IN THE UNITED STATES DISTRICT COURT
                       IN AND FOR THE SOUTHERN DISTRICT OF
                             FLORIDA, MIAMI DIVISION

                                NO. 68-951-CA and
                          69-699-Div.-CA (consolidated)

                           COASTAL PETROLEUM COMPANY.
                             a Florida corporation,

                                   Petitioner,

                                       v.

         SECRETARY OF THE ARMY OF THE UNITED STATES OF AMERICA, et al.,

                                   Respondent.
                            ------------------------

                            MEMORANDUM OF SETTLEMENT

         THIS MEMORANDUM OF SETTLEMENT is made this 6th day of January, 1976, by
and between the BOARD OF TRUSTEES OF THE INTERNAL  IMPROVEMENT TRUST FUND OF THE
STATE OF FLORIDA,  hereinafter  called the  "Trustees,"  and  COASTAL  PETROLEUM
COMPANY, a corporation  organized under the laws of Florida,  hereinafter called
"Coastal."

         WHEREAS, the Trustees and Coastal entered into modifications of Florida
State Drilling Leases 224-A,  224-B and 248 the 27th day of February,  1947. The
location of the areas  contained  within Drilling Leases 224-A and 224-B consist
primarily or Florida's offshore lands  approximately from Naples to Apalachicola
in the Gulf of Mexico  extending  10.36 statute miles from Florida's  coastline,
including all bays,  inlets and rivers  flowing into the Gulf in this area.  The
drilling area contained within Lease 248 consists of approximately  two drilling
blocks  consisting of all the water bottoms lying within the  boundaries to Lake
Okeechobee  and all  the  water  bottoms  lying  within  the  boundaries  of the
following lakes:

         Istokpoga                                    Hatchineha
         Kissimmee                                    Louisa
         Apopka (part)                                Panasoffkee
         George                                       Tsala Apopka
         Lochloosa                                    St. Johns River



<PAGE>





The Leases require annual rental payments and mandatory drilling requirements.

         WHEREAS,  certain  questions have been raised involving the legality of
said Leases and the validity of certain  waivers or credits granted by Trustees,
to wit:  whether  Coastal has  complied  with the drilling  requirements  of the
Leases,   and  whether  the  Trustees  can  grant  waivers  of  those   drilling
requirements,  and, as a result,  litigation  was commenced in the United States
District Court in and for the Southern District of Florida, by Coastal seeking a
declaration  inter alia as to the validity of said Leases.  On April 23, 1971, a
Final Judgment was entered declaring inter alia the above Leases to be valid and
existing.  The  Trustees  then  took an  appeal to the  United  States  Court of
Appeals,  for the Fifth  Circuit,  from said  Judgment,  and said  appeal is now
pending in the Florida Supreme Court as a result of a certification by the Fifth
Circuit; and

         WHEREAS,  the  Trustees  and Coastal  now desire to enter into  various
amendments  and  changes of the  aforesaid  Leases in such manner as amicably to
clarify the rights and  responsibilities of the parties thereto,  and to settle,
adjust and resolve the differences between them; and

         WHEREAS,   the  Trustees  have   independently   determined  that  said
amendments,  changes and clarification will be in the best interest of the State
of Florida.

         NOW,  THEREFORE,  the  Trustees  and Coastal do  covenant  and agree as
follows:

                                   SECTION ONE

                                     PURPOSE

         The purpose of this  agreement is a compromise  between the parties for
the complete and final  settlement  of their claims,  differences  and causes of
action with respect to the dispute described below.

                                   SECTION TWO

                              STATEMENT OF DISPUTE

         The Trustees assert that a final judgment  should be entered  declaring
Florida State  Drilling Lease 224-A,  as modified;  Florida State Drilling Lease
224-B,  as  modified,  and  Florida  State  Drilling  Lease  248,  as  modified,
hereinafter  referred  to as The  Leases,  each of which  leases is between  the
Trustees and Coastal and dated  February 27, 1947,  invalid and void.  An appeal
has been  filed in the  United  States  Fifth  Circuit  Court of  Appeals by the
Trustees in the case styled Coastal Petroleum  Company,  a Florida  Corporation,
Petitioner-Appellee,  vs. Secretary of the Army of the United States of America,
et al., No. 712589, asserting such claim.


<PAGE>

         Coastal  denies the invalidity  and/or  voidness of the said leases and
asks and asserts that the appeal should be denied.

         The parties desire to reach a full and final  compromise and settlement
of all matters  and all causes of action  arising out of the facts and claims as
set forth above.

                                  SECTION THREE

                           GENERAL TERMS OF SETTLEMENT

         In consideration of the mutual covenants set forth herein,  the parties
agree as follows:

         1.       (A) Coastal agrees to  reduce  and  surrender  acreage  and/or
economic interests in the said leases.

                  (B) Coastal  agrees to  have  rental  obligations  of the said
leases continue on areas as to which it retains any interest.

                  (C) Coastal  agrees to reduce its  interest and have the areas
in which it retains any residual  royalty  interest  released  completely to the
Trustees at the end of 40 years from the date hereof. Coastal agrees to have the
areas in which it retains any right to explore and  develop  oil,  gas and other
minerals  released  completely  to the  Trustees  within 40 years  from the date
hereof  except that any  operations  producing  oil,  gas, or other  minerals in
economically  sustainable  quantities  at the  end of  such 40  years  shall  be
permitted  to continue  subject to the  particular  lease until such  operations
cease.

                  (D) Coastal  shall have no right to  intervene in any land use
decisions  within the areas  leased other than as to the  outermost  three miles
retained  by  Coastal.  Coastal's  only  rights as to areas other than the outer
three miles and Lake Okeechobee shall be the specified  residual royalty on oil,
gas, and other minerals. The term "minerals," a used herein, shall not include -
among  other  things  - sand  gravel  or  unconsolidated  seashells.  Any use of
minerals  other  than oil or gas for a public  purpose  by the  Trustees  or any
government  body so  authorized  by the Trustees  may be made without  Coastal's
approval and without payment of any compensation or royalties to Coastal.

         2.       (A) The parties  agree that  all claims,  demands,  rights and
causes of action that they have  against each other with  respect to the  above-
described dispute are satisfied, discharged, and settled.

                  (B) The  Trustees  agree to terminate  the pending  appeal and
both parties agree to seek a consent decree based upon the terms hereof, but the
failure to obtain a consent  decree shall not invalidate  the  effectiveness  of
this settlement agreement.

                  (C) The  parties  agree that the first  sentence  of the first
paragraph  of  Article  13 of each of said  leases  shall be  amended to read as
follows:


<PAGE>

"The rights of either party  hereunder  may be assigned in whole or in part only
after written consent thereto from the Trustees is first obtained, which consent
shall not be unreasonably  withheld,  and the provision a hereof shall extend to
the successors and assigns of the parties  hereto,  but no change or division in
ownership of land rentals or royalties,  however accomplished,  shall operate to
enlarge or diminish the obligations or the rights of either party."

                  (D) The Trustees agree that drilling  obligations under Leases
224-A,  224-B and 248 (as modified) shall be governed by Chapter 20680,  Laws of
Florida,  Acts of 1941, and that all further  drilling  requirements  are hereby
waived.

                  (E) In  enforcing  its residual  royalty  rights in any leased
lands,  Coastal  shall  not enter  suit  against  third  parties  without  first
notifying the Trustees and offering the Trustees the  opportunity to participate
in such action.  Should the Trustees  decline to participate  and should Coastal
nevertheless  pursue  litigation  that  results  in a  monetary  recovery  which
benefits the Trustees,  the Trustees then shall share,  pro rata, in the payment
of reasonable attorneys fees and court costs, but in no event shall the Trustees
be obligated  for any fees and costs in excess of their  monetary  recovery from
such litigation.

                                  SECTION FOUR

                  SPECIFIC PROVISIONS OF SURRENDER AND RELEASE

         1. Coastal hereby surrenders and releases to the Trustees,  pursuant to
Article 16 contained in each of said leases,  an area three  statute  miles wide
beginning  three  statute  miles  landward  from the three league  Federal-State
boundary and extending the full length of leases 224-A and 224-B.

         2. Coastal  hereby  reduces its interest in all other areas landward of
the three statute miles surrendered and released to the Trustees,  and including
all inland areas except Lake  Okeechobee.  In these areas,  Coastal shall retain
only a residual  royalty of 6 1/4% on the wellhead value of oil and gas, payable
in cash or in kind at the option of  Coastal;  25 cents per long ton on sulphur;
and 5% of production or of the market value of other minerals, and shall have no
other rights whatever except those of a residual royalty right owner.

         3.  The  Trustees  simultaneously  hereby  waive  their  right  to  any
royalties from Coastal under the terms of leases 224-A, 224-B and 248 from areas
described  in  Paragraph  2 above,  and retain  full  royalty in all other areas
subject to said leases.

         4. Coastal,  recognizing that Lake Okeechobee presents special problems
for  preservation  of its integrity as a fresh water reservoir vital to southern
Florida,  agrees that no exploration  or  development  drilling or mining of any
kind  whatsoever  shall be conducted  thereon  without the prior approval of the
Trustees.


<PAGE>

         5. The  current  annual  rental  on Leases  224-A and 224-B now  totals
$49,614.40.  The new annual  rental on Leases  224-A and 224-B shall be $39,261,
reflecting the reduction of lands leased. The annual rental requirement on Lease
248 shall remain the same, to-wit: $19,985.92.

         6.  Coastal   shall  secure   permits   from  all   appropriate   State
environmental  protection agencies in compliance with the then existing laws and
regulations, prior to any drilling or mining.

         In all other respects,  other than the amendments  related herein,  the
provisions of the leases remain in full force and effect.

         IN WITNESS WHEREOF,  the BOARD OF TRUSTEES OF THE INTERNAL  IMPROVEMENT
TRUST FUND OP THE STATE OF FLORIDA,  the Lessor,  have hereunto subscribed their
names and have caused the seal of the State of Florida to be  hereunto  affixed,
and COASTAL  PETROLEUM  COMPANY,  the Lessee,  has caused this  instrument to be
executed in its name by its  President,  and its  corporate  seal to be affixed,
attested by its Assistant Secretary, as of the date aforesaid.


/s/ Reubin O'D Askew
Governor

/s/ Bruce A. Smathers
Secretary of State

/s/ Robert L. Shevin
Attorney General

/s/ Gerald A. Lewis
Comptroller

/s/ Philip F. Ashler
State Treasurer

/s/ Doyle Conner
Commissioner of Agriculture

/s/ Ralph D. Turlington
Commissioner of Education



<PAGE>

ACTING AND COMPOSING THE BOARD
OF TRUSTEES OF THE INTERNAL
IMPROVEMENT TRUST FUND OF THE
STATE OF FLORIDA

LESSOR

COASTAL PETROLEUM COMPANY
By       /s/ Benjamin W. Heath
         President

LESSEE

ATTEST:
/s/ Harmon W. Shields
Executive Director
DEPARTMENT OF NATURAL RESOURCES

ATTEST:
/s/ C. Dean Reasoner
Assistant Secretary

Approved as to form and legal sufficiency.
ROBERT L. SHEVIN
ATTORNEY GENERAL
By:      /s/ J. Kendrick Tucker
         Assistant Attorney General