<PAGE>

                                                                    EXHIBIT 10.3

                                ESCROW AGREEMENT

      THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
February 11, 2004 by CANARGO ENERGY CORPORATION, a Delaware corporation (the
"Company"); CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"); and BUTLER GONZALEZ LLP (the "Escrow Agent").

                                   BACKGROUND

      WHEREAS, the Company and the Investor have entered into an Standby Equity
Distribution Agreement (the "Standby Equity Distribution Agreement") dated as of
the date hereof, pursuant to which the Investor will purchase the Company's
Common Stock, par value $0.10 per share (the "Common Stock"), at a price per
share equal to the Purchase Price, as that term is defined in the Standby Equity
Distribution Agreement, for an aggregate price of up to Twenty Million Dollars
($20,000,000). The Standby Equity Distribution Agreement provides that on each
Advance Date the Investor, as that term is defined in the Standby Equity
Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice
in a segregated escrow account to be held by Escrow Agent and the Company shall
deposit shares of the Company's Common Stock, which shall be purchased by the
Investor as set forth in the Standby Equity Distribution Agreement, with the
Escrow Agent, in order to effectuate a disbursement to the Company of the
Advance by the Escrow Agent and a disbursement to the Investor of the shares of
the Company's Common Stock by Escrow Agent at a closing to be held as set forth
in the Standby Equity Distribution Agreement (the "Closing").

      WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
and the shares of the Company's Common Stock deposited with it in accordance
with the terms of this Agreement.

      WHEREAS, in order to establish the escrow of funds and shares to effect
the provisions of the Standby Equity Distribution Agreement, the parties hereto
have entered into this Agreement.

      NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:

      1.    Definitions. The following terms shall have the following meanings
when used herein:

            a.    "Escrow Funds" shall mean the Advance funds deposited in
immediately available funds with the Escrow Agent pursuant to this Agreement.

            b.    "Joint Written Direction" shall mean a written direction
executed by the Investor and the Company directing Escrow Agent to disburse all
or a portion of the Escrow Funds or to take or refrain from taking any action
pursuant to this Agreement.

            c.    "Common Stock Joint Written Direction" shall mean a written
direction executed by the Investor and the Company directing Investor's Counsel
to disburse all

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or a portion of the shares of the Company's Common Stock or to refrain from
taking any action pursuant to this Agreement.

      2.    Appointment of and Acceptance by Escrow Agent.

            a.    The Investor and the Company hereby appoint Escrow Agent to
serve as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment
and, upon receipt by wire transfer of the Escrow Funds in accordance with
Section 3 below, agrees to hold, invest and disburse the Escrow Funds in
accordance with this Agreement.

            b.    The Investor and the Company hereby appoint the Escrow Agent
to serve as the holder of the shares of the Company's Common Stock which shall
be purchased by the Investor. The Escrow Agent hereby accepts such appointment
and, upon receipt via D.W.A.C or receipt of the certificates representing of the
shares of the Company's Common Stock in accordance with Section 3 below, agrees
to hold and disburse the shares of the Company's Common Stock in accordance with
this Agreement.

            c.    The Company hereby acknowledges that the Escrow Agent is
counsel to the Investor in connection with the transactions contemplated and
referenced herein. The Company agrees that in the event of any dispute arising
in connection with this Escrow Agreement or otherwise in connection with any
transaction or agreement contemplated and referenced herein, the Escrow Agent
shall be permitted to continue to represent the Investor and the Company will
not seek to disqualify such counsel unless the Escrow Agent has breached the
provisions of this Agreement and is itself a possible defendant in any action
commenced by either party hereto.

      3.    Creation of Escrow Account/Common Stock Account.

            a.    On or prior to the date of this Agreement the Escrow Agent
shall establish an escrow account for the deposit of the Escrow Funds entitled
as follows: CanArgo Energy Corporation/Cornell Capital Partners, LP. The
Investor will wire immediately available funds to the account of the Escrow
Agent as follows:

BANK:                               Wachovia, N.A. of New Jersey

ROUTING #:                          031201467

ACCOUNT #:                          2020000659170

NAME ON ACCOUNT:                    Butler Gonzalez LLP as Escrow Agent

NAME ON SUB-ACCOUNT:                CanArgo Energy Corporation/Cornell Capital
                                    Partners, LP Escrow account

            b.    On or prior to the date of this Agreement the Escrow Agent
shall, if requested by the Company, establish an account for the D.W.A.C. of the
shares of Common Stock. If the Company so elects, the Company will deliver
D.W.A.C. shares of the Company's Common Stock to the account of the Escrow Agent
as follows:

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BROKERAGE FIRM:                     Crown Financial Group
CLEARING HOUSE:                     Fiserv
ACCOUNT #:                          56797702
DTC #:                              0632
NAME ON ACCOUNT:                    Butler Gonzalez LLP Escrow Account

      4.    Deposits into the Escrow Account. The Investor agrees that it shall
promptly deliver all monies for the payment of the Common Stock to the Escrow
Agent for deposit in the Escrow Account.

      5.    Disbursements from the Escrow Account.

            a.    At such time as Escrow Agent has collected and deposited
Escrow Funds in the total amount of the Advance and has received such Common
Stock via D.W.A.C from the Company or pursuant to the delivery of one or more
certificates representing the shares of Common Stock (the "Certificates") which
are to be issued to the Investor pursuant to the Standby Equity Distribution
Agreement, the Escrow Agent shall notify the Company and the Investor. The
Escrow Agent will continue to hold such funds until the Investor and Company
execute and deliver a Joint Written Direction directing the Escrow Agent to
disburse the Escrow Funds pursuant to Joint Written Direction at which time the
Escrow Agent shall wire the Escrow Funds to the Company. In disbursing such
funds, Escrow Agent is authorized to rely upon such Joint Written Direction from
Company and may accept any signatory from the Company listed on the signature
page to this Agreement and any signature from the Investor that Escrow Agent
already has on file. Simultaneous with delivery of the executed Joint Written
Direction to the Escrow Agent the Investor and Company shall execute and deliver
a Common Stock Joint Written Direction to the Escrow Agent directing the Escrow
Agent to release via D.W.A.C or by delivery of the Certificates to the Investor
the shares of the Company's Common Stock. In releasing such shares of Common
Stock the Escrow Agent is authorized to rely upon such Common Stock Joint
Written Direction from Company and may accept any signatory from the Company
listed on the signature page to this Agreement and any authorized signature from
the Company that the Escrow Agent has on file.

      In the event the Escrow Agent does not receive the amount of the Advance
from the Investor or the shares of Common Stock to be purchased by the Investor
from the Company, the Escrow Agent shall notify the Company and the Investor and
in no event will the shares of Common Stock or the Certificates be released to
the Investor until such shares are received.

      In the event that the Escrow Agent has not received the Common Stock to be
purchased by the Investor from the Company, in no event will the Escrow Funds be
released to the Company until such shares are received by the Escrow Agreement.
For purposes of this Agreement, the term "Certificates" shall mean Common Stock
certificates to be evidencing the shares of Common Stock to be purchased
pursuant to the respective Advance Notice pursuant to the Standby Equity
Distribution Agreement.

      6.    Deposit of Funds. The Escrow Agent is hereby authorized to deposit
the Escrow Funds in the Escrow Account.

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      7.    Suspension of Performance: Disbursement Into Court.

            a.    Escrow Agent. If at any time, there shall exist any dispute
between the Company and the Investor with respect to holding or disposition of
any portion of the Escrow Funds or the Common Stock or any other obligations of
Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine,
to Escrow Agent's sole satisfaction, the proper disposition of any portion of
the Escrow Funds or Escrow Agent's proper actions with respect to its
obligations hereunder, or if the parties have not within thirty (30) days of the
furnishing by Escrow Agent of a notice of resignation pursuant to Section 9
hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:

                  i.    Suspend the performance of any of its obligations
(including without limitation any disbursement obligations) under this Escrow
Agreement until such dispute or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor Escrow Agent shall be
appointed (as the case may be); provided however, Escrow Agent shall continue to
invest the Escrow Funds in accordance with Section 8 hereof; and/or

                  ii.   petition (by means of an interpleader action or any
other appropriate method) any court of competent jurisdiction in any venue
convenient to Escrow Agent, for instructions with respect to such dispute or
uncertainty, and to the extent required by law, pay into such court, for holding
and disposition in accordance with the instructions of such court, all funds
held by it in the Escrow Funds, after deduction and payment to Escrow Agent of
all fees and expenses (including court costs and attorneys' fees) payable to,
incurred by, or expected to be incurred by Escrow Agent in connection with
performance of its duties and the exercise of its rights hereunder.

                  iii.  Escrow Agent shall have no liability to the Company, the
Investor, or any person with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result of
any delay in the disbursement of funds held in the Escrow Funds or any delay in
or with respect to the delivery of any Certificates to the Investor or any delay
in or with respect to any other action required or requested of Escrow Agent,
provided, any such delay in or with respect to the disbursement of any funds, or
delivery of any Certificates or any other action required or requested of Escrow
Agent hereunder was not in breach of any express joint instruction received from
the Investor and the Company or was unjustified and unreasonable.

      8.    Investment of Escrow Funds. The Escrow Agent shall deposit the
Escrow Funds in a non-interest bearing money market, mutually acceptable to the
Company and the Investor, unless the Escrow Agent receives a Joint Written
Direction to the contrary signed by the Investor and the Company. .

      9.    Resignation and Removal of Escrow Agent. Escrow Agent may resign
from the performance of its duties hereunder at any time by giving thirty (30)
days' prior written notice to the parties or may be removed, with or without
cause, by the parties, acting jointly, by furnishing a Joint Written Direction
to Escrow Agent, at any time by the giving of ten (10) days' prior written
notice to Escrow Agent as provided herein below. Upon any such notice of

                                       4
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resignation or removal, the representatives of the Investor and the Company
identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a
successor Escrow Agent hereunder, which shall be a commercial bank, trust
company or other financial institution with a combined capital and surplus in
excess of $10,000,000.00. Upon the acceptance in writing of any appointment of
Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken as
Escrow Agent hereunder prior to such succession. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
transmit all records pertaining to the Escrow Funds and shall deliver all funds
held by it as the Escrow Funds and Certificates to the successor Escrow Agent,
after making copies of such records as the retiring Escrow Agent deems advisable
and after deduction and payment to the retiring Escrow Agent of all fees and
expenses (including court costs and reasonable attorneys' fees) payable to,
incurred by, or expected to be incurred by the retiring Escrow Agent in
connection with the performance of its duties and the exercise of its rights
hereunder.

      10.   Liability of Escrow Agent.

            a.    Escrow Agent shall have no liability or obligation with
respect to the Escrow Funds or the Certificates (collectively, the "Escrow
Property") except for Escrow Agent's willful misconduct or gross negligence,
provided, however the Escrow Agent shall treat the Escrow Property with at least
the same duty of care as it deals with its own property and provided, further,
however, the Escrow Agent shall keep the Escrow Property free and clear of all
liens, charges, and encumbrances arising by, through or under the Escrow Agent.
Escrow Agent's sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Property in accordance with the terms of this
Agreement. Escrow Agent shall have no implied duties or obligations and shall
not be charged with knowledge or notice or any fact or circumstance not
specifically set forth herein. Escrow Agent may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the person or parties purporting to sign the same and conform to the provisions
of this Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, and consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any proceeding in connection
with the Escrow Property, any account in which Escrow Property is deposited,
this Agreement or the Standby Equity Distribution Agreement, or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute or question as
to construction of any of the provisions hereof or of any other agreement or its
duties hereunder, or relating to any dispute involving any party hereto, and
shall incur no liability and shall be fully indemnified from any liability
whatsoever in acting in accordance with the opinion or instructions of such
counsel. The Company and the Investor jointly and severally shall promptly pay,
upon demand, the reasonable fees and expenses of any such counsel and Escrow
Agent is hereby authorized to pay such fees and expenses from funds held in
escrow.

                                       5
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            b.    The Escrow Agent is hereby authorized, in its sole discretion,
to comply with orders issued or process entered by any court with respect to the
Escrow Property, without determination by the Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Property is at any time
attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in any case any order judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal counsel selected by it, binding upon it, without
the need for appeal or other action; and if the Escrow Agent complies with any
such order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such compliance
even though such order, writ judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.

      11.   Indemnification of Escrow Agent. From and at all times after the
date of this Agreement, the parties jointly and severally, shall, to the fullest
extent permitted by law and to the extent provided herein, indemnify and hold
harmless Escrow Agent and each director, officer, employee, attorney, agent and
affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any
and all actions, claims (whether or not valid), losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever (including without
limitation reasonable attorney's fees, costs and expenses) incurred by or
asserted against any of the Indemnified Parties from and after the date hereof,
whether direct, indirect or consequential, as a result of or arising from or in
any way relating to any claim, demand, suit, action, or proceeding (including
any inquiry or investigation) by any person, including without limitation the
parties to this Agreement, whether threatened or initiated, asserting a claim
for any legal or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such Indemnified Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no Indemnified Party shall have the right to be indemnified hereunder for
liability finally determined by a court of competent jurisdiction, subject to no
further appeal, to have resulted solely from the gross negligence or willful
misconduct of such Indemnified Party or any breach of this Agreement by such
Indemnified Party. If any such action or claim shall be brought or asserted
against any Indemnified Party, such Indemnified Party shall promptly notify the
Company and the Investor hereunder in writing, and the Investor or the Company,
as they shall agree between themselves, shall assume the defense thereof,
including the employment of counsel and the payment of all expenses. Such
Indemnified Party shall, in its sole discretion, have the right to employ
separate counsel (who may be selected by such Indemnified Party in its sole
discretion) in any such action and to participate and to participate in the
defense thereof, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Investor and/or the Company shall be required
to pay such fees and expense if (a) the Investor or the Company agree to pay
such fees and expenses, or (b) the Investor and/or the Company shall fail to
assume the defense of such action or proceeding or shall fail, in the sole
discretion of such Indemnified Party, to employ counsel reasonably satisfactory
to the Indemnified Party in any such action or proceeding, (c) the Investor and
the Company are the plaintiff in any such action or proceeding or (d) the named
or

                                       6
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potential parties to any such action or proceeding (including any potentially
impleaded parties) include both Indemnified Party the Company and/or the
Investor and Indemnified Party shall have been advised by counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Company or the Investor. The Investor and
the Company shall be jointly and severally liable to pay fees and expenses of
counsel pursuant to the preceding sentence, except that any obligation to pay
under clause (a) shall apply only to the party so agreeing. All such fees and
expenses payable by the Company and/or the Investor pursuant to the foregoing
sentence shall be paid from time to time as incurred, both in advance of and
after the final disposition of such action or claim, provided, however, that in
the event that the Indemnified Party shall be determined in any such action or
proceeding to have acted with gross negligence or willful misconduct or shall
have been found to have breached this Agreement, then the Indemnified Party
shall reimburse the party paying all such fees and expenses for any amounts
advanced in respect thereof. The obligations of the parties under this section
shall survive any termination of this Agreement, and resignation or removal of
the Escrow Agent shall be independent of any obligation of Escrow Agent.

      12.   Expenses of Escrow Agent. Except as set forth in Section 11 the
Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like as outlined in Section 12.4 of the
Standby Equity Distribution Agreement dated the date hereof. All of the
compensation and reimbursement obligations set forth in this Section shall be
payable by the Company, upon demand by Escrow Agent. The obligations of the
Company under this Section shall survive any termination of this Agreement and
the resignation or removal of Escrow Agent.

      13.   Warranties.

            a.    The Investor makes the following representations and
warranties to the Escrow Agent and Investor's Counsel:

                  i.    The Investor has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.

                  ii.   This Agreement has been duly approved by all necessary
action of the Investor, including any necessary approval of the limited partner
of the Investor, has been executed by duly authorized officers of the Investor's
general partner, enforceable in accordance with its terms.

                  iii.  The execution, delivery, and performance of the Investor
of this Agreement will not violate, conflict with, or cause a default under the
agreement of limited partnership of the Investor, any applicable law or
regulation, any court order or administrative ruling or degree to which the
Investor is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.

                  iv.   Mark A. Angelo has been duly appointed to act as the
representative of Investor hereunder and has full power and authority to
execute, deliver, and perform this Agreement, to execute and deliver any Joint
Written Direction, to amend, modify,

                                       7
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or waive any provision of this Agreement, and to take any and all other actions
as the Investor's representative under this Agreement, all without further
consent or direction form, or notice to, the Investor or any other party.

                  v.    No party other than the parties hereto have, or shall
have any lien, claim or security interest in the Escrow Property or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.

                  vi.   All of the representations and warranties of the
Investor contained herein are true and complete as of the date hereof and will
be true and complete at the time of any disbursement from the Escrow Funds.

            b.    The Company makes the following representations and warranties
to Escrow Agent and, the Investor:

                  i.    The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.

                  ii.   This Agreement has been duly approved by all necessary
corporate action of the Company, including any necessary shareholder approval,
has been executed by duly authorized officers of the Company, enforceable in
accordance with its terms.

                  iii.  The execution, delivery, and performance by the Company
of this Escrow Agreement is in accordance with the Standby Equity Distribution
Agreement and will not violate, conflict with, or cause a default under the
certificate of incorporation or bylaws of the Company, any applicable law or
regulation, any court order or administrative ruling or decree to which the
Company is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.

                  iv.   David Robson and Vincent McDonnell, or either of them,
has been duly appointed to act as the representative of the Company hereunder
and has full power and authority to execute, deliver, and perform this
Agreement, to execute and deliver any Joint Written Direction, to amend, modify
or waive any provision of this Agreement and to take all other actions as the
Company's Representative under this Agreement, all without further consent or
direction from, or notice to, the Company or any other party.

                  v.    No party other than the parties hereto shall have, any
lien, claim or security interest in the Escrow Property or any part thereof. No
financing statement under the Uniform Commercial Code is on file in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Property or any part thereof.

                  vi.   All of the representations and warranties of the Company
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.

                                       8
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      14.   Consent to Jurisdiction and Venue. In the event that any party
hereto commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties hereto agree that the United States District Court for
the District of New Jersey shall have the sole and exclusive jurisdiction over
any such proceeding. If all such courts lack federal subject matter
jurisdiction, the parties agree that the Superior Court Division of New Jersey,
Chancery Division of Hudson County shall have sole and exclusive jurisdiction.
Any of these courts shall be proper venue for any such lawsuit or judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept the service of process to vest personal
jurisdiction over them in any of these courts.

      15.   Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivery to any overnight courier, or when transmitted by facsimile transmission
and addressed to the party to be notified as follows:

If to Investor, to:               Cornell Capital Partners, LP
                                  101 Hudson Street - Suite 3606
                                  Jersey City, New Jersey 07302
                                  Attention: Mark Angelo
                                  Telephone: + 1 (201) 985-8300
                                  Facsimile: +1 (201) 985-8266

If to Escrow Agent, to:           Butler Gonzalez LLP
                                  1416 Morris Avenue - Suite 207
                                  Union, New Jersey 07083
                                  Attention: David Gonzalez, Esq.
                                  Telephone; +1 (908) 810-855
                                  Facsimile: +1 (908) 810-0973

If to Company, to:                CanArgo Energy Corporation
                                  P.O. Box 291
                                  Suite 10
                                  Borough House
                                  Rue du Pre
                                  St. Peter Port
                                  Guernsey Gy1 3RR Channel Islands
                                  Attention: Dr. David Robson/Vincent McDonell
                                  Telephone: + (44) 1481 729980
                                  Facsimile: + (44) 1481 729982

With a copy to:                   McGrigor Donald
                                  Pacific House
                                  70 Wellington Street
                                  Glasgow, G2 6SB United Kingdom
                                  Attention: Paul Davidson

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                                  Telephone: + (44) 141 248 6677
                                  Facsimile: + (44) 141 204 1351

      Or to such other address as each party may designate for itself by like
notice.

      16.   Amendments or Waiver. This Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties of the Escrow
Agent. No delay or omission by any party in exercising any right with respect
hereto shall operate as waiver. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future occasion.

      17.   Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

      18.   Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of Delaware without giving effect
to the conflict of laws principles thereof.

      19.   Entire Agreement. This Agreement constitutes the entire Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of the
Escrow Agent with respect to the Escrow Funds and the shares of the Company's
Common Stock.

      20.   Binding Effect. All of the terms of this Agreement, as amended from
time to time, shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor, the Company, or
the Escrow Agent.

      21.   Execution of Counterparts. This Agreement and any Joint Written
Direction may be executed in counter parts, which when so executed shall
constitute one and same agreement or direction.

      22.   Termination. Upon the first to occur of the termination of the
Standby Equity Distribution Agreement dated the date hereof or the disbursement
of all amounts in the Escrow Funds and the Certificates into court pursuant to
Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no
further obligation or liability whatsoever with respect to this Agreement or the
Escrow Funds and the shares of the Company's Common Stock.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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      IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.

                                     CANARGO ENERGY CORPORATION

                                     By: _______________________________________
                                     Name: Vincent McDonell
                                     Title: Director and Chief Financial Officer

                                     CORNELL CAPITAL PARTNERS, LP

                                     By: Yorkville Advisors, LLC
                                     Its: General Partner

                                     By: _______________________________________
                                     Name: Mark A. Angelo
                                     Title: Portfolio Manager

                                     BUTLER GONZALEZ LLP

                                     By: _______________________________________
                                     Name: David Gonzalez, Esq.
                                     Title: Partner

                                       11