AGREEMENT

     THIS AGREEMENT  ("Agreement") is made effective this ____ day of May, 1999,
by GEORGE H. FANCHER JR.  ("Fancher") and FAN ENERGY INC., a Nevada  corporation
("Fan").

                                    RECITALS

     A. Fancher is the Chairman and a substantial  shareholder of Fan. The Board
of Directors of Fan has requested  that Fancher  guarantee a line of credit loan
made to Fan by U.S. National Bank, Denver,  Colorado,  in the amount of $150,000
(the "Fan Loan").

     B. Fancher has agreed to guarantee  the  repayment of the Fan Loan only if:
(i) Fan agrees that no person other than Fancher holds or will acquire any lien,
security  interest,  mortgage or similar  interest in and to any interest in any
oil or natural gas producing or exploration  property in any state and (ii) that
Fan will  indemnify  Fancher  from any loss,  damage or  expense to Fancher as a
consequence of his guarantee of the Fan Loan.

     C. Fancher,  as a shareholder of Fan,  expects to derive  indirect  benefit
from the Fan Loan as portion of the proceeds will be used to repay accounts owed
by Fan to Fancher and for  development  of Fan's oil and gas  properties  to the
benefit of shareholders, including Fancher.

     D. As a condition for guarantying  the Fan Loan,  Fancher has required that
Fan enter into this Agreement.

                                    AGREEMENT

     NOW, THEREFORE,  in consideration of the matters recited above, the receipt
and  sufficiency of which is mutually  acknowledged,  Fan hereby  undertakes and
agrees as follows, intending to be legally bound:

     1. Maintain  Properties  Free From Liens.  Fan represents that no person or
entity holds any lien,  security interest,  mortgage or similar interests (other
than liens for taxes arising in the ordinary course,  statutory  materialmen and
supplier's liens for obligations not in default) with respect to any interest in
any oil or natural gas properties in which Fan holds an interest.  Fan agrees it
will  permit  nor  suffer no person or  entity to  acquire  any lien,  security,
mortgage or similar interest in any of such properties without the prior written
consent of Fancher at any time while the Fan Loan is  outstanding  and Fancher's
guarantee remains in place. Further, Fan agrees that while the Fancher guarantee
is in place,  it will  promptly  pay or cause to be paid all  amounts due to any
materialman, supplier or similar provider of goods or services who could, in the
absence of payment,  be deemed to hold a mechanic's or similar lien with respect
to all oil or  natural  gas  properties  in which  Fan  holds an  interest.  Any
material  breach of provisions of this Section 1 shall be deemed to constitute a
default of this Agreement.

     2.  Indemnification.  In the event Fancher suffers any Adverse Consequences
(as defined below) as a result of his guarantee of the Fan Loan (the "Guaranty")
or arising out of,  relating  to, in the nature of or cause by the  existence of
such Guaranty, then Fan shall indemnify Fancher from and against the entirety of


<PAGE>


any Adverse  Consequences  that Fancher may suffer through and after the date of
the  claim  for  indemnification.   For  purposes  of  this  paragraph,  Adverse
Consequences shall include: the payment to U. S. National Bank by Fancher of any
amount  required  to be paid  by Fan  under  the  Fan  Loan,  all  damages  from
complaints,  actions,  suits,  proceedings,  hearings,  investigations,  claims,
demands, judgments, orders, decrees, stipulations,  injunctions,  damages, dues,
penalties, fines, costs, amounts paid in settlement,  liabilities,  obligations,
taxes, liens,  losses,  expenses and fees,  including all reasonable  attorneys'
fees and court costs.

     In that event that an  obligation  to indemnify  Fancher  arises under this
Section 1, then Fan shall,  immediately  upon the receipt of written notice from
Fancher,  pay to  Fancher  an amount  equal to  Fancher's  out-of-pocket  losses
incurred as a result of the Guaranty.

     In the event that the Bank  notifies  Fancher of any Event of Default under
any  document  evidencing  or  securing  the Fan Loan ("Loan  Documents"),  then
Fancher  shall notify Fan in writing,  provided,  however,  that no delay on the
part of  Fancher  in  notifying  Fan shall  relieve  Fan from any  liability  or
obligation  hereunder  unless  (and then  solely to the  extent)  Fan is thereby
damaged and materially  prejudiced from adequately  defending such claim. In the
event Fancher so notifies Fan, Fan shall defend Fancher against the matter, with
counsel of Fancher's choice  reasonably  satisfactory to Fan. Fancher may retain
separate  co-counsel at his sole cost and expense. In no event shall Fan consent
to the entry of any judgment or enter into any  settlement  or  compromise  with
respect to the matter without the written consent of Fancher which consent shall
not be unreasonably withheld.  Further, Fan will not consent to the entry of any
judgment with respect to the matter,  or enter into any settlement or compromise
which does not include a  provision  whereby  the  plaintiff  or claimant in the
matter  releases  Fancher from all liability  with respect  thereto  without the
written consent of Fancher, which consent shall not be unreasonably withheld.

     3. Security for  Obligations  of Fan. As security to Fancher for the prompt
payment of amounts  which may become due to Fancher  under this  Agreement,  Fan
shall  execute and deliver to Fancher a mortgage on all of the  interests of Fan
in oil and natural gas producing,  nonproducing  and  exploratory  properties in
Sweetwater County,  Wyoming and Solano County,  California.  Such mortgage shall
create a first-in-priority security interest in favor of Fancher as security for
the prompt  payment by Fan of the  obligations  set forth in this  Agreement and
shall  include a security  interest  in all oil or  natural  gas  properties  in
Sweetwater  County,  Wyoming and Solano  County,  California in which Fan has an
interest at the time that the mortgage is to be filed of record and recorded. If
at any time Fan is unable to make a payment of required interest or principal or
to make other  payments to the Bank as required  under the Loan Documents and it
appears to Fancher, in his reasonable judgment, that Fancher will be called upon
to make such payments to the Bank under the Guaranty,  then Fancher shall be and
hereby is authorized, without further action, to cause to be prepared, signed by
Fancher  as an  officer  of Fan  and  filed  and  recorded  in  the  appropriate
governmental  offices,  one or more  mortgages  or  other  instruments  creating
security  interests to secure the obligations of Fan under this  Agreement.  The
form of such mortgage or other  security  interest shall be any form of mortgage
sufficient to create the security  interest and lien described in this Agreement
and contemplated by the parties.



                                        2

<PAGE>



     4. Survival.  The obligation of Fan hereunder shall survive and continue in
full  force  and  effect  until  Fancher  has been  released  by The Bank of his
obligation arising under the Guaranty.

     5. Preferential  Payment. Fan agrees that to the extent it or Fancher makes
any payment to the Bank in  connection  with the Loan  Documents  and all or any
part of such payment is subsequently  invalidated,  declared to be fraudulent or
preferential,  set aside or  required to be repaid by the Bank or paid over to a
trustee,  receiver or any other  entity,  whether  under any  bankruptcy  act or
otherwise  (any  such  payment  is  hereafter  referred  to  as a  "Preferential
Payment"),  then this  Agreement  shall  continue  to be  effective  or shall be
reinstated, as the case may be.

     6. Authorization of Certain Changes. Fan authorizes Fancher, without notice
or demand and without affecting Fan's liability hereunder, from time to time, to
renew, modify,  compromise,  extend, accelerate or otherwise change the terms of
his Guaranty with the Bank,  as Fancher may in his  discretion,  determine.  The
provisions of this Agreement shall extend and be applicable notwithstanding such
renewals, extensions and modifications.

     7.  Waiver by Fan.  Fan waives and agrees not to assert the  benefit of any
statute of  limitations  affecting  its liability  hereunder or the  enforcement
hereof;  demand,  diligence,  presentment for payment,  protest and demand,  and
notice of extension,  dishonor,  protest,  demand,  nonpayment  and  acceptance;
notice of the existence, creation or incurring of new or additional indebtedness
of Fan to the Bank; the benefits of any laws limiting the liability of a surety;
any defense  arising by reason of any  disability  or other defense of Fan or by
reason of the cessation from any cause  whatsoever  (other than payment in full)
of the  liability  of Fan for the sums  identified  in the Loan  Documents;  any
defense that may arise by reason of the incapacity,  lack of authority, death or
disability  of Fan, or the failure of Fancher to file or enforce a claim against
the estate (either in administration, bankruptcy, or other proceeding) of Fan or
others;  any defense  based upon an  election  of  remedies  by  Fancher,  which
destroys  or  otherwise  impairs  the right of Fan to  proceed  against  Fan for
reimbursement.

     8.  Attorneys'  Fees. Fan agrees to pay all  attorneys'  fees and all other
costs  and  expenses  which  may be  incurred  by  Fancher  in  enforcing  Fan's
obligations hereunder.

     9.  Enforceability.  Should any one or more provisions of this Agreement be
determined to be illegal or  unenforceable,  all other  provisions  nevertheless
shall be effective.

     10. Entire Agreement. This Agreement sets forth the entire agreement of Fan
and Fancher with respect to the subject  matter hereof and  supersedes all prior
oral and written  agreements and  representations  by one party to the other. No
modification  or  waiver  of any  provision  of this  Agreement  or any right of
Fancher  hereunder  and no release of Fan from a  effective  unless in a writing
executed  by  Fancher.  There  are no  conditions,  oral  or  otherwise,  on the
effectiveness of this Agreement.

     11.  Governing  Law.  This  Agreement  shall be governed  by and  construed
according to the laws of the state of Colorado.


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<PAGE>


     IN WITNESS WHEREOF these presents are executed as of the day and year first
above written.

                                       FAN ENERGY INC.



                                       By
                                          --------------------------------------
                                          William E. Grafham, President


                                       -----------------------------------------
                                       George H. Fancher Jr.

                                       -----------------------------------------
                                       Social Security Number


















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