Exhibit 10.2

                                    EXHIBIT A
                        to Securities Purchase Agreement
                        --------------------------------

                                                        Dated: November 18, 2004

NEITHER  THIS  DEBENTURE  NOR  THE  SECURITIES  INTO  WHICH  THIS  DEBENTURE  IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH  EFFECT,  THE  SUBSTANCE  OF WHICH SHALL BE  REASONABLY  ACCEPTABLE  TO THE
COMPANY.

No. 1                                                              $1,270,000.00

                         TIDELANDS OIL & GAS CORPORATION

                           7.0% CONVERTIBLE DEBENTURE
                                DUE May 18, 2006

THIS  DEBENTURE  is  issued  by  Tidelands  Oil  &  Gas  Corporation,  a  Nevada
Corporation (the "Company").  This Debenture is designated as the Company's 7.0%
Convertible  Debenture,  due May 18, 2006, in the aggregate  principal amount of
One  Million  Two  Hundred  Seventy   Thousand  Dollars   ($1,270,000.00)   (the
"Debenture").

FOR VALUE RECEIVED, the Company promises to pay to MERCATOR MOMENTUM FUND, L.P.,
a California limited partnership,  or its registered assigns (the "Holder"), the
principal sum of $1,270,000.00,  on or before May 18, 2006, or such earlier date
as the Debenture is required to be repaid as provided  hereunder  (the "Maturity
Date") and to pay interest to the Holder on the aggregate  unconverted  and then
outstanding  principal  amount of this  Debenture at the rate of 7.0% per annum,
with interest accruing  commencing on the date hereof and payable monthly on the
first  Business  Day (as  defined  in  Section 5 below) of each  month  (each an
"Interest Payment Date").

         Interest  shall be  calculated on the basis of a 360-day year and shall
accrue daily  commencing  on the  Original  Issue Date (as defined in Section 5)
until payment in full of the principal sum, together with all accrued and unpaid
interest  and other  amounts,  which may  become due  hereunder,  has been made.
Interest hereunder will be paid to the Person (as defined in Section 5) in whose
name this  Debenture  is  registered  on the  records of the  Company  regarding
registration and transfers of Debentures (the "Debenture Register").

         This Debenture is subject to the following additional provisions:


                                       1
<PAGE>

         Section  1.  This  Debenture  is  exchangeable  for an equal  aggregate
principal  amount  of  Debentures  of  different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge will be made
for such registration of transfer or exchange.

         Section 2. This Debenture has been issued subject to certain investment
representations  of the original Holder set forth in the Purchase  Agreement (as
defined in Section 5) and may be  transferred  or exchanged  only in  compliance
with  the  Purchase  Agreement.  Prior to due  presentment  to the  Company  for
transfer of this  Debenture,  the Company and any agent of the Company may treat
the Person (as  defined  in  Section  5) in whose  name this  Debenture  is duly
registered  on the  Debenture  Register  as the owner  hereof for the purpose of
receiving payment as herein provided and for all other purposes,  whether or not
this  Debenture is overdue,  and neither the Company nor any such agent shall be
affected by notice to the contrary.

         Section 3. Events of Default.

         (a) An "Event of Default",  wherever used herein,  means any one of the
following  events  (whatever  the reason and  whether it shall be  voluntary  or
involuntary or effected by operation of law or pursuant to any judgment,  decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

                  (i) any default in the payment of the principal  of,  interest
on, or damages in respect of the Debenture,  free of any claim of subordination,
as and when the same shall become due and payable  (whether on a Conversion Date
or the Maturity Date or by acceleration or otherwise)  which is not cured within
thirty (30) days after the date the payment became due and payable;

                  (ii) the  failure to file a  Registration  Statement  with the
Commission  within thirty (30) days of the Original Issue Date  registering  the
resale of the Underlying Shares;

                  (iii) the  failure to observe or perform  any other  covenant,
agreement  or  warranty  contained  in, or  otherwise  commit any breach of this
Debenture, the Purchase Agreement or the Registration Rights Agreement, and such
failure or breach shall not have been remedied within thirty (30) days after the
date on which notice of such failure or breach shall have been given;

                  (iv) any of the  following  which is not  dismissed  within 60
days,  the  Company  shall  commence,  or there shall be  commenced  against the
Company a case under any  applicable  bankruptcy  or  insolvency  laws as now or
hereafter in effect or any successor thereto, or the Company commences any other
proceeding under any reorganization,  arrangement, adjustment of debt, relief of
debtors,   dissolution,   insolvency  or  liquidation  or  similar  law  of  any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company,  and any such bankruptcy,  insolvency or other
proceeding which remains  undismissed for a period of 60 days; or the Company is
adjudicated  insolvent  or  bankrupt;  or any  order of  relief  or other  order
approving  any such case or proceeding  is entered;  or the Company  suffers any
appointment of any custodian or the like for it or any  substantial  part of its
property which  continues  undischarged  or unstayed for a period of 60 days; or



                                       2
<PAGE>

the Company  makes a general  assignment  for the benefit of  creditors;  or the
Company  shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Company shall call
a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring  of its debts;  or the Company  shall by any act or failure to act
expressly  indicate its consent to,  approval of or  acquiescence  in any of the
foregoing;  or any  corporate  or other  action is taken by the  Company for the
purpose of effecting any of the foregoing;

                  (v) the Common  Stock  shall cease to be quoted for trading or
listed  for  trading on the  National  Association  of  Securities  Dealers  OTC
Bulletin  Board  ("OTC") or Nasdaq  SmallCap  Market,  New York Stock  Exchange,
American  Stock  Exchange or the Nasdaq  National  Market  (each,  a "Subsequent
Market") and shall not again be quoted or listed for trading thereon within five
(5) Trading Days;

                  (vi) the Company  shall fail for any reason to deliver  Common
Stock certificates to a Holder prior to the fifth Trading Day after a Conversion
Date  pursuant to and in  accordance  with  Section  4(b) or the  Company  shall
provide notice to the Holder,  including by way of public  announcement,  at any
time,  of its  intention  not to comply with  requests  for  conversions  of the
Debenture in accordance with the terms hereof.  If the Company's  transfer agent
is not open for  business  during a Trading  Day,  such Trading Day shall not be
counted for purposes of determining  the number of days for delivery of a Common
Stock certificate;

                  (vii) the  Company  shall fail for any  reason to deliver  the
payment in cash  pursuant to a Buy-In (as defined  herein)  within ten  Business
Days after notice is deemed delivered hereunder;

                  (viii)  the  Company  shall  fail for any  reason to cause the
number of authorized but unissued  shares of its Common Stock to be increased to
an  amount  sufficient  to  enable  the  Company  to  comply  with  the  reserve
requirement of Section  4(c)(v) within a period of sixty (60) days following its
receipt of any Holder's  notice under  Section  4(c)(v) that such reserve is not
being satisfied if, at the time of the notice,  the number of authorized  shares
of the Company's Common Stock is insufficient for this purpose; or

                  (ix) the Company  shall fail to use its best  efforts to cause
the Commission to deem the Registration  Statement  effective within ninety (90)
days after the date on which it is filed with the Commission.

         (b) During the time that any portion of this Debenture is  outstanding,
if any Event of Default  pursuant to Section  3(a) occurs,  then the  Conversion
Price shall be reduced from 85% of the Market Price to 75% of the Market  Price,
but in no event higher that the Ceiling  Price or lower than the Floor Price (as
those terms are  defined in Section  4(c)(i) and 5 below).  In  addition,  if an
Event of Default under Section 3(a)(ii) occurs, the Company shall pay liquidated
damages  to Holder  equal to $3,333  for each day  during  which  such  Event of
Default remains uncured.  Any amounts to be paid as liquidated  damages shall be
paid in cash monthly in arrears on or before the 30th day  following  the end of
the month or partial month to which they relate.

         The  Holder  need  not  provide  and  the  Company  hereby  waives  any
presentment,  demand,  protest or other  notice of any kind,  and the Holder may
immediately  and without  expiration of any grace period  enforce any and all of


                                       3
<PAGE>

its rights and remedies  hereunder and all other remedies  available to it under
applicable law. Such  declaration may be rescinded and annulled by Holder at any
time prior to payment  hereunder.  No such  rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.

         Section 4. Conversion.

         (a) (i) Conversion at Option of Holder.

                  (A) This Debenture shall be convertible  into shares of Common
Stock at the option of the Holder, in whole or in part at any time and from time
to time, after the Original Issue Date (subject to the limitations on conversion
set forth in Section  4(a)(ii)  hereof).  The  number of shares of Common  Stock
issuable upon a conversion  hereunder  equals the quotient  obtained by dividing
(x) the  outstanding  principal  amount of this Debenture to be converted by (y)
the Conversion Price (as defined in Section 4(c)(i)).

                  (B) Reserved.

                  (C) The Holder  shall  effect  conversions  by  simultaneously
delivering  to the Company a  completed  notice in the form  attached  hereto as
Exhibit A (a "Conversion Notice"),  including a completed Conversion Schedule in
the form of Schedule I to the Conversion  Notice (on each  Conversion  Date, the
"Conversion  Schedule").  The Conversion  Schedule shall set forth the remaining
principal  amount of this Debenture and all accrued and unpaid interest  thereon
subsequent to the conversion at issue. The date on which a Conversion  Notice is
delivered is the  "Conversion  Date." Unless the Holder is converting the entire
principal amount outstanding under this Debenture, the Holder is not required to
physically   surrender  this  Debenture  to  the  Company  in  order  to  effect
conversions.  Subject to Section 4(b), each Conversion Notice, once given, shall
be  irrevocable.  Conversions  hereunder  shall have the effect of lowering  the
outstanding  principal  amount of this  Debenture  plus all  accrued  and unpaid
interest thereon in an amount equal to the applicable conversion, which shall be
evidenced by entries set forth in the  Conversion  Schedule.  The Holder and the
Company shall maintain  records showing the principal  amount  converted and the
date of such  conversions.  In the  event of any  dispute  or  discrepancy,  the
records of the Holder shall be controlling and  determinative  in the absence of
manifest error.

                  (ii) Certain Conversion Restrictions.

                           (A) A Holder may not convert the Debenture or receive
shares of Common  Stock as  payment of  interest  hereunder  to the extent  such
conversion  or receipt of such  interest  payment  would  result in the  Holder,
together  with any  affiliate  thereof,  beneficially  owning (as  determined in
accordance  with Section  13(d) of the  Exchange  Act and the rules  promulgated
thereunder)  in excess of 9.999% of the then  issued and  outstanding  shares of
Common  Stock,  including  shares  issuable upon  conversion  of, and payment of
interest  on,  the  Debenture  held by such  Holder  after  application  of this
Section.  Since the Holder  will not be  obligated  to report to the Company the
number  of  shares  of  Common  Stock it may  hold at the  time of a  conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common  Stock in excess  of 9.999% of the then  outstanding  shares of Common
Stock without regard to any other shares which may be beneficially  owned by the


                                       4
<PAGE>

Holder  or an  affiliate  thereof,  the  Holder  shall  have the  authority  and
obligation to determine  whether the restriction  contained in this Section will
limit any  particular  conversion  hereunder  and to the extent  that the Holder
determines  that  the  limitation   contained  in  this  Section  applies,   the
determination  of which  portion of the  principal  amount of the  Debenture  is
convertible  shall be the  responsibility  and obligation of the Holder.  If the
Holder has delivered a Conversion Notice for a principal amount of the Debenture
that,  without  regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder,  the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum  principal  amount  permitted to be converted on such
Conversion Date in accordance with the periods described in Section 4(b) and, at
the option of the  Holder,  either  retain any  principal  amount  tendered  for
conversion in excess of the permitted amount hereunder for future conversions or
return  such  excess  principal  amount to the Holder.  The  provisions  of this
Section  may be waived by a Holder  (but only as to itself  and not to any other
Holder) upon not less than 65 days prior notice to the  Company.  Other  Holders
shall be unaffected by any such waiver.

         (b) (i) Reserved.

                  (ii)  Nothing  herein  shall limit a Holder's  right to pursue
actual  damages or declare an Event of Default  pursuant to Section 3 herein for
the  Company's  failure to deliver  certificates  representing  shares of Common
Stock upon conversion  within the period  specified herein and such Holder shall
have the right to pursue all  remedies  available  to it at law. The exercise of
any such rights shall not  prohibit  the Holder from seeking to enforce  damages
pursuant to any other Section hereof or under  applicable law.  Further,  if the
Company  shall not have  delivered  any cash due in respect of conversion of the
Debenture or as payment of interest thereon by the fifth (5th) Trading Day after
the  Conversion  Date,  the Holder  may, by notice to the  Company,  require the
Company to issue shares of Common Stock  pursuant to Section  4(c),  except that
for such purpose the Conversion Price applicable  thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on the date
of such Holder demand. Any such shares will be subject to the provisions of this
Section.

                  (iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder any  certificate  or  certificates
representing  shares of Common Stock upon conversion within the period specified
herein by the fifth (5th) Trading Day after the  Conversion  Date,  and if after
such fifth (5th) Trading Day the Holder purchases (in an open market transaction
or otherwise)  Common Stock to deliver in  satisfaction of a sale by such Holder
of the  Underlying  Shares  which the  Holder  anticipated  receiving  upon such
conversion  (a  "Buy-In"),  then the Company shall (A) pay in cash to the Holder
(in addition to any  remedies  available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common  Stock so  purchased  exceeds  (y) the product of (1) the
aggregate  number  of  shares  of Common  Stock  that  such  Holder  anticipated
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder,  either  reissue a Debenture  in the  principal
amount equal to the principal  amount of the attempted  conversion or deliver to
the Holder the number of shares of Common  Stock that would have been issued had
the Company  timely  complied with its delivery  requirements.  If the Company's
transfer  agent is not open for business  during a Trading Day, such Trading Day
shall not be counted for purposes of determining the number of days for delivery
of a Common Stock certificate. For example, if the Holder purchases Common Stock


                                       5
<PAGE>

having a total  purchase  price of $11,000 to cover a Buy-In with  respect to an
attempted conversion of Debentures with respect to which the market price of the
Underlying  Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence,  the Company shall be required to pay
the  Holder  $1,000.  The  Holder  shall  provide  the  Company  written  notice
indicating  the  amounts  payable  to the  Holder  in  respect  of  the  Buy-In.
Notwithstanding  anything contained herein to the contrary, if a Holder requires
the  Company to make  payment  in respect of a Buy-In for the  failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company  shall not be required to pay such Holder any damages  under Section
4(b)(ii) in respect of the  certificates  resulting  in such Buy-In  which would
represent  a double  recovery  for harm for which the  payments  made under this
Section 4(b)(iii) compensated the Holder .

         (c) (i) The  "Conversion  Price" shall be equal to Eighty-Five  Percent
(85%) of the  Market  Price (as  defined  in Section 5 below) on the date of any
Conversion  Notice,  rounded to the  nearest  penny,  subject to  adjustment  as
described herein;  provided,  however, the Conversion Price shall in no event be
higher than $0.76 (the "Ceiling  Price") nor shall such Conversion Price be less
than $0.45 per share (the  "Floor  Price").  In the event that the  Registration
Statement has not been deemed  effective by the SEC within 90 days after filing,
then the  Conversion  Price shall be reduced from 85% of the Market Price to 75%
of the Market Price, but in no event higher that the Ceiling Price or lower than
the Floor Price.

                  (ii) If the  Company,  at any  time  while  the  Debenture  is
outstanding  shall (a) pay a stock dividend or otherwise make a distribution  or
distributions  on  shares  of its  Common  Stock or any  other  equity or equity
equivalent   securities  payable  in  shares  of  Common  Stock,  (b)  subdivide
outstanding  shares of Common Stock into a larger number of shares,  (c) combine
(including  by way of reverse  stock split)  outstanding  shares of Common Stock
into a smaller number of shares, or (d) issue by  reclassification  of shares of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price  shall be  multiplied  by a fraction of which the  numerator  shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator  shall be the number of shares of
Common Stock  outstanding after such event. Any adjustment made pursuant to this
Section  shall  become  effective  immediately  after  the  record  date for the
determination of stockholders  entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

                  (iii) If the  Company,  at any time  while  the  Debenture  is
outstanding,  shall  distribute  to all holders of Common  Stock (and not to the
Holder)  evidences  of its  indebtedness  or assets or  rights  or  warrants  to
subscribe  for or purchase any security,  then in each such case the  Conversion
Price at which the Debenture shall thereafter be convertible shall be determined
by multiplying the Conversion  Price in effect  immediately  prior to the record
date  fixed  for   determination  of  stockholders   entitled  to  receive  such
distribution  by a  fraction  of which  the  denominator  shall be the Per Share
Market Value  determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market  value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by  the Board of Directors in good faith. In either case the


                                       6
<PAGE>

adjustments  shall be  described  in a  statement  provided to the Holder of the
portion  of  assets  or  evidences  of   indebtedness  so  distributed  or  such
subscription  rights  applicable to one share of Common Stock.  Such  adjustment
shall be made whenever any such  distribution is made and shall become effective
immediately after the record date mentioned above.

                  (iv) In case of any  reclassification  of the Common  Stock or
any compulsory  share  exchange  pursuant to which the Common Stock is converted
into  other  securities,  cash or  property,  the  Holder  shall  have the right
thereafter to convert the then outstanding  principal amount,  together with all
accrued  but unpaid  interest  and any other  amounts  then owing  hereunder  in
respect of this  Debenture  only into the shares of stock and other  securities,
cash and property  receivable upon or deemed to be held by holders of the Common
Stock following such  reclassification or share exchange,  and the Holder of the
Debenture  shall  be  entitled  upon  such  event  to  receive  such  amount  of
securities,  cash or property  as the shares of the Common  Stock of the Company
into which the then outstanding principal amount,  together with all accrued but
unpaid  interest and any other  amounts then owing  hereunder in respect of this
Debenture could have been converted  immediately prior to such  reclassification
or share exchange would have been entitled.

                  (v) The  Company  shall  maintain a share  reserve of not less
than  105% of the  shares  of  Common  Stock  issuable  upon  conversion  of the
Debenture;  and within  five (5)  Business  Days  following  the  receipt by the
Company of a Holder's  notice that such minimum  number of Underlying  Shares is
not so  reserved,  the  Company  shall if there are  sufficient  authorized  but
unissued shares promptly  reserve a sufficient  number of shares of Common Stock
to comply with such  requirement.  If there are not  sufficient  authorized  but
unissued  shares,  the  Company  shall  use its best  efforts  to call a special
shareholders'  meeting  within  sixty (60) days of such notice to  increase  the
number of authorized shares of Common Stock.

                  (vi) All  calculations  under this  Section 4 shall be made to
the nearest ten thousandth.  No adjustments in either the Conversion Price shall
be required if such adjustment is less than $0.0001, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.

                  (vii)  Whenever the Conversion  Price is adjusted  pursuant to
this  Section  4(c),  the  Company  shall  promptly  mail to the Holder a notice
setting forth the  Conversion  Price after such  adjustment  and setting forth a
brief statement of the facts requiring such adjustment.

                  (viii) If (A) the  Company  shall  declare a dividend  (or any
other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring  cash  dividend on or a  redemption  of the Common  Stock;  (C) the
Company  shall  authorize the granting to all holders of the Common Stock rights
or warrants to  subscribe  for or  purchase  any shares of capital  stock of any
class or of any  rights;  (D) the  approval of any  stockholders  of the Company
shall be required in connection with any  reclassification  of the Common Stock,
any  consolidation  or  merger  to which  the  Company  is a party,  any sale or
transfer  of all or  substantially  all of the  assets  of the  Company,  of any
compulsory  share  exchange  whereby the Common  Stock is  converted  into other
securities,  cash or property;  (E) the Company shall authorize the voluntary or
involuntary  dissolution,  liquidation  or  winding  up of  the  affairs  of the
Company;  then, in each case, the Company shall cause to be filed at each office


                                       7
<PAGE>

or agency  maintained for the purpose of conversion of the Debenture,  and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock  books of the  Company,  at  least  ten (10)  calendar  days  prior to the
applicable record or effective date hereinafter  specified, a notice stating (x)
the date on which a record  is to be taken  for the  purpose  of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined  or (y)  the  date on  which  such  reclassification,  consolidation,
merger,  sale,  transfer or share  exchange is expected to become  effective  or
close,  and the date as of which it is expected that holders of the Common Stock
of record  shall be entitled to exchange  their  shares of the Common  Stock for
securities,  cash or other  property  deliverable  upon  such  reclassification,
consolidation,  merger,  sale,  transfer or share exchange,  provided,  that the
failure to mail such  notice or any defect  therein  or in the  mailing  thereof
shall not affect the validity of the corporate  action  required to be specified
in such notice.  The Holder is entitled to convert the Debenture  during the ten
(10) day calendar  period  commencing  the date of such notice to the  effective
date of the event triggering such notice.

                  (ix) In case of any (1) merger or consolidation of the Company
with or into another  Person,  or (2) sale by the Company of more than  one-half
(1/2) of its assets in one or a series of related  transactions,  a Holder shall
have the right to (A) convert the  aggregate  principal  amount of the Debenture
then  outstanding  into the  shares  of stock  and  other  securities,  cash and
property  receivable  upon or  deemed  to be held by  holders  of  Common  Stock
following such merger,  consolidation or sale, and such Holder shall be entitled
upon  such  event or  series  of  related  events  to  receive  such  amount  of
securities,  cash and  property  as the  shares of Common  Stock into which such
aggregate   principal   amount  of  the  Debenture  could  have  been  converted
immediately  prior to such  merger,  consolidation  or  sales  would  have  been
entitled, or (B) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible  debenture  with a principal  amount
equal to the  aggregate  principal  amount  of the  Debenture  then held by such
Holder,  plus all accrued and unpaid  interest and other amounts owing  thereon,
which such  newly  issued  convertible  debenture  shall  have  terms  identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and  privileges  of the Holder of the Debenture
set forth  herein  and the  agreements  pursuant  to which the  Debentures  were
issued. In the case of clause (B), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible  debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock  would  receive in such  transaction  and the  Conversion  Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger,  sale or consolidation  shall include such terms so as
to  continue to give the Holder the right to receive  the  securities,  cash and
property set forth in this Section upon any  conversion or redemption  following
such event. This provision shall similarly apply to successive such events.

         (d) The Company  covenants  that it will at all times  reserve and keep
available out of its authorized  and unissued  shares of Common Stock solely for
the purpose of issuance upon conversion of the Debenture and payment of interest
on the Debenture,  each as herein provided,  free from preemptive  rights or any
other actual  contingent  purchase rights of persons other than the Holder,  not
less than such  number of shares of the Common  Stock as shall  (subject  to any
additional  requirements  of the  Company as to  reservation  of such shares set


                                       8
<PAGE>

forth in the  Debenture) be issuable  (taking into account the  adjustments  and
restrictions of Section 4(b)) upon the conversion of the  outstanding  principal
amount of the Debenture and payment of interest hereunder. The Company covenants
that all shares of Common Stock that shall be so issuable shall,  upon issue, be
duly and validly  authorized,  issued and fully paid,  nonassessable and, if the
Registration  Statement has been declared  effective  under the Securities  Act,
registered for public sale in accordance with such Registration Statement.

         (e) Upon a conversion  hereunder  the Company  shall not be required to
issue stock certificates  representing  fractions of shares of the Common Stock,
but may if  otherwise  permitted,  make a cash  payment  in respect of any final
fraction of a share  based on the Per Share  Market  Value at such time.  If the
Company elects not, or is unable, to make such a cash payment,  the Holder shall
be  entitled  to receive,  in lieu of the final  fraction of a share,  one whole
share of Common Stock.

         (f) The  issuance  of  certificates  for shares of the Common  Stock on
conversion of the Debenture  shall be made without  charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such  certificate,  provided  that the Company shall not be
required to pay any tax that may be payable in respect of any transfer  involved
in the issuance and delivery of any such  certificate  upon conversion in a name
other than that of the Holder of such  Debenture  so  converted  and the Company
shall not be required to issue or deliver such certificates  unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the  amount of such tax or shall have  established  to the  satisfaction  of the
Company that such tax has been paid.

         (g) Any and all notices or other  communications  or  deliveries  to be
provided by the Holder hereunder,  including, without limitation, any Conversion
Notice, shall be in writing and delivered  personally,  by facsimile,  sent by a
nationally  recognized  overnight  courier  service  or  sent  by  certified  or
registered mail, postage prepaid, addressed to the Company, at 1862 West Bitters
Rd., San Antonio, TX 78410, Attention:  President, Facsimile No. 210-764-2809 or
such other  address or  facsimile  number as the  Company  may  specify for such
purposes by notice to the Holder delivered in accordance with this Section.  Any
and all  notices or other  communications  or  deliveries  to be provided by the
Company  hereunder shall be in writing and delivered  personally,  by facsimile,
sent by a nationally  recognized  overnight courier service or sent by certified
or registered mail,  postage prepaid,  addressed to each Holder at the facsimile
telephone  number  or  address  of such  Holder  appearing  on the  books of the
Company,  or if no such facsimile  telephone number or address  appears,  at the
principal place of business of the Holder, and, in the case of each Holder, with
a copy to Sheppard  Mullin Richter & Hampton,  LLP, 333 South Hope Street,  48th
Floor, Los Angeles, CA 90071-1448, Attention David C. Ulich, Facsimile No. (213)
620-1398.  Any notice or other  communication  or deliveries  hereunder shall be
deemed given and effective on the earliest of (i) the date of  transmission,  if
such  notice or  communication  is  delivered  via  facsimile  at the  facsimile
telephone  number  specified in this Section prior to 5:00 p.m. (the recipient's
time),  (ii)  the  date  after  the  date of  transmission,  if such  notice  or
communication  is delivered  via  facsimile at the  facsimile  telephone  number
specified in this Section  later than 5:00 p.m.  (the  recipient's  time) on any
date and earlier than 11:59 p.m. (the recipient's time) on such date, (iii) four
(4) days  after  deposit  in the  United  States  mail,  (iv) the  Business  Day
following  the  date of  mailing,  if sent by  nationally  recognized  overnight
courier service,  or (v) upon actual receipt by the party to whom such notice is
required to be given.



                                       9
<PAGE>

         Section 5.  Definitions.  For the purposes hereof,  the following terms
shall have the following meanings:

         "Business Day" means any day except Saturday,  Sunday and any day which
shall be a federal  legal holiday in the United States or a day on which banking
institutions  are  authorized or required by law or other  government  action to
close.

         "Commission" means the Securities and Exchange Commission.

         "Common Stock" means the common stock,  $0.001 par value per share,  of
the Company and stock of any other class into which such shares may hereafter be
changed or reclassified.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Market  Price" on any given  date  shall be the  average of the lowest
four intra-day  trading prices of the Company's Common Stock during the ten (10)
immediately  preceding trading days (which may include trading days prior to the
Original  Issue  Date),  provided,  that such 10  trading  day  period  shall be
extended  by the number of trading  days during such period on which (i) trading
in the Common Stock is  suspended  by, or not traded on, the OTC or a subsequent
market on which  the  common  stock is then  traded,  or (ii)  after the date of
Registration Statement for the underlying shares of Common Stock into which this
Debenture  may be  converted is declared  effective  by the SEC, the  prospectus
included in the Registration  Statement may not be used by the Holder for resale
of underlying shares of Common Stock, is suspended by, or not traded on, the OTC
or a subsequent  market on which the Common Stock is then listed, or (iii) after
the date the  Registration  Statement  is  declared  effective  by the SEC,  the
prospectus included in the Registration  Statement for the underlying shares may
not be used by the Holder for the resale of  underlying  shares of Common  Stock
(provided  such  inability to use the prospectus is not (a) caused by the Holder
or (b) as a result of the Company's filing of  post-effective  amendments to the
Registration Statement.

         "Original  Issue Date" shall mean the date of the first issuance of the
Debenture  regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.

         "Per Share Market Value" means the price per share in the last reported
trade of the  Common  Stock on the OTC or on a  Subsequent  on which the  Common
Stock is then listed.

         "Person"  means  a   corporation,   an   association,   a  partnership,
organization,  a business, an individual,  a government or political subdivision
thereof or a governmental agency.

         "Purchase  Agreement" means that Securities Purchase  Agreement,  dated
November 18, 2004 to which the Company and the original  Holder are parties,  as
amended,  modified  or  supplemented  from time to time in  accordance  with its
terms.

         "Registration   Rights   Agreement"  means  the   Registration   Rights
Agreement,  dated as of the  Original  Issue Date,  to which the Company and the
original Holder are parties,  as amended,  modified or supplemented from time to
time in accordance with its terms.


                                       10
<PAGE>

         "Registration  Statement" means the registration  statement to be filed
by the Company with the SEC pursuant to the Registration Rights Agreement.

         "Securities Act" means the Securities Act of 1933, as amended,  and the
rules and regulations promulgated thereunder.

         "Trading  Day"  means a day on which the  shares  of  Common  Stock are
quoted on the OTC or quoted  or  traded on such  Subsequent  Market on which the
shares of Common  Stock are then quoted or listed;  provided,  that in the event
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.

         "Underlying  Shares"  means the shares of Common  Stock  issuable  upon
conversion  of the  Debenture or as payment of interest in  accordance  with the
terms hereof.

         Section 6. Except as expressly  provided  herein,  no provision of this
Debenture  shall  alter or impair  the  obligations  of the  Company,  which are
absolute  and  unconditional,  to pay the  principal  of, and  interest on, this
Debenture at the time,  place,  and rate,  and in the coin or  currency,  herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other  Debentures  now or  hereafter  issued under the
terms set forth  herein.  As long as the Debenture is  outstanding,  the Company
shall not and shall cause their  subsidiaries not to, without the consent of the
Holder,  (i) amend  its  articles  of  incorporation,  bylaws  or other  charter
documents  so as to  adversely  affect any  rights of the  Holder;  (ii)  repay,
repurchase  or offer to repay,  repurchase  or otherwise  acquire  shares of its
Common Stock or other equity securities;  or (iii) enter into any agreement with
respect to any of the foregoing.

         Section 7. This  Debenture  shall not  entitle the Holder to any of the
rights of a stockholder of the Company,  including without limitation, the right
to vote, to receive dividends and other distributions,  or to receive any notice
of, or to attend,  meetings  of  stockholders  or any other  proceedings  of the
Company,  unless  and to the extent  converted  into  shares of Common  Stock in
accordance with the terms hereof.

         Section 8. If this Debenture is mutilated,  lost,  stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture,  or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated,  lost, stolen or destroyed but only upon receipt of
evidence  of such  loss,  theft or  destruction  of such  Debenture,  and of the
ownership hereof, and indemnity,  if requested,  all reasonably  satisfactory to
the Company.

         Section  9.  This  Debenture  shall be  governed  by and  construed  in
accordance  with the laws of the State of  California,  without giving effect to
conflicts of laws thereof.  The Company and the Holder hereby irrevocably submit
to the exclusive  jurisdiction  of the state and federal  courts  sitting in the
City of Los  Angeles,  for  the  adjudication  of any  dispute  hereunder  or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein,  and  hereby  irrevocably  waive,  and  agree not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction  of any such  court,  or that such suit,  action or  proceeding  is
improper.  The Company hereby irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
sending a copy  thereof to the  Company at the  address in effect for notices to


                                       11
<PAGE>

them under this  instrument  and the  Company  agrees  that such  service  shall
constitute good and sufficient  service of process and notice  thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party  irrevocably  waives,  to the fullest
extent  permitted by  applicable  law, any and all right to trial by jury in any
legal  proceeding   arising  out  of  or  relating  to  this  Agreement  or  the
transactions  contemplated  hereby.  If either party shall commence an action or
proceeding to enforce any provisions of this Debenture,  the Purchase  Agreement
or the Registration  Rights Agreement,  then the prevailing party in such action
or proceeding  shall be reimbursed by the other party for its attorneys fees and
other  costs and  expenses  incurred  with the  investigation,  preparation  and
prosecution of such action or proceeding.

         Section  10. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture  shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this  Debenture.  The failure of the Company or the Holder to insist upon strict
adherence to any term of this  Debenture on one or more  occasions  shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict  adherence to that term or any other term of this  Debenture.  Any waiver
must be in writing.

         Section 11. If any provision of this  Debenture is invalid,  illegal or
unenforceable,  the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance,  it shall  nevertheless
remain applicable to all other persons and  circumstances.  If it shall be found
that any interest or other amount deemed  interest due  hereunder  shall violate
applicable laws governing  usury,  the applicable rate of interest due hereunder
shall  automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that they shall
not at any time insist upon,  plead, or in any manner  whatsoever  claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would  prohibit  or forgive  the  Company  from paying all or any portion of the
principal  of or interest on the  Debenture  as  contemplated  herein,  wherever
enacted,  now or at any time  hereafter  in  force,  or  which  may  affect  the
covenants or the performance of this  indenture,  and the Company (to the extent
it may lawfully do so) hereby  expressly waives all benefits or advantage of any
such law,  and  covenants  that it will not, by resort to any such law,  hinder,
delay or impeded the  execution of any power herein  granted to the Holder,  but
will  suffer and permit  the  execution  of every such as though no such law has
been enacted.

         Section 12. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding Business Day.

         Section  13.  Company may not assign  this  Agreement  or any rights or
obligations  hereunder  without the prior written consent of Holder.  Holder may
assign  this  Agreement,  in whole or in party,  and any  rights  or  obligation
hereunder  without the prior  written  consent of Company by delivery of written
notice to Company of such assignment.



                                       12
<PAGE>

         IN  WITNESS  WHEREOF,   each  of  the  Company  has  caused  this  7.0%
Convertible Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.

TIDELANDS OIL & GAS CORPORATION



By:____________________________
Name:__________________________
Title:_________________________


























                                       13
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Debenture)

The undersigned  hereby elects to convert the attached  Debenture into shares of
common stock, $0.0001 par value per share (the "Common Stock"), of Tidelands Oil
& Gas Corporation. (the "Company") according to the conditions hereof, as of the
date  written  below.  If shares are to be issued in the name of a person  other
than the  undersigned,  the undersigned will pay all transfer taxes payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably  requested  by the Company in  accordance  therewith.  No fee will be
charged to the holder for any  conversion,  except for such transfer  taxes,  if
any.

Conversion calculations:          ______________________________________________
                                  Date to Effect Conversion


                                  ______________________________________________
                                  Principal Amount of Debentures to be Converted


                                  $__________             of Interest Accrued on
                                                          Account of Conversion
                                                          at Issue


                                  Payment of Interest in Kind            |_| Yes
                                                                         |_| No

                                     If yes, $ _______  of Interest Accrued on
                                                        Account of Conversion at
                                                        Issue

                                  ______________________________________________
                                  Number of shares of Common Stock to be Issued

                                  ______________________________________________
                                  Applicable Conversion Price

                                  ______________________________________________
                                  Signature

                                  ______________________________________________
                                  Name

                                  ______________________________________________
                                  Address








                                       14
<PAGE>



                                   Schedule 1

                               CONVERSION SCHEDULE
                               -------------------



7.0% Convertible  Debenture due May ___, 2006, in the aggregate principal amount
of $______________ issued by _________________________. This Conversion Schedule
reflects  conversions  made  under  Section  4(a)(i)  of  the  above  referenced
Debenture.

                                     Dated:

==================== ============== =================== ========== =============
                                        Aggregate
                                     Principal Amount
                                        Remaining
 Date of Conversion                    Subsequent to
(or for first entry,                    Conversion
   Original Issue      Amount of       (or original      Company
       Date)           Conversion    Principal Amount)    Attest
==================== ============== =================== ========== =============

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ---------- -------------

-------------------- -------------- ------------------- ------------- ----------

-------------------- -------------- ------------------- ------------- ----------

==================== ============== =================== ============= ==========




                                       15