<PAGE>

                                 Exhibit 10.3



                         DATED AS OF DECEMBER 1, 1998
                         ----------------------------


                          (1)  ALLIANCE RESOURCES PLC
                               ----------------------


                                    - and -



                          (2)  FRANCIS M. MUNCHINSKI
                               ---------------------



                                   EXECUTIVE
                                   ---------
                               SERVICE AGREEMENT
                               -----------------
<PAGE>

THIS AGREEMENT is made as of the 1st  day of December, 1998
---------------

BETWEEN:
--------

(1)  ALLIANCE RESOURCES PLC, a company registered in England and Wales whose
     ----------------------
     registered office is at Kingsbury House, 15-17 King Street, London SW1Y 6QU
     ("the Company"), and

(2)  FRANCIS M. MUNCHINSKI of 5541 E. 107TH Street., Tulsa, Oklahoma  74137
     ("the Executive")

WHEREAS

     (A)  it has been agreed that the Executive is to be employed by the
          Company; and

     (B)  it has been agreed that said employment of the Executive shall be on
          the terms and subject to the conditions hereinafter written;

NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:

1.   DEFINITIONS AND INTERPRETATION
     ------------------------------

1.1  In this Agreement unless the context otherwise required words and phrases
     defined in Part XXVI of the Companies Act 1985 have the same meanings
     thereby attributed to them and the following expressions have the following
     meanings:

     "Associated Company" means any company which is a holding company or a
     subsidiary of the Company or a subsidiary of the Company's holding company;

     "the Board" means the Board of Directors present at a meeting of the
     directors of the Company at which a quorum is present but excluding the
     Executive;

     "Group" means the Company and the Associated Companies;

     "Intellectual Property" means patent trade marks, service marks, designs,
     utility models, design rights applications for registration of any of the
     foregoing and the right to apply for them in any part of the world,
     inventions, drawings, computer programs, Confidential Information, know-how
     and rights of like nature arising or subsisting anywhere in the world in
     relation to all of the foregoing whether registered or unregistered.

                                       2
<PAGE>

2.   COMMENCEMENT AND TERM
     ---------------------

2.1  The Executive's employment began on June 16, 1998.

2.2  This Agreement is in substitution for and shall supersede all or any former
     and existing agreements or arrangements for the employment of the Executive
     by the Company or an Associated Company all of which shall be deemed to
     have been canceled with effect from the date of commencement of this
     Agreement.

2.3  The employment of the Executive shall (subject to the provisions of Clause
     12) be for an initial fixed period of two (2) years from January 1, 1999
     and shall automatically be extended without further action of either party
     for additional two (2) year periods, unless written notice of either
     party's intention not to extend has been given to the other party hereto at
     least three (3) months prior to the expiration of the then effective two
     (2) year period of employment.

2.4  On termination of the employment of the Executive at any time and for
     whatever reason and howsoever arising, including, but not limited to,
     termination of the employment of the Executive following his receipt of the
     notice provided in Clause 2.3, but subject to the provisions of Clause 12,
     the Company shall pay to the Executive in one lump sum on the day of such
     termination, a cash payment equal to twice (a) the Executive's annual
     salary as specified in this Agreement and (b) aggregate bonuses and
     benefits for the preceding calendar year.

3.  OBLIGATIONS DURING EMPLOYMENT
    -----------------------------

3.1  The Executive shall during the continuance of his employment:

     (a)  serve the Company to the best of his ability in the capacity of
          General Counsel and shall perform such duties as are customary for a
          general counsel of comparable companies;

     (b)  faithfully and diligently perform such duties and exercise such powers
          consistent with them as the Managing Director may from time to time
          properly assign to or confer upon him;

     (c)  if and so long as the Managing Director so directs perform and
          exercise the said duties and powers on behalf of any Associated
          Company and act as a director or other officer of any Associated
          Company;

     (d)  do all in his power to protect, promote, develop and extend the
          business interests and reputation of the Group;

     (e)  at all times and in all respects conform to and comply with the
          business interests and reputation of the Group;

                                       3
<PAGE>

     (f)  promptly give to the Managing Director (in writing if so requested)
          all such information, explanations and assistance as he may require in
          connection with the business and affairs of the Company and any
          Associated Company for which he is required to perform duties;

     (g)  unless prevented by sickness, injury or other incapacity or as
          otherwise agreed by the Managing Director devote the whole of his
          time, attention, and abilities during his hours or work (which shall
          be normal business hours and such additional hours as may be necessary
          for the proper performance of his duties) to the business and affairs
          of the Company and any Associated Company for which he is required to
          perform duties;

     (h)  work at such place of business of the Company or any Associated
          Company within the United Kingdom and/or the United States as
          necessary for the proper performance and exercise of his duties and
          powers and in particular it is agreed that the Executive shall remain
          domiciled and receive payment for services rendered hereunder in the
          United States; and the Executive may be required to travel on the
          business of the Company and any Associated company (whether inside or
          outside the United Kingdom) for which he is required to perform
          duties; and

     (i)  at such times as the Managing Director may reasonably request and at
          the expense of the Company undergo a medical examination by a doctor
          of the Company's choice.

3.2  Notwithstanding the foregoing or any other provision of the Agreement, the
     Company may at any time after the Executive has given notice to terminate
     this Agreement suspend the Executive and/or exclude him from all or any
     premises of the Company or any Associated Company for any period not
     exceeding (12) months provided that throughout such period the Executive's
     salary and other contractual benefits shall continue to be paid or provided
     by the Company.

4.  FURTHER OBLIGATIONS OF THE EXECUTIVE
    ------------------------------------

4.1  During the continuance of his employment the Executive shall devote his
     whole time and attention to his duties under this Agreement and shall not
     without the prior written consent of the Managing Director (such consent
     not to be unreasonably withheld or delayed) directly or indirectly carry on
     or be engaged, concerned or interested in any other business trade or
     occupation which is similar to or in competition with the business of the
     Company or any Associated Company otherwise than as a holder directly or
     through nominees of not more than five per cent in aggregated of any class
     of shares debentures or other securities in issue from time to time of any
     company which are for the time being quoted or dealt in on any recognized
     investment exchange (as defined by Section 207(1) of the Financial Services
     Act 1986).

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<PAGE>

4.2  The Executive shall during the continuance of his employment (and shall
     procure that his spouse or partner and his minor children shall comply)
     with all applicable rules of law, and stock exchange regulations (including
     the "Model Code" issued by the International Stock Exchange of the United
     Kingdom and the Republic of Ireland Limited) and codes of conduct of the
     Company for the time being in force in relation to dealings in shares,
     debentures or other securities of the Company or any Associated Company or
     any unpublished price sensitive information affecting the securities of any
     other company.

4.3  The Executive shall in relation to any dealings in securities of overseas
     companies comply with all laws of any foreign state affecting dealings in
     the securities of such companies and all regulations of any relevant stock
     exchanges on which such dealings take place.

4.4  During the continuance of his employment the Executive shall observe the
     terms of any policy issued by the Company in relation to any payment,
     rebate, discount, commission, vouchers, gift or other benefit obtained by
     him from any third party in respect of any business transacted or proposed
     to be transacted (whether or not by him) by or on behalf of the Company or
     any Associated Company.

5.  REMUNERATION
    ------------

5.1  The Company shall pay to the Executive during the continuance of his
     employment a salary (which shall accrue from day to day) at the rate of One
     Hundred Forty Thousand U.S. Dollars (U.S. $140,000) per year. The salary
     shall be payable by equal bi-monthly installments in arrears on or about
     the 15th and 30th day of each calendar month.

5.2  The salary payable to the Executive under Clause 5.1 shall be reviewed on
     no less than an annual basis and may be increased by such amount as the
     Managing Director in his absolute discretion from time to time decide and
     notify to the Executive in writing.

5.3  The Executive may during the continuance of his employment be entitled to
     be paid bonuses of such amounts (if any) at such times and subject to such
     conditions as the Managing Director may in his discretion decide.

5.4  The Executive shall be entitled to be granted such share options in the
     share capital of the Company as decided by the Managing Director and/or the
     Board from time to time. The Company agrees initially to grant the
     Executive share options under the Company Scheme as set forth on the First
                                                                          -----
     Schedule. It is the intention of the Company to grant the Executive
     --------
     additional share options at a minimum of two (2) times the Executive's
     annual salary, at the earliest available opportunity under the Company
     Scheme and within the overall constraints of the rules and regulations of
     the London Stock Exchange regarding the granting of such share options. The
     Company agrees that the Executive shall be entitled to

                                       5
<PAGE>

     retain all options granted until expiry date in the event of termination of
     the employment of the Executive without good cause.

6.  INSURANCE
    ---------

6.1  Subject to his complying with and satisfying any applicable requirements of
     the relevant insurers the Company shall provide and pay for the provision
     to the Executive of comprehensive medical, dental and disability insurance
     in accordance with arrangements made between the Company and an insurance
     company mutually acceptable to the Company and the Executive. In addition,
     the Company shall provide and pay for the provision to the Executive of
     comprehensive travel, associated death and emergency medical insurance,
     including cover for emergency repatriation to the U.S.A. whilst the
     Executive is outside the U.S.A. on business at the bequest of the Company.

7.  EXPENSES
    --------

7.1  The Company shall during the continuance of his employment reimburse the
     Executive in respect of all reasonable traveling, accommodation,
     entertainment and other similar out-of-pocket expenses wholly, exclusively
     and necessarily incurred by him in or about the performance of his duties.

7.2  Except where specified to the contrary, all expenses shall be reimbursed in
     accordance with the expenses policies of the Company from time to time
     subject to the Executive providing appropriate evidence (including
     receipts, invoices, tickets and/or vouchers as may be appropriate) of the
     expenditure in respect of which he claims reimbursement.

7.3  During the continuance of his employment hereunder the Executive shall be
     paid a car allowance sufficient to enable the Executive to acquire, operate
     and maintain an automobile commensurate with the Executive's capacity which
     allowance shall accrue from day to day and be paid in arrears on the last
     day of each month, or if that is not a business day, on the immediately
     preceding business day.

8.  HOLIDAYS
    --------

8.1  The Executive shall (in addition to the usual public and bank holidays) be
     entitled during the continuance of his employment to twenty-five (25)
     working days' paid holiday in each calendar year to be taken at such times
     as shall have been approved by the Managing Director.

8.2  The Executive shall not be entitled to carry forward any annual holiday
     entitlement foregone by him for any reason during the calendar year in
     which it accrued without the prior written consent of the Managing
     Director.

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<PAGE>

8.3  Upon termination of his employment the Executive's entitlement to accrued
     holiday pay (which accrues at the rate of 2 days per month) shall be
     calculated on a pro rata basis in respect of each completed month of
     service in the calendar year in which his employment terminates and the
     appropriate amount shall be paid to the Executive provided that if the
     Executive shall have taken more days' holiday than his accrued entitlement
     the Company is hereby authorized to make an appropriate deduction from the
     Executive's final salary payment.

9.  SICKNESS
    --------

9.1  Subject to his complying with the Company's procedures relating to the
     notification and certification of periods of absence from work the
     Executive shall continue to be paid his salary during any periods of
     absence from work due to sickness, injury or other incapacity up to a
     maximum of twenty six (26) weeks in aggregate in any period of fifty two
     (52) consecutive weeks.

9.2  If the Executive shall have been absent from work due to sickness, injury
     or other incapacity for a continuous period in excess of twenty six (26)
     weeks, the Managing Director shall decide at his absolute discretion
     whether to terminate the Executive's employment, in which case the
     provisions of Clause 2.4 shall apply or continue to pay the Executive at
     fifty percent (50%) of his salary for an additional twenty six (26) weeks.
     In the event that the Executive's employment is terminated at the end of
     the additional twenty six (26) week period the provisions of Clause 2.4
     shall still apply.

10.  INTELLECTUAL PROPERTY
     ---------------------

10.1 Subject to the relevant provisions of the Patents Act 1977, the Registered
     Designs Act 1949 and the Copyright Designs and Patents Act 1988 if at any
     time in the course of his employment the Executive makes or discovers or
     participates in the making or discovery of any Intellectual Property
     relating to or capable of being used in the business of the Company or any
     Associated Company he shall immediately disclose full details of such
     Intellectual Property to the Company and at the request and expense of the
     Company he shall do all things which may be necessary or desirable for
     obtaining appropriate forms of protection for the Intellectual Property in
     such parts of the world as may be specified by the Company and for vesting
     all rights in the same in the Company or its nominees.

10.2 The Executive hereby irrevocably appoints the Company to be his attorney in
     his name and on his behalf to sign execute or do any instrument or thing
     and generally to use his name for the purpose of giving to the Company or
     its nominee the full benefit of the provisions of this Clause and in favour
     of any third party a certificate in writing signed by any director or the
     secretary of the Company that any instrument or act falls within the
     authority conferred by this Clause shall be conclusive evidence that such
     is the case.

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<PAGE>

10.3 The Executive hereby waives all of his moral rights (as defined in the
     Copyright Designs and Patents Act 1988) in respect of any acts of the
     Company or any acts of third parties done with the Company's authority in
     relation to any Intellectual Property which is the property of the Company
     by virtue of Clause 10.1.

10.4 All rights and obligations under this Clause in respect of Intellectual
     Property made or discovered by the Executive during his employment shall
     continue in full force and effect after the termination of his employment
     and shall be binding upon the Executive's personal representatives.

11.  CONFIDENTIALITY
     ---------------

11.1 The Executive shall not (other than in the proper performance of his duties
     or without the prior written consent of the Managing Director or unless
     ordered by a court of competent jurisdiction) at any time either during the
     continuance of his employment of after its termination disclose or
     communicate to any person or use for his own benefit or the benefit of any
     person other than the Company or any Associated Company any benefits of any
     confidential information which may come to his knowledge in the course of
     his employment and the Executive shall during the continuance of his
     employment use his best endeavours to prevent the unauthorized publication
     or misuse of any confidential information provided that such restrictions
     shall cease to apply to any confidential information which may enter the
     public domain other than through the default of the Executive.

11.2 All notes and memoranda of any trade secret or confidential information
     concerning the business of the Company and the Associated Companies or any
     of its or their suppliers, agents, distributors, customers or others which
     shall have been acquired, received or made by the Executive during the
     course of his employment shall be the property of the Company and shall be
     surrendered by the Executive to someone duly authorized in that behalf at
     the termination of his employment or at the request of the Managing
     Director at any time during the course of his employment.

11.3 For the avoidance of doubt and without prejudice to the generality of
     Clauses 11.1 and 11.2 the following is a non-exhaustive list of matters
     which in relation to the Company and the Associated Companies are
     considered confidential and must be treated as such by the Executive:

     (a)  any trade secrets of the Company or any Associated Company;

     (b)  any information in respect of which the Company or any Associated
          Company is bound by an obligation of confidence to any third party;

     (c)  customer lists and details of contacts with or requirements of
          customers; and

                                       8
<PAGE>

     (d)  any invention, technical data, know-how, instruction or operations
          manual or other manufacturing or trade secrets of the Group and their
          clients/customers.

12.  TERMINATION OF EMPLOYMENT
     -------------------------

12.1 The employment of the Executive may be terminated by the Company forthwith
     by notice in writing to the Executive if the Executive:

     (a)  commits any material breach of any of the terms, conditions or
          stipulations contained in this Agreement;

     (b)  is guilty of any serious negligence or gross misconduct in connection
          with or affecting the business or affairs of the Company or any
          Associated Company for which he is required to perform duties;

     (c)  is guilty of conduct which brings or is likely to bring himself or the
          Company or any Associated Company into disrepute;

     (d)  is convicted of an arrestable offence (other than an offence under the
          road traffic legislation in the United Kingdom or elsewhere for which
          a non-custodial penalty is imposed);

     (e)  is adjudged bankrupt or makes any arrangement or composition with his
          creditors; or

     (f)  becomes incapable by reason of mental disorder of discharging his
          duties.

12.2 [RESERVED]

12.3 The employment of the Executive may be terminated by the Company forthwith
     by twelve (12) months notice in writing to the Executive if the Executive
     is found unfit to perform his duties on the basis of a medical report
     supplied to the Company following his having undergone a medical
     examination pursuant to paragraph (i) of Clause 3.1.

12.4 The Executive may terminate his employment with the Company forthwith by
     notice in writing to the Company, if the Company commits any material
     breach of the terms, conditions or stipulations contained in this
     Agreement, in which case the provisions of Clause 2.4 shall still apply.

12.5 The employment of the Executive shall terminate automatically and without
     prior notice upon his attaining the age of 65.

                                       9
<PAGE>

12.6 If the Executive shall have been absent from work due to sickness, injury
     or other incapacity for periods in excess of 6 months in aggregate in any
     period of twelve consecutive months the Company may terminate his
     employment by giving to him not less than three months' notice in written
     expiring at any time.

12.7 Upon the termination of his employment (for whatever reason and howsoever
     arising) the Executive:

     (a)  shall not take away, conceal or destroy but shall immediately deliver
          up to the Company all documents (which expression shall include but
          without limitation notes, memoranda, correspondence, drawings,
          sketches, plans, designs and any other material upon which data or
          information is recorded or stored) relating to the business or affairs
          of the Company or any Associated Company or any of their
          clients/customers, shareholders, employees, officers, suppliers,
          distributors and agents (and the Executive shall not be entitled to
          retain any copies or reproductions of any such documents) together
          with any other property belonging to the Company or any Associated
          Company which may then be in his possession or under his control;

     (b)  shall at the request of the Managing Director immediately resign
          without claim or compensation from office as a director of any
          Associated Company and from any other office held by him in the
          Company or any Associated Company (but without prejudice to any claim
          he may have for damages for breach of this Agreement) and in the event
          of his failure to do so the Company is hereby irrevocably authorized
          to appoint some person in his name and on his behalf to sign and
          deliver such resignations to the Managing Director;

     (c)  shall not at any time thereafter make any untrue or misleading oral or
          written statement concerning the business and affairs of the Company
          or any Associated Company nor represent himself or permit himself to
          be held out as being in any way connected with or interested in the
          business of the Company or any Associated Company (except as a former
          employee for the purpose of communicating with prospective employers
          or complying with any applicable statutory requirements);

     (d)  shall not at any time thereafter use the name Alliance Resources or
          any name capable of confusion therewith (whether by using such names
          as part of a corporate name or otherwise); and

     (e)  shall immediately repay all outstanding debts or loans due to the
          Company or any Associated Company and the Company is hereby authorized
          to deduct from any wages of the Executive a sum equal to any such
          debts or loans.

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<PAGE>

12.8 The following provisions will apply in the event of a Change in Control:

     (a)  The Board recognizes that the Executive is one of several key
          employees whose high quality of job performance is essential to
          promoting and protecting the best interests of the Company and its
          shareholders. The Board further recognizes (i) that it is possible
          that a Change in Control of the Company could occur at some time in
          the future, (ii) that the uncertainty associated with such a
          possibility could result in the distraction of the Executive from his
          assigned duties and responsibilities, (iii) that it is in the best
          interest of the Company and its shareholders to assure the continued
          attention by the Executive to such duties and responsibilities without
          such distraction, and (iv) that the Executive must be able to
          participate in the assessment and evaluation of any proposal which
          could effect a Change in Control of the Company without the Executive
          being influenced in the exercise of his judgment by uncertainties
          regarding the Executive's future financial security.

     (b)  A "Change in Control" of the Company shall occur if, after the date of
          this Agreement

          (i)   any Unrelated Party (as hereinafter defined) becomes the
                beneficial owner, directly or indirectly, of thirty percent
                (30%) or more of the common stock of the Company issued and
                outstanding immediately prior to such acquisition and/or
                securities of the Company which may be converted into shares of
                common stock of the Company, computing such percentage as if
                such securities acquired had been converted and are issued and
                outstanding for the purpose of determining such percentage or,
                if any Unrelated Party is the beneficial owner of thirty percent
                (30%) or more of such securities at the date of this Agreement,
                such Unrelated Party acquires an additional ten percent (10%) of
                the shares of common stock of the Company and/or securities of
                the Company which may be converted into shares of common stock
                of the Company;

          (ii)  the shareholders of the Company approve (x) any consolidation or
                merger of the Company in which the Company is not the continuing
                or surviving corporation or pursuant to which shares of the
                common stock of the Company are converted into cash, securities
                or other property, other than a merger of the Company in which
                the holders of the common stock of the Company immediately prior
                to the merger have the same proportionate ownership of common
                stock of the surviving corporation immediately after the merger,
                or (y) any sale, lease, exchange or other transfer (in one
                transaction or a series of related transactions) of all, or
                substantially all, of the assets of the Company, or (z) any plan
                or proposal for the liquidation or dissolution of the Company;

                                       11
<PAGE>

          (iii) a majority of the Board ceases to consist of Continuing
                Directors. "Continuing Directors" shall mean members of the
                Board who either (1) are members of the Board at the date of
                this Agreement or (2) are nominated or appointed to serve as
                directors by a majority of the then Continuing Directors; or

          (iv)  any tender or exchange offer is made to acquire thirty percent
                (30%) or more of the common stock of the Company, other than an
                offer made by the Company, and shares are acquired pursuant to
                that offer.

     (c)  "Unrelated Party" shall mean any party or group of parties acting
          together; excluding, however, the Company, a subsidiary of the Company
          and any trustee under any employee benefit plan maintained by the
          Company.

     (d)  Upon (x) the termination of the Executive by the Company without cause
          following a Change in Control of the Company or (y) the Executive's
          voluntary termination of employment for Good Reason following a Change
          in Control of the Company prior to expiration of the then effective
          two (2) year period of employment, then the Company shall provide to
          the Executive, within thirty (30) days after the applicable event, the
          following benefits:

          (i)   in one lump sum a cash payment equal to 2.5 times (A) the
                Executive's annual salary as specified in this Agreement, and
                (B) aggregate bonuses and benefits for the preceding calendar
                year.

          (ii)  to the extent permitted by applicable law, inclusion in the
                Company's life and medical plans as if the Executive were still
                employed by the Company until the earlier of two (2) years from
                the date of his termination or until the Executive obtains
                eligibility under comparable employee plans, with the Company
                paying that portion of the premium which it was paying for the
                Executive at the time of his termination.

     (e)  Good Reason.  "Good Reason" shall mean:
          ------------

          (i)   Without his express written consent, the assignment to the
                Executive of any duties inconsistent with his positions, duties,
                responsibilities and status with the Company as of the date of
                this Agreement or a change in his titles or offices as of same
                date, or any removal of the Executive from or any failure to re-
                elect the Executive to any of such positions, except in
                connection with the termination of his employment for cause or
                as a result of his

                                       12
<PAGE>

                Disability or death, or termination by the Executive other than
                for Good Reason;

          (ii)  Any reduction of the then-existing base salary or a reduction of
                more than ten percent (10%) in the aggregate value of any
                benefit plans without the prior written consent of the
                Executive, which is not remedied within ten (10) calendar days
                after receipt by the Company of written notice from the
                Executive of such change or reduction, as the case may be;

          (iii) A determination by the Executive made in good faith that as a
                result of a Change in Control of the Company and a change in
                circumstances thereafter significantly affecting his position,
                he has been rendered substantially unable to carry out, or has
                been substantially hindered in the performance of any of the
                authorities, powers, functions, responsibilities or duties
                attached to his position immediately prior to the Change in
                Control of the Company, which situation is not remedied within
                thirty (30) calendar days after receipt by the Company of
                written notice from the Executive of such determination;

          (iv)  Failure by the Company to require any successor (whether direct
                or indirect, by purchase, merger, consolidation or otherwise) to
                all or substantially all of the business and/or assets of the
                Company, by agreement in form and substance satisfactory to the
                Executive, expressly to assume and agree to perform this
                Agreement in the same manner and to the same extent that the
                Company would be required to perform it if no such succession
                had taken place; or

          (v)   The Company shall relocate its principal executive office or
                require Executive to have his principal location of work or
                principal residence any location which is in excess of thirty
                miles from the location as of the date hereof; or

          (vi)  Any material breach of this Agreement by the Company.

12.9   The Executive shall not be required to mitigate the amount of any
       payments or benefit provided by this Agreement nor shall the amounts of
       any payment or benefit provided for by this Agreement be reduced by any
       compensation earned by the Executive as a result of employment by the
       Company or another employer either before or after a Change in Control of
       the Company.

12.10  Nothing in this Agreement shall prevent or limit the Executive's
       continuing or future participation in any benefit, bonus, incentive or
       other plan or program provided by the Company or any of its affiliated
       companies and for which the Executive may qualify, nor shall anything
       herein limit or otherwise affect such

                                       13
<PAGE>

       rights as the Executive may have under any other agreements with the
       Company or any of its affiliated companies. Amounts which are vested
       benefits or which the Executive is otherwise entitled to receive under
       any plan or program of the Company or any of its affiliated companies at
       or subsequent to the termination of employment hereunder shall be payable
       in accordance with such plan or program.

13.    NOTICES
       -------

13.1   Any notice to be given under this Agreement shall be given in writing and
       shall be deemed to be sufficiently served by one party on the other if it
       is delivered personally or is sent by registered or recorded delivery
       pre-paid post (air mail if overseas) addressed to either the Company's
       registered office for the time being or the Executive's last known
       address as the case may be.

13.2   Any notice sent by post shall be deemed (in the absence of evidence of
       earlier receipt) to be received 2 days after posting (6 days if sent air
       mail) and in proving the time such notice was sent it shall be sufficient
       to show that the envelope containing it was properly addressed stamped
       and posted.

13.3   Notwithstanding any other provision of this Agreement, no provision by
       virtue of which this Agreement or any agreement or arrangement of which
       it forms part is subject to registration under the Restrictive Trade
       Practices Act 1976 and 1977 ("RTPA") shall take effect until after
       particulars thereof have been furnished to the Director General of Fair
       Trading in accordance with the requirements of the RTPA.

14.    MISCELLANEOUS
       -------------

14.1   The Executive hereby warrants that by virtue of entering into this
       Agreement he will not be in breach of any express or implied terms of any
       contract or of any other obligation legally binding upon him.

14.2   Any benefits provided by the Company to the Executive or his family which
       are not expressly referred to in this Agreement shall be regarded as ex
       gratia benefits provided at the entire discretion of the Company and
       shall not form part of the Executive's contract of employment.

14.3   The Company shall be entitled at any time during the Executive's
       employment to make deductions from the Executive's salary or from any
       other sums due to the Executive from the Company or any Associated
       Company in respect of any overpayment of any kind made to the Executive
       or in respect of any debt or other sum due from him.

15.    GENERAL PROVISIONS
       ------------------

                                       14
<PAGE>

15.1   The headings in this Agreement are for convenience only and shall not
       affect its construction or interpretation.

15.2   References in this Agreement to Clauses and paragraphs and the Schedules
       are references to Clauses and paragraphs and the Schedules (which are
       hereby specifically incorporated in this Agreement) to this Agreement.

15.3   Any reference in this Agreement to the employment of the Executive is a
       reference to his employment by the Company whether or not during the
       currency of this Agreement.

15.4   Any reference in this Agreement to a person shall where the context
       permits include a reference to a body corporate and to any unincorporated
       body of persons.

15.5   Any word in this Agreement which denotes the singular shall where the
       context permits include the plural and vice versa and any word in this
       Agreement which denotes the masculine gender shall where the context
       permits include the feminine and/or the neuter genders and vice versa.

15.6   Any reference in this Agreement to a statutory provision shall be deemed
       to include a reference to any statutory amendment modification or re-
       enactment of it.

15.7   This Agreement contains the entire understanding between the parties and
       supersedes all (if any) subsisting agreements, arrangements and
       understandings relating to the employment of the Executive which such
       agreements, arrangements and understandings shall be deemed to have been
       terminated by mutual consent.

15.8   This Agreement is governed by and shall be construed in accordance with
       the laws of England and the parties to this Agreement hereby submit to
       the exclusive jurisdiction of the English courts.

                                       15
<PAGE>

IN WITNESS whereof this Agreement has been executed as a deed by the parties
----------
hereto and is intended to be and is hereby delivered on the date first above
written.

Executed as a deed by John A. Keenan (Managing Director)        }
for ALLIANCE RESOURCES PLC in the presence of:                  }
                                                                }
                                                                }

Signature
           --------------------------------
Name
           --------------------------------
Address
           --------------------------------

           --------------------------------
Occupation
           --------------------------------

Signed as a deed by                                             }
FRANCIS M. MUNCHINSKI (Executive)                               }
in the presence of:                                             }
                                                                }

Signature
           --------------------------------
Name
           --------------------------------
Address
           --------------------------------

           --------------------------------
Occupation
           --------------------------------

                                       16
<PAGE>

                              THE FIRST SCHEDULE
                              ------------------


          One hundred seventy thousand (170,000) Ordinary Options to be issued
          at the closing mid-market price of Ordinary Shares on the date of
          grant of such options.

          Three hundred fifty thousand (350,000) Long Term Options exercisable
          upon the Company's share price increasing threefold during the 5-year
          exercise period of such options.

          All options are to be issued under the Company Share Option Scheme
          (No. 2) as adopted by the Company in general meeting on 4 May 1995.

                                       17