Exhibit 10.63

                              SETTLEMENT AGREEMENT

                            Regarding the Fences Area

Entered into this 8 day of January 2003, by and between

1)       Polskie Gornictwo Naftowe i Gazownictwo S.A., having its seat in Warsaw
         at ul. Krucza 6/14 ("POGC"); and

2)       FX Energy Poland Sp. z o.o. having its seat in Warsaw at Al. Jana Pawla
         II 29 ("FX")

hereinafter jointly called the "Parties" and each of them individually a "Party"

                                    Article 1
                   Subject matter of the Settlement Agreement

By entering into this Settlement Agreement the Parties desire to resolve
disputes between them arising in connection with implementation of the following
prior agreements:

         1)       the Agreement on Cooperation in Exploration of Hydrocarbons on
                  Foresudetic Monocline of April 11, 2000 (the "Cooperation
                  Agreement");

         2)       the Joint Operating Agreement Covering the Areas in the
                  Foresudetic Monocline of May 12, 2000 (the "Fences JOA"); and

         3)       the Natural Gas Sale and Purchase Agreement, for Fences Area
                  Fields, Republic of Poland of December 18, 2000 (the "Gas
                  Sales and Purchases Agreement");

                                    Article 2
                            Parties' representations

The Parties unanimously state as follows:

1)       The Cooperation Agreement and the Fences JOA provide that the Parties'
         respective interests in all cost and benefits arising as a result of
         the joint operations are equal to: 51% - POGC and 49% - FX, provided
         that FX has committed to fund 100% of the initial costs of joint
         operations up to the equivalent of 16 million US Dollars, in
         consideration of the value of the geological data and drilling prospect
         structures obtained by POGC in the Fences area as a result of its prior
         seismic and drilling work;

2)       The results of joint operations conducted so far, which focused on
         several exploration targets identified based on the geological data
         provided by POGC, and the funding of which was provided by FX, have
         occurred to be disappointing for each of the Parties;

3)       Both Parties recognize that any misunderstanding about the quality of
         the data processing and interpretation methods used in the past was not
         due to any bad intention of either of the Parties; and FX hereby
         revokes any statements it may have made to the contrary of the above
         and apologizes for them to POGC.

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4)       The Parties believe that the Fences area and other geologically similar
         areas can be successfully explored through application of new data
         reprocessing techniques proposed by FX, and they desire to continue
         their cooperation on the 51/49 rights and obligations sharing basis,
         pursuant to the principles stated in the Fences JOA;

5)       The Parties desire to settle and clarify all issues regarding the
         Fences area and the existing agreements between them.

                                    Article 3
          FX obligations under Fences JOA and the Cooperation Agreement

3.1      Subject to further provisions of this Agreement, FX reaffirms its
         commitment to spend USD 16 million on hydrocarbon exploration within
         the Fences area as per the Fences JOA. Once the costs of joint
         operations within the Fences area reach the equivalent of USD 16
         million, all further exploration costs within the Fences area shall be
         covered in accordance with the Parties interests under the Fences JOA,
         i.e. 49% - FX and 51% - POGC.

3.2      FX shall pay to POGC the total of PLN 18,809,026.35 consisting of :

         a)       PLN 16,323,333.48 representing the principal amount invoiced
                  and outstanding; and

         b)       PLN 2,485,692.87 representing interest accrued until October
                  31, 2002;

by December 31, 2003, together with interest on the amount specified under
letter a) above, pursuant to the rate of interest agreed upon in the Fences JOA,
i.e. equal to 80% the Polish statutory interest rate, as applicable from time to
time, calculated from November 1, 2002 until payment, in cash or, if the Parties
so agree, by financing the POGC part of joint operational costs within the
Fences area or any other area of joint operations.

3.3      The amounts stated above constitute the entire FX obligation to POGC
         payable as of the date hereof.

                                    Article 4
                 Transfer of mining usufruct in the Fences area

4.1      POGC and FX shall conclude an agreement (the "Transfer Agreement"),
         substantially in the form set forth in Appendix 2 hereto, to transfer
         to FX a 49% interest in the mining usufruct established on the
         Srem-Jarocin concession area covering the Fences area (not to include
         any of the exploitation concession areas and producing wells excluded
         under the definition of the Contract Area set forth in Appendix 1
         hereto), subject to obtaining the required consent from the State
         Treasury, which POGC shall promptly apply for and shall make best
         efforts to obtain as soon as possible. The Transfer Agreement shall be
         signed concurrently with this Agreement.

4.2      All administrative cost and taxes connected with the transfer of rights
         pursuant to the Transfer Agreement shall be paid by FX. FX shall be
         responsible for filing the appropriate tax return. Other fees and costs
         related to the mining usufruct shall be covered from the Joint Account
         in accordance with the Fences JOA.

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4.3      Should the State Treasury refuse its consent for the mining usufruct
         transfer, the Parties shall act diligently to find alternative ways of
         securing FX direct rights to 49% of benefits produced by the joint
         operations within the Fences area.

4.4      Together with the interest in the mining usufruct and without a
         separate compensation, POGC shall transfer to FX a 49% ownership
         interest in all geological data regarding the Fences area owned by
         POGC, subject to obtaining the required consent of the Minister of
         Environment. Other provisions of this Article 4 shall apply to the
         geological data mutatis mutandis.

                                    Article 5
                    Other matters concerning the Fences area

5.1      The Parties agree that they will not form a company solely for the
         purposes of cooperation within the Fences area, but may in the future
         decide to form a joint company to carry out other tasks, which may
         include some activities within the Fences or/and other areas.

5.2      The Parties hereby agree to amend the Fences JOA as specified in
         Appendix 1.

5.3      The Parties intend to drill two new exploratory wells within the Fences
         area during 2003.

                                    Article 6
                           Detailed financial matters

6.1      The Parties confirm that the financial expenditures already incurred on
         their joint operations within the Fences area are equal to USD
         10,567,364.78 of which the equivalent of USD 6,597,685.59 has been paid
         by FX to POGC, and the equivalent of USD 3,969,697.16 has been invoiced
         by POGC to FX and is to be paid in accordance with Clause 3.2.

6.2      Subject to Clause 7.1, in order to fulfil its commitment to ensure an
         amount of USD 16 million on financing of works within the Fences area,
         FX shall cover 100% costs of drilling the two wells within the Fences
         area referred to in Clause 5.3 above and any additional joint
         operations within the Fences area conducted after the date hereof,
         until such cost, together with the amount specified in Clause 6.1 above
         reach the equivalent of USD 16 million, following which all further
         such operations shall be financed 51% POGC and 49% FX.

6.3      For the purposes of calculating any US Dollar equivalent of any amounts
         to be paid in Polish Zloty (or vice versa), the average exchange rate
         published by the National Bank of Poland on the day the payment is made
         (i.e. the appropriate amount is received by the payee), shall be
         applied.

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                                    Article 7
                       Kleka 11 gas and further gas sales

7.1      POGC acknowledges and confirms that pursuant to the Fences JOA, FX is
         entitled to 49% of all gas produced from the Kleka 11 well. The total
         value of the gas which has been produced from that well since the
         beginning of the test production and which is still capable of being
         produced in accordance with good international practices (the "Kleka 11
         Gas Value") shall be calculated, by applying the gas price stipulated
         in the Gas Sales Agreement, by an independent expert appointed by the
         Parties within 3 months following the date hereof and shall be
         deducted, by way of set-off, from the amount due under Article 3.2
         above. The costs of the calculation by the independent expert shall be
         paid by the Parties in proportion of 51/49.

7.2      FX shall ensure that all gas produced from the Kleka 11 well, and the
         Kleka 11 well itself, is not subject to any lien established by FX in
         favor of Rolls Royce Power Ventures Limited or any other third party.

7.3      POGC commits to purchase any gas produced under the Fences JOA from any
         wells drilled hereafter in the Fences area pursuant to the Gas Sales
         Agreement, subject to any applicable mandatory provisions of Polish
         law. The Gas Sales Agreement shall be in force until December 31, 2008.

                                    Article 8
                                  Default by FX

8.1      Should FX fail to fully perform its obligations specified in Article 3
         in accordance with the provisions of this Agreement, POGC shall have
         the right to terminate the Fences JOA by a 90-day written notice to FX,
         provided that the termination shall not occur if FX fulfills all its
         obligations within the notice period.

8.2      If the Fences JOA is terminated pursuant to Clause 8.1, it will
         nevertheless remain in effect with respect to aerial extent of any
         prospects mapped and drilled as joint operations under the Fences JOA
         prior to the termination and FX shall keep an interest specified below
         in rights to such structure, for the duration of the relevant POGC
         concession listed in Appendix 3 (including any amendment or extension).
         The interest kept by FX shall be equal to the proportion between the
         total costs of work actually covered by FX pursuant to the Fences JOA
         and this Agreement (excluding any interest on delay on payment) and the
         USD 16 million, as of the date of termination of the Fences JOA, but
         shall not be greater than 49%. (The prospect aerial extent shall be
         delineated by the lowest closing contour or by the bottom of a defined
         hydrocarbon contact determined by a well penetration, whichever is
         deeper). Subject to the preceding sentence, promptly following the
         termination of the Fences JOA, FX shall transfer the mining usufruct to
         POGC or any party nominated by POGC, pursuant to an agreement
         substantially consistent with the form specified in Appendix 2, mutatis
         mutandis.

                                    Article 9
                              Assignment and pledge

9.1      FX shall have the right to assign its rights and obligations under the
         Fences JOA, the Gas Sales Agreement or this Agreement to a third party
         of its choice with a written consent of POGC.

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9.2      POGC may not refuse its consent without an important reason, which
         shall include in particular a weak financial position of the proposed
         assignee or POGC remaining in a serious dispute with the proposed
         assignee.

9.3      FX shall have the right to pledge its rights under the Fences JOA, the
         Gas Sales Agreement or this Agreement in accordance with Polish law,
         provided that FX shall inform POGC in writing of its intention to
         establish a pledge with a 14-days prior notice and shall withhold the
         establishment of the pledge, if POGC raises, within this period, an
         objection based on an important reason, as referred to in Clause 9.2.

9.4      POGC shall have the right to assign its rights and obligations under
         the Fences JOA, the Gas Sales Agreement or this Agreement to a
         subsidiary formed pursuant to the POGC restructuring program which
         shall hold rights to the fields concerned by the Fences JOA, the Gas
         Sales Agreement and this Agreement.

                                   Article 10
                            Waiver of further claims

10.1     FX hereby unconditionally waives all claims it may have against POGC in
         connection with the quality of geological data obtained as a result of
         work conducted by POGC prior to the Cooperation Agreement. Except as
         otherwise provided herein, each Party hereby waives all claims it may
         have vis-a-vis the other in respect of obligations to finance 100% of
         certain works or any other obligations arising from the Cooperation
         Agreement. Subject to obtaining by FX a consent from Rolls Royce Power
         Ventures, the Cooperation Agreement shall be terminated and fully
         superseded hereby, effective upon the obtaining of the said consent, a
         copy of which FX shall deliver to POGC.

10.2     The waiver pursuant to Clause 10.1 above shall be properly recorded by
         credit notes and/or correction invoices, to the extent required or
         desirable under Polish tax regulations and the Accounting Act.

                                   Article 11
                                  Miscellaneous

11.1     Articles XVI through XVIII of the Fences JOA are incorporated herein by
         reference and become Articles 12 through 14 of this Agreement.


FX ENERGY POLAND SP. Z O.O.

/s/ David N. Pierce, Member of the Management Board


POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A.

/s/ Zbigniew Tatys, Director of Exploration and Production

/s/ A. Hoscilowicz, Director of Investments

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                                   APPENDIX 1
                          Amendments to the Fences JOA

The respective provisions of the Fences JOA shall be amended to read as follows:
 Definition of Contract Area.
 The Contract Area consists of the area covered by Concession #29/2001/p and by
 that certain Mining Usufruct dated September 28, 2001, covering prospecting for
 and exploring deposits of oil and natural gas in the "Srem-Jarocin" area. The
 following areas and wells shall not constitute part of the Contract Area:

         Concessions                                          Wells
         Name                      Number                     Solec 7
         Kaleje                    127/93                     Solec 8
         Jarocin                   128/93                     Kaleje 11
         Kleka                     129/93                     Kaleje 14
         Radlin                    172/94                     Kleka 11


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                                   APPENDIX 2

                               Transfer Agreement



THIS AGREEMENT is made the __ day of January, 2003, in Warsaw.

BETWEEN:

1.       POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A. with its registered office
         in Warsaw, at ul. Krucza 6/14, 00-537 Warsaw, entered into the National
         Court Register maintained by the District Court for the city of Warsaw
         under the KRS No. 0000059492 ("PGNiG"),

and

2.       FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at al.
         Jana Pawla II 29, 00-867 Warsaw, entered into the National Court
         Register maintained by the District Court for the city of Warsaw under
         the KRS No. 0000052459 ("FX"),


jointly called the "Parties" and each of them individually a "Party".

                                    Article 1
                            Purpose of the Agreement


The Parties enter into this Agreement pursuant to Article 4 of the Settlement
Agreement Regarding the Fences Area of even date herewith.

                                    Article 2
                         PGNiG title to Mining Usufruct

PGNiG represents that it holds 100% of the mining usufruct for exploration and
prospecting for oil and natural gas (the "Mining Usufruct") in the
"Srem-Jarocin" area (also called the "Fences Area") established pursuant to the
Agreement on Establishment of the Mining Usufruct dated September 28, 2001 and
the Concession No.29/2001/p, both of which are attached hereto as Schedule 2.
The Mining Usufruct is free of any encumbrances or third party claims.

                                    Article 3
                           Transfer of Mining Usufruct

3.1      PGNiG hereby transfers to FX and FX receives, a 49% ownership interest
         in the Mining Usufruct, subject to Clause 3.2 below and subject to the
         suspensory condition of obtaining a consent from the State Treasury for
         the transfer, as required under the relevant mining usufruct agreement.
         As soon as the consent is obtained, PGNiG shall notify that to FX in
         writing.

3.2      No interest in the Mining Usufruct is transferred hereby with respect
         to:

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         a)       the areas covered by the following exploitation concessions
                  held by PGNiG: Kaleje (No. 127/93); Jarocin (No.128/93); Kleka
                  (No. 129/93); Radlin (No. 172/94); and

         b)       the following wells: Solec 7; Solec 8; Kaleje 11; Kaleje 14;
                  Kleka 11.

                                    Article 4
                Transfer the ownership of geological information

4.1      PGNiG, as the owner of the geological information contained in the
         documentation regarding the Fences Area acquired before January 1,
         2002, (listed in Schedule 4 to the agreement referred to in Article 1),
         hereby transfers to FX and FX receives a 49% interest in ownership in
         rights to all of geological information contained in the documentation,
         subject to the suspensory condition of obtaining a consent from the
         Minister of Environment, as required pursuant to the Geological and
         Mining law. As soon as the consent is obtained, PGNiG shall notify that
         to FX in writing.

4.2      PGNiG, as the holder of the exclusive right to commercial use the
         geological documentation regarding the Fences Area acquired after
         January 1, 2002, (listed in Schedule 5 to the agreement referred to in
         Article 1) hereby transfers to FX and FX receives a 49% interest in the
         above right.

                                    Article 5
                                      Costs

FX shall pay all administrative cost and taxes due in connection with this
Agreement.

                                    Article 6
                                  Miscellaneous


6.1      Any disputes related to this Agreement shall be resolved by the
         Arbitration Court at the Polish Chamber of Commerce in accordance with
         its rules.

6.2      This Agreement has been executed in Polish and English. In case of any
         discrepancies between both versions, the Polish version shall prevail.

6.3      Any amendments to this Agreement must be in writing to be valid.

POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A.

____________________

____________________


FX ENERGY POLAND SP. Z O.O.

____________________


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                                   SCHEDULE 3
               Copies of Mining Usufruct Agreement and Concession







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                                   SCHEDULE 4
         Geological information regarding the Fences Area owned by PGNiG

Covered is all geological and geophysical information from the Fences Area
obtained by POGC as a result of geological and geophysical work conducted during
the period between 01.02.1989 and 01.01.2002. This information is managed by the
archives department of Geological Bureau GEONAFTA.

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<PAGE>

                                   SCHEDULE 5
                Geological information regarding the Fences Area
            to which PGNiG has the exclusive right of commercial use

Covered is all geological and geophysical information from the Fences Area
obtained by POGC as a result of geological and geophysical work before
01.02.1989 or after 01.01.2002. PGNiG is obliged to obtain consent from the
State Treasury to use the information obtained prior to 01.02.1989, and then to
use it in accordance with the terms specified by the State Treasury.

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