Exhibit 10.3



                            ALADDIN MIDDLE EAST LTD.



                            ERSAN PETROL SANAYII A.S.



                               AVENUE ENERGY INC.









                            JOINT OPERATING AGREEMENT

                                   KARAKILISE



                  LICENSES AR/AME - EPS-AVE 2674, 2677 AND 2678

                               DIYARBAKIR DISTRICT

                               REPUBLIC OF TURKEY



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                                TABLE OF CONTENTS

                            JOINT OPERATING AGREEMENT

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Article                                                                                                         Page

<S>     <C>                                                                                                      <C>

1.       DEFINITIONS AND INTERPRETATIONS..........................................................................1


2.       SCOPE OF UNDERSTANDING AND DURATION......................................................................8

         2.1      Scope...........................................................................................8
         2.2      Understanding...................................................................................8
         2.3      Commencement and Duration.......................................................................8

3.       INTEREST OF THE PARTIES..................................................................................8

         3.1      Percentage Interests............................................................................8
         3.2      Withholding tax.................................................................................9
         3.3      Ownership, Obligations and Liabilities..........................................................9

4.       THE OPERATOR............................................................................................10

         4.1      Designation....................................................................................10
         4.2      Resignation and Removal........................................................................10
         4.3      Election of Successor Operator.................................................................11
         4.4      Transfer of Responsibilities...................................................................11

5.       AUTHORITIES AND DUTIES OF OPERATOR......................................................................12

         5.1      Right..........................................................................................12
         5.2      Responsibility.................................................................................12
         5.3      Liens and Encumbrances.........................................................................13
         5.4      Representation of the Parties..................................................................13
         5.5      Records........................................................................................14
         5.6      Reports........................................................................................14
         5.7      Consultation and Information...................................................................15
         5.8      Emergencies....................................................................................15
         5.9      Disposal and Abandonment.......................................................................15
         5.10     Contractors, Turnkeys, and Percentage Interests in Wells.......................................15
         5.11     Abandonment Agreement..........................................................................19

6.       RIGHTS OF THE PARTIES...................................................................................19

         6.1      Reservation of Rights..........................................................................19
         6.2      Inspection Rights..............................................................................19
         6.3      Access Rights..................................................................................19

7.       INSURANCE AND LITIGATION................................................................................19

         7.1      Insurance......................................................................................19
         7.2      Litigation.....................................................................................21

8.       THE OPERATING COMMITTEE.................................................................................22

         8.1      Establishment and Powers.......................................................................22

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<S>     <C>                                                                                                      <C>

         8.2      Representation.................................................................................23
         8.3      Chairman.......................................................................................24
         8.4      Meetings and Voting............................................................................24
         8.5      Minutes........................................................................................25
         8.6      Action Without A Meeting.......................................................................25
         8.7      License Provisions.............................................................................25

9.       WORK PROGRAMS AND BUDGET................................................................................26

         9.1      Exploration and Appraisal......................................................................26
         9.2      Development....................................................................................27
         9.3      Production.....................................................................................28
         9.4      Itemization of Expenditures....................................................................28
         9.5      Contract Awards................................................................................29
         9.6      Authorization for Expenditure ("AFE") Procedure................................................29
         9.7      Overexpenditures of Programs and Budgets.......................................................30

10.      OPERATIONS BY LESS THAN ALL PARTIES.....................................................................30

         10.1     Limitation on Applicability....................................................................30
         10.2     Procedure to Propose Exclusive Risk Operations.................................................31
         10.3     Responsibility for Exclusive Risk Operations...................................................32
         10.4     Consequences of Exclusive Risk Operations......................................................33
         10.5     Premium to Participate in Exclusive Risk Operations............................................35
         10.6     Order of Preference of Operations..............................................................36
         10.7     Stand-By Costs.................................................................................36
         10.8     Use of Property................................................................................37
         10.9     Miscellaneous..................................................................................38

11.      ACCOUNTING AND TAXES....................................................................................39

         11.1     Accounting.....................................................................................39
         11.2     Taxes..........................................................................................39

12.      DEFAULT.................................................................................................40

         12.1     Failure to Pay.................................................................................40
         12.2     Remedy of Default..............................................................................41
         12.3     Continuation of Default........................................................................41
         12.4     In the event that either:......................................................................43
         12.5     Exclusive Remedy...............................................................................43

13.      DISPOSAL OF PETROLEUM...................................................................................43

         13.1     Right and Obligation...........................................................................43
         13.2     NGLs and Natural Gas...........................................................................44

14.      CONFIDENTIALITY.........................................................................................44

         14.1     Confidential Data and Information..............................................................44
         14.2     Trading Rights.................................................................................45

15.      PUBLIC ANNOUNCEMENTS....................................................................................45

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<S>     <C>                                                                                                      <C>


16.      OUTGOINGS...............................................................................................46


17.      COVENANT, UNDERTAKING AND RELATIONSHIP..................................................................46

         17.1     Covenant and Undertaking.......................................................................46
         17.2     Relationship...................................................................................47

18.      ASSIGNMENT AND ENCUMBRANCES.............................................................................47

         18.1     Restriction....................................................................................47
         18.2     Right..........................................................................................48
         18.3     Effective Date.................................................................................49
         18.4     Continuing Obligations.........................................................................49
         18.5     Costs..........................................................................................49
         18.6     Encumbrance....................................................................................49
         18.7     Joint Venture Agreements.......................................................................50
         18.8     Meaning of "Assignment" .......................................................................50
         18.9     Introducing Parties............................................................................50

19.      WITHDRAWAL..............................................................................................51

         19.1     Restriction....................................................................................51
         19.2     Right..........................................................................................51
         19.3     Conditions.....................................................................................51

20.      FORCE MAJEURE...........................................................................................53


21.      APPLICABLE LAW AND ARBITRATION..........................................................................54

         21.2     Arbitration....................................................................................54

22.      NOTICES.................................................................................................54

         22.1     Manner of service..............................................................................54
         22.2     Time of Notice.................................................................................54
         22.3     Addresses......................................................................................55

23.      MISCELLANEOUS...........................................................................................56


SIGNING PAGE.....................................................................................................57


SCHEDULE 1 - ACCOUNTING PROCEDURE                             ATTACHED

SCHEDULE 2 - MAP OF LICENSE AREAS                             N/A

SCHEDULE 3 - FORM OF TURNKEY CONTRACT                         ATTACHED
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                                      iii

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                            JOINT OPERATING AGREEMENT



THIS AGREEMENT is made the 22 day of October, 2004

BETWEEN:

ALADDIN MIDDLE EAST LTD, a corporation organized and existing under the laws of
the State of Delaware in the U.S.A., having offices in the city of Ankara and in
the city of Wichita, Kansas, (hereinafter referred to as "AME");

and

ERSAN PETROL SANAYII A.S., a corporation existing under the laws of the Republic
of Turkey, having its head office in the city of Ankara ("ERSAN");

and

AVENUE ENERGY INC., a corporation organized and existing under the laws of the
State of Delaware in the U.S.A., having offices at 17547 Ventura Blvd., Suite
305, Encino, Ca 91316, USA and in Australia at 34-36 Punt Road, Windsor,
Melbourne, Australia (hereinafter referred to as "AVENUE").

                                    RECITALS

A.       The Parties are the holders of Licenses AR/AME - EPS-AVE/2674, 2677 and
         2678 in Petroleum District XI, Diyarbakir, the Republic of Turkey.

B.       The Parties desire to provide for the exploration, development,
         production and operation of the License Area and to define their
         respective rights and obligations in respect thereof.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and obligations herein contained and to be performed, IT
IS AGREED by and between the Parties AS FOLLOWS:

1.       DEFINITIONS AND INTERPRETATIONS

In this Agreement:

"ACCOUNTING PROCEDURE" means the Accounting Procedure set out in Schedule 1
hereto.

"ADVANCE" means each payment of cash required to be made pursuant to a Cash
Call.

"AFE" means authorization for expenditure.

"AFFILIATE" means, with respect to any Person, any other Person that (a) owns or
controls the first Person, (b) is owned or controlled by the first Person, or
(c) is under common ownership or control with the first Person, where 'own'
means a direct or indirect ownership of more than 50% of the equity interests or
rights to distributions on account of equity of the Person and 'control' means
the direct or indirect power to direct the management or policies of the Person,
whether through the ownership of voting securities, by contract, or otherwise;
notwithstanding the foregoing, each member of SGC is deemed to be an Affiliate
of each other member of SGC for the purposes of this Agreement.

"APPRAISAL WELL" means a well drilled to determine or further evaluate the
extent, size, or nature of a hydrocarbon accumulation in a geological formation
contained in a trap, structure or closure in which a Discovery has been made by
a previous Exploration Well drilled (whether within or outside the License Area)
on such trap, structure or closure. Appraisal and other derivatives shall be
construed accordingly.

"AVENUE INTEREST" means the 15% Percentage Interest held by AVENUE at the date
of this Agreement.




                                       1
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"BASE RATE" means the best rate of interest for Dollars in effect at the
CitiBank branch in Ankara Turkey or the best rate of interest Operator is able
to borrow money at in the Republic of Turkey, whichever is lesser, at 10:00 a.m.
New York, NY, time on the day in question or, if no such rates are quoted on
that day, on the immediately preceding day on which such rates were quoted.

"BUDGET" means any budget in respect of a Program.

"CAPITAL EXPENDITURE" means costs and expenditures incurred in but not limited
to the following operations: the drilling of all wells (including testing, if
applicable, plugging and abandoning), development feasibility studies, the
design, construction, installation, acquisition, replacement or final
abandonment of any permanent facilities, permanent additions to Joint Property
and administrative costs directly attributed to such functions.

"CASH CALL" means any request to the Parties for the payment of cash made by
Operator in accordance with the provisions of the Accounting Procedure in
connection with the Joint Operations or, where the context so requires, to the
Consenting Parties in connection with any Exclusive Risk Operation.

"CASH PREMIUM" means the payment made pursuant to Article 10.5 by a
Non-Consenting Party to reinstate its rights to participate in an Exclusive Risk
Operation.

"COMMUNICATION" has the meaning specified in Article 22.1.

"COMPLETION" means an operation to complete a well through the christmas tree as
a producer of Petroleum in one or more Zones including but not limited to the
setting of production casing, perforating, stimulating the well and production
testing conducted in such operation. Complete and other derivatives shall be
construed accordingly.

"CONSENTING PARTY" means a Party who has agreed to participate in and pay its
share of the cost of an Exclusive Risk Operation.

"CONVERSION RATE" means the conversion rate as published in the Wall Street
Journal for the two currencies in question on the relevant date or, if no such
rates are quoted on that date, on the immediately preceding day on which such
rates were quoted.

"DEEPENING" means an operation whereby a well is drilled to an objective Zone
below the deepest Zone in which the well was previously drilled, or below the
deepest Zone proposed in the associated AFE whichever is deeper. Deepen and
derivatives shall be construed accordingly.

"DEFAULT" has the meaning specified in Article 12.1.

"DEFAULTING PARTY" has the meaning specified in Article 12.1.

"DEVELOPMENT PLAN" means a plan for the development of Petroleum from the
License Area.

"DEVELOPMENT WELL" means a well which is drilled for the purpose of producing
from and depleting a known Petroleum bearing reservoir or for the purpose of
injecting gas or liquid substances into that reservoir to enhance the recovery
of Petroleum from that reservoir.

"DISCOVERY" means any discovery of reserves of Petroleum which are tested and
produced in the well encountering the same, or if not so tested, are determined
by Operating Committee to be capable of being produced.

"DOLLARS" or "$" means dollars of the United States of America.

"ENTITLEMENT" means a quantity of Petroleum of which a Party has the right and
obligation to take delivery pursuant to the License terms or, if applicable, on
off-take agreement and the terms of this Agreement, after adjustments for
overlifts and underlifts.

"ERSAN ROYALTY INTEREST" means the right of ERSAN to a 7.5% overriding royalty
interest in Petroleum produced from the License Area.

"EXCLUSIVE RISK OPERATION" has the meaning specified in Article 10.1.

"EXPLORATION WELL" means any well other than an Appraisal Well or a Development
Well.




                                       2
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"FARMIN AND PARTICIPATION AGREEMENT" means the agreement referred to in Recital
A of this Agreement as the same may be changed from time to time by mutual
consent of the parties thereto.

"G&G DATA" means any geological, geophysical and geochemical data.

"GOVERNMENT" means the Government of the Republic of Turkey, from time to time,
or any relevant agency, division or representative thereof.

"INITIAL EXPLORATION PROGRAM" has the meaning specified in Article 9.1.

"JOINT ACCOUNT" means the account established and maintained by Operator to
record all Advances, expenditures and receipts in the conduct of the Joint
Operations.

"JOINT OPERATIONS" means all operations relating to the License Area approved,
or deemed to be approved, by the Operating Committee and conducted by Operator
in accordance with this Agreement and in the case of operations under a
development Program and Budget means all operations in which all Parties are
obliged to participate.

"JOINT PETROLEUM" means all Petroleum produced under the Joint Operations.

"JOINT PROPERTY" means all property, of whatever nature, acquired or held for
use in connection with the Joint Operations. "LICENSE AREA" means the area for
the time being covered by the Licenses.

"LICENSES" means each of:

         (a)      License AR/AME - EPS-AVE/2674, 2677 and 2678 in Petroleum
                  District XI, Diyarbakir, the Republic of Turkey;

         (b)      (unless the context otherwise requires) any Production Lease
                  granted under the Petroleum Law to the Parties in relation to
                  all or part of the License Area;

         (c)      any other Exploration License or Production Lease granted
                  under the Petroleum Law which the Parties from time to time
                  agree expressly and in writing to bring within the scope of
                  this Agreement,

as any such License or Production Lease may be extended, modified or replaced
from time to time.

"MATERIAL" means personal property, equipment or supplies.

"MINIMUM NOTIFICATION OBLIGATION DATE" means subsequent to the drilling of the
Karakilise-2 well, the date by which Non-Operator is obligated to notify the
Operator of its intent to participate in a Minimum Work Obligation. The Minimum
Notification Obligation Date shall be seventy-five (75) days prior to the date
of the subject Minimum Work Obligation. Operator shall provide Non-Operators
with notice of Minimum Notification Obligation Dates at least 150 days prior to
the date of the subject Minimum Work Obligation.

"MINIMUM WORK OBLIGATIONS" means those work and/or expenditure obligations
specified in the Licenses or Petroleum Law which must be performed during the
then current License phase or period in order to satisfy the obligations of the
License or Petroleum Law, including the drilling of a well.

"NATURAL GAS" means hydrocarbons which at atmospheric conditions of temperature
and pressure are in a gaseous phase.

"NET PRE-TAX REVENUE" means sales receipts (net of withholdings and deductions
at source and excluding VAT (if any), but before income or corporate tax
calculated and chargeable by reference to individual Parties), less:

         (a)      royalties and similar payments made or due to the Government
                  or under the ERSAN Royalty Interest in respect of such sales
                  or related production; and

         (b)      operating costs authorized under the terms of this Agreement
                  incurred by Operator and/or the relevant Parties (or any of
                  them) in connection with the production of those receipts
                  (including production and transportation charges, commissions,
                  salaries, fees and expenses chargeable to the Joint Account).

"NGLS" means any hydrocarbon found in Natural Gas which may be extracted or
isolated as liquefied Petroleum.




                                       3
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"NON-CONSENTING PARTY" means a Party who elects not to participate in an
Exclusive Risk Operation.

"NON-DEFAULTING PARTIES" has the meaning specified in Article 12.1.

"NON-OPERATOR" means a Party other than Operator.

"OPERATING COMMITTEE" means the committee established pursuant to Article 8.

"OPERATOR" means the Party from time to time acting as such pursuant to Article
4.

"OTHER PARTIES" has the meaning specified in Article 18.1.

"OUTGOING OPERATOR" has the meaning specified in Article 4.3.

"PARTY" or "PARTIES" means any party or parties to this Agreement and their
respective successors and permitted assigns.

"PERCENTAGE INTEREST" means, for each of the Parties, the undivided percentage
interest held from time to time by it pursuant to this Agreement in the
Licenses, the Joint Property and the Joint Petroleum, or, where the context so
requires, in any Exclusive Risk Operation.

"PERSON" includes any individual, corporation, company, partnership (general or
limited), business trust, or other governmental or non-governmental entity or
association.

"PETROLEUM" has the meaning assigned to it under the Petroleum Law.

"PETROLEUM LAW" means Petroleum Law No. 6326 of the Republic of Turkey, as
amended from time to time (including but not limited to Laws No. 6558, 6987,
1702, 2217 and 2208) and the Petroleum Regulations promulgated thereafter under
Government Decree 89/14111 published with the Official Gazette on 17 July 1989
issue no. 20224, as amended from time to time and the Petroleum Marketing Law
No. 5015, enacted on December 4, 2003 and published in the Official Gazette, No.
25322, on December 20, 2003.

"PETROLEUM RIGHT HOLDER" means a Person registered under and in accordance with
the Petroleum Law as a petroleum right holder.

"PLUGGING BACK" means a single operation where a deeper Zone is abandoned in
order to attempt a Completion in a shallower Zone. Plug Back and other
derivatives shall be construed accordingly.

"PRODUCTION LEASE" means that part of the License Area which is established for
development of a Discovery pursuant to the License which is delineated as the
Production Lease in a Development Plan approved as a Joint Operation or as an
Exclusive Risk Operation.

"PROGRAM" means any program of operations.

"QUARTER" means a period of three months ending on 31st March, 30th June, 30th
September, or 31st December in any year.

"RECOMPLETION" means an operation whereby a Completion in one Zone is abandoned
in order to attempt a Completion in a different Zone within the existing
Wellbore. Recomplete and other derivatives shall be construed accordingly.

"REWORKING" means an Operation conducted in the Wellbore of a well after it is
completed to secure, restore or improve production in a Zone, which is currently
open to production in the Wellbore such operations include, but are not limited
to, well stimulation operations, but exclude any routine repair or maintenance
work or drilling, sidetracking, deepening, completing, recompleting or plugging
back of a well. Rework and other derivatives shall be construed accordingly.

"SGC" means the Sayer Group Consortium, consisting of AME, ERSAN,
Transmediterranean Oil Company Ltd and Guney Yildizi Petrol Uretim Sondaj
Muteahhitlik ve Ticaret A.S.

"SGC INTEREST" means that part of the total Percentage Interests of all of the
Parties that does not consist of the Avenue Interest (or part thereof).




                                       4
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"SIDE TRACKING" means the directional control and intentional deviation of a
well from vertical so as to change the bottom hole location unless done to
straighten the hole or to drill around junk in the hole or to overcome other
mechanical difficulties. Side track and other derivatives shall be construed
accordingly.

"SUB-AREA" means, at any given time, any part of the License Area determined as
such by the Operating Committee being delineated by surface area but applying
only to that interpreted closure of any geological structure or stratigraphic
trap in which a reservoir or reservoirs of Petroleum exist, and which is subject
to operations by less than all Parties pursuant to the terms of this Agreement.

"TESTING" means an operation intended to evaluate the capacity of a Zone to
produce Petroleum. Test and other derivatives shall be construed accordingly.

"TURNKEY" means any contract pursuant to which the Operator or any other party
shall agree to drill and complete a well through a well bore, or perform any
other operation for a fixed price.

"VAT" means value added tax applicable to the provision of goods and services
according to the Value Added Tax Law No. 3065 published in the Turkish Official
Gazette No. 18563 dated November 2, 1984 and the Council of Ministers' Decrees
issued under the same Law, as both may be amended time to time.

"WILFUL MISCONDUCT" means in relation to Operator an intentional and conscious
or reckless disregard of:

         (a)      any provision or requirement of this Agreement or, in so far
                  as applicable to the Joint Operations, or applicable law or
                  regulations; or

         (b)      any Program, not justifiable by any special circumstances,

by any director, officer, supervisory or management employee, agent or
contractor or sub-contractor of Operator or its Affiliates, but shall not
include any error in judgment or mistake made by any such person in the
exercise, in good faith, of any function, authority or discretion conferred upon
Operator.

"WITHDRAWING PARTY" has the meaning specified in Article 19.3(i).

"WITHHOLDING TAX" means the withholding from the petroleum exploration and
production revenues in accordance with Council of Ministers Decree No. 93/5147
published in the Turkish Official Gazette No. 21805(R) dated 30 December 1993,
as may be amended, and any other withholding that may be applicable to this
Agreement, the activities and payments hereunder or the Parties.

"ZONE" means a stratum of earth containing or thought to contain an accumulation
of Petroleum separately producible from any other accumulation of Petroleum.

Reference to any statute, statutory provision or statutory instrument includes a
reference to that statute, statutory provision or statutory instrument as may
from time to time be amended, extended or re-enacted.

Reference to any gender includes a reference to all other genders.

Unless the context otherwise requires reference to any Article is to an article
of this Agreement and reference to any Section is to a section of the Accounting
Procedure.

Reference to the singular includes a reference to the plural and vice versa.

The headings are used for convenience only and shall not affect the construction
or validity of this Agreement.

2.       SCOPE OF UNDERSTANDING AND DURATION

2.1      SCOPE

2.1.1    The scope of this Agreement shall extend to the exploration for and the
         production of Petroleum under the Licenses and the joint marketing and
         joint sales of Petroleum so produced, including the manner in which
         abandonment obligations (whether arising under the Licenses or by law)
         shall be met, and shall include the treatment, storage and
         transportation of Petroleum within the License Area.




                                       5
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2.2      UNDERSTANDING

         This Agreement represents the entire Agreement and understanding
         between the Parties as to the subject matter hereof. There are no
         verbal understandings, agreements, representations or warranties which
         are not expressly set forth herein. Notwithstanding the foregoing, the
         provisions of the Farmin and Participation Agreement remain in full
         force and effect. Notwithstanding anything to the contrary in the
         Farmin and Participation Agreement, in the event of a conflict between
         this Agreement and the Farmin and Participation Agreement, the terms
         and interpretation of this Agreement shall prevail to the extent it
         affects the Licenses which are the subject of this Agreement.

2.3      COMMENCEMENT AND DURATION

         This Agreement shall commence on the date first mentioned above and
         shall, continue for so long as the Licenses (or any of them) remain in
         force and until all Joint Property has been disposed of and final
         settlement has been made between the Parties in accordance with their
         respective rights and obligations hereunder.

3.       INTEREST OF THE PARTIES

3.1      PERCENTAGE INTERESTS

         Subject to Article 3.3 and to the other terms and conditions of this
         Agreement, the Licenses and all Joint Property and all Joint Petroleum
         shall be owned by the Parties, and the Net Pre-tax Revenue derived from
         the Joint Operations (including the sale of Joint Petroleum by Operator
         on behalf of the Parties) shall accrue and be allocated to the Parties,
         and all costs and obligations incurred in the proper conduct of the
         Joint Operations shall be borne by the Parties, in proportion to their
         respective Percentage Interests, which at the date hereof are as
         follows:

                              AVENUE                        15%
                              AME                           80%
                              ERSAN                          5%
                                                   ---------------
                              Total                        100%


         AME represents and warrants to Avenue that the outstanding royalty,
         overriding royalty, carried interest and other burdens with respect to
         the Licenses are as at the date of this Agreement solely as follows:

                          Government 12.5%, ERSAN 7.5%.

         The Parties recognize that the Government Royalty may be changed by the
         Government from time to time and that each Party's Percentage Interest
         shall be liable to bear its proportionate share of such royalty and the
         Ersan Royalty Interest.

         As of the date of this Agreement and pursuant to the provisions set
         forth in the Revised and Restated Participation Agreement dated __
         October, 2004, AME shall assume liability for all past and future
         expenditures related to 85% of the Participating Interest in the
         Karakilise License and assume complete responsibility for all
         expenditures for past workover operations on the Karakilise-1 Well.

3.2      WITHHOLDING TAX

         Notwithstanding anything to the contrary in this Agreement, any
         Withholding Tax incurred in relation to the costs and expenses charged
         to the Joint Account, or the payments by the Parties (or any of them)
         in relation thereto, shall ultimately be borne by the Parties in
         proportion to their Percentage Interest.

3.3      OWNERSHIP, OBLIGATIONS AND LIABILITIES

3.3.1    Unless otherwise provided in this Agreement, all the rights and
         interests in and under the Licenses, all Joint Property and any
         Petroleum produced from the Licenses shall be owned by the Parties in
         accordance with their respective Percentage Interests.




                                       6
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3.3.2    Unless otherwise provided in this Agreement, the obligations of the
         Parties under the License and all liabilities and expenses incurred by
         Operator in connection with Joint Operations shall be charged to the
         Joint Account and all credits to the Joint Account shall be shared by
         the Parties, as among themselves, in accordance with their respective
         Percentage Interests.

3.3.3    Each Party shall pay when due, in accordance with the Accounting
         Procedure, its Percentage Interest share of Joint Account expenses,
         including cash advances and interest, accrued pursuant to this
         Agreement. A Party's payment of any charge under this Agreement shall
         be without prejudice to its right to later contest the charge.

3.3.4 Commencing in October 2004, and continuing so long as Avenue retains a
Percentage Interest hereunder, Avenue shall be required to pay AME a monthly
administration fee, as further defined in the Revised and Restated Participation
Agreement dated __ October, 2004, in the amount of $380 which shall cover the
ongoing Exploration License rentals and filings required to keep in good
standing the Licenses.

4.       THE OPERATOR

4.1      DESIGNATION

         AME is hereby designated and agrees to act as Operator under and
subject to the terms of this Agreement.

4.2      RESIGNATION AND REMOVAL

4.2.1    Operator shall have the right to resign at the end of any month, by
         giving not less than two hundred and seventy (270) days' notice to the
         Parties, or such shorter period of notice as the Operating Committee
         may direct.

4.2.2    Operator may be removed:

         (i)      at the end of any month, if the Operating Committee so decides
                  and gives not less than ninety (90) days' written notice to
                  Operator; or

         (ii)     by notice from any Non-Operator (other than a Non-Operator
                  which is an Affiliate of the Operator or a Non-Operator that
                  is in Default), if Operator:

                  (a)      ceases or threatens to cease to carry on business or
                           a major part thereof;

                  (b)      makes an assignment for the benefit of creditors,
                           admits its inability to pay its debts as they become
                           due, or such fact is determined in a judicial
                           proceeding, files or has filed against it a petition
                           in bankruptcy or other similar insolvency proceeding
                           or is adjudicated a bankrupt or insolvent;

                  (c)      files a petition seeking for itself any
                           reorganization, arrangement, composition,
                           readjustment, liquidation, dissolution or other
                           similar arrangement under any present or future
                           statute, law or regulation; or

                  (d)      consents to or acquiesces in the appointment of a
                           trustee, receiver or liquidator of it or of all or
                           any substantial part of its assets or properties, or
                           if it or the holders of its common stock take any
                           action contemplating its dissolution or liquidation;
                           or

         (iii)    forthwith upon the Operating Committee so determining and
                  giving written notice to Operator, if:

                  (a)      the aggregate of the Percentage Interests of Operator
                           and any Affiliate of Operator is less than fifteen
                           percent (15%); or

                  (b)      the Operating Committee determines and notifies
                           Operator that there has been an event of negligence
                           or Wilful Misconduct or a material breach of this
                           Agreement or a License by Operator and Operator fails
                           within twenty eight (28) days after receipt of such
                           notice (or such longer period as may be specified in
                           the said notice) to remedy such breach to the
                           reasonable satisfaction of the




                                       7
<PAGE>



                           other Parties or, if such breach is not capable of
                           remedy, to otherwise restore as nearly as practicable
                           the other Parties to the position they would have
                           been in had the relevant event or breach not
                           occurred.

4.2.3    Subject to the following, Operator shall have no claim against any
         Party as a result of the resignation or removal of Operator, provided
         always that any resignation or removal of Operator shall be without
         prejudice to any rights, obligations or liabilities which accrued
         during the period when Operator served in that capacity. If Operator
         resigns before the completion of all working obligations set out in the
         Licenses or arising under the Petroleum Law in respect of the Licenses,
         Operator shall not be entitled to any costs or expenses incurred in
         connection with the change of operatorship, but if Operator resigns
         thereafter or is removed it shall be entitled to charge the Joint
         Account any costs or expenses incurred by it as a result of the change
         of operatorship as may be approved by the Operating Committee (such
         approval not to be unreasonably withheld).

4.3      ELECTION OF SUCCESSOR OPERATOR

         As soon as practicable after notice is duly given as to the resignation
         or removal of Operator (hereinafter referred to as "Outgoing Operator")
         under Article 4.2, one of the Non-Operators shall, subject to its
         acceptance of the position under the terms of this Agreement and
         subject to any necessary approval of the Government, be selected by the
         Operating Committee to assume the position of Operator upon the
         effective date of the resignation or removal of the Outgoing Operator,
         provided that if the Outgoing Operator is removed or in Default at the
         time of its resignation and the Outgoing Operator or any Party which is
         an Affiliate of the Outgoing Operator either fails to vote or votes for
         itself or any of its Affiliates as successor to the operatorship, those
         votes shall be disregarded and the percentage figure set out in Article
         8.4.5 shall apply to the total votes available to the remaining
         Parties.

4.4      TRANSFER OF RESPONSIBILITIES

4.4.1    Upon the effective date of the resignation or removal of the Outgoing
         Operator, the Outgoing Operator shall hand over or deliver to, or
         relinquish custody in favor of, the Non-Operator selected to succeed it
         as Operator, or if no such selection has yet been made, then to the
         Non-Operator having the largest Percentage Interest (or, in the event
         that more than one Non-Operator shall equally hold the largest
         Percentage Interest, the nominee of the Outgoing Operator among such
         Non-Operators), all funds relating to the Joint Account, all Joint
         Property, all Joint Petroleum and all books, records and inventories
         relating to the Joint Operations other than those books, records and
         inventories maintained by the Outgoing Operator in its capacity as the
         owner of a Percentage Interest. The Outgoing Operator shall use its
         best efforts to transfer to the aforesaid Non-Operator, effective as of
         the effective date of such resignation or removal, its rights as
         Operator under all contracts exclusively relating to the Joint
         Operations and the aforesaid Non-Operator shall assume all obligations
         of Operator thereunder (other than obligations arising or relating to
         any period or time prior to such effective date). Pending such transfer
         and in relation to all other contracts relating to the Joint Operations
         (to the extent they so relate), the Outgoing Operator shall hold its
         rights and interests as Operator from such effective date for the
         account and to the order of the aforesaid Non-Operator and the Parties
         shall, from such effective date, indemnify and hold harmless the
         Outgoing Operator from all obligations thereunder except and to the
         extent that the same devolve upon the Party which is the Outgoing
         Operator in its capacity as the holder of a Percentage Interest or
         arise from any default, negligence or Wilful Misconduct of the Outgoing
         Operator in its capacity as Operator occurring prior to the effective
         date of its resignation or removal as Operator.

4.4.2    As soon as practicable after the date on which the Outgoing Operator is
         required to transfer its responsibilities as provided in Article 4.4.1,
         the Parties shall audit the Joint Account and conduct an inventory of
         all Joint Property and all Joint Petroleum and such inventory shall be
         used in the return of and the accounting for the said Joint Property
         and Joint Petroleum by the Outgoing Operator for the purposes of the
         transfer of responsibilities under this Article 4. All costs and
         expenses incurred in connection with such audit and inventory shall be
         for the Joint Account.

5.       AUTHORITIES AND DUTIES OF OPERATOR

5.1      RIGHT

5.1.1    Subject to this Agreement, Operator has the right and the obligation to
         conduct Joint Operations by itself, or through its agents or its
         contractors, subject to the overall supervision and control of the
         Operating Committee. Such right shall not be assigned without the
         written consent of the Non-Operators and any necessary consent of the
         Government, provided that the Non-Operators shall not withhold their
         consent in the case of an assignment to an Affiliate of Operator which
         has demonstrated to the satisfaction of the Non-Operators its financial
         and technical capability to perform the functions of Operator hereunder
         and which enters into a written instrument accepting and assuming all
         of the obligations of Operator under this Agreement.




                                       8
<PAGE>





5.1.2    If Operator conducts any or all of the Joint Operations through its
         agents, contractors or Affiliates, Operator shall nevertheless remain
         responsible to the Parties for such operations as Operator, as and to
         the extent provided in this Agreement.

5.2      RESPONSIBILITY

5.2.1    Subject to the term and conditions of this Agreement and to the overall
         supervision and control of the Operating Committee, the
         responsibilities of Operator shall include, but not be limited to:

         (i)      the preparation of Programs, Budgets and AFEs pursuant to the
                  provisions of this Agreement,

         (ii)     the implementation of such Programs and Budgets as shall,
                  together with the relevant AFEs, have been approved by the
                  Operating Committee;

         (iii)    providing each of the Parties with reports, data and
                  information concerning the Joint Operations;

         (iv)     the planning for and obtaining of all requisite services and
                  material;

         (v)      the supervision, direction and control of statistical and
                  accounting services;

         (vi)     making provision for and payment of all royalties due to the
                  Government and to Ersan in a timely manner and providing all
                  required and necessary accounting in relation thereto; and,

         (vii)    providing all technical and advisory services required for the
                  efficient performance of Joint Operations.

5.2.2    Operator shall conduct the Joint Operations in a prudent and
         workmanlike manner in accordance with methods and practices customarily
         used in prudent oil and gas field practice and with that degree of
         diligence and prudence reasonably and ordinarily exercised by
         experienced operators engaged in similar activities under similar
         circumstances.

5.2.3    Operator shall cause to be done, with due diligence, all such acts and
         things within its control as may be necessary to keep and maintain the
         Licenses in full force and effect and shall conduct Joint Operations in
         compliance with the requirements of the Licenses, the Petroleum Law and
         any other applicable law.

5.2.4    The number of employees of Operator employed in connection with the
         Joint Operations and their selection, hours of work and remuneration
         shall be determined by Operator subject to the Budget.

5.3      LIENS AND ENCUMBRANCES

         Operator shall, insofar as it may be within its reasonable control,
         keep all Joint Property free from all liens, charges, encumbrances, and
         adverse claims, except as provided in Article 3.1.

5.4      REPRESENTATION OF THE PARTIES

         Subject to any determination by the Operating Committee, Operator shall
         represent the Parties regarding any matters or dealing with the
         Government, any other governmental authorities or third parties insofar
         as the same relate to the Joint Operations, provided always that there
         is reserved to each Party unfettered right to deal with the Government,
         any other governmental authorities or third parties with respect to
         matters relating to its own Percentage Interest. Operator shall, in any
         event, give prior notice to the Parties of any representations which it
         proposes to make as Operator to the Government or any other
         governmental authorities or third parties which may reasonably be
         expected to have a material effect upon the interests of the Parties
         hereunder or under the Licenses. Operator shall also give notice to all
         Parties of the results of any such representations made in accordance
         with this Article 5.4.




                                       9
<PAGE>



5.5      RECORDS

         Operator shall prepare and maintain proper books of account, records
         and inventories of the Joint Operations which shall be kept in
         compliance with the Accounting Procedure attached hereto and with due
         regard to the requirements of the Petroleum Law and the Licenses.

5.6      REPORTS

         Operator shall promptly provide each Party with the following reports:

         (i)      All logs and surveys;

         (ii)     Daily drilling progress reports;

         (iii)    Copies of all tests and core analysis reports;

         (iv)     Copies of the plugging reports;

         (v)      Copies of G&G Data;

         (vi)     Engineering studies, (including reservoir studies and reserve
                  estimates), as approved by the Operating Committee,
                  development schedules and annual progress reports on
                  development projects;

         (vii)    Weekly field and well performance reports, provided that
                  during the first 90 days of production from a newly producing
                  well, daily production reports will be provided on a daily
                  basis, followed by daily production on a weekly basis for the
                  following 90 days of production;

         (viii)   Copies of all reports relating to Joint Operations furnished
                  by Operator to the Government, except magnetic tapes which
                  shall be stored by Operator and made available for inspection
                  and/or copying at the sole expense of the Non-Operator
                  requesting same;

         (ix)     (Other reports as frequently as is justified by the activities
                  or as instructed by the Operating Committee; and

         (x)      Such additional information for Non-Operators as they or any
                  of them may request, provided that the requesting Party or
                  Parties pay the costs of preparation of such information and
                  that the preparation of such information will not unduly
                  burden Operator's administrative and technical personnel. Only
                  Non-Operators who pay such costs shall receive such additional
                  information.

         Operator shall also timely make all reports concerning the Joint
         Operations to the Government as required under the Petroleum Law and
         the Licenses and, concurrently therewith, furnish copies of all such
         reports to the Parties.

5.7      CONSULTATION AND INFORMATION

         Operator shall consult freely with the Parties and keep them informed
         of matters concerning the Joint Operations. Without prejudice to the
         generality of the foregoing, Operator shall:

         (i)      inform each Party of all logging, coring, testing and, in
                  addition, such other information concerning the Joint
                  Operations as the Operating Committee may decide, with such
                  advance notice as is practicable in the circumstances, so that
                  each Party may, subject to Article 6.3, have a representative
                  present on location during the conduct of such operations; and

         (ii)     provide each Party with copies of all well logs and core
                  analyses and sample fluids for pre-production assay tests and
                  such engineering, geological, geophysical and technical data
                  and such further data and information relating to the Joint
                  Operations as the Operating Committee may decide and, at the
                  sole cost of the Party requesting the same, provide such Party
                  with such additional data and information as such Party may
                  reasonably request.




                                       10
<PAGE>



5.8      EMERGENCIES

         Operator is authorized to make any expenditure or incur commitments for
         the expenditures or take any actions it deems necessary in the case of
         emergency (but not otherwise) for the safeguarding of lives or property
         or the prevention of pollution.

         Operator shall promptly notify all the Parties of any such
         circumstances, the amount of expenditures and commitments for
         expenditures so made and incurred, the actions so taken in accordance
         with this Article 5.8 and the results thereof.

5.9      DISPOSAL AND ABANDONMENT

5.9.1    Operator shall, subject to the Accounting Procedure, dispose of any
         item of Joint Property which Operator determines is no longer needed or
         suitable for Joint Operations provided that any such disposal shall be
         with the prior written approval of the Operating Committee and subject
         to such terms and conditions as would be arrived at pursuant to arms
         length negotiations.

5.9.2    If the Parties decide to abandon the Joint Operations, or any part
         thereof, Operator shall, subject to the Accounting Procedure, recover
         and endeavour to dispose of as much of the Joint Property as the
         Operating Committee determines can economically and reasonably be
         recovered, or as may be required to be recovered under the Licenses,
         the Petroleum Law or any other applicable law, and the net costs or net
         proceeds therefrom shall be charged or credited to the Joint Account.

5.10     CONTRACTORS, TURNKEYS, AND PERCENTAGE INTERESTS IN WELLS

5.10.1   In the case of any proposed Joint Operations, Operator shall, unless
         otherwise decided by Parties having in the aggregate between them
         Percentage Interests exceeding eighty-five percent (85%) and except in
         the circumstances referred to in Article 5.8 and in respect of
         contracts of insurance placed pursuant to the provisions of Article
         7.1.1, comply with the following provisions:

         (i)      AME shall be appointed as the drilling contractor for all
                  wells to be drilled during the term of this Agreement. The
                  cost of performing drilling, completion and other operations
                  required under this Agreement shall be negotiated in good
                  faith. AME shall use reasonable endeavours to provide Turnkey
                  quotes for such drilling and other services at least one
                  hundred (100) days, but not more than one hundred twenty (120)
                  days, prior to the estimated spud dates for each well. Along
                  with the Turnkey quotes, AME shall provide a detailed AFE
                  showing all proposed costs for such drilling and completion
                  operations and justify the AFE prices cited. In the event that
                  any Party believes that such quotes are not competitive, it
                  shall have the right to seek other quotes from other bona fide
                  qualified contractors registered to provide such services in
                  the Republic of Turkey. If any such quote on a Turnkey basis
                  is less than AME has quoted for its comparable services, AME
                  shall have the right to reduce the Turnkey price accordingly
                  or elect to not conduct such services. All outside services
                  and materials should be provided at cost. There should be no
                  indirect operating costs charged under the Accounting
                  Procedure for Turnkey work. The Turnkey price should be for a
                  dry hole with logs run at the casing point and over the bottom
                  hole section, with one core in the reservoir and testing as
                  deemed necessary by AME. There shall be a separate Turnkey
                  price negotiated for completion based upon similar parameters.
                  Turnkey prices and contracts shall be finalized by the Parties
                  not less than sixty (60) days prior to any proposed spud
                  dates, which, for the avoidance of doubt, is fifteen (15) days
                  after the Minimum Notification Obligation Date. The form of
                  Turnkey contract is attached as Schedule 3.

         (ii)     Pursuant to the Turnkey contract and subject to reduction
                  pursuant to Article 5.10.1 (iii) below, Avenue shall be
                  required to contribute fifty percent (15%) of its Percentage
                  Interest of the agreed upon Turnkey drilling price to the
                  Operator's bank account maintained at Citibank NA, Ataturk
                  Bulvari No. 71/49 06250 Kizilay, Ankara, Turkey, Account No.
                  310 030 031, Ankara Subesi, not less than thirty (30) days
                  prior to the anticipated spud date. Such funds shall be
                  immediately available to Operator for pre-drilling
                  expenditures. The balance of the Turnkey price shall be paid
                  as follows: twenty percent (20%) within five (5) days of the
                  spud date, fifteen percent (15%) within five (5) days of a
                  Communication by the Operator to Avenue that the well has
                  reached a depth of 5,000 feet, and the remaining balance
                  within five (5) days of a Communication from the Operator that
                  the well has reached the total depth and the Turnkey
                  Completion Costs anticipated to be incurred within the next
                  thirty (30) days of a Communication from the Operator that a
                  Completion attempt will be made, if Avenue agrees to
                  participate in the Completion attempt.




                                       11
<PAGE>





         (iii)    If Avenue has elected to participate in a Joint Operation for
                  any Appraisal or Development well on the structure on which
                  the Karakilise-1 Discovery was made:

                  (a)      it may elect to participate in such well for less
                           than its full Percentage Interest, but in no event
                           less than half of its Percentage Interest, by giving
                           a Communication to Operator not later than thirty
                           (30) days after receipt of the AFE for any other such
                           well, which Operator shall provide not less than
                           ninety (90) days before the proposed spudding of such
                           well.

                  (b)      If Avenue notifies Operator in a timely manner that
                           it has elected to participate for less than its full
                           Percentage Interest in any such Appraisal or
                           Development well, the other Parties, or their
                           Affiliates shall have the right up to the time such
                           well is spudded.

                           i)       finance the remainder of Avenue's Percentage
                                    Interest themselves, on a pro-rated basis,
                                    or such other percentage basis as such
                                    Parties may agree; or

                           ii)      to bring in a third party as a farminee,
                                    which is not an Affiliate of any Party, to
                                    fund that portion of the expense in which
                                    Avenue and the other Parties have elected
                                    not to participate. The terms by which such
                                    a third party may farmin to such Percentage
                                    Interest shall be on the terms mutually
                                    negotiated and agreed to by Avenue, Operator
                                    and such third party.

                  (c)      In the event, prior to the actual spudding of such
                           well neither the other Parties, their Affiliates nor
                           any third party farminee, have entered into a binding
                           contract to finance all of the Percentage Interest
                           Avenue elected to not participate in under Article
                           5.10.1 (iii) (b) above, Avenue shall have the right,
                           on a first come first served basis, to commit to
                           finance any such Percentage Interest, by a
                           Communication to Operator of the amount by which it
                           has elected to increase its Percentage Interest and
                           shall, within five (5) days of the date of such
                           Communication pay to Operator its proportionate share
                           of cash calls on a pro-rata basis to conform with the
                           payment schedule set out in Article 5.10.1 (ii)
                           hereof.

                  (d)      Avenue shall make assignments of its Percentage
                           Interests in the Licenses or Leases, it has elected
                           to not participate in, as provide above, to the other
                           Parties or any third party farminee, as necessary to
                           reflect the Percentage Interest of the respective
                           parties at the time the subject well is spudded. Any
                           such assignment shall exclude any Sub Area within
                           such License or Lease attributable to production from
                           any existing producing well Avenue has a Percentage
                           Interest in.

         (iv)     In the event that the Operator has not commenced a Joint
                  Operation as agreed upon between the Parties as of sixty (60)
                  days after the projected commencement date for the relevant
                  Joint Operation, the Non-Operator(s) shall have the right to
                  request that any funds advanced for such Joint Operation be
                  returned. Any such request for the return of funds advanced
                  for a Joint Operation shall be reviewed by the Operator and a
                  response shall be sent within five (5) days setting forth the
                  reasons for the delay in commencing such Joint Operation. The
                  Parties shall attempt to come to an amicable solution to such
                  a request within 10 days of the response from the Operator to
                  the request for the return of funds. In the event the Parties
                  cannot come to an amicable solution, the Operator shall be
                  required to return the funds advanced. After the funds are
                  returned, the Operator shall notify the Parties of any new
                  proposals for such Joint Operation and proceed in accordance
                  with the terms of this Agreement with respect to such
                  proposal.

5.10.2   In the case of any proposed contract for the Joint Operations, Operator
         shall, unless otherwise agreed by the Operating Committee, use its
         reasonable endeavours to ensure that:

         (i)      any such contract can be freely assigned to any Non-Operator
                  in the event of any change of Operator;

         (ii)     in all contracts with contractors, Operator will be entitled
                  to recover on behalf of all the Parties the full amount of:

                  (a)      any loss, damage, injury or expense suffered or
                           incurred by them as a result of any tort or breach of
                           such contract on the part of the contractor concerned
                           or any sub-contractor of that contractor; or




                                       12
<PAGE>





                  (b)      any right of indemnity contained therein;

         subject to the defenses, limitations, indemnities or exclusions of
         liability in favour of the said contractor in such contracts or
         available to the said contractor in connection with such contract; and

         (iii)    in all contracts with contractors, such contractors shall
                  agree to make or bring all actions, claims or demands of
                  whatsoever nature arising out of or in connection with such
                  contracts on or against Operator and, without prejudice to any
                  right which Operator may have to join any Non-Operator as
                  party to any such action, such contractors shall agree that no
                  such action, claim or demand is made or brought against any
                  Non-Operator.

5.10.3   Operator or any of its Affiliates or any of the Parties or any of their
         Affiliates may supply material, services and facilities for Joint
         Operations and such supply shall not be subject to the terms of
         Articles 5.10.1 and 5.10.2 provided that one of the following
         conditions for such supply has been met:

         (i)      the terms, conditions and rates of such supply have been
                  approved by the Operating Committee; or

         (ii)     such supply is in respect of a contract placed in the
                  circumstances referred to in Article 5.8.

5.11     ABANDONMENT AGREEMENT

         Not less than two years prior to the expected date for abandonment of
         any production or other substantial facilities, the Parties shall agree
         to the terms of an abandonment agreement which shall comply with any
         relevant provisions of the Petroleum Law and any regulations issued
         pursuant thereto and ensures that appropriate provision will be made
         for the cost of abandonment of those facilities and any related
         liabilities. Unless otherwise agreed abandonment liabilities shall be
         shared by the Parties in proportion to Percentage Interests. In the
         event of a Party defaulting under the abandonment agreement, then the
         Party in question shall be in default under this Agreement and deemed
         to be a Defaulting Party under Article 12 hereof.

6.       RIGHTS OF THE PARTIES

6.1      RESERVATION OF RIGHTS

         Except as otherwise provided in this Agreement, each Party reserves all
         its rights under the Licenses.

6.2      INSPECTION RIGHTS

         Each Party shall have the right to inspect, at all reasonable times
         during usual business hours, all books, records and inventories of any
         kind or nature maintained by or on behalf of Operator and relating to
         the Joint Operations (other than those books, records and inventories
         maintained by the Party acting as Operator in its capacity as the owner
         of a Percentage Interest), provided that such Party gives Operator
         reasonable prior notice of the date upon which it desires to make such
         inspection and identifies the person or persons who will conduct the
         inspection.

6.3      ACCESS RIGHTS

         Each Non-Operator shall have the right, at all reasonable times and at
         its Exclusive Risk and expense, of access to the License Area and/or
         the Joint Operations, provided such Non-Operator gives Operator
         reasonable notice of the date such access is required and identifies
         the representative or representatives to whom such access is to be
         granted.

7.       INSURANCE AND LITIGATION

7.1      INSURANCE

7.1.1

         (i)      Operator shall obtain and maintain, with respect to the Joint
                  Operations and the Joint Property, all insurance required
                  under the Petroleum Law, the Licenses or any other applicable
                  law. Without limitation to the foregoing, AME shall obtain and
                  maintain:




                                       13
<PAGE>





                  (a)      Workers' Compensation and Employer's Liability
                           Insurance;

                  (b)      Employer's Third Party Liability Insurance; and,

                  (c)      Comprehensive General Liability Insurance,

                  in each case with a reputable and Government approved insurer
                  and on terms that are commercially reasonable and customary
                  for such risks in the same or similar circumstances.

         (ii)     Operator shall also obtain such other insurance as the
                  Operating Committee may from time to time determine or the
                  Parties may from time to time agree (including in the Farmin
                  and Participation Agreement). With respect to such other
                  insurance, any Party may elect not to participate, if such
                  Party:

                  (a)      gives written notice to that effect to Operator; and

                  (b)      does nothing which may interfere with Operator's
                           negotiations for such insurance for the other
                           Parties; and

                  (c)      obtains and maintains its own insurance with respect
                           to its Percentage Interest share of all the risks
                           covered by such other insurance. Such Party shall
                           provide Operator with evidence of such other
                           insurance (in respect of which a certificate of
                           adequate coverage from a reputable insurance broker
                           shall be sufficient evidence) or other evidence of
                           financial responsibility as the other Parties may
                           determine to be acceptable (provided however, that no
                           such determination of acceptability shall in any way
                           absolve a non-participating Party from its obligation
                           to meet each Cash Call, including any Cash Call in
                           respect to damages and losses and/or the costs of
                           remedying the same in accordance with the terms of
                           this Agreement; and provided further that if such
                           Party obtains other insurance, such insurance shall
                           contain a waiver of subrogation in favour of all the
                           other Parties in respect of their interests
                           hereunder).

         (iii)    The cost of insurance in which all the Parties are
                  participating shall be for the Joint Account and the cost of
                  insurance in which less than all the Parties are participating
                  shall be charged to the Parties so participating in proportion
                  to their respective Percentage Interests. Operator shall, with
                  respect to all insurance obtained by it pursuant to this
                  Article 7.1.1:

                  (a)      inform the Parties at least ten (10) days before the
                           inception or renewal dates of the applicable
                           insurance contract or contracts of the salient terms
                           and conditions (including premia) quoted by the
                           insurers to Operator;

                  (b)      promptly inform the Parties participating therein
                           when such insurance is taken out and supply them with
                           copies of the relevant policies when the same are
                           issued;

                  (c)      arrange for the Parties participating therein,
                           according to their respective Percentage Interests,
                           to be named as co-insureds on the relevant policies
                           with waivers of subrogation in favour of the Parties;
                           and

                  (d)      duly file and notify the Parties of all claims and
                           take all necessary and proper steps to collect any
                           proceeds and, if all the Parties are participating
                           therein, credit them to the Joint Account, or, if
                           less than all the Parties are participating therein,
                           credit them to the participating Parties in
                           proportion to their respective Percentage Interests.

         Subject to the foregoing, any of the Parties may obtain such insurance
         as it deems advisable for its own account and at its own expense,
         provided that each such policy contains a waiver of subrogation in
         favour of the other Parties.

7.1.2    Each of the Parties shall, in addition to any insurance required under
         Article 7.1.1, obtain and maintain, with respect to its Percentage
         Interest share of any liability to third parties which may arise in
         connection with the Joint Operations, such insurance, or demonstrate
         such other evidence of its financial responsibility, as may from time
         to time be determined by the Operating Committee. Each of the Parties
         shall, as and when required by any other Party, produce to the
         Operating Committee such evidence as it may reasonably require to
         establish that such insurance or other evidence




                                       14
<PAGE>



         of financial responsibility is being maintained. Such insurance shall
         in so far as it relates to Joint Operations contain a waiver of
         subrogation by the insurers in favour of the Parties.

7.1.3    Operator shall take all reasonable steps to ensure that all contractors
         (including subcontractors) performing work in respect to the Joint
         Operations obtain and maintain all insurance required under the
         Licenses, the Petroleum Law, any other applicable law and such other
         insurance as Operator or the Operating Committee deems appropriate.
         Operator shall, with respect to all insurance obtained by such
         contractors (sub-contractors), take all reasonable steps to arrange for
         such contractors (including sub-contractors) to obtain from their
         insurers a waiver of subrogation in favour of the Parties in respect of
         their interests hereunder.

7.1.4    Operator shall promptly notify the Parties of any accident or incident
         causing damage to Joint Property or arising out of the conduct of the
         Joint Operations which could in its opinion reasonably be expected to
         give rise to a claim for damages by a third party for a sum in excess
         of One Hundred Thousand Dollars ($100,000). Operator shall provide the
         Parties' insurers all reasonable assistance in connection with their
         investigation of all claims.

7.2      LITIGATION

7.2.1    Operator shall promptly notify the Parties of any litigation, lien,
         demand, adverse claim or judgement relating to the Joint Operations or
         Joint Property where the total amount of damages together with
         associated costs are estimated to exceed of One Hundred Thousand
         Dollars ($100,000) or such other amount as may, from time to time, be
         determined by the Operating Committee. Operator shall have the
         authority to prosecute, defend or settle any litigation, lien, demand,
         adverse claim or judgement relating to the Joint Operations or Joint
         Property (other than as between the Parties), except where the total
         amount in dispute and/or the total amount of damages together with
         associated costs are estimated by Operator to exceed of One Hundred
         Thousand Dollars ($100,000), or such other amount as may from time to
         time be determined by the Operating Committee, in which event Operator
         shall have no authority without the prior approval of the Operating
         Committee, other than the authority necessary to enable Operator to
         prevent judgement being awarded against it in default of appearance or
         defence.

7.2.2    Notwithstanding Article 7.2.1, each Party shall have the right to
         participate in any such prosecution, defence or settlement at its own
         cost and expense provided always that no Party may settle its
         Percentage Interest share of any claim without first satisfying the
         Operating Committee that it can do so without prejudicing the interests
         of the Joint Operations.

7.2.3    Subject to Article 7.2.1, any claim, litigation, demand, adverse claim,
         judgement or other proceedings relating to Joint Operations or Joint
         Property made against any Party to this Agreement shall be promptly
         transmitted to all the other Parties by the Party against whom the same
         may be made, and the Party to the proceedings shall thereafter
         regularly consult with the other Parties and take account of their
         reasonable views with regard to the proper conduct of the same.

7.2.4    Provided that a Party complies in all respects with the provisions of
         Article 7.2.3 and except as otherwise provided in this Agreement, that
         Party shall be entitled to charge to the relevant Joint Account any
         loss, damage and expense reasonably and properly incurred by such Party
         with respect to the proceedings in question.

8.       THE OPERATING COMMITTEE

8.1      ESTABLISHMENT AND POWERS

         There is hereby established an Operating Committee which shall exercise
         general supervision and control over all matters pertaining to the
         Joint Operations. Without limiting the generality of the foregoing, but
         subject as otherwise provided in this Agreement, the powers and duties
         of the Operating Committee shall include:

         (i)      the consideration and determination of all matters relating to
                  general policies, procedures and methods of operation
                  hereunder;

         (ii)     subject to Article 15 the approval of any public announcement
                  or statement regarding this Agreement or the Joint Operations;

         (iii)    the consideration, revision and approval or disapproval of all
                  proposed Programs and Budgets and AFE's prepared and submitted
                  to it pursuant to the provisions of this Agreement;




                                       15
<PAGE>





         (iv)     the determination of the timing and location of all wells
                  drilled under the Joint Operations (including the deepening,
                  completing, sidetracking, plugging back, reworking or
                  abandonment thereof) and any change in the use or status of a
                  well;

         (v)      the consideration and determination of extensions or renewals
                  of a License and the area required to be surrendered in
                  accordance with the Petroleum Law or the relevant License
                  including the voluntary surrender of a License or any part
                  thereof;

         (vi)     removal of Operator in accordance with Article 4.2.2 hereof
                  and the election of a successor Operator;

         (vii)    the consideration and determination of contributions to and
                  from third parties for the drilling of wells and the purchase,
                  sale or exchange of information from, to or with third
                  parties;

         (viii)   the determination of any field to be included in a development
                  Program for a Discovery and the making of any related
                  application for the issue of a production lease to be issued
                  under the Petroleum Law in respect of the License Area (or any
                  part of it);

         (ix)     the consideration and, if so required, the determination of
                  any other matter relating to the Joint Operations which may be
                  referred to it by the Parties or any of them (other than any
                  proposal to amend this Agreement) or which is otherwise
                  designated under this Agreement for reference to it.

8.2      REPRESENTATION

         The Operating Committee shall consist of representatives appointed by
         each of the Parties, provided always that more than one of the Parties
         may appoint the same representative who shall represent them
         separately. Each Party shall, as soon as possible after the date of
         this Agreement, give notice to all the other Parties of the name of its
         representative and of an alternate on the Operating Committee. Such
         representative or alternate representative may be replaced from time to
         time, by like notice. Representatives may bring to meetings of the
         Operating Committee such advisers as they consider necessary. The
         representative of a Party or, in the absence of the representative, his
         alternate, shall be deemed authorized to represent and bind such Party
         with respect to any matter which is within the powers of the Operating
         Committee.

         All decisions of the Operating Committee shall be adopted by a vote of
         the representatives of the Parties in which the vote of each
         representative shall be weighted by the Percentage Interest in the
         Licenses of the Party or Parties he represents. By way of example, the
         vote of a representative of a Party with a Ten Percent (10%) Percentage
         Interest in the Licenses shall be worth Ten Percent (10%) of the total
         votes of representatives of all the Parties.

8.3      CHAIRMAN

         The representative of the Party which is Operator shall be the chairman
         of the Operating Committee unless otherwise agreed by the Operating
         Committee.

8.4      MEETINGS AND VOTING

8.4.1    The Operating Committee shall hold meetings every six months, at which
         each Party must have an authorized representative present (or at more
         frequent intervals as may be agreed by the Operating Committee). All
         meetings of the Operating Committee shall be held at AME's offices in
         Ankara or in such other places as the Parties may from time to time
         agree. Alternatively, meetings may be conducted or Parties may at their
         election attend meetings by telephone conference call. Operator shall
         call such meetings and shall give at least twenty (20) days notice of
         the time, date and place of each meeting, together with an agenda and a
         proposed resolution therefor. However, Operator shall use its
         reasonable best efforts to give at least forty (40) days notice for
         meetings which deal with operations and/or wells drilled under the
         Joint Operations. When calling a meeting, Operator shall as soon as is
         reasonably practicable thereafter, supply the Parties with copies of
         relevant data and information available to it relating to the matters
         on the agenda for such meeting. By notice to Operator, any Party can
         request that additional matters be placed on the agenda, and provided
         such notice is given at least seven (7) days before the date of the
         meeting, those matters will be placed on the agenda and considered by
         the Operating Committee. The representatives of all Parties may agree
         to consider a matter not on the agenda for such meeting. All items duly
         placed on the agenda must be voted on by the Operating Committee at the
         meeting.




                                       16
<PAGE>



8.4.2    The Operating Committee shall hold a special meeting upon the request
         of any Party. Such request shall be made by written notice to all the
         other Parties and shall state the matters to be considered at that
         meeting. Upon receiving such request, Operator shall, without delay,
         call a special meeting for a date not less than ten (10) nor more than
         twenty (20) days after receipt of the request, or such other date as
         may be agreed by all the Parties.

8.4.3    For any meeting of the Operating Committee, the notice period set forth
         above may be waived with the consent of all the Parties.

8.4.4    Any Party not represented at a meeting may vote on any matter on the
         agenda for such meeting by either:

         (i)      appointing a proxy in writing; or

         (ii)     giving written notice of such vote to Operator prior to the
                  submission of such matter for vote at such meeting.

8.4.5    Except as otherwise expressly provided in this Agreement, all
         decisions, approvals and other actions of the Operating Committee on
         all proposals coming before it under this Agreement shall be decided by
         the affirmative vote of Parties owing in the aggregate Percentage
         Interests equating to more than fifty five percent (55%) of the
         aggregate Percentage Interests of all Parties entitled to vote. An
         abstention or refrain from voting shall be considered a negative vote,
         except as otherwise specifically provided in this Agreement in cases
         where failure to reply is deemed approval or an affirmative vote. Each
         Party is entitled to vote in proportion to the respective Percentage
         Interest held by it at the time the vote is taken.

8.5      MINUTES

8.5.1    For each meeting, the Operating Committee (failing which Operator)
         shall appoint a secretary for the Operating Committee who shall prepare
         the minutes of each meeting.

8.5.2    The secretary shall make a record of each proposal voted on and the
         results of such voting at each Operating Committee meeting. Each
         representative shall sign and be provided a copy of such record at the
         end of the meeting and it shall be considered the final record of the
         decisions of the Operating Committee.

8.5.3    The secretary shall provide each Party with a copy of the "minutes" of
         the Operating Committee meeting within fifteen (15) days after the end
         of the meeting. Each Party shall have fifteen (15) days after receipt
         of such "minutes" to give notice of its objections to the "minutes" to
         the secretary. A failure to give notice specifying objections to such
         "minutes" within the said fifteen (15) days period shall be deemed to
         be approval of such "minutes". In any event, the votes recorded under
         Article 8.5.2 shall take precedence over the "minutes" described above.

8.6      ACTION WITHOUT A MEETING

                  The Parties may vote on and determine, by notice to Operator,
         any proposal which is submitted to them by Operator by notice and which
         they could validly determine at a meeting of the Operating Committee if
         duly held for that purpose. Each Party shall cast its vote within
         twenty (20) days after the proposal is received by it, except that
         where the Parties are requested to vote on and determine any proposal
         relating to the Deepening, Plugging back, Testing or abandonment of a
         well on which drilling equipment is then located or where the matter
         presented for consideration by its nature requires determination in
         less than twenty (20) days and such fact and lesser period are so
         stated in the notice submitting the proposal, the Parties shall cast
         their votes within such lesser period which shall be not less than
         forty eight (48) hours after receipt of the notice. Failure by a Party
         to cast its vote within such period shall be regarded as a vote by that
         Party against the proposal. Operator shall give prompt notice of the
         results of any such voting to the Parties and any decision so made
         shall constitute an effective decision of the Operating Committee and
         shall be binding on the Parties.

8.7      LICENSE PROVISIONS

         The Operating Committee shall determine the location and the time at
         which all working obligations required by the Licenses or the Petroleum
         Law shall be performed, unless and to the extent relief from such
         obligation is sought and obtained from the Government.




                                       17
<PAGE>


9.       WORK PROGRAMS AND BUDGET

9.1      EXPLORATION AND APPRAISAL

9.1.1    The initial exploration Program shall be the work to be undertaken by
         AME pursuant to clause 4.5 of the Farm-In and Participation Agreement,
         dated November 14, 2002. The initial Exploration Well, the
         Karakilise-1, was completed on September 13, 2003, and application has
         been made by Operator to the Government to classify such well as a
         Discovery. It is currently proposed that the Karakilise-2 be drilled as
         an Appraisal Well, spudding to commence no later than March 13, 2004,
         and Karakilise-3, to be drilling as an Appraisal Well, spudding to be
         no later than September 13, 2004, subject to approval of the Operating
         Committee as to final spud dates, AFE, Turnkey terms and locations for
         each well. The provisions of this Section 9 shall not apply to the
         Karakilise-1 well, but shall be applied to all wells drilled hereafter
         in the License Area.

9.1.2    On or before the 15th Day of November of each Calendar Year, Operator
         shall deliver to the Parties a proposed Program and Budget detailing
         the Joint Operations to be performed for the following Calendar Year,
         except for 2004 the Program and Budget shall be submitted within
         fifteen (15) days of the execution of this Agreement. Within thirty
         (30) days of such delivery, the Operating Committee shall meet to
         consider and to endeavor to agree on a Program and Budget.

9.1.3    If a Discovery is made, Operator shall deliver any notice of Discovery
         required under the License and shall as soon as possible submit to the
         Parties a report containing available details concerning the Discovery
         and Operator's recommendation as to whether the Discovery merits an
         Appraisal Well. If the Operating Committee determines that the
         Discovery merits an Appraisal Well, Operator within sixty (60) days,
         shall deliver to the Parties a proposed Program and Budget for the
         Appraisal of the Discovery. Within thirty (30) days of such delivery,
         the Operating Committee shall meet to consider, modify and then either
         approve or reject the Appraisal Program and Budget. If the Appraisal
         Program and Budget is approved by the Operating Committee, Operator
         shall take such steps as may be required under the License or Petroleum
         Law to secure approval of the Appraisal Program and Budget by the
         Government. In the event the Government requires changes in the
         Appraisal Program and Budget, the matter shall be resubmitted to the
         Operating Committee for further consideration and a decision shall be
         reached by the Operating Committee within thirty (30) days of the date
         of submittal.

9.1.4    The Program and Budget agreed pursuant to Article 9.1.2 shall include
         the Minimum Work Obligations, or at least that part of such Minimum
         Work Obligations required to be carried out during the Calendar Year in
         question under the terms of the License. Any portion of a Program and
         Budget adopted pursuant to Article 9.1.3 shall include such operations
         for the Joint Account as are necessary to maintain the License in full
         force and effect, including such operations for the Joint Account as
         are necessary to fulfill the Minimum Work Obligations required for the
         given Calendar Year. Any items of infrastructure costs in a Program and
         Budget, such as roads, living facilities or tank farms may be approved,
         in part, and rejected, in part, by vote of the Operating Committee.

9.1.5    Any approved Program and Budget may be revised by the Operating
         Committee from time to time. To the extent such revisions are approved
         by the Operating Committee, the Program and Budget shall be amended
         accordingly. The Operator shall prepare and submit a corresponding
         Program and Budget amendment to the Government if required by the terms
         of the License.

9.1.6    Approval of any such Program and Budget, which includes:

         (a)      an Exploration Well, whether by drilling, Deepening or
                  Sidetracking, shall include approval for only expenditures
                  necessary for the drilling, Deepening or Sidetracking of such
                  well, as applicable. When an Exploration Well has reached its
                  authorized depth, all logs, cores and other approved Tests
                  have been conducted and the results furnished to the Parties,
                  Operator shall submit to the Parties an election to
                  participate in an attempt to Complete such well. Operator
                  shall include in such submission Operator's recommendation on
                  such Completion attempt and an AFE or Turnkey price for such
                  Completion costs.

         (b)      an Appraisal Well, whether by drilling, Deepening or
                  Sidetracking, shall include approval for only expenditures
                  necessary for the drilling, Deepening or Sidetracking of such
                  well, as applicable. When an Appraisal Well has reached its
                  authorized depth, all logs, cores and other approved Tests
                  have been conducted and the results furnished to the Parties,
                  Operator shall submit to the Parties an election to
                  participate in an attempt to Complete such well. Operator
                  shall include in such




                                       18
<PAGE>



                  submission Operator's recommendation on such Completion
                  attempt and an AFE or Turnkey price for such Completion costs.

9.1.7    Any Party desiring to propose a Completion attempt, or an alternative
         Completion attempt, must do so within the time period provided in
         Article 8.6 by notifying all other Parties. Any such proposal shall
         include an AFE or Turnkey price for such Completion costs.

9.2      DEVELOPMENT

9.2.1    If the Operating Committee determines that a Discovery may be
         commercial, the Operator shall, as soon as practicable, deliver to the
         Parties a Development Plan together with the first annual Program and
         Budget and provisional Programs and Budgets for the remainder of the
         development of the Discovery, which shall contain, inter alia:

         (i)      Details of the proposed work to be undertaken, personnel
                  required and expenditures to be incurred, including the timing
                  of same, on a Calendar Year basis;

         (ii)     An estimated date for the commencement of production;

         (iii)    A delineation of the proposed Production Lease; and

         (iv)     Any other information requested by the Operating Committee.

9.2.2    Within sixty (60) to ninety (90) days of receipt of the Development
         Plan, the Operating Committee shall meet to consider, modify and then
         either approve or reject the Development Plan and the first annual
         Program and Budget for the development submitted by Operator. If the
         Development Plan is approved by the Operating Committee, Operator
         shall, as soon as possible, deliver any notice of Discovery required
         under the License and take such other steps as may be required under
         the License to secure approval of the Development Plan by the
         Government. In the event the Government requires changes in the
         Development Plan, the matter shall be resubmitted to the Operating
         Committee for further consideration and a decision shall be reached by
         the Operating Committee within thirty (30) days of the date of
         submittal.

9.2.3    If the Development Plan is approved, such work shall be incorporated
         into and form part of the annual Programs and Budgets, and Operator
         shall, on or before the 15th Day of November of each Calendar Year
         submit a Program and Budget for the Production Lease, for the following
         Calendar Year. For the 2004 Calendar Year such Program and Budget shall
         be submitted within fifteen (15) days of the execution of this
         Agreement. Within sixty (60) days after such submittal, the Operating
         Committee shall endeavor to agree to such Program and Budget, including
         any necessary or appropriate revisions to the Work Program and Budget
         for the approved Development Plan. Any items of infrastructure costs in
         a Program and Budget, such as roads, living facilities or tank farms
         may be approved, in part, and rejected, in part, by vote of the
         Operating Committee.

9.3      PRODUCTION

         On or before the 15th day of November of each calendar year, Operator
         shall deliver to the Parties a proposed production Program and Budget
         detailing the Joint Operations to be performed in the Production Lease
         and the projected production schedule for the following Calendar Year.
         Within sixty (60) days of such delivery, the Operating Committee shall
         agree upon a production Program and Budget.

9.4      ITEMIZATION OF EXPENDITURES

9.4.1    During the preparation of the proposed Programs and Budgets and
         Development Plans contemplated in this Article 9, Operator shall
         consult with the Operating Committee regarding the contents of such
         Programs and Budgets and Development Plans.

9.4.2    Each Program and Budget and Development Plan submitted by Operator
         shall contain an itemized estimate of the costs of Joint Operations and
         all other expenditures to be made for the Joint Account during the
         Calendar Year in question and shall, inter alia:

         (i)      identify each work category in sufficient detail to afford the
                  ready identification of the nature, scope and duration of the
                  activity in question;




                                       19
<PAGE>



         (ii)     include such reasonable information regarding Operator's
                  allocation procedures and estimated manpower costs as the
                  Operating Committee may determine;

         (iii)    comply with the requirements of the License and the Petroleum
                  Law;

         (iv)     contain an estimate of funds to be expended by Calendar
                  Quarter;

         (v)      during the Exploration Period, provide a forecast of annual
                  expenditures and activities through the end of the Exploration
                  Period; and

9.4.3    The Program and Budget shall designate the portion or portions of the
         License Area in which Joint Operations itemized in such Program and
         Budget are to be conducted and shall specify the kind and extent of
         such operations in such detail as the Operating Committee may deem
         suitable.

9.5      CONTRACT AWARDS

9.5.1    Operator shall award contracts to the best qualified contractors as it
         determines, in its sole discretion, by cost and ability to perform the
         contract without obligation to tender and without informing or seeking
         the approval of the Operating Committee, provided the contract
         requirements and liabilities are in accordance with the Programs and
         Budget and Development Plans as approved. In the event that a Party
         produces a bid for services or equipment less than a bid from Operator
         or its Affiliates, Operator shall award the contract to such
         non-affiliate, so long as it is of comparable quality, or Operator
         shall have the right to match the lower bid..

9.5.2    Subject to Article 5.10.1, Operator may employ its own tools and
         equipment in the drilling and completing of wells, but its charges
         therefore shall be in accordance with the prevailing rates in the area
         and the rate of such charges shall be agreed upon by the parties in
         writing before drilling operations are commenced, and such work shall
         be performed by Operator under the same terms and conditions as are
         customary and usual in the area in Contracts of independent contractors
         who are doing work of a similar nature, provided the Contract
         requirements and liabilities are in accordance with the Programs and
         Budget and Development Plans and in accordance with the terms of any
         approved Turnkey.

9.6      AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE

9.6.1    At least thirty (30) days prior to incurring any commitment or
         expenditure for the Joint Account, which is estimated to be in excess
         of U.S. dollars one hundred thousand dollars (U.S. $100,000.00) in an
         approved Program and Budget, Operator shall send to each Non-Operator
         an AFE as described in Article 9.6.3.

9.6.2    The approval process for each AFE shall be as stated in the Sections
         7.3, 7.4 and 7.5 of the Accounting Procedure.

9.6.3    Each AFE proposed by the Operator shall:

         (i)      Identify the operation by specific reference to the applicable
                  line items in the Work Program and Budget;

         (ii)     Describe the work in detail;

         (iii)    Contain Operator's best estimate of the total funds required
                  to carry out such work;

         (iv)     Outline the proposed work schedule;

         (v)      Provide a timetable of expenditures, if known; and

         (vi)     Be accompanied by such other supporting information as is
                  necessary for an informed decision.




                                       20
<PAGE>



9.7      OVEREXPENDITURES OF PROGRAMS AND BUDGETS

9.7.1    For expenditures on any line item of an approved Program and Budget,
         Operator shall be entitled to incur without further approval of the
         Operating Committee an overexpenditure for such line item up to ten
         percent (10 %) of the authorized amount for such line item; provided
         that the cumulative total of all overexpenditures for a Calendar Year
         shall not exceed five percent (5%) of the total Program and Budget in
         question.

9.7.2    At such time that Operator is certain that the limits of Article 9.7.1
         will be exceeded, Operator shall furnish a supplemental AFE for the
         estimated overexpenditures to the Operating Committee for its review
         and shall provide the Parties with full details of such
         overexpenditures. Operator shall promptly give notice of the amounts of
         overexpenditures when actually incurred.

9.7.3    The restrictions contained in this Article 9.7 shall be without
         prejudice to Operator's rights to make expenditures as set out in
         Article 5.8.

10.      OPERATIONS BY LESS THAN ALL PARTIES

10.1     LIMITATION ON APPLICABILITY

10.1.1   No operations may be conducted in furtherance of a License except as
         Joint Operations pursuant to Article 9 or as Exclusive Risk Operations
         under this Article 10. No Exclusive Risk Operation shall be conducted
         which conflicts with or could reasonably be expected to hinder,
         obstruct, diminish, or impede a previously approved Joint Operation, or
         a previously approved Exclusive Risk Operation, or a previously drilled
         well (or Zone of a well) in the License Area..

10.1.2   Subject to the provisions of Article 19.2.2 of this Agreement,
         Operations which are required to fulfill the Minimum Work Obligations
         must be proposed and conducted as Joint Operations, and may not be
         proposed or conducted as Exclusive Risk Operations under this Article
         10. Except for Exclusive Risk Operations relating to Deepening,
         Testing, Completing, Sidetracking, Plugging Back, Recompletions or
         Reworking of a well originally drilled to fulfill the Minimum Work
         Obligations, no Exclusive Risk Operations may be proposed or conducted
         until the Minimum Work Obligations are fulfilled.

10.1.3   No Party may propose or conduct an Exclusive Risk Operation under this
         Article 10, unless and until such Party has properly exercised its
         right to propose a Joint Operation pursuant to Article 9 in which the
         other parties have elected not to participate.

10.2     PROCEDURE TO PROPOSE EXCLUSIVE RISK OPERATIONS

10.2.1   Subject to Article 10.1, if any Party proposes to conduct an Exclusive
         Risk Operation, such Party shall give notice of the proposed operation
         to all Parties. Such notice shall specify that such operation is
         proposed as an Exclusive Risk Operation, the work to be performed, the
         location, the objectives, and estimated cost of such operation.

10.2.2   Any Party entitled to receive such notice shall have the right to
         participate in the proposed operation.

         (i)      For proposals to Deepen, Test, Complete, Sidetrack, Plug Back,
                  Recomplete or Rework involving the use of a drilling rig that
                  is standing by in the License Area, any such Party wishing to
                  exercise such right must so notify Operator within forty eight
                  (48)hours after receipt of the notice proposing the Exclusive
                  Risk Operation.

         (ii)     For proposals to develop a Discovery, any Party wishing to
                  exercise such right must so notify the Party proposing to
                  develop within ninety (90) days after receipt of the notice
                  proposing the Exclusive Risk Operation.

         (iii)    For all other proposals, any such Party wishing to exercise
                  such right must so notify Operator within thirty (30) days
                  after receipt of the notice proposing the Exclusive Risk
                  Operation.

10.2.3   Failure of a Party to properly reply within the period specified above
         shall constitute an election by that Party not to participate in the
         proposed operation.




                                       21
<PAGE>



10.2.4   If all Parties properly exercise their rights to participate, then the
         proposed operation shall be conducted as a Joint Operation. The
         Operator shall commence such Joint Operation as promptly as practicable
         and conduct it with due diligence.

10.2.5   If less than all Parties entitled to receive such proposal notice
         properly exercise their rights to participate, then:

         (i)      Immediately after the expiration of the applicable notice
                  period set out in Article 10.2.2, the Operator shall notify
                  all Parties of the names of the Consenting Parties and the
                  recommendation of the proposing Party as to whether the
                  Consenting Parties should proceed with the Exclusive Risk
                  Operation.

         (ii)     Concurrently, Operator shall request the Consenting Parties to
                  specify the Percentage Interest each Consenting Party is
                  willing to bear in the Exclusive Risk Operation.

         (iii)    Within seventy two (72) hours after receipt of such notice,
                  each Consenting Party shall respond to the Operator stating
                  that it is willing to bear a Percentage Interest in such
                  Exclusive Risk Operation equal to:

                  (a)      Only its Percentage Interest as stated in Article
                           3.1;

                  (b)      A fraction, the numerator of which is such Consenting
                           Party's Percentage Interest as stated in Article 3.1
                           and the denominator of which is the aggregate of the
                           Percentage Interests of the Consenting Parties as
                           stated in Article 3.1; or

                  (c)      The total of its Percentage Interest as contemplated
                           by Article 10.2.5.(iii)(b) plus all or any part of
                           the difference between one hundred percent (100%) and
                           the total of the Percentage Interests subscribed by
                           the other Consenting Parties.

         (iv)     Any Consenting Party failing to advise Operator within the
                  response period set out above shall be deemed to have elected
                  to bear the Percentage Interest set out in Article
                  10.2.5(iii)(b) as to the Exclusive Risk Operation.

         (v)      If within the response period set out above, the Consenting
                  Parties subscribe less than one hundred percent (100 %) of the
                  Percentage Interest in the Exclusive Risk Operation, the Party
                  proposing such Exclusive Risk Operation shall be deemed to
                  have withdrawn its proposal for the Exclusive Risk Operation,
                  unless within forty eight (48) hours of the expiry of the
                  response period set out in Article 10.2.5(iii), the proposing
                  Party notifies the other Consenting Parties that the proposing
                  Party shall bear the unsubscribed Percentage Interest.

         (vi)     If one hundred percent (100%) subscription to the proposed
                  Exclusive Risk Operation is obtained, Operator shall promptly
                  notify the Consenting Parties of their Percentage Interests in
                  the Exclusive Risk Operation.

         (vii)    As soon as any Exclusive Risk Operation is fully subscribed,
                  Operator shall commence such Exclusive Risk Operation as
                  promptly as practicable and conduct it with due diligence in
                  accordance with this Agreement.

         (viii)   If such Exclusive Risk Operation has not been commenced
                  between sixty (60) and one hundred eighty (180) days after the
                  date of the notice given by Operator under Article
                  10.2.5(vii), the right to conduct such Exclusive Risk
                  Operation shall terminate. If any Party still desires to
                  conduct such Exclusive Risk Operation, notice proposing such
                  operation must be resubmitted to the Parties in accordance
                  with Article 10.2, as if no proposal to conduct an Exclusive
                  Risk Operation had been previously made.

10.3     RESPONSIBILITY FOR EXCLUSIVE RISK OPERATIONS

10.3.1   The Consenting Parties shall bear in accordance with the Percentage
         Interests agreed under Article 10.2.5 the entire cost and liability of
         conducting an Exclusive Risk Operation and shall indemnify the
         Non-Consenting Parties from any and all costs and liabilities incurred
         incident to such Exclusive Risk Operation (including but not limited to
         all costs, expenses or liabilities for environmental, consequential,
         punitive or any other similar indirect damages or losses arising from
         business interruption, reservoir or formation damage, inability to
         produce petroleum, loss of profits, pollution control and environmental
         amelioration or rehabilitation) and shall keep the License Area free
         and clear of all liens and encumbrances of every kind created by or
         arising from such Exclusive Risk Operation.




                                       22
<PAGE>



10.3.2   Notwithstanding Article 10.3.1, each Party shall continue to bear its
         Percentage Interest share of the cost and liability incident to the
         operations in which it participated, including but not limited to
         Plugging and abandoning and restoring the surface location, but only to
         the extent those costs were not increased by the Exclusive Risk
         Operation.

10.4     CONSEQUENCES OF EXCLUSIVE RISK OPERATIONS

10.4.1   With regard to any Exclusive Risk Operation, for so long as a
         Non-Consenting Party has the option under Article 10.4.3 to reinstate
         the rights it relinquished under Article 10.4.2, such Non-Consenting
         Party shall be entitled to have access concurrently with the Consenting
         Parties to all data and other information relating to such Exclusive
         Risk Operation, other than G & G Data obtained in an Exclusive Risk
         Operation. If a Non-Consenting Party desires to receive and acquire the
         right to use such G & G Data, then such Non-Consenting Party shall have
         the right to do so by paying to the Consenting Parties its Percentage
         Interest share as set out in Article 3.1 of the cost incurred in
         obtaining such G & G Data.

10.4.2   Subject to Article 10.4.3, each Non-Consenting Party shall be deemed to
         have relinquished to the Consenting Parties, and the Consenting Parties
         shall be deemed to own, in proportion to their respective Percentage
         Interests in any Exclusive Risk Operation all of each such
         Non-Consenting Party's right to participate in further operations in
         such Exclusive Risk Operation or Deepened or Sidetracked portion of a
         well in which the Exclusive Risk Operation was conducted.

10.4.3   A Non-Consenting Party shall have only the following options to
         reinstate the rights it relinquished pursuant to Article 10.4.2:

         (i)      If the Consenting Parties decide to appraise a Discovery made
                  in the course of an Exclusive Risk Operation, the Consenting
                  Parties shall submit to each Non-Consenting Party the approved
                  Appraisal program. For thirty (30) days from receipt of such
                  Appraisal program, each Non-Consenting Party shall have the
                  option to reinstate the rights it relinquished pursuant to
                  Article 10.4.2 and to participate in such Appraisal program;

         (ii)     If the Consenting Parties decide to develop a Discovery made
                  or Appraised in the course of an Exclusive Risk Operation, the
                  Consenting Parties shall submit to the Non-Consenting Parties
                  a Development Plan substantially in the form intended to be
                  submitted to the Government under the License. For sixty (60)
                  days from receipt of such Development Plan , each
                  Non-Consenting Party shall have the option to reinstate the
                  rights it relinquished pursuant to Article 10.4.2 and to
                  participate in such Development Plan;

         (iii)    If the Consenting Parties decide to Deepen, Complete,
                  Sidetrack, Plug Back or Recomplete an Exclusive Risk Well and
                  such further operation was not included in the original
                  proposal for such Exclusive Risk Well, the Consenting Parties
                  shall submit to the Non-Consenting Parties the approved AFE
                  for such further operation. For thirty (30) days from receipt
                  of such AFE, each Non-Consenting Party shall have the option
                  to reinstate the rights it relinquished pursuant to Article
                  10.4.2 and to participate in such operation;

         The Non-Consenting Party may exercise such options by notifying the
         Operator within the respective period specified above that such
         Non-Consenting Party agrees to pay the Cash Premium as set out in
         Article 10.5.2, or to elect to reinstate under Article 10.5.3.

10.4.4   A Non-Consenting Party shall become a Consenting Party with regard to
         an Exclusive Risk Operation at such time as the Non-Consenting Party
         gives notice pursuant to Article 10.4.3; provided that such
         Non-Consenting Party shall in no way be deemed to be entitled to any
         lump sum amount Cash Premium paid incident to such Exclusive Risk
         Operation. The Percentage Interest of such Non-Consenting Party in such
         Exclusive Risk Operation shall be its Percentage Interest set out in
         Article 3.1 (subject to election of a reduced interest under Article
         5.10.1(iii)). The Consenting Parties shall contribute to the Percentage
         Interest of the Non-Consenting Party in proportion to the excess
         Percentage Interest that each received under Article 10.2.5(iii). If
         all Parties participate in the proposed operation, then such operation
         shall be conducted as a Joint Operation pursuant to Article 9.

10.4.5   If after the expiry of the period in which a Non-Consenting Party may
         exercise its option to participate in further operation pursuant to
         Article 10.4.3, the Consenting Parties desire to proceed, the Party
         chosen by the Consenting Parties proposing to act as Operator for such
         development, shall give notice to the Government under the appropriate
         provision of the License requesting a meeting to advise the Government
         that the Consenting Parties consider the Discovery to be a commercial
         Discovery. Following such meeting such Operator for such development
         shall apply for a Production Lease (if applicable in the License).
         Unless the Development Plan is materially modified or expanded




                                       23
<PAGE>



         prior to the commencement of operations under such plan (in which case
         a new notice and option shall be given to the Non-Consenting Parties
         under Article 10.4.3), each Non-Consenting Party to such Development
         Plan shall:

         (i)      If the License so allows, elect not to apply for a Production
                  Lease covering such development and forfeit all interest in
                  such Production Lease, or

         (ii)     If the License does not so allow, be deemed to have:

                  (a)      Elected not to apply for a Production Lease covering
                           such development;

                  (b)      Forfeited all economic interest in such Production
                           Lease;

                  (c)      Assumed a fiduciary duty to exercise its legal
                           interest in such Production Lease for the benefit of
                           the Consenting Parties.

         In either case such Non-Consenting Party shall be deemed to have
         withdrawn from this Agreement to the extent it relates to such
         Production Lease, even if the Development Plan is modified or expanded
         subsequent to the commencement of operations under such Development
         Plan and shall be further deemed to have forfeited any right to
         participate in the construction and ownership of facilities outside
         such Production Lease designed solely for the use of such Production
         Lease. The Operating Committee shall be responsible for determining
         that part of the License Area which shall be maintained outside the
         area of the Production Lease and the Non-Consenting Party shall retain
         its rights and such retained portion of the License Area.

10.5     PREMIUM TO PARTICIPATE IN EXCLUSIVE RISK OPERATIONS

10.5.1   (INTENTIONALLY OMITTED)

10.5.2   Within thirty (30) days of the exercise of its option under Article
         10.4.3, each such Non-Consenting Party shall pay to such Consenting
         Parties in proportion to their respective interest in such Exclusive
         Risk Operation a Cash Premium equal to (i) such Non-Consenting Party's
         Percentage Interest share of all liabilities and expenses, that were
         incurred in any Exclusive Risk Operations relating to the obtaining of
         the portion of the G & G Data which pertains to the Discovery, the
         drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back,
         Recompleting and Reworking of the Exploration Well which made the
         Discovery or, the Appraisal Well(s) which delineated the Discovery in
         which the Non-Consenting Party desires to reinstate the rights it
         relinquished pursuant to Article 10.4.2 multiplied by four-hundred
         percent (400%) and (ii) such Non-Consenting Parties Percentage Interest
         share of all liabilities and expenses that were incurred in the
         Exclusive Risk Operations relating to any prior Development Wells that
         were part of the Development Plan multiplied by two-hundred percent
         (200%).

10.5.3   In lieu of payment of the Cash Premium in the amounts provided in
         Article 10.5.2 and 10.5.2, a Non-Consenting Party may elect to
         participate in an Exclusive Risk Operation and all further operations
         in the License Area, at such time as the Consenting Parties shall have
         recovered from net production revenues from such Exclusive Risk
         Operations a sum equal to one-hundred - fifty percent (150%) of the
         amounts specified in Article10.5.2. The election pursuant to this
         Article 10.5.3 shall be made within thirty (30) days of the option to
         reinstate provided in Article 10.4.3.

10.5.4   Articles 10.5.2, and 10.5.3 shall be subject to the election by the
         Non-Consenting Party to reduce its Percentage Interest in such
         Exclusive Risk Operation by up to one-half and reduce pro-rata, the
         Cash Premium or recover amounts under Article 10.5.2 or 10.5.3. Such
         election must be made within thirty (30) days of the exercise of its
         option under Article 10.4.3.

10.6     ORDER OF PREFERENCE OF OPERATIONS

10.6.1   Except as otherwise specifically provided in this Agreement, if any
         Party desires to propose the conduct of an operation that will conflict
         with an existing proposal for an Exclusive Risk Operation, such Party
         shall have the right exercisable for five (5) days, or twenty four (24)
         hours if the drilling rig to be used is standing by in the License Area
         from receipt of the proposal for the Exclusive Risk Operation, to
         deliver to all Parties entitled to participate in the proposed
         operation such Party's alternative proposal.

10.6.2   Each Party receiving such proposals shall elect by delivery of notice
         to Operator within the appropriate response period set out in Article
         10.2.2 to participate in one of the competing proposals. Any Party not
         notifying Operator within the response period shall be deemed to have
         voted against the proposal.




                                       24
<PAGE>


10.6.3   The proposal receiving the largest aggregate Percentage Interest vote
         shall have priority over all other competing proposals. Operator shall
         deliver notice of such result to all Parties entitled to participate in
         the operation within five (5) days of the end of the response period,
         or twenty four (24) hours if the drilling rig to be used is standing by
         in the License Area

10.6.4   Each Party shall then have two (2) days (or twenty four (24) hours if
         the drilling rig to be used is standing by in the License Area from
         receipt of such notice to elect by delivery of notice to Operator
         whether such Party will participate in such Exclusive Risk Operation,
         or will relinquish its interest pursuant to Article 10.4.2. Failure by
         a Party to deliver such notice within such period shall be deemed an
         election not to participate in the prevailing proposal.

10.7     STAND-BY COSTS

10.7.1   When an operation has been performed, all tests have been conducted and
         the results of such tests furnished to the Parties, stand by costs
         incurred pending response to any Party's notice proposing an Exclusive
         Risk Operation for Deepening, Testing, Sidetracking, Completing,
         Plugging Back, Recompleting, Reworking or other further operation in
         such well (including the period required under Article 10.6 to resolve
         competing proposals) shall be charged and borne as part of the
         operation just completed. Stand by costs incurred subsequent to all
         Parties responding, or expiration of the response time permitted,
         whichever first occurs, shall be charged to and borne by the Parties
         proposing the Exclusive Risk Operation in proportion to their
         Percentage Interests, regardless of whether such Exclusive Risk
         Operation is actually conducted.

10.7.2   If a further operation is proposed while the drilling rig to be
         utilized is on location, any Party may request and thereupon shall
         receive up to five (5) additional days after expiration of the
         applicable response period specified in Article 10.2.2 within which to
         respond by notifying Operator that such Party agrees to bear all stand
         by costs and other costs incurred during such extended response period.
         Operator may require such Party to pay the estimated stand by time in
         advance as a condition to extending the response period. If more than
         one Party requests such additional time to respond to the notice, stand
         by costs shall be allocated between such Parties on a day-to-day basis
         in proportion to their Participating Interests.

10.8     USE OF PROPERTY

10.8.1   The Parties participating in any Deepening, Testing, Completing,
         Sidetracking, Plugging Back, Recompleting or Reworking of any well
         drilled under this Agreement shall be permitted to use, free of cost,
         all casing, tubing and other equipment in the well that is not needed
         for operations by the owners of the wellbore, but the ownership of all
         such equipment shall remain unchanged. On abandonment of a well in
         which operations with differing participation have been conducted, the
         Parties abandoning the well shall account for all equipment in the well
         to the Parties owning such equipment by tendering to them their
         respective Percentage Interest shares of the value of such equipment
         less the cost of salvage.

10.8.2   Spare capacity in equipment that is constructed pursuant to this
         Agreement and used for processing or transporting oil and gas after it
         has passed through primary separators and dehydrators (including
         without limitation treatment facilities, gas processing plants and
         pipelines) shall be available for use by any Party for Hydrocarbon
         production from the License Area on the terms set forth below. All
         Parties desiring to use such equipment shall nominate capacity in such
         equipment on a monthly basis by notice to Operator at least ten (10)
         days prior to the beginning of each month. Operator may nominate
         capacity for the owners of the equipment if they so elect. If at any
         time the capacity nominated exceeds the total capacity of the
         equipment, the capacity of the equipment shall be allocated in the
         following priority: (1) first, to the owners of the equipment up to
         their respective Percentage Interest shares of total capacity, (2)
         second, to owners of the equipment desiring to use capacity in excess
         of their Participating Interest shares, in proportion to the Percentage
         Interest of each such Party and (3) third, to Parties not owning
         interests in the equipment, in proportion to their Participating
         Interests in the Agreement. Owners of the equipment shall be entitled
         to use up to their Percentage Interest share of total capacity without
         payment of a fee under this Article 10.8.2. Otherwise, each Party using
         equipment pursuant to this Article 10.8.2 shall pay to the owners of
         the equipment monthly throughout the period of use an arm's-length fee
         based upon third party charges for similar services in the vicinity of
         the License Area. If no arm's-length rates for such services are
         available, then the Party desiring to use equipment pursuant to this
         Article 10.8.2 shall pay to the owners of the equipment a monthly fee
         equal to (1) that portion of the total cost of the equipment, divided
         by the number of months of useful life established for such equipment
         under the tax law of the host country, that the capacity made available
         to such Party on a fee basis under this Article 10.8.2 bears to the
         total capacity of the equipment plus (2) that portion of the monthly
         cost of maintaining, operating and financing the equipment that the
         capacity made available to such Party on a fee basis under this Article
         10.8.2 bears to the total capacity of the equipment.


                                       25
<PAGE>



10.8.3   Payment for the use of equipment under Article 10.8.2 shall not result
         in an acquisition of any additional interest in the equipment by the
         paying Parties. However, such payments shall be included in the costs
         which the paying Parties are entitled to recoup under Article 10.5.

10.8.4   Parties electing to use spare capacity or equipment pursuant to Article
         10.8.2 shall indemnify the owners of the equipment against any and all
         costs and liabilities incurred as a result of such use (including but
         not limited to all costs, expenses or liabilities for environmental,
         consequential, punitive or other similar indirect damages or losses,
         whether arising from business interruption, reservoir or formation
         damage, inability to produce petroleum, loss of profits, pollution
         control, environmental amelioration or rehabilitation or otherwise).

10.9     MISCELLANEOUS

10.9.1   Each Exclusive Risk Operation shall be carried out by the Consenting
         Parties acting as the Operating Committee, subject to the provisions of
         this Agreement applied mutatis mutandis to such Exclusive Risk
         Operation and subject to the terms and conditions of the License.

10.9.2   The computation of liabilities and expenses incurred in Exclusive Risk
         Operations, including the liabilities and expenses of Operator for
         conducting such operations, shall be made in accordance with the
         principles set out in the Accounting Procedure.

10.9.3   Operator shall maintain separate books, financial records and accounts
         for Exclusive Risk Operations which shall be subject to the same rights
         of audit and examination as the Joint Account and related records, all
         as provided in the Accounting Procedure. Said rights of audit and
         examination shall extend to each of the Consenting Parties and each of
         the Non-Consenting Parties so long as the latter are, or may be,
         entitled to elect to participate in such operations.

10.9.4   Operator, if it is conducting an Exclusive Risk Operation for the
         Consenting Parties, regardless of whether it is participating in that
         Exclusive Risk Operation, shall be entitled to request cash advances
         and shall not be required to use its own funds to pay any cost and
         expense and shall not be obliged to commence or continue Exclusive Risk
         Operations until cash advances requested have been made, and the
         Accounting Procedure shall apply to Operator in respect of any
         Exclusive Risk Operations conducted by it.

10.9.5   Should the submission of a Development Plan be approved in accordance
         with Article 9.2, or should any Party propose a development in
         accordance with Article 10, with either proposal not calling for the
         conduct of additional Appraisal drilling, and should any Party wish to
         drill an additional Appraisal Well prior to development, then the Party
         proposing the Appraisal Well as an Exclusive Risk Operation shall be
         entitled to proceed first, but without the right (subject to the
         following sentence) to future reimbursement pursuant to Article 10.5.
         If such an Appraisal Well is produced, the Consenting Party or Parties
         shall own and have the right to take in kind and separately dispose of
         all of the Non-Consenting Parties' Entitlement from such Appraisal Well
         until the value thereof, determined in accordance with the price which
         such Consenting Parties receive from the sale of such Petroleum to
         non-affiliated purchasers in arms length transactions, equals one
         hundred percent (100%) of such Non-Consenting Parties' Percentage
         Interest shares of all liabilities and expenses, including overhead,
         that were incurred in any Exclusive Risk Operations relating to the
         Appraisal Well. If, as the result of drilling such Appraisal Well as an
         Exclusive Risk Operation, the Party proposing to apply for the
         Production Lease decides to not develop the reservoir, then each
         Non-Consenting Party who voted in favor of such Development Plan prior
         to the drilling of such Appraisal Well shall pay to the Consenting
         Party the amount such Non-Consenting Party would have paid had such
         Appraisal Well been drilled as a Joint Operation.

10.9.6   If the Operator is a Non-Consenting Party to an Exclusive Risk
         Operation to develop a Discovery, then subject to obtaining any
         necessary Government approvals the Operator may resign, but in any
         event shall resign on the request of the Consenting Parties, as
         Operator for the Production Lease for such Discovery and the Consenting
         Parties shall select a Party to serve as Operator.

10.9.7   If prior to approval by the Operating Committee the Operator or any
         other Party commences an operation for infrastructure improvements,
         such as roads, pipelines, tank farms, production facilities, or
         associated downstream costs ("Infrastructure"), a Party may elect not
         to participate in the costs of Infrastructure and the other Parties may
         proceed as an Exclusive Risk Operation, resulting in the ownership of
         Infrastructure by Consenting Parties and the charging of a reasonable
         rental fee to the Joint Operations for use of Infrastructure. Charges
         for Infrastructure that benefit more than one well in a License Area
         shall be allocated equally between all wells benefited. The
         Non-Consenting Parties may elect for a period of twenty four (24)
         months after the completion of the Infrastructure, to




                                       26
<PAGE>



         obtain an ownership interest in such Infrastructure by paying to the
         Consenting Parties their Percentage Interest share of costs for the
         Infrastructure plus interest at the Base Rate from the date of
         expenditure for the Infrastructure.

11.      ACCOUNTING AND TAXES

11.1     The Accounting Procedure is hereby made part of this Agreement. In the
         event of any conflict between this Agreement and the Accounting
         Procedure, this Agreement shall prevail. The Accounting Procedure is an
         inseparable part of this Agreement. The Accounting Procedure rights of
         audit pursuant to Section 1.9 shall apply to any account maintained by
         the Operator into which revenues from Production for Joint Operations
         or Exclusive Risk Operations are deposited, and Non-Operators shall
         have access to such accounts and account records within five (5) days
         of request for same from the Operator.

11.2     TAXES

11.2.1   VAT

         Unless otherwise expressly stated in this Agreement, all amounts
         expressed to be payable under this Agreement shall be exclusive of any
         VAT.

11.2.2   STAMP TAX

         Avenue shall be liable for all stamp tax arising in the Republic of
         Turkey in connection with the execution of this Agreement (if any).

12.      DEFAULT

12.1     FAILURE TO PAY

         If any Party ("Defaulting Party") fails to pay its full share of any
         Advance by the due date in accordance with the Accounting Procedure (a
         "Default"), provided that a Default under one License shall not be
         treated as a Default under any other Licenses,

         (i)      Operator shall, as soon as practicable, notify all the Parties
                  of such Default;

         (ii)     unless one or more of the Parties who (between them, if more
                  than one) would be required by (a) below to contribute more
                  than fifty percent (50%) of the amount in default decide
                  otherwise:

                  (a)      each Party other than the Defaulting Party
                           ("Non-Defaulting Parties") shall contribute, as
                           hereinafter provided, a share of the amount in
                           Default in the proportion that its Percentage
                           Interest bears to the total of the Percentage
                           Interests of the Non-Defaulting Parties and pending
                           receipt of such additional contributions Operator
                           shall make arrangements to meet any commitments
                           falling due by borrowing the necessary funds from
                           outside sources or by making the necessary funds
                           available itself. All costs of any such financing
                           shall be charged to the Non-Defaulting Parties;
                           financing made available by Operator shall bear
                           interest calculated on a day-to-day basis at a rate
                           equal to five (5) percent per annum above Base Rate;

                  (b)      within six (6) days following the notification by
                           Operator under (i) above, Operator shall notify all
                           the Parties of the liability of each of the
                           Non-Defaulting Parties to contribute to the amount in
                           Default and shall make a further Cash Call
                           accordingly to take effect on the expiration of nine
                           (9) days specified in (c) below; and

                  (c)      if such Default continues for more than nine (9) days
                           after the date of notification by Operator, each of
                           the Non-Defaulting Parties shall, on the day next
                           following such ninth day, pay the amount notified
                           under (b) above, and thereafter shall continue to
                           pay, in addition to its share of subsequent Advances,
                           the same proportion of that part of all such
                           subsequent Advances attributed to the Defaulting
                           Party, until such time as the Defaulting Party has
                           remedied its default in full or until forfeiture, as
                           hereinafter provided. Failure by any Party to make
                           such payments shall likewise and with the same
                           results render that Party in Default.




                                       27
<PAGE>


12.2     REMEDY OF DEFAULT

         The Defaulting Party shall have the right to remedy the Default at any
         time prior to forfeiture, as hereinafter provided, by payment in full
         to Operator or, if the Non-Defaulting Parties have paid any amounts
         under Article 12.1, the Non-Defaulting Parties, in proportion to the
         amounts so paid to them, of all amounts in respect of which the
         Defaulting Party is in Default, which shall include any cost of
         financing or interest chargeable to the Non-Defaulting Parties pursuant
         to Article 12.1 (ii), together with interest thereon calculated on a
         day-to-day basis at a rate equal to five (5) percent per annum above
         Base Rate from time to time from and including the due date for payment
         of such amounts until the actual date of payment.

12.3     CONTINUATION OF DEFAULT

12.3.1   If any Default continues for more than fifteen (15) days after the date
         of notification by Operator under Article 12.1(i) then, for so long as
         the Default so continues, the Defaulting Party shall not be entitled to
         Production in kind or to receive or retain the Net Pre-tax Revenue to
         which it would otherwise be entitled from the well to which the
         Defaults relates, and instead such Net Pre-tax Revenue shall be
         credited to the Non Defaulting Parties in the proportions in which
         their respective Percentage Interests bear to the total of the
         Percentage Interests of the Non-Defaulting Parties.

12.3.2   During the continuation of any Default, the Defaulting Party shall not
         be entitled to attend meetings of the Operating Committee or be
         entitled to vote thereat (so that the voting interest of each Party
         other than the Defaulting Party shall be in the proportion which its
         Percentage Interest bears to the total Percentage Interests of such
         Parties), except in relation to decisions or matters concerning any of
         the Licenses or previously completed Wells as to which the Default is
         not applicable. Notwithstanding that a Defaulting Party may not be
         entitled to attend or vote at a meeting of the Operating Committee in
         relation to any particular matter, it shall be bound by decisions of
         the Operating Committee made during the continuation of the Default in
         relation to that matter. If the Default subsists for sixty (60) days
         after the date of notification by Operator under Article 12.1(i) and
         the Defaulting Party continues to hold a Percentage Interest, then from
         the end of such sixty (60) day period, while the Default subsists, the
         Defaulting Party shall grant to Operator a perfected security interest
         against the Defaulting Parties accounts receivable, as necessary to
         insure payment to the Non-defaulting Parties. Furthermore, the
         Defaulting Party shall have no further access to any data and
         information relating to the Joint Operations, except in relation to
         data or information concerning any of the Licenses or previously
         completed Wells as to which the Default is not applicable.

12.3.3

         (i)      In the event that the Default continues for more than
                  one-hundred and fifty (150) days after the date of
                  notification by Operator under Article 12.1(i) and such
                  Default is material and not resulting from a good-faith
                  dispute under this Agreement, Accounting Procedure or Turnkey
                  contract, then each of the Non-Defaulting Parties shall have
                  the right to have forfeited to it and to acquire the
                  Percentage Interest of the Defaulting Party in the wells to
                  which the Default relates (excluding any previously completed
                  wells in respect of which the Defaulting Party is not in
                  Default) , by notice to the other Parties given within fifteen
                  (15) days after notice from Operator that the Defaulting Party
                  remains in Default under this Article 12.3.3 (ii) ,

         (ii)     If none of the Non-Defaulting Parties exercises its right as
                  is mentioned in Article 12.3.3 (i) then, without prejudice to
                  any rights of the Non-Defaulting Parties, the Parties shall be
                  deemed to have decided to abandon the Joint Operations in
                  relation to the relevant well and (subject to any abandonment
                  agreement entered into pursuant to Article 5.11.3) each Party,
                  including the Defaulting Party, shall pay its Percentage
                  Interest share of the costs of abandoning such Joint
                  Operations.

12.3.4   With respect to Article 12.3.3, any such forfeiture and acquisition of
         the interest of the Defaulting Party in any wells to which a Default
         relates, shall be:

         (i)      subject to any necessary consent of the Government;

         (ii)     without prejudice to any other rights of each Party other than
                  the Defaulting Party;

         (iii)    so forfeited and acquired as beneficial owner or owners free
                  of any charges and encumbrances (other than rent and royalty
                  under the relevant Licenses) but subject to all obligations
                  under this Agreement and the relevant Licenses insofar as the
                  interest assigned is concerned;




                                       28
<PAGE>


         (iv)     subject to the Defaulting Party remaining liable and obligated
                  for its Percentage Interest share of all net costs and
                  obligations that in any way relate to the abandonment of the
                  relevant Joint Operations, except to the extent they result
                  from Joint Operations carried out after the date of
                  forfeiture; and

         (v)      effective as of the date of Default;

         and the Defaulting Party shall promptly join in such actions as may be
         necessary or desirable to obtain any necessary consent of the
         Government and shall execute and deliver any and all documents
         necessary to effect any such forfeiture and acquisition and all costs
         and expenses pertaining to any such forfeiture and acquisition shall be
         the responsibility of the Defaulting Party.

12.3.5   Notwithstanding anything to the contrary in Articles 12.3.3 or 12.3.4,
         the Defaulting Party shall continue to retain its economic interest in
         any wells (or Zones of wells) for which it previously earned its
         economic interest, free and clear of amounts due for Default.

12.4     IN THE EVENT THAT EITHER

         (i)      less than all of the Non-Defaulting Parties acquire the
                  interest of the Defaulting Party in any wells and (to the
                  relevant extent) in and under this Agreement by forfeiture and
                  acquisition in terms of Article 12.3.3; or

         (ii)     Non-Defaulting Parties acquire such interest otherwise than in
                  proportion to their respective Percentage Interests,

         then not later than onehundred-twenty (120) days after the date of
         notification by Operator under Article 12.1(i) the Non-Defaulting
         Parties shall make such cash adjustments between themselves as may be
         required to ensure that all amounts paid by them under Article
         12.1(ii)(c) are borne and the amounts (if any) recouped from the
         Defaulting Party are recouped by the Non-Defaulting Parties in
         proportion to the Percentage Interests of the Non-Defaulting Parties
         subsequent to forfeiture and acquisition in terms of Article 12.3.3. In
         the event that the Defaulting Party's Net Pre- Tax Revenue has been
         applied under Article 12.3.1 in or towards remedying the Default, such
         cash adjustments shall take into account the amount so applied.

12.5     EXCLUSIVE REMEDY

         THE REMEDIES DESCRIBED IN THIS ARTICLE 12 SHALL CONSTITUTE THE
EXCLUSIVE REMEDIES FOR DEFAULTS.

13.      DISPOSAL OF PETROLEUM

13.1     RIGHT AND OBLIGATION

         Subject to the provisions hereinafter contained and subject to the
         Petroleum Law, in respect of the development of any Discovery:

         (i)      as an alternative to receiving under Article 3.1 a share of
                  Net Pre-Tax Revenue derived from the sale of Joint Petroleum
                  by Operator on behalf of the Parties, each Party shall have
                  the right to take in kind and separately dispose of its
                  Percentage Interest share of the total quantities of Joint
                  Petroleum available under this Agreement, but excluding the
                  Operator's reasonable estimate of the amount of such Joint
                  Petroleum unavoidably lost in the course of Joint Operations
                  or used by Operator in the conduct of the Joint Operations,
                  and less a quantity of such Joint Petroleum equivalent to that
                  required to satisfy any Government royalty and the obligations
                  of the Parties in relation to the ERSAN Royalty Interest; and

         (ii)     Operator, if so required from time to time by a Party, shall
                  arrange for the lifting, marketing, sale and dispose of Joint
                  Petroleum, provided that the arrangement contemplated complies
                  with the provisions set forth in the Petroleum Law and
                  Regulations.

13.2     NGLS AND NATURAL GAS

         The Parties recognize that, in the event of the production of NGLs or
         Natural Gas, it may or will be or become desirable for them to enter
         into special arrangements for the disposal of the same and they agree
         that, in such event and




                                       29
<PAGE>



         upon the request of any of them, their respective representatives shall
         meet together as necessary to consider their entry into such
         arrangements and that, if and to the extent that any such arrangements
         are agreed, they will adopt and undertake the same. Until such time as
         the Parties have entered into special arrangements for the disposal of
         NGLs or Natural Gas, all operations with regard to the production of
         NGLs or Natural Gas shall be governed by the terms and conditions of
         this Agreement.

14.      CONFIDENTIALITY

14.1     CONFIDENTIAL DATA AND INFORMATION

         Each Party shall, and shall cause its Affiliates to, keep confidential
         all of the terms of this Agreement and all written and/or
         electronically stored data and information acquired or received by that
         Party under this Agreement throughout the term of this Agreement and
         for a period of two (2) years thereafter; provided, however, that this
         obligation of confidentiality shall not apply to any disclosure of
         information:

         (i)      that is in or enters the public domain without a breach of a
                  duty of confidentiality by the disclosing Person or was
                  obtained from a third party having no confidentiality
                  restriction to the Parties;

         (ii)     the disclosure of which is required by the Petroleum Law or
                  related Regulations or of the disclosing Party or its
                  Affiliate by law, regulation, legal process, or order of any
                  court or governmental body having jurisdiction (including
                  applicable State and Federal securities laws, rules and
                  regulations in the USA) or pursuant to the regulations of any
                  securities exchange upon which any of the Parties or its
                  Affiliate is (or is to be) listed or its securities are (or
                  are to be) traded;

         (iii)    to any Affiliate or bona fide potential assignee of such
                  Party, and to the employees, agents, consultants, bankers,
                  financial and professional advisers of that Party, its
                  Affiliate or any such bona fide potential assignee, provided
                  that (a) they have a reasonable need to know the information
                  and (b) they are instructed and agree in writing to maintain
                  this information confidential;

         (iv)     by any Party or its Affiliates or any Person referred to in
                  paragraph (iii) above to whom any Party has disclosed the
                  same, to investors or targeted potential investors in any
                  Party or the interests of any Party or financial institutions
                  or their advisors, or any Affiliate of any Party in connection
                  with a capital raising or the listing of equities or project
                  financing or the like;

         (v)      or any potential farminee, which agrees in writing to maintain
                  such information confidential;

         In       the event of any Party ceasing to hold a Percentage Interest,
                  such Party shall nevertheless remain bound by this Article
                  14.1.

14.2     TRADING RIGHTS

         Operator may, with the prior written approval of all Parties and on
         such terms and conditions as they may determine, exchange any such data
         and information for other similar data and information and Operator
         shall promptly provide all the Parties with a conformed, copy of the
         agreement regulating such exchange and all such other data and
         information. Notwithstanding the foregoing provisions of this Article
         14, if any Party is also the owner or part owner of such other data and
         information or otherwise has a right of access to the same, it shall
         not be entitled to prevent an exchange which has been approved by the
         other Parties. In the event that the aforesaid proviso is invoked
         against a Party which is already owner or part owner of the other data
         and information then:

         (i)      that Party shall be entitled to request Operator to use all
                  reasonable endeavours to arrange within ninety (90) days of
                  the exchange approved by all the other Parties, a separate
                  exchange with the third party selected by the Party concerned
                  subject to Operating Committee approval of the third party for
                  such purpose (which approval shall not be unreasonably
                  withheld); and

         (ii)     upon receiving a request under sub-paragraph (i) above,
                  Operator shall use all reasonable endeavours to comply with
                  such requests and shall divulge to the Parties, subject to the
                  terms of the said separate exchange, all data and information
                  received pursuant thereto.




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<PAGE>


15.      PUBLIC ANNOUNCEMENT

15.1     Subject to Article 15.2, any Party may propose the preparation and
         release of public announcements and statements regarding this Agreement
         or the Joint Operations, provided always (except in the case of an
         emergency pertaining to operations under this Agreement) that no such
         public announcement or statement shall be issued or made unless prior
         thereto all the Parties have been furnished with a copy thereof and the
         approval of the Operating Committee has been obtained.

15.2     No Party shall issue or make any public announcement or statement
         regarding this Agreement or the Joint Operations unless prior thereto
         it furnished all the Parties with a copy of such announcement or
         statement and obtains the approval of the Operating Committee provided
         that, notwithstanding any failure to obtain such approval, no Party or
         any Affiliate of such Party shall be prohibited from issuing or making
         any such public announcement or statement if it is necessary to do so
         in order to comply with any applicable law, the regulations of a
         recognized stock exchange or the requirements of the Securities and
         Exchange Commission of the United States of America or any relevant
         Government authority in the Republic of Turkey.

16.      OUTGOINGS

         The Parties shall be liable for the payment of their respective
         Percentage Interest shares of all sums which may be properly payable
         under the Petroleum Law and the Licenses, provided that to the extent
         permitted by the Petroleum Law and the Licenses, Operator shall pay all
         such sums (including royalties) from the Joint Account. Pursuant to the
         terms of the Accounting Procedure, all Parties shall have rights of
         audit for all expenditures made from the Joint Account bank account and
         the Operator shall pay all net sums to the non-operators from the Joint
         Account to the specified non-operator bank accounts within thirty (30)
         days of the determination by Operator of the net funds available.

17.      COVENANT, UNDERTAKING AND RELATIONSHIP

17.1     COVENANT AND UNDERTAKING

17.1.1   Without prejudice to the overriding responsibility of Operator under
         Article 5.2.2, each Party hereby covenants and undertakes with each
         other Party that it will comply with all the applicable provisions and
         requirements of the Petroleum Law and the Licenses and will do all such
         acts and things within its control as may be necessary to keep and
         maintain the Licenses in full force and effect.

17.1.2   Each Party hereby covenants and undertakes with each other Party as
         follows:

         (i)      neither it nor any of its Affiliates nor any of their
                  officers, directors, employees, agents, shareholders or
                  representatives (including a consultant) shall make, or cause
                  to be made, in connection with the License, the Joint
                  Operations, this Agreement or the transactions contemplated by
                  this Agreement, payments, loans or gifts or promises or offer
                  of payments, loans or gifts of any money or anything of value,
                  directly or indirectly:

                  (a)      to or for the use or benefit of any official or
                           employee of any government or agency or
                           instrumentality thereof (including without limitation
                           any enterprise owned or controlled by such
                           government), or any Person acting in an official
                           capacity for or on behalf of any government,
                           department, agency or instrumentality;

                  (b)      to or for the use or benefit of any political party
                           or official or candidate thereof, or any official or
                           employee of a public international organization, or
                           any person acting in an official capacity for or on
                           behalf of any political party or public international
                           organization;

                  (c)      in violation of any applicable law; or

                  (d)      to any other Person either as an advance or as a
                           reimbursement if it knows that any part of such
                           payment, loan or gift will be directly or indirectly
                           given or paid by such other Person to an official,
                           party, party official or candidate referred to in
                           sub-paragraph (a) or (b) above, or will reimburse
                           such other Person for payments, gifts, or loans
                           previously made, to any such official, party, party
                           official or candidate;




                                       31
<PAGE>





         (ii)     the receipt by it of the consideration which may be obtained
                  hereunder or of any funds or interests under License does not
                  violate the laws, decrees and regulations of the Republic of
                  Turkey;

         (iii)    it shall answer and shall cause each of its officers,
                  directors, employees and attorneys-in-fact, and its Affiliates
                  and their respective officers, directors, employees and
                  attorneys-in-fact, to answer, and shall exert reasonable
                  commercial efforts to cause its and their consultants to
                  answer, in reasonable detail, any questionnaire or other
                  written or oral communications, or any request for information
                  from AVENUE or its outside auditors, relating to the covenants
                  and undertakings set forth in paragraphs (i) and (ii) above;
                  and

         (iv)     to provide, on or before the 30th day after notice from AVENUE
                  so requesting, AVENUE with certification to the effect that it
                  has not, and its Affiliates and their personnel have not, made
                  or sought any payments, directly or indirectly, in violation
                  of paragraph (i) or (ii) above.

17.2     RELATIONSHIP

17.2.1   The liability of the Parties hereunder shall be several and not joint
         or collective and each Party shall be responsible only for its
         individual obligations hereunder. It is expressly agreed that it is not
         the purpose or intention of this Agreement to create, nor shall the
         same be construed as creating, any mining partnership, commercial
         partnership or other partnership. Notwithstanding the foregoing, the
         Parties acknowledge that they are fiduciaries to each other within the
         scope of the terms of this Agreement, and fiduciary duties under
         California law of loyalty, disclosure and fair dealing between the
         Parties shall be applicable.

17.2.2   Each Party, to the extent of its Percentage Interest share, agrees to
         indemnify each other Party, for any claim by or liability to (including
         any costs and expenses necessarily incurred in respect of such claim or
         liability) any person not being a Party, arising from or in connection
         with the Joint Operations.

17.2.3   Nothing in Article 17.2.2 shall require a Party to indemnify a Party in
         respect of claims against or liabilities of that Party arising from its
         acts, defaults or omissions as Operator or in any capacity (including
         as contractor of or service or equipment supplier to the Joint
         Operations) other than as the holder of a Participating Interest.

18.      ASSIGNMENT AND ENCUMBRANCES

18.1    RESTRICTION

         No assignment of any interest under the Licenses (or any of them) or
         this Agreement shall be made by any Party otherwise than :

         (i)      in respect of an equal undivided interest in all or part of
                  its interest in all (but not some only) of the Licenses and in
                  and under this Agreement (so that any such assignment shall
                  include all or a corresponding part of any interest of such
                  Party in an Exclusive Risk Project), provided that if a Party
                  notifies the other Parties (the "OTHER PARTIES") that it
                  wishes to assign an interest in less than all of the Licenses
                  or a different proportionate interest in different Licenses,
                  the Parties shall, at the cost of the Party who gave the
                  notice, in good faith seek to reach agreement on arrangements
                  which would accommodate such an assignment whilst addressing
                  any legitimate concerns of the Other Parties (or any of them)
                  in relation to the consequences of such an arrangement (which
                  concerns may relate to, amongst other matters,
                  confidentiality, cost and revenue allocation, unitisation of
                  fields underlying more that one License area, and
                  representation on and decision-making of the Operating
                  Committee, and which arrangements to address such concerns may
                  include, amongst other things, the entering into of separate
                  joint operating agreements in substantially the same terms as
                  this Agreement for each of the Licenses), and if such an
                  agreement is reached the restriction in this Article 18.1(i)
                  shall apply subject to the terms of that agreement;

         (ii)     in the case of an assignment of part only of the interest of
                  the assigning Party in the Licenses and under this Agreement,
                  where that part equates to a Percentage Interest of not less
                  than 5% and the Percentage Interest to be retained by the
                  assigning Party immediately following the assignment is not
                  less than 5%; and

         (iii)    in accordance with the following provisions of this Article.




                                       32
<PAGE>





18.2     RIGHT

18.2.1   Each of the Parties may, subject to any necessary consent and approval
         of the Government and to the provisions hereinafter contained, at any
         time upon written notice to the other Parties (accompanied by written
         confirmation from the Party proposing to assign that the assignment is
         not being made with the intention that the assignee should thereafter
         cease to be an Affiliate of such Party) assign all or part of its
         Percentage Interest to an Affiliate of such Party if either:

         (i)      the Affiliate has demonstrated to the satisfaction of the
                  other Parties its financial capability to meet its prospective
                  obligations hereunder; or

         (ii)     the assigning Party has agreed to remain jointly and severally
                  liable with the Affiliate for the performance of the assigned
                  obligations.

18.2.2   Each of the Parties may at any time assign all or part of its
         Percentage Interest other than as provided in Article 18.2.1 or Article
         18.6 if and only if:

         (i)      any necessary consent and approval of the Government to such
                  assignment shall have been obtained; and

         (ii)     the remaining, non-assigning Parties shall have consented to
                  such assignment in writing (which consent may only be withheld
                  on the grounds of lack of financial responsibility and
                  capability of the proposed assignee to discharge the
                  obligations under this Agreement as they relate to the
                  interest to be assigned).

18.3     EFFECTIVE DATE

         No such assignment shall be effective or binding upon the Parties until
         the date upon which the assignor or assignee furnishes all the Parties
         with:

         (i)      an executed or photostatic copy of an instrument evidencing
                  such assignment, together with any necessary consent and
                  approval of the Government; and

         (ii)     a written instrument (in form and content satisfactory to the
                  Parties and duly executed by the assignee) under which the
                  assignee accepts and assumes all of the obligations under this
                  Agreement, and complying with the requirements of any
                  abandonment agreement entered into pursuant to Article 5,
                  insofar as the interest assigned is concerned.

18.4     CONTINUING OBLIGATIONS

18.4.1   Any Party making an assignment, withdrawal or relinquishment of any of
         its Percentage Interest in an Exploration License or Production Lease
         hereunder shall be responsible for filing all necessary applications
         and taking all necessary actions related thereto. In the event a Party
         is unable or refuses to take such action, the Joint representative of
         such Party is hereby granted authority, as necessary, to make an
         assignment and such other actions as necessary to assign such interest.

18.4.2   A Party so assigning all or part of its Percentage Interest shall
         remain liable to the other Parties for all obligations attaching to the
         interest assigned pursuant to this Article 18 which are incurred prior
         to the effective date of such assignment and such obligations shall in
         addition become the obligations of the assignee.

18.4.3   The Parties shall promptly join in such reasonable actions as may be
         necessary or desirable to obtain any consent and approval of the
         Government in connection with, and shall execute and deliver any and
         all documents reasonably necessary to effect, any such assignment.

18.5     COSTS

         All costs and expenses pertaining to any such assignment shall be the
responsibility of the assignor.




                                       33
<PAGE>





18.6     ENCUMBRANCE

         Each of the Parties may mortgage, pledge or otherwise encumber all or
         part of its interest in the Licenses and in and under this Agreement
         for the purpose of security relating to finance provided that:

         (i)      such Party shall remain liable for all obligations relating to
                  such interest;

         (ii)     the encumbrance shall be subject to any necessary approval of
                  the Government and is registered with the Petroleum Registry.

18.7     JOINT VENTURE AGREEMENTS

         Nothing contained in this Article 18 shall prevent a Party from
         assigning an interest in the Licenses, subject to the terms of this
         Agreement. All Parties must consent to any farmout, farmin or joint
         venture operations pursuant to which a third party acquires a
         Participating Interest in the Licenses, which would proportionately
         reduce the Participating Interests of all the Parties. In the event of
         any such farmout, farmin or joint venture relationships, the respective
         rights and obligations of the parties pursuant to this Agreement shall
         be maintained, mutatis mutandis, to the extent feasible, including a
         proportionate share of the ERSAN Royalty Interest. All third party
         participations shall be required to bear its proportionate share of the
         ERSAN Royalty Interest whereupon such royalty burden upon AME and
         Avenue shall be proportionately reduced corresponding to the reduction
         in net revenue interest to AME and Avenue. For example, if a joint
         venture party receives a 50% net revenue interest for undertaking G&G
         and/or drilling obligations, the aggregate royalty burden from AME and
         Avenue to ERSAN shall be reduced from 7.5% of 100% to 7.5% of 50% All
         Parties shall be kept apprised of any negotiations for farm-ins,
         farm-outs or joint ventures on a current basis and will be afforded
         opportunities to review communications and to participate in all
         meetings or discussions, prior to the finalization and execution of
         agreements. Any Party may recommend potential farmin or joint venture
         partners

18.8     MEANING OF "ASSIGNMENT"

         For the purposes of this Article 18, unless the context otherwise
         requires, 'assignment' includes an assignment, transfer, novation,
         charge, encumbrance or other security interest, or a disposal of any
         other kind of a legal or beneficial right or interest in the Licenses
         (or any of them) or under this Agreement, and 'assign' and 'assigning'
         shall be construed accordingly.

18.9     INTRODUCING PARTIES

         Notwithstanding anything to the contrary contained herein, if Avenue
         introduces a prospective investor or participant to AME ("Introduced
         Party"), AME shall cooperate with the Introduced Party and provide
         necessary information as requested by the introduced party, subject to
         any necessary confidentiality agreements reasonably requested by AME.
         If any transaction is proposed to be entered into with the Introducing
         Party, the terms of such transaction shall be subject to the consent of
         Avenue. In addition, if AME enters into any transactions with the
         Introduced Party with respect to other projects in the future, any
         promotional benefits received by AME for such transaction will be held
         in constructive trust for Avenue and be the property of Avenue.
         Notwithstanding the foregoing, if the Introduced Party has previously
         been involved in a substantial business relationship with AME, or has
         previously been solicited by AME to participate in the Joint
         Operations, AME shall so notify Avenue within 10 days of the
         introduction, and the terms of this Paragraph will then not be
         applicable. Introductions by Avenue shall include introduction by any
         of the principals of Avenue, its employees and its consultants.

19.      WITHDRAWAL

19.1     RESTRICTION

         No Party may withdraw from any of the Licenses or this Agreement
         otherwise than in accordance with the following provisions of this
         Article.

19.2     RIGHT

19.2.1   Any Party may, subject to Article 19.3, at any time give notice to the
         other Parties that it wishes to withdraw from all or any of the
         Licenses. Within thirty (30) days of receipt of such notice, any of the
         other Parties may similarly give notice that it wishes to withdraw from
         the Licenses the subject of that withdrawal notice. If all the other
         Parties give such




                                       34
<PAGE>



         notice no assignment of an interest in the relevant Licenses shall take
         place, the Parties shall be deemed to have decided to abandon the Joint
         Operations insofar as they relate to the relevant Licenses and the
         relevant Licenses shall be surrendered on the earliest possible date.
         If less than all the other Parties give such notice, the withdrawing
         Parties shall withdraw from the relevant Licenses on the earliest
         possible date by assigning their respective interests in the Licenses
         to one or more of the non-withdrawing Parties in accordance with
         Article 19.3 without any compensation whatsoever, provided that if such
         an assignment has not been completed within ninety (90) days of the
         notice, all of the Parties shall be deemed to have decided to abandon
         the Joint Operations insofar as they relate to the relevant Licenses
         and the relevant Licenses shall be surrendered on the earliest possible
         date.

19.2.2   If, by the Minimum Notification Obligation Date Operator has timely
         provided all required notices and information to Non-Operators and a
         Party has failed to notify the Operator that it will participate in a
         Minimum Work Obligation, such Party shall be deemed to have given
         notice under Article 19.2.1 of its intention to withdraw from the
         relevant Licenses. In the event the Parties have already jointly
         drilled an economically viable producing well, the Withdrawing
         Non-Operator shall be deemed to have withdrawn from the Licenses not
         including the acreage attributable to the economically producing well.
         Acreage attributable to a producing more oil than gas or other
         hydrocarbons well shall be 40 acres centered on the producing well and
         for a producing more gas than oil or other hydrocarbons well shall be
         640 acres centered on the producing well. The Withdrawing Party shall
         assign its relevant interest corresponding to the relinquished acreage
         in the Licenses to the non-withdrawing Parties in accordance with
         Article 19.3, without any compensation whatsoever.

19.3     CONDITIONS

         With respect to Article 19.2, unless all of the Parties have notified
         their desire to withdraw from a License pursuant to Article 19.2.1 (in
         which event, for the avoidance of doubt, the relevant License will be
         surrendered):

         (i)      a Party which has notified its intention to withdraw from a
                  License pursuant to Article 19.2.1 (a "WITHDRAWING PARTY")
                  shall, promptly after the expiry of the period of thirty (30)
                  days referred to in Article 19.2.1, assign all of its interest
                  to the non-withdrawing Parties as wish or are obliged to
                  accept it, which shall (unless otherwise agreed by such
                  non-withdrawing Parties) be allocated to them in the
                  proportion in which their respective Percentage Interests
                  prior to the effective date of withdrawal (as hereinafter
                  defined) bears to the total of the same;

         (ii)     the Withdrawing Party shall promptly join in such actions as
                  may be necessary or desirable to obtain any consent of the
                  Government in connection with, and shall execute and deliver
                  any and all documents necessary to effect, any such
                  assignment. A withdrawal shall not be effective and binding
                  upon the Parties until the date upon which the same shall have
                  been done ("the effective date of withdrawal" shall be the
                  date of expiry of the period of thirty (30) days referred to
                  in Article 19.2.1);

         (iii)    the Withdrawing Party shall promptly join in all actions
                  required by the other Parties for the maintenance of the
                  Licenses provided that its participation in such actions shall
                  not cause it to incur, after the date on which notice of
                  withdrawal is given, any financial obligations except as
                  provided in this Article 19;

         (iv)     the Withdrawing Party shall pay all costs, including license
                  registration fees, fines and penalties which may be prescribed
                  by the Government and all reasonable and documented costs and
                  expenses incurred by the other Parties in connection with such
                  withdrawal;

         (v)      the Withdrawing Party shall not be allowed to withdraw from
                  the Licenses if its interest is subject to any liens, charges
                  or encumbrances (other than (a) rents and royalties due under
                  the Licenses or the Petroleum Law (b) the ERSAN Royalty
                  Interest (as defined in Article 1 of this Agreement) and (c) a
                  lien, charge or encumbrance granted in favour of all of the
                  other parties and securing the performance of obligations
                  under this Agreement), unless the other Parties are willing to
                  accept the assignment subject to such additional liens,
                  charges or encumbrances;

         (vi)     unless the Party or Parties acquiring its interest agree to
                  accept the withdrawing Party's liabilities and obligations,
                  the Withdrawing Party shall remain liable and obligated for
                  its Percentage Interest share of all expenditure accruing to
                  the Joint Account under any Program and Budget approved by the
                  Operating Committee and authorized by AFE prior to the date on
                  which notice of withdrawal is given, even if the operations
                  concerned are to be implemented thereafter, provided always
                  that this sub-paragraph (vi) shall not render a withdrawing
                  Party liable for any amounts which such Party would not have
                  been obliged to pay had it not withdrawn;




                                       35
<PAGE>



         (vii)    the Withdrawing Party shall remain liable and obligated for
                  its share of all costs and obligations that in any way relate
                  to the abandonment of Joint Operations or a Exclusive Risk
                  Project in which such withdrawing Party participated in
                  accordance with any abandonment agreement entered into
                  pursuant to Article 5 or with the provisions of this Agreement
                  if abandonment operations commence within three (3) years
                  after the effective date of withdrawal; and

         (viii)   if the Withdrawing Party withdraws from some only of the
                  Licenses:

                  (a)      the non-withdrawing Parties in respect of the
                           Licenses from which the Withdrawing Party is
                           withdrawing shall promptly execute a joint operating
                           agreement in identical terms, mutatis mutandis, to
                           this Agreement, except that such agreement shall
                           exclude the Withdrawing Party as a party, shall
                           relate only to the Licenses from which the
                           Withdrawing Party has withdrawn, shall reflect the
                           Percentage Interests of the non-Withdrawing Parties
                           in the relevant Licenses immediately following
                           completion of the assignments effected or to be
                           effected pursuant to sub-paragraph (i) above, and
                           shall take effect from the completion of such
                           assignments; and

                  (b)      with effect from the completion of such assignments,
                           this Agreement shall cease to apply to the Licenses
                           the subject of the new agreement entered into
                           pursuant to sub-paragraph (viii)(a) above and all
                           associated Joint Operations and Joint Property,
                           provided that any decisions, notices, actions or
                           other things made, given or done under and in
                           accordance with this Agreement prior to that time and
                           relating solely to such Licenses and associated Joint
                           Operations and Joint Property shall be deemed to have
                           been taken under and in accordance with, and shall be
                           equally effective and valid for purposes of, that new
                           agreement.

20.      FORCE MAJEURE

20.1     The obligations of each of the Parties hereunder, other than the
         obligations to make payment of money, shall be suspended during the
         period and to the extent that such Party is prevented or hindered from
         complying therewith by "Force Majeure" (as hereinafter defined). In
         such event, such Party shall give notice of suspension as soon as
         reasonably possible to the other Parties stating the date and extent of
         such suspension and the cause thereof. Any of the Parties whose
         obligations have been suspended as aforesaid shall resume the
         performance of such obligations as soon as reasonably possible after
         the removal of the cause and shall so notify all the other Parties.

20.2     In this Article 20 "Force Majeure" means any cause beyond the
         reasonable control of a Party provided that a lack of funds shall not
         constitute "Force Majeure".

21.      APPLICABLE LAW AND ARBITRATION

21.1     This Agreement shall be governed by and construed in accordance with
         laws of the State of California, USA, excluding any provisions thereof
         which would require the application of the laws of any other
         jurisdiction.

21.2     ARBITRATION

21.2.1   All disputes arising out of or in connection with this Agreement,
         including any question regarding its existence, validity or
         termination, shall be referred to and finally resolved under the rules
         of the London Court of International Arbitration, which rules are
         deemed to be incorporated by reference to this Article.

21.2.2   The number of arbitrators shall be one (or three if the Parties
         mutually so agree).

21.2.3   The seat or place of the arbitration shall be San Francisco,
         California, USA.

21.2.4   The language to be used in the arbitral proceedings shall be English.

21.2.5   The arbitrators' award may include compensatory damages against either
         Party, but under no circumstances shall the arbitrators be authorized
         to nor shall they award punitive damages or multiple damages against
         any Party.




                                       36
<PAGE>


21.2.6   The Parties hereby exclude any right of application or appeal to any
         court, to the extent that they may validly so agree, and in particular
         in connection with any question of law arising during the course of the
         arbitration or out of the arbitration panel.

22.      NOTICES

22.1     MANNER OF SERVICE

         Any notice or other communication (a "COMMUNICATION") which any Party
         may desire to give or deliver in connection with this Agreement shall
         be in writing and shall be delivered by hand or sent by fax or email to
         the addressee at its address or fax number or email address and marked
         for the attention of the person set out in Article 22.3. Any such
         notice sent by fax or email shall be confirmed in hard copy form by
         post or by hand or email.

22.2     TIME OF NOTICE

         A Communication shall be deemed to have been given and received:

         (i)      if delivered by hand, at the time of delivery; or

         (ii)     if sent by fax, on acknowledgment of the addressee's facsimile
                  receiving equipment on the day following the day of such
                  acknowledgment.

         (iii)    if sent by email, on the day following acknowledgement of the
                  addressee's receipt of the email by confirmation back to the
                  sender from the recipient in an electronic communication
                  initiated by the recipient, but not otherwise;

         (iv)     as to any notice period of forty eight (48) hours or less,
                  Operator shall utilize its best efforts to give a prompt
                  telephone notice each Party's Operating Committee
                  representative

22.3     ADDRESSES

         The current addresses, fax numbers, email addresses and, where
         applicable, contact names of the Parties for the purposes of
         Communications are as follows:



         AME and ERSAN:

         c/o ALADDIN MIDDLE EAST LTD
         Attn:  Mr. Oyman Sayer and
         Mr. Cem Sayer
         Sogutozu Caddesi No:23
         Balgat-Ankara 06520 Turkey
         Tel: +90 312 287 1915 or 287 1988
         Fax: +90 312 287 3357 or 287 5768
         Email cemsayer@sayergroup.com


         AVENUE
         Attn: Mr. Jonathan Herzog
         17547 Ventura Blvd., Suite 305
         Encino, CA 91316 USA
         Tel: +818 465 1200
         Fax: +818 301 2708
         Email jonathan.herzog@avenuegroupinc.com





                                       37
<PAGE>


         Copied to:

         Attn: Mr. Levi Mochkin
         34-36 Punt Road, Windsor,
         Melbourne, Australia
         Tel: +613 9533 7800
         Fax:+613 9533 7900
         Email lm10itt@aol.com

         And to:

         Dr Jaap Poll
         45 Philip Road,
         Dalkeith, WA 6009
         Australia
         Tel: +61 8 9386 2045
         Fax: + 61 8 9386 2053
         Email jaappoll@ozemail.com.au

         And to:

         Jeffrey E. Sultan, Esq.
         Jeffer, Mangels, Butler & Marmaro LLP
         Seventh Floor
         1900 Avenue of the Stars
         Los Angeles, California 90067-4308
         Tel: (310) 201-3515
         Fax: (310) 712-8515
         E-mail: jes@jmbm.com


         A Party may change its address, fax number, email address or contact
         name for the purpose of Communications by serving notice on the other
         Parties in accordance with this Article.

23.      MISCELLANEOUS

23.1     This Agreement shall be prepared in the English language and no
         translation into any other language shall be utilized in its
         interpretation. During the implementation of this Agreement the English
         language shall be used as working language. Without prejudice to the
         foregoing, the Parties shall promptly arrange for the preparation and
         execution of a Turkish translation of this Agreement solely for the
         purpose of submission to the Government.


         This Agreement may be executed simultaneously in two or more
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same instrument.

23.2     All schedules referred to herein and attached hereto, including the
         Accounting Procedure, are by this reference incorporated herein as an
         integral part of this Agreement.

23.3     This Agreement shall be binding upon and inure to the benefit of the
         Parties hereto and their successors and permitted assigns.




                                       38
<PAGE>



         IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.



         ALADDIN MIDDLE EAST LTD.


         By:/s/ Oyman Sayer
                  Name: Oyman Sayer
                  Position: Executive Vice President
                  and General Manager

         ERSAN PETROL SANAYII A.S.


         By:      /s/ Oyman Sayer
                  Name: Oyman Sayer
                  Position: Executive Vice President and General
                  Manager

         AVENUE ENERGY INC.


         By:      /s/ Jonathan Herzog
                  Name:
                  Position: President



                                       39
<PAGE>





                                   SCHEDULE 1



                          TO JOINT OPERATING AGREEMENT

                                     BETWEEN

                             ALADDIN MIDDLE EAST LTD

                            ERSAN PETROL SANAYII A.S.

                                       AND

                               AVENUE ENERGY INC.

                                   RELATING TO

                               KARAKILISE PROSPECT





                              ACCOUNTING PROCEDURE



<PAGE>


                                    SECTION I

                               GENERAL PROVISIONS

1.1      PURPOSE

         1.1.1    The purpose of this Accounting Procedure is to establish
                  equitable methods for determining charges and credits
                  applicable to operations under the Agreement which reflect the
                  costs of Joint Operations to the end that no Party shall gain
                  or lose in relation to other Parties.

                           It is intended that approval of a Program and Budget
                  and AFE's as provided in the Agreement shall constitute
                  approval of the rates and allocation methods used therein to
                  currently charge the Joint Account, but subject to
                  verification by audit at a later date as provided in the
                  Accounting Procedure.

         1.1.2    The Parties agree, however, that if the methods prove unfair
                  or inequitable to Operator or Non-Operators, the Parties shall
                  meet and in good faith endeavor to agree on changes in methods
                  deemed necessary to correct any unfairness or inequity.

1.2      CONFLICT. In the event of a conflict between the provisions of this
         Accounting Procedure and the provisions of the Agreement, the
         provisions of the Agreement shall, to the extent of the conflict,
         prevail.

1.3      DEFINITIONS. The definitions contained in Article 1 of the Agreement
         shall apply to this Accounting Procedure and have the same meanings
         when used herein. Certain terms used herein are defined as follows:

                           "THE AGREEMENT" shall mean the main body (Articles 1
                  to 23) of the Joint Operating Agreement to which this
                  Accounting Procedure is a schedule.

                           "COUNTRY OF OPERATIONS" shall mean Republic of
                  Turkey.

                           "MATERIAL" shall mean personal property (including,
                  but not limited to, equipment and supplies) acquired and held
                  for use in Joint Operations.

1.4      JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE.

         1.4.1    Operator shall at all times maintain and keep true and correct
                  records of the production and disposition of all Petroleum and
                  Natural Gas, and of all costs and expenditures under the
                  Agreement, as well as other data necessary or proper for the
                  settlement of accounts between the Parties in connection with
                  their rights and obligations under the Agreement and to enable
                  Parties to comply with their respective applicable income tax
                  and other laws.

         1.4.2    Operator shall maintain accounting records pertaining to Joint
                  Operations in accordance with generally accepted accounting
                  practices used in the international petroleum industry and any
                  applicable statutory obligations of the Country of Operations
                  as well as the provisions of the Licenses and the Agreement.

         1.4.3    Joint Account records shall be maintained by Operator in the
                  English language and in United States of America ("U.S.")
                  currency and in such other language and currency as may be
                  required by the laws of the Country of Operations. Conversions
                  of currency shall be recorded at the rate actually experienced
                  in that conversion. Currency translations for expenditures and
                  receipts shall be recorded at the arithmetic average of the
                  buying and selling rates at the close of business on the last
                  day of the preceding month as published by the Central Bank of
                  Turkey, or if not published by the Central Bank of Turkey,
                  then by the clearing bank with whom the Parties commingled
                  Dollar denominated funds are maintained.

         1.4.4    Any currency exchange gain or losses shall be credited or
                  charged to the Joint Account, except as otherwise specified in
                  this Accounting Procedure.

         1.4.5    This Accounting Procedure shall apply, mutatis mutandis, to
                  Exclusive Risk Operations in the same manner that it applies
                  to Joint Operations; provided, however, that the charges and
                  credits applicable to Consenting Parties shall be
                  distinguished by an Exclusive Risk Operation Account. For the
                  purpose of determining and calculating the remuneration of the
                  Consenting Parties, including the premiums for Exclusive Risk




                                       1
<PAGE>



                  Operations, the costs and expenditures shall be expressed in
                  U.S. currency (irrespective of the currency in which the
                  expenditure was incurred).

         1.4.6    The accrual basis for accounting shall be used in preparing
                  accounts concerning the Joint Operations.

1.5      STATEMENTS AND BILLINGS.

         1.5.1    Unless otherwise agreed by the Parties or pursuant to Turnkey
                  contracts, Operator shall submit monthly to each Party, on or
                  before the 25th Day of each month, statements of the costs and
                  expenditures incurred during the prior month, indicating by
                  appropriate classification the nature thereof, the
                  corresponding budget category, and the portion of such costs
                  charged to each of the Parties.

                           These statements, as a minimum, shall contain the
                  following information:

                  -        advances of funds setting forth the currencies
                           received from each Party

                  -        the share of each Party in total expenditures

                  -        the current account balance of each Party

                  -        summary of costs, credits, and expenditures on a
                           current month, year-to-date, and inception-to-date
                           basis or other periodic basis, as agreed by Parties

                  -        details of unusual charges and credits in excess of
                           U.S. dollars five thousand (U.S.$5,000.00).

         1.5.2    Operator shall, upon request, furnish a description of the
                  accounting classifications used by it.

         1.5.3    Amounts included in the statements and billings shall be
                  expressed in U.S. currency and reconciled to the currencies
                  advanced.

         1.5.4    Each Party shall be responsible for preparing its own
                  accounting and tax reports to meet the requirements of the
                  Country of Operations and of all other countries to which it
                  may be subject. Without limiting the foregoing, each Party
                  acknowledges that it will keep its records and accounts in
                  accordance with Turkish Accounting Procedures and Fiscal
                  Procedure Law as published in the Turkish Official Gazette on
                  10.01.1961 Law Number 213. Operator, to the extent that the
                  information is reasonably available from the Joint Account
                  records, shall provide Non-Operators in a timely manner with
                  the necessary statements to facilitate the discharge of such
                  responsibility.

1.6      BANK ACCOUNTS.

         1.6.1    Operator shall open and maintain a single set of bank accounts
                  for the Joint Operations. Should there be a change in Operator
                  under the Agreement (other than pursuant to a transfer to an
                  Affiliate), then separate bank accounts shall thereafter be
                  maintained by the successor Operator. To the extent permitted
                  by applicable law and regulations, Operator will utilise
                  interest bearing accounts when possible so temporary short
                  term cash balances held pending disbursement can earn
                  interest.

         1.6.2    The bank accounts shall be denominated in Dollars and Turkish
                  Lira and any other foreign currency that Operator deems
                  necessary.

         1.6.3    Operator shall notify the Parties of the name of the bank and
                  the account numbers on opening of each account.

         1.6.4    The accounts shall be established in the Republic of Turkey
                  and/or any other country the Operating Committee may deem
                  appropriate.

         1.6.5    Operator may not commingle in any of the accounts its own
                  funds.




                                       2
<PAGE>



1.7      PAYMENTS AND ADVANCES.

         1.7.1    Not less than ten (10) days prior to the beginning of each
                  month, except pursuant to Turnkey contracts, Operator shall
                  furnish the Parties with a Cash Call, requesting an Advance or
                  Advances for such month and showing estimated Cash Calls for
                  the two (2) months immediately following that month. The
                  amount requested in a Cash Call shall be Operator's estimate
                  of the amount required from the Parties to enable Operator to
                  defray the net cash payments, being cash payments less cash
                  receipts as adjusted for cash on hand, due in the relevant
                  month under obligations properly incurred by Operator in
                  connection with the Joint Operations and in accordance with
                  the Agreement.

         1.7.2    Each Cash Call shall be made in writing and delivered to all
                  Non-Operators not less than twenty (20) days before the
                  payment due date and shall be accompanied by a statement
                  indicating the Budget and, where applicable, AFEs for which
                  the funds are required and the amounts attributed to each
                  major budget heading for which the funds are required,
                  analysed by Budget and, where applicable, AFE. The due date
                  for payment of such Advances shall be set by Operator but
                  shall be no sooner than the first day of the month for which
                  the Advances are required. All Advances shall be made without
                  bank charges. Any charges related to receipt of Advances from
                  a Non-Operator shall be borne by that Non-Operator.

         1.7.3    Each Non-Operator shall wire transfer its share of the full
                  amount of each such cash call to Operator on or before the due
                  date, in the currencies requested, and to a bank account
                  established under Section 1.6 designated by Operator and
                  denominated in the relevant currency. If currency provided by
                  a Non Operator is other than as requested, the entire cost of
                  converting to the requested currency shall be charged to that
                  Non-Operator.

         1.7.4    Notwithstanding the provisions of Section 1.7.2, should
                  Operator be required to pay any sums of money for the Joint
                  Operations which were unforeseen at the time of providing the
                  Non-Operators with said estimates of its requirements and
                  which have been authorised by the Parties in an approved
                  Budget and, if applicable, an AFE, Operator may make a written
                  request of the Non-Operators for special advances covering the
                  Non-Operators' share of such payments. Each such Non-Operator
                  shall make its proportional special advances within fifteen
                  (15) days after receipt of such notice.

         1.7.5    If a Non-Operator's advances exceed its share of cash
                  expenditures, the next succeeding cash advance requirements,
                  after such determination, shall be reduced accordingly. A
                  Non-Operator may request that its excess advances be refunded.
                  Operator shall make such refund within ten (10) days after
                  receipt of the Non-Operator's request provided that the amount
                  is in excess of the requesting Non-Operator's share of the
                  cash advance requirements for the succeeding Month.

         1.7.6    If Non-Operator's advances are less than its share of cash
                  expenditures, the deficiency shall, at Operator's option, be
                  added to subsequent cash advance requirements or be paid by
                  Non-Operator within ten (10) days following the receipt of
                  Operator's billing to Non-Operator for such deficiency.

         1.7.7    If, under the provisions of the Agreement, Operator is
                  required to segregate funds received from the Parties, any
                  interest received on such funds shall be applied against the
                  next succeeding cash call or, if directed by the Operating
                  Committee, distributed quarterly. The interest thus received
                  shall be allocated to the Parties on an equitable basis taking
                  into consideration date of funding by each Party to the
                  accounts in proportion to the total funding into the account.
                  A monthly statement summarizing receipts, disbursements,
                  transfers to each joint bank account and beginning and ending
                  balances thereof shall be provided by Operator to the Parties.
                  Any interest received by Operator from interest-bearing
                  accounts containing commingled funds received from the Parties
                  shall be credited to the Parties in accordance with the
                  allocation procedure as set forth above.

         1.7.8    Subject to governmental regulation, Operator shall have the
                  right, at any time and from time to time, to convert the funds
                  advanced or any part thereof to other currencies to the extent
                  that such currencies are then required for operations. The
                  cost of any such conversion shall be charged to the Joint
                  Account.

         1.7.9    Operator shall endeavor to maintain funds held for the Joint
                  Account in bank accounts at a level consistent with that
                  required for the prudent conduct of Joint Operations.

         1.7.10   If under the Agreement, Operator is required to segregate
                  funds received from or for the Joint Account, the provisions
                  under this Section 1.7 for payments and Advances by
                  Non-Operators shall apply also to Operator.




                                       3
<PAGE>



1.8      Adjustments. Payments of any advances or billings shall not prejudice
         the right of any Non-Operator to protest or question the correctness
         thereof; provided, however, all bills and statements rendered to
         Non-Operators by Operator during any year shall conclusively be
         presumed to be true and correct after twenty-four (24) months following
         the end of such Year, unless within the said twenty-four (24) month
         period a Non-Operator takes written exception thereto and makes claim
         on Operator for adjustment. Failure on the part of a Non-Operator to
         make claim on Operator for adjustment within such period shall
         establish the correctness thereof and preclude the filing of exceptions
         thereto or making claims for adjustment thereon. No adjustment
         favorable to Operator shall be made unless it is made within the same
         prescribed period. The provisions of this paragraph shall not prevent
         adjustments resulting from a physical inventory of the Property as
         provided for in Section VI. Operator shall be allowed to make
         adjustments to the Joint Account after such twenty-four (24) month
         period if these adjustments result from audit exceptions outside of
         this Agreement, third party claims, or Government requirements. Any
         such adjustments shall be subject to audit within the time period
         specified in Section 1.9.1.

1.9      AUDITS.

         1.9.1    A Non-Operator, upon at least sixty (60) days advance notice
                  in writing to Operator and all other Non-Operators, shall have
                  the right to audit the Joint Accounts and records of Operator
                  relating to the accounting hereunder for any Year within the
                  twenty-four (24) month period following the end of such Year.
                  The cost of each such audit shall be borne by Non-Operators
                  conducting the audit. It is provided, however, that
                  Non-Operators must take written exception to and make claim
                  upon the Operator for all discrepancies disclosed by said
                  audit within said twenty-four (24) month period. Where there
                  are two or more Non-Operators, the Non-Operators shall make
                  every reasonable effort to conduct joint or simultaneous
                  audits in a manner which will result in a minimum of
                  inconvenience to the Operator. Operator and Non-Operators
                  shall make every effort to resolve any claim resulting from an
                  audit within a reasonable period of time.

         1.9.2    In connection with any audit under Section 1.9.1, a
                  Non-Operator may audit the records of an Affiliate of Operator
                  relating to that Affiliate's charges. The provisions of this
                  Accounting Procedure shall apply mutatis mutandis to such
                  audit. Operator shall procure its relevant Affiliates
                  facilitat6e any such audit.

         1.9.3    At the conclusion of each audit, each Party shall endeavour to
                  settle outstanding matters with Operator and shall circulate a
                  written report concerning unresolved items to all the Parties
                  within two (2) months of the conclusion of each audit. The
                  report shall include all claims arising from such audit
                  together with comments pertinent to the operation of the
                  accounts and records. Operator shall reply to the report in
                  writing as soon as possible and in any event not later than
                  two (2) months following receipt of the report. Should the
                  Parties (or any of them) consider that the report or reply
                  requires further investigation of any item therein, such
                  Parties shall have the right to conduct further investigation
                  in relation to such matter notwithstanding that the said
                  period of twenty-four (24) months may have expired. Such
                  further investigation shall be commenced within ninety (90)
                  days and be concluded within one hundred and twenty (120) days
                  of the receipt of such report or reply.

         1.9.4    All adjustments resulting from an audit agreed between
                  Operator and the Parties conducting the audit shall be
                  rectified promptly in the Joint Account by Operator and
                  reported to the other Parties. If any dispute shall arise in
                  connection with an audit, it shall be referred to the
                  Operating Committee. If Operator and such Parties are unable
                  to reach final agreement on a proposed audit adjustment and
                  the amount in dispute is in excess of $20,000, and either
                  Operator or such Parties so desire, such adjustment may be
                  referred by the Operating Committee to an internationally
                  recognised independent firm of public accountants selected by
                  such other Parties and approved by Operator, such approval not
                  to be unreasonably withheld. The decision of such firm of
                  public accountants shall be final and binding upon the
                  Parties.

         1.9.5    Any information obtained by a Non-Operator under the
                  provisions of this Section 1.9 which does not relate directly
                  to the Joint Operations shall be kept confidential and shall
                  not be disclosed to any party, except as would otherwise be
                  permitted by Article 14 of the Agreement.

         1.9.6    In the event that the Operator is required by law to employ a
                  public accounting firm to audit the Joint Account and records
                  of Operator relating to the accounting hereunder, the cost
                  thereof shall be a charge against the Joint Account, and a
                  copy of the audit shall be furnished to each Party.

1.10     ALLOCATIONS. If it becomes necessary to allocate any costs or
         expenditures to or between Joint Operations and any other operations,
         such allocation shall be made on an equitable basis. Upon request,
         Operator shall furnish a description of its allocation procedures
         pertaining to these costs and expenditures.




                                       4
<PAGE>



                                   SECTION II

                                 DIRECT CHARGES

         Subject to the Agreement, Operator shall charge the Joint Account with
all costs and expenditures incurred after the date of the Agreement in
connection with Joint Operations. Charges for services normally provided by an
operator which are provided by Operator's Affiliates shall reflect the cost to
the Affiliate, excluding profit, for performing such services, except as
otherwise provided in Section 2.6.

         The costs and expenditures shall be recorded as required for the
settlement of accounts between the Parties hereto in connection with the rights
and obligations under this Agreement and for purposes of complying with the tax
laws of the Country of Operations and of such other countries to which any of
the Parties may be subject. Without in any way limiting the generality of the
foregoing, chargeable costs and expenditures shall include:

2.1      LICENSES, PERMITS, ETC. All costs, if any, attributable to the
         acquisition, maintenance, renewal or relinquishment of licenses,
         permits, contractual and/or surface rights acquired for Joint
         Operations, when paid by Operator in accordance with the provisions of
         the Agreement provided that no such amount shall be charged to the
         Joint Account where payment of that amount, or of an amount in lieu
         thereof, is provided for in clause 6.5 of the Farmin and Participation
         Agreement.

2.2      SALARIES, WAGES AND RELATED COSTS.

         2.2.1    Costs related to the employees of Operator and its Affiliates
                  in the Country of Operations directly engaged in Joint
                  Operations whether temporarily or permanently assigned, as
                  more particularly set out below. For the avoidance of doubt,
                  costs related to any such employees shall not be charged to
                  the Joint Account to the extent they relate to activities of
                  the Operator or its Affiliates carried out other than in
                  pursuance of the duties of the Operator under the Agreement
                  (e.g. where the Operator or its Affiliate are acting as
                  contractor for the Parties in relation to drilling
                  operations).

         2.2.2    Salaries and wages, including everything constituting the
                  employees' total compensation. To the extent not included in
                  salaries and wages, the Joint Account shall also be charged
                  with the cost to Operator of holiday, vacation, sickness,
                  disability benefits, living and housing allowances, travel
                  time, bonuses, and other customary allowances applicable to
                  the salaries and wages chargeable hereunder, as well as costs
                  to Operator for employee benefits, including but not limited
                  to employee group life insurance, group medical insurance,
                  hospitalization, retirement, and other benefit plans of a like
                  nature applicable to labor costs of Operator. Operator's
                  employees participating in Country of Operations benefit plans
                  may be charged at a percentage rate to reflect payments or
                  accruals made by Operator applicable to such employees. Such
                  accruals for Country of Operations benefit plans shall not be
                  paid by Non-Operators, unless otherwise approved by the
                  Operating Committee, until the same are due and payable to the
                  employee, upon withdrawal of a Party pursuant to the
                  Agreement, or upon termination of the Agreement, whichever
                  occurs first.

         2.2.3    Expenditures or contributions made pursuant to assessments
                  imposed by governmental authority for payments with respect
                  thereto or on account of such employees.

         2.2.4    Salaries and wages charged in accordance with Operator's usual
                  practice, when and as paid or accrued, or on a basis of the
                  Operator's average cost per employee for each job category;
                  and the rates to be charged shall be reviewed at least
                  annually. In determining the average cost per employee for
                  each job category, expatriate and national employee salaries
                  and wages shall be calculated separately. During a given
                  period of time it is understood that some costs for salaries
                  and wages may be charged on an actual basis while the
                  remaining costs for salaries and wages are charged at a rate
                  based upon the above described average cost.

         2.2.5    Reasonable expenses (including related travel costs) of those
                  employees whose salaries and wages are chargeable to the Joint
                  Account under Section 2.2.1 of this Section II and for which
                  expenses the employees are reimbursed under the usual practice
                  of Operator.

         2.2.6    All personnel who are not engaged exclusively on the Joint
                  Operations and are under the direct control of Operator or its
                  Affiliates will maintain time sheets for the purpose of
                  charging salary and related benefits to the Joint Account.
                  Time sheets will record time worked on the Joint Operations
                  and all other operations whether such personnel are engaged
                  full time or part time on the Joint Operations and will show
                  the time




                                       5
<PAGE>



                  worked on the various projects and other classifications of
                  cost to enable personnel costs to be shown separately for
                  budget and cost control purposes.

                           Indirect time such as annual holidays, public
                  holidays, sickness, staff training, general supervisory
                  duties, general administration, and other like items shall be
                  allocated both to Joint Operations and to other operations in
                  the same ratio as direct time writing.

         2.2.7    The amount to be charged to the Joint Account for each
                  employee referred to in Section 2.2.1 shall be the proportion
                  of Operator's or any of its Affiliates' actual cost of
                  salaries and related benefits for each such person that the
                  time worked by such person on the Joint Operations including
                  indirect time allocation bears to the total time worked by
                  such person as shown on the time sheets, provided that
                  payments in respect of retirement and severance and other like
                  items shall be allocated equitably to the Joint Operations and
                  other operations of Operator and its Affiliates which have
                  benefited from the services of the staff involved.

2.3      EMPLOYEE RELOCATION COSTS.

         2.3.1    Except as provided in Section 2.3.3, Operator's cost of
                  employees' relocation to or from the License Area vicinity or
                  location where the employees will reside or work, whether
                  permanently or temporarily assigned to the Joint Operations.
                  If such employee works on other activities in addition to
                  Joint Operations, such relocation costs shall be allocated on
                  an equitable basis.

         2.3.2    Such relocation costs shall include transportation of
                  employees, families, personal and household effects of the
                  employee and family, transit expenses, and all other related
                  costs in accordance with Operator's usual practice.

         2.3.3    Relocation costs from the vicinity of the License Area to
                  another location classified as a foreign location by Operator
                  shall not be chargeable to the Joint Account unless such
                  foreign location is the point of origin of the employee.

2.4      OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES. Cost of maintaining any
         offices, sub-offices, camps, warehouses, housing, and other facilities
         of the Operator and/or Affiliates directly serving the Joint
         Operations. If such facilities serve operations in addition to the
         Joint Operations the costs shall be allocated to the properties served
         on an equitable basis.

2.5.     MATERIAL. Cost, net of discounts taken by Operator, of Material
         purchased or furnished by Operator as specified in Section IV of this
         Accounting Procedure. So far as it is reasonably practical and
         consistent with efficient and economical operation, only such Material
         shall be purchased for, and the cost thereof charged to, the Joint
         Account as may be required for immediate use.

2.6      EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES.
         Charges for exclusively owned equipment, facilities, and utilities of
         Operator and its Affiliates at rates not to exceed the average
         commercial rates of non-affiliated third parties then prevailing for
         like equipment, facilities, and utilities for use in the area where the
         same are used hereunder. On request, Operator shall furnish
         Non-Operators a list of rates and the basis of application. Such rates
         shall be revised from time to time if found to be either excessive or
         insufficient, but not more than once every six months.

                  Drilling tools and other equipment lost in the hole or damaged
         beyond repair may be charged at replacement cost less depreciation plus
         transportation costs to deliver like equipment to the location where
         used.

2.7      SERVICES. The cost of services provided by third parties including
         Affiliates of Operator. Such charges for services by Operator's
         Affiliates shall not exceed those currently prevailing if performed by
         non-affiliated third parties, considering quality and availability of
         services.

2.8      INSURANCE. Premiums paid for insurance required by law or the Agreement
         to be carried for the benefit of the Joint Operations.

2.9      DAMAGES AND LOSSES TO PROPERTY.

         2.9.1    All costs or expenditures necessary to replace or repair
                  damages or losses incurred by fire, flood, storm, theft,
                  accident, or any other cause. Operator shall furnish
                  Non-Operators written notice of damages or losses




                                       6
<PAGE>



                  incurred in excess of twenty thousand U.S. dollars (U.S.
                  $20,000.00) as soon as practical after report of the same has
                  been received by Operator. All losses in excess of five
                  thousand U.S. dollars (U.S. $5,000.00) shall be listed
                  separately in the monthly statement of costs and expenditures.

         2.9.2    Credits for settlements received from insurance carried for
                  the benefit of Joint Operations and from others for losses or
                  damages to Joint Property or Materials. Each Party shall be
                  credited with its Participating Interest share thereof except
                  where such receipts are derived from insurance purchased by
                  Operator for less than all Parties in which event such
                  proceeds shall be credited to those Parties for whom the
                  insurance was purchased in the proportion of their respective
                  contributions toward the insurance coverage.

         2.9.3    Expenditures incurred in the settlement of all losses, claims,
                  damages, judgments, and other expenses for the account of
                  Joint Operations.

2.10     LITIGATION AND LEGAL EXPENSES. The costs and expenses of litigation and
         legal services necessary for the protection of the Joint Operations
         under this Agreement as follows:

         2.10.1   Legal services necessary or expedient for the protection of
                  the Joint Operations, and all costs and expenses of
                  litigation, arbitration or other alternative dispute
                  resolution procedure, including reasonable attorneys' fees and
                  expenses, together with all judgments obtained against the
                  Parties or any of them arising from the Joint Operations.

         2.10.2   If the Parties shall so agree, actions or claims affecting the
                  Joint Operations may be handled by the legal staff of one or
                  any of the Parties; and a charge commensurate with the
                  reasonable costs of providing and furnishing such services
                  rendered may be made by the Party providing such service to
                  Operator for the Joint Account, but no such charges shall be
                  made until approved by the Parties.

2.11     TAXES AND DUTIES. All taxes, duties, assessments and governmental
         charges, of every kind and nature, assessed or levied upon or in
         connection with the Joint Operations, other than any that are measured
         by or based upon the revenues, income and net worth of a Party.

                  If Operator or an Affiliate is subject to income or
         withholding tax as a result of services performed at cost for the
         operations under the Agreement, its charges for such services may be
         increased by the amount of such taxes incurred (grossed up).

2.12     OTHER EXPENDITURES. Any other costs and expenditures incurred by
         Operator for the necessary and proper conduct of the Joint Operations
         in accordance with approved Programs and Budgets and not covered in
         this Section II or in Section III.

                                   SECTION III

                                INDIRECT CHARGES

3.1      PURPOSE. Operator shall charge the Joint Account monthly for the cost
         of indirect services and related office costs of Operator and its
         Affiliates not otherwise provided for in this Accounting Procedure.
         These costs are such that it is not practical to identify or associate
         them with specific projects but are for services which provide Operator
         with needed and necessary resources which Operator requires and provide
         a real benefit to Joint Operations. No cost or expenditure included
         under Section II shall be included or duplicated under this Section
         III.

3.2      AMOUNT. The charge for the period beginning with the Year through the
         end of the period covered by Operator's invoice ("Year-to-Date") under
         Section 3.1 above shall be a percentage of the Year-to-Date
         expenditures, calculated on the following scale (U.S. Dollars):

                      Annual Expenditures $0 to $1,000,000 of
                      expenditures = 5 % Next $1,500,000 of
                      expenditures = 3 % Next $3,500,000 of
                      expenditures = 2 % Excess above $6,000,000 of
                      expenditures = 1%

                  A minimum amount of U.S.$2,500 shall be assessed each month.




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                  Notwithstanding the foregoing, the indirect rates and related
         calculation method for development operations and for production
         operations shall be agreed upon by the Parties prior to the submission
         of the first annual Budget for those phases of operations.

                  The above amounts shall be calculated for the aggregate of all
         Licenses and Production Leases held by the parties.

3.3      EXCLUSIONS. The expenditures used to calculate the monthly indirect
         charge shall not include expenditures incurred or relating to a period
         or time prior to the date of the Agreement, the indirect charge,
         rentals on surface rights acquired and maintained for the Joint
         Account, any payments under the Farmin and Participation Agreement or
         in respect of the works and operations referred to in clauses 3 to 6
         (both inclusive) of that agreement, guarantee deposits, pipeline
         tariffs, concession acquisition costs, bonuses paid in accordance with
         the Licenses, royalties and taxes paid under the Licenses, expenditures
         associated with major construction projects for which a separate
         indirect charge is established hereunder, payments to third parties in
         settlement of claims, and other similar items.

                  Credits arising from any government subsidy payments,
         disposition of Material, and receipts from third parties for settlement
         of claims shall not be deducted from total expenditures in determining
         such indirect charge.

3.4      INDIRECT CHARGE FOR PROJECTS. As to major construction projects (such
         as, but not limited to, pipelines, gas reprocessing and processing
         plants, and final loading and terminalling facilities) when the
         estimated cost of each project amounts to more than one hundred
         thousand dollars (U.S. $100,000.00) a separate indirect charge for such
         project shall be set by the Operating Committee at the time of approval
         of the project.

3.5      CHANGES. The indirect charges provided for in this Section III may be
         amended periodically by mutual agreement between the Parties if, in
         practice, these charges are found to be insufficient or excessive.

                                   SECTION IV

                             ACQUISITION OF MATERIAL

4.1      ACQUISITIONS. Materials purchased for the Joint Account shall be
         charged at net cost paid by the Operator. The price of Materials
         purchased shall include, but shall not be limited to export broker's
         fees, insurance, transportation charges, loading and unloading fees,
         import duties, license fees, and demurrage (retention charges)
         associated with the procurement of Materials, the purchasing fee
         provided for in Section 2.5.1, and applicable taxes, less all discounts
         taken.

4.2      MATERIALS FURNISHED BY OPERATOR. Materials required for operations
         shall be purchased for direct charge to the Joint Account whenever
         practicable, except the Operator may furnish such Materials from its
         stock under the following conditions:

         4.2.1    NEW MATERIALS (CONDITION "1"). New Materials transferred from
                  the warehouse or other properties of Operator shall be priced
                  at net cost determined in accordance with Section 4.1 above,
                  as if Operator had purchased such new Material just prior to
                  its transfer.

         Such net costs shall in no event exceed the then current market price.

         4.2.2    USED MATERIALS (CONDITIONS "2" AND "3").

                           4.2.2.1 Material which is in sound and serviceable
                  condition and suitable for use without repair or
                  reconditioning shall be classed as Condition "2" and priced at
                  seventy-five percent (75%) of its original issue price.

                           4.2.2.2 Materials not meeting the requirements of
                  Section 4.2.2.1 above, but which can be made suitable for use
                  after being repaired or reconditioned, shall be classed as
                  Condition "3" and priced at fifty percent (50%) of its
                  original issue price. The cost of reconditioning shall also be
                  charged to the Joint Account provided the Condition "3" price,
                  plus cost of reconditioning, does not exceed the Condition "2"
                  price; and provided that Material so classified meet the
                  requirements for Condition "2" Material upon being repaired or
                  reconditioned.




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<PAGE>



                           4.2.2.3 Material which cannot be classified as
                  Condition "2" or Condition "3", shall be priced at a value
                  commensurate with its use.

                           4.2.2.4 Tanks, derricks, buildings, and other items
                  of Material involving erection costs, if transferred in
                  knocked-down condition, shall be graded as to condition as
                  provided in this Section 4.2.2 of Section IV, and priced on
                  the basis of knocked-down price of like new Material.

                           4.2.2.5 Material including drill pipe, casing and
                  tubing, which is no longer useable for its original purpose
                  but is useable for some other purpose, shall be graded as to
                  condition as provided in this Section 4.2.2 of Section IV.
                  Such Material shall be priced on the basis of the current
                  price of items normally used for such other purpose if sold to
                  third parties.

4.3      PREMIUM PRICES. Whenever Material is not readily obtainable at prices
         specified in Sections 4.1 and 4.2 of this Section IV because of
         national emergencies, strikes or other unusual causes over which
         Operator has no control, Operator may charge the Joint Account for the
         required Material at Operator's actual cost incurred procuring such
         Material, in making it suitable for use, and moving it to the License
         Area.

4.4      WARRANTY OF MATERIAL FURNISHED BY OPERATOR. Operator does not warrant
         the Material furnished. In CASE of defective Material, credit shall not
         be passed to the Joint Account until adjustment has been received by
         Operator from the manufacturers or their agents.

                                    SECTION V

                              DISPOSAL OF MATERIALS

5.1      DISPOSAL. Operator shall be under no obligation to purchase the
         interest of Non-Operators in new or used surplus Materials. Operator
         shall have the right to dispose of Materials but shall advise and
         secure prior agreement of the Operating Committee of any proposed
         disposition of Materials having an original cost to the Joint Account
         either individually or in the aggregate of twenty-five thousand U.S.
         Dollars (U.S. $25,000.00) or more. When Joint Operations are relieved
         of Material charged to the Joint Account, Operator shall advise each
         Non-Operator of the original cost of such Material to the Joint Account
         so that the Parties may eliminate such costs from their asset records.
         Credits for Material sold by Operator shall be made to the Joint
         Account in the month in which payment is received for the Material. Any
         Material sold or disposed of under this Section shall be on an "as is,
         where is" basis without guarantees or warranties of any kind or nature.
         Costs and expenditures incurred by Operator in the disposition of
         Materials shall be charged to the Joint Account.

5.2      MATERIAL PURCHASED BY A PARTY OR AFFILIATE. Material purchased from the
         Joint Property by a Party or an Affiliate thereof shall be credited by
         Operator to the Joint Account, with new Material valued in the same
         manner as new Material under Section 4.2.1 and used Material valued in
         the same manner as used Material under Section 4.2.2, unless otherwise
         agreed by the Operating Committee.

5.3      DIVISION IN KIND. Division of Material in kind, if made between the
         Parties, shall be in proportion to their respective interests in such
         Material. Each Party will thereupon be charged individually with the
         value (determined in accordance with the procedure set forth in Section
         5.2) of the Material received or receivable by it.

5.4      SALES TO THIRD PARTIES. Material purchased from the Joint Property by
         third parties shall be credited by Operator to the Joint Account at the
         net amount collected by Operator from the buyer. If the sales price is
         less than that determined in accordance with the procedure set forth in
         Section 5.2, then approval by the Operating Committee shall be required
         prior to the sale. Any claims by the buyer for defective materials or
         otherwise shall be charged back to the Joint Account if and when paid
         by Operator.

                                   SECTION VI

                                   INVENTORIES

6.1      PERIODIC INVENTORIES - NOTICE AND REPRESENTATION. At reasonable
         intervals, but at least annually, inventories shall be taken by
         Operator of all Material on which detailed accounting records are
         normally maintained. The expense of conducting periodic inventories
         shall be charged to the Joint Account. Operator shall give
         Non-Operators written notice at least thirty days (30) in advance of
         its intention to take inventory, and Non-Operators, at their sole cost
         and expense, shall each be entitled to have a representative present.
         The failure of any Non-Operator to be represented at




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<PAGE>



         such inventory shall bind such Non-Operator to accept the inventory
         taken by Operator, who shall in that event furnish each Non-Operator
         with a reconciliation of overages and shortages. Inventory adjustments
         to the Joint Account shall be made for overages and shortages. Any
         adjustment equivalent to twenty thousand U.S. Dollars (U.S.$20,000.00)
         or more shall be brought to the attention of the Operating Committee.

6.2      SPECIAL INVENTORIES. Whenever there is a sale or change of interest in
         the Agreement, a special inventory may be taken by the Operator
         provided the seller and/or purchaser of such interest agrees to bear
         all of the expense thereof. In such cases, both the seller and the
         purchaser shall be entitled to be represented and shall be governed by
         the inventory so taken.

                                   SECTION VII

                               BUDGETING AND AFES

7.1      BUDGET PREPARATION.

         7.1.1    Exploration and Appraisal Budgets. Each Exploration and each
                  Appraisal Budget required under the Agreement shall include:

                  (i)      an estimate in Dollars of the total cost of the
                           relevant Program and a sub-division of such total
                           into each main classification and sub-classification
                           of cost. The estimates for each such classification
                           and sub-classification of cost shall be based on an
                           Accrual Basis for each of the Quarters of the
                           relevant Year or Years;

                  (ii)     a schedule of estimated Joint Property warehouse
                           stock movement;

                  (iii)    the amount of any escalation allowance;

                  (iv)     the amount of any contingency allowance;

                  (v)      a statement indicating which budget items, if any,
                           are contingent upon the outcome of other budget items
                           such as the testing of Exploration Wells and related
                           salaries and overheads;

                  (vi)     an estimate of the timing and value of each AFE and
                           commitment (being contracts or other orders placed or
                           goods purchased) to be made under the Budget;

         7.1.2    DEVELOPMENT BUDGETS. Each development Budget required under
                  Article 9 of the Agreement shall include:

                  (i)      an estimate on an annual basis in Dollars of the
                           total cost of the development and a sub-division of
                           such total into each main classification and
                           sub-classification of cost. The estimate for each
                           such classification and sub-classification of cost
                           shall be phased on an Accrual Basis and shall be
                           shown by Quarter;

                  (ii)     the items detailed in paragraphs (ii) to (v)
                           inclusive of Section 7.1.1;

                  (iii)    an estimate of the timing and value of the AFEs and
                           commitments to be made under the Budget identifying
                           the total commitments under each main classification
                           of cost in each Quarter of the first Year and the
                           subsequent Year. Operator shall endeavour to provide
                           the timing and estimated commitment for currencies
                           other than Dollars (with the exchange rate used)
                           where such commitment is known;

         7.1.3    PRODUCTION BUDGETS. Each production Budget required under the
                  Agreement shall be divided into the following sections:

                  (i)      Capital Expenditure

                  (ii)     operating expenditure

                  (iii)    extraordinary expenditure.




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<PAGE>



                           Each production Budget shall include the items
                  detailed in paragraphs (i) to (vi) inclusive of this Section
                  7.1.1, and an estimate of the cost to complete projects
                  commencing in the respective Budget year.

7.2.     PROCEDURE FOR BUDGET APPROVAL. The procedure for approval of
         Exploration, Appraisal, Development and Production Budgets is provided
         in Article 9 of the Agreement.

7.3      BUDGET APPROVAL AND AFE APPROVAL. Approval of Budgets for Exploration,
         Appraisal, Development and Production provides Operator with general
         approval of the proposals but does not, subject to Article 5.8 and 9.6
         of the Agreement, permit Operator to enter into commitments or incur
         any expenditures for any item included in the said Budgets for which an
         AFE is required in accordance with the provisions of the Agreement
         until such AFE is approved by the Operating Committee or deemed to be
         approved as hereinafter provided.

7.4.     SUB-DIVISION OF BUDGETS FOR APPROVAL BY AFE AND FOR CONTROL.

         7.4.1    Exploration, Appraisal, Development and Production Budgets
                  shall be divided into separately numbered classifications and
                  sub-classifications of cost to provide a breakdown of the
                  project into work elements in sufficient detail to allow
                  adequate cost allocation and control. Where individual items
                  of expenditure are attributable to more than one such
                  classification or sub-classification such items shall be
                  apportioned on an equitable basis.

         7.4.2    Notwithstanding the above to the extent that such AFE's are
                  required in accordance with the Agreement AFE's for wells
                  included in an exploration or an appraisal Budget shall be
                  issued on a dry hole basis. Estimated testing costs will be
                  provided with such AFE's for information and if testing is
                  required approval will be sought in a telex detailing the
                  testing program. Where an AFE is required this will be
                  followed as soon as possible with a formal AFE for testing.

         7.4.3    Operator may not, without the prior approval of the Operating
                  Committee, transfer sums over US$100,000 between Budget
                  classifications or sub-classifications after Budgets have been
                  approved.

7.5.     AUTHORIZATION FOR EXPENDITURE.

         7.5.1    Operator shall request approval of an AFE in accordance with
                  Article 9 of the Agreement at a time when the main details of
                  the relevant commitment or expenditure can be ascertained but
                  consistent with giving the Non-Operators ten (10) days advance
                  notice of the date by which approval is required.

         7.5.2    The AFE will describe the project, state the justification for
                  the items of expenditure, give the estimate of the items of
                  expenditure necessary to complete the project, and give the
                  estimated phasings of such expenditures. Necessary further
                  details to support the estimated cost of the project will be
                  included as attachments to the extent reasonably required by
                  the Non-Operators.

                  Any Party which has voted in favour of an AFE shall sign an
                  AFE Form indicating its authorisation thereof. After approval
                  Operator shall promptly notify the Parties indicating the
                  identity of those Parties whose authorisation have formed part
                  of such approval.

                  Operator shall notify the Parties of a deemed approval of an
                  AFE as soon as such has become effective.

         7.5.3    Approval, or where permitted deemed approval, of an AFE
                  constitutes authority for Operator to enter into any
                  commitment or incur any expenditure properly made in relation
                  to any approved AFE, whether or not payments in respect of
                  such commitments and expenditure will result in the final cost
                  of such commitments and expenditure exceeding the estimated
                  cost of such AFE, provided that if at any time it becomes
                  apparent that:

                  (i)      commitments yet to be made will or are likely to
                           cause the estimated cost to be exceeded; or

                  (ii)     expenditure to be incurred under commitments already
                           made will cause the estimated cost to be exceeded by
                           more than 10% or twenty thousand Dollars ($20,000)
                           (whichever is the lower),

                           Operator shall immediately notify the Parties and
                  shall without delay prepare a revised AFE giving the reasons
                  for the increased cost, and shall request approval of the
                  revised AFE and shall not enter into any




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                  new commitment in relation to such AFE until the revised AFE
                  has been approved, or where permitted deemed to be approved.

                                  SECTION VIII

                              OVERRIDING PROVISIONS

8.1      General. Sections 8.2, 8.3 and 8.4 apply notwithstanding any provision
         of this Accounting Procedure to the contrary.

8.2      Farming and Participation Agreement. No amount shall be payable by
         Avenue under the Agreement or this Accounting Procedure for or in
         connection with the works and operations the subject of clauses 4.4 and
         4.5 of the Farmin and Participation Agreement.

8.3      Pre-Agreement Costs. No amount shall be payable by Avenue under the
         Agreement or this Accounting Procedure in relation to costs,
         expenditures or liabilities incurred or relating to a period or time
         prior to the date of the Agreement, all of which shall be borne by AME
         and ERSAN, as between them equally or in such other proportions as they
         may agree, except for costs associated with the Krakilise-1 well.

8.4      Turnkey. The payment terms and conditions specified in a Turnkey
         contract shall supersede any contrary provisions of this Accounting
         Procedure. The terms of any Turnkey contract proposed by AME shall be
         consistent with the most favorable terms available in the locale from
         comparable operators.



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