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                                                                   Exhibit 10.21

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                        KHANTY MANSIYSK OIL CORPORATION

                      NOTE AND WARRANT PURCHASE AGREEMENT

                                October 10, 1997

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                                TABLE OF CONTENTS
                                                                            Page

                                    ARTICLE I

                                PURCHASE AND SALE

SECTION 1.1 Purchase and Sale of Notes .....................................   2
SECTION 1.2 Purchase and Sale of Warrants ..................................   2
SECTION 1.3 Consideration ..................................................   2
SECTION 1.4 Closing ........................................................   2
SECTION 1.5 Warrant Adjustments ............................................   2

                                   ARTICLE II

                             TERMS OF THE SECURITIES

SECTION 2.1 Interest on Notes ..............................................   4
SECTION 2.2 Payments and Computation .......................................   4
SECTION 2.3 Redemption of Notes ............................................   5
SECTION 2.4 Registration, Exchange and Replacement of Securities ...........   6
SECTION 2.5 Restrictions on Payment of Dividends ...........................   7

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

SECTION 3.1 Corporate Organization .........................................   7
SECTION 3.2 Capital Stock ..................................................   8
SECTION 3.3 Issuance of Securities .........................................   9
SECTION 3.4 Authorization, Etc. ............................................  10
SECTION 3.5 Financial Statements ...........................................  10
SECTION 3.6 Absence of Undisclosed Liabilities .............................  11
SECTION 3.7 No Approvals or Conflicts ......................................  12
SECTION 3.8 Compliance with Law; Governmental Authorizations ...............  12
SECTION 3.9 Reserve Summary ................................................  13
SECTION 3.10 Licensed Interests ............................................  13
SECTION 3.11 Litigation or Other Proceedings ...............................  14


                                       i
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                                                                            Page

SECTION 3.12 Taxes .........................................................  14
SECTION 3.13 Labor Relations ...............................................  15
SECTION 3.14 Patents, Trademarks, Trade Names, Etc .........................  16
SECTION 3.15 Environmental Matters .........................................  16
SECTION 3.16 Insurance .....................................................  17
SECTION 3.17 Contracts, Agreements, Commitments and Other Matters ..........  17
SECTION 3.18 No Affiliate Ownership ........................................  20
SECTION 3.19 No Prepayments Made or Refunds Owed ...........................  20
SECTION 3.20 Absence of Certain Changes or Events ..........................  21
SECTION 3.21 Drilling Obligations ..........................................  23
SECTION 3.22 Development Operations ........................................  23
SECTION 3.23 Accounts Payable ..............................................  24
SECTION 3.24 No Brokers' or Other Fees .....................................  24
SECTION 3.25 Regulatory Authority ..........................................  24
SECTION 3.26 Full Disclosure ...............................................  24
SECTION 3.27 Foreign Corrupt Practices Act .................................  24
SECTION 3.28 Employee Benefit Matters ......................................  24
SECTION 3.29 Investment Agreement ..........................................  25

                                   ARTICLE IV

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

SECTION 4.1 Information Received ...........................................  26
SECTION 4.2 Investment Experience ..........................................  26
SECTION 4.3 Nondistributive Intent .........................................  26
SECTION 4.4 Securities not Registered ......................................  26
SECTION 4.5 Accredited Investor ............................................  27
SECTION 4.6 Legend on Securities ...........................................  27
SECTION 4.7 Acknowledgment of Risk .........................................  27
SECTION 4.8 Organization ...................................................  27
SECTION 4.9 Authorization ..................................................  27
SECTION 4.10 Brokers' Fees .................................................  28
SECTION 4.11 No Approvals or Conflicts .....................................  28
SECTION 4.12 No Public Market ..............................................  28
SECTION 4.13 Reliance By The Company .......................................  28
SECTION 4.14 No Public Solicitation ........................................  28
SECTION 4.15 Availability of Funds .........................................  28


                                       ii
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                                                                            Page

                                    ARTICLE V

                              CONDITIONS TO CLOSING

SECTION 5.1 Conditions to Obligations of Purchasers ........................  29
SECTION 5.2 Conditions to Obligations of Company ...........................  30
SECTION 5.3 Waiver .........................................................  31

                                   ARTICLE VI

                               CLOSING DELIVERIES

SECTION 6.1 By the Company .................................................  31
SECTION 6.2 By the Purchaser ...............................................  32

                                   ARTICLE VII

                            COVENANTS OF THE PARTIES

SECTION 7.1 Use of Proceeds ................................................  32
SECTION 7.2 Financial Information ..........................................  32
SECTION 7 3 Access to Books and Records; Cooperation .......................  33
SECTION 7.4 Publicity ......................................................  33
SECTION 7 5 Filings and Consents ...........................................  34
SECTION 7 6 Covenant to Satisfy Conditions .................................  34
SECTION 7.7 Withholding Taxes ..............................................  34
SECTION 7.8 Other Agreements ...............................................  34

                                  ARTICLE VIII

                               REGISTRATION RIGHTS

SECTION 8.1 Registration Rights ............................................  35


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<PAGE>

                                                                            Page

                                   ARTICLE IX

                                    TRANSFER

SECTION 9.1 Transfer ......................................................   35
SECTION 9.2 Right of First Offer ..........................................   35
SECTION 9.3 Restrictions On Transfers: Certain Permitted Transfers ........   36

                                    ARTICLE X

                                 INDEMNIFICATION

SECTION 10.1 Indemnity ....................................................   38

                                   ARTICLE XI

                                EVENTS OF DEFAULT

SECTION 11.1 Events of Default ............................................   40
SECTION 11.2 Optional Acceleration of Maturity ............................   42
SECTION 11.3 Automatic Acceleration .......................................   42

                                   ARTICLE XII

                                   TERMINATION

SECTION 12.1 Termination ..................................................   43
SECTION 12.2 Procedure and Effect of Termination ..........................   44

                                  ARTICLE XIII

                                  MISCELLANE0US

SECTION 13.1  Waivers and Amendments ......................................   45
SECTION 13.2  Governing Law ...............................................   45
SECTION 13.3  Survival ....................................................   45
SECTION 13.4  Successors and Assigns ......................................   45
SECTION 13.5  Entire Agreement ............................................   46


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                                                                            Page

SECTION 13.6  Notices .....................................................   46
SECTION 13.7  Attorneys' Fees .............................................   47
SECTION 13.8  Severability ................................................   47
SECTION 13.9  Captions ....................................................   47
SECTION 13.10 Counterparts ................................................   47
SECTION 13.11 Knowledge ...................................................   47

EXHIBITS

Exhibit A   -   Form of Note
Exhibit B   -   Form of Warrant Certificate
Exhibit C   -   Financial Statements
Exhibit D   -   Chernogorskoye Financial Statements
Exhibit E   -   Ryder Scott Reserve Summary
Exhibit F   -   Risk Factors Memorandum
Exhibit G   -   Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit H   -   Opinion of Salans, Hertzfeld & Heilbronn
Exhibit I   -   Shareholder Agreement
Exhibit J   -   Disclosure Schedule


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                             INDEX OF DEFINED TERMS

                                                                            Page

Acceleration Notice ........................................................  42
Adjustment Cut-Off Date ....................................................   2
Adjusted Equity Value ......................................................   3
Adjusted Exercise Price ....................................................   3
Adjustment Notice ..........................................................   3
Assets .....................................................................  14
Business Day ...............................................................   4
Chernogorskoye .............................................................  11
Chernogorskoye Financial Statements ........................................  11
Closing ....................................................................   2
Closing Date ...............................................................   2
Common Stock ...............................................................   1
Company ....................................................................   1
Contract ...................................................................   9
Cut-Off Date ...............................................................  34
Disclosure Schedule ........................................................   2
Encumbrances . .............................................................   9
Environmental Laws .........................................................  16
ERISA ......................................................................  24
Evaluated Properties .......................................................  13
Event of Default ...........................................................  40
Excess Liabilities .........................................................   3
FCPA .......................................................................  24
Financial Statements .......................................................  10
Financing ..................................................................   1
Holdings ...................................................................   6
Indebtedness ...............................................................  41
Initial Equity Value .......................................................   3
Investment Agreement .......................................................  25
IPO ........................................................................   5
June Unaudited Balance Sheet ...............................................  10
KMNGG ......................................................................   1
Liability ..................................................................  12
Majority Note Holders ......................................................   5
Majority Subsidiaries ......................................................   8


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                                                                            Page

Material Adverse Effect ....................................................   8
Material Contracts .........................................................  17
Minority Subsidiaries ......................................................   8
Multiemployer Plan .........................................................  25
Multiple Employer Plan .....................................................  25
Notes ......................................................................   1
Offer ......................................................................  35
Offered Securities .........................................................  35
Other Agreements ...........................................................  34
Permitted Transferee .......................................................  37
person .....................................................................   8
Plans ......................................................................  25
Public Disclosures .........................................................  33
Purchaser ..................................................................   1
Redemption Price ...........................................................   5
Related Agreements .........................................................  10
Reserve Summary ............................................................  13
Risk Factors Memo ..........................................................  27
Ryder Scott ................................................................  13
Securities .................................................................   1
Securities Act .............................................................  26
Shareholder Agreement ......................................................  31
Significant Subsidiaries ...................................................  41
Stock-Related Instruments ..................................................   9
Stockholders ...............................................................   8
Subsidiaries ...............................................................   8
Tax Return .................................................................  15
Taxes ......................................................................  15
Transfer ...................................................................  35
Valuation Event ............................................................   3
Waldo ......................................................................  25
Warrants ...................................................................   1


                                       vii
<PAGE>

                       NOTE AND WARRANT PURCHASE AGREEMENT

      This Note and Warrant Purchase Agreement (the "Agreement") is made as of
the 10th day of October, 1997, by and between Khanty Mansiysk Oil Corporation, a
Delaware corporation (the "Company"), and __________________________ (the
"Purchaser").

                                   RECITALS

      WHEREAS, the Company wishes to sell to the Purchaser (i) one or more
notes of the Company, substantially in the form of Exhibit A hereto
(individually, a "Note" and, collectively, the "Notes"), in the aggregate
principal amount of ____________ and (ii) warrants to acquire ______ shares
of common stock, no par value per share (the "Common Stock"), of the Company
at an exercise price of $450 per share, substantially in the form of Exhibit
B hereto (the "Warrants" and, together with the Notes, the "Securities");

      WHEREAS, the proceeds of the sale of the Securities to the Purchaser shall
constitute only a portion of the $55,000,000 financing presently being
conducted by the Company (the "Financing") and pursuant to which other investors
shall be entitled to participate by purchasing notes and warrants;

      WHEREAS, the proceeds of the financing will be used in part to finance the
Company's acquisition of Khanty-Mansiyskneftegazgeologia ("KMNGG") and related
matters; and

      WHEREAS, the Purchaser wishes to purchase the Securities from the Company;

      NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations, warranties, covenants, conditions and agreements
contained herein, the parties hereto, intending to be legally bound by the terms
hereof, agree as follows:
<PAGE>

                                    AGREEMENT

                                    ARTICLE I

                                PURCHASE AND SALE

      SECTION 1.1 Purchase and Sale of Notes. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, one or more Notes
in the aggregate principal amount of $________. Each Note shall be substantially
in the form of Exhibit A, and shall be dated the Closing Date (as defined
below).

      SECTION 1.2 Purchase and Sale of Warrants. Upon the terms and subject to
the conditions set forth in this Agreement, the Company agrees to issue and sell
to Purchaser, and Purchaser agrees to purchase from the Company, Warrants to
purchase ______ shares of Common Stock at an exercise price of $450 per share,
subject to adjustment as provided below in Section 1.5.

      SECTION 1.3 Consideration. Upon the terms and subject to the conditions
set forth in this Agreement, and in consideration of the sale and delivery of
the Securities, on the Closing Date Purchaser shall pay to the Company cash in
the amount equal to _________________ by wire transfer of immediately available
funds to an account designated by the Company.

      SECTION 1.4 Closing. The consummation of the purchase and sale of the
Securities (the "Closing") shall occur, subject to the satisfaction or waiver of
the conditions set forth in Article V, at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, on October 14,
1997, at 9 00 a m. local time, or otherwise as the parties may agree (the
"Closing Date"). At the Closing, the parties shall make the deliveries and take
the other actions contemplated by Sections 6.

      SECTION 1.5 Warrant Adjustments. (a) Prior to March 31, 1998 (Adjustment
Cut-Off Date"), the Company shall have prepared and delivered to the Purchaser
audited financial statements of the Company for the quarter ended September 30,
1997, which shall include an audit of the estimated liabilities set forth in
Section 1.5 of the Disclosure Schedule attached hereto as Exhibit J (the
"Disclosure Schedule"), audited by one of the accounting firms listed in Section


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1.5 of the Disclosure Schedule. If the actual liabilities as of the Closing Date
based on such audited financial statements (immediately prior to the acquisition
of KMNGG and excluding the liabilities of KMNGG and excluding any fees and
expenses incurred by the Company in connection with the consummation of the
transactions contemplated by this Agreement as listed in Section 1.5(a) of the
Disclosure Schedule) exceed the estimated liabilities by an amount greater than
$500,000 (such excess liabilities referred to herein as the "Excess
Liabilities"), then the exercise price of the Warrants and the total number of
shares of Common Stock purchasable under the Warrants shall be adjusted such
that (i) the exercise price of the Warrants immediately prior to the Adjustment
Cut-Off Date shall be reduced proportionately with the amount of the decrease in
equity value of the Company from the Initial Equity Value to the Adjusted Equity
Value (the "Adjusted Exercise Price") and (ii) the number of shares of Common
Stock purchasable pursuant to the Warrants immediately prior to the Adjustment
Cut-Off Date shall be adjusted such that the Warrant holder may receive upon the
exercise of the Warrants a number of shares of Common Stock equal to the
aggregate exercise price of the Warrants prior to the Adjustment Cut-Off Date
divided by the per share Adjusted Exercise Price. For purposes of this Section
1.5, "Initial Equity Value" shall be $103,860,378, and the "Adjusted Equity
Value" of the Company shall be determined by subtracting from the Initial Equity
Value the amount of the Excess Liabilities. The Company shall deliver, along
with the audited financial statements under this Section 1.5(a), a notice to the
Warrant holder as to the amount, if any, of the Excess Liabilities and the
amount, if any, of the Warrant Adjustment (the "Adjustment Notice").

(b) If the Company fails to increase its economic interest in KMNGG to at least
89% prior to the occurrence of any event or transaction that involves a sale,
issuance or exchange of the Common Stock, a sale or exchange of a substantial
portion of the assets of the Company, a distribution of the Common Stock or any
other commercial transaction on account of which a market value of the Company
is determinable (a "Valuation Event"), then the exercise price of the Warrants
and the total number of shares of Common Stock purchasable under the Warrants
shall be adjusted such that (i) the exercise price of the Warrants immediately
prior to the Valuation Event shall be reduced by the percentage equal to 90% of
the percentage difference between 89% and the Company's actual economic interest
in KMNGG immediately prior to the Valuation Event, and (ii) the number of shares
of Common Stock purchasable pursuant to the Warrants immediately prior to the
Valuation Event shall be adjusted such that the Warrant holder may receive upon
the exercise of the Warrants a number of shares of Common Stock equal to the
aggregate exercise price of the Warrants immediately


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prior to the Valuation Event divided by the per share adjusted exercise price
under clause (i) above. If the cost to the Company of increasing its economic
interest in KMNGG exceeds $1 million, then the adjustments under this Section
1.5(b) shall be made as if the Company's actual economic interest in KMNGG
immediately prior to the Valuation Event is 85%: PROVIDED, HOWEVER, any amounts
paid for the purchase of KMNGG capital stock issued to KMOC directly from KMNGG
shall be excluded from the calculation of such $1 million.

                                   ARTICLE II

                             TERMS OF THE SECURITIES

      SECTION 2.1 Interest on Notes. The Company shall pay interest on the
unpaid principal amount of the Notes from the date of the Notes until such
principal amount shall be paid in full, at a rate equal to 10% per annum.
Accrued interest on the Notes shall be payable quarterly on September 30,
December 31, March 31 and June 30 of each year until such Notes are paid in full
with the first such payment due on December 31, 1997. Accrued interest shall be
payable, at the Company's option, in either cash or Common Stock or a
combination thereof. If all or any portion of such interest is paid in Common
Stock, each share of Common Stock shall be valued for this purpose as being
equal to the exercise price of the Warrants at the time of such payment.

      SECTION 2.2 Payments and Computation. (a) The Company shall make each
payment of interest in respect of the Notes not later than 12:00 noon, New York
City time, on the day when due by wire transfer in immediately available funds
to the account specified by the holder of record of the Notes or by delivery of
stock certificates representing shares of Common Stock to the holder of record
of the Notes, as the case may be.

            (b) All computations of interest shall be made on the basis of a
year of 365 or 366 days, as the case may be, in each case for the actual number
of days (including the first day but excluding the last day) elapsed.

            (c) Whenever any payment under this Agreement or under the Notes
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest. "Business Day"
means a day other than a Saturday, Sunday, legal holiday or other day


                                       4
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on which banks in New York, New York are required or authorized by law to be
closed for business.

      SECTION 2.3 Redemption of Notes. (a) The Company shall redeem all of the
Notes in accordance with this Section 2.3 in cash at a price the "Redemption
Price") equal to the principal amount of the Notes plus all accrued and unpaid
interest thereon, if any, to the date fixed for such redemption either (i) upon
the occurrence of an initial public offering of the Company's Common Stock (an
"IPO"), or (ii) upon the request of the holders of a majority of the notes (in
principal amount) issued pursuant to the Financing (the "Majority Note Holders")
at any time after the fifth anniversary of the Closing Date, or (iii) prior to
or in connection with a registered public offering of the Company's Common Stock
that is initiated by Brunswick Fitzgibbons Trust Company LLC pursuant to the
exercise of its demand registration rights; provided, however, in the case of an
IPO the Company shall redeem as great a principal amount of Notes on a pro rata
basis among the note holders as the net proceeds from the IPO shall permit.

            (b) The Company shall give notice of the redemption to the holders
of the Notes by mailing notice of such redemption by first class mail, postage
prepaid, at least 15 days and not more than 30 days prior to the date fixed for
redemption. The date fixed for redemption shall be, in the case of an IPO, 15
days following the date of the closing of the IPO, and in the case of a
redemption requested by the Majority Note Holders subsequent to the fifth
anniversary of the Closing Date, within 70 days of receipt by the Company of
such request. The notice of redemption to each such holder shall specify (i) the
principal amount of the Notes held by such holder to be redeemed, (ii) the date
fixed for redemption, (iii) the redemption price, (iv) the place or places of
payment (at least one of which must be New York City), (v) that payment will be
made upon presentation and surrender of such Notes and (vi) that interest, if
any, accrued to the date fixed for redemption will be paid as specified in such
notice.

            (c) If notice of redemption has been given as provided in (b) above,
the Notes specified in such notice shall become due and payable on the date and
at the place or places stated in such notice at the Redemption Price, and on and
after said date (unless the Company shall default in the payment of such Notes
at the Redemption Price) interest, if any, on the Notes so called for redemption
shall cease to accrue, and the holders of the Notes shall have no right in
respect of such Notes except the right to receive the Redemption Price thereof.
On presentation and surrender of such Notes at a place of payment specified in


                                       5
<PAGE>

the notice, such Notes shall be paid and redeemed by the Company at the
Redemption Price.

            (d) If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the Redemption Price shall, until paid or duly
provided for, bear interest (i) for a period of 45 days subsequent to the date
fixed for redemption at an annual rate of 12% and (ii) following such 45 day
period at an annual rate of 18%.

            (e) The rights and priorities of the holders of notes issued
pursuant to the Financing with respect to payment of interest and principal
shall be pari passu with the rights and priorities of all other holders of notes
issued pursuant to the Financing, except with respect to rights granted to
Khanty Holdings LLC ("Holdings") in the Warrant Certificate, dated as of October
15, 1997, from the Company to Holdings, to apply principal of the notes of the
Company held by Holdings towards the exercise price of warrants of the Company
held by Holdings when converting such warrants into common stock of the Company
pursuant to the exercise of its tag along rights under the Voting and Transfer
Agreement, dated as of October 15, 1997, by and among the Company, Holdings,
Waldo Securities, S.A. and the Brunswick Fitzgibbons Trust Company LLC.

      SECTION 2.4 Registration, Exchange and Replacement of Securities.

            (a) Registration of Notes; Registration of Transfer and Exchange of
Notes.

            (i) All Notes issued from time to time under this Agreement shall be
      registered as provided in this Agreement. The Company will keep at its
      office appropriate books for the registration and registration of transfer
      and exchange of Notes. The Company will register the Notes and transfers
      and exchanges of the Notes under the provisions of this Agreement at such
      office, but only if such transfers are in compliance with Article IX
      hereof.

            (ii) Whenever any Note or Notes shall be presented at such office
      for exchange or registration of transfer, subject to compliance with
      Article IX hereof, the Company at its expense shall execute and, in
      exchange and upon cancellation of the Note, shall deliver a new Note or
      Notes, registered in such name or names and in such denominations of $1000
      or any integral multiple thereof as may be requested, in the same
      aggregate


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<PAGE>

      principal amount and dated the date to which interest has been paid on the
      Note or Notes so surrendered, or, if no interest has yet been so paid,
      then dated the date of the Note or Notes so surrendered; PROVIDED,
      HOWEVER, that no transfer of any Note shall be registered unless the
      transfer is evidenced by a written instrument of transfer, in form
      reasonably satisfaction to the Company, executed by the registered owner
      of such Note or by his authorized attorney. All Notes issued upon any
      exchange of Notes shall be the valid obligations of the Company,
      evidencing the same debt, and entitled to the same benefits under this
      Agreement, as the Notes surrendered upon such exchange.

            (b) Replacement of Security. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Security and of indemnity and security or bond satisfactory to it, the
Company at its expense will execute and deliver in replacement of such Security
a new Security of like tenor, registered in the same manner and in the same
amount as the Security being replaced and with respect to any Note, in the
unpaid principal amount, dated the date to which interest has been paid on such
Note, or, if no interest has yet been so paid, then dated the date of such Note.

      SECTION 2.5 Restrictions on Payment of Dividends. The Company shall not
pay, declare or set aside any sums for the payment of any dividends, or make
any distributions on any shares of its capital stock or other equity securities
of the Company unless the Company has paid interest on the Notes pursuant to
Section 2.1 in cash for the twelve month period preceding such dividend or
distribution.

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company hereby represents and warrants to the Purchaser as follows:

      SECTION 3.1 Corporate Organization. Each of the Company and each
Subsidiary (as defined below) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each of
the Company and each Subsidiary has full corporate power and authority to own
its properties and assets and to carry on its business as now being conducted
and is duly qualified or licensed to do business as a foreign corporation in
good


                                       7
<PAGE>

standing in the jurisdictions in which the ownership of its property or the
conduct of its business requires such qualification, all of which jurisdictions
are listed in Section 3.1 of the Disclosure Schedule, except jurisdictions in
which the failure to be so qualified or licensed (i) would not have a material
adverse effect on the business, operations, or financial condition of the
Company and the Subsidiaries, taken as a whole, or (ii) based upon information
available to the Company on the date hereof, would not reasonably be expected to
have a material adverse effect on the prospects of the Company and the
Subsidiaries, taken as a whole (other than an effect that would arise from
general industry, political or economic conditions or government policies),
(hereinafter referred to as a "Material Adverse Effect"). The Company has
delivered to the Purchaser true, correct and complete copies of the Certificate
of Incorporation and Bylaws, or similar corporate governance documents, of the
Company and of each Subsidiary as presently in effect. Section 3.1 of the
Disclosure Schedule contains a true and correct list of (i) those entities in
which the Company has a 50% or greater equity interest (the "Majority
Subsidiaries") and (ii) those entities in which the Company has an equity
interest less than 50% (the "Minority Subsidiaries" and, collectively with the
Majority Subsidiaries, the "Subsidiaries"). Other than as disclosed in Section
3.1 of the Disclosure Schedule, the Company does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any partnership,
joint venture or other business. In light of the condition contained in Section
5.1(h) that the Company shall have consummated the Final Closing (as defined in
the Investment Agreement) pursuant to the Investment Agreement prior to or
simultaneously with the Closing under this Agreement, for purposes of this
Agreement, neither KMNGG nor any of the subsidiaries of KMNGG acquired by the
Company subsequent to the date of the Final Closing pursuant to the Investment
Agreement shall be deemed a Subsidiary for purposes of this Agreement.

      SECTION 3.2 Capital Stock. Section 3.2 of the Disclosure Schedule
contains a true, correct and complete description of the authorized, issued
and outstanding capital stock of the Company as of the date hereof and as of
the Closing Date (including any capital stock issued on the Closing Date).
The record holders (the "Stockholders") of the issued and outstanding shares
of capital stock of the Company are the persons (for the purposes of this
Agreement, "person" shall mean any individual, corporation, partnership,
joint-stock company, limited liability company, trust, unincorporated
organization or government or other agency or political subdivision thereof)
listed in Section 3.2 of the Disclosure Schedule and the amount of shares of
capital stock held by each Stockholder is set forth opposite the respective
Stockholder's name in Section 3.2


                                       8
<PAGE>

of the Disclosure Schedule. To the knowledge of the Company, the shares of
capital stock listed in Section 3.2 of the Disclosure Schedule are, and will be
on the Closing Date, held by the respective Stockholder free and clear of all
options, pledges, security interests, voting trust or similar arrangements,
liens, claims, charges or other legal or equitable rights or encumbrances or
restrictions on voting or transfer (collectively, the "Encumbrances"), except as
set forth in Section 3.2 of the Disclosure Schedule, and, other than as set
forth in Section 3.2 of the Disclosure Schedule, no other shares of any other
class or series of capital stock are, or will be on the Closing Date, issued and
outstanding. All of the outstanding shares of capital stock of the Subsidiaries
owned by the Company are owned by the Company, free and clear of all
Encumbrances. Except as set forth in Section 3.2 of the Disclosure Schedule,
there are no subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements to which the Company
is a party relating to the issuance, sale, transfer or voting of any shares of
capital stock of the Company or any of the Subsidiaries, including any rights of
conversion or exchange under any outstanding securities or other instruments
("Stock-Related instruments") existing as of the date hereof and as of the
Closing Date (including any Stock Related Instruments issued on the Closing
Date). The Company has made available to the Purchaser true, correct and
complete copies of all written Stock-Related Instruments listed in Section 3.2
of the Disclosure Schedule. Except as set forth in Section 3.2. all outstanding
shares of capital stock of the Company, each Majority Subsidiary and, to the
best knowledge of the Company, each Minority Subsidiary, as of the date hereof
and as of the Closing Date (a) have been duly authorized, validly issued and are
fully paid and nonassessable, (b) are and have been free of any preemptive
rights, (c) were not issued in violation of the terms of any contract,
agreement, lease, plan, instrument or other document binding on the Company or
any Subsidiary, and (d) were issued in compliance with all applicable charter
documents of the Company and the Subsidiaries and all applicable federal, state
and foreign securities or "blue sky" laws, statutes, ordinances, rules and
regulations.

      SECTION 3.3 Issuance of Securities. Upon the consummation of the
transactions contemplated hereby, the Securities will constitute valid and
binding obligations of the Company, enforceable in accordance with their terms,
subject to applicable bankruptcy, insolvency and other laws generally applicable
to creditors' rights and to general principles of equity, and the issuance of
the Securities will not violate or contravene the terms of any contract,
agreement, note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, lease, plan, instrument or other document ("Contract") binding on the
Company. The


                                       9
<PAGE>

issuance of the Securities has been duly authorized by all necessary corporate
action of the Company.

      SECT1ON 3.4 Authorization, Etc. The Company has full corporate power and
authority to execute and deliver this Agreement and the Securities and the
Shareholder Agreement (collectively, the "Related Agreements") and to carry out
the transactions contemplated hereby and thereby. The Board of Directors of the
Company has duly approved and authorized the execution and delivery by the
Company of this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby, and no other corporate proceedings
on the part of the Company are necessary to approve and authorize the execution
and delivery by the Company of this Agreement and the Related Agreements and the
consummation by the Company of the transactions contemplated hereby and thereby,
except that the approval of the Company's stockholders may be required in
respect of additional Warrants issuable pursuant to adjustments set forth in the
certificates underlying the Securities depending on the magnitude of the
adjustment referred to therein. This Agreement and, as of the Closing Date, the
Related Agreements have been duly and validly executed on behalf of the Company
and constitute valid and binding agreements of the Company enforceable against
the Company in accordance with their respective terms, subject to applicable
bankruptcy, insolvency and other laws generally applicable to creditors' rights
and to general principles of equity and except to the extent that the rights to
indemnity and contribution contained in this Agreement and the Shareholder
Agreement may be unenforceable.

      SECTION 3.5 Financial Statements. (a) The Company has previously delivered
to the Purchaser (a) the Company's unaudited consolidated balance sheets at
December 31, 1996, (b) the Company's unaudited consolidated statements of
income, financial condition and equity for the fiscal year ended December 31,
1996, (c) the Company's unaudited consolidated balance sheet at March 30,
1997, (d) the Company's unaudited consolidated statement of income, financial
condition and equity for the three months ended March 30, 1997, (e) the
Company's unaudited consolidated balance sheet at June 30, 1997 (the "June
Unaudited Balance Sheet"), and (f) the Company's unaudited consolidated
statement of income, financial condition and equity for the six months ended
June 30, 1997. Attached hereto as Exhibit C is a copy of the financial
statements referred to in (a) through (f) above, which together with the related
notes and schedules thereto are sometimes referred to herein as the "Financial
Statements".


                                       10
<PAGE>

      The Financial Statements (a) fairly present in all material respects the
assets, liabilities and financial condition of the Company and the Subsidiaries
as of the dates thereof and the results of operations of the Company and the
Subsidiaries for the respective periods ended on such dates, (b) have been
prepared from the books and records of the Company and the Subsidiaries and (c)
except as otherwise set forth in the notes thereto, (i) have been prepared in
accordance with United States generally accepted accounting principles
consistently applied and (ii) include all adjustments that are necessary for a
fair presentation of the information shown.

            (b) Chernogorskoye's Financial Statements.

      The Company has previously delivered to the Purchaser (a) the audited
consolidated balance sheets at December 31, 1996 of Anderman/Smith International
Chernogorskoye ("Chernogorskoye"), (b) Chernogorskoye's audited consolidated
statement of income, financial condition and equity for the fiscal year ended
December 31, 1996, (c) Chernogorskoye's unaudited consolidated balance sheet at
June 30, 1997, (d) Chernogorskoye's unaudited consolidated statement of income,
financial condition and equity for the six months ended June 30, 1997, and (e)
all related notes and schedules. Attached hereto as Exhibit D is a copy of the
financial statements referred to in (a) through (d) above, together with the
related notes and schedules thereto referred to in (e) above, which are
sometimes collectively referred to herein as the "Chernogorskoye Financial
Statements".

      To the knowledge of the Company, the Chernogorskoye Financial Statements
(a) fairly present in accordance with U.S. generally accepted accounting
principles the assets, liabilities and financial condition of Chernogorskoye as
of the dates thereof and the results of operations of Chernogorskoye for the
respective periods ended on such dates, (b) have been prepared from the books
and records of Chernogorskoye and (c) except as otherwise set forth in the notes
thereto, (i) have been prepared in accordance with United States generally
accepted accounting principles consistently applied and (ii) include all
adjustments that are necessary for a fair presentation of the information shown
and do not contain any items of a special or non recurring nature (subject, in
the case of reports other than annual year-end reports, to normal year-end audit
adjustments).

      SECTION 3.6 Absence of Undisclosed Liabilities. To the best knowledge of
the Company, neither the Company nor any of the consolidated Subsidiaries has
any material direct or indirect liability, indebtedness, obligation,


                                       11
<PAGE>

expense, claim, deficiency, guaranty or endorsement of or by any person (other
than endorsements of notes, bills and checks presented to banks for collection
deposit in the ordinary course of business) of any type, whether accrued,
absolute, contingent, matured, unmatured or otherwise ("Liability"), other than
Liabilities (a) that are reflected, accrued or reserved for in the June
Unaudited Balance Sheet, or (b) arising in the ordinary course of the Company's
business consistent with past practice which would not result in a Material
Adverse Effect, or (c) otherwise disclosed in Section 3.6 of the Disclosure
Schedule.

      SECT1ON 3.7 No Approvals or Conflicts. The execution and delivery by the
Company of this Agreement and the Related Agreements and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i)
violate, conflict with or result in a breach of any provision of the Certificate
of Incorporation or Bylaws of the Company, (ii) violate, conflict with or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties of the Company or the Subsidiaries under, any
Contract to which the Company or any Subsidiary is a party or by which the
Company, any Subsidiary, or any of their respective properties may be bound,
(iii) violate any order, injunction, judgment, ruling, law or regulation of any
court or governmental authority applicable to the Company, any Subsidiary or any
of their respective properties and (iv) require any order, license, consent,
approval, waiver, permit or authorization of, or notice to, or declaration,
filing or registration with, or the granting of any exemption by, or the taking
of any other action in respect of, any governmental or regulatory authority or
other person not a party to this Agreement except the orders, filings,
registrations or other actions contemplated by the Shareholder Agreement, except
where the occurrence of any of the events in clauses (ii), (iii) or (iv) above
would not result in a Material Adverse Effect.

      SECTION 3.8 Compliance with Law; Governmental Authorizations. To the best
knowledge of the Company, the Company and the Subsidiaries are not in violation
of any order, injunction, judgment, ruling, law or regulation of any court or
governmental authority applicable to the property or business of the Company or
the Subsidiaries which violation or violations in the aggregate would have a
Material Adverse Effect. The licenses, permits and other governmental
authorizations held by the Company and the Subsidiaries are valid and sufficient
for the conduct of the Company's and the Subsidiaries' business as currently
conducted, except where the failure to hold such licenses, permits and other
governmental authorizations would not have a Material Adverse Effect.


                                       12
<PAGE>

      SECTION 3.9 Reserve Summary. The Company has made available to the
Purchaser the results of the preliminary reserve summary (the "Reserve Summary")
prepared by the independent petroleum engineering firm of Ryder Scott Company
("Ryder Scott") on the Russian oil fields listed on the attachment thereto (the
"Evaluated Properties") in which the Company will have interests subsequent to
the Closing Date. The Reserve Summary, which is attached hereto as Exhibit E, is
the latest reserve summary available to the Company relating to the Evaluated
Properties. The Company has provided no materially false or misleading
information to and has not withheld from Ryder Scott any material information
with respect to the preparation of the Reserve Summary.

      The Company is not aware of any facts or circumstances that should
reasonably cause the Company to conclude that (i) any of the information that
was supplied by the Company to Ryder Scott in connection with its preparation of
the Reserve Summary is not currently correct in all material respects (other
than normal depletion by production in the ordinary course) or (ii) the Reserve
Summary is incorrect in any material respect.

      SECTION 3.10 Licensed Interests. (a) To the knowledge of the Company,
except as set forth in Section 3.10 of the Disclosure Schedule, Chernogorskoye
and KMNGG, as the case may be, each have a valid licensed interest (either
directly or through one or more subsidiaries or affiliates) in the development
of the Evaluated Properties, free and clear of all material encumbrances except
for (i) encumbrances specifically described in Section 3.10 of the Disclosure
Schedule, (ii) statutory liens not delinquent, (iii) encumbrances that are not
material in character, amount or extent and do not materially detract from the
value, or interfere with the use of, the interest affected thereby or otherwise
materially impair the business or (iv) contracts and agreements for the sale and
transportation of oil and gas entered into in the ordinary course of business.
The Company's net licensed interest in the Evaluated Properties is set forth in
Section 3.10 of the Disclosure Schedule subject to the restrictions and
limitations set forth therein.

            (b) To the best knowledge of the Company, except as set forth in
Section 3.10 and in Section 3.11 of the Disclosure Schedule, the Company and the
Subsidiaries have good and valid title to all the properties and assets of every
kind, character and description (real, personal or mixed, tangible and
intangible), including, without limitation, all parcels of real property,
pipelines, rights-of-way and easements and other incidental rights and permits,
but excluding the Evaluated Properties, reflected on the June Unaudited Balance
Sheet or which would


                                       13
<PAGE>

have been reflected on the June Unaudited Balance Sheet if acquired prior to
June 30, 1997, (the "Assets") free and clear of all encumbrances of any nature
except for (i) the encumbrances and title defects specifically described in
Section 3.10 of the Disclosure Schedule; (ii) mortgages and encumbrances which
secure indebtedness or obligations which are properly reflected on the Financial
Statements and, if such indebtedness exceeds $l,000,000, listed in Section 3.10
of the Disclosure Schedule; (iii) liens for Taxes (as defined in Section 3.12)
not yet payable or any Taxes being contested in good faith; (iv) liens arising
as a matter of law in the ordinary course of business, PROVIDED that the
obligations secured by such liens are not delinquent or are being contested in
good faith; and (v) such imperfections of title and encumbrances, if any, as do
not materially interfere with the present use of any of the Assets subject
thereto. To the best knowledge of the Company, the Company and the Subsidiaries
have valid leasehold interests in all leases reflected as capital leases on the
June Unaudited Balance Sheet and generally have the right to use all other
property and assets as to which they do not have title but which are currently
being used in the conduct of the Company's business, except any rights of use
the loss of which would not materially adversely affect the Company's business
as currently being conducted with such assets.

      SECTION 3.11 Litigation or Other Proceedings. Except as set forth in
Section 3.11 of the Disclosure Schedule, there are no claims, actions,
proceedings (including, but not limited to, any condemnation or eminent domain
proceedings) or investigations pending against the Company or, to the best
knowledge of the Company, (i) pending against the Subsidiaries, (ii) threatened
against the Company or the Subsidiaries, or (iii) affecting the Assets, the
Evaluated Properties or the transactions contemplated by this Agreement, before
any court or governmental or regulatory authority or body which singly or in the
aggregate would have a Material Adverse Effect.

      SECTION 3.12 Taxes.

            (a) The Company and, to the best knowledge of the Company, each
Subsidiary, has (i) duly filed with the appropriate Federal, state, local and
foreign taxing authorities all Tax Returns (as defined below) required to be
filed by or with respect to the Company and the Subsidiaries as of the date of
this Agreement, and such Tax Returns are true, correct and complete in all
material respects and (ii) paid or made provision for in the Financial
Statements all Taxes (as defined below) of the Company and the Subsidiaries
shown to be due on such Tax Returns. To the best knowledge of the Company, there
are no tax liens on any of the Assets other than liens for current real estate
taxes not yet due or


                                       14
<PAGE>

Taxes being contested in good faith by appropriate proceedings and disclosed in
Section 3.12 of the Disclosure Schedule. Except as set forth in Section 3.12 of
the Disclosure Schedule, the Company has not received any written notice of
deficiency, assessment or proposed assessment from any Federal, state, local or
foreign taxing authority with respect to liabilities for Taxes of the Company or
the Subsidiaries which have not been paid or finally settled, and, to the best
knowledge of the Company, there is no pending tax examination of or tax claim
assessed against the Company, any Subsidiary or any of the Assets, and any such
deficiency, assessment, proposed assessment or tax claim disclosed in Section
3.12 of the Disclosure Schedule is being contested in good faith through
appropriate proceedings.

            (b) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States Federal, state, local or foreign taxing authority, including, but not
limited to, income, service, leasing, occupation, excise, property, sales and
use, transfer, franchise, payroll, withholding, social security or other taxes,
including any interest, penalties or additions attributable thereto.

            (c) For purposes of this Agreement, "Tax Return" shall mean any
return, report, information return or other document (including any related or
supporting information) filed or required to be filed with any taxing authority
with respect to Taxes.

      SECTION 3.13 Labor Relations. Neither the Company nor any Subsidiary is a
party to any collective bargaining agreement applicable to employees of the
Company or the Subsidiaries. The Company and the Subsidiaries are in compliance
in all material respects with all applicable laws, ordinances, regulations,
statutes, rules and restrictions relating to (a) employment, (b) hiring,
promotion, employment and pay practices, (c) terms and conditions of employment
and (d) federal and state wages and hours laws; and neither the Company nor any
Subsidiary is engaged in any unfair labor practice which has had or is
reasonably likely to have a Material Adverse Effect. No strike, slowdown,
picketing or work stoppage by any union or other group of employees against the
Company, any Subsidiary or any of their properties wherever located, and no
secondary boycott with respect to their products, lockout by them of any of
their employees or any other labor trouble or other occurrence, event or
condition of a similar character, has occurred or, to the best knowledge of the
Company, been threatened.


                                       15
<PAGE>

      SECTION 3.14 Patents, Trademarks, Trade Names, Etc. Neither the Company
nor the Subsidiaries own, license or use any patents, trademarks, trade names
and copyrights which are material to the business of the Company or the
Subsidiaries.

      SECTION 3.15 Environmental Matters. (a) To the best knowledge of the
Company, neither the Company nor any of the Subsidiaries has violated or
received any notice alleging any past or present violation of, any applicable
Federal, state, local or foreign laws, statutes, ordinances, rules, regulations,
orders or determinations of any governmental authority applicable to the Company
or the applicable Subsidiary, as the case may be, in its respective jurisdiction
of operation which are in effect and duly enforced relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), to the extent that
any such violation, or such violations in the aggregate, would have a Material
Adverse Effect.

            (b) To the best knowledge of the Company, the Company and the
Subsidiaries have obtained and are in compliance with all required governmental
permits and similar authorizations with respect to the ownership, leasing and
operation of their properties and the conduct of the business of the Company and
the Subsidiaries as currently conducted except, in each case, where such failure
to be in compliance would not have a Material Adverse Effect. To the best
knowledge of the Company, no hazardous waste, substance or material has been
stored, treated or disposed of by the Company or the Subsidiaries or by any
person on any real estate owned by the Company or the Subsidiaries,
respectively, except in compliance with applicable Environmental Laws; and the
Company and the Subsidiaries have lawfully disposed of their hazardous waste
products with respect to the operations of their businesses except, in each
case, where such failure to be in compliance or to obtain, store, treat or
dispose of such waste products would not have a Material Adverse Effect.

            (c) The Company is not aware of any facts or circumstances that
could reasonably lead the Company to conclude that the costs and liabilities,
other than the currently budgeted capital expenditures, associated with the
effect of Environmental Laws on the business, operations and properties of the
Company and the Subsidiaries (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints


                                       16
<PAGE>

on operating activities and any potential liabilities to third parties) would,
singly or in the aggregate, have a Material Adverse Effect.

      SECTION 3.16 Insurance. Section 3.16 of the Disclosure Schedule lists all
material insurance policies covering the Assets, employees and operations of the
Company and the Subsidiaries. Such policies are in full force and effect, there
are no defaults thereunder, and, to the best knowledge of the Company and the
Subsidiaries there is no basis for any action or claim nor any facts which could
be anticipated to give rise to such action or claim. To the best knowledge of
the Company and the Subsidiaries, there does not exist any event that, with the
giving of notice or the lapse of time or both, would constitute such a default.
The Company and the Subsidiaries are not co-insurers under any such policies of
insurance except to the extent of the amount of the deductible, self-retention
or similar amounts applicable to such policies.

      SECTION 3.17 Contracts, Agreements, Commitments and Other Matters.

            (a) Section 3.17 of the Disclosure Schedule is a true, correct and
complete list and description of all of the following (whether written or oral),
including all amendments thereto, existing to which the Company or to the best
of the Company's knowledge any of the Majority Subsidiaries is a party or by
which any of the Assets (excluding Chernogorskoye) is materially affected
("Material Contracts"):

            (i) any note, agreement, mortgage, indenture, security agreement and
      other instruments relating to the borrowing of money or evidence of credit
      for the deferred purchase price of property, or the direct or indirect
      guarantee by the Company or any Majority Subsidiary of any such
      indebtedness or deferred purchase price in excess of $100,000;

            (ii) any lease of real property and material personal property
      providing for annual payments under any such lease or group of related
      leases in excess of $100,000;

            (iii) any partnership or joint venture agreement providing for any
      capital contribution or expenditure at an annual rate in excess of
      $100,000;


                                       17
<PAGE>

            (iv) any management, employment and consulting agreement or other
      contract for personal services that is not terminable by the Company or
      any Majority Subsidiary party thereto on not more than three month's
      notice without penalty;

            (v) any agreement providing for liability for severance pay,
      collective bargaining agreements, labor contracts, or labor or personnel
      policies in excess of $100,000;

            (vi) any surety, performance and maintenance bond in excess of
      $100,000;

            (vii) any agreement or commitment for capital expenditures in excess
      of $100,000, for any single project (it being represented and warranted
      that the liability under all undisclosed agreements and commitments for
      capital expenditures does not exceed $100,000 in the aggregate for all
      projects):

            (viii) any plan, contract or arrangement providing for bonuses,
      pensions, deferred compensation, retirement plan payments, profit sharing,
      incentive pay, or for any other employee benefit plan;

            (ix) any brokerage or finder's agreement involving consideration in
      excess of $100,000;

            (x) any agreement that restricts the right of the Company or any
      Subsidiary to engage in any place in any line of business;

            (xi) any contract, commitment or agreement that involves the
      disposition of any assets of the Company or any Majority Subsidiary not in
      the ordinary course of business consistent with past practice;

            (xii) any contract, commitment or agreement between any of the
      Company and any Majority Subsidiary, on the one hand, and any affiliate of
      the Company, on the other hand, involving consideration in excess of
      $100,000;

            (xiii) any contract (A) for the sale of oil or other liquid
      hydrocarbons or minerals produced or to be produced from the Assets that
      is not terminable by the Company or the Majority Subsidiary party thereto
      or


                                       18
<PAGE>

      their respective successors without penalty on no more than 90 days'
      notice or (B) for the sale of gas produced or to be produced from the
      Assets that has a term exceeding one year, warrants the amount of gas to
      be delivered or has a pricing provision not based on current market
      value;

            (xiv) any advance payment agreement or any oil and gas balancing
      agreement, or any group of related agreements of such type, under which
      the Company or any Majority Subsidiary has a net obligation, as of the
      most recent date available, which shall be no more than 90 days prior to
      the date hereof, in excess of $100,000 in cash or market value in oil or
      gas;

            (xv) any contract or agreement relating to the Assets under which
      the Company or any Majority Subsidiary has outstanding indebtedness,
      obligations or liability for borrowed money, or liability for the deferred
      purchase price of property, excluding normal trade payables due in less
      than 90 days, or has the obligation to incur any such indebtedness,
      obligation or liability, in each case in excess of $100,000;

            (xvi) any contract, commitment or agreement that involves commodity
      or interest rate swaps, floors, caps, collars, futures, options or other
      similar transactions in excess of $100,000;

            (xvii) any other agreement, contract or commitment that involves
      payments or receipts, individually or in the aggregate over a twelve month
      period, of more than $250,000.

            (b) The Company has made available to the Purchaser true, correct
and complete copies of all written Material Contracts and has provided accurate
descriptions of all oral Material Contracts. Except as set forth in Sections
3.11 and 3.17 of the Disclosure Schedule, each of the Material Contracts has
been fully executed by the parties thereto, is in full force and effect and is
enforceable against the Company or a Majority Subsidiary, as applicable in
accordance with its terms (except that (i) the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought), has not been amended or
modified in any way (whether in writing or orally). Except as set forth in
Section 3.17 of the


                                       19
<PAGE>

Disclosure Schedule, neither the Company, any Majority Subsidiary nor, to the
best knowledge of the Company, any other party to any Material Contract is in or
alleged to be in material breach of any Material Contract, or has failed to
perform any material obligation required to be performed by them, and, to the
best knowledge of the Company, there does not exist under any provision thereof
any event that, with the giving of notice or the lapse of time or both, would
constitute such a breach or default, except for such breaches, defaults and
events as to which requisite waivers or consents have been obtained or which, in
the aggregate, would not have a Material Adverse Effect. Except as set forth in
Sections 3.11 and 3.17 of the Disclosure Schedule, neither the Company nor any
Majority Subsidiary is participating in any discussions or negotiations
regarding modification of or amendment to any Material Contract or entry into
any new Material Contract.

            (c) Except with respect to past due accounts payable or outstanding
indebtedness to suppliers disclosed in Sections 3.11 and 3.17 of the Disclosure
Schedule, to the best knowledge of the Company, the Company's and the Majority
Subsidiaries' relationships with their respective suppliers are generally
satisfactory.

            (d) To the Company's knowledge, other than as set forth in Section
3.17 of the Disclosure Schedule, the Company and the Majority Subsidiaries do
not have outstanding any powers of attorney, including, but not limited to,
powers of attorney with respect to representation before governmental agencies,
customs agents and brokers or given in connection with qualification to conduct
business in any other jurisdiction.

      SECTION 3.18 No Affiliate Ownership. To the Company's knowledge, no person
controlled by, controlling or under common control with the Company (other than
the Subsidiaries) owns any interest in any of the Assets or the Evaluated
Properties.

      SECTION 3.19 No Prepayments Made or Refunds Owed. Except as set forth in
Section 3.17 of the Disclosure Schedule, the Company and the Majority
Subsidiaries have not received any prepayment, advance payment, deposits or
similar payments, and have no refund obligation, other than obligations of less
than 5% of monthly sales volume for the Company incurred in the ordinary course
of business, with respect to any oil, gas or products purchased, sold, gathered,
processed or marketed through their plants. The Company and the Majority
Subsidiaries have not received any compensation for gathering or


                                       20
<PAGE>

processing services relating to the plants which would be subject to any refund
or create any repayment obligation, other than obligations of less than $25,000
incurred in the ordinary course of business, either by or to the Company and the
Majority Subsidiaries, and the Company is not aware of any basis for a claim
that such a refund is due.

      SECTION 3.20 Absence of Certain Changes or Events. Except for events
contemplated by this Agreement or disclosed in Section 3.20 of the Disclosure
Schedule, since June 30, 1997:

            (a) the Company and the Subsidiaries have used all reasonable
efforts to preserve and retain the business, employees, properties, suppliers
and goodwill of the Company and the Subsidiaries and have operated their
respective processing operations and conducted business generally only in the
ordinary and usual course consistent with past practice;

            (b) there has been no direct or indirect redemption, purchase or
other acquisition by the Company of any shares of its capital stock, or any
declaration, setting aside payment of any dividend or other distribution by the
Company;

            (c) the Company and the Majority Subsidiaries have not, other than
in the ordinary course of their business, (i) entered into or amended any
material employment, compensation or severance agreements, (ii) changed any
current bonuses or established any new bonuses, (iii) increased the level of
compensation or benefits of any executive officer or director, or (iv)
established, entered into or amended in any material respect any pension,
employee benefit or health plans or any other plans, policies, programs,
practices or arrangements relating to employee benefits or compensation other
than to maintain compliance with any applicable law or regulation; and

            (d) to the knowledge of the Company, no event has occurred with
respect to the Company or the Subsidiaries, or the condition of the Evaluated
Properties or the Assets, that results in or is reasonably likely to result in a
Material Adverse Effect, including, but not limited to, any Material Adverse
Effect resulting from any of the following occurrences:

            (i) any damage, destructions or loss to any of the Evaluated
      Properties or the Assets, whether or not covered by insurance;


                                       21
<PAGE>

            (ii) any business interruption in the Company's or the Subsidiaries'
      use or operation of any of their plants;

            (iii) any sale, lease, assignment, transfer, movement, relocation,
      termination, release or assignment of any of the Evaluated Properties or
      the Assets having a value in excess of $50,000 per item, other than sales
      of inventory in the ordinary course of business;

            (iv) any waiver or release of any rights of either the Company or
      any Subsidiary under any Material Contracts;

            (v) any change in any accounting practice or procedure;

            (vi) any capital expenditure or commitment in excess of $50,000,
      individually, or $50,000, in the aggregate, for additions to property,
      plant or equipment;

            (vii) any change in maintenance practices with respect to any of the
      Evaluated Properties or the Assets;

            (viii) any change in credit policy;

            (ix) any change in purchasing or sale practices with respect to
      natural gas or liquids;

            (x) any change in inventory, equipment spare parts, materials or
      liquid levels inconsistent with historical levels maintained in the
      ordinary course;

            (xi) any other occurrence, circumstance or combination thereof,
      except for any occurrence or circumstance generally applicable to the oil
      and gas industry;

            (xii) any assumption, guarantee, endorsement or other assumption of
      responsibility by the Company or any Subsidiary for the material
      liability or obligation of any other person (whether absolute, accrued,
      contingent or otherwise);

            (xiii) any discharge or satisfaction of any lien or other
      encumbrance on any of the Assets or the Evaluated Properties or the
      payment of


                                       22
<PAGE>

      any liability or obligation (whether absolute, accrued, contingent or
      otherwise) of the Company or any Subsidiary, other than in the ordinary
      course of business and consistent with past practice;

            (xiv) any cancellation, modification or settlement for less than the
      full amount thereof of any material debt or claim by or owing to the
      Company or any Subsidiary;

            (xv) any transfer or grant by the Company or any Subsidiary of any
      right under any contracts and other agreements, patents, patent licenses,
      inventions, trade names, trademarks, service marks or copyrights, or
      registrations or licenses thereof or applications therefor, or with
      respect to any know-how or other proprietary or trade rights;

            (xvi) any termination, discontinuance, closing or disposal of any of
      the Evaluated Properties or Assets; or

            (xvii) any transaction, contract or commitment entered into by the
      Company or any Subsidiary which is not in the ordinary course of business
      and consistent with past practice.

      SECTION 3.21 Drilling Obligations. Other than as set forth in Section 3.21
of the Disclosure Schedule, the Company and the Subsidiaries do not have any
material drilling obligations or other development commitments that are not
terminable at will by the Company or the Subsidiary party thereto without
penalty, other than commitments and obligations that arose in the ordinary
course of business where the sole consequence to the Company or the Subsidiary
party thereto for a failure to participate is to suffer a "NON-consent" penalty
or forfeit an interest in the undeveloped lands subject to the commitment or
obligation.

      SECTION 3.22 Development Operations. Other than as set forth in Section
3.22 of the Disclosure Schedule, to the best knowledge of the Company, there are
in existence no facts or circumstances that should reasonably cause the Company
to conclude that any development operations on the Evaluated Properties or the
Assets that are contemplated by the Reserve Summary will not be permitted under
applicable laws and governmental rules and regulations or that any third party
may have a reasonable basis to cause any court or governmental agency with
jurisdiction over such operations to cause the suspension or termination of such
operations.


                                       23
<PAGE>

      SECTION 3.23 Accounts Payable. Other than as set forth in Section 3.23 of
the Disclosure Schedule, the Company has no accounts payable in an amount (or in
an aggregate amount) greater than $100,000 which have been outstanding in excess
of ninety (90) days.

      SECTION 3.24 No Brokers' or Other Fees. Except as set forth in Section
3.24 of the Disclosure Schedule, no broker, finder or investment banker is
entitled to any fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the Company.

      SECTION 3.25 Regulatory Authority. To the best knowledge of the Company,
none of the Company, the Subsidiaries, the Evaluated Properties or the Assets is
subject to regulation as (a) a "holding company," an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company" or a "public utility,"
as each of such terms is defined in the Public Utility Holding Company Act of
1935, as amended, and the rules and regulations thereunder or (b) an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.

      SECTION 3.26 Full Disclosure. The Company has disclosed to the Purchaser
all material facts pertaining particularly to the Evaluated Properties or the
Assets (as opposed to public information concerning general industry, political
or economic conditions or governmental policies) known to the Company which, in
the reasonable business judgement of the Company, has a Material Adverse Effect
on, or in the future would be reasonably expected to have a Material Adverse
Effect on the Evaluated Properties or the Assets or the ownership, operation or
maintenance of any of the Evaluated Properties or the Assets.

      SECTION 3.27 Foreign Corrupt Practices Act. The Company has not taken any
actions which violate the Foreign Corrupt Practices Act (the "FCPA") and is not
aware of any actions taken by foreign Subsidiaries or local partners which if
taken by a U.S. company would constitute a violation of the FCPA.

      SECTION 3.28 Employee Benefit Matters. (a) Section 3.28 of the Disclosure
Schedule contains a true and complete list of all employee benefit plans (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and all material bonus, stock option, stock
purchase, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other employee benefit plans,


                                       24
<PAGE>

programs or arrangements, and all material employment or compensation
agreements, in each case for the benefit of, or relating to, current employees
and former employees of the Company (collectively, the "Plans").

            (b) None of the Plans (i) is a multiemployer plan, within the
meaning of Section 3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan") or a
single employer pension plan, within the meaning of Section 4001(a)(l5) of
ERISA, for which the Company could incur liability under Section 4063 or 4064 of
ERISA (a "Multiple Employer Plan") or (ii) provides or promises to provide
retiree medical or life insurance benefits.

            (c) To the knowledge of the Company, all Plans are in compliance in
all material respects with the requirements prescribed by applicable statutes,
orders or governmental rules or regulations currently in effect with respect
thereto, and the Company has performed all material obligations required to be
performed by it under, and is not in any material respect in default under or in
violation of, any of the Plans.

            (d) The Company has no Plans that are required to be qualified under
Section 401(a) or 501(a) of the Internal Revenue Code.

            (e) To the knowledge of the Company, the Company has not incurred
any material liability to the Pension Benefit Guaranty Corporation or any
"withdrawal liability" within the meaning of Section 4201 of ERISA, in either
case relating to any Plan or any pension plan maintained by any company which
would be treated as a single employer with the Company, under Section 4001 of
ERISA.

            (f) The Company has made available to the Purchaser full and
complete copies of all Plans and, where applicable, summary plan descriptions as
filed pursuant to ERISA with respect to the Plans.

      SECTION 3.29 Investment Agreement. The Investment Agreement dated August
7, 1997, among Ural Petroleum Corporation, Waldo Securities S.A. ("Waldo"),
KMNGG, Benz Investments GmbH, AOZT Iuridicheskaya Kompaniia "Graf I Sinovia",
OOO "Tagaso", and TOO "Orlis" (the "Investment Agreement") was duly authorized,
executed and delivered by the Company, and said Investment Agreement, assuming
due execution and delivery by the other parties thereto, is a valid and binding
agreement, enforceable in accordance with its terms against the Company and, to
the knowledge of the Company, each of the


                                       25
<PAGE>

other parties thereto. To the knowledge of the Company, all of the
representations and warranties made by KMNGG and Waldo in the Investment
Agreement are or will be true and correct in all material respects as of the
date made or to be made, except where the failure to be true and correct would
not have a Material Adverse Effect and except as set forth in Section 3.29 of
the Disclosure Schedule or disclosed to the Purchaser in some other section of
the Disclosure Schedule.

                                   ARTICLE IV

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

      The Purchaser represents and warrants to the Company as follows:

      SECTION 4.1 Information Received. The Purchaser and its representatives
have had the opportunity to ask questions of and receive answers from
representatives of the Company concerning an investment in the Securities, and
all questions asked by the Purchaser and its representatives have been
adequately answered to the satisfaction of the Purchaser. The Purchaser has
received or has had access to all additional information concerning the Company
and the transactions contemplated hereby that it has requested.

      SECTION 4.2 Investment Experience. The Purchaser has such knowledge and
experience in financial and business matters, including investing in securities
of new and speculative companies, as to be able to evaluate the merits and risks
of an investment in the Securities.

      SECTION 4.3 Nondistributive Intent. The Purchaser is acquiring the
Securities for its own account, for investment and with no view to the
distribution thereof.

      SECTION 4.4 Securities not Registered. The Purchaser acknowledges that the
Securities have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") or the securities laws of any state of the United States
or any other jurisdiction and may not be offered or sold by the Purchaser unless
subsequently registered under the Securities Act (if applicable to the
transaction) and any other applicable securities laws or unless exemptions from
the registration or other requirements thereof are available for the
transaction,


                                       26
<PAGE>

which exemptions shall be established to the reasonable satisfaction of the
Company, by opinion of counsel or otherwise.

      SECTION 4.5 Accredited Investor. The Purchaser represents that it is an
accredited investor within the meaning of Rule 501 of Regulation D as
promulgated under the Securities Act, as presently in effect.

      SECTION 4.6 Legend on Securities. The Purchaser acknowledges that the
certificates representing the Securities will contain legends reflecting the
restrictions on transfer imposed by the U.S. securities laws and that such
restrictions will be noted on the Company's transfer records.

      SECTION 4.7 Acknowledgment of Risk. The Purchaser acknowledges that an
investment in the Securities involves a high degree of risk and represents that
it understands the economic risks of such investment and can bear the risk of
such investment for an indefinite period. In connection with evaluating such
risks, Purchaser has visited the principal sites of the Company's current and
future operations in Russia to conduct extensive due diligence and has hired
engineers, consultants, accountants and legal counsel in furtherance thereof.
Purchaser acknowledges receipt from the Company of a copy of the "Risk Factors
Memo" which is attached hereto as Exhibit F, and has read and fully understands
the potential effect of such risks on the Securities.

      SECTION 4.8 Organization. The Purchaser is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization.

      SECTION 4.9 Authorization. The Purchaser has all requisite power and
authority to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
of the Purchaser. This Agreement has been duly and validly executed and
delivered on behalf of the Purchaser and, assuming the due execution of this
Agreement by the Company, constitutes a valid and binding agreement of the
Purchaser enforceable against the Purchaser in accordance with its terms,
subject to applicable bankruptcy, insolvency and other laws generally applicable
to creditors' rights and to general principles of equity and except to the
extent that the rights to indemnity and contribution contained in this Agreement
and the Shareholder Agreement may be unenforceable.


                                       27
<PAGE>

      SECTION 4.10 Brokers' Fees. The Purchaser has no liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.

      SECTION 4.11 No Approvals or Conflicts. The execution and delivery by
Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby will not (i) violate or conflict with or result
in a breach of any provision of the organizational documents of the Purchaser,
(ii) violate or conflict with or result in a breach of any provision of, or
constitute a default, (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the creation of a lien, security
interest, charge or encumbrance upon any of the properties of the Purchaser
under, any contract to which the Purchaser is a party or by which the Purchaser
or any of its property is bound, (iii) violate any order, injunction, judgment,
ruling, law or regulation of any court or governmental authority, applicable to
Purchaser or any of its properties or (iv) require any order, license, consent,
approval, waiver, permit or authorization of, or notice to, or declaration,
filing or registration with, or the granting of any exemption by, or the taking
of any other action in respect of, any governmental or regulatory authority or
other person not a party to this Agreement, except where the occurrence of any
of the events in clauses (ii), (iii) or (iv) above would not have a material
adverse effect on Purchaser.

      SECTION 4.12 No Public Market. Purchaser understands that no public market
now exists for the Securities and that the Company has made no assurances with
respect to any secondary market for the Securities.

      SECTION 4.13 Reliance By The Company. Purchaser understands and
acknowledges that the Company will be relying upon Purchaser's representations
and warranties set forth herein in offering and selling the Securities to the
Purchaser.

      SECTION 4.14 No Public Solicitation. The offering of the Securities to the
Purchaser was made only through direct, personal communication between Purchaser
and a representative of the Company and not through public solicitation or
advertising.

      SECTION 4.15 Availability of Funds. The Purchaser has sufficient finances
available to pay $____________ to the Company in exchange for the Securities on
the Closing Date.


                                       28
<PAGE>

                                    ARTICLE V

                              CONDITIONS TO CLOSING

      SECTION 5.1 Conditions to Obligations of Purchasers. The obligation of the
Purchaser to purchase the Notes and the Warrants at the Closing is subject to
the fulfillment (or waiver) on or prior to the Closing Date of the following
conditions:

            (a) Representations and Warranties. All of the representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects as of the date hereof and on the Closing Date as though
made on and as of the Closing Date; PROVIDED, HOWEVER that no such failure of a
representation or warranty of the Company shall be deemed a failure of this
closing condition unless such failure results in, or would be reasonably likely
to result in, a Material Adverse Effect; and, PROVIDED FURTHER, that in such
event, the Company shall have 15 days to cure such failure and a new Closing
Date shall be set by the parties accordingly. In addition, the Company is
entitled to make supplemental disclosure with respect to events occurring
subsequent to the execution of this Agreement and prior to the Closing Date,
which disclosure shall be taken into account in determining whether the
representations and warranties of the Company are true and correct as of the
Closing Date for all purposes (including for purposes of Section 11.1(c)) other
than for purposes of satisfying the conditions set forth in this Section 5.1(a).

            (b) Performance. The Company shall have performed in all material
respects all obligations to be performed or observed by it hereunder on or prior
to the Closing Date, including delivery of the agreements, certificates and
other documents required by Section 6.1.

            (c) Warrants. The Company shall have duly authorized and reserved
the necessary number of shares of Common Stock initially issuable upon exercise
of the Warrants.

            (d) Opinion of Company Counsel. The Purchaser shall have received an
opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Company in the form attached hereto as Exhibit G.

            (e) Opinion of Salans, Hertzfeld & Heilbronn. The Purchaser shall
have received an opinion, dated the Closing Date, of Salans, Hertzfeld &


                                       29
<PAGE>

Heilbronn in the form attached hereto as Exhibit H; provided, however, that such
opinion is being provided for informational purposes only and may not be relied
upon by the Purchaser without the express written permission of Salans,
Hertzfeld & Heilbronn.

            (f) Consents. Any governmental and third party consents identified
in Section 3.4 or 3.7 hereto or Section 3.4 or 3.7 of the Disclosure Schedule
and necessary to effect the Closing shall have been obtained.

            (g) Injunctions. On the Closing Date there shall be no injunction,
writ, preliminary restraining order or other order in effect of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions provided for herein not be consummated as provided herein.

            (h) KMNGG Acquisition. All of the conditions set forth in the
Investment Agreement have been satisfied prior to the Closing Date, except for
the receipt of the proceeds from the Financing, except where the failure to
satisfy a condition would not have a Material Adverse Effect and except as set
forth in Section 5.1(h) of the Disclosure Schedule or disclosed to the Purchaser
in some other section of the Disclosure Schedule. In addition, the Company shall
have consummated the Final Closing (as defined in the Investment Agreement)
pursuant to the Investment Agreement prior to or simultaneously with the Closing
under this Agreement.

      SECTION 5.2 Conditions to Obligations of Company. The Company's obligation
to sell the Notes and the Warrants to the Purchaser at the Closing is subject to
the fulfillment (or waiver) on or prior to the Closing Date of the following
conditions:

            (a) Representations and Warranties. All of the representations and
warranties made by the Purchaser in this Agreement shall be true and correct in
all material respects as of the date hereof and on the Closing Date as though
made on and as of the Closing Date (except in the case where another date is
specified in a representation in a representation and warranty contained herein,
such representation and warranty shall be true and correct as of such date).

            (b) Performance. The Purchaser shall have performed in all material
respects all obligations to be performed or observed by it hereunder on or prior
to the Closing Date, including delivery of the agreements, certificates and
other documents required by Section 6.2.


                                       30
<PAGE>

            (c) Opinion of Counsel. The Company shall have received an opinion,
dated the Closing Date, from counsel to the Purchaser, as to certain matters
contained in Sections 4.8 and 4.9 hereof.

            (d) Injunctions. On the Closing Date there shall be no injunction,
writ, preliminary restraining order or other order in effect of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions provided for herein not be consummated as provided herein.

            (e) KMNGG Acquisition. All of the conditions set forth in the
Investment Agreement that are capable of being satisfied prior to the Closing
Date, except for the receipt of the proceeds from the Financing, have been
satisfied.

      SECTION 5.3 Waiver. Any condition established in this Section may be
waived by the party for whose benefit it is created.

                                   ARTICLE VI

                               CLOSING DELIVERIES

      SECTION 6.1 By the Company. At or prior to the Closing, the Company shall
deliver or cause to be delivered to the Purchaser:

            (a) the Notes, duly executed on behalf of the Company and dated the
Closing Date;

            (b) the Warrants, duly executed on behalf of the Company and dated
the Closing Date;

            (c) an executed copy of the Shareholder Agreement among the Company
and the Purchaser, dated as of the Closing Date, in substantially the form of
Exhibit I hereto (the "Shareholder Agreement");

            (d) a certified copy of the amended certificate of incorporation of
the Company as certified by the Secretary of State of the State of Delaware;


                                       31
<PAGE>

            (e) a certificate of the chief executive officer of the Company
dated as of the Closing Date to the effect that all of the conditions to the
Purchaser's obligations hereunder have been fulfilled; and

            (f) such other certificates, agreements or documents as the
Purchaser may reasonably request to evidence or effect the Company's compliance
with this Agreement or the consummation of the transactions contemplated hereby.

      SECTION 6.2 By the Purchaser. At or prior to the Closing, the Purchaser
shall deliver or cause to be delivered to the Company the following:

            (a) cash in the amount of __________ Dollars ($____________) by wire
transfer of immediately available funds to an account designated by the Company;

            (b) an executed copy of the Shareholder Agreement;

            (c) a certificate, dated the Closing Date and executed on behalf of
the Purchaser, to the effect that all of the conditions to the Purchaser's
obligations hereunder have been fulfilled; and

            (d) such other certificates, agreements or documents as the Company
may reasonably request to evidence or effect the Purchaser's compliance with
this Agreement or the consummation of the transactions contemplated hereby.

                                   ARTICLE VII

                            COVENANTS OF THE PARTIES

      SECTION 7.1 Use of Proceeds. The Company shall use the proceeds from the
sale of the Securities hereunder as set forth in Section 7.1 of the Disclosure
Schedule.

      SECTION 7.2 Financial Information. For as long as any Security shall be
outstanding, the Company will furnish to the Purchaser as soon as practicable,
and in any event within 90 days, after the end of each fiscal year of the
Company, balance sheets of the Company as at the end of such year and the


                                       32
<PAGE>

prior year, and statements of profit and loss and cash flow for such year and
the prior year, prepared in accordance with U.S. generally accepted accounting
principles, audited by independent certified public accountants of recognized
standing selected by the Company, and promptly after the Company's receipt
thereof, a copy of any letter to Company management from such accountants
commenting on the Company's accounting systems and controls in connection with
that year's audit.

      SECTION 7.3 Access to Books and Records; Cooperation. From the date hereof
and until the earlier of the Closing or the termination of this Agreement, the
Company shall afford, during normal business hours, to the Purchaser, its
officers, attorneys, accountants and other authorized representatives reasonable
access to the offices, properties, books, records, contracts, reports, financial
forecasts, documents, geological and geophysical data and all other information
relating to the Company and the Subsidiaries (including, but not limited to,
information and documentation related to the Company's and the Subsidiaries'
reserves, title to the Evaluated Properties and Assets, production and sales of
oil and gas, and compliance with Environmental Laws) that is necessary or
helpful to the Purchaser's evaluation of the Company and the Subsidiaries,
whether or not such information is generally available to the public. The
Company (a) will grant to the Purchaser and its representatives reasonable
access to personnel of the Company and the Subsidiaries at reasonable times that
do not interfere with the orderly conduct of the Company's and the Subsidiaries'
business and (b) if reasonably requested from time to time by the Purchaser,
shall cause its officers, counsel, accountants and the officers of the
Subsidiaries to furnish to the Purchaser such additional financial and operating
data and other information so requested.

      SECTION 7.4 Publicity. Neither the Purchaser nor the Company or any
Subsidiary shall make, and each of the Company, the Subsidiaries and the
Purchaser shall cause its partners, officers, employees, representatives and
agents not to make, any statement or public announcement, or make any release to
trade publications or the press, or make any statement to any competitor,
customer or any other person not a party to this Agreement with respect to the
participation of the Purchaser in the investment in the Company pursuant to this
Agreement or the evaluation thereof contemplated hereunder ("Public
Disclosures"), except for disclosures to affiliates or related companies or,
with the prior consent of the parties hereto, representatives, agents or
consultants of the parties hereto, in each case, that agree to be bound by the
obligations of this Agreement, and except for such disclosures as may be
necessary, in the opinion of counsel to the Purchaser or the Company, to comply
with the requirements of any law, governmental


                                       33
<PAGE>

order or regulation. The Company and the Purchaser shall agree upon the form and
content of all Public Disclosures, as well as of the appropriate disclosure to
employees of the Company and its Subsidiaries. Neither party shall make use of
the other party's name in any manner whatsoever without the prior consent of the
other party, except to the extent required, in the opinion of counsel to such
party, by law, governmental order or regulation.

      SECTION 7.5 Filings and Consents. Each of the Company and the Purchaser
shall use all reasonable efforts to obtain and to cooperate in obtaining any
order, license, consent, approval, waiver, permit or authorization of, or notice
to, or declaration, filing or registration with, preparing applications to,
conducting negotiations with, and the taking of any other action in respect of,
any governmental agency or body or other person not a party to this Agreement
required in connection with the execution, delivery or performance of this
Agreement. The Company and the Purchaser will furnish to one another such
necessary information and reasonable assistance as may be requested in
connection with obtaining any necessary consent, approval, authorization or
order.

      SECTION 7.6 Covenant to Satisfy Conditions. Each party agrees to use all
reasonable efforts to insure that the conditions set forth in Sections 5.1 and
5.2 hereof are satisfied prior to 12 noon on October 14, 1997 (the "Cut-Off
Date"), insofar as such matters are within the control of such party.

      SECTION 7.7 Withholding Taxes. Interest, principal or other payments due
under the Securities shall be net of withholding tax, if any, required by law,
governmental order or regulation. The Company shall not be required to indemnify
the Purchaser or its permitted successors or assignees with respect to any such
withholding taxes.

      SECTION 7.8 Other Agreements. The Company shall not agree to amend
provisions contained in any other Note and Warrant Purchase Agreements entered
into in connection with the Financing (collectively, the "Other Agreements")
which are substantially similar to provisions contained in this Agreement if
such amendment would grant rights or benefits to one or more parties to any
Other Agreement which such party or parties do not have on the date hereof
unless this Agreement is also simultaneously amended to include in respect of
the parties hereto such additional rights, benefits or obligations.


                                       34
<PAGE>

                                  ARTICLE VIII

                               REGISTRATION RIGHTS

      SECTION 8.1 Registration Rights. The Company and the Purchaser shall enter
into a Shareholder Agreement, substantially in the form of Exhibit I providing
the Purchaser with certain registration rights with respect to the shares of
Common Stock issuable upon exercise of its Warrants or issuable as payment of
interest on the Notes.

                                   ARTICLE IX

                                    TRANSFER

      SECTION 9.1 Transfer. Subject to Sections 9.2 and 9.3, the Purchaser shall
be entitled, directly or indirectly, to sell, assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of (each, a "Transfer") all or any
portion of the Purchaser's Securities at any time.

      SECTION 9.2 Right of First Offer. Prior to the consummation of the
Company's IPO, the Purchaser may not Transfer all or any part of the Purchaser's
Securities except after full compliance with the right of first offer procedures
set forth below:

            (a) The Purchaser must first offer to sell the Securities it desires
to sell (the "Offered Securities") to the Company at a price and on terms and
conditions determined by the Purchaser and specified in the written notice in
which the offer is made (the "Offer"). The Company shall have a period of 30
days after the Offer is made to accept the Offer by written notice to the
Purchaser.

            (b) If the Company elects to purchase (on its behalf or on behalf of
others) all of the Offered Securities, the closing of the sale of such Offered
Securities will be held at the Company's principal office in New York on a date
to be specified by the Purchaser in the Offer which is not less than 10 days nor
more than 60 days after the end of the 30-day period in which the Offer could be
accepted. At the Closing, the Company will deliver the consideration in
accordance with the terms of the Offer, and the Purchaser will deliver the
Securities


                                       35
<PAGE>

purchased to the Company, duly endorsed for transfer, free and clear of all
liens, claims and encumbrances.

            (c) If the Company does not elect to purchase all of the Offered
Securities, the Purchaser will be free for a period of 90 days after the last
day for such acceptance to sell, assign or transfer all, but not less than all,
of the Offered Securities to a third party for a price and on terms no more
favorable to the third party than those contained in the Offer. If the Offered
Securities are not so sold within that 90-day period, all rights to sell the
Offered Securities to a third party (without making another offer to the Company
pursuant to this Section 9.2) will terminate and the provisions of this Section
9.2 will continue to apply to any proposed future transfer.

            (d) Notwithstanding the foregoing, in the event that the Company
fails to close the purchase of the Offered Securities on the date specified in
its notice of acceptance, the Purchaser shall be entitled, for a period of 120
days from the closing date originally set by the Company in its offer of
acceptance, to sell the Offered Securities at any reasonably negotiated price to
any third party without having to further comply with the provisions of this
Section 9.2; PROVIDED, HOWEVER, that in the event that the Company's failure to
close the purchase is due to an order, injunction or other similar mandate from
a regulatory body of competent jurisdiction and the Company is using its best
efforts to cause such order, injunction or mandate, as the case may be, to not
apply to the purchase of the Offered Securities, then the Company shall have
until the earlier of (i) the expiration of 30 days from the closing date
originally set by the Company in its acceptance or (ii) such time as the order,
injunction or mandate becomes final and non-appealable in which to close the
purchase of the Offered Securities before the provisions of this clause (d)
become applicable.

      SECTION 9.3 Restrictions On Transfers; Certain Permitted Transfers.

            (a) Purchaser agrees that it will not Transfer any of the Securities
(whether before or after an IPO and whether or not Section 9.2 shall have been
applicable), except:

            (i) a Transfer made in compliance with the federal and all
      applicable state securities laws to a trust, the beneficiaries of which,
      or to a corporation, partnership or limited liability company, the
      stockholders, limited or general partners or equity owners of which,
      include only the Purchaser or its "affiliates" (within the meaning of the
      Securities Act)


                                       36
<PAGE>

      provided that no Transfer pursuant to subsection (a)(i) of this Section
      9.3 shall be given effect on the books of the Company unless and until the
      transferee shall agree in writing, in form and substance satisfactory to
      the Company, to become, and becomes, bound by substantially similar
      representations and warranties and restrictions on Transfer applicable to
      the Purchaser contained in this Agreement. Each person to whom the
      Securities may be Transferred pursuant to this Section 9.3(a)(i) is
      hereinafter sometimes referred to as a "Permitted Transferee";

            (ii) a Transfer to a person other than a Permitted Transferee,
      PROVIDED that (A) such Transfer is exempt from the registration
      requirements of the Securities Act and any applicable state securities
      laws, (B) if the Company so requests, the Company receives from the
      transferor an unqualified opinion of counsel that such Transfer may be
      effected without registration under the Securities Act and any applicable
      state securities laws, and (C) the transferee shall agree in writing, in
      form and substance satisfactory to the Company, to become, and becomes,
      bound by substantially similar representations and warranties and
      restrictions on Transfer applicable to the Purchaser contained in this
      Agreement; or

            (iii) a Transfer to the Company.

            (b) Each certificate evidencing Notes issued to the Purchaser or to
a subsequent transferee shall include a legend in substantially the following
form (in addition to any other statements or legends required by law):

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
            STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY
            THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN A NOTE
            AND WARRANT PURCHASE AGREEMENT DATED OCTOBER 10, 1997. A COPY OF
            SUCH CONDITIONS WILL BE FURNISHED BY THE CORPORATION TO THE HOLDER
            HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY
            NOT BE RESOLD OR TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED
            WITH AND UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE


                                       37
<PAGE>

            SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.

            (c) Each certificate evidencing Warrants issued to the Purchaser or
to a subsequent transferee shall include a legend in substantially the following
form (in addition to any other statements or legends required by law):

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
            STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY
            THIS CERTIFICATE IS, AND ANY SHARES OF COMMON STOCK ISSUED UPON THE
            EXERCISE THEREOF WILL BE, SUBJECT TO THE CONDITIONS SPECIFIED IN (I)
            A NOTE AND WARRANT PURCHASE AGREEMENT DATED OCTOBER 10, 1997 AND
            (II) A SHAREHOLDER AGREEMENT DATED OCTOBER 14, 1997. A COPY OF SUCH
            CONDITIONS WILL BE FURNISHED BY THE CORPORATION TO THE HOLDER HEREOF
            UPON WRITTEN REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY NOT BE
            RESOLD OR TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH AND
            UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES
            ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.

            (d) Any purported Transfer in violation of this Section 9.3 shall be
null and void and of no force or effect.

                                    ARTICLE X

                                 INDEMNIFICATION

      SECTION 10.1 Indemnity. (a) The Company agrees to indemnify, defend and
hold Purchaser and its Affiliates harmless from and against any and all loss,
liability, damage, judgment, claim, deficiency or expense (including interest,
penalties, reasonable attorneys' fees and amounts paid in settlement) to which
Purchaser or its Affiliates may become subject insofar as such loss, liability,
damage, claim, judgment, deficiency or expense arises out of or is based upon a
suit or proceedings brought by a third party or threatened by a third party


                                       38
<PAGE>

(i) arising out of or based upon any breach of any representation or warranty of
the Company contained in this Agreement or the Securities or (ii) arising out
of, related to or based upon any breach or default in the performance by the
Company of any covenant or agreement of the Company contained in this Agreement
or the Securities.

            (b) The Company shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled with
its written consent (which consent shall not be unreasonably withheld), or if
there be a final judgment for the plaintiff in any such action or proceeding,
subject to the provisions hereof, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates, to the extent provided in the
preceding paragraph, from and against any loss, liability, damage or expense
incurred by reason of such settlement or judgement.

            (c) Anything herein contained to the contrary notwithstanding (i)
the indemnification herein contained shall not extend to any losses, claims,
damages, liabilities and expenses incurred by the Purchaser and its Affiliates
to the extent such losses, claims, damages, liabilities and expenses arise out
of a violation by the Purchaser or its Affiliates in connection with the
transactions contemplated hereby of any of its representations, warranties or
agreements set forth in this Agreement or any Security or of any laws, rules,
regulations or orders applicable to it in its capacity as a regulated
institution of any type whatsoever, (ii) neither the Purchaser nor its
Affiliates may assert any claims under this Section 10 unless and until the
cumulative total of all such claims by such indemnitee exceeds 2.5% of the
original principal amount of the Purchaser's Notes and (iii) the Company shall
not be liable for any indemnification amounts under this Section 10.1 in excess
of 33.3% of the original principal amount of the Purchaser's Notes.

            (d) Promptly after receipt by any indemnified party under this
Section 10 of notice of the commencement of any action or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify in writing the indemnifying party of the
commencement thereof; but the delay or omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party except to the extent that such indemnifying party is actually
prejudiced by such delay or failure to give notice. In case any such action or
proceeding shall be brought against any indemnified party, and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to


                                       39
<PAGE>

participate therein and the indemnifying party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all expenses. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (a) the indemnifying party has agreed
to pay such fees and expenses or (b) the indemnifying party shall have failed to
assume the defense of such action or proceeding and to employ counsel reasonably
satisfactory to the indemnified party in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be one or
more legal defenses available to the indemnified party which are different from
or additional to those available to the indemnifying party and supplied a copy
of such opinion to the indemnifying party (in which case, if the indemnified
party notifies the indemnifying party in writing that the indemnified party
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding on behalf of the indemnified party).

            (e) Notwithstanding the foregoing, this Section 10.1 shall not
restrict in any manner Purchaser's ability to collect the principal amount and
interest due on the Notes.

                                   ARTICLE XI

                                EVENTS OF DEFAULT

      SECTION 11.1 Events of Default. The occurrence of one or more of the
following events shall constitute an event of default ("Event of Default")
under this Agreement:

            (a) Any principal amount due under the Notes shall not be paid when
due;

            (b) Interest accrued and payable on the Notes shall not be paid
within 30 days after such interest or fee shall become due;


                                       40
<PAGE>

            (c) Any representation or warranty contained in this Agreement or
any Related Agreement or any certificate, written statement, or other document
furnished by the Company in connection with the negotiation of this Agreement or
the sale of the Notes shall prove to have been untrue in any material respect
when made which directly results in the occurrence of a Material Adverse Effect;

            (d) The Company shall default in the performance or observance of
any term, covenant, or agreement on its part to be performed or observed under
this Agreement or any Related Agreement and such default shall continue
unremedied for a period of 60 days after written notice of such default from the
Purchaser is delivered to the Company;

            (e) The Company shall (i) fail to pay at its final stated maturity
any indebtedness of the Company or any of its Subsidiaries (which shall include
for purposes hereof capitalized lease obligations and guarantees or other
contingent obligations for indebtedness for borrowed money) ("Indebtedness"), or
any interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required prepayment, by
demand or otherwise; or (ii) fail to perform any term, covenant or condition on
its part to be performed under any agreement or instrument evidencing, securing
or relating to any such Indebtedness, when required to be performed, and in the
case of (ii), such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, if
the effect of such failure is to accelerate, or to permit the holder or holders
of such Indebtedness to accelerate, the maturity of such Indebtedness;

            (f) Either the Company or any of its "Significant Subsidiaries" (as
defined in Regulation S-X under the Securities Act of 1933) shall become
insolvent or generally fail to pay, or admit in writing its inability to pay,
its debts as they become due, or shall voluntarily commence any proceeding or
file any petition under any bankruptcy, insolvency or similar law or seeking
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for itself or a substantial portion of its property,
assets or business, or to effect a plan or other arrangement with its creditors,
or shall file any answer admitting the jurisdiction of the court and the
material allegations of an involuntary petition filed against it in any
bankruptcy, insolvency or similar proceeding, or benefit of creditors or shall
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for itself or a substantial portion of its property, assets or
business;


                                       41
<PAGE>

            (g) Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Company or any of its Significant Subsidiaries
under any bankruptcy, insolvency or similar law or seeking the dissolution or
reorganization of the Company or any such Subsidiary or the appointment of a
receiver, trustee, custodian or liquidator for the Company or any of its
Significant Subsidiaries or a substantial part of the property, assets or
business of the Company or any of its Significant Subsidiaries, or any writ,
order, judgment, warrant of attachment, execution or similar process shall be
issued or levied against a substantial part of the property, assets or business
of the Company or any of its Significant Subsidiaries, and such proceeding or
petition shall not be stayed, released, vacated or fully bonded within 60 days
after commencement, filing or levy, as the case may be;

            (h) A final judgment or judgments, not covered by insurance, for the
payment of money aggregating in excess of $100,000 is entered against the
Company or any Significant Subsidiary and any one of such judgments remains
undischarged and unstayed for a period of 60 days from the date of its entry; or

            (i) An "event of default" under an instrument evidencing any
Indebtedness in a principal amount in excess of $100,000 shall occur and be
continuing for a period of 30 days and such Indebtedness shall be declared
immediately due and payable as a result thereof.

      SECT1ON 11.2 Optional Acceleration of Maturity. Upon the occurrence and
during the continuation of an Event of Default other than an Event of Default
with respect to the Company under subsections (f) and (g) of Section 11.1.
the Majority Note Holders may declare by written notice (the "Acceleration
Notice") to the Company the then outstanding principal amount of and the
accrued and unpaid interest on the Notes to be forthwith due and payable,
whereupon such principal and interest shall, if not cured within 30 days from
the date of the Acceleration Notice, be and become immediately due and
payable, without presentment, demand, protest, notice of intent to
accelerate, or other notices or formalities of any kind except the
Acceleration Notice, all of which are hereby expressly waived by the Company.

      SECTION 11.3 Automatic Acceleration. In the case of the occurrence of an
Event of Default with respect to the Company referred to in subsections (f) and
(g) of Section 11.1. the then outstanding principal amount of and the accrued
and unpaid interest on the Notes shall be and become automatically and
immediately due and payable, without presentment, demand, protest, notice of
intent to


                                       42
<PAGE>

accelerate, notice of acceleration or other notices or formalities of any kind,
all of which are hereby expressly waived by the Company.

                                   ARTICLE XII

                                   TERMINATION

      SECTION 12.1 Termination. This Agreement may be terminated and abandoned
at any time prior to the Closing:

            (a) by the mutual consent of the Company and the Purchaser;

            (b) by the Purchaser in the event the Closing has not occurred on or
before the Cut-Off Date by reason of the failure of any condition under Section
5.1 hereof, unless the failure of such consummation shall be due to the bad
faith failure of the Purchaser to comply in all material respects with the
agreements or covenants contained herein to be performed by the Purchaser on or
before the Cut-Off Date;

            (c) by the Company in the event the Closing has not occurred on or
before the Cut-Off Date by reason of the failure of any condition under Section
5.2 hereof, unless the failure of such consummation shall be due to the bad
faith failure of the Company to comply in all material respects with the
agreements or covenants contained herein to be performed by such party on or
before the Cut-Off Date; or

            (d) by either the Company or the Purchaser in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable.

            (e) by the Purchaser by written notice to the Company in accordance
with Section 12.2 hereof prior to the Final Closing (as defined in the
Investment Agreement) if an event has occurred between the date hereof and the
Final Closing (i) which would constitute a breach of the representations and
warranties contained in Section 3.29 hereof if the exceptions to such
representations and warranties set forth in those items of Section 3.29 of the
Disclosure Schedule that make specific reference to Attachment I were not
applicable and (ii) which would directly result in a Material Adverse Effect.


                                       43
<PAGE>

      SECTION 12.2 Procedure and Effect of Termination. In the event of the
termination and abandonment of this Agreement by the Company or the Purchaser
pursuant to Section 12.1 hereof, written notice thereof shall forthwith be given
to the other party. If the transactions contemplated by this Agreement are
terminated as provided herein:

            (a) Each party will redeliver all documents, work paper and other
material of the other party relating to the transactions contemplated hereby.
whether so obtained before or after the execution hereof, to the party
furnishing the same;

            (b) The Purchaser shall hold in strict confidence all information
obtained from the Company or any of the Subsidiaries pursuant to Section 7.3 of
this Agreement or otherwise in connection with the transactions contemplated
hereunder (other than information and data that is or becomes generally
available to the public other than through disclosure by the Purchaser or its
partners, officers, employees, representatives or agents), and, without the
prior written consent of the Company, the Purchaser shall not disclose any such
information to anyone other than to its partners, officers, employees and
representatives, except to the extent the Purchaser becomes legally compelled
(including, without limitation, by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose such information, in which case, the Purchaser will provide
the Company with prompt written notice so that the Company may seek a protective
order or other appropriate remedy and/or waive compliance with the provisions of
this Section 12.2(b). In the event that such protective order or other remedy is
not obtained or the Company waives compliance with the provisions of this
Section 12.2(b), the Purchaser will furnish only the specific information it is
legally required to disclose; and

            (c) Except (i) with respect to the survival of the obligations set
forth in Section 10. 1 or (ii) in the case of a willful breach, neither party to
this Agreement will have any liability under this Agreement to the other party
upon termination of this Agreement.


                                       44
<PAGE>

                                  ARTICLE XIII

                                  MISCELLANEOUS

      SECTION 13.1 Waivers and Amendments. This Agreement may be amended only in
a writing signed by both parties, and any waiver of any provision hereof shall
be effective only if set forth in a writing signed by the party charged with the
waiver. No failure to enforce any provision of this Agreement shall be deemed to
or shall constitute a waiver of such provision and no waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.

      SECTION 13.2 Governing Law. This Agreement shall be governed by the laws
of the State of New York without regard to the conflicts of laws provisions
thereof.

      SECTION 13.3 Survival. The representations. warranties, covenants and
agreements made herein shall survive the Closing, regardless of any
investigation made by or on behalf of any party or its representatives. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.

      SECTION 13.4 Successors and Assigns.

            (a) Except as provided in Article IX hereof, neither this Agreement
nor any of the rights or obligations hereunder shall be assigned by either of
the parties hereto without the prior written consent of the other party, except
that either party may assign all its rights and obligations to the assignee of
all or substantially all of the assets of such party including an acquisition
through merger, provided that such party shall in no event be released from its
obligations hereunder without the prior written consent of the other party.

            (b) Notwithstanding the provisions of Section 13.4(a), all
transferees of Securities shall be subject to the restrictions on transfer set
forth in Article IX hereof and, for so long as such transferee holds Securities,
shall be deemed party to this Agreement for purposes of Article IX only.


                                       45
<PAGE>

            (c) Subject to the foregoing, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Any attempted assignment in contravention hereof shall
be null and void.

      SECTION 13.5 Entire Agreement. This Agreement and the Exhibits hereto (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) are not intended to confer upon any Person, other
than the parties hereto, any rights or remedies hereunder.

      SECTION 13.6 Notices. All notices that are required or may be given
hereunder shall be in writing and may be given by personal delivery or by
facsimile transmission or mail. The person sending any notice shall prepay all
transmission charges. Any notice personally delivered or given by mail shall be
deemed effective upon receipt. Transmission by a recognized courier service
shall be deemed personal delivery and any notice so delivered shall be deemed
received at the time of delivery confirmed by the courier service. Any notice
sent by facsimile transmission shall be deemed received upon confirmation of
transmission by the sender's facsimile machine. The following address and FAX
number may be used for delivery of notices until another address or FAX number
is specified by the Company or the Purchaser in a written notice to the other
(provided, however, that the Company agrees to maintain an office in New York
City as long as any Notes are outstanding):

            If to the Company:

            Khanty Mansiysk Oil Corporation
            125 Park Avenue, Suite 800
            New York, New York 10017-5699
            Attention: John B. Fitzgibbons
            Phone: (212) 479-2398
            Fax: (212) 479-2505


                                       46
<PAGE>

            If to the Purchaser:

            ___________________________________
            ___________________________________
            ___________________________________
            Attention:_________________________
            Phone: ____________________________
            Fax: ______________________________

      SECTION 13.7 Attorneys' Fees. In the event of any litigation between the
parties with respect to this Agreement, the prevailing party shall be entitled
to recover, in addition to any other relief awarded by the court, its reasonable
attorneys' fees and other costs of preparing for and participating in the
litigation.

      SECTION 13.8 Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired thereby.

      SECTION 13.9 Captions. The captions of the sections and subsections of
this Agreement and the Disclosure Schedule are for convenience of reference
only, and are not to be considered in construing this Agreement and the
Disclosure Schedule.

      SECTION 13.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, no one of which need be
signed by both parties, and both of which together shall constitute one
instrument.

      SECT1ON 13.11 Knowledge. As used herein, the term "knowledge of the
Company" shall mean the actual knowledge of Tom Wilson and the Chief Executive
Officer of the Company after due inquiry of Gerard De Geer and the officers and
senior employees of the Company.


                                       47
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.

                                        KHANTY MANSIYSK OIL CORPORATION

                                        By:
                                           -------------------------------------
                                           Name:  John B. Fitzgibbons
                                           Title: Chief Executive Officer


                                        NAME

                                        By:_____________________________________
                                           Name:
                                           Title:

<PAGE>

                         KHANTY MANSIYSK OIL CORPORATION

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
            STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY
            THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN A NOTE
            AND WARRANT PURCHASE AGREEMENT DATED OCTOBER 10, 1997. A COPY OF
            SUCH CONDITIONS WILL BE FURNISHED BY THE CORPORATION TO THE HOLDER
            HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY
            NOT BE RESOLD OR TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED
            WITH AND UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE
            SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.

            THIS NOTE IS ISSUED ON OCTOBER 14, 1997 WITH AN ISSUE PRICE OF
            $__________ AND ORIGINAL ISSUE DISCOUNT OF $_____________ (BASED
            UPON A YIELD TO MATURITY OF 12%).


                                 PROMISSORY NOTE

US$_____________                                                October 14, 1997

      FOR VALUE RECEIVED, Khanty Mansiysk Oil Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to the order of
___________________ ("Lender"), the principal sum of ______________ Dollars
(US$_____________), with interest on the outstanding balance thereof at the
rate of 10% per annum from the date hereof until paid in full.

      This Note (the "Note") is issued pursuant to and is entitled to the
benefits of, and is otherwise subject to the provisions of, the Note and Warrant
Purchase Agreement dated October 10, 1997, among the Company and Lender (as
amended or otherwise supplemented from time to time, the "Note Purchase
Agreement"). The Note Purchase Agreement, among other things, contains
provisions for (i) mandatory and optional redemption, (ii) restrictions on
transfer of the
<PAGE>

Note, (iii) events of default and (iv) exchange of Notes in denominations of
$1,000 or integral multiples thereof.

      Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Note Purchase Agreement.

      This Note is also subject to the following terms and conditions:

      1. Computation and Payment of Interest. The Company shall pay interest on
the unpaid principal amount of the Note from the date of the Note until such
principal amount shall be paid in full, at a rate equal to 10% per annum.
Accrued interest on the unpaid principal amount of the Note shall be payable
quarterly on September 30, December 31, March 31 and June 30 of each year until
the Note is paid in full with the first such payment due on December 31, 1997.
The Company shall make each payment under the Note not later than 12:00 noon,
New York City Time, on the day when due. All computations of interest shall be
made on the basis of a year of 365 or 366 days, as the case may be, in each case
for the actual number of days (including the first day but excluding the last
day) elapsed. Whenever any payment under the Note shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest.

      2. Payment of Principal. Unless sooner declared due hereunder, the
principal amount of this Note shall be paid on the date fixed for such payment
pursuant to Section 2.3 of the Note Purchase Agreement; PROVIDED, HOWEVER, that
upon the occurrence of an Event of Default, at the option of the Lender or
automatically, as the case may be, the then outstanding principal amount of the
Note, together with all interest accrued and unpaid thereon, may become
immediately due and payable in the manner, upon the conditions and with the
effect set forth in the Note Purchase Agreement, and the rights and remedies
provided in the Note Purchase Agreement shall apply.

      3. Method of Payment. Accrued interest shall be payable, at the Company's
option, in either United States dollars or Common Stock or a combination
thereof. If all or any portion of such interest is paid in Common Stock, each
share of Common Stock shall be valued for this purpose as being equal to the
exercise price of the Warrants at the time of such payment. The Company will pay
principal in United States dollars. Payments of principal and interest shall be
made in United States dollars by wire transfer in immediately available


                                       2
<PAGE>

funds to the account specified by the Lender or other holder of this Note (the
"Holder") or by delivery of stock certificates representing shares of Common
Stock to the Holder, as the case may be. Principal and interest shall be paid at
such place as the Holder may designate in writing to the Company. The Holder
must surrender this Note to the Company at the time of final payment of
principal.

      4. Prepayment. The Company shall have no right to prepay this Note, except
as expressly permitted or required under the Note Purchase Agreement, without
the consent of the Holder.

      5. Application of Payments. All payments received on this Note shall be
applied first to the payment of accrued interest and then to the reduction of
principal.

      6. Waivers. The Company, for itself and its successors and assigns and any
endorsers of this Note from time to time hereby waive presentment for payment,
demand, notice of dishonor, protest, notice of protest and any other notice not
provided for in the Note Purchase Agreement that the Company may lawfully waive.
No delay in exercising any right under this Note shall operate as a waiver of
such right or any other right under this Note, nor shall any omission in
exercising any right on the part of Lender under this Note operate as a waiver
of any other rights. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

      7. Attorneys' Fees. If this Note or interest thereon is not paid when due,
or suit is brought to enforce any right hereunder, the Company and each
successor, assignee and endorser of this Note agrees to pay all reasonable costs
of collection and enforcement, including reasonable attorneys' fees. In the
event of any bankruptcy or insolvency proceedings involving the Company, costs
of collection shall include all costs and attorneys' fees incurred in connection
with such proceedings, including the fees of counsel for attendance at meetings
of creditors.

      8. Interest After Due Date. If the principal of or any accrued interest on
this Note is not paid when due, as a result of acceleration or otherwise, the
overdue amount shall bear interest (i) for a period of 45 days subsequent to the
date fixed for redemption at an annual rate of 12% and (ii) following such 45
day period at an annual rate of 18%.


                                       3
<PAGE>

      9. Interest Savings Clause. Notwithstanding any other provision hereof,
the interest payable hereunder shall be limited to the maximum amount permitted
under applicable law. If any amount is paid hereunder which would be usurious
under applicable law, it shall be deemed a prepayment of principal or shall be
promptly refunded to the Company as necessary to avoid violation of any
applicable usury statute.

      10. Rights and Priorities. The rights and priorities of the holders of
this Note with respect to payment of interest and principal shall be pari passu
with the rights and priorities of all other holders of notes issued pursuant to
the Financing, except with respect to rights granted to Khanty Holdings LLC
("Holdings") in the Warrant Certificate, dated as of October 15, 1997, from the
Company to Holdings, to apply principal of the notes of the Company held by
Holdings towards the exercise price of warrants of the Company held by Holdings
when converting such warrants into common stock of the Company pursuant to the
exercise of its tag along rights under the Voting and Transfer Agreement, dated
as of October 15, 1997, by and among the Company, Holdings, Waldo Securities,
S.A., and the Brunswick Fitzgibbons Trust Company LLC.

      11. Notices. Any notice, request, demand, consent, approval or other
communication which the Company or Lender are obligated or may elect to give
hereunder shall be given in the form and in the manner set forth in the Note
Purchase Agreement for the giving of notices thereunder and shall be deemed
given for the purposes hereof at such time as the same, if given under the Note
Purchase Agreement, would be deemed given.

      12. Severability. If any provision of this Note or the application thereof
to any party or circumstances is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be several in any such instance.


                                       4
<PAGE>

      13. Governing Law. This Note shall be governed by and interpreted in
accordance with the laws of the State of New York applicable to agreements made
and to be performed within such State.

                                        KHANTY MANSIYSK OIL CORPORATION


                                        By:
                                           -------------------------------------
                                           Name:  John B. Fitzgibbons
                                           Title: Chief Executive Officer


                                       5
<PAGE>

                         KHANTY MANSIYSK OIL CORPORATION

                  RESTRICTIONS ON TRANSFER OF SECURITIES: THE SECURITIES
            REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED, OR UNDER STATE SECURITIES LAWS.
            THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS,
            AND ANY SHARES OF COMMON STOCK ISSUED UPON THE EXERCISE HEREOF WILL
            BE, SUBJECT TO THE CONDITIONS SPECIFIED IN (I) A NOTE AND WARRANT
            PURCHASE AGREEMENT DATED OCTOBER 10, 1997, AND (II) A SHAREHOLDER
            AGREEMENT DATED OCTOBER 14, 1997. A COPY OF SUCH CONDITIONS WILL BE
            FURNISHED BY THE CORPORATION TO THE HOLDER HEREOF UPON WRITTEN
            REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY NOT BE RESOLD OR
            TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH AND UNLESS
            REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF
            1933 AND APPLICABLE STATE SECURITIES LAWS.

                               WARRANT CERTIFICATE

      THIS WARRANT dated as of October 14, 1997 (hereinafter, this "Warrant")
is from Khanty Mansiysk Oil Corporation, a Delaware corporation (the
"Company") to _____________________ ("Warrantholder").

      SECTION 1. Grant of Warrant. For value received, the Company hereby grants
to Warrantholder or its assigns the right to purchase from the Company
____________ shares of the Company's common stock, no par value per share
("Common Stock") (or such larger or smaller number of shares as shall become
subject to this Warrant pursuant to Section 3 hereof) at an exercise price of
$450.00 per share (the "Exercise Price") (or such adjusted price pursuant to
Section 3 hereof) or in a cashless exchange for a reduced number of shares (the
"Net Issuable Exchange") as determined by the exchange formula pursuant to
Section 10 below. The amount and kind of securities purchasable pursuant to the
rights granted hereunder are subject to adjustment pursuant to the provisions
contained in this Warrant.

      SECTION 2. Duration and Exercise of Warrant. Except as otherwise set forth
in Section 4 hereof, this Warrant shall become exercisable on and after October
<PAGE>

14, 1997 the "Exercise Date") and shall expire at 5:00 p.m., New York, New York
time, on October 14, 2002, or if said date shall in the State of New York be a
holiday or a day on which banks are authorized to close, the next following date
which in the State of New York is neither a holiday nor a day on which banks are
authorized to close (the "Expiration Date").

      In order to exercise the right to purchase Common Stock granted herein,
the Warrantholder shall surrender this Warrant and shall tender the Exercise
Price. The Warrantholder may purchase all or any number of the shares of Common
Stock subject to this Warrant, but in no event shall fractional shares of Common
Stock be issued with regard to such exercise. In the event that less than all of
the shares of Common Stock subject to this Warrant are purchased at any time
prior to 5:00 p.m. New York, New York time on the Expiration Date, a new
Warrant shall be issued for the remaining number of shares of Common Stock which
the Warrantholder was at the time entitled to purchase hereunder. All Warrants
not exercised prior to 5:00 p.m., New York, New York time on the Expiration Date
shall cease to be exercisable and shall expire and become void, and all rights
hereunder shall cease.

      Payment of the Exercise Price shall be made in cash, by wire transfer or
certified or official bank check. Upon surrender of this Warrant and payment of
the Exercise Price, the Company shall issue or cause to be issued with all
reasonable dispatch to or upon the written order of the Warrantholder and in
such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
exercise of such Warrant. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock as of
the date of the surrender of this Warrant and payment of the Exercise Price.

      SECTION 3. Adjustment of Number of Shares Purchasable and Exercise Price.
The total number of shares of Common Stock purchasable hereunder and the
Exercise Price shall be subject to adjustment from time to time as follows:

            (a) Adjustment for Change in Capital Stock. If the Company:

                  (1) pays a dividend or makes a distribution on its Common
            Stock in shares of its Common Stock;

                  (2) subdivides its outstanding shares of Common Stock into a
            greater number of shares;


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<PAGE>

                  (3) combines its outstanding shares of Common Stock into a
            smaller number of shares;

                  (4) makes a distribution on its Common Stock in shares of its
            capital stock other than Common Stock; or

                  (5) issues by reclassification of its Common Stock any shares
            of its capital stock;

then the number of shares of Common Stock purchasable pursuant to this Warrant
immediately prior to such action shall be adjusted so that the Warrantholder may
receive upon the exercise of this Warrant without payment of any additional
consideration the number of shares of capital stock of the Company which it
would have owned immediately following such action if it had exercised such
Warrant in full immediately prior to such action. In the case of an adjustment
to the number of shares of Common Stock purchasable upon exercise of this
Warrant pursuant to clause (1), (2) or (3) above, the Exercise Price shall be
proportionately reduced (in the case of clauses (1) and (2)) or proportionately
increased (in the case of clause (3)), as the case may be. In the event of an
adjustment under clause (4) or (5) above, the aggregate Exercise Price shall be
equitably allocated to each share of capital stock for which this Warrant will
then be exercisable, as determined by the Company whose determination shall be
conclusive absent manifest error.

      The adjustment pursuant to this Section 3(a) shall become effective on the
effective date of such event, retroactive to the record date, if any, for such
event.

      (b) Adjustment for Common Stock Issue. If the Company issues or sells any
Common Stock or any security that is convertible into or exchangeable for Common
Stock for consideration that represents as of the date of such issuance or sale
a price per share of Common Stock that is less than the then Exercise Price,
then upon such issuance or sale, (i) the Exercise Price shall be adjusted to
equal the per share price of the Common Stock in such issuance or sale, and (ii)
the number of shares of Common Stock purchasable pursuant to this Warrant shall
be increased so that the Warrantholder may receive upon the exercise of this
Warrant at the adjusted Exercise Price, the number of shares of capital stock of
the Company that has a cost basis immediately following such action equal to the
cost basis of


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<PAGE>

the shares of Common Stock that the Warrantholder would have owned if it had
exercised such Warrant in full immediately prior to such action.

      Notwithstanding the foregoing, no adjustment shall occur pursuant to this
Section 3(b) in the case of issuances or sales of Common Stock or securities
convertible into or exchangeable for Common Stock if such issuance or sale is
made pursuant to (i) agreements, obligations, arrangements or commitments
existing prior to the date hereof or (ii) employee or executive stock option
plans.

      The adjustment pursuant to this Section 3(b) shall become effective on the
date of such issuance or sale.

      (c) Adjustment for Rights Issue or Other Distributions. If the Company
fixes a record date for the issuance to all holders of its Common Stock any
rights or warrants (or any similar securities) to purchase any securities of the
Company or any assets in liquidation of the Company, the Company shall
distribute to the Warrantholder such rights or warrants or assets that the
Warrantholder would have received if it had exercised its Warrant in full
immediately prior to such record date.

      The adjustment shall be made successively whenever any such distribution
is made and shall become effective retroactive to the record date for the
determination of shareholders entitled to receive the distribution.

      (d) Reorganization of Company. If the Company is a party to a transaction
in which the Company consolidates or merges with or into, or transfers or leases
all or substantially all of its assets to, any person, or a merger which
reclassifies or changes its outstanding Common Stock, upon consummation of such
transaction this Warrant shall either (i) be exchanged for a warrant to purchase
the kind and amount of capital stock of the resulting entity which the
Warrantholder would have received if it had exercised this Warrant immediately
before the effective date of the transaction, if the Company concludes in good
faith that it is able to do so without in any way adversely affecting such
transaction or its consummation or (ii) become exercisable for the kind and
amount of securities, cash or other assets distributed to shareholders of the
Company in connection with such transaction equivalent in value to the fair
market value of this Warrant as determined by a mutually agreed upon
internationally recognized independent investment banking firm with experience
in both the Former Soviet Union


                                       4
<PAGE>

and energy using the Black-Scholes model for valuing warrants (the fees and
expenses of such investment banking firm engaged pursuant to this
Section 3(d) to be paid by the Company).

            If this subsection (d) applies, Sections 3(a), 3(b) and 3(c) hereof
      shall not apply to such transaction.

            (e) Notice of Certain Transactions. If:

                  (1) the Company takes any action that would require any
            adjustment in the number of shares of Common Stock subject to this
            Warrant or the number of warrants or rights or other securities to
            which the Warrantholder is entitled pursuant to Sections 3(a), 3(b),
            3(c) or 3(d); or

                  (2) there is a liquidation or dissolution of the Company;

      the Company shall mail to the Warrantholder a notice stating the proposed
      record date for an issuance, dividend or distribution or the proposed
      effective date of a subdivision, combination, reclassification,
      consolidation, merger, transfer, lease, liquidation or dissolution or
      other action contemplated by (1) or (2) above. The Company shall mail the
      notice at least 15 days before such record date or effective date.

            (f) Issuance of a New Warrant. In the event of any adjustment or
      change in the number of shares of Common Stock actually purchasable under
      this Warrant, if requested in writing by any Warrantholder, the Company
      will issue and deliver a new Warrant certificate evidencing such
      adjustment or change to the Warrantholder as soon as practicable after
      such adjustment or change.

      SECTION 4. Company Right to Force Warrant Exercise. The Company shall have
the option to require the exercise of this Warrant with respect to up to 50% of
the shares of Common Stock subject to this Warrant (as the same may be adjusted
from time to time) (i) upon a Qualifying IPO (as defined below) or (ii) at any
time subsequent to a Qualifying IPO, if the average of the daily Closing Price
(as defined below) per share of Common Stock for 20 consecutive business days is
greater than or equal to the Qualifying Price (as defined below) on the date of
determination.


                                       5
<PAGE>

      In the event the Company elects to require exercise of any portion of this
Warrant the Company shall notify (the "Call Notice") the Warrantholder. The Call
Notice shall establish a date (the "Call Date") not less than 30 and not more
than 45 days after the date the Call Notice is given on which such portion of
this Warrant must be exercised. From and after the Call Date, this Warrant shall
cease to be exercisable and shall expire and become void and the Company shall
issue and deliver to the Warrantholder a new Warrant certificate evidencing the
right to receive upon exercise shares of Common Stock underlying the portion of
this Warrant that was either not exercised or not required to be exercised
pursuant to this Section 4.

      "Qualifying IPO" means an Initial Public Offering with net proceeds of at
least $80 million and an offering price per share equal to the Qualifying Price
as of the closing date of the Initial Public Offering.

      "Qualifying Price" means a price per share of Common Stock that represents
at least a 35% annual appreciation in the value of the equity underlying this
Warrant on an as-exercised-basis from the date of issuance of this Warrant
through the date of determination. For purposes of this definition, the base
equity value per share of Common Stock from which the appreciation shall be
calculated is the Exercise Price as the same may be adjusted from time to time
pursuant to Section 3 hereof.

      "Initial Public Offering" means the first underwritten offering after the
date hereof of Common Stock which is registered pursuant to an effective
registration statement filed by the Company under the Securities Act of 1933, as
amended (the "Act") (other than a registration statement filed on Form S-4 or
S-8 or any other forms prescribed for the same or similar purposes).

      "Closing Price" means if the Common Stock is traded on a securities
exchange or on the Nasdaq National Market or Nasdaq SmallCap Market, the
reported closing sale price of the Common Stock on such exchange or on the
Nasdaq National Market or Nasdaq SmallCap Market or, if the Common Stock is
otherwise traded in the over-the-counter market, the reported closing bid price.

      SECTION 5. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise or exchange of a Warrant. Cash payments
shall be made in lieu of fractional shares of Common Stock otherwise issuable
upon any such exercise or exchange.


                                       6
<PAGE>

      SECTION 6. Reservation of Shares. The Company has reserved and covenants
that until the Expiration Date it will at all times keep reserved out of its
authorized Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon exercise of this Warrant free from preemptive
rights. The Company will not change the par value of the Common Stock as long as
this Warrant is outstanding. The Company will take all such actions as may be
necessary to insure that all shares of capital stock delivered upon exercise of
this Warrant will be duly and validly authorized and issued and fully paid and
nonassessable and free from preemptive rights with respect to the issue thereof.

      SECTION 7. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of shares of Common Stock
upon the exercise of this Warrant.

      SECTION 8. Governmental Approvals; Suspension of Warrant Exercises;
Required Extension of Exercise Period. The Company, at its sole expense, shall
make all filings with, and obtain and keep effective all orders, permits,
consents and approvals of, governmental agencies and authorities which may be or
become required of the Company under applicable federal and state securities
laws in connection with the issuance, sale and delivery by the Company of this
Warrant and the exercise of this Warrant. The Company may suspend the exercise
of this Warrant during such period as may be necessary to obtain or keep
effective all such required orders, permits, consents and approvals of
governmental agencies and authorities. In the event of any such suspension, the
Expiration Date shall be extended for the number of days that such suspension
was in effect.

      SECTION 9. Warrant Transferable. Subject to the provisions of Section I
hereof and Article IX of the Note and Warrant Purchase Agreement, dated October
10, 1997, among the Company and Warrantholder (as amended or otherwise
supplemented from time to time, the "Note and Warrant Purchase Agreement"),
between the Company and the original Warrantholder, this Warrant and all rights
hereunder are transferable by the Warrantholder in whole or in part, without
charge to the Warrantholder, upon surrender of this Warrant with a properly
executed assignment at the principal office of the Company.

      SECTION 10. The Net Issuable Exchange.

      (a) In addition to and without limiting the rights of the Warrantholder
under the terms of this Warrant, the Warrantholder shall have the right (the
"Conversion Right") to convert this Warrant into shares of Common Stock as


                                       7
<PAGE>

provided in this Section 10 at any time or from time to time prior to the
Expiration Date. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Warrantholder, without payment by the
Warrantholder of any exercise price or any cash or other consideration, a number
of shares of Common Stock determined by multiplying the number of Converted
Warrant Shares by the following:

                              FMV - Exercise Price
                             _______________________
                                       FMV

      FMV ("fair market value" as defined below) and Exercise Price shall be
determined as of the close of business on the Conversion Date (as defined
below).

      For purposes of this Warrant Certificate, the "fair market value" of a
share of the Common Stock as of a particular date shall mean, if the Common
Stock is traded on a securities exchange or on the Nasdaq National Market or
Nasdaq SmallCap Market, the average of the closing prices of the Common Stock on
such exchange or on the Nasdaq National Market or Nasdaq SmallCap Market on the
20 trading days ending on the trading day prior to the date of determination,
or, if the Common Stock is otherwise traded in the over-the-counter market, the
average of the closing bid prices on the 20 trading days ending on the trading
day prior to the date of determination. If at any time the Common Stock is not
traded on an exchange or on the Nasdaq National Market or Nasdaq SmallCap Market
or otherwise traded in the over-the-counter market, the Market Price shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of a date that is within 20 days of the date as
of which the determination is to be made, or (ii) the average of the fair market
values thereof determined in good faith by (a) any firm of independent public
accountants or an internationally recognized independent investment banking firm
with experience in both the Former Soviet Union and energy selected by the Board
of Directors of the Company and (b) any firm of independent public accountants
or an internationally recognized independent investment banking firm with
experience in both the Former Soviet Union and energy selected by Warrantholder,
each as of a date that is within 20 days of the date as of which the
determination is to be made (the fees and expenses of any such independent
public accountants or internationally recognized independent investment banking
firm engaged pursuant to this definition to be paid by the Company).


                                       8
<PAGE>

      (b) The Conversion Right may be exercised by the Warrantholder by
surrendering this Warrant Certificate at the principal office of the Company
together with a written statement specifying that the Warrantholder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in subsection
(a) above as the "Converted Warrant Shares") in exercise of the Conversion
Right. Such conversion shall be effective upon receipt by the Company of this
Warrant Certificate together with the aforesaid written statement or on such
later date as is specified therein (the "Conversion Date"), but not later than
the Expiration Date. Certificates for the shares of Common Stock issuable upon
exercise of the Conversion Right and, in the case of a partial exercise, a new
warrant certificate evidencing the shares remaining subject to this Warrant
shall be issued as of the Conversion Date and shall be delivered to the
Warrantholder within 15 days following the Conversion Date.

      SECTION 11. Stock Purchase Warrant Exchangeable for Different
Denominations. This Warrant is exchangeable, upon the surrender hereof by the
Warrantholder at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the purchase rights hereunder, and each of
such new Warrants shall represent such portion of such rights as is designated
by the Warrantholder at the time of such surrender. The date the Company
initially issued the predecessor of this Warrant shall be deemed to be the "Date
of Issuance" hereof regardless of the number of times new certificates
representing the unexpired and unexercised rights formerly represented by this
Warrant shall be issued. All Warrants representing portions of the rights
hereunder are referred to herein as the "Warrants."

      SECTION 12. Securities Law Restrictions; Legend. This Warrant, any new
Warrant issued to evidence any rights hereunder and any shares of Common Stock
issued upon the exercise hereof and thereof may not be sold, transferred,
assigned or otherwise disposed of unless such sale, transfer, assignment or
disposition is made pursuant to an effective registration statement under the
Act and is qualified or registered under all applicable state securities laws,
or the Company receives from the transferror an opinion of counsel, reasonably
satisfactory to the Company, stating that such sale, transfer, assignment or
disposition is exempt from the registration, qualification and prospectus
delivery requirements of the Act and the applicable state securities laws and,
in each case, in compliance with Article IX of the Note and Warrant Purchase
Agreement.

      This Warrant and any new Warrant issued to evidence rights hereunder shall
have imposed thereon the following legend:


                                       9
<PAGE>

                  RESTRICTIONS ON TRANSFER OF SECURITIES: THE SECURITIES
            REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED, OR UNDER STATE SECURITIES LAWS.
            THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS,
            AND ANY SHARES OF COMMON STOCK ISSUED UPON THE EXERCISE THEREOF WILL
            BE, SUBJECT TO THE CONDITIONS SPECIFIED IN (I) A NOTE AND WARRANT
            PURCHASE AGREEMENT DATED OCTOBER 10, 1997 AND (II) A SHAREHOLDER
            AGREEMENT DATED OCTOBER 14, 1997. A COPY OF SUCH CONDITIONS WILL BE
            FURNISHED BY THE CORPORATION TO THE HOLDER HEREOF UPON WRITTEN
            REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY NOT BE RESOLD OR
            TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH AND UNLESS
            REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF
            1933 AND APPLICABLE STATE SECURITIES LAWS

      Each certificate representing shares of Common Stock issued upon the
exercise hereof or upon the exercise of any new Warrant issued to evidence
rights hereunder shall bear a legend to the following effect unless the Company
shall have received from the Warrantholder an opinion of its counsel, reasonably
satisfactory to the Company, to the effect that such legend is unnecessary under
the Act:

      RESTRICTIONS ON TRANSFER OF SECURITIES: THE SECURITIES REPRESENTED BY THIS
      CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, OR UNDER STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES
      REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN
      A SHAREHOLDER AGREEMENT DATED OCTOBER 14, 1997. A COPY OF SUCH CONDITIONS
      WILL BE FURNISHED BY THE CORPORATION TO THE HOLDER HEREOF UPON WRITTEN
      REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY NOT BE RESOLD OR
      TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH AND UNLESS REGISTERED
      OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
      APPLICABLE STATE SECURITIES LAWS.


                                       10
<PAGE>

      SECTION 13. No Stock Rights. The Warrantholder shall not be entitled to
vote nor shall be deemed the holder of Common Stock or any other securities of
the Company which may at any time be issuable on the exercise hereof, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, the rights of a stockholder of the Company or the right to
vote for the election of directors or upon any matter submitted to stockholders
at any meeting thereof, or give or withhold consent to any corporate action or
to receive notice of meetings or other actions affecting stockholders (except as
provided herein), or to receive dividends or subscription rights or otherwise,
until the date of exercise of this Warrant.

      SECTION 14. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Warrantholder being satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity or security reasonably satisfactory to the Company,
or, in the case of any such mutilation upon surrender of such certificate, the
Company shall (at its expense) execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate.

      SECTION 15. Notices to Warrantholder. Whenever the number of shares of
Common Stock subject to this Warrant or the number of rights or warrants to
which the Warrantholder is entitled is adjusted as provided in Section 3 hereof,
the Company will promptly compute such adjustment and prepare and furnish a
certificate setting forth the number of shares of Common Stock purchasable upon
exercise of this Warrant as so adjusted or the number of rights or warrants to
which the Warrantholder is entitled and a brief statement of the facts
accounting for such adjustment and will mail a brief summary thereof to the
Warrantholder at his last address as it appears on this Warrant or the transfer
records of the Company.

      SECTION 16. Notices to Company and Warrantholder. All notices, requests,
consents and other communications hereunder shall be in writing and shall be
delivered either personally or by mail, by telegram, telex, telecopy or similar
facsimile means, or by express courier or delivery service, addressed as
follows:

            (i) if to the Warrantholder, at ____________________________________
      _______________________________, Attention ___________________________, or
      at such other address as may have been furnished to the Company in writing
      by the Warrantholder:


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<PAGE>

            (ii) if to the Company, at 125 Park Avenue, Suite 800, New York, New
      York 10017, Attention: John B. Fitzgibbons, or at such other address as
      may have been furnished to the Warrantholder in writing by the Company.

      Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by telex,
telecopy or other facsimile means); when delivered and receipted for (or upon
the date of attempted delivery where delivery is refused), if hand-delivered,
sent by express courier or delivery service, or sent by mail.

      SECTION 17. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW.

      SECTION 18. Benefits of This Agreement. Nothing in this Warrant shall be
construed to give to any person or company other than the Company and the
Warrantholder, any legal or equitable right, remedy or claim under this Warrant;
and this Warrant shall be for the sole and exclusive benefit of the Company and
the Warrantholder.


                                       12
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the day and year first above written.

                                        KHANTY MANSIYSK OIL CORPORATION


                                        By:
                                           -------------------------------------
                                           Name:  John B. Fitzgibbons
                                           Title: Chief Executive Officer


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