Exhibit 10.2
------------












                         PRODUCTION PREPAYMENT AGREEMENT


                                     BETWEEN


                       PANENERGY FINANCIAL SERVICES, INC.,
                             A DELAWARE CORPORATION

                                       AND

                                  UNIOIL, INC.
                              A NEVADA CORPORATION



<PAGE>






                                      INDEX
                                      -----



1.     PRODUCTION PREPAYMENTS BY PANENERGY................................... 2
       -----------------------------------

2.     USE AND APPLICATION OF PRODUCTION PREPAYMENTS......................... 5
       ---------------------------------------------

3.     REPAYMENT OF THE PRODUCTION PREPAYMENTS............................... 5
       ---------------------------------------

4.     DEDICATION OF WELLS/OIL AND GAS LEASES................................ 6
       --------------------------------------

5.     COLLATERAL SECURITY................................................... 6
       -------------------

6.     INFORMATION........................................................... 7
       -----------

7.     DEFAULT............................................................... 8
       -------

8.     MISCELLANEOUS......................................................... 9
       -------------























                                        i
<PAGE>






                         PRODUCTION PREPAYMENT AGREEMENT


       THIS  PRODUCTION  PREPAYMENT  AGREEMENT  (the  "Agreement")  is made  and
entered  into this  12th day of  December,  1996,  between  PANENERGY  FINANCIAL
SERVICES, INC., a Delaware corporation ("PanEnergy"), and UNIOIL, INC., a Nevada
corporation (hereinafter referred to as "UNIOIL").



                                R E C I T A L S:
                                - - - - - - - -

A.     UNIOIL owns or owns an interest in the oil and gas leases located in Weld
       County,  Colorado (the "Leases") set forth in Exhibit "A" attached hereto
                                                     -----------
       and incorporated herein by reference,  which Leases, along with other oil
       and gas leases,  have been  dedicated to PanEnergy  Field  Services  Inc.
       ("PFS")  pursuant to that  certain  Amended and Restated Gas Purchase and
       Processing  Agreement  between  UNIOIL and PFS of even date herewith (the
       "GPA").

B.     In order to induce PanEnergy to partially  finance the costs of drilling,
       completing  and  equipping  eight  (8)  oil and gas  wells  of the  types
       described  in Section 1.1 herein on the Leases (the  "Program  Wells") at
       the locations set forth on Exhibit "B" attached hereto, UNIOIL desires to
                                  -----------
       commit and sell to  PanEnergy's  affiliate the  condensate  and crude oil
       produced and saved from the Leases  attributable to the working  interest
       of UNIOIL (the "Production").

C.     To promote the drilling,  completing  and equipping of the Program Wells,
       PanEnergy  is willing to make  certain  payments  to third  parties  (the
       "Production  Prepayments") upon the terms and conditions set forth herein
       for well drilling or completion services,  materials or equipment,  as an
       advance to UNIOIL and a prepayment for the Production from the Leases, in
       return for the premise of repayment by UNIOIL.

D.     In connection with and prior to any Production  Prepayments by PanEnergy,
       UNIOIL  shall,  among other  things,  execute and deliver to  PanEnergy a
       Mortgage,  as defined in Section 1.2 herein,  which will secure  UNIOIL's
       repayment of the Production  Prepayments,  with accrued interest thereon,
       in accordance  herewith.  The security for the Mortgage shall include the
       Program Wells and that portion of the Leases within the spacing units for
       the  Program  Wells  along with other oil and gas wells,  and oil and gas
       leases within the spacing units for such wells, that will use common tank
       batteries  and  measurement  facilities  with the  Program  Wells and all
       equipment used or useful for the operation of such wells (all such wells,
       leases,  facilities  and  equipment are referred to  collectively  as the
       "Program Leases").

IN CONSIDERATION  of the mutual promises  contained  herein,  the benefits to be
derived by each party hereunder and other good and valuable  consideration,  the
receipt and sufficiency of which are hereby acknowledged,  PanEnergy and UNIOILL
agree as follows:



<PAGE>






1.     PRODUCTION PREPAYMENTS BY PANENERGY
       -----------------------------------

       1.1    Upon  receipt  of written  request  from  UNIOIL for a  Production
Prepayment, which shall not be made for amounts less than $10,000, together with
copies of invoices (the  "Invoices")  for well drilling or completion  services,
materials or equipment  performed  or supplied by third  parties  (collectively,
"Vendors") in connection with the drilling and completion of the Programs Wells,
aggregating  an amount not less than the requested  Production  Prepayment,  and
subject  to the terms and  conditions  set  forth in this  Agreement,  PanEnergy
agrees to pay the Vendors,  as a Production  Prepayment  for UNIOIL,  95% of the
amount of the  Invoices  for such  Program  Well,  but not to exceed the Maximum
Advance (as defined below) for such Program Well, as follows:

              (a)    UNIOIL  shall  drill,  or caused to be drilled,  all of the
                     Program  Wells to at least a depth  sufficient  to test the
                     Codell  formation.  If any  Program  Well is,  in  UNIOIL's
                     reasonable  judgment  as a  prudent  operator,  capable  of
                     producing oil and/or gas in commercial  quantities,  UNIOIL
                     shall diligently complete and equip such well. UNIOIL shall
                     drill and  complete  the Program  Wells by May 31, 1997 and
                     shall  submit all  Invoices to  PanEnergy by July 31, 1997.
                     The time  limits set out in this  paragraph  are limits for
                     the purpose of qualifying to receive Production Prepayments
                     and are not contractual  undertakings by UNIOIL to drill or
                     complete the Program Wells.

              (b)    Upon receipt of the Invoices as set forth above,  PanEnergy
                     shall calculate the amount of such Invoices attributable to
                     UNIOIL's  share of the  working  interest  in that  Program
                     Well. If UNIOIL owns less than all of the working  interest
                     in any of the Program Wells,  the amount which PanEnergy is
                     obligated to advance UNIOIL hereunder for such Program Well
                     shall be  proportionately  reduced.  PanEnergy shall pay to
                     the  Vendors  for each  Program  Well 95% of the  amount of
                     their  respective  Invoices,   proportionately  reduced  to
                     UNIOIL's working interest, but not more, collectively, than
                     the "Maximum Advance" for such Program Well as set forth in
                     Exhibit  "B" (the  "Maximum  Advance")  after  taking  into
                     ------------
                     consideration  previous Production Prepayments by PanEnergy
                     with respect to such Program  Well.  UNIOIL shall  promptly
                     pay that portion of the Invoices  which exceeds the amounts
                     advanced hereunder by PanEnergy for any Program Well.

              (c)    To the  extent  that  a  Program  Well  has  been  drilled,
                     completed and equipped and the  Production  Prepayments  to
                     which UNIOIL has become  entitled are less than the Maximum
                     Advance set out in Exhibit "B" for such Program Well,  then
                                        -----------
                     such difference may be carried over and applied to increase
                     the  Maximum  Advance of another  Program  Well;  provided,
                     however, that such difference may only be carried over from
                     such  Program  Wells  which are,  according  to  reasonably
                     prudent  operator  standards,   producing  hydrocarbons  in
                     commercial quantities.

       1.2    In  addition  to  the   Invoices,   each   Production   Prepayment
disbursement  shall be evidenced by and be  contingent  upon  receipt  (and,  if
applicable,  recording  in  such  county  and  state  government  offices  which
PanEnergy determines is appropriate), and approval by PanEnergy of the following
documentation:


                                        2
<PAGE>






              (a)    Execution and delivery by UNIOIL of a Promissory  Note (the
                     "Note"),  in  a  form  acceptable  to  PanEnergy,   in  the
                     principal sum of $1,722,350.

              (b)    Execution  and  deliver by UNIOIL of a  Mortgage,  Security
                     Agreement,   Assignment  of  Production  and  Proceeds  and
                     Financing   Statement  (as  the  same  may  be  amended  or
                     supplemented  from time to time, the  "Mortgage") in a form
                     acceptable  to PanEnergy,  granting a security  interest to
                     PanEnergy  in the  Program  Leases and the  Production  and
                     Production   Proceeds   (defined  in  Section  1.5,  below)
                     attributable to the Program Leases.

              (c)    Execution  and  delivery  by  UNIOIL  (to  both   PanEnergy
                     Transport and Trading Company ("PT&T") and PFS) of transfer
                     orders  and/or  Letters-in-Lieu,  in a form  acceptable  to
                     PanEnergy,  transferring  payments for Production  from the
                     Program Leases to PanEnergy.

              (d)    Execution  and  delivery by UNIOIL of a properly  completed
                     Form UCC-1 Financing Statement (the "Financing Statement"),
                     in a form  acceptable  to  PanEnergy,  covering the Program
                     Leases and the Production and Production  Proceeds from the
                     Program Leases.

              (e)    Execution and delivery by UNIOIL of the GPA.

              (f)    Execution  and  delivery of a crude oil  purchase  contract
                     (the "Crude  Contract")  between UNIOIL and PT&T, in a form
                     acceptable  to PT&T,  for the purchase by PT&T of the crude
                     oil and/or condensate produced and saved, or to be produced
                     and saved,  from the  Program  Leases.  If, for any reason,
                     PT&T is not  purchasing  UNIOIL's crude oil pursuant to the
                     Crude  Contract,   UNIOIL  shall  execute  and  deliver  to
                     PanEnergy   transfer  orders  and/or   letters-in-lieu   as
                     reasonably  requested by  PanEnergy in order that  payments
                     for such crude oil will be paid  directly to  PanEnergy  or
                     its designee.

              (g)    A drilling  title opinion by a Colorado  licensed  attorney
                     approved by  PanEnergy,  for each Program Well and approval
                     of title thereto by PanEnergy prior to PanEnergy making any
                     Production Prepayments for such Program Well.

              (h)    Execution  and  delivery by UNIOIL of a  Memorandum  of the
                     GPA, in a form acceptable to PanEnergy.

              (i)    Execution  and delivery by each holder of a mortgage,  lien
                     or other  encumbrance on the Leases of a  Ratification  and
                     Subordination Agreement, in a form acceptable to PanEnergy,
                     which  covers  all of the  oil  and gas  leases  and  lands
                     dedicated  to gas  gathering,  processing  and/or  purchase
                     agreements between UNIOIL and PFS.



                                        3
<PAGE>






              (j)    Execution  and delivery by each holder of a mortgage,  lien
                     or other  encumbrance on the Program Leases of a Release of
                     Lien in a form acceptable to PanEnergy.

              (k)    Delivery  by UNIOIL of UNIOIL's  (i) most  recent  year-end
                     audited financial statements prior to ninety days after the
                     end of UNIOIL's fiscal years and (ii) most recent month end
                     financial  statements prior to thirty days after the end of
                     each such months.

              (l)    Execution and/or delivery by UNIOILL of any other documents
                     reasonably   requested  by  PanEnerg  for  the  purpose  of
                     perfecting  PanEnergy's liens in the Program Leases and the
                     wells and other equipment located thereon.

       1.3    Notwithstanding  anything  contained  herein to the  contrary,  if
PanEnergy,  in its sole  judgment,  and at any time,  determines  that  UNIOIL's
financial  condition  is  unsatisfactory  or that the  economics  of drilling or
completing any or all of the Program Wells do not meet Panenergy's expectations,
PanEnergy may discontinue making advances of Production Prepayments.

       1.4    The Production Prepayments shall be repaid,  together with accrued
interest  thereon,  in  accordance  with the Note and this  Section  1.4. On the
following  dates,  the following  amounts shall become due and payable under the
Note: (a) on April 1, 1998, 45% of the Base Amount (as herein  defined);  (b) on
April 1, 1999,  a  cumulative  50% of the Base  Amount;  (c) on April 1, 2000, a
cumulative 60% of the Base Amount; (d) on April 1, 2001, a cumulative 90% of the
Base Amount; and (e) on April 1, 2002, all remaining unpaid principal hereunder,
together  with  accrued  interest  thereon.   The  total  amount  of  Production
Prepayments advanced to UNIOIL pursuant to the Agreement,  plus accrued,  unpaid
interest  thereon is herein  called the "Base  Amount."  Such  amounts  shall be
repaid pursuant to the provisions of Section 3.1, 3.2, and 3.3 hereof.

       1.5    "Production  Proceeds" shall he defined as Gas Proceeds plus Crude
Oil Proceeds. "Gas Proceeds" shall be defined as all UNIOIL's share, pursuant to
the GPA, of the  proceeds  derived  from the sale of natural gas and natural gas
liquids  produced  and saved from and  attributable  to the working  interest of
UNIOIL in and to the Programs Leases, net of (i) royalties;  and (ii) ad valorem
and severance  taxes.  "Crude Oil Proceeds"  shall be defined as all of UNIOIL's
share,  pursuant to the Crude Contract, of the proceeds derived from the sale of
crude oil and/or  condensate  produced  and saved,  or to be produced and saved,
from and attributable to the working  interest of UNIOIL,  in and to the Program
Leases, net of (i) royalties; and (ii) ad valorem and severance taxes.

       1.6    UNIOIL hereby assigns to PanEnergy all rights to receive  proceeds
from  insurance  coverage  on any  well on the  Program  Leases  or any  related
equipment  or  production,  PanEnergy  agrees to use such  proceeds to repair or
replace any property damage covered by such insurance  (whether as reimbursement
for amounts reasonably expended by UNIOIL for such repair or to pay directly the
reasonable  costs for such repair).  To the extent any such proceeds  exceed the
reasonable  cost of repair  or are  attributable  to  property  which  cannot be
repaired or replaced  (such as  production),  then such of the proceeds shall be
applied  against  the Note or,  if the Note has been paid in full,  refunded  to
UNIOIL.


                                        4
<PAGE>






2.     USE AND APPLICATION OF PRODUCTION PREPAYMENTS
       ---------------------------------------------

       2.1    Each  Production  Prepayment  shall be  disbursed  by PanEnergy by
check  within five (5) days after  receipt  and  approval  by  PanEnergy  of the
Invoices.  In lieu of  disbursing  Production  Prepayments  directly  to UNIOIL,
PanEnergy will disburse the Production  Prepayments by making payments  directly
to the Vendors. UNIOIL shall remain liable for and assume all responsibility for
the payment of all invoices  related to all wells located on the Program Leases,
and lands  pooled  therewith.  UNIOIL  shall  defend  (with  counsel  reasonably
acceptable  to  PanEnergy)  and  indemnify  PanEnergy,  its parent  company  and
affiliates of and from any and all damages,  claims,  actions, causes of action,
costs and expenses, including attorneys' fees (collectively "Claims"),  stemming
from or in any way related to the drilling,  completion,  equipping or operation
of the wells on the  Program  Leases,  and on lands  pooled  therewith,  and the
payment of all  expenses  related  thereto,  including  expenses  related to the
acquisition  of the oil  and gas  leases  upon  which  any  wells  are  located;
provided,  however,  that PanEnergy shall not be entitled to indemnity hereunder
to the extent that a Claim is directly  attributable to the gross  negligence or
willful misconduct of PanEnergy.

       2.2    UNIOIL shall obtain and provide to PanEnergy copies of Lien waiver
statements from Vendors and contractors providing labor and/or materials related
to the drilling and completion of the Program Wells.

3.     REPAYMENT OF THE PRODUCTION PREPAYMENTS
       ---------------------------------------

       3.1    Each  month out of the  Production  Proceeds  attributable  to the
Program  Leases,  PanEnergy  shall  withhold  and apply to the  repayment of the
outstanding unpaid principal due on the Note, plus accrued interest thereon, the
lesser of (i) all  amounts  due and owing  under the Note,  or (ii)  ninety five
percent (95%) of the Production  Proceeds (as defined in Section 1.5),  less the
amount of $450 per Program Well and per each commercial  well ("Existing  Well")
located on the Program  Leases  within the prospect  area  associated  with such
Program Well as identified on Exhibit B for operating  expenses  attributable to
the  Program  Wells and  Existing  Wells,  proportionately  reduced  based  upon
UNIOIL's working interest in the respective Program Well or Existing Well, which
shall be  remitted  to UNIOIL,  unless  otherwise  mutually  agreed in  writing.
Operating  expenses to be paid on a Program Well and Existing Well shall be made
by PanEnergy  commencing  with the month in which  initial  production  from the
Program Well occurred, if such initial production occurred prior to the 15th day
of such  month,  and  commencing  with the  month  following  the month in which
initial production occurred, if such initial production occurred on or after the
15th day of such  month.  In the  event  such  operating  expenses  ever  exceed
Production  Proceeds for any month, any excess shall be borne and paid solely by
UNIOIL and shall not he deducted from  Production  Proceeds  attributable to the
month in which the excess  occurred  or any other  month.  PanEnergy  and UNIOIL
acknowledge  that UNIOIL shall have the  obligation  to continue to operate such
wells in a reasonably  prudent  manner  without  taking into  consideration  the
amounts  being paid to  PanEnergy  under the Note.  At such time as all sums due
under the Note have been repaid in full, all  Production  Proceeds shall be paid
over by PanEnergy to UNIOIL, as its interest may appear,  unless a default shall
have occurred  under this  Agreement,  the Note or under the Mortgage,  in which
case such  Production  Proceeds shall continue to be paid over to and applied by
PanEnergy as provided herein.

       3.2    All funds  withheld and received by PanEnergy  hereunder  shall be
applied  first to late  payment  fees,  if any,  provided in the Note and/or the
Mortgage;  costs  and  collection  fees  provided  for in the  Note  and/or  the


                                        5
<PAGE>



Mortgage;  accrued  interest on the Note,  and the remainder to the  outstanding
unpaid  principal of the Note. If at the end of the repayment  term hereof,  all
Production  Prepayments  made hereunder,  plus accrued  interest,  have not been
repaid in full,  PanEnergy  may  declare  a default  hereunder  and  proceed  in
accordance with the default procedures provided for herein.

       3.3    UNIOIL may at any time without  penalty prepay to PanEnergy all or
any  portion  of the  Production  Prepayments  made by  PanEnergy  hereunder  by
delivery to PanEnergy of cash or  certified  funds,  which sums shall be applied
first to accrued interest,  and the remainder to outstanding unpaid principal on
the Note.

       3.4    On or before  the 20th day of each  month  until the Note has been
repaid in Full and commencing  with the month following the month of the initial
Production  Prepayment  disbursement,   PanEnergy  shall  provide  to  UNIOIL  a
statement  for the prior month  showing the balance due under the Note as of the
beginning of such month,  the date and amount of any  Production  Prepayments by
PanEnergy  during  such  month,  the  application  of  Production   Proceeds  to
principal,  interest and fees, if any,  (which shall include the amount and date
of each such  application)  during such month, any other payments made by UNIOIL
to PanEnergy  during such month, and the balance due to PanEnergy under the Note
as of the end of such month.

4.     DEDICATION OF WELLS/OIL AND GAS LEASES
       --------------------------------------

       4.1    Commencing with the initial Production Prepayment  disbursement as
described in Section 1 hereof, all Leases, wells located on the Leases (or lands
pooled or unitized therewith) and Production therefrom,  shall become subject to
the GPA and the Crude  Contract.  All  wells,  drilled  and  produced,  or to be
drilled and  produced,  thereon  shall be dedicated to and governed by the terms
and provisions contained in the GPA and the Crude Contract.

       4.2    As long as there is any outstanding accrued interest and principal
amounts  due under the Note,  UNIOIL  agrees not to sell,  assign,  transfer  or
convey any  interest it owns or hereafter  acquires in the Program  Wells or the
Program  Leases or take any other  action  which  would  reduce the net  revenue
interest of UNIOIL therein without PanEnergy's prior written consent.


5.     COLLATERAL SECURITY
       -------------------

       Payment of the Note and all other  obligations of UNIOIL  hereunder shall
be secured by the following security documents:

       5.1    The Mortgage,  by which  PanEnergy  shall obtain a first and prior
right and secured interest, free of any and all liens and encumbrances in and to
the interest of UNIOIL in the Program  Leases and the  Production and Production
Proceeds attributable to the Program Leases.

       5.2    The Financing Statement described in Section 1.2(d) above.



                                        6
<PAGE>


6.     INFORMATION
       -----------

       6.1    At all times from the date hereof  until the  termination  of this
Agreement,  UNIOIL, at its own expense, shall furnish to PanEnergy the following
reports and information at the times indicated below:

              (a)    Within  ninety  (90) days after the end of each fiscal year
                     of  UNIOIL,  UNIOIL  shall  furnish  UNIOIL's  most  recent
                     financial  statements  as of the end of and for  each  such
                     period, including a balance sheet and statements of income,
                     stockholder's  equity  and cash flow,  each of which  shall
                     have been prepared in accordance  with  generally  accepted
                     accounting  principles  and  accompanied  by  a  report  of
                     UNIOIL's  independent  certified public accountants stating
                     that  their   examination   was  made  in  accordance  with
                     generally  accepted  auditing  standards and that, in their
                     opinion such financial  statements  fairly present UNIOIL's
                     financial  condition,  results of operations and changes in
                     financial  position in accordance  with generally  accepted
                     accounting principles consistently applied.

              (b)    Within  thirty (30) days after the end of each of the first
                     three (3) fiscal  quarters of UNIOIL,  UNIOIL shall furnish
                     UNIOIL's most recent financial  statements as of the end of
                     and  for  such  period,   including  a  balance  sheet  and
                     statements of income,  stockholder's  equity and cash flow,
                     each of which shall have been prepared in  accordance  with
                     generally accepted accounting principles and accompanied by
                     a certificate of UNIOIL's chief  financial  officer stating
                     that such  financial  statements  fairly  present  UNIOIL's
                     financial  condition,  results of operations and changes in
                     financial  position in accordance  with generally  accepted
                     accounting  principles  consistently  applied,  subject  to
                     changes resulting from year-end audit adjustments.

              (c)    If any indebtedness  under this Agreement remains unpaid on
                     December 31, 1997, then on April 1, l998 and annually on or
                     before April 1, of each year thereafter  until the Note and
                     accrued  interest  thereunder  are  repaid in full,  UNIOIL
                     shall furnish an engineering report reasonably satisfactory
                     to PanEnergy  (together with UNIOIL's  internally  prepared
                     summary  of such  report),  as of  January  1 of such  year
                     prepared by an independent petroleum engineering consulting
                     firm reasonably acceptable to PanEnergy,  incorporating all
                     current  information and data available to UNIOIL pertinent
                     to the estimation of oil and gas reserves  attributable  to
                     the Program Leases and setting forth the following;

                     (i)    an   estimation   of  the  oil  and  gas   reserves,
                     classified  by  appropriate  categories,  as of  such  date
                     attributable  to the Program  Leases  (with that portion of
                     such reserves  attributable  to the Production  Prepayments
                     and to  UNIOIL's  interest  in the  Program  Leases  (after
                     giving  effect  to the  Production  Prepayments)  being set
                     forth separately),

                     (ii)   a projection  of the rate of  production  of and net
                     income from, such reserves,


                                        7
<PAGE>






                     (iii)   a calculation  of the  present  worth  of such  net
                     income  discounted at a rate or rates  designated from time
                     to time by ParEnergy, and

                     (iv)   a   schedule   or   complete   description   of  all
                     assumptions,  estimates and projections made or used in the
                     preparation of such report,  including  without  limitation
                     estimated  future  product  prices,  capital  expenditures,
                     operating expenses and taxes.

                            Each such  report  pursuant to this  Section  6.1(c)
                     shall  be  prepared  in  accordance   with   customary  and
                     generally  accepted  standards  and practices for petroleum
                     engineers,  shall be based on such assumptions as to costs,
                     product  prices  and  similar  factors as  PanEnergy  shall
                     designate from time to time. PanEnergy shall be furnished a
                     copy of any other reserve  report  prepared for UNIOIL,  by
                     any  independent  petroleum  engineering  firm covering the
                     Program Leases.

              (d)    Upon request,  UNIOIL shall furnish such other  information
                     as PanEnergy may reasonably request.

7.     DEFAULT
       -------

       7.1    Upon the  occurrence  of an Event or Default as defined in Section
7.2 below, (a) the outstanding unpaid balance of the Note, plus accrued interest
thereon as of the date of the  occurrence of the Event of Default,  shall become
immediately due and payable, without any further notice,  presentment, or demand
of any  kind,  all of which are  expressly  waived by  UNIOIL,  (b)  PanEnergy's
obligation to make Production Prepayments shall terminate  immediately,  and (c)
PanEnergy may proceed  immmmediately  to exercise all rights it may have at law,
in equity, or under the Mortgage and the Financing Statement.

       7.2    For the purposes  hereof,  an Event of Default shall be defined as
any one or more of the following:

              (a)    Non-Payment  of the Note.  UNIOIL  fails to timely pay when
                     ------------------------
                     due any payment of principal, interest or other amounts due
                     under the Note and such failure continues for ten (10) days
                     after receipt by UNIOIL of notice thereof from PanEnergy.

              (b)    Default  Under the  Mortgage.  A default  occurs  under the
                     ----------------------------
                     terms of the  Mortgage  and  continues  for  more  than the
                     applicable period of grace, notice or cure, if any, therein
                     set forth.

              (c)    Cessation of Force and Effect of the Mortgage. The Mortgage
                     ----------------------------------------------
                     shall at any time  and for any  reason  cease to be in full
                     force and effect.

              (d)    Bankruptcy,  Insolvency, etc.  UNIOIL becomes  insolvent or
                     ----------------------------
                     generally  fails to pay, or admits in writing its inability
                     to pay,  debts as they become due; or UNIOIL  applies  for,
                     consents to, or acquiesces in the appointment of a trustee,


                                        8
<PAGE>


                     receiver  or other  custodian  for  UNIOIL or any  property
                     thereof,  or makes a general  assignment for the benefit of
                     creditors; or, in the absence of such application,  consent
                     or acquiescence,  a trustee, receiver or other custodian is
                     appointed  for  UNIOIL  or for a  substantial  part  of the
                     property  thereof and is not discharged  within thirty (30)
                     days; or any bankruptcy,  reorganization, debt arrangement,
                     or  other  case  or  proceeding  under  any  bankruptcy  or
                     insolvency   law,  or  any   dissolution   or   liquidation
                     proceeding  is  commenced  in respect of UNIOIL and if such
                     case  or  proceeding  is not  commenced  by  UNIOIL,  it is
                     consented  to  or  acquiesced  in  by  UNIOIL,  or  is  not
                     dismissed  or remains  undismissed  for thirty (30) days or
                     UNIOIL takes any action to authorize, or in the furtherance
                     of, any of the foregoing.

              (e)    Dissolution of UNIOIL. UNIOIL shall dissolve for any reason
                     ---------------------
                     or shall transfer or assign a majority interest therein, or
                     transfer  or  assign  substantially  all of the  assets  of
                     UNIOIL to any other  person or  entity,  without  the prior
                     written consent of PanEnergy.

              (f)    Liens and  Encumbrances.  Any lien or encumbrance is placed
                     -----------------------
                     upon any of the Leases (or wells  located  thereon)  and/or
                     the   Production   attributable   thereto   which  lien  or
                     encumbrance impairs, or which PanEnergy reasonably believes
                     impairs the priority and/or of effectiveness of PanEnergy's
                     security  interest  therein,  notice  thereof  is  given to
                     UNIOIL and  UNIOIL  fails to pay off or  otherwise  resolve
                     said lien or encumbrance  within thirty (30) days from date
                     of receipt of said  notice.  In the event  UNIOIL  fails to
                     cure  such  default  within  the  time  period   specified,
                     PanEnergy,  without  waiver of any other rights it may have
                     hereunder,  or at law or in  equity,  may  apply all or any
                     portion  of  the   Production   Proceeds  to  the  payment,
                     settlement or resolution of such lien or  encumbrance  and,
                     to  the  extent  such  of  the  Production   Proceeds  have
                     previously  been applied to the Note,  such advances  shall
                     constitute  additional  indebtedness  of  UNIOIL  under the
                     Note.

              (g)    Default Under the Agreement and/or any Ancillary Agreements
                     -----------------------------------------------------------
                     With  PanEnergy.  UNIOIL  shall have  breached  any term or
                     ---------------
                     provision  herein  contained  and  having  received  notice
                     thereof,  fails to remedy  said breach  within  thirty (30)
                     days (unless an earlier time is specified) from the date of
                     receipt of said notice,  or UNIOIL shall have  breached any
                     term of or defaulted  under any other document  required or
                     requested  to  be  executed  and   delivered  to  PanEnergy
                     hereunder  and fails to cure such breach or default  within
                     thirty (30) days (unless an earlier time is specified) from
                     date of receipt of notice thereof.

8.     MISCELLANEOUS
       -------------

       8.1    Notices.  All notices  and  communications  required or  permitted
              -------
under this  Agreement  shall be in writing  and any  communication  or  delivery
hereunder  shall be deemed to have been duly made when  delivered  personally or
three (3) business days following  deposit in the United States mail,  certified



                                        9
<PAGE>






mail, return receipt requested,  or one (1) business day following delivery to a
recognized   overnight  courier  service,   or  one  (1)  busine  day  following
transmittal by facsimile, in each such case, addressed as follows:

       TO PANENERGY:
       -------------

                     PANENERGY FINANCIAL SERVICES, INC.
                     370 17th Street, Suite 900
                     P.O. Box 5493
                     Denver, Colorado 80217

                     ATTN:  Vice President - Rocky Mountain Region
                            (303) 595-3331
                            (303) 595-0480 - FAX

       WITH A COPY TO:
       ---------------

                     PANENERGY FINANCIAL SERVICES, INC.
                     600 Travis Street, Suite 6875
                     Houston, Texas 77002

                     ATTN:  Jeffrey Goodman
                            (713) 229-8800
                            (713) 247-0730 - FAX

       TO UNIOIL:
       ----------

                     UNIOIL INC.
                     3817 Carson Avenue
                     Post Office Box 310
                     Evans, Colorado 80620

                     ATTN:  Fred C. Jones
                            (970) 330-6300
                            (970) 330-6447 - FAX

       Either party may, by written notice so delivered to the other, change the
address or the person to which delivery shall thereafter be made.

       8.2    Payment  of  Costs,  Expenses  and  Taxes.  UNIOIL  agrees  to pay
              ------------------------------------------
PanEnergy on demand for all of  PanEnergy's  out-of-pocket  costs and  expenses,
including,   without  limitation,   attorneys'  fees,   reasonably  incurred  in
connection  with:  (i) the  administration  of this  Agreement,  the  Note,  the
Mortgage and all other instruments or documents provided for herein or delivered
or to be delivered  hereunder or in connection  herewith,  (ii) the preparation,
negotiation,  execution and delivery of any and all amendments to or replacement
of this Agreement, the Note, the Mortgage and all other instruments or documents


                                       10
<PAGE>






provided for herein or delivered or to he delivered  hereunder or in  connection
herewith, (iii) the filing, recording, refiling and re-recording of the Mortgage
and/or  any  financing   statements  relating  thereto  and  all  amendments  or
supplements  to any thereof,  and any and all other  documents or instruments of
further assurance  required to he filed or recorded or refiled or re-recorded by
the terms hereof or of the Mortgage,  (iv) examination of title to,  preparation
of title  opinions for, and curing title  problems  associated  with the Program
Leases and other oil and gas leases and lands  dedicated  by UNIOIL to PanEnergy
under gas purchase,  processing  and/or gathering  agreements as PanEnergy deems
appropriate to verify  UNIOIL's title therein,  and (v) the  enforcement of this
Agreement, the Note and the Mortgage. In addition,  UNIOIL agrees to pay, and to
save PanEnergy harmless from all liability for, any stamp or similar taxes which
may be payable in connection  with the execution or delivery of this  Agreement,
or the issuance of the Note or of any other  instruments  or documents  provided
for herein or delivered or to be delivered  hereunder or in connection  herewith
(but not for any  taxes on  income or gross or net  receipts).  All  obligations
provided for in this Section shall survive any termination of this Agreement.

       8.3    Amendment;  Waiver; Remedies. This Agreement may not be altered or
              ----------------------------
amended,  nor any  rights  hereunder  be waived,  except by  written  instrument
executed by both parties. No waiver of any term,  provision or condition of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing Waiver of any such term,  provision or condition or as a
waiver of any term,  provision  or condition  of this  Agreement.  No failure or
delay on the part of PanEnergy to exercise any right under this Agreement  shall
operate as a waiver  thereof;  nor shall any single or partial  exercise  of any
right under this Agreement,  the Mortgage,  the Financing  Statement or the Note
preclude any other or further  exercise of any right under this Agreement or any
other  right.  The  remedies  herein are  cumulative  and not  exclusive  of any
remedies provided by law.

       8.4    Assignment.   This   Agreement  and  the  other   agreements   and
              ----------
instruments  contemplated hereby may not be assigned by UNIOIL without the prior
written consent of PanEnergy.

       8.5    Headings.  The  headings  of the  Articles  and  Sections  of this
              --------
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.

       8.6    Governing Law.  This Agreement and the  transactions  contemplated
              -------------
hereby shall be construed to accordance  with,  and governed by, the laws of the
State of Colorado without regard to principles of conilicts of law.

       8.7    Entirety of Agreement. This Agreement, together with the documents
              ---------------------
described in Section 1.2 above, the Mortgage,  the Crude Contract,  the Note and
the GPA constitute the entire understanding  between the parties with respect to
the subject matter hereof,  superseding all negotiations,  prior discussions and
prior agreements and  understandings,  whether written or oral, relating to such
subject matter.

       8.8    Binding Agreement. This Agreement shall be binding upon, and shall
              -----------------
inure to the benefit of, the parties hereto and their respective  successors and
assigns.



                                       11
<PAGE>






       8.9    Survivor.  This  Agreement,  and the rights and obligations of the
              --------
parties herein, shall survive the consummation hereof.

       8.10   Counterparts and Telecopies. This Agreement may be executed in any
              ---------------------------
number of  counterparts,  each of which shall he deemed an  original  but all of
which  together  shall  constitute  one and the same  instrument.  Telecopies of
signed copies of this Agreement shall constitute  signed original  documents for
all purposes.

IN WITNESS  WITNESS  WHEREOF,  the parties have executed this Agreement the date
first above mentioned.


ATTEST:                                   PANENERGY FINANCIAL SERVICES, INC.,
                                          A DELAWARE CORPORATION



BY:  /s/ William B. Mathews               BY:  /s/ Jeffrey B. Goodman
   -----------------------------------       -----------------------------------
   WILLIAM B. MATHEWS,                       JEFFREY B. GOODMAN,
   ASSISTANT SECRETARY                       VICE PRESIDENT



ATTEST:                                   UNIOIL, INC.
                                          A NEVADA CORPORATION



BY:  /s/ Fred C. Jones                    BY:  /s/ Charles E. Ayers, Jr.
   -----------------------------------       -----------------------------------
   FRED C. JONES,                            CHARLES E. AYERS, JR.,
   SECRETARY                                 CHAIRMAN OF THE BOARD,
                                             CHIEF EXECUTIVE OFFICER












                                       12
<PAGE>






STATE OF COLORADO            )
                             ) ss.
CITY & COUNTY OF DENVER      )

Before  me,  Yvette A.  Arceneaux,  a Notary  Public in and for said  County and
State, on this 12th day December,  1996,  personally appeared JEFFREY B. GOODMAN
and  WILLIAM B.  MATHEWS,  known to me to be the Vice  President  and  Assistant
Secretary,  respectively,  of  PanEnergy  Financial  Services,  Inc., a Delaware
corporation,  on behalf of said  corporation  and  acknowledged  to me that they
executed this Agreement for the considerations and purposes therein set forth.

Given under my hand and seal of office this 12th day of December, 1996.


MY COMMISSION EXPIRES                   /s/ Yvette A.  Arceneaux
                                        ---------------------------
                                        NOTARY PUBLIC

  September 30, 2000
------------------------

STATE OF COLORADO            )
                             ) ss.
COUNTY OF DENVER             )

Before  me,  Yvette A.  Arceneaux,  a Notary  Public in and for said  County and
State, on this 12th day of December, 1996, personally appeared CHARLES E. AYERS,
JR.  and FRED C.  JONES,  known to me to be the  Chairman  of the  Board,  Chief
Executive  Officer  and  Secretary,  respectively,  of  Unioil,  Inc.,  a Nevada
corporation,  on behalf of said  corporation  and  acknowledged  to me that they
executed this Agreement for the considerations and purposes therein set forth.

Given under my hand and seal of office this l2th day of December, 1996.


MY COMMISSION EXPIRES                   /s/ Yvette A.  Arceneaux
                                        ---------------------------
                                        NOTARY PUBLIC

  September 30, 2000
------------------------












                                       13
<PAGE>





                                    EXHIBIT A
                                    ---------


                                 PROGRAM LEASES
                                 --------------


All  recording  information  is to the Real  Property  Records  of the Clerk and
Recorder of Weld County, Colorado.





<TABLE>
<CAPTION>
     Lessor            Lessee        Lease Date                     Lands                     Recording Information
-------------------------------------------------------------------------------------------------------------------

<S>                <C>                <C>         <C>                                         <C>
Union Pacific      PanAmerican        11-25-70    Township 4 North, Range 64 West, 6th P.M.   Book 638
Railroad Company   Petroleum Corp.                -----------------------------------------   Rec. No. 1559660
                                                  Section 7: SW1/4
                                                  Township 4 North, Range 65 West, 6th P.M.
                                                  -----------------------------------------
                                                  Section 25: SW1/4

                                      07-30-70    Township 3 North, Range 66 West, 6th P.M.   Book 631
Union Pacific      PanAmerican                    -----------------------------------------   Reception 1553082
Railroad Company   Petroleum Corp.                Section 3: S1/2SW1/4
</TABLE>



<PAGE>






                                    EXHIBIT B
                                    ---------

                       PROGRAM WELLS AND MAXIMUM ADVANCES
                       ----------------------------------


All legal descriptions are in Weld County, Colorado.


<TABLE>
<CAPTION>
                  Location of          Location of Existing    Maximum
   Prospect      Program Wells                Wells            Advance          Interest Owner         Interest and Type
------------------------------------------------------------------------------------------------------------------------

<S>              <C>                   <C>                    <C>          <C>                         <C>        <C>
Beebe Draw       T4N, R65W, Sec. 25:   T4N, R65W, Sec. 25:    $239,000     Union Pacific Resources     15.0%      LOR
                 NE4/SW4               NW4/SW4                             Amoco Production Co.        100%       ORRI
                 SE4/SW4                                                   Pulsar Oil & Gas, Inc.      2.5005%    WI
                 SW4/SW4                                                                               1.875%     NRI
                                                                           River Partnership           14.1695%   WI
                                                                                                       10.625%    NRI
                                                                           Unioil                      83.3300%   WI
                                                                                                       62.50%     NRI

Platte Valley    T3N, R66W, Sec. 3:    T3N,R6W,Sec. 3:        $239,000     Union Pacific Resources     15.0%      LOR
                                                                           Amoco Production Co.        10.0%      ORRI
                 SE4/SW4               SW4/SW4                             Unioil                      100.0%     WI
                                                                                                       75.0%      NRI


Latham           T4N, R64W, Sec. 7:    T4N, R64W, Sec. 7:     $239,000     Union Pacific Resources     15.0%      LOR
                 NE4/SW4               NW4/SW4                for each     Amoco Production Co.        10.0%      ORRI
                                                              Program
                                                              Well;
                 SE4/SW4               (Latham #7-1)          $140,000     Pulsar Oil & Gas, Inc.      16.67%     WI
                 SW4/SW4                                      for comple-                              12.5%      NRI
                                                              tion of
                                                              Existing     Unioil                      83.33%     WI
                                                              Well                                     62.5%      NRI
</TABLE>