<PAGE>

                                                                    Exhibit 10.1


                            A.A.P.L. FORM 610-1982


                        MODEL FORM OPERATING AGREEMENT





                              OPERATING AGREEMENT



                                     DATED



                                 April 6, 2001





          OPERATOR  Moose Operating Co., Inc.




          CONTRACT AREA     Kalmus #1 Well, Carl Klimitchek #1 Well,
          Sartwelle Area, Viking Ventures Area


          COUNTY OR PARISH OF            Lavaca       STATE OF Texas




                  ----------------------------------
                   COPYRIGHT 1982 - ALL RIGHTS
                   RESERVED AMERICAN ASSOCIATION
                   OF PETROLEUM LANDMEN, 4100
                   FOSSIL CREEK BLVD., FORT WORTH,
                   TEXAS, 76137-2791, APPROVED FORM
                   A.A.P.L. NO. 610 - 1982 REVISED
                  ----------------------------------
<PAGE>

                              OPERATING AGREEMENT

     THIS  AGREEMENT,  entered into by and between Moose  Operating  Co.,  Inc.,
hereinafter designated and referred to as "Operator", and the signatory party or
parties other than  Operator,  sometimes  hereinafter  referred to  individually
herein as "Non-Operator", and collectively as "Non-Operators".

                             W I T N E S S E T H:

     WHEREAS, the parties to this agreement are owners of oil and gas leases
and/or oil and gas leases in the land identified in Exhibit "A", and the parties
hereto have reached an agreement to explore and develop these leases and/or oil
and gas interests for the production of oil and gas to the extent and as
hereinafter provided,

     NOW, THEREFORE, it is agreed as follows:

                                  ARTICLE I.

                                  DEFINITIONS

     As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:

     A.   The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other marketable
substances produced therewith, unless an intent to limit the inclusiveness of
this term is specifically stated.

     B.   The terms "oil and gas lease", "lease" and "leasehold" shall mean the
oil and gas leases covering tracts of land lying within the Contract Area which
are owned by the Parties to this agreement.

     C.   [Intentionally Deleted]

     D.   The term "Contract Area" shall mean all of the lands, oil and gas
leasehold interests and oil and gas interests intended to be developed and
operated for oil and gas purposes under this agreement. Such lands, oil and gas
leasehold interests and oil and gas interests are described in Exhibit "A".

     E.   The term "drilling unit" shall mean the area fixed for the drilling of
one well by order or rule of any state or federal body having authority. If a
drilling unit is not fixed by any such rule or order, a drilling unit shall be
the drilling unit as established by the pattern of drilling in the Contract Area
or as fixed by express agreement of the Drilling Parties.

     F.   The term "drillsite" shall mean the oil and gas lease or interest on
which a proposed well is to be located.

     G.   The terms "Drilling Party" and "Consenting Party" shall mean a party
who agrees to join in and pay its share of the cost of any operation conducted
under the provisions of this agreement.

     H.   The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a
party who elects not to participate in a proposed operation.

     Unless the context otherwise clearly indicates, words used in the singular
include the plural, the plural includes the singular, and the neuter gender
includes the masculine and the feminine.

                                  ARTICLE II.
                                   EXHIBITS

     The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:

     A.   Exhibit "A" shall include the following information:

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          (1)     Identification of lands subject to this agreement,
          (2)     Restrictions, if any, as to depths, formation, or substances,
          (3)     Percentages or fractional interests of parties to this
                  agreement,
          (4)     Oil and gas leases and/or oil and gas interests subject to
                  this agreement,
          (5)     Addresses of parties for notice purposes.

     B.   Exhibit "B", Form of Lease.  There is no Exhibit "B"

     C.   Exhibit "C", Accounting Procedure.

     D.   Exhibit "D", Insurance.

     E.   Exhibit "E", Gas Balancing Agreement.

     F.   Exhibit "F", Non-Discrimination and Certification of Non-Segregated
          Facilities. There is no Exhibit "F"

     G.   Exhibit "G", Tax Partnership.  There is no Exhibit "G"

                                 ARTICLE III.
                             INTERESTS OF PARTIES

A. [Intentionally Deleted]

B. Interests of Parties in Costs and Production:

     Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
parties as their interests are set forth in Exhibit "A". In the same manner, the
parties shall also own all production of oil and gas from the Contract Area
subject to the payment of royalties to the extent of land owners and overriding
                                                     --------------------------
royalties reserved by the Operator which shall be borne as hereinafter set
----------------------------------
forth.

     Regardless of which party has contributed the lease(s) and/or oil and gas
interest(s) hereto on which royalty is due and payable, each party entitled to
receive a share of production of oil and gas from the Contract Area shall bear
and shall pay or deliver, or cause to be paid or delivered, to the extent of its
interest in such production, the royalty amount stipulated hereinabove and shall
hold the other parties free from any liability therefor. No party shall ever be
responsible, however, on a price basis higher than the price received by such
party, to any other party's lessor or royalty owner, and if any such other
party's lessor or royalty owner should demand and receive settlement on a higher
price basis, the party contributing the affected lease shall bear the additional
royalty burden attributable to such higher price.

     Nothing contained in this Article III.B. shall be deemed an assignment or
crossassignment of interests covered hereby.

C.   Excess Royalties, Overriding Royalties and Other Payments:

     Unless changed by other provisions, if the interest of any party in any
lease covered hereby is subject to any royalty, overriding royalty, production
payment or other burden on production in excess of the amount stipulated in
Article III.B., such party so burdened shall assume and alone bear all such
excess obligations and shall indemnify and hold the other parties hereto
harmless from any and all claims and demands for payment asserted by owners of
such excess burden.

D.   Subsequently Created Interests:

     If any party should hereafter create an overriding royalty, production
payment or other burden payable out of production attributable to its working
interest hereunder, or if such a burden existed prior to this agreement and is
not set forth in Exhibit "A", or was not disclosed in writing to all other
parties prior to the execution of this

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<PAGE>

agreement by all parties, or is not a jointly acknowledged and accepted
obligation of all parties (any such interest being hereinafter referred to as
"subsequently created interest" irrespective of the timing of its creation and
the party out of whose working interest the subsequently created interest is
derived being hereinafter referred to as "burdened party"), and:

     1.   If the burdened party is required under this agreement to assign or
          relinquish to any other party, or parties, all or a portion of its
          working interest and/or the production attributable thereto, said
          other party, or parties, shall receive said assignment and/or
          production free and clear of said subsequently created interest and
          the burdened party shall indemnify and save said other party, or
          parties, harmless from any and all claims and demands for payment
          asserted by owners of the subsequently created interest; and,

     2.   If the burdened party fails to pay, when due, its share of expenses
          chargeable hereunder, all provisions of Article VII.B. shall be
          enforceable against the subsequently created interest in the same
          manner as they arc enforceable against the working interest of the
          burdened party.

                                  ARTICLE IV.
                                    TITLES

A.   Title Examination:

     Title examination shall be made on the drillsite of any proposed well
prior to commencement of drilling operations or, if the Drilling Parties so
request, title examination shall be made on the leases and/or oil and gas
interests included, or planned to be included, in the drilling unit around such
well. The opinion will include the ownership of the working interest, minerals,
royalty, overriding royalty and production payments under the applicable leases.
At the time a well is proposed, each party contributing leases and/or oil and
gas interests to the drillsite, or to be included in such drilling unit, shall
furnish to Operator all abstracts (including federal lease status reports),
title opinions, title papers and curative material in its possession free of
charge. All such information not in the possession of or made available to
Operator by the parties, but necessary for the examination of the title, shall
be obtained by Operator. Operator shall cause title to be examined by attorneys
on its staff or by outside attorneys. Copies of all title opinions shall be
furnished to each party hereto. The cost incurred by Operator in this title
program shall be borne as follows:

     Option No. 1:  [Intentionally Deleted]
     ------------

     Option No. 2:  Costs incurred by Operator in procuring abstracts and fees
     ------------
paid outside attorneys for title examination (including preliminary,
supplemental, shut-in gas royalty opinions and division order title opinions)
shall be borne by the Drilling Parties in the proportion that the interest of
each Drilling Party bears to the total interest of all Drilling Parties as such
interests appear in Exhibit "A". Operator shall make no charge for services
rendered by its staff attorneys or other personnel in the performance of the
above functions.

     Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in connection with leases or oil and gas
interests contributed by such party. Operator shall be responsible for the
preparation and recording of pooling designations or declarations as well as the
conduct of hearings before governmental agencies for the securing of spacing or
pooling orders. This shall not prevent any party from appearing on its own
behalf at any such hearing.

     No well shall be drilled on the Contract Area until after (1) the title to
the drillsite or drilling unit has been examined as above provided, and (2) the
title has been approved by the examining attorney or title has been accepted by
all of the parties who are to participate in the drilling of the well.

B.   Loss of Title:

     1.   [Intentionally Deleted]

     2.   [Intentionally Deleted]

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     3.   Other Losses:  All losses incurred shall be joint losses and shall be
          -------------
borne by all parties in proportion to their interests. There shall be no
readjustment of interests in the remaining portion of the Contract Area.

                                  ARTICLE V.
                                   OPERATOR

A.   Designation and Responsibilities of Operator:

     Moose Operating Co., Inc, shall be the Operator of the Contract Area, and
shall conduct and direct and have full control of all operations on the Contract
Area as permitted and required by, and within the limits of this agreement. It
shall conduct all such operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other parties for losses sustained or
liabilities incurred, except such as may result from gross negligence or willful
misconduct.

B.   Resignation or Removal of Operator and Selection of Successor:

     1.   Resignation or Removal of Operator: Operator may resign at any time
          ----------------------------------
by giving written notice thereof to Non-Operators. If Operator terminates its
legal existence, no longer owns an interest hereunder in the Contract Area, or
is no longer capable of serving as Operator, Operator shall be deemed to have
resigned without any action by Non-Operators, except the selection of a
successor. Operator may be removed if it fails or refuses to carry out its
duties hereunder, or becomes insolvent, bankrupt or is placed in receivership,
by the affirmative vote of two (2) or more Non-Operators owning a majority
interest based on ownership as shown on Exhibit "A" remaining after excluding
the voting interest of Operator. Such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first day of the calendar month
following the expiration of ninety (90) days after the giving of notice of
resignation by Operator or action by the Non-Operators to remove Operator,
unless a successor Operator has been selected and assumes the duties of Operator
at an earlier date. Operator, after effective date of resignation or removal,
shall be bound by the terms hereof as a Non-Operator. A change of a corporate
name or structure of Operator or transfer of Operator's interest to any single
subsidiary, parent or successor corporation shall not be the basis for removal
of Operator.

     2.   Selection of Successor Operator: Upon the resignation or removal of
          -------------------------------
Operator, a successor Operator shall be selected by the parties. The successor
Operator shall be selected from the parties owning an interest in the Contract
Area at the time such successor Operator is selected. The successor Operator
shall be selected by the affirmative vote of two (2) or more parties owning a
majority interest based on ownership as shown on Exhibit "A"; provided, however,
if an Operator which has been removed fails to vote or votes only to succeed
itself, the successor Operator shall be selected by the affirmative vote of two
(2) or more parties owning a majority interest based on ownership as shown on
Exhibit "A" remaining after excluding the voting interest of the Operator that
was removed.

C.   Employees:

     The number of employees used by Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees shall
be the employees of Operator.

D.   Drilling Contracts:

     All wells drilled on the Contract Area shall be drilled on a competitive
contract basis at the usual rates prevailing in the area. If it so desires,
Operator may employ its own tools and equipment in the drilling of wells, but
its charges therefor shall not exceed the prevailing rates in the area and the
rate of such charges shall be agreed upon by the parties in writing before
drilling operations are commenced, and such work shall be performed by Operator
under the same terms and conditions as are customary and usual in the area in
contracts of independent contractors who are doing work of a similar nature.

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<PAGE>

                                  ARTICLE VI.
                           DRILLING AND DEVELOPMENT

A.   Initial Well:

On or before the 31st day of March, 2001, Operator shall commence the drilling
of a well for oil and gas at the following location:

     Henry P. Mills Survey, A-330
     Lavaca County, Texas

and shall thereafter continue the drilling of the well with due diligence to

     2,400 feet or the base of the Miocene formation, which ever is the lesser.

unless granite or other practically impenetrable substance or condition in the
hole, which renders further drilling impractical, is encountered at a lesser
depth, or unless all parties agree to complete or abandon the well at a lesser
depth.

     Operator shall make reasonable tests of all formations encountered during
drilling which give indication of containing oil and gas in quantities
sufficient to test, unless this agreement shall be limited in its application to
a specific formation or formations, in which event Operator shall be required to
test only the formation or formations to which this agreement may apply.

     If, in Operator's judgment, the well will not produce oil or gas in paying
quantities, and it wishes to plug and abandon the well as a dry hole, the
provisions of Article VI.E.1 shall thereafter apply.

B.   Subsequent Operations:

     1.   Proposed Operations: Should any party hereto desire to drill any well
          -------------------
on the Contract Area other than the well provided for in Article VI.A., or to
rework, deepen or plug back a dry hole drilled at the joint expense of all
parties or a well jointly owned by all the parties and not then producing or
capable of producing in paying quantities, the party desiring to drill, rework,
deepen or plug back such a well shall give the other parties written notice of
the proposed operation, specifying the work to be performed, the location,
proposed depth, objective formation and the estimated cost of the operation. The
parties receiving such a notice shall have fifteen (15) days after receipt of
the notice within which to notify the party wishing to do the work whether they
elect to participate in the cost of the proposed operation. If a drilling rig is
on location, notice of a proposal to rework, plug back or drill deeper may be
given by telephone and the response period shall be limited to twenty-four (24)
hours, exclusive of Saturday, Sunday, and legal holidays. Failure of a party
receiving such notice to reply within the period above fixed shall constitute an
election by that party not to participate in the cost of the proposed operation.
Any notice or response given by telephone shall be promptly confirmed in
writing.

     If all parties elect to participate in such a proposed operation, Operator
shall, within ninety (90) days after expiration of the notice period of fifteen
(15) days (or as promptly as possible after the expiration of the twenty-four
(24) hour period when a drilling rig is on location, as the case may be),
actually commence the proposed operation and complete it with due diligence at
the risk and expense of all parties hereto; provided, however, said commencement
date may be extended upon written notice of same by Operator to the other
parties, for a period of up to fifteen (15) addition days if, in the sole
opinion of Operator , such additional time is reasonably necessary to obtain
permits from governmental authorities, surface rights (including rights-of-way)
or appropriate drilling equipment, or to complete title examination or curative
matter required for title approval or acceptance. Notwithstanding the force
majeure provisions of Article XI, if the actual operation has not been commenced
within the time provided (including any extension thereof as specifically
permitted herein) and if any party hereto still desires to conduct said
operation, written notice proposing same must be resubmitted to the other
parties in accordance with the provisions hereof as if no prior proposal had
been made.

     2.   Operations by Less than all Parties: If any party receiving such
          -----------------------------------
notice as provided in Article VI.B.1. or VII.D.1. (Option No. 2) elects not to
participate in the proposed operation, then, in order to be entitled to the
benefits of this Article, the party or parties giving the notice and such other
parties as shall elect to participate in

                                       5
<PAGE>

the operation shall, within ninety (90) days after the expiration of the notice
period of fifteen (15) days (or as possible after the expiration of the twenty-
four (24) hour period when a drilling rig is on location, as the case may be)
actually commence the proposed operation and complete it with due diligence.
Operator shall perform all work for the account of the Consenting Parties;
provided, however, if no drilling rig or other equipment is on location, and if
Operator is a Non-Consenting Party, the Consenting Parties shall either: (a)
request Operator to perform the work required by such proposed operation for the
account of the Consenting Parties, or (b) designate one (1) of the Consenting
Parties as Operator to perform such work. Consenting Parties, when conducting
operations on the Contract Area pursuant to this Article VI.B.2., shall comply
with all terms and conditions of this agreement.

     If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest of the parties approving
such operation and its recommendation as to whether the Consenting Parties
should proceed with the operation as proposed. Each Consenting Party, within
twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) after
receipt of such notice, shall advise the proposing party of its desire to (a)
limit participation to such party's interest as shown on Exhibit "A" or (b)
carry its proportionate part of Non-Consenting Parties' interests, and failure
to advise the proposing party shall be deemed an election under (a). In the
event a drilling rig is on location, the time permitted for such a response
shall not exceed a total of twenty-four (24) hours (exclusive of Saturday,
Sunday and legal holidays). The proposing party, at its election, may withdraw
such proposal if there is insufficient participation and shall promptly notify
all parties of such decision.

     The entire cost and risk of conducting such operations shall be borne by
the Consenting Parties in the proportions they have elected to bear same under
the terms of the preceding paragraph. Consenting Parties shall keep the
leasehold estates involved in such operations free and clear of all liens and
encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results in a dry hole, the Consenting
Parties shall plug and abandon the well and restore the surface location at
their sole cost, risk and expense. If any well drilled, reworked, deepened or
plugged back under the provisions of this Article results in a producer of oil
and/or gas in paying quantities, the Consenting Parties shall complete and equip
the well to produce at their sole cost and risk, and the well shall then be
turned over to Operator and shall be operated by it at the expense and for the
account of the Consenting Parties. Upon commencement of operations for the
drilling, reworking, deepening or plugging back of any such well by Consenting
Parties in accordance with the provisions of this Article, each Non-Consenting
Party shall be deemed to have relinquished to Consenting Parties, and the
Consenting Parties shall own and be entitled to receive, in proportion to their
respective interests, all of such Non-Consenting Party's interest in the well
and share of production therefrom until the proceeds of the sale of such share,
calculated at the well, or market value thereof if such share is not sold,
(after deducting production taxes, excise taxes, royalty, overriding royalty and
other interests not excepted by Article III.D. payable out of or measured by the
production from such well accruing with respect to such interest until it
reverts) shall equal the total of the following:

     (a)  500% of each such Non-Consenting Party's share of the cost of any
newly acquired surface equipment beyond the wellhead connections (including, but
not limited to, stock tanks, separators, treaters, pumping equipment and
piping), plus 100% of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and continuing until each
such Non-Consenting Party's relinquished interest shall revert to it under other
provisions of this Article, it being agreed that each Non-Consenting Party's
share of such costs and equipment will be that interest which would have been
chargeable to such Non-Consenting Party had it participated in the well from the
beginning of the operations, and

     (b)  500 % of that portion of the costs and expenses of drilling,
reworking, deepening, plugging back, testing and completing, after deducting any
cash contributions received under Article VIII.C., and 500 % of that portion of
the cost of newly acquired equipment in the well (to and including the wellhead
connections), which would have been chargeable to such Non-Consenting Party if
it had participated therein.

     An election not to participate in the drilling or the deepening of a well
shall be deemed an election not to participate in any reworking or plugging back
operation proposed in such a well, or portion thereof, to which the initial Non-
Consent election applied that is conducted at any time prior to full recovery by
the Consenting Parties of the Non-Consenting Party's recoupment account. Any
such reworking or plugging back operation conducted during the recoupment period
shall be deemed part of the cost of operation of said well and there shall be
added to the sums to be recouped by the Consenting Parties one hundred percent
(100%) of that portion of the costs of the reworking or plugging back operation
which would have been chargeable to such Non-Consenting Party had it
participated

                                       6
<PAGE>

therein. If such a reworking or plugging back operation is proposed during such
recoupment period, the provisions of this Article VI.B. shall be applicable as
between said Consenting Parties in said well.

     During the period of time Consenting Parties are entitled to receive Non-
Consenting Party's share of production, or the proceeds therefrom, Consenting
Parties shall be responsible for the payment of all production, severance,
excise, gathering and other taxes, and all royalty, overriding royalty and other
burdens applicable to Non-Consenting Party's share of production not excepted by
Article III.D.

     In the case of any reworking, plugging back or deeper drilling operation,
the Consenting Parties shall be permitted to use, free of cost, all casing,
tubing and other equipment in the well, but the ownership of all such equipment
shall remain unchanged; and upon abandonment of a well after such reworking,
plugging back or deeper drilling, the Consenting Parties shall account for all
such equipment to the owners thereof, with each party receiving its
proportionate part in kind or in value, less cost of salvage.

     Within sixty (60) days after the completion of any operation under this
Article, the party conducting the operations for the Consenting Parties shall
furnish each Non-Consenting Party with an inventory of the equipment in and
connected to the well, and an itemized statement of the cost of drilling,
deepening, plugging back, testing, completing, and equipping the well for
production; or, at its option, the operating party, in lieu of an itemized
statement of such costs of operation, may submit a detailed statement of monthly
billings. Each month thereafter, during the time the Consenting Parties are
being reimbursed as provided above, the party conducting the operations for the
Consenting Parties shall furnish the Non-Consenting Parties with an itemized
statement of all costs and liabilities incurred in the operation of the well,
together with a statement of the quantity of oil and gas produced from it and
the amount of proceeds realized from the sale of the well's working interest
production during the preceding month. In determining the quantity of oil and
gas produced during any month, Consenting Parties shall use industry accepted
methods such as, but not limited to, metering or periodic well tests. Any amount
realized from the sale or other disposition of equipment newly acquired in
connection with any such operation which would have been owned by a Non-
Consenting Party had it participated therein shall be credited against the total
unreturned costs of the work done and of the equipment purchased in determining
when the interest of such Non-Consenting Party shall revert to it as above
provided; and if there is a credit balance, it shall be paid to such Non-
Consenting Party.

     If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished interests
of such Non-Consenting Party shall automatically revert to it, and, from and
after such reversion, such Non-Consenting Party shall own the same interest in
such well, the material and equipment in or pertaining thereto, and the
production therefrom as such Non-Consenting Party would have been entitled to
had it participated in the drilling, reworking, deepening or plugging back of
said well. Thereafter, such Non-Consenting Party shall be charged with and shall
pay its proportionate part of the further costs of the operation of said well in
accordance with the terms of this agreement and the Accounting Procedure
attached hereto.

     Notwithstanding the provisions of this Article VI.B.2., it is agreed that
without the mutual consent of all parties, no wells shall be completed in or
produced from a source of supply from which a well located elsewhere on the
Contract Area is producing, unless such well conforms to the then existing well
spacing pattern for such source of supply.

     The provisions of this Article shall have no application whatsoever to the
drilling of the initial well described in Article VI.A. except (a) as to Article
VII.D.1. (Option No. 2), if selected, or (b) as to the reworking, deepening and
plugging back of such initial well after if has been drilled to the depth
specified in Article VI.A. if it shall thereafter prove to be a dry hole or, if
initially completed for production, ceases to produce in paying quantities.

     3.   Stand-By Time: When a well which has been drilled or deepened has
          -------------
reached its authorized depth and all tests have been completed, and the results
thereof furnished to the parties, standby costs incurred pending response to a
party's notice proposing a reworking, deepening, plugging back or completing
operation in such a well shall be charged and borne as part of the drilling or
deepening operation just completed. Standby costs subsequent to all parties
responding, or expiration of the response time permitted, whichever first
occurs, and prior to agreement as to the participating interests of all
Consenting Parties pursuant to the terms of the second grammatical paragraph of
Article VI.B.2., shall be charged to and borne as part of the proposed
operation, but if the proposal is subsequently withdrawn because of insufficient
participation, such standby costs shall be allocated between the

                                       7
<PAGE>

Consenting Parties in the proportion each Consenting Party's interest as shown
on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all
Consenting Parties.

     4.   Sidetracking: Except as hereinafter provided, those provisions of this
          ------------
agreement applicable to a "deepening" operation shall also be applicable to any
proposal to directionally control and intentionally deviate a well from vertical
so as to change the bottom hole location (herein call "sidetracking"), unless
done to straighten the hole or to drill around junk in the hole or because of
other mechanical difficulties. Any party having the right to participate in a
proposed sidetracking operation that does not own an interest in the affected
well bore at the time of the notice shall, upon electing to participate, tender
to the well bore owners its proportionate share (equal to its interest in the
sidetracking operation) of the value of that portion of the existing well bore
to be utilized as follows:

     (a)  If the proposal is for sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs incurred in the initial
drilling of the well down to the depth at which the sidetracking operation is
initiated.

     (b)  If the proposal is for sidetracking a well which has previously
produced, reimbursement shall be on the basis of the well's salvable materials
and equipment down to the depth at which the sidetracking operation is
initiated, determined in accordance with the provisions of Exhibit "C", less the
estimated cost of salvaging and the estimated cost of plugging and abandoning.

     In the event that notice for a sidetracking operation is given while the
drilling rig to be utilized is on location, the response period shall be limited
to twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays;
provided, however, any party may request and receive up to eight (8) additional
days after expiration of the twenty-four (24) hours within which to respond by
paying for all standby time incurred during such extended response period. If
more than one party elects to take such additional time to respond to the
notice, standby costs shall be allocated between the parties taking additional
time to respond on a day-to-day basis in the proportion each electing party's
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit
"A" of all the electing parties. In all other instances the response period to a
proposal for sidetracking shall be limited to thirty (30) days.

C.   Taking Production In Kind:

     Each party shall have the right to take in kind or separately dispose of
its proportionate share of all oil and gas produced from the Contract Area,
exclusive of production which may be used in development and producing
operations and in preparing and treating oil and gas for marketing purposes and
production unavoidably lost. Any extra expenditure incurred in the taking in
kind or separate disposition by any party of its proportionate share of the
production shall be borne by such party. Any party taking its share of
production in kind shall be required to pay for only its proportionate share of
such part of Operator's surface facilities which it uses.

     Each party shall execute such division orders and contracts as may be
necessary for the sale of its interest in production from the Contract Area,
and, except as provided in Article VII.B., shall be entitled to receive payment
directly from the purchaser thereof for its share of all production.

     In the event any party shall fail to make the arrangements necessary to
take in kind or separately dispose of its proportionate share of the oil
produced from the Contract Area, Operator shall have the right, subject to the
revocation at will by the party owning it, but not the obligation, to purchase
such oil or sell it to others at any time and from time to time, for the account
of the non-taking party at the best price obtainable in the area for such
production. Any such purchase or sale by Operator shall be subject always to the
right of the owner of the production to exercise at any time its right to take
in kind, or separately dispose of, its share of all oil not previously delivered
to a purchaser. Any purchase or sale by Operator of any other party's share of
oil shall be only for such reasonable periods of time as are consistent with the
minimum needs of the industry under the particular circumstances, but in no
event for a period in excess of one (1) year.

     In the event one or more parties' separate disposition of its share of the
gas causes split-stream deliveries to separate pipelines and/or deliveries which
on a day-to-day basis for any reason are not exactly equal to a party's
respective proportionate share of total gas sales to be allocated to it, the
balancing or accounting between the respective accounts of the parties shall be
in accordance with any gas balancing agreement between the parties hereto,
whether such an agreement is attached as Exhibit "E", or is a separate
agreement.

                                       8
<PAGE>

D.   Access to Contract Area and Information:

     Each party shall have access to the Contract Area at all reasonable times,
at its sole cost and risk to inspect or observe operations, and shall have
access at reasonable times to information pertaining to the development or
operation thereof, including Operator's books and records relating thereto.
Operator, upon request, shall furnish each of the other parties with copies of
all forms or reports filed with governmental agencies, daily drilling reports,
well logs, tank tables, daily gauge and run tickets and reports of stock on hand
at the first of each month, and shall make available samples of any cores or
cuttings taken from any well drilled on the Contract Area. The cost of gathering
and furnishing information to Non-Operator, other than that specified above,
shall be charged to the Non-Operator that requests the Information.

E.   Abandonment of Wells:

     1.   Abandonment of Dry Holes: Except for any well drilled or deepened
          ------------------------
pursuant to Article VI.B.2., any well which has been drilled or deepened under
the terms of this agreement and is proposed to be completed as a dry hole shall
not be plugged and abandoned without the consent of all parties. Should
Operator, after diligent effort, be unable to contact any party, or should any
party fail to reply within twenty-four (24) hours (exclusive of Saturday, Sunday
and legal holidays) after receipt of notice of the proposal to plug and abandon
such well, such party shall be deemed to have consented to the proposed
abandonment. All such wells shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk and expense of the parties who
participated in the cost of drilling or deepening such well. Any party who
objects to plugging and abandoning such well shall have the right to take over
the well and conduct further operations in search of oil and/or gas subject to
the provisions of Article VI.B.

     2.   Abandonment of Wells that have Produced: Except for any well in
          ---------------------------------------
which a Non-Consent operation has been conducted hereunder for which the
Consenting Parties have not been fully reimbursed as herein provided, any well
which has been completed as a producer shall not be plugged and abandoned
without the consent of all parties. If all parties consent to such abandonment,
the well shall be plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of all the parties hereto. If,
within thirty (30) days after receipt of notice of the proposed abandonment of
any well, all parties do not agree to the abandonment of such well, those
wishing to continue its operation from the interval(s) of the formation(s) then
open to production shall tender to each of the other parties its proportionate
share of the value of the well's salvable material and equipment determined in
accordance with the provisions of Exhibit "C", less the estimated cost of
salvaging and the estimated cost of plugging and abandoning. Each abandoning
party shall assign the non-abandoning parties, without warranty, express or
implied, as to title or as to quantity, or fitness for use of the equipment and
material, all of its interest in the well and related equipment, together with
its interest in the leasehold estate as to, but only as to, the interval or
intervals of the formation or formations then open to production. The
assignments or leases so limited shall encompass the "drilling unit" upon which
the well is located. The payments by, and the assignments or leases to, the
assignees shall be in a ratio based upon the relationship of their respective
percentage of participation in the Contract Area to the aggregate of the
percentages of participation in the Contract Area of all assignees. There shall
be no readjustment of interests in the remaining portion of the Contract Area.

     Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production from the well in the
interval or intervals then open other than the royalties retained in any lease
made under the terms of this Article. Upon request, Operator shall continue to
operate the assigned well for the account of the non-abandoning parties at the
rates and charges contemplated by this agreement, plus any additional cost and
charges which may arise as the result of the separate ownership of the assigned
well. Upon proposed abandonment of the producing interval(s) assigned or leased,
the assignor or lessor shall then have the option to repurchase its prior
interest in the well (using the same valuation formula) and participate in
further operations therein subject to the provisions hereof.

     3.   Abandonment of Non-Consent Operations: The provisions of Article
          -------------------------------------
VI.E.1. or VI.E.2 above shall be applicable as between Consenting Parties in the
event of the proposed abandonment of any well excepted from said Articles;
provided, however, no well shall be permanently plugged and abandoned unless and
until all parties having the right to conduct further operations therein have
been notified of the proposed abandonment and afforded the opportunity to elect
to take over the well in accordance with the provisions of this Article VI.E.

                                       9
<PAGE>

                                 ARTICLE VII.
                     EXPENDITURES AND LIABILITY OF PARTIES

A.   Liability of Parties:

     The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the parties in Article
VII.B. are given to secure only the debts of each severally. It is not the
intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other partnership or association, or to render the parties
liable as partners.

B.   Liens and Payment Defaults:

     Each Non-Operator grants to Operator a lien upon its oil and gas rights in
the Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate provided in Exhibit "C". To
the extent that Operator has a security interest under the Uniform Commercial
Code of the state, Operator shall be entitled to exercise the rights and
remedies of a secured party under the Code. The bringing of a suit and the
obtaining of judgment by Operator for the secured indebtedness shall not be
deemed an election of remedies or otherwise affect the lien rights or security
interest as security for the payment thereof. In addition, upon default by any
Non-Operator in the payment of its share of expense, Operator shall have the
right, without prejudice to other rights or remedies, to collect from the
purchaser the proceeds from the sale of such Non-Operator's share of oil and/or
gas until the amount owed by such Non-Operator, plus interest, has been paid.
Each purchaser shall be entitled to rely upon Operator's written statement
concerning the amount of any default. Operator grants a like lien and security
interest to the Non-Operators to secure payment of Operator's proportionate
share of expense.

C.   Payments and Accounting:

     Except as herein otherwise specifically provided, Operator shall promptly
pay and discharge expenses incurred in the development and operation of the
Contract Area pursuant to this agreement and shall charge each of the parties
hereto with their respective proportionate shares upon the expense basis
provided in Exhibit "C". Operator shall keep an accurate record of the joint
account hereunder, showing expenses incurred and charges and credits made and
received.

     Operator, at its election, shall have the right from time to time to demand
and receive from the other parties payment in advance of their respective shares
of the estimated amount of the expense to be incurred in operations hereunder
during the next succeeding month, which right may be exercised only by
submission to each such party of an itemized statement of such estimated
expense, together with an invoice for its share thereof. Each such statement and
invoice for the payment in advance of estimated expense shall be submitted on or
before the 20th day of the next preceding month. Each party shall pay to
Operator its proportionate share of such estimate within fifteen (15) days after
such estimate and invoice is received. If any party fails to pay its share of
said estimate within said time, the amount due shall bear interest as provided
in Exhibit "C" until paid. Proper adjustment shall be made monthly between
advances and actual expense to the end that each party shall bear and pay its
proportionate share of actual expenses incurred, and no more.

D.   Limitation of Expenditures:

     1.   Drill or Deepen: Without the consent of all parties, no well shall be
          ---------------
drilled or deepened, except any well drilled or deepened pursuant to the
provisions of Article VI.B.2. of this agreement. Consent to the drilling or
deepening shall include:

     Option No. 1:  [Intentionally Deleted]
     ------------

     Option No. 2: All necessary expenditures for the drilling or deepening and
     ------------
testing of the well. When such well has reached its authorized depth, and all
tests have been completed, and the results thereof furnished to the parties,
Operator shall give immediate notice to the Non-Operators who have the right to
participate in the completion costs. The parties receiving such notice shall
have twenty-four (24) hours (exclusive) of Saturday, Sunday and legal holidays)
in which to elect to participate in the setting of casing and the completion
attempt. Such

                                       10
<PAGE>

election, when made, shall include consent to all necessary expenditures for the
completing and equipping of such well, including necessary tankage and/or
surface facilities. Failure of any party receiving such notice to reply within
the period above fixed shall constitute an election by that party not to
participate in the cost of the completion attempt. If one or more, but less than
all of the parties, elect to set pipe and to attempt a completion, the
provisions of Article VI.B.2. hereof (the phrase "reworking, deepening or
plugging back" as contained in Article VI.B.2. shall be deemed to include
"completing") shall apply to the operations thereafter conducted by less than
all parties.

     2.   Rework or Plug Back: Without the consent of all parties, no well shall
          -------------------
be reworked or plugged back except a well reworked or plugged back pursuant to
the provisions of Article VI.B.2. of this agreement. Consent to the reworking or
plugging back of a well shall include all necessary expenditures in conducting
such operations and completing and equipping of said well, including necessary
tankage and/or surface facilities.

     3.   Other Operations: Without the consent of all parties, Operator shall
          ----------------
not undertake any single project reasonably estimated to require an expenditure
in excess of Ten Thousand and no/100 Dollars ($10,000.00) except in connection
with a well, the drilling, reworking, deepening, completing, recompleting, or
plugging back of which has been previously authorized by or pursuant to this
agreement; provided, however, that, in case of explosion, fire, flood or other
sudden emergency, whether of the same or different nature, Operator may take
such steps and incur such expenses as in its opinion are required to deal with
the emergency to safeguard life and property but Operator, as promptly as
possible, shall report the emergency to the other parties. If Operator prepares
an authority for expenditure (AFE) for its own use, Operator shall furnish any
Non-Operator so requesting an information copy thereof for any single project
costing in excess of Five Thousand and no/100 Dollars ($5,000.00) but less than
the amount first set forth above in this paragraph.

E.   Rentals, Shut-in Well Payments and Minimum Royalties:

     Rentals, shut-in well payments and minimum royalties which may be required
under the terms of any lease shall be paid by the Operator at its or their joint
expense. In the event two or more parties own and have contributed interests in
the same lease to this agreement, such parties may designate one of such parties
to make said payments for and on behalf of all such parties. Any party may
request and shall be entitled to receive, proper evidence of all such payments.
In the event of failure to make proper payment of any rental, shut-in well
payment or minimum royalty through mistake or oversight where such payment is
required to continue the lease in force, any loss which results from such non-
payment shall be borne in accordance with the provisions of Article IV.B.2.

     Operator shall notify Non-Operator of the anticipated completion of a
shutin gas well, or the shutting in or return to production of a producing gas
well, at least five (5) days (excluding Saturday, Sunday and legal holidays), or
at the earliest opportunity permitted by circumstances, prior to taking such
action, but assumes no liability for failure to do so. In the event of failure
by Operator to so notify Non-Operator, the loss of any lease contributed hereto
by Non-Operator for failure to make timely payments of any shut-in well payment
shall be borne jointly by the parties hereto under the provisions of Article
IV.B.3.

F.   Taxes:

     Beginning with the first calendar year after the effective date hereof,
Operator shall render for ad valorem taxation all property subject to this
agreement which by law should be rendered for such taxes, and it shall pay or
cause to be rendered all such taxes assessed thereon before they become
delinquent. Prior to the rendition date, each Non-Operator shall furnish
Operator information as to burdens (to include, but not be limited to,
royalties, overriding royalties and production payments) on leases and oil and
gas interests contributed by such Non-Operator. If the assessed valuation of any
leasehold estate is reduced by reason of its being subject to outstanding excess
royalties, overriding royalties or production payments, the reduction in ad
valorem taxes resulting therefrom shall inure to the benefit of the owner or
owners of such leasehold estate, and Operator shall adjust the charge to such
owner or owners so as to reflect the benefit of such reduction. If the ad
valorem taxes are based in whole or in part upon separate valuations of each
party's working interest, then notwithstanding anything to the contrary herein,
charges to the joint account shall be made and paid by the parties hereto in
accordance with the tax value generated by each party's working interest.
Operator shall bill the other parties for their proportionate shares of all tax
payments in the manner provided in Exhibit "C".

     If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless all parties agree to abandon

                                       11
<PAGE>

the protest prior to final determination. During the pendency of administrative
or judicial proceedings, Operator may elect to pay, under protest, all such
taxes and any interest and penalty. When any such protested assessment shall
have been finally determined, Operator shall pay the tax for the joint account,
together with any interest and penalty accrued, and the total cost shall then be
assessed against the parties, and be paid by them, as provided in Exhibit "C".

     Each party shall pay or cause to be paid all production, severance, excise,
gathering and other taxes imposed upon or with respect to the production or
handling of such party's share of oil and/or gas produced under the terms of
this agreement.

G.   Insurance:

     At all times while operations are conducted hereunder, Operator shall
comply with the workmen's compensation law of the state where the operations are
being conducted. Operator shall also carry or provide insurance for the benefit
of the joint account of the parties as outlined in Exhibit "D", attached to and
made a part hereof. Operator shall require all contractors engaged in work on or
for the Contract Area to comply with the workmen's compensation law of the state
where the operations are being conducted and to maintain such other insurance as
specified in Exhibit "D" Operator may require.

     In the event automobile public liability insurance is specified in said
Exhibit "D", or subsequently receives the approval of the parties, no direct
charge shall be made by Operator for premiums paid for such insurance for
Operator's automotive equipment.

                                 ARTICLE VIII.
               ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

A.   Surrender of Leases:

     The leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto.

     However, should any party desire to surrender its interest in any lease or
in any portion thereof, and the other parties do not agree or consent thereto,
the party desiring to surrender shall assign, without express or implied
warranty of title, all of its interest in such lease, or portion thereof, and
any well, material and equipment which may be located thereon and any rights in
production thereafter secured, to the parties not consenting to such surrender.
If the interest of the assigning party is or includes an oil and gas interest,
the assigning party shall execute and deliver to the party or parties not
consenting to such surrender an oil and gas lease covering such oil and gas
interest for a term of one (1) year and so long thereafter as oil and/or gas is
produced from the land covered thereby, such lease to be on the form attached
hereto as Exhibit "B". Upon such assignment or lease, the assigning party shall
be relieved from all obligations thereafter accruing, but not theretofore
accrued, with respect to the interest assigned or leased and the operation of
any well attributable thereto, and the assigning party shall have no further
interest in the assigned or leased premises and its equipment and production
other than the royalties retained in any lease made under the terms of this
Article. The party assignee or lessee shall pay to the party assignor or lessor
the reasonable salvage value of the latter's interest in any wells and equipment
attributable to the assigned or leased acreage. The value of all material shall
be determined in accordance with the provisions of Exhibit "C", less the
estimated cost of salvaging and the estimated cost of plugging and abandoning.
If the assignment or lease is in favor of more than one party, the interest
shall be shared by such parties in the proportions that the interest of each
bears to the total interest of all such parties.

     Any assignment, lease or surrender made under this provision shall not
reduce or change the assignor's, lessor's or surrendering party's interest as it
was immediately before the assignment, lease or surrender in the balance of the
Contract Area; and the acreage assigned, leased or surrendered, and subsequent
operations thereon, shall not thereafter be subject to the terms and provisions
of this agreement.

B.   Renewal or Extension of Leases:

     If any party secures a renewal of any oil and gas lease subject to this
agreement, all other parties shall be notified promptly, and shall have the
right for a period of thirty (30) days following receipt of such notice in which

                                       12
<PAGE>

to elect to participate in the ownership of the renewal lease, insofar as such
lease affects lands within the Contract Area, by paying to the party who
acquired it their several proper proportionate shares of the acquisition cost
allocated to that part of such lease within the Contract Area, which shall be in
proportion to the interests held at that time by the parties in the Contract
Area.

     If some, but less than all, of the parties elect to participate in the
purchase of a renewal lease, it shall be owned by the parties who elect to
participate therein, in a ratio based upon the relationship of their respective
percentage of participation in the Contract Area to the aggregate of the
percentages of participation in the Contract Area of all parties participating
in the purchase of such renewal lease. Any renewal lease in which less than all
parties elect to participate shall not be subject to this agreement.

     Each party who participates in the purchase of a renewal lease shall be
given an assignment of its proportionate interest therein by the acquiring
party.

     The provisions of this Article shall apply to renewal leases whether they
are for the entire interest covered by the expiring lease or cover only a
portion of its area or an interest therein. Any renewal lease taken before the
expiration of its predecessor lease, or taken or contracted for within six (6)
months after the expiration of the existing lease shall be subject to this
provision, but any lease taken or contracted for more than six (6) months after
the expiration of an existing lease shall not be deemed a renewal lease and
shall not be subject to the provisions of this agreement.

     The provisions in this Article shall also be applicable to extensions of
oil and gas leases, top leases, option leases or all or part of existing oil and
gas leases.

C.   Acreage or Cash Contributions:

     While this agreement is in force, if any party contracts for a contribution
of cash towards the drilling of a well or any other operation on the Contract
Area, such contribution shall be paid to the party who conducted the drilling or
other operation and shall be applied by it against the cost of such drilling or
other operation. If the contribution be in the form of acreage, the party to
whom the contribution is made shall promptly tender an assignment of the
acreage, without warranty of title, to the Drilling Parties in the proportions
said Drilling Parties shared the cost of drilling the well. Such acreage shall
become a separate Contract Area and, to the extent possible, be governed by
provisions identical to this agreement. Each party shall promptly notify all
other parties of any acreage or cash contributions it may obtain in support of
any well or any other operation on the Contract Area. The above provisions shall
also be applicable to optional rights to cam acreage outside the Contract Area
which are in support of a well drilled inside the Contract Area.

     If any party contracts for any consideration relating to disposition of
such party's share of substances produced hereunder, such consideration shall
not be deemed a contribution as contemplated in this Article VIII.C.

D.   Maintenance of Uniform Interests:

     Every such sale, encumbrance, transfer or other disposition made by any
party shall be made expressly subject to this agreement and shall be made
without prejudice to the right of the other parties provided, however, any Non-
Operator proposing to make such sale shall first obtain written consent from
Operator, which consent shall not be unreasonably denied.

     If, at any time the interest of any party is divided among and owned by
four or more co-owners, Operator, at its discretion, may require such co-owners
to appoint a single trustee or agent with full authority to receive notices,
approve expenditures, receive billings for and approve and pay such party's
share of the joint expenses, and to deal generally with, and with power to bind,
the co-owners of such party's interest within the scope of the operations
embraced in this agreement; however, all such co-owners shall have the right to
enter into and execute all contracts or agreements for the disposition of their
respective shares of the oil and gas produced from the Contract Area and they
shall have the right to receive, separately, payment of the sale proceeds
thereof.

                                       13
<PAGE>

E.   Waiver of Rights to Partition:

     If permitted by the laws of the state or states in which the property
covered hereby is located, each party hereto owning an undivided interest in the
Contract Area waives any and all rights it may have to partition and have set
aside to it in severalty its undivided interest therein.

F.   [Intentionally Deleted]

                                  ARTICLE IX.
                        INTERNAL REVENUE CODE ELECTION

     This agreement is not intended to create, and shall not be construed to
create, a relationship of partnership or an association for profit between or
among the parties hereto. Notwithstanding any provision herein that the rights
and liabilities hereunder are several and not joint or collective, or that this
agreement and operations hereunder shall not constitute a partnership, if, for
federal income tax purposes, this agreement and the operations hereunder are
regarded as a partnership, each party hereby affected elects to be excluded from
the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle
"A", of the Internal Revenue Code of 1986, as permitted and authorized by
Section 761 of the Code and the regulations promulgated thereunder. Operator is
authorized and directed to execute on behalf of each party hereby affected such
evidence of this election as may be required by the Secretary of the Treasury of
the United States or the Federal Internal Revenue Service, including
specifically, but not by way of limitation, all of the returns, statements, and
the data required by Federal Regulations 1.761. Should there be any requirement
that each party hereby affected give further evidence of this election, each
such party shall execute such documents and furnish such other evidence as may
be required by the Federal Internal Revenue Service or as may be necessary to
evidence this election. No such party shall give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax laws of the state or states in which the Contract Area is located or
any future income tax laws of the United States contain provisions similar to
those in Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code
of 1986, under which an election similar to that provided by Section 761 of the
Code is permitted, each party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each such
party states that the income derived by such party from operations hereunder can
be adequately determined without the computation of partnership taxable income.

                                  ARTICLE X.
                              CLAIMS AND LAWSUITS

     Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Five
Thousand and no/100 Dollars ($5,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement exceeds
the above amount, the parties hereto shall assume and take over the further
handling of the claim or suit, unless such authority is delegated to Operator.
All costs and expenses of handling, settling, or otherwise discharging such
claim or suit shall be at the joint expense of the parties participating in the
operation from which the claim or suit arises. If a claim is made against any
party or if any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
parties, and the claim or suit shall be treated as any other claim or suit
involving operations hereunder. All claims or suits involving title to any
interest subject to this agreement shall be treated as a claim or suit against
all parties hereto.

                                  ARTICLE XI.
                                 FORCE MAJEURE

     If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspending during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.

                                       14
<PAGE>

     The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes, how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.

     The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.

                                 ARTICLE XII.
                                    NOTICES

     All notices authorized or required between the parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or by
telex or telecopier and addressed to the parties to whom the notice is given at
the addresses listed on Exhibit "A". The originating notice given under any
provision hereof shall be deemed given only when received by the party to whom
such notice is directed, and the time for such party to give any notice in
response thereto shall run from the date the originating notice is received. The
second or any responsive notice shall be deemed given when deposited in the mail
or with the telegraph company, with postage or charges prepaid, or sent by telex
or telecopier. Each party shall have the right to change its address at any
time, and from time to time, by giving written notice thereof to all other
parties.

                                 ARTICLE XIII.
                               TERM OF AGREEMENT

     This agreement shall remain in full force and effect as to the oil and gas
leases and/or oil and gas interests subject hereto for the period of time
selected below; provided, however, no party hereto shall ever be construed as
having any right, title or interest in or to any lease or oil and gas interest
contributed by any other party beyond the term of this agreement.

     Option No. 1: So long as any of the oil and gas leases subject to this
     ------------
agreement remain or are continued in force as to any part of the Contract Area,
whether by production, extension, renewal, or otherwise.

     Option No. 2: In the event the well described in Article VI.A., or any
     ------------
subsequent well drilled under any provision of this agreement, results in
production of oil and/or gas in paying quantities, this agreement shall continue
in force so long as any such well or wells produce, or are capable of
production, and for an additional period of _____ days from cessation of all
production; provided, however, if, prior to the expiration of such additional
period, one or more of the parties hereto are engaged in drilling, reworking,
deepening, plugging back, testing or attempting to complete a well or wells
hereunder, this agreement shall continue in force until such operations have
been completed and if production results therefrom, this agreement shall
continue in force as provided herein. In the event the well described in Article
VI.A., or any subsequent well drilled hereunder, results in a dry hole, and no
other well is producing, or capable of producing oil and/or gas from the
Contract Area, this agreement shall terminate unless drilling, deepening,
plugging back or reworking operations are commenced within ___ days from the
date of abandonment of said well.

     It is agreed, however, that the termination of this agreement shall not
relieve any party hereto from any liability which has accrued or attached prior
to the date of such termination.

                                 ARTICLE XIV.
                     COMPLIANCE WITH LAWS AND REGULATIONS

A.   Laws, Regulations and Orders:

     This agreement shall be subject to the conservation laws of the state in
which the Contract Area is located, to the valid rules, regulations, and orders
of any duly constituted regulatory body of said state, and to all other
applicable federal, state, and local laws, ordinances, rules, regulations, and
orders.

                                       15
<PAGE>

B.   Governing Law:

     This agreement and all matters pertaining hereto, including, but not
limited to, matters of performance, non-performance, breach, remedies,
procedures, rights, duties, and interpretation or construction, shall be
governed and determined by the law of the state in which the Contract Area is
located. If the Contract Area is in two or more states, the law of the state of
Texas shall govern.

C.   Regulatory Agencies:

     Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights, privileges, or
obligations which Non-Operators may have under federal or state laws or under
rules, regulations or orders promulgated under such laws in reference to oil,
gas and mineral operations, including the location, operation, or production of
wells, on tracts offsetting or adjacent to the Contract Area.

     With respect to operations hereunder, Non-Operators agree to release
Operator from any and all losses, damages, injuries, claims and causes of action
arising out of, incident to or resulting directly or indirectly from Operator's
interpretation or application of rules, rulings, regulations or orders of the
Department of Energy or predecessor or successor agencies to the extent such
interpretation or application was made in good faith. Each Non-Operator further
agrees to reimburse Operator for any amounts applicable to such Non-Operator's
share of production that Operator may be required to refund, rebate or pay as a
result of such an incorrect interpretation or application, together with
interest and penalties thereon owing by Operator as a result of such incorrect
interpretation or application.

     Non-Operators authorize Operator to prepare and submit such documents as
may be required to be submitted to the purchaser of any crude oil sold hereunder
or to any other person or entity pursuant to the requirements of the "Crude Oil
Windfall Profit Tax Act of 1980", as same may be amended from time to time
("Act"), and any valid regulations or rules which may be issued by the Treasury
Department from time to time pursuant to said Act. Each party hereto agrees to
furnish any and all certifications or other information which is required to be
furnished by said Act in a timely manner and in sufficient detail to permit
compliance with said Act.

                                  ARTICLE XV.
                               OTHER PROVISIONS

See Articles A thru G

In the event there should be any conflict between the preceding provisions and
the following provisions of Articles A thru G then Articles A thru G shall
prevail.

A.   A party may be required to consider and/or make an election to participate
     in any proposed additional operation to drill, rework, deepen, or plug back
     any well while any such operations are in progress or while any other
     proposal for such operations is being considered by the parties to the
     Operating Agreement.

B.   The term "necessary expenditures," as used in Article VII.D., shall not
     include sidetracking operations unless covered specifically in the
     Authority For Expenditures approved by the participating party or parties.

C.   All parties recognize that the Operator may from time to time be required
     in the first instance to pay, or to incur the obligation to pay, to third
     parties for the account of the other parties substantial amounts of money
     and that the Operator is thereby at risk with respect to such payment or
     obligation to the extent made or incurred for another party. Accordingly,
     all parties agree that the Operator has the unqualified right to require
     from any other party advance payment, within fifteen (15) days after
     billing, of such other party's anticipated share of any item of cost or
     expense for which the Operator would be entitled to reimbursement under any
     provision of this Operating Agreement. Such right includes the right to
     require advance payment for the estimated costs of completion of a well as
     to which an election to participate in drilling has been made,
     notwithstanding that a party's obligation to pay completion costs will not
     arise until it has made the further election to participate in completion
     under Option No. 2 of Article VII.D.1 of this Operating Agreement. Each
     party which elects to participate in the completion shall advance its share
     of the estimated completion costs and expenses within five (5) days after
     the effective date of its election to participate in such completion
     attempt.

                                       16
<PAGE>

D.   Notwithstanding anything to the contrary contained in this Agreement, if a
     Party ("Non-Consenting Party") elects to not participate in the drilling of
     any well or in the attempted completion, deepening or reworking of any well
     on the Joint Property (the "Subsequent Operation"), then all of the
     respective right, title and interest of each such Non-Consenting Party in
     that part of the lease designated by the Texas Railroad Commission as the
     proration unit around such well (hereinafter referred to as the "Proration
     Unit"), shall automatically terminate and pass to and vest in the Parties
     (the "Consenting Parties") participating in the Subsequent Operation,
     conditioned upon the Consenting parties carrying on the Subsequent
     Operation in good faith. In the event temporary or permanent field rules
     applicable to a well drilled hereunder have not been adopted, a Proration
     Unit shall be deemed to consist of and not exceed the following acreage:

     1.   For each well classified as an oil well in accordance with the rules
          and regulations of the Railroad Commission of Texas, the size of such
          unit shall not exceed forty (40) acres.

     2.   For each well classified as a gas well in accordance with the rules
          and regulations of the Railroad Commission of Texas, the size of such
          unit shall not exceed one hundred sixty (160) acres.

     Notwithstanding the foregoing, any one or more of the Consenting Parties
     may expressly decline (which shall be stated in its or their election to
     participate in the Subsequent Operations) to be vested with its or their
     proportionate share of the right, title and interest of the Non-Consenting
     party or Parties in, to and under the Proration Unit and, in such event,
     unless one or more of the Consenting Parties agree (within such election
     period) to be vested with such right, title and interest of the Non-
     Consenting Party or Parties, Operator shall have the right, as its option,
     to abandon the Subsequent Operation. The Non-Consenting Party shall execute
     an assignment of its interest in the Proration Unit around the well that
     may be vested in the Consenting Parties who paid their proportionate share
     of such non-consent amount immediately upon the Consenting Parties request,
     free and clear of any mortgages, encumbrances or overriding royalties or
     lease burdens created subsequent to the date of this Agreement. In the
     absence of Texas Railroad Commission Field Rules which designate the
     configuration of the Proration Unit, the Proration Unit as described above
     will be designated and configured by the Operator at its sole discretion
     and the interests assigned by the Non-Consenting Parties to the Consenting
     Parties shall include the rights to all depths which are held by the Non-
     Consenting Parties.

E.   Notwithstanding anything herein to the contrary, the proportionate share of
     costs, expenses and/or advance due by any Non-Operator to Operator pursuant
     to any provision of this Operating Agreement shall be due and payable
     immediately upon receipt by Non-Operator of Operator's invoice therefor
     (and, in the case of an advance for estimated costs, a statement thereof).
     In the event that operator does not receive Non-Operator's payment of the
     relevant invoice amount within the time period as set out in this
     Agreement, such invoice amount shall bear interest as provided in Exhibit
     "C" attached hereto until paid and the relevant Non-Operator shall be
     deemed to be in default under the terms hereof, and Operator may select
     from the following remedies with respect to such default by notice to the
     relevant Non-Operator in writing:

     1.   Operator may treat the amount of the unpaid invoice as a valid
          obligation, and collect same (subject to final adjustment in the case
          of invoices for estimates) in any legal manner; or

     2.   Operator may require the defaulting Non-Operator to assign to
          Operator, without warranty of title, either express or implied, and
          free of any liens, encumbrances or overriding royalty interests
          created after the date of this Agreement all of the right, title and
          interest of the defaulting Non-Operator in that portion of the lease
          located in the Proration Unit around the well for which such invoice
          pertains. The assignment of a defaulting Non-Operator's interest in
          the lease in the Proration Unit will not create an obligation on the
          part of the Operator to reimburse the defaulting Non-Operator for sums
          previously paid by the defaulting Non-Operator to Operator pursuant
          hereto.

F.   All parties to the Operating Agreement shall be secured parties with
     respect to the oil and gas leases within the Contract Area; all equipment
     and fixtures in, on, or appurtenant thereto; all hydrocarbons extracted
     from or attributable thereto; and all accounts (including but not limited
     to accounts resulting from the sale of hydrocarbons at the wellhead),
     contract rights, and general intangibles arising in connection with the
     sale or other disposition of all such properties.

                                       17
<PAGE>

G.   Operator shall prepare and record (having secured the execution thereof by
     all parties) a memorandum containing the security provisions set forth in
     the Operating Agreement and identifying the oil and gas leases within the
     Contract Area, and the parties to the Operating Agreement sufficiently to
     place third parties on notice of such Operating Agreement.

H.   Operator shall have the right to conduct 3D geophysical seismic operations
     across the Contract Area after it has notified the Non-Operator in writing
     of the area in which the seismic operations are to be conducted and the
     estimated costs thereof. The Non-Operator shall pay the Operator for its
     proportionate share of such costs within thirty (30) days after it is in
     receipt of such notice and estimated costs thereof. In the event the Non-
     Operator does not timely pay Operator its proportionate share of such
     costs, then Operator shall be entitled to all of the provisions and
     remedies as to nonpayment as provided in this agreement.

                                 ARTICLE XVI.
                                 MISCELLANEOUS

     This agreement shall be binding upon and shall inure to the benefit of the
parties hereto and to their respective heirs, devisees, legal representatives,
successors and assigns.

     This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.

     IN WITNESS WHEREOF, this agreement shall be effective as of the 8th day of
December, (year) 2000. _____________________, who has prepared and circulated
this form for execution, represents and warrants that the form was printed from
and with the exception listed below, is identical to the AAPL Form 610-1982
Model Form Operating Agreement, as published in diskette form by Forms On-A-
Disk, Inc. No changes, alterations, or modifications, other than those in
Articles _______________________ have been made to the form.

                                O P E R A T O R


                                                   Moose Operating Co., Inc.



                                                   /s/ John F. Terwilliger
___________________________________                -----------------------------
                                                   John F. Terwilliger
                                                   President


                           N O N - O P E R A T O R S


                                                   Houston American Energy Corp.



                                                   /s/ John F. Terwilliger
__________________________________                 -----------------------------
                                                   John F. Terwilliger
                                                   President

                                       18
<PAGE>

                                   EXHIBIT "A"

Attached and made a part of that certain Operating Agreement dated April 6,
2001, made between Moose Operating Co., Inc., as Operator, and Houston American
Energy Corp., as Non-Operator.

I.       Lands Subject To This Agreement

         Sartwelle Area

                  704.0 acre unit situated in the James Frazier Survey, A-171,
                  described in the Declaration of Gas Unit (Sartwelle #3 and #4
                  Wells), dated May 7, 1998, recorded in Volume 154, Page 328 of
                  the Official Public Records of Lavaca County, Texas, and being
                  a portion or all of the following tracts: a portion of that
                  52.585 acre tract described to Frankie McElroy recorded in
                  Volume 263, Page 196 of the Deed Records of Lavaca County,
                  Texas; all of that 51.585 acre tract described by deed to
                  Morris McElroy recorded in Volume 263, Page 178 of the Deed
                  Records of Lavaca County, Texas; all of that 52.423 acre tract
                  described by deed to Dorothy McElroy, et vir recorded in
                  Volume 66, Page 593 of the Official Records of Lavaca County,
                  Texas; all of that 50.285 acre tract described by deed to Carl
                  McElroy recorded in Volume 263, Page 185 of the Deed Records
                  of Lavaca County; Texas; a portion of that 1384.12 acre tract
                  described by deed to James Sartwelle, et al recorded in Volume
                  217, Page 580 of the Deed Records of Lavaca County, Texas; and
                  a portion of that 100 acre tract described in Partition Deed
                  recorded in Volume 82, Page 479 of the Deed Records of Lavaca
                  County, Texas, and being described in Volume R, Page 492 of
                  the Deed Records of Lavaca County, Texas.

         Viking Ventures Area

                  1524.40 acres, more or less, being all of the 160 acre Richard
                  Insall Survey, A-256; All of the 755 acres, more or less,
                  being all of the S.A. & M.G.R.R. Company Survey, A-445; 120
                  acres, more or less, out of the Jacob Laffere Survey, A-297,
                  and being all of the J. Dowling Survey, less, however, the
                  west 20 acres of said 140 acre Laffere Survey; And 160 acres
                  of land, more or less, being all of the J. R. Foster Survey,
                  A-172, SAVE AND EXCEPT 330.4 acres, more or less, out of the
                  H. & T. B. Royalty Co. Survey, A-248, and being the same
                  tracts described in the following leases, recorded in the
                  Official Records of Lavaca County, Texas:

               1.      Oil, Gas and Mineral Lease dated October 9, 1996, from
                       Viking Ventures Corporation, Lessor, to Moose Oil & Gas
                       Company, Lessee, recorded in Volume 108, Page 166;

               2.      Oil, Gas and Mineral Lease dated November 15, 1996, from
                       Viking Ventures Corporation, Lessor, to Moose Oil & Gas
                       Company, Lessee, recorded in Volume 111, Page 934;

               3a.     Oil and Gas Lease dated February 17, 1998, from Bank of
                       Oklahoma, N.A., Agent for First National Bank of Santa
                       Fe, Successor Co-Trustee, and Vernon W. Frost, Jr. and
                       Betty Frost McAleer, Co-Trustees of the 1976 Vernon W.
                       and Inza S. Frost Trust, Lessors, to Moose Oil & Gas
                       Company, Lessee, recorded in Volume 147, Page 232;

               3b.     Oil, Gas and Mineral Lease dated April 6, 1998, from the
                       Estate of A. E. Amerman, Jr., Deceased, Lessor, to Moose
                       Oil & Gas Company, Lessee, recorded in Volume 148, Page
                       627;

               3c.     Oil and Gas Lease dated April 13, 1998, from Chase Bank
                       of Texas, N.A., Trustee of the Frost Interests Limited,
                       L.L.P. Revocable Trust, Lessor, to Moose Oil & Gas
                       Company, Lessee. recorded in Volume 148, Page 631;

               3d.     Oil and Gas Lease dated April 16, 1998, from Frost Family
                       I, Ltd., Lessor, to Moose Oil & Gas Company, Lessee,
                       recorded in Volume 153, Page 681;

                                      A-1
<PAGE>

               3e.     Oil and Gas Lease dated April 21, 1998, from Frost
                       Properties, Ltd., Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded in Volume 153, Page 689;

               3f.     Oil and Gas Lease dated April 21, 1998, from Carolyn
                       Frost Keenan, Individually and as Attorney-In-Fact for
                       Mrs. W. H. Keenan and W. Howard Keenan, Jr., Lessors, to
                       Moose Oil & Gas Company, Lessee;

               3g.     Oil, Gas and Mineral Lease dated March 24, 1998, from
                       Marmaton Oil Company, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded in Volume 146, Page 584;

               3h.     Oil and Gas Lease dated April 24, 1998, from Compass
                       Bank, Trustee for the Cleveland Davis Testamentary Trust,
                       Pauline Buster Davis Trust, Cleveland Davis, Jr. Trust,
                       Cleveland Davis III Trust, and the George Preston Davis
                       Trust, Lessors, to Moose Oil & Gas Company, Lessee,
                       recorded in Volume 154, Page 50;

               3i.     Oil, Gas and Mineral Lease dated April 8, 1998, from
                       Julia Moore Jones, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded in Volume 154, Page 932;

               3j.     Oil, Gas and Mineral Lease dated April 8, 1998, from
                       Marcia W. Moore, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded in Volume 150, Page 626;

               3k.     Oil and Gas Lease dated June 15, 1998, from Conoco Inc.,
                       Lessor, to Moose Oil & Gas Company, Lessee, recorded in
                       Volume 192, Page 38;

               3l.     Oil, Gas, and Mineral Lease dated November 20, 1996, from
                       SGH Royalty Partners, Lessor, to American Exploration
                       Company, Lessee, recorded in a Memorandum of Oil, Gas,
                       and Mineral Lease in Volume 113, Page 917;

               3m.     Oil, Gas, and Mineral Lease dated November 20, 1996, from
                       SGH Royalty Partners, Lessor, to American Exploration
                       Company, Lessee, recorded as a Memorandum of Oil, Gas,
                       and Mineral Lease in Volume 113, Page 914;

               3n.     Oil, Gas, and Mineral Lease dated March 2, 1999, from
                       Fielding L. Cocke, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded as a Memorandum of Oil, Gas, and Mineral
                       Lease in Volume 174, Page 499;

               3o.     Oil, Gas, and Mineral Lease dated March 2, 1999, from
                       Camille Cocke Patton, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded as a Memorandum of Oil, Gas, and Mineral
                       Lease in Volume 174, Page 496;

               3p.     Oil, Gas, and Mineral Lease dated March 2, 1999, from
                       Tamara Cocke Jenkins, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded as a Memorandum of Oil, Gas, and Mineral
                       Lease in Volume 174, Page 502;

               3q.     Oil and Gas Lease dated October 5, 1998, from Hugh R.
                       Goodrich, et al., Lessors, to Moose Oil & Gas Company,
                       Lessee, recorded as a Memorandum of Lease in Volume 174,
                       Page 180;

               3r.     Oil and Gas Lease dated June 15, 1998, from Jack H.
                       Mayfield, Jr., et al., Lessors, to Moose Oil & Gas
                       Company, Lessee, recorded in Volume 206, Page 525;

               3s.     Oil and Gas Lease dated June 15, 1998, from Viking
                       Ventures Corporation, Lessor, to Moose Oil & Gas Company,
                       Lessee, recorded in Volume 216, Page 500.

                                      A-2
<PAGE>

     Carl Klimitchek #2

          Oil, Gas and Mineral Lease from Carl Klimitchek, Lessor, in favor of
          Moose Oil & Gas Company, dated September 19, 2000, covering 79.8
          acres, more or less, out of the Henry P. Mills Survey, A-330, Lavaca
          County, Texas, and recorded in Volume 217, Page 323 of the Official
          Records, Lavaca County, Texas.

     Kalmus #1

          160 acres, more or less, consisting of the following three leases:

       1a.     Oil, Gas and Mineral Lease from Alfonse W. Kalmus, Lessor, and
               Moose Oil & Gas Company, Lessee, dated May 19, 2000, covering 80
               acres of land, more or less, out of the Jesse Robinson Survey, A-
               380, Lavaca County, Texas, and recorded in Volume 215, Page 233
               of the Official Records, Lavaca County, Texas.

       1b.     Oil, Gas and Mineral Lease from Delores Ann Michalke, Lessor, to
               Moose Oil & Gas Company, Lessee, dated May 19, 2000, covering 80
               acres, more or less, out of the Jesse Robinson Survey, A-380,
               Lavaca County, Texas, and recorded in Volume 215, Page 241 of the
               Official Records, Lavaca County, Texas.

       2.      Oil, Gas and Mineral Lease from Macklin K. Johnson, et ux.,
               Lessor, to Moose Oil & Gas Company, Lessee, dated May 19, 2000,
               covering 80 acres, more or less, out of the Jesse Robinson
               Survey, A-380, Lavaca County, Texas, and recorded in Volume 215,
               Page 225 of the Official Records, Lavaca County, Texas.

II.  Restrictions

     None.

III. Working Interest

     A.   Carl Klimitchek #2 Well, Kalmus #1 Well:

             Name                              Working Interest         NRI
             ----                              ----------------         ---

             Moose Oil & Gas Company, et al.         75%               56.25%
             801 Travis, Suite 1425
             Houston, Texas 77002

             Houston American Energy Corp.           25%               18.75%
             801 Travis, Suite 1425
             Houston, Texas 77002



B.   Sartwelle Area, Viking Ventures Area:

     As set forth in that certain "Agreement to Assign Interest in Oil and Gas
     Leases", dated April 6, 2001, between Moose Oil & Gas Company and Houston
     American Energy Corp.

                                      A-3
<PAGE>

                   THERE IS NO EXHIBIT "B" TO THIS AGREEMENT


                                      B-1
<PAGE>

                                  EXHIBIT "C"

Attached to and made a part of that certain Operating Agreement dated April 6,
2001, between Moose Operating Co., Inc., as Operator, and Houston American
Energy Corp., as Non-Operator.

                             ACCOUNTING PROCEDURE

                               JOINT OPERATIONS

                             I. GENERAL PROVISIONS

1.       Definitions

         "Joint Property" shall mean the real and personal property subject to
         the agreement to which this Accounting Procedure is attached.

         "Joint Operations" shall mean all operations necessary or proper for
         the development, operation, protection and maintenance of the Joint
         Property.

         "Joint Account" shall mean the account showing the charges paid and
         credits received in the conduct of the Joint Operations and which are
         to be shared by the Parties.

         "Operator" shall mean the party designated to conduct the Joint
         Operations.

         "Non-Operators" shall mean the Parties to this agreement other than the
         Operator.

         "Parties" shall mean Operator and Non-Operators.

         "First Level Supervisors" shall mean those employees whose primary
         function in Joint Operations is the direct supervision of other
         employees and/or contract labor directly employed on the Joint Property
         in a field operating capacity.

         "Technical Employees" shall mean those employees having special and
         specific engineering, geological or other professional skills, and
         whose primary function in Joint Operations is the handling of specific
         operating conditions and problems for the benefit of the Joint
         Property.

         "Personal Expenses" shall mean travel and other reasonable reimbursable
         expenses of Operator's employees.

         "Material" shall mean personal property, equipment or supplies acquired
         or held for use on the Joint Property.

         "Controllable Material" shall mean Material which at the time is so
         classified in the Material Classification Manual as most recently
         recommended by the Council or Petroleum Accountants Societies.

2.       Statement and Billings

         Operator shall bill Non-Operators on or before the last day of each
         month for their proportionate share of the Joint Account for the
         preceding month. Such bills will be accompanied by statements which
         identify the authority for expenditure, lease or facility, and all
         charges and credits summarized by appropriate classifications of
         investment and expense except that items of Controllable Material and
         unusual charges and credits shall be separately identified and fully
         described in detail.

3.       Advances and Payments by Non-Operators

         A.       Unless otherwise provided for in the agreement, the Operator
                  may require the Non-Operators to advance their share of
                  estimated cash outlay for the succeeding month's operation
                  within fifteen

                                      C-1
<PAGE>

                  (15) days after receipt of the billing or by the first day of
                  the month for which the advance is required, whichever is
                  later. Operator shall adjust each monthly billing to reflect
                  advances received from the Non-Operators.

         B.       Each Non-Operator shall pay its proportion of all bills within
                  fifteen (15) days after receipt. If payment is not made within
                  such time, the unpaid balance shall bear interest monthly at
                  the prime rate in effect at Chase Bank of Texas, N.A. on the
                  first day of the month in which delinquency occurs plus 1% or
                  the maximum contract rate permitted by the applicable usury
                  laws in the state in which the Joint Property is located,
                  whichever is the lesser, plus attorney's fees, court costs,
                  and other costs in connection with the collection of unpaid
                  amounts.

4.       Adjustments

         Payment of any such bills shall not prejudice the right of any
         Non-Operator to protest or question the correctness thereof; provided,
         however, all bills and statements rendered to Non-Operators by Operator
         during any calendar year shall conclusively be presumed to be true and
         correct after twenty-four (24) months following the end of any such
         calendar year, unless within the said twenty-four (24) month period a
         Non-Operator takes written exception thereto and makes claim on
         Operator for adjustment. No adjustment favorable to Operator shall be
         made unless it is made within the same prescribed period. The
         provisions of this paragraph shall not prevent adjustments resulting
         from a physical inventory of Controllable Material as provided for in
         Section V.

5.       Audits

         A        A Non-Operator, upon notice in writing to Operator and all
                  other Non-Operators, shall have the right to audit Operator's
                  accounts and records relating to the Joint Account for any
                  calendar year within the twenty-four (24) month period
                  following the end of such calendar year; provided, however,
                  the making of an audit shall not extend the time for the
                  taking of written exception to and the adjustments of amounts
                  as provided for in Paragraph 4 of this Section 1. Where there
                  are two or more Non-Operators, the Non-Operators shall make
                  every reasonable effort to conduct a joint audit in a manner
                  which will result in a minimum of inconvenience to the
                  Operator. Operator shall bear no portion of the Non-Operators'
                  audit cost incurred under this paragraph unless agreed to by
                  the Operator. The audits shall not be conducted more than once
                  each year without prior approval of Operator, except upon the
                  resignation or removal of the Operator, and shall be made at
                  the expense of those Non-Operators approving such audit.

         B.       The Operator shall reply in writing to an audit report within
                  180 days after receipt of such report.

6.       Approval By Non-Operators

         Where an approval or other agreement of the Parties or Non-Operators is
         expressly required under other sections of this Accounting Procedure
         and if the agreement to which this Accounting Procedure is attached
         contains no contrary provisions in regard thereto, Operator shall
         notify all Non-Operators of the Operator's proposal, and the agreement
         or approval of a majority in interest of the Non-Operators shall be
         controlling on all Non-Operators.

                              II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

1.       Ecological and Environmental

         Costs incurred for the benefit of the Joint Properly as a result of
         governmental or regulatory requirements to satisfy environmental
         considerations applicable to the Joint Operations Such costs may
         include surveys of an ecological or archaeological nature and pollution
         control procedures as required by applicable laws and regulations

                                      C-2
<PAGE>

2.       Rentals and Royalties

         Lease rentals and royalties paid by Operator for the Joint Operations

3.       Labor

         A.       (1)      Salaries and wages of Operator's field employees
                           directly employed on the Joint Property in the
                           conduct of Joint Operations

                  (2)      Salaries of First level Supervisors in the field,

                  (3)      Salaries and wages of Technical Employees directly
                           employed on the Joint Property if such charges are
                           excluded from the overhead rates

                  (4)      Salaries and wages of Technical Employees either
                           temporarily or permanently assigned to and directly
                           employed in the operation or the Joint Property if
                           such charges are excluded from the overhead rates.

         B.       Operator's cost of holiday, vacation, sickness and disability
                  benefits and other customary allowances paid to employees
                  whose salaries and wages are chargeable to the Joint Account
                  under Paragraph 3A of this Section II. Such costs under this
                  Paragraph 3B may be charged on a "when and as paid basis" or
                  by "percentage assessment" on the amount of salaries and wages
                  chargeable to the Joint Account under Paragraph 3A of this
                  Section II. If percentage assessment is used, the rate shall
                  be based on the Operator's cost experience.

         C.       Expenditures Or contributions made pursuant to assessments
                  imposed by governmental authority which are applicable to
                  Operator's costs chargeable to the Joint Account under
                  Paragraphs 3A and 313 of this Section II.

         D.       Personal Expenses of those employees whose salaries and wages
                  are chargeable to the Joint Account under Paragraphs 3A and 3B
                  of this Section II.

4.       Employee Benefits

         Operator's current costs or established plans for employees' group life
         insurance, hospitalization, pension, retirement, stock purchase.
         thrift, bonus, and other benefit plans of a like nature, applicable to
         Operator's labor cost chargeable to the Joint Account under Paragraphs
         3A and 3B of this Section II shall be Operator's actual cost not to
         exceed the percent most recently recommended by the Council of
         Petroleum Accountants Societies.

5.       Material

         Material purchased or furnished by Operator for use on the Joint
         Property as provided under Section IV. Only such Material shall be
         purchased for or transferred to the Joint Property as may be required
         for immediate use and is reasonably practical and consistent with
         efficient and economical operations. The accumulation of surplus stocks
         shall be avoided.

6.       Transportation

         Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:

         A.       If Material is moved to the Joint Property from the Operator's
                  warehouse or other properties, no charge shall be made to the
                  Joint Account for a distance greater than the distance from
                  the nearest reliable supply store where like material is
                  normally available or railway receiving point nearest the
                  Joint Property unless agreed to by the Parties.

                                      C-3
<PAGE>

         B.       If surplus Material is moved to Operator's warehouse or other
                  storage point, no charge shall be made to the Joint Account
                  for a distance greater than the distance to the nearest
                  reliable supply store where like material is normally
                  available, or railway receiving point nearest the Joint
                  Property unless agreed to by the Parties. No charge shall be
                  made to the Joint Account for moving Material to other
                  properties belonging to Operator, unless agreed to by the
                  Parties.

         C.       In the application of subparagraphs A and B above, the option
                  to equalize or charge actual trucking cost is available when
                  the actual charge is $400 or less excluding accessorial
                  charges. The $400 will be adjusted to the amount most recently
                  recommended by the Council of Petroleum Accountants Societies.

7.       Services

        The cost of contract services, equipment and utilities provided by
        outside sources, except services excluded by Paragraph 10 of Section II
        and Paragraph i, ii, and iii, of Section III. The cost of professional
        consultant services and contract services of technical personnel
        directly engaged on the Joint Property if such charges are excluded from
        the overhead rates. The cost of professional consultant services or
        contract services of technical personnel not directly engaged on the
        Joint Property shall not be charged to the Joint Account unless
        previously agreed to by the Parties.

8.       Equipment and Facilities Furnished By Operator

         A.       Operator shall charge the Joint Account for use of Operator
                  owned equipment and facilities at rates commensurate with
                  costs of ownership and operation. Such rates shall include
                  costs of maintenance, repairs, other operating expense,
                  insurance, taxes, depreciation, and interest on gross
                  investment less accumulated depreciation not to exceed eight
                  percent (8%) per annum. Such rates shall not exceed average
                  commercial rates currently prevailing in the immediate area of
                  the Joint Property.

         B.       In lieu of charges in Paragraph 8A above, Operator may elect
                  to use average commercial rates prevailing in the immediate
                  area of the Joint Property less 20%. For automotive equipment,
                  Operator may elect to use rates published by the Petroleum
                  Motor Transport Association.

9.       Damages and Losses to Joint Property

         All costs or expenses necessary for the repair or replacement of Joint
         Property made necessary because of damages or losses incurred by fire,
         flood, storm, theft, accident, or other cause, except those resulting
         from Operator's gross negligence or willful misconduct. Operator shall
         furnish Non-Operator written notice of damages or losses incurred as
         soon as practicable after a report thereof has been received by
         Operator.

10.      Legal Expense

         Expense of handling, investigating and settling litigation or claims,
         discharging of liens, payment of judgments and amounts paid for
         settlement of claims incurred in or resulting from operations under the
         agreement or necessary to protect or recover the Joint Property, except
         that no charge for services of Operator's legal staff or fees or
         expense of outside attorneys shall be made unless previously agreed to
         by the Parties. All other legal expense is considered to be covered by
         the overhead provisions of Section III unless otherwise agreed to by
         the Parties, except as provided in Section I, Paragraph 3.

11.      Taxes

         All taxes of every kind and nature assessed or levied upon or in
         connection with the Joint Property, the operation thereof, or the
         production therefrom, and which taxes have been paid by the Operator
         for the benefit of the Parties. If the ad valorem taxes are based in
         whole or in part upon separate valuations of each party's working
         interest, then notwithstanding anything to the contrary herein, charges
         to the Joint Account shall be made and paid by the Parties hereto in
         accordance with the tax value generated by each party's working
         interest.

                                      C-4
<PAGE>

12.      Insurance

         Net premiums paid for insurance required to be carried for the Joint
         Operations for the protection of the Parties. In the event Joint
         Operations are conducted in a state in which Operator may act as
         self-insurer for Worker's Compensation and/or Employers Liability under
         the respective state's laws, Operator may, at its election, include the
         risk under its self-insurance program and in that event, Operator shall
         include a charge at Operator's cost not to exceed manual rates.

13.      Abandonment and Reclamation

         Costs incurred for abandonment of the Joint Property, including costs
         required by governmental or other regulatory authority.

14.      Communications

         Cost of acquiring, leasing, installing, operating, repairing and
         maintaining communication systems, including radio and microwave
         facilities directly serving the Joint Property. In the event
         communication facilities/systems serving the Joint Property are
         Operator owned, charges to the Joint Account shall be made as provided
         in Paragraph 8 of this Section II.

15.      Other Expenditures

         Any other expenditure not covered or dealt with in the foregoing
         provisions of this Section II, or in Section III and which is of direct
         benefit to the Joint Property and is incurred by the Operator in the
         necessary and proper conduct of the Joint Operations.

                                 III. OVERHEAD

1.       Overhead-Drilling and Producing Operations

         i.       As compensation for administrative, supervision, office
                  services and warehousing costs, Operator shall charge drilling
                  and producing operations on either:

                  (XXX)  Fixed Rate Basis, Paragraph 1A, or
                  (   )  [Intentionally Deleted]

                  Unless otherwise agreed to by the Parties, such charge shall
                  be in lieu of costs and expenses of all offices and salaries
                  or wages plus applicable burdens and expenses of all
                  personnel, except those directly chargeable under Paragraph
                  3A, Section II. The cost and expense of services from outside
                  sources in connection with matters of taxation, traffic,
                  accounting or matters before or involving governmental
                  agencies shall be considered as included in the overhead rates
                  provided for in the above selected Paragraph of this Section
                  III unless such cost and expense are agreed to by the Parties
                  as a direct charge to the Joint Account.

         ii.      The salaries, wages and Personal Expenses of Technical
                  Employees and/or the cost of professional consultant services
                  and contract services of technical personnel directly employed
                  on the Joint Property:

                  (   ) [Intentionally Deleted]
                  (XXX) shall not be covered by the overhead rates.

         iii.     The salaries, wages and Personal Expenses of Technical
                  Employees and/or costs of professional consultant services and
                  contract services of technical personnel either temporarily or
                  permanently assigned to and directly employed in the operation
                  of the Joint Property:

                  (   )  [Intentionally Deleted]
                  (XXX)  shall not be covered by the overhead rates.

                                      C-5
<PAGE>

         A.       Overhead-Fixed Rate Basis

                  (1)    Operator shall charge the Joint Account at the
                         following rates per well per month:

                         Drilling Well Rate $4,500.00
                                  (Prorated for less than a full month)

                         Producing Well Rate $500.00

                  (2)    Application of Overhead-Fixed Rate Basis shall be as
                         follows:

                         (a)    Drilling Well Rate

                                (1)     Charges for drilling wells shall begin
                                        on the date the well is spudded and
                                        terminate on the date the drilling rig,
                                        completion rig, or other units used in
                                        completion of the well is released,
                                        whichever is later, except that no
                                        charge shall be made during suspension
                                        of drilling or completion operations for
                                        fifteen (15) or more consecutive
                                        calendar days.

                                (2)     Charges for wells undergoing any type of
                                        workover or recompletion for a period of
                                        five (5) consecutive work days or more
                                        shall be made at the drilling well rate.
                                        Such charges shall be applied for the
                                        period from date workover operations,
                                        with rig or other units used in
                                        workover, commence through date of rig
                                        or other unit release, except that no
                                        charge shall be made during suspension
                                        of operations for fifteen (15) or more
                                        consecutive calendar days.

                         (b)    Producing Well Rates

                                (1)     An active well either produced or
                                        injected into for any portion of the
                                        month shall be considered as a one-well
                                        charge for the entire month.

                                (2)     Each active completion in a multi-
                                        completed well in which production is
                                        not commingled down hole shall be
                                        considered as a one-well charge
                                        providing each completion is considered
                                        a separate well by the governing
                                        regulatory authority.

                                (3)     An inactive gas well shut in because of
                                        overproduction or failure of purchaser
                                        to take the production shall be
                                        considered as a one-well charge
                                        providing the gas well is directly
                                        connected to a permanent sales outlet.

                                (4)     A one-well charge shall be made for the
                                        month in which plugging and abandonment
                                        operations are completed on any well.
                                        This one-well charge shall be made
                                        whether or not the well has produced
                                        except when drilling well rate applies.

                                (5)     All other inactive wells (including but
                                        not limited to inactive wells covered by
                                        unit allowable, lease allowable,
                                        transferred allowable, etc.) shall not
                                        qualify for an overhead charge.

                  (3)    The well rates shall be adjusted as of the first day of
                         April each year following the effective date of the
                         agreement to which this Accounting Procedure is
                         attached. The adjustment shall be computed by
                         multiplying the rate currently in use by the percentage
                         increase or decrease in the average weekly earnings of
                         Crude Petroleum and Gas

                                      C-6
<PAGE>

                         Production Workers for the last calendar year compared
                         to the calendar year preceding as shown by the index of
                         average weekly earnings of Crude Petroleum and Gas
                         Production Workers as published by the United States
                         Department of Labor, Bureau or Labor Statistics, or the
                         equivalent Canadian index as published by Statistics
                         Canada, as applicable. The adjusted rates shall be the
                         rates currently in use, plus or minus the computed
                         adjustment.

                         B.   [Intentionally Deleted]

2.       Overhead - Major Construction

         To compensate Operator for overhead costs incurred in the construction
         and installation of fixed assets, the expansion of fixed assets, and
         any other project clearly discernible as a fixed asset required for the
         development and operation of the Joint Property, Operator shall either
         negotiate a rate prior to the beginning of construction, or shall
         charge the Joint Account for overhead based on the following rates for
         any Major Construction project in excess of $_________________:

         A.     3% of first $100,000 or total cost if less, plus

         B.     2% of costs in excess of $100,000 but less than $1,000,000, plus

         C.     1% of costs in excess of $1,000,000.

         Total cost shall mean the gross cost of any one project. For the
         purpose of this paragraph, the component parts of a single project
         shall not be treated separately and the cost of drilling and workover
         wells and artificial lift equipment shall be excluded.

3.       Catastrophe Overhead

         To compensate Operator for overhead costs incurred in the event of
         expenditures resulting from a single occurrence due to oil spill,
         blowout. explosion, fire, storm, hurricane, or other catastrophes as
         agreed to by the Parties, which are necessary to restore the Joint
         Property to the equivalent condition that existed prior to the event
         causing the expenditures, Operator shall either negotiate a rate prior
         to charging the Joint Account or shall charge the Joint Account for
         overhead based on the following rates:

         A.     3% of total costs through $100,000; plus

         B.     2% of total costs in excess of $100,000 but less than
                $1,000,000, plus

         C.     1% of costs in excess of $1,000,000.

         Expenditures subject to the overheads above will not be reduced by
         insurance recoveries, and no other overhead provisions of this Section
         III shall apply.

4.       Amendment of Rates

         The overhead rates provided for in this Section III may be amended from
         time to time only by mutual agreement between the Parties hereto if, in
         practice, the rates are found to be insufficient or excessive.

               IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES,
                          TRANSFERS AND DISPOSITIONS

Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall be under no obligation to purchase,

                                      C-7
<PAGE>

interest of Non-Operators in surplus condition A or B Material. The disposal of
surplus Controllable Material not purchased by the Operator shall be agreed to
by the Parties.

1.       Purchases

         Material purchased shall be charged at the price paid by Operator after
         deduction of all discounts received. In case of Material found to be
         defective or returned to vendor for any other reasons, credit shall be
         passed to the Joint Account when adjustment has been received by the
         Operator.

2.       Transfers and Dispositions

         Material furnished to the Joint Property and Material transferred from
         the Joint Property or disposed of by the Operator, unless otherwise
         agreed to by the Parties, shall be priced on the following basis
         exclusive of cash discounts:

         A.       New Material (Condition A)

                  (1)    Tubular Goods Other than Line Pipe

                         (a)     Tubular goods, sized 2 3/8 inches OD and
                                 larger, except line pipe, shall be priced at
                                 Eastern mill published carload base prices
                                 effective as of date of movement plus
                                 transportation cost using the 80,000 pound
                                 carload weight basis to the railway receiving
                                 point nearest the Joint Property for which
                                 published rail rates for tubular goods exist.
                                 If the 80,000 pound rail rate is not offered,
                                 the 70,000 pound or 90,000 pound rail rate may
                                 be used. Freight charges for tubing will be
                                 calculated from Lorain, Ohio and casing from
                                 Youngstown, Ohio.

                         (b)     For grades which are special to one mill only,
                                 prices shall be computed at the mill base of
                                 that mill plus transportation cost from that
                                 mill to the railway receiving point nearest the
                                 Joint Property as provided above in Paragraph
                                 2.A.(1)(a). For transportation cost from points
                                 other than Eastern mills, the 30,000 pound Oil
                                 Field Haulers Association interstate truck rate
                                 shall be used.

                         (c)     Special end finish tubular goods shall be
                                 priced at the lowest published out-of-stock
                                 price, f.o.b. Houston, Texas, plus
                                 transportation cost, using Oil Field Haulers
                                 Association interstate 30,000 pound truck rate,
                                 to the railway receiving point nearest the
                                 Joint Property.

                         (d)     Macaroni tubing (size less than 2 3/8 inch OD)
                                 shall be priced at the lowest published out-of-
                                 stock prices f.o.b. the supplier plus
                                 transportation costs, using the Oil Field
                                 Haulers Association interstate truck rate per
                                 weight of tubing transferred, to the railway
                                 receiving point nearest the Joint Property.

                  (2)    Line Pipe

                         (a)     Line pipe movements (except size 24 inch OD and
                                 larger with walls 3/4 inch and over) 30,000
                                 pounds or more shall be priced under provisions
                                 of tubular goods pricing in Paragraph A.(1)(a)
                                 as provided above. Freight charges shall be
                                 calculated from Lorain, Ohio.

                         (b)     Line Pipe movements (except size 24 inch OD)
                                 and larger with walls 3/4 inch and over)
                                 less than 30,000 pounds shall be priced at
                                 Eastern mill published carload base prices
                                 effective as of date of shipment, plus 20
                                 percent, plus transportation costs based on
                                 freight rates as set forth under provisions
                                 of tubular goods pricing in Paragraph
                                 A.(l)(a) as provided above. Freight charges
                                 shall be calculated from Lorain, Ohio.

                                      C-8
<PAGE>

                         (c)     Line pipe 24 inch OD and over and 3/4 inch wall
                                 and larger shall be priced f.o.b. the point of
                                 manufacture at current new published prices
                                 plus transportation cost to the railway
                                 receiving point nearest the Joint Property.

                         (d)     Line pipe, including fabricated line pipe,
                                 drive pipe and conduit not listed on published
                                 price lists shall be priced at quoted prices
                                 plus freight to the railway receiving point
                                 nearest the Joint Property or at prices agreed
                                 to by the Parties.

                  (3)    Other Material shall be priced at the current new
                         price, in effect at date of movement, as listed by a
                         reliable supply store nearest the Joint Property, or
                         point of manufacture, plus transportation costs, if
                         applicable, to the railway receiving point nearest the
                         Joint Property.

                  (4)    Unused new Material, except tubular goods, moved from
                         the Joint Property shall be priced at the current new
                         price, in effect on date of movement, as listed by a
                         reliable supply store nearest the Joint Property, or
                         point of manufacture, plus transportation costs, if
                         applicable, to the railway receiving point nearest the
                         Joint Property. Unused new tubulars will be priced as
                         provided above in Paragraph 2.A.(l) and (2).

         B.       Good Used Material (Condition B)

                  Material in sound and serviceable condition and suitable for
reuse without reconditioning:

                  (1)    Material moved to the Joint Property

                         At seventy-five percent (75%) of current new
price, as determined by Paragraph A.

                  (2)    Material used on and moved from the Joint Property

                         (a)      At seventy-five percent (75%) of current new
                                  price, as determined by Paragraph A, if
                                  Material was originally charged to the Joint
                                  Account as new Material or

                         (b)      At sixty-five percent (65%) of current new
                                  price, as determined by Paragraph A, if
                                  Material was originally charged to the Joint
                                  Account as used Material

                  (3)    Material not used on and moved from the Joint Property

                         At seventy-five percent (75%) of current new price as
                         determined by Paragraph A.

                  The cost of reconditioning, if any, shall be absorbed by the
                  transferring property.

         C.       Other Used Material

                  (1)     Condition C

                          Material which is not in sound and serviceable
                          condition and not suitable for its original function
                          until after reconditioning shall be priced at fifty
                          percent (50%) of current new price as determined by
                          Paragraph A. The cost of reconditioning shall be
                          charged to the receiving property, provided Condition
                          C value plus cost of reconditioning does not exceed
                          Condition B value.

                  (2)     Condition D

                          Material, excluding junk, no longer suitable for its
                          original purpose, but usable for some other purpose
                          shall be priced on a basis commensurate with its use.
                          Operator may dispose of Condition D Material under
                          procedures normally used by Operator without prior
                          approval of Non-Operators.

                                      C-9
<PAGE>

                  (a)     Casing, tubing, or drill pipe used as line pipe shall
                          be priced as Grade A and B seamless line pipe of
                          comparable size and weight. Used casing, tubing or
                          drill pipe as line pipe shall be priced at used line
                          pipe prices.

                  (b)     Casing, tubing or drill pipe used as higher pressure
                          service lines than standard line pipe, e.g. power oil
                          lines, shall be priced under normal pricing procedures
                          for casing, tubing, or drill pipe. Upset tubular goods
                          shall be priced on a non upset basis.

         (3)      Condition E

                  Junk shall be priced at prevailing prices. Operator may
                  dispose of Condition E Material under procedures normally
                  utilized by Operator without prior approval of Non-Operators.

   D.    Obsolete Material

         Material which is serviceable and usable for its original function but
         condition and/or value of such Material is not equivalent to that which
         would justify a price as provided above may be specially priced as
         agreed to by the Parties. Such price should result in the Joint Account
         being charged with the value of the service rendered by such Material.

   E.    Pricing Conditions

        (1)      Loading or unloading costs may be charged to the Joint Account
                 at the rate of twenty-five cents (25(cent)) per hundred weight
                 on all tubular goods movements, in lieu of actual loading or
                 unloading costs sustained at the stocking point. The above rate
                 shall be adjusted as of the first day of April each year
                 following January 1, 1985 by the same percentage increase or
                 decrease used to adjust overhead rates in Section III,
                 Paragraph 1.A.(3). Each year, the rate calculated shall be
                 rounded to the nearest cent and shall be the rate in effect
                 until the first day of April next year. Such rate shall be
                 published each year by the Council of Petroleum Accountants
                 Societies.

        (2)      Material involving erection costs shall be charged at
                 applicable percentage of the current knocked-down price of new
                 Material.

3.       Premium Prices

         Whenever Material is not readily obtainable at published or listed
         prices because of national emergencies, strikes or other unusual causes
         over which the Operator has no control, the Operator may charge the
         Joint Account for the required Material at the Operator's actual cost
         incurred in providing such Material, in making it suitable for use, and
         in moving it to the Joint Property; provided notice in writing is
         furnished to Non-Operators of the proposed charge prior to billing
         Non-Operators for such Material. Each Non-Operator shall have the
         right, by so electing and notifying Operator within ten days after
         receiving notice from Operator, to furnish in kind all or part of his
         share of such Material suitable for use and acceptable to Operator.

4.       Warranty or Material Furnished By Operator

         Operator does not warrant the Material furnished. In case of defective
         Material, credit shall not be passed to the Joint Account until
         adjustment has been received by Operator from the manufacturers or
         their agents.

                                     C-10
<PAGE>

                                V. INVENTORIES

Operator shall maintain detailed records of Controllable Material.

1.       Periodic Inventories, Notice and Representation

         At reasonable intervals, inventories shall be taken by Operator of the
         Joint Account Controllable Material. Written notice of intention to
         take inventory shall be given by Operator at least thirty (30) days
         before any inventory is to begin so that Non-Operators may be
         represented when any inventory is taken. Failure of Non-Operators to be
         represented at an inventory shall bind Non-Operators to accept the
         inventory taken by Operator.

2.       Reconciliation and Adjustment of Inventories

         Adjustments to the Joint Account resulting from the reconciliation of a
         physical inventory shall be made within six months following the taking
         of the inventory. Inventory adjustments shall be made by Operator to
         the Joint Account for overages and shortages, but, Operator shall be
         held accountable only for shortages due to lack of reasonable
         diligence.

3.       Special Inventories

         Special inventories may be taken whenever there is any sale, change of
         interest, or change of Operator in the Joint Property. It shall be the
         duty of the party selling to notify all other Parties as quickly as
         possible after the transfer of interest takes place. In such cases,
         both the seller and the purchaser shall be governed by such inventory.
         In cases involving a change of Operator, all Parties shall be governed
         by such inventory.

4.       Expense of Conducting Inventories

         A.       The expense of conducting periodic inventories shall not be
                  charged to the Joint Account unless agreed to by the Parties.

         B.       The expense of conducting special inventories shall be charged
                  to the Parties requesting such inventories, except inventories
                  required due to change of Operator shall be charged to the
                  Joint Account.


                                     C-11
<PAGE>

                                  EXHIBIT "D"

Attached to and made a part of that certain Operating Agreement dated April 6,
2001, between Moose Operating Company, Inc., as Operator and Houston American
Energy Corp., as Non-Operator.

     The Operator shall carry the following minimum insurance to cover the risk
of accidents and/or damages to persons and/or property which may occur in the
course of operations conducted under this Agreement, and proportionate part of
the premium of such insurance, determined on some equitable basis consistent
with Operator's accounting practice, to be charged to the Joint Account:

     (1)  Workmen's Compensation Insurance and Employer's Liability Insurance in
          amounts sufficient to comply with the laws of the State where such
          operations are conducted and where the property subject hereto is
          located.

     (2)  Occurrence Limit of Liability of $1,000,000; Personal and Advertising
          limit of Liability of $1,000,000; Products/Completed Operations
          aggregate limits of Liability of $1,000,000; General aggregate limit
          of Liability of $ 1,000,000.

     (3)  Automobile Insurance in the amount of $500,000 for injury or death of
          one person and $500,000 for injury or death of more than one person in
          any one automobile accident, and Property Damage Insurance to the
          extent of $250,000 as an aggregate for any automobile accident.

     (4)  Excess liability coverage with a limit of $1,000,000 for bodily injury
          and property damage combined.

     (5)  Operators Extra Insurance or loss of well control insurance with a
          limit of at least $1,000,000 to cover cost of regaining control of a
          blowout.

     Operator may carry insurance for the benefit of the Joint Account covering
loss or damage to the jointly owned property or production therefrom caused by
fire, explosion, windstorm, tornado, flood, vandalism, malicious mischief, or
other extended perils, a proportionate part of the premium on such insurance,
determined on some equitable basis consistent with Operator's accounting shall
be charged with all loss and expenditures caused or incurred as the result of
any other casualty for which Operator is not required to carry insurance
hereunder.

     Operator shall not be liable to Non-Operators for loss suffered on account
of the insufficiency of insurance carried or of the insurance with whom carried,
nor shall Operator be liable to Non-Operators for any loss accruing by reason of
Operator's inability to provide or maintain the insurance above mentioned;
provided, however, that if at any time during the life of this agreement
Operator is unable to obtain or maintain such insurance, Operator shall promptly
notify Non-Operators in writing of such fact.

                                      D-1
<PAGE>

                                  EXHIBIT "E"

Attached to and made a part of that certain Operating Agreement dated April 6,
2001, between Moose Operating Co., Inc., as Operator, and Houston American
Energy Corp., as Non-Operator.

                             GAS BALANCING AGREEMENT
                             -----------------------

                    INTENT OF THIS GAS BALANCING AGREEMENT

     The parties to this gas balancing agreement ("GBA") intend to provide a
method of balancing as production from the lease(s) or unit(s) subject to the
Operating Agreement when a party does not take its proportionate share of
production.

     Pursuant to the Operating Agreement, each party is obligated to take in
kind and/or separately dispose of its proportionate share of the gas produced
from the above stipulated lease or unit and a good faith effort to dispose of
its share of gas as currently produced. In the event any party hereto fail, or
is unable to comply with its aforesaid obligation to take in kind and/or market
its share of the gas as produced, the terms of this GBA shall automatically
become effective, and shall supersede any relevant contrary terms in the
Operating Agreement (unless otherwise noted herein).

     As long as any gas produced from the lease(s) or unit(s) is subject to the
regulations of the Federal Energy Regulatory Commission (FERC), or any successor
governmental authority, under any section of the Natural Gas Policy Act of 1978
(NGPA), or other statutory authority which establishes maximum lawful prices for
the gas, each party shall receive its allocated share of each pricing category
of gas in accordance with its working interest in the lease(s) or unit(s). It is
the intent of this GBA that balancing of gas will be based upon the allocated
volumes of each category of gas. Any deregulated gas, including gas deregulated
in the future, shall be treated as a separate category for purposes of
balancing.

     The terms "party" and "parties" shall be considered to imply either the
singular or plural form of the word as applicable according to the context.

                             OVER/UNDER PRODUCTION
                             ---------------------

     During any period or periods when any party hereto fails, or is unable to
comply with its aforesaid obligation to take in kind and/or market its share of
gas as produced, the other party(ies) shall be entitled, but not required, to
produce each month the maximum amount of gas production permitted by the
appropriate governmental authority having jurisdiction and deliver to their
purchaser(s) all gas production not taken by the underproduced party. Each party
failing to take or market its full share of gas as produced shall be considered
underproduced by a quantity of gas equal to its share of the gas produced, less
such party's share of the gas it takes or sells less it's share of gas vented,
lost, or used in the lease(s) or unit(s) operations. Those parties which are
capable of taking and/or marketing quantities of gas allocable to an
underproduced party, in the absence of any other agreement between them, shall
each take a share of the gas attributed to the underproduced party in the direct
proportion that its interest bears to the total interest of all parties taking
underproduced gas and shall be considered to be overproduced. All gas taken and
marketed by a party in accordance with the terms of this GBA, regardless of
whether such party is underproduced or overproduced, shall be regarded as gas
taken for its own account with title thereto being in such party, whether such
gas is attributable.

     If it is determined by the Operator in good faith that (i) damage may be
caused to the reservoir and/or (ii) reserves or leases would be lost as a result
of shutting in the well(s) for any reason other than normal operations, the
party(ies) shall not be allowed to shutin their entitlement share of production.
Subject to lessor/royalty obligations, the parties may curtail production from
the well(s) to an agreed upon rate (that will not cause reservoir damage or
reserve or lease loss) if all parties agree to take their entitlement share of
this reduced rate. Therefore, no imbalance will accrue as a result of the
curtailed production.

                                      E-1
<PAGE>

                           ACCOUNTING FOR IMBALANCE

     The Operator will maintain appropriate accounting on a monthly and
cumulative basis of the quantities and categories of gas each party is entitled
to receive and the quantities and categories of gas taken and/or marketed by
each of the parties. The monthly statement provided by the Operator will include
the total quantity of gas produced, the amount used in lease operations vented
or lost, and the total quantity of liquid hydrocarbons recovered in MMBTU's and
MCF'S at 14.65 PSIA. For the sole purpose of implementing the terms of this GBA
and adjusting gas imbalances which may occur, each party disposing of gas from
the lease(s) or unit(s) in any month, to the extent required, shall furnish or
cause to be furnished to the Operator by the last day of each calendar month a
statement showing the total volume of gas sold by such party or taken in kind
for its own account during the preceding calendar month (the "Report Period").
Within sixty (60) days after the end of each Report Period, the Operator shall
furnish each party a statement showing the status of the overproduced and
underproduced account of all parties. All gas volumes under this paragraph will
be identified by the appropriate category under the NGPA or any other law or
regulation in effect including deregulated gas, as appropriate. Each party to
this GBA agrees that it will not utilize any information obtained hereunder for
any purpose other than implementing the terms of this agreement.

     At least twice a year, the Operator will furnish a statement which compares
the cumulative imbalance to the remaining reserves. If an overproduced party has
taken more gas than his share of remaining reserves, he will not be allowed to
take or sell gas until the imbalance is made up.

                                  GAS MAKEUP

     Any party underproduced as to a given category of gas shall endeavor to
bring its taking of gas of that category into balance. Fifteen (15) days after
written notice to the Operator, any party may begin taking and/or delivering to
its purchaser(s) its full share of each category of gas produced. In addition,
to allow for the recovery and makeup of underproduced gas in a category and to
balance the gas account for the category between the parties in accordance with
their respective interests, the underproduced party shall be entitled to take an
additional share of gas ("makeup gas"). Fifteen (15) days after written notice
to the Operator, the underproduced party shall be entitled to take up to an
additional fifty percent (50%) of the monthly quantity of that category of gas
attributable to the overproduced party; however, in no event shall the makeup
gas entitlement of a party exceed one hundred percent (100%) of that party's
regular working interest entitlement of production. If more than one
underproduced party is entitled to take additional gas, they shall divide the
makeup gas in proportion to their respective underproduced accounts. The first
gas made up shall be assumed to be the first gas underproduced.

     It is specifically agreed that no underproduced party will be allowed to
take makeup gas during the months of November, December, January, or February
(the "Winter Period"). However, gas makeup will be allowed during the Winter
Period if the underproduced party has taken gas to which it was entitled during
the six (6) consecutive months immediately prior to the winter period.

                            ASSIGNMENT OF INTEREST

     In the event an overproduced party intends to sell, assign, exchange or
otherwise transfer any of its interest in the lease or unit to which this GBA
applies, such overproduced party shall notify in writing the other working
interest owners who are parties hereto within forty-five (45) days prior to
closing the transaction. The notice provided by the overproduced party shall set
forth the most recent gas imbalance on the property being assigned. Any
underproduced party may demand in writing within twenty (20) days after receipt
of the overproduced party's notice: (i) a cash settlement attributed to such
overproduction in the lease(s) or unit(s), or (ii) natural gas of like grade,
quantity and quality from another mutually agreeable source. Upon receiving such
demand, the overproduced party shall have sixty (60) days to effect cash
settlement or agree with the underproduced party upon an alternate source of
makeup gas. Any underproduced party electing to cash settle with the
overproduced party shall thereby indemnify and hold the overproduced party
harmless against any causes of action, claims, losses or other actions which may
be claimed by any third party.

     The Operator shall be notified of any such demand and of any cash
settlement or agreement between the parties hereto to makeup gas in kind
pursuant to this section and the gas balance accounts of the parties shall be
adjusted accordingly. Any cash settlement pursuant to this section shall be on
the same basis as otherwise set forth in the sections entitled GAS MAKE-UP and
CESSATION OF PRODUCTION hereunder.

                                      E-2
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     In the event the imbalance is not settled prior to the conveyance of the
interest, the purchaser, assignee, or transfer partner of an overproduced or
underproduced party will accept the responsibility of the previous imbalance
related to that overproduced or underproduced party as part of the purchase,
assignment, or trade. A statement shall be furnished to the operator
acknowledging the acceptance of this responsibility.

     The provisions of this section shall not be applicable in the event an
overproduced party has disposed of its interest by transfer of its assets, in
whole or in part, to a subsidiary or parent company in which such parent or
subsidiary owns a majority interest in such overproduced party.

                            CESSATION OF PRODUCTION

     If, at the permanent cessation of production of a given category of gas, an
imbalance exists between the parties, a monetary settlement of the imbalance
between the parties shall be made within one hundred eighty (180) days after
production permanently ceases. The amount of the monetary settlement will be
equal to the amount actually received by the overproducer party for the sales
during the month(s) of overproduction less production taxes, severance taxes,
and other reasonable costs associated with the transportation previously paid on
the overproduction by the overproduced party, and also net of any outstanding
amounts related to the lease(s) or unit(s) which are owed by the underproduced
party to the overproduced party. Such remittance shall be based on the number of
MMBTU's of the overproduction and shall be accompanied by a statement showing
volumes and prices of each month of accrued overproduction. If the overproduced
party did not sell its gas, but otherwise utilized such gas in its own
operations, such gas will be valued in the same manner used for royalty and
severance tax purposes when produced. That portion of the monies collected by
the overproduced party which is subject to refund by orders of the FERC may be
withheld by the overproduced party until such prices are fully approved by the
FERC, unless the underproduced party furnishes a corporate undertaking agreeing
to hold the overproduced party harmless from financial loss due to refund orders
by the FERC. It shall be the responsibility of the overproduced party(ies) and
underproduced party(ies) to finalize the subject monetary settlement(s).

     Notwithstanding the above, by mutual consent the parties may elect to
balance gas of like quality and vintage from a source other than lease(s) or
unit(s) subject to the Operating Agreement to which this GBA is attached. The
gas used to balance shall be from a designated area mutually agreed to by the
parties of this GBA. In the event that the parties cannot mutually agree to
balance in kind under this provision within ninety (90) days of notice electing
to balance in kind, the gas imbalance shall be settled under the first paragraph
of this section.

                              ROYALTY SETTLEMENT

     Except where provision is made to the contrary in the Operating Agreement,
or otherwise required by any State or Federal law or regulation, at all times
while gas is produced from the lease or unit, each party shall pay, or cause to
be paid, all royalty due and payable on its share of gas production actually
taken. Each party agrees to hold each other party harmless from any and all
claims for royalty payments asserted by its royalty owners. The term "royalty
owner" shall include owners of royalty, overriding royalties, production
payments, and similar interests.

                             DELIVERABILITY TESTS

     Nothing herein shall be construed to deny any party the right, from time to
time, upon reasonable advance notice in writing to the operator, to produce and
take or deliver to its purchaser the full well stream for a reasonable period to
meet the deliverability test required by its purchaser.

                                     TAXES

     Each party shall pay, or cause to be paid, all production and severance
taxes due and payable on all gas production actually taken or sold by such
party.

                              LIQUID HYDROCARBONS

     All parties hereto shall share in and own the liquid hydrocarbons recovered
from all gas by primary separation equipment prior to processing in a gas plant
in accordance with their respective interests, as specified in the Operating
Agreement, whether or not such parties are actually producing and marketing gas
at such time.

                                      E-3
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                             LEASE OPERATING COSTS

     Nothing herein shall change or affect each party's obligation to pay its
proportionate share of all costs and liabilities incurred in operations, as its
share thereof is set forth in the Operating Agreement.

                                     TERM

     This agreement shall remain in force and effect as long as the Operating
Agreement is in effect and thereafter until the gas balance accounts between the
parties are settled in full and shall accrue to the benefit and be binding upon
the parties hereto, their successors, representatives, and assigns.

                                    AUDITS

     Any underproduced party shall have the right for a period of two (2) years
after receipt of payment pursuant to a final accounting and after giving written
notice to all parties, to audit an overproduced party's accounts and records
relating to such payment. Any overproduced party shall have the right for a
period of two (2) years after tender of payment for unrecouped volumes and upon
giving written notice to all parties, to audit an underproduced party's records
as to volumes. The party conducting such audit shall bear its costs of the
audit. Additionally, Operator shall have the right for a period of two (2) years
after receipt of an annual statement from a Non-Operator after giving written
notice to the affected Non-Operator, to audit such Non-Operator's accounts and
records relating to such payment. Costs of such audit shall be borne by the
joint account.

                                      E-4
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                   THERE IS NO EXHIBIT "F" TO THIS AGREEMENT

                                      F-1
<PAGE>

                   THERE IS NO EXHIBIT "G" TO THIS AGREEMENT


                                      G-1