CANADA SOUTHERN PETROLEUM LTD.
                             1992 STOCK OPTION PLAN

         1.  Purpose of Plan. The purpose of this stock option plan (the "Plan")
is to  further  the  success  of Canada  Southern  Petroleum  Ltd.,  a  Canadian
corporation,  chartered  under  the laws of the  Province  of Nova  Scotia  (the
"Company"), and its subsidiaries or affiliates, by making available stock of the
Company  for  purchase  by  eligible  directors,  officers,  key  employees  and
consultants  of the  Company and its  subsidiaries  or  affiliates,  and thus to
provide an additional  incentive to such persons to continue  their  affiliation
with the Company and its  subsidiaries  or affiliates and to give them a greater
interest as stockholders in the success of the Company.

         2.  Stock Subject to Plan.  There shall  be  reserved  for  issuance or
transfer  upon the exercise of options to be granted from time to time under the
Plan an aggregate of 600,000  shares of the  Company's  Limited  Voting  Shares,
$1.00 par value (the  "Shares"),  which shares,  as the Board of Directors shall
from time to time determine,  may be in whole or in part authorized and unissued
shares of stock or issued  shares of stock which shall have been  reacquired  by
the Company.  If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan.

         3.  Administration. The Board of Director of the Company shall act as a
committee of the whole (the "Committee") to administer the Plan. No director who
is at that time  eligible to receive an option under the Plan shall  participate
as a member of the Committee in the granting of an option to such director.

         The Committee  shall have  absolute  authority in its  discretion,  but
subject to the express  provisions  of the Plan,  to determine  (i) the purchase
price of the Shares  covered by each  option,  (ii) the persons to whom  options
shall be  granted,  (iii) the time or times at which  options  shall be granted,
(iv) the  number of shares to be  subject  to each  option,  and (v) the time or
times at which an option can be exercised and whether in whole or  installments;
to interpret  the Plan; to  prescribe,  amend and rescind rules and  regulations
relating to the Plan;  to determine  the terms and  provisions  (and  amendments
thereof) of the  respective  option  agreements  (which need not be  identical),
including such terms and provisions (and amendments) as shall be required in the
judgment  of the  Committee  to conform  to any change in any law or  regulation
applicable  thereto;  and to  make  any  and  all  other  determinations  deemed
necessary or  advisable  for the  administration  of the Plan.  The  Committee's
determination on the foregoing matters shall be conclusive.

         The Committee shall select one of its members as its chairman and shall
hold its  meetings at such times and places as it may  determine.  A majority of
the members shall constitute a quorum,  and all  determinations of the Committee
shall be made by not less than a majority of its members.  The  Committee  shall
establish such rules and regulations for the conduct of its business as it shall
deem advisable.

         4.  Eligibility.  Options  under  the  Plan  may  be  granted  only  to
directors,  officers,  key employees and  consultants  of (i) the Company,  (ii)
subsidiary  corporations of the Company from time to time  ("Subsidiaries")  and
(iii) any  business  entity in which the Company  shall from time to time have a
substantial interest  ("Affiliate").  In determining the persons to whom options
shall be granted  and the number of shares to be  covered  by each  option,  the
Committee  may take into  account  the nature of the  services  rendered by such
persons,  their present and potential contribution to the Company's success, and
such other factors as the Committee in its discretion shall deem relevant.

         5.  Option  Prices.  The  purchase  price of Shares  under each  option
shall be determined by the  Committee.  The purchase price may be less than fair
market value of the Shares at the time of granting, but may not be less than the
greater of (i) the par value  thereof and (ii) the fair value of the shares less
any discount permitted by The Toronto Stock Exchange.

         6.  Exercise  of  Option.  Unless  otherwise  provided  in  the  option
agreement,  an  option  granted  under  the Plan  shall  become  exercisable  in
installments  as  follows:  to the extent of  twenty-five  (25%)  percent of the
number  of  shares  originally  covered  thereby,  in  the  calendar  year  next
succeeding  the date of grant of the option,  and to the extent of an additional
twenty-five  (25%)  percent  of such  number  of  shares  in  each of the  three
succeeding  years  thereafter.   Such  installments  shall  be  cumulative.  The
Committee  shall have  authority  in its  discretion  to prescribe in any option
agreement that the option may be exercised in different  installments during the
term of the option.  In any event,  options granted to individuals who have been
associated  with the  Company  for not less than ten  years  may be  exercisable
immediately.  The purchase  price of the shares to be acquired  shall be paid in
full upon the exercise of the option,  and the Company  shall not be required to
deliver  certificates for such shares until such payment has been made. The term
of each option shall be for such period as the Committee  shall  determine,  but
not more than ten  years  from the date of  granting  thereof,  or such  shorter
period as described in  Paragraphs 8 and 9 hereof.  As to  employees,  except as
provided in Paragraphs 8 and 9, an option  granted to an employee of the Company
or one of its Subsidiaries or Affiliates, may not be exercised unless the holder
thereof is at the time of such  exercise (and has been since the date or grant),
an  employee or a retiree of the  Company or one of its then  Subsidiaries  or a
then  Affiliate.  The holder of an option  shall not have any of the rights of a
stockholder with respect to the shares subject to option until such shares shall
be issued or transferred to him upon exercise of his option.

         7.  Limited Transferability of Options.  No options  granted under  the
Plan shall be  transferable,  except that options may be  transferred  to and be
exercised by members of an optionee's  immediate family, and each option granted
pursuant to the Plan may be  exercised  during an  optionholder's  lifetime,  or
pursuant to Paragraph 9 hereof.

         8. Termination of Employment. In the event of termination of employment
of an employee to whom an option has been granted under the Plan, other than (a)
a termination  that is either (i) for cause or (ii) voluntary on the part of the
employee and without the written consent of the Company, or (b) a termination by
reason of death,  the  employee  may  (unless  otherwise  provided in his option
agreement)  exercise  his  option at any time  within  three  months  after such
termination of employment,  or such other time as the Committee shall authorize,
but in no event after ten years from the date of granting thereof, to the extent
of the number of shares  covered by his option which were  purchasable by him at
the date of termination of his  employment.  In the event of the  termination of
the  employment of an employee to whom an option has been granted under the Plan
that is  either  (i) for  cause or (ii)  voluntary  on the part of the  employee
without the written  consent of the  Company,  any options held by him under the
Plan,  to the extent  not  theretofore  exercised,  shall  forthwith  terminate.
Nothing in the Plan or any option  granted  pursuant to the Plan shall confer on
any individual any right to continue in any capacity his  relationship  with the
Company or any of its  Subsidiaries  or  Affiliates or interfere in any way with
the right of the Company or any of its  Subsidiaries  or Affiliates to terminate
such relationship at any time.

         This Paragraph 8 is applicable  only to options  granted to and held by
full time  officers and employees  and is not  applicable to options  granted to
directors, retirees of the Company and consultants.

         9.  Death of Holder of Option.  In the event of the death of any holder
of an  option  which  has been  granted  under the  Plan,  such  option  (unless
previously  terminated)  may be exercised (to the extent of the number of shares
covered by such option which were  purchasable by such person at the date of his
death) by a legatee or legatees of such option under such  person's  will, or by
such person's  personal  representative  or  distributees,  at any time within a
period of one year  after his  death,  but not after ten years  from the date of
granting thereof.

         10.  Retirement of Holder of Option.  In the event of the retirement of
a holder of an option which has been granted under the Plan, such option (unless
previously  terminated)  shall  continue to be  exercisable  in accordance  with
Paragraph  6 hereof but no more than ten years from the date of granting or such
shorter period as described in paragraph 9 hereof.

         11.  Adjustment Upon  Changes in  Capitalization.  Notwithstanding  any
other  provisions of the Plan, each option agreement may contain such provisions
as the Committee  shall  determine to be  appropriate  for the adjustment of the
number and class of shares subject to such option and of the option price in the
event of changes  in the  outstanding  Stock by  reasons of any stock  dividend,
split-up,   recapitalization,   combination  or  exchange  of  shares,   merger,
consolidation,  acquisition of property or stock, separation,  reorganization or
liquidation  and  the  like,  and,  in the  event  of  any  such  change  in the
outstanding  Stock, the aggregate number and class of shares available under the
Plan shall be appropriately  adjusted by the Committee,  whose  determination of
such adjustment shall be conclusive.

         12.  Amendment and  Termination.  The Board of Directors of the Company
may terminate the Plan or make such  modifications  or amendments  thereof as it
shall  deem  advisable,  or in  order to  conform  to any  change  in any law or
regulation  applicable  thereto.  Without  the consent of any person to whom any
option shall  therefore  have been  granted,  no  termination,  modification  or
amendment of the Plan shall  adversely  affect any rights  which may  previously
have been granted under the Plan to such person.

         13.  Effectiveness of Plan.  The  Plan  shall  be  effective  upon  its
approval by the shareholders of the Company.