EMPLOYMENT AGREEMENT




         This Employment  Agreement is made effective as of June 1, 1997, by and
between Fortune Petroleum Corporation,  a Delaware corporation  ("Employer") and
Tyrone J. Fairbanks ("Employee").

        WHEREAS,  prior to the date  hereof,  Employee  served in the  employ of
Employer in the capacity of president and chief executive officer pursuant to an
employment agreement dated July 1, 1994; and

        WHEREAS,  the  parties  desire  to  abrogate  their  earlier  Employment
Agreement  and their  respective  rights and duties  thereunder  in favor of the
terms and conditions set forth herein; and

        WHEREAS,  Employer's Board of Directors desires to recognize  Employee's
continuing  importance to the ongoing  operations of Employer,  the value of his
continuing  participation  in  those  operations,  and  desires  to  provide  an
incentive  and  inducement  for  Employee to  continue in his present  capacity,
notwithstanding the possibility of a change of control or ownership of Employer;
and

        WHEREAS,  Employee is  willing,  on the terms and  conditions  set forth
herein, to continue in the employ of Employer for the terms set forth herein.

        NOW, THEREFORE, in consideration of the foregoing, and of the mutual and
dependent  covenants   hereinafter  set  forth,  and  other  good  and  valuable
consideration,  the receipt of which is hereby acknowledged,  the parties hereto
agree as follows:

        1.     EMPLOYMENT AND DUTIES
               ---------------------

        Employer hereby employs Employee on the terms and conditions hereinafter
set forth as its president and chief executive officer,  or such other executive
capacity as the Board of Directors may from time to time prescribe, and Employee
hereby  accepts such  employment  upon such terms and  conditions for the period
hereinafter fixed.  Employee shall not be required to spend any extended periods
outside the immediate area surrounding  Employer's  headquarter's office, except
that Employee agrees to make routine  business trips of reasonable  duration for
the benefit of Employer  and its business  and in the  discharge  of  Employee's
duties hereunder.

        2.     PERFORMANCE
               -----------

        Employee  agrees to devote  substantially  all of his business  time and
efforts  to the  performance  of his  duties  as an  executive  of  Employer  as
specified  from time to time by the Board of Directors  of Employer.  During the
term of this  Agreement,  Employee  shall  not  engage in any  business  that is
competitive  with Employer,  either through  ownership  (other than ownership of
securities of publicly held  corporations of which Employee owns less than 5% of
any class of outstanding securities) or as a director,  officer, agent, employee
or consultant.

        3.     BONUS
               -----

        Employer  agrees to award  Employee  a  one-time  bonus in the amount of
Thirty-Five  Thousand  Dollars  ($35,000.00)  upon entering into this Agreement.
Such bonus shall be paid one-half upon  execution of this Agreement and one-half
on January 2, 1998.

<PAGE>

        4.     TERM
               ----

        The period of employment hereunder shall commence on the date hereof and
shall terminate May 31, 2000 (the "Termination Date"),  provided,  however, that
the term  hereof  shall be  automatically  extended on the tenth day of each and
every  calendar  month  during  the  term of this  Agreement  for an  additional
calendar  month so that at the beginning of each and every month during the term
of this  Agreement  there  shall be  remaining  a term of three (3)  years.  The
foregoing  notwithstanding,  either  party  hereto  may  deliver  to the other a
written notice of termination,  to be effective (A) on the  Termination  Date if
delivered  more than six (6)  months  prior to the  Termination  Date or (B) the
first day of the calendar  month next  following six (6) months from the date of
such delivery,  if such delivery  occurs at any time after a date six (6) months
prior to the Termination Date.

        5.     COMPENSATION AND EXPENSES
               -------------------------

        For all services to be rendered by Employee  hereunder,  Employer agrees
to pay Employee,  in a manner  consistent with the payment of other employees of
Employer,  the sum of One Hundred Sixty Thousand  Dollars  ($160,000.00)  ("Base
Compensation")  per  year  subject  to all  legally  required  deductions.  Base
Compensation  shall be increased by five percent (5%) of Base  Compensation  per
year for each year of the term hereof. In addition to such annual  compensation,
and  provided  Employee  is in the employ of  Employer  on May 31 of the year in
which the bonus is to be paid,  Employer  shall award to Employee the additional
performance-based  compensation as computed in accordance with the provisions of
Exhibit "A",  attached hereto and  incorporated  herein.  Employee shall also be
entitled to  participate  in other  bonus and option  plans which may be awarded
from time to time in the absolute discretion of the Board of Directors. Employee
shall also be reimbursed for reasonable  expenses incurred on behalf of Employer
upon presentation to Employer of a reasonably detailed statement of the expenses
for which reimbursement is claimed.

        6.     VACATION
               --------

        Employee  shall have the right to four (4) weeks of  vacation  each year
from  his  duties  as  herein  described.   During  such  vacation  period,  the
compensation  payable  to  Employee  pursuant  to the  provisions  hereof  shall
continue.  Employee's  exercise of his rights hereunder shall be consistent with
all policies of Employer relating to the use of vacation time.

        7.     BENEFITS
               --------

        Employee  shall  be  provided  with an  automobile  appropriate  for his
executive  capacity with Employer.  Employer shall pay all costs and expenses of
maintaining said automobile, including upkeep, gasoline, and insurance. Employer
shall also continue in force the executive disability policy previously obtained
on behalf of Employee.

        In addition to the compensation provided for herein,  Employee will also
be entitled to participate in all benefits of employment  generally available to
all other executives of Employer on a commensurate  basis as may be offered from
time  to  time  by  Employer  to  its  other  employees  similarly  situated  in
experience,  including,  without limitation,  group health, disability, and life
insurance  benefits and  participation  in any  incentive  compensation,  bonus,
pension, profit sharing, and stock option plans established by Employer.


                                       2
<PAGE>

        8.     PROPRIETARY INFORMATION
               -----------------------

        Employee will not at any time disclose or use,  except in the pursuit of
the business of Employer and any subsidiary thereof, any proprietary information
of Employer without regard to whether such information is embodied in writing or
some  other  physical  form.  For  purposes  of  this   Agreement,   the  phrase
"proprietary  information of Employer" means all information which is known only
to  employees  of  Employer  or its  subsidiaries  or others  in a  confidential
relationship with Employer and relates to specific technical matters or specific
business matters of Employer.

        Employee  will not at any time  remove from the  premises  of  Employer,
except in the pursuit of the  business of  Employer,  any  document,  component,
device,  record, or other information of Employer,  such documents,  components,
devices,  records, or other information,  whether developed by Employee or other
employees of Employer, being the exclusive property of Employer.

        9.     TERMINATION AND DISABILITY
               --------------------------

        (A)  Employer  reserves  the right,  at its option,  to  terminate  this
Agreement on written  notice to Employee in the event  Employee (i) is convicted
of a felony or crime involving moral turpitude,  (ii)  misappropriates  funds of
Employer,  or (iii) materially breaches of any of the provisions hereof or fails
to materially  comply with  directives of Employer's  board of directors,  where
said breach or failure has not been cured within  thirty (30) days from the date
of written notice of such breach or failure.  In the event of such  termination,
Employee agrees, for a subsequent period of one year, to refrain from hiring and
to use his best  efforts to cause any  entity  with  which he is  affiliated  to
refrain from hiring any individual in the employ of Employer on the date of such
termination.

        (B) This Agreement shall terminate upon the occurrence of (i) completion
of the term of this Agreement,  when a notice of such  termination is delivered,
in writing,  by either  party to the other,  pursuant to Section 4, above;  (ii)
Employee's death; (iii) the conditions  specified in Section 9(A) above; or (iv)
inability  of  Employee,  because of physical or mental  disability,  to perform
efficiently  all of the duties of his  employment  hereunder for an aggregate of
six (6) months during any twelve (12) month period.

        (C) During the period of any such  disability  as referred to in Section
9(B)(iv),   and  until  employment  hereunder  is  terminated  pursuant  to  its
provisions, Employee shall be entitled to all compensation and other benefits to
which he would otherwise be entitled hereunder had such disability not occurred,
less the  aggregate  amount of any payments  under either  disability  insurance
policies  maintained  by Employer  or programs of federal or state  governments.
Employee  agrees to apply for all  payments to which he is  entitled  under said
policies or programs.  Employee  shall give  Employer  notice of any  disability
hereunder  and the  receipt  of all  payments  received  from said  policies  or
programs.

        (D) Upon termination of Employee's employment hereunder,  Employer shall
have no further obligation to Employee.

        (E) In the event that,  within two years  following a change in control,
this  Agreement  is  terminated  by either  Employer or Employee for any reason,
either voluntary or involuntary, other than for the reasons set forth in Section
9(A), above, Employee shall be entitled to receive a single payment equal to two
(2) years' Base  Compensation  at the rate  provided for in Section 5 above,  as
amended from time to time by the Board of  Directors,  and in effect on the date
of termination. For the purposes of this Agreement, a change in control shall be
deemed to have  occurred if, as the result of a tender  offer,  exchange  offer,
merger,  consolidation,  sale of assets,  acquisition  of assets,  or  contested
election of directors,  or any  combination of the foregoing (a  "Transaction"),
the persons who were directors of Employer  immediately prior to the Transaction
shall cease to constitute at least  two-thirds of the membership of the Board of
Directors  of, or of any parent of, or successor to,  Employer  within two years
after the Transaction.

                                       3
<PAGE>

        In  addition,  in the event of such  termination  within  two years of a
change of control,  (i) the rights of Employee under any applicable  retirement,
profit  sharing,  or stock option plan of Employer shall continue to be governed
by the terms of such plans in  existence as of the date of  termination,  except
that the  exercise  price of all shares  covered by options  which are vested in
Employee  as of the date of  termination  shall be  reduced  to the par value of
Employer's  stock,  (ii) any  amounts  due and  owing by  Employee  to  Employer
pursuant those two promissory notes each dated January 2, 1996 shall be forgiven
without payment of any kind by Employee, and (iii) Employee shall be entitled to
participate,  on substantially  the same basis as was provided to Employee prior
to termination,  in Employer's  group health plans or arrangements for employees
and  dependents on a basis  commensurate  with  Employer's  employees  similarly
situated in experience  until Employee shall reach age 65. In the event Employee
cannot  qualify for group  health  coverage,  Employer  shall  provide  Employee
individual  family coverage on  substantially  the same basis as was provided to
Employee prior to termination.

        In the event of termination of this  Agreement  under the  circumstances
described in this Section 9(E), the arrangements provided for by this Agreement,
by  any  stock  option  or  other  agreement  between  Employer  or  any  of its
subsidiaries and Employee in effect at the time and by any other applicable plan
of Employer or any of its  subsidiaries,  including  participation in Employer's
group health plans or  arrangements  as  specified  in this Section  9(E),  will
constitute the entire obligation of Employer to Employee and performance thereof
will constitute full settlement of any claim that Employee might otherwise asset
against Employer on account of such termination.

        10.    CONSULTATIVE SERVICES
               ---------------------

        Upon termination,  as provided in Section 9(B)(i) hereof, of the initial
period of this Agreement or of any extension thereof,  Employer agrees to engage
Employee as a  consultant  for a period of two (2) years after such  termination
for the annual sum of forty percent (40%) of the Base  Compensation  received by
Employee for his last year of employment. Employee agrees to render advisory and
consultative  services  for  said  period.  Upon  termination  of  such  initial
consulting period or any extension thereof, the consulting arrangement set forth
in this  Section  10 shall be  extended  automatically  upon the same  terms and
conditions for a period of one (1) year,  unless written notice of intent not to
so extend is  delivered  by either  party to the other at least thirty (30) days
prior to the  expiration  of such initial or extended  period.  As a consultant,
Employee will be acting in the capacity of an independent  contractor and not as
an employee of Employer. As an independent contractor, Employee will not receive
any of the benefits described in Section 7 of this Agreement.  However, Employer
agrees to provide Employee an office and normal office services and to reimburse
Employee for reasonable  expenses  incurred on behalf of Employer upon the terms
and conditions set forth in Section 5 hereof.

        11.    INDEMNITY
               ---------

        To the extent permitted by applicable law,  Employer agrees to indemnify
Employee and hold him  harmless  for any acts or  decisions  made by him in good
faith while performing  services for Employer,  and shall maintain  coverage for
him under  liability  insurance  policies  now in effect or  hereafter  obtained
during the term of this  Agreement  covering the other officers and directors of
Employer. Employer shall pay all expenses,  including reasonable attorney's fees
and the amounts of court approved settlements,  actually incurred by Employee in
connection  with  the  defense  of  any  action,  suit,  or  proceeding,  and in
connection  with any  appeal  thereon,  which has been or which  may be  brought
against  Employee by reason of  Employee's  services  as a director,  officer or
agent of Employer or subsidiary thereof.


                                       4
<PAGE>

        12.    NOTICE
               ------

        Unless  otherwise  directed in writing,  any and all notices to Employer
referred  to  herein  shall be  sufficient  if  furnished  in  writing,  sent by
certified mail to the following address:

                          Fortune Petroleum Corporation
                               One Commerce Green
                          515 W. Greens Road, Suite 720
                              Houston, Texas 77067

and to Employee:

                               Tyrone J. Fairbanks
                             125 Grogans Point Road
                           The Woodlands, Texas 77380

        13.    ASSIGNMENT
               ----------

        The rights and benefits of Employer under this  Agreement  shall only be
transferable  by Employer  to  successors  of  Employer  pursuant to a corporate
reorganization  such as a merger or sale of  substantially  all of the assets of
Employer,  and all covenants and agreements hereunder shall inure to the benefit
of, and be enforceable  by or against,  said  successors-in-interest;  provided,
however,  that Employer shall not enter into a merger or consolidation  with and
into another corporation which results in the termination of Employer's separate
corporate  existence unless  effective  provisions shall have been made with the
surviving  corporation for the continued  employment of Employee  generally upon
the same terms and conditions set forth in this Agreement.  Notwithstanding  any
such  provisions,  Employee shall be entitled to the rights set forth in Section
9(E), above.

        This  Agreement is personal to Employee and cannot be assigned,  nor may
duties  of  Employee  hereunder  be  delegated.   Any  attempted  assignment  or
delegation by Employee  shall render this  Agreement null and void at the option
of Employer.

        14.    BINDING EFFECT
               --------------

        The terms, conditions,  covenants, and agreements set forth herein shall
inure to the  benefit  of,  and be  binding  upon,  the  heirs,  administrators,
successors,  and assigns of each of the parties hereto and upon any corporation,
entity,  or person  with which any of the  parties  hereto  may  become  merged,
consolidate, combined, or otherwise affiliated.

        15.    WAIVER
               ------

        The  waiver  of  either  party  of a  breach  of any  provision  of this
Agreement  by the other party shall not operate or be construed as the waiver of
any subsequent breach of such other party.

        16.    ATTORNEYS' FEES
               ---------------

        In the event that any  action is  brought  to enforce  the terms of this
Agreement,  the  prevailing  party shall be  entitled to an award of  reasonable
attorney's fees and costs.

                                       5
<PAGE>

        17.    ENTIRE AGREEMENT
               ----------------

        This  Agreement  represents  the entire  agreement  between  the parties
hereto, and other or prior understandings,  agreements, and contracts are hereby
canceled without further liability whatsoever as to either party.

        18.    AMENDMENT
               ---------

        This  Agreement  shall not be  altered  or  modified  except by  further
written agreement between the parties.

        19.    CHOICE OF LAW
               -------------

        This Agreement shall be interpreted, construed, and applied according to
the laws of the State of Texas applicable to contracts made and performed within
such State.


        IN WITNESS WHEREOF,  the parties hereto have entered into this Agreement
as of the date first above written.


                                      FORTUNE PETROLEUM CORPORATION



                                      By:  /s/ Dean W. Drulias
                                           -------------------------------------
                                           DEAN W. DRULIAS
                                           Executive Vice President



                                           /s/ Tyrone J. Fairbanks
                                           -------------------------------------
                                           TYRONE J. FAIRBANKS


                                       6
<PAGE>

                                   EXHIBIT "A"


        The initial annual  performance  bonus as determined  hereunder shall be
paid  July 1, 1998 and shall be equal to one  percent  (1%) of the  "Calculation
Value Increase", defined as the difference obtained by deducting (i) one hundred
ten  percent  (110%) of the average of the closing  price of  Employer's  common
stock  on the  AMEX  consolidated  market  for  each  trading  day in May  1997,
multiplied by the total number of common shares  outstanding on the last trading
day of such month (the "Base  Value") from (ii) the average of the closing price
of Employer's common stock on the AMEX consolidated  market for each trading day
in May 1998,  multiplied by the total number of common shares outstanding on the
last trading day of such month (the "Calculation Value"). Each subsequent annual
performance bonus shall be paid on July 1 of each succeeding  calendar year, and
shall be based on the Calculation  Value Increase as computed  above,  deducting
from the  Calculation  Value for the month of May nearest the bonus payment date
the Calculation Value for the next-preceding month of May.

        At no time  during the term  hereof  shall the  subtrahend  in any bonus
calculation  be less than the  greater of either the largest  Calculation  Value
previously  determined  hereunder  or the  Base  Value.  Any  Calculation  Value
Increase determined hereunder shall be reduced by the gross proceeds realized by
Employer,  if any, as the result of all new  issuances of common stock shares of
Employer  during  the  twelve-month  period  ending  on  the  last  day  of  May
immediately  preceding the bonus payment date,  whether realized by the exercise
of stock options or purchase warrants,  equity offering,  asset acquisition,  or
otherwise.  No annual  performance bonus shall be payable hereunder for any year
in which the Calculation Value Increase is zero or a negative number. The amount
of any annual  performance  bonus  payable  hereunder  shall not exceed the Base
Compensation paid Employee in the calendar year immediately prior to the year in
which the bonus is payable.

        In the event Employer's net income from continuing operations,  adjusted
by adding back any non-cash  expenses and deducting any non-cash  income,  where
non-cash  expenses and income  shall  include,  but not be limited to,  deferred
income taxes;  depreciation,  depletion and amortization;  impairment to oil and
gas properties; non-cash debt conversion expense; non-cash compensation expense;
gain or loss from sale of  property  and  equipment;  and other  adjustments  to
reconcile  Employer's  net  income  or loss to net cash  provided  by or used in
operating  activities  as reported  in the  Employer's  statements  of cash flow
prepared in accordance with generally accepted accounting principles, other than
changes in assets and  liabilities  ("EBITDA")  for the year ended  December  31
immediately  prior to the date on which the  annual  performance  bonus is to be
paid  equals or  exceeds,  by a  multiple  of at least  twenty  (20),  the bonus
calculated  hereunder,  the bonus shall be paid  entirely in cash. To the extent
EBITDA at such date is less than twenty (20) times the bonus so calculated, such
bonus shall be paid in cash and stock,  with the stock portion being paid in the
same  proportion as (i) twenty (20) minus the actual multiple of the bonus to be
paid which EBITDA  represents  bears to (ii) ten (10);  i.e, 20 minus the actual
multiple,  all  divided by 10. Such stock shall be valued at the per share price
used to  determine  the  Calculation  Value  for the  month of May  nearest  the
applicable annual performance bonus payment date. The foregoing notwithstanding,
Employer's  board of directors  shall retain the discretion to increase the cash
and reduce the stock  portions of any such bonus.  Employer  shall  withhold and
promptly  pay to all  appropriate  tax  agencies  applicable  taxes on the stock
portion of such bonus at Employee's highest marginal tax rate and shall remit to
Employee  the  number  of  shares  of  common  stock   calculated  net  of  such
withholding.

        Any terms used but not defined herein shall have the meaning ascribed to
them in the employment agreement to which this exhibit is attached.