COMPROMISE
      SETTLEMENT AGREEMENT

     

    THIS
      COMPROMISE SETTLEMENT AGREEMENT (“Agreement”) is between SMITH
      ENERGY 1986A PARTNERSHIP,
      a New
      York limited partnership (“Smith Energy”), HOWARD
      A. SMITH, an
      individual resident of the State of New York (“Smith”), and THE AMERICAN
      ENERGY GROUP, LTD., a
      Nevada
      corporation. 

    


    RECITALS 

    


    WHEREAS,
      there is a dispute between the parties to this Agreement concerning the
      interests of each in and to certain oil and gas leases located in Galveston
      County, Texas, known generally as the “Maco Stewart “A” and “B” leases, as these
      lease are more specifically defined on Exhibit
      “A”
      attached
      hereto and incorporated by reference herein (the “Leases”), and as to the rights
      of the parties to exploit their interests in the Leases, including rights to
      use
      of the surface (the “Dispute”);

     

    WHEREAS,
      the parties have resolved their Dispute and desire to dispose of the entire
      controversy and dispute between them, including all claims and causes of action
      of any kind that currently exist or that may exist in the future that relate
      in
      any way to the interests of each party in the Leases or the rights and
      operations of each related thereto including 

    


    NOW,
      THEREFOR, for and in consideration of the mutual covenants and agreements herein
      contained and other good and valuable consideration, the receipt and sufficiency
      of which are hereby acknowledged, the parties agree as follows:

    


    1. Stipulation
      of Interest and Cross - Conveyance. Smith
      Energy and AEG will execute a Stipulation of Interest and Cross - Conveyance,
      in
      a mutually acceptable and recordable form, to provide as follows:

    


    (a) AEG
      will
      convey to Smith Energy all rights and claims of AEG to;

    


    i) All
      interests in the Leases including and above 10,000’; and

    


    ii) All
      interests in or related to the “15% Luck Energy Corporation back in” at 125% of
      cost recoupment.

    


    (b) Smith
      Energy and Smith will convey to AEG all rights and claims of Smith Energy
      to:

    


    i) All
      interests in the Maco Stewart A & B Leases below the depth of 10,000’;
      and

    


    ii) A
      3%
      overriding royalty interest in the Maco Stewart “A” Lease on all oil and gas
      production below 10,000’.

     

    
      
        
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    2. Assignment
      of Partnership Interest.
      AEG will
      assign and release unto Smith Energy all of AEG’s rights and claims in and to
      any interest in Smith Energy, pursuant to an Assignment of Partnership Interest
      in a mutually acceptable form.

    


    3. Review
      of Seismic Information. Smith
      Energy will permit AEG to review, on AEG’s premises, all seismic information of
      Smith Energy related to the Leases, and such additional information as is
      necessary for the review and interpretation of such seismic information and
      has
      provided the information attached as Exhibit “A” hereto and will deliver a tape
      of usable quality on or about the date of the execution of this Agreement
      (collectively, the “Seismic Information”). AEG agrees that it has been fully
      informed, and acknowledges and agrees that, the use of the Seismic Information
      is subject to restrictions pursuant to an agreement between Smith Energy and
      Aspect Resources. AEG agrees to return all Seismic Information to Smith Energy
      within thirty (30) days of delivery to AEG. Smith Energy and Smith acknowledge
      that this Seismic Information constitutes a material consideration for this
      Agreement. Smith Energy and Smith warrant and represent that a) the Seismic
      Information is the same information received from Aspect Resources, b) the
      seismic tape and data is of a quality which is sufficient for a person
      experienced in seismic evaluation to conduct a review and evaluation consistent
      with industry standards for review of seismic; provided, however, that Smith
      Energy makes no warranty or representation that the Seismic Information is
      indicative of any particular subsurface condition, and c) Smith Energy and
      Smith
      shall use their best efforts to obtain from Aspect Resources, upon AEG’s
      request, information which may be helpful in AEG’s review of the seismic.


    


    4. Operations
      by AEG and Smith Energy. AEG
      may
      select its own operator to conduct operations for drilling new wells on the
      Leases below the depth of 10,000 feet. AEG may manage the operations of new
      wells on the Leases producing from a depth of below 10,000 feet. AEG’s
      operations on new wells on the Leases producing from a depth of below 10,000
      feet shall be conducted in reasonable cooperation with Smith Energy as
      represented by Mike Gault, Smith Energy’s field supervisor, and in observance of
      all of Smith Energy’s proprietary rights to existing and future Smith Energy
      operations facilities on the Leases. Smith Energy shall likewise conduct its
      operations in reasonable cooperation with AEG’s operations personnel. AEG may
      utilize, in its discretion and subject to the limitations contained below,
      existing roads, salt water disposal systems, hot tap for gas sales and other
      facilities (collectively, the “Smith Energy Facilities”) upon the payment of
      reasonable compensation to Smith Energy for such use to be determined by mutual
      agreement between the parties. It is specifically understood and agreed that
      AEG’s use of Smith Energy Facilities is subject to the prior and superior right
      of Smith Energy to use the Smith Energy Facilities, and that AEG is granted
      and
      shall have no right to make any use of the Smith Energy Facilities which would
      interfere with the operations of Smith Energy on the Leases. With respect to
      all
      operations conducted by AEG on the Leases and, in the event AEG determines
      to
      use any Smith Energy Facilities, AEG agrees to be fully responsible for and
      assume, and shall RELEASE, DEFEND, INDEMNIFY and HOLD HARMLESS Smith Energy,
      its
      related and affiliated companies and all of their co - owners, partners their
      respective officers, directors, managers, employees, agents, assigns,
      contractors and subcontractors (hereafter, the “Indemnified Parties”) from and
      against any and all claims, damages, demands, liability, costs and causes of
      action of every kind and character, without limit and without regard to the
      cause or causes thereof or the negligence of any party or parties, arising
      directly or indirectly in connection with the operations of AEG on the Lease
      or
      the use of the Smith Energy Facilities, specifically including but not limited
      to bodily injury, death, or damage to property (including cattle) of AEG or
      AEG
      employees, subcontractors of any tier, or their employees, or AEG’s invitees.
      AEG’s release and indemnity shall be without regard to and without any right to
      contribution from any insurance maintained by Smith Energy The release and
      indemnity provisions hereof shall apply whether or not the liabilities in
      question arose solely or in part from the ACTIVE,
      PASSIVE, SOLE OR CONCURRENT NEGLIGENCE OF ANY INDEMNIFIED PARTY.
      AEG
      acknowledges that this indemnity and release is conspicuous. The
      indemnities and assumptions of liabilities and obligations herein provided
      for
      shall continue in full force and effect notwithstanding the expiration or other
      termination of this Agreement. AEG is not obligated to use any of Smith Energy’s
      facilities.

    


    
      
        
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    5. Release
      by Smith and Smith Energy. Smith
      Energy and Smith, for themselves and their heirs, estates, legal representatives
      and assigns, hereby RELEASE, ACQUIT and FOREVER DISCHARGE AEG, and its officers,
      managers, partners, directors, shareholders, employees, representatives, agents,
      affiliates, parents and subsidiaries (the “AEG Release Group”), from any and all
      existing and future claims, demands, causes of action, obligations and
      liabilities of every kind, whether in contract or in tort, or arising under
      or
      by virtue of any statute or regulation, that are now recognized by law or that
      may be created or recognized in the future by any manner, whether known or
      unknown, including but not limited to all causes of action asserted or that
      could have been asserted for all losses, damages, or remedies of any kind that
      are now recognized by law or that may be created or recognized in the future
      by
      any manner, including without limitation by statute, regulation, or judicial
      decision, and including but not limited to all actual damages, exemplary and
      punitive damages, penalties of any kind, and claims for prejudgment and post
      judgment interest arising out of or in any manner related to any claims,
      demands, causes of action, liabilities, and obligations whatsoever arising
      under, out of and/or in connection with the Leases, ownership thereof,
      operations thereon and/or the production of oil and gas therefrom through the
      Effective Date of Release.

    


    6. Representation
      of Smith and Smith Energy. Smith
      Energy and Smith expressly warrant and represent to the AEG Release Group that
      (1) they are each fully authorized and empowered to execute and deliver this
      Agreement, (2) before executing this Agreement they have fully informed
      themselves of its terms, contents, conditions and effects, (3) they have relied
      solely and completely upon their own judgment and the advice of their counsel
      in
      making this settlement, and (4) they fully understand that this is a full,
      complete and final release. 

    


    7. Release
      by AEG. AEG
      for
      itself, its heirs, estate, legal representatives, successors and assigns, hereby
      RELEASES, ACQUITS, and FOREVER DISCHARGES Smith Energy, Smith, HMP Oil Limited
      Company, and Howard Pack, and their respective officers, managers, partners,
      directors, shareholders, employees, representatives, agents, affiliates, parents
      and subsidiaries (“Smith Release Group”) from any and all existing and future
      claims, demands, causes of action, obligations and liabilities of every kind,
      whether in contract or in tort, or arising under or by virtue of any statute
      or
      regulation, that are now recognized by law or that may be created or recognized
      in the future by any manner, whether known or unknown, including but not limited
      to all causes of action asserted or that could have been asserted for all
      losses, damages, or remedies of any kind that are now recognized by law or
      that
      may be created or recognized in the future by any manner, including without
      limitation by statute, regulation, or judicial decision, and including but
      not
      limited to all actual damages, exemplary and punitive damages, penalties of
      any
      kind, and claims for prejudgment and post judgment interest arising out of
      or in
      any manner related to any claims, demands, causes of action, liabilities, and
      obligations whatsoever arising under, out of and/or in connection with the
      Leases, ownership thereof, operations thereon and/or the production of oil
      and
      gas therefrom through the Effective Date of Release.

     

    
      
        
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    8. Representation
      of AEG. AEG
      expressly warrants and represents to the Smith Release Group that (1) it is
      fully authorized and empowered to execute and deliver this Mutual Release,
      (2)
      before executing this Mutual Release it has fully informed itself of its terms,
      contents, conditions and effects, (3) it has relied solely and completely upon
      its own judgment and the advice of its counsel in making this settlement, and
      (4) it fully understands that this is a full, complete and final release.


    


    9. Third
      Party Beneficiaries. It
      is
      expressly understood and agreed that the HMP Oil Limited Company and Howard
      Pack
      are third party beneficiaries of this Agreement.

    


    10. No
      Admission.
      It is
      expressly understood this Agreement is for settlement purposes only and to
      compromise and fully settle doubtful and disputed claims. By entering into
      this
      Agreement no party makes any admission of any liability of any kind, all of
      which liability is expressly and specifically denied.

    


    11. Further
      Actions. Each
      party hereto agrees to execute and deliver such documents and take such further
      actions as may be necessary to effect the purposes and objectives of this
      Agreement.

    


    12. Governing
      Law; Venue. This
      Agreement is made according to the laws of the State of Texas. The parties
      expressly agree that this Agreement is governed by, and will be construed and
      enforced in accordance with Texas law. In the event of any dispute arising
      hereunder, the parties agree that courts of the State of Texas sitting in
      Galveston County, Texas, shall have exclusive venue over any action brought
      hereunder.

     

    13. Binding
      Agreement. This
      Agreement is binding on and inures to the benefit of the parties and their
      respective heirs, representatives, successors, and assigns. 

    


    14. Entire
      Agreement. This
      Agreement contains the entire Agreement between the parties. It supersedes
      any
      and all prior Agreements, arrangements, or understandings between the parties
      on
      all subjects in any way related to the transaction or occurrence described
      in
      this Agreement. No oral understandings, statements, promises, or inducements
      contrary to or consistent with the terms of this Agreement exist. This Agreement
      is not subject to any modification, waiver, or addition that is made orally.
      This Agreement is subject to modification, waiver, or addition only by means
      of
      a writing signed by all parties. 

    


    15. Counterparts;
      Facsimile Signatures. This
      Agreement may be executed in a number of identical counterparts, each of which
      shall be deemed an original for all purposes. This Agreement may be executed
      by
      facsimile signature, which shall be deemed an original for all
      purposes.

     

    
      
        
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    THE
      BALANCE OF THIS PAGE IS INTENTIONALLY BLANK.

    


    SIGNATURES
      APPEAR ON THE FOLLOWING PAGE.

    


    
      
        
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    IN
      WITNESS WHEREOF, the parties and their legal counsel have executed this
      Agreement.

     

    
      	 	 	 
	 	SMITH
              ENERGY 1986A PARTNERSHIP
	 	acting by and through its general
              partner, 
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Howard
              A. Smith, General Partner
	 	Smith
              Energy 1986A Partnership
	 	 
	 	 
	 	 
	 	
              
HOWARD
              A.
              SMITH


    

     

    
       

      
        	 	 	 
	 	THE
                AMERICAN ENERGY GROUP, LTD.
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Pierce
                Onthank, President and CEO
	 	 


      

       

      
        
          
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    EXHIBIT
      “A”

     

    Maco
      Stewart A Lease:

    Oil
      and
      Gas Lease dated April 30, 1935, between MACO STEWART, as Lessor and COAST
      PETROLEUM CORPORATION, as Lessee, covering 393 acres, more or less, recorded
      in
      Volume 516, Page 313, Oil and Gas Records, Galveston County, Texas.

    


    Maco
      Stewart B Lease:

    Oil,
      Gas
      and Mining Lease dated May 4, 1949, between MACO STEWART and LOUISE BISBEY
      STEWART, as Lessors, and JOHN W. MECOM, as Lessee, covering 1,400 acres, more
      or
      less, recorded in Volume 779, Page 573, Oil and Gas Records, Galveston County,
      Texas, insofar and only insofar as said lease is described as containing 280
      acres in that certain Partial Release, dated January 28, 1985, between ATLANTIC
      RICHFIELD COMPANY, as Lessee, and VIRGINIA B. BALL, MACO STEWART III, WELLS
      STEWART and ROBERT GEORGE GISBEY, Trustee, as Lessors, recorded in Film Code
      ###-##-####, Deed Records, Galveston County, Texas, and also in that unrecorded
      Partial Release of January 28, 1985, between ATLANTIC RICHFIELD COMPANY, as
      Lessee, and VIRGINIA B. BALL, MACO STEWART II, WELLS STEWART and ROBERT GEORGE
      BISBEY, Trustee, as Lessors.

    


    
      
        
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