COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

                                                  1420 STANDARD LIFE BUILDING
                                                     639 - 5TH AVENUE S.W.
                                                CALGARY, ALBERTA, CANADA T2P 0M9
                                                         (403) 261-8680


                                               February 1, 1977


Canada Southern Petroleum Ltd.              Dome Petroleum Limited
505 - 8th Avenue S.W.                       P.O. Box 200
Calgary, Alberta                            Calgary, Alberta
T2P 1G2                                     T2P 2H8

Attention:      Mr. M. A. Reasoner          Attention:      Mr. D. Alan Espey

Amoco Canada Petroleum Company Ltd.         Alminex Limited
444 - 7th Avenue S.W                        #300, 407 - 8th Avenue S.W.
Calgary, Alberta                            Calgary, Alberta
T2P 0Y2                                     T2P 1E5

Attention:      Mr. Jack Lee                Attention:      Mr. Jim McDonald

Gentlemen:

                         Re: North Beaver River Prospect

         The  following  is a summary of the basic  terms and  conditions  under
which  Columbia  Gas  Development  of Canada  Ltd.  (Columbia)  will  acquire an
interest in the Block A lands (as  hereinafter  defined)  from  Canada  Southern
Petroleum Ltd. (Canada  Southern),  Dome Petroleum Limited (Dome),  Amoco Canada
Petroleum Company Ltd. (Amoco),  and  Alminex  Limited  (Alminex),  collectively
referred to as the Farmors.

I.       DEFINITIONS

                  In this agreement:

         a)       Block A lands shall mean the  Block I  lands and the  Block II
                  lands.

         b)       Block I lands shall mean the lands so described in Schedule  A
                  attached hereto.

         c)       Block II lands shall mean the lands so described in Schedule A
                  attached hereto.


<PAGE>

         d)       Leases shall mean the documents of title under which the Block
                  A lands are held which Leases are more particularly  described
                  in Schedule A attached hereto.

         e)       HS-CMO  Agreement shall mean that agreement dated May 28, 1959
                  and entered into by Canada Southern  Petroleum Ltd.,  Magellan
                  Petroleum Corporation, Oil Investments, Inc., Home Oil Company
                  Limited, Kern County Land Company,  Alminex Limited and Signal
                  Oil and Gas Company.

         f)       ADP-CMO  Agreement  shall mean that  agreement  dated April 1,
                  1966 and  entered  into by  Canada  Southern  Petroleum  Ltd.,
                  Magellan Petroleum Corporation, Oil Investments, Inc., Alminex
                  Limited,  Pan American Petroleum  Corporation,  Dome Petroleum
                  Limited, and Provo Gas Producers Limited.

         g)       Existing Agreements shall mean  the  HS-CMO  and  the  ADP-CMO
                  Agreements.

         h)       Carried  Interest   Provisions  shall  mean  those  provisions
                  contained  within  Schedule D attached to and forming  part of
                  the HS-CMO Agreement as added by the ADP-CMO Agreement.

         i)       Carried  Interest  Account  shall mean the amount by which the
                  operational  costs  relating  to the Block A lands  exceed the
                  operational  receipts  relating  to the Block A lands as those
                  costs  and  receipts  are  defined  in  the  Carried  Interest
                  Provisions.

         j)       "spacing  unit"  shall have  the  meaning  given  to it in the
                  HS-CMO Agreement.


II.      BLOCK A LANDS

                  It is Columbia's understanding and the Farmors represent that:

         a)       The  Block  A lands  are  held by the  parties  hereto  in the
                  percentages of working interest (WI) and carried interest (CI)
                  as shown in Schedule A attached hereto.

         b)       The Block A lands are in good standing  and  are  unencumbered
                  with the exception of:

                  (1)      applicable lessor's royalties.

                  (2)      a 1.5625% Gross  Overriding  Royalty  payable  to the
                           Catawba Corporation.

                  (3)      a 2.5% Gross Overriding Royalty payable to Neil Tracy
                           by virtue of an agreement dated May 28, 1957  between
                           Canada Southern Petroleum Ltd. and Neil Tracy.


<PAGE>

         c)       The Carried Interest Account presently stands at approximately
                  $360,000.00.

         d)       Operations on the Block A lands are governed  by the  Existing
                  Agreements.


III.     RENTALS

                  Columbia  will  reimburse  the Farmors on a per diem basis for
         all  rentals  attributable  to the Block I lands  from the date  hereof
         until  Columbia  has earned its interest in the Block I lands as herein
         provided.   Columbia   will  also   reimburse   the   Farmors  for  its
         proportionate  share of the rentals  attributable to the Block II lands
         on a per diem basis from and after the date hereof.  After Columbia has
         earned its interest hereunder rentals shall be shared by the parties in
         accordance with the Existing Agreements.


IV.      TEST WELL

                  Columbia undertakes, during the 1976-77 winter drilling season
         to make its best  efforts to  commence a well (Test Well) at a location
         of its choice, but in proximity to the North Beaver River YT I-27 well,
         and will thereafter, at its sole cost, risk and expense, drill the same
         to a depth  sufficient  to test the Nahanni  Formation or to a depth of
         10,000  feet  sub-sea,   whichever  occurs  first  (hereinafter  called
         Contract  Depth),  and  upon  reaching  Contract  Depth  will  test and
         complete  or abandon the same in  accordance  with  generally  accepted
         oilfield  practice and  applicable  government  regulations.  If due to
         circumstances  beyond its control  Columbia  is unable to commence  the
         Test  Well  during  the  1976-77  winter  drilling   season,   Columbia
         undertakes  to  drill  the Test  Well in the  1977-78  winter  drilling
         season.


V.       SUBSTITUTIONAL WELL

                  If in the drilling and/or completing of the Test Well Columbia
         encounters  severe  operating  difficulties  of a mechanical  nature or
         impenetrable  formations  which render  further  drilling or completion
         impractical  or impossible  Columbia  shall give notice  thereof to the
         Farmors and may then abandon the well. Upon abandonment  Columbia shall
         have the right, but not the obligation,  to commence within 60 days the
         drilling of a like well in close proximity to the Test Well and in this
         event the substitute well shall be deemed to be the Test Well.



<PAGE>

VI.      ABANDONMENT

                  If  Columbia  wishes  at any time to  abandon  the  Test  Well
         Columbia  shall give notice  thereof to the Farmors.  The Farmors shall
         have the right, jointly or severally, within 48 hours of receipt of the
         notice to elect to take over and attempt to complete the Test Well.  If
         the Farmor(s)  successfully  completes  the well for the  production of
         petroleum substances, Columbia shall assign to the Farmor(s) all of its
         right,  title and  interest  in the Test Well and the  spacing  unit on
         which the same is located.  Concurrently, the Farmor(s) shall reimburse
         Columbia for the estimated salvage value of the salvagable material and
         equipment   assigned  to  the  Farmor(s)  and  Columbia  shall  not  be
         responsible for any subsequent abandonment or completion costs.


VII.     DATA

                  In the drilling of the Test Well Columbia shall furnish to the
         Farmors on a current basis all pertinent  data relating to the drilling
         and/or  completion of the Test Well.  All  information  acquired by the
         parties hereto relating to the Test Well shall be held  confidential by
         the parties and shall not be divulged to any third party unless  agreed
         to in writing by each of the Farmors and Columbia.


VIII.    COMPLETION

                  In the event the Test Well is capable of producing natural gas
         in paying  quantities,  Columbia  undertakes at its sole cost, risk and
         expense,  to provide and install the necessary  facilities to place the
         Test Well on production.


IX.      INTEREST EARNED FROM DOME, AMOCO AND ALMINEX

                  Upon drilling the Test Well to Contract  Depth and  completing
         or abandoning  same as herein  provided,  Columbia will have earned and
         Dome, Amoco and Alminex will assign to Columbia,  an undivided one-half
         of each of such parties  beneficial  interest (working interest) in and
         to the Block I lands.



<PAGE>

X.       INTEREST EARNED FROM CANADA SOUTHERN

                  Upon drilling the Test Well to Contract  Depth and  completing
         or abandoning the same as herein provided,  Canada Southern will reduce
         its  50%  carried  interest  in and to the  Block  A  lands  (excepting
         therefrom  Sections 27 and 50 contained  within Lease No.  411-68) to a
         33.33%  carried  interest  and convert  the  remaining  16.66%  carried
         interest to a 16.66% working  interest which will thereupon be assigned
         to Columbia.  In addition,  Canada  Southern will assign to Columbia an
         undivided  16.66%  working  interest  in  and  to  Sections  27  and 50
         contained within Lease No. 411-68.


XI.      CARRIED INTEREST

                  Upon  Columbia   earning  its  interest  as  herein  provided,
         Sections 27 and 50 contained  within Lease No.  411-68 shall  thereupon
         also be subject  to the  Carried  Interest  Provisions  so that  Canada
         Southern's  resultant  interest  in all of the Block A lands will be in
         the nature of a 33.33%  carried  interest and be subject to the Carried
         Interest Provisions.

                  For greater  certainty,  each of the working  interest owners,
         including Columbia, will thereafter bear its proportionate share of the
         obligation to advance the operational costs on Canada Southern's behalf
         so that the obligations and beneficial  interest of each party would be
         as follows:

         (a)      Section 27 contained within Lease No. 411-68:

                  Company              Obligation        Beneficial Interest

         Dome                            34.69%          23.13% working interest
         Columbia                        65.31%          43.54% working interest
         Canada Southern                  0.00%          33.33% carried interest

         (b)      Balance of the Block I lands:

                  Company              Obligation        Beneficial Interest

         Dome                            15.61%          10.41% working interest
         Columbia                        63.77%          42.51% working interest
         Amoco                           18.75%          12.50% working interest
         Alminex                          1.87%           1.25% working interest
         Canada Southern                  0.00%          33.33% carried interest


<PAGE>

         (c)      Block II lands:

                  Company              Obligation        Beneficial Interest

         Dome                            33.75%          22.50% working interest
         Columbia                        25.00%          16.67% working interest
         Amoco                           37.50%          25.00% working interest
         Alminex                          3.75%           2.50% working interest
         Canada Southern                  0.00%          33.33% carried interest

XII.     ALLOCATION OF REVENUE

                  Notwithstanding anything herein contained to the contrary, the
         parties agree that all revenue  generated from the Block I lands (after
         deducting all royalties and operating costs) shall accrue  concurrently
         and proportionately to:

         (1)      Columbia  until Columbia has recovered the total cost incurred
                  by Columbia related to the drilling, completing and placing on
                  production of the Test Well and,

         (2)      the Farmors  (excluding  Canada  Southern)  until such time as
                  they have  recovered  an amount  equal to that  portion of the
                  Carried  Interest Account which is attributable to the Block I
                  lands. Columbia shall be entitled to conduct an audit of those
                  amounts  which  have been  included  in the  Carried  Interest
                  Account.

                  For greater certainty it is intended that the Carried Interest
         Account (as the same  relates to the Block I lands)  shall be recovered
         by the parties advancing the same concurrently and proportionately with
         Columbia recovering its costs as herein stated. Thereafter, all revenue
         generated  from the Block I lands (after  deducting  all  royalties and
         operating  costs),  shall  accrue to  Columbia  in an  amount  equal to
         Columbia's  beneficial  interest  in the  spacing  unit from  which the
         revenue  is  obtained  and the  balance  shall  accrue  to the  Farmors
         (excepting  Canada  Southern)  until  such  time  as the  Farmors  have
         recovered  the balance of the  Carried  Interest  Account.  Thereafter,
         revenue shall be shared by the parties in accordance with their working
         or carried  interest,  whichever  the case may be, in the spacing  unit
         from which such revenue is obtained.



<PAGE>

XIII.    OPERATIONS

                  After Columbia has earned its interest  hereunder,  operations
         on the Block I lands shall be conducted in accordance with the Existing
         Agreements as hereby amended, and Columbia shall act as Operator. It is
         proposed that the overhead rates in the existing  accounting  procedure
         be revised to more accurately  reflect  current rates.  Notwithstanding
         the above, the parties  undertake to enter into a more formal agreement
         which would  incorporate  the terms hereof and  incorporate  also those
         provisions of the Existing Agreements which remain in effect.

                  With respect to the Block II lands the Existing  Agreements as
         hereby amended shall continue in full force and effect.


XIV.     PRIOR AGREEMENTS TERMINATED

                  That Agreement entered into by Canada Southern Petroleum Ltd.,
         Dome  Petroleum  Limited and Provo Gas Producers Ltd. dated January 10,
         1963 is hereby  terminated.  Furthermore,  that Letter  Agreement dated
         June 24, 1959 entered into by Canada Southern, Home Oil Company Limited
         and Signal Oil and Gas Company is hereby also terminated.


XV.      ALLOCATION OF CREDITS

                  Any grouping or work credits  generated by the drilling of the
         Test Well shall be shared equally between Columbia and the Farmors.


XVI.     INDEMNITY

                  Columbia undertakes to indemnify and hold harmless the Farmors
         from and against any or all claims,  demands,  suits or actions arising
         out of Columbia's operations hereunder.


XVII.    INSURANCE

                  Columbia will comply with the requirements contained in Clause
         I  of  the  HS-CMO  Agreement   relating  to  insurance  and  workman's
         compensation.   The  limits  of  insurance  required  therein  will  be
         increased to reflect current costs.



<PAGE>

XVIII.   ALLOCATION OF COSTS

                  The parties agree that all items of cost under this  agreement
         (including  without  limitation  intangible  drilling  and  development
         expenses,  depletion,  lease rentals,  dry hole costs and depreciation)
         shall be allocated to the party which contributed the funds therefore.


         If the above sets out your  understanding of the terms of our agreement
please so indicate  by signing and  returning  the  attached  copy hereof to the
writer at your earliest convenience.

         When accepted by all parties this letter will form a binding  agreement
and continue in effect until replaced by more formal documentation.

         It is our understanding  that in executing this Letter Agreement Canada
Southern is acting on its own behalf and is authorized  also to act on behalf of
its partners, Magellan Petroleum Corporation and Oil Investments, Inc.

                                              Yours very truly,

                                         COLUMBIA GAS DEVELOPMENT OF CANADA LTD.



                                              R. W. Prather


CANADA SOUTHERN PETROLEUM LTD.                DOME PETROLEUM LIMITED

Per:  ____________________________            Per:  ____________________________


AMOCO CANADA PETROLEUM COMPANY                ALMINEX LIMITED
                       LIMITED

Per:  ____________________________            Per:  ____________________________



Enc.


<PAGE>


                                                                     Page 1 of 2

                 SCHEDULE A attached to and forming part of
                 Letter Agreement  Dated  January 27, 1977
                 Between Canada Southern Petroleum Ltd.,
                 Dome Petroleum Limited, Amoco Canada Petroleum
                 Company Ltd. and Alminex Limited and Columbia
                 Gas Development of Canada Ltd.
                 ----------------------------------------------

In the attached  Letter  Agreement  "Block A lands" shall mean Block I lands and
Block II lands as  hereinafter  described,  and  "leases"  shall mean the leases
hereinafter stated.

BLOCK I LANDS

<TABLE>
<CAPTION>
         Lease                 Date                    Description                            Ownership
         -----                 ----                    -----------                            ---------
<S>                            <C>                     <C>                                    <C>             <C>
DIAND Oil & Gas                Jan. 7/69               60(degree)10' N - 124(degree)00' W:    Dome            20.81% WI
Lease #442-R-68                                        Sec's 6-10 & 16-20                     Columbia         1.69% WI
                                                                                              Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Jan. 7/69               60(degree)10' N - 124(degree)00' W:    Section 50    
                                                                                              ----------    
Lease #411-68                                          Sec's 26-30, 36-40 and                 Dome            20.81% WI
                                                       46-50.                                 Columbia         1.69% WI
                                                                                              Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% WI
                                                                                                            
                                                                                              Section 27    
                                                                                              ----------
                                                                                              Dome            46.25% WI
                                                                                              Columbia         3.75% WI
                                                                                              Can Southern    50.00% WI
                                                                                                           
                                                                                              Sections 26, 28-30, 36-40
                                                                                              and 46-49                        
                                                                                              -------------------------
                                                                                              Dome            20.81% WI
                                                                                              Columbia         1.69% WI
                                                                                              Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Jan. 7/69               60(degree)10' N - 124(degree)00' W:    Dome            20.81% WI
Lease #443-R-68                                        Sec's 56-60                            Columbia         1.69% WI
                                                                                              Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
</TABLE>


<PAGE>

                                                                     Page 2 of 2

BLOCK I LANDS (Cont'd)

<TABLE>
<CAPTION>
         Lease                 Date                    Description                            Ownership
         -----                 ----                    -----------                            ---------
<S>                            <C>                     <C>                                    <C>             <C>
DIAND Oil & Gas                Jan. 7/69               60(degree)10' N - 124(degree)00' W:    Dome            20.81% WI
Lease #412-68                                          Sec's 66-70                            Columbia         1.69% WI
                                                                                              Anioco          25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Jan. 7/69               60(degree)10' N - 124(degree)00' W:    Dome            20.81% WI
Lease #444-R-68                                        Sec's 76-80                            Columbia         1.69% WI
                                                                                              Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
BLOCK II LANDS                                                                                              
                                                                                                            
         Lease                 Date                    Description                            Ownership     
         -----                 ----                    -----------                            ---------
DIAND Oil & Gas                Apr. 18/68              60(degree)20' N - 123(degree)30' W:    Dome            22.50% WI
Lease #210-67                                          Sec's 5-10, 15-20,                     Amoco           25.00% WI
                                                       25-30.                                 Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Jan. 7/69               60(degree)30' N - 123(degree)15' W:    Dome            22.50% WI
Lease #414-68                                          Sec's 6-10, 16-20,                     Amoco           25.00% WI
                                                       16-30.                                 Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Jan. 7/69               60(degree)30' N - 123(degree)15' W:    Dome            22.50% WI
Lease #413-68                                          Sec's 13, 14, 23 & 24.                 Amoco           25.00% WI
                                                                                              Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
                                                                                                            
DIAND Oil & Gas                Apr. 18/68              60(degree)30' N - 123(degree)15' W:    Dome            22.50% WI
Lease #208-67                                          Sec's 41-45, 51-55,                    Amoco           25.00% WI
                                                       61-65.                                 Alminex          2.50% WI
                                                                                              Can Southern    50.00% CI
</TABLE>