DRILLING AND OPERATING
                                   AGREEMENT


                             DATED NOVEMBER 15, 2002

   OPERATOR:                                 Petrogen International Limited
   NON-OPERATOR:                             Petrogen, Inc.









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                        DRILLING AND OPERATING AGREEMENT

THIS  AGREEMENT is entered into by and between  Petrogen  International  Limited
(hereinafter referred to as "Operator") and Petrogen, Inc. (hereinafter referred
to as  "Non-operator"  - where  there are more than one  non-operating  Interest
owner at the time of contract or thereafter then such shall be included).

                                   WITNESSETH:

WHEREAS:  Non-Operator is the owner of oil and gas leases, drilling units and/or
oil and gas wells in the lands  identified in Exhibit "A" and intends to acquire
further such oil and gas  interests  in the future (such  present and future oil
and gas  interests  are  hereinafter  referred to as the  "Interests"),  and the
parties hereto have reached an agreement for the operation of such Interests and
for the terms of drilling additional oil and gas wells for the production of oil
and gas to the extent  which the  Non-Operator  may specify on the terms of this
Agreement.

NOW THEREFORE, it is agreed as follows:

                                    ARTICLE I
                                   DEFINITIONS

A.       The term  "oil and gas"  shall  mean  oil,  gas,  casinghead  gas,  gas
         condensate,  and all other  liquid or  gaseous  hydrocarbons  and other
         marketable substances produced therewith, unless an intent to limit the
         inclusiveness of this term is specifically stated.

B.       The term "Contract Area" shall mean all of the oil and gas leases,  oil
         and gas wells and oil and gas  drilling  units  intended  to be drilled
         and/or  operated for oil and gas  purposes  under this  agreement.  The
         leases,  initial  drilling units and oil and gas wells are described in
         Exhibit "A".


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C.       The term  "Operator's  costs" shall  include all costs  sustained by
         Operator,  directly or indirectly, plus a general administrative charge
         amount of 10% of aggregate costs, and such costs shall include, without
         limitation,  all costs to service  Interests (it being  understood that
         such Interest costs shall be directly borne by the Non-Operator  unless
         the Operator has  specifically  agreed to pay the same on behalf of the
         Non-Operator),  all costs of drilling and well establishment, all costs
         of  producing  Production  (as defined  below),  all  maintenance,  all
         re-working,  all  transport,  any  and all  taxes  in  relation  to the
         Interests or  Production  borne by Operator,  any costs borne to defend
         title to  Interests,  and all  defense  costs  borne by  Operator  as a
         consequence  of its  acting as  Operator  (excepting  only  liabilities
         incurred by fraud or gross negligence).  All costs shall be remitted to
         Operator  within 30 days of invoice and thereafter  shall bear interest
         at 1% per month.  Any costs to be incurred of a capital  nature or of a
         nature   (determined  at  the  discretion  of  Operator)  not  normally
         day-to-day  operating  costs may be  determined  by the  Operator to be
         pre-billed as to the estimated  amount and the Operator  shall be under
         no  obligation  to effect  such  costs  until its  pre-bills  have been
         funded.

         Unless  the  context  otherwise  clearly  indicates,  words used in the
         singular  include the plural,  the plural  includes the  singular,  the
         neuter gender includes the masculine and the feminine.

                                   ARTICLE II.
                                    EXHIBITS

         The following  exhibits,  as indicated below and attached  hereto,  are
         incorporated in and make a part hereof.


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         EXHIBIT "A" SHALL INCLUDE THE FOLLOWING INFORMATION:"

1)  Identification  of leases,  drilling  units/wells  initially subject to this
    agreement,
2)  Percentages  or fractional  interests of parties in the Contract
    Area,
3) Address of parties for notice purposes.

         EXHIBIT "B," ACCOUNTING PROCEDURE

         If any  provision  of any exhibit is  inconsistent  with any  provision
         contained in the body of this  agreement,  the provision in the body of
         this agreement shall prevail.

                                  ARTICLE III.
                              INTERESTS OF PARTIES

         INTEREST OF PARTIES IN COSTS AND PRODUCTION:
         Exhibit  "A"  lists the  parties  and their  respective  percentage  of
         fractional  interests in the leases,  drilling  units/wells  under this
         agreement.  Unless changed by other  provisions of this agreement,  all
         costs and  liabilities  incurred in operations  under this agreement by
         the Operator shall be borne and paid by the  Non-Operator  who shall be
         liable to recover costs from any other parties of interest who may have
         an  obligation  to  contribute  to costs.  All  equipment  and material
         acquired  in  operations  on the  Contract  Area  shall be owned by the
         Non-Operator   or,   depending  upon  specific   contract  between  the
         Non-Operator  and other  parties,  the parties as their  interests  are
         shown in  Exhibit  "A." If  other  parties  do not  have  participating
         interest   it  shall  be  assumed   that   ownership   resides  in  the
         Non-Operator.  All  production  of oil and gas from the Contract  Area,
         subject to the payment of royalties  and other costs to third  parties,


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         (such production after royalties and third party costs hereafter called
         "Production")  shall be owned by the parties in the same manner  during
         the term  hereof:  provided,  however,  this  shall  not be  deemed  an
         assignment  or   cross-assignment   of  Interests  covered  hereby.  As
         principal consideration for the Operator's services, the Operator shall
         receive a ten percent (10%) Carried Interest ("Operator's Interest") of
         Production. The Operator may file notice of such Operator's Interest on
         title to the Interests. Such Operator's Interest shall continue for the
         period that the Operator  remains  operator and if the Operator assigns
         its  operations  with the  permission  of the  Non-Operator  such shall
         continue so long as the  assignee  remains  operator or effects a valid
         further assignment and such Operator's  Interest shall be assignable so
         long as the Operator or assignee has not been  terminated  as operator,
         subject to the below right of first refusal.

                                   ARTICLE IV.
                                    OPERATOR

A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR

                  For the  commercial  productive  life of the Contract Area and
         other Interests for oil and gas,  Operator shall be the operator of the
         Interests  and shall  conduct and direct and have full control over all
         operations  on the  Interests as permitted  and required by, and within
         the limits of, this  Agreement.  This powers of the Operator under this
         Agreement  shall  be  interpreted  widely  and  to the  benefit  of the
         Operator  and shall  encompass  all such  powers  as are  common in the
         industry and necessary or incidental  to the  Operator's  abilities and
         duties to operate the Interests and shall  include,  but not be limited
         by, rights of egress and ingress to the Interests, the right to use all


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         properties  of the  Non-Operator  and  Interest  owners in  relation to
         operations  on the  Interest,  the right to  exclude  persons  from the
         interest  including  the  Non-Operator  (except  for  appointments  for
         examinations made with reasonable notice), the right to sell Production
         and give good  title to the same,  the  right to  engage  contract  for
         drilling,  well maintenance,  sales and other such matters necessary to
         maintain the Interest  and conduct  Production,  and every other matter
         the Operator may deem  reasonably  necessary or  advantageous to act as
         operator.  Operator  shall  conduct all such  operations  in a good and
         workmanlike  manner,  but it shall have no liability as Operator to the
         Non-Operator for losses sustained or liabilities incurred,  except such
         as may result from gross negligence or willful misconduct.

B. RESIGNATION OF OPERATOR AND SELECTION OF SUCCESSOR:

1.       RESIGNATION OF OPERATOR:  Operator may resign at any time by giving
         60 days written notice thereof to Non-Operator.  If Operator terminates
         its legal  existence or, by operation of law, is not longer  capable of
         serving as Operator,  it shall cease to be Operator  without any action
         by  Non-Operator,  except the  selection  of a  successor.  If Operator
         becomes bankrupt or is placed in receivership and Operator is unable to
         maintain its plugging  bond,  it shall cease to be the  Operator.  Such
         resignation or termination  shall not become  effective until 7:00 a.m.
         on the first day of the calendar  month  following  the  expiration  of
         ninety  (90) days  after the  giving  of notice of its  resignation  by
         Operator  or  termination  as Operator  as  provided  herein,  unless a
         successor Operator has been selected and assumes the duties of Operator
         at  an  earlier  date.  Operator,  after  the  effective  date  of  its
         resignation  or  termination,  shall be bound by the terms  hereof as a
         Non-Operator  if it is a holder of interests in the Interest.  A change


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         of corporate  name or  structure of Operator or transfer of  Operator's
         interest or change of ownership of Operator  shall not be the basis for
         termination of Operator.

2.       Selection  of  Successor   Operator:   Upon  the   resignation  or
         termination of Operator, a successor Operator shall be selected by
         the vote of the parties  owning an interest in the Interest at the
         time such  successor  Operator is selected and on the basis of the
         percentage ownership of the Interest at such time.

C. EMPLOYEES

         The number of  employees  used by  Operator  in  conducting  operations
hereunder,  their  selection,  and the hours of labor and the  compensation  for
services  performed,  shall be  determined by Operator,  and all such  employees
shall be the employees of Operator.

                                   ARTICLE V.
                      ACCESS TO INTERESTS AND WELL PLUGGING

A. ACCESS TO CONTRACT AREA AND INFORMATION

         Each party shall have access to the Interests at all reasonable  times,
         at its sole risk,  to inspect  or  observe  operations,  and shall have
         access at  reasonable  times to  information  pertaining  to operations
         thereof,  including  Operator's  books and  records  relating  thereto.
         Operator,  upon request,  shall furnish Non-Operator with copies of all
         forms  or  reports  filed  with  governmental  agencies.  The  cost  of
         gathering and furnishing  information to Non-Operator  shall be charged
         to the Non-Operator.

B. PLUGGING AND ABANDONMENT OF WELLS:

         Any well which has been  completed  as a producer  shall not be plugged
         and  abandoned  without the consent of the  majority  of  ownership  of
         parties having an interest.  If such majority  parties  consent to such


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         abandonment, the well shall be plugged and abandoned in accordance with
         applicable  regulations  and at  the  cost,  risk  and  expense  of the
         Interest owners. If, within thirty (30) days after receipt of notice of
         the  proposed  abandonment  of such  well,  parties do not agree to the
         abandonment  of such well,  the party wishing to continue its operation
         shall tender to the other parties its proportionate  share of the value
         of the well's salvable material and equipment, determined in accordance
         with  the  provisions  of  Exhibit  "B",  less  the  estimated  cost of
         salvaging  and the  estimated  cost of  plugging  and  abandoning.  The
         abandoning  party shall  assign to the  non-abandoning  party,  without
         warranty,  express or implied, as to title or as to quantity,  quality,
         or fitness for use of the equipment  and material,  all of its interest
         in the well and related  equipment,  together  with its interest in the
         drilling  unit as to, but only as to, the intervals of the formation or
         formations then open to production.  The payment by, and the assignment
         to, the  assignee  shall be based upon the  respective  percentages  of
         participation  in the  Interests  for  that  well.  There  shall  be no
         readjustment  of  interests  in the  remaining  wells or portion of the
         Interests.  Should the Interest  owners  determine to abandon a well or
         wells and Operator  wishes to continue  production or re-work such well
         or wells then the Interest  owners shall assign their interests in such
         wells to the Operator as above, mutatis mutandis.

                  Thereafter,   the  abandoning  party  shall  have  no  further
         responsibility,   liability,   or  interest  in  the  operation  of  or
         production  from the well in the interval or intervals  then open other
         than any  royalties  retained in any lease made under the terms of this
         Article. Upon request,  Operator shall continue to operate the assigned
         well for the  account  of the  Non-Operator  at the rates  and  charges
         contemplated by this agreement,  plus any additional  costs and charges


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         which may arise as the result of the separate ownership of the assigned
         well.

                                   ARTICLE VI.
                      EXPENDITURES AND LIABILITY OF PARTIES

A.       LIABILITY OF PARTIES

         The liability of the parties shall be several, not joint or collective.
         Each party shall be responsible  only for its  obligations as set forth
         in this agreement.  Interests owners shall each be severally liable for
         their  respective  proportionate  share of the costs of  operating  the
         Interests.  Accordingly, the liens granted among the parties in Article
         VI.B of  Schedule  "B" are  given  to  secure  only  the  debts of each
         severally.  It is not the intention of the parties to create, nor shall
         this Agreement be construed as creating,  a mining or other partnership
         or association, or to render the parties liable as partners.

B.       LIENS AND PAYMENT DEFAULTS:

         Non-Operator,  and  any  other  Interest  owner  by this  Agreement  or
         collateral  agreement  grants to  Operator  a lien upon its oil and gas
         rights and property in the Contract Area and Interests,  and a security
         interest in its share of Production  when extracted and its interest in
         all equipment, to secure payment of its share of all Operator's cost of
         operating  the Interest,  together  with  interest  thereon at the rate
         provided in the Accounting Procedure attached hereto as Exhibit "B". To
         the extent that  Operator has a security  interest  under an applicable
         Uniform  Commercial  Code  Operator  shall be entitled to exercise  the
         rights and remedies of a secured party under the Code.  The bringing of
         a suit and the  obtaining  of  judgment  by  Operator  for the  secured
         indebtedness  shall not be deemed an election of remedies or  otherwise


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         affect the lien rights or security interest as security for the payment
         thereof until actually collected by Operator. In addition, upon default
         by any  Non-Operator  in the payment of its share of expense,  Operator
         shall have the right , without  prejudice  to other rights or remedies,
         to collect from the purchaser of Production  the proceeds from the sale
         of  such   Non-Operator's   share   until  the  amount   owed  by  such
         Non-Operator,  plus  interest has been paid.  Each  purchaser  shall be
         entitled  to rely upon  Operator's  written  statement  concerning  the
         amount of any default.

                  If  Non-Operator  fails or is unable to prepay  the  estimated
         total costs of operating  the  Interests  within thirty (30) days after
         rendition  of a statement  therefore  by  Operator,  Operator  shall be
         entitled to withhold  payment of  Non-Operator's  share of the proceeds
         from sale of oil and gas from the Interest until said amount is paid in
         full.

                  Operator is authorized  and directed to market all  Production
         from the Interests for the benefit of itself and Non-Operator  Interest
         owners.  Operator shall be responsible for collecting the entire amount
         of the proceeds due from the  purchasers(s).  Unless  Non-Operator  has
         prepaid the costs of operating the Interests,  Operator may deduct from
         the proceeds from the sale of Production the  Operator's  percentage of
         Production  and the  costs  of  operating  the  Interests  due from the
         Interest  Owners,  and,  in  that  event,  Operator  shall  pay the net
         proceeds to  Interest  owners  within 45 days after  receipt of payment
         from the purchaser(s).

C.       PAYMENTS AND ACCOUNTING

                  Except as otherwise  specifically  provided in this Agreement,
         Operator  shall  promptly  pay  and  discharge   expenses  incurred  in
         operation of the Interests  pursuant to this Agreement and shall charge


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         the  amount  thereof  to a Joint  Account  (if the  Operator  elects to
         establish such account,  otherwise the Operator shall effect  financial
         matters through an Operator  account  specifically  established for the
         Interests) upon the expense basis provided in the Accounting  Procedure
         attached hereto as Exhibit "B".  Operator shall keep an accurate record
         of the Joint Account, showing expenses incurred and charges and credits
         made and received.

                  Operator, at its election,  shall have the right, from time to
         time,  to demand  and  receive  from the  Non-Operator  payment  of the
         estimated amount of the expenses to be incurred in operations hereunder
         during the next succeeding month,  which right may be exercised only by
         submission to Non-Operator  of an itemized  statement of such estimated
         expenses  of AFE  (Authorization  for  Expenditure),  together  with an
         invoice  therefore.  Each such statement and invoice for the payment in
         advance of estimated  expenses shall be submitted on or before the 20th
         day of the next preceding month. Non-Operator shall pay to Operator the
         amount of such  estimate  within  fifteen (15) days after such estimate
         and invoice is received.  If  Non-Operator  fails to pay said  estimate
         within  said time,  the amount due shall bear  interest  as provided in
         Exhibit "B" until paid. Proper adjustment shall be made monthly between
         advances and actual expenses.

1.            DRILLING OF WELLS. Operator shall be responsible for obtaining all
              permits  and other  approvals  necessary  to drill and operate any
              well in the  Interests.  Operator shall not undertake to drill and
              complete  any  well  in  the  Interests  without  first  providing
              Non-Operator  with an AFE for such well. Within fifteen days after
              receipt of such AFE  Non-Operator  shall be required to prepay the
              AFE  estimate of all of the drilling  and  completion  expenses as
              provided herein.


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2.            RECOMPLETION OR PLUG BACK:  Without the consent of the majority of
              the Interest owners, no well shall be recompleted or plugged back,
              it  being  understood  that the  consent  to the  recompletion  or
              plugging  back of a well shall  include  consent to all  necessary
              expenditures  in conducting  such  operations  and  completing and
              equipping of said well, including necessary tankage and/or surface
              facilities.

3.            OTHER  OPERATIONS: Operator shall not undertake any single project
              reasonably  estimated  to  require  an  expenditure  in  excess of
              Twenty-five  Thousand  Dollars  ($25,000)  without Interest owners
              approval  by  majority  except  in  connection  with a  well,  the
              reworking, deepening,  recompleting, or plugging back of which has
              been  previously  authorized  by or  pursuant  to this  agreement;
              provided,  however,  that,  in case of explosion,  fire,  flood or
              other sudden  emergency,  whether of the same or different nature,
              Operator  may take such  steps and incur such  expenses  as in its
              opinion are required to deal with the emergency to safeguard  life
              and property but Operator,  as promptly as possible,  shall report
              the emergency to the  Non-Operator.  If Operator  prepares AFE for
              its own use, Operator, upon request by Non-Operator, shall furnish
              copies  of its AFE for any  single  project  costing  in excess of
              Twenty Five Thousand Dollars ($25,000).

D.            ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS:

                  For the account of each party,  Operator shall pay or deliver,
              or cause to be paid or  delivered,  all royalties to the extent of
              the full amount due based upon the Production from the wells.


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E.       RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
                  Rentals, shut-in well payments, free gas and minimum royalties
         which may be  required  under the terms of any lease for any well shall
         be paid as a working interest owner expense from Production.

F.       TAXES
                  Beginning with the first calendar year after the effective
         date hereof, Operator shall render for ad valorem taxation all property
         subject  to this  agreement  which by law should be  rendered  for such
         taxes,  and  it  shall  pay  from  Production  (if no  Production  then
         Non-Operator  shall be liable) all such taxes  assessed  thereon before
         they become  delinquent.  If the assessed  valuation  of any  leasehold
         estate is reduced by reason of its being subject to outstanding  excess
         royalties,  overriding royalties or production payments,  the reduction
         in ad valorem taxes  resulting  therefrom shall inure to the benefit of
         the owner or owners of such leasehold estate, and Operator shall adjust
         the charge to such owner or owners so as to reflect the benefit of such
         reduction.

                  If Operator  considers any tax assessment  improper,  Operator
         may, at its discretion,  protest within the time and manner  prescribed
         by law, and prosecute the protest to a final determination,  unless all
         parties  agree to abandon  the  protest  prior to final  determination.
         During the pendency of administrative or judicial proceedings, Operator
         may elect to pay,  under  protest,  all such taxes and any interest and
         penalty.  When any such  protested  assessment  shall have been finally
         determined,  Operator shall pay the tax for the Joint Account, together
         with any interest and penalty accrued,  and Non-Operator's share of the
         total cost may then be assessed against the Non-Operator.


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                  Each  party  shall  pay or cause  to be paid  all  Production,
         severance,  gathering  and other taxes  imposed upon or with respect to
         the  production  or  handling of such  party's  share of oil and/or gas
         produced under the terms of this agreement.

G.       INSURANCE
         At all times while operations are conducted  hereunder,  Operator shall
         comply with the Workers'  Compensation  Law of the States of Interests.
         Operator  shall also carry or provide  insurance for the benefit of the
         Joint Account of the parties and of the  Interests in  accordance  with
         reasonable practice.  Operator shall require all contractors engaged in
         work on or for the  Interests to comply with the Workers'  Compensation
         Law of the  State  where the  operations  are  being  conducted  and to
         maintain such other insurance as Operator may require.

                                  ARTICLE VII.
                          WAIVER OF RIGHT TO PARTITION

         Each party hereto owning an undivided  interest in the Interests waives
         any and all rights it may have to partition and have set aside to it in
         severalty its undivided interest therein.

                                  ARTICLE VIII.
   PREFERENTIAL RIGHT TO PURCHASE, AREA OF INTEREST AND RIGHT OF FIRST REFUSAL

         Should  any  party  desire  or  attempt  to sell all or any part of its
         interests  under this  Agreement,  or its rights and  interests  in the
         Interests,  it shall give written  notice  thereof to the other parties
         (including the Operator)  within five (5) days,  with full  information
         concerning its proposed sale,  which shall include the name and address


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         of the  prospective  purchaser (who must be ready,  willing and able to
         purchase),  the purchase price,  and all other terms of the offer.  The
         party  hereof  wishing to purchase  shall then have an  optional  prior
         right (pro rata if more than one party  wishes to accept the offer) for
         a period  of  ninety  (90)  days (30 days if  disposal  is for  finance
         purposes by farm-out,  partnership, joint venture, or any other finance
         vehicle)  after  receipt of notice to  purchase,  on the same terms and
         conditions,  the  interest  which the  other  party  proposes  to sell.
         However,  there  shall be no  preferential  right to  purchase in those
         cases where any party wishes to mortgage its  interests,  or to dispose
         of its interests by merger, reorganization,  consolidation,  or sale of
         all or  substantially  all of its  assets  to a  subsidiary  or  parent
         company or to a subsidiary of a parent company, or any company in which
         any one party owns a majority of the stock.

                  There shall be an `area of interest' extending five miles from
         the outer  boundaries of the Interests such that should the Operator or
         an Interest owner acquire oil or gas interests in such area of interest
         it shall be  deemed  to have  acquired  the same on behalf of the other
         parties and the same subject to this  Agreement,  subject to payment by
         the other parties of cost (pro rata if less than all) within 30 days of
         notice and  accounting by the  acquiring  party.  If the  non-acquiring
         parties do not pay within the 30 day notice period then they shall have
         no  right  to  such  interest.  This  right  shall  not  extend  to any
         acquisition   of  Interest  by  a  party  where  parties  have  had  an
         opportunity to bid.

                  The  Operator  shall  have  no  other  accountability  to  the
         Interest  owners  regarding any  acquisitions it may make in respect to
         any  other  oil and gas  interests  whatsoever  and it is  specifically


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         acknowledged  by the  Interest  owners that the  Operator  may or shall
         aggressively acquire such interests solely for its own account.

                                   ARTICLE IX.
                         INTERNAL REVENUE CODE ELECTION

                  This  agreement  is not  intended to create,  and shall not be
         construed to create,  a  relationship  of partnership or an association
         for profit  between or among the parties  hereto.  Notwithstanding  any
         provisions herein that the rights and liabilities hereunder are several
         and not joint or  collective,  or that this  agreement  and  operations
         hereunder  shall not constitute a  partnership,  if, for Federal income
         tax purposes,  this agreement and the operations hereunder are regarded
         as a partnership, each party hereby affected elects to be excluded from
         the application of all of the provisions of Subchapter "K",  Chapter 1,
         Subtitle  "A", of the Internal  Revenue  Code of 1954 as permitted  and
         authorized by Section 761 of the Code and the  regulations  promulgated
         thereunder  (all as may  also be  amended  or  replaced).  Operator  is
         authorized  and  directed  to execute  on behalf of each  party  hereby
         affected  such  evidence  of this  election  as may be  required by the
         Secretary of the Treasury of the United States of the Federal  Internal
         Revenue Service, including specifically,  but not by way of limitation,
         all of the  returns,  statements,  and the  data  required  by  Federal
         Regulations.  Should  there be any  requirement  that each party hereby
         affected give further evidence of this election,  each such party shall
         execute  such  documents  and  furnish  such other  evidence  as may be
         required by the Federal Internal Revenue Service or as may be necessary
         to evidence this election. No such party shall give any notices or take
         any other action  inconsistent  with the election  made hereby.  If any
         present  or future  income tax laws of the state or states in which the


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         Contract  Area is located  or any future  income tax laws of the United
         States contain  provisions  similar to those in Subchapter "K", Chapter
         1, Subtitle "A", of the Internal  Revenue Code of 1954,  under which an
         election  similar  to  that  provided  by  Section  761 of the  Code is
         permitted,  each party hereby  affected shall make such election as may
         be  permitted  or  required  by such  laws.  In  making  the  foregoing
         election,  each such party states that the income derived by such party
         from  Operations  hereunder  can be adequately  determined  without the
         computation of partnership taxable income.

                                   ARTICLE X.
                               CLAIMS AND LAWSUITS

                  Operator  may settle any single  damage  claim or suit arising
         from operations hereunder. If the claim cannot be settled for an amount
         acceptable to Operator,  Operator shall assume the further  handling of
         the claim or suit.  Also, costs and expense of handling,  settling,  or
         otherwise discharging such claim or suit shall be at the expense of the
         Joint Account.  If a claim is made against any party or if any party is
         sued on account of any matter  arising from  operations  hereunder over
         which  such  individual  has no control  because  of the  rights  given
         Operator  by  this  agreement,   the  party  shall  immediately  notify
         Operator,  and the claim or suit shall be treated as any other claim or
         suit involving hereunder.

                                   ARTICLE XI.
                                  FORCE MAJEURE

                  If any party is rendered  unable,  wholly or in part, by force
         majeure to carry out its obligations  under this agreement,  other than
         the  obligation  to make money  payments,  that party shall give to the
         other party prompt written notice of the force majeure with  reasonably


                                 Page 17 of 30


<PAGE>

         full particulars concerning in; thereupon, the obligations of the party
         giving the notice,  so far as they are  affected  by the force  majeure
         shall be suspended  during,  but no longer than, the continuance of the
         force majeure. The affected party shall use all reasonable diligence to
         remove the force majeure situation as quickly as practicable.

                  The requirement  that any force majeure shall be remedied with
         all  reasonable  dispatch  shall not require the settlement of strikes,
         lockouts, or other labor difficulty by the party involved,  contrary to
         its  wishes;  how all  such  difficulties  shall  be  handled  shall be
         entirely within the discretion of the party concerned.

                  The term "force majeure", as here employed,  shall mean an act
         of God, strike,  lockout, or other industrial  disturbance,  act of the
         public enemy,  war,  blockade,  public riot,  lightning,  fire,  storm,
         flood, explosion, governmental action, governmental delay, restraint or
         inaction,  unavailability of equipment, and any other cause, whether of
         the  kind  specifically  enumerated  above or  otherwise,  which is not
         reasonable within the control of the party claiming suspension.


                                  ARTICLE XII.
                                     NOTICES

                  All notices  authorized or required  between the parties,  and
         required by any of the provisions of this agreement,  unless  otherwise
         specifically provided, shall be given in writing by United States mail,
         Fedex, UPS, Western Union telegram,  postage or charges prepaid,  or by
         teletype or facsimile or e-mail, and addressed to the party to whom the
         notice is given at the addresses listed on Exhibit "A". The originating
         notice given under any provision hereof shall be deemed given only when


                                 Page 18 of 30


<PAGE>

         received by the party to whom such notice is directed, and the time for
         such party to give any notice in  response  thereto  shall run from the
         date the originating  notice is received.  The second or any responsive
         notice shall be deemed given when  deposited in the United  States mail
         or with the Western  Telegraph  Company,  Fedex or UPS with  postage or
         charges  prepaid,  or when sent by facsimile  or  teletype.  Each party
         shall have the right to change its  address at any time,  and from time
         to time, by giving written notice hereof to the other party.

                                  ARTICLE XIII.
                                TERM OF AGREEMENT

                  This agreement shall remain in full force and effect as to the
         oil and gas drilling  units and wells so long as any of the oil and gas
         wells subject to this agreement remain or are continued in operation as
         to any part of the Interests, whether by production, extension, renewal
         or  otherwise,  and/or so long as oil and/or gas  Production  continues
         from any well in commercial paying quantities.

                  It is agreed,  however, that the termination of this agreement
         shall not relieve any party hereto from any liability which has accrued
         or attached prior to the date of such termination.

                                  ARTICLE XIV.
                      COMPLIANCE WITH LAWS AND REGULATIONS

A. REGULATIONS AND ORDERS

         This  agreement  shall be subject to the laws of the State of Colorado,
         to the valid  rules,  regulations,  and orders of any duly  constituted
         regulatory  body of said state;  and to all other  applicable  federal,


                                 Page 19 of 30


<PAGE>

         state, and local laws, ordinances, rules, regulations and orders.

B. GOVERNING LAW

         The essential  validity of this  agreement  and all matters  pertaining
         thereto,  including,  but  not  limited  to,  matters  of  performance,
         non-performance,  breach,  remedies,  procedures,  rights,  duties  and
         interpretation or construction  shall be governed and determined by the
         law of the State of Colorado.

                                   ARTICLE XV.
                                  MISCELLANEOUS

                  This  agreement  shall be binding  upon and shall inure to the
         benefit  of  the  parties  hereto  and  to  their   respective   heirs,
         successors, legal representatives, and permitted assigns.
                  This instrument may be executed in any number of counterparts,
         each of which shall be considered an original for all purposes.


         IN WITNESS  WHEREOF,  this agreement  shall be effective as of the Date
         herein first set forth.


         OPERATOR

         /s/ LEO W. KERRIGAN


         NON-OPERATOR

         /s/


                                 Page 20 of 30


<PAGE>


                                   EXHIBIT "A"
                         Attached to and made a part of
                        Drilling and Operating Agreement


OPERATOR
Petrogen International Ltd
3200 SW Freeway, Suite 3300
Houston, Texas 77027
USA
Phone:   713-402-6115
Fax:     713-552-0022


NON-OPERATOR
Petrogen, Inc.
3200 SW Freeway, Suite 3300
Houston, Texas 77027
USA
Phone:   713-402-6115
Fax:     713-552-0022









                                 Page 21 of 30


<PAGE>


                                   EXHIBIT "B"
                         Attached to and made a part of
                        Drilling and Operating Agreement


                              ACCOUNTING PROCEDURE
                                JOINT OPERATIONS

I. GENERAL PROVISIONS

     1. DEFINITIONS

     "Joint  Property" shall mean the real and personal  property subject to the
     agreement to which this Accounting Procedure is attached.

     "Joint  Operations"  shall mean all operations  necessary or proper for the
     drilling, completion, operation, protection and/or maintenance of the Joint
     Property.

     "Joint Account" shall mean the account showing the charges paid and credits
     received in the conduct of the Joint  Operations and which are to be shared
     by the Parties.

     "Parties" shall mean Operator and  Non-Operator,  which latter includes all
     non-operator Interest owners.

     "Personal  Expenses"  shall mean travel and other  reasonable  reimbursable
     expenses of Operator's employees.

     "Material" shall mean personal property,  equipment or supplies acquired or
     held for use on the Joint Property.

     2. STATEMENT AND BILLINGS

         Operator shall collect all Production  proceeds from the  purchaser(s),
         deduct all expenses,  and on a monthly  basis,  Operator shall submit a
         statement to Non-Operator  showing its proportionate share of the Joint
         Account for the preceding month. Such statements will identify the well
         and all charges and credits,  summarized by appropriate classifications
         of investment and expense except that unusual charges and credits shall
         be separately identified and fully described in detail.


                                 Page 22 of 30


<PAGE>


3.       ADJUSTMENTS

         Payment of any  drilling,  completion or operating  expenses  shall not
         prejudice  the  right  of  Non-Operator  to  protest  or  question  the
         correctness thereof or to conduct an audit of the Joint Account.

4.       AUDITS

         Non-Operator,  upon notice in writing to Operator  shall have the right
         to audit Operator's accounts and records relating to the Joint Account.
         If not  requested  within one (1) year after the end of a fiscal  year,
         Non-Operator  shall be deemed to have  waived  the right to audit  that
         year's statements.

5.       APPROVAL BY NON-OPERATOR

         Where an approval or other  agreement of the Parties of Non-Operator is
         expressly  required under other sections of this  Accounting  Procedure
         and if the  agreement  to which this  Accounting  Procedure is attached
         contains no  contrary  provisions  in regard  thereto,  Operator  shall
         notify  Non-Operator of the Operator's  proposal,  and the agreement or
         approval of the Non-Operator shall be controlling on all Parties.

         6. ADVANCES BY NON-OPERATOR

         As  requested  by Operator,  Non-Operator  shall  advance or prepay all
         estimated drilling,  completion, and/or operating expenses projected to
         be incurred by the Joint Account for a period up to six (6) months.  In
         that event,  Operator shall account for all drilling  costs  completion
         costs,  and/or  operating  expenses  on a  monthly  basis  as they  are
         incurred.  If, upon completion of the drilling and/or completion of the
         well or the end of the six (6) month operating period,  Non-Operator is
         due a credit,  such  credit  shall be paid with any other  credits  due
         therein.  If there is an amount  due for the costs of  drilling  and/or
         completing a well,  Non-Operator shall pay any invoice therefore within
         thirty  (30) days of  receipt.  It being the intent  that  Non-Operator
         shall  pay no more  than  its  share  of the  actual  costs,  including
         Operator's  overhead,  to drill and/or complete the well Prepayments of
         projected  operating  expenses shall be credited to the  Non-Operator's
         share of the Joint Account.  It being the intent that the  Non-Operator
         shall  ultimately  bear only its  proportionate  share of any operating


                                 Page 23 of 30


<PAGE>

         expenses,  with Operator  ultimately bearing its proportionate share of
         such operating expenses from net production proceeds.

         II. DIRECT CHARGES

         Operator shall charge the Joint Account with the following items:

1.       MATERIAL

              Material  purchased  or furnished by Operator for use on the joint
              property as provided under Section IV. Only such Material shall be
              purchased  for or  transferred  to the  Joint  Property  as may be
              required  for  immediate  use  and  is  reasonable  practical  and
              consistent   with   efficient  and  economical   operations.   The
              accumulation of surplus stocks shall be avoided.

2.       TRANSPORTATION

              Transportation of material  necessary for the Joint Operations but
              subject to the following limitations:

A.                       If  material  is moved to the Joint  Property  from the
                         Operator's  warehouse  or other  properties,  no charge
                         shall  be  made to the  Joint  Account  for a  distance
                         greater  than the  distance  from the nearest  reliable
                         supply  store  to  where  like   material  is  normally
                         available, unless agreed to by the Parties.

B.                       If surplus Material is moved to Operator's warehouse or
                         other  storage  point,  no charge  shall be made to the
                         Joint Account for a distance  greater than the distance
                         from the nearest reliable supply store unless agreed to
                         by the  Parties.  No charge  shall be made to the Joint
                         Account  for  moving   Material  to  other   properties
                         belonging to Operator, unless agreed to by the Parties.

         3. SERVICES

         The cost of contract  services,  equipment  and  utilities  provided by
         outside sources,  except services excluded by Paragraph 6 of Section II
         and  Paragraph  1, ii of  Section  III,  and the  cost of  professional
         consultant  services  and  contract  services  of  technical  personnel
         directly  engaged on the Joint  Property  shall be charged to the Joint
         Account.  The cost of  professional  consultant  services  or  contract
         services  of  technical  personnel  not  directly  engaged on the Joint
         Property  shall not be charged to the Joint Account  unless  previously
         agreed to by the parties.


                                 Page 24 of 30


<PAGE>


         4. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

         A. Operator  shall charge the Joint  Account for use of Operator  owned
         equipment and facilities at rates  commensurate with costs of ownership
         and operation. Such rates shall include costs of maintenance,  repairs,
         other operating expense, insurance, taxes, and depreciation. Such rates
         shall not exceed average  commercial rates currently  prevailing in the
         immediate  area  of the  Joint  Property.
         B. In lieu of charges in Paragraph 4A above,  Operator may elect to use
         average  commercial rates prevailing in the immediate area of the Joint
         Property less 20%.

         5. DAMAGES AND LOSSES TO JOIN PROPERTY

         All costs or expenses  necessary for the repair or replacement of Joint
         Property made necessary  because of damages or losses incurred by fire,
         flood,  storm,  theft,  accident or other cause, except those resulting
         from Operator's gross negligence or willful misconduct shall be charged
         to the Joint  Account.  Operator  shall  furnish  Non-Operator  written
         notice of damages or losses  incurred  as soon as  practicable  after a
         report thereof has been received by Operator.

         6.  LEGAL EXPENSE

         Expense of handling,  investigating and settling  litigation or claims,
         discharging of third-party liens, payment of judgments and amounts paid
         for settlement of claims incurred in or resulting from operations under
         the  agreement or  necessary to protect or recover the Joint  Property.
         All other legal  expense is  considered  to be covered by the  overhead
         provisions of Section III unless otherwise agreed to by the Parties.

         7.       TAXES

         All  taxes of every  kind and  nature  assessed  or  levied  upon or in
         connection  with the Joint  Property,  the  operation  thereof,  or the
         production  therefrom,  and which taxes have been paid by the  Operator
         for the benefit of the parties.

         8.       INSURANCE

         Net premiums  paid for  insurance  required to be carried for the Joint
         Operations  for the  protection  of the  Parties.  In the  event  Joint
         Operations  are  conducted  in a state  in  which  Operator  may act as


                                 Page 25 of 30


<PAGE>

         self-insurer  for Workmen's  Compensation  and/or  Employers  Liability
         under the  respective  state's  laws,  Operator  may, at its  election,
         include  the risk under its  self-insurance  program and in that event,
         Operator shall include a charge not to exceed normal rates.

         9.       INTEREST

         To the extent  interest may be charged on any  delinquent  payments due
         under the Agreement, interest shall be payable at 1% per month.

                                  III. OVERHEAD

1.       OVERHEAD - FIXED RATE
         A. (1) As compensation for administrative, supervision, office services
         and  warehousing  costs,  Operator  shall charge the Joint  Account for
         producing operations on a fixed rate basis at the rate of $________ per
         well per month. Unless otherwise agreed to by the parties,  such charge
         shall be in lieu of costs and  expenses of all offices and  salaries or
         wages plus applicable  burdens and expenses of all personnel.  The cost
         and expense of services from outside sources in connection with matters
         of  taxation,  traffic,  accounting  or  matters  before  or  involving
         governmental  agencies  directly  affecting the Joint Property shall be
         direct  charged to the Joint  Account  and shall not be  considered  as
         included  in this  Overhead  rate  unless  otherwise  agreed  to by the
         parties.
                  (2) The Overhead rate shall be applied as follows:
                           (a) An active  well  produced  for any portion of the
                  month  shall be charged  only for the  portion of the month it
                  produced.
                           (b) All  inactive  wells  shall  not  qualify  for an
                  overhead charge.
                  (3) The well  rates  may be  adjusted  as of the  first day of
         April each year  following the effective date of the agreement to which
         this Accounting Procedure is attached. The adjustment shall be computed
         by multiplying the rate currently in use by the percentage  increase or
         decrease in the average  weekly  earnings  of Crude  Petroleum  and Gas
         Fields Production  Workers as published by the United States Department
         of Labor,  Bureau of Labor Statistics.  The adjusted rates shall be the
         rates currently in use, plus or minus the computed adjustment.


                                 Page 26 of 30


<PAGE>


                IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES,
                           TRANSFERS AND DISPOSITIONS

         Operator  is  responsible  for Joint  Account  Material  and shall make
         proper  and timely  charges  and  credits  for all  material  movements
         affecting the Joint  Property.  Operator shall provide all Material for
         use on the Joint Property;  however,  at Operator option, such Material
         may be  supplied  by  the  Non-Operator.  Operator  shall  make  timely
         disposition  of idle an/or surplus  Material,  such disposal being made
         either through sale to Operator or  Non-Operator,  division in kind, or
         sale to  outsiders.  Operators  may  purchase,  but  shall  be under no
         obligation  to  purchase  the  interest  of   Non-Operator  in  surplus
         condition A or B material.

1.       PURCHASES

         Material purchased shall be charged at the price paid by Operator after
         deduction of all discounts  received.  In case of material  found to be
         defective  or returned to vendor for any other  reason  credit shall be
         passed to the Joint  Account when  adjustment  has been received by the
         Operator.

2.       TRANSFERS AND DISPOSITIONS

         Material furnished to the Joint Property and Material  transferred from
         the Joint  Property or disposed of by the  Operator,  unless  otherwise
         agreed  to by the  Parties,  shall be  priced  on the  following  basis
         exclusive of cash discounts.
         A. New Material (Condition A)
                  New  Material  shall be priced at the  current  new price,  in
                  effect at the date of movement, as quoted by a reliable supply
                  store near the Joint  Property where such Material is normally
                  available.


                                 Page 27 of 30


<PAGE>


         B. Good Used Material (Condition B)
                  Material in sound and serviceable condition and suitable for
                  reuse without reconditioning:
                  1) Material moved to the Joint  Property
                           (a) At  seventy-five  percent  (75%) of  current  new
                  price, as determined by Paragraph 2A of this Section IV.

2) Material moved from the Joint Property.
                           (a) At  seventy-five  percent  (75%) of  current  new
                  price,  as  determined  by Paragraph 2A of this Section IV, if
                  Material was  originally  charged to the Joint  Account as new
                  Material,
                                    Or
                           (b) At sixty-five percent (65%) of current new price,
                  as  determined by paragraph 2A of this Section IV, if Material
                  was  originally  charged  to the  Joint  Account  as good used
                  Material at seventy-five percent (75%) or current new price.

                  The cost of reconditioning, if any, shall be absorbed by the
                  transferring property.
A.       Other Used Material (Condition C and D)
                      (1) Condition C
                           Material  which  is  not  in  sound  and  serviceable
              condition and not suitable for its original  function  until after
              reconditioning  shall be priced at fifty  percent (50%) of current
              new price as  determined  by  Paragraph 2A of this Section IV. The
              cost of reconditioning shall be charged to the receiving property,
              provided  Condition C value plus cost of  reconditioning  does not
              exceed Condition value.
                      (2) Condition D
                           All other Material,  including junk,  shall be priced
at a value
              commensurate  with its use or at  prevailing  prices.  Material no
              longer suitable for its original purpose but usable for some other
              purpose,  shall be priced on a basis comparable with that of items
              normally  used for such other  purpose.  Operator  may  dispose of
              Condition D Material  under  procedures  normally  utilized by the
              Operator without prior approval of Non- Operators.
B.       Obsolete Material
                           Material  which is  serviceable  and  usable  for its
                           original  function but condition and/or value of such
                           material  is  not  equivalent  to  that  which  would


                                 Page 28 of 30


<PAGE>

                           justify a price as  provided  above may be  specially
                           priced as agreed to by the parties. Such price should
                           result in the Joint  Account  being  charged with the
                           value of the service rendered by such material.

3.       PREMIUM PRICES

              Whenever Material is not readily obtainable at published or listed
              prices because of national  emergencies,  strikes or other unusual
              causes over which the  Operator  has no control,  the Operator may
              charge  the  Joint  Account  for  the  required  Material  at  the
              Operator's  actual cost incurred in providing  such  material,  in
              making  it  suitable  for  use,  and in  moving  it to  the  Joint
              Property.

                                 V. INVENTORIES

         The Operator shall maintain detailed records of Material.
1.       PERIODIC INVENTORIES, NOTICE AND REPRESENTATION

              At reasonable intervals, Inventories shall be taken by Operator of
              the Joint Account  Material.  Written  notice of intention to take
              inventory  shall be given by  Operator  at least  thirty (30) days
              before  any  inventory  is to  begin so that  Non-Operator  may be
              represented when any inventory is taken.

         2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES

              Reconciliation  of a  physical  inventory  with the Joint  Account
              shall be  made,  and a list of  overages  and  shortages  shall be
              furnished  to the  Non-Operator  within six months  following  the
              taking of the inventory.  Inventory  adjustments  shall be made by
              Operator with the Joint Account for overages and shortages.

         3. SPECIAL INVENTORIES

              Special  Inventories  may be taken  whenever  there is any sale or
              change of interest in the Joint Property.  It shall be the duty of
              the party  selling  to notify  all other  Parties  as  quickly  as
              possible  after the  transfer of  interest  takes  place.  In such
              cases, both the seller and the purchaser shall be governed by such
              inventory.


                                 Page 29 of 30


<PAGE>


4.       EXPENSE OF CONDUCTION PERIODIC INVENTORIES

              The expense of conducting periodic inventories shall be charged to
the Joint Account.




























                                 Page 30 of 30