CONTRACT OPERATING AGREEMENT

THIS  CONTRACT OPERATING AGREEMENT (this "CONTRACT OPERATING AGREEMENT" or this
"AGREEMENT") is entered into this ___ day of March, 2008, to be effective as of
the 1st  day  of  April, 2008 ("EFFECTIVE DATE"), between and among SOUTH TEXAS
OIL COMPANY, a Nevada  corporation ("SOUTH TEXAS"), including its subsidiaries,
STO OPERATING COMPANY, a  Texas  corporation  ("STO  OPERATING");  STO DRILLING
COMPANY,  a  Texas corporation ("STO DRILLING"); SOUTHERN TEXAS OIL COMPANY,  a
Texas corporation  ("SOUTHERN  TEXAS"); and STO PROPERTIES LLC, a Texas limited
liability company ("STO PROPERTIES"), any or all of which subsidiaries of South
Texas may be referred to as "Subsidiaries"  and SOUTH TEXAS, together with such
Subsidiaries, individually or collectively, may be referred to herein as "STO",
all of which collectively constitute the Party  of the First Part for which the
Services  are to be performed, whose address is 769  Highway  95  N.,  Bastrop,
Texas 78602,  and  SONTERRA  RESOURCES, INC., a Texas corporation ("SONTERRA"),
Party of the Second Part which shall perform the Services, whose address is 300
E. Sonterra Blvd., Suite 1220,  San  Antonio, Texas 78258. STO and Sonterra are
sometimes herein referred to together  as  the "PARTIES", and individually as a
"PARTY."

WHEREAS, from and after various dates prior  to  the  Effective  Date  of  this
Contract  Operating  Agreement,  (i)  STO  Operating has acquired, is a current
owner of, and is the operator of vast majority  of  the certain producing, non-
producing, and undeveloped oil and gas properties located in the State of Texas
owned by STO Operating and Southern Texas (the "TEXAS  PROPERTIES");  and  (ii)
STO Operating has acquired, is a current owner of, and is a non-operator of the
certain  producing,  non-producing,  and  undeveloped  oil  and  gas properties
located  in  the  State  of  Colorado  owned  by  STO Properties (the "COLORADO
PROPERTIES"),  which Texas Properties and Colorado Properties  are  more  fully
defined in Paragraph  1 below and more fully described in EXHIBITS "A" and "B",
respectively, attached hereto and made a part hereof;

WHEREAS, STO and Sonterra  desire  that,  for  the  duration  of  the  Contract
Operating  Term, STO shall continue to act as operator of record for any  Texas
Properties in  the  State of Texas described on Exhibit "A" for which it is the
current operator;

WHEREAS, although STO  is  not  currently  the  operator  of, and regardless of
whether STO hereafter elects to become operator of, the Colorado  oil  and  gas
properties  located  in  the Denver-Julesberg Basin ("DJ BASIN PROPERTIES") STO
shall, with Sonterra's assistance,  continue to lead the technical efforts with
respect to the DJ Basin Properties as  more  fully  described  in  EXHIBIT  "B"
attached hereto and made a part hereof;

WHEREAS,  STO and Sonterra desire that Sonterra shall perform certain Operating
Services and certain Accounting Services (each as defined in Paragraph 2 below)
primarily for  the  Texas  Properties  that are currently, or hereafter become,
operated  by  STO  ("OPERATED  PROPERTIES")   and  secondarily  for  the  Texas
Properties  and  Colorado  Properties  not  operated   by   STO  ("NON-OPERATED
PROPERTIES") from the Effective Date ("COMMENCEMENT DATE") for  the duration of
the Contract Operating Term (including any extension thereof), in  each case to
the extent that such Operating and Accounting Services are (i) appropriate  for
the  safe,  efficient,  and  productive  operation of the business of STO; (ii)
consistent with best industry practices; (iii)  in  accordance  with applicable
Federal  and  State  laws;  (iv)  in accordance with applicable Securities  and
Exchange Commission rules and regulations;  (v)  in  accordance with applicable
Financial Accounting Standards Board ("FASB") publications  and  guidance; (vi)
consistent  with  being a reasonable prudent operator as such term is  commonly
used in the oil and  gas  industry;  and (vii) in accordance with the terms and
conditions  of  this Contract Operating  Agreement  ("all  of  which  standards
enumerated in (i),  (ii),  (iii),  (iv),  (v),  (vi)  and (vii) above  shall be
individually or collectively, as applicable, referred to  herein as "APPLICABLE
OPERATING STANDARDS");

NOW,  THEREFORE, for and in consideration of the mutual covenants  herein,  the
Parties stipulate and agree as follows:

1.     DEFINITIONS.   Unless  otherwise  defined  in  this  Contract  Operating
Agreement, capitalized terms used herein have the meanings given to such  terms
below.

             A.     The term "AFE" shall mean Authorization for Expenditure;

             B.     The   term   "CONTRACT"  shall  mean  any  joint  operating
                    agreement ("JOA"), Marketing Contract, or other contractual
                    agreement to which  STO  was a party prior to the Effective
                    Date or which STO enters into after the Effective Date; and

             C.     The terms "OPERATED PROPERTIES", "NON-OPERATED PROPERTIES",
                    or "PROPERTIES" shall include  the  Bastrop  I, Bastrop II,
                    Central  Texas, and the Southern Texas Properties,  whether
                    described  under  named Wells or as properties not yet in a
                    unit  on attached EXHIBITS  "A"  and  "B",  sometimes  also
                    referred to internally at STO as the:

                    (1) Bastrop  Properties  (which  consists of contiguous oil
                    and gas leasehold interests in both  the  Bastrop  I and II
                    Prospects in Bastrop County, Texas);

                    (2) Giddings Field Properties (Central Texas Leases,  which
                    consists  of  oil  and gas leasehold interests in Burleson,
                    Brazos, Fayette, Gonzales, and Lee Counties, Texas); and

                    (3)  Big Foot, Kyote,  and  Somerset Fields (Southern Texas
                    Leases, which consist of oil and gas leasehold interests in
                    Atascosa and Frio Counties, Texas).

2.     SCOPE  OF SERVICES.    As of the Effective  Date,  Sonterra  will  begin
overseeing daily  operations, in the name of, on behalf of, and for the benefit
of STO, of both Operating Services and Accounting Services for the Operated and
Non-Operated Properties  as  an  independent  contractor  acting in the role of
Contract Operator, subject to the terms, conditions, and limitations  set forth
in this Contract Operating Agreement (as the context indicates, individually or
collectively,  the  "OPERATING  SERVICES",  the  "ACCOUNTING  SERVICES", or the
"SERVICES").

In  the  performance  of  the  Services contemplated hereunder, Sonterra  shall
perform (or shall cause the employees,  consultants, and representatives of STO
to  perform)  the Services in the name of the  applicable  STO  entity  and  in
accordance with Applicable Operating Standards, which Services shall consist of
the following duties:

(A)    operating  the  Operated  Properties  and, to a lesser extent consistent
with  the  role  of  a  non-operator,  managing the  Non-Operating  Properties;
provided, however, that STO will remain  as  the  operator  of  record  for the
Operated Properties and that STO will continue to be responsible under law  and
in  fact  for  the  performance  of  certain functions and activities for which
Sonterra is not responsible as described in Paragraph 5;

(B)    performing all functions in the  name  of  STO  and except as limited in
Paragraph 5 below of a Contract Operator as generally understood in the oil and
gas industry and in accordance with Applicable Operating  Standards  and duties
imposed  under  any  Contracts  to  which  any STO entity is a party, including
without  limitation performing the duties of  Operator  under  any  JOA  or  as
Operator in  a  manner  consistent with JOA standards in the event that the STO
entity has no partners in particular wells and leases;

(C)    oversee marketing,  nominations, gas control, and other similar services
under  existing  contracts  entered  into  by  STO  or  by  STO  on  Sonterra's
recommendation to gather, transport,  market,  store,  or  sell the oil and gas
production  from  the  Properties  (individually  or  collectively,  "MARKETING
CONTRACTS") or under Marketing Contracts hereafter entered  into  on  a spot or
month-to-month  basis  and  (with  STO'S  prior  written  approval)  to receive
proceeds from (i) the sale of production attributable to the Properties (to the
extent  not  paid  by  the  purchasers  of  production  directly  to STO); (ii)
gathering,  compressing, transporting, drilling, or other services rendered  by
Sonterra on behalf  of STO; and/or (iii) payments not encompassed within (i) or
(ii) immediately above,  such  as  gas  balancing  payments  in lieu of in kind
volumes, overpayments of AFEs, cash calls, insurance, taxes or items similar or
dissimilar  to  those  enumerated  in  (E)  below  in which STO is entitled  to
payment, or other payments for the benefit of STO;

(D)    overseeing   land   administration,   landman,  regulatory   compliance,
production  reporting,  geoscience,  technical, operational,  secretarial,  and
other duties and responsibilities performed  by  STO  personnel,  including its
employees, consultants, contractors, and subcontractors, encompassed within the
general and administrative overhead of STO;

(E)    administering the books, records and accounts associated with  ownership
of the Properties, including, but not limited to, providing STO with copies  of
daily  drilling, workover and safety incident reports; preparing and filing all
appropriate  forms  and  reports  for  governmental agencies; and preparing and
sending reports, change of operator notices  or designations to third party co-
owners as necessary;

(F)    causing  to  be  paid severance, production  and  similar  taxes,  lease
rentals, shut-in royalties,  minimum royalties, payments in lieu of production,
royalties, overriding royalties,  production  payments, net profit payments and
other similar burdens associated with the ownership  of  the Properties, to the
extent that, prior to Commencement Date, such amounts were paid directly by STO
and  not  by  either  the operators of the Properties or by the  purchasers  of
production from the Properties;

(G)    pay operating costs  associated  with ownership of the Properties or the
operation of the Operated Properties;

(H)    send joint interest billings and cash  calls  to  owners of the Operated
Properties  and  receive  cash  calls and billings from joint  interest  owners
attributable to the Operated Properties;

(I)    submit reports regarding royalty  payments  to  federal, state or tribal
authorities concerning the Properties, as appropriate;

(J)    submit production and severance tax reports with respect to the Operated
Properties to federal, state or tribal authorities, with contemporaneous copies
to STO concerning the Properties, as appropriate; and

(K)    prepare a Contract Operating Term Final Report summarizing,  with copies
of appropriate supporting documentation, Sonterra's activities on behalf of STO
during  the  Contract  Operating Term not more than ninety (90) days after  the
expiration of the Contract Operating Term.

Services described in clauses (A), (B), (C), (D), and (E), except to the extent
that a portion of such Services  also  constitute Accounting Services, shall be
referred to herein as "OPERATING SERVICES."  Services described in clauses (F),
(G),  (H),  (I),  (J),  and  (K) shall be referred  to  herein  as  "ACCOUNTING
SERVICES."   As used in this Agreement,  the  "CONTRACT  OPERATING  TERM  FINAL
REPORT" shall  mean  the  final  report that will be prepared by Sonterra based
upon all actual production, sales  proceeds,  joint interest billings, and cash
calls attributable to STO, all actual expenses  and  costs  attributable to STO
pursuant   to  this  Contract  Operating  Agreement,  and  all  other   amounts
attributable  to  STO that are accrued or owed, but are not yet paid or payable
during the Contract  Operating  Term.  As soon as practicable, but in any event
within thirty (30) days after receipt  of  the  Contract  Operating  Term Final
Report,   STO  shall  prepare  and  deliver  a  written  response  either:  (1)
acknowledging  receipt  of and agreement with the Contract Operating Term Final
Report or (2) containing  any  proposed  changes to the Contract Operating Term
Final Report, together with an explanation  of any such changes and the reasons
therefore.   To  the  extent  that  STO may suggest  changes  to  the  Contract
Operating Term Final Report with which  Sonterra  does  not  agree, the Parties
shall endeavor in good faith to reconcile their respective divergent  positions
with respect to such Report.

3.     BILLINGS  TO  OTHERS.   During the Contract Operating Term, (a) Sonterra
shall oversee, prepare and send, in the name of and on behalf of STO, all joint
interest billings for the Operated  Properties  to joint interest owners of the
Operated Properties;

             (a)If Sonterra receives any subsequent  invoices  that  pertain to
                the  operations  of  the Operated Properties after the Contract
                Operating  Term,  and  those   invoices   pertain   to  charges
                subsequent  to  the  expiration  of  the  Term,  Sonterra shall
                forward all such invoices to STO for payment by STO;

       (c)   STO shall reimburse Sonterra for all invoices paid by Sonterra, if
any,  on  behalf  of STO, incurred hereunder within ten (10) business  days  of
receipt of notice of such payments and supporting documentation; and

       (d)   The Parties  contemplate  that  all  monies to be paid or received
during the Contract Operating Term shall be paid or received by and in the name
of STO, but Sonterra agrees to promptly turn over any  funds  it  inadvertently
may  receive in the course of performing Services hereunder and STO  agrees  to
reimburse Sonterra for any funds, if any, that STO has paid on STO's behalf.

4.      CONTRACT OPERATING TERM AND EARLY TERMINATION. This Agreement commences
as of  the Effective Date and shall continue for a period of three (3) calendar
months through  and  ending  at  the  close of business hours on June 30, 2008,
unless  extended  by either Party for one  or  more  extended  periods  of  one
calendar month each upon written notice sent by overnight courier not less than
fifteen (15) days prior to the expiration of the Contract Operating Term or any
extension thereof, or unless earlier terminated by mutual agreement of Sonterra
and STO. Sonterra shall  secure and thereafter retain possession and control in
its office of all records  and  files  of  STO  at  such time as Sonterra deems
desirable  or  reasonably  necessary  for  providing  Operating   Services  and
Accounting  Services,  but STO shall grant immediate electronic access  to  and
furnish physical access  to  and/or copies of all records and files to Sonterra
as deemed desirable or necessary  by  STO  or  Sonterra to perform the Services
contemplated under this Contract Operating Agreement.

5.     LIMITATION ON SERVICES.  The following limitations apply with respect to
the Services contemplated hereunder in connection with performing the Operating
Services:

(a)    Sonterra shall not enter into any Contract in its own name or on its own
behalf,  and  STO  shall be obligated to enter into  all  Contracts  reasonably
acceptable to STO and  Sonterra,  in  the  final  discretion  of  the Executive
Committee  of  the  Board  of  Directors of STO, that may be necessary for  the
operation of the Operated Properties  or  to  otherwise  perform  the Services.
Each of STO and Sonterra agree to consult with the CEO of the other  Party with
respect  to  any  Contract  having  a  duration in excess of three (3) calendar
months and/or with respect to any proposed  capital  expenditures  in excess of
$25,000.00,  with  the  final  decision  in  each  instance  to  be made by the
Executive Committee of the Board of Directors of STO..  Upon request,  Sonterra
agrees  to  join with STO in the execution of any Contract requiring Sonterra's
joinder, if any,  that  may  be  necessary  for  the  operation of the Operated
Properties  during  the  Contract  Operating  Term  of this Contract  Operating
Agreement; provided, however, that Sonterra shall have no contractual liability
under any such Contract;

(b)    the scope of Operating Services shall include, but Sonterra shall not be
responsible for the results of or any liability associated  with,  providing in
good faith any technical evaluation regarding any drilling, reworking  or other
capital  expenditure  projects.   Sonterra  shall  be  responsible  for  timely
forwarding  notices  to  STO  to  enable  STO to make informed responses and to
direct  Sonterra  to  make  such responses on STO's  behalf.   After  receiving
Sonterra's written recommendations,  STO  shall  be  responsible for making any
response or non-responses to any elections (including  AFEs)  pertaining to the
Operated or Non-Operated Properties, but Sonterra shall have no  responsibility
or  liability therefor if STO does not receive Sonterra's directions  regarding
an election  to be made by STO.  SONTERRA (INCLUDING FOR ALL PURPOSES HEREUNDER
ITS OFFICERS,  DIRECTORS,  EMPLOYEES,  AGENTS, CONSULTANTS, OR REPRESENTATIVES)
SHALL BE RESPONSIBLE FOR THE ACCURACY OF  ANY  INFORMATION  FURNISHED  IN  GOOD
FAITH  BY  SONTERRA OR ANY OF ITS SUBSIDIARIES, OR AS A RESULT OF THE INCLUSION
OF SUCH INACCURATE  INFORMATION  BY  STO IN ANY REPORTS OR FOR RESULTS OBTAINED
FROM USE BY STO OF ANY INACCURATE INFORMATION  SO  FURNISHED.  STO acknowledges
and agrees that its employees and the employees of STO's  Subsidiaries shall be
required  to, and will in fact, devote substantial time in assist  Sonterra  in
the performance  of  Services to STO and its Subsidiaries to enable Sonterra to
continue the operation  of  the Properties and the performance of the Operating
Services and Accounting Services  in  the  same  manner  as STO did immediately
prior to Commencement Date or as otherwise required by this  Contract Operating
Agreement, other applicable Contracts or applicable law.  STO also acknowledges
that the employees of Sonterra providing the Services have, and  will  continue
to  have,  responsibilities  with  respect to the business of Sonterra to which
said Sonterra employees will be required to devote substantial time and effort,
in addition to the business of STO and its Affiliates, other than the operation
of the Operated and Non-Properties and the Operating and Accounting Services to
be performed hereunder; and

(c)    SONTERRA SHALL NOT BE REQUIRED TO DRILL ANY WELL NOR UNDERTAKE ANY OTHER
DRILLING, WORKOVER OR OTHER CAPITAL  EXPENSE  OPERATIONS  WITH  RESPECT  TO ANY
OPERATED  PROPERTIES, BUT SHALL PROVIDE ANY SERVICES IN THE NATURE OF OPERATING
SERVICES IN  SUPPORT  OF  ANY  SUCH OPERATIONS UNDERTAKEN BY STO.  IN THE EVENT
THAT STO ELECTS TO CONDUCT SUCH  OPERATIONS  AND  SONTERRA  AGREES  TO  PERFORM
OPERATING  SERVICES  WITH  RESPECT TO THE REQUESTED DRILLING, WORKOVER OR OTHER
CAPITAL EXPENSE OPERATIONS,  HOWEVER,  SONTERRA  SHALL DO SO WITHOUT ADDITIONAL
CHARGE  TO  STO,  WITH  THE EXPRESS UNDERSTANDING AND  AGREEMENT  BY  STO  THAT
SONTERRA SHALL NOT BE EXPOSED  TO,  AND STO AGREES TO PROTECT, DEFEND, AND HOLD
SONTERRA  HARMLESS  FROM, ANY LIABILITY  OR  RESPONSIBILITY  FOR  ANY  ACTS  OR
FAILURES TO ACT ON THE  PART  OF  SONTERRA  WITH RESPECT TO ANY SUCH OPERATIONS
UNDERTAKEN BY STO, ALL OF WHICH OPERATIONS SHALL  BE  AT  STO'S  SOLE  RISK AND
EXPENSE.

       6.    COMPENSATION AND FEES.  As and for compensation for Services to be
rendered  hereunder,  STO  agrees to pay Sonterra the sum of $75,000 per month,
plus reimburse Sonterra for all of its out-of-pocket costs and expenses, all of
which shall be payable within  ten  (10)  days  after  receipt  of  the monthly
invoice  from  Sonterra.    Any and all expenses anticipated to be incurred  by
Sonterra in connection with its  performance hereunder in excess of $25,000 per
item or for a series of related items,  shall be pre-approved by STO's CEO as a
condition of reimbursement.

7.     DISCLAIMER OF WARRANTIES/INDEMNIFICATION.

       (A)   NOTWITHSTANDING ANY OTHER TERM  OF THIS AGREEMENT TO THE CONTRARY,
SONTERRA MAKES NO, AND IN FACT EXPRESSLY DISCLAIMS ANY AND ALL, REPRESENTATIONS
AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,  WITH RESPECT TO THE PERFORMANCE
OR RESULTS OF THE SERVICES, EXCEPT THAT SONTERRA  SHALL  PERFORM  THE  SERVICES
DURING  THE  TERM  OF  THIS AGREEMENT IN A MANNER CONSISTENT WITH BEST INDUSTRY
PRACTICE, OR AS OTHERWISE  REQUIRED BY THIS CONTRACT OPERATING AGREEMENT, OTHER
APPLICABLE CONTRACTS OR APPLICABLE LAW.

       (B)   EACH PARTY HEREBY  AGREES  TO DEFEND, INDEMNIFY, RELEASE, AND HOLD
THE  OTHER  PARTY  HARMLESS,  INCLUDING  ITS  RESPECTIVE  OFFICERS,  DIRECTORS,
EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS  OR  SUBCONTRACTORS,  FROM  AND
AGAINST ANY AND ALL LIABILITIES ON ACCOUNT OF PERSONAL INJURY, BODILY INJURY OR
DEATH  TO  ITS  OWN  PERSONNEL  AND  REPRESENTATIVES TO THE EXTENT SUCH INJURY,
DEATH,  DAMAGE  OR  LOSS ARISES OUT OF OR  IS  ATTRIBUTABLE  TO  THE  OPERATING
SERVICES OR THE PERFORMANCE  THEREOF  BY ANY OF SONTERRA'S RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES,  CONTRACTORS  OR SUBCONTRACTORS,
REGARDLESS OF WHETHER SUCH LIABILITIES ARE ALLEGEDLY OR DEEMED TO BE CAUSED BY,
IN  WHOLE OR IN PART, THE JOINT, SEVERAL, ACTIVE, PASSIVE, SOLE  OR  CONCURRENT
NEGLIGENT ACTS OR OMISSIONS OR THE STRICT LIABILITY (STATUTORY OR OTHERWISE) OR
OTHER  LEGAL  FAULT ATTRIBUTABLE TO SONTERRA, BUT IF AND ONLY TO THE EXTENT ANY
SUCH LIABILITIES  ARE  CAUSED  BY  WILLFUL  MISCONDUCT  OR  GROSS NEGLIGENCE OF
SONTERRA.

       (c)      The  mutual indemnification obligations in Paragraph  7(b)  are
intended to comply with  applicable  "knock-for-knock"  oilfield anti-indemnity
laws or similar Laws.  To the extent such indemnification  provisions are found
to violate any applicable Law, or in the event any applicable Law is enacted or
amended that would cause these provisions to be in violation  of such Law, then
this   Agreement   shall   automatically   be   amended  to  provide  that  the
indemnification  provided hereunder shall extend only  to  the  maximum  extent
permitted  by  such   applicable   Law.   Any  person  or  entity  entitled  to
indemnification shall be deemed to be  a  STO  Indemnified  Party  or  Sonterra
Indemnified Party, as applicable.

8.     FORCE MAJEURE.  (a) If any Party is rendered unable, wholly or in  part,
by an event of force majeure to carry out its obligations under this Agreement,
other  than  obligations  to make money payments which shall not be affected by
any such event, that Party  shall  give  the  non-affected Party prompt written
notice of the force majeure event with reasonably full particulars of the event
and  its  consequent  inability  to  carry out its obligations,  whereupon  the
obligations of the Party giving notice,  to the extent affected by the event of
force majeure, shall be suspended during,  but  no longer than, the duration of
the  event  of  force  majeure.  The affected Party shall  use  all  reasonable
diligence to remedy the inability to perform its obligation caused by the event
of force majeure as quickly as reasonably possible under the circumstances.

(b)    The requirement that  any  event of force majeure shall be remedied with
all reasonable dispatch shall not require  the settlement of strikes, lockouts,
or  other  labor difficulty by the Party involved  in  a  manner  or  on  terms
contrary to  such Party's wishes, and the handling and resolution of such labor
difficulties shall be entirely within the discretion of the Party concerned.

(c)    The term  "EVENT  OF  FORCE  MAJEURE"  shall mean an act of God, strike,
lockout,  or  other  industrial  disturbance, act of  the  public  enemy,  war,
blockade, terrorism, public riot,  lightning,  fire,  storm,  flood, explosion,
governmental action, governmental delay, restraint or inaction,  unavailability
of equipment, and any other cause, whether of the kind specifically  enumerated
above  or  otherwise,  which is not reasonably within the control of the  Party
claiming the inability or suspension of performance.

9.     ASSIGNABILITY.  This  Agreement  may not be assigned by Sonterra without
the prior written consent of STO, and Sonterra  may  not delegate its duties or
responsibilities hereunder to a third party without the  prior  written consent
of  STO.   No  assignment  of  any  rights hereunder by Sonterra shall  relieve
Sonterra of any obligations and responsibilities hereunder.

10.    GOVERNING LAW; JURISDICTION, VENUE; JURY WAIVER.  THIS AGREEMENT AND THE
LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS,  EXCLUDING  ANY  CONFLICTS  OF LAW RULE OR
PRINCIPLE  THAT  MIGHT  REFER  CONSTRUCTION OF SUCH PROVISIONS TO THE  LAWS  OF
ANOTHER JURISDICTION.  ALL OF THE  PARTIES  HERETO  CONSENT  TO THE EXERCISE OF
JURISDICTION  IN  PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR  ANY  ACTION
ARISING OUT OF THIS  AGREEMENT.   ALL  ACTIONS  OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH,  OUT OF, RELATED TO, OR FROM
THIS AGREEMENT SHALL BE EXCLUSIVELY LITIGATED IN COURTS  HAVING  A SITUS IN SAN
ANTONIO, BEXAR COUNTY, TEXAS.  EACH PARTY HERETO WAIVES, TO THE FULLEST  EXTENT
PERMITTED  BY  APPLICABLE  LAW,  ANY  RIGHT  IT  MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING  OUT  OF  OR RELATING TO THIS
AGREEMENT.

11.    COUNTERPARTS.    This  Agreement  may  be  executed  in  any  number  of
counterparts,  and  each  such  counterpart  hereof  shall be deemed to  be  an
original  instrument,  but all of such counterparts shall  constitute  for  all
purposes one agreement.  Any signature hereto delivered by a Party by facsimile
transmission shall be deemed an original signature hereto.

12.    INDEPENDENT CONTRACTOR.   In their performance of the Services, Sonterra
shall be considered an independent  contractor,  and  in  no event shall either
Party be deemed a partner, co-venturer or agent of the other Party. None of the
persons utilized by Sonterra in the performance of Services  hereunder shall be
deemed  to be an employee of STO nor entitled to any benefits available  to  an
STO employee.   Compensation  required  to  be  paid to such persons engaged by
Sonterra to perform any Services hereunder shall  be the sole responsibility of
Sonterra.

13.    NO RESTRICTIONS.   STO recognizes that Sonterra  is  not  performing the
Services under this Agreement on an exclusive basis and agrees that Sonterra is
only  obligated  to  devote  such  time  under  this Agreement as is reasonably
necessary  to perform the Services in the same manner  as  STO  performed  such
Services immediately  prior  to  the  Commencement Date and consistent with the
Applicable Operating Standards.  Nothing  contained  in  this  Agreement  shall
prevent either Sonterra or STO from engaging in any other business activities.

       14.   NOTICES.  (a) All notices and communications required or permitted
to be given hereunder shall be in writing and shall be delivered personally, or
sent  by  bonded  overnight  courier,  or  mailed  by  U.S.  Express Mail or by
certified or registered United States Mail with all postage fully  prepaid,  or
sent  by  facsimile  transmission  (provided any such facsimile transmission is
confirmed  either  orally  or  by  written   confirmation),  addressed  to  the
appropriate Party, as follows:

       If to STO    South Texas Oil Company
                               769 Highway 95 N
                               Bastrop, Texas 78602
                               Fax: 512-321-4737
                               Attention:  Scott Zimmerman, CEO
                               Scott.zimmerman@southtexasoil.com

       With a copy to:      Roy D. Toulan, Jr., Esq.
                          6 Wheeler's Point Road
                          Gloucester, MA  01930-1691
                                        rdtoulan@CorpLegalSolutions.net

       If to Sonterra:  Sonterra Resources
                     300 East Sonterra Blvd., Suite 1220
                     San Antonio, TX 78258
                     Fax: 212-545-3317
                     Attention:  Michael Pawelek, CEO
                     michaelj@sonterraresources.com

         With a copy to:  Kirk Tucker, Esq. / Thompson & Knight
                          333 Clay Street, Suite 3300
                          Houston, TX  77002
                          Fax: 713-654-1871
                          Kirk.Tucker@tklaw.com

(b) Any notice given in accordance herewith shall  be deemed to have been given
when  delivered to the addressee in person, or by courier,  or  transmitted  by
facsimile  transmission during normal business hours, or upon actual receipt by
the addressee  after  such  notice  has  either  been delivered to an overnight
courier  or  deposited in the United States Mail, as  the  case  may  be.   The
parties hereto may change the address, telephone numbers, and facsimile numbers
to which such  communications  are  to be addressed by giving written notice to
the other parties in the manner provided in this Paragraph 14.

       15.   INSURANCE.  (a)  Each party,  at  its  expense,  shall procure and
maintain,  effective  as  of  the  date  hereof,  commercial  general liability
insurance with a combined single limit for bodily injury and property damage of
at least U.S. $1,000,000 per occurrence, excess liability insurance  in amounts
of not less than $2,000,000 per occurrence in excess of the foregoing,  and  an
aggregate   deductible  of  not  in  excess  of  U.S.  $100,000,  covering  its
indemnification and other responsibilities under this Agreement.

       (b)   All   insurance  policies  obtained  and  maintained  as  required
hereunder  shall name  the  other  Party  (and  include  all  of  said  Party's
Indemnified  Parties  and the contractors and subcontractors of the Indemnified
Parties) as additional insureds, and shall also include a waiver of subrogation
by the insurers in favor  of the Indemnified Parties (including the contractors
and  subcontractors  of the Indemnified  Parties).   Such  insurance  shall  be
primary to any insurance  maintained  by said Party with respect to matters for
which the other Party is responsible under this Agreement.

16.    AMENDMENT.  This Agreement may be  amended  only  by  a  formal  written
instrument duly executed by the CEOs of both Parties hereto.

17.    WAIVER;    RIGHTS    CUMULATIVE.    Any   of   the   terms,   covenants,
representations, warranties,  or  conditions  hereof  may  be  waived only by a
formal written instrument executed by or on behalf of the Party  hereto waiving
compliance.  No course of dealing on the part of STO or Sonterra,  nor by their
respective officers, employees, agents, or representatives, nor any  failure by
STO  or  Sonterra  to  exercise  any  of  its rights under this Agreement shall
operate as a waiver thereof nor affect in any  way the right of such Party at a
later  time to enforce the performance of such provision.   No  waiver  by  any
Party of any condition, or any breach of any term, covenant, representation, or
warranty  contained  in  this Agreement, in any one or more instances, shall be
deemed to be or construed  as  a  further  or  continuing  waiver  of  any such
condition or breach or a waiver of any other condition or of any breach  of any
other  term,  covenant,  representation,  or  warranty.   The rights of STO and
Sonterra under this Agreement shall be cumulative, and the  exercise or partial
exercise of any such right shall not preclude the exercise of any other right.

18.    SEVERABILITY.   If  any  term  or other provision of this  Agreement  is
invalid, illegal, or incapable of being  enforced  by any rule of law or public
policy,   all  other  conditions  and  provisions  of  this   Agreement   shall
nevertheless  remain  in full force and effect so long as the economic or legal
substance of the transactions  contemplated  hereby  is  not  affected  in  any
adverse  manner  to  any Party.  Upon such determination that any term or other
provision is invalid,  illegal,  or  incapable  of  being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement  so  as to effect
the  original  intent  of  the  Parties as closely as possible in an acceptable
manner to the end that the transactions  contemplated  hereby  are fulfilled to
the extent possible.

19.    PARTIES  IN  INTEREST.   Except for the Parties hereto, no other  person
shall have any right, benefit, priority,  or  interest hereunder or as a result
hereof or have standing to require satisfaction  of  the  provisions  hereof in
accordance with their terms; provided that the indemnity and defense provisions
in Paragraph 7(b) shall inure to the benefit of the STO Indemnified Parties and
the  Sonterra  Indemnified Parties as provided therein.  Any claim for defense,
indemnity or hold  harmless  hereunder  on  behalf  of  a  member  of  the  STO
Indemnified  Parties  or  the  Sonterra  Indemnified  Parties  must be made and
administered by STO and Sonterra, respectively.

20.    PREPARATION  OF  AGREEMENT.  Both STO and Sonterra and their  respective
counsel participated in the preparation of this Agreement.  In the event of any
ambiguity in this Agreement,  no  presumption shall arise based on the identity
of the primary draftsman of this Agreement.

21.    ENTIRE AGREEMENT; CONFLICTS.   THIS  AGREEMENT  CONSTITUTES  THE  ENTIRE
AGREEMENT  AMONG  STO  AND SONTERRA PERTAINING TO THE PROVISION OF THE SERVICES
AND  SUPERSEDES  ALL  PRIOR   AGREEMENTS,   UNDERSTANDINGS,  NEGOTIATIONS,  AND
DISCUSSIONS,  WHETHER  ORAL  OR  WRITTEN,  OF THE  PARTIES  PERTAINING  TO  THE
PROVISION OF THE SERVICES.  THERE ARE NO WARRANTIES,  REPRESENTATIONS, OR OTHER
AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER  HEREOF  EXCEPT  AS
SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER STO NOR SONTERRA SHALL BE
BOUND  BY  OR  LIABLE  FOR  ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR
STATEMENTS OF INTENTION NOT SO SET FORTH.

22.    JOINT AND SEVERAL LIABILITY.  The covenants made by each Party are joint
and several.

23.    BONDING REQUIREMENTS.   STO  shall  continue  to comply with the bonding
requirements  of  the  applicable  governmental agency and  other  governmental
authorities, together with any bonding  or other security requirements provided
for in any Contracts, as they relate to the Operated Properties.

The Parties have caused their duly authorized  representatives  to execute this
Agreement as of the day and year first set forth above.


       PARTY OF THE FIRST PART:

       STO:

       SOUTH TEXAS OIL COMPANY

       By:
       Name:
       Title:




       STO OPERATING COMPANY

       By:
       Name:
       Title:


       STO DRILLING COMPANY

       By:
       Name:
       Title:


       SOUTHERN TEXAS OIL COMPANY

       By:
       Name:
       Title:

       STO PROPERTIES LLC

       By:
       Name:
       Title:



       PARTY OF THE SECOND PART:


       SONTERRA:

       SONTERRA RESOURCES, INC.

       By:
       Name:
       Title:



       EXHIBIT "A": TEXAS OIL AND GAS PROPERTIES

       EXHIBIT "B": COLORADO OIL AND GAS PROPERTIES





                                           #

<PAGE>




                                  EXHIBIT "A"

                         TEXAS OIL AND GAS PROPERTIES




                                           #

<PAGE>




                                  EXHIBIT "B"

                        COLORADO OIL AND GAS PROPERTIES



                                           #