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Exhibit 10.3

EXHIBIT "C-1"

        Attached to and make a part of that certain Joint Exploration Agreement
dated December 13, 2002 by and between ANADARKO E&P COMPANY, LP and WARREN
RESOURCES, INC.

ROCKY MOUNTAIN UNIT OPERATING AGREEMENT

Form 2—Divided Interest

1994 RMMLF Copyrighted Version—As Modified

UNIT OPERATING AGREEMENT
                                         
                                                         CBM

UNIT AREA

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TABLE OF CONTENTS

 
   
  Page

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ARTICLE 1 DEFINITIONS   1
1.1
 
Definitions
 
1
ARTICLE 2 EXHIBITS
 
3
2.1
 
Exhibits
 
3
ARTICLE 3 PILOT WELLS
 
4
3.1
 
Location
 
4 3.2   Costs of Drilling   4
ARTICLE 4 SUBSEQUENT TEST WELLS
 
4
4.1
 
Right to Drill
 
4
ARTICLE 5 ESTABLISHMENT, REVISION, AND CONSOLIDATION OF PARTICIPATING AREAS
 
4
5.1
 
Proposal
 
4 5.2   Objections to Proposal   4 5.3   Revised Proposal   4 5.4   Rejection of
Proposal   4 5.5   Notice of Approval or Disapproval   4 5.6   Consolidation   5
ARTICLE 6 APPORTIONMENT OF COSTS AND OWNERSHIP AND DISPOSITION OF PRODUCTION AND
PROPERTY
 
5
6.1
 
Apportionment and Ownership Within Participating Area
 
5 6.2   Ownership and Costs Outside Participating Area or Unit Area   5 6.3  
Cost Liability of Subsequently Created Interests   6 6.4   Taking in Kind   6
6.5   Failure to Take in Kind   6 6.6   Gas Marketing Arrangements   7 6.7  
Surplus Materials and Equipment   7 6.8   Lease Burdens   7
ARTICLE 7 ANNUAL PLAN AND REPORT OF OPERATIONS
 
8
7.1
 
Plan of Development
 
8 7.2   Annual Report   8 7.3   Notice to Parties   8 7.4   [Intentionally
Omitted]   9 7.5   [Intentionally Omitted]   9 7.6   [Intentionally Omitted]   9
7.7   [Intentionally Omitted]   9 7.8   [Intentionally Omitted]   9
ARTICLE 8 DEVELOPMENT WELLS
 
9
8.1
 
Development Well Procedure
 
9 8.2   Drilling of Development Wells   9 8.3   [Intentionally Omitted]   10

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ARTICLE 9 EXPLORATORY WELLS
 
10
9.1
 
Exploratory Well Procedure
 
10 9.2   Drilling of Exploratory Wells   10 9.3   [Intentionally Omitted]   13
ARTICLE 10 REQUIRED WELLS
 
13
10.1
 
Definition
 
13 10.2   Election to Drill   13 10.3   Alternatives to Drilling   13 10.4  
Required Drilling   14
ARTICLE 11 DEEPENING, PLUGGING BACK, AND ABANDONMENT
 
14
11.1
 
Attempted Deepening or Plugging Back of a Well not Completed as a Producer or
De-Watering Well in its Objective Formation
 
14 11.2   Deepening or Plugging Back to Participating Area   15 11.3   Priority
of Operation   15 11.4   [Intentionally Omitted]   15 11.5   Abandonment of a
Producing or De-Watering Well Completed in a Participating Area   15 11.6  
Abandonment of a Producing or De-Watering Well Not Completed in a Participating
Area   16 11.7   Deepening or Plugging Back Abandoned Producing or De-Watering
Wells   16
ARTICLE 12 RIGHTS AND OBLIGATIONS OF DRILLING PARTY AND NON-DRILLING PARTY
 
17
12.1
 
Use of Terms
 
17 12.2   Scope of Article   17 12.3   Relinquishment of Interest by
Non-Drilling Party   17 12.4   Rights and Obligations of Drilling Party   17
12.5   [Intentionally Omitted]   18 12.6   [Intentionally Omitted]   18 12.7  
[Intentionally Omitted]   18 12.8   Stand-By Rig Time   18 12.9   Subsequently
Created Interests   18
ARTICLE 13 ADJUSTMENT ON ESTABLISHMENT OR CHANGE OF PARTICIPATING AREA
 
18
13.1
 
Definitions
 
18 13.2   When Adjustment Made   20 13.3   Method of Adjustment on Establishment
or Enlargement of a Participating Area   20 13.4   Method of Adjustment on
Contraction of a Participating Area   21 13.5   Ownership of Wells and Tangible
Property   21 13.6   [Intentionally Omitted]   22 13.7   [Intentionally Omitted]
  22
ARTICLE 14 SUPERVISION OF OPERATIONS BY PARTIES
 
22
14.1
 
Right of Supervision
 
22 14.2   Voting Control   22 14.3   Meetings   22 14.4   Action Without Meeting
  22 14.5   Representatives   23

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14.6   Audits   23 14.7   Extraneous Projects   23 14.8   Treatment of Carried
Interests   23
ARTICLE 15 UNIT OPERATOR'S POWERS AND RIGHTS
 
23
15.1
 
General Powers and Rights of Unit Operator
 
23 15.2   Employees   23 15.3   Non-Liability   23 15.4   Advances   23 15.5  
Use of Unit Operator's Drilling Equipment   24 15.6   Rights as Party   24
ARTICLE 16 UNIT OPERATOR'S DUTIES
 
24
16.1
 
Specific Duties
 
24 16.2   Insurance   25 16.3   Regulatory Compliance   26 16.4   Drilling
Contracts   26 16.5   Uninsured Losses   26
ARTICLE 17 LIMITATIONS ON UNIT OPERATOR
 
26
17.1
 
Specific Limitations on Unit Operator
 
26 17.2   Resignation or Removal and Selection of a Successor Unit Operator   27
ARTICLE 18 TITLES
 
28
18.1
 
Representation of Ownership
 
28 18.2   Title Papers to be Furnished   28 18.3   Title Examination   29 18.4  
Option for Additional Title Examination   29 18.5   Approval of Titles Prior to
Drilling   29 18.6   Approval of Titles Prior to Inclusion of Land in a
Participating Area   30 18.7   Failure of Title to Committed Working Interest
Before Approval   30 18.8   Failure of Title to Committed Working Interest After
Approval   30 18.9   Joinder by True Owner   30 18.10   Title Challenge   31
ARTICLE 19 UNLEASED INTERESTS
 
31
19.1
 
Treated as Leased
 
31 19.2   Execution of Lease   31
ARTICLE 20 RENTALS
 
31
20.1
 
Rentals
 
31 20.2   Loss of Committed Working Interest   31
ARTICLE 21 TAXES
 
31
21.1
 
Payment
 
31 21.2   Apportionment   31 21.3   Transfer of Interests   32 21.4   Notices
and Returns   32 21.5   Election   32
ARTICLE 22 WITHDRAWAL OF TRACTS AND UNCOMMITTED INTERESTS
 
33

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22.1
 
Right of Withdrawal
 
33 22.2   Non-Withdrawal   33
ARTICLE 23 COMPENSATORY ROYALTIES
 
33
23.1
 
Notice
 
33 23.2   Demand for Failure to Drill a Development Well   33 23.3   Demand for
Failure to Drill a Well Other Than a Development Well   33
ARTICLE 24 SEPARATE MEASUREMENT AND SALVAGE
 
33
24.1
 
Separate Measurement
 
33 24.2   Salvaged Materials   33
ARTICLE 25 ENHANCED RECOVERY AND PRESSURE MAINTENANCE
 
33 25.1   Approval Required   33 25.2   Above-Ground Facilities   34
ARTICLE 26 TRANSFERS OF INTEREST
 
34
26.1
 
Sale by Unit Operator
 
34 26.2   Preferential Right to Purchase   34 26.3   Assumption of Obligations  
34 26.4   Effective Date of Transfer   34 26.5   Division of Interests   35
ARTICLE 27 RELEASE FROM OBLIGATIONS AND SURRENDER
 
35
27.1
 
Surrender or Release Within Participating Area
 
35 27.2   Procedure on Surrender or Release Outside Participating Area   35 27.3
  Accrued Obligations   35
ARTICLE 28 LIABILITY, LIENS, AND REMEDIES
 
36
28.1
 
Liability
 
36 28.2   Relationship of Parties   36 28.3   Liens and Security Interests   36
28.4   Defaults and Remedies   37
ARTICLE 29 MISCELLANEOUS
 
39
29.1
 
Notices
 
39 29.2   Counterparts   39 29.3   Ratification   39 29.4   Effect of Signature
  39 29.5   Successors and Assigns   39 29.6   Headings   40 29.7   References  
40 29.8   Right of Appeal Not Waived   40 29.9   Subsequent Joinder   40 29.10  
Force Majeure   40 29.11   Effective Date and Term   40
ARTICLE 30
 
41
30.1
 
Multiple Well Proposals; Limitations on Drilling
 
41 30.2   Proposal of Pilot Wells   41 30.3   Exceeding Limitations   41

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30.4   Operation of Wells After Elimination   41 30.5   Payment of Taxes
Relating to Production   42 30.6   Operation of Wells After Elimination   42
30.7   Anadarko Lands Provision   42 30.8   Confidentiality   43 30.9  
Amendments   43 30.10   Governing Law   44

EXHIBITS

Exhibit 1   Accounting Procedure Exhibit 2   Pilot Wells Exhibit 3   Insurance
Exhibit 4   Regulatory Compliance Exhibit 5   Form Oil and Gas Lease Exhibit 6  
Gas Balancing Agreement Exhibit 7   Tax Partnership Provisions Exhibit 8  
Recording Supplement Exhibit 9   Dual Completion and Commingled Completion
Provisions
Other Exhibits

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UNIT OPERATING AGREEMENT

                                        
                                                                 CBM

UNIT AREA

        THIS AGREEMENT (this "Agreement") dated as of the    day
of                        , 200            , by and among the parties that
execute or ratify this Agreement or a counterpart hereof,

WITNESSETH:

        WHEREAS, the Parties have entered into that certain Unit Agreement for
the Development and Operation of the                        CBM Unit Area,
County of                         , State of                        (the "Unit
Agreement"), dated as of the            day of                        ,
            establishing the                        CBM Unit (the "Unit") and
covering the lands and depths described in Exhibit B thereto attached [Unit
Agreement to identify depth limitations] (such lands, as limited to such depths,
the "Unit Area"); and

        WHEREAS, the Parties enter into this Agreement pursuant to Section 7 of
the Unit Agreement,

        NOW, THEREFORE, in consideration of the covenants herein contained, it
is agreed as follows:

ARTICLE 1 DEFINITIONS

        1.1    Definitions.    The definitions contained or used in the Unit
Agreement are adopted for all purposes of this Agreement. In addition, whenever
used in this Agreement the terms "Agreement," "Unit," "Unit Agreement," and
"Unit Area" shall have the meanings set forth above and the following terms
shall have the following meanings:

        "Acreage Basis," when used to describe the basis of participation by the
Parties within the Unit Area, a participating area, or other area designated
pursuant to this Agreement in voting, consenting to operations, or sharing in
Costs, or Production, means participation by each Party in the proportion that
the acreage of its Committed Working Interests in the area bears to the total
acreage of the Committed Working Interests of all Parties therein. For the
purposes of this definition: (a) the acreage of the Committed Working Interest
in a tract within the Unit Area shall be the acreage of the tract as set forth
in Exhibit B to the Unit Agreement, (b) if there are two or more undivided
Committed Working Interests in a tract, there shall be apportioned to each
Committed Working Interest that portion of the acreage of the tract that the
Committed Working Interest bears to the entire Committed Working Interest in the
tract, and (c) when ownership is divided as to formation, strata, or horizon,
any vote as to a particular formation, strata or horizon shall be determined by
ownership within that particular formation, strata, or horizon.

        "Annual Required Wells" means those                        (    ) wells
required to be drilled each year pursuant to Section 9 of the Unit Agreement.

        "Approval of the Parties" or "Direction of the Parties" means an
approval, authorization, or direction which receives the affirmative vote of the
Parties entitled to vote on the giving of the Approval or Direction specified in
Section 14.2.

        "Authorized Officer" means the person responsible for the administration
of the applicable Federal Regulations.

        "Commingled Completion" means a Completion of a well in such a manner
that unitized substances from two or more separate sources are produced from the
well without segregation.

        "Committed Working Interest" means a working interest in a tract of land
which is shown on Exhibit B to the Unit Agreement as owned by a Party and which
is committed to the Unit Agreement.

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        "Complete" means to perform all operations, commencing with the running
and setting of the production pipe, reasonably necessary and incident to the
production of unitized substances and/or de-watering from a well and equipping
through the wellhead connections.

        "Costs" means all costs and expenses incurred in the development and
operation of the Unit Area pursuant to this Agreement or the Unit Agreement and
all other expenses that are chargeable as costs, in accordance with the
Accounting Procedure attached hereto as Exhibit 1.

        "Deepen" means to perform all operations reasonably necessary and
incident to Drilling a well below its original projected depth including testing
and logging, but excluding Completing and Equipping operations.

        "Development Well" means a well Drilled within a participating area and
projected to the depths or formations for which the participating area was
established.

        "Drill" means to perform all operations reasonably necessary and
incident to the drilling of a well to its projected depth, including preparation
of roads and drill site, testing, logging and, if productive of (or capable of
producing) unitized substances or if such well is to be used for de-watering
operations, Completing and Equipping the well, or plugging and abandoning
(including reclamation of the surface) if dry; provided, however, that nothing
herein shall require Unit Operator to immediately attempt to Complete any well
drilled hereunder.

        "Drilling Block" means the acreage established for an Exploratory Well
or Wells as provided in Section 9.2 or otherwise established for a Deepening or
Plugging Back of a well as provided in Subdivision C of Section 11.1.

        "Drilling Party," and "Participating Party" both mean the Party or
Parties obligated to bear Costs incurred in the Drilling, or Deepening, or
Plugging Back, respectively, of a well at the commencement of the operation.

        "Equip" means to perform all operations reasonably necessary and
incident to the equipping of a well for production or de-watering beyond the
wellhead connections, including without limitation, installation of heater
treaters, flowlines, pump units (both surface and downhole), electrification,
tanks, motors, compression, gas gathering pipelines and facilities, produced
water disposal pipelines and facilities, and other equipment necessary for the
proper operation of the well. The term "Equip" shall not include gas plants or
other facilities which process Production into products or otherwise
significantly alter its makeup.

        "Exploratory Well" means a well other than a Development Well Drilled
outside the boundary of an existing participating area after the Drilling of the
Pilot Wells and the discovery of unitized substances in Paying Quantities in the
Unit Area.

        "Lease Burdens" means the royalty reserved to the lessor in an oil and
gas lease, an overriding royalty, a production payment, and any similar burden,
but does not include a carried working interest, a net profits interest, or any
other interest which is payable out of profits.

        "Non-Drilling Party" and "Non-Participating Party" all mean the Party or
Parties that had the optional right to participate in the Drilling, Deepening,
or Plugging Back, respectively, of a well at the commencement of the operation
and that elected not to participate therein.

        "Party" means a party to this Agreement, including the Party acting as
Unit Operator when acting as an owner of a Committed Working Interest. Whenever
reference is made to a Party "in" or "within" the Unit Area, a participating
area, or other area designated pursuant to this Agreement, the reference shall
mean a Party owning a Committed Working Interest in a tract of land within the
relevant area. If two or more Parties are affiliated through a common parent
entity or other substantially similar ownership, the several Parties shall
jointly appoint one of them as the

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designated Party for the giving and receiving of notices, the making of
elections, the exercise of voting power, and similar purposes under this
Agreement.

        "Paying Quantities" means the quantities of unitized substances
sufficient to satisfy the Productivity Requirements in Section 10 of the Unit
Agreement.

        "Pilot Wells" means those initial wells proposed within the Unit Area as
identified in Exhibit 2 that are Drilled by the Parties pursuant to Article 3
and the provisions of Exhibit 2.

        "Production" means all unitized substances produced and saved from the
Unit Area except so much thereof as is used to conduct operations under the Unit
Agreement and this Agreement.

        "Plug Back" means to perform all operations reasonably necessary and
incident to plugging back a well to a shallower depth, including testing and
logging, but excluding completion operations.

        "Salvage Value" means the value of the materials and equipment in or
appurtenant to a well, determined in accordance with Exhibit 1, less the
reasonably estimated Costs of salvaging the same and plugging and abandoning
(including reclamation of the surface) the well.

        "Subsequent Test Well" means a test well Drilled after the Drilling of
the Pilot Wells and before discovery of unitized substances in Paying Quantities
in the Unit Area.

        "Subsequently Created Interest" means an overriding royalty, production
payment, net profits, carried, or any other interest created out of a Party's
Committed Working Interest subsequent to the date of this Agreement.

        "Unit Operator" means Anadarko E&P Company LP and its successors, as the
Unit Operator designated in accordance with the Unit Agreement, acting in that
capacity and not as an owner of a Committed Working Interest.

ARTICLE 2
EXHIBITS

        2.1    Exhibits.    The following Exhibits are incorporated herein by
reference:

X

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  Exhibit 1   Accounting Procedure
X

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Exhibit 2
 
Pilot Wells
X

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Exhibit 3
 
Insurance
X

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Exhibit 4
 
Regulatory Compliance
X

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Exhibit 5
 
Form Oil and Gas Lease
X

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Exhibit 6
 
Gas Balancing Agreement

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Exhibit 7
 
Tax Partnership Provisions
X

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Exhibit 8
 
Recording Supplement

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Exhibit 9
 
Dual Completion and Commingled Completion Provisions

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Other Exhibits:
 
 

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In the event of a conflict or inconsistency between the provisions of an Exhibit
and the provisions of this Agreement, the provisions of this Agreement shall
control, except with respect to Exhibits 6 and 7, if attached hereto, the
provisions of which shall control over the provisions of this Agreement.

ARTICLE 3
Pilot WELLS

        3.1    Location.    Unit Operator shall Drill the Pilot Wells pursuant
to the provisions of, and at the locations specified in, Exhibit 2. The Pilot
Wells shall be Drilled within the time required for Drilling of the initial
obligation wells under Section 9 of the Unit Agreement, or any extension
thereof.

        3.2    Costs of Drilling.    Subject to the investment adjustment
provisions of Article 13, the Costs of Drilling the Pilot Wells shall be shared
by the Parties in the proportions specified in Exhibit 2.

ARTICLE 4
SUBSEQUENT TEST WELLS

        4.1    Right to Drill.    The Drilling of any Subsequent Test Well shall
be upon such terms and conditions as may be agreed to by the Parties; provided,
however, that in the absence of agreement, the well may be Drilled under the
provisions of Article 9.

ARTICLE 5
ESTABLISHMENT, REVISION, AND CONSOLIDATION OF PARTICIPATING AREAS

        5.1    Proposal.    Unit Operator shall initiate each proposal for the
establishment or revision of a participating area by submitting the proposal in
writing to each Party at least 20 days before filing the same with the
Authorized Officer. The date of proposed filing must be shown in the proposal.
If, within the 20-day period above provided, the proposal receives the Approval
of the Parties within the proposed participating area or no written objections
are received, then the proposal shall be filed on the date specified.

        5.2    Objections to Proposal.    Prior to the proposed filing date any
Party may submit to all other Parties written objections to the proposal. To be
considered a valid objection, the objection must state that the proposal
includes lands that are not reasonably proved to be productive (or needs to
include lands that are reasonably proved to be productive) of unitized
substances or otherwise useful for de-watering or other unit operations and must
provide such information reasonably necessary to support such a conclusion. If,
despite valid objections, the proposal receives the Approval of the Parties
within the proposed participating area, then the Party making the objections may
renew the same before the Authorized Officer.

        5.3    Revised Proposal.    If the proposal does not receive the
Approval of the Parties within the proposed participating area, then Unit
Operator shall submit to the Parties a revised proposal, taking into account the
valid objections, if any, made to the first proposal. If no proposal receives
the Approval of the Parties within 60 days from submission of the first
proposal, then Unit Operator shall file with the Authorized Officer the Unit
Operator's final proposal noting the separate or contrary views expressed by the
Parties.

        5.4    Rejection of Proposal.    If a proposal filed by Unit Operator as
above provided is rejected by the Authorized Officer, Unit Operator shall
initiate a new proposal in the same manner as provided in Section 5.1, and the
procedure with respect thereto shall be the same as in the case of an initial
proposal.

        5.5    Notice of Approval or Disapproval.    If and when a proposal has
been approved or disapproved by the Authorized Officer, Unit Operator shall give
prompt notice thereof to each Party.

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        5.6    Consolidation.    Two or more participating areas may be combined
as provided in the Unit Agreement.

ARTICLE 6
APPORTIONMENT OF COSTS AND OWNERSHIP AND DISPOSITION OF PRODUCTION AND PROPERTY

        6.1    Apportionment and Ownership Within Participating Area.    Except
as otherwise provided in Articles 8, 9, 10, 11, 12, and 13:

        A.    Costs.    All Costs incurred in the development and operation of a
participating area for or in connection with production of unitized substances
from any depths or formations for which the participating area is established
shall be borne by the Parties within the participating area on an Acreage Basis,
determined as of the time the Costs are incurred.

        B.    Production.    All Production from a participating area shall be
allocated on an Acreage Basis to the tracts of unitized land within the
participating area. That portion of Production that is allocated to any tract
shall be owned by the Party or Parties having Committed Working Interest or
Interests therein in the same manner and subject to the same conditions as if
actually produced from the tract through a well thereon and as if this Agreement
and the Unit Agreement had not been executed.

        C.    Property.    All materials, equipment, and other property, whether
real or personal, the cost of which is chargeable as Costs and which have been
acquired in connection with the development or operation of a participating
area, shall be owned by the Parties within the participating area on an Acreage
Basis.

        6.2    Ownership and Costs Outside Participating Area or Unit
Area.    If a well Drilled (including the Deepening, or Plugging Back thereof)
within a Drilling Block established under the provisions of either Article 9 or
Article 10 is completed as a producer but not in a formation included within a
participating area, then the following provisions shall be applicable:

        A.    When All Drilling Block Parties Participate.    If all Parties
within the Drilling Block shall have elected to participate in Drilling the
well, then the well, the Production therefrom, and the materials and equipment
therein or appurtenant thereto shall be owned by such Parties; and all Costs
incurred in the operation of the well and all Lease Burdens payable with respect
to Production from the well shall be borne and paid by such Parties.
Apportionment among said Parties of ownership, Costs and Lease Burdens shall be
in the same proportions in which Costs incurred in Drilling the well were borne.

        B.    When Less Than All Drilling Block Parties Participate.    If any
Party within the Drilling Block elects not to participate in Drilling the well,
then the provisions of Article 12 shall be applicable thereto.

        C.    Upon Termination of the Unit Agreement or Elimination of Any Lands
from the Unit Area.    Any well being operated and produced that has been
excluded from the Unit Area as a result of the termination of the Unit Agreement
or the elimination of lands from the Unit Area shall continue to be operated
under the terms of this Agreement so far as applicable, without change in the
ownership of the equipment and the production therefrom until a new operating
agreement is entered into or the well is plugged and abandoned and settlement
has been made for all production and equipment, the site reclaimed and all
obligations among and between the parties owning interests in the well have been
met or satisfied. This Subdivision C of Section 6.2 shall apply only to the
depths or formations in which the well is completed and the applicable spacing
unit therefor, if any.

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        6.3    Cost Liability of Subsequently Created Interests.    Subsequently
Created Interests shall be made expressly subject to the terms and provisions of
this Section 6.3 and of Section 12.9. If the Party that creates a Subsequently
Created Interest fails to pay, when due, its share of Costs, and the proceeds
from its share of Production are insufficient to cover such Costs, then the
Subsequently Created Interest shall be chargeable with a pro rata share of such
Costs as if the Subsequently Created Interest were a Committed Working Interest;
and Unit Operator and all other Parties hereto shall have the right to enforce
against the Subsequently Created Interest the lien, security interest, and all
other rights granted in Section 28.3 and Section 28.4 for the purpose of
collecting Costs chargeable to the Subsequently Created Interest.

        6.4    Taking in Kind.    Each Party shall have the right to take in
kind or separately dispose of its proportionate share of Production. Any extra
expenditure incurred in taking in kind or separate disposition by any Party of
its proportionate share of the Production shall be borne by that Party. Any
Party taking its share of Production in kind shall be required to pay for only
its proportionate share of the part of the Unit's surface facilities that it
uses. Each Party shall execute such division orders and contracts as may be
necessary for the sale of its interest in Production from the Unit Area, and,
except as provided in Article 28, shall be entitled to receive payment directly
from the purchaser thereof for its share of all Production.

        6.5    Failure to Take in Kind.    Should any party fail to take in kind
or separately dispose of its share of Production, the following provisions shall
apply:

        A.    Disposition of Oil.    If any Party fails to take in kind or
separately dispose of its proportionate share of the oil produced from the Unit
Area, Unit Operator shall have the right (which right is subject to revocation
at will by the non-taking Party), but not the obligation, to purchase such oil
or sell it to others at any time and from time to time for the account of the
non-taking Party, after first giving the non-taking Party 10-days' written
notice of the intended purchase or sale and the price to be paid or the pricing
basis to be used. An owner of oil Production shall always have the right,
exercisable at any time, to take in kind, or separately dispose of, its share of
all oil not previously committed to a purchaser. Any purchase or sale by Unit
Operator shall be only for such reasonable periods of time as are consistent
with the minimum needs of the industry under the particular circumstances, but
in no event for a period in excess of 1 year. Any purchase or sale by Unit
Operator shall be in a manner commercially reasonable under the circumstances,
but Unit Operator shall have no duty to share any existing market or
transportation arrangement or to obtain a price or transportation fee equal to
that received under any existing market or transportation arrangement. Unit
Operator may discontinue the purchase or sale of oil for any non-taking Party by
giving the non-taking Party 10-days' prior written notice. The sale or delivery
by Unit Operator of a non-taking Party's share of oil Production under the terms
of any contract of Unit Operator shall not give the non-taking Party any
interest in or make the non-taking Party a party to the contract. Unit Operator
may deduct from the revenue payable to the non-taking Party the actual costs
that Unit Operator incurs for making the oil marketable and delivering the oil
to market, as well as any Lease Burdens and production and severance taxes paid
for the non-taking Party's account that are attributable to the non-taking
Party's proportionate share of oil Production.

        B.    Disposition of Gas.    If any Party fails to take in kind or
separately dispose of its proportionate share of gas produced from the Unit
Area, Unit Operator shall have the right (which right is subject to revocation
at will by the non-taking Party) but not the obligation, to purchase such gas or
sell it to others at any time and from time to time, for the account of the
non-taking Party, after first giving the non-taking Party 30 days written notice
of the intended purchase or sale and the price to be paid or the pricing basis
to be used. An owner of gas Production shall always have the right, exercisable
at any time, to take in kind, or separately dispose of, its share of gas
Production not previously committed to a purchaser. Any purchase or

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sale by Unit Operator shall be only for such reasonable periods of time as are
consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of 1 year. Any purchase or
sale by Unit Operator shall be in a manner commercially reasonable under the
circumstances, but Unit Operator shall have no duty to share any existing market
or transportation arrangement or to obtain a price or transportation fee equal
to that received under any existing market or transportation arrangement. Unit
Operator may discontinue the purchase or sale of gas Production for any
non-taking Party by giving the non-taking Party 30 days prior written notice.
The sale or delivery by Unit Operator of a non-taking Party's share of gas
Production under the terms of any contract of Unit Operator shall not give the
non-taking Party any interest in or make the non-taking Party a party to the
contract. Unit Operator may deduct from the revenue payable to the non-taking
Party the actual costs that Unit Operator incurs for making the gas Production
marketable and delivering the gas Production to market, as well as any Lease
Burdens and production and severance taxes paid for the non-taking Party's
account that are attributable to the non-taking Party's proportionate share of
gas Production. By entering into this Agreement, the Parties have simultaneously
entered into the Gas Balancing Agreement attached as Exhibit 6 hereto. If one or
more of the Parties take gas Production from one or more participating areas
within the Unit which results in a Party taking more or less than its
proportionate share of gas Production from each participating area in any given
month, then the balancing and accounting of the respective accounts of the
Parties shall be made in accordance with the provisions of Exhibit 6.

        6.6    Gas Marketing Arrangements.    Each Party that is taking a share
of gas Production in kind from the Unit Area shall, within 5 days before the end
of each month, notify Unit Operator of its gas marketing arrangements for the
following month, excluding price, and shall notify Unit Operator immediately in
the event of a change in such arrangements. In addition, each Party that is
taking a share of the gas Production in kind from the Unit Area shall notify
Unit Operator in a timely manner of the volume of gas Production taken by it
from each participating area in the preceding month.

        6.7    Surplus Materials and Equipment.    Materials and equipment owned
by the Parties or by any of them pursuant to this Agreement may be classified as
surplus by Unit Operator when deemed by it to be no longer needed in operations
hereunder by giving to each Party owning an interest therein notice thereof.
Such surplus materials and equipment shall be disposed of as follows:

        A.    Items Divisible In Kind.    Each Party owning an interest in
surplus materials and equipment (including tubular goods) shall have the right
to take in kind its share of such materials and equipment which are divisible in
kind, by notice given to Unit Operator within 30 days after classification
thereof as surplus, except that such right shall not apply to junk or to any
item (other than tubular goods) having a replacement cost of less than
$7,500.00.

        B.    Items Not Divisible In Kind.    Surplus materials and equipment
not divisible in kind, other than junk and any item (other than tubular goods)
having a replacement cost of less than $7,500.00, shall be sold to the highest
bidder or bidders.

        C.    Other Items.    Surplus materials and equipment not disposed of in
accordance with this Section 6.7 shall be disposed of as provided in Exhibit 1.

        6.8    Lease Burdens.    Payment of Lease Burdens shall be made in the
following manner, except as may otherwise be provided in any gas balancing
agreement between the Parties, whether attached as Exhibit 6 or otherwise:

               Option No. 1: Each Party entitled to receive a share of
Production shall be responsible for any and all payments, whether in cash or in
kind, accruing to any and all Lease Burdens, net profits interests, carried
interests and any other interest payable with respect to such share or the
proceeds thereof; provided, however, at any time any Party entitled to receive
Production is not taking in kind or separately disposing of its share thereof,
that portion of such Production or the proceeds thereof (at the option of such
Party) accruing to the Lease Burdens shall, upon request, be distributed to such
Party.

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          X   Option No. 2: Unit Operator shall make landowner royalty and Lease
Burdens payments on all Production as set forth in this Section 6.8. Each Party
taking in kind or separately disposing of Production shall promptly pay Unit
Operator that share of the proceeds from the sale of such Production if sold, or
the market value thereof if not sold but used off the premises, equal to the
amount of the landowner royalty payable out of such Production. Unit Operator
shall make landowner royalty payments on all Production based upon the amounts
so received. Each Party shall provide to Unit Operator sufficient information to
allow Unit Operator to make all required royalty payments and shall, on not less
than a monthly basis, advise Unit Operator of all sales of Production made by
such Party specifying purchaser, price, volume, gross proceeds, all costs
deducted, and net proceeds. On a quarterly basis, Unit Operator shall forward to
all Parties a statement of royalty accounting showing the amounts received by
Unit Operator from each Party and the landowner royalty payments made by Unit
Operator.

ARTICLE 7
ANNUAL PLAN AND REPORT OF OPERATIONS

        7.1    Plan of Development.    No later than October 31 of each calendar
year, Unit Operator shall prepare and submit to all other Parties a preliminary
plan for development of the Unit Area during the twelve-month period commencing
on January 1 of the following calendar year. The preliminary plan of development
shall identify the number and location of wells proposed to be Drilled during
such period and any significant technical or operational matters proposed to be
addressed by the Parties. Unit Operator may call a meeting of the Parties in
accordance with Section 14.3 to consider the preliminary plan of development.
Any Party may state its objections or comments to the preliminary plan of
development by submitting written objections or comments to the plan to all
other Parties within three days before the date of the meeting. Unit Operator
and all other Parties shall give due consideration to the objections or comments
of a Party to the preliminary plan of development and the Parties shall make
reasonable efforts to agree on a final plan of development for the following
year, but the plan of development shall not be subject to the Approval of the
Parties and the Parties shall have the right to propose and conduct operations
in the Unit Area as provided in Articles 8, 9, 10 and 11 (but subject to the
limitations in Section 30.1).

        7.2    Annual Report.    Within twelve months after the effective date
of this Agreement, Unit Operator shall prepare and submit to the Authorized
Officer a report of the operations conducted in the Unit Area during the
preceding year ("Annual Report"). The first Annual Report shall cover the
drilling of the Pilot Wells and any other wells drilled during the first year of
operations. Thereafter, on an annual basis, Unit Operator shall submit to the
Authorized Officer an Annual Report covering operations conducted in the Unit
Area during the preceding year. Each Annual Report submitted pursuant to this
section should discuss the drilling operations completed during the applicable
year and the drilling completed in the Unit Area which is to be considered for
compliance with the drilling and development obligations under Section 9 of the
Unit Agreement. This report shall be complete and adequate as the Authorized
Officer may determine to be necessary and shall:

(a)specify the number and locations of all wells Drilled and the current status
of the wells;

(b)provide a summary of annual and cumulative Production for each unit well; and

(c)provide an accounting of wells, if any, completed in excess of the Annual
Required Wells that will be used for credit in the succeeding year or years.

        7.3    Notice to Parties.    Unit Operator shall provide each Party with
a copy of the Annual Report within 15 days after submittal to the Authorized
Officer. If the Annual Report is rejected by the Authorized Officer, or if Unit
Operator receives any material adverse comments to the Annual Report from the
Authorized Officer, Unit Operator shall give prompt notice thereof to each Party
and shall

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keep each Party reasonably informed of all measures taken to obtain approval of
the Annual Report or otherwise address such comments from the Authorized
Officer.

        7.4    [Intentionally Omitted].    

        7.5    [Intentionally Omitted].    

        7.6    [Intentionally Omitted].    

        7.7    [Intentionally Omitted].    

        7.8    [Intentionally Omitted].    

ARTICLE 8
DEVELOPMENT WELLS

        8.1    Development Well Procedure.    This Article sets forth the
procedure for Drilling a Development Well.

        8.2    Drilling of Development Wells.    The Drilling of Development
Wells shall be governed by the following provisions:

        A.    Approval Required.    The Drilling of a Development Well shall be
subject to the Approval of the Parties, unless the Drilling of the proposed well
is necessary to prevent the loss of a Committed Working Interest in the tract of
land on which the proposed well is to be Drilled.

        B.    Notice of Proposed Drilling.    Subject to the provisions of
Section 30.1, any Party within a participating area may propose the Drilling of
one or more Development Wells therein by giving to each of the other Parties
within the participating area notice, specifying the surface and bottomhole
locations, projected depth, objective formation, and estimated costs of Drilling
the proposed well or wells, which locations shall conform to the spacing pattern
then existing within the Unit Area or an exception thereto consistent with the
current plan of development.

        C.    Response to Notice.    Within 30 days after receipt of the notice,
each Party within the participating area shall advise all other Parties therein
whether or not it wishes to participate in Drilling the proposed well or wells.
If the proposal includes multiple wells as permitted under Section 30.1, a
Party's election to participate or not to participate in Drilling shall apply to
all wells in the proposal; a Party may not elect to participate in Drilling less
than all of the proposed wells. If any Party fails to give advice within the
30-day period, it shall be deemed to have elected not to participate in Drilling
the proposed well or wells. If Parties having sufficient interests to approve
the Drilling as provided in Section 14.2 do not advise that they wish to
participate in Drilling the proposed well or wells, the proposal shall be deemed
to be rejected. If Parties having sufficient interests to approve the Drilling
as provided under Section 14.2 advise that they wish to participate in Drilling
the proposed well or wells, then the proposal shall be deemed to be approved. In
this event, Unit Operator shall Drill the well or wells for the account of all
Parties within the participating area and all such Parties shall be committed to
participate therein provided the operations for the Drilling of the proposed
well (or in the case of multiple wells, the drilling of the first of the
proposed wells) are commenced within the time period hereafter set forth, and
Unit Operator shall, no later than 90 days after expiration of the notice period
of 30 days (or as promptly as practicable after the expiration of the 48-hour
period when a drilling rig is on location, as the case may be), actually
commence the proposed operation and thereafter complete it (and conduct
operations on all other wells contained in the proposal) with due diligence at
the risk and expense of the Parties participating therein; provided, however,
the commencement date may be extended upon written notice of same by Unit
Operator to the other Parties, for a period of up to 30 additional days if, in
the sole opinion of Unit Operator, such additional time is reasonably necessary
to obtain permits from governmental authorities, surface rights (including
rights-of-way)

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or appropriate drilling equipment, or to complete title examination or curative
matter required for title approval or acceptance. If actual operations for the
Drilling of the proposed well (or in the case of multiple wells, the Drilling of
the first of the proposed wells) have not been commenced within the time
provided (including any extension thereof as specifically permitted herein or in
the force majeure provisions of Section 29.10) and if any Party hereto still
desires to conduct the operation, written notice proposing same must be
resubmitted to the other Parties in accordance herewith as if no prior proposal
had been made. If actual operations for the Drilling of a multiple well proposal
have been commenced within the time provided but operations cannot be commenced
on a particular well or wells to complete the multiple well Drilling proposal
within a reasonable period of time after approval of the proposals, the
undrilled well or wells shall be withdrawn from the proposal and reproposed as
part of a subsequent Drilling proposal.

        D.    [Intentionally Omitted]    

        8.3    [Intentionally Omitted].    

ARTICLE 9
EXPLORATORY WELLS

        9.1    Exploratory Well Procedure.    This Article sets forth the
procedure for Drilling an Exploratory Well.

        9.2    Drilling of Exploratory Wells.    The Drilling of Exploratory
Wells shall be governed by the following provisions:

        A.    Notice of Proposed Drilling; Designation of Drilling
Block.    Subject to the provisions of Section 30.1, any Party may propose the
Drilling of one or more Exploratory Wells on land (i) in which it owns a
Committed Working Interest; or (ii) within the Drilling Block to be designated
for such well or wells as provided in this subparagraph A. The Party desiring to
Drill one or more Exploratory Wells shall designate the Drilling Block for such
well or wells. The designated Drilling Block shall include all 40 acre
subdivisions (or aliquot equivalents) any portion of which is cut by a circle
with a 2000 foot radius drawn around the well or, in the case of a multiple well
proposal, around each well to be proposed by the Party; provided, however, that
the Drilling Block shall not include any land that is included in (i) an
established participating area for the objective formation for the proposed well
or wells, (ii) a proposal for establishment or revision of a participating area
previously filed with the Authorized Officer, or (iii) an active, previously
designated Drilling Block for the formation. The Drilling Block shall be
considered active for 90 days after the designation thereof unless withdrawn at
the Direction of the Parties in the Drilling Block or extended pursuant to
Subdivision D of this Section 9.2 and, if the actual Drilling of a well or wells
is commenced thereon within the period specified in Subdivision D of this
Section 9.2, until either:

        (i)    the filing with the Authorized Officer of a proposal for the
establishment or revision of a participating area if the Drilling of the well or
wells results in the filing of the proposal; or

        (ii)  if the well or wells are capable of producing unitized substances
or otherwise useful for dewatering or other unit operations but do not
independently meet the Productivity Requirements for the establishment of a
participating area, the expiration of two years after the Completion of such
well or wells; or

        (iii)  if the well or wells are not capable of producing unitized
substances or otherwise useful for dewatering other unit operations, the
plugging and abandonment of such well or wells.

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The Party desiring to drill the Exploratory Well or Wells shall notify Unit
Operator and each Party owning a Committed Working Interest within the Drilling
Block of the designation, which notification shall include a plat and
description of the area so designated, the surface and bottomhole locations,
projected depth, objective formation, and estimated costs to Drill the proposed
well or wells. The location of the proposed well or wells shall conform to any
applicable spacing pattern then existing or an approved exception thereto.

        B.    Basis of Participation.    Each Party within the Drilling Block
shall be entitled to participate in a well or wells proposed thereon by sharing
in the costs of Drilling the proposed well or wells on an Acreage Basis in the
objective formation for the Drilling Block if it notifies the other Parties
within the Drilling Block of its willingness to participate as hereinafter
provided in this Article 9; but a Party shall not be required to participate in
the proposed well or wells.

        C.    Exclusion of Wells and Associated Acreage From Designated Drilling
Block.    Within 30 days after giving notice of a proposed well or wells on a
designated Drilling Block, any proposed well and the acreage included in the
designated Drilling Block solely as a result of such well may be excluded
therefrom at the Direction of the Parties receiving the notice. In such event
the designated Drilling Block, as reduced by the exclusion of any such wells and
associated acreage, shall be established as the Drilling Block effective as of
the first day following the 30-day period. In the absence of any direction given
within the 30-day period, the designated Drilling Block shall be established as
the Drilling Block effective as of the first day following the 30-day period. In
like manner, the surface and bottomhole locations of the proposed well or wells
may be changed at the Direction of the Parties receiving the notice within the
30-day period, provided the bottomhole locations remain in the designated
Drilling Block and the objective formation.

        D.    Response to Notice.    Within 10 days after the establishment of
the Drilling Block, each Party within the Drilling Block shall advise all other
Parties therein whether or not it wishes to participate in Drilling the proposed
well or wells. If the proposal includes multiple wells as permitted under
Section 30.1, a Party's election to participate or not to participate in
Drilling shall apply to all wells in the proposal; a Party may not elect to
participate in Drilling less than all of the proposed wells. If any Party fails
to give advice within the 10-day period, it shall be deemed to have elected not
to participate in Drilling the proposed well or wells. If all Parties within the
Drilling Block advise that they wish to participate in Drilling the proposed
well or wells, then Unit Operator shall Drill the well for the account of all
such Parties. All Parties that elect to participate in the proposed operation
shall be committed to participate therein provided the operations for the
Drilling of the proposed well (or in the case of multiple wells, the Drilling of
the first of the proposed wells) are commenced within the time period hereafter
set forth, and Unit Operator shall, no later than 90 days after expiration of
the notice period of 30 days (or as promptly as practicable after the expiration
of the 48-hour period when a drilling rig is on location, as the case may be),
actually commence the proposed operation and thereafter complete it (and conduct
operations on all other wells contained in the proposal) with due diligence at
the risk and expense of the Parties participating therein; provided, however,
the commencement date may be extended upon written notice of same by Unit
Operator to the other Parties, for a period of up to 30 additional days if, in
the sole opinion of Unit Operator, additional time is reasonably necessary to
obtain permits from governmental authorities, surface rights (including
rights-of-way) or appropriate drilling equipment, or to complete title
examination or curative matter required for title approval or acceptance. If
actual operations for the drilling of the proposed well (or in the case of
multiple wells, the Drilling of the first of the proposed wells) have not been
commenced within the time provided (including any extension thereof as
specifically permitted herein or in the force majeure provisions of
Section 29.10) and if any Party hereto still desires to conduct the operation,
written notice proposing same must be resubmitted to the other Parties in
accordance herewith as if no prior proposal had been made. If actual operations
for the Drilling of a multiple

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well proposal have been commenced within the time provided but operations cannot
be commenced on a particular well or wells to complete the multiple well
Drilling proposal within a reasonable period of time after approval of the
proposal, the undrilled well or wells shall be withdrawn from the proposal and
reproposed as part of a subsequent Drilling proposal.

        E.    Notice of Election to Proceed.    If less than all Parties within
the established Drilling Block elect to participate in the drilling of the
proposed well or wells, the Party that designated the Drilling Block shall
promptly notify the Parties that elected to participate in the Drilling of the
proposed well of the total Committed Working Interest of the Parties electing to
so participate and shall make its recommendation as to whether the Drilling
should proceed. Within 10 days after receiving the notice, each Drilling Party
shall advise the Party that proposed the well, the Unit Operator, and all other
Parties of its desire to (1) limit its participation to its interest in the
Drilling Block, or (2) carry its proportionate share of the Non-Participating
Parties' interests. Failure to advise the Unit Operator and all other Drilling
Parties shall be deemed an election by a Party to limit its participation to its
interest in the Drilling Block. At any time more than 5 days after expiration of
the 10-day period and prior to obtaining 100% subscription to the proposed
Drilling, the Party that designated the Drilling Block may withdraw the proposal
and shall promptly notify all Parties of the decision. Any interest of a
Non-Participating Party that is not carried by a Participating Party shall be
deemed to be carried by the Party that proposed the well if such Party does not
withdraw its proposal, provided any other Participating Party may elect to take
its proportionate share thereof by giving notice to the Party that proposed the
well within 5 days after expiration of the 10-day period. If 100% subscription
to the proposed Drilling is obtained, the Party that proposed the well shall
promptly notify the Unit Operator and the Participating Parties of each Party's
interest in the Drilling Block. Unit Operator shall then commence operations for
Drilling as provided in Subdivision D of this Section 9.2.

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        F.    [Intentionally Omitted.]    

        G.    Effect of Election.    If one or more, but not all, of the Parties
within the Drilling Block elect to proceed with the Drilling of the well or
wells, Unit Operator shall Drill the well or wells for the account of the
Drilling Party on an Acreage Basis among those constituting the Drilling Party
or on any other basis as such Parties may agree.

        H.    Rights and Obligations of Drilling Party and Non-Drilling
Party.    Whenever an Exploratory Well is Drilled otherwise than for the account
of all Parties within the Drilling Block for the well, the provisions of
Article 12 shall be applicable to the operation.

        9.3    [Intentionally Omitted].    

ARTICLE 10
REQUIRED WELLS

        10.1    Definition.    For the purpose of this Article, a well shall be
deemed a Required Well if the Drilling thereof is required by a final order of
the Authorized Officer. The order shall be deemed final upon expiration of the
time allowed for appeal therefrom without the commencement of appropriate appeal
proceedings or, if the proceedings are commenced within the time, upon the final
disposition of the appeal. Whenever Unit Operator receives any such order, it
shall promptly mail a copy thereof to each Party. If any order is appealed, the
Party appealing shall give prompt notice thereof to Unit Operator and to each of
the other Parties, and, upon final disposition of the appeal, Unit Operator
shall give each Party prompt notice of the result thereof. The Annual Required
Wells shall not be considered Required Wells for purposes of this Article 10,
and shall be proposed and Drilled in the ordinary course under Articles 8 and 9.

        10.2    Election to Drill.    Any Party desiring to Drill, or to
participate in the Drilling of, a Required Well shall give to Unit Operator
notice thereof within 30 days after the order requiring the well becomes final
or within such lesser time as may be required to insure compliance with the
order. If the notice is given within the period, Unit Operator shall Drill the
Required Well for the account of the Party or Parties giving the notice;
provided, however, if the Required Well is a Development Well, it shall not be
Drilled unless it receives the Approval of the Parties within the participating
area involved. All rights and obligations with respect to the ownership of the
well, the operating rights therein, the Production therefrom, and the bearing of
Costs incurred therein shall be the same as if the well had been Drilled under
Article 8, if the same is a Development Well, or under Article 9, if the same is
an Exploratory Well or a Subsequent Test Well.

        10.3    Alternatives to Drilling.    If no Party elects to Drill a
Required Well within the period allowed for the election, and if any of the
following alternatives is available, the first alternative that is available
shall be followed:

        A.    Compensatory Royalties.    If compensatory royalties may be paid
in lieu of Drilling the well and if payment thereof receives, within the period,
the Approval of the Parties that would be chargeable with the Costs incurred in
Drilling the well if the well were Drilled as provided in Section 10.4, Unit
Operator shall pay the compensatory royalties for the account of said Parties;
or

        B.    Contraction or Surrender.    If the Drilling of the well may be
avoided, without other penalty, by contraction of the Unit Area and/or surrender
of the lease or interest in question, Unit Operator shall make a reasonable
effort to effect such contraction or surrender; or

        C.    Termination.    If the Required Well is a Subsequent Test Well,
the Parties shall join in termination of the Unit Agreement in accordance with
its provisions.

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        10.4    Required Drilling.    If none of the foregoing alternatives is
available, Unit Operator shall Drill the Required Well under whichever of the
following provisions is applicable:

        A.    Development Well.    If the Required Well is a Development Well,
it shall be Drilled by Unit Operator for the account of all Parties within the
participating area in which the well is Drilled; or

        B.    Exploratory Well.    If the Required Well is an Exploratory Well,
the Drilling Block for the well shall consist of those lands that would have
been designated for the well if it had been proposed under Subdivision A of
Section 9.2. Unit Operator shall Drill the well for the account of all the
Parties owning Committed Working Interests within the Drilling Block, on an
Acreage Basis among themselves; and no such Party shall have the right to elect
not to participate in the Drilling of the well.

ARTICLE 11
DEEPENING, PLUGGING BACK, AND ABANDONMENT

        11.1    Attempted Deepening or Plugging Back of a Well not Completed as
a Producer or De-Watering Well in its Objective Formation.    The attempted
Deepening or Plugging Back of a well drilled to its objective formation or
projected depth and not Completed as a producer of unitized substances (or as a
well capable of producing unitized substances) or a de-watering well in its
objective formation shall be governed by the provisions of this Section 11.1 and
Section 11.2, unless every Party entitled to the notice provided for in
Subdivision A of this Section 11.1 has consented to the plugging and abandonment
of the well:

        A.    Notice by Unit Operator.    Before abandoning any well that has
been Drilled to its objective formation or projected depth but not completed as
a producer of unitized substances (or as a well capable of producing unitized
substances) or a de-watering well, Unit Operator shall give notice of its
intention to plug and abandon the well to each Drilling Party, Non-Drilling
Party, and any other Party owning a Committed Working Interest in the tract of
land on which the well is located.

        B.    Right to Initiate Proposal.    Each Drilling Party that received
notice given in accordance with Subdivision A of this Section 11.1 and any other
Party owning a Committed Working Interest in the tract of land on which the well
is located may initiate a proposal to attempt to Deepen or Plug Back the well;
provided, however, if the well was Drilled as a Development Well, a proposal to
Deepen or Plug Back may be initiated only by a Party owning a Committed Working
Interest in the tract of land on which the well is located.

        C.    Right to Participate.    To be entitled to participate in a
Deepening or Plugging Back operation, a Party must have the right to initiate
the same or must own a Committed Working Interest in (i) the Drilling Block
previously established for Drilling the well, or (ii) if no Drilling Block was
previously established for Drilling the well, the Drilling Block that shall be
established automatically in accordance with the provisions of Subdivision B of
Section 10.4 for the proposed operation in the well.

        D.    Time and Manner of Initiating Proposal.    A Party entitled to
initiate a proposal to Deepen or Plug Back may do so within a period of 24 hours
(exclusive of Saturdays, Sundays, and legal holidays) after receipt of the
notice given pursuant to Subdivision A of this Section 11.1. The proposal shall
be initiated by giving notice thereof to Unit Operator and to each Party
entitled to participate in the proposed operation. If no proposal is initiated
within the period, Unit Operator shall plug and abandon the well for the account
of the Drilling Party.

        E.    Election.    If a proposal to Deepen or Plug Back a well is
initiated, each Party entitled to participate in the operation proposed shall
have a period of 48 hours (exclusive of Saturdays,

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Sundays, and legal holidays) after receipt of the proposal within which to
notify Unit Operator whether or not it elects to participate in the proposed
operation. The failure of a Party to signify its election within the 48-hour
period shall be deemed an election not to participate in the proposed operation.

        F.    Effect of Election.    The Party or Parties electing to
participate in an operation to Deepen or Plug Back a well as above provided
shall constitute the Participating Party for the operation. Each Party that was
entitled to make the election but failed to do so as above provided shall be a
Non-Participating Party with respect to the operation. The operation shall be
conducted by Unit Operator for the account of the Participating Party on an
Acreage Basis among the Parties constituting the Participating Party, subject,
however, to the provisions of Section 11.2 and Section 11.3. If the
Participating Party does not proceed with the operation, Unit Operator shall
plug and abandon the well for the account of the Drilling Party. Participating
Parties hereunder that proceed with the operation shall assume all
responsibility for the costs of plugging and abandoning (including reclamation
of the surface) the well and shall pay Salvage Value of the well to any
Non-Participating Party entitled thereto. Each Non-Drilling Party electing to
participate in the Deepening or Plugging Back shall, in addition to those
obligations set forth in this Subdivision F of Section 11.1, be assessed its
share of the Costs of Drilling the proposed well on an Acreage Basis to the
depth at which the Deepening or Plugging Back operation proposed under this
Section 11.1 begins. For the purposes of this Section 11.1, the depth at which
Plugging Back begins shall be the depth at which the Plug Back Completion
attempt occurs. The payment shall be made to the Unit Operator that shall
promptly distribute the monies received to the original Drilling Parties
proportionately on the Acreage Basis under which the well was drilled.

        G.    Rights and Obligations of Participating Party and
Non-Participating Party.    Upon the commencement of a Deepening or Plugging
Back operation otherwise than for the account of all Parties entitled to
participate therein, the provisions of Article 12 shall be applicable to the
operation.

        11.2    Deepening or Plugging Back to Participating Area.    If a well
is to be Deepened or Plugged Back to the depths or formations for which a
participating area was established, the operation, including the Completion of
the well, may be conducted only if it receives the Approval of the Parties
within the participating area, and only upon the terms and conditions as may be
specified in the Approval of the Parties, and upon such further terms and
conditions as may be agreed to by the Parties owning interests in the well
immediately prior to the commencement of the operation.

        11.3    Priority of Operation.    It is agreed that where a well, which
has been authorized under the terms of the Agreement by all Parties, or by one
or more but less than all Parties pursuant to Articles 9 and 12, shall have been
drilled to the objective depth or the objective formation, whichever is deepest,
and the Parties participating in the well cannot agree upon the sequence and
timing of further operations regarding said well, the following elections shall
control in the order enumerated hereafter: (1) an election to do additional
logging, sidewall coring, or testing; (2) an election to attempt to complete the
well at either the objective depth or objective formation; (3) an election to
Plug Back and attempt to complete said well; and (4) an election to Deepen or
undertake additional coring on said well. It is agreed, however, that if at the
time said participating Parties are considering any of the above elections the
hole is in such a condition that a reasonably prudent operator would not conduct
the operations contemplated by the particular election involved for fear of
placing the hole in jeopardy or losing same prior to completing the well in the
objective depth or objective formation, such election shall not be given the
priority hereinabove set forth.

        11.4    [Intentionally Omitted].    

        11.5    Abandonment of a Producing or De-Watering Well Completed in a
Participating Area.    A well completed as a producer of unitized substances or
de-watering well within a participating area

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shall be plugged and abandoned when the operation receives the Approval of the
Parties within the participating area in accordance with Section 14.2, subject,
however, to the provisions of Section 11.7.

        11.6    Abandonment of a Producing or De-Watering Well Not Completed in
a Participating Area.    The abandonment of a well completed as a producer of
unitized substances or de-watering well not within a participating area shall be
governed by the following provisions:

        A.    Consent Required.    The well shall not be plugged and abandoned
without the consent of all Parties then owning interests in the well.

        B.    Abandonment Procedure.    If the abandonment of the well is not
consented to by all Parties then owning interests in the well, Unit Operator
shall give notice thereof to each Party that did not consent thereto. Any
non-consenting Party may elect to take over and continue operations on the well
by giving notice thereof to Unit Operator and all other Parties then having
interests in the well, provided the notice is given within 30 days after receipt
of the notice given by Unit Operator. Each Party electing to take over and
continue operations on the well shall be referred to as a "Non-Abandoning Party"
and the other Parties owning interest in the well shall be referred to as the
"Abandoning Parties." If an election to take over and continue operations on the
well is so made, the Non-Abandoning Party shall forthwith pay to the Abandoning
Parties their respective shares of the Salvage Value of the well. Upon making
the payment, the Abandoning Parties shall be deemed to have relinquished to the
Non-Abandoning Party all their operating rights and working interest in the
well, but only with respect to the depths or formations in which it is then
Completed, and all their interest in the materials and equipment in or
pertaining to the well. If there is more than one Non-Abandoning Party, the
interests so relinquished shall be owned by each Non-Abandoning Party in the
proportion that its respective interest in the well bears to the total of the
interests of each Non-Abandoning Party therein immediately prior to
relinquishment.

        C.    Rights and Obligations of Non-Abandoning Party.    After the
relinquishment as above provided, the well shall be operated by Unit Operator
for the account of the Non-Abandoning Party, that shall own all Production from
the depths or formations in which the well is then completed and shall bear all
Lease Burdens and other burdens thereafter incurred and Costs in operating the
well and plugging it when abandoned (unless the well is taken over for Deepening
or Plugging Back) and also the Costs of any additional tankage, flow lines, or
other facilities needed to measure separately the unitized substances or water
produced from the well. Costs shall include an overhead charge computed at the
highest per well rate applicable to the operation of a single producing well in
accordance with Exhibit 1, if the rate is provided.

        D.    Option to Repurchase Materials.    If a well taken over by the
Non-Abandoning Party is plugged and abandoned within 6 months after
relinquishment by the Abandoning Parties of their interests therein, each
Abandoning Party shall have the right at its option to repurchase that portion
of the materials and equipment salvaged from the well that is equal to the
interest relinquished by it to the Non-Abandoning Party, at the value previously
fixed therefor. The option may be exercised only by notice given to Unit
Operator and to the Non-Abandoning Party within 15 days after receipt of the
notice given by Unit Operator pursuant to Section 11.7.

        11.7    Deepening or Plugging Back Abandoned Producing or De-Watering
Wells.    Before plugging any well authorized to be plugged and abandoned
pursuant to Section 11.5 and Section 11.6, Unit Operator shall give notice to
each Party owning a Committed Working Interest in the tract of land upon which
the well is located, which Parties, for the further purposes of this
Section 11.7, shall constitute the Parties entitled to initiate and participate
in a proposed Deepening or Plugging Back operation. Within 10 days after receipt
of the notice, any such Party desiring to Deepen or Plug Back the well shall
give notice thereof to Unit Operator and to each Party entitled to participate
in the proposed operation; and all the provisions of Subdivisions E, F, and G of
Section 11.1 shall apply in the same manner as if the proposed Deepening or
Plugging Back were a proposal for the Drilling of an

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Exploratory Well, subject, however, to the provisions of Section 11.2 and
Section 11.3. If no such Party gives notice of its desire to Deepen or Plug Back
the well within the 10-day period, or if the notice is given but no Party elects
to proceed with the operation within the time specified therefor, Unit Operator
shall plug and abandon the well for the account of the Party or Parties owning
the well.

ARTICLE 12
RIGHTS AND OBLIGATIONS OF DRILLING PARTY AND NON-DRILLING PARTY

        12.1    Use of Terms.    As used in this Article, the terms "Drilling
Party" and "Non-Drilling Party" shall include "Participating Party" and
"Non-Participating Party," respectively, as such terms are used in Articles 8,
9, and 11.

        12.2    Scope of Article.    The rights and obligations of the Drilling
Party and Non-Drilling Party with respect to any Drilling, Deepening, or
Plugging Back operation conducted otherwise than for the account of all Parties
entitled to participate therein shall be governed by this Article 12.

        12.3    Relinquishment of Interest by Non-Drilling Party.    When any
Drilling, Deepening, or Plugging Back operation is timely conducted otherwise
than for the account of all Parties entitled to participate therein, each
Non-Drilling Party, upon the commencement of the operation, shall be deemed to
have relinquished to the Drilling Party, and the Drilling Party shall own, all
of the Non-Drilling Party's operating rights and working interest in and to the
acreage within the Drilling Block established for the well or wells in which
such operation is being conducted, but limited to the specific depths or
formations in which the well is proposed to be completed or to which the
Deepening or Plugging Back is proposed to be conducted. Upon the commencement of
such operation each Non-Drilling Party shall also be deemed to have relinquished
to the Drilling Party, and the Drilling Party shall own, all of such
Non-Drilling Party's share of Production allocated to the acreage within the
Drilling Block established for such well or wells. If the operation results in
the establishment or enlargement of a participating area to include the well or
wells in which the operation was conducted, then the Non-Drilling Party shall,
promptly upon request from the Drilling Party, execute and deliver to the
Drilling Party an assignment of the Non-Drilling Party's operating rights,
working interest and share of Production so relinquished, free and clear of any
Subsequently Created Interest. If the operation conducted on any well does not
result in the establishment or enlargement of a participating area to include
such well, the Non-Drilling Party shall be deemed to have relinquished, and the
Drilling Party shall own, the interest of the Non-Drilling Party in the wellbore
only and Production from the wellbore for such well, provided, however, that if
such well and the acreage originally allocated to such well within the Drilling
Block are subsequently (but not as a result of further Drilling operations being
conducted on such acreage) added by enlargement to an established participating
area, the Non-Drilling Party shall be deemed to have relinquished, and the
Drilling Party shall own, the interests that would have been relinquished and
owned by such Parties if the original operation on such well had resulted in the
establishment or enlargement of a participating area, effective as of the date
of such subsequent enlargement. In the case of a Deepening or Plugging Back
operation, if a Non-Drilling Party in the operation owned an interest in the
well immediately prior to the Deepening or Plugging Back, then the Drilling
Party for the operation shall pay to such Non-Drilling Party its share of the
Salvage Value of the well, the payment to be made at the time the well is taken
over by the Drilling Party for Deepening or Plugging Back.

        12.4    Rights and Obligations of Drilling Party.    The Drilling Party
for whom a well or wells are Drilled, Deepened, or Plugged Back shall pay and
bear all Costs incurred therein. The Drilling Party shall own all of the
Non-Drilling Party's operating rights and working interest in and to the acreage
within the Drilling Block established for such well or wells in which such
operation is conducted, and shall own all of the Production allocated to such
acreage, but only with respect to those depths or formations to which the well
is Drilled or the Deepening or Plugging Back is conducted. If the well or wells
result in the establishment or enlargement of a participating area to include
the well or wells,

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then the Drilling Party shall own that portion of the Production obtained from
the participating area after the relinquishment that is allocated, from time to
time, to the interest of such Non-Drilling Party in the acreage within the
Drilling Block established for such well or wells and shall be charged with and
pay (a) that portion of the Costs incurred in operating the well or wells that
otherwise would be chargeable to such Non-Drilling Party, (b) all Lease Burdens
that are payable with respect to that portion of the Production from the
participating area that is allocated from time to time to the interest of such
Non-Drilling Party in the acreage within the Drilling Block designated for such
well or wells, and (c) that portion of the Value of the well or wells under
Article 13 that would otherwise be allocated and charged or credited to such
Non-Drilling Party on an Acreage Basis based on all the acreage of such
Non-Drilling Party in the affected Resulting Area (as defined in Subdivision B
of Section 13.1). If the Drilling Party includes two or more Parties, the
burdens imposed upon and the benefits accruing to the Drilling Party shall be
shared by such Parties in the proportion that they elected to bear the
Non-Drilling Party's share of Costs in such well or wells.

        12.5    [Intentionally Omitted].    

        12.6    [Intentionally Omitted].    

        12.7    [Intentionally Omitted].    

        12.8    Stand-By Rig Time.    Stand-by time for the rig on a well for
the period of time allowed for the initiation of a proposal for conducting
further operations therein and for the response thereto shall be charged and
borne as part of the Costs incurred in the operation just completed. Stand-by
time subsequent to the period of time shall be charged to and borne as Costs
incurred in the proposed operation if any Party elects to participate therein;
otherwise as a Cost incurred in the just completed operation.

        12.9    Subsequently Created Interests.    If a Party that creates a
Subsequently Created Interest becomes a Non-Drilling Party with respect to any
operation conducted under this Agreement, then the Drilling Party entitled to
receive the share of Production to which the Non-Drilling Party would otherwise
be entitled shall receive the same free and clear of any such Subsequently
Created Interest. Such Non-Drilling Party shall be solely responsible for any
obligations due under the Subsequently Created Interest and shall hold the
Drilling Party harmless with respect thereto.

ARTICLE 13
ADJUSTMENT ON ESTABLISHMENT OR CHANGE OF PARTICIPATING AREA

        13.1    Definitions.    As used in this Article 13 the following terms
shall have the following meanings:

        A.    "Drilling Party" and "Non-Drilling Party" shall include
"Participating Party" and "Non-Participating Party," respectively.

        B.    "Resulting Area" means the area resulting from the establishment
of a participating area, any revision by contraction or enlargement of the
participating area, or the combination of two or more participating areas.

        C.    "Usable Well" means a well within a Resulting Area that is either
(1) completed in and capable of producing unitized substances from the depths or
formations for which the Resulting Area was created or (2) used as a de-watering
well, disposal well, injection well, monitoring well, or otherwise in connection
with the production of unitized substances or de-watering from such Resulting
Area. For the purposes of this Article 13, all Costs of a Usable Well shall be
deemed to have been incurred on the date the well was Completed.

        D.    "Intangible Value" of a Usable Well within a Resulting Area means
all Costs that contribute to the production of unitized substances from the
Resulting Area, that were incurred in

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Drilling, Completing, and Equipping the well, down to the deepest depth or
formation for which such Resulting Area was created, and that are properly
classified as intangible costs in conformity with accounting practices generally
accepted in the industry. Such Costs shall be reduced at the following rates for
each month during any part of which the well was operated prior to the Effective
Date of such Resulting Area.

        1.    .50% per month for a cumulative total of 60 months, and

        2.    None per month for each month in excess of the cumulative total.

        E.    "Tangible Property" means any kind of tangible personal property
(whether or not in or pertaining to a well) serving a Resulting Area that has
been acquired for use in connection with the production of unitized substances
or de-watering from such Resulting Area or any portion thereof when the cost of
the property has been charged as Costs pursuant to this Agreement.

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        F.    "Tangible Value" means the Costs incurred in the construction or
installation of Tangible Property (except installation costs properly classified
as intangible costs incurred in connection with a well), reduced, in the case of
depreciable Tangible Property (as determined by generally accepted accounting
practices), at the rate of .50% per month for each month during any part of
which the well has been operated prior to the Effective Date of such Resulting
Area.

        G.    "Effective Date" of a Resulting Area is the date the
establishment, revision, or combination of a participating area creating such
Resulting Area becomes effective under the Unit Agreement.

        H.    "Excluded Interest" means a Committed Working Interest in land
excluded from a participating area by contraction of the participating area.

        I.    "Value" of a Usable Well is the sum of the Intangible Value of the
well and the Tangible Value of the Tangible Property in or pertaining thereto.

        13.2    When Adjustment Made.    Whenever a Resulting Area occurs under
the Unit Agreement, an adjustment shall be made in accordance with the
provisions of this Article 13, as of the Effective Date of such Resulting Area.

        13.3    Method of Adjustment on Establishment or Enlargement of a
Participating Area.    As promptly as reasonably practicable after the Effective
Date of a Resulting Area created by the establishment or enlargement of a
participating area or the combination of two or more participating areas, and
effective as of the Effective Date, an adjustment shall be made as follows:

        A.    The Intangible Value of each Usable Well within such Resulting
Area on the Effective Date thereof shall be credited proportionately to each
Party owning an interest in the well immediately prior to the Effective Date.
Except as provided in Section 13.6, the Intangible Value of each Usable Well
shall be charged to all Parties within the Resulting Area on an Acreage Basis.

        B.    The Tangible Value of each item of Tangible Property serving the
Resulting Area on the Effective Date thereof shall be credited proportionately
to the Parties owning the item immediately prior to the Effective Date. Except
as provided in Section 13.6, the Tangible Value of the Tangible Property serving
the Resulting Area shall be charged to all Parties within the Resulting Area on
an Acreage Basis.

        C.    If a Resulting Area, on the Effective Date thereof, is served by
any Tangible Property or Usable Well that also serves a participating area not
included in the Resulting Area, the Tangible Value of such Tangible Property and
the Intangible Value of such Usable Well shall be apportioned between such
Resulting Area and the participating area; provided the apportionment receives
the Approval of the Parties in the Resulting Area and the participating area.
That portion of the Tangible Value of such Tangible Property and the Intangible
Value of such Usable Well that is apportioned to the Resulting Area shall be
included in the adjustment made as of the Effective Date of such Resulting Area
in the same manner as is the Tangible Value of Tangible Property serving only
the Resulting Area.

        D.    Separate adjustments shall be made by Unit Operator in the above
credits and charges for (i) the Intangible Value of each Usable Well and
(ii) the Tangible Value of Tangible Property. On each adjustment, each Party
that is charged an amount in excess of the amount credited to it shall pay to
Unit Operator the amount of the excess, which shall be considered as Costs
chargeable to such Party for purposes of this Agreement. Each such amount
received by Unit Operator shall be distributed or credited to the Parties
entitled to credits in excess of charges. Notwithstanding the foregoing, a
Non-Participating Party shall not be entitled to receive payment for any
adjustment made as a result of such Party's election not to participate in
Drilling,

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Deepening, or    Plugging Back Operations, and no Participating Party shall be
obligated to make payment for any such adjustment.

        13.4    Method of Adjustment on Contraction of a Participating
Area.    As promptly as reasonably practicable after the Effective Date of a
Resulting Area created by contraction of a participating area, an adjustment
shall be made for each Party that owns an Excluded Interest as follows:

        A.    Separate adjustments for Intangible Value and Tangible Value shall
be made in accordance with Section 13.4.B and Section 13.4.C.

        B.    Credits and charges with respect to Intangible Value shall be as
follows: (1) each Party that owns an Excluded Interest shall be credited with
the sum of (a) the total charges against such Party with respect to such
Excluded Interest, pursuant to the provisions of Exhibit 1, as intangible Costs
incurred in the development and operation of the participating area prior to the
Effective Date of such Resulting Area, and (b) the total charges against such
Party with respect to such Excluded Interest as Intangible Value of each Usable
Well in the Resulting Area in any previous adjustment or adjustments made upon
the establishment or revision of the participating area; and (2) each Party that
owns an Excluded Interest shall be charged with the sum of (a) the proceeds
received from the sale of, or market value of, that portion of the Production
from the participating area which, prior to the Effective Date of the
contraction, was delivered to such Party with respect to such Excluded Interest,
less the amount of Lease Burdens and taxes paid or payable on said portion of
Production, and (b) the total amount credited to such Party with respect to such
Excluded Interest as Intangible Value of each Usable Well in any previous
adjustment. Any difference between the amount of the charge and the amount of
the credit shall be adjusted as hereinafter provided.

        C.    Credits and charges with respect to Tangible Value shall be as
follows: (1) each Party that owns an Excluded Interest shall be credited with
the sum of (a) the total amount theretofore charged against such Party with
respect to such Excluded Interest, pursuant to the provisions of Exhibit 1, as
Costs other than intangible Costs incurred in the development and operation of
the participating area prior to the effective date of the contraction, (b) the
total amount charged against such Party with respect to its Excluded Interest as
Tangible Value of Tangible Property in any previous adjustment or adjustments
made upon the establishment or revision of the participating area, and (c) the
excess, if any, of the credit provided for in Subdivision B of this Section 13.4
over the charge provided for therein; and (2) each Party that owns an Excluded
Interest shall be charged with the sum of (a) the excess, if any, of the charge
provided for in Subdivision B of this Section 13.4 over the credit provided for
therein, and (b) the total amount credited to such Party with respect to its
Excluded Interest as Tangible Value of Tangible Property in any previous
adjustment or adjustments made upon the establishment or revision of the
participating area.

        D.    If the charge provided for in Subdivision C of this Section 13.4
is equal to or greater than the credit provided for therein, no adjustment shall
be made with respect to such Party. If, however, the credit provided for in
Subdivision C of Section 13.4 is in excess of the charge provided for therein,
the excess shall be charged on an Acreage Basis against the Committed Working
Interests of the Parties that remain in the participating area after the
contraction and shall be paid by the owners of such Committed Working Interests
to Unit Operator upon receipt of invoices therefor. The payments received by
Unit Operator shall be paid or credited to the owner of such Excluded Interest.

        13.5    Ownership of Wells and Tangible Property.    From and after the
Effective Date of a Resulting Area, all Usable Wells within the Resulting Area
and all Tangible Property serving the Resulting Area shall be owned by the
Parties owning Committed Working Interests in the Resulting Area on an Acreage
Basis, except that, in the case of Tangible Property serving a participating
area in

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addition to the participating area constituting the Resulting Area, only that
undivided interest in such Tangible Property which is proportionate to that
portion of the Tangible Value thereof included in the adjustment made when the
Resulting Area occurred shall be owned by the Parties owning Committed Working
Interests in the Resulting Area on an Acreage Basis.

        13.6    [Intentionally Omitted].    

        13.7    [Intentionally Omitted].    

ARTICLE 14
SUPERVISION OF OPERATIONS BY PARTIES

        14.1    Right of Supervision.    Each operation conducted by Unit
Operator under this Agreement or the Unit Agreement shall be subject to
supervision and control by the Parties that are chargeable with the Costs
thereof in accordance with the succeeding provisions of this Article 14.

        14.2    Voting Control.    In the supervision of an operation conducted
by Unit Operator, the Parties chargeable with the Costs of the operation shall
have the right to vote in proportion to their respective obligations for such
Costs. The Parties having the right to vote on any other matter shall vote
thereon on an Acreage Basis. Except as provided for in the Unit Agreement and
except as otherwise specified in this Agreement the affirmative vote of Parties
having 65% or more of the voting power on any matter that is proper for action
by them shall be binding upon all Parties entitled to vote thereon; provided,
however, if one Party voting in the affirmative has 65% or more but less than
75% of the voting power, the affirmative vote of such Party shall not be binding
upon the Parties entitled to vote thereon unless its vote is supported by the
affirmative vote of at least one additional Party; and provided further, that if
one Party voting in the negative or failing to vote has more than 35% but less
than 50% of the voting power, the affirmative vote of the Parties having a
majority of the voting power shall be binding upon all Parties entitled to vote
unless there is a negative vote of at least one additional Party. In the event
only two Parties are entitled to vote, the vote of the one with the greater
interest shall prevail. If only one Party is entitled to vote, such Party's vote
shall control. A Party failing to vote shall not be deemed to have voted either
in the affirmative or in the negative. Any Approval or Direction of the Parties
provided for in this Agreement which receives the affirmative vote above
specified shall be deemed given by and shall be binding upon all Parties
entitled to vote thereon, except where the vote of a larger percentage is
specifically required.

        14.3    Meetings.    Any matter that is proper for consideration by the
Parties, or any of them, may be considered at a meeting held for that purpose. A
meeting may be called by Unit Operator at any time, and a meeting shall be
called by Unit Operator upon written request of any Party having voting power on
any matter to be considered at the meeting. At least 10 days in advance of each
meeting, Unit Operator shall give each Party entitled to vote at such meeting
notice of the time, place, and purpose of the meeting. Unit Operator's
representative shall be the Chairman of the meeting. Any Party that is not
represented at a meeting may vote on any agenda item by notice delivered to Unit
Operator prior to the vote at the meeting.

        14.4    Action Without Meeting.    In lieu of calling a meeting, Unit
Operator may submit any matter that is proper for consideration by the Parties,
or any of them, by giving to each Party notice, describing in adequate detail
the matter so submitted. Each Party entitled to vote on any matter so submitted
shall communicate its vote thereon to Unit Operator within the period as may be
designated in the notice given by Unit Operator (which period shall be not less
than 10 nor more than 30 days); provided, however, if, within 10 days after
submission of the matter, request is made for a meeting in accordance with
Section 14.3, the matter shall be considered only at a meeting called for that
purpose. If a meeting is not required, then, at the expiration of the period
designated in the notice given by it,

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Unit Operator shall give to each Party entitled to vote thereon notice, stating
the tabulation and result of the vote.

        14.5    Representatives.    Promptly after execution of this Agreement,
each Party, by notice to all other Parties, shall designate a representative
authorized to vote for such Party and may designate an alternate authorized to
vote for such Party in the absence of its representative. Any designation of a
representative or alternate representative may be revoked at any time by notice
given to all other Parties, provided the notice designates a new representative
or alternate representative, as the case may be.

        14.6    Audits.    Audits may be made of Unit Operator's records and
books of account pertaining to operations hereunder, as provided in Exhibit 1.

        14.7    Extraneous Projects.    Nothing contained in this Agreement
shall be deemed to authorize the Parties, by vote or otherwise, to act upon any
matter or to authorize any expenditure unless the matter or expenditure relates
to the conduct of operations authorized by the Unit Agreement or this Agreement.

        14.8    Treatment of Carried Interests.    If any working interest shown
on Exhibit B to the Unit Agreement and committed thereto is a carried working
interest, such interest shall, if the carrying Party executes this Agreement, be
deemed to be, for the purpose of this Agreement, a Committed Working Interest
owned by the carrying Party.

ARTICLE 15
UNIT OPERATOR'S POWERS AND RIGHTS

        15.1    General Powers and Rights of Unit Operator.    Subject to the
limitations set forth in this Agreement, all operations authorized by the Unit
Agreement and this Agreement shall be conducted by Unit Operator as an
independent contractor. In the performance of its services under this Agreement,
Unit Operator shall be an independent contractor not subject to the control or
direction of the other Parties except as to the type of operation to be
undertaken in accordance with the election procedures contained in this
Agreement. Unit Operator shall not be deemed, or hold itself out as, the agent
of the other Parties with authority to bind them to any obligation or liability
assumed or incurred by Unit Operators as to any third party. Unit Operator shall
have exclusive custody of all materials, equipment, and any other property used
in connection with any operation within the Unit Area.

        15.2    Employees.    All individuals employed by Unit Operator in the
conduct of operations hereunder shall be the employees of Unit Operator alone;
and their working hours, rates of compensation, and all other matters relating
to their employment shall be determined solely by Unit Operator.

        15.3    Non-Liability.    Unit Operator shall not have any liability as
Unit Operator to the other Parties hereto for losses sustained or liabilities
incurred except as may result from gross negligence or willful misconduct.

        15.4    Advances.    Unit Operator, at its election, shall have the
right from time to time to demand and receive from the Parties chargeable
therewith payment in advance of their respective shares of the estimated amount
of Costs to be incurred during any month, which right may be exercised only by
submission to each such Party of a properly itemized statement of such estimated
Costs, together with an invoice for its share thereof. Each statement and
invoice for the payment in advance of estimated Costs for any month shall be
submitted on or about the twentieth day of the next preceding month. The amount
of each invoice shall be payable within 30 days after receipt thereof and
thereafter shall bear interest at the annual rate provided in Exhibit "1"
attached hereto until paid. Proper adjustment shall be made monthly between the
advances and Costs, to the end that each Party shall bear and pay its
proportionate share of Costs incurred and no more. Unit Operator may request
advance payment or

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security for the total estimated Costs to be incurred in a particular Drilling,
Deepening, Plugging Back, or Completing operation and, notwithstanding any other
provisions of this Agreement, shall not be obligated to commence the operation
unless and until the advance payment is made or Unit Operator is furnished
security acceptable to it for the payment by the Party or Parties chargeable
therewith.

        15.5    Use of Unit Operator's Drilling Equipment.    Any Drilling,
Deepening or Plugging Back operation conducted hereunder may be conducted by
Unit Operator with its own tools and equipment, provided that the rates to be
charged and the applicable terms and conditions are set forth in a drilling
contract that receives the Approval of the Party or Parties chargeable with the
Costs of the operation, except that in any case where Unit Operator alone
constitutes the Drilling Party, Unit Operator shall obtain the Approval of the
Parties within the participating area or other designated area for the well
prior to the commencement of the operation.

        15.6    Rights as Party. As an owner of a Committed Working Interest,
the Party acting as Unit Operator shall have the same rights and obligations
hereunder as if it were not Unit Operator. In each instance where this Agreement
requires or permits a Party to give notice, consent, or approval to Unit
Operator, the notice, consent or approval shall be deemed properly given by the
Party acting as Unit Operator if and when given to all other Parties entitled to
give or receive the notice, consent, or approval.

ARTICLE 16
UNIT OPERATOR'S DUTIES

        16.1    Specific Duties.    In the conduct of operations hereunder, Unit
Operator shall:

        A.    Conduct.    Conduct its activities under this Agreement as a
reasonable prudent operator, in a good and workmanlike manner, with due
diligence and dispatch, in accordance with good oilfield practice;

        B.    Drilling of Wells.    Drill, Deepen, Plug Back, or Complete a well
or wells only in accordance with the provisions of this Agreement;

        C.    Compliance with Laws and Agreements.    Comply with the provisions
of the Unit Agreement, all applicable laws and governmental regulations (whether
Federal, State, or local), and Directions of the Parties pursuant to this
Agreement. In case of conflict between Directions of the Parties and the
provisions of the Unit Agreement or such laws or regulations, the provisions of
the Unit Agreement or such laws or regulations shall govern;

        D.    Consultation with Parties.    Consult freely with the Parties
within the area affected by any operation hereunder and keep them advised of all
matters arising in operations hereunder which Unit Operator deems important, in
the exercise of its best judgment;

        E.    Payment of Costs.    Pay all Costs incurred in operations
hereunder promptly as and when due and payable and keep the Committed Working
Interests and all property used in connection with operations under this
Agreement free from liens which may be claimed for the payment of such Costs,
except any lien which it disputes, in which event Unit Operator may contest the
disputed lien upon giving notice thereof to the Parties affected thereby;

        F.    Records.    Maintain complete and accurate records (1) of all
Costs incurred and of all controllable materials and equipment, which records,
and receipts and vouchers in support thereof, shall be available for inspection
by authorized employees or agents of the Parties at reasonable intervals during
normal business hours at the office of Unit Operator, and (2) showing the
monthly and cumulative gas volumes produced from each participating area in the
Unit and the monthly and cumulative gas volumes taken for each Party's account
from each participating area in the

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Unit, which records shall be available for inspection by authorized employees or
agents of the Parties at reasonable intervals during normal business hours at
the office of Unit Operator;

        G.    Information.    Furnish promptly to each Party chargeable with
Costs of the operation involved (1) copy of Unit Operator's authorizations for
expenditures or itemizations of estimated expenditures in excess of $25,000,
(2) copies of all drilling reports, well logs, and State and Federal reports,
(3) samples of cores and cuttings taken from wells Drilled hereunder, to be
delivered at the well in containers furnished by the Party requesting same, and
(4) such other and additional information or reports as may be required by
Direction of the Parties within the area affected. If multiple copies of any
materials are requested by any Party, Unit Operator may charge the cost thereof
directly to the requesting Party;

        H.    Access to Unit Area.    Permit each Party who is chargeable with
Costs of the operations involved, through its authorized employees or agents,
but at such Party's sole risk and expense, to have access to the Unit Area at
all times, including the derrick floor of each well Drilled, Deepened, Plugged
Back, or Completed or being Drilled, Deepened, or Plugged Back hereunder, for
the purpose of observing operations conducted hereunder and inspecting
materials, equipment, or other property used in connection with operations under
this Agreement and to have access at reasonable times to information and data in
the possession of Unit Operator concerning Unit operations;

        I.    Scheduling and Delivery of Gas Production Taken In Kind.    To the
extent not addressed in a gas balancing agreement, whether attached as Exhibit 6
or a separate agreement, if any, comply with the reasonable requests of the
Parties regarding the nomination, scheduling, delivery, and reporting of gas
Production that a Party desires to take in kind. Unit Operator shall be required
to follow only those requests that are consistent with the rights of the Party
making such requests. Notwithstanding the foregoing, Unit Operator shall not be
required to assume any duties or obligations or incur additional liabilities in
relation to any person buying, shipping or transporting Production; and

        J.    Notice of First Gas Sale From Each Well.    Give notice to all
Parties of the first sale of gas from each well operated under the terms of this
Agreement.

        16.2    Insurance.    

        A.    Unit Operator.    Unit Operator shall comply with the worker's
compensation law of the state in which the Unit Area is located. Unit Operator
shall also maintain in force at all times with respect to operations hereunder
such other insurance, if any, as may be required by law. In addition, Unit
Operator shall maintain such other insurance, if any, as is described in
Exhibit 3 or as receives the Approval of the Parties from time to time. Unit
Operator shall carry no other insurance for the benefit of the Parties, except
as above specified. Upon request of any Party, Unit Operator shall furnish
evidence of insurance carried by it with respect to operations hereunder.

        B.    Contractors.    Unit Operator shall require all contractors
engaged in operations under this Agreement to comply with the worker's
compensation law of the state in which the Unit Area is located and to maintain
such other insurance as may be required by Unit Operator or at Direction of the
Parties.

        C.    Automotive Equipment.    In the event Automobile Public Liability
insurance is specified in Exhibit 3 or subsequently receives the Approval of the
Parties, no direct charge shall be made by Unit Operator for premiums paid for
such insurance for Unit Operator's automotive equipment.

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        16.3    Regulatory Compliance.    In connection with the performance of
work under this Agreement, Unit Operator agrees to comply with the provisions of
Exhibit 4. Unit Operator agrees to insert such provisions in all contracts and
subcontracts hereunder, as required by law or regulation.

        16.4    Drilling Contracts.    Each Drilling, Deepening, Plugging Back,
or Completing operation conducted hereunder, and not performed by Unit Operator
with its own equipment in accordance with Section 15.5, shall be performed by a
reputable drilling contractor having suitable equipment and personnel, under
written contract between Unit Operator and the contractor, at the most favorable
rates and on the most favorable terms and conditions bid, if bids were obtained,
but otherwise at rates and on terms and conditions receiving the Approval of the
Parties.

        16.5    Uninsured Losses.    Any and all payments made by Unit Operator
in the settlement or discharge of any liability to third persons (whether or not
reduced to judgment) arising out of an operation conducted hereunder and not
covered by insurance herein provided for shall be charged as Costs and borne by
the Party or Parties for whose account the operation was conducted.

ARTICLE 17
LIMITATIONS ON UNIT OPERATOR

        17.1    Specific Limitations on Unit Operator.    In the conduct of
operations hereunder, Unit Operator shall not, without first obtaining the
Approval of the Parties:

        A.    Change in Operations.    Make any substantial change in the basic
method of operation of any well, except in the case of an emergency.

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        B.    Limit on Expenditures.    Undertake any project reasonably
estimated to require an expenditure in excess of $25,000; provided, however,
that (1) Unit Operator is authorized to make all usual and customary operating
expenditures that are required in the normal course of producing operations,
(2) whenever Unit Operator is authorized to conduct a Drilling, Deepening, or
Plugging Back operation, or to undertake any other project in accordance with
this Agreement, Unit Operator shall be authorized to make all reasonable and
necessary expenditures in connection therewith, and (3) in case of emergency,
Unit Operator may make such immediate expenditures as may be necessary for the
protection of life or property, but notice of the emergency shall be given to
all Parties as promptly as reasonably practicable.

        C.    Partial Relinquishment.    Make any partial relinquishment of its
rights as Unit Operator, appoint any sub-operator, or execute any Designation of
Agent.

        D.    Settlement of Claims.    Pay in excess of $25,000 in settlement of
any claim (other than worker's compensation claims) for injury to or death of
persons or for loss of or damage to property.

        E.    Determinations.    Make any of the determinations provided in the
Unit Agreement to be made by Unit Operator, except as otherwise specified in
this Agreement.

        17.2    Resignation or Removal and Selection of a Successor Unit
Operator.    The following provisions shall govern the resignation or removal of
Unit Operator and the selection of a successor:

        A.    Resignation.    Unit Operator may resign at any time either prior
to or after the establishment of a participating area upon compliance with the
provisions of Section 5 of the Unit Agreement. If Unit Operator terminates its
legal existence, no longer owns a Committed Working Interest in the Unit Area,
or is no longer capable of serving as Unit Operator, Unit Operator shall be
deemed to have resigned without any action of the other Parties, except the
selection of a successor, and Unit Operator shall, and any Party may, give
notice of the resignation to the Authorized Officer as provided in Section 5 of
the Unit Agreement.

        B.    Removal.    Upon default or failure in performance of its duties
or obligations under the Unit Agreement, Unit Operator may be removed by the
Approval of the Parties after excluding the voting interest of the Unit
Operator, and the Parties shall, or any Party may, promptly give written notice
to the Unit Operator of such Approval of the Parties to remove the Unit Operator
detailing the default or failure in performance. If Unit Operator fails to cure
the default or failure within 30 days from its receipt of the notice or, if the
default or failure concerns an operation then being conducted, within 48 hours
of its receipt of the notice, Unit Operator shall be removed without any further
action on behalf of the Parties and any Party may give notice thereof to the
Authorized Officer as provided in Section 5 of the Unit Agreement. If, however,
Unit Operator cures the default or failure within the applicable period, Unit
Operator shall be deemed reinstated, and the Approval of the Parties shall be of
no force or effect.

        C.    Selection of Successor.    Upon the resignation or removal of Unit
Operator under any provision of this Agreement or the Unit Agreement, a
successor Unit Operator shall be selected by the Approval of the Parties;
provided, however, if a Unit Operator that has been removed or is deemed to have
resigned but owns a Committed Working Interest fails to vote or votes only to
succeed itself, the successor Unit Operator shall be selected by the Approval of
the Parties after excluding the voting interest of the Unit Operator that was
removed or deemed to have resigned. The selection of the successor Unit Operator
shall become effective upon compliance with the requirements of Section 6 of the
Unit Agreement.

        D.    Effect of Bankruptcy.    If Unit Operator becomes insolvent,
bankrupt or is placed in receivership, it shall be deemed to have resigned
without any action by the Parties, except the selection of a successor. If a
petition for relief under the bankruptcy laws is filed by or against

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Unit Operator, and the removal of Unit Operator is prevented by the bankruptcy
laws, all Parties including Unit Operator shall, subject to approval of the
Authorizing Officer, comprise an interim operating committee to serve until Unit
Operator has elected to reject or assume this Agreement pursuant to the
bankruptcy laws. An election to reject this Agreement by Unit Operator as a
debtor in possession, or by a trustee in bankruptcy, shall be deemed a
resignation as Unit Operator without any action by the other Parties, except the
selection of a successor.

        E.    Appointment of Common Agent.    In the event Unit Operator resigns
or is removed after establishment of a participating area, a common agent shall
be appointed by the Approval of the Parties to represent them in any action to
be taken under the Unit Agreement prior to the acceptance of a successor by the
Authorizing Officer as provided in the Unit Agreement; provided, however, if a
Unit Operator that has been removed or has resigned fails to vote or votes only
for itself as common agent, the common agent shall be appointed by the Approval
of the Parties after excluding the voting interest of the Unit Operator that was
removed or deemed to have resigned.

ARTICLE 18
TITLES

        18.1    Representation of Ownership.    Each Party represents to all
other Parties that, to the best of its knowledge and belief, its ownership of
Committed Working Interests in the Unit Area is that set out in Exhibit B to the
Unit Agreement. If it develops that the ownership is incorrectly stated, the
rights and responsibilities of the Parties shall be governed by the provisions
of this Article 18, but the incorrect statement shall not be a cause for
canceling or terminating this Agreement.

        18.2    Title Papers to be Furnished.    

        A.    Lease Papers.    Upon Unit Operator's request, each Party, after
executing this Agreement, shall promptly furnish Unit Operator with copies of
all leases, assignments, options, and other contracts which it has in its
possession relating to title to its Committed Working Interests.

        B.    Title Papers for Pilot Wells.    Within 30 days after the
effective date of this Agreement each Party within the area described as the
title examination area in Exhibit 2 shall, at its own expense but without
responsibility for the accuracy thereof, furnish Unit Operator with the
following title materials then in its possession or control relating to all
lands within such area in which it owns Committed Working Interests:

          (i)  Abstracts of title based upon the County records;

        (ii)  All lease papers, or copies thereof, mentioned in Subdivision A of
this Section 18.2 which the Party has in its possession and which have not been
previously furnished to Unit Operator;

        (iii)  Copies of any title opinions which the Party has in its
possession;

        (iv)  If Federal lands are involved, status reports, setting forth the
entries found in the BLM State Office for such lands, and also certified copies
of the serial register pages and case abstracts for the Federal leases involved;

        (v)  If State lands are involved, status reports, setting forth the
entries found in the State records for such lands; and

        (vi)  If Indian lands are involved, status reports, setting forth the
entries found in the Bureau of Indian Affairs Agency Realty Office having
jurisdiction over such lands and in the Bureau of Indian Affairs Land Titles and
Records Office having jurisdiction over such lands.

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        C.    Title Papers for Subsequent Wells.    Any Party that proposes the
Drilling of a Subsequent Test Well or Exploratory Well or Wells shall, at the
time of giving notice for the proposed well or wells, designate a title
examination area not exceeding the Drilling Block designated for such well or
wells under Subdivision A of Section 9.2. When the Drilling of a Development
Well receives the Approval of the Parties within the participating area in which
it is to be Drilled, a title examination area covering lands outside any
participating area may be designated by the Approval of said Parties. Within
30 days of the designation or Approval, each Party within the title examination
area shall, at its own expense, furnish Unit Operator with the title materials
listed in Subdivision B of this Section 18.2 not previously furnished, relating
to all lands within the area in which it owns Committed Working Interests.

        D.    Title Papers on Establishment or Enlargement of a Participating
Area.    Within 30 days after the establishment or the enlargement of a
participating area, each Party shall furnish Unit Operator all the title
materials in its possession or control listed in Subdivision B of this
Section 18.2 not previously furnished, relating to all its Committed Working
Interests in the lands lying within the participating area as established or
enlarged.

        18.3    Title Examination.    Promptly after all title materials
delivered pursuant to Section 18.2 have been received, Unit Operator shall
deliver the same to an attorney or attorneys approved by the Parties within the
title examination area. At the expiration of the 30-day period in which the
Parties are required to furnish materials pursuant to Section 18.2, the Unit
Operator shall obtain any title materials not so furnished by the Parties
necessary or convenient for the examination of title. All costs of obtaining
such title materials shall be borne by the Party or Parties owning the Committed
Working Interest to which the title materials relate on a tract basis. Unit
Operator shall arrange to have such title materials examined promptly by the
attorney or attorneys and shall distribute copies of title opinions to all
Parties within the title examination area as soon as they are received. Each
Party shall be responsible, at its expense, for curing its own titles. After a
reasonable time, not exceeding 30 days from the distribution of the title
opinions, has been allowed for any necessary curative work, Unit Operator shall
submit to each Party written recommendations for approval or disapproval of the
title to each Committed Working Interest involved, and thereafter the Parties
shall advise Unit Operator in writing, within 15 days after receipt of the
recommendations, of approval or disapproval of titles. A Party's failure to
respond to Unit Operator's recommendations within such 15 day period shall be
deemed to constitute an approval of such recommendations by the non-responding
Party.

        18.4    Option for Additional Title Examination.    Any Party that
furnishes materials for title examination pursuant to Section 18.2 shall have
the right to examine all materials furnished Unit Operator. If additional,
independent title examination is elected, it shall be at the sole cost and
expense of the Party electing to perform the same; and such Party shall bear any
expense that may be necessary to reproduce title materials for its use, if
required. Whether or not additional title examination is elected, each Party
shall have the right to approve or disapprove titles according to the provisions
of this Article 18.

        18.5    Approval of Titles Prior to Drilling.    Where the Committed
Working Interests within a title examination area are owned by more than one
Party, no Drilling shall be conducted in the area until titles to the Committed
Working Interests therein have received the Approval of the Parties as
hereinafter in this Section 18.5 provided. If a Drilling Block has been
designated for the Drilling of a well or wells, the well or wells shall not be
Drilled until titles to the Committed Working Interests within the title
examination area established for the well or wells have received the Approval of
the Parties within the Drilling Block for the well. Approval of title to lands
within a Drilling Block shall be binding upon all Parties owning Committed
Working Interests within the Drilling Block. If lands outside a participating
area are included in the title examination area for a Development Well or Wells,
the well or wells shall not be Drilled until titles to the Committed Working
Interests within the title examination area have received the Approval of the
Parties therein. A Party's failure to respond to any

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request for Approval of the Parties on titles to any lands pursuant to this
Section 18.5 within the period provided in the applicable notice shall be deemed
to constitute an approval of such request by the non-responding Party. In the
event Approval of the Parties is not obtained as provided in this Section 18.5,
the Drilling Party (whether one or more) may proceed with the Drilling of the
well or wells; but such Drilling Party (a) shall, by so proceeding, assume all
risk attending the failure to obtain such approval to the same extent as if
approval of titles to all lands within the Drilling Block (if one has been
established) or within the title examination area (in all other instances) had
been obtained, and (b) shall also be deemed to constitute an approval of titles
to all lands within the Drilling Block (if one has been established) or within
the title examination area (in all other instances).

        18.6    Approval of Titles Prior to Inclusion of Land in a Participating
Area.    Where the Committed Working Interests within a participating area are
owned by more than one Party, no Committed Working Interest shall be included
within the participating area or be entitled to participate in the Production of
unitized substances from the participating area until title to such Committed
Working Interest has received the Approval of the Parties within the
participating area. A Party's failure to respond to a request for Approval of
the Parties on title to such lands within the period provided within the
applicable notice shall be deemed to have given its approval. Approval of titles
to lands within a participating area shall be binding upon all Parties within
the participating area and all Parties coming within such participating area
upon any enlargement thereof.

        18.7    Failure of Title to Committed Working Interest Before
Approval.    If title to a Committed Working Interest shall fail in whole or in
part prior to receiving the Approval of the Parties, the Parties that improperly
claimed the interest shall sustain the entire loss occasioned by the failure of
title and do hereby expressly relieve and indemnify Unit Operator and all other
Parties from and against any and all liability on account thereof.

        18.8    Failure of Title to Committed Working Interest After
Approval.    If title to a Committed Working Interest which has received the
Approval of the Parties under Section 18.5 fails in whole or in part at a time
when the tract affected thereby is within an active Drilling Block or within a
Drilling Block upon which a well or wells have been completed otherwise than as
a producer of unitized substances or de-watering well, or if title to a
Committed Working Interest which has received the Approval of the Parties under
Section 18.6 fails in whole or in part at a time when the tract affected thereby
is within a participating area, then:

        A.    The loss, the cost of litigation, and any ensuing liability shall
be borne by the Parties having interests in the affected participating area or
Drilling Block (including the Party whose Committed Working Interest has been
lost and including the acreage of such Committed Working Interest);

        B.    There shall be relinquished to the Party whose Committed Working
Interest has been lost the proportionate part of each of the other Committed
Working Interests in the lands within the affected participating area or
Drilling Block, subject to a like proportion of their respective Lease Burdens,
as may be necessary to make the loss of such Committed Working Interest a joint
loss of the Parties within the participating area or Drilling Block; and

        C.    The relinquished portions of said Committed Working Interests
(subject to their proportionate part of the Lease Burdens attributable thereto)
shall be deemed owned by the Party receiving same.

        18.9    Joinder by True Owner.    If title to a Committed Working
Interest fails in whole or in part, such Committed Working Interest shall no
longer be subject to this Agreement or the Unit Agreement. The true owner of a
Committed Working Interest, title to which has failed, may join in this
Agreement or enter into a separate Operating Agreement with the Parties to this
Agreement upon such terms and

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conditions as receive the Approval of the Parties within the Unit Area and
subject to any valid claims by the true owner.

        18.10    Title Challenge.    In the event of any suit or action
challenging the title of any Party to any of the oil and gas rights committed by
such Party to this Agreement and to the Unit Agreement, the Party served will
immediately notify the other Parties, and the Party whose title has been
challenged shall forthwith take over and be in charge of the conduct of the
litigation and shall bear the entire cost of the litigation, unless the title
has previously received the Approval of the Parties, in which event the
provisions of Section 18.8 shall apply.

ARTICLE 19
UNLEASED INTERESTS

        19.1    Treated as Leased.    If a Party owns in fee all or any part of
the oil and gas rights in any tract within the Unit Area which is not subject to
any oil and gas lease or other contract in the nature thereof, such Party shall
be deemed to own a Committed Working Interest in such tract and also a royalty
interest therein in the same manner as if such Party's oil and gas rights in
such tract were covered by the form of oil and gas lease attached as Exhibit 5.

        19.2    Execution of Lease.    In any provision of this Agreement where
reference is made to an assignment or conveyance by any Party of its Committed
Working Interest to any other Party, each such reference as to any Party owning
an unleased interest shall be interpreted to mean that such Party shall execute
an oil and gas lease to such other Party in the form of Exhibit 5, that shall
satisfy the requirement for an assignment or conveyance of a Committed Working
Interest.

ARTICLE 20
RENTALS

        20.1    Rentals.    Subject to Section 6.8 of Article 6 hereof, each
Party shall be obligated to pay any and all rentals and other sums (other than
Lease Burdens) payable upon or with respect to its Committed Working Interests,
subject, however, to the right of each Party to surrender any of its Committed
Working Interests in accordance with Article 27. Upon request, each Party shall
furnish to Unit Operator satisfactory evidence of the making of the payments. No
Party, however, shall be liable to any other Party for unintentional mistake,
nor failure to make any such payment, provided it has acted in good faith.

        20.2    Loss of Committed Working Interest.    If a Committed Working
Interest is lost through failure to make any payment above provided to be made
by the Party owning the same, the loss shall be borne entirely by such Party;
provided, however, if the Committed Working Interest so lost covers land within
a participating area, the provisions of Section 18.8 shall apply.

ARTICLE 21
TAXES

        21.1    Payment.    Any and all ad valorem and severance taxes payable
upon Committed Working Interests (and upon Lease Burdens which are not payable
by the owners thereof) or upon materials, equipment, or other property acquired
and held by Unit Operator hereunder, and any and all taxes (other than income
taxes) upon or measured by unitized substances produced from the Unit Area which
are not payable by the purchaser or purchasers thereof or by the owner of Lease
Burdens shall be paid by Unit Operator as and when due and payable.

        21.2    Apportionment.    Taxes upon materials, equipment, and other
property acquired and held by Unit Operator hereunder shall be charged to and
borne by the Parties owning the same in proportion to their respective interests
therein. All taxes paid by Unit Operator upon or measured by the value of

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Production shall be charged to and borne by the Parties taking and selling the
same in the same proportions as the assessed values of their respective portions
of the Production bear to the whole thereof. All other taxes paid by Unit
Operator shall be charged to and borne by the Parties in proportion to their
ownership in the Committed Working Interests or unitized substances (as the case
may be) upon which or with respect to which such taxes are paid. All
reimbursements from owners of Lease Burdens, whether obtained in cash or by
deduction from Lease Burdens, on account of any taxes paid for such owners shall
be paid or credited to the Parties in the same proportions as such taxes were
charged to such Parties.

        21.3    Transfer of Interests.    In the event of a transfer by one
Party to another under the provisions of this Agreement of any Committed Working
Interest or of any other interest in any well or in the materials and equipment
in any well, the taxes above mentioned assessed against the transferred interest
for the taxable period in which the transfer or reversion occurs shall be
apportioned among said Parties so that each shall bear the percentage of the
taxes which is proportionate to that portion of the taxable period during which
it owned the interest.

        21.4    Notices and Returns.    Each Party shall promptly furnish Unit
Operator with copies of all notices, assessments, levies, or tax statements it
receives pertaining to the taxes to be paid by Unit Operator. Unit Operator
shall make such returns, reports, and statements as may be required by law in
connection with any taxes above provided to be paid by it and shall furnish
copies to the Parties upon request. Unit Operator shall notify the Parties of
any tax which it does not propose to pay before the tax becomes delinquent.

        21.5    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 Exhibit 7 or
other agreement between 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. Unit 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 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 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
Unit 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 thereby affected shall make such election as may
be permitted or required by such laws. In making the foregoing election, each
Party states that the income derived from operations hereunder can be adequately
determined without the computation of partnership taxable income. This election
by the Parties to be excluded from the application of all of the provisions of
Subchapter K does not apply in any way to any subsequent agreements between the
Parties or with third parties concerning the sharing of costs for the drilling
of any wells in the Unit Area. The Parties reserve the right to decide with each
subsequent agreement whether they elect to be excluded from the application of
Subchapter K.

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ARTICLE 22
WITHDRAWAL OF TRACTS AND UNCOMMITTED INTERESTS

        22.1    Right of Withdrawal.    If the owner of any substantial interest
in a tract within the Unit Area fails or refuses to join in the Unit Agreement,
then the tract may be withdrawn from the Unit Agreement, as provided in the Unit
Agreement.

        22.2    Non-Withdrawal.    Should the Party or Parties having the right
under the Unit Agreement to withdraw a tract from the Unit Agreement fail to
exercise such right, then all payments and liabilities accruing to the owners of
uncommitted interests in the tract shall be paid and borne by such Party or
Parties.

ARTICLE 23
COMPENSATORY ROYALTIES

        23.1    Notice.    Whenever demand is made in accordance with the Unit
Agreement for the payment of compensatory royalties, Unit Operator shall give
notice thereof to each Party affected by the demand.

        23.2    Demand for Failure to Drill a Development Well.    If the demand
for compensatory royalties results from the failure to have Drilled a
Development Well and the well is not Drilled, then Unit Operator shall pay the
compensatory royalties. The payment shall be charged as Costs incurred in
operations within the participating area involved.

        23.3    Demand for Failure to Drill a Well Other Than a Development
Well.    If the demand for compensatory royalties results from the failure to
have Drilled a well other than a Development Well and the well is not Drilled,
then Unit Operator shall pay the compensatory royalties. The payment shall be
chargeable to and borne by the Parties that would be obligated to bear the Costs
of the well if the well were Drilled as a Required Well under Subdivision B of
Section 10.4.

ARTICLE 24
SEPARATE MEASUREMENT AND SALVAGE

        24.1    Separate Measurement.    If a well completed as a producer of
unitized substances is in or becomes included in a participating area but is not
owned on an Acreage Basis by all the Parties within the participating area, such
as by way of example and not limitation, a well drilled under Article 12, and
if, within 30 days after request therefor by any interested Party, a method of
measuring the Production from the well without the necessity of additional
facilities does not receive the Approval of the Parties, then Unit Operator
shall install such additional tankage, flow lines, or other facilities for
separate measurement of the unitized substances produced from the well as Unit
Operator may deem necessary. The Costs of the facilities for separate
measurement shall be charged to and borne by the Drilling Party for the well and
treated as Costs incurred in operating the well, notwithstanding any other
provisions of this Agreement.

        24.2    Salvaged Materials.    If any materials or equipment are
salvaged from a well completed as a producer after being Drilled, Deepened or
Plugged Back for the account of all the Parties entitled to participate therein,
then the proceeds derived from the sale thereof or, if not sold, the Salvage
Value thereof, shall be treated in the same manner as proceeds of Production
from the well.

ARTICLE 25
ENHANCED RECOVERY AND PRESSURE MAINTENANCE

        25.1    Approval Required.    Unit Operator shall not undertake any
program of secondary or tertiary recovery or other enhanced recovery or pressure
maintenance procedures involving injection of gas, water, or other substance by
any method, whether now known or hereafter devised, without first

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obtaining the Approval of the Parties owning, on an Acreage Basis, not less than
85% of the Committed Working Interests in the participating area affected by the
program. This limitation shall not apply to procedures customarily used by
industry to improve or prolong primary productions, such as by way of example
and not limitation, fracturing, acidizing, and other well reworking or
stimulation techniques. After the Parties have voted to undertake a program of
enhanced recovery or pressure maintenance in accordance with this Section 25.1,
the conduct of the program shall be subject to supervision by the Parties as set
forth in Article 14.

        25.2    Above-Ground Facilities.    This Agreement shall not be deemed
to require or allow any Party to participate in the construction or operation of
any gasoline plant, sulfur recovery plant, dewaxing plant, or other above-ground
facilities to process or otherwise treat Production, other than such facilities
as may be required for treating Production in ordinary lease operations and such
facilities as may be required in the conduct of operations authorized under
Section 25.1.

ARTICLE 26
TRANSFERS OF INTEREST

        26.1    Sale by Unit Operator.    If Unit Operator sells or otherwise
transfers all its Committed Working Interests, it shall resign and a new Unit
Operator shall be selected as provided in the Unit Agreement.

        26.2    Preferential Right to Purchase.    Should any Party desire to
sell all or any part of its interests under this Agreement, or its rights and
interests in the Unit Area, it shall promptly give written notice to the other
Parties, with full information concerning its proposed disposition, which shall
include the name and address of the prospective transferee (who must be ready,
willing and able to purchase), the purchase price, a legal description
sufficient to identify the property, and all other terms of the offer. The other
Parties shall then have an optional right, for a period of ten (10) days after
the notice is delivered, to purchase for the stated consideration on the same
terms and conditions the interest which the other Party proposes to sell; and,
if this optional right is exercised, the purchasing Parties shall share the
purchased interest in the proportions that the interest of each bears to the
total interest of all purchasing Parties. However, there shall be no
preferential right to purchase in those cases where any Party wishes to mortgage
its interests, or to transfer title to its interests to its mortgagee in lieu of
or pursuant to foreclosure of a mortgage of its interests, or to dispose of its
interests by merger, reorganization, consolidation, or by sale of all or
substantially all of its oil and gas assets to any party, or by transfer of its
interests to a subsidiary or parent company or to a subsidiary of a parent
company, or to any company in which such Party owns a majority of the stock.

        26.3    Assumption of Obligations.    No transfer of any Committed
Working Interest shall be effective unless the same is made expressly subject to
the Unit Agreement and this Agreement and the transferee agrees in writing to
assume and perform all obligations of the transferor under the Unit Agreement
and this Agreement insofar as they relate to the interest assigned. An
assumption of obligations shall not be required in the event a Party grants a
lien on or security interest in all or any portion of its interest in the Unit
Area by mortgage, deed of trust, security agreement, or otherwise; provided that
such lien or security interest shall be subject to the terms of the Unit
Agreement and this Agreement, and any purchaser or transferee at a foreclosure
sale pursuant thereto or transfer in lieu thereof shall agree in writing to
assume and perform all obligations of the Party that granted the lien and
security interest under the Unit Agreement and this Agreement.

        26.4    Effective Date of Transfer.    A transfer of Committed Working
Interests shall not be effective as among the Parties until the first day of the
month next following the delivery to Unit Operator of the original or a
certified copy of the instrument of transfer conforming to the requirements of
Section 26.3. In no event shall a transfer of Committed Working Interests
relieve the transferring Party of any obligations accrued under this Agreement
prior to such effective date, for

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which purpose any obligation assumed by the transferor to participate in the
Drilling, Deepening, or Plugging Back of a well prior to such effective date
shall be deemed an accrued obligation.

        26.5    Division of Interests.    If, at any time the interest of any
Party is divided among and owned by four or more co-owners, Unit 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 Production
produced from the Unit Area and they shall have the right to receive,
separately, payment of the sale proceeds thereof.

ARTICLE 27
RELEASE FROM OBLIGATIONS AND SURRENDER

        27.1    Surrender or Release Within Participating Area.    A Committed
Working Interest in land within a participating area shall not be surrendered
except with the consent of all Parties within the participating area. A Party
who owns a Committed Working Interest in land within a participating area and
that is not at the time committed to participate in the Drilling, Deepening, or
Plugging Back of a well within the participating area may be relieved of
obligations accruing in the future with respect to the participating area, as
then constituted, by executing and delivering to Unit Operator an assignment
conveying to all other Parties within the participating area all Committed
Working Interests owned by such Party in lands within the participating area,
together with the entire interest of such Party in any and all wells, materials,
equipment, and other property within or pertaining to the participating area.

        27.2    Procedure on Surrender or Release Outside Participating
Area.    Whenever a Party or Parties owning 100% of the Committed Working
Interest in any tract which is not within any participating area desire to
surrender the 100% interest, such Party or Parties shall give to all other
Parties notice thereof, describing the Committed Working Interest. The Parties
receiving the notice, or any of them, shall have the right at their option to
take from the Party or Parties desiring to surrender, an assignment of the
Committed Working Interest by giving the Party or Parties desiring to surrender
notice of election so to do within 30 days after receipt of notice of the desire
to surrender. If the election is made as above provided, the Party or Parties
taking the assignment (which shall be taken by them in proportion to the acreage
of their respective Committed Working Interests among themselves in the Unit
Area) shall pay the assigning Party or Parties for its or their share of the
Salvage Value of all wells, if any, in which the assigning Party or Parties own
an interest and which are located on the land covered by the Committed Working
Interest, which payment shall be made upon receipt of the assignment. If no
Party elects to take the assignment within the 30-day period, then the Party or
Parties owning the Committed Working Interest may surrender the same, if
surrender thereof can be made in accordance with the Unit Agreement. Whenever a
Party owning less than 100% of the Committed Working Interest in any tract
desires to surrender its interest therein, the interest may be acquired by the
other Party or Parties owning Committed Working Interests in the tract without
notice being given to any other Parties owning interests within the Unit Area.
In the event the other Party or Parties owning Committed Working Interests in
the tract to be surrendered do not desire to acquire the interest, the interest
shall be treated as a 100% interest.

        27.3    Accrued Obligations.    A Party making an assignment or
surrender in accordance with Section 27.1 or Section 27.2 shall not be relieved
of its liability for any obligation accrued under this Agreement at the time the
assignment or surrender is made or of the obligation to bear its share of the
Costs incurred in any Drilling, Deepening, or Plugging Back operation in which
such Party had elected to participate prior to the making of the assignment or
surrender, except to the extent that the Party or Parties receiving the
assignment shall assume, with the Approval of the Parties, any and all
obligations of the assigning Party under this Agreement and under the Unit
Agreement. A Party's obligation to pay

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its share of Costs of plugging and abandonment (including reclamation of the
surface) shall accrue at the time such Party elects to participate in any
Drilling, Deepening, or Plugging Back operation.

ARTICLE 28
LIABILITY, LIENS, AND REMEDIES

        28.1    Liability.    The liability of the Parties hereunder shall be
several and not joint or collective. Each Party shall be responsible only for
its obligations as herein set out.

        28.2    Relationship of Parties.    It is not the intention of the
Parties to create, nor shall this Agreement or the Unit Agreement be construed
as creating, a mining or other partnership, joint venture, trust, or association
between the Parties or as rendering them liable as partners, 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
obligation of the Parties to act in good faith in their dealings with each other
with respect to activities hereunder.

        28.3    Liens and Security Interests.    Each Party grants to the other
Parties hereto a lien on and security interest in any interest it now owns or
hereafter acquires in oil and gas rights in any tract within the Unit Area and
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 and duties under this Agreement, including
without limitation, payment of Costs, interest and fees, the proper disbursement
of all monies paid hereunder, the assignment or relinquishment of interests as
required hereunder, and the proper performance of operations hereunder. The lien
and security interest shall include each Party's Committed Working Interest
together with all leasehold, working, operating rights, mineral, royalty,
overriding royalty, and other interests in the Unit Area now owned or hereafter
acquired, the Production therefrom and equipment situated thereon or used or
obtained for use in connection therewith, and all accounts (including, without
limitation, accounts arising from gas imbalances or from the sale of Production
at the wellhead), contract rights, inventory and general intangibles relating
thereto or arising therefrom, and all proceeds and products thereof.

        A.    Recording Supplement.    To perfect the lien and security interest
provided herein, each Party agrees to execute and acknowledge a recording
supplement in the form attached hereto as Exhibit 8 and any financing statement
prepared and submitted by any Party hereto in conjunction therewith, and Unit
Operator is authorized to file this Agreement or the 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 Unit Area is situated and such other
states as Unit Operator shall deem appropriate to perfect the security interest
granted hereunder. Any Party may file this Agreement, the recording supplement
executed herewith, or such other documents as it deems necessary as a lien or
mortgage in the applicable real estate records and a financing statement with
the proper officer under the Uniform Commercial Code.

        B.    Priority of Lien and Security Interest.    Each Party represents
and warrants to the other Parties that the lien and security interest granted by
such Party to the other Parties shall be a first and prior lien and security
interest, and each Party hereby agrees to maintain the priority of the lien and
security interest against all persons acquiring an interest in oil and gas
interests covered by this Agreement by, through, or under such Party. All
parties acquiring an interest in 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 herein as to all obligations and duties attributable to the
interest hereunder whether or not the obligations arise before or after the
interest is acquired.

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        C.    Remedies.    To the extent that the Parties have a security
interest under the Uniform Commercial Code of the state in which the Unit Area
is situated, they shall be entitled to exercise the rights and remedies of a
secured party under such code. The bringing of a suit and the obtaining of
judgment by a Party for any sum due hereunder shall not be deemed an election of
remedies or otherwise affect the lien rights or security interest as security
for the payment thereof.

        D.    Notification to Purchasers of Production.    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 Unit 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 Production until the amount owed by such Party, plus interest as provided in
Exhibit 1 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
Production. All purchasers of Production may rely on a notification of default
from the nondefaulting Party or Parties 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.

        E.    Make-Up of Defaulting Party's Share.    If any Party fails to pay
its share of Costs within 120 days after rendition of a statement therefor by
Unit Operator, the failure shall be deemed to be a default by such Party and the
nondefaulting Parties, including Unit Operator, shall, upon request by Unit
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 interest described in this Section 28.3, and each paying Party may
independently pursue any remedy available hereunder or otherwise.

        F.    Waiver of Rights.    If any Party does not perform all of its
obligations hereunder, and the failure to perform subjects such Party to
foreclosure or execution proceedings pursuant to the provisions of this
Agreement, to the extent not prohibited by applicable law, the defaulting Party
waives any available right of redemption from and after the date of judgment,
any required valuation or appraisement of the property prior to sale, any
available right to stay execution or to require a marshalling of assets, and any
required bond in the event a receiver is appointed. In addition, to the extent
not prohibited 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
interest 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.

        G.    Statutory Liens.    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 Unit Area is situated to enforce the obligations of
each Party hereunder. Without limiting the generality of the foregoing, to the
extent not prohibited by applicable law, the Parties agree that Unit Operator
may invoke or utilize the mechanics' or materialmen's lien law of the state in
which the Unit Area is situated in order to secure the payment to Unit Operator
of any sum due hereunder for services performed or materials supplied by Unit
Operator.

        28.4    Defaults and Remedies.    If any Party fails to discharge any
financial obligation under this Agreement within the period required for a
payment hereunder, then in addition to the remedies provided elsewhere in this
Agreement, the remedies specified in this Section 28.4 shall be available. For
purposes of this Section 28.4, all notices and elections shall be delivered only
by Unit Operator, except that Unit Operator shall deliver any notice and
election requested by a nondefaulting Party, and when Unit Operator is the Party
in default, the applicable notices and elections may be delivered by a Party
that is not the Unit 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 a nondefaulting Party.

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        A.    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 the action
will result in the exercise of one or more of the remedies provided in this
Article. If the default is not cured within 30 days of the delivery of the
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 nondefaulting Party or Parties to continue to
enforce the obligations of the defaulting Party previously accrued or thereafter
accruing under this Agreement. If Unit Operator is the Party in default, Unit
Operator shall be subject to removal pursuant to the provisions of the Unit
Agreement. The rights of a defaulting Party that may be suspended hereunder at
the election of the nondefaulting Parties shall include without limitation the
right to receive information as to any operation conducted hereunder during the
period of default, the right to elect to participate in any operation proposed
under this Agreement, the right to participate in any operation being conducted
under this Agreement even if the Party has previously elected to participate in
the operation, the right to receive proceeds of Production from any well subject
to this Agreement, and any voting rights.

        B.    Suit for Damages.    Nondefaulting Parties or Unit Operator for
the benefit of nondefaulting 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 1. 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.

        C.    Deemed Non-Consent.    Upon approval of the nondefaulting Parties,
Unit Operator shall deliver a written notice of non-consent election to the
defaulting Party at any time after the expiration of the 30-day cure period
following delivery of the notice of default, in which event if the billing is
for the Drilling of an Exploratory Well or any other well prior to the
establishment of a participating area or the Plugging Back or Deepening of a
well that is to be or has been plugged as a dry hole, the defaulting Party will
be conclusively deemed to have elected not to participate in the operation and
to be a non-consenting Party with respect thereto under Article 12, and the
defaulting Party shall be subject to the provisions of Section 12.3,
notwithstanding any election to participate theretofore made. If election is
made to proceed under this provision, then the nondefaulting Parties shall not
be entitled to sue for the unpaid amount pursuant to this Agreement. Until the
delivery of the notice of non-consent 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 1; provided, however, the
payment shall not prejudice the rights of the nondefaulting Parties to pursue
remedies for damages incurred by the nondefaulting Parties as a result of the
default. Any interest relinquished pursuant to this Article 28.4 shall be
credited to the nondefaulting Parties in proportion to their interests, and the
nondefaulting Parties shall be required to contribute their shares of the
defaulted amount.

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        D.    Cumulative Rights.    The rights, powers, and remedies conferred
in this Section 28.4 and elsewhere in this Article 28 are cumulative, and not
exclusive, of (1) any and all other rights, powers, and remedies conferred in
this Agreement, (2) any and all rights, powers, and remedies existing at law or
in equity, and (3) any and all other rights, powers, and remedies provided in
any other agreement between the Parties.

        E.    Costs and Attorneys' Fees.    In the event any Party brings legal
proceedings to enforce any financial obligation of a Party hereunder, the
prevailing Party shall be entitled to recover all court costs, costs of
collection, and reasonable attorneys' fees, which the lien and security interest
provided for herein shall also secure.

ARTICLE 29
MISCELLANEOUS

        29.1    Notices.    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, telecopier, or any other form of
facsimile, postage or charges prepaid, and addressed to the Parties at the
addresses set forth under or opposite their signatures hereto. The originating
notice given under any provision hereof shall be deemed delivered only when
received by the Party to whom the 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 hereunder shall be actual delivery of the
notice to the address of the Party to be notified in accordance with this
Agreement, or to the telecopy, 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. Each Party shall have the right to change its address
at any time by giving written notice thereof to all other Parties. Whenever a
rig is on location every notice and every response shall be given orally,
whether by telephone or in person. All oral notices permitted by this Agreement
shall be confirmed immediately thereafter by written notice. If a Party is not
available to receive notice aurally, 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.

        29.2    Counterparts.    This Agreement may be executed in counterparts,
and all counterparts taken together shall be deemed to constitute one and the
same instrument.

        29.3    Ratification.    This Agreement may be executed by the execution
and delivery of a good and sufficient instrument of ratification, adopting and
entering into this Agreement. A ratification shall have the same effect as if
the Party executing it had executed this Agreement or a counterpart hereof.

        29.4    Effect of Signature.    When this Agreement is executed by two
Parties, execution by each shall be deemed consideration for execution by the
other, and each Party theretofore or thereafter executing this Agreement shall
thereupon become and remain bound hereby until the termination of this
Agreement. If, however, the Unit Agreement does not become effective within
12 months from and after the date of this Agreement, then, at the expiration of
the period, this Agreement shall terminate.

        29.5    Successors and Assigns.    This Agreement shall be binding upon
and shall inure to the benefit of all Parties signing the same, their heirs,
devisees, personal representatives, successors, and assigns, and their
successors in interest, whether or not it is signed by all the Parties listed
below. The terms hereof shall constitute covenants running with the lands and
the Committed Working Interests of the Parties.

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        29.6    Headings.    The Table of Contents and the headings used in this
Agreement are inserted for convenience only and shall be disregarded in
construing this Agreement.

        29.7    References.    All references in this Agreement to Exhibits,
Articles, Sections, Subsections, and Subdivisions refer to the Exhibits,
Articles, Sections, Subsections, and Subdivisions of this Agreement unless
expressly provided otherwise. The words "this Agreement," "herein," "hereof,"
"hereby," "hereunder," and words of similar import refer to this Agreement as a
whole and not to any particular provision unless expressly so limited. The
phrases "this Article," "this Section," "this Subsection," "this Subdivision,"
and similar phrases refer only to the Articles, Sections, Subsections, or
Subdivisions hereof in which the phrase occurs. The word "or" is not exclusive.
Pronouns in masculine, feminine, and neuter gender shall be construed to include
any other gender. Words in the singular form shall be construed to include the
plural, and words in the plural form shall be construed to include the singular,
unless the context otherwise requires.

        29.8    Right of Appeal Not Waived.    Nothing contained in this
Agreement shall be deemed to constitute a waiver by any Party of any right it
would otherwise have to contest the validity of any law or any order or
regulation of governmental authority (whether Federal, State, or local) relating
to or affecting the conduct of operations within the Unit Area or to appeal from
any such order.

        29.9    Subsequent Joinder.    Prior to the commencement of actual
Drilling operations for the Initial Test Well under the Unit Agreement, all
owners of working interests in the Unit Area that have joined the Unit Agreement
shall be privileged to execute or ratify this Agreement. After commencement of
operations under the Unit Agreement, any working interest in land within the
Unit Area that is not then committed hereto may be committed to this Agreement
and to the Unit Agreement upon such reasonable terms and conditions as may
receive the Approval of the Parties.

        29.10    Force Majeure.    If any Party is rendered unable, wholly or in
part, by force majeure to carry out its obligations under this Agreement, other
than the obligations 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 used here, 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 reasonably 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.

        29.11    Effective Date and Term    This Agreement shall become
effective upon the effective date of the Unit Agreement, shall continue in
effect during the term of the Unit Agreement, and, except as set forth in
Subdivision C of Section 6.2, shall terminate concurrently therewith.
Termination of this Agreement shall not relieve any Party of its obligations
then accrued hereunder. Notwithstanding termination of this Agreement, the
provisions hereof relating to the charging and payment of Costs and the
disposition of materials and equipment shall continue in force until all
materials and equipment owned by the Parties have been disposed of and until
final accounting between Unit Operator and the Parties has been made.
Termination of this Agreement shall automatically terminate all rights and
interests acquired by virtue of this Agreement in lands within the Unit Area,
except transfers of Committed Working Interests as have been evidenced by formal
written instruments of transfer.

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ARTICLE 30

        30.1    Multiple Well Proposals; Limitations on Drilling    The Parties
recognize and agree that in the exploration, development and production of
coalbed gas, it is often prudent to propose and Drill a group of wells, some of
which may be for the initial or sole purpose of de-watering a coalbed formation
to assist in the production of coalbed gas from other wells. This Article is
intended to outline the limitations for proposing multiple wells, the timing and
scope of Drilling proposals (including single well proposals), and the
limitations on the total number of wells proposed and Drilled in the Unit Area
during annual periods.

        30.2    Proposal of Pilot Wells.    Notwithstanding anything contained
herein to the contrary, should any Party elect not to participate in the
drilling of the Pilot Wells, such Non-Drilling Party, upon the commencement of
the operation, shall relinquish to the Drilling Party, and the Drilling Party
shall own, all of the Non-Drilling Party's operating rights and working interest
in and to the acreage within the Unit Area. The Non-Drilling Party shall,
promptly upon request from the Drilling Party, execute and deliver to the
Drilling Party an assignment of the Non-Drilling Party's operating rights and
working interest so relinquished, free and clear of any Subsequently Created
Interest.

        30.3    Proposal of Additional Wells; Limitations.    Following the
Drilling of the Pilot Wells, any Party entitled to propose the Drilling of a
well under this Agreement may propose the Drilling of one or more such wells
subject to the following limitations:

          (i)  A proposal to Drill multiple wells shall include no more than 12
wells and one disposal well, for a total of 13 wells. No more than three
proposals of 13 wells each may be under consideration at any one time. A
proposal to Drill will be deemed to be complete and no longer be under
consideration when the parties entitled to participate therein have made an
election to participate pursuant to the appropriate provisions hereof, however,
in the event any proposal to Drill includes fewer than 13 wells, further
proposals may be made until the total number of wells contained under a maximum
of three then pending outstanding proposals to Drill (i.e., proposals awaiting
elections to participate) totals 39. No proposal to Drill Exploratory Wells
shall include a proposal to Drill Development Wells; no proposal to Drill
Development Wells shall include Exploratory Wells, and no proposal shall include
wells to be Drilled to different objective formations.

        (ii)  Each multiple well proposal shall contain a contiguous group of
wells (determined on the basis of the general spacing pattern then existing
within the Unit Area or an exception thereto consistent with the current plan of
development) with no more than 3500 feet between each proposed well and at least
one other well in such proposal. Notwithstanding the foregoing, a multiple well
proposal may be broken up into two or more separate groupings of wells provided
that (a) each of the wells contained in a grouping is located within 3500 feet
from at least one other well in the same grouping, and (b) each grouping
contains at least one well located within 2000 feet of the boundary of a common
participating area.

        (iii)  With respect to the twelve-month period commencing on January 1,
2003, and every twelve-month period thereafter, no further wells shall be
proposed after the Parties have Drilled or approved the Drilling of a total of
117 wells (excluding wells commenced or approved for Drilling for the preceding
twelve-month period).

        30.4    Exceeding Limitations.    The limitations set forth in this
Article may be exceeded with the written consent of all Parties entitled to
participate in the Drilling of the excess or nonconforming wells. In no event
shall the above limitations apply to prevent the drilling of any well that is
(a) necessary to prevent an oil and gas lease from expiring; (b) required to
earn an interest under a farmout agreement, option agreement or other agreement;
(c) required to respond to a drilling demand or similar claim to enforce express
or implied covenants under a lease, or (d) a Required Well under

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Article 10 or otherwise required to avoid violation of the regulations,
requirements or orders of a governmental authority with jurisdiction in the
matter.

        30.5    Payment of Taxes Relating to Production.    

        A.    Taking in Kind.    At and during such time or times as any Party
is exercising the right to take in kind or separately dispose of its
proportionate part of the Production, as set for in Section 6.4 hereof, such
Party shall pay or arrange for the payment of all production, severance,
gathering, sales or similar taxes imposed upon such part.

        B.    Failure to Take in Kind.    At and during such time or times as
Unit Operator is selling any other Party's proportionate part of the Production,
as set forth in Paragraph 6.5 hereof, Unit Operator shall pay or arrange for the
payment of all production, severance, gathering, sales or similar taxes imposed
upon such part.

        30.6    Operation of Wells After Elimination.    If, upon termination of
the Unit Agreement or upon elimination of any lands from the Unit Agreement, any
well in which more than one Party is entitled to share in Production and owns an
interest in the equipment under the terms of this Agreement is being operated
and produced, then such well, upon being eliminated from the terms of the Unit
Agreement, shall continue to be operated under the terms of this Agreement so
far as applicable, without change in the ownership of the equipment and the
Production therefrom until the Parties relinquish such interest or the well is
plugged and abandoned and settlement has been made for all Production and
equipment. This section shall apply only to such well down through the producing
formation and the spacing unit around such well, or in the absence of any
established spacing, to the quarter section upon which the well is located.

        30.7    Anadarko Lands Provision.    The use of the surface of the lands
under which Anadarko E&P Company LP owns the mineral rights (said lands being
hereinafter referred to as "Land Grant lands") are and shall at all times be
subject to the exceptions and reservations set forth in that certain Quitclaim
Deed dated as of April 1, 1971, from Union Pacific Railroad Company to Union
Pacific Land Resources Corporation filed for record April 20, 1971; and
appearing in Book 558 at Page 529 in the office of the County Clerk and Ex
Officio Register of Deeds of Carbon County, Wyoming.

        Among the exceptions and reservations set forth in the above referred to
documents are the rights of ANADARKO's predecessors in interest and their
successors and assigns to use such portions of Land Grant lands as may not be
required for the proper conduct of oil and gas operations hereunder for all
purposes not inconsistent with such operations and without liability for
compensation or damages. Operations hereunder shall be conducted so as not to
interfere unreasonably with such use; provided, nevertheless, that such other
use of said lands shall not unreasonably interfere with operations hereunder.

        It is agreed that, without the prior written consent of the owner
thereof, no entry shall be made upon or under any portion of any railroad
right-of-way or station grounds and that no oil or gas operations shall be
conducted within two hundred feet (200') (by surface or subsurface measurement)
of (a) any railroad tracks or buildings upon such right-of-way or station
grounds, or (b) of any buildings upon Land Grant lands.

        Notwithstanding anything to the contrary in the Agreement to which this
Exhibit is attached, unless the requirement is waived in writing by ANADARKO at
its discretion, no entry shall be made for drilling operations and no facilities
shall be installed upon any Land Grant lands until a written agreement with the
surface owner has been secured in a form satisfactory to ANADARKO. WARREN shall
make its proportionate share of payments based upon production required or
provided for in such consent agreement and shall indemnify ANADARKO with respect
to the foregoing obligation.

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        30.8    Confidentiality.    All information and data and interpretations
resulting from the activities under this Agreement shall be held confidential
during the term of this Agreement. Either Party may disclose required
information without permission of the other Party to an Affiliate, to a
surviving company in case of a merger, to consultants or to other parties with
whom a commercial transaction is contemplated within the Project Area.
Disclosure of information shall be conditioned upon any person receiving such
information agreeing in writing to keep all information strictly confidential
and agreeing to be bound by the terms of this Section 30.8. No Party shall
distribute any information concerning this Agreement or operations to third
parties, the press or other media, without the written consent of the other
Party. Such consent shall not be unreasonably withheld. A Party may disclose
information that a Party is required to disclose or release as a publicly held
or traded company, or which may be necessary to obtain third party support or
participation or which may be required by a lawful order from any federal or
state agency. Disclosures of information to obtain third party support of
participation shall be conditioned upon any person receiving information
agreeing in writing to keep all information strictly confidential and agreeing
to be bound by the terms of this Section 30.8. Nothing contained in this
paragraph shall preclude any Party from making such disclosures as may be
required by any federal or state law or regulation. THIS SECTION 30.8 SHALL
SURVIVE THE TERMINATION OF THIS AGREEMENT FOR A PERIOD OF TWO (2) YEARS
FOLLOWING THE DATE OF SUCH TERMINATION.

        30.9    Amendments.    The terms, provisions, and conditions contained
in this Agreement may be changed, modified, or amended with the consent of
Parties owning 51% of the Committed Working Interests in the Unit Area.

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        30.10    Governing Law.    This Agreement shall be governed by the laws
of the State of Texas.

        IN WITNESS WHEREOF, this Agreement has been executed by the Parties as
of the day and year first above written.

OPERATOR AND WORKING INTEREST OWNER:        
 
 
ANADARKO E&P COMPANY LP
 
 
By:
 

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    Name:   Mark L. Pease     Title:   Vice President U.S. Onshore & Offshore
 
 
Date of Execution:
 
 
Address:
 
P. O. Box 1330
Houston, Texas 77251-1330     Attention: Onshore Development CBM Mgr.
Telephone: 832/ 636-8743
Facsimile: 832/ 636-8095
WORKING INTEREST OWNERS:
 
 
 
 
 
 
ANADARKO LAND CORP.
 
 
By:
 

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    Name:   Mark L. Pease     Title:   Vice President U.S. Onshore & Offshore
 
 
Date of Execution:
 
 
Address:
 
P. O. Box 1330
Houston, Texas 77251-1330     Attention: Onshore Development CBM Mgr.
Telephone: 832/ 636-8743
Facsimile: 832/ 636-8095
 
 
WARREN RESOURCES, INC.
 
 
By:
 

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    Name:   Norman F. Swanton     Title:   Chairman and Chief Executive Officer
 
 
Date of Execution:
 
 
Address:
 
489 Fifth Avenue, 32nd Floor
New York, NY 10017     Telephone: 214/697-9660
Facsimile: 214/697-9466

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