LOAN AGREEMENT


     Agreement  entered  into as of the  10th  day of  September,  1998  between
Challenger Oil Service,  PLC,  ("Challenger") a corporation  organized under the
laws of England, and Chaparral Resources, Inc. ("CRI"), a Colorado corporation.

     WHEREAS,  Challenger  has entered into a drilling  contract  dated April 7,
1998 as amended by  Amendment  No. 1 dated as of September  10, 1998  ("Drilling
Contract") with Karakuduk Munai,  Inc.  ("KKM") a joint stock company  organized
under the laws of the  Republic  of  Kazakhstan  whereby  Challenger  will drill
certain  wells  for KKM in the  Karakuduk  Oil Field in  Kazakhstan  ("Karakuduk
Field"); and

     WHEREAS,  CRI has a fifty percent ( 50%) interest in KKM through its wholly
owned subsidiary Central Asian Petroleum (Guernsey) Limited, ("CAP-G"); and

     WHEREAS,  CRI has loaned  Challenger  three hundred  thousand United States
Dollars (US$300,000) on April 20, 1998 pursuant to a Promissory Note (the "April
Note")  on which  there is  accrued  interest  as of the  date  hereof  of seven
thousand six hundred and ninety five United States dollars  (US$7,695),  and one
hundred thousand United States dollars (US$100,000) on July 15, 1998 pursuant to
a Promissory Note (the "July Note") on which there is accrued interest as of the
date hereof of one thousand and seventy three United States  dollars  (US$1,073)
(the April Note and the July Note are  hereinafter  collectively  referred to as
the "Existing Loans" and

     WHEREAS,  Challenger has requested  that CRI loan  Challenger an additional
six hundred  thousand United States dollars  (US$600,000.00)  ("New Loan") which
will be consolidated and extended with the Existing Loans into a new loan in the
amount of one million eight thousand seven hundred and sixty eight United States
dollars  (US$1,008,768.00)  ("Loan Amount") to be evidenced by a Promissory Note
for the  combined  Loan  Amount to be dated as of the date hereof in the form of
Exhibit A; and

     WHEREAS,  CRI is  willing  to  advance  the Loan  Amount  on the  terms and
conditions set forth herein.

     NOW THEREFORE, the parties hereto hereby agree as follows:

1. Loan Amount

     CRI will loan  Challenger  the Loan  Amount of one million  eight  thousand
     seven hundred and sixty eight United States dollars (US$1,008,768.00) for a
     term not to exceed twelve (12) months from the Repayment  Commencement Date
     (the "Loan Term") at an annual  interest  rate equal to the three (3) month



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     London Interbank  Offered Rate ("LIBOR") in effect from time to time during
     the term of this Loan as  published  in the Wall  Street  Journal  plus one
     percentage point ("Interest Rate").

2.   Use of Proceeds

2.1  Challenger  has used  the  proceeds  of the  Existing  Loans  to ready  the
     Challenger No. 23 as that term is used in the Drilling Contract dated April
     7, 1998 for service in Kazakstan, and agrees to use the proceeds of the New
     Loan to ready the Drilling  Unit as that term is defined in Amendment  No.1
     to  the  Drilling  Contract  dated  September  10,1998,  including  without
     limitation,  purchasing  equipment  and procuring  necessary  personnel and
     services.

2.2  As a condition  precedent to CRI advancing  the New Loan amount  hereunder,
     Challenger agrees to provide CRI with either a signed copy of the agreement
     (with the  economic  terms  redacted)  between  Challenger  and Oil and Gas
     Exploration  Company Cracow, Ltd. whereby Challenger has obtained the right
     to the use of the Drilling  Unit, or  alternatively,  a letter from Oil and
     Gas Exploration Company Cracow, Ltd., in form and substance satisfactory to
     CRI and its counsel,  acknowledging  that the Drilling Unit is being leased
     to Challenger  and will be taken to  Kazakhstan  for use by KKM pursuant to
     the Drilling Contract.

3.   Repayment Terms

3.1  The  Parties  agree that until the first  payments  are made by KKM for the
     Drilling Unit pursuant to the Drilling  Contract,  or sixty (60) days after
     the date that the Drilling Unit arrives on location at the Karakuduk Field,
     whichever shall first occur ("Repayment  Commencement  Date"),  interest on
     the Loan shall accrue at the Interest Rate.

3.2  Beginning  with the  Repayment  Commencement  Date,  and on the next eleven
     consecutive (11) monthly  anniversaries  thereof,  Maker will pay to Payee,
     the amount of eighty  four  thousand  and two  United  States  dollars  and
     seventy five cents (US$84,002.75) plus interest at the Interest Rate on the
     unpaid  principal of the Loan Amount.  Such interest  payments shall be due
     and payable on or before the last day of each  calendar  quarter  following
     the Repayment  Commencement Date; provided,  however that the last interest
     payment shall be made at the same time as the last principal payment of the
     Loan Amount.

3.3  Challenger agrees that effective as of the Repayment Commencement Date, and
     continuing  until  the Loan is  repaid  in  full,  it  shall  assign  to an
     independent  third party  financial  institution  selected by CRI  ("Fiscal
     Agent"),  the right to receive all payments made or to be made by KKM under
     the  Drilling  Contract.  CRI shall  notify  Challenger  of the name of the
     Fiscal Agent by October 31, 1998, or the date on which the Drilling Unit is



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     rigged up and  ready to spud the  first  well in  Kazakstan,  whichever  is
     later.  Upon receipt of such  payments  from KKM, the Fiscal Agent shall be
     instructed  to  immediately  pay  to CRI  $84,002.75,  plus  the  quarterly
     interest  payment  when due and any late fees,  defaults  or other  charges
     permitted to be collected by CRI hereunder  (which amount shall be provided
     to the Fiscal Agent by CRI not later than ten (10) days prior to the end of
     each calendar  quarter.  The Fiscal Agent shall also be instructed that any
     amounts  received  by the Fiscal  Agent from KKM which are in excess of the
     foregoing,  will be promptly paid to Challenger within three (3) days after
     their receipt by the Fiscal Agent.

4.   Default

4.1  The  occurrence of any one or more of the following  events with respect to
     Challenger  shall  constitute  an event of  default  hereunder  ("Event  of
     Default"):

     (a) If Challenger shall fail to pay any amount when due hereunder, and such
     failure  continues  for five (5) days after  either CRI or the Fiscal Agent
     gives written notice thereof to Challenger; provided, however, that KKM has
     made the payments that are otherwise due under the Drilling Contract.

     (b) If,  pursuant to or within the meaning of the United States  Bankruptcy
     Code or any other  federal or state law relating to insolvency or relief of
     debtors (a  "Bankruptcy  Law"),  Challenger  shall (i) commence a voluntary
     case or  proceeding;  (ii)  consent  to the  entry of an order  for  relief
     against it in an involuntary  case;  (iii) consent to the  appointment of a
     trustee, receiver,  assignee,  liquidator or similar official; (iv) make an
     assignment  for the benefit of its  creditors;  or (v) admit in writing its
     inability to pay its debts as they become due.

     (c) If a court of  competent  jurisdiction  enters an order or decree under
     any  Bankruptcy  Law  that  (i)  is for  relief  against  Challenger  in an
     involuntary case, (ii) appoints a trustee, receiver,  assignee,  liquidator
     or similar  official for Challenger or  substantially  all of  Challenger's
     properties, or (iii) orders the liquidation of Challenger, and in each case
     the order or decree is not dismissed within sixty (60) days.

4.2  Challenger  shall  notify  CRI in writing  within  three (3) days after the
     occurrence of any Event of Default of which Challenger acquires knowledge.

4.3  Upon the occurrence of an Event of Default  hereunder (unless all Events of
     Default have been cured or waived by CRI),  CRI may, at its option,  (i) by
     written notice to Challenger,  declare the entire unpaid principal  balance
     of the  Promissory  Note,  together  with  all  accrued  interest  thereon,
     immediately  due and  payable  regardless  of any prior  forbearance,  (ii)
     exercise any and all rights and remedies  available to it under  applicable


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     law, including,  without  limitation,  the right to collect from Challenger
     all sums due under this Note,  and (iii) impose a rate of interest  that is
     equal to the highest rate of interest permissible under applicable law upon
     any unpaid  principal  balance of the Promissory  Note from the date of the
     occurrence  of an Event of Default  until  such  unpaid  principal  balance
     together with any accrued  interest and other fees,  costs and expenses are
     paid in full.  Challenger  shall  pay all  reasonable  costs  and  expenses
     incurred by or on behalf of CRI in connection with CRI's exercise of any or
     all  of its  rights  and  remedies  under  this  Note,  including,  without
     limitation, reasonable attorneys' fees.

5.   Representations and Warranties of Challenger

5.1  Challenger is a corporation that is duly organized,  validly existing,  and
     in good standing under the laws of England and has all necessary  power and
     authority to execute and deliver this Agreement, to perform its obligations
     hereunder, and to consummate the transactions contemplated hereby.

5.2  Challenger has duly authorized and approved by all requisite  action on its
     part  the  execution  and  delivery  hereof,  and  the  performance  of its
     obligations hereunder.

5.3  Challenger has duly executed and delivered this Agreement and, assuming CRI
     has duly authorized, executed, and delivered this Agreement, this Agreement
     constitutes  a  legal,   valid,  and  binding   obligation  of  Challenger,
     enforceable against Challenger in accordance with its terms;

5.4  Challenger's execution,  delivery, and performance of this Agreement do not
     and will not: (A) violate,  conflict  with,  or result in the breach of any
     provision  of  Challenger's  charter,  by-laws,  or similar  organizational
     documents;  or (B) violate or conflict with any law or governmental  order,
     rule or regulation applicable to Challenger.

5.5  Challenger's execution,  delivery, and performance of this Agreement do not
     and will not require any consent, approval,  authorization,  or other order
     of, action by, filing with, or notification to, any governmental  authority
     or any  other  person  or  entity,  except  for such  consents,  approvals,
     authorizations,  and  other  orders  of,  actions  by,  filings  with,  and
     notifications to, any governmental authority or any other person: or entity
     (A) which have been duly  obtained,  taken,  or made, and which are in full
     force and effect as of the date  hereof;  (B) the  failure to obtain  which
     would not prevent Challenger from performing its obligations hereunder; and
     (C)  which  may be  necessary  as a result  of any  facts or  circumstances
     relating solely to CRI.

5.6  No action is pending  or, to the best  knowledge  of  Challenger  after due
     inquiry,  threatened,  which  could  reasonably  be  expected to affect the
     legality,  validity, or enforceability of this Agreement, or materially and
     adversely  affect  Challenger's  ability to pay,  perform,  or observe  its
     obligations hereunder.


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6.   Representations and Warranties of CRI

6.1  CRI is a corporation duly organized, validly existing, and in good standing
     under the laws of the State of Delaware,  and has all  necessary  power and
     authority to execute and deliver this Agreement, to perform its obligations
     hereunder, and to consummate the transactions contemplated hereby;

6.2  CRI has duly  authorized  and approved by all requisite  action on its part
     the execution  and delivery  hereof,  the  performance  of its  obligations
     hereunder,  and the consummation of the transactions  contemplated  hereby;
     and

6.3  CRI has duly executed and delivered this Agreement and, assuming  Purchaser
     has duly authorized, executed, and delivered this Agreement, this Agreement
     constitutes a legal,  valid,  and binding  obligation  of CRI,  enforceable
     against CRI in accordance with its terms.

7.   Assignment

This Agreement  may not be assigned by  Challenger  without the express  written
     consent of CRI (which  consent  may be  granted or  withheld  in CRI's sole
     discretion),  and  shall be  binding  upon the  respective  successors  and
     assigns of each of the parties hereto.

8.   Notices

All  notices  authorized  or  required  between  the  parties  hereto  shall  be
     addressed and effective when delivered to such persons as designated below.
     Each party  shall have the right to change its  address at any time  and/or
     designate  that copies of all such Notices be directed to another person at
     another address, by giving notice thereof to all other parties.


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If to Challenger:

                  Challenger Oil Service, PLC
                  c/o Ogden & Maler
                  3100 S.  Gessner, Suite 600
                  Houston, TX 77063
                  Attention: George Tatanaki
                  Telephone: 713-974-4466
                  Fax: 713-974-3355

With a copy to:
                  Ogden & Maler
                  3100 S.  Gessner, Suite 600
                  Houston, TX 77063
                  Attention: Harold L.  Ogden
                  Telephone: 713-974-4466
                  Fax: 713-974-3355


If to Chaparral

                  Chaparral Resources, Inc.
                  2211 Norfolk, Suite 1150
                  Houston, TX 77098
                  Attention: Howard Karren
                  Telephone: (713) 807-7100
                  Fax: (713) 807-7561

With a copy to:

                  Alan D. Berlin, Esq.
                  Aitken Irvin Lewin Berlin Vrooman & Cohn, LLP
                  2 Gannett Drive
                  White Plains, NY 10604
                  Telephone: 914-694-5717
                  Fax: 914-694-1647

9.   Applicable Law and Dispute Resolution

9.1  This Agreement shall be governed by, construed, interpreted and enforced in
     accordance  with  the  substantive  laws  of the  State  of  Texas,  to the
     exclusion of any conflicts of law rules which would refer the matter to the
     laws of another jurisdiction.

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9.2  Each party hereto hereby unconditionally and irrevocably:

     (A) submits, for itself and its property, to the exclusive  jurisdiction of
     the courts of the State of Texas and any federal court of the United States
     of  America,  in either  case,  sitting in Harris  County,  Texas,  and any
     appellate  court  therefrom,  in any action  based  upon,  resulting  from,
     arising out of, or relating to this Loan  Agreement,  or in connection with
     the   authorization,   preparation,   negotiation,   execution,   delivery,
     administration,  performance, or enforcement hereof, or for the recognition
     or enforcement of any judgment resulting from any such action;

     (B) agrees that it will not commence any action except in any such court of
     the State of Texas;

     (C) waives, and agrees that it will not plead or make, any objection to the
     venue of any state or federal  court of the State of Texas and agrees  that
     it will not plead or make, any claim that any such action in any such state
     or federal  court of the State of Texas has been  brought in an improper or
     otherwise inconvenient forum;

     (D) agrees that it will not seek any  punitive  damages in any such action,
     and waives all rights to seek punitive damages; and

     (E) agrees that the summons and  complaint or any other process in any such
     action may be served by mailing to any of the addresses set forth herein or
     by hand  delivery to a person of suitable  age and  discretion  at any such
     address,  and that any such  service  shall be deemed to be complete on the
     date such process is so mailed or delivered  and to have the same force and
     effect as personal service within the State of Texas.

10.  Miscellaneous

10.1 This Agreement may be executed in any number of counterparts  and each such
     counterpart  shall be deemed an original  Loan  Agreement for all purposes;
     provided no party shall be bound by the terms of this Agreement  unless and
     until all parties have executed a counterpart.

10.2 This Loan  Agreement is the entire  agreement of the parties and supersedes
     all prior understandings and negotiations of the parties.

10.3 Except as otherwise provided herein or agreed in writing,  each party shall
     pay its own costs and expenses in connection  with this Loan  Agreement and


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     the services provided hereunder.

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IN WITNESS  WHEREOF,  The Parties hereto have executed this Loan Agreement as of
the date first above written.

                                           Challenger Oil Service, PLC


                                           By:
                                                    (Print name and title)


                                           Chaparral Resources, Inc.


                                           By:
                                                    (Print name and title)



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