<PAGE>

                                 Exhibit 10.4



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


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


                                    - and -



                            (2)  ROBERT E. SCHULTE
                                 -----------------



                                   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)   ROBERT E. SCHULTE of TULSA, OKLAHOMA ("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 or about September 20, 1997.

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
           controller and shall perform such duties as are customary for a
           controller 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).

                                       4
<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 Thousand U.S. Dollars (U.S. $100,000) 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.

                                       6
<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.

                                       7
<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 the in
           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.

                                       10
<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                                             }
ROBERT E. SCHULTE (Executive)                                   }
in the presence of:                                             }
                                                                }

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

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

                                       16
<PAGE>

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

Eighty-five thousand (85,000) Ordinary Options to be issued at the closing mid-
market price of Ordinary Shares on the date of grant of such options.

Two hundred thousand (200,000) 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