EXHIBIT 10.5


                           MEMORANDUM OF UNDERSTANDING

                                     BETWEEN

     THE ADAMS FEE  PROPERTIES,INC.  (the "AFPI'),  having an address for Notice
     and  delivery  located  at  1609  North  L  Street,  Midland,  Texas  79701
     Attention: Mr. Gary Garlitz.

     PETROGEN  INTERNATIONAL  LTD.,  having an address  for notice and  delivery
     located at Suite 3300 - 3200 Southwest Freeway, Houston, Texas 77027

     DATE: August 4th, 2003

Dear Mr. Garlitz:

As per our most recent  discussions  and subsequent to our meeting in Midland on
Wednesday,  June 26t`, 2003 where we discussed  Petrogen's interest in the 9,000
acre Adams Ranch Project, Block "0; G-H and S-F", , Sections 113, 114, 126, 127,
128,  153,  154,  155, 166, 167, 168 and the East 1/2 of Sections 112, 129, 152,
169, Texas Railroad Commission Survey,  Crockett County, Texas (the "Property");
Petrogen   International  Ltd.   (Petrogen)  would  like  to  proceed  with  the
commencement  of a development  initiative upon the Property under the following
terms as described in this Memorandum of Understanding (the "MOU").

ACKNOWLEDGEMENT

AFPI owns or controls the following

         1) The  Property,  consisting  of  9,000  acres  of oil and gas  leases
located in Crockett County,  Texas and further  described as the Adams Ranch, as
noted above.

         2) Seventeen  (17)  existing  wells  drilled  (the "AFPI  Wells") to an
approximate depth of 5,000' and completed as gas producers and operated by AFPI,
as well as seventeen (17) identified new well drill site locations owned by AFPI
offsetting the AFPI Wells.

         3) Vested  interest in an additional  ten existing  wells drilled to an
approximate  depth of  5,000'  and  completed  as gas  producers  and  currently
operated by a third party.

         4) 3" Gas gathering system tied to El Paso's 36" transmission line.

PROPERTY OPTION

         1) Petrogen  shall  reserve an option (the  "Option")  for a period of
thirty  (30) days (the  "Option  Period")  from the date hereof to perform a due
diligence review (the "Review") of the Property,  and to thereafter enter into a
Formal Acquisition and


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Development   Agreement  (the   "Agreement"),   which  will  govern  development
operations performed by Petrogen upon the Property.

DRILLING COMMITMENT

1) AFPI agrees to deliver to  Petrogen a 100%  working  interest  (WI) - 75% net
revenue  interest  (NRI)  lease  and  merchantable  title on the  Property  on a
well-bywell basis.

2) Upon  Petrogen's  election to proceed with the  development  of the Property,
Petrogen  shall have until  December 1st, 2003 to spud a test well to be drilled
to a depth of two  hundred  fifty feet (250')  below the top of the  Ellenberger
formation (the "Test Well").

3) Upon spudding of the Test Well, Petrogen will assign a 15% WI upon the same
to AFPI.

4) Upon  Petrogen  having  received  net income  from the Test Well equal to its
expenditures  to drill and  complete  the same,  Petrogen  will  assign  AFPI an
additional  10% WI,  providing for a total combined WI to the benefit of AFPI of
25% (the "Net WI").

5) If AFPI delivers any WI less than 100%, said WI will be proportionately
reduced from AFPI's Net WI.

6) Each well  drilled by Petrogen  will earn  Petrogen  that well drill  spacing
unit,  or,  the  acreage  spacing  unit  as  designated  by the  Texas  Railroad
Commission,  which ever is the larger,  to the total depth it drills within said
acreage unit.

7)  Petrogen  agrees to drill at least  four (4) new wells per year to  maintain
exclusive rights to its continued development interests upon the Property.

DEVELOPMENT COMMITMENT

1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to initiate a redevelopment  program of the AFPI Wells,  the terms of which will
be outlined in the Agreement.

PHILLIPS RANCH COMMITMENT

1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to initiate a  re-development  program of the  existing  #1 Phillips  and the #2
Phillips wellbores (the "Phillips Wells").

2) At such time as Petrogen has spudded the Test Well,  within ten (10) business
days  thereafter,  AFPI will effect the  conveyance to Petrogen of a 100% WI 75%
NRI upon the one hundred  sixty (160) acre spacing  unit,  or  applicable  Texas
Railroad  gas unit,  whichever is the larger,  surrounding  each of the Phillips
Wells as noted.

3) Additional   terms  regarding  the  balance  of  the  Phillips  acreage  and
development drilling of the same will be detailed in the Agreement.


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HARRELL RANCH COMMITMENT

1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to develop the Harrell Ranch under terms to be designated in the Agreement.

GAS DELIVERY

1) Upon the   successful   completion  of  the  Test  Well,  or  the  successful
redevelopment of any of the AFPI Wells upon the Property, AFPI agrees to gather,
compress and deliver gas production  from the same to El Paso's 35" gas line for
the benefit of Petrogen for a fee of $0.50/MCF.

GENERAL TERMS

1) The proposed terms of this MOU together with any obligations contained herein
will be  subject  to the  execution  of the  Agreement

2) The  parties  warrant employing good faith, due diligence, and best efforts
in the  performance of this MOU. In the event of any dispute,  the parties shall
employ the terms hereof and terms  standard in the industry  where not addressed
by agreements.

3) This MOU shall be kept  confidential  and no disclosure of the same shall be
made without mutual consent, which shall not be unreasonably with held.

If the aforementioned terms meet with your approval,  please indicate so through
signing in the  appropriate  area below,  and the same shall be binding  upon us
from the date of acceptance forward.

Sincerely,



Petrogen International Ltd.
Sacha H. Spindler
President, CEO


Agreed to and accepted this__________day of August, 2003



_____________________________________________
Adams Fee Properties, Inc. - per Gary Garlitz