EXHIBIT 10.2

                                December 8, 2003



Pannonian Energy, Inc.
14 Inverness Drive East,
Building H, Suite 236
Englewood, CO 80112

Attention:        King Grant, Chief Financial Officer


Ladies and Gentlemen:

         This letter confirms our  understanding and agreement (the "Agreement")
that Pannonian Energy, Inc. (together with its subsidiaries and affiliates,  the
"Company") has engaged Red Oak Capital  Management  LLC ("Red Oak"),  during the
duration of this Agreement,  to act as the Company's project financing  arranger
with respect to financing  drilling  programs,  as further defined hrein, in the
Company's  oil and gas leasehold  interests  covering  lands within  portions of
Carbon,  Duschene and Uintah Counties, Utah ("Contract Area"). The Contract Area
will be further described in an exhibit to the Joint Value Enhancement Agreement
("JVEA") that the Company  proposes to enter into with M-I, LLC ("M-I"),  Nabors
Drilling   USA,   LP    ("Nabors"),    Schlumberger    Technology    Corporation
("Schlumberger") and, collectively with M-I and Nabors, the "Service Providers")
and one or more partnerships to be formed by Red Oak ("Investment Partnership").
Capitalized  terms used in this  Agreement  and not  otherwise  defined have the
meaning assigned to such terms in the JVEA.

         The Company has identified two  Evaluation  Wells and,  pursuant to the
JVEA,  ten  additional  Project Wells will be  identified as the initial  Bundle
("Bundle"). Thereafter, in accordance with the JVEA, each additional Bundle will
consist of 10 Project Wells.  Pursuant to the JVEA,  the Service  Providers will
render  services  to the  Company  in  connection  with the  development  of the
Contract  Area as  described in the Field  Development  Plan in exchange for net
profits or similar  interests in the Bundles  ("NPIs").  In connection  with the
drilling of each  Project  Well,  the Company  will incur  obligations  to third
parties  other than the Service  Providers.  Red Oak proposes to arrange for the
Investment  Partnership  to agree  to  purchase  NPIs on the  same  terms as the
Service  Providers in an amount sufficient to fund up to 35% of the AFE for each
Project Well included in Bundles in which the Investment  Partnership  elects to
participate ("Financing").

         The Investment  Partnership  will be an  "accredited  investor" as such
term is defined in  Regulation D under the  Securities  Act of 1933,  as amended
("Securities  Act").  Red Oak will comply  with  applicable  securities  laws in
forming  the  Investment  Partnership  and  otherwise  in  connection  with  the
transactions contemplated hereunder.

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         The Company has agreed to grant Red Oak the exclusive  right to arrange
all Financing  needed for each Bundle during the term of the JVEA.  Red Oak will
provide  the  Company  with a  written  commitment  executed  by the  Investment
Partnership  ("Investment  Election") stating that the Investment Partnership is
willing to invest an aggregate of $35,000,000 or more ("Election Amount") in the
Contract Area within 120 days ("Due  Diligence  Period")  after the execution of
this Agreement.  The Investment  Partnership will not be required to invest more
than 35% of the AFE for a  particular  Bundle and the  Investment  Partnership's
obligation  to fund  pursuant  to the  Investment  Election  will be  subject to
receipt of satisfactory conveyance documents, legal opinions and other customary
conditions, and satisfaction of the conditions to funding in the JVEA.

         As  compensation  for the services to be provided by Red Oak hereunder,
the  Company  agrees to pay Red Oak a  non-refundable  fee of $10,000 per month,
payable in advance on the first day of each month ("Work Fee"). In addition, the
Company agrees to pay the Investment Partnership a facilities fee equal to 3.25%
of the Election Amount  ("Facilities Fee"). The Work Fee shall be payable by the
Company  until  the  execution  of the  Investment  Election  by the  Investment
Partnership;  provided,  however, that the maximum amount of Work Fee payable by
the Company shall be $30,000.  All amounts  previously paid as Work Fees will be
subtracted  from the amount of the  Facilities  Fee. The  Facilities Fee will be
payable out of cash advances made to the Company by the  Investment  Partnership
pursuant to the JVEA as follows:

     -    The Investment  Partnership  will reduce the amount of each advance to
          the Company by 3.25% which amounts shall be retained by the Investment
          Partnership as Facilities Fees.

         If the Company  terminates the JVEA or other agreements with Red Oak or
the Investment  Partnership  regarding the Financing following the acceptance by
the Company of an Investment  Election or sells all or substantially  all of the
properties that constitute the Contract Area, and the Investment Partnership has
not defaulted in its  obligations  under the JVEA or other  agreements  with the
Company,  notwithstanding the prior paragraph, the Company shall immediately pay
to the Investment Partnership an amount equal to the difference, if any, between
$1,137,500  and  the  sum of all  of the  Facilities  Fee  paid  prior  to  such
termination or sale.

         The  Company  agrees  to  provide  to Red Oak all  financial  and other
information  regarding the development of the Contract Area reasonably requested
by Red Oak and reasonably  available to the Company for the purpose of Red Oak's
assignment  hereunder.  The Company  agrees and  represents  that (except to the
extent it notifies  Red Oak)  information  furnished to Red Oak pursuant to this
Agreement  shall be accurate and  complete in all material  respects at the time
provided,  and  that if such  information  becomes  inaccurate,  incomplete,  or
misleading during the term of Red Oak's engagement hereunder,  the Company shall
notify Red Oak in writing. In performing its services  hereunder,  Red Oak shall
be entitled to rely upon and assume,  without  assuming any  responsibility  for
independent verification,  the accuracy and completeness of all information that


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is publicly  available and of all  information  that has been furnished to it by
the Company or  otherwise  reviewed by Red Oak, and Red Oak shall not assume any
responsibility or have any liability therefor.  Red Oak shall have no obligation
to conduct any valuation or appraisal of any assets or liabilities.

         Any financial  advice or services  rendered by Red Oak pursuant to this
Agreement is intended  solely for the benefit and use of the Company,  is not on
behalf of, and shall not confer rights or remedies  upon,  any person other than
the Company,  and may not be used or relied upon for any other purpose.  No such
financial advice or services may be disclosed publicly in any manner without Red
Oak's prior written approval unless required by law, and all such advice will be
treated by the Company as  confidential.  Red Oak understands that Gasco Energy,
Inc., the Company's parent company, may be required to describe this transaction
in its filings under the Securities Act and the Securities Exchange Act of 1934,
as  amended,  and may be  required  to file this  Agreement  and  certain  other
documents  executed  in  connection  with this  Agreement  as  exhibits  to such
filings.

         In order to coordinate our efforts with respect to possible  Financing,
during the Due  Diligence  Period  neither the  Company  nor any  representative
thereof (other than Red Oak) will initiate  discussions  regarding a transaction
to finance  obligations to third parties who render services or provide goods in
connection  with the  development of the Contract  Area,  other than the Service
Providers, using, in whole or in part, directly or indirectly, the sale of NPIs.

         The Company agrees to reimburse Red Oak promptly upon request from time
to time for all reasonable,  documented expenses (including, without limitation,
travel,  communication,  legal and document production expenses) incurred by Red
Oak in  performing  its  engagement  hereunder,  whether  or not any  Investment
Elections are accepted by the Company; provided, however, that such reimbursable
expenses  shall not exceed a total of $5,000  without  the prior  consent of the
Company. The Company also agrees to indemnify Red Oak and certain other entities
and persons as set forth on Exhibit A attached hereto.

         In addition,  if this  Agreement is  terminated by the Company prior to
the end of the Due  Diligence  Period,  the Company will pay to Red Oak an early
termination  fee of  $50,000,  in  addition  to the  reimbursement  of  expenses
provided  for in the  preceding  paragraph  and  any  amounts  of the  Work  Fee
previously paid or payable to Red Oak.

         This  Agreement  will  automatically  terminate upon the payment of the
full amount of the Facilities Fee due to the Investment  Partnership  and may be
terminated  by either  the  Company or Red Oak at any time upon  giving  written
notice to the other party. No such  termination will affect (i) Red Oak's or the
Investment   Partnership's   rights  to  receive  fees  accrued  prior  to  such
termination or to receive reimbursement of its expenses as set forth above, (ii)
the rights of Red Oak or any other  Indemnified  Person (as defined in Exhibit A
hereto) to receive  indemnification  and  contribution,  or (iii) the  Company's
confidentiality obligations hereunder. In addition, if at any time and from time
to time  prior  to the  expiration  of 12  months  after a  termination  of this
Agreement  by the  Company  that is not a  Permitted  Termination,  the  Company
finances  obligations  to third parties who render  services or provide goods in


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connection  with the  development of the Contract  Area,  other than the Service
Providers, using, in whole or in part, directly or indirectly, the sale of NPIs.
(or similar payments or interests in properties),  the Company will promptly pay
Red Oak, in full, the fees contemplated by this Agreement and payable to Red Oak
and the Investment  Partnership as if Red Oak delivered and funded an Investment
Election in the amount so financed. For purposes of this Agreement, a "Permitted
Termination"  is a termination  of this  Agreement by the Company  following the
expiration  of the Due Diligence  Period if Red Oak does not provide  Investment
Elections sufficient to provide the full amount of the Financing for the initial
or subsequent  Bundles prior to the expiration of the Due Diligence Period or if
the Investment  Partnership  fails to perform any of its  obligations  under any
such Investment Election.

         This  Agreement  (including  Exhibit A hereto)  and any claims  related
directly or indirectly to this Agreement shall be governed by Texas law.

Very truly yours,

RED OAK CAPITAL MANAGEMENT LLC


By: /s/ James M. Whipkey
   --------------------------------------------------
Name: J.M. Whipkey
     ------------------------------------------------
Title: Managing Director
      -----------------------------------------------


Accepted as of the date first above written:

PANNONIAN ENERGY, INC.


By: /s/ W. King Grant
   --------------------------------------------------
Name: W. King Grant
     ------------------------------------------------
Title: CFO & EVP
      -----------------------------------------------



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                                    Exhibit A

         Pannonian  Energy,  Inc. (the  "Company")  agrees to indemnify and hold
harmless Red Oak Capital Management LLC ("Red Oak") and its affiliates,  and the
respective  directors,  officers,  agents,  and  employees  of Red  Oak  and its
affiliates and each other entity or person,  if any,  controlling Red Oak or any
of its  affiliates  (Red Oak and each such entity or person being referred to as
an "Indemnified Person") from and against any losses, claims, demands,  damages,
or  liabilities  (or  actions or  proceedings  in respect  thereof)  of any kind
relating  to or  arising  out of  activities  performed  or  services  furnished
pursuant to the attached  engagement letter between the Company and Red Oak (the
"Agreement"),  the  transactions  contemplated  thereby  or Red  Oak's  role  in
connection therewith,  and to reimburse Red Oak and any other Indemnified Person
for  all  expenses   (including,   without   limitation,   reasonable  fees  and
disbursements  of  counsel)  reasonably  incurred  by Red Oak or any such  other
Indemnified Person in connection with investigating, preparing, or defending any
investigative,  administrative,  judicial, or regulatory action or proceeding in
any  jurisdiction,  whether or not in  connection  with  pending  or  threatened
litigation to which Red Oak (or any other Indemnified  Person) or the Company or
any of its  securityholders  is a  party,  in each  case as  such  expenses  are
incurred or paid. The Company will not,  however,  be  responsible  for any such
losses, claims, demands,  damages,  liabilities,  or expenses of any Indemnified
Person to the extent they are determined by final and nonappealable  judgment of
a court of competent jurisdiction to have resulted from actions taken or omitted
to be taken by such  Indemnified  Person in violation of this Agreement,  in bad
faith or from such Indemnified  Person's gross negligence or willful misconduct.
The Company  also agrees that no  Indemnified  Person  shall have any  liability
(whether direct or indirect,  in contract,  tort or otherwise) to the Company or
any of its securityholders or creditors for or in connection with the Agreement,
any  transactions  contemplated  thereby  or  Red  Oak's  role  or  services  in
connection  therewith,  except to the extent that any such liability for losses,
claims,  demands,  damages,  liabilities or expenses  incurred by the Company is
determined  by  final  and  nonappealable  judgment  of  a  court  of  competent
jurisdiction  to have resulted from actions taken or omitted to be taken by such
Indemnified  Person in  violation of this  Agreement,  in bad faith or from such
Indemnified Person's gross negligence or willful misconduct.

         Upon  receipt  by an  Indemnified  Person of actual  notice of a claim,
action  or  proceeding  against  such  Indemnified  Person in  respect  of which
indemnity may be sought hereunder; such Indemnified Person shall promptly notify
the Company  with respect  thereto.  In addition,  an  Indemnified  Person shall
promptly  notify the Company  after any action is  commenced  (by way of service
with a summons or other legal process  giving  information  as to the nature and
basis  of the  claim)  against  such  Indemnified  Person  in  respect  of which
indemnity may be sought hereunder.  In any event,  failure to notify the Company
shall not relieve the Company from any  liability  which the Company may have on
account of this  indemnity or otherwise,  except to the extent the Company shall
have been materially  prejudiced by such failure. The Company will, if requested
by any Indemnified Person, assume the defense of any litigation or proceeding in


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respect of which indemnity may be sought hereunder,  including the employment of
counsel  reasonably  satisfactory  to Red Oak and the  payment  of the  fees and
expenses of such counsel,  in which event, except as provided below, the Company
shall not be liable for the fees and expenses of any other  counsel  retained by
any Indemnified Person in connection with such litigation or proceeding.  In any
such  litigation  or  proceeding  the defense of which the Company shall have so
assumed,  any  Indemnified  Person shall have the right to  participate  in such
litigation  or  proceeding  and to  retain  its own  counsel,  but the  fees and
expenses  of such  counsel  shall be at the expense of such  Indemnified  Person
unless (i) the Company and such Indemnified Person shall have mutually agreed in
writing to the retention of such counsel,  or (ii) the named parties to any such
litigation or proceeding  (including any impleaded  parties) include the Company
and such  Indemnified  Person  and  representation  of both  parties by the same
counsel  would,  in the  opinion  of  counsel  to such  Indemnified  Person,  be
inappropriate due to actual or potential differing interests between the Company
and such Indemnified  Person. The Company shall not be liable for any settlement
of any litigation or proceeding  effected  without its written  consent,  but if
settled with such consent or if there be a final judgment against an Indemnified
Person,  the Company agrees to indemnify the Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. The Company will
not settle any claim,  action or proceeding in respect of which indemnity may be
sought  hereunder  without  Red  Oak's  written  consent,  which  shall  not  be
unreasonably  withheld,  provided  that if Red Oak withholds  such consent,  the
maximum  liability of the Company under the  indemnification  agreement shall be
limited to the amount of such proposed settlement.

         If the foregoing  indemnification  is for any reason  unavailable to an
Indemnified  Person (other than by reason of the terms hereof, the Company shall
contribute to the losses,  claims,  demands,  damages,  liabilities and expenses
referred to herein that are paid or payable by such  Indemnified  Person in such
proportion as is appropriate to reflect the relative  economic  interests of the
Company, on the one hand, and of Red Oak, on the other hand, in the transactions
contemplated  by the  Agreement  (whether  or not  consummated)  and  any  other
relevant equitable considerations.  For purposes of this paragraph, the relative
interests of the Company,  on the one hand,  and Red Oak, on the other hand,  in
the transactions contemplated by the Agreement shall be deemed to be in the same
proportion as (a) the total value paid or received or contemplated to be paid or
received  by the  Company  in the  transactions  contemplated  by the  Agreement
(whether or not any such transaction is consummated), bears to (b) the fees paid
or to be  paid to Red Oak and its  affiliates  under  the  Agreement;  provided,
however,  that to the extent  permitted by applicable law, in no event shall Red
Oak or any other  Indemnified  Person be required  to  contribute  an  aggregate
amount for all Indemnified Persons in excess of the aggregate fees actually paid
to Red Oak  and  its  affiliates  for  financial  advisory  services  under  the
Agreement.

         The provisions contained in this Exhibit IV shall be in addition to any
liability  which the Company may otherwise have to Red Oak, shall not be limited
by any rights of Red Oak or any other Indemnified Person that they may otherwise
have,  shall be  governed  by the laws of the State of Texas,  and shall  remain
operative  and in full  force and effect  regardless  of the  expiration  or any
termination of the Agreement or of Red Oak's engagement thereunder.


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