# Exhibit 10.2

THIS
DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE
SECURITIES), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING
OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S AND/OR REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMEMDED (THE ACT).
           THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED OR SOLD
          IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
          PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
          PURSUANT TO REGULATION S AND/OR
REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
          FURTHER HEDGING TRANSACTION INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN
          COMPLIANCE WITH THE ACT.

# DEBENTURE

# AMERICAN ENERGY
PRODUCTION, INC.

# 8% Convertible
Debenture

# Due January 1, 2007

|No. 02 | $2,000,000.00
|------ | -------------

This
Debenture is issued by American Energy Production, Inc., a Delaware Corporation
(the Company), to Proco Operating Co. Inc.. (together with its
permitted successors and assigns, the Holder) pursuant to exemptions from
registration under the Securities Act of 1933, as amended.

# ARTICLE I.

Section
1.01 Principal and Interest. For value received on January 5, 2004,
the Company hereby promises to pay to the order of Holder in lawful money of the United
States of America and in immediately available funds the principal sum of $2,000,000.00,
together with interest on the unpaid principal of this Debenture at the rate of eight
percent (8%) per year (computed on the basis of the 365-day year and the actual days
elapsed) from the date of this Debenture until paid. At the Companys option, the
entire principal amount and all accrued interest shall be either (a) paid to the Holder on
or before the due date of this Debenture or (b) converted in accordance with Section 1.02
herein.

Section
1.02 Optional Conversion. The Holder is entitled, at its option, to
convert, at any time and from time to time, until payment in full of this Debenture, all
or any part of the principal amount of this Debenture, plus accrued interest, into shares
(the Conversion Shares) of the Companys common stock, par value
$0.001 per share (Common Stock), at a price per share equal to fifty
percent (50%) of the closing bid price of the Common Stock on the date that the Company
receives notice of conversion. To convert this debenture, the Holder shall deliver written
notice (the Conversion Notice) thereof, such Conversion Notice
containing such information necessary including amount of conversion and number of shares,
to the Company at its address set forth herein. The date upon which the conversion shall
be effective (the Conversion Date) shall be deemed to be the date set
forth in the Conversion Notice. The Conversion Shares shall be delivered to the Holder at
the address indicated herein.

The
Company is entitled, at its option, to convert, at any time and from time to time, until
payment in full of this Debenture, all or any part of the principal amount of this
Debenture, plus accrued interest, into shares (the Conversion Shares)
of the Companys common stock, par value $0.001 per share (Common
Stock), at a price per share equal to fifty percent (50%) of the closing bid
price of the Common Stock on the date that the Company issues such notice of conversion.
To convert this debenture, the Company shall deliver written notice (the
Conversion Notice) thereof, such Conversion Notice containing such
information necessary including amount of conversion and number of shares, to the Holder
at its address set forth herein. The date upon which the conversion shall be effective
(the Conversion Date) shall be deemed to be the date set forth in the
Conversion Notice. The Conversion Shares shall be delivered to the Holder at the address
indicated herein.

Section
1.03 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of this Debenture, such number of shares of Common
Stock as shall from time to time be sufficient to effect such conversion, based on the
Conversion Price. If at any time the Company does not have a sufficient number of
Conversion Shares authorized and available, then the Company shall call and hold a special
meeting of its stockholders within sixty (60) days of that time for the sole purpose of
increasing the number of authorized shares of Common Stock.

Section
1.04 Registration Rights. The Company is obligated to register the
resale of the Conversion Shares under the Securities Act of 1933, as amended.

Section
1.05 Interest Payments. The interest so payable will be paid at the
time of maturity or conversion to the person in whose name this Debenture is registered.
At the time such interest is payable, the Company, in its sole discretion, may elect to
pay interest in cash or in the form of Common Stock. If paid in Common Stock, the amount
of stock to be issued shall be calculated in accordance with the formula and procedure set
forth in Section 1.02 above.

Section
1.06 Right of Redemption. The Company shall have the right to redeem,
with thirty (30) business days advance notice to the Holder, any or all outstanding
Debentures remaining in its sole discretion (Right of Redemption). The
redemption price shall be equal to 100% of the face amount of the Debenture redeemed plus
all accrued interest (Redemption Price).

Section
1.07 Subordinated Nature of Debenture. This Debenture and all
payments hereon, including principal or interest, shall be subordinated and junior in
right of payment to all accounts payable of the Company incurred in the ordinary course of
business and/or bank debt of the Company not to exceed $30,000.

# ARTICLE II.

Section
2.01 Amendments and Waiver of Default. The Debenture may be amended
with the consent of Holder. Without the consent of Holder, the Debenture may be amended to
cure any ambiguity, defect or inconsistency, to provide assumption of the Company
obligations to the Holder or to make any change that does not adversely affect the rights
of the Holder.

# ARTICLE III.

Section
3.01 Events of Default. An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder within fifteen (15) days of the
date of maturity of this Debenture; (b) failure by the Company for thirty (30) days after
notice to it to comply with any of its other agreements in the Debenture; (c) events of
bankruptcy or insolvency; (d) a beach by the Company of its obligations under the
Registration Rights Agreement which is not cured by the Company within ten (10) days after
receipt of written notice thereof. The Holder may not enforce the Debenture except as
provided herein.

Section
3.02 Failure to Issue Unrestricted Common Stock. As indicated above,
a breach by the Company under its obligation under the Registration Rights Agreement shall
be deemed an Event of Default, which if not cured with ten (10) days, shall entitle the
Holder accelerated full payment of all debentures outstanding. The Company acknowledges
that failure to honor a Notice of Conversion shall cause hardship to the Holder.

# ARTICLE IV.

Section
4.01 Anti-dilution. In the event that the Company shall at any time
subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on the
outstanding Common Stock, the Conversion Price in effect immediately prior to such
subdivision of the issuance of such dividend shall be proportionately decreased and, in
the event that the Company shall at any time combine the outstanding shares of Common
stock, the Conversion price in effect immediately prior to such combination shall be
proportionally increased, effective at the close of business on the date of such
subdivision, dividend or combination as the case may be.

# ARTICLE V.

Section
5.01 Notice. Notices regarding this debenture shall send to the
parties at the following addresses, unless a party notifies the other parties, in writing,
of a change of address:

|If to the Company:
                  
                  
                  
                  
If to the Holder: | American Energy Production, Inc.
P.O. Box 1406
Mineral Wells, Texas 76068
Attn:  Charles Bitters, Pres.
Telephone: (210) 410-8158
Proco Operating Inc.
P.O. Box 170
Graford, Texas 76449
940-6642290
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Section
5.02 Governing Law. This Debenture shall be deemed to be made under
and shall be construed in accordance with the laws of the State of Texas without giving
effect to the principals of conflict of the laws thereof. Each of the parties consents to
the jurisdiction of the U.S. District Court sitting in the District of the State of Texas
or the state courts of the State of Texas sitting in Palo Pinto, Texas in connection with
any dispute arising under this debenture and hereby waives, to the maximum extent
permitted by law, any objection, including the objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.

Section
5.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions of this
Debenture, which shall remain in full force effect.

Section
5.04 Entire Agreement and Amendments. This Debenture represents the
entire agreement between the parties hereto with respect to the subject matter hereof and
there are no representations, warranties or commitments, except as set forth herein. This
Debenture may be amended only by an instrument in writing executed by the parties hereto.

Section
5.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be deemed to
constitute and instrument.

IN WITNESS WHEREOF, with the
intent to legally bound hereby, the Company has executed this Debenture as of the date
first written above.

| | AMERICAN ENERGY PRODUCTION, INC.
By:___________________________
Name:  Charles Bitters
| | --------------------------------------------------------------------------------------

Title: President and
Chief Executive