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DRAGON ENERGY CORPORATION
650 POYDRAS STREET, SUITE 2828
NEW ORLEANS, LOUISIANA 70130-6155

FAX
 
TELEPHONE
(504) 586-0017
 
(504) 586-1717

March 14, 2006

Ignis Petroleum Corporation
Bayou City Exploration, Inc.
100 Crescent Court, 7th Floor
f/k/a Blue Ridge Energy, Inc.
Dallas, Texas 75201-1832
10777 Westheimer
Attention: Mr. Michael P. Piazza  
Suite 170  
 
Houston, Texas 77024
   
Argyle Energy, Inc.
Newton Properties, Inc.
10777 Westheimer
Trust Company Complex
Suite 170
Ajeltake Road
Houston, Texas 77042
Ajeltake Island,
 
Majuro, Marshall Islands MH96960
               

Re:
RATIFICATION AND AMENDMENT OF
   
Farmout Agreement, First Amendment of Farmout Agreement,
   
and Side Letter to First Amendment of Farmout Agreement
 
Barnett Crossroads Prospect (Prospect No. 20)
 
Escambia County
 
A L A B A M A
 

 
Gentlemen:

DRAGON ENERGY CORPORATION (“Dragon”), IGNIS PETROLEUM CORPORATION (“Ignis”),
BAYOU CITY EXPLORATION, INC. F/K/A BLUE RIDGE ENERGY, INC. (“BCE”), ARGYLE
ENERGY, INC. (“Argyle”) and NEWTON PROPERTIES, INC. (“Newton”) hereby agree to
the following:

 
1.
Ignis has acquired from Newton all of Argyle’s interest in the Farmout
Agreement, dated August 23, 2004, between Dragon and Argyle (the “Farmout”), as
amended by The First Amendment of Farmout Agreement, dated September 30, 2005,
between Dragon and Argyle (the “Amendment”), and the Side Letter to the First
Amendment of Farmout Agreement, dated September 30, 2005, between Dragon and
Argyle (the “Side Letter,” and together with the Farmout and the Amendment the
“Argyle-Dragon Agreements”), which constitute the entirety of the agreements
between Dragon and Argyle concerning the Barnett Crossroads Prospect (Prospect
No. 20) in Escambia County, Alabama (the “Prospect”), save and except that
Argyle reserved for itself an overriding royalty interest (the “Argyle Royalty”)
out of the seventy-five percent (75%) of the working interest in the Prospect
which was earnable by Argyle (now earnable by Ignis) under the Argyle-Dragon
Agreements, such that Ignis has acquired the right to earn seventy-five percent
(75%) of the working interest in the Prospect with a corresponding net revenue
interest of fifty-two and five tenths percent (52.5%). The Argyle Royalty shall
have no effect whatsoever on the twenty-five percent (25%) of the working
interest retained by Dragon under the Argyle-Dragon Agreements.

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Ignis Petroleum Corporation et al
March 14, 2006
Page 2

 
2.
None of the parties hereto shall have any further obligation to any other party
with regard to the Prospect, except that (1) Ignis shall have all of the rights
and obligations of Argyle under the Argyle-Dragon Agreements, (2) Dragon shall
continue to have its own rights and obligations under the Argyle-Dragon
Agreements, and (3) the Argyle-Dragon Agreements are hereby modified as set
forth in this letter agreement (this “Agreement”). Accordingly, all other
previously executed agreements among the parties related to the Prospect are
hereby terminated and shall be of no further force or effect, including without
limitation:

 
§
Letter Agreement, dated March 31, 2005, by and among Argyle, Newton and BCE;

 
§
Operating Agreement, dated March 31, 2005, by and between BCE, as operator, and
Newton, as non-operator;

 
§
Letter Agreement, dated April 22, 2005, by and between Newton and Ignis;

 
§
Assignment of an Interest in Oil, Gas and Mineral Leases, dated April 22, 2005,
made by Newton in favor of Ignis;

 
§
Letter Agreement, dated September 29, 2005, by and among Argyle, Newton, Ignis
and BCE; and

 
§
Letter Agreement, dated September 30, 2005, by and among Newton, Ignis and Ignis
Petroleum Group, Inc.

Provided, however, that each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of assigning Argyle’s rights under the Argyle-Dragon Agreements, as
amended hereby, to Ignis.

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Ignis Petroleum Corporation et al
March 14, 2006
Page 3

 
3.
Ignis and Dragon hereby ratify and confirm the Argyle-Dragon Agreements,
including the Operating Agreement attached to the Farmout as Exhibit IV (the
“Operating Agreement”), except that notwithstanding anything in the
Argyle-Dragon Agreements to the contrary the Argyle-Dragon Agreements shall be
modified as follows:

 
a.
Dragon is the contract operator of the Test Well on behalf of Ignis and is
designated the operator under the Operating Agreement. Dragon shall have all of
the rights and obligations of the Operator under the Operating Agreement and
Ignis shall have all rights and obligations of the Non-Operator under the
Operating Agreement.

 
b.
In addition to any amounts to which Dragon is entitled under the Operating
Agreement and any third party costs but in lieu of the monthly fee Argyle agreed
to pay Dragon under Section 2 of the Side Letter, Ignis agrees to pay Dragon the
sum of $10,000.00 per month, in advance, as a fee for management services until
the earlier of (i) the Test Well is plugged and abandoned and the drillsite is
restored to the surface owner’s written satisfaction or (ii) another mutually
acceptable operator is appointed by Dragon and Ignis. If the well is completed
as a well capable of commercial production, the monthly management fee will
thereafter be in an amount mutually acceptable to Dragon and Ignis.

 
c.
Dragon, as contract operator for Ignis, will perform the operations described in
Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 of the Farmout Agreement on
behalf of Ignis. Ignis will be responsible for 100% of all costs to casing
point, including any additional testing approved by Ingis, as described in
Section 3.4, plus either 100% of all costs to plug and abandon the Test Well and
restore the drillsite or 75% of all costs of completing and equipping the Test
Well, in accordance with the Farmout Agreement.

 
d.
Section 9 of the Farmout Agreement is deleted in its entirety. Dragon shall have
no liability as contract operator of the Test Well or as Operator under the
Operating Agreement for losses sustained or liabilities incurred, except such as
may result from Dragon’s gross negligence or willful misconduct. Dragon shall
provide insurance for the benefit of Ignis in accordance with Exhibit “D” to the
Operating Agreement. The cost of all insurance provided by Dragon shall be
charged to the joint account under the terms of the Operating Agreement.

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Ignis Petroleum Corporation et al
March 14, 2006
Page 4

 
e.
If Dragon fails to commence the Test Well by the date required in the
Argyle-Dragon Agreements, or Dragon does not drill the Test Well (or Substitute
Test Well) to Casing Point through no material fault of Ignis, Ignis shall be
granted sixty 60 days of additional time to commence the Test Well or the
Substitute Test Well under Section 3 of the Farmout.

 
f.
Ignis agrees to advance to Dragon 100% of the total estimated dry hole cost of
the Wefel Family Trust 19-1 well (the “Test Well”) in the amount of
$1,675,000.00 as shown on the AFE, attached as Exhibit “A” hereto, in two
payments. Dragon acknowledges that the first payment in the amount of
$970,750.00 was paid by Ignis on or before February 2, 2006 and that the second
payment in the amount of $704,250.00 was paid on or before February 14, 2006.

 
g.
If at any time during the drilling, evaluating, plugging, and abandonment or
restoration of the drillsite of the Test Well, Dragon estimates that the total
costs will exceed the amount of $1,675,000.00, Ignis agrees that it will advance
to Dragon 100% of any estimated additional amounts related to the “dry hole.”

 
h.
In the event that Ignis elects to participate in the completion of the Test
Well, Ignis will advance to Dragon Ignis’ share of the estimated total cost of
all necessary expenditures for the completing and equipping of said well. If at
any time during the completion or equipping of the Test Well, Dragon estimates
that Ignis’ share of the completion and equipping costs will exceed the amount
previously advanced by Ignis, Ignis agrees that it will advance to Dragon Ignis’
share of any estimated additional amounts related to such costs.

 
i.
The advances listed in sub-paragraphs 3.f., 3.g. and 3.h. hereinabove shall be
paid within forty-eight (48) hours, or within two (2) business days as the case
may be, following the receipt of an invoice from Dragon, by wire transfer of
funds as follows:

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Ignis Petroleum Corporation et al
March 14, 2006
Page 5

Dragon Energy Corporation - Project Account
Account No. 716 234 335
Whitney National Bank - Routing No. 065000171

 
j.
Dragon will account to Ingis for all advances of funds in accordance with the
terms of the Operating Agreement.

 
k.
In the event that Ignis fails to make timely payment to Dragon of any of the
amounts listed in sub-paragraphs 3.f., 3.g. and 3.h. hereinabove, Ignis
immediately forfeits all of its interests in the Farmout and in the lands
subject to the Farmout to Dragon, and Dragon, in addition to the remedies set
out in the Farmout or the Operating Agreement, may immediately cease all
operations, abandon the well, and release the drilling rig at the sole cost of
Ignis, and Dragon will have no further obligations under the Farmout.

 
4.
The addresses of Dragon and Ignis for notices, consents, approvals and other
communications are the following:

 
Dragon Energy Corporation
650 Poydras Street, Suite 2828
New Orleans, Louisiana 70130-6155
Attention:
Mr. McLain J. Forman
Email:
dragonenergy@bellsouth.net
Office Telephone:
(504) 586-1717
Office Fax:
(504) 586-0017
   
Ignis Petroleum Corporation
100 Crescent Court, 7th Floor
Dallas, Texas 75201-1832
Attention:
Mr. Michael P. Piazza
Email:
mpp@ignispetro.com
Office Telephone:
(214) 459-8188
Office Fax:
(214) 459-3101

 
Please indicate your acceptance of this Ratification and Amendment by dating,
signing and thereafter returning to the undersigned the enclosed duplicate copy.
The remaining counterpart should be retained for your files. If this
Ratification and Amendment is circulated and executed by facsimile transmission,
the signatures of the parties shall be considered as original and self-proving
for all purposes under the law. This Ratification and Amendment may be executed
in multiple counterparts, each of which shall be deemed to be an original,
binding, and enforceable document, all of which shall constitute one and the
same instrument.

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Ignis Petroleum Corporation et al
March 14, 2006
Page 6

   
Very truly yours,
         
DRAGON ENERGY CORPORATION
             
By:
/s/ McLain J. Forman    
McLAIN J. FORMAN
   
PRESIDENT

MJF:rs
 
Attachment
         
RATIFICATION AND AMENDMENT OF FARMOUT AGREEMENT, FIRST AMENDMENT OF FARMOUT
AGREEMENT, AND SIDE LETTER TO FIRST AMENDMENT OF FARMOUT AGREEMENT AGREED TO AND
ACCEPTED THIS    15      DAY OF MARCH 2006.
     
IGNIS PETROLEUM CORPORATION
 

 

BY:
/s/ Michael P. Piazza    
Michael P. Piazza.
   
President and
   
Chief Executive Officer
 

 

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Ignis Petroleum Corporation et al
March 14, 2006
Page 7
 
RATIFICATION AND AMENDMENT OF FARMOUT AGREEMENT, FIRST AMENDMENT OF FARMOUT
AGREEMENT, AND SIDE LETTER TO FIRST AMENDMENT OF FARMOUT AGREEMENT AGREED TO AND
ACCEPTED THIS    14th      DAY OF MARCH 2006.
     
BAYOU CITY EXPLORATION, INC.
 
F/K/A BLUE RIDGE ENERGY, INC.
 

 
 
BY:
   /s/ E.S.  
NAME:
 Ed Suhr  
TITLE:
 SR VP - Land  

RATIFICATION AND AMENDMENT OF FARMOUT AGREEMENT, FIRST AMENDMENT OF FARMOUT
AGREEMENT, AND SIDE LETTER TO FIRST AMENDMENT OF FARMOUT AGREEMENT AGREED TO AND
ACCEPTED THIS _______ DAY OF MARCH 2006.
     
NEWTON PROPERTIES, INC.
 

 
 
BY:
 
 /s/ David Craven
 
NAME:
 David Craven  
TITLE:
 Director  

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Ignis Petroleum Corporation et al
March 14, 2006
Page 8

RATIFICATION AND AMENDMENT OF FARMOUT AGREEMENT, FIRST AMENDMENT OF FARMOUT
AGREEMENT, AND SIDE LETTER TO FIRST AMENDMENT OF FARMOUT AGREEMENT AGREED TO AND
ACCEPTED THIS     14th     DAY OF MARCH 2006.
     
ARGYLE ENERGY, INC.
 

 
 
BY:
   /s/ Harry Peters  
NAME:
 Harry Peters  
TITLE:
 SR VP  

 

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