EXHIBIT 10.2

                 LEASE ACQUISITION AND DRILLING AGREEMENT DATED
                            AS OF SEPTEMBER 30, 2002







<PAGE>


                    LEASE ACQUISITION AND DRILLING AGREEMENT

This Lease  Acquisition and Drilling  Agreement is made and entered into the day
and year hereinafter  stated,  effective  September 30, 2002 except as otherwise
provided,  stated  by and  between  Pioneer  Oil,  a Montana  limited  liability
company,  Billings,  Montana, party of the first part, ("Pioneer"),  and Dolphin
Energy Corporation, a Nevada corporation,  party of the second part ("Dolphin").
Pioneer  and  Dolphin  may  be  collectively  referred  to as a  "party"  or the
"parties".

                                        I
                                    RECITALS

A.       Pioneer represents  but  does  not  warrant  that it  owns  the working
         interest and net revenue interest in certain oil and gas leases located
         in Sheridan County,  Wyoming, more particularly  described on Exhibit A
         attached  hereto  and  incorporated   herein  by  reference   ("Subject
         Leases").

B.       Dolphin  desires  to  acquire  an  interest  in  the  Subject Leases by
         drilling oil and gas wells thereon,  and by paying certain sums for the
         privilege to do so.

C.       Each  of  the Subject Leases provides for certain drilling obligations,
         which must be met to maintain the lease in effect.

D.       Pioneer  desires  to allow Dolphin to earn and will transfer and assign
         its  interest  in the  Subject  Leases to Dolphin on and subject to the
         terms and conditions hereinafter stated.

E.       In  furtherance  of the  foregoing objectives  of both parties, Pioneer
         desires to sell and Dolphin desires to purchase the interest of Pioneer
         in certain natural gas wells set forth on Exhibit B incorporated herein
         by reference,  and the equipment,  rights of way and personal  property
         rights  associated  therewith,  ("Well Assets"),  also on the terms and
         conditions  hereinafter  stated.  It is  understood  that  Well  Assets
         includes only the wells  identified on Exhibit B, and shall not include
         the right to drill  additional  wells except as provided in Article VII
         E. hereof.

                                       II
                                    AGREEMENT

Now,  for and in consideration of the mutual rights and benefits and obligations
and legal detriments afforded  the parties hereunder, the Pioneer and Dolphin do
hereby agree to, ratify and adopt the following terms.



<PAGE>



                                       III
                     FURTHER CONSIDERATION AND DUE DILIGENCE

A.       Subject  to  the  other  provisions  hereof,  Dolphin  shall  have  the
         reasonable opportunity for a  period  of  sixty (60) days from the date
         hereof,  to  review  all  land  files,  gas  contracts, contract files,
         production  files,  records,  charts, projections, reports, well files,
         logs, technical data  pertaining  in any  way to the Subject Leases and
         the Well Assets,  to  include  all  instruments reasonably requested by
         Dolphin pertaining to ownership of the Subject Leases and Well  Assets,
         the production and mechanical viability of the Well Assets, existing or
         potential environmental  discrepancies,  and any further information or
         data relevant in any way to  the  reservoir engineering  analysis to be
         performed by Dolphin. Dolphin shall also have reasonable access for the
         same  time period to inspect and test the Well Assets at its sole cost,
         risk and expense.

B.       Dolphin  will conduct  its own  investigation as to the Well Assets and
         the Subject Leases, and may  elect to  accept or reject this project in
         its entirety.  Dolphin will, no later than five (5) days from the close
         of  the  investigation  provided  for  above,  notify  Pioneer  of  its
         acceptance  or  rejection  of  the  Well Assets and the Subject Leases.
         Dolphin shall exercise such election in good faith based upon, and only
         upon, title defects  which  Dolphin  believes  cannot  be  cured to its
         satisfaction in a reasonable period of time.

C.       If  Dolphin elects  to accept the Well Assets and the Subject Property,
         it shall deliver to  Pioneer with  such election the sum of One Hundred
         Thousand Dollars ($100,000), to be tendered  by cashier's check or wire
         transfer or other immediately available funds, which amount shall be in
         addition to all other amounts payable hereunder.

                                       IV
                           PURCHASE OF EXISTING WELLS

A.       Pioneer  desires  to  sell and  Dolphin  desires to purchase the entire
         right, title and interest of Pioneer in the Well Assets as set forth on
         Exhibit B for the cash sum of Five Hundred Thousand Dollars ($500,000).

B.       Subject to the other provisions hereof, closing of the recited purchase
         will occur at a  mutually  agreeable  time and place, but no later than
         March 31, 2003.  At closing, Pioneer  will  deliver  an  Assignment and
         Bill  of  Sale on form  acceptable to counsel for each party, conveying
         the working  interest and net revenue interest in the Subject Leases to
         extent identified on Exhibit B for each respective well, and the



<PAGE>



         Well Assets,  together with such certificates or other documents as are
         required  or  convenient  to effect the transfer thereof, or subsequent
         operations thereon, and  Dolphin will pay to Pioneer by cashier's check
         or wire transfer or other  immediately available funds, the sum of Five
         Hundred Thousand Dollars ($500,000).

C.       The  Effective  Date  of  the  purchase  and  sale provided for in this
         Article IV shall be 7 o'clock a.m. local time on January 1, 2003.

D.       Production of natural gas shall be allocated  between the parties as of
         the Effective Date, and all  natural  gas produced from the Well Assets
         before the  Effective  Date and  proceeds  from  the sale thereof shall
         belong to  Pioneer and natural gas  produced from the Well Assets after
         the Effective Date  and  proceeds from the sale thereof shall belong to
         Dolphin.  All expenses incurred to operate and maintain the Well Assets
         prior to the Effective Date  shall be the responsibility of Pioneer and
         all such  expenses incurred  subsequent to  the Effective Date shall be
         the responsibility of Dolphin.

E.       Notwithstanding  the  provisions  of  the  preceding paragraph, Wyoming
         severance and conservation taxes shall be allocated between the parties
         as of the Effective Date.  Wyoming  severance and conservation taxes on
         production prior to  the Effective  Date shall be the responsibility of
         Pioneer, and  Wyoming severance  and  conservation  taxes on production
         subsequent  to  the  Effective  Date  shall  be  the  responsibility of
         Dolphin.  Wyoming ad valorem taxes on gas production shall be similarly
         allocated based upon the date of production for valuation purposes, not
         upon the date of reporting, assessment or collection. The parties shall
         cooperate  to  timely  and  accurately file all applicable tax reports,
         shall communicate  one  to  the  other to verify that such taxes are in
         fact timely  paid, and, subject  to  the allocation provisions provided
         for  herein,  that  any  dispute pertaining  to them is resolved to the
         reasonable satisfaction of both parties.

F.       The parties do hereby agree to indemnify and  hold one another harmless
         from  the  liability  imposed  upon  the  indemnifying party under  the
         provisions of this Article  IV, including reasonable  court  costs  and
         attorneys fees.

G.       Adjustments to  the  purchase price provided for in Article IV A. shall
         be  made at  closing and  within  one hundred eighty days subsequent to
         closing   to  reflect  the foregoing  allocations, even if estimates of
         taxes  and  expenses  are  relied upon to facilitate such closing.  Any
         adjustment to  the  purchase  price  based  upon  production valuation,
         expenses,  taxes or  otherwise,  which are  not claimed by either party
         within such one hundred  and eighty  day period  shall be deemed waived
         and the accounting  for closing shall be deemed final even if estimates
         of taxes and  expenses are  relied upon to facilitate such closing even
         if estimates  of  taxes and expenses are relied upon to facilitate such
         closing.



<PAGE>



                                        V
                             DRILLING OF PILOT WELLS

Dolphin  shall  participate  in  a pilot  project  to develop the Subject Leases
for natural gas production from coal bed seams, as follows:

A.       Subject to the other terms hereof, Dolphin will, at its sole cost, risk
         and  expense,  commence  actual  drilling up to sixty (60)  natural gas
         wells at locations of its choice on the Subject Leases.  Each well will
         be diligently  drilled to penetrate and adequately test the one or more
         coals of the Fort Union Formation or to a depth of 2000 feet, whichever
         is shallower ("Pilot Wells"). Upon reaching the total depth so drilled,
         each well will be  completed  to produce to the  pipeline or  gathering
         system to which it may be connected,  or plugged and abandoned as a dry
         hole in accordance with applicable laws and  regulations.  The location
         on which Pilot Wells will be drilled, and the timing by which they will
         be drilled  will be in the sole and  complete  discretion  of  Dolphin,
         provided  that  Dolphin  will no  later  than May 1,  2003,  (1) pay to
         Pioneer,  by  cashier's  check or wire  transfer  or other  immediately
         available  funds,  the sum of One Million Five Hundred Thousand Dollars
         ($1,500,000)  (less any amounts  previously  paid by Dolphin to Pioneer
         pursuant  to  paragraph  V D.  below),  and  (2)  pay  into a  mutually
         acceptable escrow account, estimated costs to drill and complete thirty
         (30) Pilot Wells.  Dolphin will in any event drill at least twenty-five
         (25) Pilot Wells no later than October 1, 2003,  and the escrowed funds
         will be disbursed as  necessary to costs and expenses  associated  with
         such wells.

B.       Notwithstanding  the  foregoing,  the  Pilot  Wells will be drilled and
         operated  in  such a  manner  as to  fully  comply  with  the  drilling
         obligation  provisions of the Subject Leases and,  subject to the other
         provisions  hereof,  in such a manner as to maintain the Subject Leases
         in full force and effect.

C.       In the event that Dolphin does not drill and complete to produce to the
         pipeline or gathering system, or plug and abandon, at least 25 wells on
         or before May 1, 2003, Pioneer, or its assignee,  shall have the right,
         but no the obligation,  to drill such wells as may be required in order
         for Pioneer to comply with its drilling  obligations  under the Subject
         Leases.

D.       No  later than  the end of the month following that in which casing has
         been  cemented in any  particular  pilot well,  Dolphin  will tender to
         Pioneer  by  cashier's  check or wire  transfer  or  other  immediately
         available  funds,  the sum of $25,000  for the first well on each drill
         site spacing unit. The parties recognize that an additional well may be
         drilled on each drill site  spacing  unit by  penetrating  to different
         coals under current  spacing  regulations,  with no additional well fee
         paid to Pioneer.



<PAGE>



                                       VI
                          ASSIGNMENT OF DRILLED ACREAGE

In the event that Dolphin shall have drilled and completed, either as a producer
or  a  dry  hole, any  of  the  Pilot Wells, Pioneer will, upon written request,
assign, and convey to Dolphin all of its right, title and interest in and to the
Subject Leases insofar  as  they  pertain  to the eighty acre drill site spacing
unit for any well so drilled to all depths  covered by the Subject Leases.  Such
assignment and conveyance shall be on such  form as is acceptable to counsel for
each party, and shall convey the working  interest  and net revenue interest not
less than that identified on Exhibit A.

                                       VII
                            ADDITIONAL OPTION ACREAGE

A.       In the event that Dolphin shall have fully and timely complied with the
         terms and provisions hereof,  Dolphin shall have the right, but not the
         obligation,  to drill  additional  wells on the  Subject  Leases.  Such
         additional  drilling  will  occur at the sole  option and  election  of
         Dolphin. Any wells so elected to be drilled by Dolphin shall be drilled
         and  completed,  or plugged an abandoned  as a dry hole,  no later than
         October 31, 2005.

B.       The Subject Leases represent additional drill sites (approximately 164
         under current spacing rules). Commencing on November 1, 2003, or sooner
         if so elected by Dolphin,  Dolphin shall notify Pioneer of any election
         to drill it might wish to exercise during the month following the first
         of the month by which  such  election  must be made.  In the event that
         Dolphin elects to drill fewer than sixty (60) wells between  October 1,
         2003 and October 1, 2004,  and fewer than sixty (60)  additional  wells
         between October 1, 2004 and October 1, 2005, Pioneer, or its assignees,
         may elect to drill wells on the Subject  Leases for their own  account,
         not to exceed the total number of wells  necessary for sixty (60) wells
         to be drilled by the  parties  between  October 1, 2003 and  October 1,
         2004 and an  additional  sixty (60) wells to be drilled by the  parties
         between  October 1, 2004 and October 1, 2005.  In that  event,  Pioneer
         shall  notify  Dolphin of its  election  to do so within  five (5) days
         after receipt of Dolphins well list. The location and anticipated depth
         of Pioneers wells shall be within the sole discretion of Pioneer or its
         assignees,  provided that no wells shall be drilled on any spacing unit
         previously  assigned to Dolphin or  previously  identified on Dolphin's
         well list.

C.       For  each  option  well  it  elects  to  drill  under the terms of this
         Article,  Dolphin shall tender the sum of Twelve  Thousand Five Hundred
         Dollars ($12,500) per well, as


<PAGE>



         opposed to per spacing unit, and otherwise in the same manner  provided
         for above as to payment for Pilot Wells.

D.       For each option  well  it  elects to  drill  under  the  terms  of this
         Article,  and if Dolphin is otherwise in full compliance with the terms
         hereof,  Pioneer shall assign and convey to Dolphin its interest in the
         eighty-acre drill site for the well so elected and drilled, in the same
         manner provided for above for the Pilot Wells.

E.       Anything  herein  to the contrary notwithstanding, should Dolphin elect
         to drill  additional  wells on the drill site spacing unit for the Well
         Assets  purchased  under  Article  IV above,  either as Pilot  Wells or
         additional  wells under this  Article,  it shall pay Pioneer the sum of
         Twelve Thousand Five Hundred  Dollars  ($12,500) in the manner provided
         for above as to the Pilot Wells or additional wells as applicable.

                                      VIII
                           REPRESENTATIONS BY PIONEER

Pioneer represents and warrants to Dolphin that:

         1.       It is organized and in good standing in the state of Wyoming;
         2.       It  has  the  corporate  power and authority to enter into the
                  contemplated transaction;
         3.       Execution and delivery  of this document, consummation of this
                  transaction  and  performance  hereunder  will  have been duly
                  authorized, and will not result in conflict  with or breach of
                  or  default  under  any  other  obligation to  which it may be
                  bound;
         4.       This  Agreement will be binding and enforceable in accord with
                  its terms;
         5.       There  are  no  legal  proceedings  against it with respect to
                  which it has  been  notified  or served with process that will
                  affect  the  Subject  Leases  or  the  Well Assets, or hinder,
                  impede or prevent performance by it hereunder;
         6.       All operations on the  Subject Leases and the Well Assets have
                  been  performed  in compliance with all applicable laws, rules
                  and regulations, are  bottomed on the Subject Leases, and have
                  otherwise  been operated  in a good and workmanlike manner and
                  in accord with industry practice;
         7.       There  are  no  contracts  or  instruments with respect to the
                  Subject  Leases  or  Well  Assets  that  are  not disclosed on
                  Exhibit A  and  it  is  not  in  breach  of  any  agreement so
                  disclosed;
         8.       Title to  the Subject  Leases and the Well Assets is vested in
                  it  free and  clear  of all  liens, burdens  and encumbrances,
                  whether or not disclosed;
         9.       Its  working  interest  is  not  more than and its net revenue
                  interest is not less than that set forth on Exhibit A;



<PAGE>



         10.      The Subject Leases are in full force and effect in accord with
                  their  terms, and all obligations arising thereunder have been
                  fully complied with;
         11.      All  equipment  and  machinery  used by it to operate the Well
                  Assets have  been  maintain  in accord  with standard industry
                  practice;
         12.      None  of  the  Well  Assets  is  subject  to any over or under
                  production account or payout account;
         13.      There are no consents required to assign the Subject Leases or
                  the  Well  Assets to Dolphin as provided herein, and there are
                  no  preferential rights  to  purchase  affecting  the  Subject
                  Leases or the Well Assets;
         14.      It has not received any prepayments for wells or  equipment on
                  the Subject Leases;
         15.      There is no broker, finder  or  financial advisor  involved in
                  this transaction.  On behalf of Pioneer.

                                       IX
                           REPRESENTATIONS BY DOLPHIN

Dolphin represents and warrants to Pioneer that:

         1.       It  is  duly  organized  and  in good standing in the state of
                  Nevada;
         2.       It is authorized to do business in Wyoming;
         3.       It  has  the  corporate  power and authority to enter into the
                  contemplated transaction;
         4.       Execution and  delivery of this document, consummation of this
                  transaction  and  performance  hereunder  will  have been duly
                  authorized, and will not result in  conflict with or breach of
                  or  default  under  any  other  obligation  to which it may be
                  bound;
         5.       This Agreement will be binding and enforceable  in accord with
                  its terms;
         6.       There is no  broker, finder  or  financial advisor involved in
                  this transaction on behalf of Dolphin.

                                        X
                                SUBSTITUTE WELLS

In  the  event  that  impenetrable  substances  are  found, necessary government
permits can not be obtained, events of war, acts of God, or other events, except
economic events beyond  the  control  of the  parties  occurs as to a particular
well, Dolphin  may  drill a substitute well therefor at a location of its choice
of equal quality and  will  earn  the  interest  provided for  above in both the
initial well and the substitute well.  Any substitute well will be treated as an
original well under the terms hereof.  Notwithstanding the  foregoing, all wells
drilled and operations conducted hereunder will be performed in such a manner as
to comply  with and  satisfy  the  drilling obligations contained in the Subject
Leases.



<PAGE>



                                       XI
                            OPERATIONS AND INSURANCE

A.       All  operations to  be conducted by  Dolphin will  be at its sole cost,
         risk and expense, will be conducted in a good and workmanlike manner in
         accord with good industry practice.

B.       Dolphin  may  conduct operations provided for hereunder, or may, it its
         sole discretion,  elect to contract for such operations to be performed
         by others.  Dolphin,  or its designee,  will in any event maintain such
         bonds and  insurance  as may be  required by law,  and as are  standard
         industry practice for the operations contemplated by this Agreement.

C.       In addition to the foregoing, operations hereunder will in any event be
         conducted  in  compliance  with the terms of the  Subject  Leases,  and
         Dolphin agrees to use its best efforts to maintain a relationship  with
         surface  owners and  lessors  as is  consistent  with  those  presently
         enjoyed by Pioneer.

                                       XII
                       ADDITIONAL COVENANTS AND CONDITIONS

Performance  by  Dolphin  of  its  obligations hereunder and, in particular, the
obligation to close on the Well  Assets  provided for in Article III, is subject
to and conditioned upon the following:

         1.       Dolphin has obtained additional capitalization in such amounts
                  and on such terms as are acceptable to it;
         2.       Pioneer has performed all of its obligations hereunder;
         3.       All representations and warranties made by Pioneer are in full
                  force and effect and are true and accurate;
         4.       No material adverse  change  has occurred,  including economic
                  events and declines in production;
         5.       Title to the Subject  Leases and the Well Assets is acceptable
                  to Dolphin in its reasonable judgment;
         6.       Pioneer   has   provided  such  instruments  as  Dolphin   may
                  reasonably   request   to   verify   the   accuracy   of   the
                  representations and warranties made by Pioneer hereunder.



<PAGE>



                                      XIII
                                     NOTICES

All notifications to be delivered hereunder, shall be made as follows:

                  Pioneer Oil, LLC
                  1953 Main Street, Suite A
                  Billings, Montana  59105
                  Phone (406) 254-7071
                  Fax     (406) 254-2560

                  Dolphin Energy Corporation
                  Suite 1708
                  1155 Brickell Bay Drive
                  Miami, Florida  33131
                  Phone
                  Fax

                                       XIV
                               GENERAL PROVISIONS

A.       This Agreement will be  binding  upon the  parties hereto, their heirs,
         successors and assigns and shall be deemed a covenant  running with the
         Subject Leases.

B.       No  waiver by any party of any one or more defaults by another party in
         the  performance of this  Agreement  shall operate or be construed as a
         waiver of any future default or defaults by the same party,  whether of
         a like or of a different  character.  Except as  expressly  provided in
         this  Agreement,  no party shall be deemed to have waived,  released or
         modified  any of its rights  under  this  Agreement  unless  such party
         expressly  stated,  in writing,  that it does waive,  release or modify
         such right.

C.       If  and for so  long as any provision of this Agreement shall be deemed
         to judged invalid for any reason whatsoever,  such invalidity shall not
         affect  the  validity  or  operation  of any  other  provision  of this
         Agreement  except only so far as shall be  necessary  to give effect to
         the  construction of such  invalidity,  and any such invalid  provision
         shall be deemed  severed  from this  Agreement  without  affecting  the
         validity of the balance of this Agreement.



<PAGE>



D.       This  Agreement  represents  the  entire  agreement of the parties, all
         previous   agreements  and   communications  having  been  merged   and
         integrated into the terms hereof.

E.       Each party shall prepare and  submit any and all filings in relation to
         this Agreement required of such party by any governmental agency having
         jurisdiction.  Each party shall in a timely  fashion  provide the other
         parties with copies of all such filings made by the party.

F.       The captions and heading of this Agreement are for convenience only and
         shall  not  be  considered  a  part  of  or  affect the construction or
         interpretation of any provisions of this Agreement.

G.       In connection with this Agreement and the  transactions contemplated by
         it, each party will  execute  and  deliver any additional documents and
         instruments and perform any additional acts  that  may  be necessary or
         appropriate to effectuate and perform the provisions of this  Agreement
         and those transactions.

H.       In  the  event  that  either  party  incurs  attorney  fees or costs in
         connection with the enforcement  or interpretation  of this  Agreement,
         the party prevailing in such dispute shall be entitled to  recover  its
         costs and attorney fees from the other party.

Date:  OCTOBER 9, 2002                PIONEER OIL, LLC
       ---------------


                                      By:       /s/ TAD D. BUTT
                                         ---------------------------------------

Date:  OCTOBER 11, 2002               DOLPHIN ENERGY CORPORATION
       ----------------


                                      By:      /s/ MARC BRUNER
                                         ---------------------------------------

                                         True signature for this Agreement.
                                         Marc Edward Bruner
                                         Florida DLB65654573061

                                         Martin A. Alexander
                                         MY COMMISSION # CC994957 EXPIRES
                                         February 22, 2005
                                         BONDED THRU FAIN INSURANCE INC.



<PAGE>


STATE OF MONTANA               )
                               ) ss.
COUNTY OF YELLOWSTONE          )

         The foregoing Lease Acquisition and Drilling Agreement was acknowledged
before  me this 9TH day of October, 2002, by TAD D. BUTT as PRESIDENT of PIONEER
OIL, LLC.


                                               /s/ BARBARA J. MARSH
                                         ---------------------------------------
                                         Notary Public
                                         My commission expires:    MAY 7, 2005
                                                               -----------------
                                         3124 4th Avenue South
                                         Billings, MT  59101


STATE OF ________________  )
                           ) ss.
COUNTY OF _______________  )

         The foregoing Lease Acquisition and Drilling Agreement was acknowledged
before me this _____ day of October, 2002, by ________________ as ______________
of DOLPHIN ENERGY CORPORATION.


                                         ---------------------------------------
                                         Notary Public
                                         My commission expires: ___________




<PAGE>

                        ZARLENGO & KIMMELL, LLC
                           Attorneys At Law
       1775 Sherman Street, Suite 1375 - Denver, Colorado 80203
Dante L. Zarlengo       E-Mail:  ZarKim01@aol.com        Telephone: 303/832-6067
Direct Dial: 303/832-6334                                      Fax: 303/832-6401

2 January 2003

VIA FACSIMILE TRANSMISSION AND US MAIL

Dan Riggs, Esq.
50 East Louts Street
Sheridan, WY  82801

Mr. Tadd Butt
Pioneer Oil, LLC
PO Box 50684
Sheridan, WY  59105

Re:      Pioneer Oil LLC; Dolphin Energy Transaction
         Lease Acquisition and Development Agreement dated September 30, 2002

Gentlemen:

This  correspondence  will  confirm the  conversation  between Mr. Butt and Marc
Bruner concerning the above-referenced matter.

Reference is made to the  above-captioned  agreement.  As you know,  this office
represents Dolphin Energy Corporation regarding the foregoing matter. In further
consideration of that identified in the recited agreement,  we are authorized to
agree to the following amendments to the recited agreement.

It is hereby agreed that Article III-B and C of the  above-referenced  agreement
are hereby amended by addition of the following language:

1.       Article III-B is amended by addition of the following:

         "Notwithstanding the foregoing,  Dolphin shall notify Pioneer
         of its  election  to accept or reject the Well Assets and the
         Subject  Leases no later than close of  business  January 31,
         2003."

2.       Article III-C is amended to state as follows:

         "If Dolphin  elects to accept the Well Assets and the Subject
         Property,  it shall deliver to Pioneer with such election the
         sum of one  hundred  thousand  dollars  by close of  business
         January 31, 2003, by cashiers check or wire transfer or other
         2


<PAGE>


January 2003
Page 2


         immediately   available  funds,  which  amount  shall  be  in
         addition to all other amounts payable hereunder."

3.       Further, Article V-A, fifth line, is amended by substitution, as
         follows:

         "3000 FEET whichever is shallower (Pilot Wells").

Otherwise the recited agreement shall remain in full force and effect.

By executing this agreement,  neither  party  waives any rights or claims it may
have  pertaining  to the recited transaction which has accrued or that may later
accrue.

If  the  foregoing reflects your understanding of our agreement, please indicate
your acceptance  and agreement to these terms by signing and returning a copy of
this letter to the undersigned via facsimile transmission immediately.

Very truly yours,

ZARLENGO & KIMMELL, LLC

/s/ Dante L. Zarlengo

Dante L. Zarlengo

AGREED TO AND ACCEPTED THIS 4TH DAY OF JANUARY, 2003.


                                      Pioneer Oil, LLC


                                      /s/  TADD BUTT
                                      --------------------------------
                                      Tadd Butt

cc:      Marc Bruner




<PAGE>

                                GALAXY
                          ENERGY CORPORATION
--------------------------------------------------------------------------------
1001 Bickell Bay Drive Suite 2202  o  Miami, Florida 33131  o tel (305) 578-5725
o  fax (303) 373-5726   o  www.galaxyenergy.com

Dan Riggs, Esq.
50 East Louts Street
Sheridan, WY  82801

Mr. Tadd Butt
Pioneer Oil, LLC
PO Box 50684
Sheridan, WY  59105

Re:      Pioneer Oil LLC; Dolphin Energy Transaction
         Lease Acquisition and Development Agreement dated September 30, 2002

Gentlemen:

This correspondence will confirm the conversation between Mr. Butt and Marc
Bruner concerning the above-referenced matter.

Reference is made to the above-captioned agreement.  In further consideration of
that identified in the recited agreement, we are authorized to agree to the
following amendments to the recited agreement.

It is hereby agreed that Article IV-B, Article IV-C, and Article V-A of the
above-referenced agreement are hereby amended as follows:

1.       Article III is amended by addition of the following:

         In consideration of this Extension Agreement, Dolphin shall
         pay the sum of $100,000 to Pioneer on or before May 15, 2003.
         Further, upon further written agreement of the parties, the
         payment or payments to be made by Dolphin to Pioneer pursuant
         to this Article III-D ($100,000), or Article IV-A and B
         ($500,000), may be extended by a written Agreement signed by
         both parties specifically referencing such payment, the date
         of which is to be extended.

2.       The first sentence of Article IV-B is amended to read as follows:

         Subject to the other provisions hereof, closing of the recited
         purchase will occur at a mutually agreeable time and place,
         but no later than May 15, 2003.

3.       Article IV-C is amended to read as follows:


<PAGE>



         The Effective Date of the purchase and sale provided for in
         this Article IV shall be 7 o'clock a.m. local time on May 1,
         2003.

4.       Article V-A, tenth line, is amended by substitution, as follows:

         ... complete discretion of Dolphin, provided that Dolphin
         will no later than May 15, 2003, (1) ...

Otherwise the recited agreement shall remain in full force and effect.

This correspondence will also confirm our election under Article III-B of the
above referenced agreement to accept the Well Assets and the Subject Leases.
Please acknowledge this election and receipt of the prospect fee provided for in
Article III-C of the referenced agreement.

By executing this agreement, neither party waives any rights or claims it may
have pertaining to the recited transaction which has accrued or that may later
accrue.

If the foregoing reflects your understanding of our agreement, please indicate
your acceptance and agreement to these terms by signing and returning a copy of
this letter to the undersigned via facsimile transmission immediately.

Thank you for your continued cooperation and professional conduct of this
transaction.

Very truly yours,

DOLPHIN ENERGY, INC.

By    /s/ MARC BRUNER
   ----------------------------------
   Mark E. Bruner, President

                                Agreed to and to accepted this 31st day of
                                January, 2003.

                                 PIONEER OIL, Oil, LLC

                                 By   /s/ TADD BUTT
                                   ---------------------------------------------
                                   Tadd Butt