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                                                                   EXHIBIT 10.39

                         PRODUCTION SHARING CONTRACT FOR

                  THE EXPLOITATION OF COALBED METHANE RESOURCES

                            FOR THE SHOUYANG AREA IN

                         SHANXI PROVINCE, QINSHUI BASIN,

                         THE PEOPLE'S REPUBLIC OF CHINA

                                     BETWEEN

                  CHINA UNITED COALBED METHANE CORPORATION LTD.

                                       AND

                               PHILLIPS CHINA INC.

                                 BEIJING, CHINA

                                 APRIL 16, 2002

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                                     TABLE OF CONTENTS

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ARTICLE                                                                                            PAGE
<S>                                                                                                <C>
ARTICLE 1:   DEFINITIONS.........................................................................    1
ARTICLE 2:   OBJECTIVE OF THE CONTRACT...........................................................    5
ARTICLE 3:   CONTRACT AREA.......................................................................    5
ARTICLE 4:   CONTRACT TERM.......................................................................    5
ARTICLE 5:   RELINQUISHMENT OF THE CONTRACT AREA.................................................    7
ARTICLE 6:   MINIMUM EXPLORATION WORK COMMITMENT AND EXPECTED MINIMUM EXPLORATION EXPENDITURES...    8
ARTICLE 7:   MANAGEMENT ORGANIZATION AND ITS FUNCTIONS...........................................   10
ARTICLE 8:   OPERATOR............................................................................   14
ARTICLE 9:   ASSISTANCE PROVIDED BY CUCBM........................................................   17
ARTICLE 10:  WORK PROGRAM AND BUDGET.............................................................   18
ARTICLE 11:  DETERMINATION  OF COMMERCIALITY OF CBM..............................................   19
ARTICLE 12:  FINANCING AND COST RECOVERY.........................................................   21
ARTICLE 13:  CBM PRODUCTION AND ALLOCATION.......................................................   23
ARTICLE 14:  QUALITY, QUANTITY, PRICE, AND DESTINATION OF CBM....................................   26
ARTICLE 15:  PREFERENCE FOR THE EMPLOYMENT OF CHINESE PERSONNEL, GOODS AND SERVICES..............   29
ARTICLE 16:  TRAINING OF CHINESE PERSONNEL AND TRANSFER OF TECHNOLOGY............................   29
ARTICLE 17:  OWNERSHIP OF ASSETS AND DATA........................................................   31
ARTICLE 18:  ACCOUNTING, AUDITING AND PERSONNEL COSTS............................................   31
ARTICLE 19:  TAXATION............................................................................   33
ARTICLE 20:  INSURANCE...........................................................................   34
ARTICLE 21:  CONFIDENTIALITY.....................................................................   35
ARTICLE 22:  ASSIGNMENT..........................................................................   36
ARTICLE 23:  ENVIRONMENTAL PROTECTION AND SAFETY.................................................   37
ARTICLE 24:  FORCE MAJEURE.......................................................................   37
ARTICLE 25:  CONSULTATION AND ARBITRATION........................................................   38
ARTICLE 26:  EFFECTIVENESS AND TERMINATION OF THE CONTRACT.......................................   39
ARTICLE 27:  THE APPLICABLE LAW..................................................................   40
ARTICLE 28:  LANGUAGE OF CONTRACT AND WORKING LANGUAGE...........................................   40
ARTICLE 29:  MISCELLANEOUS.......................................................................   40
ANNEX II:    ACCOUNTING PROCEDURE................................................................   43
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PREAMBLE

This Production Sharing Contract ("the Contract") is entered into in Beijing on
this 16th day of April, 2002 by and between China United CBM Corporation Ltd.
(hereafter abbreviated as "CUCBM"), a company organized and existing under the
laws of the People's Republic of China, having its headquarters domiciled in
Beijing, the People's Republic of China as one part; and Phillips China Inc., a
company organized and existing under the laws of Liberia, having its
headquarters domiciled in Beijing (hereinafter referred to as the "Foreign
Contractor" or "Contractor") as the other part.

WITNESSETH

WHEREAS, all Coalbed Methane resources under the territory and internal waters
of the People's Republic of China and within the limits of national jurisdiction
of the People's Republic of China are owned by the People's Republic of China;
and

WHEREAS, CUCBM shall be responsible for business matters in respect of the
exploitation of Coalbed Methane resources in cooperation with foreign
enterprises, and for negotiating, entering into and implementing contracts for
the exploitation of Coalbed Methane resources in cooperation with foreign
enterprises and has the exclusive right to explore for, develop and produce
Coalbed Methane in cooperation with foreign enterprises in areas approved by the
State Council for exploitation of Coalbed Methane resources in cooperation with
foreign enterprises and the exclusive authority to enter into this Contract as
authorized by the State Council of the People's Republic of China; and

WHEREAS, the Foreign Contractor desires and agrees to provide funds, and apply
its appropriate and advanced technology and managerial experience to cooperate
with CUCBM for the exploitation of Coalbed Methane resources within the Contract
Area and agrees to be subject to the laws, decrees, and other rules and
regulations of the People's Republic of China with respect to the implementation
of the Contract.

NOW, THEREFORE, IT IS MUTUALLY AGREED as hereafter set forth:

ARTICLE 1: DEFINITIONS

The following words and terms used in the Contract shall have, unless otherwise
specified herein, the following meanings:

1.1   "Coalbed Methane" or "CBM" means any gas mainly consisting of methane
      stored in coal seams and/or adjacent strata (including in the overlying
      and underlying strata) within the Contract Area.

1.2   "Coalbed Methane Products" or "CBM Products" means any or all of Coalbed
      Methane, methanol, electricity generated by a coalbed methane-fired
      generation facility, and other Coalbed Methane derivatives or products
      including water and any other product of production.

1.3   "Coalbed Methane Discovery" or "CBM Discovery" means a potential Coalbed
      Methane reservoir which, in accordance with Article 11 hereof, is worth
      further evaluation by exploration within the Contract Area.

1.4   "Coalbed Methane Field" or "CBM Field" means an accumulation of Coalbed
      Methane within the Contract Area which has been determined to be of
      commercial value and for which it has been decided to proceed with
      development. The accumulation may be bounded by but is not limited to
      geologic structures such as fault blocks, coal discontinuities or
      topographical features. Fields may also be designated as areas of similar
      geologic characteristics including but not limited to coal thickness,
      drill depths, and gas content.

1.5   "Coalbed Methane Operations" or "CBM Operations" means the Exploration
      Operations, Development Operations, Production Operations, and other
      activities related to these Operations carried out under the Contract.

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1.6   "Liquid Hydrocarbons" means any liquid hydrocarbons extracted from CBM.

1.7   "Exploration Operations" means operations carried out for the purpose of
      discovering and evaluating CBM bearing areas by means of geological,
      geophysical, geochemical and other methods including exploratory well
      drilling; all the work undertaken to determine the commerciality of areas
      in which CBM has been discovered including core drilling, modeling, area
      selection, feasibility studies, Pilot Development (including production
      therefrom), formulation of the Overall Development Program; and activities
      related to all such operations including negotiation and signing of
      longterm transportation and sales contracts.

1.8   "Development Operations" means operations carried out during the
      development period for the realization of CBM production from the date of
      approval of the Overall Development Program for any CBM Field, including
      planning, design, construction, installation, drilling, developing
      transportation systems and markets, and the related research work as well
      as production activities, carried out before the Date of Commencement of
      Commercial Production.

1.9   "Production Operations" means operations and all activities related
      thereto carried out during the production period for CBM production of
      each CBM Field from the Date of Commencement of Commercial Production,
      including, but not limited to extraction, injection, stimulation,
      treatment, storage, transportation and lifting, etc.

1.10  "Contract Area " means a surface area demarcated with geographic
      coordinates for the cooperative exploitation of CBM resources, and in the
      Contract, means the surface area stipulated in Article 3.1 hereof.

1.11  "Exploration Area" means the surface area within the Contract Area which
      has not been relinquished and which is not included in a Development Area
      or Production Area before the expiration of the exploration period hereof
      and in which Development Operations and Production Operations have not
      begun.

1.12  "Development Area" means a portion of the Contract Area covering a CBM
      Field which has been designated for development. The Development Area(s)
      shall be proposed by the Operator, demarcated by the Joint Management
      Committee ("JMC") and delineated as such in the Overall Development
      Program submitted for approval and approved by the Department or Unit.

1.13  "Production Area" means a surface area within any Development Area for the
      purpose of the performance of the Production Operations within said
      Development Area. The Production Area proposed by the Operator and
      approved by JMC shall be submitted to CUCBM for approval before the Date
      of Commencement of Commercial Production.

1.14  "Date of Commencement of Commercial Production" means the date of
      commencement and delivery of the production of CBM from any CBM Field
      proposed and announced by JMC in accordance with the provisions in Article
      7.2.5 hereof.

1.15  "Calendar Year" means a period of twelve (12) consecutive Gregorian months
      under the Gregorian Calendar, beginning on the first day of January and
      ending on the thirty-first day of December in the same year.

1.16  "Contract Year" means a period of twelve (12) consecutive Gregorian months
      under the Gregorian Calendar, within the term of the Contract, beginning
      on the Date of Commencement of the Implementation of the Contract or any
      anniversary thereof.

1.17  "Production Year" means in respect of each CBM Field, a period of twelve
      (12) consecutive Gregorian months under the Gregorian Calendar, beginning
      on the Date of Commencement of Commercial Production of such CBM Field or
      any anniversary thereof.

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1.18  "Calendar Quarter" means a period of three (3) consecutive Gregorian
      months under the Gregorian Calendar, beginning on the first day of
      January, the first day of April, the first day of July, or the first day
      of October.

1.19  "Exploratory Well" means any well drilled within the Contract Area during
      the exploration period for the purpose of searching and evaluating for CBM
      accumulations, including wells drilled for the purpose of obtaining
      geological and geophysical parameters, any dry hole(s) and discovery
      well(s).

1.20  "Pilot Development" means the installation and operation of necessary
      equipment within the Contract Area (including wells) aiming at evaluating,
      through pilot production of Coalbed Methane, the potential commercial
      value of the Coalbed Methane in a specific area.

1.21  "Development Well" means a well drilled after the date of approval of the
      Overall Development Program for a CBM Field for the purpose of producing
      CBM, increasing production or accelerating extraction of CBM, including
      production wells, injection wells and dry holes.

1.22  "Work Program" means all types of plans formulated for the performance of
      the CBM Operations, including but not limited to plans for exploration,
      development, production, transportation and sales.

1.23  "Overall Development Program" means a plan prepared by the Operator for
      the development of a CBM Field or part of a CBM Field (phased development)
      which has been reviewed and adopted by JMC, confirmed by CUCBM and
      approved by the Department or Unit, and such plan shall include, but not
      be limited to, recoverable reserves, the Development Well pattern, master
      design, production profile, economic analysis and time schedule of the
      Development Operations.

1.24  "Deemed Interest" means interest accruing on the development costs
      calculated in accordance with the rate of interest stipulated in Article
      12.2.3.2 hereof when the development costs incurred in each CBM Field
      within the Contract Area are recovered by the Parties.

1.25  "CBM Field Straddling a Boundary" means a CBM Field extending from the
      Contract Area to one or more other contract areas and/or areas in respect
      of which no CBM contracts have been signed.

1.26  "Annual Gross Production of CBM" means the total amount of CBM produced
      from each CBM Field within the Contract Area considered separately in each
      Calendar Year, less the amount of CBM used for CBM Operations in such CBM
      Field within the Contract Area and the amount of losses, which is saved
      and measured by a measuring device at the Delivery Point as specified in
      Article 14.3.1 hereof.

1.27  "Annual Gross Production of Liquid Hydrocarbons" means the total amount of
      Liquid Hydrocarbons produced from each CBM Field within the Contract Area
      considered separately in each Calendar Year, less the amount of Liquid
      Hydrocarbons used for CBM Operations in such CBM Field within the Contract
      Area and the amount of losses, which is saved and measured by a measuring
      device at the Delivery Point as specified in Article 14.3.1 hereof.

1.28  "Basement" means igneous rocks, metamorphic rocks or rocks of such nature
      which, or formations below which, could not contain CBM deposits in
      accordance with the knowledge generally accepted in the international
      Coalbed Methane industry and shall also include such impenetrable rock
      substances as salt domes, mud domes and any other rocks which make further
      drilling impracticable or economically unjustifiable by the modern
      drilling technology normally utilized in the international Coalbed Methane
      industry.

1.29  "Contractor" means the Foreign Contractor specified in the Preamble
      hereto, including any assignee(s) pursuant to an assignment made in
      accordance with Article 22 hereof.

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1.30  "Parties" means CUCBM and the Contractor.

1.31  "Party" means either of the Parties.

1.32  "Operator" means the entity responsible for the performance of the CBM
      Operations under the Contract.

1.33  "Subcontractor" means any entity which provides the Operator with goods or
      services for the purpose of the Contract.

1.34  "Third Party" means any individual or entity except CUCBM, the Contractor
      and any of their Affiliates.

1.35  "Chinese Personnel" means any citizen of the People's Republic of China,
      including CUCBM's personnel and Chinese citizens employed by the
      Contractor and/or the Subcontractor(s) involved in Coalbed Methane
      Operations under the Contract.

1.36  "Expatriate Employee" means any person employed by the Contractor,
      Subcontractor(s), or CUCBM who is not a citizen of the People's Republic
      of China. Overseas Chinese who reside abroad and have the nationality of
      the People's Republic of China and other Chinese abroad, when they are
      employed by the Contractor, Subcontractor(s) or CUCBM, shall also be
      deemed to be Expatriate Employees within the scope of the Contract.

1.37  "Affiliate" means:

      (a)   any entity in which CUCBM or any company comprising Contractor
            directly or indirectly holds fifty percent (50%) or more of the
            voting rights carried by its share capital; or

      (b)   any entity which directly or indirectly holds fifty percent (50%) or
            more of the aforesaid voting rights of CUCBM or any company
            comprisingthe Contractor; or

      (c)   any other entity whose aforesaid voting rights are held by an entity
            mentioned in (b) above in an amount of fifty percent (50%) or more;

1.38  "Delivery Point" means a point or points agreed upon by the Parties for
      the delivery of CBM or Liquid Hydrocarbons located within or outside the
      Contract Area and specified in the Overall Development Program.

1.39  "Department or Unit" means the department or unit which is authorized by
      the State Council of the People's Republic of China to be responsible for
      administration of the Coalbed Methane industry of the People's Republic of
      China.

1.40  "Date of Commencement of the Implementation of the Contract" means the
      first day of the month following the month in which the Contractor has
      received notification from CUCBM of the approval of the Contract by the
      Ministry of Foreign Trade and Economic Co-operation of the People's
      Republic of China.

1.41  "Pre-Contract Costs" means those costs and expenditures incurred by CUCBM
      in respect of the exploration of the Contract Area and prior to the Date
      of Commencement of the Implementation of the Contract. Pre-Contract Costs
      are agreed to be Two Million Eight Hundred Forty Thousand U.S. dollars
      (US$2,840,000). Pre-Contract Costs shall be recovered by CUCBM pursuant to
      the provisions of Article 13 hereof.

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ARTICLE 2: OBJECTIVE OF THE CONTRACT

2.1   The objective of the Contract is to explore for, develop, produce and sell
      Coalbed Methane, Liquid Hydrocarbons or Coalbed Methane Products that may
      exist in the Contract Area, including all activities necessary to
      transport and market CBM, CBM Products and Liquid Hydrocarbons from the
      Contract Area.

2.2   The Contractor shall apply its appropriate and advanced technology and
      assign its competent experts to perform the Coalbed Methane Operations.

2.3   During the performance of the CBM Operations, the Contractor shall, as far
      as practicable and appropriate, transfer its technology used in CBM
      Operations hereunder to allow the Chinese Personnel to utilize said
      technology and to train such personnel in accordance with Article 16
      hereof.

2.4   The Contractor shall bear all the exploration costs required for the
      Exploration Operations. In the event that any CBM Field is discovered
      within the Contract Area, the development costs of such CBM Field shall be
      borne by the Parties in proportion to their participating interests:
      thirty percent (30%) by CUCBM and seventy percent (70%) by the Contractor.
      In the event that CUCBM opts to participate at a level less than thirty
      percent (30%) of the participating interests, or not to participate in the
      development of the CBM Field, the Contractor shall bear the remaining
      development costs necessary for the development of the CBM Field in
      accordance with Article 12.1.2 hereof.

2.5   If any CBM Field is discovered within the Contract Area, the CBM and/or
      Liquid Hydrocarbons produced therefrom shall be allocated in accordance
      with Articles 12 and 13 hereof.

2.6   Nothing contained in the Contract shall be deemed to confer any right on
      the Contractor other than those rights expressly granted hereunder.

ARTICLE 3: CONTRACT AREA

3.1   The Contract Area as of the date of signature of the Contract covers a
      total area of one thousand nine hundred sixty two and eight tenths square
      kilometers (1,962.80 km(2)), as marked out by the geographic location and
      the coordinates of the connecting points of the boundary lines shown on
      Annex I attached hereto.

      The said total area of the Contract Area shall be reduced in accordance
      with Articles 4, 5 and 11 hereof.

      Associated with the Contract Area and included in the grants of rights
      hereunder will be a pipeline right-of-way, if required, from the Contract
      Area to an interconnection or Delivery Point.

3.2   Except for the rights as expressly provided by the Contract, no right is
      granted in favor of the Contractor to the surface area, subsurface area,
      lake bed, stream bed, subsoil and any bodies of water or any natural
      resources or aquatic resources other than CBM, CBM Products and Liquid
      Hydrocarbons, existing therein and any things under the surface within the
      Contract Area.

ARTICLE 4: CONTRACT TERM

4.1   The term of the Contract shall include an exploration period, a
      development period and a production period.

4.2   The exploration period, beginning on the Date of Commencement of the
      Implementation of the Contract, shall be divided into three (3) phases and
      shall consist of five (5) consecutive Contract

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      Years, unless the Contract is sooner terminated, or the exploration period
      is extended in accordance with Article 24 hereof and Article 4.3 herein.
      The three (3) phases shall be as follows:

      the first phase of one (1) Contract Years (the first Contract Year) for
      reconnaissance;

      the second phase of two Contract Years (the second Contract Year through
      the third Contract Year) for core testing

      the third phase of two Contract Years (the fourth Contract Year through
      the fifth Contract Year) for Pilot Development.

4.3   If the time remaining in the exploration period when a CBM discovery is
      made within the Contract Area is not reasonably sufficient to complete the
      Pilot Development, or the time period for the Pilot Development of a CBM
      discovery extends beyond the expiration of the exploration period under a
      Pilot Development Work Program approved by JMC in accordance with Article
      11 hereof, subject to CUCBM's approval the exploration period under
      Article 4.2 hereof shall be extended to the extent necessary to complete
      the Pilot Development.

      If there are no channels for transportation or market access or consuming
      facilities, or if the Parties have not concluded a long-term
      transportation and sales contract in respect of the CBM, CBM Products
      and/or Liquid Hydrocarbons during the exploration period or during the
      extended exploration period as provided for above, Contractor shall be
      granted an additional extension to the exploration period. The period of
      extension shall be approved by CUCBM and shall be for a reasonable five
      (5) year period in order to complete such long-term transportation and
      sales contract and allow transportation and market access and consuming
      facilities to develop. If a long-term transportation and sales contract is
      not concluded within the reasonable five (5) year extension to the
      exploration period, the Contract shall be terminated.

      Any extension to the exploration period granted under this Article 4.3
      shall be for a period of time reasonably required to complete the above
      mentioned work and to develop transportation and market access and
      consumption facilities and for the Parties to negotiate long-term
      transportation and sales contracts in respect of CBM, CBM Products and/or
      Liquid Hydrocarbons in order to enable JMC to make a decision on the
      commerciality of the said CBM discovery in accordance with Article 11
      hereof and submit an acceptable Overall Development Program to the
      Department or Unit for approval.

4.4   The development period of any CBM Field within the Contract Area shall
      begin on the date of approval of the Overall Development Program of the
      said CBM Field, and end on the date of the entire completion of the
      Development Operations set forth in the Overall Development Program (which
      may continue beyond the Date of Commencement of Commercial Production),
      excluding the time for carrying out other additional development projects
      during the production period in accordance with Article 11.10 hereof.

4.5   The production period of any CBM Field within the Contract Area shall be a
      period beginning on the Date of Commencement of Commercial Production of
      the said CBM Field up to the Date of the expiration of the production
      period as specified in the approved Overall Development Program. However,
      the production period shall be extended for so long as there exist
      commercially recoverable reserves of CBM from the CBM Field. The extension
      of the production period shall not exceed the term of this Contract set
      forth under Article 4.7 herein.

      Under such circumstances as where the construction of a CBM Field is to be
      conducted on a large scale, and the time span required therefore is long,
      or where separate production of each of the multiple CBM producing zones
      of an CBM Field is required, or under other special circumstances, the
      production period thereof shall, when it is necessary, be properly
      extended with the approval of the Department or Unit.

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4.6     Suspension or abandonment of production of a CBM Field.

4.6.1   Suspension of production from a CBM Field within the production period

        In the event that the Parties agree to suspend temporarily production
        from a CBM Field which has entered into commercial production, the
        Production Area covered by the CBM Field shall be retained within the
        Contract Area. In no event shall the period of such retention extend
        beyond the date of the expiration of the production period of that CBM
        Field. The duration of the relevant period of production suspension and
        the arrangement for the maintenance operations during the aforesaid
        period of suspension shall be proposed by the Operator, and shall be
        decided by JMC through discussion. With respect to the aforesaid CBM
        Field which has been suspended and retained within the Contract Area, in
        the event that production is restored during the period of such
        retention, the production period of that CBM Field shall be extended
        correspondingly. In the event that the Parties fail to reach an
        agreement on the restoration of production by the expiration of the
        production suspension period decided by JMC through discussion, the
        Party who wishes to restore production shall have the right to restore
        production solely. The other Party may later elect to participate in
        production by paying to the other Party its participating interest share
        of the costs incurred in restoring such production, but shall have no
        rights or obligations in respect of such CBM Field for the production
        during such solely restored production period.

        In any event, the obligation for abandonment and site restoration shall
        rest solely with the Party(s) which participate in the restored
        production; which shall indemnify and hold harmless any
        non-participating Party from any costs, expenses or claims arising out
        of such obligation.

4.6.2   Abandonment of production from a CBM Field within the production period.

4.6.2.1 During the production period, either Party to the Contract may propose
        to abandon production from any CBM Field within the Contract Area,
        provided, however, that prior written notice shall be given to the other
        Party to the Contract. The other Party shall make a response in writing
        within ninety (90) days from the date on which the said notice is
        received. If the other Party also agrees to abandon production from the
        said CBM Field, then abandonment costs shall be paid by the Parties in
        proportion to their participating interests in such CBM Field. The
        Parties shall abandon such CBM Field in accordance with procedure agreed
        on by the Parties. From the date on which the abandonment is completed,
        the production period of such CBM Field shall be terminated and such CBM
        Field shall be excluded from the Contract Area.

4.6.2.2 If the Contractor notifies CUCBM in writing of its decision to abandon
        production from a CBM Field while CUCBM decides not to abandon
        production from said CBM Field, then from the date on which the
        Contractor receives CUCBM's written response of its aforesaid decision
        (the "Abandonment Date"), all of the Contractor's rights and obligations
        under the Contract in respect of said CBM Field, including, but not
        limited to, any obligation with respect to abandonment and site
        restoration in respect of such CBM Field, shall be transferred to CUCBM
        and terminated automatically with respect to Contractor, provided that
        the Contractor shall not transfer to CUCBM any of the Contractor's
        debts, existing liabilities and obligations in respect of the said CBM
        Field. In addition, the Contractor shall undertake its existing
        liabilities and obligations under the Contract prior to the Abandonment
        Date. From the Abandonment Date, the said CBM Field shall be excluded
        from the Contract Area.

4.7     The term of the Contract shall not go beyond thirty (30) consecutive
        Contract Years from the Date of Commencement of the Implementation of
        the Contract, unless otherwise stipulated hereunder.

ARTICLE 5: RELINQUISHMENT OF THE CONTRACT AREA

5.1     The Contractor shall relinquish a portion or portions of the Contract
        Area in accordance with the following provisions:

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5.1.1 In any of the following cases, the Contractor shall relinquish the
      remaining Contract Area, except for any Development Area, a possible or
      proposed Development Area and/or Production Area:

      (a)   at the expiration of the last phase of the exploration period
            (including extensions) as mentioned in Article 4.2 hereof; or

      (b)   at the expiration of the said exploration phase if the Contractor
            exercises its option under Article 6.3 (b) hereof; or

      (c)   at the expiration of the extended period, in the event that the
            exploration period is extended in accordance with Article 4.3 or
            Article 24 hereof.

5.1.2 In the execution of Article 5.1.1 herein, a Production Area and/or
      Development Area or any area proposed by Contractor corresponding to a CBM
      Discovery with a possibility of or potential for Pilot Development or
      awaiting Pilot Development and/or under a Pilot Development or included in
      an Overall Development Program awaiting approval, shall not be regarded as
      an area to be relinquished.

5.1.3 At the expiration of the production period of any CBM Field as specified
      in Article 4.5 hereof, such CBM Field within the Contract Area shall be
      excluded from the Contract Area.

5.2   Within ninety (90) days prior to the date of relinquishment of the
      Contract Area, the Contractor shall submit to CUCBM a report on its
      completed Exploration Operations on the areas proposed to be relinquished,
      including a map showing the proposed areas to be relinquished with the
      geographic location and the coordinates of the connecting points of the
      boundary lines.

5.3   In the exploration period, the Contractor shall bear the fee for CBM
      exploration rights of the Contract Area to be paid in accordance with the
      relevant laws and regulations of the People's Republic of China. In the
      development period and production period, CUCBM and the Contractor shall,
      in proportion to their respective participating interests, bear the fee
      for CBM mining rights of the Development Area and Production Area paid in
      accordance with relevant laws and regulations of the People's Republic of
      China. The fees for CBM exploration and mining rights shall be paid and
      are cost recoverable pursuant to Article 5.2.20 of Annex II hereof.

ARTICLE 6: MINIMUM EXPLORATION WORK COMMITMENT AND EXPECTED MINIMUM EXPLORATION
EXPENDITURES

6.1   The Contractor shall begin to perform the Exploration Operations within
      six (6) months after the Date of Commencement of the Implementation of the
      Contract, unless otherwise agreed upon by the Parties.

6.2   The Contractor shall fulfill the minimum exploration work commitment and
      expected minimum exploration expenditures for each phase of the
      exploration period in accordance with the following provisions:

6.2.1 During the first phase of the exploration period, the Contractor shall:

            Drill one (1) Exploration Well with footage totaling seven hundred
            (700) meters estimated to cost three hundred fifty thousand U.S.
            dollars (US$350,000), or acquire an equivalent amount of seismic
            equal to the estimated cost of drilling one (1) exploration well.

6.2.2 During the second phase of the exploration period, the Contractor shall:

      (a)   Drill two (2) Exploration Wells with footage totaling one thousand
            four hundred (1,400) meters;

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      (b)   Spend seven hundred thousand (US$700,000) U.S. dollars as its
            expected minimum exploration expenditures for such Exploration
            Operations.

6.2.3 During the third phase of the exploration period, the Contractor shall:

      (a)   drill and complete one (1) Pilot Development consisting of six (6)
            wells; and

      (b)   spend one million eight hundred thousand (US$1,800,000) U.S. dollars
            as its expected minimum exploration expenditures for such
            Exploration Operations.

6.2.4 With respect to the minimum exploration work commitment for each phase of
      the exploration period committed by the Contractor in accordance with
      Articles 6.2.1, 6.2.2 and 6.2.3 herein, when calculating whether the
      minimum exploration work commitment has been fulfilled, the number of
      Exploration Wells and Pilot Development Wells shall be the basis of such
      calculation.

6.3   At the expiration of the first and second phases of the exploration
      period, the Contractor has options (a), (b), or (c) and at the expiration
      of the third phase of the exploration period options (b) or (c) as
      follows:

      (a)   to enter the next phase and continue exploration; or

      (b)   to conduct Development Operations and Production Operations only on
            any CBM discoveries in accordance with the procedures under Article
            11 hereof provided, however, that the minimum exploration work
            commitments up to the date of such expiration of the said
            exploration phase have been fulfilled and the areas specified in
            Article 5 hereof have been relinquished; or

      (c)   to terminate the Contract.

6.4   At the expiration of any phase of the exploration period, if the actual
      exploration work fulfilled by the Contractor is less than the minimum
      exploration work commitment set forth for the said exploration phase, and
      if the Contractor opts to enter the next phase and continue exploration
      under Article 6.3 (a) herein, the Contractor shall give reasons to CUCBM
      for the underfulfillment. The unfulfilled balance of the said phase shall
      be added to the minimum exploration work commitment for the next
      exploration phase.

      At any time within the exploration period, if there is any potential CBM
      discovery, JMC shall, at the request of any Party to the Contract, discuss
      the possibility of amending the exploration work. Any Exploration Wells
      added by any such amendment shall be deducted from and/or credited against
      the minimum exploration work commitment.

6.5   Where the Contractor has fulfilled ahead of time the minimum exploration
      work commitment for any phase of the exploration period, the duration of
      such exploration phase stipulated in Article 4.2 hereof shall not be
      shortened thereby, and if the exploration work actually fulfilled by the
      Contractor exceeds the minimum exploration work commitment for the said
      exploration phase, the excess part shall be deducted from and/or credited
      against the minimum exploration work commitment for the next exploration
      phase.

6.6   If any addition or deduction is made under Article 6.4 or Article 6.5
      herein in regard to the minimum exploration work commitment for any phase
      of the exploration period, the increased or reduced exploration work shall
      become the new minimum exploration work commitment for the Contractor to
      fulfill in the said phase.

6.7   At the expiration of any phase during the exploration period, if the
      exploration work actually fulfilled by the Contractor is less than the
      minimum exploration work commitment for such phase

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      or less than the new minimum exploration work commitment in Article 6.6
      herein, and if, regardless of whether the expected minimum exploration
      expenditures are fulfilled or not fulfilled, the Contractor opts to
      terminate the Contract under Article 6.3 (c) herein, or if the said phase
      is the last exploration phase, subject to the approval of the Department
      or Unit the Contractor shall be allowed to transfer its unfulfilled
      minimum exploration work commitment to another Contract Area as agreed by
      the Contractor and CUCBM, or the Contractor shall, within thirty (30) days
      from the date of the decision of its election to terminate the Contract or
      within thirty (30) days from the date of the expiration of the exploration
      period, pay CUCBM only any unfulfilled balance of the minimum exploration
      work commitment ( or of the new such commitment) in U.S. dollars after it
      has been converted into a cash equivalent using the method provided in
      Annex II-Accounting Procedure hereto. However, if the minimum exploration
      work commitment for the exploration period is fulfilled while its expected
      corresponding minimum exploration expenditures are not fulfilled, the
      unfulfilled part shall be deemed as a saving and shall not be paid to
      CUCBM.

6.8   Contractor shall be allowed the flexibility to transfer all or any part of
      the minimum exploration work commitment under this Contract to another
      contract area and vice versa. The minimum exploration work commitment
      transferred from another contract area to this Contract and vice versa
      shall be credited toward the satisfaction of the aggregate exploration
      work commitments for both this Contract Area and to the contract area from
      which the minimum exploration work commitment was transferred. Nothing
      herein contained shall be construed or interpreted to allow any reduction
      in the aggregate minimum exploration work commitment for any phase of the
      exploration period for this Contract or the contract area from which the
      exploration work commitment was transferred.

ARTICLE 7: MANAGEMENT ORGANIZATION AND ITS FUNCTIONS

7.1   For the purpose of the proper performance of the CBM Operations in the CBM
      Fields, the Parties shall establish a Joint Management Committee (JMC)
      within forty-five (45) days from the Date of Commencement of the
      Implementation of the Contract.

7.1.1 CUCBM and the Contractor shall each have the right to appoint an equal
      number of representatives (two to five each) to form JMC, and each Party
      to the Contract shall designate one of its representatives as its chief
      representative. The representative of the Operator among the companies
      comprising the Contractor shall be the chief representative of the
      Contractor. Either Party may replace any of its representatives, or
      designate another representative as its chief representative, by a written
      notice to the other Party, pursuant to Article 29.2 hereof. All the
      aforesaid representatives shall have the right to present their views on
      the proposals at the meetings held by JMC. When a decision is to be made
      on any proposal, the chief representative from each Party to the Contract
      shall be the spokesman on behalf of the Party to the Contract.

      The Chairman of JMC shall be the chief representative designated by CUCBM,
      and the Vice-Chairman shall be the chief representative designated by the
      Contractor. The Chairman of JMC shall preside over meetings of JMC. In his
      absence, one representative present at the meeting from CUCBM shall be
      designated to act as the Chairman of the meeting. In the absence of the
      Vice-chairman of JMC, one representative present at the meeting from the
      Contractor shall be designated to act as the Vice-chairman of the meeting.
      The Parties may, according to need, designate a reasonable number of
      advisers who may attend, but shall not be entitled to vote at JMC
      meetings.

7.1.2 A regular meeting of JMC shall be held at least once a Calendar Quarter,
      and other meetings, if necessary, may be held at any time at the request
      of any Party to the Contract, upon giving reasonable notice to the other
      Party of the date, time and location of the meeting and the items to be
      discussed.

7.2   The Parties shall empower JMC to:

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7.2.1   Review and approve the Work Programs and budgets proposed by the
        Operator and subsequent amendments thereto;

7.2.2   Determine the potential commerciality of each Coalbed Methane Discovery
        that has been made in accordance with the Operator's Pilot Development
        report and report its decision to CUCBM for confirmation;

7.2.3   Review and approve the Overall Development Program and budget for each
        CBM Field and the amendments to the budget;

7.2.4   Approve or confirm the following items of procurement and expenditures:

        (a)     approve procurement of any item within the budget with a unit
                price exceeding Five Hundred Thousand U.S. dollars (U.S.
                $500,000) or any single purchase order of total monetary value
                exceeding Two Million U.S. dollars (U.S. $2,000,000);

        (b)     approve a lease of equipment, or an engineering subcontract or a
                service contract within the budget of a monetary value exceeding
                Two Million U.S. dollars (U.S. $2,000,000); and

        (c)     confirm excess expenditures pursuant to Article 10.2.1 hereof
                and the expenditures pursuant to Article 10.2.2 hereof;

7.2.5   Propose and announce the Date of Commencement of Commercial Production
        of each CBM Field within the Contract Area;

7.2.6   Determine the type and scope of information and data provided to any
        Third Party in accordance with Article 21.5 hereof;

7.2.7   Approve the boundaries of the Development Area and the Production Area
        of each CBM Field;

7.2.8   Review and approve the Joint Operating Agreement in accordance with
        Article 8.8 hereof;

7.2.9   Review and approve the insurance program proposed by the Operator and
        emergency procedures on safety and environmental protection;

7.2.10  Review and approve personnel training programs;

7.2.11  Review and approve minutes and/or resolutions of JMC meetings, and
        discuss, review, decide and approve other matters that have been
        proposed by either Party to the Contract or submitted by the expert
        groups pursuant to Article 7.4.2 hereof or by the Operator; and

7.2.12  Review and examine matters required to be submitted to relevant
        authorities of the Chinese Government and/or CUCBM for approval or
        confirmation.

7.3     Decisions of JMC shall be made unanimously through consultation. All
        decisions made unanimously shall be deemed as formal decisions and shall
        be equally binding upon the Parties. When matters upon which agreement
        cannot be reached arise, the Parties may convene another meeting in an
        attempt to find a new solution thereto based on the principle of mutual
        benefit.

7.3.1   During the exploration period, the Parties shall endeavor to reach
        agreement through consultation on exploration programs and annual
        exploration Work Programs. If the Parties fail to reach agreement
        through consultation within thirty (30) days of first being considered
        by JMC, the Contractor's proposal shall prevail, provided that such
        proposal is not in conflict with the relevant provisions in Articles 4,
        5 and 6 hereof.

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7.3.2   If it is considered by the chairman and/or the vice chairman or their
        nominees that a matter requires urgent handling or may be decided
        without convening a meeting, JMC may make decisions through facsimiles
        or the circulation of documents.

7.4     JMC shall establish the following subordinate bodies:

7.4.1   Secretariat

        The secretariat shall be a permanent organization consisting of up to
        two (2) secretaries. One secretary shall be appointed by each of the
        Parties or they may share one. The secretaries shall not be members of
        JMC, but may attend meetings of JMC to perform the following duties:

        (a)     to keep minutes of meetings;

        (b)     to prepare summaries of the resolutions for JMC meetings;

        (c)     to draft and transmit notices of meetings; and

        (d)     to receive and transmit proposals, reports or plans submitted by
                the Operator and/or proposed by any Party to the Contract, that
                require discussion, review or approval by JMC.

7.4.2   Expert Groups

        Advisory expert groups shall be established in accordance with the
        requirements of the Coalbed Methane Operations in various periods. Each
        expert group shall consist of an equal number of CUCBM Personnel and the
        Contractor's employees, and, with the agreement of JMC, any other
        personnel. JMC shall discuss and decide upon their establishment or
        dissolution, size, tasks, location of their work and the appointment of
        their leaders in accordance with the requirements of their work. The
        expert groups which should be of a reasonable size and number shall have
        the following functions:

        (a)     to discuss and study matters assigned to them by JMC and
                submitted by the Operator to JMC for its review and approval and
                any other matter assigned to them by JMC and to make
                constructive suggestions to JMC;

        (b)     to have access to and observe and investigate the Coalbed
                Methane Operations conducted by the Operator without affecting
                such Operations at Operator's office and operating sites as work
                requires and to submit relevant reports to JMC; and

        (c)     to attend meetings of JMC as observers at the request of JMC.

7.5     When any of the companies comprising the Contractor acts as the
        Operator, CUCBM shall have the right to assign mutually acceptable
        qualified professional representatives to the Operator's administrative
        and technical departments which are related to the CBM Operations. These
        professional representatives from CUCBM shall have specific job duties
        and responsibilities in relation to the CBM Operations.

        The professional representatives of CUCBM shall have access to the
        centers of research, design, and data processing related only to the
        execution of the Contract and to the operating sites to observe all the
        non-proprietary activities and study all the information with respect to
        the CBM Operations. Whether to provide such access to the aforesaid
        centers outside the People's Republic of China shall be decided by JMC
        through discussion. If the decision is made, such access shall be
        arranged by the Operator and the Operator shall use all reasonable
        endeavors to assist the professional representatives to have access to
        Third Parties' sites. The work of professional representatives of CUCBM
        shall be arranged by the manager(s) of the departments of the Operator
        in which professional representatives work.

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        Professional representatives of CUCBM, except for CUCBM's procurement
        professional representatives who shall undertake their functions in
        accordance with Article 7.6 herein, shall not interfere in the decision
        making on relevant matters by departmental manager(s) of the Operator.
        However, such professional representatives shall have the right to make
        proposals and comments to departmental manager(s) of the Operator or to
        report directly to CUCBM's representatives in JMC.

7.5.1   On the principle of mutual cooperation and coordination, the Operator
        shall provide the professional representatives with necessary facilities
        and assistance to perform office work and to observe the operating
        sites.

7.5.2   The number of professional representatives, which shall be a reasonable
        number and consistent with accepted international CBM industry practice
        and sound economic practice, shall be decided by JMC through
        consultations. All professional representatives shall abide by
        Operator's health, safety, and environmental guidelines and policies.

7.6     When any of the companies comprising the Contractor acts as the
        Operator, in respect of the items listed in the procurement plan, the
        procedures and provisions hereunder shall be followed:

7.6.1   The procurement department of the Operator shall inform the procurement
        professional representatives appointed by CUCBM of all the items of
        procurement and specifications relating thereto.

7.6.2   The Operator shall be subject to Articles 15.1 and 15.3 hereof and reach
        agreement through consultation with the procurement professional
        representatives of CUCBM when preparing the procurement plan in
        accordance with the Work Program and budget. The Operator and the
        procurement professional representatives of CUCBM shall work out an
        inventory listing the equipment and materials which can be made and
        provided in China and a list of manufacturers, engineering and
        construction companies and enterprises in China which are qualified and
        can provide acceptable services and undertake subcontracting work.

7.6.3   Unless otherwise agreed upon by the Parties, the Operator shall, in
        general, make procurement by means of calling for bids and shall notify
        at the same time qualified manufacturers and enterprises concerned both
        inside and outside China, and the work of calling for bids shall be done
        within the territory of China.

7.6.4   When any procurement is to be made by means of calling for bids, the
        manufacturers and enterprises in China applying for bidding which the
        Parties agree are qualified and are included in a list delivered in
        advance to the Operator by the procurement professional representatives
        of CUCBM shall be invited to submit bids. The Parties will identify
        proposed bidders that are subsidiaries or affiliates of the Parties. The
        procurement professional representatives of CUCBM shall have the right
        to take part in the work of calling for bids, including examination of
        the list of bidders to be invited, preparing and issuing bidding
        documents, opening bids, evaluation and normalization of bids, and shall
        have the right to consult with the Operator on the determination of
        award of contracts and to participate in negotiations for various
        contracts.

        The professional representatives of CUCBM involved with procurement
        shall have the proper authority to evaluate and make decisions on behalf
        of CUCBM. When the evaluation of bids and decisions based thereon is not
        unanimous, the evaluation of the Operator shall prevail and decisions
        shall be based thereon. The foregoing shall be handled in an
        expeditious, efficient and timely manner.

7.6.5   With respect to the items of procurement by means other than calling for
        bids, the Operator and the procurement professional representatives of
        CUCBM shall, in accordance with the provisions

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<PAGE>

        specified in Article 7.6.2 herein, define those items which are to be
        procured in the People's Republic of China and those items which are to
        be procured abroad.

7.7     All salaries, costs and expenses with respect to the staff members of
        the Parties in the subordinate bodies of the JMC established in
        accordance with Article 7.4 herein, those with respect to the
        professional representatives referred to in Article 7.5 herein, and
        those with respect to the representatives of JMC referred to in Article
        7.1.1 herein while attending JMC meetings, shall be paid by the Operator
        and charged respectively to the exploration costs, development costs and
        operating costs in accordance with Annex II- Accounting Procedure
        hereto. During the exploration period, all salaries, costs and expenses
        with respect to the staff members of CUCBM in the subordinate bodies of
        JMC, the CUCBM professional representatives and the CUCBM
        representatives of JMC shall be paid by the Operator in accordance with
        Annex III - Personnel Costs hereto. All salaries, costs and expenses
        with respect to the above mentioned personnel to be paid and charged
        during the development period and production period shall be determined
        by the Parties through consultation. It is understood no salary
        duplication for any individual shall be allowed. In the event any
        individual occupies more than one chargeable position, then the higher
        applicable salary shall be charged to the Joint Account for the period
        during which the higher position is occupied.

7.8     The specific responsibilities and working procedures within JMC shall be
        proposed by the Parties, and discussed and determined by JMC in
        accordance with the relevant provisions herein.

ARTICLE 8: OPERATOR

8.1     The Parties agree that Phillips China Inc. shall act as the Operator for
        the CBM Operations within the Contract Area, unless otherwise stipulated
        in Article 8.8 herein and Article 29.4 hereof.

8.2     For the implementation of the Contract, each company comprising the
        Contractor shall register with the State Administration for Industry and
        Commerce of the People's Republic of China, or if any such company is
        already registered, such company shall amend its registration to include
        the Contract in accordance with the relevant provisions of the State
        Administration for Industry and Commerce. CUCBM shall, at the request of
        the Contractor, provide assistance for this purpose.

        The person designated by Operator to be in charge of CBM Operations
        shall have the full right to represent the Contractor in respect of the
        performance of the CBM Operations. The names, positions and resumes of
        the staff and organization chart of the Operator shall be submitted in
        advance to CUCBM and the appointment of the Operator's senior staff must
        be subject to the consent of CUCBM.

        The parent corporation of each company comprising the Contractor which
        is not itself a parent corporation shall, at the request of CUCBM,
        provide CUCBM with a written performance guarantee acceptable to CUCBM.

8.3     The Operator shall have the following obligations:

8.3.1   To apply the appropriate and advanced technology and business managerial
        experience of the Contractor or its Affiliates to perform the CBM
        Operations reasonably, economically and efficiently in accordance with
        sound international practice.

8.3.2   To prepare Work Programs and budgets related to the CBM Operations and
        to carry out the approved Work Programs and budgets.

8.3.3   To be responsible for procurement of installations, equipment, and
        supplies and entering into subcontracts and service contracts related to
        the CBM Operations, in accordance with the approved Work Programs and
        budgets and the applicable provisions of Articles 7.2.4, 7.6 and 10.2
        hereof.

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8.3.4   To prepare in advance, in accordance with Article 16 hereof, a personnel
        training program and budget before the commencement of the Exploration
        Operations, Development Operations and Production Operations
        respectively, and, in accordance with the said program and budget, to be
        responsible for preparing an annual personnel training program and
        budget and carrying out the annual program and budget after approval by
        JMC.

8.3.5   To establish an insurance program, and to enter into and implement the
        insurance contracts in accordance with Article 20 hereof.

8.3.6   To issue cash-call notices to all the Parties to the Contract to raise
        the required funds based on the approved budgets and in accordance with
        Article 12 hereof and Annex II - Accounting Procedure hereto.

8.3.7   To maintain complete and accurate accounting records of all costs and
        expenditures of the CBM Operations in accordance with the provisions of
        Annex II - Accounting Procedure hereto and to keep the accounting books
        secure and in good order.

8.3.8   To make necessary preparation for regular meetings of JMC, and to submit
        in advance to JMC necessary information related to the matters to be
        reviewed and approved by JMC.

8.3.9   To inform directly or indirectly all the Subcontractors which render
        services for the CBM Operations in China and all the Expatriate
        Employees of the Operator and of Subcontractors who are engaged in the
        CBM Operations in China that they shall be subject to the laws, decrees,
        and other rules and regulations of the People's Republic of China.

8.3.10  To report its work to JMC as provided in Article 7.2 hereof.

8.3.11  To research and conduct a CBM transportation and market study to
        underpin any determination of commerciality made pursuant to the terms
        and provisions of Article 11 hereof. Such costs incurred to perform and
        complete such CBM transportation and market study shall be charged to
        the joint account and shall be cost recoverable under the terms of this
        Contract.

8.4     In the course of the performance of the CBM Operations, any direct
        losses, arising strictly out of the gross negligence or willful
        misconduct of the Operator, (excluding personnel specified in Article
        1.2 of Annex III-Personnel Costs, hereto) shall be solely borne by the
        Operator. Losses arising from any cause other than strictly out of the
        gross negligence or willful misconduct of the Operator shall be borne by
        the Parties in accordance with their respective participating interest.
        The Operator shall use reasonable endeavors in accordance with
        international CBM industry practice to include provisions similar to
        this Article 8.4 herein in related subcontracts and service contracts.
        For the purposes of this Article 8.4 "gross negligence" means the
        willful and wanton disregard for harmful, avoidable, and foreseeable
        consequences.

8.5     In the course of the performance of the CBM Operations, the Operator
        shall handle the information, samples and reports in accordance with the
        following provisions:

8.5.1   The Operator shall provide CUCBM with various information, samples and
        data in accordance with relevant regulations and Annex IV - Data Control
        hereto except for proprietary information and data of Operator. The
        ownership of all the information, samples and data shall vest in CUCBM;
        and the Operator shall have the right to use and handle such
        information, samples and data in accordance with Annex IV - Data Control
        hereto. The information and data shall be reported to CUCBM at the same
        time that the Operator reports them to its parent corporation. Upon
        receipt by the Operator of any report from its parent corporation
        concerning such information and data, a copy of such report shall be
        furnished to CUCBM as soon as practicable.

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8.5.2   The Operator shall furnish CUCBM in a timely manner with reports on
        safety, environmental protection and accidents related to the CBM
        Operations and with financial reports prepared in accordance with the
        provisions of Annex II - Accounting Procedure hereto.

8.5.2.1 The Operator shall conduct regular environmental, health and safety
        audits of systems, facilities, seismic, drilling, and production
        operations as determined by JMC to ensure compliance with Operator's and
        industry standards. All costs for such regular audits shall be charged
        to the joint account.

8.5.3   The Operator shall provide the non-Operator(s) of the Contractor with
        copies of the relevant data and reports reasonably required by
        non-Operator(s) and referred to in Articles 8.5.1 and 8.5.2 herein.

8.5.4   The Operator shall, at the request of any Party to the Contract, furnish
        that Party to the Contract with the following:

8.5.4.1 Procurement plans for purchasing equipment and materials, inquiries,
        offers, orders, construction and service contracts;

8.5.4.2 Technical manuals, technical specifications, design criteria, design
        documents (including design drawings), construction records and
        information, consumption statistics, equipment inventory, and spare
        parts inventory;

8.5.4.3 Technical investigation and cost analysis reports; and

8.5.4.4 Other information relating to the CBM Operations in the Contract Area
        already acquired by the Operator in the performance of the Contract.

8.6     In the course of performing the CBM Operations, the Operator shall abide
        by the laws, decrees, standards and other rules and regulations with
        respect to environmental protection and safety of the People's Republic
        of China and shall endeavor in accordance with the international CBM
        industry practice to:

8.6.1   Minimize the damage and destruction caused by the CBM Operations to the
        human and ecological environment;

8.6.2   Control blowouts promptly and prevent or avoid waste or loss of CBM
        discovered in or produced from the Contract Area;

8.6.3   Prevent land, forests, vegetation, crops, buildings and other
        installations from being damaged and destroyed; and

8.6.4   Minimize the danger to personnel safety and health by developing and
        implementing effective systems, policies and procedures.

8.7     Project Management Team

        In any CBM Field within the Contract Area where CUCBM has a
        participating interest in the development of the said Field, a project
        management team (hereafter referred to as "PMT") shall be established
        for the development of such CBM Field in the organization of the
        Operator within thirty (30) days from the date of approval of the
        Overall Development Program for the said Field. All subsequent CBM
        Fields within the Contract Area in which CUCBM has a participating
        interest shall be developed by a PMT.

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        PMT shall comprise those personnel designated by the Parties and the
        number of CUCBM's personnel shall be no less than one third (1/3) of the
        total number of personnel within PMT. The Contractor shall designate a
        person acting as the manager of PMT, and CUCBM shall designate a person
        acting as the deputy manager of PMT.

        PMT shall be located at the Operator's office within the Chinese
        territory or as determined by JMC. The working location(s) of the
        members of PMT shall be decided according to the need of the work.

        The specific organization, staffing and working system of PMT and
        responsibilities and competence of various positions, including those of
        CUCBM's personnel assigned to PMT, shall be determined by the Parties
        through consultation prior to the approval of the Overall Development
        Program for the said CBM Field. The PMT shall exist for the period of
        the development of said CBM Field.

8.8     Performance of CBM Operations

8.8.1   No later than one (1) year prior to the projected date on which all
        development costs and the Deemed Interest thereon have been recovered
        ("Cost Recovery Date"), the Parties shall commence good faith
        negotiations on a joint operating agreement and the organization thereof
        in accordance with the Overall Development Program for the first CBM
        Field within the Contract Area, the expenses for which shall be charged
        to operating costs.

8.8.2   It is the intent of the Contractor and CUCBM that effective no later
        than said Cost Recovery Date, all CBM Operations within the Contract
        Area shall be conducted jointly by the Contractor and CUCBM as Operators
        in accordance with such joint operating agreement.

8.9     The expenses incurred in the transfer and takeover of the CBM Operations
        to CUCBM and Contractor as joint Operator shall be approved as budget
        items and charged to the operating costs in accordance with Annex II-
        Accounting Procedure.

8.10    With a view to efficiently conducting Work Programs approved by the JMC,
        the Operator shall have the right to use or occupy the land within or
        outside the Contract Area, including the right to use or acquire road
        transit rights and the right to use or to obtain CBM pipeline rights of
        way, inside or outside the Contract Area, subject to promulgated Chinese
        laws and regulations.

ARTICLE 9: ASSISTANCE PROVIDED BY CUCBM

9.1     To enable the Contractor to carry out expeditiously and efficiently the
        CBM Operations, CUCBM shall have the obligation to assist the Contractor
        at its request to:

9.1.1   Obtain the approvals or permits needed to open accounts with Bank of
        China;

9.1.2   Handle foreign exchange formalities;

9.1.3   Obtain office space, office supplies, transportation and communication
        facilities and make arrangements for accommodations as required, all at
        reasonable rates;

9.1.4   Handle customs formalities;

9.1.5   Obtain entry and exit visas and residence permits for Expatriate
        Employees who will come to China for the performance of the Contract,
        and for their dependents who will visit them or reside in China, and
        provide assistance for their transportation and moving as well as
        medical services and travel in China;

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9.1.6   Obtain necessary permission to send abroad, if necessary, documents,
        data and samples for analysis or processing during the performance of
        the CBM Operations; and

9.1.7   Maintain liaison with central and local governments, and contact and
        coordinate with departments engaged in fishing, aquatic plants, stock
        raising, agriculture, meteorology, ocean shipping, civil aviation,
        railway, transportation, electric power, communications, and services
        for supply bases, for relevant matters and otherwise assist the
        Contractor in obtaining on a timely basis all approvals necessary for
        the conduct of the CBM Operations under the Contract;

9.1.8   Lease or use warehouses, yards, terminal facilities, barges, aircraft,
        pipelines and land, etc., in the implementation of the CBM Operations;
        and

9.1.9   Facilitate the Contractor's and Subcontractors' registration in China.

9.1.10  CUCBM shall assist in the development of transportation and marketing
        information.

9.2     In accordance with Article 15 hereof, CUCBM shall, at the request of the
        Contractor, assist the Contractor with the recruitment of Chinese
        Personnel.

9.3     CUCBM shall, at the request of the Contractor, provide the Contractor
        with data and samples, if any, from the Contract Area within CUCBM's
        and/or its Affiliates' control, at reasonable rates and in accordance
        with any relevant rules and regulations, and CUCBM shall also assist the
        Contractor to arrange the purchase of any other data including but not
        limited to environmental, hydrological, topographical and meteorological
        data at reasonable rates.

9.4     CUCBM shall, at the request of the Contractor, also assist the
        Contractor with matters other than those under Articles 9.1, 9.2 and 9.3
        herein, including, but not limited to, the acquisition, at reasonable
        costs where applicable, of any rights of way necessary for
        transportation infrastructure, and the facilitation or bringing about of
        the granting of all approvals, permits and licenses related to the CBM
        Operations.

9.5     All expenses incurred in the assistance provided by CUCBM in accordance
        with this Article 9 shall be paid by the Contractor. Such yearly
        Assistance Fees shall not exceed the amounts set forth in Article
        5.2.14.3(b) and (c) of the Accounting Procedure and shall be handled in
        accordance with the provisions of Annex II-Accounting Procedure hereto.

ARTICLE 10: WORK PROGRAM AND BUDGET

10.1    After the Date of Commencement of the Implementation of the Contract,
        the Operator shall propose and submit to JMC the annual Work Program and
        budget for the remainder of the same Calendar Year at the first regular
        meeting of JMC. Before the fifteenth (15th) day of September of each
        Calendar Year, the Operator shall complete and submit to JMC for its
        review an annual Work Program and budget for the next Calendar Year
        except as otherwise agreed by CUCBM. JMC shall either adopt the annual
        Work Program and budget as submitted or make such modifications agreed
        by the Parties. The adopted annual Work Program and budget shall be
        submitted to CUCBM for review and approval within one (l) month as of
        the date on which they are submitted to JMC. Within fifteen (15) days
        following the receipt of the annual Work Program and budget, CUCBM shall
        notify JMC in writing of its approval or disapproval or any
        modifications thereto with its detailed reasons. If CUCBM requests any
        modifications to the aforesaid annual Work Program and budget, the
        Parties shall promptly hold meetings to make modifications and any
        modifications agreed upon by the Parties shall be effected immediately.
        In case CUCBM fails to notify JMC in writing of its approval or
        disapproval or any modification within fifteen (15) days, the annual
        Work Program and budget adopted by JMC shall be deemed to have been
        approved by CUCBM. The Operator shall make its best efforts to perform
        the CBM Operations in accordance with the approved annual Work Program
        and budget. For reviewing Work Program and budget by JMC, the Operator
        shall provide to JMC the supporting data when requested. During the

                                      18
<PAGE>

        exploration period, the budgets so approved by CUCBM shall be sufficient
        to allow the Operator to fulfill the Work Programs and its obligations
        under the Contract.

10.2    The Operator may, in accordance with the following provisions, incur
        excess expenditures or expenditures outside the budget in carrying out
        the Work Program and budget, provided that the objectives of the
        approved Work Program and budget are not changed.

10.2.1  In carrying out an approved budget for a single item, such as for the
        drilling of a well, the Operator may, if necessary, incur excess
        expenditures of no more than ten percent (10%) of the budgeted amount
        except in the case of emergencies. The Operator shall report the
        aggregate amount of all such excess expenditures to JMC for confirmation
        on a Calendar Quarter basis.

10.2.2  For the efficient performance of the CBM Operations, the Operator may,
        without approval, undertake certain individual projects which are not
        included in the Work Program and budget, for a maximum expenditure of
        One Hundred Thousand U.S. Dollars (U.S.$100,000), but the Operator
        shall, within ten (10) days after such expenditures are incurred, report
        to JMC for confirmation. In case of emergency, the Operator may incur
        emergency expenditures for the amount actually needed but shall report
        such expenditures to JMC as soon as they are made. However, the said
        emergency expenditures shall not be subject to Articles 10.2.3 and
        10.2.4 herein.

10.2.3  In the event that the aggregate of excess expenditures under Article
        10.2.1 herein and expenditures under Article 10.2.2 herein incurred in a
        Calendar Year cause the total expenditures of that Calendar Year to
        exceed the approved annual budget, such excess shall not exceed five
        percent (5%) of the approved annual budget for that Calendar Year. If
        the aforesaid excess is expected to be in excess of five percent (5%) of
        the annual budget, the Operator shall present its reasons therefore to
        JMC and obtain its approval prior to incurring such expenditures.

10.2.4  When JMC confirms the excess expenditures mentioned in Articles 10.2.1
        herein, and the expenditures mentioned in Article 10.2.2 herein:

        (a)     if expenditures or excess expenditures are determined to be
                reasonable, the Operator may incur such expenditures or excess
                expenditures again during the same Calendar Year, subject to
                Article 10.2 herein; or

        (b)     if expenditures or excess expenditures are determined to be
                unreasonable, the Operator shall not incur such expenditures or
                excess expenditures again during the same Calendar Year and such
                unreasonable expenditures or excess expenditures shall be dealt
                with in accordance with Article 5.4 of Annex II-Accounting
                Procedure hereto. However, with respect to the joint operation
                conducted by the Contractor and CUCBM specified in Article 8.8
                hereof, this provision shall not be applicable.

ARTICLE 11: DETERMINATION OF COMMERCIALITY OF CBM

11.1    If any CBM Discovery is made within the Contract Area, the Operator
        shall promptly report such discovery to JMC. If JMC or the Contractor
        makes a decision that a CBM Discovery is worthy of a Pilot Development,
        the Operator shall submit to JMC a Pilot Development Work Program which
        shall include disposal of any CBM and/or Liquid Hydrocarbons whether by
        sale, flaring or otherwise and a timetable for such CBM Discovery as
        soon as possible. Such Pilot Development Work Program shall be worked
        out no later than ninety (90) days from the date of the aforesaid
        decision made by JMC or the Contractor. The Pilot Development Work
        Program shall, in so far as is practicable, be based on conducting the
        Pilot Development work continuously, with a view to commencing
        operations within one hundred and eighty (180) days from the date of the
        aforesaid decision made by JMC or the Contractor.

                                      19

<PAGE>

11.2    After the approval by JMC of the Pilot Development Work Program referred
        to in Article 11.1 herein, the Operator shall carry out the operations
        as soon as possible without unreasonable delay in accordance with the
        timetable set forth in the approved Pilot Development Work Program.

11.3    Unless otherwise specified in the Pilot Development Work Program, within
        one hundred and eighty (180) days after the completion of the Pilot
        Development, the Operator shall submit to JMC a detailed report on the
        evaluation of the potential commerciality of the CBM discovery for
        review and discussion. Under special circumstances, the above-mentioned
        period may be reasonably extended upon agreement of the Parties.

        The Pilot Development report shall include an evaluation of geology,
        development, engineering and economics, the Maximum Efficient Rate (MER)
        and the estimated duration of the production period determined in
        accordance with the international CBM industry practice.

11.4    If JMC decides unanimously that a CBM Discovery is non-commercial, at
        the request of the Contractor, the corresponding area covered by the CBM
        Discovery may be retained in the Contract Area during the exploration
        period. But if, at the expiration of the exploration period, JMC
        unanimously still considers the said CBM Discovery to be non-commercial,
        the area covered by the CBM Discovery shall be excluded from the
        Contract Area. The preceding shall not apply to a CBM Field which in the
        opinion of either Party has potential commercial value but which has not
        been developed due to a lack of market, a shortage of consuming
        facilities or lack of transportation facilities and/or inability to
        negotiate long-term transportation and/or sales agreements.

        Prior to the expiration of the exploration period, if any Party
        considers that a CBM Discovery which has been determined to be
        non-commercial needs to be reappraised because of various favorable
        factors, the Operator shall work out a new evaluation report on that CBM
        Discovery and submit it to JMC for review and approval.

11.5    If the Contractor, prior to the expiration of the exploration period,
        advises JMC in writing that any CBM Discovery is non-commercial, the
        Contractor shall be deemed to have waived its rights of participating in
        the development of that CBM Field, then, CUCBM shall have the right to
        solely develop such potential CBM Field.

11.6    When the Parties consider a CBM Discovery to be potentially commercial,
        as the Operator, the Contractor shall, within a reasonable amount of
        time determined by JMC, prepare and submit to JMC an Overall Development
        Program for such CBM Discovery. The Parties shall also negotiate and
        enter into a mutually acceptable supplemental agreement in regard to the
        development of such CBM Field in a manner that shall not unreasonably
        interfere with the planned expansion of coal mining operations in the
        relevant coal field. Upon receipt and approval of the Overall
        Development Program, JMC shall immediately forward the Overall
        Development Program to CUCBM. Within thirty (30) days of the receipt of
        the Overall Development Program, CUCBM shall submit the Overall
        Development Program and supplemental agreement to the competent
        authorities of the Chinese government for review and approval. Such
        Overall Development Program and supplemental agreement shall be regarded
        as an integral part of the Contract upon the approval of the competent
        authorities of the Chinese government.

11.7    Long-term CBM, CBM Products and Liquid Hydrocarbons transportation and
        sales agreements shall be concluded prior to the Determination of
        Commerciality.

11.8    In the event of a CBM Field Straddling a Boundary or of a potentially
        commercial CBM Discovery straddling a boundary of the Contract Area,
        CUCBM shall organize the Contractor and the neighboring party(ies)
        involved, which may include CUCBM and/or it's Affiliates, to work out a
        unitized or new Overall Development Program for such Field or Pilot
        Development work program for such CBM Discovery. If such area is
        controlled solely by CUCBM and/or its

                                      20
<PAGE>

        Affiliates, then the Contract Area shall be extended to cover the CBM
        Field with the approval of Department or Unit.

11.9    If a CBM Discovery without commercial value within the Contract Area and
        a CBM discovery outside the Contract Area can be most economically
        developed as a commercial CBM Field by common facilities jointly
        constructed; or if a CBM discovery without commercial value within the
        Contract Area can be economically developed as a commercial CBM Field by
        linking it up with existing facilities located outside the Contract
        Area, CUCBM shall organize the Contractor and the neighboring party(ies)
        involved, which may include CUCBM and/or its Affiliates, to work out an
        equitable agreement for construction or utilization and sharing the
        costs relative to said facilities.

11.10   In Article 11 those procedures which reference the Overall Development
        Program shall be applied by analogy in the following circumstances:
        additional development projects referring to the Overall Development
        Program designed either to improve the producing capability of the
        reservoir or to substantially increase the recoverable reserves
        therefrom through additional investments. Any extension of the
        production period of the CBM Field due to such additional development
        projects shall be subject to the related provision of Article 4.5
        hereof.

11.11   Notwithstanding the Date of Commencement of Commercial Production or
        anything else to the contrary herein, the allocation of the production
        from a Pilot Development shall be governed by the principles set forth
        in Articles 12 and 13 hereof.

ARTICLE 12: FINANCING AND COST RECOVERY

12.1    Funds required for the CBM Operations shall be raised by the Operator in
        accordance with Work Programs and budgets determined pursuant to the
        relevant provisions of the Contract, the provisions described in Annex
        II - Accounting Procedure hereto, and the provisions of this Article
        12.1.

12.1.1  All the exploration costs required for Exploration Operations shall be
        provided solely by the Contractor. For purpose of the Contract, all
        costs incurred during the extended period described in Article 4.3
        hereof shall be deemed exploration costs and shall be provided solely by
        the Contractor.

12.1.2  The development costs required for Development Operations in each CBM
        Field within the Contract Area shall be provided by CUCBM and the
        Contractor in proportion to their respective participating interests:
        thirty percent (30%) by CUCBM and seventy percent (70%) by the
        Contractor, unless CUCBM applies the provisions of the second paragraph
        of this Article 12.1.2 herein.

        In the event that CUCBM, at its option, decides not to participate in
        the development of a CBM Field or decides to participate in the
        development of such CBM Field to an extent of less than thirty percent
        (30%) of the participating interest, CUCBM shall notify the Contractor
        in writing of its decision of non-participation or a specific lesser
        percentage of the participating interests before the Pilot Development
        report is reviewed by JMC pursuant to Article 11.3 hereof. In such case,
        if CUCBM does not participate in the development of such CBM Field, the
        development costs therein shall be borne solely by the Contractor, or in
        case CUCBM participates in the development of such CBM Field to an
        extent of less than thirty percent (30%) of the participating interests,
        such development costs shall be borne by the Parties in proportion to
        their actual respective participating interests.

12.1.3  The operating costs incurred for the performance of the Production
        Operations of each CBM Field before the Date of Commencement of
        Commercial Production shall be considered as development costs. The
        operating costs so incurred after the Date of Commencement of

                                      21
<PAGE>

         Commercial Production shall be paid respectively by CUCBM and the
         Contractor in proportion to their participating interests of the said
         CBM Field.

12.1.4   The Parties, at each other's request, shall cooperate and assist each
         other to facilitate the financing of CBM Operations on the best terms
         and conditions available. For the purpose of implementation of the
         Contract, CUCBM agrees that the Contractor may, when financing, use the
         entitlement of its share of production under the Contract as security
         for loans, provided that the Contractor shall advise CUCBM in advance
         and the loan application therefore shall be examined by CUCBM, and
         provided further that the rights and interests of CUCBM under the
         Contract shall not be impaired thereby. If CUCBM does not object to the
         loan application within thirty (30) days of the receipt thereof, then
         the rights and interests of CUCBM under the Contract shall be deemed
         not impaired thereby.

12.2     All the costs and Pre-Contract Costs incurred in the performance of CBM
         Operations shall be recovered in accordance with Annex II - Accounting
         Procedure hereto and the following provisions:

12.2.1   The operating costs for any given Calendar Year actually incurred by
         CUCBM and the Contractor in respect of each CBM Field pursuant to
         Article 12.1.3 herein, shall be recovered in kind by the Parties out of
         the CBM and Liquid Hydrocarbons produced from the said CBM Field during
         that Calendar Year in accordance with Annex II - Accounting Procedure
         hereto, after the operating costs have been converted into a quantity
         of CBM and Liquid Hydrocarbons on the basis of the CBM price and Liquid
         Hydrocarbons price determined in accordance with Article 14 hereof.
         Unrecovered operating costs shall be carried forward to the succeeding
         Calendar Year(s).

12.2.2   The exploration costs incurred by the Contractor and the Pre-Contract
         Costs incurred by CUCBM shall be recovered as follows:

         After the Date of Commencement of Commercial Production of a CBM Field
         within the Contract Area, the exploration costs incurred by the
         Contractor and Pre-Contract Costs incurred by CUCBM in respect of the
         Contract Area shall be recovered in kind out of the CBM and Liquid
         Hydrocarbons produced from any CBM Field within the Contract Area in
         accordance with Article 13.2.2.2 hereof, after the exploration costs
         and Pre Contract Costs have been converted into a quantity of CBM and
         Liquid Hydrocarbons based on the CBM price and Liquid Hydrocarbons
         price determined in accordance with Article 14 hereof. The exploration
         costs and Pre-Contract Costs shall be recovered without any Deemed
         Interest.

         If no CBM Field is discovered within the Contract Area, the exploration
         costs incurred by the Contractor and the Pre-Contract Costs incurred by
         CUCBM shall be deemed as their loss. Under no circumstances shall CUCBM
         reimburse the Contractor for such loss.

12.2.3   The development costs in respect of each CBM Field incurred by CUCBM
         and the Contractor and Deemed Interest thereon shall be recovered as
         follows:

12.2.3.1 After the Date of Commencement of Commercial Production of any CBM
         Field within the Contract Area, the development costs in respect of
         such CBM Field incurred by CUCBM and the Contractor and Deemed Interest
         thereon calculated in accordance with Article 12.2.3.2 herein shall be
         recovered in kind out of the CBM and Liquid Hydrocarbons produced from
         such CBM Field in accordance with Article 13.2.2.2 hereof, after the
         development costs and Deemed Interest thereon have been converted into
         a quantity of CBM and Liquid Hydrocarbons based on the CBM price and
         Liquid Hydrocarbons price determined in accordance with Article 14
         hereof.

12.2.3.2 Deemed Interest on the development costs incurred by CUCBM and the
         Contractor for each CBM Field within the Contract Area shall be
         calculated at a fixed annual compound rate of nine percent (9%) from
         the first day of the month following the month in which such
         development costs expended by each Party to the Contract are actually
         recorded in the Joint Account by the Operator.

                                      22

<PAGE>

         The detailed method of such calculation shall be as provided in Annex
         II - Accounting Procedure hereto.

12.2.4   Any CBM and Liquid Hydrocarbons extracted and delivered from a CBM
         Field before the Date of Commencement of Commercial Production shall be
         allocated in accordance with Article 12 and Article 13 hereof.

ARTICLE 13: CBM PRODUCTION AND ALLOCATION

13.1     The Operator shall, in accordance with the production profile, adjusted
         as the case may be, set forth in the approved Overall Development
         Program for each CBM Field, work out a CBM production and joint
         marketing plan for each CBM Field in each Calendar Year and carry out
         CBM production pursuant to such plan. Such plan shall have the Operator
         receiving all proceeds from sales and making payments and accounting
         for cost recovery as detailed below.

13.2     The Annual Gross Production of CBM and Liquid Hydrocarbons of each CBM
         Field within the Contract Area in each Calendar Year during the
         production period shall be allocated in accordance with the following
         sequence and proportions:

13.2.1   The percentages of the Annual Gross Production of CBM and Liquid
         Hydrocarbons specified in paragraphs (a) and (b) hereunder shall be
         used for payments of the Value Added Tax and of Royalty respectively
         and shall be paid in kind to the relevant authorities of the Chinese
         Government through CUCBM.

         (a)      Five percent (5%) of the Annual Gross Production of CBM and
                  Liquid Hydrocarbons shall be paid in kind to the competent
                  authorities for payment of the Value Added Tax in accordance
                  with relevant rules and regulations of the People's Republic
                  of China through CUCBM; and

         (b)      Payment of Royalty shall be made pursuant to the relevant
                  rules and regulations of the People's Republic of China
                  through CUCBM.

13.2.2   Seventy-five percent (75%) of the Annual Gross Production of CBM and
         Liquid Hydrocarbons shall be deemed as the "cost recovery CBM and
         Liquid Hydrocarbons" and shall be used for payments or for cost
         recovery in the following sequence:

13.2.2.1 Payment in kind for the operating costs actually incurred but not yet
         recovered by the Parties pursuant to Article 12.2.1 hereof based on the
         price of the said "cost recovery CBM and Liquid Hydrocarbons"
         determined in accordance with Article 14 hereof.

13.2.2.2 The remainder of the "cost recovery CBM and Liquid Hydrocarbons" shall,
         after payment for operating costs in accordance with Article 13.2.2.1
         herein, be deemed as "investment recovery CBM and Liquid Hydrocarbons".
         Such "investment recovery CBM and Liquid Hydrocarbons" shall be used
         for the recovery of the exploration costs incurred and not yet
         recovered by Contractor in respect of the Contract Area and for the
         recovery of Pre-Contract Costs incurred and not yet recovered by CUCBM
         in respect of the Contract Area.. The "investment recovery CBM and
         Liquid Hydrocarbons" shall also be used for the recovery of the
         development costs in respect of the CBM Field itself which have been
         incurred but not yet recovered by CUCBM and the Contractor in
         accordance with Articles 12.2.2 and 12.2.3 hereof, and Deemed Interest
         thereon. The method of recovery and the recovery sequence are as
         follows:

         (a)      Beginning in the Calendar Year during which the production of
                  any CBM Field within the Contract Area commences, the
                  "investment recovery CBM and Liquid Hydrocarbons" referred to
                  in Article 13.2.2.2 herein, based on the price which has been
                  determined in accordance with Article 14 hereof, shall be paid
                  in kind simultaneously on a 50% - 50% basis to the Contractor
                  for the recovery of the exploration costs which have been
                  incurred
                                      23
<PAGE>

                  in respect of, but have not yet been recovered from, the
                  Contract Area and to CUCBM for the recovery of Pre-Contract
                  Costs which have been incurred in respect of, but have not yet
                  been recovered from, the Contract Area. If CUCBM recovers its
                  Pre-Contract Costs prior to Contractor's recovery of its
                  exploration costs, that portion of the "investment recovery
                  CBM and Liquid Hydrocarbons" previously paid to CUCBM shall
                  then be paid to Contractor for the cost recovery of
                  Contractor's unrecovered exploration costs.

                  The total amount of Pre-Contract Costs that can be recovered
                  by CUCBM under this Article 13.2.2.2(a) from all CBM Fields in
                  the Contract Area during the recovery of exploration costs
                  shall be Two Million Eight Hundred Forty Thousand U.S. dollars
                  (US$2,840,000).

                  The unrecovered exploration costs and the unrecovered
                  Pre-Contract Costs shall be carried forward to and recovered
                  from the "investment recovery CBM and Liquid Hydrocarbons" in
                  succeeding Calendar Years until fully recovered by the
                  Contractor.

         (b)      Beginning in the Calendar Year during which the exploration
                  costs incurred by the Contractor and the Pre-Contract Costs
                  incurred by CUCBM in respect of the Contract Area have been
                  fully recovered, the remainder of the "investment recovery CBM
                  and Liquid Hydrocarbons" of a CBM Field shall be used for the
                  simultaneous recovery of the development costs incurred and
                  not yet recovered respectively by CUCBM and the Contractor and
                  Deemed Interest thereon in respect of such CBM Field in
                  proportion to their respective participating interests therein
                  based on the price of such remainder of the "investment
                  recovery CBM and Liquid Hydrocarbons" determined in accordance
                  with Article 14 hereof. The unrecovered development costs and
                  Deemed Interest thereon shall be carried forward to and
                  recovered from the "investment recovery CBM and Liquid
                  Hydrocarbons" in succeeding Calendar Years until fully
                  recovered.

         (c)      During the production period of a CBM Field, costs for an
                  additional development project incurred pursuant to Article
                  11.9 hereof and Deemed Interest thereon shall be recovered
                  together with the unrecovered development costs and Deemed
                  Interest thereon. If the development costs and Deemed Interest
                  thereon have been fully recovered, then costs for the said
                  additional development project and Deemed Interest thereon
                  shall be recovered from the "investment recovery CBM and
                  Liquid Hydrocarbons" of such CBM Field referred to in Article
                  13.2.2.2 herein in accordance with the provisions specified in
                  Article 13.2 herein. The unrecovered costs for the additional
                  development project and Deemed Interest thereon shall be
                  carried forward to and recovered in succeeding Calendar Years
                  until fully recovered.

         (d)      After the recovery of a CBM Field's development costs and
                  Deemed Interest thereon and/or costs for the additional
                  development project and Deemed Interest thereon from the said
                  CBM Field by the Parties, the remainder of the "investment
                  recovery CBM and Liquid Hydrocarbons" shall automatically be
                  regarded as part of the "remainder CBM and Liquid
                  Hydrocarbons" referred to in Article 13.2.3 herein. By the
                  date of expiration of the production period of a CBM Field
                  pursuant to Article 4.5 hereof, if any development costs and
                  Deemed Interest thereon and/or costs for the additional
                  development project incurred in respect of such CBM Field and
                  Deemed Interest thereon have not yet been fully recovered,
                  then such unrecovered costs and Deemed Interest thereon shall
                  be regarded as a loss, and the Parties shall bear the loss in
                  proportion to their respective participating interests.

13.2.3   The remainder of the Annual Gross Production of CBM and Liquid
         Hydrocarbons after the allocation referred to in Articles 13.2.1 and
         13.2.2 herein shall be deemed as "remainder CBM and Liquid
         Hydrocarbons". Such "remainder CBM and Liquid Hydrocarbons" shall be
         divided into "share CBM and Liquid Hydrocarbons" of the Chinese side
         and "allocable remainder CBM and Liquid Hydrocarbons". The "allocable
         remainder CBM and Liquid Hydrocarbons" of each CBM Field in each
         Calendar Year shall be equal to the "remainder CBM and Liquid

                                       24
<PAGE>

         Hydrocarbons" of that Calendar Year multiplied by the factor (X) for
         each CBM Field within the Contract Area in that Calendar Year. The
         factor (X) of each CBM Field in each Calendar Year shall be determined
         in accordance with the following successive incremental tiers on the
         basis of the Annual Gross Production of CBM and Liquid Hydrocarbons
         from such CBM Field during that Calendar Year.


             Annual Gross Production            Factors (X) in Percentage
                      of                        Applicable to Each
             CBM and Liquid Hydrocarbons        Production Tier of
               From Each CBM Field              Each CBM Field Within
               (Million Cubic Meters)           the Contract Area

             equal to or less than 500          X(l) =  100 percent (100%)
             over       500  to    800          X(2) =  99 percent (99%)
             over       800  to  1,200          X(3) =  98 percent (98%)
             over     1,200  to  1,800          X(4) =  95 percent (95%)
             over     1,800  to  2,500          X(5) =  93 percent (93%)
             over     2,500  to  5,000          X(6) =  91 percent (91%)
             over     5,000                     X(7) =  90 percent (90%)

         In the above table, it is assumed that each cubic meter of CBM has a
         heating value of thirty-six thousand and nine hundred sixty (36,960)
         BTU approximately. On this basis, a metric ton of Liquid Hydrocarbons
         in general will have a heating value of forty- three (43) million BTU,
         or equivalent to 1,164 cubic meters of CBM. 1.0 kilo calorie is equal
         to 3.97 BTU. Adjustments will be made if actual heating value exceeds
         or is less than the above by ten percent (10%) or more.

         An example of application in calculating the factor (X):

         Assuming that there are two producing commercial CBM Fields A and B
         within the Contract Area and the Annual Gross Production of CBM and
         Liquid Hydrocarbons from CBM Field A in a Calendar Year is three
         thousand and sixty four (3,064) million cubic meters, and that from CBM
         Field B is four thousand five hundred and ninety (4,590) million cubic
         meters, the factor (X) of CBM Field A in that Calendar Year shall be:

                 500X(1) + 300X(2) +400X(3) + 600X(4) + 700x(5) + 564X(6)
           X = -----------------------------------------------------------X 100%
                                          3,064

         and the factor (X) of CBM Field B in that Calendar Year shall be:

                500X(1) + 300X(2) + 400X(3) + 600X(4) + 700X(5) + 2090X(6)
           X = -----------------------------------------------------------X 100%
                                         4,590

13.2.4   The "allocable remainder CBM and Liquid Hydrocarbons" of each CBM Field
         in each Calendar Year referred to in Article 13.2.3 herein shall be
         shared by the Parties in proportion to their respective participating
         interests in the development costs, thirty percent (30%) for CUCBM and
         seventy percent (70%) for the Contractor. In the event that CUCBM does
         not participate in the development of an CBM Field within the Contract
         Area, the Contractor shall obtain one hundred percent (100%) of the
         "allocable remainder CBM and Liquid Hydrocarbons" of that CBM Field. In
         the event that CUCBM participates to an extent less than thirty percent
         (30%) in the development of an CBM Field within the Contract Area, the
         "allocable remainder CBM and

                                      25
<PAGE>

        Liquid Hydrocarbons" of such CBM Field in that Calendar Year shall be
        shared by the Parties in proportion to their actual respective
        participating interests in such CBM Field.

13.3    Pursuant to the method of allocation specified in this Article, the
        Contractor may obtain an aggregate amount of CBM and Liquid Hydrocarbons
        consisting of the following three categories and shall be subject to
        Article 1.7 of Annex II.

13.3.1  The total amount of CBM and Liquid Hydrocarbons as converted from the
        actual operating costs paid by the Contractor in all CBM Fields in
        proportion to its participating interests in the development costs
        stipulated in Article 13.2.2.1 hereof when recovering such costs;

13.3.2  The total amount of the "investment recovery CBM and Liquid
        Hydrocarbons" from all CBM Fields due to the Contractor provided for in
        Article 13.2.2.2 herein; and

13.3.3  The total amount of the "allocable remainder CBM and Liquid
        Hydrocarbons" of all CBM Fields due to the Contractor in accordance with
        Article 13.2.4 herein.

ARTICLE 14: QUALITY, QUANTITY, PRICE, AND DESTINATION OF CBM

14.1    In accordance with Article 13.3 hereof, the Contractor may obtain the
        aggregate amount of three (3) categories of the Coalbed Methane and
        Liquid Hydrocarbons referred to in Articles 13.3.1, 13.3.2 and 13.3.3
        hereof.

14.2    Quality of the CBM and Liquid Hydrocarbons.

14.2.1  The quality analysis of CBM and Liquid Hydrocarbons produced from each
        CBM Field within the Contract Area shall be undertaken at the Delivery
        Point. Such analysis shall be carried out on a sample taken by the State
        Bureau of Import and Export Commodities Inspection (hereafter referred
        to as the "Bureau") or any representative agency authorized by the
        Bureau pursuant to standards issued by the State Bureau of
        Standardization of the People's Republic of China or by the Department
        or Unit. Such procedure shall be implemented in such a manner so as to
        avoid any unreasonable delay in the production of such CBM and/or Liquid
        Hydrocarbons.

14.3    Quantity of the Coalbed Methane and Liquid Hydrocarbons.

14.3.1  The quantity measurement of the CBM and/or Liquid Hydrocarbons produced
        from each CBM Field within the Contract Area, when being lifted, shall
        be made at a Delivery Point and with measuring devices both to be agreed
        upon by the Parties. A relevant measuring organization of the Chinese
        Government or a representative agency authorized thereby shall, at
        appropriate regular intervals, calibrate all the measuring devices,
        conduct special testing and issue certificates of qualification with
        respect thereto or confirm their qualification before the measuring
        devices are put into use. The quality and quantity of the CBM and/or
        Liquid Hydrocarbons delivered shall be authenticated in accordance with
        the commodity quality certificate and weight certificate issued by the
        Bureau and such quality and quantity shall be the basis for the
        accounting settlement.

14.3.2  If any Party to the Contract believes that the CBM or Liquid
        Hydrocarbons measuring devices, sampling or analysis are inaccurate, or
        has any objection to the results specified in the above mentioned
        certificates, on-site investigations, technical exchanges and
        discussions may be conducted by the Parties to resolve the issue in a
        manner satisfactory to the Parties.

14.4    Determination of the Coalbed Methane and/or Liquid Hydrocarbons Price.

14.4.1  The price of various grades of the CBM and Liquid Hydrocarbons shall be
        expressed as a FOB price at the Delivery Point. Determination of the CBM
        and Liquid Hydrocarbons price shall be based on the actual free market
        price received by the Parties; and

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<PAGE>

        a)      shall be determined each Calendar Quarter by CUCBM and each
                Party comprising Foreign Contractor individually; and

        b)      shall be the volumetrically weighted average of the following
                components:

                1.      In arm's length transactions the actual price received;

                2.      For other than arm's length transactions, the fair
                        market price taking into account the prevailing market
                        conditions.

        The aforesaid price in arm's length transactions in this Article 14
        refers to a free market price at which a seller sells its CBM and/or
        Liquid Hydrocarbons to a buyer who is independent of the seller, but
        excluding prices used in government to government transactions or other
        fixed or controlled prices which do not reflect the free market price,
        and excluding exchange or barter transactions.

        The price of the CBM and Liquid Hydrocarbons produced from the Contract
        Area shall be determined based on general pricing principles prevailing
        internationally taking into consideration such factors as the markets,
        quality and quantity of the CBM and Liquid Hydrocarbons and the prices
        of alternate non-subsidized energy resources agreed upon by the Parties
        with the objective of the Parties being to obtain the best price
        possible.

        The transportation costs to be used to determine the FOB price at the
        Delivery Point shall be agreed to during the negotiation of the
        long-term sales and purchase agreements and prior to the determination
        of commerciality and prior to the preparation and approval by the
        Parties of an Overall Development Program. Such transportation costs
        shall be determined in accordance with international petroleum and CBM
        industry practice and such transportation costs will only apply to
        pipelines not owned under this Contract.

14.4.2  Where the CBM and/or Liquid Hydrocarbons produced from each CBM Field
        within the Contract Area differs in quality, the prices of such CBM
        and/or Liquid Hydrocarbons with different quality shall if practicable
        be individually determined.

14.4.3  The price of the Contractor's share of the CBM and Liquid Hydrocarbons
        produced from all the CBM Fields within the Contract Area shall be
        denominated in U.S. dollars per cubic meter (based on BTU basis in
        accordance with Article 13.2.3), and payment made in U.S. dollars.

14.5    Terms of Payment for the Purchased CBM and Liquid Hydrocarbons.

14.5.1  Before the CBM and Liquid Hydrocarbons price is determined, the time
        limit for payment shall be agreed upon by the Parties through
        consultation in accordance with the general international practice then
        prevailing, and made a part of any sales agreements.

14.5.2  In case any Party is in default of such payment, such Party shall pay
        interest on arrears of the payment, starting from the first day of such
        default. The interest rate shall be the thirty-day term London
        Inter-Bank Offered Rate (LIBOR) for U.S. dollars quoted by Midland Bank
        in London at eleven (11:00) a.m. on the first working day following the
        due date of payment plus five percent (5%).

14.6    Destination of the CBM and Liquid Hydrocarbons.

14.6.1  The destination of Contractor's CBM, CBM Products, and Liquid
        Hydrocarbons obtained under the Contract shall be at the discretion of
        the Contractor. The Contractor shall have the following non-exclusive
        options:

                                      27

<PAGE>

         (1)      to join with CUCBM to market a part or all of their respective
                  shares of CBM and Liquid Hydrocarbons and to sell such CBM and
                  Liquid Hydrocarbons jointly to prospective purchasers able to
                  pay in U.S. Dollars;

         (2)      to sell directly its share of the CBM and Liquid Hydrocarbons
                  to the Chinese users subject to the approval of the relevant
                  government departments if required;

         (3)      to sell its share of the CBM and Liquid Hydrocarbons to CUCBM
                  and/or its Affiliates, CUCBM and/or its Affiliates shall pay
                  to the Contractor in U.S. Dollars in accordance with Article
                  14.6.5; or

         (4)      to sell its share of the CBM and Liquid Hydrocarbons to any
                  other lawful destinations or buyers.

14.6.2   Transportation costs shall be determined in accordance with Article
         14.4.1 herein.

14.6.3   The CBM and Liquid Hydrocarbons price or value shall be determined in
         accordance with this Article 14 with the objective of the Parties being
         to produce the CBM and Liquid Hydrocarbons at the MER and to obtain the
         best price possible.

14.6.4   Unless otherwise mutually agreed, the Delivery Point shall be the most
         economically viable nearby pipeline having available capacity, or the
         Delivery Point of the pipeline owned under this Contract or by any of
         the Parties.

14.6.5   For the purpose of encouraging the exploration and development of CBM,
         CUCBM and/or its Affiliates will, upon request of Contractor, act as a
         buyer to purchase all or part of Contractor's share of CBM and Liquid
         Hydrocarbons produced from the Contract Area in accordance with the
         following provisions:

14.6.5.1 The Parties shall agree upon the volume and rates of delivery of CBM
         and Liquid Hydrocarbons by Contractor and to be purchased by CUCBM
         and/or its Affiliates.

14.6.5.2 The price of CBM and Liquid Hydrocarbons and other essential terms and
         conditions, including but not limited to, Delivery Point and pipeline
         costs shall be determined pursuant to the provisions of this Article 14
         and shall, unless otherwise mutually agreed, be agreed upon prior to
         the determination of commerciality and preparation of the Overall
         Development Program.

14.6.5.3 The Purchase of the CBM and Liquid Hydrocarbons produced from the
         Contract Area shall be made at the Delivery Point, which unless
         otherwise mutually agreed, shall be the most economically viable nearby
         Natural Gas pipeline having available capacity.

14.6.5.4 Unless otherwise agreed by the Contractor, payments for CBM and Liquid
         Hydrocarbons shall be made in U.S. dollars in the bank account
         designated by Contractor, either within or outside the People's
         Republic of China at Contractor's election.

14.6.6   In case CUCBM and/or its Affiliates have available capacity in the gas
         trunklines and/or pipeline infrastructure, once a CBM transportation
         contract with reasonable transportation costs determined in accordance
         with Article 14.4.1 has been signed by and between CUCBM and/or its
         Affiliates and Contractor, the Contractor shall be guaranteed access
         and priority use of such trunkline and/or pipeline infrastructure and
         any subsequent CBM or Natural Gas producer shall be subject to
         Contractors' guaranteed access and priority use of such trunkline
         and/or pipeline infrastructure.

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<PAGE>

ARTICLE 15: PREFERENCE FOR THE EMPLOYMENT OF CHINESE PERSONNEL, GOODS AND
SERVICES

15.1    For the performance of the CBM Operations, the Contractor's procurement
        of necessary goods, leasing of equipment and signature of subcontracts
        or other construction and service contracts shall be subject to relevant
        regulations. The Contractor may give preference to Chinese goods,
        equipment and service, provided that they are competitive in terms of
        price, quality and terms of delivery.

15.2    The Contractor may give preference to the employment of Chinese
        Personnel in the performance of the CBM Operations in accordance with
        relevant regulations. For this purpose, the Contractor may submit in
        advance to CUCBM and JMC respectively a plan for the employment of
        Chinese Personnel listing all the posts and number of the persons
        involved. CUCBM shall, at the request of the Contractor and in
        accordance with the plan, provide or assist in recruiting Chinese
        employee candidates for such employment. The Contractor shall, as the
        CBM Operations require, with the approval of CUCBM and JMC, revise the
        training and employment plan to make the plan the most efficient and
        economical for CBM Operations. For the performance of CBM Operations,
        the Contractor may have the obligation to employ competent Chinese
        Personnel and to employ those who have become qualified after having
        being trained in accordance with the training program. The Contractor
        may give preference in employing the Chinese Personnel who have
        participated in the training program provided by the Contractor.

        It is agreed between CUCBM and the Contractor that total Chinese
        Personnel employment levels, including the costs thereof, for the
        purpose of conducting CBM Operations, including training therefore,
        shall always be consistent with conducting such operations in an
        efficient and economic manner in accordance with good and generally
        accepted international oil field practices.

        All Chinese employees shall sign with the Operator employment contracts
        whose terms shall cover hiring, resignation and dismissal, production
        and work responsibilities, wages and bonuses, health, safety and
        environmental rules, working hours and holidays, labor insurance and
        welfare benefits, labor protection and labor discipline. Such contracts
        shall include the right of the Operator to dismiss in accordance with
        applicable Chinese laws and regulations such employees who do not
        observe such contract, Contractor rules, or other rules applicable to
        their work.

15.3    The engineering design corporations under or entrusted by CUCBM shall
        have the right to participate in the master designs and engineering
        designs made by the Contractor for the purpose of the implementation of
        the Contract. Qualified engineering design companies within the
        territory of the People's Republic of China as determined by the Parties
        may be given preference in entering into subcontracts for the aforesaid
        master designs and engineering designs, provided that their technical
        level, quality, price and delivery time are competitive.

15.4    After the Contractor signs equipment leasing contracts, service
        contracts or subcontracts with CUCBM or its Affiliates in accordance
        with Article 15.1 herein, the Contractor shall endeavor to provide
        technical assistance to CUCBM or its Affiliates, at the request of
        CUCBM, so as to enable them to meet the needs of CBM Operations to be
        undertaken. The expenses so incurred shall be borne by CUCBM or its
        Affiliates.

ARTICLE 16: TRAINING OF CHINESE PERSONNEL AND TRANSFER OF TECHNOLOGY

16.1    The Contractor agrees, in the course of the implementation of the
        Contract, to transfer to CUCBM and its Affiliates, the advanced
        technology and managerial experience including proprietary technology
        e.g. patented technology, know-how or other confidential technology,
        used in the performance of the CBM Operations and the necessary data
        and/or information for mastering such technology and experience,
        provided, however, such technology to be transferred shall be
        proprietary to the Contractor and, if the transfer of any of such
        technology is restricted in any way during the term of the Contract, the
        Contractor shall, to the extent reasonably possible, endeavor to obtain
        permission for the transfer of such restricted technology. However,
        rights under patents,

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<PAGE>

        commercial proprietary information and information covered by
        confidentiality agreements, shall not be transferred hereunder, except
        in accordance with a licensing agreement which may be negotiated and
        entered into between Contractor and CUCBM. The Contractor agrees to
        train the Chinese Personnel including workers, technical, economic,
        managerial, legal and other professional personnel, in order to improve
        their technical and/or managerial capabilities relating to CBM
        Operations.

16.2    Within ninety (90) days following the Date of Commencement of the
        Implementation of the Contract, the Contractor shall, after consultation
        with CUCBM, complete and submit a training and technology transfer
        program for a reasonable number of the Chinese Personnel in the
        exploration period and the corresponding budget to JMC for review and
        approval, and upon approval by JMC, put it into practice. The Contractor
        shall, after consultation with CUCBM, complete and submit training and
        technology transfer programs and corresponding budgets for a reasonable
        number of the Chinese Personnel in the development period and production
        period, respectively, to JMC for its review and approval before the
        commencement of the Development Operations and Production Operations,
        and upon approval by JMC, put them into practice in time so as to have
        ample time in advance for such training and technology transfer.

16.3    The expenses and costs incurred for performing the training and
        technology transfer program stipulated in this Article 16 shall be
        charged to the exploration costs if such costs are incurred before the
        date of approval of the Overall Development Program of the first CBM
        Field, and shall be charged to the development costs if such costs are
        incurred after the date of approval of the Overall Development Program
        of the first CBM Field, and before the Date of Commencement of
        Commercial Production of the first CBM Field, or shall be charged to the
        operating costs if such costs are incurred after the Date of
        Commencement of Commercial Production of the first CBM Field.

16.4    In the course of the implementation of the Contract, the Parties shall
        have scientific and technical cooperation and academic exchanges in
        connection with the CBM Operations. The relevant provisions concerning
        the program, participating personnel and type related to the scientific
        and technical cooperation and academic exchanges shall be determined by
        the Parties. The expenses required by the scientific and technical
        cooperation and academic exchanges shall be included in the budget
        specified in Article 16.2 herein and charged to the Joint Account. All
        inventions, experiments or research results arising from the said
        cooperation and academic exchange shall be shared by and belong to the
        Parties who, subject to the provisions of Article 21 hereof, shall not
        disclose them to any Third Party.

16.4.1  In the course of the implementation of the Contract, those scientific
        research projects which are required by the CBM Operations but not
        carried out by the Parties may, with the approval of JMC, be
        commissioned to, and carried out by, any Third Party. The Operator may
        enter into subcontracts or service contracts with relevant scientific
        research departments within the territory of the People's Republic of
        China, provided that they are competent and competitive. The aforesaid
        required expenses shall be included in the budget specified in Article
        16.2 herein and charged to the Joint Account. All inventions and
        experimental or research results developed from the aforesaid research
        projects carried out by a Third Party delegated by the Operator shall
        also be shared by and belong to the Parties who, subject to the
        provisions of Article 21 hereof, shall not disclose them to any other
        Third Parties. The Operator shall endeavor to incorporate the provisions
        herein in the subcontracts or service contracts signed with a Third
        Party.

16.5    The advanced technology and managerial experience, including proprietary
        technology, e.g. patented technology, know-how or other confidential
        technology that the Contractor transfers to CUCBM, shall remain the
        exclusive property of the Contractor and shall also be subject to the
        confidentiality restrictions of Article 21 hereof.

16.6    For the purpose of the implementation of this Article 16 - Training of
        Chinese Personnel and Transfer of Technology, the costs and expenditures
        incurred by the Contractor annually for

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<PAGE>

        training of Chinese Personnel and transfer of technology shall be no
        less than sixty thousand ($60,000) U.S. Dollars during the exploration
        period and no less than one hundred fifty thousand ($150,000) U.S.
        Dollars during the development and production periods unless otherwise
        agreed by the Parties.

ARTICLE 17: OWNERSHIP OF ASSETS AND DATA

17.1    All assets purchased, installed and constructed under the Work Program
        and budget for each CBM Field within the Contract Area shall be owned by
        CUCBM from the date on which all the development costs and Deemed
        Interest thereon incurred by the Contractor in the development period of
        such CBM Field have been fully recovered or from the date on which the
        production period expires, even though the aforesaid costs have not been
        fully recovered. The Operator shall be responsible for the acceptance,
        inspection or testing of the said assets and CUCBM may, as it deems
        necessary, send its experts to participate in such acceptance,
        inspection or testing. In the production period, the Operator may use
        these aforesaid CUCBM-owned assets free of charge for performing the CBM
        Operations. Such assets shall not be used in any operations other than
        the CBM Operations or any operations by Third Parties without the
        consent of the Parties.

17.2    Equipment and facilities which are owned by a Third Party and are either
        leased by the Operator or temporarily brought into the territory of the
        People's Republic of China for the performance of the CBM Operations
        shall not be deemed as assets owned by CUCBM. Such equipment and
        facilities may be exported from the People's Republic of China, and
        CUCBM shall assist in handling export formalities.

17.3    The ownership of all data, records, samples, vouchers and other original
        data obtained in the course of performing the CBM Operations shall vest
        in CUCBM, and the disclosure thereof by CUCBM shall be made in
        accordance with Article 21 hereof. However, the Contractor shall,
        subject to any necessary approval as may be required and Article 21
        hereof, have the right to use inside and outside the People's Republic
        of China, and keep samples and copies of all data, records and vouchers
        for the purposes of the CBM Operations.

17.4    The facilities constructed for the conduct of CBM Operations hereunder,
        whether located within or outside the Contract Area, may be used for the
        common benefit of any and all CBM Fields within the Contract Area
        ("Common Facilities") for so long as any CBM Field in the Contract Area
        is utilizing any of the Common Facilities. CUCBM and Contractor shall be
        entitled to use, free of charge, excepting Operating Costs, such Common
        Facilities to the extent required for CBM Operations hereunder. Such
        right of use shall be permitted regardless of whether or not the costs
        related to such Common Facilities have been recovered and regardless of
        whether or not Production Operations from the relevant CBM Field on
        which the Common Facilities are located has been terminated.

        The operating costs of the Common Facilities will be allocated to each
        CBM Field in proportion to the total Annual Gross Production of CBM and
        Liquid Hydrocarbon, i.e., the contribution of each CBM Field to the
        total Annual Gross Production of CBM and Liquid Hydrocarbons of all the
        CBM Fields within Contract Area utilizing such facilities.

ARTICLE 18: ACCOUNTING, AUDITING AND PERSONNEL COSTS

18.1    Accounting

        Annex II - Accounting Procedure hereto contains the guidelines for the
        Operator to keep accounting books and records and make financial
        settlements. The Operator shall keep and settle the accounts for all the
        financial activities in respect of the Contract Area and maintain all
        the accounting books and records in accordance with Annex II -
        Accounting Procedure hereto in order to accurately reflect the
        exploration costs, development costs with Deemed Interest thereon and
        operating costs incurred in the performance of the CBM Operations in
        respect of the Contract

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<PAGE>

         Area, as well as quantity and monetary value of the production and
         allocation of CBM. The Operator shall submit detailed statements and
         relevant written reports to JMC and the departments concerned.

18.2     Auditing.

18.2.1   Any non-Operator Party to the Contract shall have the right to audit
         all the Operator's Joint Account accounting books and records after the
         end of each Calendar Year and shall give the Operator a written notice
         of the auditing results. Any such audit shall be completed within
         twenty-four (24) months after the end of each Calendar Year. In the
         absence of any written notice of an exception in the audit results
         given by the non-Operator Party within such period or if the annual
         Joint Account accounting books and records of the Operator are not
         audited by any non-Operator Party within such period, the Operator's
         Joint Account accounting books and records shall be deemed correct. A
         special audit of the Operator's Joint Account accounting books and
         records may be made if specially required during any such Calendar
         Year. Any special audit will be limited to a specific topic and shall
         not be a general audit.

18.2.2   Prior to any special audit referred to in Article 18.2.1 hereof, the
         non-Operator agrees to furnish the Operator with a letter outlining the
         special audit item(s) and reasons for its concern. The Parties agree to
         first discuss the areas of concern and attempt to resolve any
         outstanding issues. If no resolution is reached, the Operator shall be
         given thirty (30) days notice prior to the date of commencement of such
         audit. There shall be no impediment to normal CBM Operations during the
         period of any audit. Any special audit of the Operator's Joint Account
         accounting books and records for a Calendar Year due to various special
         circumstances shall require, in addition to the thirty (30) days notice
         prior to the date of commencement of such audit, the consent of the
         Operator, which consent shall not be unreasonably withheld.

18.2.3   The auditors shall be entitled to access to all relevant Joint Account
         records, files and other information including, but not limited to the
         salary and wage information of Operator's personnel dedicated to the
         CBM Operations, and may inspect such sites and facilities as necessary.

18.2.4   Upon receipt of a notice of the non-Operator Party's exceptions in the
         auditing results, the Operator shall use its best efforts to reply in
         writing and resolve these matters in due time (no later than ninety
         (90) days thereafter).

         Exceptions in the auditing results that have not been resolved by the
         Parties through consultation within the 90 day period set forth above
         may be referred to JMC for discussion and resolution at the request of
         any Party to the Contract. Any audit exception that has not been
         settled by JMC through consultation within 90 days after having been
         referred to JMC for resolution may be referred to a mutually acceptable
         independent international Third Party accounting authority for final
         review and resolution. Any mutually acceptable independent
         international Third Party accounting authority selected for final
         review and resolution of any outstanding audit exception(s) shall not
         have any economic interests or relationship with the Parties. Any
         determination made by such mutually acceptable independent
         international Third Party accounting authority in regard to such
         unresolved audit exception(s) shall be final and binding upon the
         Parties.

18.3     Personnel Costs.

18.3.1   Personnel costs mean the remuneration and other related charges paid in
         connection with personnel who are engaged whether temporarily or
         permanently in administration, management, accounting, finance, tax,
         employee relations, procurement, legal affairs, safety/environmental
         affairs, computer services, engineering, geology, geophysics, drilling
         and Production Operations as well as all other work for the
         implementation of the Contract.

18.3.1.1 The salary or wages of personnel of JMC, the personnel of the various
         subordinate bodies of JMC, the professional representatives referred to
         in Article 7.5 hereof and all employees engaged in the

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<PAGE>

         performance of the CBM Operations shall be included in the personnel
         costs as provided in Article 18.3.1 herein.

18.3.1.2 Personnel costs which are classified as the overhead of the superior
         management organization pursuant to Article 5.2.18 of Annex II -
         Accounting Procedure hereto shall not be included in the personnel
         costs mentioned herein.

18.3.2   After the Date of Commencement of the Implementation of the Contract,
         the Operator shall work out a staffing plan for its organization and a
         personnel costs plan with respect thereto (including a plan of
         personnel costs, such as overseas allowance and area allowance, etc.)
         before the beginning of each Calendar Year and submit such plan with
         the annual Work Program and budget to JMC for review and examination.

         During the exploration period, the Operator shall submit a staffing
         plan for its organization and a personnel costs plan with the annual
         Work Program and budget to JMC for review and examination.

         In the development period and production period, the Operator shall
         submit a staffing plan for its organization and a personnel costs plan
         with the annual Work Program and budget to JMC for review and approval
         and the Contractor shall provide CUCBM with an itemized plan of
         personnel costs of the Expatriate Employees. CUCBM shall bear the
         obligation of confidentiality for such information provided by the
         Contractor.

         The Operator shall charge the personnel costs of the Contractor's
         personnel actually incurred to the Joint Account.

         CUCBM shall have the right to audit the personnel costs charged to the
         Joint Account, and when CUCBM and Contractor act together as the joint
         Operator, the Contractor shall also have the right to audit such
         personnel costs.

18.3.3   The level of the salaries and wages paid to the representatives
         appointed by CUCBM to JMC established in accordance with Article 7.1
         hereof, the Chinese Personnel working in various subordinate bodies of
         JMC established in accordance with Article 7.4 hereof, the professional
         representatives appointed in accordance with Article 7.5 hereof and
         CUCBM's personnel employed by the Contractor shall be determined
         pursuant to the provisions of Annex III - Personnel Costs hereto.

         The salaries and wages of the Chinese Personnel other than CUCBM
         personnel employed by the Operator shall be determined through
         consultations and specified in the individual employment contracts.

         The settlement of all charges for the salaries and wages of CUCBM
         personnel under this Article 18.3.3, shall be made between CUCBM and
         the Operator in accordance with Annex III (Personnel Costs) hereto.
         CUCBM personnel shall be responsible for any and all individual income
         tax due, including but not limited to, that due in accordance with the
         provisions of the Individual Income Tax Law of the People's Republic of
         China.

18.3.4   The Operator shall withhold the individual income tax of the Expatriate
         Employees that it is required to withhold and is due in accordance with
         the provisions of the Individual Income Tax Law of the People's
         Republic of China.

ARTICLE 19: TAXATION

19.1     Each of the companies comprising the Contractor shall pay taxes,
         including but not limited to, enterprise income taxes, to the
         Government of the People's Republic of China subject to the tax laws
         and regulations of the People's Republic of China.

                                       33
<PAGE>

19.2  The Operator shall advise the Subcontractors who render services for the
      Contract that they and their employees shall pay taxes to the Government
      of the People's Republic of China subject to the tax laws and regulations
      of the People's Republic of China.

ARTICLE 20: INSURANCE

20.1  The Operator shall work out an insurance program for the Exploration
      Operations and submit it to JMC for review and approval within one hundred
      and twenty (120) days after the Date of Commencement of the Implementation
      of the Contract. The Operator shall, on behalf of the Parties, obtain the
      insurance contracts in accordance with such program as approved by JMC
      before commencement of CBM Operations within the Contract Area.

      Similar provisions shall apply in respect of Development Operations and
      Production Operations.

20.2  All of the insurance items as approved in the insurance program shall be
      insured with insurance companies licensed in accordance with the laws of
      the People's Republic of China (hereinafter referred to as Chinese
      insurance companies) and shall be insured in accordance with the laws and
      regulations of the People's Republic of China and on terms and conditions
      competitive with world markets for similar risks.

20.3  The insurance programs worked out by the Operator shall include, but not
      be limited to, the following insurance coverage:

      (a)   Damages to and expenses of all drilling installations and equipment,
            including damages to and expenses of the properties used on
            worksites and supply bases for the CBM Operations, while the
            equipment and properties owned by Third Party rendering services to
            the Operator shall be handled in accordance with Article 20.5
            herein;

      (b)   Damages to and expenses of any of the equipment or installations for
            production, storage and transportation, and buildings in the course
            of construction and installation;

      (c)   Damages to and expenses for the production installations,
            facilities, and equipment in CBM fields;

      (d)   Liability to Third Parties;

      (e)   Liability for pollution and expenses for cleaning up in the course
            of drilling and Production Operations;

      (f)   Expenses for extinguishing blowouts;

      (g)   Liability incurred by the Operator in hiring land drilling rigs,
            vessels and aircraft serving the CBM Operations;

      (h)   Liability for cleaning debris; and

      (i)   losses and expenses incurred during the transportation and storage
            in transit of goods shipped from different parts of the world and
            other areas outside the Contract Area to the worksites.

20.4  In any insurance contracts, the deductibles shall be determined by the
      Parties through consultation, and losses within the deductible limits
      shall be borne by Parties in proportion to their respective participating
      interests in the relevant operations, and charged to the Joint Account.

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<PAGE>

20.5  When signing subcontracts or lease contracts, the Operator shall endeavor
      to require Subcontractors and lessors to insure their risks under the
      relevant subcontracts or lease contracts with Chinese insurance companies
      in accordance with the laws and regulations of the People's Republic of
      China. The rates, terms and conditions of such insurance shall be
      competitive with world markets for similar risks.

20.6  In the course of the CBM Operations, the Parties shall cover separately
      personnel accidental death and injury insurance with respect to personnel
      whom they have respectively assigned. The premiums in respect thereof
      shall be dealt with in the following way: The premiums for personnel
      accidental death and injury insurance with respect to personnel whose
      costs are charged to the Joint Account pursuant to the provisions of the
      Contract shall be charged to the Joint Account, and those with respect to
      other personnel shall be borne by the respective Party by which they are
      assigned.

20.7  Insurance companies owned by or affiliated with any Party to the Contract,
      or the Parties themselves, may reinsure relevant Chinese insurance
      companies who have obtained insurance contracts by reaching an agreement
      with such companies if they are interested in reinsuring any part of the
      insurance program hereunder.

20.8  All motor vehicles used in the CBM Operations shall be insured with
      Chinese insurance companies in accordance with the laws and regulations of
      the People's Republic of China.

20.9  The premiums of insurance in the exploration period and the development
      period shall be charged respectively to the exploration costs and
      development costs while those in the production period shall be charged to
      the operating costs.

20.10 Any claim under the insurance policies of the agreed insurance program
      charged to the Joint Account shall be handled by the Operator and any
      recovery made from insurers shall be credited to the Joint Account.

ARTICLE 21: CONFIDENTIALITY

21.1  CUCBM shall, in conformity with applicable laws and regulations of the
      Government of the People's Republic of China on confidentiality and by
      taking into account international practice, determine in consultation with
      the Contractor the confidentiality periods for which the Contract and all
      documents, information, data and reports related to the CBM Operations
      within the Contract Area shall be kept confidential.

21.2  Without the written consent of the other Party, no Party to the Contract
      shall disclose, during such confidentiality periods, the Contract,
      documents, information, data and reports referred to in Article 21.1
      herein or any other information regarded by JMC as confidential, to any
      Third Party except the Third Parties specified in Article 21.5 herein and
      to any Affiliate not directly connected with the implementation of the
      Contract, and no Party to the Contract shall otherwise transfer, donate,
      sell or publish them in any way within the confidentiality periods. CUCBM
      shall have the right to disclose confidential information to relevant
      Third Parties upon the termination of this Contract.

      CUCBM shall, in conformity with relevant provisions of laws and
      regulations of the People's Republic of China and lawful requests of
      relevant government departments and units, provide them with all
      documents, information, data and reports as mentioned herein.

21.3  During the term of the Contract and after the termination of the Contract,
      CUCBM shall not disclose to any Third Party any patent, know-how or
      proprietary technology transferred to CUCBM by the Contractor without the
      written consent of the Contractor except for any technology, the patent of
      which has expired and any proprietary and confidential technology which
      has entered the public domain.

                                       35
<PAGE>

21.4    After the termination of the Contract or after any assignment of rights
        and/or obligations of the Contract under Article 22 hereof, the
        Contractor and any assignee shall, within the confidentiality periods,
        continue to be obligated to keep confidential documents, information,
        data and reports mentioned in Article 21.2 herein except for official
        documents and information published with the consent of the Parties.

21.5    For the implementation of the Contract, CUCBM and each company
        comprising the Contractor may furnish the necessary documents,
        information, data and reports to Affiliates related to the CBM
        Operations. CUCBM and each company comprising the Contractor may, after
        review by JMC and CUCBM, furnish the necessary documents, information,
        data and reports to the Third Party related to the CBM Operations. The
        Third Parties include:

21.5.1  Banks or other credit institutions from which financing is sought by any
        Party to the Contract for the implementation of the Contract;

21.5.2  Third Parties which provide services for the CBM Operations, including
        Subcontractors and other service contractors; and

21.5.3  Any assignee or assignees to whom the rights and/or obligations under
        the Contract may be assigned.

21.6    Necessary information, documents, data and reports may be furnished by
        the Parties or an Affiliate of the Parties related to CBM Operations in
        accordance with the laws of their home countries to the governments and
        stock exchanges, provided that the Parties report to JMC in advance.

21.7    CUCBM and each company comprising the Contractor when furnishing the
        documents, information, data and reports to Third Parties and Affiliates
        as mentioned in Article 21.5 herein shall require them to assume the
        confidentiality obligations as set forth herein, or shall bear full
        responsibility for any violation thereof.

ARTICLE 22: ASSIGNMENT

22.1    Any company comprising the Contractor may, after notice in writing to
        CUCBM, assign part or all of its rights and/or obligations under the
        Contract to any of its Affiliates. Such assignment, within sixty (60)
        days after receiving the notice, shall be approved by CUCBM, provided
        that the company comprising the Contractor who assigns, shall perform
        the assignment in accordance with the following provisions:

        (a)     Any company comprising the Contractor who assigns shall submit
                to CUCBM copies of a written agreement on the corresponding part
                of its rights and/or obligations to be assigned;

        (b)     Any company comprising the Contractor who assigns, shall
                guarantee in writing to CUCBM the performance of the assigned
                obligations; and

        (c)     No such assignment shall interfere with the performance of the
                CBM Operations or affect the organizational structure.

22.2    The Contractor may assign part or all of its rights and/or obligations
        under the Contract to any Third Party provided that such assignment
        shall be agreed by CUCBM in advance and approved by the Ministry of
        Foreign Trade and Economic Co-operation of the People's Republic of
        China. However, if the conditions offered by CUCBM are the same, CUCBM
        shall have the right of first refusal in respect of such assignment to
        be exercised by CUCBM in writing within thirty (30) days upon receipt of
        notice from the Contractor to assign to a Third Party, unless otherwise
        agreed upon by the Parties.

                                       36
<PAGE>

22.3    Upon notice to the Contractor, CUCBM may authorize its Affiliates to
        implement the Contract, but CUCBM shall remain responsible for the
        performance of the Contract.

22.4    With prior consent of the Contractor and subject to the approval of the
        Ministry of Foreign Trade and Economic Co-operation of the People's
        Republic of China, CUCBM may assign part of its rights and/or
        obligations hereunder to any Third Party, provided that such assignment
        shall not interfere with the performance of CBM Operations.

ARTICLE 23: ENVIRONMENTAL PROTECTION AND SAFETY

23.1    In the performance of the CBM Operations, the Operator shall be subject
        to the laws, decrees, regulations and standards on environmental
        protection and safety promulgated by the Chinese Government and carry
        out the CBM Operations according to international practice. The Operator
        shall use all reasonable endeavors to protect farmland, aquatic
        resources, forest reserves and other natural resources, and prevent
        pollution and damage to the atmosphere, rivers, lakes, groundwater,
        harbors, other land environments and ecological environment and secure
        the safety and health of the operating personnel. The Operator shall use
        all reasonable endeavors to eliminate promptly any pollution occurring
        as a direct result of and in the performance of the CBM Operations and
        minimize its consequences. Economic losses caused by any pollution shall
        be charged to the Joint Account, unless otherwise provided in Article
        8.4 hereof.

23.2    The Operator shall conduct regular audits to ensure compliance with the
        Operator's environmental, health and safety standards. All costs for
        such regular audits shall be charged to the Joint Account.

23.3    When competent authorities under the Chinese Government assign a person
        to inspect environmental protection, health and safety within the scope
        of the CBM Operations according to the laws, decrees, rules and
        regulations of the People's Republic of China, the Operator shall
        provide all necessary access to facilities and assistance to enable the
        inspectors to carry out such inspection smoothly.

23.4    The Operator shall, subject to Article 4.6.2, after the completion of
        various CBM Operations, to the extent reasonable and practicable, level
        or restore or reclaim the land of the operating sites to the condition
        existing at the commencement of implementation of the Contract in
        accordance with the relevant rules and regulations.

ARTICLE 24: FORCE MAJEURE

24.1    No Party to the Contract shall be considered in default of the
        performance of any of its obligations hereunder, if any failure to
        perform or any delay in performing its obligations is in conformity with
        all the events described as follows:

        The performance of any obligations hereunder is prevented, hindered or
        delayed because of any event or combination of events which could not be
        foreseen and/or which is beyond the control of such Party; and

        Any such event or combination of events is the direct cause of
        preventing, hindering or delaying of such Party's performance of its
        obligations hereunder; and

        When any such event or combination of events has occurred, such Party
        has taken all reasonable actions to overcome any cause that prevents,
        hinders or delays performance of its obligations and shall in so far as
        is practicable continue to perform its obligations hereunder.

24.2    Notice of any event of force majeure and the conclusion thereof shall
        forthwith be given to the other Party by the Party claiming force
        majeure.

                                       37
<PAGE>

24.3     In the event of force majeure, the Parties shall immediately consult in
         order to find an equitable solution thereto and shall use all
         reasonable endeavors to minimize the consequences of such force
         majeure.

24.4     If the CBM Operations in the Contract Area are partially or entirely
         suspended as a result of the force majeure referred to in this Article
         24, the period of the CBM Operations may be extended by a period
         corresponding to such suspension. Within fifteen (15) days following
         the end of each Calendar Year, the Operator shall report to JMC in
         writing on the suspension of the CBM Operations caused by force
         majeure, if any, during the preceding Calendar Year.

24.5     Should, however, the force majeure condition continue for a period of
         twenty-four (24) consecutive months, then, in such event, Contractor
         shall have the option to terminate this Contract without any further
         liability.

24.6     The provision of this Article 24 shall not apply in the case of default
         in the making of any payment of money under the Contract.

ARTICLE 25: CONSULTATION AND ARBITRATION

25.1     The Parties shall make their best efforts to settle amicably through
         consultation any dispute arising in connection with the performance or
         interpretation, or validity of any provision hereof.

25.2     Any dispute mentioned in Article 25.1 herein, including without
         limitation disputes arising under Article 27.2, that has not been
         settled through such consultation within ninety (90) days after the
         dispute arises may be referred to arbitration at the request of and by
         either Party to the Contract. The arbitration shall be conducted in
         accordance with the following provisions:

25.2.1   If agreed upon by the Parties, such dispute shall be referred to
         arbitration conducted by the China International Economic and Trade
         Arbitration Commission in accordance with the arbitration proceeding
         rules thereof.

25.2.2   If the Parties fail to reach an agreement on the arbitration
         arrangement mentioned in Article 25.2.1 herein within sixty (60) days
         after a Party has requested in writing that a dispute be referred to
         arbitration, the Parties shall establish an ad hoc arbitration tribunal
         to conduct arbitration in accordance with the following provisions:

25.2.2.1 The ad hoc arbitration tribunal shall consist of three (3) arbitrators.
         The Parties shall each appoint an arbitrator and the two (2)
         arbitrators so appointed shall designate a third arbitrator. If one of
         the Parties does not appoint its arbitrator within sixty (60) days
         after the first appointment, or if the two (2) arbitrators once
         appointed fail to appoint the third within sixty (60) days after the
         appointment of the second arbitrator, the relevant appointment shall be
         made by the Arbitration Institute of the Stockholm Chamber of Commerce,
         Sweden.

25.2.2.2 The third arbitrator shall be a citizen of a country which has formal
         diplomatic relations with both the People's Republic of China and the
         home country of any of the companies comprising the Contractor, and
         shall not have any economic interests or relationship with the Parties.

25.2.2.3 The place of arbitration shall be determined by the Parties through
         consultations or, failing the agreement of the Parties within sixty
         (60) days after the appointment of the third arbitrator, by the
         majority of arbitrators of the ad hoc arbitration tribunal.

25.2.2.4 The ad hoc arbitration tribunal shall conduct the arbitration in
         accordance with the arbitration rules of the United Nations Commission
         on International Trade Law ("UNCITRAL") of 1976, as amended. However,
         if the above-mentioned arbitration rules are in conflict with the
         provisions of

                                       38
<PAGE>

        this Article 25, including the provisions concerning appointment of
        arbitrators, the provisions of this Article 25 shall prevail.

25.3    Both the Chinese and English languages shall be official languages used
        in the arbitration proceedings. All hearing materials, statements of
        claim or defense, awards and the reasons supporting them shall be
        written in both Chinese and English.

25.4    Any award of the arbitration tribunal shall be final and binding upon
        the Parties.

25.5    The right to arbitrate disputes under the Contract shall survive the
        termination of the Contract.

ARTICLE 26: EFFECTIVENESS AND TERMINATION OF THE CONTRACT

26.1    The Contract shall, after it has been signed, be approved by the
        Ministry of Foreign Trade and Economic Co-operation of the People's
        Republic of China. The date of such approval shall be the effective date
        of the Contract. However, the Contractor's obligations shall begin on
        the Date of Commencement of the Implementation of the Contract, as
        defined in Article 1, hereinabove. CUCBM shall notify the Contractor of
        the said approval in writing as soon as possible. The Parties may agree
        after signing this Contract to commence Exploration Operations prior to
        the Date of Commencement of the Implementation of the Contract. In such
        event, all Exploration Operations prior to the Date of Commencement of
        the Implementation of the Contract shall be credited towards the
        exploration work commitment under Article 6 hereof and be cost
        recoverable.

26.2    All annexes to the Contract shall be integral parts of the Contract. If
        there is any inconsistency between the provisions of the annexes and the
        main body of the Contract, the main body of the Contract shall prevail.
        All references to the Contract herein refer to the main body of the
        Contract.

26.3    If in the course of implementation of the Contract, the Parties decide
        through consultation to make amendment or supplement any part of the
        Contract, a written agreement signed by the authorized representatives
        of the Parties shall be required. Such written agreement shall be
        subject to the approval of the Ministry of Foreign Trade and Economic
        Co-operation of the People's Republic of China should there be any
        significant modifications hereof. Such agreement shall be regarded as an
        integral part of the Contract.

26.4    The Contract shall terminate under any of the following circumstances:

26.4.1  Exercise of the Contractor's election to terminate the Contract under
        Article 6.3 (c) hereof; or

26.4.2  Failure to discover any commercial CBM reservoir within the Contract
        Area by the expiration of the exploration period or the extended
        exploration period granted under Article 4.3 hereof; or failure to sign
        a long-term transportation and sales contract within five (5) years
        after the exploration period ends.

26.4.3  If there is only one (l) commercial CBM Field in production in the
        Contract Area, on termination of the production period of such CBM
        Field; or

26.4.4  If there are two (2) or more commercial CBM Fields and/or CBM Fields in
        production in the Contract Area, on termination of the production period
        of the CBM Field with the latest termination date; or

26.4.5  At the end of the last day of the thirtieth (30th) Contract Year from
        the Date of Commencement of the Implementation of the Contract unless
        otherwise extended pursuant to Articles 4.5, 4.6.1, or 24.4 hereof, or
        as set forth in the approved Overall Development Program for each
        Coalbed Methane Field.

                                       39
<PAGE>

26.5  Before the expiration of the first phase of the exploration period as
      specified in Article 4.2 hereof, the Contractor shall not propose
      termination of the Contract unless the Contractor has fulfilled the
      minimum exploration work commitment for the first phase of the exploration
      period ahead of time.

26.6  If any Party to the Contract commits a material breach of the Contract,
      the other Party to the Contract shall have the right to demand that such
      breach be remedied within a reasonable period of time. If such breach is
      not remedied satisfactorily within such period of time, the Party damaged
      by such breach shall have the right to terminate the Contract by giving
      ninety (90) days written notice to the other Party. However, no Party
      shall be deemed to have committed a material breach in the performance of
      any provision of the Contract concerning which there is any dispute
      between CUCBM and the Contractor, until such time as all disputes
      concerning such provision, including any contention that a Party is in
      material breach, have been settled as provided in Article 25 hereof.
      During the time of such dispute, CUCBM and the Contractor shall continue
      to carry out their responsibilities pursuant to the Contract, which shall
      remain in full force and effect.

ARTICLE 27: THE APPLICABLE LAW

27.1  The validity, interpretation and implementation of the Contract shall be
      governed by the laws of the People's Republic of China. Failing the
      relevant provisions of the laws of the People's Republic of China for the
      interpretation or implementation of the Contract, the principles of the
      applicable laws widely used in CBM resources countries acceptable to the
      Parties shall be applicable.

27.2  If a material change occurs to the Contractor's economic benefits after
      the effective date of the Contract due to the promulgation of new laws,
      decrees, rules and regulations or any amendment to the applicable laws,
      decrees, rules and regulations of the People's Republic of China, the
      Parties shall consult promptly and make necessary revisions and
      adjustments to the relevant provisions of the Contract in order to
      maintain the Contractor's normal economic benefits hereunder.

ARTICLE 28: LANGUAGE OF CONTRACT AND WORKING LANGUAGE

28.1  The text of the Contract, annexes and supplementary documents attached
      hereto shall be written in both Chinese and English, and both versions
      shall have equal force and effect.

28.2  The Parties agree that both Chinese and English shall be used as working
      languages. After the effective date of the Contract, technical documents
      and information concerning the CBM Operations hereunder including Work
      Programs and Budgets shall, in general, be written in English except for
      technical documents and information available previously and received from
      Third Parties.

      Unless otherwise agreed by CUCBM, in consultation with the Contractor,
      documents and information in respect of administration shall be written in
      both Chinese and English. Forms for production and other reports and
      records shall be printed with headings in both Chinese and English and may
      be filled out in either Chinese or English.

ARTICLE 29: MISCELLANEOUS

29.1  All notices and documents required hereunder shall be deemed to have been
      properly given and delivered to either Party to the Contract only when
      received.

29.2  Notices and documents shall be delivered by hand or sent by mail,
      registered airmail, or facsimile to the address hereunder specified:

                                       40
<PAGE>

           Address of China United CBM Corporation, Ltd.:

           China United Coalbed Methane Corporation, Ltd.
           A88, Anwai Ave.,
           Beijing 100011
           P.R. China
           Tel:   86-10-6429-7887
           Fax:  86-10-6429-1881
           For the attention of:  Xin Wenjie

           Address of the representative of the Contractor:

           Phillips China Inc.
           315 S. Johnstone
           Plaza Office Building, Suite 1040H
           Bartlesville, Oklahoma  74004
           USA
           Tel.: (918) 661-5129
           Fax: (918) 661-4057
           For the attention of:   T. J. Bogan-Risley

29.3  Either Party to the Contract may change its address or representative by a
      written notice to the other Party to the Contract.

29.4  Companies comprising the Contractor have the following percentages of
      participating interests as of the effective date of the Contract:

      (I) Phillips China Inc.      One hundred percent (100 %);

      The rights and obligations of each company comprising the Contractor
      hereunder may, as between themselves, be varied by the operating agreement
      between such companies and the Contractor shall advise CUCBM in writing of
      any expected variation and, thereafter, of the actual variation. If such
      variation leads to the transfer of the operatorship, or the companies
      comprising the Contractor have made a decision to change the Operator, the
      Operator referred to in Article 8.1 hereof may be replaced after obtaining
      a written consent from CUCBM.

29.5  The Contractor shall pay CUCBM a signature fee of three hundred thousand
      U.S. Dollars (US $300,000) in two installments as follows:

      a)    The first installment of one hundred fifty thousand U.S. dollars
            shall be paid by Contractor to CUCBM within thirty (30) days after
            the Date of Commencement of the Implementation of the Contract;

      b)    The second installment of one hundred fifty thousand U.S. dollars
            shall be paid by Contractor to CUCBM within thirty (30) days after
            approval of the first Overall Development Program for a CBM Field by
            the Department or Unit.

      Such signature fee shall, in no case, be charged to the Joint Account, nor
      be deemed recoverable costs.

29.6  Whenever alternative interpretations of the Contract are possible subject
      to Article 27.1 hereof, CUCBM and the Contractor agree that preference
      shall be given to interpretations that will facilitate and promote the
      intent of the Contract.

29.7  It is the express and agreed intention of CUCBM and the Contractor that
      the terms and conditions of the Contract shall be applied, and that the
      grant of any consents required hereunder shall be

                                       41
<PAGE>

      given by the Parties in a manner and under conditions which are at all
      times reasonable and in line with international CBM industry practice.

29.8  No waiver by any Party of any one or more defaults by another Party in the
      performance of the Contract shall operate or be construed as a waiver of
      any preceding or future default or defaults by the same Party, whether of
      a like or of a different character. Except as expressly provided in this
      Contract, no Party shall be deemed to have waived, released or modified
      any of its rights under the Contract unless such Party has expressly
      stated, in writing that it does waive, release or modify such right.

IN WITNESS WHEREOF, THIS CONTRACT is signed in Beijing by the authorized
representatives of the Parties hereto on the first above-mentioned date.

CHINA UNITED CBM CORPORATION, LTD.

By:    /s/ Xin Wenjie
     -------------------------------------

Name:
      ------------------------------------

Title:
       -----------------------------------

PHILLIPS CHINA INC.

By:      /s/ A. Roy Lyons
     -------------------------------------

Name:    A. Roy Lyons
      ------------------------------------

Title:   President
       -----------------------------------

                                       42
<PAGE>

                         ANNEX II: ACCOUNTING PROCEDURE

                                    CONTENTS

<TABLE>
<CAPTION>
Article
<S>            <C>
1              General Provisions

2              Definitions

3              Cash Calls

4              Accounting and Management of Material

5              Expense Accounting

6              Recovery of Costs and Deemed Interest

7              Accounting Reports

8              Audit

9              Transfer Procedure of the Joint Account
</TABLE>

                                       43
<PAGE>

                         ANNEX II: ACCOUNTING PROCEDURE

ARTICLE 1
GENERAL PROVISIONS

1.1   This Accounting Procedure is an integral part of the Contract.

      The definitions set forth in Article 1 of the Contract are equally
      applicable to this Accounting Procedure. The definitions and provisions of
      this Accounting Procedure shall have the same force and effect as those in
      the Contract. If the provisions in this Accounting Procedure are in
      conflict with those in the Contract, the provisions in the Contract shall
      prevail.

1.2   Purpose: The purpose of this Accounting Procedure is to establish
      equitable control methods for determining charges and credits applicable
      to the CBM Operations according to the relevant provisions of the
      Contract, including the guidelines for accounting settlements in respect
      of managing funds and materials, financing and Accounting Records, and for
      compiling accounting statements.

      The Operator shall neither gain nor lose in relation to the other Parties
      to the Contract by means of the fact that it acts as the Operator.

1.3   Accounting methods: The double-entry accrual method of accounting shall be
      used in this Accounting Procedure.

1.4   Working language: Chinese or English shall be used as the working
      languages for the Accounting Records and analyses of financial conditions
      in respect of the Joint Account, at the Operator's option.

1.5   Currency for accounting: U.S. dollars shall be the unit of currency for
      accounting in the Joint Account and shall be the currency for the
      investments and reimbursements under the Contract. In case currencies
      other than U.S. Dollars are used to carry out business activities, the
      relevant bank accounts and other current asset and current liability
      accounts shall be kept both in U.S. dollars and in the currencies used.

1.6   Currency translation: For the purpose of accounting, currency translation
      entered into the Joint Account shall be made in accordance with following
      guidelines:

      The rate of exchange to be used for the conversion into U.S. dollars of
      cash calls received in Renminbi shall be the arithmetic average of the
      buying and selling rates of exchange applicable to any individual or
      commercial entity quoted by the People's Bank of China at 11:00 a.m. on
      the date of receipt of such cash in the Operator's bank account(s). If the
      relevant date is a non-business day of the People's Bank of China, the
      rate quoted on the previous business day by the People's Bank of China
      shall apply.

      All other transactions recorded in the Joint Account which are made in
      Renminbi shall be translated into and recorded in U.S. dollars at the rate
      of exchange as quoted above on the last business day of the previous
      month, while those transactions which are made in currencies other than
      Renminbi and U.S. Dollars shall be recorded in U.S. dollars at the actual
      cost in U.S. dollars of effecting the transaction.

      Neither CUCBM nor the companies comprising the Contractor shall experience
      an exchange gain or loss, at the expense or benefit of the other Party.

      The Operator shall make its best efforts to minimize any exchange loss.

      All gains or losses from currency conversion or translation shall be
      recorded in the Joint Account.

                                       44
<PAGE>

1.7   Foreign exchange business: Foreign exchange business related to the CBM
      Operations shall be made in accordance with relevant regulations for
      foreign exchange control and rules for the implementation of such
      regulations of the People's Republic of China, provided that the
      Contractor can:

1.7.1 Open and maintain bank accounts in any currency, both inside and outside
      of the People's Republic of China, control and make use such bank accounts
      and dispose of the funds therein. Obtain loans, advances or other
      financing outside the People's Republic of China for activities in
      connection with the Contract, and repay the principal and pay the interest
      thereon in foreign exchange.

1.7.2 Buy and sell foreign exchange or Renminbi through banks and other lawful
      means within the People's Republic of China at the official foreign
      exchange rate applicable to all and any individual or commercial entity
      quoted by the State Administration of Foreign Exchange Controls of the
      People's Republic of China.

1.7.3 Retain and freely dispose of or exchange Renminbi or foreign exchange
      generated from the CBM Operations or other activities or events related to
      the Contract, but Contractor must remit back to the People's Republic of
      China the amounts needed to pay taxes when they are due and payable
      according to the tax laws and regulations of the People's Republic of
      China, and other obligations when due and payable in the People's Republic
      of China.

      Dispose, distribute or retain or remit abroad the proceeds from the
      Contractor's sales of CBM, Liquid Hydrocarbons and CBM Products sold in
      the People's Republic of China and abroad, but Contractor must pay taxes
      when due and payable according to the tax laws and regulations of the
      People's Republic of China.

1.7.4 Make disbursements directly from internationally recognized bank accounts
      inside or outside of the People's Republic of China for payments of
      salaries and wages of Expatriate Employees, purchased materials and
      various items of labor and service charges from Affiliates of Contractor
      and foreign Subcontractors to carry out the CBM Operations as specified in
      the Contract, after taxes are withheld according to the provisions of the
      tax laws and regulations of the People's Republic of China.

1.7.5 Transfer Renminbi according to the needs of the CBM Operations between
      Renminbi currency accounts opened within the People's Republic of China.

1.7.6 Deposit foreign exchange receipts in the Bank of China in the original
      currency and such deposits need not be converted to Renminbi until needed.

1.7.7 Remit abroad excess foreign exchange or Renminbi, after reconversion to
      foreign exchange, advanced or generated by the investing Parties and not
      expended and held by the Contractor for the investing parties in
      proportion to the extent of their respective percentage interests in such
      excess, provided that CUCBM's share of such excess shall be returned to
      CUCBM.

1.8   Accounting Records and Statements

1.8.1 All Accounting Records related to the CBM Operations shall be established
      and maintained by the Operator within the territory of the People's
      Republic of China.

1.8.2 All vouchers, accounts, books and statements shall be prepared in
      accordance with the CBM Operations Accounting System established by CUCBM
      and the Contractor through consultation pursuant to the Accounting
      Regulations of the People's Republic of China for Enterprises with Foreign
      Investment.

                                       45
<PAGE>

1.8.3 Annual accounting statements and important accounting books, including
      asset records, cash or bank journals, general and subsidiary ledgers,
      balance sheets, and annual gross CBM production allocation statements
      shall be maintained for the term of the Contract as specified in Article
      4.7 of the Contract, or for any further period if required by the laws and
      regulations of the People's Republic of China. Other accounting vouchers
      and books shall be kept for fifteen (15) years or as required by the laws
      and regulations of the People's Republic of China. Quarterly and monthly
      statements shall be maintained for three (3) years or as required by the
      laws of the People's Republic of China.

      Upon the expiration of the custody period, a list shall be made of the
      accounting files which are to be disposed of. Disposal of the accounting
      files shall only be made after the approval of CUCBM. The list of the
      accounting files disposed of shall be maintained with the annual
      accounting statements.

ARTICLE 2
DEFINITIONS

The terms used in this Accounting Procedure shall have the definitions ascribed
to them as follows:

2.1   "Accounting Records" means all accounting books, source documents,
      original vouchers, approved documents, analytical data, work papers and
      accounting statements maintained for the CBM Operations.

2.2   "Accounting System" means the CBM Operations Accounting System prepared by
      CUCBM and the Contractor through consultations pursuant to the Accounting
      Regulations of the People's Republic of China for Enterprises with Foreign
      Investment, specifying the accounting titles to be used by the Operator
      and instructions for implementation, forms and contents of various
      accounting statements and their preparation methods, including a material
      classification section, a definition of Controllable Material, standards
      for itemizing assets and the provisions for fixed asset accounting. If
      there is a conflict between the Accounting System and this Accounting
      Procedure, then this Accounting Procedure shall prevail.

2.3   "Material" means materials, tools, facilities, equipment and consumables
      procured, leased or otherwise acquired and held for the CBM Operations.

2.4   "Joint Account" means accounts established by the Operator for the
      implementation of the Contract to record all debts and credits related to
      the CBM Operations.

2.5   "Controllable Material" means the Material referred to in the Accounting
      System described in Article 2.2 of this Accounting Procedure.

2.6   "LIBOR" means the seven-day term London Inter-Bank Offered Rate for U.S.
      dollars for similar amounts to the sums in question, quoted by Midland
      Bank in London at 11:00 a.m. on the first business day of the relevant
      period. If the Midland Bank is unable or fails to supply such daily
      quotation, that of Barclays Bank International Ltd. will be used, and
      failing this, National Westminster Bank PLC's quotation will be used.

2.7   "Investing Party" means any party that is contributing funds for the CBM
      Operations in accordance with its participating interest determined
      pursuant to the relevant provisions of the Contract.

ARTICLE 3
CASH CALLS

3.1   Except as otherwise provided in the Contract, the Contractor shall provide
      all the exploration costs for the Exploration Operations according to
      Article 12.1.1 of the Contract and all the

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      Investing Parties shall provide the development costs for the Development
      Operations in proportion to their respective participating interests as
      provided in Article 12.1.2 of the Contract. In accordance with each
      approved annual budget, the Operator shall issue monthly cash call notices
      to each Investing Party to provide the Operator with funds to cover the
      estimated cash requirements of the next month. Whether or not the cash
      call notices for the exploration costs are to be issued shall be at the
      option of the Operator.

3.2   Development Operations cash call and default

3.2.1 According to the needs of the CBM Operations, the Operator shall regularly
      issue monthly cash call notices within the amount of approved annual
      budget to request each Investing Party to respectively make advances as
      specified by the Operator. The Operator shall, at least twenty (20) days
      prior to the commencement of each month, issue cash call notices for the
      development costs and each Investing Party shall provide its percentage
      share of funds according to the requirements and within the time limit
      specified in the cash call notice. However, the payment due date specified
      in the cash call notices shall not be earlier than the first working day
      of the month for which cash is called. Each Investing Party shall transfer
      its percentage share of funds to the Operator's bank account(s)
      established by the Operator particularly for the CBM Operations. Such bank
      account(s) will be interest bearing account(s), if possible. Such interest
      shall be credited directly to the respective CUCBM and Contractor accounts
      as applicable, in accordance with their respective percentage of
      participating interest.

      Any excessive advances made by each Investing Party for any month shall be
      adjusted in the next cash call.

      In case the Operator, owing to the needs of the Development Operations,
      has to incur expenditures which are unforeseen in the cash call for any
      month, written notices shall be issued to all the Investing Parties who
      shall finance their own shares for the additional amount within ten (10)
      days following the receipt of the written notice.

3.2.2 Interest shall be paid by CUCBM or the companies comprising Contractor
      failing to pay its share of funds on the due date specified in the cash
      call at LIBOR on the delinquent date plus five percent (5%) for a
      delinquency of less than one (1) month and thereafter at the average LIBOR
      rate ruling throughout each subsequent month plus five percent (5%), such
      interest being compounded on a monthly basis throughout the period of the
      delinquency. The non-defaulting party or parties shall make up the
      delinquent portion on behalf of the defaulting party or parties. When the
      defaulting party or parties pay cash to meet both the delinquent portion
      and accrued interest thereon, the Operator shall reimburse the
      non-defaulting party or parties who made up the delinquent portion.

      All amounts advanced by the non-defaulting party or parties plus accrued
      interest not reimbursed by the defaulting party shall constitute a debt
      due from the defaulting party or parties to the non-defaulting party or
      parties who shall be entitled to all remedies at law and equity. The
      Operator, or any non-defaulting party, if the Operator is a defaulting
      party, on behalf of the non-defaulting party or parties is entitled to
      take and sell the defaulting party's or parties' share of the Annual Gross
      Production of CBM, Liquid Hydrocarbons and CBM Products and apply the
      proceeds of the sale of such CBM, Liquid Hydrocarbons and CBM Products
      against all sums due and payable by the defaulting party or parties
      including accrued interest. Any excess funds remaining from such proceeds
      after deduction of all amounts due, including interest and the costs,
      charges and expenses incurred by the Operator, or any non-defaulting
      party, if the Operator is a defaulting party, in connection with such
      sale, shall be paid over to the defaulting party. Any deficiency remaining
      due after deducting the proceeds of any such sale shall remain an
      obligation of the defaulting party or parties and may be collected as any
      other debt.

3.3   Each monthly cash call notice shall clearly indicate the following
      information:

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3.3.1 Annual development costs to be shared by each Investing Party as shown in
      the approved annual budget.

3.3.2 Amount of funds advanced by each Investing Party at the end of the month
      prior to the month in which the cash call notice is prepared and the
      actual expenditures and the actual balance (i.e. funds unused) recorded in
      the Joint Account, accompanied by the bank statements related to the Joint
      Account for the previous month.

3.3.3 Amount of funds to be called from each Investing Party in the month for
      which the funds will be used and the estimated amounts of funds to be
      called in the following two (2) months.

3.3.4 The date when funds are to be provided, the amount of funds, currency,
      account number, name of the account, the recipient bank and its address.

3.3.5 Where applicable, the participating Parties shall pay their participating
      interest share of such invoice, via wire transfer, within thirty (30) days
      of receipt of such invoice ("due date"). In the event a Party falls to pay
      such participating interest share by such due date, the Parties shall be
      subject to the provisions of Article 3.2.2 of the Annex II and the other
      provision of the Contract.

3.4   On the Date of Commencement of Commercial Production of any CBM Field, any
      development investment for the CBM Field advanced by the Investing Parties
      which has not been expended or will not be expended shall be returned to
      each of the Investing Parties in proportion to its share.

3.5   The cash for the Production Operations undertaken by the Parties jointly
      and approved by JMC shall be provided by all the Investing Parties to the
      Contract in proportion to their respective participating interests in the
      development costs and shall bear no Deemed Interest. Based on the needs of
      the Production Operations, the Operator may make timely adjustment of the
      amount of cash to be provided by all the Investing Parties to the
      Contract. The Operator shall issue monthly cash call notices for cash for
      the Production Operations. In proportion to its share, each Investing
      Party shall respectively provide advances on a monthly basis in accordance
      with the requirements and within the time limit specified in the cash call
      notice of the current month. The default provision specified in Article
      3.2 of this Accounting Procedure shall also apply to any cash calls for
      Production Operations.

      In case that the Operator, owing to the needs of the Production
      Operations, has to incur expenditures which are unforeseen in the cash
      call for any month, written notices with explanations shall be issued to
      all the Investing Parties who shall finance their own shares for
      additional amount within ten (10) days following the receipt of such
      written notice.

3.6   According to the requirement of the CBM Operations, the Operator shall
      indicate in any cash call notice the U.S. dollar equivalent of the total
      cash called. The Operator shall also specify the amounts of Renminbi and
      U.S. dollars required as estimated to make payment. CUCBM shall provide
      the advance of its own share either in Renminbi or in Renminbi and U.S.
      dollars with respect to the amounts called for by the Operator, but
      CUCBM's funding in Renminbi shall not exceed the total amount of Renminbi
      as indicated and called for by the Operator in any cash call notice. The
      Contractor shall provide the advance of its own share in U. S. dollars.

3.7   Provisions for recording the sources of funds:

3.7.1 Funds for exploration costs, development costs and operating costs, when
      received, pursuant to each cash call shall be credited against the
      relevant accounts of the Investing Parties in the Joint Account.

3.7.2 In case CUCBM decides to develop a CBM Field for its sole account pursuant
      to Article 11.5 of the Contract, or undertakes any other operation for its
      sole account, the funds required shall be financed and accounted for
      separately.

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3.7.3 In accordance with Article 6.3 of the Contract, if the Contractor opts to
      terminate the Contract as provided in Article 6.3(c) of the Contract or if
      the phase is the last phase of the exploration period, the Contractor
      shall, within thirty (30) days from the date of its decision to terminate
      the Contract or thirty (30) days from the date of the expiration of the
      exploration period, pay CUCBM in U.S. dollars the unfulfilled balance of
      the minimum exploration work commitment (or of the new commitment) for the
      exploration phase, converted into cash. The detailed method by which the
      unfulfilled balance of the minimum exploration work commitment is
      converted into U.S. dollars is that the actual average unit cost of the
      last portion of a seismic line shot under the Contract or of the last well
      drilled, excluding the abnormal drilling costs such as those of the
      sidetrack, fishing, severe loss of mud circulation, etc. (i.e. U.S.
      dollars/kilometer of seismic line; U.S. dollars/meter of drilling
      footage), is multiplied by the unfulfilled amount of the minimum
      exploration work commitment. The formula for such calculation is as
      follows:

      I = Ac x Pu

      in which:

      I = converted cash amount of the unfulfilled balance of the minimum
      exploration work commitment;

      Ac = actual average unit cost of the last portion of a seismic line shot
      or of the last well drilled; and

      Pu = the unfulfilled amount of the minimum exploration work commitment
      (The unfulfilled amount of the seismic line shot is the difference between
      the kilometers specified in Article 6.2 of the Contract and actual
      kilometers shot. The unfulfilled footage of an unfulfilled Wildcat is the
      designed total depth of the Wildcat specified in accordance with Article
      6.2 of the Contract or the depth actually drilled).

ARTICLE 4
ACCOUNTING AND MANAGEMENT OF MATERIAL

4.1   Procurement of Material:

      The procurement of Material shall be implemented in accordance with the
      procedures specified in Articles 15.1 and 7.6 of the Contract. In order to
      prevent overstocking of Material, the Operator shall use reasonable
      efforts to ensure that the procurement of Material shall be made in
      accordance with the Material procurement plans and that the quality of
      Material conforms to specifications and prices that are fair and
      reasonable. The Operator does not warrant any Materials furnished beyond,
      or in disregard of, the supplier's or manufacturer's guarantee.

4.2   Costs of procuring Material:

      The costs of Material purchased shall be the invoice prices less discounts
      plus related transportation and other expenses, including expenses for
      freight to the destination, insurance premiums commensurate with the
      Material covered, fees of forwarding agents, duties, fees, handling
      expenses from shipside to and within any water or land terminal warehouse
      or yard, and any other reasonable expenses actually paid and expenses of
      inland transportation.

4.3   The provisions and procedures of Article 15.1 and Article 7.6 of the
      Contract and the following provisions shall be applied for pricing
      Material furnished from the stocks of the Parties and/or their Affiliates
      for use in the CBM Operations:

      (1)   New Material:

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<PAGE>

      New Material shall be priced on the basis of current market value plus
      expenses in moving such Material directly to the job-site where Material
      is used.

      (2)   Used Material:

            (a)   Material which is in sound and serviceable condition and is
                  suitable for reuse without reconditioning shall be priced at
                  seventy-five percent (75%) of the current market value of new
                  Material.

            (b)   Material which, after being reconditioned, will be further
                  serviceable for its original function shall be priced at fifty
                  percent (50%) of the current value of new Material.

            (c)   Used Material which cannot be classified as (a) or (b) above
                  shall be priced by the Parties through discussions at a value
                  commensurate with its use.

            (d)   If the Operator wishes to use a method other than the above
                  for pricing used Material, such other method shall be agreed
                  upon in advance by the Parties through consultations.

4.4   Price determination and leasing expense calculation method for properties
      purchased or leased from other contract areas:

      The Operator may lease equipment and facilities and purchase Material and
      fuel from other contract areas within the People's Republic of China. The
      Operator shall charge the leasing expenses or purchase price as agreed
      upon by the Operator and its suppliers. Such leasing expenses or purchase
      prices shall not exceed those currently prevailing in similar contract
      areas.

4.5   For certain Material which is in short supply in the world markets and
      difficult to procure at published market prices and the lack of which will
      hinder normal operations, the Operator may, after the approval of JMC,
      purchase such Material urgently needed by the CBM Operations and charge
      actual purchase costs to the Joint Account.

4.6   Disposal of Equipment and Material:

      The Operator shall not dispose of or sell Material with book value
      exceeding Twenty Thousand U.S. dollars (U.S. $20,000) without the prior
      consent of the Parties. The Operator shall use reasonable endeavors to
      minimize losses in the disposal of or sales of such Material.

      Sales of properties to Third Parties or Affiliates shall be recorded in
      accordance with actual sales income. No guaranty or warranty for Material
      sold or disposed of under this Article shall be given by the Operator to
      any purchaser.

4.7   Accounting for Material:

      The costs of Material which is procured by the Operator and is directly
      used at the job-site shall be charged to the respective accounts of
      exploration costs, development costs or operating costs at actual purchase
      prices (as defined in Article 4.2 herein) and on the basis of the use of
      Material. Should such Material subsequently be used for other purposes,
      the relevant charges shall be transferred from the original cost accounts
      to the appropriate cost accounts.

      Material for general use which is first stored in warehouses shall be
      subject to inventory control procedures. The quantities, unit prices and
      total value shall be recorded for Material in inventory using perpetual
      inventory methods. Material in stock shall be priced at purchase costs and
      the Operator, upon the commencement of or during the Contract period, has
      the freedom to choose one of the following pricing methods such as FIFO,
      weighted average method and moving

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<PAGE>

      average method, etc. for Material to be transferred out of stock. Accounts
      for inventory Material shall be regarded as exploration costs, development
      costs or operating costs and shall be recovered in accordance with Article
      12.2 of the Contract.

      At the request of any non-Operator, the Operator shall furnish to the
      non-Operator a detailed statement of Controllable Material.

      The Operator shall conduct physical inventory of Material in warehouses
      prior to the annual final accounts or whenever depending upon the actual
      situation. The Operator shall give a written notice to JMC sixty (60) days
      before the date of proposed physical inventory in order to allow time for
      participation by the non-Operators and failure to participate by any
      non-Operator in the physical inventory shall be regarded as approval of
      the physical inventory conducted by the Operator.

      If any gain or loss is found as a result of the physical inventory, the
      Operator shall compile a detailed statement of the gain or loss and attach
      to it an explanation for the gain or loss, which shall be submitted to JMC
      for examination and approval.

4.8   In accordance with Article 17.1 of the Contract, the Operator shall
      exercise strict control over the fixed assets of the CBM Operations and
      set up accounts and inventory records, and shall conduct physical
      inventory of the fixed assets at the year-end or whenever depending upon
      the actual situation to make sure that the accounts, inventory records,
      and physical fixed assets are in conformity. In case that any damage or
      loss arises to the fixed assets, the Operator shall determine the reasons
      and submit them to JMC for examination and approval.

ARTICLE 5
EXPENSE ACCOUNTING

5.1     Rules for accounting

5.1.1   According to the provisions of Articles 12.1.1, 12.1.2 and 12.1.3 of the
        Contract, all development costs and operating costs of the Parties as
        well as the Contractor's exploration costs shall be recorded in the
        Joint Account separately.

        The Operator shall establish and maintain three separate accounts,
        namely:

5.1.1.1 exploration costs account,

5.1.1.2 development costs account

5.1.1.3 operating costs account

        in which all charges and costs as classified pursuant to Articles 5.2
        and 5.3 of this Accounting Procedure shall be reflected.

5.1.2   If either CUCBM or the Contractor, in accordance with Article 11.5, or
        Article 12.1.2 of the Contract, makes the decision to develop a CBM
        Field for its sole account or to undertake any other operation for its
        own account, the relevant costs shall be accounted for separately.

5.1.3   All items related to the CBM Operations such as discounts, deductions,
        allowances, interest income, gains from various services, indemnities
        from insurance and other miscellaneous income by the Operator, shall be
        credited to the relevant costs accounts.

5.1.4   All direct services or research work (including personnel) not included
        in the approved annual budget provided by the superior organizations or
        Affiliates of CUCBM or of the Contractor and

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      by the Third Parties for the CBM Operations shall be subject to the
      advance work order procedures on the basis of the annual budget or of the
      approval by JMC and shall be charged to the Joint Account after
      verification of relevant invoices.

      The work order procedure shall be established through consultations at JMC
      meetings by both Parties within three (3) months as of the Date of
      Commencement of the Implementation of the Contract. The rates charged for
      direct services or research work (including personnel cost) provided by
      the superior organization or Affiliates of CUCBM or of the Contractor
      shall be competitive when compared with the rates of similar services
      furnished by the Third Parties. The Operator shall, in accordance with
      Article 15 of the Contract, give priority to use direct research work
      services (including personnel) provided by CUCBM, provided that their
      charges are based upon actual costs and according to international
      petroleum practices.

5.2   Cost items:

      The following items shall be chargeable to the Joint Account at Operator's
      net cost.

5.2.1 Subcontractor charges:

      The charges paid to Subcontractors in accordance with contracts signed
      between the Operator and Subcontractors.

5.2.2 Personnel expenses:

      The contents and control of personnel expenses shall be as stipulated in
      Article 18.3 of the Contract.

5.2.3 Travel and living expenses:

      Travel and living expenses paid according to Article 18 of the Contract to
      the personnel involved in the CBM Operations.

5.2.4 Material and Equipment expenses:

      Expenses paid in accordance with Article 4 of this Accounting Procedure to
      purchase Material and Equipment for use in the CBM Operations.

5.2.5 Relocation and transportation expenses:

      Relocation and transportation expenses for the personnel involved in the
      CBM Operations to be relocated into or out of the People's Republic of
      China and transferred from job-sites to job-sites within the People's
      Republic of China.

5.2.6 Maintenance, repair and leasing expenses:

      Expenses for maintenance, repair or replacement of the properties used in
      the CBM Operations and the leasing expenses paid for leased properties and
      equipment.

5.2.7 Insurance premiums:

      Necessary net payment made for the insurance of the CBM Operations and
      related costs and expenses, including deductibles paid in the event of
      loss pursuant to Article 20.4 of the Contract.

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5.2.8    Legal expenses:

         In order to protect the interests of Parties, all costs or expenses
         paid for attorney's fees, litigation or investigation, including
         expenses in securing evidences, mediation and settlements. The expenses
         for handling legal matters incurred for the interests of any Party
         shall be borne solely by such Party.

5.2.9    Taxes:

         All taxes paid according to the tax laws of the People's Republic of
         China, except for the income taxes, value added tax based on production
         and royalty to be paid by the companies comprising the Contractor or
         CUCBM and individual income tax to be paid by employees and withheld by
         Operator and other related costs.

5.2.10   Energy expenses:

         All costs in respect of fuel, electricity, heat, water or other energy
         used and consumed for the CBM Operations.

         The costs of CBM, Liquid Hydrocarbons and CBM Products produced and
         used in the same CBM Field (provided that the Parties have the same
         participating interest in such Fields) within the Contract Area by the
         Operator for the performance of the Development Operations and the
         Production Operations or for well stimulation or for maintaining the
         reservoir pressure shall not be charged. However, the costs of
         transporting such CBM, Liquid Hydrocarbons and/or CBM Products to their
         points of use shall be charged under this item.

5.2.11   Field office facility charges:

         The costs and expenses of establishing, maintaining and operating any
         offices, camps or housing facilities necessary for the performance of
         job-site operations, including a share of the costs of any office used
         by staff directing such operations (calculated by apportioning office
         costs and expenses on the basis of space occupied by such staff or
         other methods).

5.2.12   Communication charges:

         The costs of acquiring, leasing, installing, operating, repairing and
         maintaining communication systems, including radio and microwave
         facilities between the Contract Area and the base facilities.

5.2.13   Ecological and environmental protection charges:

         The charges for any ecological and environmental protection measures
         undertaken for the CBM Operations within the Contract Area as required
         by relevant statutory regulations formulated by the authorities
         concerned or pursuant to the programs agreed by the Parties.

5.2.14   Service charges:

5.2.14.1 Technical service charges:

         The charges paid for Contractor, Affiliate or Third Party services,
         such as rock specimen analysis, CBM or Liquid Hydrocarbons quality
         tests, geological evaluation, data processing, design and engineering ,
         well site geology, drilling supervision, special research programs and
         other technical services.

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5.2.14.2 General service charges:

         Professional consultant charges from Contractor, Affiliates or Third
         Parties incurred for the common interests of both Parties and charges
         for other services to obtain original data needed for CBM Operations
         from outside sources, excluding legal services, unless otherwise
         decided by the JMC.

5.2.14.3 CUCBM's assistance charges:

         (a)      The charges for the assistance provided by CUCBM for the
                  Contractor to carry out the CBM Operations in accordance with
                  Article 9 of the Contract.

         (b)      For all assistance to be provided by the head office
                  organization of CUCBM to the Contractor as set forth in
                  Article 9 of the Contract in the course of the Exploration,
                  CUCBM shall charge an administrative fee of fifty thousand
                  U.S. dollars (US $50,000) for each Calendar Year. If the whole
                  process of the Exploration Operations conducted for any CBM
                  Field in any Calendar Year is less than twelve (12) calendar
                  months, the administrative fee for such Calendar Year shall be
                  calculated in proportion to the actual calendar month(s) spent
                  thereon (if the actual time spent thereon in any calendar
                  month is less than thirty (30) days, the calculation shall be
                  made based on a full calendar month). The aforesaid
                  administrative fee shall be paid respectively on June 1st and
                  December 1st of each Calendar Year, with twenty-five thousand
                  U.S. Dollars (US $25,000) for each installment.

         (c)      For all assistance to be provided by the head office
                  organization of CUCBM to the Contractor as set forth in
                  Article 9 of the Contract in the course of the Development
                  Operations and the Production Operations before the
                  implementation of a Joint Operating Agreement by the Parties,
                  CUCBM shall charge an administrative fee of one hundred and
                  twenty thousand U.S. dollars (U.S. $120,000) for each Calendar
                  Year. If the whole process of the Development Operations
                  conducted for any CBM Field in any Calendar Year is less than
                  twelve (12) calendar months, the administrative fee for such
                  Calendar Year shall be calculated in proportion to the actual
                  calendar month(s) spent thereon ( if the actual time spent
                  thereon in any calendar month is less than thirty (30) days,
                  the calculation shall be made based on a full calendar month).
                  The aforesaid administrative fee shall be paid respectively on
                  June 1st and December 1st each Calendar Year, with sixty
                  thousand U.S. Dollars (U.S. $60,000) for each installment.

5.2.15   Damages and losses to the assets:

         All costs and expenses necessary for the repair, replacement or
         supplement of the assets resulting from damages or losses incurred by
         fire, flood, storm, theft or any other force majeure causes, excluding
         the losses specified in Article 8.4 of the Contract which shall be
         borne by the Operator alone.

5.2.16   Personnel training costs:

         Costs incurred for personnel training pursuant to Article 16 of the
         Contract-Training of Chinese Personnel and Transfer of Technology.

5.2.17   Miscellaneous expenses:

         Any reasonable miscellaneous expenses needed for the CBM Operations
         excluded in the above items of expenses, such as bank charges, books,
         stationery and conference expenses as well as other reasonable
         expenses.

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5.2.18 Overhead:

       Overhead refers to the indirect costs for the managerial and operational
       services provided by the Operator's superior management organizations for
       the CBM Operations, including management, administration, accounting,
       treasury, internal company audit, tax, legal matters, employee relations,
       financing, the collection of economic data and costs for general
       consultation on procurement, planning, design, research and operational
       activities, etc. to the extent that these are not chargeable under
       Article 5.1.4 of this Accounting Procedure. The overhead for the
       Exploration Operations shall be calculated in accordance with the
       following tiers and based on the sum of the total actual costs from
       Article 5.2.1 through Article 5.2.17 and Article 5.2.18 of this
       Accounting Procedure, but not including CUCBM's assistance charges under
       Article 5.2.14.3 of this Accounting Procedure.

       Direct Costs for Exploration                   Percentage Rate
       (U.S. $/Year)                                        %

       First Tier: 0 to 5,000,000                           5%

       Second Tier: 5,000,001 to 15,000,000                 3%

       Third Tier: 15,000,001 to 25,000,000                 2%

       Fourth Tier: over 25,000,000                         1%

       The overhead rates for the Development Operations shall be agreed upon by
       the Parties through discussions at the time when the development budget
       is being prepared.

       When the first budget is prepared for the Calendar Year of Commencement
       of Commercial Production from each CBM Field, the overhead rates for
       production period and its related calculation method shall be agreed upon
       through discussions between the Parties.

       The costs and expenses for offices established by the Operator within the
       Chinese territory which are not specifically dedicated to the CBM
       Operations shall be allocated by the Operator to the CBM Operations
       within the Contract Area or to other beneficiary Parties, including the
       Contractor, on the basis of actual service time recorded, or may be
       allocated by other methods agreed upon by the Parties. The amount of
       allocation charged to the CBM Operations within the Contract Area shall
       be included in the cost item of Article 5.2.18 of this Accounting
       Procedure. The costs and expenses incurred by the offices established by
       the Operator and its superior organizations outside the Chinese territory
       (excluding costs and expenses chargeable under Article 5.1.4 of this
       Accounting Procedure) have been included in the overhead and shall not be
       again charged to the Joint Account.

       On the last working day of each month, the Operator shall make provision
       in the Joint Account for the overhead fees for the current month,
       calculated on the basis of cumulative actual expenditure for the Calendar
       Year to that date and payment shall be made from the Joint Account on the
       last working day of the following month. The final adjustment of the
       overhead shall be made at the end of the Calendar Year in respect to any
       difference between the actual payment by the Joint Account and the total
       overhead for that Calendar Year calculated on the basis of the annual
       cumulative actual investment expenditure at the end of such year. Any
       excess shall be refunded and deficiencies made good.

5.2.19 General and administrative expenses:

       General and administrative expenses refer to the administrative expenses
       incurred for any offices established by the Operator within the Chinese
       territory and for JMC and its subordinate bodies for the performance of
       the CBM Operations.

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<PAGE>

5.2.20 The fees for exploration and mining rights:

       The fees for exploration and mining rights refer to the two fees which
       CUCBM pays the relevant department of State for owning CBM exploration
       right of the Contract Area and CBM mining right of the Development Area
       within the Contract Area, and which shall be respectively considered as
       the exploration costs and development costs (or operating costs). The
       Contractor shall transfer the specified fee to the bank account of CUCBM
       within thirty days from the date on receipt of the written notice for the
       payments of the exploration right fee or mining right fee from CUCBM. The
       fees for exploration and mining rights referred to above shall be cost
       recoverable.

5.3    Except as otherwise provided in this Accounting Procedure, the allocation
       of common costs and expenses for each item of operations shall be charged
       in proportion to the exploration costs, development costs and operating
       costs actually incurred in each month.

5.4    With respect to the expenditures or excess expenditures under Article
       10.2.4 (b) of the Contract which are determined by JMC to be
       unreasonable, JMC will form a joint team for further investigation to
       determine whether they shall be charged to the Joint Account or shall be
       borne by the Operator alone before the year-end final closing of
       accounts.

ARTICLE 6
RECOVERY OF COSTS AND DEEMED INTEREST

6.1    According to the provisions of Article 12.2.2 of the Contract, the
       exploration costs incurred by Contractor and the Pre-Contract Costs
       incurred by CUCBM in respect to the Contract Area shall bear no interest.

6.2    The calculation of Deemed Interest on the development costs:

       Deemed Interest on the development costs shall be calculated at the
       specified rate from the first day after the month in which the
       development funds of any of the Investing Parties have been received in
       the Operator's bank account for the Joint Account in accordance with the
       provisions of Article 12.2.3.2 of the Contract.

       There are three hundred and sixty-five (365) days in each Calendar Year
       for the purposes of interest calculation and the interest shall be
       compounded once each Calendar Year on December 31st based on actual
       number of days eligible for the interest.

       Worked Example

       Development costs-- US $100 received on tenth of March
       US $100 received on twentieth of March
       The aggregate amount received in March is US $200.

       Deemed interest shall be calculated from the first of April through the
       end of such Calendar Year with a total number of two hundred and
       seventy-five (275) days.

                                               275
       Formula: Interest = US $200 X 9% X -------------
                                               365

       At the end of the year interest is added to the capital and interest
       thereon accrues until cost recovery is fully achieved, "i.e.," interest
       is compounded at year end.

6.3    Recovery of exploration costs, development costs with Deemed Interest
       thereon and operating costs.

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6.3.1  In accordance with the provisions of Article 12.2.2 of the Contract, the
       exploration costs shall be recovered from the CBM Fields within the
       Contract Area which have been developed and are producing and in which
       development the Contractor has participated.

6.3.2  In accordance with the provisions of Articles 12.2.1, 12.2.3.1 and
       12.2.3.2 of the Contract, the principal of development costs and Deemed
       Interest thereon and operating costs, respectively, of each CBM Field
       shall be recovered only from the production of each respective CBM Field.

6.3.3  As at the date of completing sale of CBM, CBM Products, or Liquid
       Hydrocarbons the Operator shall make separate records into Joint Account
       for the appropriate reimbursement of the principal of the exploration
       costs, development costs with Deemed Interest thereon and operating costs
       respectively in accordance with Article 12.2 of the Contract. Written
       notices shall be sent by the Operator to CUCBM and the Investing Parties
       at the same time.

6.4    In accordance with the provisions of Article 18.1 of the Contract, the
       Operator shall establish complete books for recording the volume and
       value of CBM, Liquid Hydrocarbons and/or CBM Products, precisely
       reflecting the production and the disposal of the CBM and/or Liquid
       Hydrocarbons within the Contract term.

6.5    CBM, Liquid Hydrocarbons and CBM Products production in each Calendar
       Year for each CBM Field within the production period shall be accounted
       according to the allocation proportions specified in Article 13 of the
       Contract and at the CBM, Liquid Hydrocarbons and CBM Products price
       determined pursuant to Article 14.4 of the Contract.

ARTICLE 7
ACCOUNTING REPORTS

7.1    The Operator shall provide relevant accounting reports and statements
       based on the Accounting System to CUCBM and each company comprising the
       Contractor. Monthly reports shall be submitted within thirty (30) days
       after the end of each month, quarterly reports within forty-five (45)
       days after the end of each Calendar Quarter and annual reports within
       forty-five (45) days after the end of each Calendar Year. Monthly,
       quarterly and annual reports shall be submitted in accordance with the
       requirements and formats specified in the Accounting System.

7.2    Any Investing Party to the Contract may require the Operator to allow its
       staff to have access to the Joint Account Accounting Records relating to
       the application of expenses in the stipulated custody period, upon giving
       thirty (30) days notice, but such access shall not unduly hinder the
       Operator's normal operations.

ARTICLE 8
AUDIT

8.1    Audits shall be carried out in accordance with Article 18.2 of the
       Contract.

8.2    The expenses of audits by any non-Operator shall be borne by the
       non-Operator which conducts the audit. The expenses for any joint audits
       conducted by more than one non-Operator shall be allocated in proportion
       to their respective participating interests in the development costs.

ARTICLE 9
TRANSFER PROCEDURE FOR THE JOINT ACCOUNT

9.1    When the Exploration Operations are successful and the Contract Area
       enters the development period, the Operator shall conduct an inventory
       and check of all the properties and accounts for CUCBM. When each CBM
       Field within the Contract Area goes from development into production, or
       when the Contractor terminates the Contract, an inventory and check of
       all properties and accounts shall be conducted.

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       If the Contract Area has entered into the development period or the
       production period, the Operator (after taking an inventory of all
       properties taken by all Investing Parties) shall make a proposal to JMC
       for its approval listing the remaining equipment and Materials needed for
       the CBM Operations for the following period and which shall be carried
       forward to the next period in book values in the Joint Account. The
       Operator shall be responsible for the disposal of the equipment and
       materials not needed for the CBM Operations. The gains or losses derived
       from such disposal shall be allocated in accordance with the share of
       each Investing Party in proportion to the overall investment amount of
       all Investing Parties and be adjusted against the original accounts.

       If the Contract terminates, the method of inventory for all of the
       remaining equipment and Materials shall be the same as mentioned above,
       and the gains and losses derived from such disposal shall be adjusted
       against the accounts of the original Investing Party in accordance with
       the above mentioned methods.

9.2    In accordance with the provisions of Article 8.8 of the Contract, when
       the organization established by the joint operating agreement takes over
       and becomes the Operator of all the said CBM Fields within the Contract
       Area, the former Operator shall transfer all of the Accounting Records
       relating to the Joint Account.

9.3    Upon the termination of the Contract, the Operator shall transfer all the
       relevant vouchers, books and statements over to CUCBM for custody.

9.4    In conducting the transfer of the accounting books and inventory and
       check of all the properties in accordance with the provisions of this
       Accounting Procedure, the implementation procedure for the transfer and
       verification, the accounting files to be transferred and accounting
       matters to be settled as well as other details shall be agreed upon
       through consultation in advance between the Operator and CUCBM. The
       transfer procedure shall be completed within the time period agreed upon
       by the Parties. Thereafter, owing to the needs of any Investing Party to
       the Contract, CUCBM shall allow that Party's staff access to the
       Accounting Records within the relevant Accounting Records custody period
       and provide them with duplicates, if necessary.

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