Exhibit 10.35


                                LETTER AGREEMENT


                                 March 17, 1999


Karakuduk-Munai, Inc.
221 Norfolk, Suite 1150
Houston, TX   77098

Gentlemen:

     This letter will  evidence  the  agreement  between  Karakuduk-Munai,  Inc.
(hereafter  "KKM") and  Challenger Oil Services,  PLC (hereafter  "Challenger").
Reference is made to that certain  International  Daywork  Exploration  Drilling
Services Contract dated April 7, 1998 between KKM and Challenger,  as amended by
Amendment  No. 1 dated October 21, 1998 (said  drilling  services  contract,  as
amended,  hereafter  referred to as the "Drilling  Contract").  Various disputes
pertaining to the Drilling  Contract and related documents have arisen and, as a
result of recent  discussions of these matters,  and for valuable  consideration
and the mutual  covenants and agreements  herein  contained,  Challenger and KKM
have agreed to settle and compromise those disputes as follows:

1.   Immediately  upon the execution by Challenger of (i) this Letter  Agreement
     and (ii) the Amendment No. 2 to the International Daywork Drilling Contract
     - Land between KKM and Challenger dated even date herewith,  KKM shall wire
     transfer or direct  another to wire  transfer on behalf of KKM to the below
     listed  Challenger  bank  account the sum of Four Hundred  Thousand  United
     States Dollars ($400,000). The Challenger bank account information for this
     purpose is:


                  Citibank New York
                  Routing Code ABA021000089
                  A/C No. 10999217 Citibank Jersey
                  In Favor of Challenger Oil Services PLC
                  A/C No. 430604007
                  Atten: Mr. Hugo Peterson





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2.   The payment to  Challenger  of the sum  specified  in item 2 above shall be
     deemed to be in full payment and discharge of all claims (past,  present or
     future) for all equipment, materials and services, performed or provided by
     or for Challenger, for or on behalf of KKM, for the period prior to January
     1, 1999.  For the avoidance of doubt,  such payment  described  above shall
     clear any outstanding  balances  between  Challenger,  on the one hand, and
     KKM, on the other hand,  for work  performed  under the  Drilling  Contract
     prior to  January  1, 1999,  except  for the sums of money  referred  to in
     Paragraphs 3 and 4 below.

3.   The payment to  Challenger of the sum specified in item 2 above will not be
     reduced or offset by any payments  made or advanced to Challenger by KKM or
     on behalf of KKM; provided however, it is agreed by the parties herein that
     the amount of  US$27,915.00  has been paid or  advanced by or for KKM to or
     for the benefit of Challenger  prior to January 1, 1999,  and the amount of
     US$10,000.00  has been paid or advanced by or for KKM to or for the benefit
     of Challenger  after  January 1, 1999,  and such amounts shall remain valid
     and  available  for offset by KKM against  the  invoice  for  January  1999
     services to be prepared by Challenger for standby  charges  pursuant to the
     Drilling Contract, as amended.

4.   Of the  payment  to  Challenger  specified  in  item 2  above,  the  sum of
     $23,469.20  shall be  deemed  to be a  prepayment  in such  amount  towards
     amounts  owed  by KKM  for the  invoice  of  January  1999  services  which
     Challenger  will soon be issuing  to KKM under the  Drilling  Contract,  as
     amended.  The parties  hereto agree to offset such invoice for January 1999
     services by this sum of $23,469.20.


                     [REMAINDER OF PAGE INTENTIONALLY BLANK]


<PAGE>


     If you  agree  and  accept  the  above  agreements,  please  indicate  your
acceptance and agreement in the appropriate space below.



Challenger Oil Services, PLC




BY: /s/ J. Paine
    ----------------------------------------------
TITLE: General Manager Challenger Oil Services PLC,
Signing as P.O.A. for Challenger Oil Sevices PLC.



Agreed & Accepted this 17 day of March, 1999 by:


Karakuduk-Munai, Inc.




BY: /s/  N. Klinchev
    -----------------------------------------------
TITLE: General Director