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                                  EXHIBIT 10.9



PETSEC ENERGY INC.
143 Ridgeway Drive, Suite 113
Lafayette, Louisiana 70503
Attn:    Mr. James E. Slatten III
         Vice President, Land & Legal

Dear Mr. Slatten:

The purpose of this letter is to confirm the understanding and agreement (the
"Agreement") with Petsec Energy Inc. (the "Company") concerning the engagement
of Houlihan Lokey Howard & Zukin Capital, L.P. ("Houlihan Lokey") by Akin, Gump,
Strauss, Hauer & Feld, L.L.P. ("Bondholders' Counsel"), as counsel to the
Subcommittee (as herein defined), to assist it in its representation of an
informal negotiating subcommittee (the "Subcommittee") of beneficial holders
(the "Bondholders") of $100 million 9.5% senior subordinated bonds due 2007 (the
"Bonds") issued by the Company. Houlihan Lokey has been retained by Bondholders'
Counsel to provide financial advisory services in connection with the analysis,
consideration and possible formulation of potential financial restructuring
options for the Company's discussions with the Subcommittee.

The Company has notified the Subcommittee that it wishes to discuss the possible
formulation of a financial restructuring of the Bonds, which will benefit the
Company. In consideration of the Subcommittee's participation in such
discussions, and to allow Bondholders' Counsel to analyze restructuring concepts
and proposals (to the extent presented) and discuss them with the Subcommittee,
the Company has agreed to compensate Houlihan Lokey and to undertake the
indemnification obligations to Houlihan Lokey pursuant to the terms of this
Agreement. Neither the Subcommittee, their constituents, nor any of their
advisors or professionals (including, but not limited to, Bondholders' Counsel)
shall be liable for the fees and expenses payable to Houlihan Lokey hereunder.
Notwithstanding such arrangement, Houlihan Lokey's duties hereunder run solely
to Bondholders' Counsel on behalf of the Subcommittee and Houlihan Lokey is not
authorized to be, and will not purport to be, an agent of the Company for any
purpose. All communication and correspondence between Houlihan Lokey and
Bondholders' Counsel and the Subcommittee, and all work product and analyses
prepared by Houlihan Lokey for Bondholders' Counsel in connection with this
matter, are subject to the attorney-client privilege and work-product privilege.

Upon execution of this Agreement, the Company shall pay Houlihan Lokey a fee of
$75,000 per month (the "Monthly Fee") (for a minimum of three months, or
$225,000 (the "Minimum Fee")), plus additional fees (the "Transaction Fee")
payable in accordance with the terms set forth in Exhibit A, plus reasonable
out-of-pocket expenses that are incurred by Houlihan Lokey on behalf of
Bondholders' Counsel. The Company shall pay the Monthly Fee by the 15th day of
each month, in advance for the month, plus reimbursement for reasonable and
documented out-of-pocket expenses for each month. Payment shall be made to
Houlihan Lokey at the address above, Attention: Andrew B. Miller. Out-of-pocket
expenses shall include, but not be limited to, all documented and reasonable
travel expenses, duplicating charges, computer charges, messenger services and
long-distance telephone calls incurred by Houlihan Lokey.


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Petsec Energy Inc.
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This Agreement is terminable upon thirty (30) days' written notice by the
Company, Houlihan Lokey or Bondholders' Counsel (as instructed by a majority of
the Subcommittee); provided, however, that, (a) if the Agreement is so
terminated during the first three months, the Company shall immediately upon
such termination pay Houlihan Lokey the unpaid portion of its Minimum Fee, and
(b) if the Agreement is so terminated during or after the fourth month, Houlihan
Lokey shall be paid all previously earned Monthly Fees (if unpaid) and the
prorata portion of its Monthly Fee for the month of final termination. This
Agreement will automatically terminate upon the closing of a consensual
restructuring transaction supported by the relevant majority of the holders of
outstanding Bonds.

In the event the Company becomes a debtor-in-possession in a case under Title 11
of the United States Code (the "Bankruptcy Code"), the Company shall use its
best efforts to (a) assume this Agreement as an executory contract as part of a
confirmed plan of reorganization, or (b) otherwise fulfill its obligations under
this Agreement in a manner mutually agreeable to both the Company and Houlihan
Lokey. The form of documentation to satisfy the forgoing commitment shall be
acceptable to Houlihan Lokey in its sole discretion. After a bankruptcy filing,
Houlihan Lokey shall not be required to perform any services under this
Agreement until the entry of an Order (as defined herein). The Subcommittee, by
acknowledging below, hereby requires the payment of Houlihan Lokey's fees
hereunder as a condition to their consent to any restructuring transaction.
Notwithstanding the preceding, in the event the Company commences a case under
the Bankruptcy Code, Houlihan Lokey's further performance hereunder is subject
to the entry of an order (an "Order") of the United States Bankruptcy Court
having jurisdiction over such case approving the retention of Houlihan Lokey
pursuant to the terms hereof. The Company shall use its best efforts to obtain
prompt authorization of the retention of Houlihan Lokey pursuant to section
328(a) of the Bankruptcy Code on the terms and provisions in this Agreement. The
Order approving the Agreement and authorizing the retention shall be acceptable
to Houlihan Lokey in its sole discretion.

The Company understands that Houlihan Lokey will not be responsible for
independently verifying the accuracy of the information provided by the Company
(the "Information") and shall not be liable for inaccuracies in any Information
provided by the Company to Houlihan Lokey. The Company will use reasonable
efforts to assure that all Information provided to Houlihan Lokey by the Company
will, as of its respective dates, be the most accurate and complete information
that is available. Furthermore, the Company will use reasonable efforts to
cooperate with Houlihan Lokey in connection with the performance of Houlihan
Lokey's obligations under this Agreement.

As a material part of the consideration for Houlihan Lokey to furnish its
services under this Agreement, the Company agrees to indemnify and hold harmless
Houlihan Lokey and its affiliates, and their respective past, present and future
directors, officers, shareholders, employees, agents and controlling persons
within the meaning of either Section 15 of the Securities Act of 1933, as
amended, or Section 20 of the Securities Exchange Act of 1934, as amended
(collectively, the "Indemnified Parties"), to the fullest extent lawful, from
and against any and all losses, claims, damages or liabilities (or actions in
respect thereof), joint or several, arising out of or related to the Agreement,
any actions taken or omitted to be taken by an Indemnified Party in connection
with Houlihan Lokey's provision of services to the Subcommittee and/or
Bondholders' Counsel, or any Transaction (as defined herein) or proposed
Transaction contemplated thereby. In addition, the


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Petsec Energy Inc.
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Company agrees to reimburse the Indemnified Parties for any legal or other
expenses reasonably incurred by them in respect thereof at the time such
expenses are incurred; provided, however, the Company shall not be liable under
the foregoing indemnity and reimbursement agreement for any loss, claim, damage
or liability which is finally judicially determined to have resulted primarily
from the willful misconduct or gross negligence of any Indemnified Party.

If for any reason the foregoing indemnification is unavailable to any
Indemnified Party or insufficient to hold it harmless, the Company shall
contribute to the amount paid or payable by the Indemnified Party as a result of
such losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative benefits received (or anticipated to be
received) by the Company, on the one hand, and Houlihan Lokey, on the other
hand, in connection with the actual or potential Transaction and/or the services
rendered by Houlihan Lokey. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or otherwise,
then the Company shall contribute to such amount paid or payable by any
Indemnified Party in such proportion as is appropriate to reflect not only such
relative benefits, but also the relative fault of the Company, on the one hand,
and Houlihan Lokey, on the other hand, in connection therewith, as well as any
other relevant equitable considerations. Notwithstanding the foregoing, the
aggregate contribution of all Indemnified Parties to any such losses, claims,
damages, liabilities and expenses shall not exceed the amount of fees actually
received by Houlihan Lokey pursuant to the Agreement.

The Company shall not affect any settlement or release from liability in
connection with any matter for which an Indemnified Party would be entitled to
indemnification from the Company, unless such settlement or release contains a
release of the Indemnified Parties reasonably satisfactory in form and substance
to Houlihan Lokey. The Company shall not be required to indemnify any
Indemnified Party for any amount paid or payable by such party in the settlement
or compromise of any claim or action without the Company's prior written
consent.

The Company further agrees that neither Houlihan Lokey nor any other Indemnified
Party shall have any liability, regardless of the legal theory advanced, to the
Company or any other person or entity (including the Company's equity holders
and creditors) related to or arising out of Houlihan Lokey's engagement, except
for any liability for losses, claims, damages, liabilities or expenses incurred
by the Company which are finally judicially determined to have resulted
primarily from the willful misconduct or gross negligence of any Indemnified
Party. The indemnity, reimbursement, contribution and other obligations and
agreements of the Company set forth herein shall apply to any modifications of
this Agreement, shall be in addition to any liability which the Company may
otherwise have, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company and each
Indemnified Party. The foregoing indemnification provisions shall survive the
consummation of any Transaction and/or any termination of the relationship
established by this Agreement.

The obligations of Houlihan Lokey are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of any other party
to this Agreement or any person relying on the services provided hereunder. The
Company's obligations with respect to any and all

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Petsec Energy Inc.
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payments owing to Houlihan Lokey and the indemnification, reimbursement,
contribution and other similar obligations of the Company under this Agreement
shall survive any termination of this Agreement.

Dated as of the 15th day of February 2000.


PETSEC ENERGY INC.



By:      /s/ R. A. Keogh
         -------------------------------

Name:    R. A. Keogh
         -------------------------------

Title:   V. P. & Chief Financial Officer
         -------------------------------


HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, L.P.



By:      /s/ Andrew B. Miller
         -------------------------------
         Andrew B. Miller
         Managing Director


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Petsec Energy Inc.
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ACKNOWLEDGED AS OF THE DATE SET FORTH ABOVE:

INFORMAL NEGOTIATING SUBCOMMITTEE OF PETSEC ENERGY INC.



By:      /s/ William Wall
         -------------------------------

Name:    William Wall
         -------------------------------

Title:   Assistant General Counsel
         -------------------------------


AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.



By:      /s/ Michael S. Stamer
         -------------------------------

Name:    Michael S. Stamer
         -------------------------------

Title:   Partner
         -------------------------------


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Petsec Energy Inc.
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                                    EXHIBIT A

         This Exhibit A is part of and incorporated into the attached Agreement.

         1.       Monthly Fees. The Company shall pay Houlihan Lokey a Monthly
                  Fee of $75,000.00 per month. The Monthly Fees shall terminate
                  after the earlier of (x) the date this Agreement is
                  terminated; or (y) the closing of a Transaction (defined
                  below).

         2.       Transaction Fee. If a Transaction is proposed, which the
                  Subcommittee supports, and which is consummated either in or
                  out of court, Houlihan Lokey shall be entitled to a
                  Transaction Fee in the amounts set forth on the following
                  Schedule upon the consummation of any Subcommittee-approved
                  Transaction, including, without limitation, a Transaction
                  which is completed pursuant to an exchange offer, consent
                  solicitation, or case under the Bankruptcy Code (collectively,
                  a "Transaction"). Upon the completion of a Transaction , the
                  Transaction Fee shall be payable in cash or, at the election
                  of the Subcommittee, in such consideration and proportions as
                  is received or to be received by the Bondholders.

                  If a Transaction is consummated, Houlihan Lokey shall be
                  entitled to a Transaction Fee based on the Bondholders'
                  Recovery as per the following schedule:

<TABLE>
<CAPTION>
         BONDHOLDERS RECOVERY                                        TRANSACTION FEE
         --------------------                                        ---------------
<S>                                         <C>
     Less than $60 Million                  $0
     Over $60 Million to $70 Million        2% of aggregate Bondholders Recovery over $60 Million
     Over $70 Million to $80 Million        Above plus 3% of aggregate Bondholders Recovery over $70 Million
     Over $80 Million to $90 Million        Above plus 4% of aggregate Bondholders Recovery over $80 Million
     Over $90 Million                       Above plus 5% of aggregate Bondholders Recovery over $90 Million
</TABLE>

                  As used herein, the term "Transaction" shall include the
                  consummation of any agreement or series of agreements, or
                  transaction or series of transactions and the receipt of
                  consideration by the Bondholders, which in each case may
                  include, but are not limited to, the following:

                  (a) Reinstatement or material credit enhancement of the
                  existing Bonds in conjunction with a broader transaction
                  involving the Company;

                  (b) The consummation of an out-of-court
                  restructuring/recapitalization through an exchange offer,
                  consent solicitation or other mechanism which has been
                  accepted by such number and

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Petsec Energy Inc.
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                  amount of Bonds and Bondholders as may be required to
                  effectuate such Transaction;

                  (c) The completion of a tender offer for, or acquisition of,
                  the Bonds which has been accepted by such number and amount of
                  Bonds and Bondholders as may be required to effectuate such
                  Transaction;

                  (d) The closing of any sale, transfer or assumption of all or
                  substantially all of the assets, liabilities or stock of the
                  Company (including without limitation any consolidation or
                  merger involving the Company); or

                  (e) The effective date of a confirmed Chapter 11 plan of
                  reorganization, the terms of which have been substantially
                  agreed to by the Subcommittee.

                  "Bondholders Recovery" shall be defined as any consideration
                  received by the Bondholders in respect of the Bonds,
                  including, without limitation, cash, securities (debt or
                  equity), property or other interests or consideration. In the
                  event that the consideration received in a Transaction is paid
                  in whole or in part in some form of equity securities of
                  another company (or a reorganized Petsec), the value of such
                  securities, for purposes of calculating the Contingent Fee,
                  shall be the fair market value thereof, as the parties hereto
                  shall mutually agree, on the day prior to the consummation of
                  such Transaction; provided, however, that if such securities
                  consist of securities with an existing public trading market,
                  the value thereof shall be determined by the last sales price
                  for such securities on the last trading day thereof prior to
                  such consummation. Any debt securities shall be valued at
                  their face amount.

3.                Offset of Monthly Fees. If a Transaction Fee is payable to
                  Houlihan Lokey, then, one-third of all Monthly Fees earned
                  during the fourth through sixth months; two-thirds of all
                  Monthly Fees earned during the seventh through ninth months
                  and all of the Monthly Fees earned from the tenth month on
                  shall be applied as an offset against the Transaction Fee,
                  provided however that in no event will such adjusted
                  Transaction Fee be reduced to less than $0.

                  For illustrative purposes, if a Transaction generating $75
                  million in Bondholders Recovery is closed in the fifth month,
                  then the Transaction Fee would equal $350,000 (i.e., .02 x $10
                  million, plus .03 x $5 million), which shall be offset by
                  $50,000 (i.e., 1/3 of the $75,000 Monthly Fee for each of the
                  fourth and fifth months), resulting in a total Transaction Fee
                  of $300,000.