PREFERRED STOCK EXCHANGE AGREEMENT

        THIS AGREEMENT dated effective November 1, 2000, is by and between PEASE
OIL AND GAS COMPANY, a Nevada corporation (“Company”) and the undersigned, each
of which is a holder of the Company’s Series B 5% PIK Cumulative Convertible
Preferred Stock (each holder is referred to herein as a “Holder” and all the
holders are referred together as the “Holders”).

        This Agreement is made with reference to the following agreed facts:

        A. The names of the Holders and the number of shares of the Company’s
Series B 5% PIK Cumulative Convertible Preferred Stock (the “Series B
Preferred”) owned by each is set forth on Schedule 1 attached hereto.

        B. Pursuant to an "Agreement Not to Sell or Convert Securities," dated
effective May 24, 1999 (the "Lock-Up Agreement"), the Company and the Holders
agreed, among other things, that no Holder would convert Series B Preferred into
Company common stock and that the dividends on the Series B Preferred shall be
deferred during the time when the Company sought to complete a merger with
Carpatsky Petroleum Inc. ("CPI").

        C. Under an “Exchange Agreement and Irrevocable Proxy,” dated on various
dates in August 1999, each Holder of Series B Preferred agreed, among other
things, to: (i) exchange all outstanding Series B Preferred for common stock of
the Company on or before the date of completion of the merger with CPI, (ii) to
vote to approve the merger with CPI and related matters, and (iii) that the
Lock-Up Agreement was to remain in full force and effect until the later of
closing or termination of the merger with CPI, or November 15, 1999. The Company
has not paid or accrued dividends on the Series B Preferred since September 1,
1999.

        D. The Company and the Holders believe that it is in the best interest
of the Company to terminate the Merger Agreement with CPI, subject to the
matters set forth in this Agreement.

        E. The Company and each of the Holders have agreed that until this
Agreement is signed by the parties, the Holders shall be precluded from
converting or transferring any of their Series B Preferred.

        NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confirmed, the Company and the Holders hereto agree as follows:

         1. Create Series C Redeemable Preferred Stock. The Company shall
promptly prepare, adopt and file with the Secretary of State of Nevada a
Certification of Designation of the Company’s Series C Redeemable 5% Preferred
Stock having the terms and provisions set forth in Exhibit A attached hereto and
incorporated herein by reference (the “Series C Designation”). The Company’s
Series C Preferred Stock shall have the rights, privileges and preferences
described in Exhibit A and shall be referred in this Agreement as the “Series C
Preferred.”

         2. Exchange Series B Preferred. On the first business day after the
Company’s designation of Series C Preferred is accepted for filing with the
Secretary of State of Nevada (the “Closing Date”), each Holder shall surrender
all certificates representing its Series B Preferred, together with all other
dividend rights, conversion rights, voting rights or other rights which may be
applicable to the Series B Preferred, to the Company. In exchange for surrender
of the Series B Preferred, the Company shall, on the Closing Date, issue and
deliver to each Holder, a like number of shares of the Company’s Series C
Preferred and a warrant to purchase that number of shares of the Company’s
common stock set forth on Schedule 1 (the “Warrants”) to this Agreement.

         3. Company Warrants. Each Warrant issued to a Holder shall be in a
form, and shall represent the rights, terms and conditions applicable to the
purchase of Company common stock as the form of Warrant attached hereto as
Exhibit B and incorporated herein by reference.

         4. Termination of Certain Rights. Upon completion of the exchange on
the Closing Date, the rights and privileges of the Holders, as described in the
Preferred Stock Purchase Agreement dated effective December 31, 1997 and the
Certificate of Designation of Series B 5% PIK Cumulative Convertible Preferred
Stock, as amended, as filed with the Secretary of State of Nevada December 31,
1997, which designated a total of 145,300 shares of the Company’s Series B
Preferred and set forth the rights and privileges applicable thereto (the
“Series B Preferred Designation”) shall be terminated and the Series B preferred
Designation shall be terminated. Following the exchange, Holders’ rights as
security holders of the Company shall be as holders of Series C Preferred stock
of the Company and as holders of the Warrants.

         5. Agreement Not to Sell or Convert Series B Preferred. Each Holder
agrees that pending the Closing Date, as described above, the Holder shall not
convert or seek to convert the Series B Preferred held by Holder into Company
common stock. Further, pending the Closing Date, each Holder agrees that Holder
will not sell or transfer, including making any short sale or similar
transaction, any shares of the Company’s Series B Preferred or the Company’s
common stock, either publicly or privately. If the Closing Date has not occurred
by December 15, 2000, then any Holder may, upon 15 days prior written notice
delivered to the Company, sell or transfer Series B Preferred stock held by it,
or seek to convert Holder’s Series B Preferred in accordance with the conversion
rights applicable to Series B Preferred.

         6. No Further Dividends on Series B Preferred. Provided that the
Closing Date occurs on or before December 15, 2000, then all unpaid dividends on
the Series B Preferred shall be waived by all of the Holders and the Company
shall have no obligation to pay any Holder any unpaid dividends on the Series B
Preferred. If the Closing Date has not occurred by December 15, 2000, then the
Company shall be obligated to the Holders only to pay dividends on the Series B
Preferred, at the rate described in the Series B Designation, from October 31,
2000 through the earlier of the date on which the Series B Preferred is (i)
exchanged for Series C Preferred, (ii) converted into Company common stock, or
(iii) redeemed by the Company. All other unpaid dividends on the Series B
Preferred, whether or not accrued or declared, are hereby waived by the Holders.

         7. Representations and Warranties and the Company. The Company
represents and warrants to the Holders as follows:

        7.1. Organization, Qualifications and Corporate Power.

          (a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of Nevada and is duly licensed
or qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character of the properties owned or leased by it requires such
licensing or qualification except where the failure to be licensed or qualified
would not have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and its subsidiaries taken as
a whole. The Company has the corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform this Agreement, and to issue, sell
and deliver the Series C Preferred and the Warrants.

          (b) Except for wholly-owned subsidiaries of the Company, the identify
of which has been disclosed to the Purchasers and except for agreements to
participate in the acquisition, exploration, drilling and/or development of
various oil and gas properties, the Company does not (i) own of record or
beneficially, directly or indirectly, (A) any shares of capital stock or
securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other noncorporate
business enterprise or (ii) control, directly or indirectly, any other entity.
Each of the subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification except where the
failure to be licensed or qualified would not have a material adverse effect on
the Company and its subsidiaries taken as a whole. Each of the subsidiaries has
the corporate power and authority to own and hold its properties and to carry on
its business as now conducted and as proposed to be conducted. All of the
outstanding shares of capital stock of each of the subsidiaries are owned
beneficially and of record by the Company, one of its other subsidiaries, or any
combination of the Company and/or one or more of its other subsidiaries, in each
case free and clear of any liens, charges, restrictions, claims or encumbrances
of any nature whatsoever; and there are no outstanding subscriptions, warrants,
options, convertible securities, or other rights (contingent or other) pursuant
to which any of the subsidiaries is or may become obligated to issue any shares
of its capital stock to any person other than the Company or one of the other
subsidiaries.

        7.2. Authorization of Agreements, Etc.

          (a) The execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations hereunder, and the issuance, sale
and delivery of the Series C Preferred and the Warrants have been duly
authorized by all requisite corporate action and will not violate any provision
of applicable law, any order of any court or other agency of government, the
Articles of Incorporation of the Company, as amended (the “Charter”), or the
Bylaws of the Company, as amended, or any provision of any indenture, agreement
or other instrument to which the Company, any of its subsidiaries or any of
their respective properties or assets is bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company or any
of its subsidiaries except for such violations or conflicts which would not have
a material adverse effect on the Company and its subsidiaries taken as a whole.

          (b) The Series C Preferred have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of preferred stock with the rights and preferences
described in the Series C Designation and will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company. The Warrants have been duly authorized and, when exercised in
accordance with the terms of the Warrants, the common stock to be issued upon
exercise will be validly issued, fully paid and nonassessable shares of common
stock of the Company and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company. The
issuance, sale and delivery of the Series C Preferred and the Warrants is not
subject to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person.

        7.3. Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, Insolvency, moratorium and similar laws
affecting the rights of creditors generally). The obligations of the Company set
forth in the Warrants, when the Warrants are executed and delivered in
accordance with this Agreement, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with its respective terms
(subject, as to enforcement of remedies, to the discretion of courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).

        7.4. SEC Documents. The Company has filed all registration statements,
proxy statements, reports and other documents required to be filed by it under
the Securities Act of 1933, as amended (“Securities Act”), or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (collectively, the “SEC
Documents”). Each SEC Document complied as to form when filed in all material
respects with the rules and regulations of the SEC and did not on the date of
filing contain any untrue statement of a material tact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

        7.5. Authorized Capital Stock. The authorized capital stock of the
Company consists of 4,000,000 shares of $0.10 par value common stock, and
2,000,000 shares of $0.01 par value preferred stock, of which 595,000 are
undesignated, 145,000 shares have been designated as Series B Preferred and the
balance have been retired. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Charter, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable laws (subject, as to enforcement of remedies, to the discretion of
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). Except for option plans pursuant to which the Company is
authorized to grant stock purchase options to employees, officers, directors and
consultants, of which options to purchase 42,514 shares of common stock at
exercise prices ranging from $5.00 to $29.70 (average price: $17.04), are
currently outstanding, and except for warrants pursuant to which other persons
may purchase or otherwise acquire up to 203,532 shares common stock of the
Company at exercise prices ranging from $5.00 to $37.50 (average exercise price:
$15.17), as described in the SEC Documents, and except for the intention by the
Board of Directors of the Company to authorize the issuance to Patrick J.
Duncan, President, at or before the Closing: (a) 150,000 shares of the
Company&#146;s common stock, and (b) a Warrant to purchase up to 600,000 shares
of the Company&#146;s common stock at an exercise price of $0.50 per share,
exercisable only as follows: (i) as to 300,000 shares, if the Company&#146;s
reported closing sales price for its common stock is at least $1.50 for at least
80% of the trading days in a one month period, and (ii) as to 300,000 shares,
only if the Company&#146;s reported closing sales price for its common stock is
at least $2.00 for at least 80% of the trading days in a three month period,
there is no other subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire equity securities
of the Company authorized or outstanding and there is no commitment by the
Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset, except pursuant to this
Agreement or other similar agreements with other holders of Series B Preferred
and except for conversion rights of holders of the Company&#146;s outstanding
10% Convertible Debentures, due April 15, 2001. Except as provided for in the
Charter, or as disclosed in the SEC Documents, the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein, to make any payment in satisfaction of any
appraisal rights properly perfected, or to pay any dividend or make any other
distribution in respect thereof. To the Company&#146;s knowledge, there are no
voting trusts or agreements, stockholders agreements, pledge agreements,
buy-sell agreements, rights of first refusal or preemptive rights relating to
any securities of the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is a party thereto), except for rights of
holders of Series B Preferred. All of the outstanding securities of the Company
were issued in compliance with all applicable federal and state securities laws.

        7.6. Financial Statements. All of the financial statements included in
the SEC Documents have been prepared with generally accepted accounting
principles consistently applied and fairly present the consolidated financial
position of the Company and its subsidiaries, as of the dates of such reports
and the consolidated results of their operations and cash flows for the periods
upon which the reports are based. Since June 30, 2000, (i) there has been no
change in the assets, liabilities or financial condition of the Company and its
subsidiaries (on a consolidated basis) from that reflected in the Form 10-QSB
for the quarter ending June 30, 2000, except for changes in the ordinary course
of business which in the aggregate have not been materially adverse and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries (on a consolidated basis) has been
materially adversely affected by any occurrence or development, individually or
in the aggregate, whether or not insured against.

        7.7. Subsequent Events. Since June 30, 2000, the Company has not (i)
issued any stock, bond or other corporate security, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown since June 30, 2000 and
current liabilities incurred since June 30, 2000, in the ordinary course of
business, (iv) declared or made any payment or distribution to stockholders or
purchased or redeemed any share of its capital stock or other security, (v)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim, (vii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (viii) made any material change in the manner
of business or operations of the Company, (ix) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby,
or (x) entered into any commitment (contingent or otherwise) to do any of the
foregoing.

        7.8. Litigation; Compliance With Law. There is no material (i) action,
suit, claim, proceeding or investigation pending or, to the Company’s knowledge,
threatened against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending or (iii) governmental inquiry pending
or, to the Company’s knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit). The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company has complied with all laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted except where the failure to comply or to have a license, permit or
other authorization would not have, a material adverse effect on the Company and
its subsidiaries taken as a whole.

        7.9. Oil and Gas Properties. Each of the Company and its subsidiaries
has good and defensible title to all of its respective interests in oil and gas
leases, free and clear of any encumbrances, subject only to liens for taxes or
charges of mechanics or materialmen not yet due and to encumbrances under gas
sales contracts, operating agreements, unitization and pooling agreements and
other similar agreements as are customarily found in connection with comparable
exploration, drilling and producing operations and to title defects and other
encumbrances that are, singularly und in the aggregate, not material in amount
and do not interfere with its use or enjoyment of its oil and gas properties.
Each of the Company and its subsidiaries has complied in all material respects
with its obligations under the terms of the oil and gas leases in which it
purports to own an interest, and all of such leases are in full force and effect
(except where the failure so to comply or to be in full force and effect will
not have a Material adverse effect) upon the Company and its subsidiaries taken
as a whole.

        7.10. Taxes. The Company has filed all tax returns, federal, state,
county and local, required to be filed by it, and the Company has paid all taxes
shown to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable including, without
limitation, all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. All such taxes with respect to
which the Company has become obligated pursuant to elections made by the Company
in accordance with generally accepted practice have been paid and adequate
reserves have been established for all taxes accrued but not yet payable. The
federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency assessment with respect to or proposed
adjustment of the Company’s federal, state, county or local taxes is pending or,
to the Company’s knowledge, threatened. There is no tax lien, whether imposed by
any federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company.

        7.11. Other Agreements. The Company is not a party to or otherwise bound
by any written or oral contract or instrument or other restriction which
individually or in the aggregate could have a Material adverse effect on the
Company and its subsidiaries taken as a whole.

        7.12. Government Approvals. Subject to the accuracy of the
representations and warranties of the Holders set forth in Section 4, no
registration or filing with, or consent or approval of or other action by, any
federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the issuance, sale and delivery of the Series C Preferred and
the Warrants or, other than filings pursuant to state securities laws.

         8. Representation and Warrants of the Holders. Each Holder severally
represents and warrants to the Company that:

          (a) it is a corporation, limited partnership, limited liability
company, or insurance company separate account duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization or a
trust duly formed under the laws of the state of its formation.

          (b) it has full power and authority and has taken all required action
necessary to permit it to execute, deliver and perform this Agreement, which
constitute the legal, valid and binding obligations of each such Holder,
enforceable against each such Holder in accordance with its terms (subject, as
to enforcement of remedies, to the discretion of courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally).

          (c) neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in a breach or
violation of, or constitute a default under, the governing documents of the
Holders, or any agreement, indenture or other instrument to which the Holders
are a party or by which any of them are bound or to which any of their
properties are subject, nor will the performance by the Holders of their
obligations hereunder violate any applicable law or result in the creation or
imposition of any lion, charge, claim or encumbrance upon any property or assets
of the Holders. No permit, consent, approval, authorization or order of any
Governmental Authority or other Person is required in connection with the
consummation by the Holders of the transactions contemplated by this Agreement,
except such as have been obtained and as otherwise contemplated by this
Agreement.

          (d) it is an “accredited investor’ within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Series C Preferred and Warrants.

          (e) it or its investment adviser has had an opportunity to discuss,
ask questions and receive answers concerning the Company’s business, management
and financial affairs with the Company’s management sand has been permitted to
have access to all information which it has requested in order to evaluate the
merits and risks of the purchase of the Series C Preferred and Warrants.

          (f) the Series C Preferred and Warrants being purchased by it are
being acquired for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof.

          (g) it understands that (1) the Series C Preferred and Warrants have
not been registered under the Securities Act or the securities laws of any state
by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and/or Rule
506 promulgated under the Securities Act, (2) the Series C Preferred and the
shares of common stock issued upon exercise of the Warrants must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration and (3) the certificates
representing the Series C Preferred and the Warrants will bear the following
legend:

  The securities represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an effective registration
statement under the Securities Act of 1933 (the “Act”), or pursuant to an
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the company.

         9. Conditions to the Obligations of the Holders and the Company.

        9.1. Conditions to the Obligations of the Holders. The obligation of
each Holder to exchange its Series B Preferred for Series C Preferred and
Warrants on the Closing Date is subject to the satisfaction, on or before the
Closing Date, of the following conditions:

          (a) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby shall be satisfactory in form and substance to the Holders
and the Holders shall have received all such counterpart originals or certified
or other copies of such documents as they reasonably may request.

          (b) Exchange of Series B Preferred. Holders of all outstanding Series
B Preferred of the Company shall have agreed to surrender all outstanding Series
B Preferred at or prior to the Closing Date.

        9.2. Conditions to the Obligations of the Company. The obligation of the
Company to issue and deliver the Series C Preferred and the Warrants on the
Closing Date is subject to the following conditions:

          (a) Surrender of Series B Preferred. The holders of all outstanding
Series B Preferred (consisting of the Holders and four other holders who will
surrender all 6,325 shares of Series B Preferred in exchange for cash and
Warrants) shall have surrendered all Series B Preferred for cancellation or
exchange pursuant to this Agreement or other similar agreements on or before the
Closing Date.

          (b) Series C Designation.The Series C Designation shall have been
filed with, and accepted by, the Secretary of State of Nevada.

         10. Covenants of the Company. The Company covenants and agrees with
each of the Holders that so long as a majority of the Series C Preferred issued
by the Company pursuant to the terms of this Agreement are held by the Holders
as a group:

        10.1. Financial Statements, Reports, Etc. The Company shall furnish to
each Holder promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the SEC.

        10.2. Reserve for Additional Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of common
stock, for the purpose of issuing shares of common stock upon exercise of all of
the Warrants, such number of its duly authorized shares of its common stock as
shall be sufficient to permit all the Warrants to be exercised. If at any time
the number of authorized but unissued shares of common stock shall not be
sufficient to comply with the terms of this Agreement or to permit exercise of
all of the, Warrants, the Company will forthwith take such corporate action as
may be necessary, including holding a special meeting of its stockholders to
approve an Amendment to the Company’s Charter, to increase its authorized but
unissued shares of common stock to such number of shares as shall be sufficient
for such purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative body that
may be required under applicable state corporate and securities laws in
connection with the issuance of shares of common stock.

        10.3. Keeping of Records and Books of Account. The Company shall keep,
and cause each subsidiary to keep, adequate records and books of account, in
which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.

        10.4. Comply With Registration Obligations. The Company shall satisfy
its obligations to register the shares underlying the Warrants as set forth in
the form of Warrant attached as ibit B.

        10.5. Only Fixed Price Conversion. While any of the Series C Preferred
is outstanding, the Company will not issue any security or create any options,
warrants or other rights, which are convertible into any security of the Company
at a price which is not fixed at the time of issuance or creation.

        10.6. Restructure of Outstanding Debt. The parties acknowledge that the
Company intends to seek extensions of the maturity for the Company’s outstanding
$2.8 million of Convertible Debentures, due April 15, 2001 from the individual
debentureholders. In connection with seeking such extension, the Company shall
not reduce the conversion price of the Debentures below $1.50 per share of
common stock, materially increase the obligations of the Company under the
Debentures, issue other equity of the Company to the debentureholders, or make
any other change to the Debentures that would materially and adversely impact
the Holders of the outstanding Series C Preferred without, in any case, first
obtaining the written consent of the Holders of 80% of the Series C Preferred
then outstanding.

         11. Miscellaneous.

        11.1. Publicity. Without the prior approval of the other parties, no
party shall issue, make or distribute any press release, public announcement or
other publicity or disclosure (each a “Release”) that refers to the Holders’
investment in or contracts or agreements with the Company, except in each
instance, if, upon the advice of counsel, the party believes such Release is
required by applicable law or regulations, or by a court or agency having
jurisdiction, in which case such party shall use its best efforts to give the
other parties written notice thereof, provide the text of such Release and
permit the other parties reasonable opportunity to review and comment upon the
relevant portions of such Release.

        11.2. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby.

        11.3. Survival of Agreements. All covenants and agreements made herein,
or made in the Warrants delivered to the Holders pursuant to or in connection
with this Agreement, shall survive the execution and delivery of this Agreement,
the issuance, sale and delivery of the Series C preferred and Warrants. The
Company shall not be liable to the Holders in respect to the representations and
warranties made herein unless claims have been initiated against it on or before
the date that is twenty-four (24) months from the date of this Agreement.

        11.4. Brokerage. Each party hereto will indemnify and hold harmless the
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way an agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.

        11.5. Parties in Interest. All representations, covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. Without limiting the generality of
the foregoing, all representations, covenants and agreements benefitting the
Holders shall inure to the benefit of holders who may purchase any of the Series
C Preferred in a private transaction from time to time of the shares sold by the
Company pursuant to the terms of this Agreement.

        11.6. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person or mailed by
certified or registered mail, return receipt requested, addressed as follows:

The Company:

         Pease Oil and Gas Company
        751 Horizon Court, Suite 203
        P. O. Box 60219
        Grand Junction, Colorado 81506-8718
        Attention: Patrick J. Duncan, President

With a copy to:

         Alan W. Peryam, Esq.
        Alan W. Peryam, LLC
        1120 Lincoln Street, Suite 1000
        Denver, Colorado 80203

The Holders:

         To the addresses set forth on Schedule 1 hereto

or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.

        11.7. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Colorado.

        11.8. Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.

        11.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

        11.10. Amendments. This Agreement may not be amended or modified, and no
provisions hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the outstanding shares of Series C
Preferred received by Holders pursuant to the terms of this Agreement.

        11.11. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.

        11.12. Title and Subtitles. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.

        11.13. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

          (a) “person” shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.

          (b) “subsidiary” shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.

          (c) “Governmental Authority” shall mean (i) the United States of
America or any state within the United States of America and (ii) any court or
any governmental department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any state within the
United States of America.

        11.14. Grounds for Termination. This Agreement may be terminated at any
time prior to Closing:

          (a) By mutual agreement of the Company, on one hand, and the Holders,
on the other hand; and

          (b) By the Company or any Holder if the Closing shall not have
occurred on or before December 15, 2000, provided, however, that no party shall
be entitled to terminate this Agreement under this Section 11.14(b) if the
Closing has failed to occur because such party negligently or willfully failed
to perform or observe in any material respect its covenants and agreements
hereunder.

        11.15. Effect of Termination. In the event that the Closing does not
occur as a result of any party hereto exercising its rights to terminate
pursuant to Section 11.14, then this Agreement shall be null and void and,
except as expressly provided herein, no party shall have any rights or
obligations under this Agreement, except that nothing herein shall relieve any
party from liability for any willful or negligent failure to perform or observe
in any material respect any agreement or covenant contained herein. In the event
the termination of this Agreement results from the willful or negligent failure
of any party to perform in any material respect any agreement or covenant
herein, then the other parties shall be entitled to all remedies available at
law or in equity and shall be entitled to recover court costs and reasonable
attorneys' fees in addition to any other relief to which such party may be
entitled.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the day and year first above written.

                                                                     
       PEASE OIL AND GAS COMPANY
                                                                             a
Nevada corporation

ATTEST

                                                                             By:
/s/ Patrick J. Duncan     
                                                                      
             Patrick J. Duncan, President

By: /s/ Marilyn L. Adams                   
             Marilyn L. Adams, Secretary

                                                                     
       PURCHASERS:

                                                                             The
entities listed on the attached Schedule 1

SCHEDULE 1

SCHEDULE OF INVESTORS

Name and Address                        of Series B Preferred        of Warrants        Signature
----------------                        ---------------------        ------------       ---------
Kayne Anderson Diversified                     19,503                   325,050         By: Kayne Anderson
    Capital Partners, L.P.                                                                    Capital Advisors, L.P.
1800 Avenue of the Stars
Floor 2                                                                                 By/s/ Robert Sinnott   
Century City, CA 90067                                                                      Robert Sinnott
Arbco Associates, L.P.                         16,000                   266,667         By: Kayne Anderson
1800 Avenue of the Stars                                                                      Capital Advisors, L.P.
Floor 2
Century City, CA 90067                                                                  By/s/ Robert Sinnott   
                                                                                            Robert Sinnott
Kayne Anderson                                 18,000                   300,000         By: Kayne Anderson
Non-Traditional Investments,                                                                  Capital Advisors, L.P.
L.P.
1800 Avenue of the Stars                                                                By/s/ Robert Sinnott   
Floor 2                                                                                     Robert Sinnott
Century City, CA 90067
Kayne Anderson Capital                          6,000                   100,000         By: Kayne Anderson
Partners, L.P.                                                                                Capital Advisors, L.P.
1800 Avenue of the Stars
Floor 2                                                                                 By/s/ Robert Sinnott   
Century City, CA 90067                                                                      Robert Sinnott
Sandpiper &amp; Co.                            26,000                   433,333         By: State Street Research &
c/o  State Street Research &                                                            Management Company, as
   Management Company,                                                                      Adviser
   as Adviser
One Financial Center                                                                    By/s/ Francis J. McNamara, III
Boston, MA 02111                                                                            Francis J. McNamara, III
                                                                                            Executive Vice President,
                                                                                            General Clunsel & Secretary
Marine Crew & Co.                              14,000                   233,333        By: State Street Research &
c/o  State Street Research &                  -------                ----------            Management Company, as
   Management Company,                                                                      Adviser
   as Adviser
One Financial Center                                                                     By/s/ Francis J. McNamara, III
Boston, MA 02111                                                                            Francis J. McNamara, III
                                                                                            Executive Vice President,
                                                                                            General Clunsel & Secretary
         Total                                  99,503                 1,658,383
                                                ======                 =========