Agreement

                                     Between

                         CANADA SOUTHERN PETROLEUM LTD.

                                       and

                         MAGELLAN PETROLEUM CORPORATION

                                       and

                              OIL INVESTMENTS, INC.

                                       and

                            HOME OIL COMPANY LIMITED

                                       and

                            KERN COUNTY LAND COMPANY

                                       and

                                 ALMINEX LIMITED

                                       and

                              UNITED OILS, LIMITED

                                       and

                           SIGNAL OIL AND GAS COMPANY




                            Dated as of May 28, 1959


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                                TABLE OF CONTENTS

                       Agreement dated as of May 28, 1959.

                                                            Article         Page
                                                            
Definitions.............................................       I               2
                                                            
Assignment..............................................      II               2
                                                            
Payment and Exploratory Program.........................      III              3
                                                            
Option..................................................      IV               5
                                                            
Division of Lands.......................................       V               6
                                                            
Information to be Delivered to Home.....................      VI               7
                                                            
Incorporation of Operating Procedure....................      VII              7
                                                            
SCHEDULE "A"-Description of Lands.......................                       9
                                                            
                                                            Clause          Page
SCHEDULE "B"-Operating Procedure:                           
                                                            
         Definitions....................................       A              21
                                                            
         Status of Manager Operator.....................       B              23
                                                            
         Change of Manager Operator.....................       C              23
                                                            
         Meetings.......................................       D              24
                                                            
         Budget.........................................       E              24
                                                            
         Duties of the Manager Operator.................       F              25
                                                            
         Rights of Joint Operators......................       G              26
                                                            
         Competitive Operating Basis....................       H              27
                                                            
         Insurance......................................       I              27
                                                            
         Advances.......................................       J              28
                                                            
         Lien...........................................       K              28
                                                            
         Division of Production.........................       L              29
                                                            
         Obligatory Operations..........................       M              30
                                                            
         Independent Operations.........................       N              30
                                                            
         Selection of Leases............................       O              32
                                                            
         Surrender......................................       P              32
                                                            
                                                            
<PAGE>                                                      
                                                            
                                                            
                                                            Clause          Page
                                                            
         Assignment.....................................       Q              33
                                                            
         Assignments Among Parties......................       R              33
                                                            
         Relationship of Parties........................       S              33
                                                            
         Liability of Manager Operator..................       T              34
                                                            
         Force Majeure..................................       U              34
                                                            
         Waiver.........................................       V              35
                                                            
         Conflict with Laws.............................       W              35
                                                            
         Notices........................................       X              35
                                                            
         Further Assurances.............................       Y              36
                                                            
         Entire Agreement...............................       Z              36
                                                            
         Division of Expenses...........................      AA              36
                                                            
         Term...........................................      BB              37
                                                            
         Interpretation.................................      CC              37
                                                            
SCHEDULE "C"-Accounting Procedure.......................                      38
                                                        

<PAGE>




      THIS AGREEMENT made as of this Twenty-eighth day of May, A. D. 1959.

Between:

      CANADA SOUTHERN PETROLEUM LTD., a corporation  incorporated under the laws
         of Canada (hereinafter referred to as "Canada Southern")

                                       and

      MAGELLAN PETROLEUM CORPORATION, a Panama Corporation (hereinafter referred
         to as "Magellan")

                                       and

      OIL INVESTMENTS, INC.,  a Panama corporation  (hereinafter referred  to as
         "Oil Investments")

         (which  aforesaid  three  corporations  are   hereinafter  collectively
         referred to as "C-M-O" and individually as a member of the C-M-O group)

                                       and

      HOME OIL COMPANY  LIMITED,  a corporation  incorporated  under the laws of
         Canada, (hereinafter referred to as "Home")

                                       and

      KERN  COUNTY  LAND  COMPANY,  a  company  incorporated  under  the laws of
         California (hereinafter referred to as "Kern")

                                       and

      ALMINEX  LIMITED,  a  company  incorporated  under   the  laws  of  Canada
         (hereinafter referred to as "Alminex")

                                       and

      UNITED OILS, LIMITED,  a corporation incorporated under the laws of Canada
         (hereinafter referred to as "United")

                                       and

      SIGNAL  OIL AND GAS  COMPANY,  a  company  incorporated  under the laws of
         Delaware (hereinafter referred to as "Signal")

         (the  said  Home,  Kern  County,   Alminex,  United  and  Signal  being
         hereinafter  collectively  referred to as "H-S" and  individually  as a
         member of the H-S group)

      WHEREAS  C-M-O own jointly  certain  oil and gas permits in the  Northwest
Territories and the Yukon Territory,  Canada,  described in Schedule "A" hereto;
and

      WHEREAS H-S and C-M-O  are desirous  that H-S acquire  one-half of C-M-O`s
ownership in certain areas covered by those permits.

      Now THEREFORE IN  CONSIDERATION  of the mutual  covenants  and  agreements
hereinafter set forth, the parties agree as follows:


<PAGE>

                                    ARTICLE I

DEFINITIONS

      As used in this  Agreement,  the following  terms shall have the following
meanings, unless the context otherwise requires:

      1.1   "Properties"  shall mean the lands  described in Schedule "A" hereto
            other than the optioned lands.

      1.2   "Execution of this Agreement" shall mean  the date when  it has been
            signed by all the parties thereto.

      1.3   "First Drilling Season" shall mean the winter season of 1959-1960.

      1.4   "Known producing horizons" shall mean all known  producing  horizons
            down to and including the Devonian.

      1.5   "North  Petitot"  shall mean the known seismic  structure  which has
            been heretofore mapped by Canada Southern and submitted to H-S under
            all or portions of Permits Numbers 1136,  1137,  2301,  2713,  2302,
            1134, 1154, 1153 and 1152.

      1.6   "Discovery well" shall mean a well which establishes production in a
            new reservoir.

      1.7   "Exploratory  well" shall mean an exploratory well as defined in the
            Operating Procedure.

      1.8   "Delineation or development wells"  shall mean  any  and  all  wells
            (whether dry or not) which are not discovery wells.

      1.9   "Net acre  acquirable"  shall  mean  one-half  the amount of acreage
            which may be  securable  in gas license or oil and/or gas lease form
            from the  Dominion  Government,  recognizing  that the Owners of the
            North  halves  of  Permits  Numbers  1137 and 2301 are  entitled  to
            one-half of the total acreage  acquirable  under the said Permits in
            the absence of agreement to the contrary.

      1.10  "Dollars" shall mean Canadian Dollars.


                                   ARTICLE II

      2.1 C-M-O  hereby  transfers,  assigns and vests in the members of the H-S
group  the  undivided  interests  set  out  hereunder  in and to the oil and gas
permits  described  in  Schedule  "A" except for the South  one-half  of Permits
Numbers 1137 and 2301  comprising  31,966  acres,  and subject to the payment of
Fifty (50%) percent of the royalties described in Schedule "A".

            To Home........................................   12 1/2%
            To Kern........................................        5%
            To Alminex.....................................        5%
            To United......................................    2 1/2%
            To Signal......................................       25%


<PAGE>

      2.2 Home shall thereafter become the Manager Operator of the properties in
accordance with the terms of the Operating  Procedure hereto attached and marked
as Schedule "B" except as hereinafter otherwise provided.

      2.3 C-M-O agree they will deliver to Messrs. Gowling, MacTavish, Osborne &
Henderson registrable transfers of the said Permits in form sufficient to enable
Messrs. Gowling, MacTavish,  Osborne & Henderson to have such Permits registered
with the Chief of the Mining and Lands  Division of the Northern  Administration
and Lands Branch of the  Department of Northern  Affairs and Natural  Resources,
Ottawa, Canada, in the following undivided interests:

            Canada Southern.................................      50%
            Signal..........................................      25%
            Home............................................      20%
            Kern County.....................................       5%

it being  understood  that Canada  Southern shall hold the interests of Magellan
and Oil  Investments  in trust and that Home shall hold the interests of Alminex
and United in trust.

      2.4 The  parties  hereto  agree  that the  monies to be paid  pursuant  to
Article  3.1(A)  (a) shall be paid by  certified  cheques  delivered  to Messrs.
Gowling, MacTavish,  Osborne & Henderson, 88 Metcalfe Street, Ottawa, Canada, to
be held by Messrs.  Gowling,  MacTavish,  Osborne & Henderson until such time as
the said Permits  with the  assignments  thereof had been  delivered to the said
Chief and registered in the said Department and thereupon the said cheques shall
be delivered to C-M-O.

      2.5 C-M-O hereby agree that the said  Permits are in good  standing,  that
they have good title to the said Permits and good right, full power and absolute
authority  (except  for the  consent  of the said  Chief) to  transfer  the said
Permits as herein  provided,  and that the  properties are free and clear of any
claims, liens or encumbrances except the royalties described in Schedule "A".


                                   ARTICLE III

      3.1 H-S shall pay C-M-O for the interests acquired hereunder the following
considerations:

            (A) In cash not chargeable to or recoupable from C-M-O:

                (a) Upon  the  execution  of  this  Agreement,  $1,500,000,   in
            accordance with the provisions of Article 2.4 above.

                (b) One year after the execution of this Agreement $666,666.

                (c) Two years after the execution of this Agreement $666,667.

                (d) Three years after the execution of this Agreement $666,667.


<PAGE>

            (B) In work not chargeable or recoupable from C-M-O:

                (a) H-S  shall  commence in 1959 a program of exploration on the
            properties  or on the  optioned  acreage  which  shall  include  the
            drilling of a minimum of five  exploratory  wells,  irrespective  of
            cost, to at least a depth to test the known producing  horizons,  or
            igneous or other impenetrable formations, or a depth of 12,000 feet,
            whichever  is the  least,  of which at least one such well  shall be
            drilled  into the Pre Cambrian and one such well shall be located on
            the Western  block of the  properties,  consisting  of Permits  Nos.
            1006,  1007,  1132, 1133 and 1135. The first such  exploratory  well
            shall be located on the North Petitot structure and shall be drilled
            during the first drilling season and one well may be on the optioned
            acreage  but such well shall not be in lieu of the well  required to
            be drilled on the North Petitot structure.

                (b) In the event the  total  cost  of  the  exploratory  program
            described in (a) above should be less than $3,000,000,  then H-S are
            obligated to  spend the  difference  between  such  total  cost  and
            $3,000,000,  in exploration  and development  work on the properties
            and costs incidental or ancillary thereto.

                (c) The work  and  expenditures  described  in (a) and (b) above
            shall be completed  within five years from the date of the execution
            of this Agreement.

                (d) H-S will be obligated to reconvey the properties to C-M-O in
            the event they should fail to meet the obligations described in this
            paragraph  (B).  Such  reconveyance  shall  not  serve in any way to
            constitute partial or liquidated damages or to cancel any obligation
            undertaken by H-S under the terms of this Agreement.

            (C) Subsequent to the completion of both  (A)  and  (B)  above,  H-S
       shall permit C-M-O to enjoy  the  following  preferential  position  with
       respect to further  work done  on the  properties so long as  the work is
       performed prior to the time when any  particular or potential  oil or gas
       field is producing into a trunk pipe line, or, in the case of oil,  prior
       to the time oil moves to  market  in  quantities  that  permit  C-M-O  to
       finance its  share  of  further reasonable development pursuant to normal
       commercial banking arrangements.

                (1) Should H-S drill,  deepen  or  complete  a discovery well in
            accordance  with  the  provisions  of  Clause  N  of  the  Operating
            Procedure, in the cost of which  C-M-O  does  not  participate,  the
            rights of H-S to recoup therefrom under the terms of Clause N of the
            Operating Procedure  shall be  limited  to 300%;  that  is,  H-S may
            recoup from C-M-O's interest in such discovery well three times what
            would have been C-M-O's cost of participating in the said well.

                (2) Should H-S  drill,  deepen  or  complete  a  delineation  or
            development well  in accordance with  the provisions of  Clause N of
            the Operating Procedure,  in  the  cost  of  which  C-M-O  does  not
            participate,  the rights of H-S  to recoup therefrom under the terms
            of Clause N of the Operating Procedure  shall  be limited  to  105%;
            that is, H-S may recoup from C-M-O's interest in such delineation or
            development  well 100%  of what  would  have  been  C-M-O's  cost of
            participating in the said well plus 5%.


<PAGE>

            (D) H-S will assure the earliest feasible development and  marketing
       of oil and/or gas found on the properties.


                                   ARTICLE IV

      4.1 H-S shall have an  exclusive  option to buy from C-M-O,  for the price
and during the period hereinafter  stated, an undivided one-half interest in and
to the South one-half of Permits Numbers 1137 and 2301 comprising  approximately
31,966 acres, subject to the payment of 50% of the royalty described in Schedule
"A".  If,  as and when the  option  is  exercised,  the  optioned  acreage  will
thereafter  become  subject to this  Agreement  as a part of the  properties  as
defined. No amounts paid, in connection with the option as hereinafter provided,
shall be chargeable to or recoupable from C-M-O.

      4.2 The prices  at  which  and  periods  within  which  the  option may be
exercised are as follows:

            Before August 1, 1960, $400. per net acre acquirable;
            Before August 1, 1961, $600. per net acre acquirable;
            Before August 1, 1962, $800. per net acre acquirable;
            Before August 1, 1963, $1,000. per net acre acquirable.

      4.3 Payment shall be made upon  exercise of the option in accordance  with
the then  existing  law or  regulations  governing  oil and gas  permits  in the
Northwest Territories.  In the event that modification of the law or regulations
subsequent to the exercise of the option permits greater acreage  acquirement by
the permittees within the boundary of the optioned acreage then H-S may elect to
purchase a 50% interest in such  additional  acquirable  acreage and  additional
payment shall promptly be made  accordingly  determined by the price  pertaining
when the original option was exercised.

      4.4 Once payment has been made for  acquirable oil and/or gas rights under
any surface  acre and if other oil or gas rights are  acquirable  under the same
surface acre,  no  additional  payment shall be required to be made to C-M-O for
such other rights under such surface acre.

      4.5 Prior to the exercise of the option or its expiration  C-M-O will give
H-S thirty  (30)  days'  prior  written  notice of any well to be drilled on the
optioned acreage. H-S may participate 50% with C-M-O in the cost of drilling any
such well or wells on the optioned  acreage.  Failure to  participate,  however,
will serve to terminate  the option unless within thirty (30) days H-S agrees to
drill and does  thereafter  diligently  commence and drill a well thereon to the
known producing horizons or to igneous or other impenetrable  formations or to a
depth of 12,000 feet, whichever is the least.

      4.6 Prior to the  exercise of the option or its  expiration,  H-S may have
access to the area  under  option  and any  information  in  C-M-O's  possession
pertaining  thereto.  H-S may, upon prior written notice,  commence and drill an
exploratory  test well on the option  area at the sole cost and  expense of H-S,
none of which shall be chargeable to or recoupable from C-M-O.


<PAGE>

      4.7 Any well drilled under the  provisions  of Clauses 4.5  or  4.6  above
shall,  after its  completion,  be operated by the then operator of the optioned
acreage.

      4.8 Prior to the expiration of the option described in Article IV, neither
C-M-O nor H-S shall make  application  for oil and/or gas leases and/or licenses
under any permit  which  includes  any part of the  optioned  acreage  except by
mutual agreement, provided that, if during this period, any rules or regulations
governing  oil and gas in the Northwest  Territories  shall require or render it
advantageous  to apply for oil and/or gas leases  and/or  licenses on any of the
optioned  acreage,  then C-M-O and H-S shall meet  promptly  for the  purpose of
agreeing  upon such  application.  Consent  by H-S to the areas to be covered by
such  application  with  respect to any permit  which  includes  any part of the
optioned acreage shall not be unreasonably withheld.

      4.9 Any  exploratory  well  drilled by H-S under this  Article IV shall be
considered  one of the wells  required to be drilled  under  Article III and the
cost of any well drilled by H-S whether  exploratory or not, and the cost of any
well in which H-S participates on the optioned lands shall be considered part of
the expenditures required to be made under Article 3.1(B) (b).

      4.10 Participation in a well or any work  done on the optioned lands shall
not be deemed an exercise of the option by H-S.


                                    ARTICLE V

      5.1 At any time after a period of five (5) years  following  the execution
of this  Agreement,  C-M-O shall have the right to call for a division of all or
any of the areas which have gone to lease or license and which are jointly owned
by H-S and C-M-O and the  termination  of this  Agreement  to the extent that it
affects the areas to be subdivided.  The subdivision shall in no case affect the
obligation of H-S to assure the earliest feasible  marketing of oil or gas found
on the areas  jointly owned by H-S and C-M-O,  including  those which may become
subdivided.  The  procedure  for such  division  of said  area or areas  and the
termination of such agreement shall be as follows:

            C-M-O shall advise H-S in writing of its desire.

            Upon  receipt of this  notice  there  shall ensue a period of thirty
      (30) days within  which the parties  shall  endeavour by agreement to work
      out a division of the area or areas.

            If by the  expiration  of the said thirty (30) days no agreement has
      been reached,  C-M-O may within fifteen (15) days  thereafter  prepare and
      present  to H-S a division  into two parts of all areas to be divided  and
      other assets jointly owned in connection  therewith  under this Agreement.
      Such plan of  division  shall be in a  checkerboard  pattern  in which the
      units shall be a maximum size calculated to avoid forcible  unitization if
      possible  and a  minimum  of one  section  except  in the  case  of  lands
      producing  oil the maximum  shall be a maximum  size  calculated  to avoid
      forcible unitization if possible and a minimum of one-quarter section. H-S
      shall  have a period of thirty  (30) days  from  receipt  of the  proposed
      division  to elect  which of the two parts it desires to  receive.  If H-S
      does not make its  election  within the said thirty (30) days by notice in
      writing to C-M-O, the latter shall, within ten (10) days thereafter, elect
      which of the two parts it desires and so notify H-S.


<PAGE>

      5.2 At all times mentioned in this Article existing  contracts between the
parties shall remain in full force and effect and normal  operations  thereunder
shall  continue.  Thirty  (30) days after the final  election  is made by either
party in accordance with the above established procedure, all existing contracts
shall  terminate  with respect to the divided  properties  except as provided in
this Article.  All joint  operations in respect of the divided  properties shall
then cease and all  obligations  except the  liquidation of current  accounts of
either party to the other and  obligations  to third  parties shall be at an end
except as  provided in this  Article but during such final  thirty (80) days and
thereafter the parties will  individually  and together take whatever  action is
necessary  to  conserve  the area or areas and assets  jointly  owned by H-S and
C-M-O and to expedite final  transfer of titles and  liquidation of any accounts
and other matters pending as of the date of the termination.


                                   ARTICLE VI

      6.1 C-M-O shall promptly deliver to Home,  C-M-O's files or copies thereof
relating to the areas covered by this  Agreement,  retaining  copies thereof for
C-M-O's own use.  C-M-O shall give to Home  original or duplicate  copies of all
data  obtained by C-M-O or available to C-M-O with respect to the geology of the
areas covered by this Agreement and all other  information  which C-M-O may have
on hand or is  presently  entitled to acquire with  respect to  exploration  and
development of the areas covered by this Agreement.


                                   ARTICLE VII

INCORPORATION OF OPERATING PROCEDURE

      7.1 The  parties  agree that the  provisions  contained  in the  Operating
Procedure  attached hereto as Schedule "B" shall apply to the same extent and in
the same manner as though such  provisions  were  contained  in this  Agreement.
Where there is any conflict  between the  provisions  of this  Agreement and the
Operating Procedure or the Accounting Procedure the provisions of this Agreement
shall prevail and in the case of any conflict  between the  Operating  Procedure
and the  Accounting  Procedure the provisions of the Operating  Procedure  shall
prevail.

      IN WITNESS  WHEREOF the parties  hereto have executed this  Agreement this
Twenty-fourth day of June, 1959.

(SEAL)                                            CANADA SOUTHERN PETROLEUM LTD.
                                                per:  JOHN W. BUCKLEY
                                                           President
                                         
                                                per:  M. A. REASONER
                                                           Vice-President
                                         

<PAGE>

(SEAL)                                            MAGELLAN PETROLEUM CORPORATION
                                                per:  JOHN W. BUCKLEY
                                                           Vice-President
                                         
                                                per:  C. DEAN REASONER
                                                           Assistant Secretary
                                         
(SEAL)                                                 OIL INVESTMENTS, INC.
                                                per:  JOHN W. BUCKLEY
                                                           Vice-President
                                         
                                                per:  C. DEAN REASONER
                                                           Assistant Secretary
                                         
(SEAL)                                                 HOME OIL COMPANY LTD.
                                                per:  ALEX CLARK
                                                           Vice-President
                                         
                                                per:  J. W. HAMILTON
                                                           Assistant Secretary
                                         
(SEAL)                                               KERN COUNTY LAND COMPANY
                                                per:  JOHN H. MATKIN
                                                           Vice-President
                                         
                                                per:  JAMES A. WALKER
                                                           Assistant Secretary
                                         
(SEAL)                                                    ALMINEX LIMITED
                                                per:  J. B. WEBB
                                                           Vice-President
                                         
                                                per:  P. H. POWERS
                                                           A./Sec. Treas.
                                         
(SEAL)                                                 UNITED OILS, LIMITED
                                                per:  ROBERT CAMPBELL
                                                           Director
                                         
                                                per:  J. W. HAMILTON
                                                           Assistant Secretary
                                         
(SEAL)                                              SIGNAL OIL AND GAS COMPANY
                                                per:  J. HOWARD MARSHALL
                                                           Vice-President
                                         
                                                per:  JAMES K. WOOTAN
                                                           Director
                                        

<PAGE>


                                  SCHEDULE "A"

   To an Agreement made as of May 28, 1959, between Canada Southern Petroleum
      Ltd., Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil
           Company Limited, Kern County Land Company, Alminex Limited,
                United Oils Limited, Signal Oil and Gas Company.

Permit No.                 Areas Described in Permit           Date of Permit
   1132     All  that  certain   tract  of  land   in  the    April 29th, 1957
              Mackenzie Mining District, in the  Northwest
              Territories, containing sixty-three thousand
              two hundred and twelve acres,  more or less,
              said tract being more particularly described
              as follows:

            Commencing  at  a  point  at   latitude  sixty
              degrees  thirty  minutes   no  seconds   and
              longitude  one  hundred   and   twenty-three
              degrees  fifteen  minutes no seconds; thence
              westerly on  a  right  line  to  a  point at
              latitude  sixty  degrees  thirty  minutes no
              seconds  and   longitude   one  hundred  and
              twenty-three  degrees   thirty  minutes   no
              seconds; thence southerly on a right line to
              a point at  latitude sixty  degrees   twenty
              minutes no seconds and longitude one hundred
              and twenty-three degrees  thirty minutes  no
              seconds;  thence easterly on a right line to
              a point  at  latitude  sixty degrees  twenty
              minutes no seconds and longitude one hundred
              and twenty-three degrees  fifteen minutes no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes  being   as  determined   by
              astronomic means, in situ.

   1133     The whole  of  that  parcel  in the  Mackenzie    April 29th, 1957
              Mining   District,     in    the   Northwest
              Territories,    said   parcel   being   more
              particularly described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees   twenty  minutes  no  seconds   and
              longitude  one  hundred   and   twenty-three
              degrees  thirty minutes  no seconds;  thence
              westerly  on  a  right  line  to  a point at
              latitude  sixty degrees  twenty minutes no
              seconds  and  longitude   one  hundred   and
              twenty- three degrees  forty-five minutes no
              seconds; thence southerly on a right line to
              a  point  at  latitude   sixty  degrees  ten
              minutes no seconds and longitude one hundred
              and twenty-three degrees forty-five  minutes
              no seconds;  thence easterly on a right line
              to a point at  latitude  sixty  degrees  ten
              minutes no seconds and longitude one hundred
              and twenty-three degrees  thirty  minutes no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes  being   as   determined  by
              astronomic means, in situ.

            Saving and excepting  thereout  and  therefrom
              said parcel  all that part  lying within the
              limits of  Petroleum  and Natural Gas Permit
              numbered four hundred and seventy-nine,  the
              remainder  containing  fifty-eight  thousand
              and  sixty-eight  acres,  more or less; also
              excepting  any part  thereof  which  may  be
              affected  by  the  rights  of other  persons
              acquired through prior staking.


<PAGE>

   1134     The south half of that parcel in the Mackenzie    April 29th, 1957
              Mining    District,    in    the   Northwest
              Territories,    said   parcel   being   more
              particularly described as follows:

            Commencing  at  a  point   at  latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees ten minutes no seconds and longitude
              one hundred  and  twenty-two degrees  thirty
              minutes no seconds;  thence  easterly  on  a
              right line to  a  point  at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and  twenty-two degrees  fifteen
              minutes no seconds;  thence  northerly  on a
              right  line to  the  point  of commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

            Saving and  excepting thereout  and  therefrom
              said parcel  all that part  lying within the
              limits of  Petroleum  and Natural Gas Permit
              numbered two hundred  and  ninety-nine,  the
              remainder  containing  twenty-five  thousand
              two hundred and seventy-nine acres,  more or
              less;  also excepting any part thereof which
              may  be affected  by  the  rights  of  other
              persons acquired through prior staking.

   1135     The whole  of  that  parcel  in the  Mackenzie    April 29th, 1957
              Mining   District,     in    the   Northwest
              Territories   said   parcel    being    more
              particularly described as follows:

            Commencing  at  a  point   at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred  and twenty-three degrees thirty
              minutes no seconds;  thence  westerly  on  a
              right line to  a  point  at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and twenty-three degrees  forty-
              five minutes no seconds; thence southerly on
              a right line to  a point  at latitude  sixty
              degrees no minutes no seconds and  longitude
              one hundred  and twenty-three degrees forty-
              five minutes no seconds;  thence easterly on
              a right  line to a point at  latitude  sixty
              degrees no minutes  no seconds and longitude
              one hundred and twenty-three degrees  thirty
              minutes no seconds;  thence  northerly  on a
              right line to  the  point  of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

            Saving and  excepting thereout  and  therefrom
              said parcel all  that part  lying within the
              limits of  Petroleum  and Natural Gas Permit
              numbered four hundred and seventy-nine,  the
              remainder  containing  thirty  thousand  six
              hundred and seventy  acres,  more  or  less,
              also excepting any part thereof which may be
              affected by  the  rights  of  other  persons
              acquired through prior staking.

   1136     All  that  certain   tract  of  land   in  the   April 29th, 1957
              Mackenzie Mining District, in the  Northwest
              Territories containing  sixty-three thousand
              eight hundred and fifty-four acres,  more or
              less,  said tract  being  more  particularly
              described as follows:


<PAGE>

            Commencing  at  a  point  at   latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred  and  twenty-two  degrees thirty
              minutes no seconds;  thence  westerly  on  a
              right  line to  a  point at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and  twenty-two  degrees  forty-
              five minutes no seconds; then southerly on a
              right line  to  a  point at  latitude  sixty
              degrees no minutes no seconds and  longitude
              one hundred  and  twenty-two  degrees forty-
              five minutes no seconds;  thence easterly on
              a right line to a point  at  latitude  sixty
              degrees  no minutes no seconds and longitude
              one hundred and  twenty-two  degrees  thirty
              minutes no seconds;  thence northerly  on  a
              right  line to the  point  of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1137     The whole of  that  parcel  in  the  Mackenzie    April 29th, 1957
              Mining   District,    in    the    Northwest
              Territories,    said   parcel   being   more
              particularly described as follows:

            Commencing  at  a  point   at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and twenty-two  degrees  fifteen
              minutes no seconds;  thence  westerly  on  a
              right  line  to  a  point at latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and  twenty-two  degrees  thirty
              minutes no seconds;  thence southerly  on  a
              right line to  a  point  at  latitude  sixty
              degrees no minutes no seconds and  longitude
              one hundred and  twenty-two  degrees  thirty
              minutes no seconds;  thence  easterly  on  a
              right line to  a  point  at  latitude  sixty
              degrees no minutes no seconds  and longitude
              one hundred and  twenty-two degrees  fifteen
              minutes no seconds;  thence  northerly  on a
              right  line to the  point  of  commencement;
              said  latitudes   and  longitudes  being  as
              determined by astronomic means, in situ.

            Saving and excepting  thereout  and  therefrom
              said parcel all  that part  lying within the
              limits of  Petroleum  and Natural Gas Permit
              numbered two hundred  and  ninety-nine,  the
              remainder  containing   forty-one   thousand
              seven hundred and seventy-four  acres,  more
              or less;  also excepting  any  part  thereof
              which may be affected by the rights of other
              persons acquired through prior staking.

   2301     All that portion  of the grid  area designated  September 18th, 1958
              60  degrees  10 minutes,   122  degrees   15
              minutes,   said  portion  lying  within  the
              limits of surrendered  Petroleum and Natural
              Gas Permit numbered  two hundred and ninety-
              nine,  in the Mackenzie Mining District,  in
              the  Northwest  Territories,   said  portion
              containing  twenty-two  thousand  and eighty
              acres,  more or less;  saving and  excepting
              thereout  and  therefrom  any  part  of said
              permit which  may be affected  by the rights
              of  other  persons  acquired  through  prior
              staking.


<PAGE>

   2302     All that portion of the south half of the grid  September 18th, 1958
              area designated  60 degrees  20 minutes, 122
              degrees  15  minutes,   said  portion  lying
              within the  limits of  surrendered Petroleum
              and Natural Gas Permi   numbered two hundred
              and ninety-nine,  in  the  Mackenzie  Mining
              District, in the Northwest Territories, said
              portion containing six thousand five hundred
              and twenty-eight acres, more or less; saving
              and excepting  thereout  and  therefrom  any
              part of said Permit which may be affected by
              the rights of other persons acquired through
              prior staking.

   2713     A rectilinear quadrilateral in  the  Mackenzie    March 9th, 1959
              Mining   District,    in    the    Northwest
              Territories,  the whole  of  the  grid  area
              designated  60  degrees   10  minutes,   122
              degrees 00 minutes, containing approximately
              63,854 acres  for a  period of  three  years
              from  the   date  hereof,   subject  to  the
              Territorial Oil and Gas Regulations.

   1006     All  that  certain  tract   of  land   in  the    June 14th, 1956
              Mackenzie Mining District, in the Northwest
              Territories,  containing thirty one thousand
              eight hundred and seven acres, more or less,
              lying to the south of a right  line  joining
              the mid points  of the easterly and westerly
              limits of the area particularly described as
              follows:

            Commencing  at  a  point   at  latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude  one  hundred   and   twenty-three
              degrees forty-five minutes no seconds thence
              westerly  on  a  right  line  to  a point at
              latitude  sixty  degrees  twenty  minutes no
              seconds  and   longitude  one  hundred   and
              twenty-four degrees  no minutes  no seconds;
              thence southerly on a right line  to a point
              at latitude  sixty  degrees  ten  minutes no
              seconds  and   longitude  one  hundred   and
              twenty-four  degrees  no minutes no seconds;
              thence  easterly on  a right line to a point
              at latitude  sixty  degrees  ten  minutes no
              seconds   and   longitude  one  hundred  and
              twenty-three degrees  forty-five  minutes no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes   being   as  determined  by
              astronomic means, in situ.

   1007     All  that  certain   tract  of  land   in  the
              Whitehorse  Mining  District,  in  the  June
              14th,  1956  Yukon  Territory,  and  in  the
              Mackenzie  Mining District  in the Northwest
              Territories  containing  thirty-one thousand
              eight hundred and eighty-eight  acres,  more
              or less, lying to the  north of a right line
              joining the mid points of the  easterly  and
              westerly  limits of  the  area  particularly
              described as follows:


<PAGE>

            Commencing  at  a   point  at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one  hundred  and   twenty-four  degrees  no
              minutes no  seconds;  thence  westerly  on a
              right line to  a  point  at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and  twenty-four degrees fifteen
              minutes no seconds;  thence  southerly  on a
              right line to  a  point  at  latitude  sixty
              degrees no minutes no seconds and  longitude
              one hundred and  twenty-four degrees fifteen
              minutes no seconds;  thence  easterly  on  a
              right line to  a  point  at  latitude  sixty
              degrees no minutes no seconds and  longitude
              one  hundred  and   twenty-four  degrees  no
              minutes no seconds;  thence  northerly  on a
              right line to  the  point  of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1173     All   that  certain   tract  of  land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              five hundred and sixty-six  acres,  more  or
              less,  lying to  the north  of a  right line
              joining the mid points of the  easterly  and
              westerly  limits  of  the  area particularly
              described as follows:

            Commencing   at  a  point  at  latitude  sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence  easterly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence northerly
              on   a   right   line   to   the   point  of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

   1174     All  that   certain  tract   of  land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              five hundred and  sixty-six acres,  more  or
              less,  lying to  the north  of a  right line
              joining the mid points of the  easterly  and
              westerly  limits  of  the  area particularly
              described as follows:

            Commencing   at  a  point  at  latitude  sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              no minutes no seconds;  thence westerly on a
              right  line  to  a point  at latitude  sixty
              degrees  thirty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence southerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence easterly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              no minutes no seconds; thence northerly on a
              right  line to the  point  of  commencement;
              said   latitudes   and    longitudes   being
              determined by astronomic means, in situ.


<PAGE>

   1175     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty two thousand
              eight hundred  and  ninety  acres,  more  or
              less,  said  tract  being  more particularly
              described as follows:

            Commencing   at  a  point  at  latitude  sixty
              degrees   forty  minutes   no  seconds   and
              longitude   one   hundred   and   twenty-one
              degrees fifteen  minutes no seconds;  thence
              westerly on  a  right  line  to  a  point at
              latitude  sixty  degrees  forty  minutes  no
              seconds  and   longitude   one  hundred  and
              twenty-one   degrees   thirty   minutes   no
              seconds; thence southerly on a right line to
              a point at  latitude  sixty  degrees  thirty
              minutes no seconds and longitude one hundred
              and twenty-one  degrees  thirty  minutes  no
              seconds;  thence easterly on a right line to
              a point at  latitude  sixty  degrees  thirty
              minutes no seconds and longitude one hundred
              and twenty-one degrees  fifteen  minutes  no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes   being  as   determined  by
              astronomic means, in situ.

   1176     All   that  certain   tract  of  land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              five hundred and sixty-eight acres,  more or
              less,  said  tract  being  more particularly
              described as follows:

            Commencing   at  a  point  at  latitude  sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees   forty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence  easterly
              on a right line to a point at latitude sixty
              degrees   forty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence northerly
              on   a  right   line   to   the   point   of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

   1177     All  that  certain  tract  of  land   in   the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              five hundred and sixty-eight acres,  more or
              less,  said  tract  being  more particularly
              described as follows:


<PAGE>

            Commencing  at  a   point  at  latitude  sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence  westerly
              on a right line to a point at latitude sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              forty-five   minutes   no  seconds;   thence
              southerly  on  a  right  line  to a point at
              latitude  sixty  degrees  forty  minutes  no
              seconds  and   longitude  one  hundred   and
              twenty-one  degrees  forty-five  minutes  no
              seconds;  thence easterly on a right line to
              a point  at  latitude  sixty  degrees  forty
              minutes no seconds and longitude one hundred
              and  twenty-one  degrees  thirty  minutes no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes   being  as   determined  by
              astronomic means, in situ.

   1178     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing sixty-two  thousand
              five hundred and sixty-eight acres,  more or
              less,  said  tract  being  more particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees  fifty  minutes   no   seconds   and
              longitude one hundred and twenty-one degrees
              forty-five   minutes   no   seconds;  thence
              westerly on  a  right  line  to  a  point at
              latitude  sixty  degrees  fifty  minutes  no
              seconds  and   longitude   one  hundred  and
              twenty-two  degrees  no  minutes no seconds;
              thence southerly  on a right line to a point
              at latitude sixty degrees  forty  minutes no
              seconds  and   longitude   one  hundred  and
              twenty-two  degrees  no minutes no  seconds;
              thence easterly  on a  right line to a point
              at latitude sixty degrees  forty-minutes  no
              seconds  and   longitude   one  hundred  and
              twenty-one  degrees  forty-five  minutes  no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes   being  as   determined  by
              astronomic means, in situ.

   1179     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              two hundred and forty-four  acres,  more  or
              less,  said tract  being  more  particularly
              described as follows:

            Commencing at  a point  at latitude  sixty-one
              degrees no minutes no seconds and longitude
              one hundred and  twenty-one  degrees fifteen
              minutes no seconds;  thence  westerly  on  a
              right  line to a point at latitude sixty-one
              degrees no minutes no seconds  and longitude
              one hundred  and  twenty-one  degrees thirty
              minutes no seconds;  thence  southerly  on a
              right line  to a  point  at  latitude  sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence  easterly
              on a right line to a point at latitude sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence northerly
              on   a   right  line   to   the   point   of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.


<PAGE>

   1180     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              two hundred and forty-four  acres,  more  or
              less,  said tract  being  more  particularly
              described as follows:

            Commencing at  a point  at latitude  sixty-one
              degrees no minutes  no seconds and longitude
              one hundred  and  twenty-one  degrees thirty
              minutes no seconds;  thence  westerly  on  a
              right  line to a point at latitude sixty-one
              degrees no minutes  no seconds and longitude
              one hundred  and  twenty-one degrees  forty-
              five minutes no seconds; thence southerly on
              a right  line to  a point  at latitude sixty
              degrees   fifty  minutes   no  seconds   and
              longitude   one   hundred   and   twenty-one
              degrees   forty-five  minutes   no  seconds;
              thence easterly  on a right  line to a point
              at latitude  sixty  degrees fifty minutes no
              seconds  and   longitude  one  hundred   and
              twenty-one   degrees   thirty   minutes   no
              seconds;  thence  northerly on  a right line
              to   the   point   of   commencement;   said
              latitudes and longitudes being as determined
              by astronomic means, in situ.

   1181     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              two hundred and forty-four  acres,  more  or
              less,  said tract  being  more  particularly
              described as follows:

            Commencing at  a  point at latitude  sixty-one
              degrees no minutes  no seconds and longitude
              one hundred  and  twenty-one  degrees forty-
              five  minutes no  seconds;  thence  westerly
              on a  right  line  to  a point  at  latitude
              sixty-one  degrees no minutes no seconds and
              longitude one hundred and twenty-two degrees
              no minutes no seconds; thence southerly on a
              right line  to a  point  at  latitude  sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-two degrees
              no minutes no seconds;  thence easterly on a
              right line  to a  point  at  latitude  sixty
              degrees   fifty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              forty-five  minutes   no   seconds;   thence
              northerly  on a right  line to the  point of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

   1149     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven hundred and twenty-seven  acres,  more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:


<PAGE>

            Commencing  at  a  point   at  latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              no minutes no seconds; thence westerly  on a
              right  line  to  a  point at latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence southerly
              on a right line to a point at latitude sixty
              degrees ten minutes no seconds and longitude
              one hundred  and twenty-one  degrees fifteen
              minutes  no  seconds;  thence  easterly on a
              right line  to  a  point at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred   and   twenty-one  degrees   no
              minutes no  seconds;  thence northerly  on a
              right  line to  the  point of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1150     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven hundred and twenty-seven  acres,  more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees ten minutes no seconds and longitude
              one hundred  and  twenty-one  degrees thirty
              minutes no seconds;  thence  easterly  on  a
              right line  to  a  point at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one hundred and twenty-one  degrees  fifteen
              minutes no seconds;  thence northerly  on  a
              right  line  to  the point of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1151     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven hundred and twenty-seven  acres,  more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits  of the  area  particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees  twenty   minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence  westerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              forty-five  minutes   no   seconds;   thence
              southerly on a  right line  to  a  point  at
              latitude   sixty  degrees   ten  minutes  no
              seconds  and   longitude  one  hundred   and
              twenty-one  degrees  forty-five  minutes  no
              seconds;  thence easterly on a right line to
              a  point  at  latitude   sixty  degrees  ten
              minutes no seconds and longitude one hundred
              and  twenty-one  degrees  thirty  minutes no
              seconds;  thence  northerly  on a right line
              to the point of commencement; said latitudes
              and  longitudes   being  as   determined  by
              astronomic means, in situ.


<PAGE>

   1152     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven hundred and twenty-seven  acres,  more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:

            Commencing  at  a  point  at   latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              forty-five  minutes   no   seconds;   thence
              westerly  on  a  right  line  to  a point at
              latitude  sixty  degrees  twenty  minutes no
              seconds  and  longitude   one  hundred   and
              twenty-two  degrees  no  minutes no seconds;
              thence  southerly on a right line to a point
              at latitude  sixty  degrees  ten  minutes no
              seconds  and  longitude   one  hundred   and
              twenty-two  degrees  no minutes no  seconds;
              thence easterly  on a right line  to a point
              at  latitude  sixty  degrees  ten minutes no
              seconds  and   longitude   one  hundred  and
              twenty-one  degrees  forty-five  minutes  no
              seconds; thence northerly on a right line to
              the point of  commencement;  said  latitudes
              and  longitudes   being  as   determined  by
              astronomic means, in situ.

   1153     All  that  certain   tract  of  land   in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven hundred and twenty-seven  acres,  more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              no minutes no seconds;  thence westerly on a
              right  line  to  a  point at latitude  sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              fifteen minutes no seconds; thence southerly
              on a right line to a point at latitude sixty
              degrees ten minutes no seconds and longitude
              one hundred  and  twenty-two degrees fifteen
              minutes no seconds;  thence  easterly  on  a
              right  line  to  a point at  latitude  sixty
              degrees ten minutes no seconds and longitude
              one  hundred   and   twenty-two  degrees  no
              minutes no  seconds;  thence northerly  on a
              right  line to  the  point of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1154     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              seven  hundred and  twenty-seven acres, more
              or less,  lying to the North of a right line
              joining the mid points of the  Easterly  and
              Westerly  limits of  the  area  particularly
              described as follows:


<PAGE>

            Commencing  at  a   point  at  latitude  sixty
              degrees   twenty   minutes  no  seconds  and
              longitude one hundred and twenty-two degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees  twenty  minutes   no  seconds   and
              longitude one hundred and twenty-two degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees   ten   minutes   no  seconds;   and
              longitude one hundred and twenty-two degrees
              thirty minutes no seconds;  thence  easterly
              on a right line to a point at latitude sixty
              degrees ten minutes no seconds and longitude
              one hundred and  twenty-two degrees  fifteen
              minutes no seconds;  thence northerly  on  a
              right  line  to  the point of  commencement;
              said  latitudes  and   longitudes  being  as
              determined by astronomic means, in situ.

   1155     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              six hundred  and  forty-six acres,  more  or
              less, lying to the South  of  a  right  line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees  thirty   minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees  thirty  minutes   no  seconds   and
              longitude one hundred and twenty-one degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees  twenty   minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              thirty minutes  no seconds;  thence easterly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence northerly
              on   a   right   line   to   the   point  of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

   1156     All  that   certain   tract  of  land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing thirty-one thousand
              six hundred  and  forty-six acres,  more  or
              less,  lying to the South  of a  right  line
              joining the mid points of the  Easterly  and
              Westerly  limits  of  the  area particularly
              described as follows:


<PAGE>

            Commencing  at  a   point  at  latitude  sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              no minutes no seconds;  thence westerly on a
              right  line  to  a  point  at latitude sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds; thence southerly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude one hundred and twenty-one degrees
              fifteen minutes no seconds;  thence easterly
              on a right line to a point at latitude sixty
              degrees   twenty  minutes   no  seconds  and
              longitude   one   hundred   and   twenty-one
              degrees   no  minutes  no  seconds;   thence
              northerly on  a  right  line to the point of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

   1157     All  that  certain   tract  of   land  in  the    May 23rd, 1957
              Mackenzie Mining District,  in the Northwest
              Territories,  containing  sixty-two thousand
              eight  hundred  and  ninety acres,  more  or
              less,  said  tract  being  more particularly
              described as follows:

            Commencing  at  a   point  at  latitude  sixty
              degrees  forty   minutes   no  seconds   and
              longitude one hundred and twenty-two degrees
              fifteen minutes no seconds;  thence westerly
              on a right line to a point at latitude sixty
              degrees   forty  minutes   no  seconds   and
              longitude one hundred and twenty-two degrees
              thirty minutes no seconds;  thence southerly
              on a right line to a point at latitude sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              thirty minutes no seconds;  thence  easterly
              on a right line to a point at latitude sixty
              degrees   thirty  minutes   no  seconds  and
              longitude one hundred and twenty-two degrees
              fifteen minutes no seconds; thence northerly
              on   a   right  line   to   the   point   of
              commencement;  said latitudes and longitudes
              being as determined by astronomic means,  in
              situ.

      The Permits herein described as number 1006 and number 1007 are subject to
a gross  overriding  royalty of 1.5625% to The Catawba  Corporation  and a gross
overriding  royalty  of  2.1/2%  to Neil W.  Tracy.  All  other  Permits  herein
described  are subject to a gross  overriding  royalty of 1.5625% to The Catawba
Corporation.


<PAGE>


                                  SCHEDULE "B"

      OPERATING  PROCEDURE attached to the Agreement dated as of May 28th, 1959,
between Canada Southern  Petroleum Ltd.,  Magellan  Petroleum  Corporation,  Oil
Investments,  Inc., Home Oil Company Limited, Kern County Land Company,  Alminex
Limited, United Oils, Limited and Signal Oil and Gas Company.

                                    CLAUSE A

DEFINITIONS

      A.1 In this Schedule,  including this Clause, unless the context otherwise
requires, the expressions following shall have the following meanings, namely:

      (a)   "accounting procedure"  shall mean the procedure set out in Schedule
            "C" hereto;

      (b)   "Agreement" or "the  Agreement" shall mean the Agreement dated as of
            May 28, 1959, and the schedules thereto;

      (c)   "commercial  production" or "production in commercial quantities" or
            similar  wording,  shall  mean the output  from a well of  petroleum
            substances in such quantities as,  considering the cost of drilling,
            completing and producing operations,  the probable life of the well,
            the available (or potentially  available) market and the price, kind
            and quality of such production would, after a reasonable  production
            test,  or,  where the well has been  completed,  after a  reasonable
            period of  production,  warrant  the  drilling of a like well in the
            vicinity thereof;

      (d)   "complete",  "completing"  or  "completion"  with  respect to a well
            shall mean proper  abandonment  of the well if  production in paying
            quantities be not encountered or, if production in paying quantities
            is  encountered,  completing  the well  for the  purpose  of  taking
            production, including the supplying and setting of production casing
            and the  supplying and  installing  of tubing,  wellhead and pumping
            equipment,  if initially required to produce the well, storage tanks
            and such  other  equipment,  material  and  services  necessary  for
            preparing  a  well  for  the  taking  of   production  of  petroleum
            substances therefrom;

      (e)   "development well"  shall mean  any well  other than  an exploratory
            well;

      (f)   "dollars" shall mean Canadian dollars;

      (g)   "document of title" shall mean any permit,  license, lease, sublease
            or similar document concerning petroleum substances which is subject
            to the Agreement at any given time;

      (h)   "exploratory  well"  shall mean a well which at the time of spudding
            in is located at least  two (2) miles from the  nearest well capable
            of production in commercial quantities;


<PAGE>

      (i)   "Manager Operator" shall mean any person appointed to act as Manager
            Operator for the Joint Operators under the Agreement;

      (j)   "paying  production" or "production in paying quantities" or similar
            wording  shall mean an output  from a well of  petroleum  substances
            that

                 (i) in the case of a well not yet  completed,  considering  the
                 cost of completing and producing operations,  the probable life
                 of the well, the available (or  potentially  available)  market
                 and the  price,  kind and  quality of such  production,  would,
                 after a reasonable  production test, warrant the taking of such
                 production, and

                 (ii) in the case of a completed  well,  considering the cost of
                 producing  operations,  the  probable  life  of the  well,  the
                 available or potentially  available market and the price,  kind
                 and  quality  of such  production,  would,  after a  reasonable
                 period of  production  (or after a reasonable  production  test
                 where  the well  has not been  placed  on  regular  production)
                 warrant the taking of such production;

      (k)   "Joint Operator" shall mean any party to the Agreement;

      (l)   "petroleum   substances"  shall  mean  petroleum  and/or  any  other
            substance  which the parties have the right to recover from any part
            of the said lands;

      (m)   "participating  equity" shall mean the undivided  share from time to
            time of a Joint  Operator in that part of the said lands referred to
            and the production of petroleum substances therefrom and any jointly
            owned property relating thereto;

      (n)   "re-work"  or  "re-working"  shall  mean any  operation  other  than
            drilling  or pumping  necessary  to obtain  production  and  without
            restricting  the generality of the foregoing may include one or more
            of the running of production casing,  perforating,  acidizing,  sand
            fracing, squeeze cementing or swabbing into production;

      (o)   "said lands" shall mean the rights to  petroleum  substances  in the
            lands  described  in  Schedule  "A",  which at any given  time,  are
            subject to the Agreement;

      (p)   "spacing  unit"  shall  mean  the area  allocated  to a well for the
            purpose of  drilling  for or  producing  petroleum  substances  and,
            except  as  herein  otherwise  expressly  provided,  the  subsurface
            regions vertically beneath such area comprising the spacing unit for
            such  well  prescribed  by and  under  the  laws  of  Canada  now or
            hereafter  in effect  governing  the  spacing  of oil or gas  wells,
            whichever  the well may be and if no area be so  allocated  shall be
            one-quarter  Northwest  Territory  section for oil and one Northwest
            Territory section for a gas well.


<PAGE>

                                    CLAUSE B

STATUS OF MANAGER OPERATOR

      B.1 Subject to the provisions of the Agreement, the Manager Operator shall
have  the  sole  and  exclusive  management  and  control  of  the  exploration,
development and operation of the said lands.

      B.2 The Manager  Operator  may perform any act or do anything  which it is
required to do by having it performed or done by an  independent  contractor but
the  Manager  Operator  shall not make a  general  delegation  of its  powers of
management and control.

      B.3 If and when a Joint Operator is Manager Operator,  such Joint Operator
shall not  thereby be  deprived  of any of the rights or  relieved of any of the
duties or liabilities of a Joint Operator but shall have all such rights, duties
and liabilities in addition to those of Manager Operator, including the right to
vote on his removal or appointment as Manager Operator.

                                    CLAUSE C

CHANGE OF MANAGER OPERATOR

      C.1 The Manager  Operator shall be entitled to retire from its position as
Manager  Operator at any time upon giving written notice to the Joint  Operators
at least six (6)  months in  advance  of the  effective  date of its  retirement
whereupon the Joint Operators shall appoint a successor Manager Operator.

      C.2 The Manager Operator from time to time shall forthwith cease to be the
Manager Operator:

            (i)   if the Manager Operator purports to  make a general delegation
      of its powers of management and control,

            (ii)  in  respect  of  any  lands in  which it  and its  parent  and
      subsidiaries  ceases to hold  at least a  Ten (10%)  percent participating
      equity,

            (iii) if the Manager Operator shall become bankrupt or insolvent, or
      shall make any general assignment for the benefit of creditors,  or should
      any  execution or  attachment  issue against it whereby all or part of its
      participating equity shall be taken by any custodian, receiver, trustee or
      other legal  authority or an effective  resolution  shall have been passed
      for the  winding up or  liquidation  of the  business  and  affairs of the
      Manager Operator,  whereupon the Joint Operators shall appoint a successor
      Manager Operator to take office immediately.

      C.3 A meeting may remove a Manager  Operator and appoint a successor,  but
if such  Manager  Operator  be a person who is not a Joint  Operator or a person
owning  less than a Ten (10%)  percent  equity in the lands  concerned  it shall
require the unanimous consent of the Joint Operators.


<PAGE>

      C.4 When the Manager  Operator  resigns or otherwise ceases to act in that
capacity it shall deliver to its successor Manager Operator exclusive possession
of all jointly  owned  property  including  all  pertinent  books of account and
records of the joint  operations and all documents,  agreements and other papers
relating thereto.

      C.5 A Manager  Operator  who is  removed  shall not be  released  from its
obligations  hereunder  for a period of three  (3)  months  after its  discharge
unless a successor Manager Operator shall have taken over the options hereunder.

                                    CLAUSE D

MEETINGS

      D.1 Any Joint  Operator  may call a meeting of the Joint  Operators at any
time upon not less  than  seven (7)  days'  written  notice  (or three (3) days'
notice) if given by telegram) to each other Joint Operator of the time and place
of such meeting.  Meetings shall be held in the City of Calgary, Alberta, unless
all of the Joint Operators  agree to holding a meeting at some other place.  Any
decision  of any  meeting  shall  require  the  affirmative  vote  of the  Joint
Operators  owning in the aggregate  more than Sixty-six and two-thirds (66 2/3%)
percent of the  participating  equities in that part of the said lands being the
subject  of such  decision  and any  decision  so made  shall,  except as herein
otherwise  provided,  be binding  upon all of the Joint  Operators  and shall be
carried out by the Manager Operator.

      D.2 No decision of a meeting shall be binding on the parties insofar as it
concerns the drilling of a new well,  the  deepening or reworking of a well,  or
any action  which would  increase or decrease  the interest of any or all of the
Joint  Operators in the said lands other than as expressly  provided  herein and
PROVIDED  FURTHER Canada Southern,  Magellan and Oil Investments  shall not have
any vote concerning the program referred to in Article III.

                                    CLAUSE E

BUDGET

      E.1 The Manager Operator shall at intervals of six (6) months furnish each
Joint Operator with a budget outlining its program respecting the operations for
the period of six (6) months next ensuing and  estimating  all  expenditures  in
connection therewith for such period. Unless any Joint Operator shall disapprove
such budget  within ten (10) days after it is  submitted,  it shall be deemed to
have been  approved  and it shall not be  necessary  to hold a  meeting,  but if
disapproved  by the  Joint  Operators,  a new  budget  shall be  submitted  to a
meeting.

      E.2 Any  budget  may be  revised  at any time or from  time to time by the
Joint Operators.

      E.3 Upon any such budget or revised  budget  being  approved,  the Manager
Operator shall thereby be authorized to carry on the operations outlined therein
for the period  covered  by such  budget  and to expend  the  amounts  estimated
therefor.


<PAGE>

      E.4 The Manager  Operator  shall make no  expenditures  in excess of those
authorized by any budget or unless such expenditure is required by any emergency
or to keep any part of the said  lands in good  standing  or to comply  with any
law, rule,  order or regulation  and in any such event the Manager  Operator may
make such  expenditure and shall  forthwith  advise the other Joint Operators in
writing thereof.

      E.5 Any  budget  approved  at a meeting by Joint  Operators  owning in the
aggregate   more  than  Sixty-six  and  two-thirds  (66  2/3%)  percent  of  the
participating  equities in the said lands to which such budget  relates shall be
binding on all Joint Operators; PROVIDED that any budget relating to the program
referred to in Article III shall require the unanimous approval of the H-S group
and shall not require any approval of the C-M-O group.

      The items in any budget  which  provides  for the  drilling,  deepening or
reworking of any wells shall not be binding unless unanimously approved.

                                    CLAUSE F

DUTIES OF THE MANAGER OPERATOR

      F.1  The  Manager  Operator  shall,  in  the  conduct  of  the  operations
hereunder:

            (a)  conduct  the  same  in a good  and  workmanlike  manner  and in
      accordance  with prevailing  field practice,  conforming to all applicable
      laws, rules, orders and regulations,

            (b)  furnish all  material,  labour and  services.  Upon the written
      request of the  Manager  Operator  each Joint  Operator  shall  secure and
      furnish  its  proportionate  part  of any  such  material  in  kind  or by
      satisfactory  assignment  of priorities or  allocations  (governmental  or
      voluntary),

            (c)  pay and  discharge  promptly  all  costs and  expenses actually
      incurred in connection with the joint operations,

            (d)  keep the  accounts of the  joint operations  in accordance with
      the accounting procedure,

            (e)  arrange and  negotiate  for and acquire all surface  rights and
      rights-of-way required for the joint operations,

            (f)  make a good faith effort to keep the said lands and any jointly
      owned  facilities  free and  clear of any  liens  or  encumbrances  and to
      maintain  in force and effect and  protect  any title  affecting  the said
      lands,

            (g)  keep an accurate and itemized record of all production  secured
      and of the disposition thereof,

            (h)  regulate  the  production  of  petroleum  and  natural  gas  in
      accordance   with  market  demands  and  rates  allowed  by   governmental
      regulations  or the  respective  maximum  efficient  rates  of flow of the
      wells.


<PAGE>

                                    CLAUSE G

      G.1 Each  Joint  Operator  shall  have the  following  specific  rights in
respect to any lands in which it owns a participating equity, which shall not be
in limitation of any other rights under this Agreement:

            (a) The right to receive all  information  pertaining to exploratory
      operations,  development  work and wells  drilled on the said lands.  This
      information  shall include,  but not be limited to, copies of all types of
      logs, reports,  geological maps,  geophysical maps and basic data relating
      to the  exploratory  and  development  work on the  lands;  the same to be
      furnished promptly upon completion of each such log, report, map and other
      data. Final reports shall be furnished upon the completion of each job.

            (b) The right to receive progress reports and maps from time to time
      or  immediately  upon  request.  Such reports  shall  include,  but not be
      limited  to, all facts and data  obtained  on a  drilling  well on a daily
      basis  and  the  progress,   location  and  data  obtained  by  any  other
      exploratory  operation,  including  seismic  parties,  surface  geological
      parties and core hole programs on a weekly basis.

            (c) Access to the said lands and the wells  thereon and the right at
      all times to inspect and observe the operations  being  conducted  thereon
      and therein.

            (d) The  right to  examine  the  books and  records  of the  Manager
      Operator  relating to all wells  drilled on the said lands and of sales of
      production.

            (e) Upon  request  made to  the  Manager  Operator  therefor,  to be
      furnished with copies of driller's  reports of wells drilled upon the said
      lands,  samples of cores and cuttings  taken  therefrom  and copies of all
      seismograms obtained upon the properties.

      G.2  Each  Joint  Operator   hereto  shall  treat   geological  and  other
exploratory  data  obtained in  connection  with the said lands as  confidential
information and will reveal no part of it to any third person, except with prior
written approval of the other Joint  Operators;  provided that this clause shall
not  prevent  disclosure  to  the  Government  of  information  required  by the
Government  in order to  establish  credit  for work  requirements,  or  prevent
disclosure  of  information  relating to the geology and reserves  data of known
producing  structures  to  the  extent  such  disclosures  may  be  required  in
connection  with financing by any Joint Operator,  or prevent  disclosure of any
information  to any  experts in order that such  Joint  Operator  may obtain the
opinions of such experts, or disclosure of information  relating to its reserves
relating to known  producing  structures  in a report to its  shareholders;  and
provided  further that  information  obtained from the wells  themselves  may be
disclosed  at the  discretion  of any Joint  Operator,  and that  purchasers  or
prospective  purchasers  of  gas  produced  from  the  said  lands  may,  at the
discretion  of any Joint  Operator,  for use in  connection  with  purchases  or
prospective purchases, be given all information,  whether obtained from wells or
otherwise,  of a kind that is reasonably or  customarily  given to purchasers or
prospective  purchasers of gas in like  circumstances.  Appropriate  precautions
will be taken by each Joint  Operator  to  prevent  inadvertent  disclosures  of
confidential information.


<PAGE>

                                    CLAUSE H

COMPETITIVE OPERATING BASIS

      H.1 All operations  hereunder shall be performed on a competitive basis at
the usual rates prevailing in the area. The Manager Operator,  if it so desires,
may employ its own tools and  equipment in any such  operation but in such event
the charge  therefor shall not exceed the  prevailing  rate in the area and such
work  shall be  performed  by the  Manager  Operator  under  the same  terms and
conditions  as shall be  customary  and  usual in the area in the  contracts  of
independent contractors who are doing work of a similar nature.

                                    CLAUSE I

INSURANCE

      I.1  Any  Joint  Operator  from  time  to time  conducting  any  operation
hereunder shall comply with the requirements of all  Unemployment  Insurance and
Workmen's  Compensation  legislation  and shall, if it not already has, prior to
the  commencement  of such  operation,  take out,  initially pay, and thereafter
maintain and continue to pay for during the period of such  operation,  at least
the  following  insurance in a reputable  insurance  company or companies at the
expense of and on behalf of all the Joint Operators:

            (i)   employer's liability insurance  covering each employee engaged
      in the operations hereunder to the extent of $100,000. where such employee
      is not covered by Workmen's Compensation;

            (ii)  comprehensive   public   liability   insurance   covering  all
      operations  hereunder,  except motor vehicles,  to the extent of $150,000.
      for any one person injured or killed and $300,000. for two or more persons
      injured or killed in any one accident;

            (iii) comprehensive   property   damage   insurance   covering   all
      operations hereunder to the extent of $100,000. for damages resulting from
      any one accident;  including damages  resulting from  fire or blowouts but
      excluding underground damages;

            (iv)  blanket all risk insurance  covering all above ground physical
      property engaged in the operations hereunder except motor vehicles, to the
      extent of the value of all such property;

            (v)   automobile  public liability insurance covering all automotive
      units engaged in the operations  hereunder to the extent of $150,000.  for
      any one person  injured or killed and  $300,000.  for two or more  persons
      injured or killed in any one accident;

            (vi)  automobile property damage  insurance  covering all automotive
      units engaged in the operations  hereunder to the extent of $100,000.  for
      damages resulting from any one accident;

which  insurance may not be terminated  without prior notice to each other Joint
Operator.


<PAGE>

      I.2 If so  requested  by any other  Joint  Operator,  the  Joint  Operator
conducting  the operation  hereunder  shall deliver to such other Joint Operator
evidence of full compliance with the insurance  provisions  contained herein, to
be retained in the custody of such other Joint Operator  during the  continuance
of such operation.

                                    CLAUSE J

ADVANCES

      J.1 The Manager Operator at its election from time to time may require any
Joint Operator to advance its proportionate share of authorized  expenditures by
furnishing such Joint Operator with an estimate of such expenditures required to
cover  operations for a period not in excess of sixty (60) days.  Within fifteen
(15)  days  after  receipt  of such  estimate  or within  ten (10)  days  before
commencement of the period covered by the estimate, whichever is the later, such
Joint Operator shall pay its proportionate part thereof.

      The  accounts  between the Joint  Operators in respect of any such advance
shall be adjusted at the end of each calendar  month in  accordance  with actual
expenditures.  Any amount not paid within the time  hereinbefore  limited  shall
bear interest at the rate of Six (6%) percent per annum.

      J.2 In the event that any Joint  Operator  fails to advance  such money as
required or make any other  payment  required  under this  Agreement,  the other
Joint Operators  participating in the operation concerned shall, upon request by
the Manager  Operator,  pay the share of such  defaulting  Joint Operator in the
proportions of their respective  participating equities, and upon the payment by
the defaulting Joint Operator to the Manager Operator of all or any part of such
sum, or upon the Manager Operator  otherwise  recovering all or any part of such
sum, the Manager Operator shall immediately pay the amount received or recovered
to the Joint  Operators  making the  advancement  in like  proportions  and such
amount  shall be applied  first in reduction of interest and second in reduction
of capital. Provided,  however, that the members of C-M-O shall not be obligated
in respect of any expenditures to be incurred in respect of the program referred
to in Article III or the payments referred to in Article IV.

                                    CLAUSE K

LIEN

      K.1 The Manager Operator shall have a lien on the participating  equity of
each other Joint  Operator to secure payment of such Joint  Operator's  share of
all costs and expenses hereunder,  but such lien shall not attach to any portion
of  such  Joint  Operator's  share  of  production  at  any  time  prior  to the
enforcement of the same by the Manager Operator as hereinafter provided.


<PAGE>

      K.2 In the event  that any Joint  Operator  shall fail to pay its share of
any costs or expenses hereunder (and such default shall continue for thirty (30)
days after the Manager Operator shall have served written notice upon such Joint
Operator  specifying  such default and  requiring  the same to be remedied)  the
Manager  Operator may enforce such lien by taking  possession of all or any part
of the participating  equity of such Joint Operator and the Manager Operator may
sell and dispose of all or any part of such participating equity either in whole
or in separate  parcels at public  auction or by private tender at such time and
on such  terms as it shall  appoint,  having  first  given  notice to such Joint
Operator of the time and place of such sale, and the Manager  Operator is hereby
constituted  irrevocably  the attorney of such Joint Operator for the purpose of
making any such sale and executing such deeds and agreements in the name of such
Joint  Operator as may be necessary  to carry out the same.  The proceeds of any
such sale shall be first applied by the Manager Operator in payment of any costs
or  expenses  to be paid by such  Joint  Operator  and not  paid by it,  and any
balance  remaining  shall be paid to such Joint  Operator  after  deducting  the
reasonable costs of such sale. Any such sale shall be a perpetual bar in law and
equity  against such Joint  Operator and any person  claiming all or any part of
the property sold, by, from, through or under such Joint Operator.

      K.3 If any Joint Operator advances any money under the preceding clause in
respect of the  default of another  Joint  Operator  it shall have the same lien
rights in respect thereto as has the Manager Operator under this clause.

                                    CLAUSE L

DIVISION OF PRODUCTION

      L.1  Each  Joint  Operator  shall  own  its  participating  equity  in the
petroleum  substances  produced hereunder exclusive of any quantity thereof that
may be  delivered  in kind as  royalty  or  production  which may be used by the
Manager  Operator  in  developing  and  producing  operations  hereunder  and in
preparing  and  treating   production  for  marketing  purposes  and  production
unavoidably  lost.  Each Joint Operator  shall,  upon payment of or securing the
payment of any royalty with respect thereto, be entitled to take delivery of its
share of production at the point of production.  Each Joint Operator electing to
take  delivery of its  participating  equity in the petroleum  substances  shall
provide  at its own risk and  expense  adequate  facilities  for  receiving  its
production and shall bear any additional  expense to which the Manager  Operator
may be subject in delivering such production separately.  In the event any Joint
Operator fails to make arrangements to take delivery of its participating equity
in the petroleum substances the Manager Operator may sell the same upon the same
terms and  conditions  that it is selling its share of production and such Joint
Operator  shall be entitled to receive from the Manager  Operator not later than
the last day of the month  following such sale,  the net proceeds  received from
the sale of its  participating  equity in the petroleum  substances so sold. Any
market  available to a Joint Operator shall be shared by it with the other Joint
Operators to the intent and purpose that no Joint Operator shall be obligated to
store its participating  equity in production except to the proportionate extent
that the production  owned by the other Joint Operators is so stored for lack of
market.


<PAGE>

                                    CLAUSE M

OBLIGATORY OPERATIONS

      M.1 Upon the completion of the program provided for in Article III of this
Agreement,  each Joint  Operator  shall be obligated,  provided that the Manager
Operator  has made a bona fide but  unsuccessful  attempt  to obtain a waiver of
such  obligations,  to join in the renewal of any document of title and to pay a
share  equivalent  to its  participating  equity in that part of the said  lands
concerned of any rental and of the cost of any operation, including the drilling
of any well,  necessary  to  maintain  all or any part of the said lands in good
standing except the drilling obligations contained in any document of title when
the person  entitled to enforce the  performance  thereof is not  enforcing  the
same,  unless  such Joint  Operator  has  surrendered  or disposed of all of its
participating  equity in that part of the said  lands to which  such  obligation
applies at least thirty (30) days prior to the date on which such rental becomes
payable or on which such  operation  must be commenced in order to maintain such
part of the said  lands in good  standing.  Provided  that  C-M-O  shall  not be
obligated to participate in any obligatory well while it enjoys the preferential
rights  granted to it by Article 3.1 (C) but if it does not so  participate  the
applicable penalty under the said Article shall apply.

                                    CLAUSE N

INDEPENDENT OPERATIONS

      N.1 Except as hereinbefore provided in Clause M hereof and Article III, no
Joint  Operator  shall be  required  to  participate  in the  cost of  drilling,
deepening, or reworking any well hereunder.

      N.2 Upon  completion  of the  program  provided  for in Article  III,  and
provided  no well is then being  drilled or  deepened  on the said lands for the
joint account, and provided no drilling or deepening operation on the said lands
has then been approved in any budget, the following provisions shall apply:

            (a) Should any Joint  Operator  desire to deepen or re-work any well
      which is incapable of producing petroleum  substances in paying quantities
      or to drill any new well, such Joint Operator shall notify the other Joint
      Operators in writing of its intention to perform the proposed operation at
      its own cost and risk. Such notice (hereinafter called "the first notice")
      shall contain information as to the location,  depth and estimated cost of
      the  operation.  In such event each Joint Operator shall be deemed to be a
      participant  in such  operation  unless it has given written notice to the
      other Joint  Operators  within thirty (30) days after receipt by it of the
      first notice,  of its intention not to  participate;  PROVIDED that if the
      operation  is the  deepening  of a well on which  the  drilling  rig to be
      utilized in such operation is then located, the time herein-before limited
      for giving written notice of intention not to participate shall be reduced
      to three (3) days exclusive of Sundays and statutory holidays, and any rig
      time  for  such  three  (3) day  period  shall  be paid  for by the  Joint
      Operators participating in the operation.


<PAGE>

            (b) The Joint Operator giving first notice shall,  together with the
      Joint Operators  participating,  be entitled to have the Manager  Operator
      commence  such  operation  within  sixty (60) days from the receipt by the
      other Joint  Operators of the first notice and  thereafter  prosecute  the
      operation  to  completion  at the sole cost and risk of the  participating
      Joint Operators in the  proportions  that their  respective  participating
      equities  in  the  spacing  unit   concerned   are  of  the  sum  of  such
      participating equities.

            (c) If the Joint Operators  participating in such operation commence
      the  same  within  the said  period  of sixty  (60)  days and  carry it on
      diligently and continuously to the depth proposed in the first notice

                 (i) if the  operation is the drilling of an  exploratory  well,
            each non-participating  Joint Operator shall forthwith assign to the
            participating   Joint  Operators  in  the  proportions   that  their
            respective   participating   equities   are  of  the   sum  of  such
            participating  equities,  all of  its  participating  equity  in all
            formations in:

                    A. six (6) Northwest Territory sections of the said lands if
               such well is drilled to a depth of more than six thousand (6,000)
               feet and provided  commercial  production  has not been  obtained
               above the depth of six thousand (6,000) feet, and

                    B. four (4) Northwest  Territory  sections of the said lands
               in the case of any other  well,  such  sections  to  include  the
               section on which such well is located  and the other  sections to
               be  selected  by the  participating  Joint  Operators  from those
               sections  laterally or diagonally  adjoining the section on which
               such well is located.

                 (ii) if the operation is a deepening or reworking  operation or
            the drilling of a development  well,  each  non-participating  Joint
            Operator  shall  have the  right,  until  the  elapse of a period of
            thirty (30) days after the participating Joint Operators have served
            on each of the  non-participating  Joint Operators written notice of
            the results of all tests  carried out on the well  concerned  (or in
            the case of a dry hole, written notice to that effect) and have made
            available to such  nonparticipating  Joint Operators all information
            concerning such well which is in the possession of the participating
            Joint Operators,  to pay to the participating Joint Operators in the
            proportions that their respective  participating equities are of the
            sum of such participating  equities,  a sum equal to three (3) times
            the  amount  it would  have  been  called  upon to pay had all Joint
            Operators being entitled to participate  originally  participated in
            the operation, and upon such payment being made, such Joint Operator
            shall  participate  in such  well and the  production  therefrom  ab
            initio to the extent that it would have been entitled to participate
            had all Joint Operators entitled to participate so participated, and
            in the  event  that it  does  not  pay  such  sum  within  the  time
            hereinbefore   limited,   such  Joint   Operator  shall  assign  its
            participating  equity in such well, in the spacing unit on which the
            same is located and in the surface  location,  to the  participating
            Joint   Operators   in  the   proportions   that  their   respective
            participating   equities  are  of  the  sum  of  such  participating
            equities, in which case the Joint Operators receiving the assignment
            shall have the right to produce the well concerned and to market the
            production of petroleum substances therefrom and the Joint Operators
            making the  assignment  shall not be  entitled  to any share of such
            production.


<PAGE>

      N.3 Notwithstanding  anything hereinbefore  contained,  if the lands to be
assigned  under this clause contain any other well then capable of production of
petroleum  substances,  such well and any zone or formation,  whichever the case
may be, underlying the spacing unit of such other well and from which it is then
capable of obtaining production shall be excluded from the lands to be assigned.

                                    CLAUSE O

SELECTION OF LEASES

      O.1 The Joint  Operators shall meet to determine the lands to be contained
in an  application  for  petroleum  and natural  gas leases.  The meeting may be
called by any Joint  Operator on the same notice as is provided in Clause D. All
decisions  relating to any such  application  and the  selection  of lands to be
included  therein shall be made by mutual  agreement and failing such  agreement
shall be made by the Joint Operators owning in the aggregate more than Sixty-six
and  two-thirds (66 2/3%) percent of the  participating  equities in such permit
provided that in making such selection leases of sections must be chosen so that
any Joint  Operator  who is  entitled to any section or sections by virtue of an
independent operation may obtain such section or sections.

                                    CLAUSE P

SURRENDER

      Upon  completion of the program  provided for in Article III the following
provisions shall apply:

      P.1 Any Joint  Operator may,  from time to time and at any time,  provided
that the Crown must or will accept the same,  surrender  all of its  interest in
all or any part of the said lands except that no such surrender shall be made:

            (a) within  thirty (30) days before the accrual of the rental or any
      other  obligation,  excepting  any  drilling  obligation  contained in any
      document  of title when the person  entitled  to enforce  the  performance
      thereof  is not  enforcing  the same,  in respect to that part of the said
      lands to be surrendered,

            (b) respecting an area of less than a spacing unit,

            (c) until the Joint  Operator  desiring  to  surrender  (hereinafter
      called "the  offeror")  shall notify in writing the other Joint  Operators
      (hereinafter  called  "the  recipients")  of the  interest  it  desires to
      surrender.  The  recipients  shall  have the right for a period of fifteen
      (15) days after the receipt of such notice to advise the offeror by notice
      in writing  that it will accept an  assignment  of such  interest.  In the
      event any  recipient  does not notify  within the time herein  limited the
      offeror that it will accept an assignment of such interest, such recipient
      shall  join in the  surrender  of  such  part of the  said  lands.  If any
      recipient  agrees  to  accept  such  assignment,  such  interest  shall be
      assigned to such  recipient.  If more than one recipient  agrees to accept
      such  assignment such interest shall be assigned to such recipients in the
      proportions that their respective  participating interests bear to the sum
      of such participating interests.


<PAGE>

                                    CLAUSE Q

      Q.1 No Joint Operator shall dispose of any interest  hereunder  unless the
person  receiving the same agrees with the other Joint  Operators to be bound by
all of the terms and provisions of this Agreement.  If such disposition  imposes
greater obligations or expenses on the Manager Operator or other Joint Operators
then  such  person  shall  agree to pay all  costs and  expenses  in  connection
therewith.

                                    CLAUSE R

ASSIGNMENTS AMONG PARTIES

      R.1 Upon the assignment of any interest hereunder by one Joint Operator to
any other or others:

      (a) the Joint Operator  agreeing to receive such assignment  shall pay all
      costs and taxes incurred or levied in connection with such assignment;

      (b) the Joint Operator agreeing to receive such assignment shall indemnify
      and hold harmless the Joint Operator agreeing to make such assignment from
      and  against  all  liabilities  in  connection  with such  interest  to be
      assigned  except  liabilities  which arose prior to the  agreement to make
      such assignment;

      (c) the  Joint  Operator  agreeing  to make such  assignment  shall not be
      released  from  any  obligation  which  arose  prior  to the  date  of the
      agreement to accept such assignment;

      (d) such assignment  shall be without warranty of title of the interest of
      the assigning party;

      (e) all the  terms  of this  Agreement  shall  continue  to  apply to such
      interest  as  among  the  Joint  Operators  who have  not  assigned  their
      interest;

      (f) where it is necessary to obtain the consent of any person other than a
      Joint  Operator to such  assignment  and such consent  cannot be obtained,
      such  interest  shall be held in trust by the Joint  Operator  required to
      make the assignment for the Joint Operators entitled to receive the same.

                                    CLAUSE S

RELATIONSHIP OF PARTIES

      S.1 This Agreement shall not be construed to create a partnership.

      S.2 Except as  otherwise  provided  in Clause T hereof,  where the parties
hereto  or any of them  incur a  liability  in  connection  with  any  operation
hereunder  either to a party hereto or to any third party,  such liability shall
not be joint or several  but each party  shall be  separately  liable only for a
portion of the total liability  calculated in accordance with its  participating
equity  in that  part of the  lands to which  the  liability  can be  reasonably
allocated.


<PAGE>

      S.3 Each Joint  Operator  agrees to  indemnify  each other Joint  Operator
against any claim of or liability to any third party incurred in connection with
any  operation  hereunder to the extent but only to the extent that the claim or
liability is asserted against the other Joint Operator in an amount in excess of
the other Joint Operator's share of the liability  calculated in accordance with
this clause;  PROVIDED that a Joint  Operator shall not be required to indemnify
any  other  Joint  Operator  for any  amount  in  excess of its own share of the
liability calculated in accordance with this clause.

      S.4 The Joint Operators  hereby elect that the operations  conducted under
this  Agreement,  and  the  Joint  Operators  themselves  with  respect  to such
operations,  be  excluded  from  the  application  of all of the  provisions  of
Subchapter K of Chapter 1 of Subtitle A of the United  States  Internal  Revenue
Code of 1954, or any amendments  thereof, or of such portion or portions thereof
as may be permitted by the Secretary of the Treasury or his delegate, insofar as
such  Subchapter or any portion or portions  thereof may otherwise be applicable
to such operations or to the Joint Operators with respect to such operations.

                                    CLAUSE T

LIABILITY OF MANAGER OPERATOR

      T.1 Except as  hereinbefore  provided  the Manager  Operator  shall not be
liable to any Joint Operator in damages or otherwise howsoever for anything done
by the Manager Operator  hereunder or for the Manager  Operator's  failure to do
anything hereunder, except for:

            (i)  acts of fraud,  dishonesty or gross  neglect on the part of any
      officer of the Manager  Operator in carrying out the duties of the Manager
      Operator under this Agreement,

            (ii) the  failure of the  Manager  Operator  to remedy  any  default
      hereunder as soon as reasonably  possible after the receipt by it from any
      Joint Operator of written notice of such default.

                                    CLAUSE U

FORCE MAJEURE

      U.1 Any Joint Operator shall be excused from the performance of any of its
obligations  hereunder from time to time and at any time, but only so long as it
is prevented  from  performance  by act of God, the Queen's  enemies,  inclement
weather, accident, breakdown, fire, strike, lock-out, labour shortage, inability
to obtain  equipment,  materials  or supplies  in the open market at  reasonable
prices,  compliance with any law, rule,  order or regulation  which has not been
declared by a court of competent  jurisdiction to be invalid, or any other cause
beyond  the  reasonable  control  of such  Joint  Operator  whether  similar  or
dissimilar,  provided  that lack of funds shall not be considered a cause beyond
the control of a party.


<PAGE>

                                    CLAUSE V
WAIVER

      V.1  No  waiver  on  behalf  of any  party  of  any  breach  of any of the
covenants,  conditions and provisos  herein  contained  shall be effective or be
binding  upon such party  unless the same be expressed in writing and any waiver
so expressed  shall not limit or affect such party's  rights with respect to any
other or future breach.

                                    CLAUSE W

CONFLICT WITH LAWS

      W.1 If any provision  herein  contained is in conflict with any law, rule,
order or regulation  heretofore or hereafter made by any competent  governmental
authority  or any  document of title by virtue of which the parties  hereto hold
any interest,  this Agreement  shall be deemed to be amended so as to conform to
such law, rule, order or regulation or document of title for so long as the same
remains in force.

                                    CLAUSE X

NOTICES

      X.1 All notices  required to be given under this Agreement shall either be
personally   delivered  or  mailed  by  prepaid  registered  mail  addressed  as
hereinafter set forth or to such other address as may be designated from time to
time by such Joint Operator in writing, and any notice mailed as aforesaid shall
be deemed to have been received by the addressee on the next normal business day
following the day of mailing:

          Canada Southern                   505-8th Avenue West,
                                            Calgary, Alberta

          Magellan 505-8th Avenue West,
                                            Calgary, Alberta

          Oil Investments                   505-8th Avenue West,
                                            Calgary, Alberta

          Alminex                           609 Hudson's Bay Oil & Gas Building,
                                            320-7th Avenue West,
                                            Calgary, Alberta

          Signal                            P.O. Box 17126,
                                            Foy Station,
                                            Los Angeles 17, California, U.S. A.

                   with a copy to           4th Floor, North Canadian Oil Bldg.,
                                            Calgary, Alberta


<PAGE>

          Kern                              640-7th Avenue West,
                                            Calgary, Alberta

                   with a copy to           600 California Street,
                                            San Francisco 8, California, U.S.A.

          United                            304-6th Avenue West,
                                            Calgary, Alberta

          Home                              304-6th Avenue West,
                                            Calgary, Alberta

                                    CLAUSE Y

FURTHER ASSURANCES

      Y.1 Each of the Joint  Operators  shall from time to time and at all times
do all such further acts and execute and deliver all such further  documents and
assurances as shall be  reasonably  required in order fully to perform and carry
out the terms of this Agreement.

                                    CLAUSE Z

ENTIRE AGREEMENT

      Z.1 The Joint Operators agree that they have expressed herein their entire
understanding and agreement  concerning the subject matter of this Agreement and
it is expressly agreed that no implied covenant,  condition, term or reservation
shall be read into this Agreement relating to or concerning such subject matter.

                                    CLAUSE AA

DIVISION OF EXPENSES

      AA.1 The costs and  expenses  of the  program  referred  to in Article III
shall be borne as to Fifty (50%) percent by Signal, Twenty-five (25%) percent by
Home,  Ten (10%)  percent by  Alminex,  Ten (10%)  percent by Kern and Five (5%)
percent by United and C-M-O shall not bear any of the said costs or expenses nor
shall the same be recoupable from C-M-O.

      AA.2 Except as herein  otherwise  provided all costs and expenses shall be
allocated  equitably  by the Manager  Operator to the parts of the said lands to
which they apply and each Joint Operator  shall bear and pay in accordance  with
the  accounting  procedure a share of the same  equivalent to its  participating
equity in that part of the said lands to which the same are allocated.


<PAGE>

      AA.3 The participating equities  of the Joint Operators  in the said lands
at the date hereof are as follows:

                   Canada Southern.......................    37 1/2%
                   Magellan..............................     6 1/4%
                   Oil Investments.......................     6 1/4%
                   Home..................................    12 1/2%
                   Alminex...............................         5%
                   Kern..................................         5%
                   United................................     2 1/2%
                   Signal................................        25%

      AA.4 H-S agrees that during the term of the option it will  allocate  such
part of any excess  credits in any year not required by them in connection  with
the said  lands to the  optioned  lands  in  order  to keep the  option  in good
standing for such year.

                                    CLAUSE BB

TERM

      BB.1 Subject to the other  provisions  hereof,  including  Article V, this
Agreement  shall remain in full force and effect and the said lands shall not be
subject to partition so long as any jointly owned  document of title to any part
of  the  said  lands,  or any  renewal  or  extension  thereof  pursuant  to the
provisions of such document of title, remains in force and effect and thereafter
until  all  joint  facilities  have  been  salvaged  and  disposed  of and final
settlement and accounting had among the Joint Operators.

                                    CLAUSE CC

INTERPRETATION

      CC.1 Wherever in this  Agreement the singular  number or masculine  gender
occurs,  the same shall be respectively  construed as the plural or neuter,  and
vice versa, as the context or reference may require.

      CC.2 Notwithstanding  anything herein elsewhere to the contrary contained,
any right of any party to acquire any  interest  from any other party  hereunder
shall  cease,  determine  and be at an end not  later  than  the  expiration  of
twenty-one  (21) years after the death of the last surviving  lawful  descendant
now living of His Late Majesty King George VI.

      CC.3 The  headings  of all  clauses in this  Agreement  are  inserted  for
convenience of reference only and shall not affect the construction hereof.

      CC.4     Time shall be of the essence hereof.

      CC.5 This Agreement  shall,  subject to the provisions of Clause Q hereof,
be  binding  upon and  enure to the  benefit  of the Joint  Operators  and their
respective successors and assigns.

      CC.6 All terms,  covenants,  provisions  and  conditions of this Agreement
shall run with and be binding upon the said lands during the term hereof.


<PAGE>


                                  SCHEDULE "C"

       Attached to and made a part of an agreement made as of May 28, 1959
           between Canada Southern Petroleum Ltd., Magellan Petroleum
              Corporation, Oil Investments, Inc.9 Home Oil Company
                   Limited, Kern County Land Company, Alminex
                    Limited, United Oils Limited, Signal Oil
                                and Gas Company.

                              ACCOUNTING PROCEDURE

                        (Unit and Joint Lease Operations)


                              I. GENERAL PROVISIONS

1.    DEFINITIONS

      The term "joint  property"  as herein used shall be  construed to mean the
      subject area covered by the agreement to which this "Accounting Procedure"
      is attached.

      The term  "Operator"  as herein used shall be  construed to mean the party
      designated  to conduct the  development  and operation of the subject area
      for the joint account.

      The term  "Non-Operator" as herein used shall be construed to mean any one
      or more of the non-operating parties.

      The  term  "rentals"  shall,  in  addition  to its  ordinary  meaning,  be
      construed  to  include  delay  rentals,  renewal  fees and  generally  all
      periodical payments of monies required to be made in order to maintain the
      rights of the parties in and to the joint property in force and effect.

2.    STATEMENTS AND BILLINGS

      The  Operator  shall bill  Non-Operator  on or before the last day of each
      month for its  proportionate  share of costs and  expenditures  during the
      preceding month. Such bills will be accompanied by statements,  reflecting
      the total cost and charges as set forth under sub-paragraph A below:

      A.    Statement in detail of all charges and credits to the joint account.

      B.    Statement  of  all  charges  and  credits  to  the  joint   account,
            summarized by appropriate  classifications  indicative of the nature
            thereof.

      C.    Statements, as follows:

            (1)  Detailed   statement   of    material   ordinarily   considered
                 controllable by operators of oil and gas properties;


<PAGE>

            (2)  Statement of all other charges and credits to the joint account
                 summarized  by  appropriate  classifications  indicative of the
                 nature thereof; and

            (3)  Statement of any other receipts and credits.

3.    PAYMENTS BY NON-OPERATOR

      Each party shall pay all such bills within fifteen (15) days after receipt
      thereof.  If payment is not made within such time,  the unpaid balance may
      bear  interest  at the rate of six per cent  (6%) per  annum  until  paid.
      Operator  shall have and be entitled to a prior lien on all the rights and
      interests  of  Non-Operator  in  said  joint  properties,  the  production
      therefrom,  and the material and equipment thereon,  to secure the payment
      by Non-Operator of Non-Operator's portion of cost, purchases, and expenses
      of developing  and operating the joint property as herein  provided.  Upon
      request  Operator  may  require  Non-Operator  to  advance  his  share  of
      estimated cash outlay for the current month's operations.

4.    AUDITS

      Payment of any such bills shall not prejudice the right of Non-Operator to
      protest or question the correctness  thereof.  All statements  rendered to
      Non-Operator  by Operator  during any calendar year shall be  conclusively
      presumed to be true and correct after eighteen months  following the close
      of any such calendar year, unless within said eighteen months Non-Operator
      takes written exception thereto and makes claim on Operator for adjustment
      or commences an audit of Operator's  accounts and records  relating to the
      accounting hereunder. Failure on the part of Non-Operator to make claim on
      Operator for adjustment,  or to commence an audit within such period shall
      establish  the  correctness  thereof and preclude the filing of exceptions
      thereto or the making of claims for adjustment  thereon.  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
      accounting  hereunder,  within eighteen months next following the close of
      any calendar year.  Non-Operator  shall have six months next following the
      examination  of the  Operator's  records  within  which  to  take  written
      exception to and make any and all claims on Operator.  The  provisions  of
      this paragraph shall not prevent  adjustments  resulting from the physical
      inventory of property as provided for in Section VI, Inventories, hereof.


                      II. DEVELOPMENT AND OPERATING CHARGES

      Subject to limitations hereinafter  prescribed,  Operator shall charge the
      joint account with the cost of the following items:

1.    RENTALS AND ROYALTIES

      Rentals,  when such  rentals are paid by Operator  for the joint  account;
      royalties,  when not paid direct to royalty owners by the purchaser of the
      oil, gas, casing-head gas, or other products.


<PAGE>

2.    LABOUR, TRANSPORTATION AND SERVICES

      Labour, transportation,  and other services necessary for the development,
      maintenance,  and  operation of the joint  property.  Labour shall include
      salaries  and  wages  of  Operator's   employees,   other  than  employees
      compensated for under  paragraphs  (11), (12) and (13) of this Section II,
      directly  engaged in operations of the joint  property and (A)  Operator's
      cost of  vacation,  sickness and  disability  benefits of  employees,  and
      expenditures  or   contributions   imposed  or  assessed  by  Governmental
      authority  applicable  to such  salaries  and  wages,  and (B)  Operator's
      current cost of  established  plans for employees'  group life  insurance,
      hospitalization,  pension,  retirement, stock purchase, thrift, bonus, and
      other  benefit plans of like nature,  applicable  to  Operator's  payroll;
      provided  that the  charges  under  part (B) of this  paragraph  shall not
      exceed  twelve  percent  (12%) of the  total of such  salaries  and  wages
      charged to the joint account.

3.    MATERIAL

      Material,  equipment, and supplies purchased or furnished by Operator, for
      use of the  joint  property.  So far  as it is  reasonably  practical  and
      consistent  with  efficient and economical  operation,  only such material
      shall be purchased for or  transferred  to the joint  property as required
      for immediate use, and the accumulation of surplus stocks shall be avoided
      wherever possible.

4.    MOVING MATERIAL TO JOINT PROPERTY

      Moving  material to the joint  property  from  vendors or from  Operator's
      warehouse in district or from the other  properties  of  Operator,  but in
      either of the last two events no charge shall be made to the joint account
      for a distance  greater than the distance from the nearest reliable supply
      store or railway receiving point where such material is available,  except
      by special agreement with Non-Operator.

5.    MOVING SURPLUS MATERIAL FROM JOINT PROPERTY

      Moving  surplus  material from the joint property to outside  venders,  if
      sold f.o.b. destination, or minor returns to Operator's warehouse or other
      storage  point.  No charge  shall be made to the joint  account for moving
      major surplus material to Operator's  warehouse or other storage point for
      a distance  greater than the distance to the nearest reliable supply store
      or railway receiving point, except by special agreement with Non-Operator;
      and no charge  shall be made to the joint  account for moving  material to
      other properties  belonging to Operator,  except by special agreement with
      Non-Operator.

6.    USE OF OPERATOR'S EQUIPMENT AND FACILITIES

      Use  of  and  service  by  Operator's   exclusively  owned  equipment  and
      facilities  as provided in paragraph 4, of Section III,  "Basis of Charges
      to Joint Account".


<PAGE>

7.    DAMAGES AND LOSSES

      Damages or losses incurred by fire,  flood,  storm or any other causes not
      controllable  by Operator  through the exercise of  reasonable  diligence.
      Operator  shall furnish  Non-Operator  written  notice of damage or losses
      incurred by fire,  storm,  flood or other natural or accidental  causes as
      soon as  practicable  after  report  of the  same  has  been  received  by
      Operator.

8.    LITIGATION, JUDGMENTS, AND CLAIMS

      All  costs  and  expenses  of  litigation,  or  legal  services  otherwise
      necessary or expedient for the protection of the joint interest, including
      attorneys  fees and expenses as  hereinafter  provided,  together with all
      judgments  obtained against the parties or any of them insofar as the same
      relate to the  joint  account  or the  subject  matter of this  agreement;
      actual  expenses  incurred  by any party or  parties  hereto  in  securing
      evidence  for the  purpose  of  defending  against  any  action  or  claim
      prosecuted  or urged  against the joint  account or the subject  matter of
      this agreement.

      A.    If a majority of the interests hereunder shall so agree,  actions or
            claims affecting the joint interests hereunder may be handled by the
            legal  staff  of one or more of the  parties  hereto,  and a  charge
            commensurate  with the  services  rendered  may be made  against the
            joint  account,  but no such charge shall be made until  approved by
            the legal  department  of or attorneys  for the  respective  parties
            hereto.

      B.    Fees and expenses of outside  attorneys  shall not be charged to the
            joint  account  unless  authorized  by the majority of the interests
            hereunder.

9.    TAXES

      All taxes,  rates, levies and assessments of every kind and nature levied,
      assessed or imposed upon or in connection  with the joint  property or any
      part thereof,  the production  therefrom or the operation  thereof,  which
      shall  have been  paid by the  Operator  for the  benefit  of the  parties
      hereto.

10.   INSURANCE

      A.    Premiums  paid for  insurance  carried  for the benefit of the joint
            account  together  with  all  expenditures   incurred  and  paid  in
            settlement of any and all losses, claims,  damages,  judgments,  and
            other  expenses,   including  legal  services,  not  recovered  from
            insurance carrier.

      B.    If no insurance is required to be carried,  all actual  expenditures
            incurred and paid by Operator in  settlement  of any and all losses,
            claims, damages, judgments, and any other expenses,  including legal
            services, shall be charged to the joint account.


<PAGE>

11.   DISTRICT AND CAMP EXPENSE

      A proportionate  share of the salaries and expenses of Operator's district
      superintendent  and other general district or field employees  serving the
      joint property,  whose time is not allocated  direct to the joint property
      and a  proportionate  share of the cost of  maintaining  and  operating  a
      district office and all necessary camps,  including housing facilities for
      employees if necessary, incurred in conducting the operations on the joint
      property  and other  leases  owned and  operated  by  Operator in the same
      locality.  The expense of, less any revenue from,  these  facilities shall
      include  depreciation  or a fair monthly rental in lieu of depreciation on
      the investment.  Such charges shall be apportioned to all leases served on
      some equitable basis consistent with Operator's accounting practice.

12.   OVERHEAD

      Overhead  charges,  which  shall be in lieu of any charges for any part of
      the expenses, including salaries or compensation paid to managing officers
      and  employees,  of the division  office  and/or  principal  office of the
      Operator,  but which are not in lieu of district or field office  expenses
      incurred in  developing  and operating  any joint  property;  or any other
      expenses of  Operator,  including  but not limited to expenses  chargeable
      under  paragraph (2) of this Section II,  incurred in the  development and
      operation of joint  property  and Operator  shall have the right to assess
      against the joint property on one of the following overhead bases:

      Per Well Basis:

A.    (1)   $15 per day for each drilling  well,  beginning on the date the well
            is spudded and terminating  when it is on production  or is plugged,
            as the case may be,  except that no charge  shall be made during the
            suspension  of   drilling  operations  for   fifteen  (15)  or  more
            consecutive days.

      (2)   $100 per well per month for the first five (5) producing wells.

      (3)   $75 per well per month for the second five (5) producing wells.

      (4)   $50 per well per month for all producing wells over ten (10).

B.    $60.00 per day for each shallow core hole party.

      $30.00 per day for each seismograph reflection party.

      $30.00 per day for each seismograph refraction party.

      $15.00 per day for each gravity meter test party.

      $15.00 per day for each  magnetometer test party beginning on the date the
             party enters the said areas and  terminating  when the party leaves
             the said areas. A charge shall also be made for  non-working shifts
             for the  reason of  repairs or other causes  beyond the  control of
             operation.


<PAGE>

      In  connection  with  overhead  charges,  the status of wells  shall be as
follows:

      (1)   In-put or key wells shall be included  in overhead schedule the same
            as producing oil wells.

      (2)   Producing gas wells shall be included  in overhead schedule the same
            as producing oil wells.

      (3)   Wells  permanently  shut down but on which  plugging-operations  are
            deferred,  shall  be  dropped  from  overhead  schedule  at the time
            shutdown is effective.  When such wells are plugged,  overhead shall
            be charged at the  producing  well rate during the time required for
            the plugging operations.

      (4)   Wells being  plugged back  or drilled  deeper shall  be included  in
            overhead schedule the same as drilling wells.

      (5)   Various  wells may be shut down  temporarily  and later  replaced on
            production.  If  and  when a well  is  shut  down  (other  than  for
            proration)  and not  produced  or worked upon for a period of a full
            calendar  month,  it shall not be included in the overhead  schedule
            for such month.

      (6)   Salt water disposal wells shall not be included in overhead schedule
            as producing wells.

      The above  specific  overhead  rates may be  amended  from time to time by
      agreement  between  Operator and  Non-Operator  if, in practice,  they are
      found to be insufficient or excessive.

      It is specifically  understood that the above Overhead rates apply only to
      Drilling  and  Producing  Operations  and are not  intended  to cover  the
      construction  or  operations  of  additional  facilities  such as, but not
      limited to, gasoline plants,  compressor  plants,  repressuring  projects,
      salt water disposal  facilities,  major road  construction  projects,  and
      similar installations. If at any time any or all of these become necessary
      to the  operation  a separate  agreement  will be reached  relative  to an
      overhead charge and allocation of District Expense.

13.   WAREHOUSE HANDLING CHARGES

      A handling  charge to cover the cost of handling  material into and in the
      warehouse  shall  be  assessed  on new and  used  material  and  equipment
      furnished from the Operator's warehouse on the following basis:

      (A)   Five percent (5%) of  the cost of  tubular goods  (2" and over)  and
            major equipment such as tanks, separators, engines, etc.

      (B)   Ten percent (10%) of the cost of all other material.


<PAGE>

14.   OTHER EXPENDITURES

      Any other  expenditures  incurred by Operator for the necessary and proper
      development, maintenance, operation and abandonment of the joint property.
      Notwithstanding anything herein contained, no charge shall be made for any
      interest or  financing  charges  incurred by the  Operator,  except  where
      incurred with the consent of Non-Operator.

                     III. BASIS OF CHARGES TO JOINT ACCOUNT

1.    PURCHASES

      Material  and  equipment  purchased  and all  services  procured  shall be
      charged  at  their  invoiced  cost to  Operator,  after  deduction  of all
      discounts actually received.

2.    MATERIAL FURNISHED BY OPERATOR

      Material  required for operations  shall be purchased for direct charge to
      joint account whenever practicable,  except that Operator may furnish such
      material from Operator's stocks under the following conditions:

      A.    New Material (Condition "A")

            (1)  New material  transferred  from  Operator's  warehouse or other
                 properties shall be priced f.o.b. the nearest  reputable supply
                 store or  railway  receiving  point,  where  such  material  is
                 available,  at  current  replacement  cost of the same  kind of
                 material.  This will  include  material  such as  tanks,  rigs,
                 pumps, sucker rods, boilers, and engines. Tubular goods (2" and
                 over) shall be charged on the basis of carload price  effective
                 at date of transfer and f.o.b.  railway receiving point nearest
                 the joint property, regardless of quantity transferred.

            (2)  Other material  shall be priced on basis of a reputable  supply
                 company's preferential price list effective at date of transfer
                 and f.o.b.  the store or railway  receiving  point  nearest the
                 joint property where such material is available.

      B.    Used Material (Condition "B" and "C")

            (1)  Material  which is in sound and  serviceable  condition  and is
                 suitable for re-use without  reconditioning shall be classed as
                 Condition "B" and priced at 75% of current new price.

            (2)  Material which cannot be classified as Condition "B" but which,

                 (a)  After  reconditioning  will  be  further  serviceable  for
                      original function as good secondhand  material  (Condition
                      "B"), or

                 (b)  Is serviceable for original function but substantially not
                      suitable for reconditioning, shall be classed as Condition
                      "C" and priced at 50% of current new price.


<PAGE>

            (3)  Tanks,  derricks,  buildings,  and  other  equipment  involving
                 erection  costs shall be charged at  applicable  percentage  of
                 dismantled current new price for similar materials.

            (4)  There may also be cases where some items of  equipment,  due to
                 their unusual condition,  should be fairly and equitably priced
                 by Operator, subject to approval of Non-Operator.

            (5)  Current new price,  wherever used in this  sub-paragraph  2B of
                 this Section III shall have the same meaning and be  determined
                 in accordance with sub-paragraph 2A of this Section III.

3.    WARRANTY OF MATERIAL FURNISHED BY OPERATOR

      Operator  does not warrant the  material  furnished  beyond or back of the
      dealer's or manufacturer's  guaranty;  and, in case of defective material,
      credit shall not be passed until  adjustment has been received by Operator
      from the manufacturers or their agents.

4.    OPERATOR'S EXCLUSIVELY OWNED FACILITIES

      The following  rates shall apply to services  rendered by  facilities  and
      equipment  owned  exclusively by Operator,  provided such rates are not in
      excess of current prevailing rates of like service and equipment available
      in the area:

      A.    Water service, gas and power, booster and compressor services, etc.,
            cost of such services including operation,  maintenance,  insurance,
            taxes and allowance for depreciation.

      B.    Automotive  equipment,  at rates commensurate with cost of ownership
            and operation and in line with schedule  adopted by Operator for use
            in his  operations.  Charges will be based on use in actual  service
            on, or in connection with the development and operation of the joint
            property.

      C.    Aircraft equipment, at rates commensurate with cost of ownership and
            operation. Charges will be made on a flight hour basis, based on use
            and actual service in connection  with the development and operation
            of the joint property.

      D.    A fair  rate  shall be  charged  for the use of  drilling  and other
            machinery and  equipment  exclusively  owned by Operator  while used
            hereunder  to  cover  maintenance,  repairs,  depreciation,  for the
            service furnished the joint property. Drilling equipment lost in the
            hole or damaged  beyond repair shall be charged to the joint account
            at a fair depreciated value.

            Whenever requested Operator shall inform  Non-Operator in advance of
the rates it proposes to charge.


<PAGE>

            Rates  shall be  revised  from time to time when  found to be either
excessive or insufficient.

                  IV. DISPOSAL OF LEASE EQUIPMENT AND MATERIAL

      The  Operator  shall  be under  no  obligation  to  purchase  interest  of
      Non-Operator  in surplus  new or  secondhand  material.  Derricks,  tanks,
      buildings, and other major items shall not be removed by Operator from the
      joint property  without the approval of  Non-Operator.  Operator shall not
      sell  major  items  of  material  to  an  outside  party  without   giving
      Non-Operator  an opportunity  either to purchase same at the price offered
      or to take Non-Operator's share in kind.

1.    MATERIAL PURCHASED BY OPERATOR

      Material  purchased by Operator shall be credited to the joint account and
      included in the monthly statement of operations for the month in which the
      material is removed from the joint property.

2.    MATERIAL PURCHASED BY NON-OPERATOR

      Material  purchased by Non-Operator shall be invoiced by Operator and paid
      for by Non-Operator to Operator immediately  following receipt of invoice.
      The Operator  shall pass credit to the joint  account and include the same
      in the monthly statement of operations.

3.    DIVISION IN KIND

      Division of material in kind, if made between  Operator and  Non-Operator,
      shall be in proportion  to their  respective  interests in such  material.
      Each party will  thereupon be charged  individually  with the value of the
      material  received or receivable by each party and  corresponding  credits
      will be made by the Operator to the joint account,  and such credits shall
      appear in the monthly statement of operations.

4.    SALES TO OUTSIDERS

      Sales to outsiders of material from the joint  property  shall be credited
      by Operator to the joint  account at the net amount  collected by Operator
      from vendee.  Any claims by vendee for defective  material etc.,  shall be
      charged back to the joint account, if and when paid by Operator.

             V. BASIS OF PRICING MATERIAL TRANSFERRED FROM PROPERTY

      Jointly-owned   material  and  equipment   sold  to  either   Operator  or
      Non-Operator  or divided in kind between  them,  unless  otherwise  agreed
      shall be valued on the following basis of condition and price:  (new price
      as used in the following  sub-divisions shall have the same meaning and be
      computed on the same basis as the price for new material in  sub-paragraph
      2A of Section III hereof).


<PAGE>

1.    NEW MATERIAL

      New material (Condition "A"), being new equipment or supplies purchased or
      procured for the property but never used thereon,  at one hundred  percent
      (100%) of current new price.

2.    GOOD USED MATERIAL

      Good used material (Condition "B"), being good serviceable  material which
      is further usable without reconditioning:

      (a)   At 75% of current new price if material was charged to joint account
            as new, or

      (b)   At 75% of current new price less  depreciation  consistent  with its
            usage  on  and  service  to  the  joint  property  if  material  was
            originally charged to the joint property as secondhand at 75% of new
            price.

3.    OTHER USED MATERIAL

      Other used material (Condition "C"), being material which:

      (a)   After  reconditioning  will  be  further  serviceable  for  original
            function as good secondhand material (Condition "B"), or

      (b)   Is serviceable for original function but substantially  not suitable
            for reconditioning at 50% of current new price.

4.    BAD ORDER MATERIAL

      Bad order material  (Condition "D"), being material not further usable for
      its  original  function  but  for  possible  other  service,  at  a  value
      commensurate with its use.

5.    JUNK

      Junk  (Condition  "E"),  being  obsolete and  unserviceable  material,  at
      prevailing junk prices in the district.

6.    There may also be cases where some items of equipment due to their unusual
      condition  should be fairly and  equitably  priced by Operator  subject to
      approval of Non-Operator.


                                 VI. INVENTORIES

1.    PERIODIC INVENTORIES

      Periodic  inventories  shall be taken by  Operator  of the  joint  account
      material  at  reasonable  intervals  but at least once in every five years
      which  shall  include  all  such  material  as  is  ordinarily  considered
      controllable by operators of oil and gas properties.


<PAGE>

2.    NOTICE

      Notice of intention to take inventory  shall be given by Operator at least
      ten (10) days before any inventory is to begin, so that  Non-Operator  may
      be represented when any inventory is taken.

3.    FAILURE TO BE REPRESENTED

      Failure of Non-Operator to be represented at the physical  inventory shall
      bind Non-Operator to accept the inventory taken by Operator,  who shall in
      that event furnish Non-Operator with a copy thereof.

4.    RECONCILIATION OF INVENTORY

      Reconciliation  of inventory  with charges to the joint  account  shall be
      made by each party at interest, and a list of overages and shortages shall
      be jointly determined by said parties.

5.    ADJUSTMENT OF INVENTORY

      Inventory adjustments shall be made by Operator with the joint account for
      overages and  shortages,  but Operator  shall only be held  accountable to
      Non-Operator for shortages due to lack of reasonable diligence.

6.    INVENTORY EXPENSES

      The expense of Operator's and  Non-Operator's  representatives  present at
      the taking of regular inventory shall not be charged to the joint account.

7.    SPECIAL INVENTORIES

      Any party  shall  have the right at any time to  request  in  writing  the
      taking of a special inventory.  The taking of such special inventory shall
      be commenced within fifteen (15) days after the receipt of notice thereof.
      The  expense  of  Operator's  representative  in  conducting  any  special
      inventory  so requested  shall be charged to the  separate  account of the
      requesting party.