EXHIBIT 10.3

              COAL BED METHANE PARTICIPATION AGREEMENT DATED AS OF
                           OCTOER 1, 2002, AS AMENDED


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                    COAL BED METHANE PARTICIPATION AGREEMENT

         This Coal Bed Methane  Participation  Agreement  (this  "Agreement") is
made and  entered  into by and  between  Dolphin  Energy  Corporation,  a Nevada
corporation  ("Dolphin") and Horizon Exploitation,  Inc., a Colorado corporation
("Horizon"),  effective  as of  October  1, 2002  (the  "Effective  Date").  The
foregoing  entities  may be referred to herein  collectively  as  "Parties"  and
individually as a "Party".


                                        I
                                    RECITALS

A.       Pursuant to the terms of the Lease Agreement (as defined herein) and to
         the extent set forth  therein,  Dolphin owns the right to purchase five
         (5) existing coal bed methane wells located in Sheridan County, Wyoming
         ("Purchased  Wells"),  and the right to acquire additional interests in
         oil and gas  leases  on  which  such  wells  are  located  by  drilling
         additional coal bed methane wells and paying certain Well Location Fees
         (as defined below).

B.       Horizon  desires to develop coal bed methane reserves in coal bed seams
         in the area of the  Subject  Leases (as defined  herein),  and, to that
         end,  further  desires to  participate  in the  acquisition of the Well
         Assets (as defined  herein) and an interest in the Subject  Leases,  on
         the terms and conditions hereinafter stated.

C.       Dolphin  desires  to develop its interest in the Subject Leases and the
         Well Assets with Horizon,  and to allow Horizon to participate  therein
         with Dolphin, also on the terms and conditions hereinafter stated.


                                       II
                                    AGREEMENT

         In  order  to accomplish the foregoing objectives, and in consideration
of the mutual  rights,  benefits, obligations, and legal detriments afforded the
Parties hereunder, Dolphin  and Horizon do hereby agree to, ratify and adopt the
following terms.


                                       III
                                   DEFINITIONS

         The  capitalized  terms used in this Agreement shall have the following
definitions:



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         "Affiliate" of a Party shall mean a company, partnership or other legal
entity  that  controls  such Party,  is  controlled  by such Party,  or which is
controlled by an entity that controls such Party.  Control means the  ownership,
directly or indirectly, of 50% or more of the shares or other ownership interest
of a company,  partnership or other legal entity OR the possession of day-to-day
management authority in a company, partnership or other legal entity.

         "AMI" shall mean the area of mutual interest and of non-competition for
which  provision  is herein  made as defined  on  Exhibit D attached  hereto and
incorporated herein by reference.

         "Bumbaca  Agreement" shall mean that certain  Assignment of Oil and Gas
Leases Reserving a Net Profits Interest,  dated August 28, 2002, between Dolphin
and Tom Horn, LLC.

         "Bumbaca Fee" shall mean the fee of Three Hundred  Ninety-Six  Thousand
Dollars  ($396,000)  required  to be paid by Dolphin to Tom Horn,  LLC under the
ultimate paragraph of the Bumbaca Agreement.

         "Bumbaca Leases" shall mean the oil and gas leases described on Exhibit
C attached hereto and incorporated herein by reference.

         "Carried Interest" shall mean an undivided fifteen percent (15%) of the
Leasehold  Interest,  subject to  Proportionate  Reduction,  represented  by the
applicable Subject Lease to which a Carried Interest pertains  hereunder,  which
shall be free  and  clear  of any  cost,  risk or  expense  associated  with the
drilling  and  completion  as  well as the  recompletion  (or  other  Subsequent
Operations)   directly  associated  with  establishing  new  production  in  the
shallower  coals of the Well in the Target Horizon as well as equipping the Well
to the point of first  connection  to the gathering  system  pipeline to which a
well is connected on the Subject Lease. The Carried Interest applies to the five
(5) coal bed natural gas wells included  among the Well Assets,  the Pilot Wells
and any Option Wells  contemplated  hereunder,  including any  recompletions (or
other  Subsequent  Operations)  directly  associated with the  establishing  new
production  in the  shallower  coals  in the  same  wellbore,  but  specifically
excluding  any plugging and  abandonment  operations  with respect to any Wells.
Except to extent of  expenses  subject  to the  Carried  Interest,  Dolphin  and
Horizon shall  otherwise be subject to the terms of any applicable JOA governing
operations under the Subject Leases.

         "CMB" shall mean coal bed methane gas and related hydrocarbons, if any,
produced from coal seams under this Agreement,  and  specifically  from geologic
strata  from  the  surface  to the  depth of 2,300  feet,  or the  stratigraphic
equivalent  of the base of the Fort Union  Formation,  whichever  is the greater
depth.

         "coal bed methane" shall mean CBM.

         "Contract  Operator"  shall mean  Crusader  Resources,  LLC, a Colorado
limited liability company.

         "Contract  Operatorship Well Fee" shall mean the $5,000.00 per Well fee
to be paid to the Contract  Operator  pursuant to Article VII.D and Article IX.A
hereunder.


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         "Development  Program" shall mean the drilling and completion of Option
Wells, the construction of gathering systems and such other facilities as may be
necessary or convenient for the production and sale of coal bed methane  natural
gas produced from the Subject Leases hereunder as provided in Article IX hereof.

         "Force Majeure" shall mean any Act of God,  including,  but not limited
to, lightning,  earthquakes,  fires, floods, or tornadoes;  strikes, lockouts or
other industrial  disturbance;  act of the public enemy; wars; riots; epidemics;
lack of any  necessary  licenses,  approvals  or permits  or delay in  obtaining
licenses,  approvals  or permits from a Regulatory  Agency;  direct  injunction,
prohibition,  delay or interruption by acts, order,  regulations or requirements
from a Regulatory  Agency; or other events beyond the reasonable  control of the
Party whose obligations hereunder are effected by such event.

         "Infill  Wells"  shall mean the second well  drilled on any eighty acre
(or other prescribed) drill site spacing unit.

         "JOA" shall mean any Joint  Operating  Agreement for which provision is
made in Article VI.D hereof.

         "Lease  Agreement"  shall  mean  that  certain  Lease  Acquisition  and
Drilling  Agreement dated  effective  September 30, 2002, by and between Pioneer
Oil, LLC and Dolphin, pertaining to the Project and the Subject Leases.

         "Leasehold  Interest"  shall mean the  operating  interest in a Subject
Lease and shall, for all purposes herein,  be deemed to be identical to the term
"Working Interest."

         "Net Revenue Interest" shall mean the  proportionate  share of revenues
from the sale of  production  of oil and gas or the in-kind  equivalent  thereof
produced from the Subject Leases.

         "Oil and Gas" shall mean oil, gas (including  coal bed methane  natural
gas) and other hydrocarbons.

         "Option  Well" shall mean any gas well drilled  under Article IX hereof
as part of the Development Program.

         "Pilot  Program"  shall mean  drilling  and  completion  as well as the
recompletion  (or  other  Subsequent   Operations)   directly   associated  with
establishing  new production in the shallower coals in the Target Horizon of the
Pilot  Wells,  and the  process of  evaluation  of the results of such Wells and
other relevant factors, to assess the economic parameters of the Project.

         "Pilot Wells" shall mean those coal bed methane Wells drilled  pursuant
to Article VIII hereof to test coals in the Target Horizon.

         "Project"  shall mean  evaluation of and development of the Well Assets
and Subject Leases for the production of CBM as contemplated by this Agreement.


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         "Proportionate  Reduction"  shall  mean,  with  respect to any  Working
Interest  or  Carried  Interest,  the  proportion  that a  particular  Leasehold
Interest bears to the entire  mineral  estate,  and in the  proportion  that the
undivided  interest in any  particular  Leasehold  Interest  bears to the entire
interest in a Subject Lease and shall mean, with respect to Net Revenue Interest
or an overriding royalty interest, the proportion that revenue attributable to a
particular  leasehold,  royalty,  overriding  royalty,  or other  real  property
interest bears to the entire revenue attributable to a Subject Lease.

         "Purchased Wells" shall be the five (5) existing coal bed methane wells
on the Subject Leases.

         "Regulatory  Agency" means the  applicable  governmental  agency of the
United States of America, the State of Wyoming, or any political  subdivision of
either of them with  jurisdiction  over the matters  contemplated  hereunder and
covered hereunder,  including without limitation the United States Department of
the Interior, Bureau of Land Management,  United States Environmental Protection
Agency,  the  Wyoming  Oil  and Gas  Conservation  Commission,  and the  Wyoming
Department of Environmental Quality.

         "Subject  Leases"  shall  mean  such oil and gas  leases  described  on
Exhibit A attached hereto and incorporated herein by reference.

         "Subsequent  Operations" shall have the meaning ascribed thereto in the
applicable JOA.

         "Target  Horizon"  shall mean the  geologic  strata  targeted  as being
prospective  for  commercial CBM reserves from the surface to the depth of 2,300
feet, or the  stratigraphic  equivalent of the base of the Fort Union Formation,
whichever is the greater depth.

         "Term" has the meaning ascribed thereto in Article XIII herein.

         "Well  Assets"  shall mean the five (5) existing coal bed methane wells
to  be  purchased  hereunder,   described  on  Exhibit  B  attached  hereto  and
incorporated  herein by  reference,  together  with the  facilities,  equipment,
rights-of-way,   permits,  personal  property  and  contract  rights  associated
therewith.

         "Well  Location  Fee"  shall mean the fee paid by Horizon to Dolphin as
prescribed in Article VIII.D and Article IX.A below.

         "Wells"  shall mean all coal bed methane wells  purchased  hereunder as
part of the Well Assets as well as all wells drilled pursuant to this Agreement.

         "Working Interest" shall mean the operating interest in a Subject Lease
and  shall,  for all  purposes  herein,  be deemed to be  identical  to the term
"Leasehold Interest".

                                       IV
                           REPRESENTATIONS BY HORIZON

Horizon represents and warrants to Dolphin that:


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A.       It is organized and in good standing in the State of Colorado.

B.       It has the corporate  power  and authority to enter into this Agreement
         and the transactions contemplated hereunder.

C.       Execution  and  delivery  of  this document and the consummation of the
         transactions contemplated hereunder will have been duly authorized, and
         will not result in any conflict  with or breach of or default under any
         other obligation to which it may be bound.

D.       This Agreement is binding and enforceable in accordance with its terms.

E.       It  has  not  engaged  any broker, finder or financial advisor for this
         transaction for which  Dolphin  would  be  liable for any fees or other
         compensation or otherwise.

                                        V
                           REPRESENTATIONS BY DOLPHIN

Dolphin represents and warrants to Horizon that:

A.       It is duly organized and in good standing in the State of Nevada.

B.       It is authorized to do business in the State of Wyoming.

C.       It has  the  corporate power and authority to enter into this Agreement
         and the transactions contemplated hereunder.

D.       Execution  and  delivery  of this document and the consummation of this
         transaction and  performance  hereunder will have been duly authorized,
         and will not result in any conflict  with or breach of or default under
         any other obligation to which it may be bound.

E.       This Agreement is binding and enforceable in accordance with its terms.

F.       It has  not  engaged any  broker, finder  or financial advisor for this
         transaction for which  Horizon  would be liable  for  any fees or other
         compensation or otherwise.

                                       VI
                          DUE DILIGENCE AND COMMITMENT

A.       For  a period  of forty-five  (45) days from the Effective Date hereof,
         the  Parties  agree  to  promptly  conduct   a  joint   due   diligence
         investigation  of  the  Well  Assets  and  the  Subject  Leases  and to
         cooperate   fully   toward   a  complete   evaluation  of  the  Project
         satisfactory  to  both  Parties.  In  the  conduct of such review, each
         Party  shall  retain, at its sole cost, risk and expense, its own legal
         counsel and such technical and other consultants as it deems necessary.
         Such  evaluation  shall  be  concluded within the recited due diligence
         time period.



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B.       Within  fifteen  (15) days  of completion of the review provided for in
         the  preceding  paragraph,  each Party shall  notify the other Party in
         writing of its election to  participate in the Project on the terms set
         forth herein, or to decline to do so. In the event that neither Dolphin
         or Horizon should elect to  participate in the Project,  this Agreement
         shall terminate as to both Parties,  and,  subject to the provisions of
         Article  XIII,   neither  Party  shall  have  any  further   rights  or
         obligations  under  this  Agreement.  In the event  that only one Party
         elects to  participate,  all rights,  titles,  interests,  benefits and
         burdens associated with the Project,  including the right to pursue the
         Project  in  accordance  with  the  Lease  Agreement  and  the  Bumbaca
         Agreement,  shall  become  vested  solely  in  the  Party  electing  to
         participate in the Project,  and,  subject to the provisions of Article
         XIII, the other Party shall have no further rights or obligations under
         this  Agreement.  In the event that both Parties elect to  participate,
         their respective  elections shall be deemed a commitment to participate
         in the  Project  that is  binding  on each  Party  under  the terms and
         conditions  set forth  herein.  In the  event  that  Dolphin  elects to
         participate,  it shall  have the option to elect to  participate  for a
         Working Interest of not less than 1% nor greater than 50%. In the event
         that Horizon  elects to  participate,  it shall be required to purchase
         the balance of the Working  Interest Dolphin does not elect to acquire.
         Failure to timely elect shall be deemed an election not to participate.

C.       Within  ten  (10)  days  of its election to participate in the Project,
         Horizon shall deliver to Dolphin or its designee,  by cashier's  check,
         wire  transfer or other  immediately  available  funds,  the sum of One
         Hundred  Thousand Dollars  ($100,000.00),  provided that such funds are
         available  to  Horizon,  in which  event  such  funds  shall be paid to
         Dolphin when available to Horizon, but in no event later than three (3)
         days  prior  to the  date due to  Pioneer  Oil,  LLC  under  the  Lease
         Agreement.  It is intended that such funds represent the commitment fee
         referenced  in Article  III of the Lease  Agreement,  and, to that end,
         shall be in turn be  delivered to Pioneer Oil, LLC to secure the rights
         of the Parties to develop the Project under the terms hereof.

D.       Within ten (10) days of the election  of both Parties to participate in
         the Project,  the Parties shall enter into a mutually  agreeable  joint
         operating  agreement  ("JOA")  on AAPL Form  610,  which,  among  other
         things,  shall  provide  for  electing  joint loss of title,  insurance
         provisions meeting industry standard,  COPAS accounting  procedure with
         drilling rates per Well of One Thousand  Dollars  ($1,000.00)  per day,
         and  producing  rates per Well of Six  Hundred  Dollars  ($600.00)  per
         month, a gas balancing  agreement on RMMLF Form 6 with cash  balancing,
         preferential  rights  stricken,  nonconsent  penalty of 300%,  and such
         other terms as the Parties shall in good faith adopt.  Dolphin shall be
         designated as operator thereunder.

                                       VII
                   PURCHASE OF WELL ASSETS AND BUMBACA LEASES

A.       If Horizon elects to participate in the Project, on or before March 31,
         2003, Horizon shall deliver to Dolphin by cashiers check, wire transfer
         or other immediately  available funds, the sum of Five Hundred Thousand
         Dollars  ($500,000.00).  It is intended  that such funds  represent the
         purchase  price for the Well  Assets  referenced  in  Article IV of the
         Lease Agreement, and, to that end, shall


<PAGE>




         be in turn  delivered  to Pioneer  Oil, LLC to secure the rights of the
         Parties to own the Well  Assets and to develop  the  Project  under the
         terms hereof.

B.       Within  ten  (10)  days  of  closing on the Well Assets under the Lease
         Agreement,  Dolphin  will assign and convey to Horizon all of Dolphin's
         right,  title and interest in and to the Well Assets acquired under the
         Lease Agreement and subject to the terms thereof,  effective January 1,
         2003, except and reserving unto Dolphin the Carried Interest.

C.       All  allocations  and adjustments to the purchase price provided for in
         Article IV of the Lease Agreement shall, in turn, be effectuated by the
         Parties to the effect that, with the exception of the Carried Interest,
         Horizon shall enjoy the same  benefits and suffer the same  liabilities
         concerning  the Well Assets as are allocated to Dolphin under the terms
         of the Lease Agreement.

D.       Dolphin  shall  cause the Bumbaca Fee to be paid to Tom Horn, LLC prior
         to August 1, 2003, for which payment  Dolphin shall have sole liability
         hereunder.  Within ten (10) days of closing on the  Bumbaca  Agreement,
         Dolphin will assign and convey to Horizon all of Dolphin's right, title
         and interest in and to the Bumbaca  Leases  acquired  under the Bumbaca
         Agreement and subject to the terms  thereof,  except and reserving unto
         Dolphin the Carried Interest.

E.       In the  event  Dolphin does not cause the Bumbaca Fee to be paid to Tom
         Horn,  LLC prior to August 1, 2003,  Horizon shall have the right,  but
         not the  obligation,  to pay the  Bumbaca Fee and assume all rights and
         liabilities  under the  Bumbaca  Agreement,  in which event (i) Dolphin
         shall automatically  forfeit any claim or right it might otherwise have
         to the  options  to  participate  in the  Bumbaca  Leases  set forth in
         Article  VIII.I and  Article  IX.E;  (ii) any lands or related  mineral
         rights  covered by the Bumbaca  Leases shall  automatically  be removed
         from the definition of AMI for all purposes under this  Agreement;  and
         (iii) the term Subject  Leases as used  hereunder  shall  thereafter be
         deemed not to include the Bumbaca Leases,  notwithstanding anything set
         forth herein to the contrary.

                                      VIII
                     PILOT PROGRAM AND SUBSEQUENT ELECTIONS

A.       Pursuant  to  the  terms of the Subject Leases, Lease Agreement and the
         applicable JOA,  Dolphin shall  diligently drill or cause to be drilled
         up to sixty (60) Pilot Wells to the Target  Horizon.  Upon reaching the
         total depth so drilled, each Pilot Well will be either completed to the
         gathering  system  pipeline or plugged and  abandoned  as a dry hole in
         accordance  with  applicable  laws and  regulations.  The Parties  will
         consult  with each other as to the  location  of each Pilot  Well,  the
         timing of drilling,  and the  anticipated  and  completed  depth of the
         Target Horizon, but the final decision in the absence of such agreement
         will be in the sole and complete  discretion of Dolphin,  provided that
         in any event Dolphin shall complete twenty-five (25) of the Pilot Wells
         no later  than  October  1,  2003,  and that any  funds  held in escrow
         pursuant to Article  V.A. of the Lease  Agreement  will be disbursed in
         accordance  with the Lease  Agreement  as  necessary to cover costs and
         expenses  associated with such Pilot Wells.  Dolphin shall complete all
         of the Pilot  Wells which it is required to drill or elects to drill in
         compliance with the terms of Article V of the Lease Agreement and the
         applicable JOA.

<PAGE>




B.       No  later  than May 1, 2003, Horizon will tender to Dolphin by cashiers
         check or wire transfer or other immediately available funds, the sum of
         One Million Six Hundred Fifty Thousand  Dollars  ($1,650,000.00),  plus
         the estimated amount to drill and complete the thirty (30) Pilot Wells.
         It is the intention of the Parties that  $1,500,000.00  of the funds so
         delivered shall represent the Well Location Fee provided for in Article
         V of the Lease Agreement,  and will in turn be paid to Pioneer Oil, LLC
         in accordance with said Article V of the Lease Agreement,  and that One
         Hundred Fifty Thousand Dollars  ($150,000.00) of the Funds so delivered
         shall  represent the Contract  Operatorship  Well Fees of Five Thousand
         Dollars ($5,000.00) per Well provided for in Article VIII.D and Article
         IX.A  of this  Agreement,  and  will  in  turn be paid to the  Contract
         Operator in  accordance  with said  Articles  VIII.D and IX.A.  of this
         Agreement.  In the event that  Dolphin is entitled to the return of any
         such fees or  escrow  amounts  under the terms of the Lease  Agreement,
         Dolphin  agrees to share such  monies,  if any,  in  proportion  to the
         respective Working Interests  (excluding any Carried Interest) owned by
         Dolphin and Horizon.

C.       Within ten (10) days of receipt of the assignment of interest earned by
         Dolphin  by  drilling,  testing,  logging,  completing,   recompleting,
         reworking,  deepening  and/or  sidetracking  the Pilot  Wells for which
         provision  is made in Article VI of the Lease  Agreement,  Dolphin will
         assign and convey to Horizon  all of its right,  title and  interest in
         and to the Subject  Leases,  insofar as they  pertain to the drill site
         spacing unit for any Well so drilled and any other acreage  earned as a
         result of such drilling operations to all depths covered by the Subject
         Leases.  Dolphin shall except and reserve the Carried Working  Interest
         unto itself,  its  successors  and assigns.  Such  assignment  shall be
         subject only to: (1) royalties,  overriding royalties and other burdens
         in effect  and of  record as of the  Effective  Date,  (2) the  Carried
         Interest,  and (3) an  overriding  royalty of 2% of 8/8ths,  subject to
         Proportionate  Reduction and such further reduction as may be necessary
         to ensure that the Net Revenue  Interest in the Subject Leases to be so
         delivered to Horizon will not be less than Seventy-Eight Percent (78%),
         subject to Proportionate Reduction.

D.       Notwithstanding  the  foregoing,  Dolphin  may, in its sole discretion,
         drill a total of two (2) Wells to  different  coal seams on each eighty
         acre  drill site  spacing  unit as  permitted  by the  applicable  well
         spacing  regulations.  Horizon shall pay Dolphin a Well Location Fee of
         Thirty Thousand Dollars  ($30,000.00) for each Pilot Well and Seventeen
         Thousand Five Hundred Dollars  ($17,500.00)  for any Well  constituting
         the second Well in the spacing  unit,  including  any  completions  and
         recompletions (or other Subsequent Operations) directly associated with
         establishing  new production in the shallower  coals of the Well in the
         Target  Horizon;  provided,  however,  that in no event shall the total
         fees to be paid by  Horizon to Dolphin  hereunder  for any eighty  acre
         spacing  unit  exceed   Forty-Seven   Thousand  Five  Hundred   Dollars
         ($47,000.00)  for two Wells,  in each case  including any  completions,
         recompletions,  or other  Subsequent  Operations and including any Well
         Location Fees  prescribed  under  Article IX.A below.  Dolphin shall be
         solely liable for payment of any similar fees to Pioneer Oil, LLC under
         the  Lease  Agreement  and for the  Contract  Operatorship  Well Fee of
         $5,000.00  per Well payable to Contract  Operator  and/or other service
         providers.

E.       Except  as  to  any  Working  Interest  in  which  Dolphin  elected  to
         participate  under  Article VI.B as may be  purchased by Dolphin  under
         sub-article  I of this  Article  VIII,  Horizon  shall  be  liable  and
         responsible  to Dolphin as operator for the entire cost of drilling and
         completion operations on the


<PAGE>



         Pilot  Wells  as  well as for  Subsequent  Operations  (including  fees
         payable to  Contract  Operator).  Dolphin  shall bill  Horizon for such
         costs  and  expenses,  and  Horizon  shall pay such  costs to  Dolphin,
         pursuant to the terms of the JOA.

F.       All geologic, engineering, land and other data pertaining to the  Pilot
         Program shall be shared between the Parties upon request,  it being the
         intent that both Parties shall be provided  sufficient  information  to
         allow each of them to make an informed  evaluation  and  decision as to
         the success of the Pilot  Program  and the  viability  of the  proposed
         Development Program.

G.       Within thirty (30) days of cement of casing of the last of the Wells to
         be  included  in the Pilot  Program,  each Party shall elect in writing
         whether or not it chooses to proceed  with the  Development  Program on
         the terms and conditions  hereinafter  stated.  Failure to timely elect
         shall be deemed an election to not participate.

H.       In  the  event  that  neither  Party should elect to participate in the
         Development  Program,  this Agreement shall  terminate,  and, except as
         provided in Article XIII,  neither Party shall have any further  rights
         or  obligations  under  this  Agreement  other  than  those  rights  or
         obligations  which  have  already  accrued  as  of  the  date  of  such
         termination; provided, however, that if one Party elects to participate
         and the other Party does not, any rights, titles,  interests,  benefits
         and burdens  associated  with the Project that have not as of such date
         already been  assigned or allocated to one of the Parties in accordance
         with this  Agreement  shall be vested  solely in the Party  electing to
         pursue the Project,  including  without  limitation the right to pursue
         the  Project in  accordance  with the Lease  Agreement  and the Bumbaca
         Agreement.  In the event that both Parties elect to  participate in the
         Development  Program,  that  election  shall be deemed a commitment  to
         participate in the Development Program and the remainder of the Project
         shall be binding on both  Parties  under the terms and  conditions  set
         forth herein.

I.       For  a  period  of  up  to one (1) year following the completion of the
         Pilot  Program,  Dolphin shall have the option to  participate,  at the
         "Heads Up Price" as described  herein, in all of the Subject Leases for
         an additional  Working Interest of up to Twenty-Five  Percent (25%). At
         any  time  following  the  date  that is one  (1)  year  following  the
         completion of the Pilot Program,  but no later than two (2) years after
         completion  of the Pilot  Program,  Dolphin  shall  have the  option to
         participate,  at the "Heads-Up  Price"  described  below, in any of the
         Subject  Leases  for an  additional  Working  Interest  of up to  Fifty
         Percent (50%).  For purposes of this  Agreement,  the "Heads-Up  Price"
         shall mean 25% or 50%, as applicable,  of all direct costs and expenses
         incurred by Horizon  under this  Agreement  with respect to the Subject
         Leases, the Well Assets, and all Wells drilled under the Pilot Program,
         including Infill Wells. Regardless of whether Dolphin elects to acquire
         any additional Working Interest, the Carried Interest shall still apply
         to the Pilot Program if Dolphin has elected to participate in the Pilot
         Program.

                                       IX
                               DEVELOPMENT PROGRAM

A.       In the event that both Parties have elected to participate in the Pilot
         Program and elected to  participate  in the  Development  Program,  the
         Parties shall consult with each other as to location


<PAGE>



         and  timing,  but  in  the  absence  of  agreement,  Dolphin  shall  be
         authorized,  in its sole  judgement,  to drill the Option Wells to test
         the coals at the Target Horizon,  with each such Well to be drilled and
         completed and connected to the gathering  system pipeline no later than
         October 31,  2005.  Within ten (10) days of  notification  that Dolphin
         intends to drill a particular Option Well, Horizon shall pay to Dolphin
         the sum of Thirty Thousand Dollars  ($30,000.00) per Well if the Option
         Well is the first Well on the spacing unit and Seventeen  Thousand Five
         Hundred Dollars  ($17,500.00) per Well if the Option Well is the second
         Well  on  the  spacing  unit,   including  any   completions   and  any
         recompletions (or other Subsequent Operations) directly associated with
         establishing new production in shallower coals of the Target Horizon in
         the Well, and in each case including any Well Location Fees  prescribed
         under  Article  VIII.D  above  and  subject  to the Well  Location  Fee
         limitations  set forth in said Article VIII.D above.  Dolphin shall, in
         turn, be responsible  for paying all similar fees: (i) to Pioneer under
         the Lease  Agreement;  (ii) to Dolphin  for the Option  Wells under the
         Bumbaca Leases;  and (iii) to the Contract Operator (with regard to the
         Five Thousand  Dollars  ($5,000.00) per Well Contract  Operatorship Fee
         for all Pilot  Wells and Option  Wells  drilled  hereunder);  provided,
         however,  that in no event shall the  Contract  Operator be entitled to
         receive more than Ten Thousand  Dollars  ($10,000.00)  per spacing unit
         for  the  drilling  of  two  Wells,   including  any   completions  and
         recompletions (or other Subsequent Operations) directly associated with
         establishing  new  production  in the  shallower  coals  in the  Target
         Horizon  of the Well.  Each such Well  shall be  diligently  drilled as
         provided in accordance  with Article VII.A of the Lease Agreement so as
         to allow  Dolphin to earn an  assignment  of the eighty acre drill site
         spacing  unit  therefor  as set  forth in  Article  VII.D of the  Lease
         Agreement  as well as to  satisfy  the  terms  of the  Subject  Leases,
         including without  limitation as and when necessary to satisfy drilling
         commitments,  retain  lease  acreage or prevent the  expiration  of the
         Subject  Leases,  regardless  of  whether  the Pilot  Program  has been
         completed,  the Development Program has been commenced, or as otherwise
         may be provided or interpreted to the contrary  hereunder.  Drilling of
         the Option Wells shall be performed at such  locations,  at such times,
         and under such  conditions as Dolphin shall in its sole  judgement deem
         advisable, subject to the Subject Leases and the Lease Agreement.

B.       Except  to  the  extent  otherwise  provided  herein, all  drilling and
         completion  operations  on  the  Option  Wells,   including  applicable
         Subsequent  Operations,  shall  be  conducted  under  the  terms of the
         applicable  JOA,  and the costs and  expenses of all such  drilling and
         completion operations,  including applicable Subsequent Operations,  in
         which both  Parties  elect to  participate  shall be paid by Horizon in
         accordance  with the terms of the Carried  Interest and by both Dolphin
         and Horizon under any election to  participate  for a Working  Interest
         made hereunder.

C.       With  respect  to  each  Option Well or Subsequent Operation thereon in
         which Horizon drills hereunder,  either as a producer or as a dry hole,
         Dolphin  will,  within ten (10) days of  completion  as a  producer  or
         determination that the Well is a dry hole or contemporaneously with any
         such  assignment  to  Dolphin,  assign and convey to Horizon all of its
         right,  title and interest in and to the Subject  Leases  insofar as it
         pertains  to the drill  site  spacing  unit for such Well and any other
         acreage earned as a result of such drilling and  completion  operations
         to all depths  covered  by the  Subject  Leases.  Such  assignment  and
         conveyance  shall  be on such  form as is  acceptable  to  counsel  for
         Horizon,  and shall be subject to reservation  of the Carried  Interest
         and to such burdens as are specified above for Pilot Wells.



<PAGE>


D.       Notwithstanding the foregoing, Dolphin and Horizon may drill two Option
         Wells to different  coal seams on each eighty acre (or other such other
         amount of acreage prescribed by the applicable  governmental  agency or
         applicable  law) drill site spacing unit as permitted by the applicable
         well spacing regulations.  The Parties may recomplete any existing Well
         to a different coal seam, provided that any such recompletion may occur
         only if it is demonstrated,  according to generally  accepted standards
         in the North  American coal bed methane  industry,  that  continuing to
         operate such Well at the depth at which such Well is being  operated at
         the  time  of  any  such  decision  will  no  longer  be   commercially
         reasonable.

E.       As to the Option Wells, Dolphin may at any time, as a one-time election
         exercisable  in its sole  discretion for a period of up to one (1) year
         after commencement of the Development Program,  elect to participate in
         all Option Wells drilled  hereunder  during said one (1) year period as
         well as have  the  opportunity  to  participate  for the  same  Working
         Interest  share of all  Option  Wells  drilled  after said one (1) year
         period,  which participation shall be on a Heads-Up Price basis payable
         upon initial  election and  contemporaneously  on a well-by-well  basis
         thereafter,  for up to an undivided  twenty-five  percent (25%) Working
         Interest  therein.  Dolphin  shall pay the  proportionate  share of all
         direct  costs and  expenses  for each Option Well in which it elects to
         participate  under the  terms of the JOA  attributable  to the  Working
         Interest with respect to which such election is made.

                                        X
                             AREA OF MUTUAL INTEREST

A.       In  the  event that either Party shall acquire, directly or indirectly,
         in its own  name or  through  an  Affiliate,  by  purchase,  merger  or
         otherwise,  any  interest  in CBM leases,  other CBM  rights,  non-cost
         bearing  interests or otherwise  pertaining to or concerning CBM in the
         AMI,  the  acquiring  Party  shall  offer the other Party the option to
         participate in such  acquisition.  This option shall apply to an entire
         acquisition  in which any part  thereof is located  within the AMI, but
         shall only apply if the other Party has elected to  participate  in the
         Pilot Program (if such interests are acquired during the Pilot Program)
         and during or after the completion of the Development  Program (if such
         acquisition is made during the Development Program).

B.       If  Horizon  is  the acquiring Party, it shall, within ten (10) days of
         having  made  such  acquisition,  advise  Dolphin  of its  acquisition,
         setting forth all  applicable  terms and  conditions  pertaining to its
         acquisition.  Dolphin shall have fifteen (15) days in which to elect in
         writing to participate  in such  acquisition on the terms stated in the
         agreement  pertaining  to such  acquisition.  In the event that Dolphin
         should elect not to participate in such  acquisition,  it shall have no
         further interest in the acquisition made by Horizon.  In the event that
         Dolphin shall elect to participate in such  acquisition,  Horizon shall
         assign and convey the Carried  Interest in the  acquisition  to Dolphin
         without  further  consideration  from  Dolphin,  and Dolphin  agrees to
         provide services as operator  commensurate  with the services  provided
         hereunder   with  respect  to  all  other  Wells   drilled   hereunder.
         Notwithstanding  the  foregoing,  Dolphin  shall  not  be  required  to
         participate  in any AMI  acquisition  which does not in its  reasonable
         business judgement meet economic  parameters it may establish from time
         to time in its sole  discretion for itself or by any Affiliate that may
         be participating in the Project.


<PAGE>



C.       If Dolphin is the acquiring Party, it shall, within ten (10) days of
         having  made  such  acquisition,  advise  Horizon  of its  acquisition,
         setting forth all  applicable  terms and  conditions  pertaining to its
         acquisition.  Horizon shall have fifteen (15) days in which to elect in
         writing to participate  in such  acquisition on the terms stated in the
         agreement pertaining to such acquisition,  in which event Dolphin shall
         elect to  retain a Working  Interest  of not less than 1% nor more than
         50% (or the rights to earn the same, as may be applicable)  will assign
         and convey the balance of its entire  interest in such  acquisition  to
         Horizon,    subject   to   reservation   of   the   Carried   Interest.
         Notwithstanding  the  foregoing,  Horizon shall  participate in any AMI
         acquisition  unless  the  acquisition   opportunity  does  not  in  its
         reasonable  business  judgement  meet  economic  parameters,  including
         without limitation a net present value rate of return between 17.5% and
         20%,  it may  establish  from time to time in its sole  discretion  for
         itself or by any Affiliate that may be participating in the Project and
         that  are  otherwise   comparable  to  the  technical  and   commercial
         projections available to Horizon under the terms of other agreements to
         which Horizon is a party.

                                       XI
                                     NOTICES

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

         Horizon Exploitation, Inc.
         c/o Kelly Nelson
         9 Exchange Place, Suite 113
         Salt Lake City, Utah 84111
         Phone: (801) 596-2022
         Fax: (801) 596-3242

         Dolphin Energy Corporation
         1155 Brickell Drive, Suite 1708
         Miami, Florida 33131
         Attention:  Marc E. Bruner
         Phone: (305) 377-9726
         Fax: (305) 377-9726

                                       XII
                                 CONFIDENTIALITY

A.       The  Parties  agree that the terms and conditions of this Agreement and
         all  information  and data acquired or obtained by any Party in respect
         of the  Project  shall be  considered  confidential  and  shall  not be
         disclosed  during the term of the Agreement to any person or entity not
         a Party to this Agreement, except:

                  (1)      to  an  Affiliate, provided  such Affiliate maintains
                           confidentiality as provided in this Article XII;



<PAGE>



                  (2)      to  a  governmental  agency  or  other  entity   when
                           required by this Agreement;

                  (3)      to  the  extent such data and information is required
                           to be  furnished  in  compliance  with any applicable
                           laws  or  regulations,  or  pursuant  to  any   legal
                           proceedings or  because of  any  order  of any  court
                           binding upon a Party;

                  (4)      to prospective or actual contractors, consultants and
                           attorneys  employed  by any Party where disclosure of
                           such  data  or  information  is  essential  to   such
                           contractor's, consultant's or attorney's work;

                  (5)      to a  bona  fide prospective  transferee of a Party's
                           interest  in  all  or  any  portion  of  the  Project
                           (including  an  entity  with  whom  a  Party  or  its
                           Affiliates  are  conducting  bona  fide  negotiations
                           directed  toward a  merger, consolidation or the sale
                           of a majority of its or an Affiliate's shares);

                  (6)      to a bank or other  company to the extent appropriate
                           to a Party arranging for funding;

                  (7)      to  the  extent  such  data  and  information must be
                           disclosed pursuant  to any rules or  requirements  of
                           any government  or stock exchange having jurisdiction
                           over such Party, or its Affiliates; or

                  (8)      any data or information  which, through no fault of a
                           Party, becomes a part of the public domain;

         provided,  however,  that,  notwithstanding the foregoing,  Dolphin and
         Horizon  shall be expressly  permitted to disclose  information  as set
         forth in Articles XII.B, XII.C and XII.D.

B.       In  the  event of  an emergency  involving extensive  property  damage,
         operations  failure,  loss of human  life,  or other  clear  emergency,
         either  Party is deemed  to be  authorized  to  furnish  such  minimal,
         strictly factual  information as is necessary to satisfy the legitimate
         public  interest  on  the  part  of  the  press  and  duly  constituted
         authorities.  If time does not permit obtaining prior approval from the
         other Party,  either Party shall promptly advise the other Party of the
         information so furnished.  Nothing herein  contained shall preclude any
         Party from  making such  disclosures  as may be, in that  Party's  sole
         judgement, required by any federal or state law or regulation or by any
         stock  exchange  on which the  shares of the Party  and/or  its  parent
         company are listed;  provided,  however,  that such Party shall provide
         each  other  Party  with  prior  written  notice  of any such  required
         disclosure,  which  disclosure  shall be deemed to authorize each other
         Party to make a  similar  disclosure  at any time  after  such  initial
         required  disclosure has been made to the public and/or as is otherwise
         required, and provided further that such other Party shall maintain the
         confidentiality  of the  intent  of such  other  Party  to make  such a
         disclosure  as well  as the  content  thereof  prior  to  such  initial
         required disclosure.

C.       The  Parties will consult with each other with regard to all publicity,
         including  any  press  or other  media  releases  regarding  activities
         undertaken in connection with this Agreement. Unless data or


<PAGE>



         information must be disclosed  pursuant to any rules or requirements of
         any government or stock exchange  having  jurisdiction  over a Party or
         its Affiliates, no Party shall issue a media release nor distribute any
         information or photographs concerning operations hereunder to the press
         or other media without the prior  written  approval of the other Party,
         which shall not be unreasonably  withheld.  If a Party requests consent
         to make a press  or media  release,  but does  not  receive  a  written
         response from the other Party either consenting or withholding  consent
         for a period of three (3) days after its request,  then the other Party
         shall be deemed to have consented to the release.

D.       The  Parties  acknowledge and  agree that  either Party  will  disclose
         certain  information  concerning the business  operations  contemplated
         hereunder  as  well  as the  essential  terms  and  conditions  of this
         Agreement.  Disclosures under this Article XII.D will be subject to the
         conditions set forth in Article XII.C.

                                      XIII
                              TERM AND TERMINATION

A.       The  Term of this Agreement shall commence as of the Effective Date and
         shall  continue  for a period  of four  (4)  years  thereafter,  unless
         earlier terminated under Article XIII.B herein.

B.       Unless  and  to  the extent  excused by  events of  Force Majeure or as
         otherwise  mutually  agreed  by  the  Parties,   this  Agreement  shall
         terminate upon the occurrence of one of the following events:

                  (1)      the  occurrence of any event for which termination is
                           expressly provided as a consequence elsewhere in this
                           Agreement;

                  (2)      if  either  Party  files  a  voluntary  petition   in
                           bankruptcy, has an involuntary petition in bankruptcy
                           filed  against it, is adjudicated to be insolvent, or
                           has a  receiver  appointed  for  its business affairs
                           (individually or collectively, a "Bankruptcy Event"),
                           then the other Party may, in its sole discretion, (i)
                           terminate  this Agreement upon twenty (20) days as to
                           the  drilling  of  any  future   Wells   contemplated
                           hereunder and/or  (ii) seek  appointment of itself or
                           a third party  as  operator under the JOA, subject to
                           the terms of any applicable JOA; provided, however,
                           that  this  provision   shall   not   apply  if  such
                           Bankruptcy  Event  is  removed  within  such   20-day
                           period;

                  (3)      if  either Horizon, Dolphin  or the Contract Operator
                           ceases  to  actively  conduct  business, maintain its
                           entity status in good standing in the states in which
                           it  is  licensed  to  do business, is  voluntarily or
                           involuntarily  dissolved,  or is removed or otherwise
                           not  permitted   to  act   as  operator  or  Contract
                           Operator; or

                  (4)      by mutual agreement of Dolphin and Horizon;



<PAGE>



         with the date as to which  any of such  events  shall be deemed to have
         occurred being the Termination Date.

         If  this  Agreement  is  terminated  pursuant  to any of the  foregoing
         clauses (1),  (2),  (3), or (4) Horizon and Dolphin  shall be liable to
         each other for the performance of their  respective  obligations  under
         this  Agreement  in  connection  with all  events,  acts and  omissions
         occurring or commencing  prior to the  Termination  Date as well as for
         all obligations  accruing after the Termination  Date in respect of any
         Wells  commenced prior to the  Termination  Date.  Horizon will have no
         obligation  to Dolphin under this  Agreement in  connection  with Wells
         that have not yet been commenced.

C.       The obligations of the Parties under Article X as well as under Article
         XII shall survive the termination of this Agreement for a period of one
         (1) year after the Termination Date.

                                       XIV
                         INTERNAL REVENUE CODE ELECTION

         This Agreement is not intended to create, and shall not be construed to
create,  a partnership  between Dolphin and Horizon or an association for profit
between or among the Parties.  Notwith-  standing any provision  herein that the
rights and  liabilities  hereunder are several and not joint or  collective,  or
that this Agreement and operations hereunder shall not constitute a partnership,
if, for federal income tax purposes, this Agreement and the operations hereunder
are regarded as a partnership,  each Party hereby affected elects to be excluded
from the  application  of all of the  provisions of Subchapter  "K",  Chapter 1,
Subtitle  "A", of the Internal  Revenue Code of 1986, as amended (the "Code") as
permitted  and  authorized by Code Section 761 and the  regulations  promulgated
thereunder.  Dolphin is authorized  and directed to execute on behalf of Horizon
such  evidence  of this  election as may be  required  by the  Secretary  of the
Treasury of the United States or the United States Internal Revenue Service (the
"IRS"),  including  specifically,  but  not  by way  of  limitation,  all of the
returns,  statements, and the data required by Treasury Regulation 1.761. Should
there be any  requirement  that  each  Party  hereby  affected  to give  further
evidence of this  election,  each such Party shall  execute such  documents  and
furnish such other evidence as may be required by the IRS or as may be necessary
to  evidence  this  election.  No such Party  shall give any notices or take any
other  action  inconsistent  with the election  made  hereby.  If any present or
future  income tax laws of  Wyoming or any future  income tax laws of the United
States  contain  provisions  similar  to those in  Subchapter  "K",  Chapter  1,
Subtitle "A", of the Code,  under which an election  similar to that provided by
Section 761 of the Code is permitted, each Party hereby affected shall make such
election as may be permitted or required by such laws.

                                       XV
                               GENERAL PROVISIONS

A.       This  Agreement  will be binding upon the Parties, and their respective
         heirs, successors  and assigns,  and shall be deemed a covenant running
         with the land of the Subject Leases.



<PAGE>



B.       No  waiver by any Party of any one or more defaults by another Party in
         the  performance  of his  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
         invalid for any reason whatsoever, such invalidity shall not affect the
         validity or operation of any other provision of this Agreement,  except
         insofar and only  insofar 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.

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,  at  its  sole cost, risk, and expense, 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 exercise its discretion as  contemplated  hereunder
         in good faith as a prudent  operator and/or as a sophisticated  oil and
         gas  investor  and  as  otherwise   required  by  applicable   law  and
         contractual  obligations  and will  cooperate  with each other and with
         third  parties to execute  and  deliver,  or secure the  execution  and
         delivery  of,  any  additional  documents  and  instruments  as well as
         perform any  additional  acts that may be necessary or  appropriate  to
         effectuate  and  perform the  provisions  of this  Agreement  and those
         transactions.

H.       This Agreement shall be governed by, construed, interpreted and applied
         in  accordance  with the laws of the State of  Wyoming,  excluding  any
         choice of law rules which would refer the matter to the laws of another
         jurisdiction.

I.       Both  Dolphin  and Horizon  submit to the jurisdiction of the courts of
         Wyoming (as well as the  federal  courts  sitting in  Wyoming)  for the
         purpose of finally resolving any dispute,  controversy or claim arising
         out of or in relation to or in  connection  with this  Agreement or the
         operations   carried  out  under  this  Agreement,   including  without
         limitation   any   dispute   as   to   the   construction,    validity,
         interpretation,  enforceability or breach of this Agreement.  A Party's
         submission to the  jurisdiction  of these courts in accordance with the
         foregoing  shall  not,  however,  limit  the  right  of such  Party  to
         institute any legal action or  proceeding  for the  enforcement  of any
         order  or  judgment   of  such   courts  in  any  other  court   having
         jurisdiction.


<PAGE>



J.       Neither  Party  may assign  all or any part of its right or obligations
         under this  Agreement  without the prior  written  consent of the other
         Party,  which consent may be reasonably  withheld for any reason in its
         sole reasonable discretion;  PROVIDED,  HOWEVER, THAT EITHER PARTY MAY,
         AT  ANY  TIME  BEFORE   DELIVERY  OF  ITS  ARTICLE  VI.B   ELECTION  TO
         PARTICIPATE,  ON A  ONE-TIME  BASIS,  ASSIGN  ALL  OF  ITS  RIGHTS  AND
         OBLIGATIONS  TO AN  AFFILIATE  WITHOUT  OBTAINING  ANY CONSENT FROM THE
         OTHER PARTY.

K.       This  Agreement may be executed in counterparts, each of which executed
         instrument  shall  constitute  a duplicate  original  for all  purposes
         herein.

L.       In  the  event  of  any  conflict  or  ambiguity in any of the terms or
         conditions of the Subject Leases,  the Lease Agreement,  this Agreement
         that  cannot be  reconciled  or  applied  solely in the  context of the
         business and contractual  dealings of the Parties without regard to the
         priority  between and among any of the Parties and any third party, and
         the including any Exhibits  thereto,  the following order of precedence
         shall apply: (i) the Subject Leases;  (ii) the Lease  Agreement;  (iii)
         this Agreement;  (iv) the Exhibits to this Agreement;  (v) the JOA; and
         (vi) the pertinent exhibits to the JOA.

         IN WITNESS WHEREOF, the duly authorized  officers or representatives of
the  Parties  have  executed  this  Agreement  on  the dates written below to be
effective as of the Effective Date.

Date:    OCT. 31, 2002                        Dolphin Energy Corporation
       -------------------------------


                                              By:      /S/ MARC BRUNER
                                                 -------------------------------

Date:      10-31-02                           Horizon Exploitation, Inc.
       ---------------------------------


                                              By:     /S/ KELLY NELSON
                                                 -------------------------------




<PAGE>



State of        FLORIDA
         --------------------------

County of   MIAMI-DADE

         The  foregoing  instrument  was  acknowledged  before me this 31 day of
October, 2002, by MARC BRUNER as PRESIDENT of Dolphin Energy Corporation.


                                           /S/ ANGELA DIAZ
                                       -----------------------------------------
                                                                   Notary Public

My Commission Expires:      11/29/05
                        ----------------------
                                          ANGELA DIAZ
                                          Notary Public - State of Florida
                                          My Comm. Expires Nov 29, 2005
                                          Commission # DD 075278


State of          UT
         ------------------------------
                                                 NOTARY PUBLIC
County of   SALT LAKE CITY                      SHARIDA F. MCIFF
          --------------------                  3247 So. 4800 W.
                                           West Valley City, UT  84120
                                               COMMISSION EXPIRES
                                                  NOV. 8, 2004
                                                  STATE OF UTAH

         The  foregoing  instrument was  acknowledged before me this 31st day of
October, 2002, by KELLY NELSON as PRESIDENT of Horizon Exploitation, Inc.


                                        /S/ SHARIDA F. MCIFF
                                       -----------------------------------------
                                                                   Notary Public

My Commission Expires:    NOVEMBER 8, 2004






<PAGE>

                                                BMcK DRAFT DATED JANUARY 2, 2003

           FIRST AMENDMENT TO COAL BED METHANE PARTICIPATION AGREEMENT

         This FIRST AMENDMENT TO COAL BED METHANE  PARTICIPATION  AREEMENT (this
"AMENDMENT"),  dated as of January  ___,  2003,  is made by and between  Dolphin
Energy Corporation, a Nevada corporation ("DOLPHIN"),  and Horizon Exploitation,
Inc. a Colorado corporation ("HORIZON").  The foregoing entities may be referred
to herein collectively as the "Parties" and individually as a "Party."

                              W I T N E S S E T H:
                              - - - - - - - - - -

         WHEREAS,  effective as of October 1, 2002,  the Parties  entered into a
Coal Bed Methane Participation Agreement (the "AGREEMENT");

         WHEREAS,  the Parties determined during the course of the due diligence
process  provided for in Article VI of the Agreement that certain changes to the
Agreement were necessary and/or desirable; and

         WHEREAS,  the parties now wish to amend the terms and conditions of the
Agreement;

         NOW, THEREFORE,  in consideration of the premises, the mutual covenants
contained herein, and other good and valuable consideration,  the Parties hereby
agree as follows:

SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all capitalized terms
used but not defined in this Amendment shall have the meanings given them in the
Agreement.

SECTION 2.  AMENDMENT  OF THE  AGREEMENT.  The  Agreement  is hereby  amended as
follows:

               (a)     All  references to "2,300 feet" in the definitions of CBM
and Target Horizon  and in Exhibit D are hereby deleted and replaced with "3,000
feet (or, for the Bumbaca Leases, 2,500 feet)".

               (b)     Section  VI.A  of  the Agreement is hereby deleted in its
entirety and replaced with the following:

         The Parties agree to promptly conduct a joint due diligence
         investigation of the Well Assets and the Subject Leases and
         to cooperate fully toward a complete evaluation of the Project
         satisfactory to both Parties.  In the conduct of such review,
         each Party shall retain, at its sole cost, risk and expense,
         its own legal counsel and such technical and other consultants
         as it deems necessary.  Such evaluation shall be concluded
         prior to January 31, 2003.



<PAGE>


               (c)     Section  VI.B  of  the  Agreement  is  hereby  amended by
striking the first sentence thereof and substituting the following:

         On or prior to January 31, 2003, each Party shall notify the
         other Party in writing of its election to participate in the
         Project on the terms set forth herein, or to decline to do so.

               (d)     Section  VI.C  of the  Agreement is hereby deleted in its
entirety and replaced with the following:

         Within ten (10) days of its election to participate in the
         Project, Horizon shall deliver to Dolphin or its designee,
         by cashier's check, wire transfer or other immediately
         available funds, the sum of One Hundred Thousand Dollars
         ($100,000.00), provided that such funds are available to
         Horizon.  In the event that such funds are not then available
         to Horizon, such funds shall be paid to Dolphin within five
         (5) days of the date such funds become available to Horizon.

SECTION 3. VALIDITY OF AGREEMENT. Notwithstanding any provision of the Agreement
in effect prior to the date hereof,  the Parties hereby agree that the Agreement
has not been terminated and is in full force and effect as of the date hereof.

SECTION 4.  NO  FURTHER  AMENDMENT  OR  NOVATION.  Except  as  set forth in this
Amendment, all terms and  conditions  of  the  Agreement remain  unchanged.  The
Parties hereby ratify  and  confirm the  Agreement as amended hereby.  Except to
the  extent  expressly  set  forth  herein, the  Agreement has not been amended,
modified  or  supplemented  and  is in full force and effect.  The execution and
delivery of this  Amendment does  not constitute a novation, amendment, payment,
satisfaction or extinction of any obligations under the Agreement.

         IN  WITNESS  WHEREOF, the  undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.

                                DOLPHIN ENERGY CORPORATION


                                By:    /s/ MARC E. BRUNER
                                   ---------------------------------------------
                                   Name:   Marc E. Bruner
                                   Title:  President

                                HORIZON EXPLOITATION, INC.


                                By:
                                   ---------------------------------------------
                                   Name:
                                   Title:



<PAGE>


          SECOND AMENDMENT TO COAL BED METHANE PARTICIPATION AGREEMENT

This Second Amendment to Coal Bed Methane Participation  Agreement ("Amendment")
is made and entered  into the day and year  hereinafter  stated,  by and between
Dolphin  Energy  Corporation,  a Nevada  corporation  ("Dolphin"),  and  Horizon
Exploitation,  Inc., a Colorado corporation  ("Horizon"),  effective February 1,
2003 ("Amendment  Effective  Date").  The foregoing  entities may be referred to
herein collectively as "Parties" and individually as a "Party".

                                        I
                                    RECITALS

A.       The  Parties have entered into Coal Bed Methane Participation Agreement
         dated effective October 1, 2002,  providing for purchase of certain gas
         wells,  and for joint drilling and production of coal bed methane,  all
         on oil and  gas  leases  located  in  Sheridan  County,  Wyoming.  That
         contract  has been  amended  by  First  Amendment  to Coal Bed  Methane
         Participation  Agreement between the Parties,  dated on January 2, 2003
         (such  October 1, 2002  agreement,  as amended on January 2, 2003,  the
         "Coal Bed Agreement").

B.       The  Coal  Bed  Agreement  further  pertains  to  that  certain   Lease
         Acquisition  and  Drilling  Agreement  between  Pioneer  Oil,  LLC, and
         Dolphin,  dated effective  September 30, 2002, which agreement has been
         amended in several significant respects ("Lease  Agreement"),  which in
         turn require amendment to the Coal Bed Agreement.

C.       The  Parties  desire to amend the Coal Bed Agreement to more accurately
         reflect the amended  obligations of Dolphin under the Lease  Agreement,
         and to allow for proper funding of Horizon's obligations under the Coal
         Bed  Agreement,  and to better  reflect the timing of the capital being
         raised by the ultimate investors in Horizon.

                                       II
                                    AGREEMENT

Now, for and in consideration  of the mutual rights and benefits and obligations
and legal  detriments  afforded  the  Parties, hereunder, Dolphin and Horizon do
hereby agree to amend the Coal Bed Agreement, in the following respects:

                                       III
                                   AMENDMENTS

SECTION 1:       Article III is amended by addition fo the following:

         "Commitment Letter" shall mean the letter of commitment from
         Horizon to Dolphin referenced in Article VI-B.

SECTION 2:       The first sentence of Article VI-B is amended to state as
                 follows:



<PAGE>



         Horizon  shall have until the close of business May 15, 2003,
         MST (or such  later  date as may be agreed to by the  parties
         hereto in  writing) in which to elect to  participate  in the
         Project.  Should  Horizon,  at is sole option and discretion,
         elect to  participate  in the  Project,  Horizon will issue a
         Commitment  Letter  to  Dolphin   evidencing  such  election.
         Notwithstanding  any  provision of the Coal Bed  Agreement as
         herein amended,  prior to the date such Commitment  Letter is
         issued by Horizon, the parties will use their best efforts to
         agree upon the  applicable  dates for  payment  and  drilling
         obligations  in the Coal Bed Agreement,  and that  Commitment
         Letter will set forth the mutually  agreed dates by which the
         payment and drilling obligations provided for in the Coal Bed
         Agreement will be implemented.  In the event that neither . .
         . In the event that only one Party elects to participate, all
         rights,   titles,   and   interests,   benefits  and  burdens
         associated  with the Project,  including  the right to pursue
         the Project in  accordance  with the Lease  Agreement and the
         Bumbaca Agreement,  shall become vested in the Party electing
         to  participate  in the  Project,  and, the other Party shall
         have no further rights or obligations  under this  Agreement,
         provided that both Parties shall  continue to be bound by the
         provisions  of the AMI  for  the  time  period  indicated  in
         Article XIII.

SECTION 3:     Article VI-C is amended by addition of the following:

         The Parties further recognize that an additional $100,000 fee
         will be paid by  Dolphin  to  Pioneer  on or before the dates
         specified in the Commitment  Letter. It is intended that such
         funds  represent  the  additional  fee reference in the Lease
         Agreement,  as  amended  and,  to that end,  shall be in turn
         delivered to Pioneer Oil, LLC or reimbursed to Dolphin as the
         case may be.

SECTION 4:     The first sentence of Article VII-A is amended and restated as
               follows:

         If Horizon elects to participate in the Project, on or before
         the date  specified in the Commitment  Letter,  Horizon shall
         deliver to Dolphin by cashiers check, wire transfer, or other
         immediately available funds, the sum of Five Hundred Thousand
         Dollars ($500,000). It is intended . . .

SECTION 5:     Section VII-B is amended and restated as follows:

         Within ten (10) days of closing on the Well Assets; under the
         Lease  Agreement,  Dolphin  will assign and convey to Horizon
         all of Dolphin's right, title and interest in and to the Well
         Assets  acquired under the Lease Agreement and subject to the
         terms  thereof,   effective  on  the  day  specified  in  the
         Commitment  Letter,  except and  reserving  unto  Dolphin the
         Carried Working Interest.



<PAGE>



SECTION 6:     The first sentence of Article VIII-B is amended and restated as
               follows:

         No later than the date  specified in the  Commitment  Letter,
         Horizon  will tender the  Dolphin by  cashiers  check or wire
         transfer or other immediately available funds, the sum of One
         Million Six Hundred Fifty Thousand Dollars ($1,650,000), plus
         the estimated  amount to drill and complete thirty (30) pilot
         wells . . .

SECTION 7:     The first phrase of Article VIII-H is amended and restated as
               follows:

         In the event that neither  Party should elect to  participate
         in the Development  Program,  the Agreement shall  terminate,
         and  neither   Party   shall  have  any  further   rights  or
         obligations  under this Agreement  other than those rights or
         obligations which have already accrued as of the date of such
         termination,  provided that both Parties shall continue to be
         bound  by the  provisions  of the  AMI for  the  time  period
         indicted in Article XIII.

SECTION 8:     The second sentence of Article X-A is amended and restated as
               follows:

         This opinion  shall apply to an entire  acquisition  in which
         any part thereof is located within the AMI.

         B.    If Horizon . . .

SECTION 9:     Article X is further amended by addition of Article X-D, as
               follows:

         The provisions of this Article X, Area of Mutual Interest, be
         in effect  beginning  October  1, 2002,  and shall  remain in
         effect to February 1, 2005,  at which time the  provisions of
         this Article will terminate, and, the provisions of Article X
         will survive  termination of this Amended  Agreement for that
         time period.  Further, the provisions of this Article X shall
         apply for the time period indicated, whether or not either or
         both parties  elect to continue with the Project at any point
         in time, and such provisions are deemed amended accordingly.

SECTION 10:    Article XIII-C is amended and restated as follows:

         The  obligations  of the  Parties  under  Article  XII  shall
         survive the  termination  of this  Agreement for a period one
         (1) year after the Termination Date.

SECTION 11:    Unless  otherwise defined  herein, all capitalized terms used but
not defined in this Amendment shall have the meanings given them in the Coal Bed
Agreement.

SECTION 12:    Notwithstanding any provision of the Coal Bed Agreement in effect
prior to  the date hereof, the  Parties hereby agree that the Coal Bed Agreement
has not been terminated and is in full force and effect as of the date hereof.



<PAGE>


SECTION 13:    Except as set forth in this Agreement (especially as set forth in
Section 2  above), all terms  and  conditions of  the Coal  Bed Agreement remain
unchanged.  The Parties hereby  ratify  and  confirm the  Coal Bed Agreement, as
amended hereby.

IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this Amendment to be duly
executed and delivered as of the date first above written.

                          DOLPHIN ENERGY CORPORATION

                          By       /s/ MARC BRUNER
                               ----------------------------------------------
                          Name         MARC BRUNER
                               ----------------------------------------------
                          Title        PRESIDENT
                               ----------------------------------------------


                          HORIZON EXPLOITATION, INC.

                          By
                               ----------------------------------------------
                          Name
                               ----------------------------------------------
                          Title
                               ----------------------------------------------




                                            /s/ Claudia Arjona
                                            Claudia Arjona
                                            Commission #
                                            Expires Jan. 27, 2005
                                            Bonded Thru
                                            Atlantic Bonding Co., Inc.