MEMORANDUM OF AGREEMENT
                                BETWEEN
                        PT PATRINDO PERSADAMAJU
                                  AND
                     HEMLEY EXPLORATION PTY. LTD.

This  MEMORANDUM OF AGREEMENT  (the "MOA") is made and entered into effective as
of August 24, 1998, by and between:

PT. PATRINDO PERSADAMADJU (the "Patrindo"),  a private company that is under the
law of Republic of Indonesia,  residing in JL.  Falatehan 1/31,  Kebayoran Baru,
Jakarta  12160,  Indonesia.  For the  purpose  of  this  MOA,  Patrindo  will be
represented by Baskara Sukarya as the President Director of Patrindo.

AND,

HEMLEY EXPLORATION PTY. LTD (the "HEMLEY"),  a corporation that is under the law
of Australia,  residing in Suite 3 ECH House, 174 Greenhill Road, Parkside 5063,
South Australia. For the purpose of this MOA, HEMLEY will be represented by John
L. Naylor as the CEO and Director of HEMLEY.

                               RECITALS

Patrindo has entered  into a Technical  Assistance  Contract  (the "TAC") in the
form attached hereto as Exhibit A of the TAC with Perusahean Pertanbengan Mtnyak
dan Gas Bumi Negara (the "PERTAMINA"), an Indonesia State Enterprise established
on the basis of Law No. 8/1971, relating to the development of the Contract Area
(which  falls  within the Contract  Area as defined in the TAC).  PERTAMINA  and
Patrindo are now the sole parties to the TAC and Patrindo is the sole Contractor
thereunder.  Patrindo has incurred  certain  costs and expenses in connection of
Petroleum Operations (as defined in the TAC) as from the date Patrindo commenced
the  Petroleum  Operations.  Patrindo is not legally  bound or  committed to any
third party with respect to the  development of the Petroleum  Operations in the
Contract  Area.  The Parties  hereto desire to establish a joint venture for the
further  development  of the Contract  Area.  For the purpose of satisfying  the
intention  expressed in Recital D, the parties  shall  establish a joint venture
company to carry out the purposes  subject to certain  conditions  as stipulated
below. NOW THEREFORE IT IS AGREED:  Prior to establishment of the JV, HEMLEY has
performed a technical evaluation of the Contract Area and will perform a program
to commercialize the existing  recoverable  petroleum reserves of the area which
will take up to 9 (nine) months. An extension of 3 (three) months is permissible
should  HEMLEY  require  to do so (this  period  hereinafter  will be called the
"Pre-commercial  Period").  All data obtained and evaluation reports prepared by
HEMLEY  should be made  available to Patrindo and  PERTAMINA on a timely  basis.
During  the  Pre-commercial  Period,  HEMLEY  will  bear  all the  costs  of the
Petroleum   Operations  in  the  Contract  Area  which  will  be  classified  as
recoverable  costs  of the  TAC and be  incorporated  as a  continuation  of the
Financial Books of Patrindo.


<PAGE>


During the Pre-commercial  Period, HEMLEY will employ the necessary personnel to
legally  maintain  the TAC and has no  obligation  to hire the current  existing
personnel of Patrindo.  HEMLEY will  consider to hire those  Patrindo  personnel
which in the opinion of HEMLEY are usable.  Such  recruitment will be through an
evaluation/screening undertaken by HEMLEY. The hiring process should commence at
the commencement  date of this MOA. During the  Pre-commercial  Period,  for the
purpose of such Petroleum Operations, HEMLEY will pay Patrindo for any materials
presently owned by Patrindo and considered to be usable by HEMLEY in the present
operations at cost. During the  Pre-commercial  Period,  for the purpose of such
Petroleum Operations HEMLEY also agrees to pay Patrindo for mechanical equipment
or machinery or services  hired from PT.  Panata Burni Sarana Pelita and be used
by HEMLEY for such  Petroleum  Operations  at cost.  Provided the results of the
Pre-commercial  Period are positive,  Patrindo shall assign 80% (eighty percent)
of its  Rights  and  Interests  in the  TAC  contract  to  HEMLEY.  This is done
according to PERTAMINA - Patrindo TAC Contract  Subsection  4.2.6 dated July 14,
1994.

Provided the results of Pre-commercial  Period are positive then HEMLEY shall be
entitled to first recover from initial commercial production 50% (fifty percent)
of the costs spent during the  Pre-commercial  Period.  The remaining 50% (fifty
percent) of the HEMLEY costs of the  Pre-commercial  Period will be  accumulated
with the ongoing  Petroleum  Operations  costs which are the  responsibility  of
HEMLEY.  Such costs will be  recovered  through the  allowed 65% Costs  Recovery
which Patrindo and HEMLEY will share on a pro rata basis. The prorate ratio will
be based on the agreed  sunk costs of  Patrindo  and the costs  accumulated  and
spent by HEMLEY. The calculated interest to be incorporated in the prorate ratio
will be based on the same Debt Fund Ratio and  interest  rate for both  parties.
The agreed sunk costs will exclude those  materials  belonging to Patrindo which
are not required by HEMLEY for the Pre-commercial  Period program and subsequent
oil  field  development  programs.   HEMLEY  will  incorporate  those  materials
belonging to Patrindo if  available  during the  formation of the work  program.
During the  Pre-commercial  Period HEMLEY will perform a financial due diligence
of the Patrindo  financial  interests in the TAC for the  establishment  of cost
recover not later than 6 (six)  months from the  commencement  of this MOA.  The
commencement  date of the  Pre-commercial  Period  will be on the date the field
trip is mobilized.  This field trip will be mobilized within 30 (30) days of the
signing of this MOA. HEMLEY agrees to pay Patrindo a sum of USA $300,000 (United
States Dollars Three Hundred  Thousand) within 90 (ninety) days of the TAC being
declared  commercial by PERTAMINA.  HEMLEY does not take any  responsibility for
the previous debts of Patrindo  which are linked  directly or indirectly to this
project.  Patrindo  hereby holds  harmless and warrants  HEMLEY against any such
actions by its creditors and suppliers.  HEMLEY will assume  responsibility  for
payment  of  direct  field  operations  expenses  upon the  mobilization  of its
equipment  to carry out the  Pre-commercial  Programs.  This amount which HEMLEY
will bear  responsibility  for will not exceed US$150,000 (United States Dollars
Hundred  and  Fifty  Thousand).  Patrindo  has  the  option  to  participate  an
additional  10% (ten  percent) in the  exploration  and  development  of any new
structures within the Contract Area.


<PAGE>


If at the conclusion of this Pre-commercial Period during which time HEMLEY will
have  technically  re-evaluated  and tested at least 4 (four)  Mogoi wells and 2
(two) Wasian wells and HEMLEY decides that the Contract Area is uneconomical for
whatever reasons, HEMLEY hereby has the right to withdraw without any penalty or
further obligations.  Such notice will be issued to Patrindo prior to the expiry
date of the  Pre-commercial  Period.  If HEMLEY decides not to continue with the
project,  HEMLEY agrees to return all data supplied to HEMLEY by Patrindo at the
expenses of HEMLEY. 

FT. PATRINDO PERSADAMAJU                HEMLEY EXPLORATION PTY LTD.


________________________                ________________________
BASKARA SUKARYA                         JOHN L. NAYLOR


WITNESSETH BY

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