws. In making the foregoing election, each such party states that the income
derived by such party from operations hereunder can be adequately determined
without the computation of partnership taxable income.

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ARTICLE X
CLAIMS AND LAWSUITS

          Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed TEN
THOUSAND Dollars ($10,000) and if the payment is in complete settlement of such
claim or suit. If the amount required for settlement exceeds the above amount,
the parties hereto shall assume and take over the further handling of the claim
or suit, unless such authority is delegated to Operator. All costs and expenses
of handling, settling, or otherwise discharging such claim or suit shall be at
the joint expense of the parties participating in the operation from which the
claim or suit arises. If a claim is made against any party or if any party is
sued on account of any matter arising from operations hereunder over which such
individual has no control because of the rights given Operator by this
Agreement, such party shall immediately notify all other parties, and the claim
or suite shall be treated as any other claim or suit involving operations
hereunder.

ARTICLE XI
FORCE MAJEURE

          If any party is rendered unable, wholly or in part, by force majeure
to carry out it obligations under this Agreement, other than the obligation to
indemnify or make money payments or furnish security, that party shall give to
all other parties prompt written notice of the force majeure with reasonably
full particulars concerning it; thereupon, the obligations of the party giving
the notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. The term
“force majeure,” as here employed, shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonable within the control of the party
claiming suspension.

          The affected party shall use all reasonable diligence to remove the
force majeure situation as quickly as practicable. The requirement that any
force majeure shall be remedied with all reasonable dispatch shall not require
the settlement of strikes, lockouts, or other labor difficulty by the party
involved, contrary to its wishes; how all such difficulties shall be handled
shall be entirely within the discretion of the party concerned.

ARTICLE XII
NOTICES

          Upon execution of this Operating Agreement, the Parties will, under
separate correspondence, notify Operator of the following elections: (1) the
name of the individual Party or agent, as authorized by the Party, with the
“Power to Bind,” to be contacted in the event of emergency; (2) the name,
address and telephone number of the Party or representative who is to receive
all official correspondence accounting and billing information; (3) the name of
the Party’s representative, phone number and address who is to be present or to
be contacted if Party is not present at the time of the completion decision
pursuant to Article VI.B(1).

     All notices authorized or required between the parties by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, telex, facsimile, postage or charges prepaid, and addressed to such
parties at the addresses listed on Exhibit “A”. All telephone or oral notices
permitted by this Agreement shall be confirmed immediately thereafter by written
notice. The originating notice given under any provision hereof shall be deemed
delivered only when received by the party to whom such notice is directed, and
the time for such party to deliver any notice in response thereto shall run from
the date the originating notice is received. “Receipt” for purposes of this
Agreement with respect to written notice delivered

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hereunder shall be actual delivery of the notice to the address of the party to
be notified specified in accordance with this Agreement, or to the facsimile or
telex machine of such party. The second or any responsive notice shall be deemed
delivered when deposited in the United States mail or at the office of the
courier or telegraph service, or upon transmittal by telex, telecopy or
facsimile, or when personally delivered to the party to be notified, provided,
that when response is required within 24 or 48 hours, such response shall be
given orally or by telephone, telex or other facsimile within such period. Each
party shall have the right to change its address at any time, and from time to
time by giving written notice thereof to all other parties. If a party is not
available to receive notice orally or by telephone when a party attempts to
deliver a notice required to be delivered within 24 or 48 hours, the notice may
be delivered in writing by any other method specified herein and shall be deemed
delivered in the same manner provided above for any responsive notice.

ARTICLE XIII
TERM OF AGREEMENT

          This Agreement shall remain in full force and effect as to the Oil and
Gas Leases and/or Oil and Gas Interests subject hereto for the period of time
selected below; provided, however, no party hereto shall ever be construed as
having any right, title or interest in or to any Lease or Oil and Gas Interest
contributed by any other party beyond the term of this Agreement.

          So long as any of the Oil and Gas Leases subject to this Agreement
remain or are continued in force as to any part of the Contract Area, whether by
production, extension, renewal or otherwise.

          The termination of this Agreement shall not relieve any party hereto
from any expense, liability or other obligation or any remedy therefore which
has accrued or attached prior to the date of such termination.

ARTICLE XIV
COMPLIANCE WITH LAW AND REGULATIONS

A.      LAWS, REGULATIONS AND ORDERS

          This Agreement shall be subject to the applicable laws of the state in
which the Contract Area is located, to the valid rules, regulations, and orders
of any duly contributed regulatory body of said state, and to all other
applicable federal, state, and local laws, ordinances, rules, regulations and
orders.

B.      GOVERNING LAW

          This Agreement and all matters pertaining hereto, including but not
limited to matters of performances, non-performance, breach, remedies,
procedures, rights, duties, and interpretation or construction, shall be
governed and determined by the law of the state in which the Contract Area is
located. If the Contract Area is in two or more states, the law of the state of
Texas shall govern.

C.      REGULATORY AGENCIES

          Nothing herein contained shall grant, or be construed to grant,
Operator the right or authority to waive or release any rights, privileges, or
obligations which Non-Operators may have under federal or state laws or under
rules, regulations or orders promulgated under such laws in reference to oil,
gas and mineral operations, including the location, operation, or production of
wells, on tracts offsetting or adjacent to the Contract Area.

          With respect to the operations hereunder, Non-Operators agree to
release Operator from any and all losses, damages, injuries, claims and causes
of action arising out of, incident to or resulting directly or indirectly from
Operator’s interpretation or application of rules, rulings, regulations or
orders of the Department of Energy or Federal Energy Regulatory Commission or
predecessor or successor agencies to

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the extent such interpretation or application was made in good faith and does
not constitute gross negligence. Each Non-Operator further agrees to reimburse
Operator for such Non-Operator’s share of production or any refund, fine, levy
or other governmental sanction that Operator may be required to pay as a result
of such an incorrect interpretation or application, together with interest and
penalties thereon owing by Operator as a result of such incorrect interpretation
or application.

ARTICLE XV
OTHER PROVISIONS

A.      CONFIDENTIALITY

          Any visitation of the operations conducted pursuant to this Operating
Agreement by other than authorized on-site personnel and Parties hereto is to be
coordinated by the Operator. It is further agreed that all geological,
technical, and other operational data will not be released, divulged, or
transmitted to any party or parties other than parties having an ownership
interest or who need to have access to such information by virtue of the work
they are performing, such data being regarded as confidential information until
deemed appropriate by operator then declassified and released.

B.      MODIFICATIONS

          Any modification of this Agreement must be approved in writing by all
Parties and made as an attachment hereto. This document supersedes and nullifies
all previous agreements or understanding either written or verbal.

C.      ASSUMPTION OF RISK

          All parties realize, assume, and accept the risk involved in exploring
for oil and gas.

ARTICLE XVI
MISCELLANEOUS

A.      EXECUTION

          This Agreement shall be binding upon each Non-Operator when this
Agreement or a counterpart thereof has been executed by such Non-Operator and
Operator.

B.      SUCCESSORS AND ASSIGNS

          This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, devisees, legal representatives,
successors and assigns, and the terms hereof shall be deemed to run with the
Leases or Interests included within the Contract Area.

C.      COUNTERPARTS

          This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.

D.      SEVERABILITY

          For the purposes of assuming or rejecting this Agreement as an
executory contract pursuant to federal bankruptcy laws, this Agreement shall not
be severable, but rather must be assumed or rejected in its entirety, and the
failure of any party to this Agreement to comply with all of its financial
obligations provided herein shall be a material default.

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          IN WITNESS HEREOF, this Agreement shall be effective as of the 15th
day of November, 2005.

OPERATOR:    NEWPORT OIL CORPORATION      By: ________________________     John
Bruynell, President      NON-OPERATORS:    FIRECREEK PETROLEUM, INC.      By:
________________________    John R. Taylor, President 

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EXHIBIT “A”

Part I: 
Description Of Lands, Leases and Wells Subject To Agreement 
Part II: 
Parties To Agreement With Addresses And Telephone Numbers For Notice Purposes 
Part III:                
Percentages Or Fractional Interests Of Parties 

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EXHIBIT “A” – PART I

Description Of Lands, Leases And Wells Subject To Agreement

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EXHIBIT “A” – PART II

Parties To Agreement With Addresses And Telephone Numbers For Notice Purposes

OPERATOR:    NEWPORT OIL CORPORATION      Address:  3251 San Bernadino Street   
Suite 333
  Clearwater, Florida 33759      Facsimile: 
(727) 799-0072 
    Telephone: 
(727) 799-0073 
        NON-OPERATORS:    FIRECREEK PETROLEUM, INC.      Address:  6777 Camp
Bowie Blvd.   
Suite 215
  Fort Worth, Texas 76116      Facsimile:  (817) 377-2411      Telephone:  (817)
377-1116 

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EXHIBIT “A” – PART III

Percentages Or Fractional Interests Of Parties To This Agreement

Party 
Percentage Interest
    Newport Oil Corporation 
50%
    Firecreek Petroleum, Inc. 
50%

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EXHIBIT “B”

Accounting Procedure

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ACCOUNTING PROCEDURE

I.       GENERAL PROVISIONS

1.      DEFINITIONS

       

“Property” shall mean the real and personal property subject to the Agreement to
which this Accounting Procedure is attached.

“Operations” shall mean any and all operations and activities necessary or
proper for the acquisition, development, operation, protection and maintenance
of the Property and the Affiliated Program.

“Joint Account” shall mean the account showing the charges and credits accruing
because of the Operations and which are to be shared by the Parties according to
their pro rata interests.

“Operator” shall mean the Party designated to conduct the Operations.
“Non-Operators” shall mean the Parties other than the Operator. “Parties” shall
mean Operator and Non-Operators.

“First-level supervisors” shall mean those employees whose primary function in
Operations is the direct supervision of other employees, service companies,
drilling rigs, contract labor, and other personnel directly employed on the
Property in a field operating capacity.

“Technical Employees” shall mean those employees having special drilling,
engineering, geological, production or other professional skills, and whose
primary function in Operations is the handling of specific operating conditions
and problems for the benefit of the Property.

“Personal Expenses” shall mean travel, meals, lodging, and other reasonable
reimbursable expenses of Operator’s employees.

“Material” shall mean personal property, equipment or supplies acquired or held
for use on the Property.

“Controllable Material” shall be defined as Material which is ordinarily so
classified and controlled by Operator in the conduct of its Operations.

2.      STATEMENT AND BILLINGS

       
Operator shall bill Non-Operators on or before the last day of each month for
their proportionate share of costs and expenses for the preceding month. Such
bills will be accompanied by statements of all charges and credits to the Joint
Account, summarized by appropriate classifications indicative of the nature
thereof.

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3.      ADVANCES AND PAYMENTS BY ADMINISTRATORS

        A.       
Unless otherwise provided for in the Agreement, the Operator may require the
Non- Operators to advance their share of estimated cash outlay for the
succeeding month’s operation within fifteen (15) days after receipt of the
billing or by the first day of the month for which the advance is required,
whichever is later. Operator shall adjust each monthly billing to reflect
advances received from the Non-Operators.
    B.
Each Non-Operator shall pay to Operator at its offices in Clearwater, Florida,
its proportion of all bills within fifteen (15) days after receipt. If payment
is not made within such time, the unpaid balance shall bear interest monthly at
a rate of one and one-half percent (1-1/2%) per month or the maximum contract
rate permitted by the applicable usury laws in the state in which the Property
is located, whichever is the lesser, plus attorney’s fees, court costs, and
other costs in connection with the collection of unpaid amounts.

4.      ADJUSTMENTS

       
Payment of any such bills shall not prejudice the right of any Non-Operator to
protest or question the correctness thereof; provided however, all bills and
statements rendered to Non-Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided for in Section V.

5.      AUDITS

        A.       
A Non-Operator, upon notice in writing to Operator and all other Non-Operators,
shall have the right to audit Operator’s accounts and records relating to the
Joint Account for any calendar year within the twenty-four (24) month period
following the end of such calendar year; provided, however, the making of an
audit shall not extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 4 of this Section I. Where
there are two or more Non-Operators, the Non- Operators shall make every
reasonable effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no portion of the
Non-Operator’s audit cost incurred under this paragraph. The audits shall not be
conducted more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at the
expense of those Non- Operators approving such audit.
    B.
The Operator shall reply in writing to an audit report within 180 days after
receipt of such report.

6.      APPROVAL BY NON-OPERATORS

       
Where an approval or other agreement of Non-Operators is expressly required
under other sections of this Accounting Procedure and if the agreement to which
this Accounting Procedure is

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attached contains no contrary provisions in regard thereto, Operator shall
notify all Non-Operators of the Operator’s proposal and the agreement or
approval of a majority in interest of the Non-Operators shall be controlling on
all Non-Operators.

II.      DIRECT CHARGES

          Operator shall charge the Joint Account with the following items:

        1.        ECOLOGICAL AND ENVIRONMENTAL      
Costs incurred for the benefit of the Property as a result of governmental or
regulatory requirements to satisfy environmental considerations applicable to
the Operations. Such costs may include surveys of an ecological or
archaeological nature and pollution control procedures as required by applicable
laws and regulations.
    2. RENTALS AND ROYALTIES       Lease rentals and royalties paid by Operator
for the Operations.     3. LABOR      
Salaries, wages, benefits and related expenses shall be charged an a day-rate
basis (recomputed within a reasonable periodic time period) for:
 

       
A.     
(1)       
Operator’s employees directly employed on the Property in the conduct of
Operations
   
(2)
First-level supervisors in the field
   
(3)
Technical employees directly employed on the Property
   
(4)
Technical employees either temporarily or permanently assigned to and directly
employed in the Operations of the Property.

        B.       
Operator’s cost of holiday, vacation, sickness and disability benefits and other
customary allowances paid to the employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 3A of this Section II. Cost
under this Paragraph 3B may be charged on a “when and as paid basis” or by
“percentage assessment” on the amount of salaries and wages chargeable to the
Joint Account under Paragraph 3A of this Section II. If percentage assessment is
used, the rate shall be based on the Operator’s cost experience.
    C.
Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator’s labor cost of salaries
and wages chargeable to the Joint Account under Paragraphs 3A of this Section
II.
    D.
Personal expenses of those employees whose salaries and wages are chargeable to
the Joint Account under Paragraph 3A of this Section II.
    E.
Operator’s current costs of established plans for employees’ group life
insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus,
and other
 

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benefit plans of a like nature, applicable to Operator’s labor cost chargeable
to the Joint Account under Paragraphs 3A of this Section II shall be Operator’s
actual cost not to exceed the percent most recently recommended by the Council
of Petroleum Accountants Societies.

              4.        MATERIAL      
Material purchased or furnished by Operator for use on the Property as provided
under Section IV. Only such Material shall be purchased for or transferred to
the Property as may be required for immediate use and is reasonably practical
and consistent with efficient and economical operations. The accumulation of
surplus stocks shall be avoided.
    5.
TRANSPORTATION
     
Transportation of employees and Material necessary for the Operations, not
previously charged as a part of day-rate basis.
    6.
SERVICES
     
The cost of contract services and utilities procured from outside sources
including without limitation auditing and taxation services, engineering
consultant services including engineers, geologists and landmen, and services in
connection with matters before or involving government agencies or regulatory
bodies.
    7.
EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
 

                A.       
Operator shall charge the Joint Account for use of Operator owned equipment and
facilities at rates commensurate with costs of ownership and operation. Such
rates shall include costs of maintenance, repairs, other operating expense,
insurance, taxes, depreciation, and interest on gross investment less
accumulated depreciation not to exceed twelve percent (12%) per annum. Such
rates shall not exceed average commercial rates currently prevailing in the
immediate area of the Property.
    B.
In lieu of charges in Paragraph 7A above, Operator may elect to use average
commercial rates prevailing in the immediate area of the Property. For
automotive equipment, Operator may elect to use rates published by the Petroleum
Motor Transport Association.

         8.      DAMAGES AND LOSSES TO PROPERTY

       
All costs or expenses necessary for the repair or replacement of Property made
necessary because of damages or losses incurred by fire, flood, storm, theft,
accident, or other cause, except those resulting from Operator’s gross
negligence or willful misconduct. Operator shall furnish Non-Operators written
notice of damages or losses incurred as soon as practicable after a report
thereof has been received by Operator.

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        9.        LEGAL EXPENSE      
All costs and expenses of handling, investigating, and settling litigation or
claims arising by reason of the Operations or necessary to protect or recover
the Property, including, but not limited to, attorney’s fees, court costs, cost
of investigation or procuring evidence and amounts paid in settlement or
satisfaction of any such litigation or claims. All costs and expenses necessary
for title work, division order title opinions, transfer orders, deeds,
assignments and conveyances which affect title to the oil and gas estate. All
costs and expenses related to curative matters and representation before
regulatory or governmental agencies.
    10. TAXES      
All taxes of every kind and nature assessed or levied upon or in connection with
the Property, the operation thereof, or the production therefrom, and which
taxes have been paid by the Operator for the benefit of the Parties. If the ad
valorem taxes are based in whole or in part upon separate valuations of each
party’s working interest, then notwithstanding anything to the contrary herein,
charges to the Joint Account shall be made and paid by the Parties hereto in
accordance with the tax value generated by each party’s working interest.
    11. INSURANCE       Net premiums paid for insurance provided for the
Operations for the projection of the Parties. In the event Operations are
conducted in a state in which Operator may act as self-insurer for Worker’s
Compensation and/or Employer’s Liability under the respective state’s laws,
Operator may, at its election, include the risk under its self-insurance program
and in that event, Operator shall include a charge at Operator’s cost not to
exceed manual rates.     12. ABANDONMENT AND RECLAMATION      
Costs incurred for abandonment of the Property, including costs required by
governmental or other regulatory authority.
    13. COMMUNICATIONS      
Cost of acquiring, leasing, installing, operating, repairing and maintaining
communication systems, including radio and microwave facilities directly serving
the Property. In the event communication facilities/systems serving the Property
are Operator owned, charges to the Joint Account shall be made as provided in
Paragraph 7 of this Section II.
    14. ADDITIONAL SERVICES      
The cost of all additional services provided by the Operator or by third parties
relating to the Operations, whether direct or indirect, including without
limitation accounting, engineering, land and administrative services. Such
charges to the Joint Account will include without limitation salaries and
benefits of Operator’s personnel; automotive and
 

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travel; office rental; utilities; the cost of furnishing, maintaining, operating
or otherwise securing the use of office equipment, furniture, machines,
computers, and other physical equipment and facilities; Amounts paid to outside
parties for additional services; an allocable part of General and Administrative
Expenses and other indirect cost and all other cost and expense related to the
performance of these additional services.

         15.    OTHER EXPENDITURES

              
Any other expenditure not covered or dealt with in the foregoing provisions of
this Section II or in Section III, and which is incurred by the Operator for the
necessary and proper conduct of the Operations.

III.      INDIRECT CHARGES

1.       OVERHEAD - DRILLING AND PRODUCING OPERATIONS

           Overhead - Fixed Rate Basis

           (1)     
Operator shall charge the Joint Account at the following rates per well per
month: 

                     Drilling Well Rate:  To Be Determined    Producing Well
Rate:  $500 per month 

              (2)        Application of Overhead - Fixed Rate Basis shall be as
follows:  

                          (a)        Drilling Well Rate

                             1)       
Charges for onshore drilling wells shall begin on the date well is spudded and
terminate on the date of completion or abandonment.
    2)
Charges for wells undergoing any type of workover or recompletion for a period
of five (5) consecutive workdays or more shall be made at the drilling well
rate. Such charges shall be applied for the period from date workover
operations, with rig, commence through date of rig release, except that no
charge shall be made during suspension of operations for fifteen (15) or more
consecutive days.

                          (b)       Producing Well Rates

                             1)       
An active well either produced or injected into for any portion of the month
shall be considered as a one-well charge for the entire month.
    2)
Each active completion in a multi-completed well in which production is not
commingled down hole shall be considered as a one-well charge providing each
completion is considered a separate well by the governing regulatory authority.
 

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                      3)       
An inactive gas well shut in because of overproduction or failure of purchaser
to take the production shall be considered as a one-well charge providing the
gas well is directly connected to a permanent sales outlet.
    4)
A one-well charge may be made for the month in which plugging and abandonment
operations are completed on any well.
    5)
Each facility serving the Operations other than a well shall count as a well for
this purpose, such as compressor or dehydration facilities, or other facilities
for producing (including secondary recovery) operations or for treating,
handling or marketing production.
    6)
All other inactive wells shall not qualify for an overhead charge.
 

        (3)       
The well rates shall be adjusted as of the first day of January, 2007, and each
year on the first day of January thereafter. The adjustment shall be computed by
multiplying the rate currently in use by the percentage increase or decrease in
the average weekly earnings of Crude Petroleum and Gas Production Workers for
the last calendar year compared to the calendar year preceding as show by the
index of average weekly earnings of Crude Petroleum and Gas Fields Production
Workers as published by the United States Department of Labor, Bureau of Labor
Statistics, or the equivalent Canadian index as published by Statistics Canada,
as applicable. The adjusted rates shall be the rates currently in use, plus or
minus the computed adjustment.

2.      OVERHEAD - MAJOR CONSTRUCTION

       
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development and
operation of the Property, Operator shall either negotiate a rate prior to the
beginning of construction, or shall charge the Joint Account for overhead based
on the following rates for any Major Construction project in excess of $25,000.

       
A.     
Five percent (5%) of first $100,000 or total cost if less; plus     B. Three
percent (3%) of costs in excess of $100,000 but less than 1,000,000; plus     C.
Two percent (2%) of costs in excess of $1,000,000.    
Total cost shall mean the gross cost of any one project. For the purpose of this
paragraph, the component parts of a single project shall not be treated
separately and the cost of drilling and workover wells and artificial lift
equipment shall be excluded.

3.      CATASTROPHE OVERHEAD

       
To compensate Operator for overhead costs incurred in the event of expenditures
resulting from a single occurrence due to oil spill, blowout, explosion, fire,
storm, hurricane, or other catastrophes as agreed to by the Parties, which are
necessary to restore the Property to the equivalent condition that existed prior
to the event causing the expenditures, Operator shall either negotiate a rate
prior

 

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to charging the Joint Account or shall charge the Joint Account for overhead
based on the following rates:
              A.        Five percent (5%) of total costs through $100,000; plus
    B. Three percent (3%) of costs in excess of $100,000 but less than
1,000,000; plus     C. Two percent (2%) of costs in excess of $1,000,000.    
Expenditures subject to the overheads above will not be reduced by insurance
recoveries, and no other overhead provisions of this Section III shall apply.
   

4.        PROSPECT SCREENING AND EVALUATION    
The General and Administrative Expenses incurred by the Operator in the
screening, evaluation and acquisition of Prospects. Such charge shall be based
on an allocation system which is in accordance with generally accepted
accounting principles.
  5. GENERAL AND ADMINISTRATIVE EXPENSE    
Operator shall charge the Non-Operators for General and Administrative Expenses
allocated to the Program or Partnership in accordance with generally accepted
accounting principles.
  6. AMENDMENT OF RATES    
The Overhead rates provided for in this Section III may be amended from time to
time only by mutual agreement between the Parties hereto if, in practice, the
rates are found to be insufficient or excessive.
 

IV.     PRICING OF JOINT ACCOUNT MATERIAL

          PURCHASES, TRANSFERS AND DISPOSITIONS

       
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Property.
Operator shall provide all Material for use on the Property; however, at
Operator’s option, such Material may be supplied by the Non-Operator. Operator
shall make timely disposition of idle and/or surplus Material, such disposal
being made either through sale to Operator or Non-Operator, division in kind, or
sale to outsiders. Operator may purchase, but shall be under no obligation to
purchase, the interest of Non-Operators in surplus Material. The disposal of
surplus Controllable Material not purchased by the Operator shall be for the
highest price offered and where possible Operator shall obtain bids from two or
more parties.

1.      PURCHASES

       
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be defective
or returned to vendor for any other reasons, credit shall be passed to the Joint
Account when adjustment has been received by the Operator.

 

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2.      TRANSFERS AND DISPOSITIONS

       
Material furnished to the Property and Material transferred from the Property or
disposed of by the Operator, unless otherwise agreed to by the Parties, shall be
priced on the following basis exclusive of cash discounts:

              A.        New Material (Condition “A”)      
Material shall be priced at the current replacement cost of the same kind of
Material, effective at date of movement.
    B. Good Used Material (Condition “B”)      
Material in sound and serviceable condition and suitable for reuse without
reconditioning:
 

                 (1)       
Material moved to the Property
     
At seventy-five percent (75%) of current new price, as determined by Paragraph
A.
    (2)
Material used on and moved from the Property
     
(a)       
At seventy-five percent (75%) of current new price, as determined by Paragraph
A, if Material was originally charged to the Joint Account as new Material or
     
(b)
At sixty-five percent (65%) of current now price, as determined by Paragraph A,
if Material was originally charged to the Joint Account as used Material.
    (3)
Material not used on and moved from the Property
     
At seventy-five percent (75%) of current now price as determined by Paragraph A.
        The cost of reconditioning, if any, shall be absorbed by the
transferring property.             C. Other Used Material  

                 (1)        Condition “C”      
Material which is not in sound and serviceable condition and not suitable for
its original function until after reconditioning shall be priced at fifty
percent (50%) of current new price as determined by Paragraph A. The cost of
reconditioning shall be charged to the receiving property, provided Condition
“C” value plus cost of reconditioning does not exceed Condition “B” value.
 

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               (2)        Condition “D”          
Material, excluding junk, no longer suitable for its original purpose, but
usable for some other purpose shall be priced on a basis commensurate with its
use. Operator may dispose of Condition “D” Material under procedures normally
used by Operator without prior approval of Non-Operators.
        (3) Condition “E”          
Junk shall be priced at prevailing prices. Operator may dispose of Condition “E”
Material under procedures normally utilized by operator without prior approval
of Non-Operators.
        D. Obsolete Material          
Material is serviceable and usable for its original function but condition
and/or value of such Material is not equivalent to that which would justify a
price provided above may be specifically priced as agreed to by the Parties.
Such price should result in the Joint Account being charged with the value of
the service rendered by such Material.

3.      WARRANTY OF MATERIAL FURNISHED BY OPERATOR

        Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment has
been received by Operator from the manufacturers or their agents.

V.      INVENTORIES

       
The Operator shall maintain detailed records of Controllable Material. At
reasonable intervals, inventories shall be taken by the Operator. Adjustments
resulting from the reconciliation of a physical inventory shall be made within
six months following the taking of the inventory. Special inventories may be
taken by the Non-Operators at their expense in accordance with Paragraph 5 of
Section I.

 

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EXHIBIT “C”

Insurance

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